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AMENDED AND RESTATED
STOCK PURCHASE AGREEMENT
BY AND AMONG
NORSTAN, INC.,
XXXXXX, INC.
AND
XXXXXXX X. XXXXXX
AS OF SEPTEMBER 5, 1997
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TABLE OF CONTENTS
ARTICLE I SALE OF SHARES AND CLOSING 1
1.01 Purchase and Sale 1
1.02 Purchase Price 1
1.03 The Closing; Payment of Purchase Price, and Founders' Compensation 2
1.04 Earn-Out Consideration 3
1.05 Escrow Shares 5
1.06 Purchase Price Adjustment 5
ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLER AND THE COMPANY 6
2.01 Incorporation and Corporate Power 6
2.02 Execution, Delivery; Valid and Binding Agreements 6
2.03 No Breach 6
2.04 Governmental Authorities; Consents 7
2.05 Ownership of Capital Stock 7
2.06 No Subsidiaries 7
2.07 Capital Stock 7
2.08 Financial Statements 7
2.09 Absence of Undisclosed Liabilities 8
2.10 No Material Adverse Changes 8
2.11 Absence of Certain Developments 8
2.12 Title to Properties 10
2.13 Accounts Receivable 11
2.14 Tax Matters 11
2.15 Contracts and Commitments 13
2.16 Intellectual Property Rights 14
2.17 Litigation 14
2.18 Warranties 15
2.19 Employees 15
2.20 Employee Benefit Plans 15
2.21 Insurance 17
2.22 Affiliate Transactions 17
2.23 Customers and Suppliers 17
2.24 Officers and Directors; Bank Accounts 17
2.25 Compliance with Laws; Permits 18
2.26 Environmental Matters 18
2.27 Brokerage 20
2.28 Securities Law Matters 20
2.29 Disclosure 20
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ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER 21
3.01 Incorporation and Corporate Power 21
3.02 Execution, Delivery; Valid and Binding Agreement 21
3.03 No Breach 21
3.04 Brokerage 21
3.05 Investment Intent 21
3.06 Validity of Common Stock 22
ARTICLE IV COVENANTS OF SELLER AND THE COMPANY 22
4.01 Conduct of the Business 22
4.02 Access 24
4.03 Regulatory Filings 24
4.04 Conditions 24
4.05 No Negotiations, etc. 24
4.06 Monthly Financial Statements 24
ARTICLE V COVENANTS OF BUYER 25
5.01 Regulatory Filings 25
5.02 Conditions 25
5.03 Discharge of Company Obligations to Seller 25
5.04 Professional Sales Fee Obligation 25
ARTICLE VI CONDITIONS TO CLOSING 25
6.01 Conditions to Buyer's Obligations 25
6.02 Conditions to the Obligations of Seller and the Company 28
ARTICLE VII TERMINATION AND REMEDIES 29
7.01 Termination 30
7.02 Effect of Termination 30
7.03 Dispute Resolution 30
7.04 Remedies 31
7.05 Litigation Expense 31
ARTICLE VIII ADDITIONAL AGREEMENTS 32
8.01 Seller Noncompetition Agreement 32
8.02 Employment Agreement 32
8.03 Employee Noncompetition Agreements 32
8.04 Founders' Noncompetition Agreements 32
8.05 Securities and Blue Sky Laws 32
ARTICLE IX SURVIVAL; INDEMNIFICATION 32
9.01 Survival of Representations and Warranties 32
9.02 Indemnification of Buyer 33
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9.03 Procedure for Indemnification of Buyer 33
9.04 Indemnification of Seller 34
9.05 Procedure for Indemnification of Seller 34
9.06 Indemnification Threshold 34
ARTICLE X REGISTRATION OF CERTAIN SHARES 35
10.01 Filing of Registration Statement 35
10.02 Filing of Amendments 35
10.03 Qualification Under Blue Sky Laws 35
10.04 Registration Expenses 35
10.05 Indemnification 35
10.06 Contribution 37
10.07 Reports under Exchange Act 37
ARTICLE XI MISCELLANEOUS 38
11.01 Press Releases and Announcements 38
11.02 Expenses 38
11.03 Further Assurances 38
11.04 Amendment and Waiver 38
11.05 Notices 38
11.06 Assignment 39
11.07 Severability 39
11.08 Complete Agreement 39
11.09 Counterparts 39
11.10 Governing Law 39
EXHIBITS
A. Identity of Founders; Allocation of Founders' Consideration and Payments
Under Founders' Noncompetition Agreements
B. Letter Agreements Setting Forth the Founders' Compensation Rights
C. Disclosure Schedules
D. Financial Statements of the Company
E. Identity of Certain Key Customers, Prospective Customers, Specifying
Agencies, Vendors and Key Suppliers of the Company
F. Identity of Key Employees; Allocation of Payment for Noncompetition
Agreements
G. Form of Seller Employment Agreement
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AMENDED AND RESTATED
STOCK PURCHASE AGREEMENT
This AMENDED AND RESTATED STOCK PURCHASE AGREEMENT (the "Agreement"),
dated as of September 5, 1997, is made and entered into by and among Norstan,
Inc., a Minnesota corporation (the "Buyer"), Xxxxxx, Inc., a North Carolina
corporation d/b/a PRIMA Consulting Inc. (the "Company") and Xxxxxxx X. Xxxxxx,
a resident of the State of North Carolina (the "Seller").
W I T N E S S E T H:
WHEREAS, Seller owns one hundred (100) shares of common stock, no par
value, of the Company, constituting all the issued and outstanding shares of
capital stock of the Company (such shares being referred to herein as the
"Shares");
WHEREAS, Seller, Buyer and the Company entered into a Stock Purchase
Agreement, dated September 5, 1997 (the "Prior Agreement"), pursuant to which
Buyer agreed to purchase the Shares on the terms and subject to the conditions
set forth in the Prior Agreement;
WHEREAS, the Company expects to obtain substantial benefits from becoming
a part of the Norstan organization;
WHEREAS, the persons identified in a listing to be delivered by Seller to
Buyer no later than five business days prior to the Closing Date and attached
hereto as Exhibit A (the "Founders") hold certain compensatory rights (the
"Founders' Compensation Rights") specified in letter agreements by and between
the Company and each Founder, copies of which are attached hereto as Exhibit B;
and
WHEREAS, Seller, Buyer and the Company desire to amend and restate the
Prior Agreement to make certain agreed upon changes and corrections.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
A G R E E M E N T:
ARTICLE I
SALE OF SHARES AND CLOSING
1.01 Purchase and Sale. Seller agrees to sell to Buyer, and Buyer agrees
to purchase from Seller, all of the right, title and interest of Seller in and
to the Shares at the Closing (as defined in Section 1.03) on the terms and
subject to the conditions set forth in this Agreement.
1.02 Purchase Price. As and for the purchase price of the Shares (the
"Purchase Price") herein provided to be sold by Seller to Buyer, Buyer agrees
to pay, and Seller agrees to accept, subject to adjustment pursuant to Sections
1.04 and 1.06 hereof, an aggregate of Thirteen Million Three Hundred Thousand
Dollars ($13,300,000), payable in the manner provided in Section 1.03.
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1.03 The Closing; Payment of Purchase Price, and Founders' Compensation.
(a) The closing of the transactions contemplated by this Agreement
(the "Closing") shall take place at the offices of Xxxxxx Xxxxxxx Xxxxxx &
Brand, LLP, 3300 Norwest Center, 00 Xxxxx Xxxxxxx Xxxxxx, Xxxxxxxxxxx,
Xxxxxxxxx, at 9:00 a.m. on September 30, 1997 (the "Closing Date"), or at such
other place and on such other date as is mutually agreeable to Buyer and
Seller. At the Closing, Seller will assign and transfer to Buyer good and valid
title in and to the Shares, free and clear of all liens, by delivering to Buyer
stock certificates representing the Shares, duly endorsed for transfer or
accompanied by duly executed stock powers endorsed in blank. Each of the
parties shall deliver to the other the documents required to be delivered
pursuant to Article VI hereof.
(b) The Purchase Price payable hereunder by Buyer for the Shares
herein provided to be sold and the Founders' Compensation (as defined below)
shall be payable as follows:
(i) Buyer shall pay to Seller at the Closing the sum of
$9,975,000 by wire transfer of immediately available funds to an account
designated by Seller.
(ii) Buyer shall pay to Seller the sum of $3,325,000 in the form
of certificates representing unregistered shares of Buyer's common stock, $.01
par value per share (the "Common Stock") in a share denomination equal to the
quotient derived by dividing $3,325,000 by the average closing price for the
Common Stock on the Nasdaq National Market System during the twenty trading days
ending on the earlier of the date of the parties' mutual public announcement of
the transactions contemplated hereby in accordance with Section 11 hereof or the
business day immediately preceding the Closing Date (the "Average Price"), of
which Shares equal to $2,475,000 (valued at the closing price for the Common
Stock on the Nasdaq National Market System on the business day immediately
preceding the Closing Date) shall be paid pursuant to Section 1.03(b)(iii) below
and the remaining Shares (the "Primary Shares") shall be paid to Seller at
Closing. In no event shall Buyer have any obligation to issue any fractional
shares of Common Stock. The value of any remaining fractional share, determined
with reference to the Average Price, shall be paid to Seller at the Closing in
the manner set forth in Section 1.03(b)(i). The Primary Shares shall be subject
to the provisions of Article X hereof pertaining to registration under the
Securities Act of 1933, as amended (the "Securities Act").
(iii) The sum of $2,475,000 shall be payable to Seller on the
Closing Date by Buyer's delivery of the Escrow Shares (as defined in Section
1.05) as provided in Section 1.05 hereof. The Escrow Shares shall be subject
to the provisions of Article X hereof pertaining to registration under the
Securities Act.
(iv) Up to an additional $3,500,000 of Purchase Price and
compensation shall be payable pursuant to Section 1.04 hereof.
(v) Buyer shall pay to the Founders on January 2, 1998 an
aggregate of $9,000,000, allocated among the Founders in the manner set forth
in Exhibit A hereto, by certified funds delivered to the Founders.
(vi) Buyer shall pay to the Founders on January 2, 1998 the sum of
$3,000,000 in the form of certificates representing unregistered shares of
Buyer's Common Stock (the
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"Founders' Shares") issued to the Founders in the share denominations described
in Exhibit A hereto. The aggregate number of Founders' Shares to be issued by
Buyer hereunder shall be equal to the quotient derived by dividing $3,000,000
by the Average Price; provided, however, that in no event shall Buyer have any
obligation to issue any fractional shares of Common Stock. The value of any
fractional shares to which the Founders are otherwise entitled, determined with
reference to the Average Price, shall be paid to the Founders in cash in the
manner described in Section 1.03(b)(v). The payments to be made pursuant to
Sections 1.03(b)(v) and 1.03(b)(vi) shall be referred to collectively as the
"Founders' Compensation."
(vii) Buyer may withhold from the Founders' Compensation all federal,
state, city or other taxes as Buyer is required to withhold pursuant to any law
or government regulation or ruling.
1.04 Earn-Out Consideration
(a) Seller and certain employees identified by Seller (or his
successor in the event of Seller's death, disability (as defined below) or
termination (a "Successor")) in his sole discretion (the "Employees") shall
also be entitled to additional Purchase Price and compensation, respectively,
not to exceed $3,500,000 in the aggregate, (the "Earn Out Consideration") if:
(i) from Closing through, April 30, 1998, the Company's Net Operating Profit (as
defined below) exceeds $4,116,000; (ii) for the twelve month period ended April
30, 1999, the Company's Net Operating Profit exceeds $10,151,000; and (iii) for
the twelve month period ended April 30, 2000, the Company's Net Operating Profit
exceeds $14,000,000 (each such fiscal period is referred to herein as a
"Contract Period" and the amount which Net Operating Profit must exceed in any
Contract Period is referred to herein as a "Benchmark").
(b) No later than 60 days after the end of Buyer's fiscal year, Buyer
will pay to the Seller on behalf of Seller and the Employees, the Earn Out
Amount (as defined below). The "Earn Out Amount" shall mean an amount equal to
the difference between the amount by which Net Operating Profit exceeds the
Benchmark for such Contract Period until such time as Buyer has paid an
aggregate of $500,000 of Earn-Out Consideration to Seller hereunder, and
thereafter shall mean that portion of the Earn Out Consideration that is equal
to such difference multiplied by 50%.
The Benchmark and the Ceiling (as defined below) for the second and
third Contract Period shall be adjusted, upward or downward as the case may be,
as follows: (i) if Net Operating Profit for a Contract Period exceeds the
Ceiling for such Contract Period then the Benchmark and Ceiling for the
following Contract Period shall be decreased by the difference between the Net
Operating Profit and the Ceiling for the prior Contract Period; (ii) if Net
Operating Profit for a Contract Period is less than the Benchmark for such
Contract Period then the Benchmark and the Ceiling for the following Contract
Period shall be increased by the difference between the Benchmark and the Net
Operating Profit for the prior Contract Period; and (iii) if Net Operating
Profit in any Contract Period is less than the Ceiling for such Contract Period
but greater than the Benchmark for such Contract Period then no adjustment
shall be made to the Benchmark or Ceiling for the following Contract Period.
"Ceiling" shall mean $4,616,333 for the first Contract Period, $12,151,700 for
the second Contract Period and $18,000,000 for the third Contract Period.
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In no event, however, will Seller and the Employees receive cumulative
Earn Out Consideration in excess of $3,500,000. One-half of the Earn Out
Consideration shall be paid by wire transfer in immediately available funds to
an account designated by the Seller and one-half of the Earn-Out Consideration
shall be paid by certified check to the Employees in the proportionate amounts
designated by Seller. If any Earn Out Consideration is payable on a date on
which banks in the State of Minnesota are not generally open for business, such
Earn Out Consideration shall be paid on the next succeeding business day.
(c) As used herein, "Net Operating Profit" shall mean the net
earnings of the Company, before all state and federal income and franchise
taxes, computed in accordance with generally accepted accounting principles at
the time of and during the periods reported on in the Annual Financial
Statements, except that the following additional provisions shall apply to the
computation of Net Operating Profit for purposes of this Agreement:
(i) The costs of the transactions contemplated by this
Agreement, which include, without limitation, any costs, charges or
expense for professional services rendered in connection with this
Agreement, shall be excluded from the computation.
(ii) Any charge or expense for the amortization of goodwill
arising out of the fact that Buyer has purchased the Shares or charge
or expense for the amortization of the noncompetition agreements
referenced in Section 8 shall be excluded from the computation.
(iii) Allocated Buyer expenses, including but not limited to
general and administrative expenses, shall be excluded from the
computation except to the extent to which Seller (or his Successor)
elects to use a specific corporate service, benefit, or expense, in
which case, the Company will incur similar charges for purposes of
calculating its Net Operating Profit hereunder.
(iv) Costs and expenses associated with geographic expansion of
the Company beyond its existing business plan and initiated at the
request of Buyer will be included or excluded from the computation
based upon the good faith negotiation of representatives of Buyer and
Seller.
(d) Buyer shall deliver to Seller not later than twenty (20) calendar
days before the date the Earn Out Consideration is payable, a written
calculation of the Earn Out Consideration for the prior Contract Period, along
with an income statement and relevant work sheets for the period and the payment
required. In the event that Seller does not object to the Earn Out
Consideration calculation by written notice of objection delivered to Buyer
within twenty (20) calendar days after his receipt of such calculation, income
statement, and relevant work papers, setting forth objections thereto in
reasonable detail, then the Earn Out Consideration as calculated by Buyer shall
be deemed conclusive and binding. If Seller does so object, then Buyer and
Seller shall promptly endeavor in good faith to agree upon all disputed matters.
In the event that a written agreement resolving the dispute has not been reached
within twenty (20) calendar days after one party's receipt of the other party's
notice of objection, then the dispute with respect to the calculation of the
Earn Out Consideration shall be resolved in accordance with Section 7.03 hereof.
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(e) Buyer may withhold from the Earn-Out Consideration payable to the
Employees all federal, state, city or other taxes as Buyer is required to
withhold pursuant to any law or government regulation or ruling.
(f) In the event Seller dies, becomes disabled (as defined in the
Seller Employment Agreement), voluntarily terminates his employment or his
employment is involuntarily terminated for Cause (as defined in the Seller
Employment Agreement) prior to April 30, 2000, the amount to which Seller would
have otherwise been entitled shall be prorated through the date of such death,
disability or termination.
1.05 Escrow Shares. On the Closing Date, Buyer shall deliver the sum of
$2,475,000 in the form of certificates representing shares (the "Escrow
Shares") of its Common Stock, into an escrow account (the "Escrow Account") to
be established for the benefit of Buyer as security for the performance of
Seller's indemnification obligations hereunder. The escrow of Escrow Shares
shall be made pursuant to the terms of an escrow agreement to be entered into
by and among Buyer, Seller and an escrow agent (the "Escrow Agent") to be
mutually acceptable to Seller and Buyer, in a form mutually and reasonably
acceptable to Buyer and Seller (the "Escrow Agreement"). The number of Escrow
Shares to be issued by Buyer hereunder (the "Indemnification Escrow Shares")
shall be equal to the quotient derived by dividing the sum of $1,500,000 (the
"Indemnification Escrow") and $975,000 (the "Purchase Price Adjustment Escrow")
by the closing price for the Common Stock on the Nasdaq National Market System
on the business day immediately preceding the Closing Date, rounded to the
nearest whole share. Upon consummation of the Closing, Seller and the Founders
when and to the extent any Founders' Shares are delivered to the Escrow Agent
shall become shareholder(s) of Buyer with respect to the Escrow Shares and
shall have all of the rights of a shareholder with respect to all such shares,
including the right to vote such Escrow Shares and to receive all dividends and
other distributions paid with respect thereto; provided, however, that during
the term of the escrow, neither Seller nor the Founders shall sell, transfer,
pledge, hypothecate or otherwise encumber any Escrow Shares. Subject to the
terms and conditions of the Escrow Agreement, Seller shall be entitled to
delivery of certificates representing that portion of the Escrow Shares
attributable to the Purchase Price Adjustment Escrow (the "Purchase Price
Escrow Shares") in accordance with the provisions of Section 1.06 hereof.
Seller and the Founders to the extent any Founders' Shares are delivered to the
Escrow Agent shall be entitled to delivery of certificates representing that
portion of the Escrow Shares attributable to the Indemnification Escrow (the
"Indemnification Escrow Shares") eighteen months after the Closing Date,
subject to a pro rata holdback of Indemnification Escrow Shares then equal in
value to (i) 130 percent of any then existing indemnification claims as measured
by the closing sale price for the Common Stock eighteen months after the Closing
Date or the next succeeding trading day if such date is not a day on which the
Common Stock trades less (ii) the amount of the Indemnification Threshold as
defined in Section 9.06 which has not been applied against prior indemnification
claims.
1.06 Purchase Price Adjustment. As soon as practicable but in no event
later than thirty (30) days after the Closing Date, Seller shall prepare and
deliver to Buyer a balance sheet prepared as of the Closing Date in accordance
with generally accepted accounting principles, consistently applied, together
with the unqualified audit report of Xxxxxx Xxxxxxxx LLP (the "Closing Balance
Sheet"). If the Adjusted Shareholder's Equity of the Company on the Closing
Date is less than $975,000 ("Minimum Shareholder's Equity"), the amount of the
Purchase Price shall be reduced, on a dollar-for-dollar basis, for the amount
of such deficiency (the "Purchase Price Adjustment"). For
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purposes of this Section 1.06, "Adjusted Shareholder's Equity" shall mean total
Shareholder's Equity as set forth on the Closing Balance Sheet plus the sum of:
(i) the amount of the liability reflected on the Closing Balance Sheet with
respect to the Founders' Compensation Rights and (ii) the Professional Sales Fee
Obligation (as defined in Section 5.04). Pursuant to the terms and conditions
of the Escrow Agreement, upon the determination of the Purchase Price
Adjustment, if any, Buyer shall deliver notice thereof to the Escrow Agent with
instructions to release to Buyer the number of Purchase Price Escrow Shares
represented by the Purchase Price Adjustment (valued at the closing price for
the Common Stock on the Nasdaq National Market System on the business day
immediately preceding the Closing Date) and to deliver to Seller certificates
representing the remaining Purchase Price Escrow Shares, if any.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER AND THE COMPANY
Seller and the Company hereby jointly and severally represent and warrant
to Buyer that, except as set forth in the Disclosure Schedule to be delivered
by Seller to Buyer no later than five business days prior to the Closing Date
and to be attached as Exhibit C hereto (the "Disclosure Schedule"), which
Disclosure Schedule sets forth the exceptions to the representations and
warranties contained in this Article II under captions referencing the Sections
to which such exceptions apply:
2.01 Incorporation and Corporate Power. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of North Carolina and has the corporate power and authority and all
authorizations, licenses, permits and certifications necessary to own and
operate its properties and to carry on its business as now conducted and
presently proposed to be conducted. The copies of the Company's Articles of
Incorporation and Bylaws which have been furnished by the Company to Buyer
prior to the date hereof reflect all amendments made thereto and are correct
and complete as of the date hereof. The Company is qualified to do business in
the States of Ohio, Pennsylvania, Virginia and South Carolina, which constitute
all jurisdictions in which the nature of its business or its ownership of
property requires it to be so qualified except for those jurisdictions in which
the failure to be so qualified would not, individually or in the aggregate,
have a material adverse effect on the Company's business, assets, properties,
condition (financial or otherwise), results of operations or prospects (a
"Material Adverse Effect").
2.02 Execution, Delivery; Valid and Binding Agreements. The execution,
delivery and performance of this Agreement by Seller and the Company, and the
consummation of the transactions contemplated hereby have been duly and validly
authorized and no other proceedings on their part are necessary to authorize
the execution, delivery and performance of this Agreement. This Agreement has
been and the other agreements to be executed pursuant hereto by Seller will be
at Closing duly executed and delivered by Seller and constitutes or at Closing
will constitute the valid and binding obligation of Seller, enforceable in
accordance with their respective terms.
2.03 No Breach. Except as set forth in Schedule 2.03, the execution,
delivery and performance of this Agreement and each Related Agreement (as
defined in Section 6.01) to be executed by Seller in connection herewith and
the consummation by Seller or the Company of the
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transactions contemplated hereby do not conflict with or result in any breach of
any of the provisions of, constitute a default under, result in a violation of,
result in the creation of a right of termination or acceleration or any lien,
security interest, charge or encumbrance upon any of the Shares or any assets of
Seller or the Company, or require any authorization, consent, approval,
exemption or other action by or notice to any court or other governmental body,
under the provisions of the Articles of Incorporation or Bylaws of the Company
or any indenture, mortgage, lease, loan agreement or other agreement or
instrument by which Seller or the Company is bound or affected, or any law,
statute, rule or regulation or order, judgment or decree to which Seller or the
Company is subject.
2.04 Governmental Authorities; Consents. Neither Seller nor the Company
is required to submit any notice, report or other filing with any governmental
authority in connection with the execution or delivery by them of this
Agreement or the consummation of the transactions contemplated hereby. No
consent, approval or authorization of any governmental or regulatory authority
or any other party or person is required to be obtained by Seller or by the
Company in connection with their execution, delivery and performance of this
Agreement or the transactions contemplated hereby.
2.05 Ownership of Capital Stock. Seller owns, beneficially and of record,
all right, title and interest in and to the Shares free and clear of any
security interests, claims, liens, pledges, options, encumbrances, charges,
agreements, voting trusts, proxies or other arrangements, restrictions or
limitations of any kind, and, on the Closing Date, the delivery by Seller of
certificates in the manner set forth in Section 1.03(a) hereof will transfer
good and valid title to the Shares to Buyer, free and clear of any security
interests, claims, liens, pledges, options, encumbrances, charges, agreements,
voting trusts, proxies or other arrangements, restrictions or other legal or
equitable limitations of any kind.
2.06 No Subsidiaries. The Company has no ownership interest in any
corporation, partnership, joint venture or any other entity of any kind or
nature whatsoever.
2.07 Capital Stock. The authorized capital stock of the Company consists
of 100 shares of Common Stock, no par value, of which, as of the date hereof,
100 shares are issued and outstanding, all of which are owned beneficially and
of record by Seller, free and clear of any security interests, claims, liens,
pledges, options, encumbrances, charges, agreements, voting trusts, proxies or
other arrangements, restrictions or other legal or equitable limitations of any
kind. All of the shares of the Company's Common Stock have been duly authorized
and are validly issued, fully paid and nonassessable. The Company has no other
equity securities or securities containing any equity features authorized,
issued or outstanding. There are no agreements or other rights or arrangements
existing which provide for the sale or issuance of capital stock by the Company
and there are no rights, subscriptions, warrants, options, conversion rights or
agreements of any kind outstanding to purchase or otherwise acquire from the
Company any shares of capital stock or other securities of the Company of any
kind. There are no agreements or other obligations (contingent or otherwise)
which may require the Company to repurchase or otherwise acquire any shares of
its capital stock.
2.08 Financial Statements. Attached hereto as Exhibit D are (a) the
unaudited financial statements of the Company as of October 31, 1996, including
a balance sheet and statements of
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operations, shareholder's equity and cash flows for the year then ended and
notes thereto (the "Annual Financial Statements") and (b) unaudited balance
sheets, statements of operations, shareholders' equity and cash flows of the
Company for each month ended thereafter through and including July 31, 1997
(such statements shall be referred to herein as the "Latest Financial
Statements" and the balance sheet as of July 31, 1997 as the "Latest Balance
Sheet"). Except for the failure to give effect to the Founders' Consideration
and as otherwise set forth on Schedule 2.08, the Latest Financial Statements and
the Annual Financial Statements are true and correct, based upon the information
contained in the books and records of the Company, and fairly present the
financial condition of the Company as of the dates thereof and, as applicable,
the results of its operations and its cash flows for the periods referred to
therein. Except for the failure to give effect to the Founders' Consideration
and as otherwise set forth on Schedule 2.08, the Annual Financial Statements
have been prepared in accordance with generally accepted accounting principles,
consistently applied throughout the period. Except for (i) the absence of notes
and prior period comparative data, (ii) the failure to give effect to the
Founders' Consideration, and (iii) as otherwise set forth on Schedule 2.08, the
Latest Financial Statements have been prepared in accordance with generally
accepted accounting principles consistent with the Annual Financial Statements
and reflect all adjustments necessary to a present fairly the financial
position, results of operations and the cash flows of the Company for the
interim period(s) presented.
In addition to, and not in lieu of, the foregoing, upon delivery of the
Audited Annual Financial Statements required pursuant to Section 6.01(m)
hereof, Seller and the Company shall be deemed to jointly and severally
represent and warrant that such Audited Annual Financial Statements (i) are
correct and complete in all material respects, (ii) have been prepared from the
books and records of the Company, (iii) have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis with
prior years, and (iv) fairly present in all material respects the financial
position of the Company at October 31, 1996 and the results of its operations
and the changes in its shareholder's equity and its cash flows for the year
then ended.
2.09 Absence of Undisclosed Liabilities. Except as reflected in the
Latest Balance Sheet, the Company has no liabilities (whether accrued,
absolute, contingent, unliquidated or otherwise, whether due or to become due,
whether known or unknown, and regardless of when asserted) arising out of
transactions or events heretofore entered into, or any action or inaction, or
any state of facts existing, with respect to or based upon transactions or
events heretofore occurring, except (i) liabilities which have arisen after the
date of the Latest Balance Sheet in the ordinary course of business (none of
which is a material uninsured liability for breach of contract, breach of
warranty, tort, infringement, claim or lawsuit), or (ii) as otherwise set forth
in the Disclosure Schedule under the caption referencing this Section 2.09.
2.10 No Material Adverse Changes. Since the date of the Latest Balance
Sheet, there has been no material adverse change, individually or in the
aggregate, in the business, assets, condition (financial or otherwise), results
of operations or prospects of the Company (a "Material Adverse Change").
2.11 Absence of Certain Developments. Since the date of the Latest
Balance Sheet (the "Balance Sheet Date"), the Company has not:
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(a) borrowed any amount or incurred or become subject to any
liability, except (i) current liabilities incurred in the ordinary course of
business, (ii) liabilities under contracts entered into in the ordinary course
of business, (iii) the Performance Bonus, (iv) the Professional Sales Fee
Obligation and (v) as set forth on Schedule 2.11(a);
(b) mortgaged, pledged or subjected to any lien, charge or any other
encumbrance, any of its assets, except (i) liens for current property taxes not
yet due and payable, (ii) liens imposed by law and incurred in the ordinary
course of business for obligations not yet due to carriers, warehousemen,
laborers, materialmen and the like.
(c) discharged or satisfied any lien or encumbrance or paid any
liability, other than current liabilities paid in the ordinary course of
business;
(d) sold, assigned or transferred (including, without limitation,
transfers to any employees, affiliates or shareholders) any tangible assets, or
canceled any debts or claims, in each case, except in the ordinary course of
business;
(e) sold, assigned or transferred (including, without limitation,
transfers to any employees, affiliates or shareholders) any patents, trademarks,
trade names, copyrights, trade secrets or other intangible assets;
(f) disclosed, to any person other than Buyer, authorized
representatives of Buyer and authorized representatives of Seller, any
proprietary confidential information, including without limitation information,
in whatever form maintained or recorded, pertaining to inventions, discoveries,
know-how, ideas, computer programs, designs, algorithms, processes and
structures, product information, research and development information, client
information, financial information, business processes and methodology, and any
other technical and business information of the Company which is of a
confidential, trade secret or proprietary character, other than pursuant to a
confidentiality agreement prohibiting the use or further disclosure of such
proprietary confidential information, which agreement is identified in the
Disclosure Schedule under the caption referencing this Section 2.11 and is in
full force and effect on the date hereof;
(g) waived any rights of material value or suffered any extraordinary
losses or adverse changes in collection loss experience, whether or not in the
ordinary course of business or consistent with past practice;
(h) declared or paid any dividends or other distributions with respect
to any shares of the Company's capital stock or redeemed or purchased, directly
or indirectly, any shares of the Company's capital stock or any options;
(i) issued, sold or transferred any of its equity securities,
securities convertible into or exchangeable for its equity securities or
warrants, options or other rights to acquire its equity securities, or any
bonds or debt securities;
(j) taken any other action or entered into any other transaction other
than in the ordinary course of business and in accordance with past custom and
practice, or entered into any transaction with any "Insider" (as defined in
Section 2.22 hereof) other than (i) the transactions
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contemplated by this Agreement, (ii) employment arrangements otherwise disclosed
in this Agreement, (iii) the Professional Sales Fee Obligation, or (iv) as set
forth on Schedule 2.11(j);
(k) suffered any material theft, damage, destruction or loss of or to
any property or properties owned or used by it, whether or not covered by
insurance;
(l) except as provided in Sections 4.01(c) and 5.04, respectively,
concerning the Performance Bonus and the Professional Sales Fee Obligation, made
or granted any bonus or any wage, salary or compensation increase to any
director, officer, employee (exclusive of increases made or granted to employees
in the ordinary course of business) or consultant or made or granted any
increase in any employee benefit plan or arrangement, or amended or terminated
any existing employee benefit plan or arrangement, or adopted any new employee
benefit plan or arrangement or made any commitment or incurred any liability to
any labor organization;
(m) made any capital expenditures or commitments therefor except for
transactions in the ordinary course of business, not to exceed $10,000
individually and $50,000 in the aggregate;
(n) made any loans or advances to, or guarantees for the benefit of,
any persons, other than advances made to employees in the amounts and on the
terms set forth on Schedule 2.11(n) (which advances shall not exceed $75,000 in
the aggregate);
(o) made any charitable contributions or pledges; or
(p) made any change in accounting principles or practices from those
utilized in the preparation of the Annual Financial Statements.
2.12 Title to Properties.
(a) The Company owns no real property.
(b) The real property leased by the Company (the "Leased Property")
constitutes all of the real property used or occupied by the Company and is
sufficient for the conduct of the Company's business as now conducted or as
presently proposed to be conducted.
(c) The leases ("Leases") of the Leased Property are described in
Schedule 2.12 and each is in full force and effect, and the Company holds a
valid and existing leasehold interest under each of the Leases for the term set
forth in Schedule 2.12. The Company has delivered to Buyer complete and
accurate copies of each of the Leases, and none of the Leases has been modified
in any respect, except to the extent that such modifications are disclosed by
the copies delivered to Buyer. The Company is not in default as to monetary
matters nor in material default as to non-monetary matters, and no circumstances
exist which, if unremedied, would, either with or without notice or the passage
of time or both, result in such default under any of the Leases; nor, to the
best knowledge of the Company, is any other party to any of the Leases in
default.
(d) The Company owns good and marketable title to each of the tangible
properties and tangible assets reflected on the Latest Balance Sheet or acquired
since the date thereof, free and clear of all liens and encumbrances, except for
(i) liens for current taxes not yet
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due and payable, (ii) liens set forth under the caption referencing this Section
2.12 in the Disclosure Schedule, (iii) the properties subject to the Leases,
(iv) assets disposed of since the date of the Latest Balance Sheet in the
ordinary course of business, and (v) liens imposed by law and incurred in the
ordinary course of business for obligations not yet due to carriers,
warehousemen, laborers and materialmen.
(e) All of the buildings, machinery, equipment and other tangible
assets necessary for the conduct of the Company's business are in good condition
and repair, ordinary wear and tear excepted, and are usable in the ordinary
course of business. There are no defects in such assets or other conditions
relating thereto which, in the aggregate, materially adversely affect the
operation or value of such assets. The Company owns, or leases under valid
leases, all buildings, machinery, equipment and other tangible assets necessary
for the conduct of its business. SELLER AND THE COMPANY HEREBY DISCLAIM ALL
WARRANTIES, EXPRESS OR IMPLIED, OTHER THAN THOSE SET FORTH IN THIS AGREEMENT,
WITH RESPECT TO SUCH BUILDINGS, MACHINERY, EQUIPMENT AND OTHER TANGIBLE ASSETS.
(f) The Company is not in violation of any applicable zoning ordinance
or other law, regulation or requirement relating to the operation of any
properties used in the operation of its business, and neither Seller nor the
Company have received any notice of any such violation, or the existence of any
condemnation proceeding with respect to any of the Leased Properties, except, in
each case, with respect to violations the potential consequences of which do not
or will not have a Material Adverse Effect on the Company.
(g) Neither Seller nor the Company has knowledge of improvements made
or contemplated to be made by any public or private authority, the costs of
which are to be assessed as special taxes or charges against any of the
Company's leasehold interest in the Leased Properties, and there are no such
present assessments.
2.13 Accounts Receivable. The accounts receivable reflected on the Latest
Balance Sheet and the accounts receivable to be reflected on the Closing
Balance Sheet are valid receivables for work performed, are not subject to
valid disputes, counterclaims or setoffs, and are collectible in accordance
with their terms, except as otherwise described in the Disclosure Schedule
under the caption referencing this Section 2.13, and except to the extent of
the bad debt reserves reflected on the Latest Balance Sheet or the Closing
Balance Sheet, as the case may be.
2.14 Tax Matters.
Except as set forth under the caption referencing Section 2.14 hereof in
the Disclosure Schedule:
(a) Each of (i) the Company, (ii) any affiliated, combined or
unitary group of which the Company or any such subsidiary is or was a member for
purposes of any Taxes (as defined below), and (iii) any Plans (as defined in
Section 2.20 hereof) has timely filed, been included in or sent, and will, prior
to the Closing, timely file, be included in or send all returns, declarations
and reports and information returns and statements required to be filed or sent
by or relating to any of them prior to the Closing relating to any Taxes with
respect to any income, properties or operations of the Company prior to the
Closing (collectively, the "Returns");
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(b) as of the time of filing, the Returns:
(i) correctly reflected (and, as to any Returns not filed as of
the date hereof, will correctly reflect) the facts regarding the income,
business, assets, operations, activities and status of the Company and any other
information required to be shown therein;
(ii) constitute (and, as to any Returns not filed as of the
date hereof, will constitute) complete and accurate representations, in all
material respects, of the Tax liabilities for the periods covered; and
(iii) accurately set forth all items (to the extent required to
be included or reflected in the Returns) relevant to future Tax liabilities,
including the Tax bases of properties and assets;
(c) the Company has timely paid all Taxes that have been shown as due
and payable on the Returns that have been filed;
(d) the Company has established a reserve (in accordance with
generally accepted accounting principles) on the Latest Balance Sheet for any
Taxes that relate to past periods but are not yet due; and will establish such a
reserve for all other Taxes payable for any periods that end before the Closing
for which no Returns have yet been filed and for any periods that begin before
the Closing and end after the Closing to the extent such Taxes are attributable
to the portion of any such period ending at the Closing;
(e) the charges, accruals and reserves for Taxes reflected on the
Closing Balance Sheet are adequate to cover the Tax liabilities accruing or
payable by the Company and its subsidiaries in respect of periods prior to the
date hereof;
(f) the Company is not delinquent in the payment of any Taxes nor has
the Company requested any extension of time within which to file or send any
Return, which Return has not since been filed or sent;
(g) no deficiency for any Taxes has been proposed, asserted or
assessed against the Company (or any member of any affiliated or combined group
of which the Company is or has been a member for which the Company could be
liable for Taxes);
(h) the Company has not granted any extension of the limitation
period applicable to any Tax claims and nor has the Company waived any such
limitation period;
(i) the Company is not, nor has the Company been a party to any tax
sharing agreement with any corporation which, as of the Closing, is not a member
of the affiliated group of which the Company is a member;
(j) the Company has not made any election under either Section 341(f)
or Section 1362(a) of the Code;
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(k) the Company has not, for the five (5)-year period preceding the
Closing, been a United States real property holding corporation within the
meaning of Section 897(c)(2) of the Code; and
(l) no Tax is required to be withheld pursuant to Section 1445 of the
Code as a result of the transactions contemplated in this Agreement.
(m) "Tax" (and with the corresponding meaning "Taxes" and "Taxable")
shall include (i) any net income, gross income, gross receipts, sales, use, ad
valorem, franchise, profits, license, withholding, payroll, employment, excise,
severance, stamp, occupation, property or windfall profit tax, custom duty or
other tax, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest and any penalty, addition to tax or
additional amount imposed by any taxing authority (domestic or foreign) and (ii)
any liability for the payment of any amount of the type described in clause (i)
as a result of being a member of an affiliated or combined group.
2.15 Contracts and Commitments.
(a) The Disclosure Schedule, under the caption referencing this
Section 2.15, lists each of the following agreements, whether oral or written,
to which the Company is a party, which are currently in effect, and which relate
to the operation of the Company's business: (i) collective bargaining agreement
or contract with any labor union; (ii) bonus, pension, profit sharing,
retirement or other form of deferred compensation plan, other than as described
under the caption referencing Section 2.20 hereof in the Disclosure Schedule;
(iii) hospitalization insurance or other welfare benefit plan or practice,
whether formal or informal, other than as described under the caption
referencing Section 2.20 hereof in the Disclosure Schedule; (iv) stock purchase
or stock option plans; (v) contract for the employment of any officer,
individual employee or other person on a full-time or consulting basis or
relating to severance pay for any such person; (vi) confidentiality agreement;
(vii) contract, agreement or understanding relating to the voting of Common
Stock or the election of directors of the Company; (viii) agreement or indenture
relating to the borrowing of money or to mortgaging, pledging or otherwise
placing a lien on any of the assets of the Company; (ix) guaranty of any
obligation for borrowed money or otherwise; (x) lease or agreement under which
it is lessee of, or holds or operates any property, real or personal, owned by
any other party; (xi) lease or agreement under which it is lessor of, or permits
any third party to hold or operate, any property, real or personal; (xii)
contract or group of related contracts with the same party for the purchase of
products or services under which the undelivered balance of such products or
services is in excess of $10,000; (xiii) contract or group of related contracts
with the same party for the sale of products or services under which the
undelivered balance of such products or services has a sales price in excess of
$10,000; (xiv) contract or group of related contracts with the same party (other
than any contract or group of related contracts for the purchase or sale of
products or services) not terminable by it on 30 days' or less notice without
penalty; (xv) contract which prohibits the Company from freely engaging in
business anywhere in the world; (xvi) contract for the distribution of the
Company's products (including any distributor, sales and original equipment
manufacturer contract); (xvii) franchise agreement; (xviii) license agreement or
agreement providing for the payment or receipt of royalties or other
compensation by the Company in connection with the intellectual property rights
listed under the caption referencing Section 2.16 hereof in the Disclosure
Schedule; (xix) contract or commitment for capital expenditures; (xx) agreement
for the sale of any
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capital asset; (xxi) contract with any affiliate which in any way relates to
the Company (other than for employment on customary terms); or (xxii) other
agreement which is either material to the Company's business or was not entered
into in the ordinary course of business.
(b) The Company has performed all obligations required to be performed
by it in connection with the contracts or commitments required to be disclosed
in the Disclosure Schedule under the caption referencing this Section 2.15 and
is not in receipt of any claim of default under any contract or commitment
required to be disclosed under such caption; the Company has no present
expectation or intention of not fully performing any material obligation
pursuant to any contract or commitment required to be disclosed under such
caption; and Seller has no knowledge of any breach or anticipated breach by any
other party to any contract or commitment required to be disclosed under such
caption.
(c) Prior to the date of this Agreement, Buyer has been supplied with
a true and correct copy of each written contract or commitment, and a written
description of each oral contract or commitment, referred to under the caption
referencing this Section 2.15 in the Disclosure Schedule, together with all
amendments, waivers or other changes thereto.
2.16 Intellectual Property Rights. The Disclosure Schedule describes
under the caption referencing this Section 2.16 a complete listing of each
patent, trademark, trade name, service xxxx, copyrighted work and registrations
thereof and applications therefor, and all licenses, sublicenses and agreements
with respect thereto, used or licensed by or to the Company, to which the
Company is a party (the "Listed Intellectual Property"), which together with
the Company's trade secrets and proprietary know-how (collectively, the
"Intellectual Property") constitutes all intellectual property used in,
developed for use in or necessary for the conduct of the Company's business as
presently conducted or as presently proposed to be conducted. The Company
owns and possesses all right, title and interest, or holds a valid license in
the Listed Intellectual Property and, to the best knowledge of Seller and the
Company, in the Company's trade secrets and proprietary know-how. The
Disclosure Schedule describes under the caption referencing this Section 2.16
all Intellectual Property that has been licensed to third parties and all
Intellectual Property that has been licensed from third parties. The Company
has not received any notice of, nor are there any facts known to the Seller
which indicate a likelihood of, any infringement or misappropriation by, or
conflict from, any third party with respect to the Intellectual Property; no
claim by any third party contesting the validity of the Intellectual Property
has been made, is currently outstanding or, to the best knowledge of Seller, is
threatened; the Company has not received any notice of any infringement,
misappropriation or violation by the Company of any intellectual property
rights of any third parties; and, to the best knowledge of Seller and the
Company, no infringement, illicit copying, misappropriation or violation has
occurred or will occur with respect to products or services currently being
sold by the Company or with respect to the conduct of the Company's business as
now conducted.
2.17 Litigation. Except as set forth in the Disclosure Schedule under the
caption referencing this Section 2.17, there are no actions, suits,
proceedings, orders or investigations pending or, to the best knowledge of
Seller, threatened against the Company, at law or in equity, or before or by
any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality.
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2.18 Warranties. The Disclosure Schedule summarizes under the caption
referencing this Section 2.18 all claims outstanding, pending or, to the best
knowledge of the Seller, threatened for breach of any warranty relating to any
products or services sold by the Company prior to the date hereof. The
description of the Company's product and service warranties set forth under the
caption referencing this Section 2.18 is correct and complete. Except as set
forth in Schedule 2.18, the reserves for warranty claims on the Latest Balance
Sheet and the Closing Balance Sheet are consistent with the Company's prior
practices and are fully adequate to cover all warranty claims made or to be
made against any products or services of the Company sold prior to the date
thereof.
2.19 Employees. Except as set forth in Schedule 2.19: (a) to the best
knowledge of Seller and the Company, no executive employee of the Company and
no group of the Company's employees has any plans to terminate his or its
employment; (b) the Company has complied with all laws relating to the
employment of labor, including provisions thereof relating to wages, hours,
equal opportunity, collective bargaining and the payment of social security and
other taxes; (c) the Company has no material labor relations problem pending
and its labor relations are satisfactory; (d) there are no workers'
compensation claims pending against the Company nor are the Seller and the
Company aware of any facts that would give rise to such a claim; (e) to the
best knowledge of Seller and the Company, no employee of the Company is subject
to any secrecy or noncompetition agreement or any other agreement or
restriction of any kind that would impede in any way the ability of such
employee to carry out fully all activities of such employee in furtherance of
the business of the Company; and (f) no employee or former employee of the
Company has any claim with respect to any of the Intellectual Property set
forth under the caption referencing Section 2.16 hereof in the Disclosure
Schedule.
2.20 Employee Benefit Plans.
(a) Under the caption referencing Section 2.20 hereof in the
Disclosure Schedule, the Company has listed all employee welfare benefit plans
and all employee pension benefit plans within the meaning of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") maintained or
contributed to by the Company (collectively, the "Plans"), and no trust funds
are so maintained in connection with any employee welfare benefit plan. The
Company has delivered or made available to Buyer a true, correct and complete
copy of each of the Plans identified on such list. As to each of such Plans
that is funded, the Company has delivered or made available to Buyer a true,
correct and complete copy of the most recent annual financial report with
respect to such plan, and any subsequent interim report. Each such financial
report and interim report is an accurate description of the financial status of
the subject employee benefit plan, and there have been no adverse changes in the
financial status of any such Plans since the date of the most recent report
provided with respect thereto.
(b) Under the caption referencing Section 2.20 hereof in the
Disclosure Schedule, the Company has also specifically identified each of the
Plans that is represented to be a qualified plan under Section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code"). With respect to each of
the Plans so identified, the following are true: (i) the plan, in form and
operation, currently satisfies, and for all years subsequent to the
establishment of, such plan has satisfied, the qualification requirements of
Section 401(a) or 403(a) of the Code, as applicable; and (ii) except as
identified on the Disclosure Schedule under the caption referencing Section 2.21
hereof, the Internal Revenue Service (the "IRS") has issued a favorable letter
of determination with respect to the plan as
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amended to date, and all amendments required by the Code as a condition of
retention of such qualified status as of the date hereof have been or will be
adopted within time limits required to maintain such status. Each of such Plans
is and has been operating in compliance with all amendments required by the Tax
Reform Act of 1986 and subsequent legislation and regulations. The Company has
delivered or will deliver prior to Closing a true, correct and complete copy of
all letters of determination with respect to all such Plans as amended to date.
(c) The Company does not now maintain or contribute to, nor, except
as set forth under the caption referencing Section 2.20 in the Disclosure
Schedule, has the Company at any time maintained or contributed to, any
employee benefit plan which is subject to Title IV of ERISA. Except as set
forth under the caption referencing Section 2.20 in the Disclosure Schedule,
all contributions payable to any of the Plans for any plan year ending prior to
the date hereof have been paid in full on a timely basis and no accumulated
funding deficiency (as defined in Section 302(a)(2) of ERISA) has been
incurred.
(d) The Company has not engaged in, nor entered into any arrangement
pursuant to which any person or entity is contractually bound to enter into,
any transaction which could result in imposition upon either the Company or
Buyer of any excise tax under Sections 4971 through 4980B, inclusive, and
Section 5000 of the Code or civil liability under Section 502(i) or 502(l) of
ERISA or otherwise incurred a liability for any excise tax, other than excise
taxes which have heretofore been paid or have been accrued, and, in either case
are fully reflected in the Latest Financial Statements.
(e) The Company has (i) filed or caused to be filed on a timely basis
each and every return, report, statement, notice, declaration and other
document required to be filed with any governmental agency, federal, state and
local (including, without limitation, the IRS, the Department of Labor, the
Pension Benefit Guaranty Corporation and SEC) with respect to each of the
Plans; and the Company delivered or made available to Buyer all records with
respect to the Plans as are required for their proper administration and
proper continued reporting and disclosure; (ii) timely complied with all
applicable participant disclosure requirements of ERISA; and (iii) has
maintained in full force and effect any bond required under ERISA in connection
with such Plans.
(f) The Company is not and has never been a member of a controlled
group of corporations, an unincorporated trade or business under common control,
or a member of an affiliated service group (as such terms are defined in
Sections 414(b), 414(c) and 414(m) of the Code), involving any other entity.
(g) There are no "leased employees" (as defined in Section 414(n) of
the Code) who performed services for the Company nor are there any persons who
are anticipated to become leased employees with the passage of time.
(h) The Company does not maintain any employee benefit plan providing
benefits to former employees or directors, other than health coverage mandated
by applicable law.
(i) The Company has complied in all respect with the "COBRA"
requirements of Section 4980B of the Code.
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(j) There are no actions, suits or claims pending or threatened with
respect to any of the Plans other than routine claims for benefits.
(k) Neither the Company nor any of its directors, officers, employees
or other "fiduciaries," as that term is defined in Section 3(21) of ERISA, has
committed any breach of fiduciary responsibility imposed by ERISA or any other
applicable law with respect to the Plans that would subject the Company, any of
its subsidiaries, Buyer, Buyer's subsidiaries or any of their respective
directors, officers or employees to any liability under ERISA or any other
applicable law.
2.21 Insurance. The Disclosure Schedule, under the caption referencing
this Section 2.21, lists and briefly describes each insurance policy maintained
by the Company with respect to the Company's properties, assets and operations
and sets forth the date of expiration of each such insurance policy. All of
such insurance policies are in full force and effect and are issued by insurers
of recognized responsibility. The Company is not in default with respect to
its obligations under any of such insurance policies.
2.22 Affiliate Transactions. Except as disclosed in the Disclosure
Schedule under the caption referencing this Section 2.22, and other than
pursuant to this Agreement, no officer, director or employee of the Company or
any member of the immediate family of any such officer, director or employee,
or any entity in which any of such persons owns any beneficial interest (other
than any publicly-held corporation whose stock is traded on a national
securities exchange or in the over-the-counter market and less than one percent
of the stock of which is beneficially owned by any of such persons)
(collectively "Insiders"), has any agreement with the Company (other than
normal employment arrangements) or any interest in any property, real, personal
or mixed, tangible or intangible, used in or pertaining to the business of the
Company (other than ownership of capital stock of the Company). None of the
Insiders has any direct or indirect interest in any competitor, supplier or
customer of the Company or in any person, firm or entity from whom or to whom
the Company leases any property, or in any other person, firm or entity with
whom the Company transacts business of any nature. For purposes of this
Section 2.22, the members of the immediate family of an officer, director or
employee shall consist of the spouse, parents, children, siblings, mothers- and
fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law of
such officer, director or employee.
2.23 Customers and Suppliers. The Disclosure Schedule, under the caption
referencing this Section 2.23, lists the 20 largest customers and 10 largest
suppliers of the Company (collectively the "Key Customers and Suppliers") for
the fiscal year ended October 31, 1996, and for the nine-month period ended
July 31, 1997. Since the Balance Sheet Date, no Key Customer or Supplier has
terminated or decreased, or has indicated to the Company that it will terminate
or decrease the rate of business done with the Company, such that the actual or
potential termination or decrease in the rate of business done with the Company
individually by any such Key Customer or Supplier or in the aggregate by all
such Key Customers or Suppliers constitutes a Material Adverse Effect on the
business of the Company.
2.24 Officers and Directors; Bank Accounts. The Disclosure Schedule,
under the caption referencing this Section 2.24, lists all officers and
directors of the Company and all of the Company's bank accounts (designating
each authorized signer).
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2.25 Compliance with Laws; Permits.
(a) Except as set forth on Schedule 2.25, the Company and its
officers, directors, agents and employees have complied in all material respects
with all applicable laws, regulations and other requirements, including, but not
limited to, federal, state and local laws, ordinances, rules, regulations and
other requirements pertaining to product labeling, consumer products safety,
equal employment opportunity, employee retirement, affirmative action and other
hiring practices, occupational safety and health, workers' compensation,
unemployment and building and zoning codes, except for those laws with respect
to which the failure to comply would not have a Material Adverse Effect on the
business of the Company or the Leased Properties, and no claims have been filed
against the Company alleging a violation of any such laws, regulations or other
requirements. Except as set forth on Schedule 2.25, the Company is not relying
on any exemption from or deferral of any such applicable law, regulation or
other requirement that would not be available to Buyer after it acquires the
Company's properties, assets and business. Except as set forth on Schedule
2.25, the Seller has no knowledge of any action, pending or threatened, to
change the zoning or building ordinances or any other laws, rules, regulations
or ordinances affecting the Leased Properties.
(b) The Company has, in full force and effect, all licenses, permits
and certificates, from federal, state and local authorities (including, without
limitation, federal and state agencies regulating occupational health and
safety) necessary to conduct its business and own and operate its properties
(other than Environmental Permits, as such term is defined in Section 2.26(c)
hereof) except for such licenses, permits and certificates as to which a failure
to hold will not have a Material Adverse Effect on the business of the Company
(collectively, the "Permits"). A true, correct and complete list of all the
Permits is set forth under the caption referencing this Section 2.25 in the
Disclosure Schedule. Except as set forth on Schedule 2.25, the Company has
conducted its business in compliance with all material terms and conditions of
the Permits.
(c) The Company has not made or agreed to make gifts of money, other
property or similar benefits (other than incidental gifts of articles of nominal
value) to any actual or potential customer, supplier, governmental employee or
any other person in a position to assist or hinder the Company in connection
with any actual or proposed transaction.
(d) In particular, but without limiting the generality of the
foregoing, except as set forth on Schedule 2.25, the Company has not violated
and has no liability, and has not received a notice or charge asserting any
violation of or liability under, the federal Occupational Safety and Health Act
of 1970 or any other federal or state acts (including rules and regulations
thereunder) regulating or otherwise affecting employee health and safety, except
for willful violations or liabilities which, in the aggregate, will not have a
Material Adverse Effect on the business of the Company.
2.26 Environmental Matters.
(a) As used in this Section 2.26, the following terms shall have the
following meanings:
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(i) "Hazardous Materials" means any dangerous, toxic or hazardous
pollutant, contaminant, chemical, waste, material or substance as defined in or
governed by any federal, state or local law, statute, code, ordinance,
regulation, rule or other requirement relating to such substance or otherwise
relating to the environment or human health or safety, including without
limitation any waste, material, substance, pollutant or contaminant that might
cause any injury to human health or safety or to the environment or might
subject the Company to any imposition of costs or liability under any
Environmental Law.
(ii) "Environmental Laws" means all applicable federal, state and
local laws, rules, regulations, codes, ordinances, orders, decrees, directives,
permits, licenses and judgments relating to pollution, contamination or
protection of the environment (including, without limitation, all applicable
federal, state and local laws, rules, regulations, codes, ordinances, orders,
decrees, directives, permits, licenses and judgments relating to Hazardous
Materials in effect as of the date of this Agreement).
(iii) "Release" shall mean the spilling, leaking, disposing,
discharging, emitting, depositing, ejecting, leaching, escaping or any other
release or threatened release, however defined, whether intentional or
unintentional, of any Hazardous Material.
(b) The Company and the Leased Properties are in material compliance
with all applicable Environmental Laws.
(c) The Company has obtained, and maintained in full force and effect,
all environmental permits, licenses, certificates of compliance, approvals and
other authorizations necessary to conduct its business and operate the Leased
Properties (collectively, the "Environmental Permits"). A copy of each such
Environmental Permit has been provided by Seller to Buyer on the date hereof
which shall be at least 14 days prior to the Closing. The Company has conducted
its business in compliance with all terms and conditions of the Environmental
Permits. The Company has filed all reports and notifications required to be
filed under and pursuant to all applicable Environmental Laws.
(d) Except as set forth in the Disclosure Schedule under the caption
referencing this Section 2.26: (i) the Company has not generated, treated,
contained, handled, located, used, manufactured, processed, buried, incinerated,
deposited, stored, or released on, under or about any part of the Company or the
Leased Properties any Hazardous Materials, and (ii) to the best knowledge of
Seller and the Company, neither the Leased Properties nor any improvements
thereon, contain any Hazardous Materials.
(e) Except as set forth in the Disclosure Schedule under the caption
referencing this Section 2.26, the Company has not received notice alleging in
any manner that the Company is, or might be potentially responsible for any
Release of Hazardous Materials, or any costs arising under or violation of
Environmental Laws.
(f) Except for customary and usual expenditures incurred by businesses
in the Company's industry, no expenditure will be required in order for Buyer to
comply with any Environmental Laws in effect at the time of the Closing in
connection with the operation or
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continued operation of the business of the Company or the Leased Properties in
a manner consistent with the current operation thereof by the Company.
(g) To the best knowledge of Seller and the Company, neither the
Company nor any of the Leased Properties are or have been listed on the United
States Environmental Protection Agency National Priorities List of Hazardous
Waste Sites, or any other list, schedule, law, inventory or record of hazardous
or solid waste sites maintained by any federal, state or local agency.
(h) Seller has disclosed and delivered to Buyer all environmental
reports and investigations which the Company or Seller have obtained or ordered
with respect to the business of the Company and the Leased Properties.
(i) To the best knowledge of Seller and the Company, no part of the
business of the Company or the Leased Properties have been used as a landfill,
dump or other disposal, storage, transfer, handling or treatment area for
Hazardous Materials, or as a gasoline service station or a facility for selling,
dispensing, storing, transferring, disposing or handling petroleum and/or
petroleum products.
(j) No lien has been attached or filed against the Company or the
Company's interest in the Leased Properties in favor of any governmental or
private entity for (i) any liability or imposition of costs under or violation
of any applicable Environmental Law; or (ii) any Release of Hazardous Materials.
2.27 Brokerage. Except for the Professional Sales Fee Obligation
described in Section 5.04 hereof, no third party shall be entitled to receive
any brokerage commissions, finder's fees, fees for financial advisory services
or similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement or agreement made by or on behalf of
Seller or the Company. On the Closing Date, the Company shall not be indebted
to XxXxxxx, Dosen & Co. for all or any portion of the Professional Sales Fee
Obligation and the Company's indebtedness to XxXxxxx, Dosen & Co. shall not
exceed $15,000 on the Closing Date and an aggregate of $15,000 in connection
with the transactions.
2.28 Securities Law Matters. Seller represents that he has received and
reviewed to his full satisfaction, an annual report to shareholders of Buyer
for the fiscal year ended April 30, 1997 and the annual report of Buyer on Form
10-K for the fiscal year ended April 30, 1997. Additionally, Seller
represents that he has received and reviewed to his full satisfaction that
certain Information Statement of Buyer relative to the issuance of Common Stock
hereunder. Additionally, Seller acknowledges that prior to executing this
Agreement, he has had the opportunity to ask questions and receive answers from
Buyer concerning the terms and conditions of the issuance of Common Stock
hereunder, and to obtain any additional information which Buyer possesses or
can acquire without unreasonable effort or expense that is necessary to verify
the accuracy of the information furnished pursuant to this Section 2.28.
2.29 Disclosure. Neither this Agreement nor any of the Exhibits hereto
nor any document delivered by or on behalf of Seller or the Company to Buyer in
connection with the transactions contemplated by this Agreement, nor the
Disclosure Schedule nor any of the financial statements
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referred to in Section 2.08 hereof, nor the disclosures pertaining to Seller or
the Company contained in the Information Statement distributed to Seller and the
Founders, contain any untrue statement of a material fact regarding Seller or
the Company or its business or any of the other matters dealt with in this
Article II relating to the Company or the transactions contemplated by this
Agreement or fail to state any material fact necessary to make the statements
contained herein or therein not misleading.
2.30 No Additional Representation and Warranties. Neither Seller nor the
Company shall be deemed to have made to Buyer any representation or warranty
other than the representations and warranties set forth in this Article II.
Without limiting the generality of the foregoing and notwithstanding any
provision to the contrary contained in this Agreement, neither Seller nor the
Company makes any representation or warranty with respect to any projections,
estimates or budgets heretofore delivered or made available to Buyer of future
revenues, expenses or results of operations of the Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller and the Company that:
3.01 Incorporation and Corporate Power. Buyer is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Minnesota, with the requisite corporate power and authority to enter into
this Agreement and perform its obligations hereunder.
3.02 Execution, Delivery; Valid and Binding Agreement. The execution,
delivery and performance of this Agreement by Buyer and the consummation of the
transactions contemplated hereby have been duly and validly authorized by all
requisite corporate action, and no other corporate proceedings are necessary to
authorize the execution, delivery or performance of this Agreement. This
Agreement has been duly executed and delivered by Buyer and constitutes the
valid and binding obligation of Buyer, enforceable in accordance with its
terms.
3.03 No Breach. The execution, delivery and performance of this Agreement
by Buyer and the consummation by Buyer of the transactions contemplated hereby
do not (a) conflict with or result in the violation of the Articles of
Incorporation or Bylaws of Buyer or (b) conflict with or result in a breach of
any judgment, decree, law or order applicable to Buyer.
3.04 Brokerage. No third party shall be entitled to receive any brokerage
commissions, finder's fees, fees for financial advisory services or similar
compensation in connection with the transactions contemplated by this Agreement
based on any arrangement or agreement made by or on behalf of Buyer other than
the fees and expenses of Xxxx Xxxxxxxx Incorporated, which fees and expenses
will be paid by Buyer.
3.05 Investment Intent. Buyer is purchasing the Shares for its own
account with the present intention of holding the Shares for investment
purposes and not with a view to or for sale in connection with any distribution
of the Shares in violation of any applicable securities law. Buyer will
refrain from transferring or otherwise disposing of any of the Shares, or any
interest therein, in
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such manner as to cause Seller to be in violation of the registration
requirements of the Securities Act of 1933, as amended, or applicable state
securities or blue sky laws.
3.06 Validity of Common Stock. The shares of Common Stock to be issued by
Buyer to Seller and the Founders pursuant to Sections 1.03(b)(ii) and
1.03(b)(vi) have been duly authorized, and upon issuance, delivery and payment
therefor will be validly issued, fully paid and nonassessable.
ARTICLE IV
COVENANTS OF SELLER AND THE COMPANY
4.01 Conduct of the Business. Seller agrees to cause the Company and the
Company agrees to observe each term set forth in this Section 4.01 and agrees
that, from the date hereof until the Closing Date, unless otherwise consented
to by Buyer in writing:
(a) The business of the Company shall be conducted only in, and
neither Seller nor the Company shall take any action except in, the ordinary
course of the Company's business, on an arm's-length basis and in accordance in
all material respects with all applicable laws, rules and regulations and the
Company's past custom and practice;
(b) The Company shall not, directly or indirectly, do or permit to
occur any of the following: (i) issue or sell any additional shares of, or any
options, warrants, conversion privileges or rights of any kind to acquire any
shares of, any of its capital stock, (ii) sell, pledge, dispose of or encumber
any of its assets except in the ordinary course of business and excluding, for
such purposes, the transfer to Seller, without consideration, of the Company's
memberships in Xxxxx Xxxx Country Club and the Carolina Panther PSLs, to the
extent that such memberships are not transferred prior to the Closing Date, such
memberships will be transferred after the Closing Date to Seller; (iii) amend or
propose to amend its Articles of Incorporation or Bylaws; (iv) split, combine or
reclassify any outstanding shares of capital stock, or declare, set aside or pay
any dividend or other distribution payable in cash, stock, property or otherwise
with respect to shares of capital stock; (v) redeem, purchase or acquire or
offer to acquire any shares of capital stock or other securities of the Company;
(vi) acquire (by merger, exchange, consolidation, acquisition of stock or assets
or otherwise) any corporation, partnership, joint venture or other business
organization or division or material assets thereof; (vii) incur any
indebtedness for borrowed money or issue any debt securities except the
borrowing of working capital in the ordinary course of business and consistent
with past practice; (viii) permit any accounts payable owed to trade creditors
to remain outstanding more than 60 days; (ix) sell, convey or otherwise transfer
title to accounts receivable; or (x) enter into or propose to enter into, or
modify or propose to modify, any agreement, arrangement or understanding with
respect to any of the matters set forth in this Section 4.01(b);
(c) The Company shall not, directly or indirectly, enter into or
modify any employment, severance or similar agreements or arrangements with, or
grant any bonuses, salary or benefits increases, severance or termination pay
to, any officers, directors, employees or consultants, except for: (i)
increases in compensation paid to employees granted in the ordinary course of
business, and (ii) a performance bonus (the "Performance Bonus") payable by the
Company to Seller on the Closing Date in an amount equal to the excess, if any,
of Adjusted
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Shareholder's Equity over Minimum Shareholder's Equity, after giving effect to
the income tax benefit attributable to the Performance Bonus.
(d) The Company shall not adopt or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation,
employment or other employee benefit plan, trust, fund or group arrangement for
the benefit or welfare of any employees or any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation,
employment or other employee benefit plan, agreement, trust, fund or
arrangements for the benefit or welfare of any director;
(e) The Company shall not cancel or terminate its current insurance
policies or cause any of the coverage thereunder to lapse, unless simultaneously
with such termination, cancellation or lapse, replacement policies providing
coverage equal to or greater than the coverage under the canceled, terminated or
lapsed policies for substantially similar premiums are in full force and effect;
(f) Each of the Seller and the Company shall (i) use their best
efforts to preserve intact the Company's business organization and goodwill,
keep available the services of the Company's officers and employees as a group
and maintain satisfactory relationships with suppliers, distributors, customers
and others having business relationships with the Company; (ii) confer on a
regular and frequent basis with representatives of Buyer to report operational
matters and the general status of ongoing operations; (iii) not intentionally
take any action which would render, or which reasonably may be expected to
render, any representation or warranty made by Seller and the Company in this
Agreement untrue at the Closing; (iv) notify Buyer of any (A) emergency or other
event involving the Company's business or the operation of the Leased Properties
which may have a Material Adverse Effect on the business, operations or
financial condition of the Company or Seller's or Buyer's ability to consummate
the transactions contemplated by this Agreement, (B) change in the normal
course of the Company's business or in the operation of the Company's
properties, and (C) governmental or third party complaints, investigations or
hearings (or communications indicating that the same may be contemplated) if
such complaint, investigation or hearing would have a Material Adverse Effect or
would be material to the Company's, Seller's or Buyer's ability to consummate
the transactions contemplated by this Agreement; and (v) promptly notify Buyer
in writing if Seller or the Company shall discover that any representation or
warranty made in this Agreement was when made, or has subsequently become,
untrue in any respect;
(g) The Company shall (i) file any Tax returns, elections or
information statements with respect to any liabilities for Taxes of the Company
or other matters relating to Taxes of the Company which pursuant to applicable
law must be filed prior to the Closing Date; (ii) promptly upon filing provide
copies of any such Tax returns, elections or information statements to Buyer;
(iii) make any such Tax elections or other discretionary positions with respect
to Taxes taken by or affecting the Company only upon prior consultation with and
consent of Buyer; and (iv) not amend any Return; and
(h) The Company shall not perform any act referenced by (or omit to
perform any act which omission is referenced by) the terms of Section 2.11.
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4.02 Access. Between the date hereof and the Closing Date, Seller and the
Company shall afford to Buyer and its authorized representatives (the "Buyer's
Representatives") full access at all reasonable times and upon reasonable
notice to the offices, properties, books, records, officers, employees and
other items of the Company, and the workpapers of Xxxxxx Xxxxxxxx LLP and
XxXxxxx, Dosen & Co., the Company's independent accountants, relating to work
done by such firms with respect to the Company for each of the fiscal years
ended October 31, 1994, 1995, and 1996, and for all periods thereafter, and
otherwise provide such assistance as is reasonably requested by Buyer in order
that Buyer may have a full opportunity to make such investigation and evaluation
as it shall reasonably desire to make of the business and affairs of the
Company. In addition, representatives of Buyer and the Company shall jointly
meet with those Key Customers and Suppliers, prospective customers, vendors and
prospective suppliers of the Company identified in a listing (the "Listed
Customers and Suppliers") to be delivered by Seller to Buyer and acceptable to
Buyer no later than five business days after the date hereof and attached hereto
as Exhibit E. Both Seller and the Company shall cooperate fully with Xxxxxx
Xxxxxxxx LLP in connection with their audits of the Closing Balance Sheet and
the Audited Annual Financial Statements.
4.03 Regulatory Filings. As promptly as practicable after the execution
of this Agreement, Seller and the Company shall make or cause to be made all
filings and submissions under any laws or regulations applicable to the Company
for the consummation of the transactions contemplated herein. Seller and the
Company will coordinate and cooperate with Buyer in exchanging such
information, will not make any such filing without providing to Buyer a final
copy thereof for its review and consent at least two full business days in
advance of the proposed filing and will provide such reasonable assistance as
Buyer may request in connection with all of the foregoing.
4.04 Conditions. Seller and the Company shall take all commercially
reasonable actions necessary or desirable to cause the conditions set forth in
Section 6.01 to be satisfied and to consummate the transactions contemplated
herein as soon as reasonably possible after the satisfaction thereof (but in
any event within three business days of such date).
4.05 No Negotiations, etc. Neither Seller nor the Company shall, directly
or indirectly, through any officer, director, agent or otherwise, solicit,
initiate or encourage submission of any proposal or offer from any person or
entity (including any of its or their officers or employees) relating to any
liquidation, dissolution, recapitalization, merger, consolidation or
acquisition or purchase of all or a material portion of the assets of, or any
equity interest in, the Company or other similar transaction or business
combination involving the Company, or participate in any negotiations
regarding, or furnish to any other person any information with respect to, or
otherwise cooperate in any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by any other person or entity to do or seek
any of the foregoing. Seller shall, and shall cause the Company to, promptly
notify Buyer if any such proposal or offer, or any inquiry from or contact with
any person with respect thereto, is made and shall promptly provide Buyer with
such information regarding such proposal, offer, inquiry or contact as Buyer
may request.
4.06 Monthly Financial Statements. From and after the date hereof and
through the end of each month prior to the Closing Date, within thirty days
after the end of each month, the Company will prepare and deliver to Buyer
unaudited balance sheets of the Company as of the end of each such month and
for the corresponding month of the preceding year, together with unaudited
statements of operations reflecting the results of the Company's operations on
a monthly and year to
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date basis and for the corresponding year to date period of the preceding year
(the "Monthly Financial Statements"). Upon delivery of each Monthly Financial
Statement, Seller and the Company shall be deemed, jointly and severally, to
have made the same representations and warranties with respect to such Monthly
Financial Statements as Seller made concerning the Latest Financial Statements
and the definition of Latest Financial Statements for purposes of this
Agreement shall be deemed to include such Monthly Financial Statements.
ARTICLE V
COVENANTS OF BUYER
Buyer covenants and agrees with Seller and the Company as follows:
5.01 Regulatory Filings. As promptly as practicable after the execution
of the Agreement, Buyer shall make or cause to be made all filings and
submissions under any laws or regulations applicable to Buyer for the
consummation of the transactions contemplated herein. Buyer will coordinate
and cooperate with Seller and the Company in exchanging such information, will
not make any such filing without providing to Seller a final copy thereof for
his review and consent at least two full business days in advance of the
proposed filing and will provide such reasonable assistance as Seller and the
Company may request in connection with all of the foregoing.
5.02 Conditions. Buyer shall take all commercially reasonable actions
necessary or desirable to cause the conditions set forth in Section 6.02 to be
satisfied and to consummate the transactions contemplated herein as soon as
reasonably possible after the satisfaction thereof (but in any event within
three business days of such date).
5.03 Discharge of Company Obligations to Seller. No later than one month
after the Closing Date, Buyer shall cause the Company to discharge in full the
amount of the Company's indebtedness to Seller as of the Closing Date which
shall in no event exceed the sum of $967,751 plus unpaid accrued interest at
the rate of 12 percent per annum and any unpaid portion of the Performance
Bonus.
5.04 Professional Sales Fee Obligation. On the Closing Date, Buyer shall
discharge the Company's obligation to Xxxxxxx X. XxXxxxx in the amount of
$500,000 (the "Professional Sales Fee Obligation") in cash by wire transfer of
immediately available funds to an account designated by Xxxxxxx X. XxXxxxx.
ARTICLE VI
CONDITIONS TO CLOSING
6.01 Conditions to Buyer's Obligations. The obligation of Buyer to
consummate the transactions contemplated by this Agreement is subject to the
satisfaction of the following conditions on or before the Closing Date:
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(a) Buyer shall have completed its due diligence examination of the
Company's relationship with the Listed Customers and Suppliers and the results
of such due diligence examination shall be satisfactory to Buyer in its sole
discretion;
(b) The representations and warranties set forth in Article II hereof
shall be true and correct in all material respects at and as of the Closing Date
as though then made and as though the Closing Date had been substituted for the
date of this Agreement throughout such representations and warranties (without
taking into account any disclosures by Seller or the Company of discoveries,
events or occurrences arising on or after the date hereof), except that any such
representation or warranty made as of a specified date (other than the date
hereof) shall only need to have been true on and as of such date;
(c) Seller and the Company shall have performed in all material
respects all of the covenants and agreements required to be performed and
complied with by them under this Agreement prior to the Closing;
(d) Seller shall have obtained, or caused to be obtained, each consent
and approval necessary in order that the transactions contemplated herein not
constitute a breach or violation of, or result in a right of termination or
acceleration of, or creation of any encumbrance on any of the Company's assets
pursuant to the provisions of, any agreement, arrangement or undertaking of or
affecting the Company or Seller or any license, franchise or permit of or
affecting the Company or Seller;
(e) All material governmental filings, authorizations and approvals
that are required for the consummation of the transactions contemplated hereby
will have been duly made and obtained;
(f) There shall not be threatened, instituted or pending any action or
proceeding, before any court or governmental authority or agency, (i)
challenging or seeking to make illegal, or to delay or otherwise directly or
indirectly restrain or prohibit, the consummation of the transactions
contemplated hereby or seeking to obtain material damages in connection with
such transactions, (ii) seeking to prohibit direct or indirect ownership or
operation by Buyer of all or a material portion of the business or assets of the
Company and its subsidiaries, or to compel Buyer or any of its subsidiaries or
the Company to dispose of or to hold separately all or a material portion of the
business or assets of Buyer and its subsidiaries or of the Company, as a result
of the transactions contemplated hereby, (iii) seeking to require direct or
indirect transfer or sale by Buyer of any of the Shares, (iv) seeking to
invalidate or render unenforceable any material provision of this Agreement or
any of the other agreements executed in connection herewith (the "Related
Agreements"), or (v) otherwise relating to and having a Material Adverse Effect,
individually or in the aggregate, on the transactions contemplated hereby or on
the Company or on the value of the Shares;
(g) There shall not be any action taken, or any statute, rule,
regulation, judgment, order or injunction enacted, entered, enforced,
promulgated, issued or deemed applicable to the transactions contemplated hereby
by any federal, foreign or state court, government or governmental authority or
agency, which would reasonably be expected to result, directly or indirectly, in
any of the consequences referred to in Section 6.01(f) hereof;
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(h) Buyer shall not have discovered any fact or circumstance existing
as of the date of this Agreement which has not been disclosed to Buyer as of the
date of this Agreement which has, or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the value of the
Shares;
(i) There shall have been no damage, destruction or loss of or to any
property or properties owned or used by the Company, whether or not covered by
insurance, which, individually or in the aggregate, has, or could reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Company;
(j) Buyer shall have received from counsel for Seller and the Company
a written opinion, dated as of the Closing Date, addressed to Buyer and
satisfactory to Buyer's counsel;
(k) On the Closing Date, Seller shall have delivered to Buyer all of
the following:
(i) Certificates of Seller and the Company, each dated the
Closing Date, stating that the conditions precedent set forth in subsections
(b) and (c) above have been satisfied;
(ii) copies of the third party and governmental consents and
approvals referred to in subsections (d) and (e) above;
(iii) the stock certificate or certificates issued to Seller
representing the Shares, duly endorsed for transfer or accompanied by a duly
executed stock power, with requisite stock transfer stamps, if any, attached;
(iv) the Company's minute books, stock transfer records,
corporate seal and other materials related to the Company's corporate
administration;
(v) resignations (effective as of the Closing Date) from such of
the Company's officers and members of the Company's Board of Directors as Buyer
shall have requested prior to the Closing Date;
(vi) a copy of the Articles of Incorporation of the Company,
certified by the Secretary of State of the State of North Carolina, and
Certificates of Good Standing from the Secretary(ies) of State of the State(s)
of Ohio, Pennsylvania, Virginia and South Carolina evidencing the good standing
of the Company in each such jurisdiction;
(vii) a copy of the Bylaws of the Company; along with
certificates executed on behalf of the Company, by its corporate secretary
certifying to Buyer that such copy is a true, correct and complete copy of such
bylaws and that such bylaws were duly adopted and have not been amended or
rescinded;
(viii) an executed copy of each of the Related Agreements;
(ix) duly executed stock powers endorsed in blank by Seller
related to the shares of Buyer Common Stock to be held by the Escrow Agent;
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(x) such other certificates, documents and instruments as Buyer
reasonably requests related to the transactions contemplated hereby;
(l) No more than an aggregate of five percent (5%) of the Company's
current employees and none of the employees designated by Buyer and identified
in a listing to be delivered by Buyer to Seller no later than five business days
prior to the Closing Date and attached hereto as Exhibit F (the "Key Employees")
shall have either (i) terminated their employment with the Company prior to the
Closing Date, (ii) refused to accept employment with Buyer, in the event such
employment is offered to them, or (iii) otherwise expressed any indication of
their intent not to remain in the employ of the Company following the Closing;
(m) Seller shall have delivered to Buyer the financial statements of
the Company as of October 31, 1996 and for the year then ended, including a
balance sheet and statements of operations, changes in shareholder's equity and
cash flows and notes to financial statements prepared in conformity with
generally accepted accounting principles consistent with those used in
preparation of the Annual Financial Statements, together with the unqualified
audit report of Xxxxxx Xxxxxxxx LLP (the "Audited Annual Financial Statements").
The Audited Annual Financial Statements shall not reflect any material
adjustments, restatements or reclassifications as compared to the Annual
Financial Statements delivered to Buyer pursuant to Section 2.08 hereof;
(n) Each of the Founders shall have executed and delivered to Buyer a
Release and Waiver in a form reasonably acceptable to Buyer and Seller.
(o) Buyer shall have received from Seller in form satisfactory to
Buyer each of the Exhibits to this Agreement no later than five business days
prior to the Closing Date.
(p) Buyer shall have received the approval of its board of directors
with respect to the transactions contemplated by this Agreement.
(q) The closing price for Buyer's Common Stock on the final business
day preceding the Closing Date as reported by the Nasdaq Stock Market must be at
least equal to 70 percent of the Average Price.
6.02 Conditions to the Obligations of Seller and the Company. The
obligations of Seller and the Company to consummate the transactions
contemplated by this Agreement are subject to the satisfaction of the following
conditions on or before the Closing Date:
(a) The representations and warranties set forth in Article III hereof
will be true and correct in all material respects at and as of the Closing as
though then made and as though the Closing Date had been substituted for the
date of this Agreement throughout such representations and warranties;
(b) Buyer shall have performed in all material respects all the
covenants and agreements required to be performed by it under this Agreement
prior to the Closing;
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(c) All material governmental filings, authorizations and approvals
that are required for the consummation of the transactions contemplated hereby
will have been duly made and obtained;
(d) There shall not be threatened, instituted or pending any action or
proceeding, before any court or governmental authority or agency, (i)
challenging or seeking to make illegal, or to delay or otherwise directly or
indirectly restrain or prohibit, the consummation of the transactions
contemplated hereby or seeking to obtain material damages in connection with
such transactions, (ii) seeking to invalidate or render unenforceable any
material provision of this Agreement or any of the Related Agreements, or (iii)
otherwise relating to and materially adversely affecting the transactions
contemplated hereby;
(e) There shall not be any action taken, or any statute, rule,
regulation, judgment, order or injunction, enacted, entered, enforced,
promulgated, issued or deemed applicable to the transactions contemplated hereby
by any federal, foreign or state court, government or governmental authority or
agency, which would reasonably be expected to result, directly or indirectly, in
any of the consequences referred to in Section 6.02(d) hereof;
(f) Seller and the Company shall have received from counsel for Buyer
a written opinion, dated as of the Closing Date, addressed to Seller and the
Company and satisfactory to Seller's counsel;
(g) On the Closing Date, Buyer will have delivered to Seller and the
Company (i) the certificate of Buyer, dated the Closing Date, stating that the
conditions precedent set forth in subsections (a) and (b) above have been
satisfied, (ii) copies of third party and governmental consents and approvals
referred to in subsection (c) above, (iii) a copy of each of (X) the text of the
resolutions adopted by the board of directors of Buyer authorizing the
execution, delivery and performance of this Agreement and the consummation of
all of the transactions contemplated by this Agreement and (Y) the bylaws of
Buyer, along with a certificate executed on behalf of Buyer by its corporate
secretary certifying to Seller that such copies are true, correct and complete
copies of such resolutions and bylaws, respectively, and that such resolutions
and bylaws were duly adopted and have not been amended or rescinded, (iv) an
incumbency certificate executed on behalf of Buyer by its corporate secretary
certifying the signature and office of each officer executing this Agreement or
any of the Related Agreements, (v) an executed copy of the each of the Related
Agreements and (vi) such other certificates, documents and instruments as Seller
reasonably requests related to the transactions contemplated hereby;
(h) Each of the Founders shall have executed and delivered to Seller a
Release and Waiver in a form reasonably acceptable to Buyer and Seller; and
(i) The closing price for Buyer's Common Stock on the final business
day preceding the Closing Date as reported by the Nasdaq Stock Market must be at
least equal to 70 percent of the Average Price.
ARTICLE VII
TERMINATION AND REMEDIES
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7.01 Termination. This Agreement may be terminated at any time prior to
the Closing:
(a) by the mutual consent of Buyer and Seller;
(b) by either Buyer or Seller if there has been a material
misrepresentation, breach of warranty or breach of covenant on the part of the
other in the representations, warranties and covenants set forth in this
Agreement;
(c) by either Buyer or Seller if the transactions contemplated hereby
have not been consummated by September 30, 1997; provided, however, that,
neither Buyer nor Seller will be entitled to terminate this Agreement pursuant
to this Section 7.01(c) if such party's willful breach of this Agreement has
prevented the consummation of the transactions contemplated hereby; or
(d) by Buyer if, after the date hereof, there shall have been,
individually or in the aggregate, a Material Adverse Change or if, after the
date hereof, an event shall have occurred which, so far as reasonably can be
foreseen, would result in any such change, except to the extent such Material
Adverse Change is directly caused by Buyer.
7.02 Effect of Termination. In the event of termination of this Agreement
by either Buyer or Seller as provided in Section 7.01, this Agreement shall
become void and there shall be no liability on the part of either Buyer or
Seller, or their respective shareholders, officers, or directors, except that
Sections 11.01 and 11.02 hereof shall survive indefinitely, and except with
respect to willful breaches of this Agreement prior to the time of such
termination.
7.03 Dispute Resolution. Any dispute among the parties hereto before the
Closing may be resolved by application to any court of competent jurisdiction.
Any dispute among the parties hereto arising on or after the Closing Date,
shall be resolved in accordance with the arbitration provisions of this Section
7.03.
(a) The parties shall attempt in good faith to resolve any dispute
arising out of or relating to this Agreement, or the breach, termination or
validity thereof, promptly by negotiation between executives who have authority
to settle the controversy. Any party may give the other written notice that a
dispute exists (a "Notice of Dispute"). The Notice of Dispute shall include a
statement of such party's position. Within twenty (20) business days of the
delivery of the Notice of Dispute, executives of both parties shall meet at a
mutually acceptable time and place, and thereafter as long as they both
reasonably deem necessary, to exchange relevant information and attempt to
resolve the dispute. If the matter has not been resolved within 45 days of the
disputing party's Notice of Dispute, or if the parties fail to meet within 20
days, either party may initiate arbitration of the controversy or claim as
provided hereinafter.
If a negotiator intends to be accompanied at a meeting by an attorney,
the other negotiator shall be given at least three working days' notice of such
intention and may also be accompanied by an attorney. All negotiations pursuant
to this clause are confidential and shall be treated as compromise and
settlement negotiations for purposes of the Federal Rules of Evidence and state
rules of evidence.
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(b) Any controversy or claim arising out of or relating to this
Agreement, or the breach, termination or validity thereof, or the transactions
contemplated herein, if not settled by negotiation as provided in paragraph (a)
of this Section 7.03, shall be settled by arbitration in Minneapolis, Minnesota,
in accordance with the American Arbitration Association's Rules for Commercial
Arbitration, by three arbitrators. The arbitration procedure shall be governed
by the United States Arbitration Act, 9 U.S.C. Section 1-16, and the award
rendered by the arbitrators shall be final and binding on the parties and may be
entered in any court having jurisdiction thereof.
(c) It is the intent of the parties that any arbitration shall be
concluded as quickly as reasonably practicable. Unless the parties otherwise
agree, once commenced, the hearing on the disputed matters shall be held four
days a week until concluded, with each hearing date to begin at 9:00 a.m. and to
conclude at 5:00 p.m. The arbitrators shall use all reasonable efforts to issue
the final award or awards within a period of five (5) business days after
closure of the proceedings. Failure of the arbitrators to meet the time limits
of this Section 7.03(c) shall not be a basis for challenging the award.
(d) The arbitrators shall instruct the non-prevailing parties to pay
all costs of the proceedings, including the fees and expenses of the arbitrators
and the reasonable attorneys' fees and expenses of the prevailing parties. If
the arbitrators determine that there is not a prevailing party, each party shall
be instructed to bear its own costs and to pay one-half of the fees and expenses
of the arbitrators.
(e) Notwithstanding the foregoing, Buyer shall not be required to seek
arbitration regarding any breach of the Seller Noncompetition Agreement, the
Seller Employment Agreement, the Noncompetition Agreements, or the Founders'
Noncompetition Agreements contemplated by Article VIII hereof.
7.04 Remedies. It is understood that, in the event of Buyer's breach of
its agreement to purchase as herein provided and, in the event of Seller's
breach of his agreement to sell as herein provided or the failure of Seller or
the Company (either or both) to perform the covenants set forth in this
Agreement or any of the Related Agreements, the measure of damages at law to
the affected party will be difficult to ascertain and the remedy at law may be
inadequate. Accordingly, it is specifically agreed that either Buyer or
Seller, as the case may be, shall be entitled to the remedy of specific
performance to enforce the terms and conditions of this Agreement.
7.05 Litigation Expense. Except as set forth in Section 7.03(e), if any
party hereto is made or shall become a party to any litigation commenced by or
against the other involving the enforcement of any of the rights or remedies of
such party, or arising on account of a default of the other party in its
performance of any of the other party's obligations hereunder, then the
prevailing party in such litigation shall receive from the other party all
costs incurred by the prevailing party in such litigation, plus reasonable
attorneys' fees to be fixed by the court.
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ARTICLE VIII
ADDITIONAL AGREEMENTS
8.01 Seller Noncompetition Agreement. On the Closing Date, Seller shall
enter into a noncompetition agreement with Buyer in a form mutually and
reasonably acceptable to Buyer and Seller (the "Seller Noncompetition
Agreement"). Upon Seller's execution and delivery of the Seller Noncompetition
Agreement, Buyer shall pay to Seller the sum of $500,000 in cash, by wire
transfer of immediately available funds to an account designated by Seller.
8.02 Employment Agreement. On the Closing Date, Seller will execute and
deliver to Buyer an Employment Agreement substantially in the form attached
hereto as Exhibit G.
8.03 Employee Noncompetition Agreements. On the Closing Date, Buyer shall
enter into a noncompetition agreement in a form mutually and reasonably
acceptable to Buyer and Seller (the "Noncompetition Agreement") with the Key
Employees (the "Employees"; each an "Employee"). Upon the execution and
delivery of the Noncompetition Agreements by the Employees, Buyer shall pay to
the Employees an aggregate of $700,000 in cash, by wire transfer of immediately
available funds to accounts designated by the Employees or by certified check,
allocated in the manner set forth on Exhibit F.
8.04 Founders' Noncompetition Agreements. On the Closing Date, Buyer
shall enter into a noncompetition agreement in a form mutually and reasonably
acceptable to Buyer and Seller (the "Founders Noncompetition Agreement") with
each of the Founders. Upon the execution and delivery of the Founders
Noncompetition Agreements by the Founders, Buyer shall pay to the Founders an
aggregate of $500,000 in cash, by wire transfer of immediately available funds
to accounts designated by the Founders or by certified check, allocated in the
manner set forth on Exhibit A.
8.05 Securities and Blue Sky Laws. Buyer shall take such steps as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable to the issuance of Buyer's Common Stock hereunder. Seller
and each of the Founders shall cooperate with Buyer's efforts and each shall
agree to execute a Subscription Agreement and Letter of Investment Intent in a
form mutually and reasonably acceptable to Buyer and Seller, relative to the
shares of Common Stock to be issued hereunder.
ARTICLE IX
SURVIVAL; INDEMNIFICATION
9.01 Survival of Representations and Warranties. Notwithstanding any
investigation made by or on behalf of any of the parties hereto or the results
of any such investigation and notwithstanding the participation of such party
in the Closing, the representations and warranties contained in Article II and
Article III hereof shall survive the Closing for a period of eighteen (18)
months following the Closing Date, except with respect to claims specifically
raised by the aggrieved party or parties in one or more written notices given
to the allegedly offending party or parties within the eighteen month period
commencing on the Closing Date, and such claims may continue to be asserted by
the aggrieved party or parties after the expiration of that period; provided,
however, that claims based on fraud or
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intentional misrepresentation or alleged breach of the representations and
warranties contained in Section 2.05 may be brought at any time prior to or
after the eighteen month period commencing on the Closing Date and through the
expiration of any statute of limitations governing the underlying claim and any
claims based upon any alleged breach of a representation or warranty contained
in Section 2.14 may be brought at any time through the expiration of any statute
of limitations governing the underlying claim.
9.02 Indemnification of Buyer. Seller agrees to defend, indemnify and
hold harmless Buyer, and its officers, directors, employees, agents and
shareholder from, against and in respect of: (i) any and all losses, damages or
deficiencies (whether as a result of a direct claim by Buyer against Seller, a
third party claim against Buyer or otherwise) resulting to Buyer from any and
all breaches of representations, warranties, covenants or other terms of this
Agreement by Seller made or contained in this Agreement or in any
certification, list, document, exhibit or schedule delivered to Buyer under or
in connection with this Agreement or the transactions contemplated herein;
(ii) all losses, costs, damages, liabilities, obligations and reasonable
expenses related to or arising out of Seller's operation of the Company prior to
the Closing Date exclusive of liability amounts reflected in the Closing Balance
Sheet; and (iii) all costs and expenses incident to any and all actions, suits,
proceedings, claims, demands, assessments or judgments in respect of sections
(i) and (ii) of this Section 9.02, regardless of the merit thereof, including
Buyer's reasonable legal and accounting fees and expenses (whether incident to
the foregoing or to Buyer's enforcement of said rights of defense and
indemnity). Seller further agrees to indemnify and hold harmless Buyer with
respect to the full deductibility, for federal and state income tax purposes, of
the Performance Bonus and such indemnification protection shall survive
indefinitely.
9.03 Procedure for Indemnification of Buyer.
(a) If any action, suit or proceeding shall be commenced against Buyer
or any claim, demand or assessment be asserted against Buyer in respect of which
Buyer proposes to demand defense and indemnification, Buyer shall notify Seller
to that effect with reasonable promptness and Seller shall thereafter have the
right, but not the obligation, to assume the entire control of the defense,
compromise or settlement thereof, including, at the expense of Seller,
employment of counsel reasonably satisfactory to Buyer, and, in connection
therewith, Buyer shall cooperate fully to make available to Seller all pertinent
information under its control. If Seller does not promptly notify Buyer that
Seller will assume the entire control of such defense, Seller shall thereafter
reimburse Buyer for all of Buyer's expenses (as described herein) for such
defense, as and when they are incurred; and
(b) In the event that Buyer makes any claim against Seller under the
foregoing indemnification provisions (or any others provided herein), Buyer
shall notify the Escrow Agent and may assert its right to reimbursement of such
amount by release of Escrow Shares pursuant to the Escrow Agreement having an
aggregate value, calculated on the basis of the fair market value of the Common
Stock (as evidenced by the closing sale price for the Common Stock on the
trading day immediately preceding the date of release of the Escrow Shares from
the Escrow Account) equal to the amount of Buyer's damages. For purposes of
this Section 9.03, the amount of Buyer's damages recoverable from Seller shall
be reduced by payments received by Buyer from any one or more Founders pursuant
to indemnification claims relating to the same matter(s).
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9.04 Indemnification of Seller. Buyer hereby agrees to defend, indemnify
and hold Seller harmless from, against and in respect of: (i) any and all
losses, damages or deficiencies (whether as a result of a direct claim by
Seller against Buyer, a third party claim against Seller or otherwise)
resulting from any and all breaches of representations, warranties, covenants
or other terms of this Agreement by Buyer made or contained in this Agreement
or in any certification, list, document or exhibit delivered to Seller by Buyer
under or in connection with this Agreement or the transactions contemplated
herein; (ii) all costs, damages, liabilities, obligations and reasonable
expenses related to or arising out of Buyer's operation of the Company on or
after the Closing Date; and (iii) all costs and expenses incident to any and
all actions, suits, proceedings, claims, demands, assessments or judgments in
respect of sections (i) and (ii) of this Section 9.04, regardless of the merit
thereof, including Seller's reasonable legal and accounting fees and expenses
(whether incident to the foregoing or to Seller's enforcement of said rights of
defense and indemnity).
9.05 Procedure for Indemnification of Seller. If any such action, suit or
proceeding shall be commenced against Seller or any such claim, demand or
assessment be asserted against Seller in respect of which Seller proposes to
demand defense and indemnification, Buyer shall be notified to that effect with
reasonable promptness and shall thereafter have the right, but not the
obligation, to assume the entire control of the defense, compromise or
settlement thereof, including, at its own expense, employment of counsel
satisfactory to Seller and, in connection therewith, Seller shall cooperate
fully to make available to Buyer all pertinent information under Seller's
control. If Buyer does not promptly notify Seller that Buyer will assume the
entire control of such defense, Buyer shall thereafter reimburse Seller for all
of Seller's expenses (as described herein) for such defense, as and when they
are incurred.
9.06 Indemnification Threshold; Maximum Indemnification Liability. Neither
Seller on the one hand, nor Buyer on the other hand, shall be obligated to
indemnify the other hereunder unless and until the aggregate amount of losses,
damages, costs, expenses and deficiencies incurred by the aggrieved party
reaches $500,000 (the "Indemnification Threshold"), at which time the offending
party shall be liable in full for all such losses, damages, costs, expenses and
deficiencies incurred by the aggrieved party in excess of the Indemnification
Threshold. Seller shall not be obligated under this Article IX to pay an
amount in excess of the Indemnification Escrow Shares (the "Seller Maximum
Indemnification Liability") and Buyer shall not be obligated under this Article
IX to pay an amount in excess of $1,500,000 (the "Buyer Maximum Indemnification
Liability"); provided, however, that neither the Seller Maximum Indemnification
Liability nor the Buyer Maximum Indemnification Liability shall limit the
offending party's liability under this Article IX for fraud or intentional
misrepresentation, as for which the offending party shall not be liable for an
amount greater than the Purchase Price. For purposes of this Agreement, the
phrase "fraud or intentional misrepresentation" shall mean any fraudulent or
intentional misrepresentation, or reckless disregard, of a material fact or
condition existing on or prior to the Closing Date, or the intentional or
reckless omission of a material fact or condition existing on or prior to the
Closing Date. Neither the Indemnification Threshold nor the Seller Maximum
Indemnification Liability shall in any way limit or reduce Seller's
indemnification liability under Section 9.02 hereof with respect to the
deductibility of the Performance Bonus. Buyer shall seek recovery or claims
concerning the deductibility of the Performance Bonus directly against Seller
and any such recovery shall not be deemed to constitute a payment against the
Seller Maximum Indemnification Liability.
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ARTICLE X
REGISTRATION OF CERTAIN SHARES
10.01 Filing of Registration Statement. On or before the 15th day
following the Closing Date, Buyer shall prepare and file a registration
statement on Form S-3 (or any successor form thereto) (the "Registration
Statement") covering the offer and sale of the Primary Shares and the Seller's
Escrow Shares (hereinafter the "Registerable Securities") with the Securities
and Exchange Commission (the "SEC") pursuant to Rule 415 of the Securities Act.
Buyer will use its best efforts to have the Registration Statement become
effective with the SEC no later than 45 days from the Closing Date. Buyer
shall keep the Registration Statement effective pursuant to Rule 415 at all
times until the earlier of (a) the Registerable Securities have been disposed
of thereunder or (b) two years from the date the Registration Statement is
declared effective (the "Registration Period").
10.02 Filing of Amendments. Buyer shall prepare and file with the SEC
such amendments (including post-effective amendments) and supplements to the
Registration Statement and the prospectus used in connection with the
Registration Statement as may be necessary to keep the Registration Statement
effective at all times through the Registration Period, and, during such
period, comply with the provisions of the Securities Act with respect to the
disposition of all Registrable Securities covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by Seller as set forth in
the Registration Statement or prospectus supplement.
10.03 Qualification Under Blue Sky Laws. Buyer shall use reasonable
efforts to (i) register and qualify the Registrable Securities covered by the
Registration Statement under such other securities or blue sky laws of such
jurisdictions as Seller reasonably requests, (ii) prepare and file in those
jurisdictions such amendments (including post-effective amendments) and
supplements, (iii) take such other actions as may be necessary to maintain such
registrations and qualifications in effect at all times through the
Registration Period and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that Buyer shall not be required in connection therewith or
as a condition thereto to (I) qualify to do business in any jurisdiction where
it would not otherwise be required to qualify but for this Section 10.03, (II)
subject itself to general taxation in any such jurisdiction, (III) file a
general consent to service of process in any such jurisdiction, (IV) provide
any undertakings that cause more than nominal expense or burden to Buyer or (V)
make any change in its charter or bylaws.
10.04 Registration Expenses. All expenses (other than fees and expenses
of investment bankers and other than brokerage commissions) incurred in
connection with registrations, filings or qualifications pursuant to this
Article X, including, without limitation, all registration, listing and
qualifications fees, printers and accounting fees and the fees and
disbursements of counsel for Buyer, shall be borne by Buyer; provided, however,
that Seller shall bear the fees and out-of-pocket expenses of its legal counsel
and accountants and agents selected by Seller.
10.05 Indemnification. In the event any Registrable Securities are
included in a Registration Statement pursuant to this Agreement:
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(a) To the extent permitted by law, Buyer (in such capacity an
"Indemnifying Party") shall indemnify and hold Seller (in such capacity an
"Indemnified Person") harmless against any losses, claims, damages, expenses or
liabilities (collectively the "Claims") to which Seller becomes subject under
the Securities Act, the Exchange Act or otherwise, insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations in the Registration Statement, or any post-effective amendment
thereof, or any prospectus included therein: (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement or
any post-effective amendment thereof or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, (ii) any untrue statement or alleged
untrue statement of a material fact contained in any preliminary prospectus if
used prior to the effective date of such Registration Statement, or contained in
the final prospectus (as amended or supplemented, if Buyer files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading or (iii) any violation or alleged violation by Buyer of the
Securities Act, the Exchange Act or any state securities law or any rule or
regulation (the matters in the foregoing clauses (i) through (iii) being,
collectively, "Violations"). Buyer shall reimburse Seller promptly as such
expenses are incurred and are due and payable, for any legal fees or other
reasonable expenses incurred by Seller in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 10.05 shall not
apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to Buyer
by Seller expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of such Indemnified Person.
(b) In connection with any Registration Statement in which Seller is
participating, Seller (in such capacity an "Indemnifying Party") agrees to
indemnify and hold harmless, to the same extent and in the same manner set forth
in Section 10.05(a), Buyer, each of its directors, each of its officers who
signs the Registration Statement, each person, if any, who controls Buyer within
the meaning of the Securities Act or the Exchange Act, and any other stockholder
selling securities pursuant to the Registration Statement or any of its
directors or officers or any person who controls such stockholder within the
meaning of the Securities Act or the Exchange Act (each an "Indemnified Party"),
against any Claim to which any of them may become subject, under the Securities
Act, the Exchange Act or otherwise, insofar as such Claim arises out of or is
based upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished to Buyer by Seller expressly for use in connection with
such Registration Statement; and such Seller will promptly reimburse any legal
or other expenses reasonably incurred by the Indemnified Parties in connection
with investigating or defending any such Claim; provided, however, that the
indemnity agreement contained in this Section 10.05(b) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of Seller, which consent shall not be unreasonably
withheld; provided, further, however, that Seller shall be liable under this
Section 10.05(b) for only that amount of a Claim as does not exceed the net
proceeds to Seller as a result of the sale of Registrable Securities pursuant to
such Registration Statement. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of such Indemnified
Party.
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(c) Promptly after receipt by the Indemnified Person or any
Indemnified Party under this Section 10.05 of notice of the commencement of any
action (including any governmental action), the Indemnified Person or such
Indemnified Party shall, if a Claim in respect thereof is made against any
Indemnifying Party under this Section 10, deliver to the Indemnifying Party a
written notice of the commencement thereof and this Indemnifying Party shall
have the right to participate in, and, to the extent the Indemnifying Party so
desires, jointly with any other Indemnifying Party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
Indemnifying Parties; provided, however, that an Indemnified Person or
Indemnified Party shall have the right to retain its own counsel, with the fees
and expenses to be paid by the Indemnifying Party, if, in the reasonable opinion
of counsel retained by the Indemnifying Party, the representation by such
counsel of the Indemnified Person or Indemnified Party and the Indemnifying
Party would be inappropriate due to actual or potential differing interests
between such Indemnified Person or Indemnified Party and other party represented
by such counsel in such proceeding. The failure to deliver written notice to
the Indemnifying Party within a reasonable time of the commencement of any such
action shall not relieve such Indemnifying Party of any liability to the
Indemnified Person or Indemnified Party under this Section 10.05, except to the
extent that the Indemnifying Party is prejudiced in its ability to defend such
action. The indemnification required by this Section 10.05 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as such expense, loss, damage or liability is incurred and is due
and payable.
10.06 Contribution. To the extent any indemnification provided for herein
is prohibited or limited by law, the Indemnifying Party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 10.05 to the fullest extent permitted by law; provided,
however, that (a) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 10.05, (b) no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation and (c) contribution by Seller shall be limited in amount to
the net amount of proceeds received by Seller from the sale of such Registrable
Securities.
10.07 Reports under Exchange Act. With a view to making available to
Seller the benefits of Rule 144 or any other similar rule or regulation of the
SEC that may at any time permit Seller to sell securities of Buyer to the
public without registration, until such time as Seller have sold all the
Registrable Securities pursuant to a Registration Statement or Rule 144, Buyer
agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC all reports and other documents required of
Buyer under the Securities Act and the Exchange Act; and
(c) furnish to Seller so long as Seller owns Primary Shares or Escrow
Shares, promptly upon request, (i) a written statement by Buyer that it has
complied with the reporting requirements of Rule 144, the Securities Act and the
Exchange Act, (ii) a copy of the most recent annual or quarterly report of Buyer
and such other reports and documents so filed by Buyer and (iii) such other
information as may be reasonably requested to permit Seller to sell such
securities pursuant to Rule 144 without registration.
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ARTICLE XI
MISCELLANEOUS
11.01 Press Releases and Announcements. Prior to the Closing Date, no
party hereto shall issue any press release (or make any other public
announcement) related to this Agreement or the transactions contemplated hereby
or make any announcement to the employees, customers or suppliers of the
Company without prior written approval of either Seller or Buyer, as the case
may be, except as may be necessary, in the opinion of counsel to the party
seeking to make disclosure, to comply with the requirements of this Agreement
or applicable law. If any such press release or public announcement is so
required, the party making such disclosure shall consult with the other party
prior to making such disclosure, and the parties shall use all reasonable
efforts, acting in good faith, to agree upon a text for such disclosure which
is satisfactory to both parties.
11.02 Expenses. Except as otherwise expressly provided for herein, Seller
and Buyer will pay all of their own expenses (including attorneys' and
accountants' fees (and, in the case of Seller, the expenses of the Company)) in
connection with the negotiation of this Agreement, the performance of their
respective obligations hereunder and the consummation of the transactions
contemplated by this Agreement (whether consummated or not).
11.03 Further Assurances. Buyer, Seller and the Company agree that, on
and after the Closing Date, they shall take all appropriate action and execute
any documents, instruments or conveyances of any kind which may be reasonably
necessary or advisable to carry out any of the provisions hereof.
11.04 Amendment and Waiver. This Agreement may not be amended or waived
except in a writing executed by the party against which such amendment or
waiver is sought to be enforced. No course of dealing between or among any
persons having any interest in this Agreement will be deemed effective to
modify or amend any part of this Agreement or any rights or obligations of any
person under or by reason of this Agreement.
11.05 Notices. All notices, demands and other communications to be given
or delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when personally delivered or
mailed by first class mail, return receipt requested, or when receipt is
acknowledged, if sent by facsimile, telecopy or other electronic transmission
device. Notices, demands and communications to Buyer and Seller will, unless
another address is specified in writing, be sent to the address indicated
below:
Notices to Buyer: with a copy to:
---------------- --------------
Norstan, Inc. Xxxxxx Xxxxxxx Xxxxxx & Brand, LLP
000 Xxxxx Xxxxxxx 000 3300 Norwest Center
Twelfth Floor 00 Xxxxx Xxxxxxx Xxxxxx
Xxxxxxxx, XX 00000 Xxxxxxxxxxx, Xxxxxxxxx 00000
Attention: Xxxxx Xxxxxxx, Esq. Attention: Xxxx X. Sell, Esq.
Telecopy: (000) 000-0000 Telecopy: (000) 000-0000
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Notices to Seller: with a copy to:
----------------- --------------
Xx. Xxxxxxx X. Xxxxxx Xxxxxxxx, Xxxxxxx & Xxxx, P.A.
0000 Xxxxxxx Xxxx, Xxxxx 000 X.X. Xxx 00000
Xxxxxxxxx, XX 28226 Xxxxxxxxx, XX 00000
Attention: Xxxx X. Xxxxx, Esq.
Telecopy: (000) 000-0000
XxXxxxx, Dosen & Co.
0000 Xxxxx Xxxx - Xxxxx 000
Xxxxxxxxxx Xxxxxxx, XX 00000
Attention: Xxxxxxx X. XxXxxxx
Telecopy: (000) 000-0000
11.06 Assignment. This Agreement and all of the provisions hereof will be
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, except that neither this Agreement
nor any of the rights, interests or obligations hereunder may be assigned by
either party hereto without the prior written consent of the other party
hereto.
11.07 Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
11.08 Complete Agreement. This Agreement and the Related Agreements and
other exhibits hereto, the Disclosure Schedule and the other documents referred
to herein contain the complete agreement between the parties and supersede any
prior understandings, agreements or representations by or between the parties,
written or oral, which may have related to the subject matter hereof in any
way.
11.09 Counterparts. This Agreement may be executed in one or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together will constitute one and the
same instrument.
11.10 Governing Law. The internal law, without regard to conflicts of
laws principles, of the State of Minnesota will govern all questions concerning
the construction, validity and interpretation of this Agreement and the
performance of the obligations imposed by this Agreement.
-39-
44
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
NORSTAN, INC.
By /s/ Xxxxxxx X. XxxXxxxxx
---------------------------------------------
Its: Executive Vice President and
Chief Financial Officer
XXXXXX, INC.
By /s/ Xxxxxxx X. Xxxxxx
---------------------------------------------
Its: President and Chief Executive Officer
SELLER
/s/ Xxxxxxx X. Xxxxxx
-----------------------------------------------
Xxxxxxx X. Xxxxxx
