STOCK PURCHASE AGREEMENT
By and Among
STONEPATH LOGISTICS, INC.
(Purchaser)
STONEPATH GROUP, INC.
(Stonepath)
And
M.G.R., INC.
DISTRIBUTION SERVICES, INC.
CONTRACT AIR, INC.
(Companies)
THE SHAREHOLDERS OF:
M.G.R., INC.
DISTRIBUTION SERVICES, INC.
CONTRACT AIR, INC.
(Shareholders)
XXXX X. XXXX
(Shareholders' Agent)
DATE: AUGUST 30, 2001
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ARTICLE 1
DEFINITIONS
ARTICLE 2
PURCHASE OF STOCK; PURCHASE PRICE
2.1 Purchase and Sale of Stock.............................................................................11
2.2 Purchase Price.........................................................................................11
2.3 Payment of Purchase Price on the Closing Date..........................................................15
2.4 Escrow of Indemnification Claims.......................................................................16
2.5 Determination of Purchase Price Adjustments; Closing Balance Sheet; Final Payment......................16
2.6 Closing and Closing Deliveries.........................................................................19
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANIES AND THE SHAREHOLDERS
3.1 Organization...........................................................................................22
3.2 Capitalization.........................................................................................22
3.3 Due Authorization......................................................................................22
3.4 No Breach..............................................................................................23
3.5 Clear Title............................................................................................23
3.6 Condition of Assets; Excluded Assets...................................................................23
3.7 Litigation.............................................................................................24
3.8 Labor Matters..........................................................................................24
3.9 Tax Matters............................................................................................25
3.10 Employee Benefits......................................................................................27
3.11 No Guaranties..........................................................................................28
3.12 Financial Statements...................................................................................29
3.13 Absence of Certain Developments........................................................................29
3.14 Intellectual Property..................................................................................31
3.15 Compliance with Laws...................................................................................31
3.16 Operating Contracts....................................................................................31
3.17 Real Estate............................................................................................32
3.18 Accounts Receivable....................................................................................34
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3.19 Books and Records; Bank Accounts.......................................................................34
3.20 Employees..............................................................................................34
3.21 Permits................................................................................................34
3.22 Other Material Contracts and Obligations...............................................................34
3.23 Subsidiaries...........................................................................................35
3.24 Insurance..............................................................................................36
3.25 Brokers................................................................................................36
3.26 Relationship with Related Persons......................................................................36
3.27 Hazardous Materials....................................................................................36
3.28 Other Environmental Matters............................................................................37
3.29 Debt Instruments.......................................................................................38
3.30 Customers and Suppliers................................................................................38
3.31 Shareholder Loans......................................................................................38
3.32 Adequacy of Properties.................................................................................39
3.33 Absence of Certain Business Practices..................................................................39
3.34 Trade Regulation.......................................................................................39
3.35 Inventories............................................................................................39
3.36 Officers and Directors.................................................................................40
3.37 Powers of Attorney.....................................................................................40
3.38 No Other Agreements to Sell the Companies or Their Assets..............................................40
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND STONEPATH
4.1 Organization...........................................................................................40
4.2 Due Authorization......................................................................................40
4.3 No Breach..............................................................................................41
4.4 Investment Representations.............................................................................41
4.5 Brokers................................................................................................41
4.6 Fraudulent Conveyance..................................................................................41
ARTICLE 5
PERFORMANCE AND COVENANTS PENDING CLOSING
5.1 Access to Information..................................................................................42
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5.2 Conduct of Business....................................................................................42
5.3 Encumbrances...........................................................................................42
5.4 Pay Increases..........................................................................................42
5.5 Restrictions on New Contracts and Liabilities..........................................................43
5.6 Preservation of Business...............................................................................43
5.7 Payment and Performance of Obligations.................................................................43
5.8 Restrictions on Sale of Assets.........................................................................43
5.9 Prompt Notice..........................................................................................43
5.10 Consents...............................................................................................43
5.11 [THIS SECTION INTENTIONALLY OMITTED]...................................................................44
5.12 No Solicitation of Other Offers........................................................................44
5.13 Accounts Receivable and Payable........................................................................44
5.14 Inventory..............................................................................................44
5.15 Insurance..............................................................................................44
5.16 Filing Reports and Making Payments.....................................................................44
5.17 Capital Expenditures...................................................................................44
5.18 Monthly Financials Statements..........................................................................44
5.19 Litigation.............................................................................................45
5.20 Notification of Inaccuracy.............................................................................45
5.21 Landlord/Lessor Estoppel Certificates..................................................................45
5.22 Company Guarantees.....................................................................................45
5.23 Environmental Review...................................................................................45
5.24 Cooperation with Respect to Permits, Licenses and Regulatory Matters...................................46
5.25 Audited Financial Statements...........................................................................47
5.26 Shareholder Guarantees.................................................................................47
5.27 Director and Officer Indemnification...................................................................47
5.28 Executive Employment Agreements........................................................................48
5.29 Prohibition on Trading Activities......................................................................48
5.30 Pre-Closing Liability and Indemnification..............................................................48
5.31 Year 2000 S Corporation Distributions..................................................................49
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5.32 Year 2001 S Corporation Distributions..................................................................49
5.33 Payment of Shareholder Loans...........................................................................49
5.34 Payment of Audit Fees..................................................................................49
5.35 Other Matters..........................................................................................49
ARTICLE 6
MUTUAL CONDITIONS PRECEDENT TO THE PARTIES' OBLIGATIONS
6.1 Proceedings............................................................................................50
6.2 Consents and Approvals.................................................................................50
6.3 Fairness Opinion.......................................................................................50
6.4 Audited Financial Statements...........................................................................50
ARTICLE 7
ADDITIONAL CONDITIONS PRECEDENT TO THE PURCHASER'S OBLIGATIONS
7.1 Accuracy of Representations and Warranties.............................................................51
7.2 Compliance with Covenants and Agreements...............................................................51
7.3 No Material Adverse Change.............................................................................51
7.4 Approval by Counsel....................................................................................51
7.5 Legal Opinion..........................................................................................51
7.6 Resignation of Officers and Directors..................................................................51
7.7 Corporate Action.......................................................................................51
7.8 Employees..............................................................................................52
7.9 Employment Agreements..................................................................................52
7.10 Schedule of Transactional Expenses.....................................................................52
7.11 Transfer of Corporate Names............................................................................52
7.12 Termination of Encumbrances on Stock...................................................................52
ARTICLE 8
ADDITIONAL CONDITIONS PRECEDENT TO THE SHAREHOLDERS' OBLIGATIONS
8.1 Accuracy of Representations and Warranties.............................................................52
8.2 Compliance with Covenants and Agreements...............................................................52
8.3 Approval by Counsel....................................................................................52
8.4 Legal Opinion..........................................................................................53
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8.5 Delivery of Purchase Price and Other Consideration.....................................................53
8.6 Installment Sales Tax Treatment........................................................................53
8.7 Management Incentive Program...........................................................................53
ARTICLE 9
INDEMNIFICATION
9.1 Indemnification by the Companies and the Shareholders..................................................53
9.2 Indemnification by the Purchaser.......................................................................55
9.3 Procedure for Indemnification..........................................................................55
9.4 Dispute Resolution.....................................................................................57
9.5 Other Matters Affecting Indemnification and the Parties' Remedies......................................58
9.6 Exclusive Remedy.......................................................................................59
9.7 No Right of Contribution or Claim......................................................................59
ARTICLE 10
TAX MATTERS
10.1 Tax Returns............................................................................................59
10.2 Controversies..........................................................................................60
10.3 Transfer Taxes.........................................................................................60
10.4 Amended Tax Returns....................................................................................60
10.5 Non-foreign Person Affidavit...........................................................................61
10.6 Indemnification........................................................................................61
10.7 Section 338 Election...................................................................................61
10.8 Valuation and Allocation...............................................................................62
10.9 Post-Closing Access and Cooperation....................................................................62
ARTICLE 11
PERFORMANCE FOLLOWING THE CLOSING DATE
11.1 Further Acts and Assurances............................................................................63
11.2 Non-Competition Agreement..............................................................................63
11.3 Non-Solicitation Agreement.............................................................................63
11.4 Confidential Information...............................................................................64
11.5 Reasonableness of Covenants............................................................................64
11.6 Injunctive Relief......................................................................................64
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11.7 Blue Pencil Doctrine...................................................................................64
11.8 Guarantees.............................................................................................65
11.9 Employee Retention.....................................................................................65
11.10 Management Incentive Program...........................................................................65
11.11 Stonepath Guaranty.....................................................................................65
11.12 Stonepath Earn-Out Covenants...........................................................................65
11.13 Payment of Shareholder Loans...........................................................................65
11.14 Payment of Bonus and Profit Sharing Accrual............................................................65
11.15 Adjustment for S Corporation Distributions.............................................................66
ARTICLE 12
TERMINATION
12.1 Termination............................................................................................68
12.2 Return of Documents and Nondisclosure..................................................................68
ARTICLE 13
MISCELLANEOUS
13.1 Survival of Representations and Warranties, Covenants and Agreements...................................69
13.2 Preservation of and Access to Records..................................................................69
13.3 Cooperation............................................................................................69
13.4 Public Announcements...................................................................................69
13.5 Notices................................................................................................70
13.6 Entire Agreement.......................................................................................70
13.7 [THIS SECTION INTENTIONALLY OMITTED]...................................................................71
13.8 Amendments.............................................................................................71
13.9 Successors and Assigns.................................................................................71
13.10 Fees and Expenses......................................................................................71
13.11 Governing Law and Jurisdiction.........................................................................71
13.12 Counterparts and Facsimile Execution...................................................................71
13.13 Headings...............................................................................................72
13.14 [THIS SECTION INTENTIONALLY OMITTED]...................................................................72
13.15 Number and Gender......................................................................................72
13.16 Severability...........................................................................................72
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13.17 Parties in Interest....................................................................................72
13.18 Waiver.................................................................................................72
13.19 Construction...........................................................................................72
13.20 Specific Performance...................................................................................73
13.21 Supplementation of Schedules...........................................................................73
13.22 Shareholders' Agent....................................................................................73
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of the 30th day of August, 2001, by and among STONEPATH LOGISTICS, INC.,
a Delaware corporation (the "Purchaser"), STONEPATH GROUP, INC., a Delaware
corporation and the parent corporation of the Purchaser ("Stonepath"), M.G.R.,
INC., a Minnesota corporation, d/b/a AIR PLUS LIMITED ("MGR"), DISTRIBUTION
SERVICES, INC., a Minnesota corporation ("DSI"), CONTRACT AIR, INC., a Minnesota
corporation ("Contract Air") and the shareholders of MGR as set forth on Exhibit
A to this Agreement (the "MGR Shareholders"), the sole shareholder of DSI as set
forth on Exhibit A to this Agreement (the "DSI Shareholder"), the shareholders
of Contract Air as set forth on Exhibit A to this Agreement (the "Contract Air
Shareholders"), and XXXX X. XXXX, an individual and resident of the State of
Minnesota (the "Shareholders' Agent").
For purposes of this Agreement, (x) MGR, DSI and Contract Air may be
collectively referred to herein as the "Companies," or individually, as a
"Company," (y) the MGR Shareholders, the DSI Shareholder and the Contract Air
Shareholders may be collectively referred to herein as the "Shareholders," or
individually as a "Shareholder," and (z) each of the Purchaser, Stonepath, the
Shareholders, the Companies and the Shareholders' Agent may be collectively
referred to herein as the "Parties" and referred to individually as a "Party."
For the further purposes of this Agreement, (x) MGR, DSI and Contract
Air join as Parties to this Agreement for the sole purpose of (A) making the
covenants for the Pre-Closing Period set forth in Article 5 hereof, and (B)
indemnification of the Purchaser with respect to all matters under this
Agreement and the Ancillary Documents pending the Closing which arise prior to
or on the Closing Date, and (y) Stonepath joins as a Party to this Agreement for
the sole purposes of guaranteeing each and all of the obligations of the
Purchaser under this Agreement and the Ancillary Documents pursuant to the
guaranty set forth as Exhibit B to this Agreement (the "Guaranty") and, in
furtherance of the foregoing, making certain representations and covenants as
set forth herein.
RECITALS
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A. The MGR Shareholders are the owners of all 17,700 issued and
outstanding shares of capital stock (the "MGR Stock") of MGR.
B. The DSI Shareholder is the owner of all 10,000 issued and
outstanding shares of capital stock (the "DSI Stock") of DSI.
C. The Contract Air Shareholders are the owners of all 17,700 issued
and outstanding shares of capital stock (the "Contract Air Stock") of Contract
Air.
D. The Shareholders' Agent is (i) a majority shareholder of MGR and
Contract Air, (ii) the sole shareholder of DSI, and (iii) serves on each of the
Companies' Board of Directors. The Shareholders' Agent shall serve as the sole
and exclusive agent representative and attorney-in-fact of the Shareholders
under this Agreement and the Ancillary Documents before and after the Closing of
the transactions contemplated hereby.
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E. The Purchaser desires to purchase (i) the MGR Stock, (ii) the DSI
Stock, and (iii) the Contract Air Stock, subject to the terms and conditions of
this Agreement (collectively, the MGR Stock, the DSI Stock and the Contract Air
Stock may be referred to herein as the "Stock").
F. The Shareholders desire to sell the Stock to the Purchaser in one
integrated transaction pursuant to this Agreement and the Ancillary Documents.
G. It is the intention of the Parties hereto that, upon the
consummation of the purchase and sale of the Stock pursuant to this Agreement,
the Purchaser will own all of the outstanding capital stock of the Companies,
free and clear of all Rights and Encumbrances.
AGREEMENT
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In consideration of the foregoing Recitals and the mutual promises
contained in this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties agree as
follows:
ARTICLE 1
DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified:
"AAA Rules" has the meaning set forth in Section 9.4(b) of this
Agreement.
"Acquisition Proposal" means any proposal relating to the possible
acquisition of a Company or the Companies, whether by way of merger, purchase of
capital stock of a Company or the Companies, representing fifty percent (50%) or
more of the voting power or equity of a Company or the Companies, purchase of
all or substantially all of the assets of a Company or the Companies, or
otherwise.
"Affiliate" when used in reference to a specified Person, means any
Person that, directly or indirectly, through one or more intermediaries,
controls, or is controlled by, or is under common control with the specified
Person.
"Aggregate Transactional Expenses" has the meaning set forth in Section
7.10 of this Agreement.
"Agreement" has the meaning set forth in the introductory paragraphs of
this Agreement.
"Ancillary Documents" means the documents, instruments and agreements
to be executed and/or delivered pursuant to this Agreement or any Ancillary
Document.
"Applicable Law" or "Applicable Laws" means any and all laws,
ordinances, constitutions, regulations, statutes, treaties, rules, codes,
licenses, certificates, franchises, permits, requirements and Injunctions
adopted, enacted, implemented, promulgated, issued,
2
entered or deemed applicable by or under the authority of any Governmental Body
having jurisdiction over a specified Person or any of such Person's properties
or assets.
"Audited Financial Statements" has the meaning set forth in Section
5.25 of this Agreement.
"Balance Sheet" has the meaning set forth in Section 3.12(b) of this
Agreement.
"Balance Sheet Date" has the meaning set forth in Section 3.12(b) of
this Agreement.
"Basket Amount" has the meaning set forth in Section 9.1(a) of this
Agreement.
"Benefit Plan" means any and all bonus, stock option, restricted stock,
stock purchase, stock appreciation, phantom stock, profit participation,
profit-sharing, deferred compensation, severance, pension, retirement,
disability, medical, dental, health, life or dental insurance, death benefit,
incentive, welfare and/or other benefit, compensation and/or retirement plan,
policy, arrangement and/or Contract maintained, sponsored or participated in by
a Company and/or the Companies, or to which the Companies are required to make
any contribution.
"Business" as used in this Agreement means the business and operations
of the Companies on the date of this Agreement and includes, individually and
collectively, (i) with respect to DSI, (x) surface freight forwarding services
of property for compensation as defined in 49 U.S.C. ss.13102(8) (excluding
household goods, used automobiles and unaccompanied baggage) in the 48
contiguous states of the United States, and (y) property brokerage services, as
the term "broker" is defined in 49 U.S.C. ss.13102(2), (ii) with respect to MGR,
(x) surface freight forwarding services of property for compensation as defined
in 49 U.S.C. ss.13102(8) (excluding household goods, used automobiles and
unaccompanied baggage) in the 48 contiguous states of the United States, and (y)
air freight forwarding services of property within the 50 states of the United
States and internationally, and (iii) with respect to Contract Air, (x)
interstate motor carrier services of property within the 48 contiguous states of
the United States, (y) intrastate motor carrier services of property in the
states of Minnesota and Georgia, and (z) property brokerage services, as the
term "broker" is defined in 49 U.S.C. ss.13102(2), and (iv) with respect to each
of the Companies, general transportation services, warehousing and logistics and
fulfillment services provided in connection with the foregoing.
"Closing" has the meaning set forth in Section 2.6(a) of this
Agreement.
"Closing Balance Sheet" has the meaning set forth in Section 2.5(a)(i)
of this Agreement.
"Closing Certificate" has the meaning set forth in Section 2.5(a) of
this Agreement.
"Closing Date" has the meaning set forth in Section 2.6(a) of this
Agreement.
"Closing Date Accountant" has the meaning set forth in Section 2.5(a)
of this Agreement.
"Closing Date Purchase Price" has the meaning set forth in Section 2.3
of this Agreement.
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"Closing Date Retained Earnings Adjustment" has the meaning set forth
in Section 2.5(a)(ii) of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations issued by the IRS pursuant to the Internal Revenue Code or
any successor law.
"Company" or "Companies" has the meaning set forth in the introductory
paragraphs to this Agreement.
"Competing Business" has the meaning set forth in Section 3.26 of this
Agreement.
"Confidential Information" means any information or compilation of
information not generally known to the public or the industry or which a Person
has not disclosed to third parties without a written obligation of
confidentiality, which is proprietary to a Person, relating to a Person's
procedures, techniques, methods, concepts, ideas, affairs, products, processes
and services, including, but not limited to, information relating to marketing,
merchandising, selling, research, development, manufacturing, purchasing,
accounting, engineering, financing, costs, customers, plans, pricing, billing,
needs of customers and products and services used by customers, all lists of
customers and their addresses, prospects, sales calls, products, services,
prices and the like as well as any specifications, formulas, plans, drawings,
accounts or sales records, sales brochures, code books, manuals, trade secrets,
knowledge, know-how, pricing strategies, operating costs, sales margins, methods
of operations, financial statements, invoices or statements and the like.
"Contract" means any agreement, lease (other than a lease of Leased
Real Estate), license, contract, obligation, promise, commitment, arrangement,
understanding or undertaking, instrument, document (whether written or oral and
whether express or implied) of any type, nature or description that is legally
binding but excluding leases of Leased Real Estate. As used herein, the word
"Contract" shall be limited in scope if modified by an adjective specifying the
type of contract to which this Agreement or a Section hereof refers.
"Contract Air" has the meaning set forth in the introductory paragraphs
of this Agreement.
"Contract Air Shareholders" has the meaning set forth in the
introductory paragraphs of this Agreement.
"Contract Air Stock" has the meaning set forth in the Recitals to this
Agreement.
"Convertible Securities" means any and all securities convertible or
exchangeable for (i) any shares of capital stock of a Company, including,
without limitation, common stock, or (ii) any Debt Securities.
"DSI" has the meaning set forth in the introductory paragraphs of this
Agreement.
"DSI Shareholder" has the meaning set forth in the introductory
paragraph of this Agreement.
4
"DSI Stock" has the meaning set forth in the Recitals to this
Agreement.
"Debt Instruments" has the meaning set forth in Section 3.29 of this
Agreement.
"Debt Securities" means any and all indebtedness issued by or on behalf
of the Companies which constitutes a security under the Securities Act of 1933,
as amended, except for indebtedness reflected in the financial statements of a
Company or the Companies described on Schedule 3.12 hereto.
"Director Indemnified Parties" has the meaning set forth in Section
5.27 of this Agreement.
"Disclose" means to reveal, deliver, divulge, disclose, publish, copy,
communicate, show or otherwise make known or available to any other Person, or
in any way to copy, any of the Confidential Information of the Companies.
"Earn-Out" has the meaning set forth in Section 2.2(a) of this
Agreement.
"Earn-Out Financial Statements" has the meaning set forth in Section
2.2(a) of this Agreement.
"Earn-Out Period" has the meaning set forth in Section 2.2(a) of this
Agreement.
"Earn-Out Shortfall" has the meaning set forth in Section 2.2(a) of
this Agreement.
"Encumbrance" means and includes:
(i) with respect to any personal property, any intangible
property or any property other than real property, any security or
other property interest or right, claim, lien, pledge, option, charge,
security interest, contingent or conditional sale, or other title
claim or retention agreement or lease or use agreement in the nature
thereof, interest or other right or claim of third parties, whether
voluntarily incurred or arising by operation of law, and including any
agreement to grant or submit to any of the foregoing in the future;
and
(ii) with respect to any real property (whether and including
owned real estate or Leased Real Estate), any mortgage, lien,
easement, interest, right-of-way, condemnation or eminent domain
proceeding, encroachment, any building, use or other form of
restriction, encumbrance or other claim (including adverse or
prescriptive) or right of third parties (including Governmental
Bodies), any lease or sublease, boundary dispute, and agreements with
respect to any real property including: purchase, sale, right of first
refusal, option, construction, building or property service,
maintenance, property management, conditional or contingent sale, use
or occupancy, franchise or concession, whether voluntarily incurred or
arising by operation of law, and including any agreement to grant or
submit to any of the foregoing in the future.
"Environmental Consultant" has the meaning set forth in Section 5.23 of
this Agreement.
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"Environmental Laws" means any and all Applicable Laws (i) regulating
the use, treatment, generation, transportation, storage, control or disposal of
any Hazardous Material, including, but not limited to, the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C.ss.9601 et
seq.) ("CERCLA"), the Resource Conservation and Recovery Act (42 U.S.C.ss.6901
et seq.), the Hazardous Materials Transportation Act (49 U.S.C.ss.1801 et seq.),
the Federal Water Pollution Control Act (33 X.X.X.xx. 1251 et seq.), the Clean
Water Act (33 X.X.X.xx. 1251 et seq.), the Clean Air Act (42 X.X.X.xx. 7401 et
seq.), the Toxic Substances Control Act (15 X.X.X.xx. 2601 et seq.), the
Minnesota Environmental Response and Liability Act (Minn. Stat. Ch. 115B), and
the Minnesota Petroleum Tank Release Cleanup Act (Minn. Stat. Ch. 115C), and/or
(ii) relating to the protection, preservation or conservation of the environment
and public or worker health and safety, all as existing, defined or interpreted
as of the Closing Date.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agreement" has the meaning set forth in Section 2.4(b) of this
Agreement.
"Estimated Retained Earnings Adjustment" has the meaning set forth in
Section 2.2(b) of this Agreement.
"Final Order" has the meaning set forth in Section 6.2 of this
Agreement.
"GAAP" means generally accepted accounting principles in the United
States. When a provision of this Agreement contains a representation with
respect to, or requires the application of, GAAP in reference to any financial
statement or statements prepared before, on or after the date of this Agreement,
the GAAP to be applied shall be that as consistently applied by the Companies.
"Governmental Body" means any:
(i) nation, state, county, city, town, village, district or
other jurisdiction of any nature;
(ii) federal, state, local, municipal, foreign or other
government;
(iii) governmental or quasi-governmental authority of any
nature (including any governmental agency, branch, board, commission,
department, instrumentality, office or other entity, and any court or
other tribunal);
(iv) multi-national organization or body; and/or
(v) body exercising, or entitled or purporting to exercise,
any administrative, executive, judicial, legislative, police,
regulatory or taxing authority or power of any nature.
"Guaranty" has the meaning set forth in the introductory paragraphs to
this Agreement.
6
"Hazardous Materials" means any and all (i) dangerous, toxic or
hazardous pollutants, contaminants, chemicals, wastes, materials or substances
listed or identified in, or directly or indirectly regulated by, any Applicable
Laws, including Environmental Laws, and (ii) any of the following, whether or
not included in the foregoing: polychlorinated biphenyls, asbestos in any form
or condition, urea-formaldehyde, petroleum, including crude oil or any fraction
thereof, natural gas, natural gas liquids, liquefied natural gas, synthetic gas
usable for fuel or mixtures thereof, nuclear fuels or materials, chemical
wastes, radioactive materials, explosives and known possible carcinogens.
"IRS" means the United States Internal Revenue Service.
"Incentive" has the meaning set forth in Section 11.10 of this
Agreement.
"Indemnified Party" has the meaning set forth in Section 9.3 of this
Agreement.
"Indemnifying Party" has the meaning set forth in Section 9.3 of this
Agreement.
"Independent Accountants" has the meaning set forth in Section 2.5(f)
of this Agreement.
"Injunction" means any and all writs, rulings, awards, directives,
injunctions (whether temporary, preliminary or permanent), judgments, decrees or
orders (whether executive, judicial or otherwise) adopted, enacted, implemented,
promulgated, issued, entered or deemed applicable by or under the authority of
any Governmental Body.
"Intellectual Property" means any and all (i) inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications and patent
disclosures, together with all reissuances, continuations, continuations in
part, revisions, extensions and reexaminations thereof; (ii) trademarks, service
marks, trade dress, logos, trade names, assumed names and corporate names,
together with all translations, adaptations, derivations and combinations
thereof and including all goodwill associated therewith, and all applications,
registrations and renewals in connection therewith; (iii) copyrightable works,
all copyrights and all applications, registrations and renewals in connection
therewith; (iv) mask works and all applications, registrations and renewals in
connection therewith; (v) trade secrets and confidential business information
(including ideas, research and development, know-how, technology, formulas,
compositions, manufacturing and production processes and techniques, technical
data, designs, drawings, specifications, customer and supplier lists, pricing
and cost information and business and marketing plans and proposals); (vi)
computer software (including data and related software program documentation in
computer-readable and hard-copy forms); (vii) other intellectual property and
proprietary rights of any kind, nature or description, including web sites, web
site domain names and other e-commerce assets and resources of any kind or
nature; and (viii) copies of tangible embodiments thereof (in whatever form or
medium).
"Knowledge" means, when used with respect to an individual, that that
individual will be deemed to have "Knowledge" or "knowledge" of a particular
fact or other matter if such individual is actually aware of such fact or other
matter; provided, however, that Knowledge of the Companies and/or the
Shareholders of a particular fact or other matter shall be deemed to
7
encompass the Knowledge of Xxxx X. Xxxx, Xxxx Xxxxxx, Xxxxxx X. Xxxxxxx, Xxxxx
X. Xxxx, Xxxxx Such, X. X. Xxxxx or Xxxxxxx Xxxxxxxx.
"Xxxx" has the meaning set forth in Section 2.2(a)(vi) of this
Agreement.
"Leased Real Estate" has the meaning set forth in Section 3.17 of this
Agreement.
"Liability" or "Liabilities" means any and all debts, liabilities
and/or obligations of any type, nature or description (whether known or unknown,
asserted or unasserted, secured or unsecured, absolute or contingent, accrued or
unaccrued, liquidated or unliquidated and whether due or to become due).
"Loss" or "Losses" has the meaning set forth in Section 9.1 of this
Agreement.
"MADSP" has the meaning set forth in Section 10.7 of this Agreement.
"MGR" has the meaning set forth in the introductory paragraphs of this
Agreement.
"MGR Shareholders" has the meaning set forth in the introductory
paragraphs of this Agreement.
"MGR Stock" has the meaning set forth in the Recitals of this
Agreement.
"Material Adverse Effect" or "Material Adverse Change" means, in
connection with any Person, any event, change or effect that is materially
adverse, individually or in the aggregate, to the condition (financial or
otherwise), properties, assets, Liabilities, revenues, income, business,
operations, results of operations or prospects of such Person, taken as a whole.
"Operating Contracts" has the meaning set forth in Section 3.16 of this
Agreement.
"Ordinary Course of Business" means an action taken by a Person if such
action is consistent with the past practices of such Person and is taken in the
ordinary course of the normal day-to-day operations of such Person.
"Overlap Period" has the meaning set forth in Section 10.2 of this
Agreement.
"PCB's" has the meaning set forth in Section 3.28(g) of this Agreement.
"Party" or "Parties" has the meaning set forth in the introductory
paragraphs of this Agreement.
"Permits" means any and all permits, licenses, filings, authorizations,
approvals, or indicia of authority (and any pending applications for approval or
renewal of a Permit), to own, construct, operate, sell, inventory, disburse or
maintain any asset or conduct any business as issued by any Governmental Body.
"Person" means any individual, corporation (including any non-profit
corporation), general, limited or limited liability partnership, limited
liability company, joint venture, estate, trust, association, organization, or
other entity or Governmental Body.
8
"Pre-Closing Period" has the meaning set forth in Section 3.9(b) of
this Agreement.
"Proceeding" means any suit, litigation, arbitration, hearing, audit,
investigation or other action (whether civil, criminal, administrative or
investigative) commenced, brought, conducted, or heard by or before, or
otherwise involving, any Governmental Body or arbitrator.
"Purchase Price" has the meaning set forth in Section 2.2 of this
Agreement.
"Purchase Price Adjustments" has the meaning set forth in Section 2.2
of this Agreement.
"Purchaser" has the meaning set forth in the introductory paragraphs of
this Agreement.
"QSST" has the meaning set forth in Section 3.9(c)(xi) of this
Agreement.
"Related Person" or "Related Persons" means, with respect to a
particular individual:
(i) each other member of such individual's Family (as
hereafter defined); and
(ii) any Affiliate of one or more members of such individual's
Family.
With respect to a specified Person other than an individual:
(i) any Affiliate of such specified Person; and
(ii) each Person that serves as a director, governor, officer,
manager, general partner, executor or trustee of such specified Person
(or in a similar capacity).
For purposes of this definition, the "Family" of an individual
includes (A) such individual, (B) the individual's spouse, (C) any
lineal ancestor or lineal descendant of the individual, or (D) a trust
for the benefit of any of the foregoing.
"Release" has the meaning set forth in Section 2.6(b)(xii) of this
Agreement.
"Response Period" has the meaning set forth in Section 2.5(e) of this
Agreement.
"Retained Earnings" means net income before taxes over the life of the
Companies or a Company, less all income distributions to the Shareholders,
computed in accordance with GAAP, as reflected on the balance sheets of the
Companies or a Company as of a certain date.
"Retained Earnings Adjustment" has the meaning set forth in Section
2.2(b) of this Agreement.
"Rights" means any and all outstanding subscriptions, warrants,
options, or other arrangements or commitments obligating or which may obligate
(with or without notice or passage of time or both) a Company to issue or
dispose of any securities of a Company including, without limitation,
Convertible Securities, and Debt Securities.
"Schedules" has the meaning set forth in the introductory paragraph to
Article 3 of this Agreement.
9
"Shareholder" or "Shareholders" has the meaning set forth in the
introductory paragraphs of this Agreement.
"Shareholder Guarantee(s)" has the meaning set forth in Section 5.26 of
this Agreement.
"Shareholders' Agent" has the meaning set forth in the introductory
paragraphs of this Agreement and whose appointment and powers are described in
Section 13.22 of this Agreement.
"Shareholders' Representative" has the meaning set forth in Section
10.2 of this Agreement.
"Stock" has the meaning set forth in the Recitals to this Agreement.
"Stonepath" has the meaning set forth in the introductory paragraphs of
this Agreement.
"Supplement" has the meaning set forth in Section 13.21 of this
Agreement.
"Tax" or "Taxes" means any and all net income, gross income, gross
revenue, gross receipts, net receipts, ad valorem, franchise, profits, transfer,
sales, use, social security, Medicare, employment, unemployment, disability,
license, withholding, payroll, privilege, excise, value-added, severance, stamp,
occupation, property, customs, duties, real estate and/or other taxes,
assessments, levies, fees or charges of any kind whatsoever imposed by any
Governmental Body, together with any interest or penalty relating thereto.
"Tax Matter(s)" has the meaning set forth in Section 10.2 of this
Agreement.
"Tax Return" or "Tax Returns" means any return, declaration, report,
claim for refund or information return or statement relating to Taxes,
including, without limitation, any schedule or attachment thereto, any amendment
thereof, and any estimated report or statement.
"Threatened" means that a claim, Proceeding, dispute, action, or other
matter will be deemed to have been "Threatened" if any demand or statement has
been made in writing, or any notice has been given in writing that would lead a
reasonably prudent Person to conclude that such a claim, Proceeding, dispute,
action, or other matter will, with substantial certainty, be asserted,
commenced, taken or otherwise pursued in the future; provided, however, that the
foregoing shall not include customer billing disputes in the Ordinary Course of
Business.
"Transactional Expenses" has the meaning set forth in Section 13.10 of
this Agreement.
"Use" means to appropriate any of the Confidential Information of a
Company for the benefit of oneself or any other Person other than the Companies.
"Year-End Statement" has the meaning set forth in Section 2.2(a) of
this Agreement.
10
ARTICLE 2
PURCHASE OF STOCK; PURCHASE PRICE
2.1 Purchase and Sale of Stock. In reliance upon the representations,
warranties and covenants contained in this Agreement as of the date hereof and
on the Closing Date, the Purchaser agrees to purchase the Stock from the
Shareholders, and the Shareholders agree to sell, transfer, convey, assign and
deliver the Stock to the Purchaser on the terms and conditions set forth in this
Agreement. Such sale, transfer, conveyance, assignment and delivery of the Stock
shall convey good and marketable title to the Stock, free and clear of any and
all Rights and Encumbrances, and at such time the Stock will be fully paid and
non-assessable. At the Closing the Shareholders will deliver to the Purchaser
certificate(s) evidencing the Stock duly endorsed in blank or with stock powers
duly executed by the Shareholders.
2.2 Purchase Price. The purchase price for the Stock shall be the
aggregate of Seventeen Million Five Hundred Thousand Dollars ($17,500,000) (in
cash as described in Section 2.3), plus or minus, as indicated, the sum of the
following adjustments (collectively, the "Purchase Price Adjustments"):
(i) plus, the Earn-Out (as defined and as described in Section
2.2(a)); and
(ii) minus the Retained Earnings Adjustment (as defined and
described in Section 2.2(b)), if any; and
(iii) minus, the Aggregate Transactional Expenses paid by the
Companies (as set forth on Schedule 7.10).
The aggregate sum of the $17,500,000 cash payment and the Purchase
Price Adjustments shall be collectively referred to herein as the "Purchase
Price." The Purchase Price shall be allocated among the Shareholders as follows:
(i) $9.5 million and the Earn-Out to the MGR Shareholders, (ii) $7.0 million to
the DSI Shareholder, and (iii) $1.0 million to the Contract Air Shareholders.
All allocations of the Purchase Price among the Shareholders of a Company shall
be made pro-rata in accordance with such Shareholder's ownership in the issued
and outstanding Stock of the applicable Company. The Aggregate Transactional
Expenses paid by the Companies shall be allocated by the Shareholders' Agent to
each Company in accordance with the portion of the Purchase Price allocated to
that Company's Shareholders. In the event that there is an Estimated Retained
Earnings Adjustment, the Retained Earnings Adjustment as described in Section
2.2(b) may result in a cash payment by either the MGR Shareholders or the
Purchaser pursuant to Section 2.5 depending on whether the Estimated Retained
Earnings Adjustment was over or understated, but in no event shall the Retained
Earnings Adjustment increase the Purchase Price.
(a) Earn-Out. Annual cash payments to the MGR Shareholders in
the aggregate maximum amount of $17 million may be earned by the MGR
Shareholders (the "Earn-Out") for the years 2002 through 2005 in
accordance with the following schedule:
11
Year Amount
---- ------
2002 $3,000,000
2003 $5,000,000
2004 $5,000,000
2005 $4,000,000
The annual cash payments will be remitted to the MGR Shareholders upon
the completion of combined supplemental financial statements of the Companies
derived from the audited consolidated financial statements of Stonepath for each
of the 2002, 2003, 2004 and 2005 calendar years (the "Earn-Out Financial
Statements"). The Earn-Out Financial Statements shall be completed concurrently
with and as a part of the audited consolidated financial statements of Stonepath
as soon as reasonably practicable after the end of such calendar years, but in
no event shall such Earn-Out Financial Statements, and the Earn-Out payments and
computations of the Earn-Out due thereunder, be delivered and remitted (to the
Shareholders' Agent and its counsel in accordance with the notice provisions set
forth in Section 13.5 of this Agreement) later than ninety (90) days after such
applicable calendar year-end (the "Year-End Statement").
(i) Payment of each annual installment of the Earn-Out is
contingent upon the Companies reporting combined net income before
Taxes of at least $6.0 million for each applicable Earn-Out year set
forth above. For purposes of computing the net income of the 2002
calendar year in connection with the Earn-Out, the Purchaser, Stonepath
and the Shareholders agree that the net income of the period commencing
on the Closing Date to and through December 31, 2002 shall be utilized
for determining the 2002 Earn-Out net income of the Companies. To the
extent the reported combined net income before Taxes falls below $6.0
million (the "Earn-Out Shortfall") for any Earn-Out year, the Earn-Out
payment with respect to that Earn-Out year will be reduced on a
dollar-for-dollar basis to the extent of the Earn-Out Shortfall. In the
event that an Earn-Out Shortfall occurs with respect to any Earn-Out
year and the combined net income before Taxes of the Companies for any
other Earn-Out year (whether before or after the Earn-Out year with
respect to which the Earn-Out Shortfall has occurred) exceeds $6.0
million, the amount of such excess combined net income before Taxes
shall be applied to reduce such Earn-Out Shortfall;) provided that the
amount of any such excess so used shall not be available for further
application pursuant to this sentence. Solely for the purposes of
determining the combined net income before Taxes of the Companies,
Stonepath and the Purchaser covenant and agree that during the calendar
years 2001, 2002, 2003, 2004 and 2005 (the "Earn-Out Period") (A) the
Companies will continue to be operated (including structure and cost
base) in a manner substantially similar in all material respects to the
operations of the Companies under the Shareholders prior to the Closing
Date, and (B) any material changes to corporate operations, structure
or cost base will not be undertaken without the prior written consent
of the Shareholders' Agent, provided, in the event of any departure
from the requirements of (A) or (B) in any Earn-Out year, as the sole
remedy (other than the proviso which immediately
12
follows) of the Shareholders for such departure, the combined net
income before Taxes of the Companies for such Earn-Out year and all
subsequent Earn-Out years shall be calculated as if such departure had
not occurred; provided, further, however, in the event that the
departure from the requirements of (A) or (B) in any Earn-Out year
results in a material alteration of the financial statements of the
Companies such that the financial results needed for the Earn-Out
cannot be reasonably or equitably determined due to such departure, the
Earn-Out for such year shall be deemed to be earned by the
Shareholders. The combined net income before Taxes of the Companies for
purposes of the Earn-Out shall be determined without offset for: (x)
any overhead or management charges which may otherwise be charged by
Stonepath, the Purchaser, or any Affiliate (other than the Companies)
of Stonepath or the Purchaser; (y) any amortization or depreciation of
acquisition goodwill or the step-up in basis of depreciable assets
resulting from the transactions contemplated by this Agreement; and (z)
any depreciation, amortization, interest or other direct charges
against net income to the extent associated with capital expenditures
which cumulatively exceed $2 million following the Closing.
Additionally, the expenses associated with any additional operational
management or employees initiated by Stonepath (other than (x)
replacements of such management or employees who have left employment
with a Company or (y) those that are approved in writing by the
Shareholders' Agent) shall be added back to combined net income before
Taxes of the Companies for purposes of computing the Earn-Out.
(ii) The Earn-Out shall be allocated by the pro-rata ownership
of the MGR Stock at the Closing among the MGR Shareholders.
(iii) In furtherance of the foregoing, (x) Stonepath, on
behalf of itself, its successors and assigns and the Purchaser, and (y)
the Purchaser agrees to the following with respect to their conduct of
the Business of the Companies during the Earn-Out Period:
(A) Without the prior written consent of the
Shareholders' Agent, the Companies may not be sold or
otherwise transferred (by merger, consolidation, exchange, the
sale of all or substantially all of the assets or a
transaction of similar effect) during the Earn-Out Period
except under the following circumstances: (x) if the Companies
are sold for a sales price of $34.5 million or more, upon the
closing of any such sale, the full amount of the Earn-Out due
for the remaining Earn-Out Period following the date of sale
shall be accelerated and paid in conjunction with such sale;
or (y) if the Companies are sold for a sales price of less
than $34.5 million, the amount of the sales price of the
Companies received or to be received in cash or property by
the selling Person which exceeds the sum of (i) the Closing
Date Purchase Price, and (ii) the Earn-Out payments made to
the Shareholders through the date of sale, shall be
accelerated and paid to the Shareholders concurrently upon
such sale, to the extent of the remaining Earn-Out due to the
Shareholders (with a maximum amount accelerated equal to the
balance of such sales price),
13
and any balance of the Earn-Out due to the Shareholders shall
be assumed by the purchaser of the Companies on specifically
the same terms and conditions agreed to by Stonepath and the
Purchaser hereunder (including, without limitation, the
undertaking not to alter the stand-alone operations of each of
the Companies). The foregoing shall be subject to an
allocation of an acceleration of the Earn-Out in the event any
one or two of the Companies are sold or otherwise transferred,
based upon the percentage of the Closing Date Purchase Price
received by the Shareholders of the Company or Companies being
sold or otherwise transferred.
(B) No existing customer or customer accounts, or
accounts generated by the Companies after the Closing, which
otherwise could be serviced by the Companies shall be diverted
to any Affiliate of Stonepath or the Purchaser without
adequate financial provision, reasonably acceptable to the
Shareholders' Agent, being made to appropriately credit the
Companies as if they had performed the service for purposes of
computing the Earn-Out.
(iv) Upon and after receipt of the Year-End Statement by the
Shareholders' Agent and its counsel, the Shareholders' Agent shall have
not more than thirty (30) days after receipt of any such statement to
review the Purchaser's books and records (which review will include the
complete cooperation of the Purchaser and Stonepath and full access to
the books, records and personnel consistent, when applied to access
allowed to the Shareholders' Agent, with the access provisions of
Section 5.1 of this Agreement) pertinent to the computations arising
under this Section 2.2 and (A) dispute the accuracy of such statement
and/or (B) object to a departure described in Section 2.2(a)(i) above,
by written notice of dispute to Stonepath and the Purchaser in
accordance with the notice provisions of this Agreement. In the event
that the Shareholders' Agent does not dispute such statement or a
departure in Section 2.2(a)(i) above within such thirty (30) day
period, the Shareholders' Agent and the Shareholders shall be deemed to
have waived his and their right to contest the statement and the
departure (as to that Year End Statement only), notwithstanding any
contrary provision of this Agreement. In the event that the
Shareholders' Agent and the Purchaser are unable to resolve the
disputed matter which involves the accuracy of the statement and does
not assert a departure described in Section 2.2(a)(i) above within
fifteen (15) days after the Shareholders' Agent's notice is received,
the Parties shall submit the matter to the Independent Accountants
described in Section 2.5(f) for a final determination under the rules
and procedures set forth in that section, which determination shall be
final and binding upon the Parties. In the event the dispute involves a
departure described in Section 2.2(a)(i) above, the matter, if
unresolved in such fifteen (15) day period, shall be submitted to
arbitration as set forth in Section 9.4 hereof.
(v) Subject to the provisions of Section 2.4, neither
Stonepath, the Purchaser nor any of their Affiliates, successors or
assigns shall have a right to (or a right to exercise) offset or
recoupment (either pursuant to this Agreement or
14
under Applicable Law) any amounts claimed against the Shareholders for
indemnification of a Loss or Losses pursuant to Article 9 or any other
provision of this Agreement or the Ancillary Documents.
(vi) Xxxx X. Xxxx ("Xxxx") is anticipated to be employed by
MGR after the Closing pursuant to the executive employment agreement
described in Section 5.28 and set forth as Exhibit G of this Agreement.
In the event that Xxxx voluntarily resigns, other than for "good
reason" or is terminated for "cause" (as the terms "good reason" and
"cause" are defined in his executive employment agreement) during the
three (3) year employment term of his executive employment agreement,
Xxxx will forfeit his pro-rata portion of any remaining Earn-Out
earnings and payments, (which, however, shall accrue through the date
of termination). The Earn-Out payments due to the remaining MGR
Shareholders shall not be affected by Xxxx'x termination. Stonepath
and/or the Purchaser shall have no claim or right solely by virtue of
Xxxx'x voluntary or involuntary termination to claim any Earn-Out
amount earned by and/or paid to Xxxx for any period of time prior to
the date of his termination. The foregoing, however, shall not in any
way affect MGR's rights against Xxxx arising out of his employment by
MGR.
(b) Retained Earnings Adjustment. The "Retained Earnings
Adjustment" shall be equal to the amount, if any, by which (i) the
aggregate amount of the Companies' Retained Earnings as reported on the
consolidated Closing Balance Sheet (reporting each of the Companies in
the aggregate), is less than (ii) $3,000,000. The adjustments required
under this Agreement to compute the aggregate Retained Earnings of the
Companies on the Closing Date for purposes of, among other things,
preparation of the Closing Certificate are set forth in Section 2.5
hereof. The estimated amount of the Retained Earnings Adjustment (the
"Estimated Retained Earnings Adjustment") shall be jointly agreed upon
between the Shareholders' Agent and the Purchaser in good faith prior
to the Closing and the Estimated Retained Earnings Adjustment, if any,
shall be withheld from the amount payable to the MGR Shareholders at
the Closing (pursuant to Section 2.2(ii)) and reconciled to the
aggregate amount of the Retained Earnings of the Companies set forth on
the Closing Balance Sheet in accordance with Section 2.5 hereof.
2.3 Payment of Purchase Price on the Closing Date. The Purchase Price
to be paid to the Shareholders on the Closing Date shall be calculated as
follows:
(i) $9.5 million, less: (A) 76.81% of the paid Aggregate
Transactional Expenses, and (B) the Estimated Retained Earnings
Adjustment to the MGR Shareholders;
(ii) $7.0 million, less 20.29% of the paid Aggregate
Transactional Expenses to the DSI Shareholder; and
(iii) $1.0 million, less 2.9% of the paid Aggregate
Transactional Expenses to the Contract Air Shareholders.
15
The sum of the foregoing shall be the "Closing Date Purchase Price."
The Closing Date Purchase Price shall be paid in cash at and upon the Closing by
wire transfer of immediately available funds to the accounts designated in
writing by the Shareholders at least three (3) business days prior to the
Closing Date.
2.4 Escrow of Indemnification Claims.
(a) Right of Offset/Recoupment. In the event that the
Purchaser asserts a claim for a Loss or Losses pursuant to the
provisions of Article 9 hereof and such amount is not paid by the
Shareholders as required under this Agreement, the Purchaser may
exercise a right of offset and/or recoupment against the Earn-Out
payments due to the MGR Shareholders (notwithstanding the provisions of
Section 2.2(a)) but only pursuant to the provisions of this Section
2.4. The Purchaser acknowledges and agrees that no right of offset
and/or recoupment with respect to a breach or inaccuracy of any
representation or warranty under this Agreement or any Ancillary
Document, which is subject to the Basket Amount, may be made unless and
until the Basket Amount set forth in Section 9.1 is fully utilized in
accordance with its terms. Such offset and/or recoupment, if exercised
by the Purchaser in the manner contemplated herein, shall be strictly
limited to the Purchaser's reasonably estimated and fully documented
amount of such Loss or Losses, which estimate and all documentation
associated therewith shall be promptly provided to the Shareholders'
Agent upon the assertion of the offset and/or recoupment by the
Purchaser.
(b) Escrow. In the event that the Purchaser determines that it
has a right of offset and/or recoupment against the MGR Shareholders as
described in paragraph (a) immediately above, the Purchaser shall (i)
send notice to the Shareholders' Agent in accordance with the notice
provisions of this Agreement that it intends to assert a right of
offset and/or recoupment hereunder, and (ii) deposit the estimated
amount of the Loss or Losses asserted by the Purchaser to be subject to
offset and/or recoupment with the escrow agent under the escrow
agreement attached hereto as Exhibit I to this Agreement (the "Escrow
Agreement"). Any such payment made to such escrow agent under the
Escrow Agreement shall constitute a payment against any amount due to
the MGR Shareholders (or their successors and assigns), including any
Earn-Out payment, and shall be fully credited against the amount to be
paid thereunder and no breach or default under this Agreement or any
Ancillary Documents will be asserted by the MGR Shareholders (or their
successors and assigns), the other Shareholders or the Shareholders'
Agent; provided, however, that any such payment must be made on a
timely basis in accordance with this Agreement and the Ancillary
Documents. The escrow account shall be governed by the terms of the
Escrow Agreement
2.5 Determination of Purchase Price Adjustments; Closing Balance Sheet;
Final Payment.
(a) Promptly following the Closing Date (but in any event
within ninety (90) days after the Closing Date), the Shareholders'
Agent, on behalf of the Shareholders shall cause to be prepared and
delivered to the Purchaser a certification (the "Closing Certificate")
prepared by Xxxxx, Xxxx & Xxxxxxxxxxxx (the "Closing
16
Date Accountant"). The Closing Certificate shall include:
(i) A closing balance sheet (the "Closing Balance
Sheet") prepared in accordance with Section 2.5(d) of this
Agreement;
(ii) A calculation and comparison of (x) an amount
equal to (A) the consolidated Retained Earnings of the
Companies set forth on the Closing Balance Sheet, less (B)
$3,000,000 (the "Closing Date Retained Earnings Adjustment"),
and (y) the amount of the Estimated Retained Earnings
Adjustment. In the event that:
(A) The Closing Date Retained Earnings
Adjustment is less than the Estimated Retained
Earnings Adjustment, then the Purchase Price is
reduced by the amount of such difference and shall be
due to the Purchaser;
(B) The Closing Date Retained Earnings
Adjustment exceeds the Estimated Retained Earnings
Adjustment, then the Purchase Price is increased by
the amount of such difference (but not by an amount
in excess of the Estimated Retained Earnings
Adjustment) and shall be due to the MGR Shareholders;
(iii) The foregoing increase or decrease to the
Purchase Price shall be summarized and computed in the
aggregate as either an amount (A) due to the Purchaser, or (B)
due to the MGR Shareholders, with interest thereon computed in
accordance with Section 2.5(g);
(iv) Copies of all supplementary documents, work
papers, and other data relating to the Closing Certificate;
and
(v) Such other supplementary evidence as the
Purchaser may require either prior to or after delivery of the
Closing Certificate.
(b) In connection with the preparation of the Closing Balance
Sheet and all other matters arising under the Closing Certificate, the
Purchaser shall afford the Shareholders' Agent and its representatives
complete access to the books, records, personnel and facilities of or
pertaining to the Companies to permit the Closing Date Accountant to
review such information as is necessary or desirable to prepare the
Closing Balance Sheet and all other statements arising under the
Closing Certificate.
(c) The Closing Balance Sheet shall include the report of the
Closing Date Accountant (substantially in the form of Exhibit C-1
hereto), based on the consolidated Balance Sheet of the Companies as of
the opening of business on the Closing Date in accordance with GAAP
consistently applied by the Companies (including any change in
accounting methods or principles disclosed in any Schedule or
Supplement) and without giving effect to the consummation of the
transactions contemplated hereby. The itemized
17
calculations required by Section 2.5(a)(ii) shall be presented and
calculated in accordance with Exhibit C-2 hereto.
(d) The Closing Date Accountant's report on the Closing
Balance Sheet shall be unqualified, except for the modifications to
GAAP mandated by this Agreement for the proper presentation and
calculation of the matters required to be included with and in the
Closing Certificate. The expense of the preparation of the Closing
Balance Sheet by the Closing Date Accountant shall be borne by the
Shareholders. The Parties hereby acknowledge and agree that, regardless
of whether it is otherwise required by GAAP, or whether it is
inconsistent with the past accounting practices of the Companies, the
Closing Balance Sheet shall not contain accruals for the expenses
associated with the preparation of the Closing Balance Sheet.
(e) If the Purchaser concludes that any matter reported in the
Closing Certificate is not accurate, the Purchaser shall, within thirty
(30) days after its receipt of the Closing Certificate (the "Response
Period"), deliver to the Shareholders' Agent a written statement
setting forth a specific description of each of its objections and each
of any discrepancies believed to exist. If no notice of any objections
or discrepancies is given within the Response Period, then the
calculations set forth in the Closing Certificate shall be controlling
for all purposes of this Agreement, and the Purchaser or the
Shareholders, as the case may be, shall pay the other the amount which
such Party is obligated to pay in accordance with the Closing
Certificate pursuant to Section 2.5(g) below.
(f) The Purchaser and the Shareholders' Agent shall use good
faith efforts to jointly resolve the properly noticed objections and
discrepancies within fifteen (15) days of the receipt of the written
statement of objections and discrepancies, which resolution, if
achieved, shall be fully and completely binding upon all Parties to
this Agreement and not subject to further review, appeal, or dispute.
If the Purchaser and the Shareholders' Agent are unable to resolve the
objections and discrepancies to their mutual satisfaction within such
fifteen (15) day period, then the matter shall be submitted to a
mutually acceptable accounting firm of national reputation (the
"Independent Accountants"). In submitting a dispute to the Independent
Accountants, each of the Parties shall concurrently furnish, at its own
expense, to the Independent Accountants and the other Party such
documents and information as the Independent Accountants may request.
Each Party may also furnish to the Independent Accountants such other
information and documents as it deems relevant, with copies of such
submission and all such documents and information being concurrently
given to the other Party. Neither Party shall have or conduct any
communication, either written or oral, with the Independent Accountants
without the other Party either being present or receiving a concurrent
copy of any written communication. The Independent Accountants may
conduct a conference concerning the objections and disagreements
between the Shareholders' Agent and the Purchaser, at which conference
each Party shall have the right to (i) present its documents, materials
and other evidence (previously provided to the Independent Accountants
and the other Party), and (ii) have present its or their advisors,
accountants and/or counsel. The Independent Accountants shall promptly
(but not to exceed thirty (30) days from the date of engagement of the
Independent Accountants) render a decision on the issues
18
presented, and such decision shall be final and binding on all of the
Parties to this Agreement.
(g) Within five (5) business days of the (i) end of the
Response Period, in the event Purchaser does not object to the Closing
Certificate within the Response Period, or (ii) receipt of the
Independent Accountant's decision with respect to and in the event of a
dispute, if the Purchaser is determined to owe an amount to the MGR
Shareholders, the Purchaser shall pay such amount in cash to the MGR
Shareholders, and if the MGR Shareholders are determined to owe an
amount to the Purchaser, the MGR Shareholders shall pay such amount in
cash to the Purchaser. All amounts owed by the Purchaser or the MGR
Shareholders to the other(s) in accordance with this Section 2.5 shall
be paid by certified or bank cashier's check or by wire transfer of
immediately available funds with interest computed thereon from the
Closing Date at the prime rate charged on the date the payment becomes
due by U.S. Bank National Association, Minneapolis, Minnesota.
2.6 Closing and Closing Deliveries.
(a) Closing and Closing Date. Subject to the satisfaction or
waiver of the conditions precedent contained in Articles 6, 7 and 8
hereof, the closing of the transactions contemplated by this Agreement
(the "Closing") shall be held at a mutually agreed time after (i) all
consents and approvals required to consummate the transactions
contemplated hereby have been received from any Governmental Body, and
(ii) all other conditions to the Closing have been duly satisfied or
waived in writing, at the offices of Xxxxxx and Xxxxxx, Professional
Association, 0000 XXX Xxxxxx, Xxxxxxxxxxx, Xxxxxxxxx, 00000, and shall
be as of the opening of business on such day. Such date is referred to
in this Agreement as the "Closing Date."
(b) Documents to be Delivered by the Shareholders. At the
Closing, the Shareholders shall execute (or cause to be executed on
their behalf), where necessary or appropriate, and deliver to the
Purchaser each and all of the following:
(i) A bring-down certificate in the form of Exhibit D
hereto signed by the Shareholders and the Companies, and dated
as of the Closing Date;
(ii) The certificates evidencing the Stock duly
endorsed by the Shareholders in blank or accompanied by
assignments separate from certificate duly endorsed in blank
and the minute book and stock book for each Company;
(iii) A copy certified by the Secretaries of the
Companies of the duly adopted resolutions of the Boards of
Directors of each Company approving this Agreement and
authorizing the execution and delivery of this Agreement;
(iv) The Estimated Retained Earnings Adjustment;
(v) The fully-executed termination of all Shareholder
agreements;
(vi) The Escrow Agreement executed by the
Shareholders' Agent;
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(vii) The employment agreements described in Section
7.9;
(viii) The executed landlord/lessor estoppel
certificates for each Leased Real Estate Lease as set forth
and disclosed on Schedule 3.16 and as described in Section
5.21;
(ix) Delivery of any consents obtained or approvals
required hereunder;
(x) A duly executed written opinion letter by counsel
for the Shareholders and the Companies dated as of the Closing
Date, addressed to the Purchaser, as contemplated by Section
7.5 of this Agreement;
(xi) Duly executed resignations of those officers and
directors of the Companies as determined and confirmed by the
Purchaser in writing within three (3) days prior to the
Closing Date, effective as of the Closing Date;
(xii) A Mutual Release in the form of Exhibit E
hereto duly executed by the Shareholders (the "Release");
(xiii) Certificates of good standing for (A) the
Companies dated within five (5) days of the Closing Date
issued by the Secretary of State of Minnesota, and (B) each
Company dated within fifteen (15) days of the Closing Date
issued by each jurisdiction in which such Company is qualified
to do business;
(xiv) Evidence satisfactory to the Purchaser that the
Encumbrances and interests in the Stock have been terminated
on or before the Closing Date;
(xv) The termination documents for the guarantees
described in Section 5.22;
(xvi) The transfer and conveyance documents
evidencing ownership of MGR of the corporate names "Air Plus
Logistics" and "Fulfillment Logistics;" and
(xvii) Such other documents and items as are
reasonably necessary or appropriate to effect the consummation
of the transactions contemplated hereby or which may be
customary under local law.
(c) Documents to be Delivered by the Purchaser. At the
Closing, the Purchaser shall execute, where necessary or appropriate,
and deliver to the Shareholders' Agent each and all of the following:
(i) Payment of the Closing Date Purchase Price;
(ii) A bring-down certificate in the form of Exhibit
F hereto signed by a duly authorized officer of the Purchaser
and Stonepath, and dated as of the Closing Date;
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(iii) A copy certified by the Secretary of the
Purchaser of the duly adopted resolutions of the Board of
Directors of the Purchaser approving this Agreement and the
Ancillary Documents and authorizing the execution and delivery
of this Agreement and the Ancillary Documents to be executed
and/or delivered by the Purchaser pursuant hereto, and the
consummation of the transactions contemplated hereby and
thereby;
(iv) A duly executed written opinion letter by
counsel for the Purchaser, dated as of the Closing Date,
addressed to the Shareholders' Agent and the Shareholders, as
contemplated by Section 8.4 of this Agreement;
(v) The Release duly executed by the Purchaser and
Stonepath;
(vi) The Estimated Retained Earnings Adjustment;
(vii) The Escrow Agreement executed by the Purchaser;
(viii) The Guaranty executed by Stonepath;
(ix) A certification by an officer of Stonepath that
the fairness opinion described in Section 6.3 has been
rendered and delivered to Stonepath;
(x) A copy of the Audited Financial Statements
described in Section 5.25;
(xi) Receipt by the Shareholders of any termination
of the guarantees described in Section 5.26 which are obtained
prior to the Closing Date; and
(xii) The management incentive program described in
Sections 8.7 and 11.10;
(xiii) Such other documents and items as are
reasonably necessary or appropriate to effect the consummation
of the transactions contemplated hereby or which may be
customary under local law.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANIES AND THE SHAREHOLDERS
As an inducement to the Purchaser to enter into this Agreement and to
consummate the transactions contemplated hereby, the Companies and (x) the MGR
Shareholders solely with respect to MGR, (y) the DSI Shareholder solely with
respect to DSI, and (z) the Contract Air Shareholders solely with respect to
Contract Air, each represent and warrant to the Purchaser that each and all of
the following representations and warranties (as modified by (i) the express
terms of this Agreement, (ii) the disclosure schedules delivered to the
Purchaser contemporaneously with the execution and delivery of this Agreement
(the "Schedules"), and (iii) any Supplement delivered by the Shareholders and
not objected to by the Purchaser pursuant to Section 13.21 of
21
this Agreement) are true and correct as of the date of this Agreement (except
for the representations and warranties set forth in Sections 3.27 and 3.28
(other than Section 3.28(e)), and any other representations and warranties which
independently cover the subject matters addressed by Sections 3.27 and 3.28
(other than Section 3.28(e)) such as, without limitation, Section 3.15, but only
to the extent such other representations and warranties independently cover such
subject matters) and that each and all of such representations and warranties
(including those set forth in Sections 3.27 and 3.28) will be true and correct
as of the Closing Date. The Schedules shall be arranged by the applicable
Companies in paragraphs corresponding to the sections and subsections contained
in this Article 3. When, in this Agreement, the Companies and the Shareholders
make representations and warranties with respect to a particular fact or matter,
the Companies' and the Shareholders' representation and/or warranty shall be
deemed to be applicable only to (A) and made only by, the specific Company that
is representing as to itself and (X) the representations and warranties
applicable to the Company in which a Shareholder has a direct interest as a
shareholder of that Company.
3.1 Organization. The Companies are corporations duly organized,
validly existing and in good standing under the laws of the State of Minnesota.
The Companies have all requisite power and authority, corporate and otherwise,
to own, operate and lease their properties and assets and to conduct their
respective Businesses as they are now being conducted. As set forth in Schedule
3.1, the Companies are duly qualified to transact business as foreign
corporations and are in good standing under the laws of every state or
jurisdiction in which the nature of their activities or of their properties
owned, leased or operated makes such qualification necessary and in which the
failure to be so qualified could reasonably be expected to have a Material
Adverse Effect on the Companies.
3.2 Capitalization. The capital stock of the Companies consists of: (i)
with respect to MGR, 250,000 authorized shares of voting common stock, no par
value per share, of which 17,700 shares are issued and outstanding, (ii) with
respect to DSI, 250,000 authorized shares of voting common stock, no par value
per share, of which 10,000 shares are issued and outstanding, and (iii) with
respect to Contract Air, 250,000 authorized shares of voting common stock, no
par value per share, of which 17,700 shares are issued and outstanding. Except
as set forth on Schedule 3.2, all of the Stock (w) is owned beneficially and of
record by the Shareholders in accordance with Exhibit A to this Agreement, (x)
is free and clear of all Rights and Encumbrances, (y) is validly issued, fully
paid and nonassessable and not subject to any preemptive or other rights created
by statute, and (z) has been issued in compliance with all applicable securities
laws. None of the Stock has been issued in violation of the rights of any
Person. Except as set forth on Schedule 3.2 hereto, as of the date hereof, (i)
there are no Convertible Securities or Debt Securities outstanding, (ii) there
are no Rights outstanding, and (iii) there are no shareholder agreements or
other agreements, understandings or commitments relating to the rights of a
Shareholder to vote or dispose of the Stock. Except as set forth in Schedule
3.2, there is no outstanding vote, plan, pending proposal, or right of any
Person to cause any redemption of the Stock or the merger or consolidation of
any Company with or into any other Person. At the Closing, the Purchaser shall
acquire good title to the Stock, free and clear of all Rights and Encumbrances.
3.3 Due Authorization. The execution, delivery and performance of this
Agreement and the Ancillary Documents to be executed and/or delivered by the
Companies, the
22
Shareholders' Agent and/or the Shareholders pursuant to this Agreement, and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by all necessary action on the part of the Companies and
the Shareholders. This Agreement and the Ancillary Documents to be executed
and/or delivered by the Companies, the Shareholders' Agent and/or the
Shareholders pursuant to this Agreement have been or will be on or before the
Closing Date duly and validly authorized, executed and delivered by the
Companies, the Shareholders' Agent and/or the Shareholders and the obligations
of the Companies, the Shareholders' Agent and/or the Shareholders hereunder and
thereunder are or will be upon such execution and delivery valid, legally
binding and enforceable against the Companies, the Shareholders' Agent and the
Shareholders in accordance with their respective terms.
3.4 No Breach. Except as set forth on Schedule 3.4 hereto, the
Shareholders each have full power and authority to sell, assign, transfer,
convey and deliver to the Purchaser the Stock to be sold hereunder and each of
the Companies, the Shareholders and the Shareholders' Agent have full power and
authority to otherwise perform their respective obligations under this Agreement
and the Ancillary Documents to be executed and/or delivered by them pursuant
hereto. The execution and delivery of this Agreement and the Ancillary Documents
to be executed and/or delivered by the Companies, the Shareholders and the
Shareholders' Agent pursuant to this Agreement, and the consummation of the
transactions contemplated hereby and thereby will not: (i) violate any provision
of the articles of incorporation or bylaws (or comparable governing documents or
instruments) of the Companies, (ii) violate any Applicable Laws or Injunction
applicable to the Companies, the Shareholders' Agent or the Shareholders, (iii)
except as provided in Schedule 3.4 hereto, require any filing with, Permit from,
authorization, consent or approval of, or the giving of any notice to, any
Person, (iv) except as provided in Schedule 3.4 hereto, result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both) a
default (or give another Party any rights of termination, cancellation or
acceleration) under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, franchise, Permit (including, but not
limited to, any Permits, approvals or authorizations of any Governmental Body),
lease or other Contract to which the Companies, the Shareholders' Agent and/or
the Shareholders is a Party, or by which they or any of their properties or
assets may be bound, or (v) except as set forth on Schedule 3.4 hereto, result
in the creation or imposition of any Encumbrance on any of the properties or
assets of the Companies, the Shareholders' Agent or the Shareholders.
3.5 Clear Title. Except as otherwise set forth on Schedule 3.5 hereto,
on the Closing Date, (i) the Companies hold good and valid title to their assets
that are tangible assets, (ii) all of the interests of the Companies in and to
their assets that are intangible assets are valid and enforceable, (iii) the
Companies hold good and valid title to their assets, and valid and enforceable
interests in, their assets that are mixed assets, (iv) the Companies hold valid
and enforceable leasehold interests in the Leased Real Estate and all leased
non-real estate assets, (v) the assets and leasehold interests of the Companies
are free and clear of any and all Encumbrances, and (vi) no Person other than
the Companies is in possession of any of the assets of the Companies.
3.6 Condition of Assets; Excluded Assets. Except as set forth in
Schedule 3.6 hereto, all of the Companies' properties and assets (i) have in all
material respects been properly maintained, (ii) are in all material respects in
good operating condition and repair, subject only to
23
ordinary wear and tear, (iii) are usable and fit for their intended purpose, and
(iv) are all the assets used to operate, and necessary to operate, the
Companies' Business as currently conducted. Schedule 3.6 also sets forth a list
of personal assets of Xxxx which are on loan without charge to and used by the
Companies; such assets are not conveyed hereunder and shall remain Xxxx'x
personal assets.
3.7 Litigation. Except as described in Schedule 3.7 hereto, there is no
pending Proceeding:
(a) to which any of the Companies is a party;
(b) that has been commenced by or served upon the Companies;
(c) of which the Companies or the Shareholders have Knowledge
(other than any Proceeding which generally affects the business of all
Persons conducting business similar to the Companies and in which the
Companies are not named defendants); or
(d) to the Companies' or the Shareholders' Knowledge, that
challenges, or that will have the effect of preventing, delaying,
making illegal, or otherwise interfering with, any of the transactions
contemplated hereby.
To the Knowledge of the Shareholders or the Companies, no such Proceeding has
been Threatened. Except as provided in Schedule 3.7 hereto, to the Shareholders'
or the Companies' Knowledge, the Companies have not been notified and are not
Parties to or subject to the provisions of any Injunction.
3.8 Labor Matters. Except as set forth on Schedule 3.8, the Companies have never
been Parties to any collective bargaining agreements or other labor Contracts
and there has never been, and there is not presently pending or existing, and to
the Knowledge of the Companies or the Shareholders, there is not Threatened, (i)
any strike, slowdown, walkout, picketing, work stoppage, labor arbitration or
other Proceeding in respect of the grievance of any employee, (ii) any
application or complaint filed by any employee or union with the National Labor
Relations Board, or any comparable Governmental Body, (iii) any organizational
activity or other labor dispute against or affecting the Companies, and no
application for certification of a collective bargaining agreement is pending
or, to the Knowledge of the Shareholders or the Companies, is Threatened. Except
as set forth on Schedule 3.8, there is no lockout of any employees by the
Companies and no such action is contemplated by the Companies. Except as set
forth in Schedule 3.8 hereto, there is no allegation, charge, complaint or
Proceeding pending or, to the Knowledge of the Companies or the Shareholders,
Threatened by any Person against the Companies or any of their current or former
officers, directors or employees relating to employment, equal employment
opportunity, discrimination, harassment, wrongful discharge, unfair labor
practices, immigration, wages, hours, benefits, collective bargaining, the
payment of social security or similar Taxes, occupational safety and health or
plant closing. Except as set forth in Schedule 3.8 hereto, the Companies are in
material compliance with all Applicable Laws relating to employment practices,
terms and conditions of employment, wages and hours, equal employment
opportunity, and the payment of social security and similar Taxes, and none of
them are engaged in any unfair labor practice.
24
3.9 Tax Matters.
(a) Tax Returns. The Companies have timely filed or caused to
be timely filed or will timely file or cause to be timely filed with
the appropriate taxing authorities all Tax Returns that are required to
be filed by, or with respect to, the Companies on or prior to the
Closing Date. The Tax Returns have accurately reflected and will
accurately reflect all Liability for Taxes of the Companies for the
periods covered thereby. Schedule 3.9(a) lists all income Tax Returns
filed with any Governmental Body with respect to the Companies for the
taxable periods ended on or after December 31, 1997. Except as set
forth in Schedule 3.9(a), no claim has ever been made by a Governmental
Body in a jurisdiction where any of the Companies is or may be subject
to taxation by that jurisdiction.
(b) Payment of Taxes. All Taxes and Tax Liabilities of the
Companies for all taxable years or periods that end on or before the
Closing Date and, with respect to any taxable year or period beginning
before and ending after the Closing Date, the portion of such taxable
year or period ending on the day immediately preceding the Closing Date
("Pre-Closing Period") have been timely paid or accrued and adequately
disclosed and fully provided for on the books and records of the
Companies in accordance with GAAP. Except as set forth in Schedule
3.9(b), all Taxes that the Companies are required by Applicable Law to
withhold or collect have been duly withheld or collected and have been
timely paid over to the appropriate Governmental Body to the extent due
and payable.
(c) Other Tax Matters.
(i) Except as set forth on Schedule 3.9(c)(i), the
Companies have not been the subject of a dispute or claim or
an audit or other examination of Taxes by the Tax authorities
of any Governmental Body, nor have the Companies received any
notices from any such Taxing authority relating to any issue
which could affect the Tax Liability of the Companies.
Schedule 3.9(c)(i) also includes a list of all Tax examination
reports and statements of deficiencies assessed against or
agreed to by the Companies since January 1, 1996, each of
which has been provided to the Purchaser. Except as set forth
in Schedule 3.9(c)(i), there are no matters under discussion
with any Governmental Body with respect to Taxes that are
likely to result in any additional Liability for Taxes.
(ii) Except as set forth on Schedule 3.9(c)(ii),
neither the Shareholders nor any predecessor shareholder of
the Companies or the Companies have, as of the Closing Date,
(A) entered into an agreement or waiver or been requested to
enter into an agreement or waiver extending any statute of
limitations relating to the payment or collection of Taxes of
the Companies, or (B) are presently contesting the Tax
Liability of the Companies before any court, tribunal or
agency.
(iii) The Companies have not been included in any
"consolidated," "unitary" or "combined" Tax Return provided
for under Applicable Law with
25
respect to Taxes for any taxable period for which the statute
of limitations has not expired.
(iv) All Taxes which the Companies are (or were)
required by law to withhold or collect have been duly withheld
or collected, and have been timely paid over to the proper
authorities to the extent due and payable.
(v) The Companies are not "United States real
property holding corporations" within the meaning of Section
897(c)(2) of the Code.
(vi) There are no Tax sharing, allocation,
indemnification or similar agreements in effect as between the
Companies, or any predecessor or Affiliate thereof, and any
other Party (including the Shareholders and any predecessors
or Affiliates thereof) under which the Purchaser or the
Companies could be liable for any Taxes or other claims of any
Person.
(vii) The Companies have not applied for, been
granted, or agreed to any accounting method change for which
they will be required to take into account any adjustment
under Section 481 of the Code or any similar provision of the
Code or the corresponding Tax laws of any nation, state or
locality.
(viii) No election under Section 341(f) of the Code
has been made or shall be made prior to the Closing Date to
treat the Companies as consenting corporations, as defined in
Section 341 of the Code.
(ix) The Companies are not Parties to any agreement
that would require them to make any payment that would
constitute an "excess parachute payment" for purposes of
Sections 280G and 4999 of the Code.
(x) The Companies have been validly electing S
corporations within the meaning of Sections 1361 and 1362 of
the Code at all times since their inception. Such elections
were made on (i) July 16, 1990 with respect to MGR, (ii)
September 1, 1993 with respect to DSI, and (iii) October 5,
1998 with respect to Contract Air. Except as set forth on
Schedule 3.9(c)(x), the Companies have also made all such
elections required under any analogous provisions of state or
local law. The Companies will continue to be valid S
corporations through the day immediately preceding the Closing
Date and will satisfy the requirements for an election under
Treasury Regulation ss.1.338(h)(10)-1(d) with respect to the
purchase of the Stock.
(xi) Except as set forth on Schedule 3.9(c)(xi), none
of the Companies is or has been a "qualified subchapter S
subsidiary" ("QSST") within the meaning of Section
1361(b)(3)(B) of the Code.
(xii) There are no requests for rulings in respect of
any Taxes pending between the Companies and any Governmental
Body, including any Tax authority.
26
(xiii) None of the Companies will be liable for any
Tax under Section 1374 of the Code in connection with the
deemed sale of any Company assets (including assets of any
QSST) caused by the 338(h)(10) election. The Companies have
not in the past ten years, (a) acquired any assets from
another corporation in a transaction in which any of the
Companies' Tax basis for the acquired assets was determined,
in whole or in part, by reference to the basis of such assets
in the hands of the transferor, or (b) acquired the stock of
any corporation which is a QSST.
3.10 Employee Benefits.
(a) Benefit Plans. Except as described in Schedule 3.10
hereto, the Companies do not maintain or contribute to any Benefit
Plans. Without limiting the generality of the foregoing provision of
this Section 3.10, except as described in Schedule 3.10 hereto, there
are no pension plans, welfare plans or employee benefit plans qualified
under Section 401(a) of the Code to which the Companies are required to
contribute. Except as described in Schedule 3.10 hereto, the Companies
do not and will not have any unfunded Liability for services rendered
prior to the Closing Date under any Benefit Plans. The Companies are
not in any material default under any Benefit Plan. Except as set forth
in Schedule 3.10, neither the Companies, nor any Person now or formerly
part of controlled groups with the Companies, within the meaning of
Section 412(c)(11)(B)(ii) of the Code, maintains or has ever maintained
a "defined benefit plan," as defined in Section 3(35) of ERISA, that is
subject to Section 412 of the Code and Section 302 of ERISA. Except as
set forth in Schedule 3.10 hereto, neither the Companies nor any of
their "subsidiaries" contribute to or have, or could reasonably be
expected to have, any Liability (including but not limited to
withdrawal Liability) with respect to any multi-employer plan (as
defined in Section 4064(a) of ERISA or Section 4001(a)(3) of ERISA).
Other than claims for benefits in the Ordinary Course of Business,
there are no actions, suits, disputes, arbitrations or other material
claims pending or, to the Knowledge of the Shareholders or the
Companies, Threatened with respect to any Benefit Plan. For purposes of
this Section, "subsidiaries" shall include all corporations and all
trades or businesses (whether or not incorporated) which may be liable
for any income Tax, loss of Tax deduction, excise Taxes, penalties or
other similar consequences under ERISA (as hereinafter defined) or
under the Code by reason of its ownership affiliation with the
Companies.
(b) Other Plans. Except as otherwise set forth in Schedule
3.10, there are no present or former employees of the Companies who are
entitled to (i) any pensions or other benefits to be paid after
termination of employment, including termination on account of
disability (except as otherwise required under Section 601 of ERISA),
or (ii) deferred compensation payments.
(c) Documents. The Shareholders have made available to the
Purchaser the following documents, as they may have been amended to the
date hereof, embodying or relating to each Benefit Plan of the
Companies listed in Schedule 3.10 hereto: (i) all written plan
documents for each such Benefit Plan, including all amendments to each
such Benefit Plan, any related trust agreements, group annuity
contracts, insurance
27
policies or other funding agreements or arrangements, (ii) the most
recent determination letter received from the IRS, if any, as to the
qualified status of any such Benefit Plan under Section 401(a) of the
Code, (iii) the current summary plan description, if any, for each such
Benefit Plan, and (iv) the most recent annual return/report on form
5500, 5500-C or 5500-R, if any, for each such Benefit Plan.
(d) Prohibited Transactions. The Companies have not, nor, to
the Shareholders' Knowledge, has any other "disqualified person" or
"party in interest", as defined in Section 4975(e)(2) of the Code and
Section 3(14) of ERISA, respectively, engaged in a "prohibited
transaction," as such term is defined in Section 4975 of the Code and
Section 406 of ERISA, with respect to any Benefit Plan of the Companies
subject to ERISA, which could reasonably be expected to subject the
Companies to a Tax or penalty on prohibited transactions imposed by
either Section 502(i) of ERISA or Section 4975 of the Code. The
execution and delivery by the Companies and the Shareholders of this
Agreement and the consummation of the transactions contemplated hereby
will not (i) involve any prohibited transaction within the meaning of
Section 406 of ERISA or Section 4975 of the Code with respect to any
Benefit Plan listed on Schedule 3.10 hereto, or (ii) accelerate the
payment of any benefits under any Benefit Plan listed on Schedule 3.10
hereto.
(e) Fiduciary Duty. Neither the Companies, nor, to the
Shareholders' Knowledge, any other fiduciary of any Benefit Plan listed
on Schedule 3.10 hereto engaged in any transaction with respect to such
Benefit Plan or failed to act in a manner with respect to such Benefit
Plan which could reasonably be expected to subject the Companies to any
material Liability for a breach of fiduciary duty under ERISA or any
other Applicable Law.
(f) COBRA. The Companies have complied in all material
respects with the coverage continuation requirements of all Applicable
Laws, including Sections 601 through 609 of ERISA, Section 4980B of the
Code, and the requirements of any similar state law regarding continued
insurance coverage, and the Companies have incurred no material
Liability with respect to their failure to offer or provide continued
coverage in accordance with the foregoing requirements, nor is there
any suit pending, or to the Knowledge of the Shareholders or the
Company, Threatened, with respect to such requirements.
(g) Triggering of Obligation and Other Binding Commitments.
Except for the claims set forth in Schedule 3.10, the consummation of
the transactions described in this Agreement, in and of themselves,
will not entitle any current or former employee of the Companies to
severance pay, unemployment compensation or any other payment, or
accelerate the time of payment or vesting, or increase the amount of
compensation due to any such employee or former employee.
3.11 No Guaranties. Except as set forth on Schedule 3.11, (i) none of
the obligations of the Companies is guaranteed by, or subject to a similar
contingent Liability of, any Person, and (ii) the Companies have not guaranteed,
or otherwise become contingently liable for, any Liability of any Person.
28
3.12 Financial Statements.
(a) The Companies have furnished true and correct copies of
the financial statements identified in Schedule 3.12 hereto to the
Purchaser. Except as set forth in Schedule 3.12, all of said financial
statements, including any notes thereto, are true and correct in all
material respects and fairly present the financial position and
condition of the Companies as of their respective dates and the results
of their operations for the periods covered thereby in accordance with
GAAP applied by the Companies on a consistent basis throughout the
periods covered thereby and on a basis consistent with that of prior
years and periods; provided, however, that (i) the year-end financial
statements of the Companies are "compiled" statements, are not audited,
and do not contain footnotes, other presentation items and the
statement of cash flows, and (ii) any interim financial statements
listed on such Schedule are subject to year-end adjustments and lack
footnotes and other required presentation items.
(b) Except for Liabilities (i) the amount of which has been
accrued or reserved against in (x) the individual or combined balance
sheet (each a "Balance Sheet" and consolidated the "Balance Sheet") of
the respective Companies as of December 31, 2000, in either the
financial statements referred to in Section 3.12 or the Audited
Financial Statements (the "Balance Sheet Date") or in the notes
thereto, or (y) the Closing Balance Sheet, (ii) incurred in the
Ordinary Course of Business since the Balance Sheet Date (none of which
resulted from, arose out of, is related to, or was caused by any breach
of Contract, breach of warranty, tort, infringement or violation of
Applicable Laws), (iii) arising under Contracts to which the Companies
are Parties, and/or (iv) described on Schedule 3.12 hereto, the
Companies do not have any Liabilities. The reserves reflected in the
Balance Sheet are reasonable and adequate.
3.13 Absence of Certain Developments. Except for the transactions
contemplated by this Agreement or as otherwise set forth on Schedule 3.13, 3.16,
3.17 or 3.22 hereto, since June 30, 2001, the Companies have conducted the
Business only in the Ordinary Course of Business and have not:
(a) Sold, leased, assigned or otherwise transferred any
material properties or assets, or disposed of or permitted to lapse any
rights in any Permit or Intellectual Property owned or used by the
Companies, other than in the usual and Ordinary Course of Business, or
organized any new business entity or acquired any equity securities,
assets, properties, or business of any Person or any equity or
ownership interest in any business or merged with or into or
consolidated with any other Person;
(b) Suffered, sustained or incurred any material Loss or
waived or released any material right or claim, whether or not in the
Ordinary Course of Business;
(c) Suffered, sustained or incurred any material damage,
destruction or casualty loss to any material properties or assets,
whether or not covered by insurance;
(d) Engaged in any transaction not in the Ordinary Course of
Business;
29
(e) Made any capital expenditure (or series of related capital
expenditures) exceeding $50,000;
(f) Subjected any of its properties or assets to any
Encumbrance, whether or not in the Ordinary Course of Business;
(g) Issued any note, bond or other debt security; created,
incurred or assumed any indebtedness for borrowed money or capitalized
lease obligation or otherwise incurred any material Liability, except
current Liabilities incurred in the Ordinary Course of Business;
(h) Discharged or satisfied any Encumbrance, or paid any
material Liability, other than current Liabilities shown on the
Companies' Balance Sheet(s) as of the Balance Sheet Date, and current
Liabilities incurred in the Ordinary Course of Business since the
Balance Sheet Date;
(i) Declared, set aside or paid a dividend or made any other
distribution with respect to any class or series of capital stock of
the Companies, or directly or indirectly redeemed, purchased or
otherwise acquired any shares of any class or series of the Companies'
capital stock;
(j) Increased the salary, wage or other compensation or level
of benefits payable or to become payable by the Companies to any of
their (i) employees or agents other than in the Ordinary Course of
Business, or (ii) officers and directors;
(k) Loaned money to any Person or guaranteed any loan to or
Liability of any Person, whether or not in the Ordinary Course of
Business;
(l) Except as described in the Schedules hereto, amended or
terminated any of the Operating Contracts (as hereinafter defined),
except in the Ordinary Course of Business;
(m) Changed accounting methods or practices (including,
without limitation, any change in depreciation, amortization or cost
accounting policies or rates);
(n) Suffered, sustained or incurred any Material Adverse
Change in the properties, assets, Liabilities, revenues, income,
business, operations, results of operations or financial condition of
the Companies;
(o) Received notice from any customer, supplier, vendor,
Governmental Body or any other Person which would, with substantial
certainty, give rise to or result in a Material Adverse Effect on the
Companies;
(p) Delayed or postponed the payment of accounts payable or
other Liabilities outside of the Ordinary Course of Business;
(q) Entered into any employment Contract or collective
bargaining agreement, written or oral, or modified the terms of any
existing such Contract or agreement or
30
adopted, amended, modified or terminated any Benefit Plan for the
benefit of any of the Companies' directors, officers or employees;
(r) Made any change or amendment in its articles of
incorporation, bylaws, or other governing instruments;
(s) Issued or sold any securities; acquired, directly or
indirectly, by redemption or otherwise, any securities; reclassified,
split-up or otherwise changed any such equity security; or granted or
entered into any options, warrants, calls or commitments of any kind
with respect thereto;
(t) Incurred any Liability other than in the Ordinary Course
of Business;
(u) Failed to pay any material Liability when and as due;
(v) Entered into any Contract other than in the Ordinary
Course of Business; and/or
(w) Entered into any Contract to do any of the foregoing.
3.14 Intellectual Property. Schedule 3.14 hereto contains a list and
description of all Intellectual Property owned by the Companies or used by the
Companies in the operation of the Business. Except as set forth in Schedule
3.14, the Companies own or have a valid right to use all such Intellectual
Property. Except as set forth in Schedule 3.14, the Shareholders and the
Companies have no Knowledge of any claim to the effect that the operation of the
Business or the possession or use in the Business of any of the Intellectual
Property listed and described on Schedule 3.14 hereto, infringes the
intellectual property rights of any other Person. Except as set forth in
Schedule 3.14, the Shareholders and the Companies have no Knowledge of any claim
that any of the Intellectual Property listed and described on Schedule 3.14 is
invalid; and, except as provided in Schedule 3.14 hereto, the Companies are not
obligated under any Contract or otherwise to pay royalties, fees or other
payments with respect to any of the Intellectual Property listed and described
on Schedule 3.14 hereto. Except as set forth in Schedule 3.14, the consummation
of the transactions contemplated by this Agreement will not adversely affect the
use by the Companies of any of the Intellectual Property listed on Schedule 3.14
hereto.
3.15 Compliance with Laws. The Business has been operated and the
Companies are in compliance in all material respects with the requirements of
all Applicable Laws to which the Companies are subject. The Companies have not
received any notice of, and the Shareholders and the Companies have no Knowledge
of any violation of a material nature of any Applicable Laws respecting the
Companies.
3.16 Operating Contracts. Except as disclosed in Schedule 3.16, and
except with respect to contracts, commitments and agreements that have been
fully performed as of the date hereof and have no further force or effect, the
Companies are not Parties to any oral or written Contracts. All of the Contracts
listed on Schedule 3.16 hereto are referred to in this Agreement as the
"Operating Contracts." All of the Operating Contracts were made in the Ordinary
Course of Business, and are valid, binding and currently in full force and
effect. The Companies are not in default under any of the Operating Contracts,
and, to the Shareholders' Knowledge, no
31
event has occurred which, through the passage of time or the giving of notice,
or both, would constitute a default by the Companies or give rise to a right of
termination or cancellation by another Party under any of the Operating
Contracts, or cause the acceleration of any Liability of the Companies, or
result in the creation of any Encumbrance upon any of the Companies' properties
or assets. To the Knowledge of the Shareholders and the Companies, no other
Party is in default under any of the Operating Contracts. Except as described on
Schedule 3.16 hereto, none of the Operating Contracts have been canceled,
terminated, amended or modified. Except as provided in Schedule 3.4 hereto, the
consummation of the transactions contemplated hereby will not require the
consent or approval of any Person under any of the Operating Contracts. The
Companies have provided the Purchaser with complete and accurate copies of all
Operating Contracts.
3.17 Real Estate. The Companies do not own any real estate. With
respect to real estate leased by the Companies (the "Leased Real Estate"):
(a) Schedule 3.17 contains a listing and description
(including the parties, term, expiration date(s), address, and
description of the leased premises) of each written or oral lease
regarding Leased Real Estate which is not otherwise described on
Schedule 3.16 hereto. The Companies have provided to the Purchaser
complete and accurate copies of all leases of Leased Real Estate.
Except as set forth on Schedule 3.17, (i) all leases of Leased Real
Estate were made in the Ordinary Course of Business, and are valid,
binding and currently in full force and effect, (ii) the Companies are
not in default under any of the leases of Leased Real Estate, (iii) no
event has occurred which, through the passage of time or the giving of
notice, or both, would constitute a default by the Companies or give
rise to a right of termination or cancellation by another Party under
any of the leases of Leased Real Estate, or cause the acceleration of
any Liability of the Companies, or result in the creation of any
Encumbrance upon any of the Companies' properties or assets, and (iv)
to the Knowledge of the Shareholders and the Companies, no other Party
is in default under any of the leases of Leased Real Estate. Except as
described on Schedule 3.17 hereto, none of the leases of Leased Real
Estate have been canceled, terminated, amended or modified. Except as
provided in Schedule 3.4 hereto, the consummation of the transactions
contemplated hereby will not require the consent or approval of any
Person under any of the leases of Leased Real Estate.
(b) Except as set forth on Schedule 3.17 hereto, to the
Knowledge of the Shareholders and the Companies, there are no public
improvements affecting the Leased Real Estate, including, but not
limited to, water, sewer, sidewalk, street, alley, curbing, landscaping
or related improvements, which have been commenced and/or completed and
for which an assessment has not been levied or, to the Knowledge of the
Shareholders or the Companies, which may be levied after the date of
this Agreement;
(c) Except as set forth in Schedule 3.17 hereto, there are no
deferred property Taxes or assessments with respect to the Leased Real
Estate which may or will become due and payable as a result of the
consummation of the transactions contemplated hereby;
32
(d) Except as set forth in Schedule 3.17 hereto, there are no
condemnation Proceedings pending or, to the Knowledge of the
Shareholders or the Companies, Threatened with respect to all or any
part of the Leased Real Estate;
(e) To the Knowledge of the Shareholders or the Companies,
there are no Applicable Laws requiring repair, alteration or correction
of any existing condition on the Leased Real Estate which would require
the Companies to complete such work at its expense and, to the
Knowledge of the Shareholders and the Companies, there are no
conditions that could give rise to the same;
(f) To the Knowledge of the Shareholders or the Companies,
except as set forth in Schedule 3.17 hereto, (a) there are no
structural, mechanical or other defects of material significance in any
of the buildings, improvements, fixtures and equipment, including the
roof, heating, ventilating, air conditioning, electrical, plumbing and
sanitary disposal systems, located on the Leased Real Estate, and (b)
to the extent such is the responsibility of the Companies, all such
buildings, improvements, fixtures and equipment, including the roof,
heating, ventilating, air conditioning, electrical, plumbing and
sanitary disposal systems, will be until the Closing Date, maintained
in good repair, working order and condition, ordinary wear and tear
excepted;
(g) Except as set forth in Schedule 3.17 hereto, the
improvements made by the Companies on the Leased Real Estate and the
Companies' use thereof comply in all material respects with any and all
building, zoning, subdivision, traffic, parking, land use, occupancy,
health and other Applicable Laws pertaining to the Leased Real Estate
or to the development, construction, management, use and operations of
the improvements thereon;
(h) Except as set forth in Schedule 3.17 hereto, to the
Knowledge of the Shareholders or the Companies, (A) the improvements on
the Leased Real Estate, including fences, driveways and other
structures occupied, used or claimed by the Companies, are wholly
within the boundary lines of the Leased Real Estate and such
improvements, and (B) the Companies' present uses thereof do not in any
material respect infringe upon the rights of any other Person;
(i) Except as set forth in Schedule 3.17 hereto, to the
Knowledge of the Shareholders or the Companies, no buildings, fences,
driveways or other structures of any adjoining owner encroach upon any
part of the Leased Real Estate; and
(j) Except as set forth in Schedule 3.17 hereto, to the
Knowledge of the Shareholders or the Companies, the Companies have all
operating Permits necessary for the operation of the Business on the
Leased Real Estate, and all such Permits are current. To the Knowledge
of the Shareholders or the Companies, except as set forth in Schedule
3.17, the Companies have all easements, or access through public
utility easements, on to private property, construction Permits,
highway crossing Permits (and other similar Permits) and
right-of-way-licenses reasonably necessary to conduct the Business.
33
3.18 Accounts Receivable. The Companies' accounts receivable and other
rights to the payment of money represent, and on the Closing Date will
represent, valid obligations arising from services actually performed in the
Ordinary Course of Business. The Companies have delivered a complete and
accurate list of the Companies' accounts receivable on the Balance Sheet Date.
To the Knowledge of the Shareholders or the Companies, the receivables or other
obligations are fully collectible in the Ordinary Course of Business, except to
the extent of the amount of the reserve for doubtful accounts reflected either
on the Balance Sheet or any interim financial statement delivered by the
Shareholders or the Companies prior to the Closing Date.
3.19 Books and Records; Bank Accounts. All of the Companies' books of
account and other financial and corporate records relating to the Business have
been made available to the Purchaser and its representatives (or will be so made
available prior to the Closing Date). Such books of account and records are
current, complete, true and correct in all material respects. All such books and
records are consistent with the financial statements listed on Schedule 3.12
hereto. Attached hereto as part of Schedule 3.19 is a list of all of the
Companies' bank accounts, security accounts and other similar accounts, and the
names of all Persons authorized to draw thereon or have access thereto, as well
as the identification of all safety deposit boxes, and the Persons authorized to
have access to those boxes.
3.20 Employees. Schedule 3.20 hereto contains a list of the names,
positions, annual salary rates, hourly wage rates, severance benefits and
accrued vacation and sick leave, as of July 31, 2001, of all employees of the
Companies (including those on furlough, leave, disability (short- or long-term)
or layoff of any kind). None of the employees set forth in Schedule 3.20 have
informed the Companies or the Shareholders that he/she intends to terminate
employment with the Companies. Schedule 3.20 also sets forth a description of
any written Contract, other than the Benefit Plans described on Schedule 3.10
hereto, with respect to the conditions of employment of any of the Companies'
employees. The Companies have not been required to treat any independent
contractors and consultants of the Companies as employees under Applicable Law.
3.21 Permits. Except as set forth in Schedule 3.21, the Companies have
obtained all Permits of each and every Governmental Body having jurisdiction
over the Companies or any of their properties or assets to operate and carry on
the Business as it is now being conducted. All such Permits are described in
detail on Schedule 3.21 hereto and except as set forth in Schedule 3.21, are in
full force and effect and freely useable and effective upon and after the
Purchaser's purchase of the Stock and the Closing of the transactions
contemplated by this Agreement.
3.22 Other Material Contracts and Obligations. Except for the Operating
Contracts disclosed on Schedule 3.16 and the Contracts disclosed on Schedule
3.22 hereto, the Companies are not Parties to or bound by any:
(a) Dealer, distributorship or sales agency agreements,
excluding purchase orders with respect to the purchase or sale of
products or services in the Ordinary Course of Business;
(b) Advertising Contracts;
34
(c) Contract for capital expenditures having a remaining
balance in excess of $50,000;
(d) Leases with respect to any property, real or personal,
whether as lessor or lessee;
(e) Contract containing covenants by the Companies, the
Shareholders, or any officer, director, employee or Affiliate of the
Companies or the Shareholders not to compete in any lines of business
or with any Person;
(f) Franchise or license agreements;
(g) Except as disclosed in Schedule 3.13, loan or credit
agreements, promissory notes or other evidences of indebtedness,
including all agreements or commitments for future loans, extensions of
credit or financing, excluding credit extended by the Companies to
their customers;
(h) Contract or purchase order for the purchase of any
services, raw materials, supplies or equipment involving payments of
more than $10,000 per annum or an aggregate of more than $50,000,
excluding purchase orders for the purchase of products or services
entered into in the Ordinary Course of Business;
(i) Contract for the sale of any properties, assets or
services involving a value estimated at more than $50,000, excluding
purchase orders for the sale of products or services in the Ordinary
Course of Business;
(j) Contract not made in the Ordinary Course of Business;
(k) Confidentiality or non-disclosure agreement (where the
central purpose of the confidentiality or non-disclosure agreement is
confidentiality or non-disclosure, as opposed to confidentiality or
non-disclosure provisions within a Contract which has as its central
purpose a subject matter other than confidentiality and
non-disclosure);
(l) Contract relating to commission arrangements with others,
including, but not limited to any sales representative arrangement;
(m) Contract with any Governmental Body; or
(n) Indemnification Agreements (where the central purpose of
the Contract is indemnification, as opposed to the indemnification
provisions within a Contract which has as its central purpose a subject
matter other than indemnification).
3.23 Subsidiaries. Except as disclosed or described in this Agreement
or as set forth on Schedule 3.23 hereto, the Companies have no subsidiaries and
do not own any shares of stock or other securities or equity interests, directly
or indirectly, in any other Person. Except as disclosed or described in this
Agreement or as set forth on Schedule 3.23 hereto, the Companies are not subject
to any obligation or requirement to provide funds to, or invest in, any such
Person.
35
3.24 Insurance. The Companies have maintained and will continue to
maintain until the Closing Date the insurance described in Schedule 3.24. The
Companies have delivered to the Purchaser complete and accurate copies of all
policies providing such insurance coverage. All such insurance is in full force
on the date of this Agreement and is carried with insurers licensed in the
states affected by such policies. The Companies have promptly and adequately
notified the Companies' insurance carriers of any and all claims known to the
Shareholders with respect to the operations, products or services of the
Companies for which the Companies are insured. Except as set forth in Schedule
3.24, the Companies have not been refused any insurance coverage by any
insurance carrier to which they have applied for insurance during the past three
(3) years.
3.25 Brokers. Neither the Companies nor the Shareholders have employed
or engaged any broker, finder, agent, banker or third party, nor have they
otherwise dealt with anyone purporting to act in the capacity of a finder or
broker in connection with the transactions contemplated hereby. No commissions,
finder's fees or like charges have been or will be incurred by the Companies in
connection with the execution and delivery of this Agreement and the Ancillary
Documents, or the consummation of the transactions contemplated hereby.
3.26 Relationship with Related Persons. Except as set forth in Schedule
3.26 hereto, the Shareholders, the former shareholders, directors, officers, and
employees of the Companies, and their Related Persons do not have any interest
in any of the properties or assets of or used by the Companies and do not own,
of record or as a beneficial owner, an equity interest or any other financial or
profit interest in any Person that (i) has had business dealings or a material
financial interest in any transaction with the Companies, or (ii) has engaged or
is engaged in competition with the Companies with respect to any line of
products or services of the Companies in any market presently served by the
Companies (a "Competing Business") (except for the ownership of less than three
percent (3%) of the outstanding capital stock of any Competing Business that is
publicly traded on any recognized exchange or in the over-the-counter market).
Except as set forth on Schedule 3.26 hereto, no Shareholder, director or officer
of the Companies and none of their Related Persons is a Party to any Contract
with, or has any claim or right against, the Companies, other than the rights
the officers and directors of the Companies have with respect to indemnification
under state law. The Shareholders and the Companies have no Knowledge of any
event or circumstance which may, with reasonable certainty, be expected to
result in a claim for indemnification by directors or officers of any of the
Companies under state law. All money owed by the Companies to their
shareholders, directors or officers, or their Related Persons, (other than for
salary) are for bona fide debts and are set forth in Schedule 3.26 hereto.
3.27 Hazardous Materials. Except as set forth in Schedule 3.27 hereto,
the Companies have never generated, transported, stored, handled, disposed of or
contracted for the disposal of any Hazardous Materials. Except as set forth in
Schedule 3.27 hereto, to the Knowledge of the Shareholders or the Companies, no
employee of the Companies has, in the course and scope of employment with the
Companies, been exposed to any Hazardous Materials in such a manner as to be
harmed thereby (whether such harm is now known to exist or will be discovered in
the future). Except as set forth on Schedule 3.27 hereto, the Companies are not
listed as potentially responsible Parties under CERCLA or any comparable or
similar Applicable Law, the Companies have not received notice of such a listing
and the Shareholders or the Companies have no Knowledge of any facts or
circumstances which could give rise to such a
36
listing. Except as set forth in Schedule 3.27 the Companies have not released
any Hazardous Materials at, to or from the Leased Real Estate. To the Knowledge
of the Shareholders or the Companies, there has been no other release of any
Hazardous Materials in a reportable quantity under Environmental Laws at, to or
from the Leased Real Estate.
3.28 Other Environmental Matters.
(a) Except as set forth on Schedule 3.28 hereto, the Leased
Real Estate has been operated by the Companies and is in compliance in
all material respects with all Applicable Laws, including Environmental
Laws and all Applicable Laws relating to underground and/or above
ground petroleum storage tanks. Except as set forth on Schedule 3.28
hereto, the Companies otherwise comply in all material respects with
all Environmental Laws. Except as set forth on Schedule 3.28 hereto,
the Companies have obtained or have taken appropriate steps, as
required by Environmental Laws and Applicable Laws, to obtain all
environmental, health and safety Permits and other authorizations
necessary for the ownership and operation of the Business and all of
the Permits and other such authorizations are in good standing, and the
Companies are in compliance in all material respects with such Permits
and other such authorizations. Except as described in Schedule 3.28
hereto, to the Knowledge of the Shareholders and the Companies, the
Leased Real Estate is free of any and all other Hazardous Materials.
The Leased Real Estate is not subject to any "Super-Fund" type
Encumbrances by any Person arising from the release or Threatened
release of any Hazardous Materials in, on, about or under the Leased
Real Estate.
(b) To the Knowledge of the Shareholders or the Companies, all
of the third parties with which the Companies have arranged, engaged or
contracted to accept, treat, transport, store, dispose or remove any
pollutant generated or present at the Leased Real Estate, or which
otherwise participate or have participated in activities or conduct
related to the Leased Real Estate or the Business, were properly
permitted at the relevant time to perform the foregoing activities or
conduct.
(c) Except as described on Schedule 3.28 hereto, there are not
currently and, to the Knowledge of the Shareholders or the Companies,
never have been any xxxxx or underground and/or above ground storage
tanks (whether or not currently in use) on any parcel of Leased Real
Estate and, to the extent such xxxxx or tanks are described in Schedule
3.28, all such xxxxx and tanks are, to the Knowledge of the
Shareholders, in sound condition and are not leaking.
(d) Except as set forth on Schedule 3.28 hereto, no part of
any parcel of Leased Real Estate is now being used, nor, to the
Knowledge of the Shareholders or the Companies, has any parcel of
Leased Real Estate ever been used, as a landfill, dump or other
disposal, storage, transfer, treating or handling area for any
Hazardous Materials, or as a gasoline service station or a facility for
selling, dispensing, storing, transferring, treating or handling
Hazardous Materials.
(e) To the Knowledge of the Shareholders or the Companies, and
except as set forth in Schedule 3.28 hereto, the Companies are not
subject to any investigation
37
relating to (i) any violation of Environmental Laws, or (ii) any claims
or Liabilities and costs arising from the release or Threatened release
of any Hazardous Materials. The Companies have not received any written
notification within the past two (2) years of any Proceeding alleging
or addressing (i) any violation of Environmental Laws, or (ii) any
claims or Liabilities and costs arising from the release or Threatened
release of any Hazardous Materials.
(f) Except as set forth in Schedule 3.28 hereto, to the
Knowledge of the Shareholders or the Companies, there is not
constructed, placed, deposited, stored, disposed or located on the
Leased Real Estate any asbestos in any form.
(g) Except as set forth in Schedule 3.28 hereto, to the
Knowledge of the Shareholders or the Companies, there is not
constructed, placed, deposited, stored, disposed nor located on the
Leased Real Estate any polychlorinated biphenyls ("PCBs") or
transformers, capacitors, ballasts, or other equipment which contain
dielectric fluid containing PCBs.
(h) Except as set forth in Schedule 3.28 hereto, to the
Knowledge of the Shareholders or the Companies, there is not
constructed, placed, deposited, stored, disposed nor located on the
Leased Real Estate any insulating material containing urea
formaldehyde.
3.29 Debt Instruments. Schedule 3.29 is a true, correct and complete
list showing the names of the parties and outstanding indebtedness as of the
respective dates set forth on Schedule 3.29 under all mortgages, indentures,
notes, guarantees and other obligations for or relating to borrowed money,
purchase money debt (including conditional sales contract and capital leases) or
covenants not to compete (the "Debt Instruments") for which the Companies are
primarily or secondarily obligated. The Shareholders have previously delivered
to the Purchaser true, complete and correct copies of each of the Debt
Instruments. Except as described in Schedule 3.29, the Companies have performed
all of the material obligations required to be performed by them, and are not in
material default under any of the provisions of any of the Debt Instruments, and
there has not occurred any event which, (with or without notice, lapse of time
or the happening or occurrence of any other event) would constitute such a
default.
3.30 Customers and Suppliers. Schedule 3.30 contains a list of the
twenty (20) largest customers (by gross revenues) of each Company for the
calendar year 2000. No customer, subscriber or a group of customers or
subscribers of the Companies has notified the Companies on or after June 30,
2001, that the customer intends to terminate, cancel, limit or modify the
customer's business relationship with the Companies, except such terminations,
cancellations, limitations or modifications as occur in the Ordinary Course of
Business of the Companies. Except as set forth in Schedule 3.30, no vendor,
supplier, dealer, representative or consultant of the Companies which is
material to the Companies' Business operations has notified the Companies after
June 30, 2001, that it intends to terminate, cancel, limit or modify its
business relationship with the Companies in any material respect.
3.31 Shareholder Loans. Except as set forth in Schedule 3.31, there are
no loans, advances or other obligations for borrowed money owing by the
Companies to the Shareholders
38
as of the date hereof, and no amount shall be owing for such obligations at and
upon the Closing. Except as set forth in Schedule 3.31, the Shareholders do not
have any claim of any kind against the Companies, and no amount shall be owing
for such obligations at and upon the Closing.
3.32 Adequacy of Properties. The Companies own, lease or otherwise have
adequate rights to use all tangible and intangible personal property necessary
for the conduct of their Business in the manner in which such Business is
presently being conducted with no conflict with or infringement of the rights of
others, and none of such property or the Companies' rights thereto is subject to
any Proceeding pending, or to the Knowledge of the Shareholders or the
Companies, Threatened, which may result in the revocation, termination,
supervision, cancellation or adverse modification of any such property.
3.33 Absence of Certain Business Practices. Except as disclosed in
Schedule 3.33, and except for customer or prospective customer entertainment
occurring in the Ordinary Course of Business, neither the Companies nor any
Person acting on their behalf has, directly or indirectly, within the past six
(6) years given or agreed to give any gift or similar benefit to any customer,
supplier, governmental employee or other Person who is or may be in a position
to help or hinder the Business of the Companies (or assist the Companies in
connection with any actual or proposed transaction) which (i) might subject the
Companies to any damage or penalty in any civil, criminal or governmental
litigation or Proceeding, (ii) if not given in the past, might have had a
Material Adverse Effect on the financial condition, Business or results of
operations of the Companies, or (iii) if not continued in the future, might
adversely affect the financial condition, Business or operations of the
Companies or which might subject the Companies to suit or penalty in any private
or governmental litigation or Proceedings.
3.34 Trade Regulation. Except as set forth on Schedule 3.34, (a) all of
the prices charged by the Companies in connection with the marketing, sale or
distribution of any products or services have been in compliance with all
Applicable Laws, and (b) no claims have been communicated or, to the Knowledge
of the Shareholders or the Companies, Threatened in writing against the
Companies with respect to wrongful termination of any dealer, distributor or any
other marketing entity, discriminatory pricing, price fixing, unfair
competition, false advertising, or any other violation of any Applicable Laws
relating to anti-competitive practices or unfair trade practices of any kind.
3.35 Inventories.
(a) All inventories of the Business are of good, usable and
merchantable quality in all material respects and do not include
obsolete or discontinued items;
(b) All inventories are of such quality as to meet the usual
and customary quality control standards of the Business and any
applicable quality control standards of any applicable Governmental
Body;
(c) All inventories of the Business that are finished goods
are saleable as current inventories in the Ordinary Course of Business;
and
39
(d) All inventories of the Business are recorded on the
financial records at the lower of cost or market, except with respect
to any LIFO inventory, or as otherwise required by GAAP.
Schedule 3.35 lists the location of all such inventories. The Companies have
followed all Company policies with respect to excess and obsolete inventory.
3.36 Officers and Directors. Exhibit A to this Agreement contains a
true, correct, and complete list of all officers and directors of each Company.
3.37 Powers of Attorney. Schedule 3.37 contains a list of all powers of
attorney granted by any of the Companies.
3.38 No Other Agreements to Sell the Companies or Their Assets. Neither
the Companies nor any Shareholder has any legal obligation, absolute or
contingent, to any Person to sell any of the Stock or any substantial part of
the assets of any Company or effect any merger, consolidation or other
reorganization, except as such an obligation may exist pursuant to this
Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND STONEPATH
As an inducement for the Companies, the Shareholders' Agent and the
Shareholders to enter into this Agreement and the Ancillary Documents, and
consummate the transactions contemplated hereby, the Purchaser and Stonepath
hereby represent and warrant to the Companies, the Shareholders' Agent and the
Shareholders that each and all of the following representations and warranties
(as modified by the Schedules and any Supplement delivered by the Purchaser
pursuant to Section 13.21 of this Agreement) are true and correct as of the date
of this Agreement and will be true and correct as of the Closing Date. The
Schedules shall be arranged in paragraphs corresponding to the sections and
subsections contained in this Article 4.
4.1 Organization. The Purchaser and Stonepath are each corporations
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and have all requisite power and authority, corporate and
otherwise, to own, operate and lease their respective properties and assets and
to conduct their respective Businesses as they are now being conducted. The
Purchaser is duly qualified to transact business as a foreign corporation and is
in good standing under the laws of every state or jurisdiction in which the
nature of its activities or of its properties owned, leased or operated makes
such qualification necessary.
4.2 Due Authorization. The execution, delivery and performance of this
Agreement and the Ancillary Documents to be executed and/or delivered by the
Purchaser and Stonepath pursuant to this Agreement and the Ancillary Documents,
and the consummation of the transactions contemplated hereby and thereby have
been duly and validly authorized by all necessary corporate action on the part
of the Purchaser and Stonepath. This Agreement and the Ancillary Documents to be
executed and/or delivered by the Purchaser and Stonepath pursuant to this
Agreement have been, or will be on or before the Closing Date, duly and validly
authorized, executed and delivered by the Purchaser and Stonepath and the
obligations of the Purchaser and
40
Stonepath hereunder and thereunder are or will be valid, legally binding and
enforceable against the Purchaser and Stonepath in accordance with their
respective terms.
4.3 No Breach. Each of the Purchaser and Stonepath have full power and
authority, corporate and otherwise, to perform their obligations under this
Agreement and the Ancillary Documents. The execution and delivery of this
Agreement, including the Ancillary Documents to be executed and delivered by the
Purchaser and Stonepath pursuant to this Agreement, and the consummation of the
transactions contemplated hereby and thereby will not: (i) violate any provision
of the Certificates of Incorporation or Bylaws (or comparable governing
documents or instruments) of the Purchaser or Stonepath, (ii) violate any
Applicable Laws or Injunction applicable to the Purchaser, (iii) require any
filing with, Permit from, authorization, consent or approval of, or the giving
of any notice to, any Person, (iv) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give another party any rights of termination, cancellation or acceleration)
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, franchise, Permit (including, but not limited to, any
Permits, appeals or authorizations of any Governmental Body), lease or other
Contract to which the Purchaser or Stonepath is a Party, or by which either the
Purchaser or Stonepath or any of their respective assets or properties may be
bound.
4.4 Investment Representations. The Purchaser acknowledges and agrees
that the Stock has not been registered under the Securities Act of 1933, as
amended, or under the securities laws of any jurisdiction, by reason of reliance
upon certain exemptions.
4.5 Brokers. Except for the Bank of New York in its capacity as
investment bankers to the Purchaser and Stonepath, the Purchaser has not
employed or engaged any broker, finder, agent, investment banker or third party
nor has it otherwise dealt with anyone purporting to act in the capacity of a
finder or broker, in connection with the transactions contemplated hereby.
4.6 Fraudulent Conveyance. The Purchaser and Stonepath represent and
warrant that the transactions contemplated by the Closing of the Stock Purchase
Agreement and the operation of the Companies after the Closing will not be
construed as a fraudulent conveyance or transfer which may or could result in
any Liability on the part of the Shareholders. Notwithstanding any contrary
provision contained in this Agreement or any Ancillary Document, this
representation shall survive for the statute of limitations period applicable to
fraudulent transfers and conveyances applicable under Minnesota Applicable Law
or any Applicable Law of the jurisdiction in which such claim is or may be
brought, whichever last expires. The Purchaser and Stonepath further represent
and warrant that (i) they are entering into the transactions without the actual
intent to hinder, delay or defraud any creditor of the Companies, (ii) the
Shareholders have, to the Purchaser's and Stonepath's Knowledge, received
reasonably equivalent value for the Stock, and (iii) the Companies (A) are not
about to engage in a business or transaction for which the assets of a Company
or the Companies are unreasonably small in relation to such business or
transaction, (B) will not incur debts beyond the ability of a Company or the
Companies to pay as they become due, and (C) will not be rendered insolvent by
the consummation of the transactions contemplated by this Agreement.
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ARTICLE 5
PERFORMANCE AND COVENANTS PENDING CLOSING
The Companies covenant and agree that from and after the date of this
Agreement and until the earlier of the Closing Date or the termination of this
Agreement in accordance with Article 12 hereof:
5.1 Access to Information. At the request of the Purchaser, the
Companies shall, from time to time, give or cause to be given to the Purchaser,
its officers, employees, counsel, accountants and other representatives, upon
reasonable notice to the Companies, access during normal business hours, without
undue disruption to the Companies' Business, to the properties and assets and
all of the books, minute books, title papers, records, files, Contracts,
insurance policies, environmental records and reports, licenses and documents of
every character of the Companies, and the Companies shall furnish or cause to be
furnished to the Purchaser, its officers, employees, counsel, accountants and
other representatives all of the information with respect to the Companies
and/or the Companies' properties or assets as any of them may reasonably
request. The Purchaser, its officers, employees, counsel, accountants and other
representatives shall have the authority to interview, as reasonably necessary
and without undue disruption to the Companies' Business, all employees,
customers, vendors, suppliers and other parties having relationships with the
Companies, and the Companies shall make such introductions as may be requested;
provided, however, that access to customers shall, if at all, be done in a
commercially reasonably manner consistent with the best interests of the
Companies and shall be subject to the prior consent of the Companies, which
consent shall not be unreasonably withheld. In addition, the Purchaser may,
subject to the conditions stated above, at its sole cost and expense, through
its officers, employees, counsel, accountants and other representatives, conduct
such investigations and examinations of the Companies' properties and assets as
it reasonably deems necessary or advisable, and the Companies will provide
reasonable cooperation to such Persons in such investigations.
5.2 Conduct of Business. The Companies will carry on the Business
diligently, only in the Ordinary Course of Business and substantially in the
same manner as heretofore conducted and will keep and maintain the Companies'
properties and assets in good and safe repair and condition consistent with past
practices. The Companies shall not make any regulatory filings with any
Governmental Body, except in the Ordinary Course of Business or with the prior
written consent of the Purchaser (which consent shall not be unreasonably
withheld, delayed or conditioned). The Shareholders will not cause or permit any
amendment of the Companies' articles of incorporation or bylaws (or other
governing instrument).
5.3 Encumbrances. The Companies shall not, directly or indirectly,
perform or fail to perform any act which would, with substantial certainty,
result in the creation or imposition of any Encumbrance on any of the properties
or assets of the Companies or otherwise adversely affect the marketability of
the Companies' title to or interests in any of their properties or assets,
outside of the Ordinary Course of Business.
5.4 Pay Increases. Except for normal base salary increases in the
Ordinary Course of Business (other than any base salary increases in
compensation payable to the Shareholders or
42
other directors or officers of the Companies), the Companies shall not, without
the prior written consent of the Purchaser, grant any increase in the salaries
or rate of pay to any of its employees, grant any bonus outside of the Ordinary
Course of Business (and in the case of the Shareholders grant or pay any bonus),
grant any increase in any benefits or establish, adopt, enter into, make any new
grants or awards under, or amend any collective bargaining agreement, employment
agreement (except as contemplated by this Agreement) or Benefit Plan for the
benefit of any of its employees.
5.5 Restrictions on New Contracts and Liabilities. Except with the
prior consent of the Purchaser, which consent shall not be unreasonably
withheld, delayed or conditioned, the Companies shall not enter into any
Contract, incur any Liability, assume, guarantee or otherwise become liable or
responsible for any Liability of any other Person, make any loans, advances,
investments in or capital contributions to any other Person (except for
extensions of credit to its customers in the Ordinary Course of Business), or
waive any right or enter into any other transaction, in each case other than in
the Ordinary Course of Business and consistent with the Companies' normal
business practices.
5.6 Preservation of Business. The Companies shall use reasonable
commercial efforts to preserve the Companies' business organizations intact, to
keep available to the Purchaser the present employees of the Companies and to
preserve for the Purchaser the present goodwill and relationship of the
Companies with their vendors, suppliers, customers and others having business
relationships with the Companies.
5.7 Payment and Performance of Obligations. The Companies shall timely
pay and discharge all invoices, bills and other monetary Liabilities.
5.8 Restrictions on Sale of Assets. The Companies shall not, sell,
assign, transfer, lease, sublease, pledge or otherwise encumber or dispose of
any of their properties or assets, except for sales under contract on the date
of this Agreement or sales in the Ordinary Course of Business.
5.9 Prompt Notice. The Companies shall promptly notify the Purchaser in
writing upon becoming aware of any of the following: (i) any claim, demand or
other Proceeding that may be brought, Threatened, asserted or commenced against
the Companies, their officers or directors, (ii) any changes in the accuracy of
the representations and warranties made by the Shareholders and the Companies in
this Agreement, (iii) any Injunction or any complaint praying for an Injunction
restraining or enjoining the consummation of, the transactions contemplated
hereby, or (iv) any notice from any Person of its intention to institute an
investigation into, or institute a Proceeding to restrain or enjoin the
consummation of the transactions contemplated hereby or to nullify or render
ineffective this Agreement or such transactions if consummated.
5.10 Consents. As soon as reasonably practicable and in any event on or
before the Closing Date, the Companies will use reasonable commercial efforts to
obtain or cause to be obtained all of the consents and approvals of all Persons
necessary for the Shareholders' Agent and the Shareholders to consummate the
transactions contemplated hereby, including the consents and approvals listed on
Schedule 3.4 hereto.
43
5.11 [THIS SECTION INTENTIONALLY OMITTED]
5.12 No Solicitation of Other Offers. The Shareholders and the
Companies will not, and will not permit their respective representatives,
investment bankers, agents and Affiliates to, directly or indirectly, (i)
solicit or encourage submission of or any inquiries, proposals or offers by,
(ii) participate in any negotiations with, (iii) afford any access to the
properties, books or records of the Companies to, (iv) accept or approve, or (v)
otherwise assist, facilitate or encourage, or enter into any Contract with, any
Person or group (other than the Purchaser and its Affiliates, agents and
representatives), in connection with any Acquisition Proposal. In addition, the
Shareholders and the Companies will not, and will not permit their respective
representatives, investment bankers, agents and Affiliates to, directly or
indirectly, make or authorize any statement, recommendation or solicitation in
support of any Acquisition Proposal made by any Person or group (other than the
Purchaser). In addition, the Shareholders and the Companies will immediately
cease any and all existing activities, discussions or negotiations with any
parties with respect to any of the foregoing. The Shareholders will promptly
notify the Purchaser if any offer is made, any discussions or negotiations are
sought to be initiated, any inquiry, proposal or contact is made or any
information is requested with respect to any Acquisition Proposal.
5.13 Accounts Receivable and Payable. The Companies shall not
accelerate the collection of their accounts receivable or delay the payments of
their accounts payable or other Liabilities, in each case arising out of the
operation of the Business in a manner which would be inconsistent with past
practice.
5.14 Inventory. The Companies shall maintain the levels of inventory,
materials and supplies used in the Business consistent with past practice.
5.15 Insurance. The Companies shall maintain in full force and effect
all insurance coverages for the Companies' properties and assets substantially
comparable to coverages existing on the date hereof.
5.16 Filing Reports and Making Payments. The Companies shall timely
file all required reports and notices with each and every applicable
Governmental Body and timely make all payments due and owing to each such
Governmental Body, including, but not by way of limitation, any filings, notices
and/or payments required by reason of the transactions contemplated by this
Agreement.
5.17 Capital Expenditures. The Companies shall not, and the
Shareholders shall not permit the Companies to, make any capital expenditures in
excess of $50,000 individually or $500,000 in the aggregate without the
Purchaser's prior written consent, which consent shall not be unreasonably
withheld.
5.18 Monthly Financials Statements. Within (i) twenty (20) days of the
close of each month after the execution of this Agreement by all Parties hereto,
the Companies shall deliver to the Purchaser a preliminary consolidated balance
sheet and income statement for the Companies disclosing the financial position
and results of operations of the Companies for the preceding month and
year-to-date, which statements will necessarily omit agent invoices payable
which
44
have not been received within the cut-off period for the preparation of such
statements, and (ii) forty-five (45) days of the close of each month after
execution of this Agreement by all Parties hereto, the Companies shall deliver a
final consolidated balance sheet and income statement disclosing the financial
position and results of operations of the Companies for the preceding month and
year-to-date which shall be prepared on a basis consistent with the financial
statements identified on Schedule 3.12 hereof and consistent with the prior
months' and year-to-date financial statements.
5.19 Litigation. From the date hereof and through the Closing Date, the
Companies will notify the Purchaser in writing of any actions or Proceedings of
the type required to be described in Section 3.7 of this Agreement, that, from
the time hereof, are, to the Companies' Knowledge, Threatened or commenced
against the Companies or against any officer, director or employee of the
Companies relating to the Business or the Companies.
5.20 Notification of Inaccuracy. The Shareholders and/or the Company,
as applicable, agree to promptly notify the Purchaser in writing of any material
inaccuracy of a representation or warranty made by the Company or the
Shareholders in this Agreement of which the Company or a Shareholder becomes
aware prior to the Closing Date. The Purchaser agrees to promptly notify the
Shareholders' Agent and the Shareholders in writing of any material inaccuracy
made by the Purchaser in this Agreement of which the Purchaser becomes aware
prior to the Closing Date and which could result in a Material Adverse Effect.
The foregoing shall not limit the ability of the Company and the Shareholders to
provide Supplements to the Schedules pursuant to Section 13.21.
5.21 Landlord/Lessor Estoppel Certificates. Promptly on and after the
date hereof, the Companies shall make reasonable commercial efforts to obtain
landlord/lessor estoppel certificates from each of the landlords/lessors of the
Leased Real Estate set forth and disclosed in Schedule 3.17. Such estoppel
certificates shall include (i) the parties to the Leased Real Estate lease, (ii)
the dates of commencement and termination of the Leased Real Estate lease, (iii)
description of any extension, option or expansion terms, (iv) date of last
payment under the Leased Real Estate lease and confirmation that all such
payments under such lease have been paid in full to the date of the estoppel
certificate, (v) confirmation that no additional rents, costs, charges or
assessments are accruing and/or due under such lease, and (vi) a statement by
the landlord/lessor that there are no breaches, defaults or other occurrences or
events by either the landlord/lessor or the applicable Company under such lease
as of the date of the estoppel certificate.
5.22 Company Guarantees. All guarantees made by the Companies,
contingent or otherwise, of any kind or nature made for or on behalf of the
Shareholders, the Shareholders' Agent, any Affiliate of the Shareholders or the
Companies or any of their respective trustees, officers, directors, employees or
other representatives shall be fully and finally terminated, without recourse,
and delivered to the Purchaser at and upon the Closing.
5.23 Environmental Review.
45
(a) Subject to the approval of the landlords of the Leased
Real Estate, to the extent required, the Companies shall permit the
Purchaser or any reasonably qualified environmental consultant
designated by the Purchaser (the "Environmental Consultant") to conduct
a Phase I environmental audit, and, if reasonably determined by the
Purchaser to be necessary, a Phase II environmental audit of the Leased
Real Estate prior to Closing. Beginning immediately after the execution
hereof, subject to such landlord approval, the Environmental Consultant
shall have reasonable access to the Leased Real Estate during normal
business hours, upon reasonable notice; provided, however, that neither
the Purchaser nor the Environmental Consultant shall unreasonably
interfere with the normal business operations of the Companies. The
Purchaser shall pay all fees and expenses of the Environmental
Consultant. The Purchaser shall indemnify and hold the Companies, the
Shareholders and the Shareholders' Agent harmless from, against and in
respect of any and all property damage caused by the Environmental
Consultant.
(b) The Purchaser shall provide full, correct and complete
copies of any and all environmental reports of any kind or nature
prepared and/or delivered to the Purchaser or Stonepath within three
(3) business days of their receipt, but in no event shall such delivery
be later than fifteen (15) days prior to the Closing Date. The
Shareholders and the Companies shall have the right and obligation to
incorporate any and all such environmental reports into a Supplement to
this Agreement and submit such Supplement to the Purchaser and
Stonepath in accordance with Section 13.21 of this Agreement.
Notwithstanding any contrary provision of such Section 13.21 or Section
12.1 hereof, the Purchaser and Stonepath shall have the right to object
to the Supplement and, if such objection is made, the Purchaser and
Stonepath shall give notice that they intend to terminate this
Agreement effective upon receipt of such notice. In the event this
Agreement is so terminated, the Purchaser and Stonepath shall not have
or make any claims of Loss or Losses hereunder which arise from, in
connection with or incident to such termination of this Agreement.
(c) Following the Closing, none of the Companies, the
Purchaser, Stonepath or any of their Affiliates or representatives will
arrange for or conduct any investigation or investigations of any
environmental matter other than (i) as required by applicable
Environmental Laws, or (ii) in connection with a third party claim
against the Purchaser or Stonepath with respect to the Leased Real
Estate.
5.24 Cooperation with Respect to Permits, Licenses and Regulatory
Matters.
(a) Permits. The Shareholders shall, at their sole cost and
expense, promptly perform such lawful acts and execute and deliver to
the Purchaser such documents as the Purchaser may request to obtain the
full benefits of the transfer of ownership of the Stock, and the
Companies shall cooperate with the Purchaser to obtain for the
Purchaser all transferable and nontransferable Permits issued by a
Governmental Body necessary or appropriate to continue the operation of
the Business in the ordinary course from and after the Closing Date.
46
(b) Regulatory Matters. Upon execution of this Agreement, the
Purchaser, the Companies and the Shareholders shall promptly proceed to
file all applications, consent requests and associated documentary
material required by or necessary to obtain all approvals of any
Governmental Body necessary to complete or satisfy the conditions to
Closing with respect to the transactions contemplated by this
Agreement.
5.25 Audited Financial Statements. The Companies and the Shareholders
shall cooperate with Stonepath and the Purchaser for the purpose of allowing a
nationally recognized firm of independent certified public accountants to audit
the books and records of the Companies for the calendar years ending December
31, 1998, December 31, 1999 and December 31, 2000 (the "Audited Financial
Statements"). The Companies and the Shareholders shall use reasonable commercial
efforts to assist in the audit and to facilitate the production of the Audited
Financial Statements, including providing access to the books and records of the
Companies in accordance with Section 5.1 of this Agreement. Promptly upon
delivery of any draft or final version of the Audited Financial Statements to
Stonepath or the Purchaser, Stonepath and/or the Purchaser shall deliver, or
cause to have delivered, a true and correct copy of the draft or final Audited
Financial Statement to the Shareholders' Agent and counsel to the Shareholders'
Agent. In furtherance of the foregoing, the Companies shall execute and deliver
such documents and instruments to the Closing Date Accountant as may be
reasonably requested by such Closing Date Accountant. GAAP applied to such
Audited Financial Statements shall be the same GAAP observed by the Companies,
consistently applied for the years audited. Stonepath and/or the Purchaser shall
pay all fees, costs and expenses arising from, incident to or in connection with
the audit of the books and records of the Companies and the preparation of the
Audited Financial Statements, including the fees, costs and expenses of the
Companies' independent accountants in rendering services in connection with such
audit and preparation and review of the Audited Financial Statements, regardless
as to whether the transactions contemplated hereby proceed to Closing and
regardless as to the reason this Agreement is not closed.
5.26 Shareholder Guarantees. Schedule 5.26 sets forth a list of
guarantees (compiled in good faith by the Companies and the Shareholders) made
by the Shareholders to third parties with respect to the Business. Each of the
Parties shall use all reasonable commercial efforts prior to the Closing to
cause each of the Shareholders to be released from any and all guarantees,
contingent or otherwise, of any kind or nature, made for or on behalf of any of
the Companies or in connection with the Business (a "Shareholder Guarantee").
The release of the Shareholder Guarantee(s) shall be evidenced by the return of
the original guaranty at the Closing or by the delivery of an irrevocable
release executed by the beneficiary of the Shareholder Guarantee. In the event
that the Shareholder releases have not been so released at the Closing,
Stonepath and the Purchaser shall make continuous reasonable commercial efforts
to have terminated, extinguished or otherwise released any remaining Shareholder
Guarantee(s) (and provide all documents and instruments to evidence such
termination, extinguishment or release) and shall defend, indemnify and hold the
Shareholders harmless from any Shareholder Guarantee.
5.27 Director and Officer Indemnification.
(a) After the Closing Date, Stonepath and the Purchaser will
(i) indemnify, defend and hold harmless the present and former officers
and directors of the Companies
47
(the "Director Indemnified Parties") in respect of acts or omissions
occurring on or prior to the Closing Date to the extent provided under
Applicable Law or under the organizational documents of the Companies,
in each case as in effect on the date hereof, and (ii) advance expenses
as incurred by the Director Indemnified Parties to the fullest extent
permitted under Applicable Law or under the Companies' organizational
documents, in each case as in effect on the date hereof; provided, that
such indemnification and advancement or expenses shall be subject to
any limitation imposed from time to time under Applicable Law; provided
further, that no Director Indemnified Party shall be entitled to
indemnification for any payment such Director Indemnified Party is
required to make to the Purchaser as a Shareholder under the
indemnification terms of this Agreement; provided further, however,
that a claim made (x) in an action against a Company or the Companies
and the director or (y) against the director only, in each case in his
capacity as director, shall not preclude the director from
indemnification hereunder, including costs, expenses, counsel and other
fees, and the judgment or settlement of such claim, regardless of any
liability for indemnification such director may have as a Shareholder
hereunder, if such director otherwise meets the indemnification
requirements under Applicable Law.
(b) The provisions of this Section 5.27 are intended to be for
the benefit of, and shall be enforceable by, each of the Director
Indemnified Parties, their heirs and personal representatives.
5.28 Executive Employment Agreements. At and upon the Closing, MGR
shall enter into executive employment agreements with certain members of
management and key personnel of the Companies set forth in Schedule 7.9. Each of
the Shareholders shall be employed under employment agreements substantially in
the form of Exhibit G. The Shareholders each agree to execute and deliver an
employment agreement substantially in the form of Exhibit G and Schedule 7.9
hereto (which includes their title, salary information, vacation time and
monthly automobile lease allowance.
5.29 Prohibition on Trading Activities. The Shareholders acknowledge
that they have been advised by Stonepath and are otherwise aware that the United
States Securities laws prohibit any Person (including the Shareholders) who has
received material non-public information concerning the matters which are the
subject matter of this Agreement from purchasing or selling the stock of
Stonepath, or from communicating such information to any Person under
circumstances in which it is reasonably foreseeable that such a Person is likely
to purchase or sell securities of Stonepath. The Shareholders agree that they
will not purchase or sell any securities of Stonepath or communicate such
information to any other Person under circumstances in which it is reasonably
foreseeable that such Person is likely to purchase or sell securities of
Stonepath.
5.30 Pre-Closing Liability and Indemnification. Stonepath and the
Purchaser agree that, prior to the Closing, in the event of any claim of a Loss
or Losses of breach of this Agreement or any other Ancillary Document by
Stonepath and/or the Purchaser by the Companies, the Shareholders or the
Shareholders' Agent, the sole Person that may be claimed against, and subject to
an indemnity obligation or any Liability with respect to any such claim, shall
be the Companies. In furtherance of the foregoing, (a) Stonepath and the
Purchaser agree
48
that no claim of Loss or Losses or any other action shall be made or taken
against the Shareholders or the Shareholders' Agent in the event this Agreement
and the transactions contemplated hereby are not closed and that any such claims
shall be made under such circumstances, if at all, solely against a Company or
the Companies, except pursuant to an action for specific performance under
Section 13.20 of this Agreement, and (b) the Companies agree that they shall be
bound by the indemnification provisions of Section 9.1 of this Agreement prior
to the Closing.
5.31 Year 2000 S Corporation Distributions. Stonepath and the Purchaser
consent to and agree, notwithstanding any contrary provision of this Agreement
or any Ancillary Document, that the Companies may declare dividends and
authorize the payment of and pay dividend distributions (or cause such actions)
from the Companies, in the case of declaration and authorization, prior to the
Closing, of any amount of the Companies continued S corporation net income
before Taxes from the calendar year 2000 which represents taxed but unpaid
income to the Shareholders to the extent that such taxed but unpaid income for
the calendar year 2000 exceeds $3,000,000.
5.32 Year 2001 S Corporation Distributions. Stonepath and the Purchaser
consent to and agree, notwithstanding any contrary provision of this Agreement
or any Ancillary Document, that the Companies may declare dividends and
authorize the payment of and pay dividend distributions (or cause such actions)
from the Companies, in the case of declaration and authorization, prior to the
Closing, of forty-five percent (45%) of the Companies' combined S corporation
net income before Taxes for the portion of calendar year 2001 prior to or on the
Closing Date which represents untaxed (but taxable) and unpaid income to the
Shareholders.
5.33 Payment of Shareholder Loans. Stonepath and the Purchaser hereby
acknowledge and agree to consent to the continuation of the payment of the
Companies' existing loans from the Shareholders to the Companies from the date
of this Agreement through the date of Closing. In the period after the Closing
Date, Stonepath and the Companies covenant and agree to continue such payments
in a manner consistent with that established in the period before the Closing,
and further agree that the Companies shall pay such Shareholder loans in full
not later than December 31, 2001. Schedule 5.33 sets forth the principal
balances and schedule for such payments.
5.34 Payment of Audit Fees. Stonepath shall timely pay any and all
fees, costs and expenses in connection with the preparation of the Audited
Financial Statements and in accordance with Section 5.25 above.
5.35 Other Matters. Except as expressly permitted or contemplated by
this Agreement, the Companies shall not (a) issue or commit to issue any shares
of capital stock or other securities convertible into capital stock, or Rights,
(b) authorize, pay or incur any obligation to pay any dividend on its capital
stock or make or incur any obligation to make any distribution or redemption
with respect to its capital stock, (c) terminate any material Contract or lease
of Leased Real Estate, (d) cancel, release, or assign any indebtedness owed to
them or any claims, except in the Ordinary Course of Business, or (e) enter into
or modify any agreement with a Related Person.
49
ARTICLE 6
MUTUAL CONDITIONS PRECEDENT TO THE PARTIES' OBLIGATIONS
Unless waived in writing by the Parties, each and every obligation of
the Purchaser, the Shareholders and the Shareholders' Agent to be performed at
the Closing shall be subject to the satisfaction at or prior thereto of each and
all of the following conditions precedent:
6.1 Proceedings. There being no (i) Proceedings which have been
brought, asserted, commenced or Threatened against the Purchaser, the Companies
and/or the Shareholders by any Person involving or affecting in any way the
Purchaser's, the Companies' or, the Shareholders' consummation of the
transactions contemplated hereby, or (ii) Applicable Laws restraining or
enjoining or which may reasonably be expected to nullify or render ineffective
this Agreement or the consummation of the transactions contemplated hereby or
which otherwise could reasonably be expected to have a Material Adverse Effect.
6.2 Consents and Approvals. The Purchaser and the Shareholders' Agent
shall have received evidence, in form and substance reasonably satisfactory to
the respective counsel for the Purchaser and the Shareholders, that all material
consents, waivers, releases, authorizations, approvals, licenses, certificates,
Permits and franchises of all Persons (including each and every Governmental
Body) as may be necessary to consummate the transactions contemplated by this
Agreement and for the Purchaser to carry on and continue the operations of the
Companies as they are now conducted have been obtained. All consents of a
Governmental Body shall be by Final Order; provided, however, that if the
Purchaser and the Shareholders' Agent waive the condition of Governmental Body
consent by Final Order, the Parties shall consider the Governmental Body consent
without Final Order sufficient to proceed to Closing according to the other
terms of this Agreement. "Final Order" means an action or decision of the
Governmental Body as to which (i) no request for a stay is pending, no stay is
in effect, and any deadline for filing such request that may be designated by
statute or regulation has passed, (ii) no petition for rehearing or
reconsideration or application for review is pending and the time for the filing
of such petition or application has passed, (iii) the Governmental Body does not
have the action or decision under reconsideration on its own motion and the time
within which it may effect such reconsideration has passed, and (iv) no judicial
appeal is pending or in effect and any deadline for filing any such appeal that
may be designated by statute or rule has passed.
6.3 Fairness Opinion. Stonepath shall have received a fairness opinion
from its investment bankers which states that the transaction contemplated by
this Agreement and the Ancillary Documents is fair from a financial point of
view.
6.4 Audited Financial Statements. Stonepath shall have received the
Audited Financial Statements, and such Audited Financial Statements do not
disclose (i) a negative difference of greater than ten percent (10%) from the
aggregate net pre-tax income of the Companies as shown the unaudited financial
statements described in Section 3.12(a) hereof of the Companies for the calendar
years 1998, 1999 and 2000; (ii) a Liability that has not been disclosed to
Purchaser in this Agreement, including the Schedules and the matters described
in Section 3.12(b) hereof, that is material to the combined Audited Financial
Statements taken as a whole. In the event that either of the foregoing
conditions to the Closing are not satisfied and the
50
Purchaser nonetheless elects to proceed to the Closing and the Closing occurs ,
then neither the Purchaser nor Stonepath shall have any claim of Loss or Losses
hereunder for or related to the specific variance which caused the condition to
Closing not to be satisfied.
ARTICLE 7
ADDITIONAL CONDITIONS PRECEDENT TO THE PURCHASER'S OBLIGATIONS
Unless waived by the Purchaser in writing, each and every obligation of
the Purchaser to be performed at the Closing shall be subject to the
satisfaction at or prior thereto of each and all of the following conditions
precedent:
7.1 Accuracy of Representations and Warranties. The representations and
warranties made by the Shareholders in this Agreement (including those set forth
in Sections 3.27 and 3.28) and the Ancillary Documents to be executed and/or
delivered by the Shareholders' Agent and the Shareholders pursuant to this
Agreement and the Ancillary Documents, shall be true and correct in all material
respects at and as of the Closing with the same force and effect as though such
representations and warranties had been made or given at and as of the Closing.
7.2 Compliance with Covenants and Agreements. The Shareholders, the
Shareholders' Agent and the Companies shall have performed and complied with all
of the covenants, agreements and obligations under this Agreement which are to
be performed or complied with by them at or prior to the Closing, including the
execution and/or delivery of the Ancillary Documents specified in Section 2.6(b)
hereof or in such Ancillary Documents, all of which shall be reasonably
satisfactory in form and substance to counsel for the Purchaser.
7.3 No Material Adverse Change. As of the Closing Date, nothing shall
have occurred which, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect on the Companies.
7.4 Approval by Counsel. All actions, Proceedings, instruments and
documents required of the Companies, the Shareholders' Agent and/or the
Shareholders to carry out the transactions contemplated by this Agreement or
incidental thereto and all other related legal matters shall have been
reasonably satisfactory to and approved by counsel for the Purchaser, and such
counsel shall have been furnished with such certified copies of actions and
Proceedings and such other instruments and documents as they shall have
reasonably requested.
7.5 Legal Opinion. The Purchaser shall have received an opinion from
the counsel for the Shareholders and the Shareholders' Agent, dated as of the
Closing Date, in form and substance satisfactory to the Purchaser in the
Purchaser's reasonable commercial discretion.
7.6 Resignation of Officers and Directors. All officers and directors
of the Companies whose resignations have been requested by the Purchaser shall
have been submitted effective as of the Closing Date.
7.7 Corporate Action. The Purchaser shall have received (a)
certificates of the Secretaries of the Companies as to the incumbency and
signatures of the officers and directors,
51
and (b) good standing certificates of existence from the State of Minnesota for
each of the Companies dated within five (5) days of the Closing Date.
7.8 Employees. No executive officer, key employee or group of employees
shall have ceased to be employed by the Companies or expressed an intention to
terminate his or her employment with the Companies.
7.9 Employment Agreements. Each of the Shareholders and the employees
of the Companies who are set forth on Schedule 7.9 shall have executed and
delivered employment agreements (including non-competition provisions)
acceptable to the Purchaser.
7.10 Schedule of Transactional Expenses. The Shareholders shall have
delivered to the Purchaser an itemized schedule setting forth the aggregate
amount of the Transactional Expenses paid by the Companies through the Closing
Date (the "Aggregate Transactional Expenses") as Schedule 7.10 to this
Agreement.
7.11 Transfer of Corporate Names. The corporate and assumed names "Air
Plus Logistics" and "Fulfillment Logistics," and all associated rights shall be
owned by MGR on the Closing Date.
7.12 Termination of Encumbrances on Stock. The Encumbrances and
interests in the Stock set forth in Schedule 3.2 have been terminated on or
before the Closing Date.
ARTICLE 8
ADDITIONAL CONDITIONS PRECEDENT TO THE SHAREHOLDERS' OBLIGATIONS
Unless waived by the Shareholders in writing, each and every obligation
of the Shareholders to be performed at the Closing shall be subject to the
satisfaction at or prior thereto of each and all of the following conditions
precedent:
8.1 Accuracy of Representations and Warranties. The representations and
warranties made by the Purchaser in this Agreement and the Ancillary Documents
to be executed and/or delivered by the Purchaser pursuant to this Agreement,
shall be true and correct in all material respects at and as of the Closing with
the same force and effect as though such representations and warranties had been
made or given at and as of the Closing.
8.2 Compliance with Covenants and Agreements. The Purchaser shall have
performed and complied with all of its covenants, agreements and obligations
under this Agreement which are to be performed or complied with by it at or
prior to the Closing, including the execution and/or delivery of the Ancillary
Documents specified in Section 2.6(c) hereof or in such Ancillary Documents, all
of which shall be reasonably satisfactory in form and substance to counsel for
the Shareholders.
8.3 Approval by Counsel. All actions, Proceedings, instruments and
documents required of the Purchaser to carry out the transactions contemplated
by this Agreement or incidental thereto and all other related legal matters
shall have been reasonably satisfactory to
52
and approved by counsel for the Shareholders' Agent and the Shareholders, and
such counsel shall have been furnished with such certified copies of actions and
Proceedings and such other instruments and documents as they shall have
reasonably requested.
8.4 Legal Opinion. The Shareholders shall have received an opinion from
the counsel for the Purchaser and Stonepath, dated as of the Closing Date, in
form and substance satisfactory to the Shareholders' Agent and the Shareholders
in their reasonable commercial discretion.
8.5 Delivery of Purchase Price and Other Consideration. The Purchaser
shall have delivered to the Shareholders, against receipt of the certificates
for the Stock, the Closing Date Purchase Price to be paid on the Closing Date
determined in accordance with Section 2.3.
8.6 Installment Sales Tax Treatment. The transactions contemplated by
this Agreement shall qualify under the Code for use of the installment method of
reporting taxable income with respect to any amounts of the Purchase Price to be
received by the Shareholders after the Closing Date.
8.7 Management Incentive Program. The management incentive program plan
document (described in Section 11.10), acceptable to the Shareholders' Agent in
its sole discretion, shall have been delivered by Stonepath to the Shareholders'
Agent.
ARTICLE 9
INDEMNIFICATION
9.1 Indemnification by the Companies and the Shareholders. The
Companies (prior to and on the Closing) and the Shareholders (jointly and
severally, but (i) only with respect to the period after the Closing, and (ii)
only with respect to the Company or Companies in which such Shareholder was a
shareholder) against which a Loss or Losses are claimed) hereby covenant and
agree to indemnify and hold the Purchaser, its officers, directors, employees,
Affiliates, shareholders and agents, and each of their respective heirs,
personal representatives, successors and assigns, harmless from, against and in
respect of any and all losses, costs, expenses (including without limitation,
reasonable attorneys' fees and disbursements of counsel), Liabilities, damages,
fines, penalties, charges, assessments, judgments, settlements, claims, causes
of action and other obligations of any nature whatsoever (but excluding
incidental, consequential and special damages and Liability unless directly
asserted by a third party pursuant to a third party claim) (individually, a
"Loss" and collectively "Losses") that any of them may at any time, directly or
indirectly, suffer, sustain, incur or become subject to, arising out of, based
upon or resulting from or on account of each of the following:
(a) the breach or inaccuracy of any representation or warranty
made by the Companies and the Shareholders in this Agreement, including
the documents, instruments and agreements to be executed and/or
delivered by the Shareholders pursuant hereto and thereto; provided,
however, that the Shareholders shall not be required to provide such
indemnification for the breach or inaccuracy of any such representation
or warranty (other than representations or warranties contained in
Sections 3.2, 3.9, 3.10,
53
3.27 or 3.28 hereof) unless and until the Purchaser, its officers,
directors, employees, Affiliates and other representatives shall have
sustained cumulative Losses as a result of one or more such breaches or
inaccuracies of at least One Hundred Thousand Dollars ($100,000) (the
"Basket Amount"). Once the aggregate amount of Losses exceeds the
Basket Amount, the Shareholders shall provide indemnification for all
Losses sustained as a result of such breach(es) or inaccuracies of the
applicable representations and warranties only for Losses in excess of
the Basket Amount (and shall have no Liability with respect to the Loss
or Losses which comprise the Basket Amount); or
(b) the breach of any covenant or agreement made by the
Company, the Shareholders or the Shareholders' Agent in this Agreement
or the Ancillary Documents executed and/or delivered by the Companies,
the Shareholders or the Shareholders' Agent pursuant hereto or thereto;
or
(c) any incurrence by the Purchaser or the Companies of an
amount or amounts for Transactional Expenses paid by the Companies
exceeding the paid Aggregate Transactional Expenses set forth on
Schedule 7.10; or
(d) a Loss or Losses exceeding $250,000 incurred after the
Closing Date by MGR (computed by the payment by MGR of a Loss or
Losses) arising from the litigation matter MGR, Inc. d/b/a Air Plus
Limited v. Viscom Technology Group, Inc. and Xxxx Does 1-100, Dakota
County District Court File No. 19-C3-01-8455, as described in Schedule
3.7 of this Agreement. Notwithstanding any contrary provision of this
Agreement, the Parties have agreed that, in furtherance of the
foregoing:
(i) the $250,000 threshold described above shall be
exclusive of, and not a part of, the Basket Amount; and
(ii) the $250,000 threshold described above shall be
a fully deductible amount and the Shareholders shall not under
any circumstances be responsible for any such Loss or Losses
which is equal to or less than $250,000; and
(iii) MGR shall continue to retain Xxxxxx and Xxxxxx,
Professional Association, as sole counsel to MGR, and no other
counsel fees or expenses incurred by MGR, Stonepath and/or the
Purchaser shall be chargeable against the $250,000 threshold
described above; and
(iv) the Shareholders' Agent shall have the sole and
exclusive control of and direct the Viscom litigation; and
(v) each of the Shareholders, the Companies,
Stonepath and the Purchaser shall, at the Closing, execute a
conflict of interest representation waiver with respect to
Xxxxxx and Xxxxxx, Professional Association's representation
of MGR in the Viscom litigation; and
(vi) in the event any Loss or Losses arising from the
Viscom litigation is in excess of $250,000, the sole and
exclusive remedy of Stonepath, the Purchaser and/or the
Companies against the Shareholders shall be to claim and
54
offset against any further amount required to be paid to the
Shareholders from and after the date the $250,000 threshold
amount is exceeded; provided, further, that Stonepath, the
Purchaser and/or the Companies shall have no right to claim
any amount paid to the Shareholders prior to the date such
threshold is exceeded, whether in the form of Earn-Out or
otherwise.
Notwithstanding the foregoing, any Loss or aggregate Losses to be
indemnified by the Shareholders to the Purchaser under this Agreement shall not
exceed fifty percent (50%) of the Purchase Price. Any claim of indemnification
by the Purchaser from, in connection with or incident to any Loss or Losses
related to Taxes shall be governed by Article 10 of this Agreement.
9.2 Indemnification by the Purchaser. The Purchaser covenants and
agrees to defend, indemnify and hold the Shareholders and the Shareholders'
Agent (individually), and their respective officers, trustees, beneficiaries,
heirs, personal representatives, successors and assigns, harmless from, against
and in respect of any and all Losses that any of them may at any time, directly
or indirectly, suffer, sustain, incur or become subject to, arising out of,
based upon or resulting from or on account of each of the following:
(a) the breach or inaccuracy of any representation or warranty
made by the Purchaser in this Agreement, including the documents,
instruments and agreements to be executed and/or delivered by the
Purchaser pursuant hereto and thereto; or
(b) the breach of any covenant or agreement made by the
Purchaser in this Agreement or the Ancillary executed and/or delivered
by the Purchaser pursuant hereto or thereto; or
(c) any and all damages caused by the Environmental
Consultant; or
(d) any Shareholder Guarantee described in Section 5.26.
9.3 Procedure for Indemnification. In the event a Party, including its
trustees, officers, directors, employees, Affiliates and other representatives,
intends to seek indemnification pursuant to the provisions of Sections 9.1 or
9.2 hereof (the "Indemnified Party"), the Indemnified Party shall promptly give
written notice hereunder to the other Party (the "Indemnifying Party") after
obtaining written notice of any claim, investigation, or the service of a
summons or other initial or continuing legal or administrative process or
Proceeding in any action instituted against the Indemnified Party as to which
recovery or other action may be sought against the Indemnified Party because of
the indemnification provided for in Section 9.1 or 9.2 hereof, and, if such
indemnity shall arise from the claim of a third party, the Indemnified Party
shall permit the Indemnifying Party to assume the defense of any such claim and
any litigation resulting from such claim, with counsel reasonably acceptable to
the Indemnified Party (such acceptance not to be unreasonably withheld, delayed
or conditioned); provided, however, that the Indemnified Party shall not be
required to permit such an assumption of the defense of any claim or Proceeding
which, if not first paid, discharged or otherwise complied with, would result in
a material interruption or disruption of the business of the Indemnified Party,
or any material part thereof. Notwithstanding the foregoing, the right to
indemnification hereunder
55
shall not be affected by any failure of the Indemnified Party to give such
notice (or by delay by the Indemnified Party in giving such notice) unless, and
then only to the extent that, the rights and remedies of the Indemnifying Party
shall have been prejudiced as a result of the failure to give, or delay in
giving, such notice. Failure by the Indemnifying Party to notify the Indemnified
Party of its election to defend any such claim or action by a third party within
twenty (20) days after written notice thereof shall have been given to the
Indemnifying Party shall be deemed a waiver by the Indemnifying Party of its
right to defend such claim or action.
If the Indemnifying Party assumes the defense of such claim,
investigation or Proceeding resulting therefrom, the obligations of the
Indemnifying Party hereunder as to such claim, investigation or Proceeding shall
include taking all steps necessary in the defense or settlement of such claim,
investigation or Proceeding and holding the Indemnified Party harmless from and
against any and all Losses arising from, in connection with or incident to any
settlement approved by the Indemnifying Party or any judgment entered in
connection with such claim, investigation or Proceeding, except where, and only
to the extent that, the Indemnifying Party has been prejudiced by the actions or
omissions of the Indemnified Party. The Indemnifying Party shall not, in the
defense of such claim or any Proceeding resulting therefrom, consent to entry of
any judgment (other than a judgment of dismissal on the merits without costs)
except with the written consent of the Indemnified Party (which consent shall
not be unreasonably withheld, delayed or conditioned) or enter into any
settlement (except with the written consent of the Indemnified Party, which
consent shall not be unreasonably withheld, delayed or conditioned) unless (i)
there is no finding or admission of any violation of Applicable Law and no
material effect on any claims that could reasonably be expected to be made
against the Indemnified Party, (ii) the sole relief provided is monetary damages
that are paid in full by the Indemnifying Party or are Losses which are or may
be properly applied in full by the Indemnifying Party against the Basket Amount,
and (iii) the settlement shall include the giving by the claimant or the
plaintiff to the Indemnified Party a release from all Liability in respect to
such claim or litigation.
If the Indemnifying Party assumes the defense of such claim,
investigation or Proceeding resulting therefrom, the Indemnified Party shall be
entitled to participate in the defense of the claim, but solely by observation
and comment to the Indemnifying Party, and the counsel selected by the
Indemnified Party shall not appear on its behalf in any Proceeding arising
hereunder. The Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it to participate in its defense unless any of
the following shall apply: (i) the employment of such counsel shall have been
authorized in writing by the Indemnifying Party, or (ii) the Indemnifying
Party's legal counsel shall advise the Indemnifying Party in writing, with a
copy to the Indemnified Party, that there is a conflict of interest that would
make it inappropriate under applicable standards of professional conduct to have
common counsel. If clause (i) or (ii) in the immediately preceding sentence is
applicable, then the Indemnified Party may employ separate counsel at the
expense of the Indemnifying Party to represent the Indemnified Party, but in no
event shall the Indemnifying Party be obligated to pay the costs and expenses of
more than one such separate counsel for any one complaint, claim, action or
Proceeding in any one jurisdiction.
If the Indemnifying Party does not assume the defense of any such claim
by a third party or litigation resulting therefrom within twenty (20) days after
receipt of notice from the
56
Indemnified Party, the Indemnified Party may defend against such claim or
litigation in such manner as it reasonably deems appropriate, and unless the
Indemnifying Party shall deposit with the Indemnified Party a sum equivalent to
the total amount demanded in such claim or litigation plus the Indemnified
Party's estimate of the cost (including attorneys' fees) of defending the same,
the Indemnified Party may settle such claim or Proceeding on such terms as it
may reasonably deem appropriate and the Indemnifying Party shall, subject to its
defenses and the applicability of any remaining Basket Amount provided for in
Section 9.1(a) hereof, promptly reimburse the Indemnified Party for the amount
of such settlement and for all reasonable costs (including attorneys' fees),
expenses and damages incurred by the Indemnified Party in connection with the
defense against or settlement of such claim, investigation or litigation, or if
any such claim or litigation is not so settled, the Indemnifying Party shall,
subject to its defenses and the applicability of any remaining Basket Amount
provided for in Section 9.1(a) hereof, promptly reimburse the Indemnified Party
for the amount of any final nonappealable judgment rendered with respect to any
claim by a third party in such litigation and for all costs (including
attorneys' fees), expenses and damage incurred by the Indemnified Party in
connection with the defense against such claim or litigation, whether or not
resulting from, arising out of, or incurred with respect to, the act of a third
party.
Each Party shall cooperate in good faith and in all respects with each
Indemnifying Party and its representatives (including without limitation its
counsel) in the investigation, negotiation, settlement, trial and/or defense of
any Proceedings (and any appeal arising therefrom) or any claim. The Parties
shall cooperate with each other in any notifications to and information requests
of any insurers. No individual professional or employee representative of any
Person or their respective Affiliates, other than the Shareholders, shall be
personally liable for any Loss or Losses under this Agreement, except as
specifically agreed to by said individual representative.
9.4 Dispute Resolution. In the event a dispute arises under this
Agreement or any Ancillary Document, except with respect to Sections 2.2(b) and
2.5, the Guaranty or equitable remedies pursued under this Agreement (including
Section 11.6), such disputes shall be resolved in the manner set forth in this
Section 9.4.
(a) If a dispute arises under this Agreement, including any
question regarding the existence, validity, interpretation or
termination hereof, which is not described as an exception in this
Section 9.4, the Purchaser and the Shareholders may invoke the dispute
resolution procedure set forth in this Section 9.4 by giving written
notice to the other Party. The Parties shall enter into discussions
concerning this dispute. If the dispute is not resolved as a result of
such discussion in ten (10) days, an attempt will be made to resolve
the matter by a formal nonbinding mediation with an independent neutral
mediator agreed to by the Parties. If the Parties cannot agree on a
mediator within a period of ten (10) days after expiration of the ten
(10) day period for resolution by discussion, then either Party may
apply to any court of competent jurisdiction for appointment of a
mediator, which appointment shall be binding and nonappealable. Upon
commencement of the mediation process, the Parties shall promptly
communicate with respect to a procedure and schedule for the conduct of
the Proceeding and for the exchange of documents and other information
related to the dispute. The mediation process shall be deemed ended if
the dispute has not been resolved within thirty (30) days after
appointment of the mediator.
57
(b) All claims, disputes or other matters in question between
the Parties to this Agreement arising out of or relating to this
Agreement which are not resolved by mediation in accordance with
Section 9.4(a) within thirty (30) days after appointment of mediator
shall be submitted for, subject to and decided by arbitration in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association currently in effect as of the date of this
Agreement ("AAA Rules"), except to the extent those rules are
inconsistent with this Section 9.4. Any arbitration must be held in
Minneapolis, Minnesota (if brought by the Purchaser) or Philadelphia,
Pennsylvania (if brought by a Shareholder) by a single arbitrator
mutually selected by the Parties hereto or, if the Parties hereto
cannot agree on the appointment of such arbitrator within ten (10) days
following the date notice of the dispute is given by a Party to the
adverse Party, an arbitrator selected according to the AAA Rules. The
arbitrator's award shall be final, conclusive and binding upon all
Parties to this Agreement, and judgment may be entered upon it in
accordance with the Federal Arbitration Act in any court of general
jurisdiction or any United States District Court in the state in which
the arbitration is held. 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. The Shareholders and the
Purchaser specifically desire this Arbitration clause to be governed by
the United States Federal Arbitration Act, and not by the arbitration
laws of any state.
(c) [THIS SECTION INTENTIONALLY OMITTED]
(d) In the event of arbitration filed or instituted between
the Parties pursuant to this Section 9.4, the prevailing Party will be
entitled to receive from the adverse 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 is determined by the arbitrator to have
prevailed on the major disputed issues.
9.5 Other Matters Affecting Indemnification and the Parties' Remedies.
No Party shall have the obligation to indemnify another Party hereto for any
portion of a Loss or Losses (x) that is recovered or reasonably recoverable by
such Party under any insurance policy, or (y) which may be offset by a Tax
benefit realized or which may be realized in connection with or with respect to
such Loss or Losses. In addition to the foregoing, the Parties acknowledge and
agree that no claim of Loss or any Losses by the Purchaser or its Affiliates
shall be made (i) with respect to Section 3.12(a), it being understood and
agreed that (A) the condition of Closing, and the right of the Purchaser not to
close the transaction due to the variances in the Audited Financial Statements
described in Section 6.4, and (B) the Retained Earnings Adjustment described in
Sections 2.2(b) and 2.5, shall be the sole and exclusive remedies for any claims
of Loss or Losses arising from, in connection with, or incident to the
inaccuracy or breach of the representations and warranties made in Section
3.12(a), and (ii) no claim of Loss or Losses shall be made with respect to the
pre-Closing representations and warranties of the Shareholders and the Companies
under Sections 3.27 and 3.28 (other than Section 3.28(e)) hereof. Nothing
contained in the foregoing provisions of this Section 9.5 shall affect the
Purchaser's right to make a post-Closing claim of a Loss or Losses arising from
a breach of Sections 3.27 or 3.28 based
58
upon the bring-down certificate delivered to the Purchaser by the Shareholders
at the Closing. Rescission shall not be an available remedy to the Parties,
except in the case of fraud. No multiplier will be used in the computation of a
Loss or Losses and the actual economic loss shall be computed on a
dollar-for-dollar basis.
9.6 Exclusive Remedy. Except for (x) the Shareholders' and the
Shareholders' Agent's right to make a claim against Stonepath under the
Guaranty, (y) the rights and remedies of the Parties to make claims and seek
remedies (including equitable remedies) under Section 2.2, Section 2.5, Article
10, Section 11.6 and Section 13.20, the rights and remedies set forth in Article
9 are exclusive and in lieu of any and all other rights and remedies which a
Party may have under this Agreement, the Ancillary Documents or Applicable Law
with respect to the transactions contemplated by this Agreement, in each case in
the absence of fraud.
9.7 No Right of Contribution or Claim. After the Closing, (i) the
Shareholders shall not have any right of contribution against any Company for
any breach of representation, warranty, covenant or agreement of such Company
under this Agreement, except for the right of payment, if any, under Section
11.15 hereof, and (ii) the Companies, individually or collectively, shall not
have any right to claim a Loss or Losses against any Shareholder or the
Shareholders' Agent, or their respective professional advisors for any breach of
representation, warranty, covenant or agreement, of such Shareholder under this
Agreement, except for the right of payment, if any, under Section 11.15 hereof.
ARTICLE 10
TAX MATTERS
The following provisions shall govern the allocation of responsibility
as between the Purchaser and the Shareholders' Agent for certain Tax matters
following the Closing Date:
10.1 Tax Returns.
(a) The Shareholders' Agent has the exclusive authority and
obligation to prepare, execute on behalf of the Companies and timely
file, or cause to be prepared and timely filed, all Tax Returns of the
Companies that are due with respect to any taxable year or other
taxable period ending prior to or ending on and including the Closing
Date. Such authority shall include, but not be limited to, the
determination of the manner in which any items of income, gain,
deduction, Loss or credit arising out of the income, properties and
operations of the Companies shall be reported or disclosed in such Tax
Returns; provided, however, that such Tax Returns shall be prepared by
treating items on such Tax Returns in a manner consistent with the past
practices with respect to such items.
(b) Except as provided in Section 10.1(a), the Purchaser shall
have the exclusive authority and obligation to prepare and timely file,
or cause to be prepared and timely filed, all Tax Returns of the
Companies; provided, however, with respect to Tax Returns to be filed
by the Purchaser pursuant to this Section 10.1 for taxable periods
beginning before the Closing Date and ending after the Closing Date,
items set forth on
59
such Tax Returns shall be treated in a manner consistent with the past
practices with respect to such items. Such authority shall include, but
not be limited to, the determination of the manner in which any items
of income, gain, deduction, Loss or credit arising out of the income,
properties and operations of the Companies shall be reported or
disclosed on such Tax Returns.
10.2 Controversies. The Purchaser shall promptly notify the
Shareholders' Agent in writing upon receipt by the Purchaser or any Affiliate of
the Purchaser (including the Companies after the Closing Date) of written notice
of any inquiries, claims, assessments, audits or similar events with respect to
Taxes relating to a taxable period ending prior to or ending on and including
the Closing Date for which the Shareholders may be liable under this Agreement
(any such inquiry, claim, assessment, audit or similar event, a "Tax Matter").
The Shareholders' Agent, or its duly appointed representative (the
"Shareholders' Representative"), at its expense on behalf of the Shareholders,
shall have the authority to represent the interests of the Companies with
respect to any Tax Matter before the IRS, any other taxing authority, any other
governmental agency or authority or any court and shall have the sole right to
control the defense, compromise or other resolution of any Tax Matter, including
responding to inquiries, filing Tax Returns and contesting, defending against
and resolving any assessment for additional Taxes or notice of Tax deficiency or
other adjustment of Taxes of, or relating to, a Tax Matter; provided, however,
that the Shareholders' Agent shall not enter into any settlement of or otherwise
compromise any Tax Matter that affects or may affect the Tax Liability of the
Purchaser, the Companies or any Affiliate of the foregoing for any period ending
after the Closing Date, including the portion of a period beginning before the
Closing Date and ending after the Closing Date (the "Overlap Period") that is
after the Closing Date, without the prior written consent of the Purchaser. The
Shareholders' Agent or the Shareholders' Representative shall keep the Purchaser
fully and timely informed with respect to the commencement, status and nature of
any Tax Matter. The Shareholders' Agent shall, in good faith, allow the
Purchaser, at its sole expense, to make comments to the Shareholders' Agent or
the Shareholders' Representative, regarding the conduct of or positions taken in
any such Proceeding.
Except as otherwise provided in this Section 10.2, the Purchaser shall
have the sole right to control any audit or examination by any Taxing authority,
initiate any claim for refund or amend any Tax Return, and contest, resolve and
defend against any assessment for additional Taxes, notice of Tax deficiency or
other adjustment of Taxes of, or relating to, the income, assets or operations
of the Companies for all taxable periods; provided, however, that the Purchaser
shall not, and shall cause its Affiliates (including the Companies) not to,
enter into any settlement of any contest or otherwise compromise any issue with
respect to the portion of the Overlap Period ending on or prior to the Closing
Date without the prior written consent of the Shareholders' Agent, which consent
shall not be unreasonably withheld.
10.3 Transfer Taxes. All transfer, documentary, stamp, registration,
sales and use, registration, stamp and similar Taxes and fees (including all
penalties and interest) imposed in connection with the sale of the Stock or any
other transaction that occurs pursuant to this Agreement shall be borne solely
by the Shareholders.
10.4 Amended Tax Returns. Neither the Shareholders' Agent nor the
Companies shall file or cause to be filed any amended Tax Return or claims for
refund without the prior
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written consent of the Purchaser, which consent shall not be unreasonably
withheld, delayed or conditioned, except for such amended Tax Returns or claims
for refund filed in connection with the resolution of any Tax Matter in
accordance with Section 10.2.
10.5 Non-foreign Person Affidavit. The Shareholders shall furnish to
the Purchaser on or before the Closing Date a non-foreign Person affidavit as
required by Section 1445 of the Code.
10.6 Indemnification.
(a) The Shareholders hereby covenant and agree to indemnify,
defend and hold harmless the Purchaser, its Affiliates (including the
Companies) and the successors to the foregoing (and their respective
shareholders, officers, directors, employees and agents) against (i)
all Taxes, Losses, claims and expenses resulting from, arising out of,
or incurred with respect to, any claims that may be asserted by any
Party based upon, attributable to, or resulting from the failure of any
representation or warranty made with respect to Taxes in this
Agreement, including those made pursuant to Section 3.9 to be true and
correct as of the Closing Date, (ii) all Taxes imposed on or asserted
against the properties, income or operations of the Companies for all
Pre-Closing Periods to the extent such Taxes have not been fully
reserved for on the Closing Balance Sheet, and (iii) all Taxes imposed
on the Companies, or for which the Companies may be liable, as a result
of any transaction contemplated by this Agreement, including any Taxes
imposed on or incurred by the Purchaser or the Companies arising from,
in connection with or incident to Section 1374 of the Code and any
comparable provision of state or other Applicable Law or otherwise as a
result of the joint election under Section 338(h)(10) of the Code to
treat the sale of the Stock pursuant to this Agreement as an asset sale
for Federal income Tax purposes, and any analogous provisions of state
and local law. The Purchaser shall promptly give the Shareholders'
Agent and its representatives written notice of all Taxes, Losses,
claims and expenses which the Purchaser has reasonably determined may
give rise to a right of indemnification under this Section 10.6,
including a computation of the amount of the claimed indemnification
with sufficient detail and particularity to enable the Shareholders'
Agent to reasonably determine the amount of such required
indemnification.
(b) In the event that the Purchaser fails to notify the
Shareholders' Agent with respect to a Tax Matter in accordance with the
provisions of Section 10.2, the Shareholders' Agent shall not be
obligated to indemnify the Purchaser under Section 10.6 to the extent
that such failure to notify the Shareholders' Agent has a Material
Adverse Effect on the Shareholders' Agent's ability to defend against
such Tax Matter.
10.7 Section 338 Election. The Shareholders and the Purchaser shall
jointly complete and make elections under Section 338(h)(10) (with respect to
the Companies) of the Code on Form 8023-A or in such other manner as may be
required by rule or regulation of the IRS, and shall jointly make such elections
in the manner required under any analogous provisions of state or local law as
the Purchaser shall designate or as shall be required, concerning the
transactions contemplated by this Agreement. The Purchaser shall, with the
assistance and cooperation of the Shareholders, prepare all such Section
338(h)(10) forms required as attachments to Form 8023-A
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(and all forms under analogous provisions of state or local law) in accordance
with applicable Tax laws, and the Purchaser shall deliver such forms and related
documents to the Shareholders at least sixty (60) days prior to the due date of
filing. The Shareholders shall deliver to the Purchaser at least forty-five (45)
days prior to the due date of filing such completed forms as are required to be
filed under Section 338(h)(10) of the Code (and analogous provisions of state or
local law). The Purchaser and the Shareholders shall use reasonable commercial
efforts to agree upon, as soon as practicable after Closing but in no event
later than one hundred twenty (120) days following the Closing Date, the
computation of the modified aggregate deemed sale price ("MADSP") (as defined
under Treasury Regulations). In the event no such agreement is reached within
such period, the MADSP shall be computed by the Independent Accountants in
accordance with the general procedures set forth in Section 2.5(f) hereof. The
decision of the Independent Accountants shall be final and binding on the
Purchaser, Stonepath and the Shareholders.
10.8 Valuation and Allocation.
(a) The Parties agree that the fair market value of the fixed
assets will be as set forth on Exhibit H attached hereto, unless prior
to the Closing Date, the Parties mutually agree that an adjustment to
such valuation is necessary to reflect any valuation changes after the
date hereof.
(b) The Shareholders and the Purchaser agree that the
Purchaser shall perform or cause to be performed an initial valuation
of assets and allocation of purchase price of the Companies, on a
Company by Company basis, for purposes of Section 338 of the Code. The
Purchaser shall provide the Shareholders' Agent with drafts of such
valuation of assets and allocation of MADSP (which shall be prepared on
a basis consistent with this Section 10.8) within one hundred twenty
(120) days after the Closing Date. The Shareholders' Agent shall have
forty-five (45) days to provide the Purchaser with any objections to
such drafts. If the Shareholders' Agent shall object to the computation
or allocation by the Purchaser of such amounts, and the Purchaser and
the Shareholders' Agent shall not reach agreement on the computation or
allocation within thirty (30) business days after notification by the
Shareholders' Agent of its objection, the Purchaser and the
Shareholders' Agent shall submit the issue to arbitration by a
nationally recognized accounting firm as shall be mutually acceptable
to the Purchaser and the Shareholders' Agent for resolution of the
disagreement within ten (10) days, it being agreed that the Purchaser
and the Shareholders' Agent will jointly share the fees and expenses of
such accounting firm. The valuations and allocations determined
pursuant to this Section 10.8 shall be used for purposes of all
relevant Tax Returns, reports and filings.
10.9 Post-Closing Access and Cooperation. From and after the Closing
Date, the Purchaser agrees, and agrees to cause the Companies, to permit the
Shareholders' Agent or the Shareholders' Representative to have reasonable
access, during normal business hours, to the Companies' books and records, to
the extent that such books and records relate to a Pre-Closing Period, and
personnel, for the purpose of enabling the Shareholders' Agent to: (i) prepare
the Tax Returns specified in Section 10.1, (ii) investigate or contest any Tax
Matter which the
62
Shareholders' Agent has the authority to conduct under Section 10.2, and (iii)
evaluate any claim for indemnification under Section 10.6.
ARTICLE 11
PERFORMANCE FOLLOWING THE CLOSING DATE
The following covenants and agreements are to be performed after the
Closing by the Parties and shall continue in effect for the periods respectively
indicated or, where no indication is made, until performed:
11.1 Further Acts and Assurances. The Parties agree that, at any time
and from time to time, on and after the Closing Date, upon the reasonable
request of the other Party, they will do or cause to be done all such further
acts and things and execute, acknowledge and deliver, or cause to be executed,
acknowledged and delivered any and all papers, documents, instruments,
agreements, assignments, transfers, assurances and conveyances as may be
necessary or desirable to carry out and give effect to the provisions and intent
of this Agreement. In addition, from and after the Closing Date, the Purchaser
will afford to the Shareholders and their attorneys, accountants and other
representatives access, during normal business hours, to such personnel, books
and records relating to the Companies as may reasonably be required in
connection with the preparation of financial information or the filing of Tax
Returns and will cooperate in all reasonable respects in connection with claims
and Proceeding asserted by or against third parties, relating to or arising from
the transactions contemplated hereby.
11.2 Non-Competition Agreement. During the period of thirty-six months
(36) months from and after the Closing Date, Xxxx covenants and agrees that he
will not, without the Purchaser's prior written consent, which may be withheld
or given in its sole discretion, directly or indirectly, or individually or
collectively within the United States of America, lend any material credit,
advice or assistance, or engage in any activity or act in any manner, including
but not limited to, as an individual, owner, sole proprietor, founder,
associate, promoter, partner, joint venturer, shareholder (other than as a less
than five percent (5%) shareholder of a publicly traded corporation), officer,
director, trustee, manager, employer, employee, licensor, licensee, principal,
agent, salesman, broker, representative, consultant, advisor, investor or
otherwise for the purpose of establishing, operating, assisting or managing any
business or entity that is engaged in activities competitive with the Business
of the Companies.
11.3 Non-Solicitation Agreement. During the period of thirty-six (36)
months from and after the Closing Date, Xxxx covenants and agrees that he will
not, whether for his own account or for the account of any other Person,
directly or indirectly interfere with the Companies' relationship with or
endeavor to divert or entice away from the Companies any Person who or which at
any time during the term of the Xxxx'x affiliation with the Companies is an
employee, vendor, supplier or customer of the Companies. The foregoing shall not
apply to (i) employees, vendors, or suppliers who do not, at the time of any
solicitation, have a relationship with the Companies in such capacity, and, in
the case of customers, customers who at the time of the solicitation have not
had a relationship with the Companies for at least one (1) year, (ii) the
services of the Companies' accountants, lawyers or other professionals for the
purpose of providing financial, accounting and legal services on behalf of the
Shareholders in
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connection with the preparation of the Closing Balance Sheet or other
requirements of this Agreement, or (iii) any family member.
11.4 Confidential Information. The Shareholders understand and agree
that the Business of the Companies is based upon specialized work and that they
have received, had access to and/or contributed to Confidential Information.
Except as may be necessary or desirable (i) for defense of a Loss or conducting
or participating in a Proceeding in accordance with Sections 9.1, 9.3 or 9.4
hereof, (ii) in enforcing the Shareholders' rights under this Agreement, (iii)
for the purpose of filing any report with any Governmental Body, (iv) in
connection with advice sought from an attorney, accountant or similar
professional, or (v) in connection with their continued individual employment by
the Companies or employment by or position with the Purchaser, the Shareholders
agree that at all times from and after the Closing Date, they shall keep secret
all such Confidential Information and that they will not directly or indirectly
Use or Disclose the same to any Person without first obtaining the written
consent of the Purchaser, which consent may be withheld or given in the
Purchaser's sole discretion. At any time the Purchaser may so request, the
Shareholders, their trustees, shareholders and Affiliates, shall turn over to
the Purchaser all Confidential Information compiled by or delivered to the
Shareholders, their trustees, shareholders and Affiliates, including copies
thereof, in their possession, it being agreed that the same and all information
contained therein are at all times the exclusive property of the Companies.
11.5 Reasonableness of Covenants. The Shareholders acknowledge and
agree that the geographic scope and period of duration of the restrictive
covenants contained in Sections 11.2, 11.3 and 11.4 of this Agreement are both
fair and reasonable and that the interests sought to be protected by the
Purchaser and Companies are legitimate business interests entitled to be
protected. The Shareholders further acknowledge and agree that the Purchaser
would not have purchased the Shareholders' Stock in the Companies pursuant to
this Agreement unless the Shareholders agreed to the covenants contained in such
Sections.
11.6 Injunctive Relief. The Parties agree that the remedy of damages at
law for the breach by any Party of any of the covenants contained in this
Agreement, including those in Sections 11.2, 11.3 or 11.4 is an inadequate
remedy. In recognition of the irreparable harm that a violation by the
respective Parties hereto of such covenants, including the Shareholders'
obligations arising under Sections 11.2, 11.3 or 11.4, would cause the
non-breaching Party hereto, each Party, on behalf of itself, its directors,
shareholders, trustees and Affiliates, agrees that in addition to any other
remedies or relief afforded by law, an Injunction against an actual or
Threatened violation or violations may be issued against it and/or them and
every other Person concerned thereby, it being the understanding of the Parties
that both damages and Injunction shall be proper modes of relief and are not to
be considered alternative remedies.
11.7 Blue Pencil Doctrine. In the event that any of the restrictive
covenants contained in this Article shall be found by a court of competent
jurisdiction to be unreasonable by reason of its extending for too great a
period of time or over too great a geographic area or by reason of its being too
extensive in any other respect, then such restrictive covenant shall be deemed
modified to the minimum extent necessary to make it reasonable and enforceable
under the circumstances.
64
11.8 Guarantees. In furtherance of the provisions of Section 5.22
hereof, the Shareholders shall (i) have a continuing obligation after the
Closing to terminate, extinguish or otherwise remove any and all of the
guarantees described in Section 5.22 hereof, and (ii) defend and indemnify the
Purchaser with respect to such guarantees in accordance with Article 9 of this
Agreement, including Section 9.1.
11.9 Employee Retention. From and after the Closing Date,
notwithstanding any provision in this Agreement to the contrary, all of the
Companies' employees shall remain at-will employees of the Companies.
11.10 Management Incentive Program. After the Closing, Stonepath shall
establish or shall cause the Companies to establish a management incentive
program, in the form of the management incentive program document to be
delivered to the Shareholders' Agent at the Closing providing, among other
things, incentive compensation for the key employees set forth in Schedule
11.10. The management incentive program shall be management-by-objective based
with an opportunity to earn up to fifty percent (50%) of such employee's salary
(the "Incentive") based on the following increments and conditions: (i)
thirty-three percent (33%) of the Incentive in the event that the Companies in
the aggregate achieve the annual financial performance criteria established
within mutually agreeable annual business plans, (ii) thirty-three percent (33%)
of the Incentive in the event specific business units achieve mutually agreeable
annual financial performance criteria to be established within annual business
plans, and (iii) thirty-four percent (34%) of the Incentive in the event that
individual annual objectives established by a participant's immediate supervisor
(and approved by Xxxx) are achieved. Any amounts accrued or paid to participants
pursuant to the management incentive program (or any similar plan established on
or after the Closing Date, other than bonuses paid to employees consistent with
past practices of the Companies prior to the Closing Date), other than
participants who are Shareholders, shall not be chargeable against the earnings
of the Companies for purposes of the calculation of the Earn-Out.
11.11 Stonepath Guaranty. Stonepath shall perform its obligations and
continuing guarantee the due performance and payment by the Purchaser of all of
the Purchaser's obligations arising under, in connection with or incident to
this Agreement and any Ancillary Document pursuant to the Guaranty.
11.12 Stonepath Earn-Out Covenants. Stonepath shall cause (i) the
Earn-Out Financial Statements to be provided for the calendar years 2002, 2003,
2004 and 2005 pursuant to Section 2.2(a), and (ii) the transmittal and
remittance to the Shareholders' Agent and the Shareholders, as required by this
Agreement, of all documents, instruments, calculations, documentation and
payments in connection with, arising from or incident to the Earn-Out.
11.13 Payment of Shareholder Loans. Stonepath, the Purchaser and the
Companies covenant that the Shareholder loans described in Section 5.33 shall be
paid in the manner and in accordance with the timeframes set forth therein.
11.14 Payment of Bonus and Profit Sharing Accrual. In the event that
the Closing Balance Sheet contains accruals for bonuses and/or profit sharing
estimated to be paid after the Closing Date, Purchaser and Stonepath shall cause
the Companies to pay at least the amount of
65
such bonus and/or profit sharing accruals to, as applicable, (x) the employees
of the Companies or (y) the profit sharing plan in accordance with and at the
time or times consistent with past practice of the Companies.
11.15 Adjustment for S Corporation Distributions.
(a) In the event that the amount declared and authorized as a
dividend to the Shareholders prior to the Closing Date in distribution
of the Companies' combined S corporation net income before Taxes for
the portion of the calendar year 2001 described in Section 5.32 hereof
is less than 45% of such 2001 net income before Taxes, the Companies
shall pay (and Stonepath shall cause the Company to pay) to the
Shareholders the difference between the amount paid to the Shareholders
prior to the Closing Date and the amount computed as 45% such net
income before Taxes upon finalization of the Closing Balance Sheet as
described in Section 2.5(g) hereof.
(i) Example: Calendar year 2001 S corporation
combined net income of the Companies before Taxes is $777,000.
45% of such net income is $350,000. The Companies declare and
authorize 2001 dividend distributions of $300,000. The amount
of such 2001 dividend distributions is less than the 45%
amount by $50,000 ($350,000 - $300,000). The starting combined
retained earnings of the Companies must be assumed to be
$3,000,000 due to the self-correcting Closing Date Retained
Earnings Adjustment. Therefore, combined retained earnings is
at least $3,000,000. The amount to be remitted to the
Shareholders is $50,000, the amount of the underpayment of 45%
of the combined calendar year 2001 S corporation net income of
the Companies before Taxes ($350,000 - $300,000).
(b) In the event that the amount declared and authorized as a
dividend to the Shareholders prior to the Closing Date in distribution
of the Companies' combined S corporation net income before Taxes for
the portion of the calendar year 2001 described in Section 5.32 hereof
is greater than 45% of such 2001 net income before Taxes, and if:
(i) the combined retained earnings of the Companies'
equals or exceeds $3,000,000 as reported on the final Closing
Balance Sheet, then the Shareholders shall remit to the
Companies upon finalization of the Closing Balance Sheet as
described in Section 2.5(g) hereof the excess amount over such
45% that was paid to the Shareholders, or
(ii) the combined retained earnings of the Companies
is less than $3,000,000, and the difference between such final
Closing Balance Sheet combined retained earnings and
$3,000,000 is less than the amount of the excess over such 45%
paid to the Shareholders, then the difference between (x)
$3,000,000 and the final combined retained earnings reported
on the Closing Balance Sheet and (y) the excess over such 45%
paid to the Shareholders, shall be paid to the Companies upon
finalization of the Closing Balance Sheet as described in
Section 2.5(g) hereof.
66
(iii) Examples: (x) for (b)(i) above: Calendar year
2001 S corporation combined net income is $777,000. 45% of
calendar year 2001 net income before Taxes equals $350,000.
The Companies declared $475,000 in 2001 distributions. Final
combined retained earnings reported on the final Closing
Balance Sheet equals $3,302,000 ($3,000,000 + $777,000 -
$475,000); then
(A) The excess 2001 distributions to the
Shareholders equals $125,000 ($475,000 - $350,000);
(B) Final combined retained earnings
reported on the final Closing Balance Sheet exceeds
$3,000,000 by $302,000 ($3,302,000 - $3,000,000);
(C) But for the excess distributions, final
combined retained earnings would have been $3,427,000
($3,302,000 + $125,000);
(D) The Shareholders remit $125,000;
(y) for (b)(ii) above: 45% of calendar year 2001 net income
before Taxes equals $450,000. The Shareholders received
$475,000 in 2001 distributions. Final Retained Earnings
reported on the final Closing Balance Sheet equals $2,985,000,
then
(A) The excess 2001 distributions to the
Shareholders equals $25,000 ($475,000 - $450,000);
(B) Final combined retained earnings
reported on the final Closing Balance Sheet is less
than $3,000,000 by $15,000 ($3,000,000 - $2,985,000);
(C) But for the excess distribution final
combined retained earnings would have been $3,010,000
($2,985,000 + $25,000);
(D) Due to the Purchase Price Adjustment,
the Shareholders are already required to remit the
difference between $3,000,000 and $2,985,000, or
$15,000.
(E) Therefore the Shareholders remit the
difference between (i) $3,000,000 and $2,985,000, or
$15,000, and (ii) $25,000
(F) The Shareholders remit $10,000 ($25,000
- $15,000 = $10,000).
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ARTICLE 12
TERMINATION
12.1 Termination. This Agreement may be terminated and the transactions
contemplated herein may be abandoned after the date of this Agreement, but not
later than the Closing:
(a) by mutual written consent of all Parties hereto;
(b) by the Purchaser or the Shareholders' Agent if any of the
conditions provided for in Article 6 of this Agreement have not been
met and have not been waived in writing by the Party seeking to
terminate on or before the Closing Date;
(c) by the Purchaser if any of the conditions provided for in
Article 7 of this Agreement have not been met and have not been waived
or deemed waived pursuant to the express terms of this Agreement in
writing by the Purchaser on or before the Closing Date;
(d) by the Shareholders' Agent if any of the conditions
provided for in Article 8 of this Agreement have not been met and have
not been waived in writing by the Shareholders on or before the Closing
Date;
(e) by either the Purchaser or the Shareholders' Agent if the
Closing shall not have occurred on or before October 31, 2001; and
(f) by a Party who objects to a Supplement pursuant to Section
13.21.
In the event of termination by any Party as provided in this Section 12.1,
written notice shall forthwith be given to the other Party and, except as
otherwise provided herein, each Party shall pay its own expenses incident to
preparation or consummation of this Agreement and the transactions contemplated
hereunder and neither Party shall have any Liability to the other hereunder
except such Liability as may arise as a result of a breach hereof. Nothing
contained in this section shall restrict the availability of injunctive relief.
12.2 Return of Documents and Nondisclosure. If this Agreement is
terminated for any reason pursuant to Section 12.1 hereto, each Party and its
counsel shall return all documents and materials which shall have been furnished
by or on behalf of the other Party, and all copies thereof, and each Party
hereby covenants that it will not Use or Disclose to any Person any Confidential
Information about the other Party or any information about the transactions
contemplated hereby, except insofar as may be necessary to comply with the
requirements of any Governmental Body or Order or to assert its rights
hereunder.
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ARTICLE 13
MISCELLANEOUS
13.1 Survival of Representations and Warranties, Covenants and
Agreements. Each of the representations and warranties of the Parties contained
in this Agreement and in any Exhibit, Schedule, certificate, instrument or
document delivered by or on behalf of any of the Parties hereto pursuant to this
Agreement and the transactions contemplated hereby shall survive the Closing of
the transactions contemplated hereby and any investigation made by the Parties
or their agents for a period of eighteen (18) months after the Closing, after
which no claim for indemnification for any misrepresentation, or for the breach
of any representation or warranty under this Agreement, may be brought, and no
action with respect thereto may be commenced, and no Party shall have any
Liability or obligation with respect thereto, unless (i) the Indemnified Party
gave written notice to the Indemnifying Party specifying with particularity the
misrepresentation or a breach of representation or warranty claimed on or before
the expiration of such period, (ii) the claim relates to a breach of any
representations or warranties contained in Sections 3.9, 3.10, 3.27 or 3.28, in
which case the right to indemnification shall survive until the expiration of
the applicable statute of limitations, plus ninety (90) days, or (iii) the claim
relates to any representation or warranty in Sections 3.1, 3.2, 3.3 or 3.5, in
which case the representation or warranty shall indefinitely survive the
Closing. The covenants and agreements contained in, arising from, incident to or
in connection with this Agreement shall survive the Closing indefinitely, until
such covenants and agreements are fully satisfied and require no further
performance or forbearance, or the rights of a Party hereto expire on a specific
date by the terms hereof.
13.2 Preservation of and Access to Records. The Purchaser shall
preserve or cause the Companies to preserve all books and records of the
Companies for a period of six (6) years after the Closing Date; provided,
however, the Purchaser may destroy any part or parts of such records upon
obtaining written consent of the Shareholders' Agent for such destruction, which
consent shall not be unreasonably withheld. Such records shall be made available
to the Shareholders' Agent, the Shareholders and their representatives at all
reasonable times during normal business hours of the Companies during said
six-year period with the right, at its expense, to make abstracts from and
copies thereof.
13.3 Cooperation. The Parties hereto shall cooperate with each other in
all respects, including using reasonable commercial efforts to assist each other
in satisfying the conditions precedent to their respective obligations under
this Agreement and any Ancillary Document, to the end that the transactions
contemplated hereby will be consummated.
13.4 Public Announcements. The Parties agree to cooperate on the timing
and content of all public announcements relating to the execution of this
Agreement and the Ancillary Documents, and the consummation of the transactions
contemplated hereby; provided that Stonepath shall have the right to make such
public disclosure of this Agreement and the transactions contemplated hereby as
it determines upon the advice of counsel (which is reasonably made in light of
Applicable Law and such rules), it is required to under Applicable Law or the
rules of the American Stock Exchange. The Shareholders' Agent shall be provided
69
with all drafts and the final version of any such announcement or disclosure and
shall consent with its content, which consent shall not be unreasonably
withheld, delayed or conditioned.
13.5 Notices. All notices, demands and other communications permitted
or required hereunder shall be in writing and shall be given by personal
delivery, via facsimile transmission (receipt telephonically confirmed), by
nationally recognized overnight courier (prepaid), or by certified or registered
first class mail, postage prepaid, return receipt requested, sent to each Party,
at its/his address as set forth below or at such other address or in such other
manner as may be designated by such Party in written notice to each of the other
Parties. All such notices, demands and communications shall be effective when
personally delivered, one (1) business day after delivery to the overnight
courier, upon telephone confirmation of facsimile transmission or upon receipt
after dispatch by mail to the Party to whom the same is so given or made:
If to Purchaser: Stonepath Group, Inc.
(or a Company or Two Penn Center Place
the Companies Suite 605
post-closing) Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Xxxxxx Xxxxxx
With copies to: Xxxxxxxx Ingersoll PC
00 Xxxx Xxxxxx, 00xx Xxxxx
0000 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Xxxxx X. North, Esq.
and
Xxxxxxx X. Xxxxx, Esquire
Stonepath Group, Inc.
Xxx Xxxx Xxxxxx Xxxxx
Xxxxx 000
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
If to the Shareholders and/or Xxxx X. Xxxx, Shareholders' Representative
the Shareholders' Agent (or 0000 Xxxxx Xxxx
a Company or the Xxxxx, Xxxxxxxxx 00000
Companies pre-Closing):
With a copy to: Xxxxxx and Xxxxxx, Professional Association
2400 IDS Center
00 Xxxxx Xxxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxx, Esq.
13.6 Entire Agreement. This Agreement and the Ancillary Documents to be
executed and/or delivered by the Parties pursuant hereto, contains the entire
agreement of the Parties hereto and supersedes all prior or contemporaneous
agreements and understandings, oral or written, between the Parties hereto with
respect to the subject matter hereof and thereof.
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13.7 [THIS SECTION INTENTIONALLY OMITTED]
13.8 Amendments. No purported amendment, modification or waiver of any
provision of this Agreement or any Ancillary Document to be executed and
delivered by the Parties pursuant hereto shall be effective unless in a writing
specifically referring to this Agreement and signed by the Shareholder's Agent,
the Purchaser and Stonepath; provided, that no amendment to the provisions of
Section 13.22 shall be made unless signed by all of the Parties hereto.
13.9 Successors and Assigns. This Agreement and the Ancillary Documents
shall be binding upon and inure to the benefit of the Parties hereto and their
respective heirs, personal representatives, successors and permitted assigns,
but except as hereinafter provided in this Section, nothing in this Agreement is
to be construed as an authorization or right of any Party to assign its rights
or delegate its duties under this Agreement without the prior written consent of
the other Parties hereto. In their sole discretion the Purchaser may assign its
rights in and/or delegate its duties under this Agreement to an Affiliate of the
Purchaser. In the event of such an assignment of rights and/or delegation of
duties, all references to the applicable Party, as applicable to the assignment
in this Agreement shall also be deemed to be references to the Person to which
this Agreement is assigned; provided that no such assignment and/or delegation
shall relieve the assignor of any of its duties or obligations hereunder.
13.10 Fees and Expenses. Each Party hereto shall pay their own fees and
expenses incurred in connection with negotiating and preparing this Agreement
and consummating the transactions contemplated hereby, including but not limited
to fees and disbursements of their respective attorneys, accountants and
investment bankers; provided, however, the foregoing shall not include the fees,
costs and expenses arising from, incident to or in connection with the Audited
Financial Statements as described in Section 5.25 of this Agreement. If the
transaction is consummated, all fees and expenses, including legal, accounting,
investment banking, broker's and finder's fees and expenses incurred by the
Companies or the Shareholders in connection with this transaction, other than
those described in Section 5.25 (the "Transactional Expenses") shall be deemed
expenses of the Shareholders and shall be borne by the Shareholders. Any
Transactional Expenses incurred by the Companies in excess of the Aggregate
Transactional Expenses set forth on the itemized schedule delivered by the
Shareholders to the Purchaser pursuant to Section 7.10 hereof shall be promptly
paid by the Shareholders to the Purchaser after the determination thereof.
13.11 Governing Law and Jurisdiction. This Agreement, including the
documents, instruments and agreements to be executed and/or delivered by the
Parties pursuant hereto, shall be construed, governed by and enforced in
accordance with the internal laws of the State of Minnesota, without giving
effect to the principles of comity or conflicts of laws thereof.
13.12 Counterparts and Facsimile Execution. This Agreement and the
Ancillary Documents may be executed in two or more counterparts, each of which
shall be deemed an original but all of which together shall constitute one and
the same instrument. The counterparts of this Agreement and the Ancillary
Documents may be executed and delivered by one Party to
71
another by telecopy, and the receiving Party may rely on the receipt of such
executed instrument as if the original had been received.
13.13 Headings. The headings of the articles, sections and subsections
of this Agreement are intended for the convenience of the Parties only and shall
in no way be held to explain, modify, construe, limit, amplify or aid in the
interpretation of the provisions hereof. The terms "this Agreement," "hereof,"
"herein," "hereunder," "hereto" and similar expressions refer to this Agreement
as a whole and not to any particular article, section, subsection or other
portion hereof and include the Schedules and Exhibits hereto and any document,
instrument or agreement executed and/or delivered by the Parties pursuant
hereto.
13.14 [THIS SECTION INTENTIONALLY OMITTED]
13.15 Number and Gender. Unless the context otherwise requires, words
importing the singular number shall include the plural and vice versa and words
importing the use of any gender shall include all genders.
13.16 Severability. In the event that any provision of this Agreement
or any Ancillary Document is declared or held by any court of competent
jurisdiction to be invalid or unenforceable, such provision shall be severable
from, and such invalidity or unenforceability shall not be construed to have any
effect on, the remaining provisions of this Agreement or the applicable
Ancillary Document, unless such invalid or unenforceable provision goes to the
essence of this Agreement or such Ancillary Document, in which case the entire
Agreement or Ancillary Document may be declared invalid and not binding upon any
of the Parties.
13.17 Parties in Interest. Nothing expressed or implied in this
Agreement is intended or shall be construed to confer any rights or remedies
under or by reason of this Agreement upon any Person other than the Parties
hereto and their respective heirs, personal representatives, successors and
permitted assigns. Nothing in this Agreement is intended to relieve or discharge
the Liabilities of any third Person to the Purchaser, the Companies or the
Shareholders.
13.18 Waiver. The terms, conditions, warranties, representations and
indemnities contained in this Agreement, including the documents, instruments
and agreements executed and/or delivered by the Parties pursuant hereto, may be
waived only by a written instrument executed by the Party waiving compliance.
Any such waiver shall only be effective in the specific instance and for the
specific purpose for which it was given and shall not be deemed a waiver of any
other provision hereof or of the same breach or default upon any recurrence
thereof. No failure on the part of a Party hereto to exercise and no delay in
exercising any right hereunder shall operate as a waiver thereof nor shall any
single or partial exercise of any right hereunder preclude any other or further
exercise thereof or the exercise of any other right.
13.19 Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. The words "including," "include" or "includes"
shall mean
72
including without limitation. The Parties intend that each representation,
warranty and covenant contained herein shall have independent significance.
13.20 Specific Performance. The Parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the Parties shall be entitled to
injunctive relief to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
13.21 Supplementation of Schedules. Prior to the Closing, The
Shareholders, the Companies, the Purchaser or Stonepath may elect to deliver a
supplement ("Supplement") to one or more of the Schedules previously delivered
to the other in accordance with the procedures set forth in this Section 13.21
as follows:
(a) Any and all Supplements must be in writing and must be
delivered to the other Party before the date that is five (5) business
days prior to the scheduled Closing Date. The other Party shall be
given the opportunity during the five (5) business days following the
delivery of the proposed Supplement to consider and object to that
Supplement. If the recipient does not object to the contents of the
Supplement within such period, the Schedule in question shall be deemed
amended by the Supplement. If the recipient objects to a proposed
Supplement, and the objection is not accepted by the Party submitting
the Supplement, the sole recourse and remedy of such objecting Party
shall be termination of this Agreement in accordance Section 12.1(f) of
this Agreement, provided that this limitation of remedies shall only
apply if the Supplement was prepared in connection with or was made
necessary by a change in fact or circumstance (other than a Supplement
arising from Section 5.23 with respect to Sections 3.27 or 3.28
(excluding Section 3.28(e)), or sections which may give rise to
disclosure arising from the subject matter of Sections 3.27 or 3.28
(excluding Section 3.28(e)), which occurred after the date of this
Agreement. In the event the objecting Party fails to terminate this
Agreement within five (5) days of the delivery of the objection, the
Supplement shall be deemed accepted by the objecting Party;
(b) Any and all Supplements must be in writing and delivered
to the other Party pursuant to Section 13.21(a) and Section 13.5 of
this Agreement.
13.22 Shareholders' Agent.
(a) The Shareholders, pursuant to this Agreement, hereby
appoint Xxxx X. Xxxx as the Shareholders' Agent, who shall be the
Shareholders' representative and attorney-in-fact for each Shareholder
of the Companies. The Shareholders' Agent shall have the authority to
act for and on behalf of each of the Shareholders, including without
limitation, to amend this Agreement (subject to the limitations set
forth in Section 13.8), to give and receive notices and communications,
waivers and consents under this Agreement, to act on behalf of the
Shareholders with respect to any matters arising under this Agreement
or the Ancillary Documents, to authorize delivery to the
73
Purchaser and/or Stonepath of cash and other property, to object to
such deliveries, to agree to, negotiate, enter into settlements and
compromises of, and commence, prosecute, participate in, settle,
dismiss or otherwise terminate, as applicable, lawsuits and claims,
mediation and arbitration Proceedings, and to comply with orders of
courts and awards on behalf of courts, mediators and arbitrators with
respect to such suits, claims or Proceedings, and to take all actions
necessary or appropriate in the judgment of the Shareholders' Agent for
the accomplishment of the foregoing. The Shareholders' Agent shall act
as the exclusive negotiating party for this Agreement and all Ancillary
Documents. In addition to and in furtherance of the foregoing, the
Shareholders' Agent shall have the right to (i) sell, pledge or
otherwise dispose of any amounts in any escrow account or other
accounts established for the benefit of the Shareholders, (ii) employ
accountants, attorneys and other professionals on behalf of the
Shareholders, and (iii) incur and pay all costs and expenses related to
(A) the performance of its duties and obligations as the Shareholders'
Agent hereunder, and (B) the interests of the Shareholders under this
Agreement and the Ancillary Documents. The Shareholders' Agent shall
for all purposes be deemed the sole authorized agent of the
Shareholders until such time as the agency is terminated with notice to
the Purchaser. Such agency may be changed by the Shareholders from time
to time upon not less than thirty (30) days prior written notice to the
Purchaser; provided, however, that the Shareholders' Agent may not be
removed unless holders of two-thirds (2/3) interest in the Companies
agree to such removal and to the identity of the substituted
Shareholders' Agent. Any vacancy in the position of the Shareholders'
Agent may be filled by approval of the holders of a majority in
interest in the Companies' common stock. No bond shall be required of
the Shareholders' Agent, and the Shareholders' Agent shall not receive
compensation for its services. Notices or communications to or from the
Shareholders' Agent shall constitute notice to or from each of the
Shareholders during the term of the agency.
(b) The Shareholders' Agent shall not incur any Liability with
respect to any action taken or suffered by him or omitted hereunder as
Shareholders' Agent while acting in good faith and in the exercise of
reasonable judgment. The Shareholders' Agent may, in all questions
arising hereunder, rely on the advice of counsel and other
professionals and for anything done, omitted or suffered in good faith
by the Shareholders' Agent based on such advice and the Shareholders'
Agent shall not be liable to anyone. The Shareholders' Agent undertakes
to perform such duties and only such duties as are specifically set
forth in this Agreement and the Ancillary Documents, and no covenants
or obligations shall be implied under this Agreement or the Ancillary
Documents against the Shareholders' Agent; provided, however, that the
foregoing shall not act as a limitation on the powers of the
Shareholders' Agent determined by him to be reasonably necessary to
carry out the purposes of his obligations. The Shareholders shall
severally and pro-rata, in accordance with their respective pro-rata
share of the Purchase Price, indemnify the Shareholders' Agent and hold
him harmless against any Loss, Liability or expense incurred without
gross negligence or bad faith on the part of the Shareholders' Agent
and arising out of or in connection with the acceptance or
administration of his duties under this Agreement or any Ancillary
Document.
(c) The Purchaser and Stonepath covenant and agree that the
Shareholders' Agent shall have reasonable access to information about
the Companies and the
74
reasonable assistance of the Companies' officers and employees for the
purposes of performing his duties and exercising his rights hereunder,
provided that the Shareholders' Agent shall be bound by the provisions
of Section 11.4.
(d) A decision, act, consent or instruction of the
Shareholders' Agent shall constitute a decision, act, consent or
instruction from all of the Shareholders of the Companies and shall be
final, binding and conclusive upon each of the Shareholders. The
Purchaser and Stonepath may rely upon any such decision, act, consent
or instruction of the Shareholders' Agent as being the decision, act,
consent or instruction of every such Shareholder of the Companies. The
Purchaser and Stonepath are hereby relieved from any Liability to any
Person for any acts done by them in accordance with such decision, act,
consent or instruction of the Shareholders' Agent. In furtherance of
the foregoing, any reference to a power of the Shareholders under this
Agreement, to be exercised or otherwise taken, shall be a power vested
in the Shareholders' Agent.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by duly authorized representations as of the day, month and year first
above written.
SHAREHOLDERS: PURCHASER:
STONEPATH LOGISTICS, INC.
-----------------------------------
Xxxx X. Xxxx, Trustee of Xxxx X. Xxxx
Revocable Trust dated August 11, 1997 By_________________________________
Its:___________________________
-----------------------------------
Xxxxxx X. Xxxxxxx STONEPATH:
STONEPATH GROUP, INC.
-----------------------------------
Xxxx Xxxxxx
By________________________________
Its:__________________________
-----------------------------------
X. X. Xxxxx
COMPANIES:
___________________________________ M.G.R., INC.
Xxxxx X. Xxxx
By________________________________
___________________________________ Its:__________________________
Xxxxx Such
DISTRIBUTION SERVICES, INC.
SHAREHOLDERS' AGENT:
By________________________________
Its:__________________________
------------------------------------
Xxxx X. Xxxx
CONTRACT AIR, INC.
By_________________________________
Its:___________________________
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
EXHIBITS AND SCHEDULES
Schedules
---------
3.1 Foreign Qualification
3.2 Capitalization
3.4 No Breach; Consents and Approvals
3.5 Clear Title
3.6 Condition of Assets; Excluded Assets
3.7 Litigation
3.8 Labor Matters
3.9(a) Tax Returns
3.9(b) Payment of Taxes
3.9(c)(i) Audits or Other Examinations
3.9(c)(ii) Waiver Agreements and Contracts
3.9(c)(x) Exceptions to State S Elections
3.9(c)(xi) QSST
3.10 Employee Benefits
3.11 Guaranties
3.12 Financial Statements
3.13 Absence of Certain Developments
3.14 Intellectual Property
3.16 Operating Contracts
3.17 Real Estate
3.19 Bank Accounts; Safety Deposit Boxes
3.20 Employees
3.21 Permits
3.22 Other Material Contracts and Obligations
3.23 Subsidiaries and Investments
3.24 Insurance
3.26 Relationship with Related Persons
3.27 Hazardous Materials
3.28 Other Environmental Matters
3.29 Debt Instruments
3.30 Customers and Suppliers
3.31 Shareholder Loans
3.33 Absence of Certain Business Practices
3.34 Trade Regulations
3.35 Inventories
3.37 Powers of Attorney
5.26 Shareholder Guarantees
5.33 Payment of Shareholder Loans
7.9 Employment Agreements
7.10 Aggregate Transactional Expenses
11.10 Key Employees
Exhibits
--------
Exhibit A Shareholders and Officers and Directors of the Companies
Exhibit B Stonepath Guaranty
Exhibit C-1 Purchase Price Adjustment
Exhibit C-2 Closing Balance Sheet and Purchase Price Adjustment Calculations
Exhibit D Bring-Down Certificate of the Shareholders and the Companies
Exhibit E Mutual Release
Exhibit F Bring-Down Certificate of the Purchaser and Stonepath
Exhibit G Form of Executive Employment Agreement
Exhibit H Fair Market Value of Fixed Assets
Exhibit I Escrow Agreement
EXHIBIT A
SHAREHOLDERS AND OFFICERS AND DIRECTORS OF THE COMPANIES
----------------------------------------------------------------------------------------------------------------------
M.G.R., INC.
d/b/a AIR PLUS LIMITED
250,000 shares authorized, no par value
----------------------------------------------------------------------------------------------------------------------
SHAREHOLDER NUMBER OF % OF DATE CERTIFICATE
NAME SHARES OWNERSHIP ACQUIRED NUMBER
------------------------------- ------------------- ------------------------ ------------------ ----------------------
Xxxxxx X. Xxxxxxx 1,000 5.65% 12/31/97 #11
------------------------------- ------------------- ------------------------ ------------------ ----------------------
Xxxxx X. Xxxx 1,000 5.65% 12/31/97 #12
------------------------------- ------------------- ------------------------ ------------------ ----------------------
Xxxxx Such 850 5.65% 12/31/97 #13
150 1/02/98 #17
------------------------------- ------------------- ------------------------ ------------------ ----------------------
Xxxx Xxxxxx 850 5.65% 12/31/97 #14
150 1/02/98 #18
------------------------------- ------------------- ------------------------ ------------------ ----------------------
X. X. Xxxxx 1,000 5.65% 1/02/98 #16
------------------------------- ------------------- ------------------------ ------------------ ----------------------
Xxxx X. Xxxx Trustee of Xxxx 12,700 71.75% 10/01/98 #19
X. Xxxx Revocable Trust dated
August 11, 1997
------------------------------- ------------------- ------------------------ -----------------------------------------
TOTAL 17,700 100%
------------------------------- ------------------- ------------------------ -----------------------------------------
----------------------------------------------------------------------------------------------------------------------
DISTRIBUTION SERVICES, INC.
250,000 shares authorized, no par value
----------------------------------------------------------------------------------------------------------------------
SHAREHOLDER NUMBER OF % OF DATE CERTIFICATE
NAME SHARES OWNERSHIP ACQUIRED NUMBER
------------------------------- ------------------- ------------------------ ------------------ ----------------------
Xxxx X. Xxxx Trustee of Xxxx 10,000 100% 10/01/98 #2
X. Xxxx Revocable Trust dated
August 11, 1997
------------------------------- ------------------- ------------------------ ------------------ ----------------------
TOTAL 10,000 100%
------------------------------- ------------------- ------------------------ -----------------------------------------
I-1
----------------------------------------------------------------------------------------------------------------------
CONTRACT AIR, INC.
250,000 shares authorized, no par value
----------------------------------------------------------------------------------------------------------------------
SHAREHOLDER NUMBER OF % OF DATE CERTIFICATE
NAME SHARES OWNERSHIP ACQUIRED NUMBER
------------------------------- ------------------- ------------------------ ------------------ ----------------------
Xxxxxx X. Xxxxxxx 1,000 5.65% 9/21/98 #2
------------------------------- ------------------- ------------------------ ------------------ ----------------------
Xxxxx X. Xxxx 1,000 5.65% 9/21/98 #3
------------------------------- ------------------- ------------------------ ------------------ ----------------------
Xxxxx Such 1,000 5.65% 9/21/98 #4
------------------------------- ------------------- ------------------------ ------------------ ----------------------
Xxxx Xxxxxx 1,000 5.65% 9/21/98 #5
------------------------------- ------------------- ------------------------ ------------------ ----------------------
X. X. Xxxxx 1,000 5.65% 9/21/98 #6
------------------------------- ------------------- ------------------------ ------------------ ----------------------
Xxxx X. Xxxx Trustee of Xxxx 12,700 71.75% 10/01/98 #6
X. Xxxx Revocable Trust dated (Duplicate number;
August 11, 1997 Certificate must be
reissued as #7)
------------------------------- ------------------- ------------------------ -----------------------------------------
TOTAL 17,700 100%
------------------------------- ------------------- ------------------------ -----------------------------------------
OFFICERS AND DIRECTORS
OF THE COMPANIES
-------------------------------------------------------------------------------
M.G.R., INC.
d/b/a AIR PLUS LIMITED
-------------------------------------------------------------------------------
NAME POSITION
------------------------------------- -----------------------------------------
Xxxx X. Xxxx Sole Director
------------------------------------- -----------------------------------------
Xxxx X. Xxxxxx President
------------------------------------- -----------------------------------------
Xxxx X. Xxxx CEO and Treasurer
------------------------------------- -----------------------------------------
Xxxxxx X. Xxxxxxx Secretary
------------------------------------- -----------------------------------------
-------------------------------------------------------------------------------
DISTRIBUTION SERVICES, INC.
-------------------------------------------------------------------------------
NAME POSITION
------------------------------------- -----------------------------------------
Xxxx X. Xxxx Director
------------------------------------- -----------------------------------------
Xxxx X. Xxxx President and Secretary
------------------------------------- -----------------------------------------
-------------------------------------------------------------------------------
CONTRACT AIR INC.
-------------------------------------------------------------------------------
NAME POSITION
------------------------------------- -----------------------------------------
Xxxx X. Xxxx Sole Director
------------------------------------- -----------------------------------------
Xxxx X. Xxxx CEO, CFO and Treasurer
------------------------------------- -----------------------------------------
Xxxxxx X. Xxxxxxx Secretary
------------------------------------- -----------------------------------------
Xxxx Xxxxxx President
------------------------------------- -----------------------------------------
I-2