EXHIBIT 99.1
STOCK PURCHASE AGREEMENT
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THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as
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of October 26, 1999 by and among Interiors, Inc., a Delaware corporation
("Buyer"), Xxxxx Xxxxxx ("Xxxxxx"), Xxxxxx Xxxxxxxxxx ("Darlington") and the
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Xxxxx Family Trust dated October 1, 1997 (the "Xxxxx Trust") (Xxxxxx, Darlington
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and the Xxxxx Trust collectively, the "Shareholders").
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R E C I T A L S
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A. The Shareholders own in the aggregate 100 shares of common stock
(the "Shares") of Concepts 4, Inc., a California corporation (the "Company").
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The Shareholders are the owners of all the issued and outstanding common stock
of the Company.
B. The Shareholders desire to sell to Buyer, and Buyer desires to
purchase from the Shareholders, the Shares in accordance with the terms of this
Agreement.
AGREEMENT
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NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties herein contained, the parties hereto agree as
follows:
ARTICLE I DEFINITIONS
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Unless the context otherwise requires, the terms defined in this
Article I shall have the meanings herein specified for all purposes of this
Agreement, applicable to both the singular and plural forms of any of the terms
herein defined. All accounting terms defined in this Article I and those
accounting terms used in this Agreement and not defined in this Article I shall,
except as otherwise provided for herein, be construed in accordance with GAAP.
"Action" shall mean any actual or threatened claim, action, suit,
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arbitration, hearing, inquiry, proceeding, complaint, charge or investigation by
or before any Governmental Entity or arbitrator and any appeal from any of the
foregoing.
"Affiliate" shall mean any Person which directly or indirectly
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controls, is controlled by, or is under common control with, the indicated
Person.
"Agreement" shall have the meaning assigned to such term in the
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introductory paragraph of this Agreement.
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"Association" shall have the meaning assigned to such term in Section
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2.03(f) hereof.
"Balance Sheet Date" shall have the meaning assigned to such term in
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Section 3.04(a) hereof.
"Business Day" shall mean any day excluding Saturday, Sunday or any
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day which shall be in the State of New York or the State of California a legal
holiday or a day on which banking institutions are authorized by law to close.
"Buyer" shall have the meaning assigned to such term in the
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introductory paragraph of this Agreement.
"Claim Notice" shall have the meaning assigned to such term in Section
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10.03 hereof.
"Closing" and "Closing Date" shall have the respective meanings
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assigned to such terms in Section 2.05 hereof.
"Closing Balance Sheet" shall have the meaning assigned to such term
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in Section 2.03(b) hereof.
"Closing Completion Schedule" shall have the meaning assigned to such
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term in Section 2.07 hereof.
"Closing Financial Statements" shall have the meaning assigned to such
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term in Section 8.02(a) hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
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"Common Stock" shall mean the common stock of the Company.
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"Company" shall have the meaning assigned to such term in Recital A
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hereof.
"Completion Schedule" shall have the meaning assigned to such term in
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Section 2.03(a) hereof.
"Confidential Information" shall have the meaning assigned to such
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term in Section 8.04 hereof.
"Darlington" shall have the meaning assigned to it in the
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introductory paragraph of this Agreement.
"Damages" shall mean any and all losses, liabilities, obligations,
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costs, expenses, damages or judgments of any kind or nature whatsoever
(including without limitation reasonable attorneys', accountants' and experts'
fees, disbursements of counsel, and other costs and expenses incurred pursuing
indemnification claims under Article X hereof).
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"Debt Balance Sheet" shall have the meaning assigned to such term in
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Section 2.03(d) hereof.
"Debt Decrease Amount" shall have the meaning assigned to such term in
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Section 2.03(d).
"Debt Increase Amount" shall have the meaning assigned to such term in
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Section 2.03(d).
"Earnout Shares" shall have the meaning assigned to such term in
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Section 2.04(a) hereof.
"EBIT" shall mean Net Income plus the Company's provision and other
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expenses for federal income taxes and Interest Expense, less any Interest
Income, attributable solely to the business of the Company for a particular
fiscal year. For the purpose of calculating EBIT in connection with Section 2.04
only, any increase in the operating expenses of the Company (which increase, for
the purposes of calculating EBIT, shall be calculated by comparing the current
operating expenses against the operating expenses for the preceding twelve (12)
month period), which operating expenses are incurred as a result of the actions
of Buyer, shall be excluded from EBIT upon Shareholders' written notice to Buyer
if the increase in operating expenses is (i) not in the Ordinary Course; or (ii)
incurred to increase the revenue or profits of the Company during periods which
do not include the First Earnout Period, the Second Earnout Period or the Third
Earnout Period. Any increase in operating expenses of the Company incurred as a
result of the actions of Buyer shall be included in EBIT if the increase in
operating expenses is (x) incurred to preserve the assets of the Company; (y)
incurred to maintain Buyer's financial control of the Company; or (z) incurred
to meet Buyer's reporting obligations under the Exchange Act.
"Employment Agreement" shall mean an employment agreement
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substantially in the form of Annex E, Annex F and Annex G attached hereto.
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"Environmental Laws" shall mean all Legal Requirements pertaining to
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the protection of the environment, the treatment, emission and discharge of
gaseous, particulate and effluent pollutants and the use, handling, storage,
treatment, removal, transport, transloading, cleanup, decontamination, discharge
and disposal of Hazardous Material.
"ERISA" shall mean the Employee Retirement Income Security Act of
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1974, as amended from time to time.
"Escrow Account" shall mean the account established by the Escrow
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Agent pursuant to the Escrow Agreement.
"Escrow Agent" shall mean U.S. Bank Trust, a national association.
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"Escrow Agreement" shall have the meaning assigned to such term in
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Section 2.06 hereof.
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"Escrow Amount") shall have the meaning assigned to such term in
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Section 2.06 hereof.
"Estimated Indebtedness Schedule" shall have the meaning assigned to
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such term in Section 2.03(d).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
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amended.
"Final Indebtedness Schedule" shall have the meaning assigned to such
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term in Section 2.03(d) hereof.
"Financial Statements" shall have the meaning assigned to such term in
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Section 3.04(a) hereof.
"First Earnout Period" shall mean the period of time beginning on
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the Closing Date and ending on the first anniversary of the Closing Date.
"First Earnout Period Shares" shall have the meaning assigned to such
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term in Section 2.04(a) hereof.
"GAAP" means United States generally accepted accounting principles,
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consistently applied.
"Governmental Entity" shall mean any local, state, federal or foreign
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(i) court, (ii) government or (iii) governmental department, commission,
instrumentality, board, agency or authority, including the IRS and other taxing
authorities.
"Guaranties" shall have the meaning assigned to such term in Section
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3.10(b) hereof.
"Hazardous Material" shall mean any flammable, ignitable, corrosive,
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reactive, radioactive or explosive substance or material, hazardous waste, toxic
substance or related material and any other substance or material defined or
designated as a hazardous or toxic substance, material or waste by any
Environmental Law currently in effect or as amended or promulgated in the
future.
"Xxxxxx" shall have the meaning assigned to it in the introductory
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paragraph of this Agreement.
"Indebtedness" shall mean, when used with reference to any Person,
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without duplication, (i) any liability of such Person created or assumed by such
Person, or any Subsidiary thereof, (A) for borrowed money, (B) evidenced by a
bond, note, debenture or similar instrument (including a purchase money
obligation, deed of trust or mortgage) given in connection with the acquisition
of, or exchange for, any property or assets (other than inventory or similar
property acquired and consumed in the Ordinary Course), including securities and
other Indebtedness, (C) in respect of letters of credit issued for such Person's
account and "swaps" of interest and currency exchange rates (and other interest
and currency exchange rate hedging agreements) to which such Person is a party
or (D) for the payment of money as lessee under leases that should
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be, in accordance with GAAP, recorded as capital leases for financial reporting
purposes; (ii) any liability of others described in the preceding clause (i)
guaranteed as to payment of principal or interest by such Person or in effect
guaranteed by such Person through an agreement, contingent or otherwise, to
purchase, repurchase or pay the related Indebtedness or to acquire the security
therefor; (iii) all liabilities or obligations secured by a Lien upon property
owned by such Person and upon which liabilities or obligations such Person
customarily pays interest or principal, whether or not such Person has not
assumed or become liable for the payment of such liabilities or obligations; and
(iv) any amendment, renewal, extension, revision or refunding of any such
liability or obligation.
"Indemnifiable Claim" shall have the meaning assigned to such term in
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Section 10.03 hereof.
"Indemnified Party" shall have the meaning assigned to such term in
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Section 10.02 hereof.
"Indemnifying Party" shall have the meaning assigned to such term in
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Section 10.03 hereof.
"Interest Expense" and "Interest Income" for a fiscal year shall mean,
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respectively, the Company's interest expense and interest income for such fiscal
year used in determining Net Income for that fiscal year.
"IRS" shall mean the United States Internal Revenue Service.
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"June Balance Sheet" shall have the meaning assigned to such term in
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Section 3.04 hereof.
"Key Employees" shall mean Xxxx Xxxx, Xxxxxxx Xxxxxxxx and Xxxxx
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Xxxxxx.
"Leased Real Property" shall mean all real property, including
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Structures, leased by the Company.
"Legal Requirement" shall mean any statute, law, ordinance, rule,
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regulation, permit, order, writ, judgment, injunction, decree or award issued,
enacted or promulgated by any Governmental Entity or any arbitrator.
"Lien" shall mean all liens (including judgment and mechanics' liens,
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regardless of whether liquidated), mortgages, assessments, security interests,
easements, claims, pledges, trusts (constructive or other), deeds of trust,
options or other charges, encumbrances or restrictions.
"Xxxxx" shall have the meaning assigned to such term in Section
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6.01(f) hereof.
"Xxxxx Trust" shall have the meaning assigned to it in the
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introductory paragraph of this Agreement.
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"Material Adverse Effect" shall mean a material adverse effect on the
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business, financial condition, properties, profitability, prospects or
operations of the Company.
"Net Income" shall mean the net income of the Company for such period,
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determined in accordance with GAAP, applied in a manner consistent with the
prior accounting practices of the Company, attributable solely to the business
of the Company for a particular fiscal year.
"Objection Notice" shall have the meaning assigned to such term in
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Section 2.03(e) hereof.
"Opening Completion Schedule" shall have the meaning assigned to such
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term in Section 3.04(c) hereof.
"Options" shall mean all outstanding options, warrants and other
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rights to acquire Common Stock.
"Ordinary Course" shall mean, when used with reference to the Company,
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the ordinary course of the Company's business consistent with past practices.
"Permits" shall have the meaning assigned to such term in Section 3.16
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hereof.
"Permitted Liens" shall mean (a) Liens for ad valorem real or
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personal property taxes or assessments not at the time due and (b) Liens in
respect of pledges or deposits under workers' compensation laws or similar
legislation, carriers', warehousemen's, mechanics', laborers' and materialmen's
and similar liens, if the obligations secured by such Liens are not then
delinquent.
"Person" shall mean all natural persons, corporations, business
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trusts, associations, companies, partnerships, limited liability companies,
joint ventures, Governmental Entities and any other entities.
"Policies" shall have the meaning assigned to such term in Section
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3.09(b) hereof.
"Pre-Closing Balance Sheet" shall have the meaning assigned to such
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term in Section 2.03(a) hereof.
"Pre-Closing Date" shall have the meaning assigned to such term in
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Section 2.03(a) hereof.
"Proprietary Information" shall have the meaning assigned to such term
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in Section 3.08(b) hereof.
"Purchase Price" shall have the meaning assigned to such term in
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Section 2.02(a) hereof.
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"Purchase Price Adjustment Estimate" shall have the meaning assigned
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to such term in Section 2.03(b) hereof.
"Second Earnout Period" shall mean the period of time beginning on
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the Closing Date and ending on the second anniversary of the Closing Date.
"Second Earnout Period Shares" shall have the meaning assigned to such
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term in Section 2.04(a) hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended.
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"Shareholders" shall have the meaning assigned to such term in the
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introductory paragraph of this Agreement.
"Shares" shall have the meaning assigned to such term in Recital A
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hereof.
"Structure" shall mean any facility, building, plant, factory, office,
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warehouse structure or other improvement owned or leased by the Company.
"Subsidiary" of a Person shall mean any corporation, partnership,
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association or other business entity at least 50% of the outstanding voting
power of which is at the time owned or controlled directly or indirectly by such
Person or by one or more of such subsidiary entities, or both.
"Tax" shall mean any federal, state, local or foreign income, gross
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receipts, license, payroll, unemployment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including, without limitation, taxes
under Code Section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), employment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated tax or other tax, assessment or charge
of any kind whatsoever, including, without limitation, any interest, fine
penalty or addition thereto, whether disputed or not.
"Tax Return" shall mean any return, declaration, report, claim for
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refund or information, or statement relating to Taxes, and any exhibit,
schedule, attachment or amendment thereto.
"Third Earnout Period" shall mean the period of time beginning on the
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Closing Date and ending on the third anniversary of the Closing Date.
"Third Earnout Period Shares" shall have the meaning assigned to such
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term in Section 2.04(a) hereof.
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ARTICLE II PURCHASE AND SALE OF SHARES
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SECTION 2.01 Purchase and Sale of Shares. Subject to the terms and
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conditions set forth herein, the Shareholders agree to sell and deliver the
Shares to Buyer, and Buyer agrees to purchase and accept the Shares from the
Shareholders free and clear of all Liens, for the purchase price described in
Section 2.02 hereof.
SECTION 2.02 Purchase Price.
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(a) Subject to adjustment as provided in Sections 2.03 and 2.04,
Buyer shall pay an aggregate purchase price (the "Purchase Price") for the
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Shares equal to the sum of:
(i) Eight Million One Hundred Seventy Thousand
Dollars ($8,170,000) in cash, less the Escrow Amount (as defined below) and
subject to adjustment as provided herein (the "Cash Payment") payable at the
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Closing in accordance with Schedule 2.02(a)(i);
(ii) Seven Hundred Seventy Thousand Dollars ($770,000)
payable upon the first anniversary of the Closing Date in accordance with
Schedule 2.02(a)(ii);
(iii) One Million Two Hundred Eighteen Thousand Dollars
($1,218,000) payable upon the second anniversary of the Closing Date in
accordance with Schedule 2.02(a)(iii); and
(iv) One Million Two Hundred Eighteen Thousand Dollars
($1,218,000) payable upon the third anniversary of the Closing Date in
accordance with Schedule 2.02(a)(iv).
(b) In the event that Buyer fails to pay the amounts
due pursuant to Section 2.02(a)(ii), (iii) or (iv), within fifteen (15) Business
Days of the date such cash payments were due Buyer shall deliver to the
Shareholders Buyer Common Stock the fair market value of which is equal to the
amount of cash Shareholders would have received pursuant to Section 2.02(a)(ii),
(iii) or (iv). The fair market value of Buyer Common Stock shall be computed
using the average closing bid price per share of Buyer Common Stock for the ten
(10) trading days immediately preceding the date the applicable cash payment was
to be paid pursuant to Section 2.02.
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SECTION 2.03 Purchase Price Adjustments.
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(a) Pre-Closing Calculation of Purchase Price. No less than
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twenty (20) days prior to the Closing Date Shareholders shall deliver to Buyer
(i) the unaudited balance sheet of the Company (the "Pre-Closing Balance Sheet")
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as of a fiscal month-end which is no later than sixty-five (65) days prior to
the Closing Date (the "Pre-Closing Date") and the related unaudited statements
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of income, shareholders' equity and cash flows for the fiscal period then ended,
prepared in accordance with GAAP, and (ii) the Company's Job Analysis and
Percentage of Completion Schedule ("Completion Schedule") for the period ended
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on the Pre-Closing Date. Shareholders shall make available to Buyer any of the
work papers, financial data and other information used in preparing the Pre-
Closing Balance Sheet. The Cash Payment shall be reduced (but not increased) on
a dollar-for-dollar basis to the extent that the stockholders' equity set forth
in the Pre-Closing Balance Sheet is less than the stockholders' equity set forth
in the June Balance Sheet. In the event that (i) the stockholders' equity set
forth in the June Balance Sheet exceeds the stockholders' equity set forth in
the Pre-Closing Balance Sheet by more than Five Hundred Thousand Dollars
($500,000), and (ii) Buyer does not elect to limit the total adjustment to the
Purchase Price to Five Hundred Thousand Dollars ($500,000), then the
Shareholders shall have the right, in their sole discretion, to terminate this
Agreement without liability or penalty.
(b) Purchase Price Adjustment Estimate. Within thirty (30) days
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after the Closing Date Shareholders shall deliver to Buyer (i) the Shareholders'
calculation of the adjustment to the Purchase Price pursuant to Section 2.03(c)
hereof (the "Purchase Price Adjustment Estimate"), together with a statement, in
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reasonable detail, of the manner by which such calculation was determined and
(ii) the unaudited balance sheet of the Company as of the Closing Date (the
"Closing Balance Sheet") and the related unaudited statements of income,
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shareholders' equity and cash flows for the fiscal period then ended, prepared
in accordance with GAAP. Shareholders shall make available to Buyer any of the
work papers, financial data and other information used in calculating the
Purchase Price Adjustment Estimate.
(c) Purchase Price Adjustment. The Purchase Price shall be
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reduced (but not increased) to the extent that the stockholders' equity set
forth in the Closing Balance Sheet is less than the stockholders' equity set
forth in the Pre-Closing Balance Sheet; provided however, that the Purchase
Price shall be reduced pursuant to this Section 2.03(c) no more than the amount
equal to (i) Five Hundred Thousand Dollars ($500,000) less (ii) any reduction in
the Cash Payment pursuant to Section 2.03(a) hereof.
(d) Indebtedness Adjustment. No less than three (3) Business
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Days prior to the Closing Date, Shareholders shall deliver to Buyer a schedule
setting forth an estimate of the Company's Indebtedness as of the Closing Date
prepared in accordance with GAAP (the "Estimated Indebtedness Schedule"). If the
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aggregate amount of Indebtedness of the Company as of the Closing Date is
greater than Three Hundred Thirty Thousand Dollars ($330,000), the Purchase
Price shall be reduced by the amount of such difference (the "Debt Increase
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Amount"). If the aggregate amount of Indebtedness of the Company as of the
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Closing Date is less than Three Hundred Thirty Thousand Dollars ($330,000), the
Purchase Price shall be increased by the amount of such difference (the "Debt
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Decrease Amount"). Any such adjustment to the Purchase Price, as determined
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pursuant to the Estimated Indebtedness Schedule, shall increase or decrease the
Cash Payment. Within thirty (30) days after the Closing Date, Shareholders shall
deliver to
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Buyer a schedule which sets forth the Company's actual Indebtedness as of the
Closing Date, prepared in accordance with GAAP (the "Final Indebtedness
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Schedule"). To the extent the aggregate Indebtedness disclosed in the Final
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Indebtedness Schedule is greater than Three Hundred Thirty Thousand ($330,000),
the Shareholders shall pay Buyer the amount of such difference less the Debt
Increase Amount, if any, within five (5) Business Days of the delivery of the
Final Indebtedness Schedule. To the extent the aggregate Indebtedness disclosed
in the Final Indebtedness Schedule is less than Three Hundred Thirty Thousand
($330,000), Buyer shall pay the Shareholders the amount of such difference less
the Debt Decrease Amount, if any, within five (5) Business Days of the delivery
of the Final Indebtedness Schedule.
(e) Objection Notice. Within thirty (30) days after receipt of
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the Closing Balance Sheet, the Purchase Price Adjustment Estimate and the Final
Indebtedness Schedule, Buyer shall notify Shareholders in writing (an "Objection
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Notice") of any objection to (i) the Purchase Price Adjustment Estimate or (ii)
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the Final Indebtedness Schedule. If no Objection Notice is given within such
thirty-day period, then (i) the Purchase Price Adjustment Estimate and the Final
Indebtedness Schedule shall be final and binding on all parties and the Purchase
Price calculated in the Purchase Price Adjustment Estimate shall be deemed for
all purposes to be the Purchase Price. If an Objection Notice is delivered,
Shareholders shall be permitted to take positions which are different from
positions taken in the Purchase Price Adjustment Estimate and the Final
Indebtedness Schedule as submitted to Buyer, and Buyer agrees that Shareholders
shall not be prejudiced by reason of such differences.
(f) Dispute Resolution. In the event Buyer provides a timely
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Objection Notice, Buyer and Shareholders shall, for a period of five (5) days,
use their best efforts to resolve any differences between the parties as to the
determination of the Purchase Price. In the event Shareholders and Buyer are
not, within the periods described above, able to resolve such differences, the
determination of the Purchase Price shall be decided by binding arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association (the "Association"). If all of the parties to this Agreement are
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unable to agree on a single arbitrator, the arbitrator shall be a single
arbitrator selected by the American Arbitration Association. Any arbitration
proceedings hereunder shall be held in Los Angeles, California. Such arbitrator
shall as promptly as practicable, but in no event later than ninety (90) days
after receipt by Shareholders of the Objection Notice, make a determination of
the Purchase Price. Such determination shall be final and binding on Buyer and
Shareholders. The fees and expenses of the arbitrator shall be paid fifty
percent (50%) by the Shareholders and fifty percent (50%) by the Buyer.
SECTION 2.04 Adjustment for Future Performance.
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(a) Buyer shall make the following additional payments to
Shareholders for the Shares, at the times and in the amounts specified below in
shares of Buyer Common Stock (in the aggregate, the "Earnout Shares"). The
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Earnout Shares allocable to each Shareholder shall be in the amounts set forth
opposite each Shareholder's name on Schedule 2.04(a):
(i) In the event the Company's EBIT during the First
Earnout Period exceeds Three Million Dollars ($3,000,000), within seventy-five
(75) days following the First Earnout Period, Buyer shall pay to Shareholders
Three Hundred Twenty-Four
10
Thousand Dollars ($324,000) and shall deliver to Shareholders a number of shares
of Buyer Common Stock (the "First Earnout Period Shares") having a fair market
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value equal to One Dollar ($1) for each One Dollar ($1) that the Company's EBIT
during the First Earnout Period exceeds Three Million Dollars ($3,000,000);
provided, however, that the fair market value of the First Earnout Period Shares
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shall not exceed One Million Five Hundred Thousand Dollars($1,500,000). The
Company shall not be obligated to deliver any First Earnout Period Shares to
Shareholders in the event that the Company's EBIT during the First Earnout
Period is less than Three Million Dollars ($3,000,000).
(ii) In the event the Company's EBIT during the Second
Earnout Period exceeds Six Million Dollars ($6,000,000) and the Company's EBIT
during the second twelve month period following the Closing Date exceeds Three
Million Dollars ($3,000,000), within seventy-five (75) days following the Second
Earnout Period, Buyer shall deliver to Shareholders a number of shares of Buyer
Common Stock (the "Second Earnout Period Shares") having a fair market value
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equal to One Dollar ($1) for each One Dollar ($1) that the Company's EBIT during
the Second Earnout Period exceeds Six Million Dollars ($6,000,000), minus (c)
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the value of any First Earnout Period Shares (valued as of the end of the First
Earnout Period); provided, however, that the aggregate value of the Second
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Earnout Period Shares (valued as of the end of the Second Earnout Period) and
First Earnout Period Shares (valued as of the end of the First Earnout Period)
shall not exceed Three Million Dollars ($3,000,000). The Company shall not be
obligated to deliver any Second Period Earnout Shares in the event that the
Company's EBIT during the Second Earnout Period is less than Six Million Dollars
($6,000,000) or the Company's EBIT during the second twelve month period
following the Closing Date equals or is less than Three Million Dollars
($3,000,000).
(iii) In the event that the Company's EBIT during the Third
Earnout Period equals Nine Million Dollars ($9,000,000) and the Company's EBIT
during the third twelve month period following the Closing Date exceeds Three
Million Dollars ($3,000,000), within seventy-five (75) days following the Third
Earnout Period, Buyer shall deliver to Shareholders a number of shares of Buyer
Common Stock (the "Third Earnout Period Shares") having a fair market value
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equal to One Dollar ($1) for each One Dollar ($1) that the Company's EBIT during
the Third Earnout Period exceeds Nine Million Dollars ($9,000,000), minus (c)
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the value of any First Earnout Period Shares (valued as of the end of the First
Earnout Period) and Second Earnout Period Shares (valued as of the end of the
Second Earnout Period); provided, however, that the aggregate value of the Third
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Earnout Period Shares (valued as of the end of the Third Earnout Period), the
First Earnout Period Shares (valued as of the end of the First Earnout Period)
and the Second Earnout Period Shares (valued as of the end of the Second Earnout
Period) shall not exceed Four Million Five Hundred Thousand Dollars
($4,500,000). The Company shall not be obligated to deliver any Third Earnout
Period Shares to Shareholders in the event that the Company's EBIT during the
Third Earnout Period is less than Nine Million Dollars ($9,000,000) or the
Company's EBIT during the third twelve month period following the Closing Date
equals or is less than Three Million Dollars ($3,000,000).
(b) For purposes of this Section 2.04, the fair market value of
Buyer Common Stock shall be computed using the average closing bid price per
share of Buyer Common Stock for the ten (10) trading days immediately preceding
the last day of any determination period.
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SECTION 2.05 Closing. Unless this Agreement shall have been
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terminated pursuant to Section 9.01 hereof, the closing of the purchase and sale
of the Shares contemplated hereby (the "Closing") shall take place at the
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offices of Paul, Hastings, Xxxxxxxx & Xxxxxx LLP, Twenty-Third Floor, 000 Xxxxx
Xxxxxx Xxxxxx, Xxx Xxxxxxx, Xxxxxxxxxx 00000, at 10:00 A.M. local time on or
prior to November 29, 1999 as promptly as practicable upon satisfaction of the
conditions appearing in Article VI hereof or at such other time and place as
Buyer and Shareholders may mutually establish (such time and date being referred
to herein as the "Closing Date").
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SECTION 2.06. Escrow. On the Closing Date, Buyer, each of the
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Shareholders and the Escrow Agent shall execute and deliver an escrow Agreement
(the "Escrow Agreement") substantially in the form of Annex A attached hereto in
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order to secure the indemnification obligations of Shareholders and the Company
and to secure payment, if any, to Buyer of any funds pursuant to an adjustment
to the Purchase Price under Sections 2.03(c) and 2.03(d) hereof. On the Closing
Date, Buyer shall pay, by wire transfer in immediately available funds to an
account established by the Escrow Agent pursuant to the Escrow Agreement, Eight
Hundred Thousand Dollars ($800,000) (the "Escrow Amount") less the amount of any
reduction in the Cash Payment made pursuant to Section 2.03(a) hereof (the
"Escrow Amount").
SECTION 2.07 Actions Prior to and at the Closing.
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(a) The Company and the Shareholders shall deliver or cause
to be delivered to Buyer the Company's Job Analysis and Percentage of Completion
Schedule for the period ending no later than ten (10) days prior to the Closing
Date (the "Closing Completion Schedule").
---------------------------
(b) At the Closing the Company and Shareholders shall
deliver or cause to be delivered to Buyer:
(i) a certificate or certificates representing the
Shares registered in the name of the Buyer; and
(ii) all of the documents, certificates and
instruments required to be delivered to Buyer pursuant to Section 6.01.
(c) At the Closing Buyer shall deliver or cause to be
delivered to Shareholders:
(i) the Cash Payment less the Escrow Amount (as
required by Section 2.06 hereof); and
(ii) all of the documents, certificates and
instruments required to be delivered to Shareholders pursuant to Section 6.02.
(d) At the Closing Buyer shall cause to be delivered the
Escrow Amount to the Escrow Agent (as required by Section 2.06 hereof), which
amount shall released pursuant to the terms of the Escrow Agreement.
12
ARTICLE III REPRESENTATIONS AND WARRANTIES
------------------------------
REGARDING THE COMPANY
---------------------
Shareholders hereby jointly and severally represent and warrant
to, and covenant and agree with, Buyer that:
SECTION 3.01 Organization and Good Standing; Authorization.
---------------------------------------------
(a) The Company has been duly organized and is existing as
a corporation in good standing under the laws of the State of California with
full power and authority (corporate and other) to own and lease its properties
and to conduct its business as currently conducted. The Company has been duly
qualified as a foreign corporation for the transaction of business and is in
good standing under the laws of each jurisdiction set forth on Schedule 3.01(a),
such jurisdictions comprising all jurisdictions in which the Company owns or
leases any property, or conducts any business, so as to require such
qualification.
(b) Except as set forth in Schedule 3.01(b), the Company
has no Subsidiaries nor owns or controls, or has any other equity investment or
other interest in, directly or indirectly, any corporation, joint venture,
partnership, association or other Person.
SECTION 3.02 No Conflicts. Subject to compliance with the
------------
applicable requirements of the Securities Act and any applicable state
securities laws, the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby will not (a) conflict
with or result in a breach or violation of any term or provision of, or
constitute a default under (with or without notice or passage of time, or both),
or otherwise give any Person a basis for accelerated or increased rights or
termination or nonperformance under, any indenture, mortgage, deed of trust,
loan or credit agreement, lease, license or other agreement or instrument to
which the Company is a party or by which the Company is bound or affected or to
which any of the property or assets of the Company is bound or affected
including, without limitation, all arrangements in Section 3.19 hereof, (b)
result in the violation of the provisions of the Articles of Incorporation or
Bylaws of the Company or any Legal Requirement applicable to or binding upon it,
(c) result in the creation or imposition of any Lien upon any property or asset
of the Company or (d) otherwise adversely affect the contractual or other legal
rights or privileges of the Company. Schedule 3.02 sets forth a list of all
agreements requiring the consent of any party thereto to any of the transactions
contemplated hereby.
SECTION 3.03 Capitalization. The authorized capital stock of the
--------------
Company consists solely of 10,000 shares of Common Stock, of which 100 are, and
on the Closing Date will be, issued and outstanding. Schedule 3.03 sets forth a
complete and accurate list of the holders of shares of Common Stock, indicating
the number of Shares held by each holder and their respective addresses. All of
the issued and outstanding shares of Common Stock are duly authorized, validly
issued, fully paid, nonassessable and free of all preemptive rights. Other than
as set forth on Schedule 3.03, (i) there are no existing Options, warrants,
right, calls or commitments of any character relating to shares of Common Stock,
(ii) there are no outstanding securities or other instruments convertible into
or exchangeable for shares of Common Stock and no commitments to issue such
securities or instruments and (iii) no Person has any right of first
13
refusal, preemptive right, subscription right or similar right with respect to
any shares of Common Stock. The offer, issuance and sale of the Shares were (i)
exempt from the registration and prospectus delivery requirements of the
Securities Act, (ii) registered or qualified (or exempt from registration or
qualification) under the registration or qualification requirements of all
applicable state securities laws and (iii) accomplished in conformity with all
other Legal Requirements.
SECTION 3.04 Financial Statements; Completion Schedule.
-----------------------------------------
(a) Schedule 3.04(a) contains true and complete copies of
(i) the unaudited balance sheet of the Company at December 31, 1998 and the
related unaudited statements of income, shareholders' equity and cash flows for
the year then ended, together with the opinion thereon of Xxxxxxx Xxxxxx, the
Company's independent accountant, (ii) the unaudited balance sheet of the
Company (the "June Balance Sheet") at June 30, 1999 (the "Balance Sheet Date")
------------------ ------------------
and the related unaudited statements of income, shareholders' equity and cash
flows for the six-month period ended on the Balance Sheet Date, and (iii) the
Pre-Closing Balance Sheet at the Pre-Closing Date and the related unaudited
statements of income, shareholders' equity and cash flows for the six-month
period ended on the Pre-Closing Date (such unaudited financial statements are
collectively referred to as the "Financial Statements").
--------------------
(b) The Financial Statements present fairly the financial
condition of the Company as of the dates indicated therein and the results of
operations and changes in financial position of the Company for the periods
specified therein, have been prepared in conformity with GAAP during the periods
covered thereby and prior periods (except that the Balance Sheet, the Pre-
Closing Balance Sheet and the related unaudited statements of income,
shareholders' equity and cash flows for the periods ended on the Balance Sheet
Date and on the Pre-Closing Date, respectively, do not contain footnotes and are
subject to year end adjustments which would not, either individually or in the
aggregate, be material), have been derived from the accounting records of the
Company and represent only actual, bona fide transactions. The Financial
Statements are true and correct in all material respects.
(c) Schedule 3.04(c) contains true and complete copies of
the Completion Schedule for each of the periods ending December 31, 1998, June
30, 1999, the Pre-Closing Date and the date hereof (the "Opening Completion
------------------
Schedule"). Each Completion Schedule attached hereto and the Closing Completion
--------
Schedule is true, complete and correct in all respects and has been derived from
the accounting records of the Company and represent only actual, bona fide
transactions.
14
(d) As of the date of each of the Financial Statements the
Company had no liabilities other than those liabilities recorded in the
Financial Statements. The method use to recognize profit of the Company in each
of the Financial Statements is consistent. No customer deposits, whether
collected or billed and receivable have been recorded as income in any of the
Financial Statements. Income recognized on work in progress as of the dates of
each of the Financial Statements is calculated using the percentage of
completion method which utilizes estimates in determining costs to complete
jobs. The use of estimates by its nature results in variances between the
estimated and actual results. The estimated costs to complete each job as
indicated on the percentage of completion schedules reflect the Company's best
estimate of the cost to complete all incomplete work of the Company on a job by
job basis and, the Financial Statements, as of each of their respective dates,
do not, in the aggregate, overstate the percentage of completion of incomplete
jobs or income earned. Income on "fee based jobs" is recognized in a consistent
manner in all periods of each of the Financial Statements. Fees received by the
Company but not yet earned are not reflected as earnings and are appropriately
reflected as liabilities for unearned income in each of the Financial
Statements. All deposits of the Company to vendors are appropriately accounted
for as current assets.
SECTION 3.05 Title to Property; Encumbrances.
-------------------------------
(a) The Company does not own any real property or any
Structures.
(b) The Company has, and immediately prior to the Closing
will have, good, valid and marketable title in fee simple to all personal
property reflected on the Balance Sheet as owned by the Company and all personal
property acquired by the Company since the Balance Sheet Date, in each case free
and clear of all Liens except (i) as set forth on Schedule 3.05(a) and (ii)
Permitted Liens.
(c) Schedule 3.05(c) contains a list of all tangible
personal property having a cost or fair market value in excess of $5,000 owned
by the Company (other than personal property held by the Company as lessee under
a personal property lease).
(d) Schedule 3.05(d) contains a list of all real property
leases, licenses and personal property leases under which the Company is the
lessee or licensee, together with (i) the location and nature of each of the
leased or licensed properties, (ii) the termination date of each such lease or
license, (iii) the name of the lessor or licensor, (iv) all rental and other
payments made or required to be made for the calendar years ending December 31,
1999 and December 31, 2000 and (v) the date and amount of the next permitted
cost-of-living increase in each such lease or license. All leases and licenses
pursuant to which the Company leases or licenses from others real or personal
property are valid, subsisting in full force and effect in accordance with their
respective terms, and there is not, under any real property lease, personal
property lease or license, any existing default or event of default (or event
that, with notice or passage of time, or both, would constitute a default, or
would constitute a basis of force majeure or other claim of excusable delay or
----- -------
nonperformance). True and complete copies of all real property leases, licenses
and personal property leases listed on Schedule 3.05(d) have been delivered to
Buyer heretofore. Except as set forth in Schedule 3.05(d), no such lease or
license will require the consent of the lessor or licensor to or as a result of
the consummation of the
15
transactions contemplated by this Agreement. For purposes of this Agreement, a
"lease" shall include a sublease.
(e) All personal property owned by the Company and all
personal property held by the Company pursuant to personal property leases is in
good operating condition and repair, subject only to ordinary wear and tear, has
been operated, serviced and maintained properly within the recommendations and
requirements of the manufacturers thereof (if any) and is suitable and
appropriate for the use thereof made and proposed to be made by the Company in
its business and operations. The Leased Real Property and personal property
described in Sections 3.05(c) and 3.05(d) and the personal property held by the
Company pursuant to the leases and licenses described in Schedule 3.05(d)
comprise all of the Leased Real Property and personal property used in the
conduct of business of the Company. Schedule 3.05(e) sets forth a listing of all
personal property (other than inventory) the fair market value of which exceeds
one hundred dollars ($100) owned by the Company, together with such date the
personal property was acquired, the original cost of such personal property and
the date(s) on which such personal property was written down from its original
cost.
SECTION 3.06 Inventory and Accounts Receivable.
---------------------------------
(a) All inventory set forth or reflected in the Balance
Sheet, or acquired by the Company since the Balance Sheet Date, consists of a
quality and quantity usable and saleable by the Company in the ordinary course
of its business. The value at which inventories are carried on the Balance Sheet
reflects the normal inventory valuation policy of the Company, on a basis
consistent with that of preceding period, of stating inventory at its lower of
cost or market value, and, consistent therewith, all non-current or obsolete
inventory held by the Company on the Balance Sheet Date has been valued at its
current market value on the Balance Sheet. Schedule 3.06(a) sets forth a true
and complete listing of all inventory owned by the Company the fair market value
of which exceeds one hundred dollars ($100), together with the date such
inventory was acquired, the original cost of such inventory, the date(s) on
which such inventory was written down from its original cost and the current
quantity of such inventory on hand.
(b) All accounts receivable of the Company reflected in the
Balance Sheet and all accounts receivable of the Company that have arisen since
the Balance Sheet Date (except such accounts receivable as have been collected
since such dates) are valid and enforceable claims against the account debtor,
and the goods and services sold and delivered that gave rise to such accounts
were sold and delivered in conformity with all applicable express and implied
warranties, purchase orders, agreements and specifications. Such accounts
receivable of the Company are subject to no valid defense, offset or
counterclaim and are fully collectible within ninety (90) days after the Closing
Date, except to the extent of the allowance for doubtful accounts reflected on
the Balance Sheet. Schedule 3.06(b)(1) contains a true and complete aging of the
Company's accounts receivable as of the Balance Sheet Date. Schedule 3.06(b)(2)
contains a true and complete list of all customers of the Company who enjoy non-
standard discounts or non-standard payment terms, together with a summary of any
such non-standard discounts or non-standard payment terms.
SECTION 3.07 Compliance with Law. Except where it has not had a
-------------------
Material Adverse Effect, through and including the Closing Date, the Company (i)
has not violated, has
16
not conducted its business or operations in violation of, and has not used or
occupied its properties or assets in violation of, any Legal Requirement, (ii)
has not been alleged to be in violation of any Legal Requirement, and (iii) has
not received any notice of any alleged violation of, nor any citation for
noncompliance with, any Legal Requirement.
SECTION 3.08 Trademarks, Patents, Etc.
------------------------
(a) Schedule 3.08(a) contains a true and complete list of
all letters patent, patent applications, trade names, logos, trademarks, service
marks, trademark and service xxxx registrations and applications, copyrights,
copyright registrations and applications, Internet domain names, 1-800 and 1-888
telephone numbers, grants of a license or right to the Company with respect to
any of the foregoing, both domestic and foreign, owned or claimed by the Company
or used or proposed to be used by the Company in the conduct of its business,
whether registered or not (collectively herein, "Registered Rights"). No other
-----------------
patent, trademark, service xxxx, trade name or copyright, or license with
respect to any of the foregoing, is necessary to permit the Company's business
to be conducted as now conducted or as heretofore or proposed to be conducted.
True and complete copies of all documentation related to the Registered Rights
have been delivered to Buyer heretofore.
(b) Except as described in Schedule 3.08(b), the Company
owns exclusively and has the exclusive and unrestricted right to use the
Registered Rights, and all renewals therefor and claims for infringement
thereof, and every trade secret, know-how, process, discovery, development,
design, technique, customer and supplier list, promotional idea, marketing and
purchasing strategy, computer program (including source code), technical data,
invention, process, confidential data and other information (collectively
herein, "Proprietary Information") required for or incident to the design,
-----------------------
development, manufacture, operation, sale and use of all products and services
sold or rendered or proposed to be sold or rendered by the Company, free and
clear of any right, equity or claim of others and without infringing upon or
otherwise acting adversely to the right or claimed right of any third party
under or with respect to any of the Proprietary Information. The Company has
taken reasonable security measures to protect the secrecy, confidentiality and
value of all Proprietary Information.
(c) Schedule 3.08(c) contains a true and complete list and
non-confidential description of all licenses of, or rights to, Proprietary
Information granted to the Company by others or to others by the Company. Except
as described in Schedule 3.08(c), (i) the Company has not sold, transferred,
assigned, licensed, restricted, encumbered or subjected to any Lien, any
Registered Rights or Proprietary Information or any interest therein, and (ii)
the Company is not obligated or under any liability whatever to make any
payments by way of royalties, fees or otherwise to any owner or licensor of, or
other claimant to, any Registered Rights or Proprietary Information.
(d) There are no claims or demands of any Person pertaining
to, or any Actions that are pending or threatened, which challenge the rights of
the Company in respect of any Registered Rights or any Proprietary Information.
17
SECTION 3.09 Banking and Insurance.
---------------------
(a) Schedule 3.09(a) contains a true and complete list of
the names and locations of all financial institutions at which the Company
maintains a checking account, deposit account, securities account, safety
deposit box or other deposit or safekeeping arrangement, the numbers or other
identification of all such accounts and arrangements and the names of all
persons authorized to draw against any funds therein.
(b) Schedule 3.09(b) contains a true and complete list of
all insurance policies and bonds and self insurance arrangements currently in
force that cover or purport to cover risks or losses to, or associated with, the
Company's business, operations, premises, properties, assets, employees, agents
and directors and sets forth, with respect to each such policy, bond and self
insurance arrangement, a description of the insured loss coverage, the
expiration date and time of coverage, the dollar limitations of coverage, a
general description of each deductible feature and principal exclusion and the
premiums paid and to be paid prior to expiration. The insurance policies, bonds
and arrangements described on Schedule 3.09(b) (the "Policies") provide such
--------
coverage against such risk of loss and in such amounts as are customary for
corporations of established reputation engaged in the same or similar business
and similarly situated. The Company has no obligation, liability or other
commitment relating to any contract of insurance containing a provision for
retrospective rating or adjustment of the Company's premium obligation. No facts
or circumstances exist that would cause the Company to be unable to renew its
existing insurance coverage as and when the same shall expire upon terms at
least as favorable as those currently in effect, other than possible increases
in premiums that do not result from any act or omission of the Company or
Shareholders.
SECTION 3.10 Indebtedness.
------------
(a) The Company has no liability or obligation for
Indebtedness other than as set forth on Schedule 3.10(a), and true and complete
copies of all instruments and documents evidencing, creating, securing or
otherwise relating to such Indebtedness have been delivered to Buyer heretofore.
Except as described in Schedule 3.10(a), no event has occurred and no condition
has become known to Shareholders (including the transactions contemplated
hereby) that constitutes or, with notice or passage of time, or both, would
constitute a default or a basis of force majeure or other claim of accelerated
-------------
or increased rights, termination, excusable delay or nonperformance by the
Company or any other Person under any instrument or document relating to or
evidencing Indebtedness that would entitle any Person to require the Company to
pay any portion of the principal amount of such Indebtedness prior to the
scheduled maturity thereof. Except as set forth in Schedule 3.10(a), no
instrument or document evidencing, creating, securing or otherwise relating to
Indebtedness will require the consent of any Person to or as a result of the
consummation of the transactions contemplated by this Agreement.
(b) Schedule 3.10(b) contains a list and brief description
of all agreements or instruments pursuant to which any of the Company's
directors, employees or shareholders have guaranteed any Indebtedness of the
Company (the "Guaranties"). True and complete copies of all Guaranties have been
----------
delivered to Buyer heretofore.
18
SECTION 3.11 Judgments; Litigation. Except as set forth on
---------------------
Schedule 3.11:
(a) There is no (i) outstanding judgment, order, decree,
award, stipulation, injunction of any Governmental Entity or arbitrator against
or affecting the Company or its properties, assets or business or (ii) Action
pending against or affecting the Company or its properties, assets or business.
(b) There is no (i) outstanding judgment, order, decree,
award, stipulation, injunction of any Governmental Entity or arbitrator against
or affecting any officer, director or employee of the Company relating to the
Company or its business, (ii) Action threatened against the Company or its
properties, assets or business, (iii) Action pending or threatened against the
Company's officers, directors or employees relating to the Company or its
business or (iv) basis for the institution of any Action against the Company or
any of its officers, directors, employees, properties or assets which, if
decided adversely, would have a Material Adverse Effect.
SECTION 3.12 Income and Other Taxes. Except as set forth on
----------------------
Schedule 3.12:
(a) All Tax Returns required to be filed through and
including the date hereof in connection with the operations of the Company are
true, complete and correct in all respects and have been properly and timely
filed. The Company has not requested any extension of time within which to file
any Tax Return, which Tax Return has not since been filed. Buyer has heretofore
been furnished by the Company with true, correct and complete copies of each Tax
Return of the Company with respect to the past five (5) taxable years, and of
all reports of, and communications from, any Governmental Entities relating to
such period.
(b) All Taxes required to be paid or withheld and deposited
through and including the date hereof in connection with the operations of the
Company have been duly and timely paid or deposited by the Company. The Company
has properly withheld or collected all amounts required by law for income Taxes
and employment Taxes relating to its employees, creditors, independent
contractors and other third parties, and for Taxes on sales, and has properly
and timely remitted such withheld or collected amounts to the appropriate
Governmental Entity. The Company has no liabilities for any Taxes for any
taxable period ending prior to or coincident with the Closing Date.
(c) The Company has made adequate provision on its books of
account for all Taxes with respect to its business, properties and operations
through the Balance Sheet Date, and the accruals for Taxes in the Balance Sheet
are adequate to cover all liabilities for Taxes of the Company for all periods
ending on or before the Closing Date.
(d) The Company has not heretofore (i) had a tax deficiency
proposed, asserted or assessed against it, (ii) executed any waiver of any
statute of limitations on the assessment or collection of any Taxes, or (iii)
been delinquent in the payment of any Taxes.
(e) No Tax Return of the Company has been audited or the
subject of other Action by any Governmental Entity. The Company has not received
any notice from any Governmental Entity of any pending examination or any
proposed deficiency, addition,
19
assessment, demand for payment or adjustment relating to or affecting the
Company or its assets or properties and the Shareholders have no reason to
believe that any Governmental Entity may assess (or threaten to assess) any
Taxes for any periods ending on or prior to the Closing Date.
(f) The Company (i) has not filed any consent or agreement
pursuant to Code Section 341(f), and no such consent or agreement will be filed
at any time on or before the Closing Date; (ii) has not made any payments, is
not obligated to make any payments and is not a party to any agreement that
under certain circumstances could obligate the Company to make any payments that
will not be deductible under Code Section 280G; (iii) is not a United States
real property holding corporation within the meaning of Code Section 897(c)(2);
(iv) is not a party to a tax allocation or sharing agreement; (v) has never been
(or does not have any liability for unpaid Taxes because it was) a member of an
affiliated group with the meaning of Code Section 1504(a); (vi) has never
applied for a tax ruling from a Governmental Entity; and (vii) has never filed
or been the subject of an election under Code Section 338(g) or Code Section
338(h)(10) or caused or been the subject of a deemed election under Code Section
338(e).
(g) Set forth on Schedule 3.12(g) is the amount, as of the
most recent practicable date, of any net operating loss, net capital loss,
unused investment or other credit, unused foreign tax or excess charitable
contribution.
SECTION 3.13 Corporate Records. The copies or originals of the
-----------------
Articles of Incorporation, Bylaws, minute books and stock records of the Company
previously delivered to, or made available for inspection by, Buyer are true,
complete and correct.
SECTION 3.14 Employee Benefit Matters. Except as set forth in
------------------------
Schedule 3.14, the Company maintains no pension, retirement, profit-sharing,
employee stock ownership plan, deferred compensation, stock bonus or other
similar plan; medical, vision, dental or other health plan; life insurance plan;
vacation, severance, golden parachute or other similar plan or arrangement;
stock option, stock appreciation or other similar plan or arrangement; and any
other employee benefit plan, including, without limitation, any "employee
benefit plan" as defined in Section 3(3) of ERISA, which, in any case, relates
to the Company.
SECTION 3.15 No Undisclosed Liabilities. Except (i) to the
--------------------------
extent set forth or provided for in the Financial Statements or the notes
thereto, (ii) as set forth on Schedule 3.15 or (iii) for non-material current
liabilities incurred since the Balance Sheet Date in the Ordinary Course, as of
the date hereof the Company has no liabilities, whether accrued, absolute,
contingent or otherwise, whether due or to become due and whether the amounts
thereof are readily ascertainable or not, or any unrealized or anticipated
losses from any commitments of a contractual nature, including Taxes with
respect to or based upon the transactions or events occurring at or prior to the
Closing.
SECTION 3.16 Permits, Licenses, Etc. The Company possesses, and
----------------------
is operating in compliance with, all franchises, licenses, permits,
certificates, authorizations, rights and other approvals of Governmental
Entities necessary to (i) occupy, maintain, operate and use the Leased Real
Property as it is currently used and proposed to be used (including, if
applicable, with respect to storm water runoff and treatment of any of the
Leased Real Property as a hazardous waste facility), (ii) conduct its business
as currently conducted and as proposed to be
20
conducted, and (iii) maintain and operate its employee benefit plans (the
"Permits"). Schedule 3.16 contains a true and complete list of all Permits and
-------
each expiration date and scheduled renewal date related to each Permit. Each
Permit has been lawfully and validly issued, and no proceeding is pending or
threatened looking toward the revocation, suspension or limitation of any
Permit. The consummation of the transactions contemplated by this Agreement will
not result in the revocation, suspension or limitation of any Permit and, except
as set forth in Schedule 3.16, no Permit will require the consent of its issuing
authority to or as a result of the consummation of the transactions contemplated
hereby.
SECTION 3.17 Regulatory Filings. The Company has made all
------------------
required registrations and filings with and submissions to all applicable
Governmental Entities relating to the operations of the Company as currently
conducted and as proposed to be conducted, including, without limitation, all
such applicable Governmental Entities having jurisdiction over any matters
pertaining to conservation or protection of the environment, and the treatment,
discharge, use, handling, storage or production, or disposal of Hazardous
Materials. All such registrations, filings and submissions were in compliance
with all Legal Requirements (including all Environmental Laws) and other
requirements when filed, no material deficiencies have been asserted by any such
applicable Governmental Entities with respect to such registrations, filings or
submissions and no facts or circumstances exist which would indicate that a
material deficiency may be asserted by any such authority with respect to any
such registration, filing or submission.
SECTION 3.18 Consents. All consents, authorizations and
--------
approvals of any Person to, or as a result of the consummation of, the
transactions contemplated hereby that are necessary or advisable in connection
with the operations and business of the Company as currently conducted and as
proposed to be conducted, or for which the failure to obtain the same might
have, individually or in the aggregate, a Material Adverse Effect, have been
lawfully and validly obtained by the Company, except as described in Schedules
3.02, 3.05(d), 3.10(a) and 3.16 hereto. All consents, authorizations and
approvals described in Schedules 3.02, 3.05(d), 3.10(a) and 3.16 will have been
lawfully and validly obtained prior to the Closing.
SECTION 3.19 Material Contracts; No Defaults.
-------------------------------
(a) Schedule 3.19(a) contains a true and complete list and
description of each individual outstanding sales order and sales contract of the
Company having an indicated gross value in excess of $25,000 or having a term or
duration in excess of six months. All outstanding sales orders and sales
contracts of the Company have been entered into in the Ordinary Course, and true
and complete copies of all outstanding sales orders and sales contracts of the
Company have been delivered to Buyer heretofore. Except as described in Schedule
3.19(a), the Company has not received any advance, progress payment or deposit
in respect of any sales order or sales contract, and the Company has no sales
order or sales contract that will result, upon completion or performance
thereof, in gross margins materially lower than those normally experienced by
the Company for the services or products covered by such sales order or sales
contract.
(b) Schedule 3.19(b) contains a true and complete list and
description of all outstanding purchase orders and purchase commitments of the
Company having a gross indicated value in excess of $25,000 in the aggregate
from any single supplier or
21
other vendor. All outstanding purchase orders and purchase commitments of the
Company have been incurred in the Ordinary Course, and no purchase order or
purchase commitment of the Company is in excess of the normal, ordinary and
usual requirements of the business of the Company or at an excessive price.
(c) Schedule 3.19(c) contains a true and complete list of
all sales agency, sales representative and similar contracts or agreements of
the Company and a description of the territory or market and the expiration or
renewal date of each such contract or agreement. True and complete copies of
each such contract or agreement have been delivered to Buyer heretofore. Except
as described in Schedule 3.19(c), all of such contracts and agreements are
terminable at any time by the Company without penalty upon not more than thirty
(30) days' notice.
(d) Schedule 3.19(d) contains a true and complete list and
description of all noncompetition agreements and covenants under which the
Company or any Shareholder or any of the Company's officers, directors or key
employees is obligated, and true and complete copies of the same have been
delivered to Buyer heretofore. Except as described in Schedule 3.19(d), the
Company is not restricted by any agreement from carrying on its business or
engaging in any other activity anywhere in the world (including relocating,
closing, or terminating any of its operations or facilities), and no such
officer, director or key employee is a party to or otherwise bound or affected
by any agreement, covenant or other arrangement or understanding that would
restrict or impair his ability to perform diligently his other duties to the
Company. Schedule 3.19(d) also contains a true and complete list and description
of all noncompetition agreements or covenants in favor of the Company, and true
and complete copies of the same have been delivered to Buyer heretofore.
(e) Schedule 3.19(e) contains a true and complete list and
description of all contracts, agreements, understandings, arrangements and
commitments, written or oral, of the Company with any officer, director,
consultant, employee or Affiliate of the Company or with any associate,
Affiliate or employee of any Affiliate of the Company, other than those
disclosed in Schedule 3.21(a) hereto; in each case a true and complete copy of
such written contract, agreement, understanding, arrangement or commitment or a
true and complete summary of such oral contract, agreement, understanding,
arrangement or commitment has been delivered to Buyer heretofore.
(f) Schedule 3.19(f) contains a true and complete list and
description of all other material contracts, agreements, understandings,
arrangements and commitments, written or oral, of the Company by which it or its
properties, rights or assets are bound that are not otherwise disclosed in this
Agreement or the Schedules hereto. True and complete copies of such written
contracts, agreements, understandings, arrangements and commitments and true and
complete summaries of such oral contracts, agreements, understandings,
arrangements and commitments have been delivered to Buyer heretofore. For the
purposes of this subsection (f), "material" means any contract, agreement,
understanding, arrangement or commitment that (i) involves performance by any
party more than ninety (90) days from the date hereof, (ii) involves payments or
receipts by the Company in excess of $5,000, (iii) involves capital expenditures
in excess of $25,000 or (iv) otherwise materially affects the Company.
22
(g) Except as described in Schedule 3.19(g):
(i) each agreement, contract, arrangement or commitment
described above in this Section 3.19 is, and after the Closing on identical
terms will be, legal, valid, binding, enforceable and in full force and effect;
(ii) no event or condition has occurred or become known to
the Shareholders or is alleged to have occurred that constitutes or, with notice
or the passage of time, or both, would constitute a default or a basis of force
-----
majeure or other claim of excusable delay, termination, nonperformance or
-------
accelerated or increased rights by the Company or any other Person under any
contract, agreement, arrangement, commitment or other understanding, written or
oral, described above in this Section 3.19, or described or otherwise disclosed
pursuant to this Agreement; and
(iii) no Person with whom the Company has such a contract,
agreement, arrangement, commitment or other understanding is in default
thereunder or has failed to perform fully thereunder by reason of force majeure
----- -------
or other claim of excusable delay, termination or nonperformance thereunder, the
delay, termination or nonperformance of which, or a default under which, has had
or may have a Material Adverse Effect.
SECTION 3.20 Absence of Certain Changes. Since the Balance Sheet
--------------------------
Date, except as disclosed in Schedule 3.20, the Company has not: (i) incurred
any debts, obligations or liabilities (absolute, accrued, contingent or
otherwise), other than current liabilities incurred in the Ordinary Course
which, individually or in the aggregate, are not material; (ii) subjected to or
permitted a Lien (other than a Permitted Lien) upon or otherwise encumbered any
of its assets, tangible or intangible; (iii) sold, transferred, licensed or
leased any of its assets or properties except in the Ordinary Course; (iv)
discharged or satisfied any Lien other than a Lien securing, or paid any
obligation or liability other than, current liabilities shown on the Balance
Sheet and current liabilities incurred since the Balance Sheet Date, in each
case in the Ordinary Course; (v) canceled or compromised any debt owed to or by
or claim of or against it, or waived or released any right of material value
other than in the Ordinary Course; (vi) suffered any physical damage,
destruction or loss (whether or not covered by insurance) causing a Material
Adverse Effect; (vii) entered into any material transaction or otherwise
committed or obligated itself to any capital expenditure other than in the
Ordinary Course; (viii) made or suffered any change in, or condition affecting,
its condition (financial or otherwise), properties, profitability, prospects or
operations other than changes, events or conditions in the Ordinary Course, none
of which (individually or in the aggregate) has had or may have a Material
Adverse Effect; (ix) made any change in the accounting principles, methods,
records or practices followed by it or depreciation or amortization policies or
rates theretofore adopted; (x) other than in the Ordinary Course, made or
suffered any amendment or termination of any material contract, agreement, lease
or license to which it is a party; (xi) paid, or made any accrual or arrangement
for payment of, any severance or termination pay to, or entered into any
employment or loan or loan guarantee agreement with, any current or former
officer, director or employee or consultant; (xii) paid, or made any accrual or
arrangement for payment of, any increase in compensation, bonuses or special
compensation of any kind to any employee other than pursuant to an agreement
disclosed on Schedule 3.21(a) or Schedule 3.21(b) or other than in the Ordinary
Course, or paid, or made any accrual or arrangement for payment of, any increase
in compensation, bonuses or special compensation of any kind to any officer or
director of the Company or any consultant to the Company; (xiii) made
23
any distribution or paid any dividend to the Shareholders, any relative of the
Shareholders or any Affiliate of the Shareholders of cash, property, stock,
securities or any item of value; (xiv) made or agreed to make any charitable
contributions or incurred any nonbusiness expenses; (xv) changed or suffered
change in any Plan or labor agreement affecting any employee of the Company
otherwise than to conform to Legal Requirements; or (xvi) entered into any
agreement or otherwise obligated itself to do any of the foregoing.
SECTION 3.21 Employees and Labor Matters.
---------------------------
(a) Schedule 3.21(a) contains a true and complete list of
all contracts, agreements, plans, arrangements, commitments and understandings
(formal and informal) pertaining to terms of employment, compensation, bonuses,
profit sharing, stock purchases, stock repurchases, stock options, commissions,
incentives, loans or loan guarantees, severance pay or benefits, use of the
Company's property and related matters of the Company with any current or former
officer, director, employee or consultant, and true and complete copies of all
such contracts, agreements, plans, arrangements and understandings have been
delivered to Buyer heretofore. A true and complete copy of the Company's
employee manual has been delivered to Buyer heretofore.
(b) Schedule 3.21(b) contains a true and complete list of
all labor, collective bargaining, union and similar agreements under or by which
the Company is obligated, and true and complete copies of all such agreements
have been delivered to Buyer heretofore.
(c) Except for the employment and labor agreements listed
on Schedules 3.21(a) and 3.21(b), neither Buyer nor the Company will have any
responsibility for continuing any person in the employ (or retaining any person
as a consultant) of the Company from and after the Closing or have any liability
for any severance payments to or similar arrangements with any such Person who
shall cease to be an employee of the Company at or prior to the Closing. There
is no agreement, arrangement, commitment or understanding between the Company
and any of its employees which could prohibit the Company from modifying the
work schedule of its employees.
(d) There is not occurring or threatened, any strike, slow
down, picket, work stoppage or other concerted action by any union or other
group of employees or other persons against the Company or its premises or
products. Except for activities by the unions that are parties to any of the
agreements listed on Schedule 3.21(b) with respect to the existing members of
such unions, to the Shareholders' knowledge, no union or other labor
organization has attempted to organize any of the employees of the Company.
(e) The Company has complied with all Legal Requirements
relating to employment and labor, except where the failure to so comply would
not have a Material Adverse Effect, and no facts or circumstances exist that
could provide a reasonable basis for a claim of wrongful termination by any
current or former employee of the Company against the Company.
SECTION 3.22 Affiliations. Except as disclosed on Schedule 3.22,
------------
no Shareholder, officer, director or key employee of the Company or any
associate or Affiliate of the Company or any of such Persons has, directly or
indirectly, (i) an interest in any Person that
24
(A) furnishes or sells, or proposes to furnish or sell, services or products
that are furnished or sold by the Company or (B) purchases from or sells or
furnishes to, or proposes to purchase from or sell or furnish to, the Company
any goods or services or (ii) a beneficial interest in any contract or agreement
to which the Company is a party or by which the Company or any of the assets of
the Company are bound or affected.
SECTION 3.23 Principal Customers and Suppliers.
---------------------------------
(a) Schedule 3.23(a) contains a true and complete list of
the name and address of each customer that purchased in excess of 5% of the
Company's sales of goods or services during the twelve months ended on the
Balance Sheet Date, and since that date no such customer has terminated its
relationship with or adversely curtailed its purchases from the Company or
indicated (for any reason) its intention so to terminate its relationship or
curtail its purchases.
(b) Schedule 3.23(b) contains a true and complete list of
each supplier from whom the Company purchased in excess of 5% of the Company's
purchases of goods or services during the twelve months ended on the Balance
Sheet Date, and since that date no such supplier has terminated its relationship
with or adversely curtailed its accommodations, sales or services to the Company
or indicated (for any reason) its intention to terminate such relationship or
curtail its accommodations, sales or services.
SECTION 3.24 Warranty Liability. Schedule 3.24 contains a true
------------------
and complete description of (i) all written warranties granted or made with
respect to services rendered or products sold by the Company, and (ii) the
Company's aggregate liability related to such written warranties for each of the
last three years.
SECTION 3.25 Hazardous Materials. Except as set forth on Schedule
-------------------
3.25:
(a) No Hazardous Material (i) has been released, placed,
stored, generated, used, manufactured, treated, deposited, spilled, discharged,
released or disposed of on or under any real property currently or previously
owned or leased by the Company or is presently located on or under any Leased
Real Property (or any property adjoining any Leased Real Property), (ii) is
presently maintained, used, generated, or permitted to remain in place by the
Company in violation of any Environmental Law, (iii) is required by any
Environmental Law to be eliminated, removed, treated or mitigated by the
Company, given the nature of its present condition, location, nature, material
or maintenance, or (iv) is of a type, location, material, nature or condition
which requires special notification to third parties by the Company under
Environmental Law or common law.
(b) No notice, citation, summons or order has been received
by the Company or any Shareholder, no notice has been given by the Company and
no complaint has been filed, no penalty has been assessed and no investigation
or review is pending or threatened by any Governmental Entity, with respect to
(i) any alleged violation by the Company of any Environmental Law or (ii) any
alleged failure by the Company to have any environmental permit, certificate,
license, approval, registration or authorization required in connection with its
business or properties, or (iii) any use, possession, generation, treatment,
storage, recycling, transportation, release or disposal by or on behalf of the
Company of any Hazardous Material.
25
(c) The Company has not received any request for
information, notice of claim, demand or notification that it is or that
indicates that it may be a "potentially responsible party" with respect to any
investigation or remediation of any threatened or actual release of any
Hazardous Material. Schedule 3.25(c) contains a true and complete list of all
Material Safety Data Sheets applicable to the Company's operations received by
the Company relating to the Leased Real Property.
(d) No above-ground or underground storage tanks, whether
or not in use, are or have ever been located at any property currently owned or
leased by the Company.
(e) No notice has been received by the Company with respect
to the listing or proposed listing of any property currently or previously
owned, operated or leased by the Company on the National Priorities List
promulgated pursuant to CERCLA, CERCLIS or any similar state list of sites
requiring investigation or cleanup.
(f) There have been no environmental inspections,
investigations, studies, tests, reviews or other analyses conducted in relation
to any Leased Real Property.
(g) The Company has not released, transported, or arranged
for the transportation of any Hazardous Material from any property currently or
previously owned, operated or leased by the Company.
SECTION 3.26 Brokers' Fees. No broker, finder or similar agent
-------------
has been employed by or on behalf of the Company or Shareholders in connection
with this Agreement or the transactions contemplated hereby, and neither the
Company nor any of the Shareholders has entered into any agreement or
understanding of any kind with any person or entity for the payment of any
brokerage commission, finder's fee or any similar compensation in connection
with this Agreement or the transactions contemplated hereby.
SECTION 3.27 Disclosure. Except as set forth on Schedule 3.27,
----------
no representation or warranty of the Company or Shareholders in this Agreement
and no information contained in any Schedule or other writing delivered by the
Company or Shareholders pursuant to this Agreement or at the Closing contains or
will contain any untrue statement of a material fact or omits or will omit to
state a material fact required to make the statements herein or therein not
misleading. There is no fact that the Company or the Shareholders has not
disclosed to Buyer in writing that has had or, insofar as the Company or
Shareholders can now foresee, may have a material adverse effect on the ability
of the Company or Shareholders to perform fully this Agreement.
ARTICLE IV REPRESENTATIONS AND WARRANTIES
------------------------------
OF BUYER
--------
Buyer hereby represents and warrants to, and covenants and agrees
with, the Shareholders that:
26
SECTION 4.01 Organization, Power and Authority of Buyer. Buyer
------------------------------------------
has been duly organized and is existing as a corporation in good standing under
the laws of the State of Delaware with full power and authority (corporate and
other) to own and lease its properties and to conduct its business as currently
conducted.
SECTION 4.02 Authorization. Buyer has the corporate power and
-------------
authority to execute and deliver this Agreement, to consummate the transactions
contemplated hereby and to perform its obligations under this Agreement. The
execution and delivery by Buyer of this Agreement, and the consummation of the
transactions contemplated hereby, have been duly authorized by all necessary
corporate action by Buyer. This Agreement, upon its execution and delivery by
Buyer (assuming the due authorization, execution and delivery hereof by the
other parties hereto), will constitute the legal, valid and binding obligation
of Buyer, enforceable against Buyer in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency and similar
laws relating to creditors' rights generally and by general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
SECTION 4.03 No Conflict or Violation. Subject to compliance
------------------------
with the applicable requirements of the Securities Act and any applicable state
securities laws, the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby will not (a) conflict
with or result in a breach or violation of any term or provision of, or
constitute a default under (with or without notice or passage of time, or both),
or otherwise give any Person a basis for accelerated or increased rights or
termination or nonperformance under, any indenture, mortgage, deed of trust,
loan or credit agreement, lease, license or other agreement or instrument to
which Buyer is a party or by which Buyer is bound or affected or to which any of
the property or assets of Buyer is bound or affected, (b) result in the
violation of the provisions of the Certificate of Incorporation or Bylaws of
Buyer or any Legal Requirement applicable to or binding upon it, (c) result in
the creation or imposition of any Lien upon any property or asset of Buyer or
(d) otherwise adversely affect the contractual or other legal rights or
privileges of Buyer. Schedule 4.03 sets forth a list of all agreements to which
Buyer is a party requiring the consent of any party thereto to any of the
transactions contemplated hereby.
SECTION 4.04 Capitalization. The authorized capital stock of
--------------
Buyer consists of (i) 60,000,000 shares of Buyer Common Stock, of which
31,378,067 were issued and outstanding on October 8, 1999, (ii) 2,500,000 shares
of Class B Common Stock, par value $.001 per share, of which 2,455,000 were
issued and outstanding on October 8, 1999, and (iii) 5,300,000 shares of
preferred stock, par value $.01 per share, of which 1,272,577 were issued and
outstanding on June 30, 1999, (a) 2,870,000 shares of which have been designated
as Series A Convertible Redeemable Preferred Stock, par value $.01, of which
1,066,050 are issued and outstanding on June 30, 1999; (b) 200,000 shares of
which have been designated as Series B Convertible Redeemable Preferred Stock,
par value $.01, of which 200,000 were issued and outstanding on March 31, 1999;
and (c) 6,527 shares of which have been designated as Series B Redeemable
Preferred Stock, par value $.01, of which 6,527 were issued and outstanding on
June 30, 1999. All of the issued and outstanding shares of capital stock of
Buyer are duly authorized, validly issued, fully paid, nonassessable and free of
all preemptive rights. All of the Shares of Buyer Common Stock to be issued
pursuant to this Agreement, when issued in accordance with
27
this Agreement, will be duly authorized, validly issued, fully paid,
nonassessable and free of all preemptive rights.
SECTION 4.05 Consents and Approvals. No consent, approval,
----------------------
authorization, license, permit or other action by, or filing with, any
governmental or regulatory authority is required in connection with the
execution and delivery of this Agreement by Buyer or the consummation by Buyer
of the transactions contemplated hereby, except for such consents, approvals,
authorizations, licenses, permits, actions or filings as will have been
obtained, taken or filed at or prior to the Closing.
SECTION 4.06 Reports and Financial Statements. The Buyer has
--------------------------------
previously furnished to the Company complete and accurate copies, as amended or
supplemented, of its (i) Quarterly Report on Form 10-Q for the fiscal quarters
ended September 30, 1998, December 31, 1998 and Xxxxx 00, 0000, (xx) Annual
Report on Form 10-K for the fiscal year ended June 30, 1998, each as filed with
the Securities and Exchange Commission (the "SEC"), and (iii) all other reports
---
filed by the Buyer under Section 13 of the Exchange Act with the SEC since June
30, 1998 (such reports are collectively referred to herein as the "Buyer
-----
Reports"). The Buyer Reports include all of the documents required to be filed
-------
by the Buyer under the Exchange Act with the SEC since September 30, 1998. As of
their respective dates, the Buyer Reports did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited financial
statements and unaudited interim financial statements of the Buyer included in
the Buyer Reports (i) comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, (ii) have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby (except as may be
indicated therein or in the notes thereto, and in the case of quarterly
financial statements, as permitted by Form 10-Q under the Exchange Act), (iii)
fairly present the consolidated financial condition, results of operations and
cash flows of the Buyer as of the respective dates thereof and for the periods
referred to therein, and (iv) are consistent with the books and records of the
Buyer.
SECTION 4.07 Brokers' Fees. No broker, finder or similar agent
-------------
has been employed by or on behalf of Buyer in connection with this Agreement or
the transactions contemplated hereby, and Buyer has not entered into any
agreement or understanding of any kind with any person or entity for the payment
of any brokerage commission, finder's fee or any similar compensation in
connection with this Agreement or the transactions contemplated hereby.
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE
-------------------------------------
SHAREHOLDERS
------------
Each Shareholder hereby represents and warrants to, and covenants
and agrees with, Buyer that:
SECTION 5.01 Ownership of Shares. Each Shareholder owns of
-------------------
record and beneficially the number of Shares set forth opposite its name on
Schedule 3.03 hereto, and has, and at all times prior to and as of the Closing
each Shareholder will have, good and marketable title to such Shares free and
clear of all Liens.
28
SECTION 5.02 Delivery of Good Title. All consents, approvals,
----------------------
authorizations and orders necessary for the sale and delivery of the Shares to
be sold by each Shareholder hereunder have been obtained, and each Shareholder
has, and immediately prior to the Closing each Shareholder will have, full
right, power, authority and capacity to sell, assign, transfer and deliver such
Shares pursuant to this Agreement.
SECTION 5.03 Execution and Delivery. Each Shareholder has the
----------------------
power and authority to execute and deliver this Agreement, to consummate the
transactions contemplated hereby and to perform its obligations under this
Agreement. This Agreement, upon its execution and delivery by each Shareholder
(assuming the due authorization, execution and delivery hereof by the other
parties hereto), will constitute the legal, valid and binding obligation of each
Shareholder, enforceable against each Shareholder in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency and similar laws relating to creditors' rights generally and by
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law). For any Shareholder that is a
trust, all the trustees of such Shareholder have executed this Agreement.
SECTION 5.04 No Conflicts. The execution, delivery and
------------
performance of this Agreement by each Shareholder and the consummation by each
Shareholder of the transactions contemplated hereby will not (a) conflict with
or result in a breach or violation of any term or provision of, or constitute a
default (with or without notice or passage of time, or both) under, or otherwise
give any Person a basis for accelerated or increased rights or termination or
nonperformance under any indenture, mortgage, deed of trust, trust (constructive
and other), loan or credit agreement or other agreement or instrument to which
any Shareholder is a party or by which any Shareholder or the Shareholder's
Shares are bound, (b) result in the violation of any Legal Requirement
applicable to or binding upon any Shareholder, (c) result in the creation or
imposition of any Lien upon any property or asset of any Shareholder, or (d)
otherwise adversely affect the contractual or other legal rights or privileges
of any Shareholder.
SECTION 5.05 Restrictions on Transfer of Buyer Common Stock and
--------------------------------------------------
Buyer Preferred Stock.
---------------------
(a) Each Shareholder understands and agrees that the shares of
Buyer Common Stock it will acquire pursuant to this Agreement have not been
registered under the Securities Act and that, accordingly, such shares will not
be fully transferable except as permitted under various exemptions contained in
the Securities Act or upon satisfaction of the registration and prospectus
delivery requirements of the Securities Act. Each Shareholder acknowledges that
it must bear the economic risk of its investment in such shares of Buyer Common
Stock for an indefinite period of time since such shares have not been
registered under the Securities Act and therefore cannot be sold unless they are
subsequently registered or an exemption from registration is available.
(b) Each Shareholder hereby represents and warrants that it is
acquiring the shares of Buyer Common Stock under this Agreement for investment
purposes only, for its own account, and not as nominee or agent for any other
Person, and not with the view to, or for resale in connection with, any
distribution thereof within the meaning of the Securities Act; provided however,
that each Shareholder may transfer its right to acquire Buyer
29
Common Stock under this Agreement to a limited liability company all the members
of which are Shareholders or Key Employees.
(c) Each Shareholder hereby agrees with Buyer as follows:
(i) The certificates evidencing the shares of Buyer Common
Stock it will acquire under this Agreement, and each instrument or certificate
issued in transfer thereof, will each bear substantially the following legends:
"The securities evidenced by this certificate have not been
registered under the Securities Act of 1933 and have been
taken for investment purposes only and not with a view to
the distribution thereof, and such securities may not be
sold or transferred unless there is an effective
registration statement under such Act covering such
securities or the issuer corporation receives an opinion of
counsel (which may be counsel for the issuer corporation)
stating that such sale or transfer is exempt from the
registration and prospectus delivery requirements of such
Act."
"The securities evidenced by this certificate are subject
to, and transferable only in accordance with, the provisions
of a Stock Purchase Agreement among Interiors, Inc. (the
"Company") and others. A copy of this agreement is on file
in the office of the Secretary of the Company."
(ii) The certificates representing such shares of Buyer
Common Stock and each instrument or certificate issued in transfer thereof, will
also each bear any legend required under any applicable state securities law.
(iii) Absent an effective registration statement under the
Securities Act covering the disposition of the shares of Buyer Common Stock
which each Shareholder acquires under this Agreement, no Shareholder will sell,
transfer, assign, pledge, hypothecate or otherwise dispose of any or all of such
shares of Buyer Common Stock without first providing Buyer with an opinion of
counsel (which may be counsel for Buyer) to the effect that such sale, transfer,
assignment, pledge, hypothecation or other disposition will be exempt from the
registration and the prospectus delivery requirements of the Securities Act and
the registration or qualification requirements of any applicable state
securities laws.
(iv) Each Shareholder consents to Buyer's making a notation
on its records or giving instructions to any transfer agent of the Buyer Common
Stock in order to implement the restrictions on transfer set forth in this
subsection (c).
ARTICLE VI CONDITIONS TO CONSUMMATION OF SALE OF
-------------------------------------
SHARES
------
SECTION 6.01 Conditions to Obligations of Buyer. Notwithstanding
----------------------------------
any other provision of this Agreement, the obligations of Buyer to consummate
the Agreement and
30
the other transactions contemplated hereby shall be subject to the satisfaction,
at or prior to the Closing Date, of the following conditions:
(a) There shall not be instituted and pending or threatened
any Action (i) challenging the Agreement or otherwise seeking to restrain or
prohibit the consummation of the transactions contemplated hereby, or (ii)
seeking to prohibit the direct or indirect ownership or operation by Buyer of
all or a material portion of the business or assets of the Company, or to compel
Buyer or the Company to dispose of or hold separate all or a material portion of
the business or assets of the Company or Buyer.
(b) The representations and warranties of each Shareholder
in this Agreement shall be true and correct in all material respects on and as
of the Closing Date with the same effect as if made on the Closing Date, and the
Company and each Shareholder shall have complied with all covenants and
agreements and satisfied all conditions on the Company's or his or her part, as
applicable, to be performed or satisfied on or prior to the Closing Date.
(c) Buyer shall have received from each Shareholder a
certificate dated the Closing Date in substantially the form attached as Annex B
-------
hereto.
(d) Buyer shall have received a certificate of the Officers
of the Company in substantially the form attached as Annex C hereto certifying
-------
that the Closing Completion Schedule is true and correct as of the Closing Date.
(e) Buyer shall have received a certificate of the
Secretary of the Company dated the Closing Date in substantially the form
attached as Annex D hereto.
-------
(f) Xxxxxx, Darlington and Xxxx Xxxxx ("Xxxxx") shall each
-----
have entered into an Employment Agreement with the Company substantially in the
form attached hereto as Annex E, Annex F and Annex G, respectively.
------- ------- -------
(g) Buyer shall be satisfied, in its sole discretion, that
the issuance of Buyer Common Stock to the Shareholders in connection with the
Agreement shall be exempt from the registration and prospectus delivery
requirements of the Securities Act.
(h) Buyer shall have received reasonable assurances from
those employees, if any, of the Company that may be identified by Buyer in its
discretion that they will remain in the employ of the Company for a reasonable
period of time after the consummation of the transactions contemplated hereby.
(i) All authorizations, consents, waivers and approvals by
or from third parties required for the consummation of the transactions
contemplated hereby shall have been obtained and all Liens on the assets and
properties of the Company set forth on Schedule 6.01(j) shall have been released
or terminated.
(j) No act, event or condition shall have occurred after
the date hereof which Buyer determines has had or could reasonably be expected
to have a Material Adverse Effect.
31
(k) Buyer shall have concluded (through its
representatives, agents, accountants, legal counsel and other experts)
satisfactorily an investigation, including without limitation a legal and
financial review, of the Company and shall be satisfied in its sole discretion
with the results thereof.
(l) The amount of the "Balance of Profit to Be Recognized"
as set forth in the Closing Completion Schedule shall equal or exceed the amount
of the "Balance of Profit to Be Recognized" as set forth in the Opening
Completion Schedule.
(m) Each of the Key Employees shall each have entered into
an Employment Agreement in substantially the form attached hereto as Annex H,
-------
Annex I and Annex J hereto.
------- -------
(n) All corporate and other proceedings and actions taken
in connection with the transactions contemplated hereby and all certificates,
opinions, agreements, instruments, releases and documents referenced herein or
incident to the transactions contemplated hereby shall be in form and substance
reasonably satisfactory to Buyer and its counsel.
(o) Buyer shall have entered into financing arrangements
upon terms and conditions satisfactory to it, in its discretion, and obtained
all necessary consents from its lenders to enable Buyer to enter into the
transactions contemplated herein.
(p) The Company shall have delivered to Buyer the unaudited
June Balance Sheet, and the related unaudited statements of income,
shareholders' equity and cash flows for the period then ended.
(q) Buyer shall have received a Completion Schedule dated
as of the Closing Date in form and substance reasonably satisfactory to Buyer
and its counsel.
(r) Xxxxxx and Xxxxx shall each have repaid all
Indebtedness owed to the Company by Xxxxxx and Xxxxx.
(s) Buyer, the Escrow Agent and each of the Shareholders
shall have entered into the Escrow Agreement in substantially the form attached
hereto as Annex A hereto.
-------
SECTION 6.02 Conditions to Obligations of the Shareholders.
---------------------------------------------
Notwithstanding any other provision of this Agreement, the obligations of the
Shareholders to consummate the Agreement and the other transactions contemplated
hereby shall be subject to the satisfaction, at or prior to the Closing Date, of
the following conditions:
(a) The representations and warranties of Buyer in this
Agreement shall be true and correct in all material respects on and as of the
Closing Date with the same effect as if made on the Closing Date, and Buyer
shall have complied with all covenants and agreements and satisfied all
conditions on its part to be performed or satisfied on or prior to the Closing
Date.
32
(b) The Shareholders shall have received a certificate of
the Secretary of Buyer dated the Closing Date in substantially the form attached
as Annex K hereto.
-------
(c) The Shareholders shall have received a certificate of
the President of Buyer in substantially the form attached as Annex L hereto.
-------
(d) No act, event or condition shall have occurred after
the date hereof which Shareholders determine has had or could reasonably be
expected to have a material adverse effect on the business, financial condition,
properties, profitability, prospects or operations of Buyer.
(e) All corporate and other proceedings and actions taken
in connection with the transactions contemplated hereby and all certificates,
opinions, agreements, instruments, releases and documents referenced herein or
incident to the transactions contemplated hereby shall be in form and substance
reasonably satisfactory to Shareholders and their counsel.
ARTICLE VII CONDUCT OF BUSINESS PENDING CLOSING
-----------------------------------
During the period commencing on the date hereof and continuing
through the Closing Date, Shareholders covenant and agree (except as expressly
otherwise provided by this Agreement or to the extent that Buyer shall otherwise
expressly consent in writing) that:
SECTION 7.01 Qualification. Shareholders shall cause the Company
-------------
to maintain all qualifications to transact business and remain in good standing
in the foreign jurisdictions set forth on Schedule 3.01(a).
SECTION 7.02 Ordinary Course. Shareholders shall cause the
---------------
Company to conduct its business in, and only in, the Ordinary Course and shall
preserve intact its current business organizations, keep available the services
of its current officers and employees and preserve its relationships with
customers, suppliers and others having business dealings with it to the end that
its goodwill and going business value shall be unimpaired at the Closing Date.
Shareholders shall cause the Company to maintain its properties and assets in
good condition and repair.
SECTION 7.03 Organic Changes. Shareholders shall not permit the
---------------
Company to (a) amend its Articles of Incorporation or Bylaws (or equivalent
documents), (b) acquire by merging or consolidating with, or agreeing to merge
or consolidate with, or purchase substantially all of the stock or assets of, or
otherwise acquire any business or any corporation, partnership, association or
other business organization or division thereof, (c) enter into any partnership
or joint venture, (d) declare, set aside, make or pay any dividend or other
distribution in respect of its capital stock or purchase or redeem, directly or
indirectly, any shares of its capital stock, (e) issue or sell any shares of its
capital stock of any class or any options, warrants, conversion or other rights
to purchase any such shares or any securities convertible into or exchangeable
for such shares, or (f) liquidate or dissolve or obligate itself to do.
33
SECTION 7.04 Indebtedness. Shareholders shall not permit the
------------
Company to incur any Indebtedness, sell any debt securities or lend money to or
guarantee the Indebtedness of any Person. The Company shall not restructure or
refinance its existing Indebtedness.
SECTION 7.05 Accounting. Shareholders shall not permit the
----------
Company to make any change in the accounting principles, methods, records or
practices followed by it or depreciation or amortization policies or rates
theretofore adopted by it.
SECTION 7.06 Compliance with Legal Requirements. Shareholders
----------------------------------
shall cause the Company to comply promptly with all requirements that applicable
law may impose upon it and its operations and with respect to the transactions
contemplated by this Agreement, and shall cooperate promptly with, and furnish
information to, Buyer in connection with any such requirements imposed upon
Buyer, or upon any of its Affiliates, in connection therewith or herewith.
SECTION 7.07 Disposition of Assets. Shareholders shall not
---------------------
permit the Company to sell, transfer, license, lease or otherwise dispose of, or
suffer or cause the encumbrance by any Lien upon any of, its properties or
assets, tangible or intangible, or any interest therein.
SECTION 7.08 Compensation. Shareholders shall not permit the
------------
Company to (a) adopt or amend in any material respect any collective bargaining,
bonus, profit-sharing, compensation, stock option, pension, retirement, deferred
compensation, employment or other plan, agreement, trust, fund or arrangement
for the benefit of employees (whether or not legally binding) other than to
comply with any Legal Requirement or (b) pay, or make any accrual or arrangement
for payment of, any increase in compensation, bonuses or special compensation of
any kind, or any severance or termination pay to, or enter into any employment
or loan or loan guarantee agreement with, any current or former officer,
director, employee or consultant of the Company.
SECTION 7.09 Modification or Breach of Agreements; New
-----------------------------------------
Agreements. Shareholders shall not permit the Company to terminate or modify,
----------
or commit or cause or suffer to be committed any act that will result in breach
or violation of any term of, or (with or without notice or passage of time, or
both) constitute a default under or otherwise give any person a basis for
nonperformance under, any indenture, mortgage, deed of trust, loan or credit
agreement, lease, license or other agreement, instrument, arrangement or
understanding, written or oral, disclosed in this Agreement or the Schedules
hereto. Shareholders shall not permit the Company to become a party to any
contract or commitment other than in the Ordinary Course. Shareholders shall
cause the Company to meet all of its contractual obligations in accordance with
their respective terms.
SECTION 7.10 Capital Expenditures. Except for capital
--------------------
expenditures or commitments necessary to maintain its properties and assets in
good condition and repair (the amount of which shall not exceed $20,000 in the
aggregate), Shareholders shall not permit the Company to purchase or enter into
any contract to purchase any capital assets.
34
SECTION 7.11 Maintain Insurance. Shareholders shall cause the Company
------------------
to maintain its Policies in full force and effect and shall not do, permit or
willingly allow to be done any act by which any of the Policies may be
suspended, impaired or canceled.
SECTION 7.12 Discharge. Except as set forth in Schedule 7.12,
---------
Shareholders shall not permit the Company to cancel, compromise, release or
discharge any claim of the Company upon or against any person or waive any right
of the Company of material value, and not discharge any Lien (other than
Permitted Liens) upon any asset of the Company or compromise any debt or other
obligation of the Company to any person other than Liens, debts or obligations
with respect to current liabilities of the Company.
SECTION 7.13 Actions. Shareholders shall not permit the Company to
-------
institute, settle or agree to settle any Action before any Governmental Entity.
SECTION 7.14 Permits. Shareholders shall cause the Company to
-------
maintain in full force and effect, and comply with, all Permits.
SECTION 7.15 Tax Assessments and Audits. Shareholders shall cause the
--------------------------
Company to furnish promptly to Buyer a copy of all notices of proposed
assessment or similar notices or reports that are received from any taxing
authority and which relate to the Company's operations for periods ending on or
prior to the Closing Date. Shareholders shall cause the Company to promptly
inform Buyer, and permit the participation in and control by Buyer, of any
investigation, audit or other proceeding by a Governmental Entity in connection
with any Taxes, assessment, governmental charge or duty and shall not consent
and shall not permit the Company to consent to any settlement or final
determination in any proceeding without the prior written consent of Buyer.
ARTICLE VIII ADDITIONAL COVENANTS
--------------------
SECTION 8.01 Covenants of the Shareholders. During the period
-----------------------------
commencing on the date hereof and continuing through the Closing Date, each
Shareholder agrees to:
(a) comply promptly with all requirements that applicable Legal
Requirements may impose upon it with respect to the transactions contemplated by
this Agreement, and shall cooperate promptly with, and furnish information to,
Buyer in connection with any such requirements imposed upon Buyer or upon any of
its Affiliates in connection therewith or herewith;
(b) use his reasonable best efforts to obtain (and to cooperate
with Buyer in obtaining) any consent, authorization or approval of, or exemption
by, any Person required to be obtained or made by the Company or the
Shareholder, as applicable, in connection with the transactions contemplated by
this Agreement;
(c) use his reasonable best efforts to bring about the
satisfaction of the conditions precedent to Closing set forth in Section 6.01 of
this Agreement;
35
(d) promptly advise Buyer orally and, within three (3) Business
Days thereafter, in writing of any change in the Company's business or condition
that has had or may have a Material Adverse Effect; and
(e) deliver to Buyer prior to the Closing a written statement
disclosing any untrue statement in this Agreement or any Schedule hereto (or
supplement thereto) or document furnished pursuant hereto, or any omission to
state any material fact required to make the statements herein or therein
contained complete and not misleading, promptly upon the discovery of such
untrue statement or omission, accompanied by a written supplement to any
Schedule to this Agreement that may be affected thereby; provided, however, that
-------- -------
the disclosure of such untrue statement or omission shall not prevent Buyer from
terminating this Agreement pursuant to Section 9.01(c) hereof at any time at or
prior to the Closing in respect of any original untrue or misleading statement.
SECTION 8.02 Additional Covenants of the Shareholders. Each
----------------------------------------
Shareholder agrees to deliver to Buyer within thirty (30) days after the Closing
Date:
(a) the Closing Balance Sheet and the related unaudited
statements of income, shareholders' equity and cash flows for the period then
ended prepared in accordance with GAAP (the "Closing Financial Statements");
----------------------------
(b) a certificate executed by each Shareholder certifying that
the Closing Financial Statements (i) present fairly the financial condition of
the Company as of the Closing Date and the results of operations and changes in
financial position of the Company for the periods specified therein, (ii) have
been prepared in conformity with GAAP during the period covered thereby and
prior periods (except that the Closing Financial Statements do not contain
footnotes and are subject to year end adjustments which would not, either
individually or in the aggregate, be material), (iii) have been derived from the
accounting records of the Company, (iv) represent only actual, bona fide
transactions, and (v) are true and correct in all material respects.
(c) a certificate executed by each Shareholder certifying that
(i) the Company has no liabilities as of the Closing Date other than those
liabilities recorded in the Closing Financial Statements; (ii) the method use to
recognize profit of the Company in each of the Financial Statements and Closing
Financial Statements is consistent; (iii) no customer deposits, whether
collected or billed and receivable have been recorded as income in the Financial
Statements or the Closing Financial Statements; (iii) income recognized on work
in progress as of the dates of each of the Financial Statements and the Closing
Financial Statements is not overstated as to the percentage of completion or
income earned; (iv) income on "fee based jobs" is recognized in a consistent
manner in all periods of each of the Financial Statements and the Closing
Financial Statements and fees received but not yet earned are not reflected as
earnings and are appropriately reflected as liabilities for unearned income in
each of the Financial Statements and the Closing Financial Statements; (v) the
estimated costs to complete all jobs of the Company in process are not
understated and reflect the Company's best estimate of the total costs to
complete all incomplete work of the Company; and (vi) all deposits of the
Company to vendors are appropriately accounted for as current assets.
36
SECTION 8.03 Covenants of Buyer. During the period commencing on the
------------------
date hereof and continuing through the Closing Date, Buyer agrees to:
(a) comply promptly with all requirements that applicable Legal
Requirements may impose upon it with respect to the transactions contemplated by
this Agreement, and shall cooperate promptly with, and furnish information to,
Shareholders in connection with any such requirements imposed upon Shareholders
in connection therewith or herewith;
(b) use its reasonable best efforts to obtain any consent,
authorization or approval of, or exemption by, any Person required to be
obtained or made by Buyer in connection with the transactions contemplated by
this Agreement;
(c) use its reasonable best efforts to preserve intact its
business organization, employees and other business relationships, to operate
its business in the Ordinary Course and to maintain its books, records and
accounts in accordance with GAAP; and
(d) use its reasonable best efforts to bring about the
satisfaction of the conditions precedent to Closing set forth in Section 6.03 of
this Agreement.
SECTION 8.04 Access and Information.
----------------------
(a) Between the date hereof and the Closing Date, (i)
Shareholders will cause the Company's officers, directors, key employees and
advisors to permit, Buyer and its representatives and agents reasonable access
to the Company's books and records, facilities, key personnel, customers,
suppliers, independent accountants and attorneys, as requested by Buyer and (ii)
Buyer will permit Shareholders and their representatives and agents access to
Buyer's books and records, facilities, key personnel, customers, suppliers,
independent accountants and attorneys, as requested by Shareholders.
(b) Each of the parties hereto acknowledges that all
information, documents, customer lists, patents, trademarks, copyrights,
materials, specifications, business strategies, information or any other ideas
which directly relate to the business of the other party or of the Company
(collectively, "Confidential Information") shall be the exclusive, confidential
------------------------
property of such other party or of the Company, except to the extent expressly
authorized in writing for dissemination. From the date of this Agreement through
and including the twenty-fourth (24th) month following the Closing Date, each
party shall not disclose any of such Confidential Information of the other party
to any third party without the prior written consent of the other party and
shall take all reasonable steps and actions necessary to maintain the
confidentiality of such Confidential Information. The foregoing restrictions
shall not apply to any information which (i) becomes generally available to the
public other than as a result of disclosures by the non-disclosing party, (ii)
was available to the non-disclosing party on a non-confidential basis prior to
disclosure to it by the other party, (iii) becomes available to the non-
disclosing party on a non-confidential basis from any source other than the
disclosing party, provided such source is not bound by a confidentiality
agreement with one of the parties hereto, or (iv) is required to be disclosed by
any Governmental Entity. In addition, the obligations set forth in this Section
8.04(b) shall not apply to Buyer with respect to Confidential Information
37
which is acquired by Buyer as a result of the consummation of the transactions
contemplated herein.
SECTION 8.05 Expenses. Except as otherwise specifically provided
--------
herein, each party to this Agreement shall bear its own direct and indirect
expenses incurred in connection with the negotiation and preparation of this
Agreement and the consummation and performance of the transactions contemplated
hereby, including, without limitation, all legal fees and fees of any brokers,
finders or similar agents.
SECTION 8.06 Certain Notifications. At all times from the date hereof
---------------------
to the Closing Date, each party shall promptly notify the others in writing of
the occurrence of any event that will or may (a) render any statement,
representation or warranty of such party in this Agreement (including the
Schedules hereto) inaccurate or incomplete in any material respect or (b)
constitute or result in the breach by such party of, or a failure to comply
with, any agreement or covenant in this Agreement applicable to such party or
(c) result in the failure by such party to satisfy any of the conditions
specified in Article VI hereof.
SECTION 8.07 Publicity; Employee Communications. At all times prior
----------------------------------
to the Closing Date, Shareholders shall obtain the written consent of Buyer
prior to issuing, or permitting any of the directors, officers, employees or
agents of the Company to issue, any press release or other information to the
press, employees of the Company or any third party with respect to this
Agreement or the transactions contemplated hereby; provided, however, that no
-------- -------
party shall be prohibited from supplying any information to any of is
representatives, agents, attorneys, advisors, financing sources and others to
the extent necessary to complete the transactions contemplated hereby so long as
such representatives, agents, attorneys, advisors, financing sources and others
are made aware of and agree to be bound by the terms of this Section 8.07.
Nothing contained in this Agreement shall prevent any party to this Agreement at
any time from furnishing any required information to any Governmental Entity or
authority pursuant to a Legal Requirement or from complying with its legal or
contractual obligations.
SECTION 8.08 Further Assurances.
------------------
(a) Subject to the terms and conditions of this Agreement, each
of the parties hereto agrees to use all reasonable efforts to take, or cause to
be taken, all action, and to do, or cause to be done, all things necessary,
proper or advisable under applicable Legal Requirements, to consummate and make
effective the transactions contemplated by this Agreement.
(b) If at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, the
Shareholders or the proper officers or directors of the Company or Buyer as the
case may be, shall take or cause to be taken all such necessary or convenient
action and execute, and deliver and file, or cause to be executed, delivered and
filed, all necessary or convenient documentation.
SECTION 8.09 Competing Offers; Merger or Liquidation. Shareholders
---------------------------------------
agree that they will not, and the Shareholders will cause the Company not to,
directly or indirectly, through any officer, director, agent or otherwise,
solicit, initiate or encourage discussions with, or the submissions of bids,
offers or proposals by, any Person with respect to an acquisition of the
38
Company or its assets or capital stock or a merger or similar transaction, and
Shareholders will not, and the Shareholders will not permit the Company to,
engage any broker, financial adviser or consultant with an incentive to initiate
or encourage proposals or offers from other parties. Furthermore, Shareholders
shall not, and the Shareholders shall not permit the Company to, directly or
indirectly, through any officer, director, agent or otherwise, engage in
negotiations concerning any such transaction with, or provide information to,
any Person other than Buyer and its representatives, with a view to engaging, or
preparing to engage, that Person with respect to any matters referenced in this
Section. Shareholders shall ensure that the Company shall not commence any
proceeding to merge, consolidate or liquidate or dissolve or obligate itself to
do so.
SECTION 8.10 Inconsistent Action. Shareholders shall not take or
-------------------
suffer to be taken, and shall not permit the Company to take or cause or suffer
to be taken, any action that would cause any of the representations or
warranties of the Shareholders in this Agreement to be untrue, incorrect,
incomplete or misleading.
SECTION 8.11 Post-Termination Employment. Shareholders acknowledge and
---------------------------
agree that, subject to any written contracts of employment, if any, after the
Closing (a) Buyer shall not be required to employ or retain any employee of the
Company or any other Person, and (b) Buyer, in its sole and absolute discretion,
may cause the Surviving Corporation to retain all, some, or none of such
employees.
SECTION 8.12 Buyer's Post-Closing Covenant. After the Closing Date
-----------------------------
Buyer shall obtain the release of Shareholders as guarantors under that certain
Guaranty in favor of Xxxxxxx Xxxxx & Co., Inc. ("Xxxxxxx Xxxxx") or will
-------------
pay all such Indebtedness of Shareholders to Xxxxxxx Xxxxx.
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER
---------------------------------
SECTION 9.01 Termination. This Agreement may be terminated at any time
-----------
prior to the Closing:
(a) by mutual consent of all of the parties hereto;
(b) by Shareholders, on the one hand, or by Buyer, on the other
hand, by written notice to the other party or parties hereto if the Agreement
shall not have been consummated on or before November 29, 1999 (or such later
date as Buyer and Shareholders may agree), provided that in the case of a
termination under this clause (b), the party or parties terminating this
Agreement shall not then be in material breach of any of its or their
obligations under this Agreement;
(c) by Buyer if (i) there has been a material misrepresentation,
breach of warranty or breach of covenant by Shareholders under this Agreement or
(ii) any of the conditions precedent to Closing set forth in Section 6.01 have
not been met on the Closing Date, and, in each case, Buyer is not then in
material default of its obligations hereunder; or
39
(d) by Shareholders if (i) there has been a material
misrepresentation, breach of warranty or breach of covenant by Buyer under this
Agreement or (ii) any of the conditions precedent to Closing set forth in
Section 6.02 have not been met on the Closing Date, and, in each case,
Shareholders are not then in material default of their obligations hereunder.
SECTION 9.02 Effect of Termination.
---------------------
(a) In the case of any termination of this Agreement, the
provisions of Sections 8.03(b) and 8.04 shall remain in full force and effect.
(b) Upon termination of this Agreement as provided in Section
9.01(a), this Agreement shall forthwith become void and there shall be no
liability or obligation on the part of any party hereto or their respective
directors, officers, employees, agents or other representatives.
(c) In the event of termination of this Agreement as provided in
Section 9.01(b), (c) or (d) hereof, such termination shall be without prejudice
to any rights that the terminating party or parties may have against the
breaching party or parties or any other Person under the terms of this Agreement
or otherwise.
SECTION 9.03 Amendment. This Agreement may be amended only by a
---------
written instrument executed by each of the parties hereto. Any amendment
effected pursuant to this Section 9.03 shall be binding upon all parties hereto.
SECTION 9.04 Waiver. Any term or provision of this Agreement may be
------
waived in writing at any time by the party or parties entitled to the benefits
thereof. Any waiver effected pursuant to this Section 9.04 shall be binding upon
all parties hereto. No failure to exercise and no delay in exercising any right,
power or privilege shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege preclude the exercise of any
other right, power or privilege. No waiver of any breach of any covenant or
agreement hereunder shall be deemed a waiver of any preceding or subsequent
breach of the same or any other covenant or agreement. The rights and remedies
of each party under this Agreement are in addition to all other rights and
remedies, at law or in equity, that such party may have against the other
parties.
40
ARTICLE X INDEMNIFICATION
---------------
SECTION 10.01 Survival of Representations and Warranties and
----------------------------------------------
Covenants.
---------
(a) The representations and warranties of the parties hereto
contained in this Agreement or in any writing delivered pursuant hereto or at
the Closing shall survive the execution and delivery of this Agreement and the
Closing and the consummation of the transactions contemplated hereby (and any
examination or investigation by or on behalf of any party hereto) until the
third anniversary of the Closing Date (except for claims in respect thereof
pending at such time, which shall survive until finally resolved or settled);
provided, however, that the representations and warranties contained in Sections
-------- -------
3.01, 3.02, 3.03, 3.12, 3.14, 3.17 and 3.25 shall survive until the expiration
of the applicable statute of limitations with respect to such matters.
(b) No Action may be commenced with respect to any
representation, warranty, covenant or agreement in this Agreement, or in any
writing delivered pursuant hereto, unless written notice, setting forth in
reasonable detail the claimed breach thereof, shall be delivered pursuant to
Section 11.01 to the party or parties against whom liability for the claimed
breach is charged on or before the termination of the survival period specified
in Section 10.01(a) for such representation, warranty, covenant or agreement.
SECTION 10.02 Indemnification.
---------------
(a) Subject to the limitation set forth in Section 10.02(c) and
Section 10.02(g) Shareholders jointly and severally covenant and agree to
defend, indemnify and hold harmless Buyer and each Person who controls Buyer
within the meaning of the Securities Act, and after the Closing, the Company,
from and against any Damages arising out of or resulting from: (i) any
inaccuracy in or breach of any representation, warranty, covenant or agreement
made by Shareholders in this Agreement or in any writing delivered pursuant to
this Agreement or at the Closing; (ii) the failure of Shareholders or the
Company to perform or observe fully any covenant, agreement or provision to be
performed or observed by Shareholders or the Company pursuant to this Agreement;
or (iii) any Action arising out of or resulting from the conduct by the Company
of its business or operations, or the Company's occupancy or use of its
properties or assets, on or prior to the Closing Date.
(b) Buyer covenants and agrees to defend, indemnify and hold
harmless Shareholders from and against any Damages arising out of or resulting
from: (i) any inaccuracy in or breach of any representation, warranty, covenant
or agreement made by Buyer in this Agreement or in any writing delivered
pursuant to this Agreement or at the Closing; or (ii) the failure by Buyer to
perform or observe any covenant, agreement or condition to be performed or
observed by it pursuant to this Agreement.
(c) Buyer shall not be liable to Shareholders, and the
Shareholders shall not be liable to Purchaser, under this Section 10.02 for any
Damages indemnifiable hereunder except and to the extent that the amount of such
Damages exceeds an accumulated total of $100,000 in the aggregate (and then only
for such Damages in excess of such amount).
41
(d) If Buyer is the party entitled to be indemnified pursuant to
Section 10.02 (the "Indemnified Party") and subject to the limitations in
-----------------
Section 10.02(c) hereof, Buyer must recover any amounts due it arising from
Damages under this Article X as follows :
(i) First, from the Escrow Account, or so much thereof as
remains in escrow at the time the Indemnifiable Claim is made, in accordance
with the terms of the Escrow Agreement, until the Escrow Account is exhausted;
(ii) Second, from a reduction in the amounts of payments
due and owing the Shareholders pursuant to Sections 2.03(a)(ii), 2.03(a)(iii)
and 2.03(a)(iv) of up to Two Hundred Fifty Thousand Dollars ($250,000) per year;
and
(iii) Third, upon the exhaustion of the Escrow Account and
after reducing the remaining payments due pursuant to Sections 2.03(a)(ii),
2.03(a)(iii) and 2.03(a)(iv) up to Two Hundred Fifty Thousand Dollars ($250,000)
per year, any remaining Indemnifiable Claims under this Article X shall be
recovered from the Shareholders directly.
(e) Shareholders' liability under this Section 10.02 shall be
allocated among them pro rata in accordance with the number of Shares owned by
each of them as set forth on Schedule 3.03 hereto. No Shareholder shall have any
right of contribution or equitable indemnification against the Company for the
Shareholders' obligations under Section 10.02(a).
(f) The right to indemnification, payment of damages or other
remedy based on the representations, warranties and covenants, and obligations
set forth herein will not be affected by any investigation conducted, whether
before or after the Closing Date, or the parties' agreement as to any purchase
price adjustments pursuant hereto, with respect to the accuracy or inaccuracy of
or compliance with, any such representation, warranty, covenant or obligation.
Notwithstanding anything in this Article X to the contrary, each party hereto
shall retain all other rights and remedies to which it may be entitled under
applicable law.
(g) The Shareholders' Indemnification does not cover any Damages
(except for payments of interest and penalties related to Taxes) arising from a
disagreement with any taxing authority regarding the year in which Company
profits should have been reported.
SECTION 10.03 Third Party Claims.
------------------
(a) If an Indemnified Party receives notice of the assertion by
any third party of any claim or of the commencement by any such third person of
any Action (any such claim or Action being referred to herein as an
"Indemnifiable Claim") with respect to which another party hereto (an
-------------------
"Indemnifying Party") is or may be obligated to provide indemnification, the
------------------
Indemnified Party shall promptly notify the Indemnifying Party in writing (the
"Claim Notice") of the Indemnifiable Claim; provided, however, that the failure
------------ -------- -------
to provide such notice shall not relieve or otherwise affect the obligation of
the Indemnifying Party to provide indemnification hereunder, except to the
extent that the Indemnifying Party was materially prejudiced by such failure.
42
(b) The Indemnifying Party shall have thirty (30) days after
receipt of the Claim Notice to undertake, conduct and control, through counsel
of its own choosing, and at its expense, the settlement or defense thereof, and
the Indemnified Party shall cooperate with the Indemnifying Party in connection
therewith; provided, however, that (i) the Indemnifying Party shall permit the
-------- -------
Indemnified Party to participate in such settlement or defense through counsel
chosen by the Indemnified Party (subject to the consent of the Indemnifying
Party, which consent shall not be unreasonably withheld), provided that the fees
and expenses of such counsel shall not be borne by the Indemnifying Party, and
(ii) the Indemnifying Party shall not settle any Indemnifiable Claim without the
Indemnified Party's consent. So long as the Indemnifying Party is vigorously
contesting any such Indemnifiable Claim in good faith, the Indemnified Party
shall not pay or settle such claim without the Indemnifying Party's consent,
which consent shall not be unreasonably withheld.
(c) If the Indemnifying Party does not notify the Indemnified
Party within thirty (30) days after receipt of the Claim Notice that it elects
to undertake the defense of the Indemnifiable Claim described therein, the
Indemnified Party shall have the right to contest, settle or compromise the
Indemnifiable Claim in the exercise of its reasonable discretion; provided,
--------
however, that the Indemnified Party shall notify the Indemnifying Party of any
-------
compromise or settlement of any such Indemnifiable Claim.
(d) Anything contained in this Section 10.03 to the contrary
notwithstanding, Shareholders shall not be entitled to assume the defense for
any Indemnifiable Claim (and shall be liable for the reasonable fees and
expenses incurred by the Indemnified Party in defending such claim) if the
Indemnifiable Claim seeks an order, injunction or other equitable relief or
relief for other than money damages against Buyer or the Company which Buyer
determines, after conferring with its counsel, cannot be separated from any
related claim for money damages and which, if successful, would adversely affect
the business, properties or prospects of Buyer or the Company; provided,
--------
however, if such equitable relief portion of the Indemnifiable Claim can be so
-------
separated from that for money damages, Shareholders shall be entitled to assume
the defense of the portion relating to money damages.
SECTION 10.04 Indemnification Non-Exclusive. The foregoing
-----------------------------
indemnification provisions are in addition to, and not in derogation of, any
statutory, equitable or common-law remedy any party may have for breach of
representation, warranty, covenant or agreement.
ARTICLE XI GENERAL PROVISIONS
------------------
SECTION 11.01 Notices. All notices and other communications under or
-------
in connection with this Agreement shall be in writing and shall be deemed given
(a) if delivered personally, upon delivery, (b) if delivered by registered or
certified mail (return receipt requested), upon the earlier of actual delivery
or three (3) days after being mailed, or (c) if given by facsimile, upon
confirmation of transmission by facsimile, in each case to the parties at the
following addresses:
43
(a) If to Buyer addressed to:
Interiors, Inc.
000 Xxxxxxxxxx Xxxxxx
Xx. Xxxxxx, Xxx Xxxx 00000-0000
Facsimile: (000) 000-0000
Attention: Xx. Xxx Xxxx
With copies to:
Paul, Hastings, Xxxxxxxx & Xxxxxx LLP
Twenty-Third Floor
000 Xxxxx Xxxxxx Xxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: Xxxxxxxxxxx X. Xxxxxx, Esq.
and
Xxxxx Xxxxxxxx, Esq.
00 Xxxx 00/xx/ Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
(b) If to the Shareholders, addressed to:
Concepts 4, Inc.
0000 Xxxx Xxxxxx Xxxxxx, Xxxxx 000
Xxxx Xxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: Mr. Xxxxx Xxxxxx, President
With a copy to:
Xxxxxxxx X. Xxxxx, Esq.
000 Xxxx Xxxxx Xxxxxx, Xxxxxx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
SECTION 11.02 Severability. If any term or provision of this Agreement
------------
or the application thereof to any circumstance shall, in any jurisdiction and to
any extent, be invalid or unenforceable, such term or provision shall be
ineffective as to such jurisdiction to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable such term or
provision in any other jurisdiction, the remaining terms and provisions of this
Agreement or the application of such terms and provisions to circumstances other
than those as to which it is held invalid or enforceable.
SECTION 11.03 Entire Agreement. Except as specifically set forth
----------------
herein, this Agreement, including the annexes and schedules attached hereto and
other documents
44
referred to herein, contain the entire understanding of the parties hereto in
respect of their subject matter and supersede all prior and contemporaneous
agreements and understandings, oral and written, among the parties with respect
to such subject matter.
SECTION 11.04 Successors and Assigns. This Agreement shall be binding
----------------------
upon and inure to the benefit of each of the parties hereto and their
respective successors, heirs and assigns; provided, however, that no party may
-------- -------
assign either this Agreement or any of its rights, interests or obligations
hereunder in whole or in part without the prior written consent of the other
parties hereto, and any such transfer or assignment without said consent shall
be void, ab initio. Subject to the immediately preceding sentence, this
---------
Agreement is not intended to benefit, and shall not run to the benefit of or be
enforceable by, any other person or entity other than the parties hereto and
their permitted successors and assigns.
SECTION 11.05 Counterparts. This Agreement may be executed in one or
------------
more counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same Agreement.
SECTION 11.06 Schedules and Annexes. The schedules and annexes to this
---------------------
Agreement are incorporated herein and, by this reference, made a part hereof as
if fully set forth at length herein.
SECTION 11.07 Construction.
------------
(a) The article, section and subsection headings used herein are
inserted for reference purposes only and shall not in any way affect the meaning
or interpretation of this Agreement.
(b) As used in this Agreement, the masculine, feminine or
neuter gender, and the singular or plural, shall be deemed to include the others
whenever and wherever the context so requires.
(c) For the purposes of this Agreement, unless the context
clearly requires, "or" is not exclusive.
SECTION 11.08 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws (and not the law of conflicts) of
the State of Delaware.
SECTION 11.09 Arbitration Concerning Disputes Regarding EBIT.
----------------------------------------------
(a) At the option of any party hereto, any and all disputes, whether
of law or fact and of any nature whatsoever, concerning EBIT or the calculation
of EBIT shall be decided by binding arbitration in accordance with the
Commercial Arbitration Rules of Association. If the parties are unable to agree
upon a single arbitrator, the arbitrator shall be a single, independent
arbitrator selected by the Association.
(b) Any arbitration proceedings hereunder shall be held in Los
Angeles, California.
45
(c) The decision of the arbitrator shall be final and binding upon
all parties hereto and all Persons claiming under and through them. The fees and
expenses of the arbitrator shall be paid 50% by the Shareholders which are
parties to the arbitration and 50% by the Buyer.
46
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
INTERIORS, INC.
By:_____________________________________
Xxx Xxxx
President
Xxxxx Xxxxxx
Xxxxxx Xxxxxxxxxx
THE XXXXX FAMILY TRUST DATED
OCTOBER 1, 1997
By:_____________________________________
Xxxx Xxxxx
Trustee
47
================================================================================
STOCK PURCHASE AGREEMENT
AMONG
INTERIORS, INC.,
XXXXX XXXXXX,
XXXXXX XXXXXXXXXX,
AND
THE XXXXX FAMILY TRUST DATED OCTOBER 1, 1997
OCTOBER 26, 1999
================================================================================
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I Definitions........................................................... 1
ARTICLE II Purchase and sale of shares........................................... 7
SECTION 2.01 Purchase and Sale of Shares...................................... 7
SECTION 2.02 Purchase Price................................................... 7
SECTION 2.03 Purchase Price Adjustments....................................... 8
SECTION 2.04 Adjustment For Future Performance................................ 9
SECTION 2.05 Closing.......................................................... 10
SECTION 2.06. Escrow........................................................... 10
SECTION 2.07 Actions Prior to and at the Closing.............................. 10
ARTICLE III REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY................. 11
SECTION 3.01 Organization and Good Standing; Authorization.................... 11
SECTION 3.02 No Conflicts..................................................... 11
SECTION 3.03 Capitalization................................................... 12
SECTION 3.04 Financial Statements; Completion Schedule........................ 12
SECTION 3.05 Title To Property; Encumbrances.................................. 13
SECTION 3.06 Inventory And Accounts Receivable................................ 14
SECTION 3.07 Compliance with Law.............................................. 14
SECTION 3.08 Trademarks, Patents, Etc......................................... 15
SECTION 3.09 Banking and Insurance............................................ 15
SECTION 3.10 Indebtedness..................................................... 16
SECTION 3.11 Judgments; Litigation............................................ 16
SECTION 3.12 Income and Other Taxes........................................... 17
SECTION 3.13 Corporate Records................................................ 18
SECTION 3.14 Employee Benefit Matters......................................... 18
SECTION 3.15 No Undisclosed Liabilities....................................... 18
SECTION 3.16 Permits, Licenses, Etc........................................... 18
SECTION 3.17 Regulatory Filings............................................... 18
SECTION 3.18 Consents......................................................... 19
SECTION 3.19 Material Contracts; No Defaults.................................. 19
SECTION 3.20 Absence of Certain Changes....................................... 21
SECTION 3.21 Employees and Labor Matters...................................... 21
SECTION 3.22 Affiliations..................................................... 22
SECTION 3.23 Principal Customers and Suppliers................................ 22
SECTION 3.24 Warranty Liability............................................... 23
SECTION 3.25 Hazardous Materials.............................................. 23
SECTION 3.26 Brokers' Fees.................................................... 24
SECTION 3.27 Disclosure....................................................... 24
i
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER.............................. 24
SECTION 4.01 Organization, Power and Authority of Buyer....................... 24
SECTION 4.02 Authorization.................................................... 24
SECTION 4.03 No Conflict or Violation......................................... 24
SECTION 4.04 Capitalization................................................... 25
SECTION 4.05 Consents and Approvals........................................... 25
SECTION 4.06 Reports and Financial Statements................................. 25
SECTION 4.07 Brokers' Fees.................................................... 26
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS................. 26
SECTION 5.01 Ownership of Shares.............................................. 26
SECTION 5.02 Delivery of Good Title........................................... 26
SECTION 5.03 Execution and Delivery........................................... 26
SECTION 5.04 No Conflicts..................................................... 26
SECTION 5.05 Restrictions on Transfer of Buyer Common Stock and Buyer
Preferred Stock................................................................ 27
ARTICLE VI Conditions to Consummation of Sale of Shares......................... 28
SECTION 6.01 Conditions to Obligations of Buyer............................... 28
SECTION 6.02 Conditions to Obligations of the Shareholders.................... 30
ARTICLE VII Conduct of Business Pending Closing.................................. 30
SECTION 7.01 Qualification.................................................... 30
SECTION 7.02 Ordinary Course.................................................. 31
SECTION 7.03 Organic Changes.................................................. 31
SECTION 7.04 Indebtedness..................................................... 31
SECTION 7.05 Accounting....................................................... 31
SECTION 7.06 Compliance with Legal Requirements............................... 31
SECTION 7.07 Disposition of Assets............................................ 31
SECTION 7.08 Compensation..................................................... 31
SECTION 7.09 Modification or Breach of Agreements; New Agreements............. 32
SECTION 7.10 Capital Expenditures............................................. 32
SECTION 7.11 Maintain Insurance............................................... 32
SECTION 7.12 Discharge........................................................ 32
SECTION 7.13 Actions.......................................................... 32
SECTION 7.14 Permits.......................................................... 32
SECTION 7.15 Tax Assessments and Audits....................................... 32
ARTICLE VIII ADDITIONAL COVENANTS................................................. 33
SECTION 8.01 Covenants of the Shareholders.................................... 33
SECTION 8.02 Additional Covenants of the Shareholders......................... 33
SECTION 8.03 Covenants of Buyer............................................... 34
SECTION 8.04 Access and Information........................................... 34
ii
SECTION 8.05 Expenses......................................................... 35
SECTION 8.06 Certain Notifications............................................ 35
SECTION 8.07 Publicity; Employee Communications............................... 35
SECTION 8.08 Further Assurances............................................... 36
SECTION 8.09 Competing Offers; Merger or Liquidation.......................... 36
SECTION 8.10 Inconsistent Action............................................... 36
SECTION 8.11 Post-Termination Employment...................................... 36
SECTION 8.12 Buyer's Post-Closing Covenant.................................... 36
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER.................................... 37
SECTION 9.01 Termination...................................................... 37
SECTION 9.02 Effect of Termination............................................ 37
SECTION 9.03 Amendment........................................................ 37
SECTION 9.04 Waiver........................................................... 37
ARTICLE X INDEMNIFICATION...................................................... 38
SECTION 10.01 Survival of Representations and Warranties and Covenants........ 38
SECTION 10.02 Indemnification................................................. 38
SECTION 10.03 Third Party Claims.............................................. 39
SECTION 10.04 Indemnification Non-Exclusive................................... 40
ARTICLE XI GENERAL PROVISIONS.............................................. 40
SECTION 11.01 Notices......................................................... 40
SECTION 11.02 Severability.................................................... 41
SECTION 11.03 Entire Agreement................................................ 41
SECTION 11.04 Successors and Assigns.......................................... 42
SECTION 11.05 Counterparts.................................................... 42
SECTION 11.06 Schedules and Annexes........................................... 42
SECTION 11.07 Construction.................................................... 42
SECTION 11.08 Governing Law................................................... 42
SECTION 11.09 Arbitration Concerning Disputes Regarding EbiT.................. 42
iii
List of Annexes
---------------
Annex A - Escrow Agreement
Annex B - Form of Shareholder Certificate
Annex C - Certificate of the Company's Officers
Annex D - Certificate of the Company's Secretary
Annex E - Xxxxx Xxxxxx Employment Agreement
Annex F - Xxxxxx Xxxxxxxxxx Employment Agreement
Annex G - Xxxx Xxxxx Employment Agreement
Annex H - Xxxxxxx Xxxxxxxx Employment Agreement
Annex I - Xxxxx Xxxxxx Employment Agreement
Annex J - Xxxx Xxxx Employment Agreement
Annex K - Certificate of Buyer's Secretary
Annex L - Certificate of the Buyer's President
FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT (this "Amendment") is
---------
made as of December 15, 1999, by and among Buyer (as defined in the Agreement)
and the Shareholders (as defined in the Agreement).
RECITALS
--------
A. Each of the parties hereto is a party to that certain Stock Purchase
Agreement dated as of October 27, 1999 (the "Agreement").
---------
B. Each of the parties hereto desires to amend the Agreement as set forth
herein, and desire that, except as set forth in this Amendment, the Agreement
shall remain in full force and effect.
NOW THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants, agreements and conditions hereinafter
set forth, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Definitions. Capitalized terms used herein and not otherwise defined
-----------
herein shall have the meanings ascribed to them in the Agreement (without regard
to this Amendment).
2. Amendment. The Agreement is hereby amended as follows on and as of, and
---------
only upon, the date hereof:
(a) Section 2.02(a)(i) is hereby amended to read in its entirety as
follows:
"(i) Two Million Dollars ($2,000,000) in cash, subject to adjustment as
provided herein (the "Cash Payment") payable at Closing in accordance with
------------
Schedule 2.02(a)(i);"
(b) Section 2.02(a)(ii) is hereby amended to read in its entirety as
follows:
"(ii) Two Million Six Hundred Thousand Dollars ($2,600,000) in cash payable
within three (3) Business Days of the Closing Date in accordance with
Schedule 2.02(a)(ii);"
(c) Section 2.02(a)(iii) is hereby amended to read in its entirety as
follows:
"(iii) Two Million Eight Hundred Twenty-Two Thousand Nine Hundred Thirty-
Eight Dollars ($2,822,938) in cash payable on March 10, 2000 in accordance
with Schedule 2.02(a)(iii);"
(d) Section 2.02(a)(iv) is hereby amended to read in its entirety as
follows:
"(iv) Seven Hundred Seventy Thousand ($770,000) payable upon the first
anniversary of the Closing Date in accordance with Schedule 2.02(a)(iv);"
(e) The following is hereby added as Section 2.02(a)(v) of the
Agreement:
"(v) One Million Two Hundred Eighteen Thousand Dollars ($1,218,000) payable
upon the second anniversary of the Closing Date in accordance with Schedule
2.02(a)(v);"
(f) The following sentence is hereby added as Section 2.02(a)(vi) of
the Agreement:
"(vi) One Million Two Hundred Eighteen Thousand Dollars ($1,218,000)
payable upon the third anniversary of the Closing Date in accordance with
Schedule 2.02(a)(vi)."
(g) The following sentence is hereby added as Section 2.02(a)(vii) of
the Agreement:
"(vii) One Million Seven Thousand Two Hundred Eighty-Nine Dollars
($1,007,289) payable on March 10, 2003 in accordance with Schedule
2.20(a)(vii)."
(h) Section 2.02(b) is hereby amended to read in its entirety as
follows:
"(b) In the event that Buyer fails to pay the amounts due pursuant to
Section 2.02(a)(iii), (iv), (v), (vi) or (vii) within fifteen (15) Business
Days of the dates such cash payments are due Buyer shall deliver to
Shareholders restricted Buyer Common Stock the fair market value of which
is equal to the amount of cash Shareholders would have received pursuant to
Section 2.02(a)(iii), (iv), (v), (vi) or (vii). The Fair Market Value of
Buyer Common Stock shall be computed using the daily average closing bid
price per share of Buyer Common Stock for the ten (10) trading days
immediately preceding the date the applicable cash payment was to be paid
pursuant to Section 2.02."
(i) The following is hereby added as Section 2.02(c) of the
Agreement:
"(c) In the event that Buyer fails to pay the amount due pursuant to
Section 2.02(a)(iii) within fifteen (15) Business Days of the date such
cash payment was due, Buyer may elect, in fulfillment of its obligation to
Shareholders pursuant to Section 2.02(a)(iii), to pay the Shareholders the
following amounts of cash pursuant to Schedule 2.02(a)(iii): (i) on or
prior to September 10, 2000 Buyer shall pay the Shareholders Three Million
One Hundred Five Thousand Two Hundred Thirty-One Dollars and Eighty Cents
($3,105,231.80), and (ii) on or prior to March 10, 2001 Buyer shall pay to
Shareholders Three Million Three Hundred Eight-Seven Five Hundred Twenty-
Five Dollars and Sixty Cents ($3,387,525.60). Buyer shall deliver to an
escrow account (the "Escrow Account"), established by U.S. Bank Trust, N.A.
(the "Escrow Agent") pursuant to an escrow agreement in accordance with the
terms and conditions in this Section 2.02(c), restricted Buyer Common Stock
(the "Escrow Shares") the fair market value of which is equal to Two
Million Eight Hundred Twenty-Two Thousand Nine Hundred Thirty-Eight Dollars
($2,822,938). The Fair Market Value of the Buyer Common Stock shall be
computed using the daily average closing bid price per share of Buyer
Common Stock for the ten (10) trading days immediately preceding the date
the applicable cash payment was to be paid pursuant to Section 2.02(a)(iii)
hereof. The escrow agreement shall terminate on the earlier of (i) Xxxxx
00, 0000, (xx) the date on which Buyer pays the Shareholders the amount of
cash due pursuant to
2
Section 2.02(a)(iii) hereof, or (iii) the date on which Buyer exercises the
Call Option (as defined below). In the event that Buyer delivers to the
Shareholders the amount of cash due pursuant to Section 2.02(a)(iii) or the
Call Option (as defined below), the Escrow Shares shall be returned to
Buyer. In the event that prior to March 10, 2001 Buyer does not pay the
cash due pursuant to Section 2.02(a)(iii) or exercise the Call Option (as
defined below), the Escrow Shares shall be delivered to the Shareholders.
In the event that the Fair Market Value of the Escrow Shares on March 10,
2001 is less than Three Million Three Hundred Eighty-Seven Thousand Five
Hundred Twenty-Five Dollars and Sixty Cents ($3,387,525.60), (the "Escrow
------
Deficit"), Buyer shall deliver to the Shareholders additional shares of
-------
Buyer Common Stock the Fair Market Value of which is equal to the Escrow
Deficit. Any securities, non-cash dividends or other property distributable
in respect of the Escrow Shares shall be delivered to the Escrow Agent, who
shall hold such securities, non-cash dividends or other property in the
Escrow Account. Buyer shall have the right, but not the obligation, to
redeem the Escrow Shares and any securities, non-cash dividends and other
property placed in the Escrow Account (the "Call Option") as follows: (x)
from March 10, 2000 to September 10, 2000, Buyer shall have the right, but
not the obligation, to redeem the Escrow Shares and any securities, non-
cash dividends and other property placed in the Escrow Account upon payment
to the Shareholders of Three Million One Hundred Five Thousand Two Hundred
Thirty-One Dollars and Eighty Cents ($3,105,231.80), and (y) from September
10, 2000 to March 10, 2001, Buyer shall have the right, but not the
obligation, to redeem the Escrow Shares and any securities, non-cash
dividends and other property placed in the Escrow Account upon payment to
the Shareholders of Three Million Three Hundred Eighty-Seven Thousand Five
Hundred Twenty-Five Dollars and Sixty Cents ($3,387,525.60). In the event
the Fair Market Value of the Escrow Shares falls below eighty percent (80%)
of the Fair Market Value of the Escrow Shares as of March 10, 2000, then
the Shareholders shall deliver a notice to Buyer of such shortfall and
Buyer shall deliver to the Escrow Agent additional shares of Buyer Common
Stock within thirty (30) days of receipt of the Shareholders' notice so
that the Fair Market Value of the Escrow Shares equals Two Million Eight
Hundred Twenty-Two Thousand Nine Hundred Thirty-Eight ($2,822,938). The
fees of the Escrow Agent shall be borne by Buyer."
(j) Section 2.03(a) is hereby amended to read in its entirety as
follows:
"(a) Pre-Closing Calculation of Purchase Price. No less then ten (10) days
-----------------------------------------
prior to the Closing Date Shareholders shall deliver to Buyer (i) the
unaudited balance sheet of the Company (the "Pre-Closing Balance Sheet") as
-------------------------
of September 30, 1999 (the "Pre-Closing Date") and the related unaudited
----------------
statements of income, shareholders' equity and cash flows for the fiscal
period then ended, prepared in accordance with GAAP, and (ii) the Company's
Job Analysis and Percentage Completion Schedule ("Completion Schedule") for
-------------------
the period ended on the Pre-Closing Date. Shareholders shall make available
to Buyer any of the work papers, financial data and other information used
in preparing the Pre-Closing Balance Sheet. The Cash Payment shall be
reduced (but not increased) on a dollar-for-dollar basis to the extent that
the shareholders' equity set forth in the Pre-Closing Balance Sheet is less
than the shareholders' equity set forth in the June Balance Sheet. In the
event that (i) the shareholders' equity set forth in the June Balance Sheet
exceeds the shareholders' equity set forth in the Pre-Closing Balance Sheet
by more than
3
Five Hundred Thousand Dollars ($500,000) and (ii) Buyer does not elect to
limit the total adjustment to the Purchase Price to Five Hundred Thousand
Dollars ($500,000), then the Shareholders shall have the right, in their
sole discretion, to terminate the Agreement without liability or penalty."
(k) Section 2.03(b) is hereby deleted in its entirety.
(l) Section 2.03(c) is hereby deleted in its entirety.
(m) Section 2.03(d) is hereby amended to read in its entirety as
follows:
"(d) Indebtedness Adjustment. Within thirty (30) days after the Closing
-----------------------
Date, Shareholders shall deliver to Buyer a schedule which sets forth the
Company's actual Indebtedness as of the Closing Date, prepared in
accordance with GAAP (the "Final Indebtedness Schedule"). To the extent the
---------------------------
aggregate Indebtedness disclosed in the Final Indebtedness Schedule is
greater than Three Hundred Thirty Thousand ($330,000) (the "Debt Increase
-------------
Amount"), the Shareholders shall pay Buyer the amount of the Debt Increase
------
Amount, if any, on or prior to March 10, 2000. To the extent the aggregate
Indebtedness disclosed in the Final Indebtedness Schedule is less than
Three Hundred Thirty Thousand ($330,000) (the "Debt Decrease Amount"),
--------------------
Buyer shall pay the Shareholders the amount of the Debt Decrease Amount, if
any, on or prior to March 10, 2000."
(n) Section 2.03(e) is hereby amended to read in its entirety as
follows:
"(e) Objection Notice. Within thirty (30) days after receipt of the Final
----------------
Indebtedness Schedule, Buyer shall notify Shareholders in writing (an "Objection
---------
Notice") of any objection to the Final Indebtedness Schedule. If no Objection
------
Notice is given within such thirty-day period, then the Final Indebtedness
Schedule shall be final and binding on all parties. If an Objection Notice is
delivered, Shareholders shall be permitted to take positions which are different
from positions taken in the Final Indebtedness Schedule as submitted to Buyer,
and Buyer agrees that Shareholders shall not be prejudiced by reason of such
differences."
(o) Section 2.03(f) is hereby amended to read in its entirety as
follows:
"(f) Dispute Resolution. In the event Buyer provides a timely Objection
------------------
Notice, Buyer and Shareholders shall, for a period of five (5) days, use their
best efforts to resolve any differences between the parties as to the
determination of the Final Indebtedness Schedule. In the event Shareholders and
Buyer are not, within the periods described above, able to resolve such
differences, the determination of the Final Indebtedness Schedule shall be
decided by binding arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association (the "Association"). If all of the
-----------
parties to this Agreement are unable to agree on a single arbitrator, the
arbitrator shall be a single arbitrator selected by the American Arbitration
Association. Any arbitration proceedings hereunder shall be held in Los Angeles,
California. Such arbitrator shall as promptly as practicable, but in no event
later than ninety (90) days after receipt by Shareholders of the Objection
Notice, make a determination of the Final Indebtedness Schedule. Such
determination shall be final and binding on Buyer and
4
Shareholders. The fees and expenses of the arbitrator shall be borne fifty
percent (50%) by the Shareholders and fifty percent (50%) by the Buyer."
(p) Section 2.05 shall be amended to read in its entirety as follows:
"SECTION 2.05. Closing. Unless this Agreement shall have been terminated
-------
pursuant to Section 9.01 hereof, the closing of the purchase and sale of the
Shares contemplated hereby (the "Closing") shall take place at the offices of
-------
Paul, Hastings, Xxxxxxxx & Xxxxxx LLP, Twenty-Third Floor, 000 Xxxxx Xxxxxx
Xxxxxx, Xxx Xxxxxxx, Xxxxxxxxxx 00000, at 10:00 A.M. local time on or prior to
December 15, 1999 as promptly as practicable upon satisfaction of the conditions
appearing in Article VI hereof or at such other time and place as Buyer and
Shareholders may mutually establish (such time and date being referred to herein
as the "Closing Date")."
------------
(q) Section 2.06 is hereby deleted in its entirety.
(r) Section 2.07 shall be amended to read in its entirety as follows:
"SECTION 2.07. Actions Prior to and at the Closing.
-----------------------------------
(a) At the Closing the Company and Shareholders shall deliver or
cause to be delivered to Buyer:
(i) a certificate or certificates representing the Shares
registered in the name of the Buyer; and
(ii) all of the documents, certificates and instruments required
to be delivered to Buyer pursuant to Section 6.01.
(b) At the Closing Buyer shall deliver or cause to be delivered to
Shareholders:
(i) the Cash Payment; and
(ii) all of the documents, certificates and instruments required
to be delivered to Shareholders pursuant to Section 6.02."
(s) Section 3.04(c) is hereby amended to read in its entirety as
follows:
"(c) Schedule 3.04(c) contains true and complete copies of the Completion
Schedule for each of the periods ending December 31, 1998, June 30, 1999, the
Pre-Closing Date and the date hereof (the "Opening Completion Schedule"). Each
---------------------------
Completion Schedule attached hereto and the Closing Completion Schedule is true,
complete and correct in all respects and has been derived from the accounting
records of the Company and represent only actual, bona fide transactions. The
amount designated as the "balance of profit to recognized" on the Completion
Schedule for the period ending on the Pre-Closing Date is equal to or greater
than "the balance of profit to be recognized" on the Completion Schedules for
each of the periods ending December 31, 1998 and June 30, 1999."
5
(t) The following paragraph is hereby added as Section 3.04(e) of the
Agreement:
"(e) The amount of shareholders' equity of the Company, as determined as of
the Pre-Closing Date, has not decreased from the amount of shareholders' equity
in the Company as of the June Balance Sheet."
(u) Section 6.01(r) is hereby deleted in its entirety.
(v) Section 6.01(s) is hereby deleted in its entirety.
(w) The following paragraph is hereby added as Section 6.02(f) of the
Agreement:
"(f) Buyer and the Shareholders shall have entered into a Pledge Agreement
substantially in the form attached as Annex M hereto."
-------
(x) Section 8.02(a) is hereby amended to read in its entirety as
follows:
"(a) the unaudited balanced sheet of the Company as of the Closing Date and
the related unaudited statements of income, shareholders' equity and cash flows
for the period then ended prepared in accordance with GAAP (the "Closing
-------
Financial Statements") and a Completion Schedule for the period ended on the
--------------------
Closing Date prepared consistently with all other Completion Schedules delivered
to Buyer;"
(y) Section 8.02(c) is hereby amended to read in its entirety as
follows:
"(c) a certificate executed by each Shareholder certifying that (i)
the Company has no liabilities as of the Closing Date other than those
liabilities recorded in the Closing Financial Statements; (ii) the method use to
recognize profit of the Company in each of the Financial Statements and Closing
Financial Statements is consistent; (iii) no customer deposits, whether
collected or billed and receivable have been recorded as income in the Financial
Statements or the Closing Financial Statements; (iii) income recognized on work
in progress as of the dates of each of the Financial Statements and the Closing
Financial Statements is not overstated as to the percentage of completion or
income earned; (iv) income on "fee based jobs" is recognized in a consistent
manner in all periods of each of the Financial Statements and the Closing
Financial Statements and fees received but not yet earned are not reflected as
earnings and are appropriately reflected as liabilities for unearned income in
each of the Financial Statements and the Closing Financial Statements; (v) the
estimated costs to complete all jobs of the Company in process are not
understated and reflect the Company's best estimate of the total costs to
complete all incomplete work of the Company; (vi) all deposits of the Company to
vendors are appropriately accounted for as current assets; (vii) the
shareholders' equity of the Company has not decreased since the Pre-Closing
Date; and (viii) the amount designated as the "balance of profit to recognized"
on the Completion Schedule for the period ending on the Closing Date is equal to
or greater than "the balance of profit to be recognized" on the Completion
Schedules for each of the periods ending December 31, 1998, June 30, 1999 and
the Pre-Closing Date."
6
(z) Section 8.12 is hereby amended to read in its entirety as
follows:
"SECTION 8.12. Buyer's Post-Closing Covenant. On or prior to March 10,
-----------------------------
2000, Buyer shall obtain the release of Shareholders as guarantors under that
certain Guaranty in favor of Xxxxxxx Xxxxx & Co., Inc. or Xxxxxxx Xxxxx Business
Financial Services ("Xxxxxxx Xxxxx") or will pay all such Indebtedness of
-------------
Shareholders to Xxxxxxx Xxxxx."
(aa) The following sentence is hereby added as Section 8.13 of the
agreement:
"SECTION 8.13. Repayment of Shareholder Debt. On or prior to the earlier of
-----------------------------
(i) Xxxxx 00, 0000, (xx) the date that Buyer exercises the Call Option
pursuant to Section 2.02(c), or (iii) Buyer pays Shareholders the amount of
cash owed pursuant to Section 2.02(a)(ii), Xxxxxx and Xxxxx each shall have
repaid all Indebtedness owed to the Company by each of Xxxxxx and Xxxxx."
(bb) Section 9.01(b) is hereby amended to read in its entirety as
follows:
"(b) by Shareholders, on the one hand, or by Buyer, on the other
hand, by written notice to the other party or parties hereto if the Agreement
shall not have been consummated on or before December 15, 1999 (or such later
date as Buyer and Shareholders may agree), provided that in the case of a
termination under this clause (b), the party or parties terminating this
Agreement shall not then be in material breach of any of its or their
obligations under this Agreement;
(cc) Section 10.02(d)(i) is hereby amended to read in its entirety
as follows:
"(i) First, from a reduction in the amount of the payment due and
owing the Shareholders pursuant to Section 2.02(a)(vi), until the amount of such
payment is exhausted;"
(dd) Section 10.02(d)(ii) is hereby amended to read in its entirety
as follows:
"(ii) Second, from a reduction in the amounts of payments due and
owing the Shareholders pursuant to Sections 2.03(a)(ii), 2.03(a)(iii), 2.03(iv)
and 2.03(v) up to Two Hundred Fifty Thousand Dollars ($250,000) per year; and"
(ee) Section 10.02(d)(iii) is hereby amended to read in its
entirety as follows:
"(iii) Third, upon the exhaustion of the amounts of payment due
pursuant to Section 2.02(a)(vi) and after reducing the remaining payments due
pursuant to Sections 2.03(a)(ii), 2.03(a)(iii), 2.03(iv) and 2.03(v) up to Two
Hundred Fifty Thousand Dollars ($250,000) per year, any remaining Indemnifiable
Claims under this Article X shall be recovered from the Shareholders directly."
3. References. All references in the Agreement to "Agreement," "herein,"
----------
"hereof," or terms of like import referring to the Agreement or any portion
thereof are hereby amended to refer to the Agreement as amended by this
Amendment.
7
4. No Implied Amendments. Except as expressly provided herein, the
---------------------
Agreement is not being amended, supplemented, or otherwise modified, and the
Agreement shall continue in force and effect in accordance with its terms.
5. Counterparts. This Amendment may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all such
counterparts together shall constitute but one and the same agreement.
6. Governing Law. This Amendment shall be governed by and construed in
-------------
accordance with the internal laws (and not the law of conflicts) of the State of
Delaware.
8
[SIGNATURE PAGE TO FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT]
IN WITNESS WHEREOF, each of the parties hereto has executed this
Amendment, or caused this Amendment to be executed on its behalf by a
representative duly authorized, as of the date first above written.
INTERIORS, INC.
By:_________________________________
Xxx Xxxx
President
____________________________________
Xxxxx Xxxxxx
____________________________________
Xxxxxx Xxxxxxxxxx
THE XXXXX FAMILY TRUST
DATED OCTOBER 1, 1997
By:_________________________________
Xxxx Xxxxx
Trustee
9
SECOND AMENDMENT TO STOCK PURCHASE AGREEMENT
THIS SECOND AMENDMENT TO STOCK PURCHASE AGREEMENT (this "Second Amendment")
is made as of October 12, 2000, by and among Buyer (as defined in the Agreement)
and the Shareholders (as defined in the Agreement) and Homada LLC, a California
Limited Liability Company.
RECITALS
A. Each of the parties hereto, except Homada LLC, is a party to that
certain Stock Purchase Agreement dated as of October 27, 1999 (the
"Agreement"), as amended December 15, 1999.
B. Buyer has not made the cash payment due under Section 2.02(a)(iii) of
the Agreement on March 10, 2000, but has established an Escrow Account
pursuant to Section 2.02(b) of the Agreement.
C. Shareholders have assigned all of their respective rights under
Section 2.04 of the Agreement to Homada, LLC, a California Limited
Liability Company.
D. The Buyer desires to have the right to extend the time to make certain
cash payments to Shareholders under the Agreement.
E. The Shareholders have requested that, in return for such possible
delay in receiving cash payments, that they receive additional
security in the form of Buyer Common Stock and a personal guaranty by
Xxx Xxxx of Buyer's payment obligations under the Agreement.
F. The parties recognize that the present Fair Market Value of Buyer
Common Stock is depressed and Buyer desires that such shares remain in
escrow so that the Fair Market Value may increase over time.
G. Each of the parties hereto desires to amend the Agreement as set forth
herein, and desire that, except as set forth in this Second Amendment,
the Agreement shall remain in full force and effect.
NOW THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants, agreements and conditions hereinafter
set forth, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Definitions. Capitalized terms used herein and not otherwise defined
-----------
herein shall have the meanings ascribed to them in the Agreement (without regard
to this Second Amendment).
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2. Amendment. The Agreement is hereby amended as follows on and as of, and
---------
only upon, the date hereof:
(a) Section 2.02(a)(iii) is amended to read as follows:
"(iii) Three Million Three Hundred Eighty-seven Thousand Five Hundred
Twenty-six Dollars ($3,387,526) payable as follows in accordance with
Schedule 2.02(a)(iii):
"(A) One Million Dollars ($1,000,000) shall be paid to Shareholders by
Buyer on or before October 30, 2000;
"(B) One Million Three Hundred Eighty-seven Thousand, Five Hundred
Twenty-six Dollars ($1,387,526) shall be paid to Shareholders from
available cash in Concepts 4, Inc. upon execution of this Second Amendment
or at such other time(s) as agreed to jointly and in good faith by Xxxxx
XxXxxxx, currently the President of Habitat Solutions, Inc. and a
representative of the Shareholders. Permission to withdraw cash from
Concepts 4, Inc. shall not be unreasonably withheld by either party.
"(C) One Million Dollars ($1,000,000) shall be paid to Shareholders by
Buyer no later than December 10, 2000. Part of said payment may be paid to
Shareholders from available cash in Concepts 4, Inc. in the discretion of a
representative of the Shareholders. Permission to withdraw cash from
Concepts 4, Inc. shall not be unreasonably withheld by either party.
"Interest will accrue on the payments due under Subparagraphs (A), (B) and
(C), above, at eight percent (8%) per annum, based upon a 365-day year,
from the applicable due dates set forth above."
(b) Section 2.02(c) shall be amended in its entirety as follows:
"(c) Having failed to make the payment due pursuant to former Section
2.02(a)(iii), Buyer delivered to an escrow account (the "Escrow Account"),
established by U.S. Bank Trust, N.A. (the "Escrow Agent") restricted Buyer
Common Stock (the "Escrow Shares") the Fair Market Value of which was equal
to Two Million Eight Hundred Twenty-Two Thousand Nine Hundred Thirty-Eight
Dollars ($2,822,938). The escrow agreement shall terminate on the earlier
of (i) March 10, 2005, or (ii) the date on which Buyer pays the
Shareholders the amounts due pursuant to Sections 2.02(a)(iii), (iv), (v),
(vi), (vii), hereof. In the event that prior to March 10, 2001, Buyer does
not pay the cash due pursuant to Section 2.02(a)(iii), Shareholders shall
have the option, in their sole discretion, to take delivery of Escrow
Shares having a fair market value on March 10, 2001 of $3,387,526, less the
amount of any payments already made pursuant to Section 2.02(a)(iii). Any
securities, non-cash dividends or other property distributable in respect
of the Escrow Shares shall be delivered to the Escrow Agent, who shall
-2-
hold such securities, non-cash dividends or other property in the Escrow
Account. The fees of the Escrow Agent shall be borne by Buyer."
(c) Section 2.02(d) shall be added to the Agreement to read as
follows:
"(d) If any payments due under Section 2.02(a)(iii)(A), (B) or (C) of the
Agreement is not made within 10 days of the date first due, said payment
may be paid from the available cash in Concepts 4, Inc. in an amount
determined in good faith by a representative of the Shareholders, based
upon a review of the cash position and anticipated cash needs of Concepts
4, Inc.
(d) Section 2.02(e) shall be added to the Agreement to read as
follows:
"(e) If and only if all of the payments due under Section 2.02(a)(iii)(A),
(B) and (C) of the Agreement, as amended, are paid in cash, in full to
Shareholders, in an amount not less than $3,387,526, then for so long as
Buyer Common Stock is held in the Escrow Account and Buyer is not in
Default (as defined below), the Shareholders will not, alone or in concert
with others, directly or indirectly: (i) by purchase or otherwise, acquire,
or agree to acquire, ownership (including, but not limited to, beneficial
ownership) of any Buyer Common Stock, or direct or indirect rights
(including convertible securities) or options to acquire such ownership,
with the exception of the ownership of such Buyer Common Stock as is
delivered to Shareholders out of the Escrow Account; (ii) make any public
announcement with respect to, or submit any proposal for, the acquisition
of beneficial ownership of Buyer Common Stock (or direct or indirect
rights, including convertible securities, or options to acquire such
beneficial ownership) for or with respect to any extraordinary transaction
or merger, consolidation, sale of substantial assets or business
combination involving the Buyer or any of its affiliates, whether or not
any parties other than the Shareholders and affiliates and associates are
involved and whether or not such proposal might require the making of a
public announcement; (iii) make, or in any way participate in, any
"solicitation" or "proxies" (as such terms are defined or used in
Regulation 14A under the Exchange Act) or become a "participant" in any
"election contest" (as such terms are defined or used in Rule 14a-11 under
the Exchange Act) to vote, or seek to advise or influence any person or
entity with respect to the voting of, any voting securities of the Buyer or
any of its affiliates; provided, however, that the foregoing shall not
restrict any actions with respect to matters (other than matters relating
to the election of directors or the composition of the Buyer's Board of
Directors) submitted to a shareholder vote which matters are not proposed
or initiated by any Shareholder or any affiliates or associates or by any
person acting in concert with or at the direction of any Shareholder or any
affiliates or associates; (iv) form, join or in any way participate in a
"group" (as such term is used in Section 13d(3) of the Exchange Act) with
respect to any securities of the Buyer in connection with any action or
matter otherwise prohibited by the terms of this agreement; (v) initiate or
propose any shareholder proposals for submission to a vote of shareholders
with respect to the Buyer or any of its affiliates or propose any person
for election to the Board of Directors of the Buyer or any of its
affiliates; or (vi) otherwise seek to control the management or policies
-3-
of the Buyer or any of its affiliates, including, without limitation,
taking any action to seek to obtain representation on the Board of
Directors of the Buyer or any of its affiliates. Notwithstanding anything
else to the contrary, nothing in this agreement shall prevent the
Shareholders from (1) taking any action required of them under State or
Federal laws or regulations or (2) voting, in their complete discretion,
any shares of Buyer Common Stock which is released from the Escrow Account
and delivered to them pursuant to the terms of the Agreement. For purposes
of this Amendment, Default shall mean the occurrence of any of the
following events: (1) Buyer shall have failed to deliver Escrow Shares into
the Escrow Account pursuant to Sections 2.02(c) or 2.02(f)(ii) or 2.04(b),
or (2) Buyer shall have failed to make a payment when due under a Buyer
Promissory Note issued to Shareholders pursuant to Section 2.02(f)(i) of
the Agreement, as amended, or (3) Buyer shall have failed to make a payment
when due under a Buyer Promissory Note issued to Homada LLC pursuant to
Section 2.04(a) of the Agreement, as amended."
(e) If and only if all of the payments set forth in Section
2.02(a)(iii)(A), (B) and (C) of the Agreement, as amended, are paid in cash
to Shareholders in an amount not less than $3,387,526 prior to December 10,
2000, then for so long as Buyer Common Stock is held in the Escrow Account
and Buyer is not in default on any payment due under the Agreement, as
amended, the Shareholders will vote the Escrow Shares in support of the
election of the nominees to the Buyer's Board of Directors proposed by
either the current Buyer Board of Directors or the members of the Board of
Directors who have been nominated to the Board by the current Board of
Directors (or such of their successors who have been nominated by the Board
members so nominated). Upon execution of this Amendment, the Shareholders
shall execute the Proxy attached hereto as Exhibit B. The executed proxies
shall be held by the Escrow Holder until December 10, 2000. If Buyer shall
have paid a sum not less than $3,387,526 to Shareholders pursuant to
Section 2.02(a)(iii) of the Agreement by that date, then the proxies shall
be delivered to Buyer. If said sums have not been paid to Shareholders by
that date, the proxies shall be returned to Shareholders."
(f) In the event that Buyer makes the cash payments due under Section
2.02(a)(iii)(A) and (B) of the Agreement, as amended, in the total amount
of $2,387,526 on the dates and in the amount set forth therein, Xxxxx
Xxxxxx shall withdraw his name from contention as a member of the Board of
Directors of Buyer at its next annual Shareholder's meeting.
(g) Section 2.02(b) shall be deleted in its entirety.
(h) The following paragraph is added to the Agreement as 2.02(f):
"(f) In the event that Buyer fails to pay the amounts due pursuant to
Section 2.02(a) (iv), (v), (vi) or (vii) within fifteen (15) Business Days
of the dates such cash payments are due, Buyer shall:
-4-
"(i) deliver to Shareholders a Buyer's Promissory Note, in
substantially the form as attached hereto as Exhibit A, and in the full
amount of the payment due, bearing interest of eight percent per annum from
the payment date as set forth in Section 2.02(a)(iv), (v), (vi) or (vii),
as applicable, and payable in full within one year; and
"(ii) deliver into the Escrow Account Buyer's Common Stock the fair
market value of which is equal to the shortfall, if any, between the Fair
Market Value of all Buyer's Common Stock held in the Escrow Account
pursuant to Section 2.02(b) and the combined total of (1) the amount of any
cash payments then due to Shareholders, (2) the principal amount of the
outstanding Buyer Promissory Notes issued to Shareholders by Buyer pursuant
to this Section 2.02(f)(i), plus interest due thereon, less payments
previously made on said Notes, and (3) the principal amount of the
outstanding Buyer Promissory Notes issued to Shareholders by Buyer pursuant
to Section 2.04(a)(i), (ii) or (iii), plus interest due thereon, less
payments previously made on said notes. Fair Market Value of the Buyer
Common Stock shall be computed using the daily average closing bid price
per share of Buyer Common Stock for the ten (10) trading days immediately
preceding the date the applicable cash payment was to be paid pursuant to
Section 2.02(a)(iv), (v), (vi) or (vii), as applicable. If Buyer Common
Stock is no longer traded on the NASDAQ or on the Over the Counter Market
on a regular basis, Fair Market Value shall be computed by using the daily
average closing bid price per share of Buyer Common Stock for the ten (10)
trading days immediately preceding the date on which Buyer Common Stock
ceased trading on the NASDAQ and/or Over the Counter Market. Shares placed
in the Escrow Account pursuant to this section shall remain in the Escrow
Account until the earlier of (i) the date on which Buyer pays the
Shareholders the amount of all cash payments then due pursuant to Sections
2.02(a)(iii), (iv), (v), (vi) and (vii); (ii) the exercise by Shareholders
of their option to receive Buyer Common Stock if Buyer's Promissory Notes
are not paid when due; or (iii) March 10, 2005. In the event that Buyer has
not paid any Buyer Promissory Note within 30 days of its original due date,
then Shareholders shall have the option to receive Buyer Common Stock out
of the Escrow Account in an amount equivalent to the amount then due under
the defaulted Buyer Promissory Note, including interest thereon. The Fair
Market Value of the Buyer Common Stock shall be computed using the daily
average closing bid price per share of Buyer Common Stock for the ten (10)
trading days immediately preceding the date on which the Shareholders
exercise their option to take delivery of Buyer Common Stock in payment of
the Buyer Promissory Note. If Buyer Common Stock is no longer traded on the
NASDAQ or on the Over the Counter Market on a regular basis, Fair Market
Value shall be computed by using the daily average closing bid price per
share of Buyer Common Stock for the ten (10) trading days immediately
preceding the date on which Buyer Common Stock ceased trading on the NASDAQ
and/or Over the Counter Market. Any securities, non-cash dividends or other
property distributable in respect of the Escrow Shares shall be delivered
to the Escrow Agent, who shall hold such securities, non-cash dividends or
other property in the Escrow Account. The fees of the Escrow Agent shall be
borne by Buyer.
-5-
"Payments due under any Buyer Promissory Note(s) issued pursuant to Section
2.02(f)(i) of the Agreement, as amended, shall be payable directly from
Buyer or from the available cash in Concepts 4, Inc. Payments towards any
buyer Promissory Note may be made from Concepts 4, Inc. in the discretion
of a representative of the Shareholders, but, only if, in the good faith
business judgment of said representative of the Shareholders, after making
any such payment, Concepts 4, Inc. will retain sufficient cash to meet its
cash flow requirements for the following three (3) month period, based upon
a review of the cash position and anticipated cash needs of Concepts 4,
Inc. In the event that payments due under a Buyer Promissory Note are made
from the available cash of Concepts 4, Inc., an amount equal to ten percent
of any such payment shall be paid by Concepts 4, Inc. to Buyer."
(i) The following paragraph is added to the Agreement as 2.02(g):
"(g) In the event that the Fair Market Value of the Buyer Common Stock held
in the Escrow Account pursuant to Sections 2.02(c), 2.02(f) or 2.04(b)
falls below the combined total of (i) the amount of any cash payment then
due to Shareholders, (ii) the principal amount of the outstanding Buyer
Promissory Notes issued to Shareholders by Buyer pursuant to Section
2.02(f)(i), plus interest due thereon, less payments previously made on
said notes and (iii) the principal amount of the outstanding Buyer
Promissory Notes issued to Homada LLC by Buyer pursuant to Section 2.04(b),
plus interest due thereon, less payments previously made on said notes,
then the Shareholders shall deliver a notice to Buyer of such shortfall and
Buyer shall deliver to the Escrow Agent additional shares of Buyer Common
Stock within thirty (30) days of receipt of the Shareholders' notice so
that the Fair Market Value of the Escrow Shares equals the Fair Market
Value of the combined totals set forth in subparagraphs (i), (ii) and (iii)
of this Section. The Fair Market Value of the Buyer Common Stock in the
Escrow shall be computed using the daily average closing bid price per
share of Buyer Common Stock for the ten (10) trading days immediately
preceding the date of review. If Buyer Common Stock is no longer traded on
the NASDAQ or on the Over the Counter Market on a regular basis, Fair
Market Value shall be computed by using the daily average closing bid price
per share of Buyer Common Stock for the ten (10) trading days immediately
preceding the date on which Buyer Common Stock ceased trading on the NASDAQ
and/or Over the Counter Market."
(j) Section 2.04 of the Agreement shall be amended in its entirety as
follows:
"(a) Buyer shall make the following additional payments for the Shares, at
the times and in the amounts specified below by delivery of Buyer's
Promissory Notes made payable to Homada LLC, bearing interest at eight
percent (8%) per annum, payable within eighteen months from the date of
issuance (the "Earnout Notes"). The Earnout Notes shall be in the amounts
set forth opposite each Shareholder's name on Schedule 2.04(a):"
"(i) In the event the Company's EBIT during the First Earnout Period
exceeds Three Million Dollars ($3,000,000), then (A) on December 15, 2001,
Buyer shall pay to
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Homada LLC Three Hundred Twenty-Four Thousand Dollars ($324,000), cash and
(B) within forty-five (45) days following the First Earnout Period, shall:
(1) deliver to Homada LLC a Buyer Promissory Note (the "First Earnout
Period Note") in the principal amount equal to One Dollar ($1) for each One
Dollar ($1) that the Company's EBIT during the First Earnout Period exceeds
Three Million Dollars ($3,000,000); provided, however, that the First
Earnout Period Note shall not exceed One Million Five Hundred Thousand
Dollars($1,500,000). The Company shall not be obligated to deliver any
First Earnout Period Note to Homada LLC in the event that the Company's
EBIT during the First Earnout Period is less than Three Million Dollars
($3,000,000)
"(ii) In the event the Company's EBIT during the Second Earnout Period
exceeds Six Million Dollars ($6,000,000) and the Company's EBIT during the
second twelve month period following the Closing Date exceeds Three Million
Dollars ($3,000,000), within forty-five (45) days following the Second
Earnout Period, Buyer shall deliver to Homada LLC Buyer's Promissory Note
(the "Second Earnout Period Note") having a principal amount equal to One
Dollar ($1) for each One Dollar ($1) that the Company's EBIT during the
Second Earnout Period exceeds Six Million Dollars ($6,000,000), minus (c)
the amount of any First Earnout Period Note; provided, however, that the
aggregate value of the Second Earnout Period Note and First Earnout Period
Note shall not exceed Three Million Dollars ($3,000,000). The Company shall
not be obligated to deliver any Second Period Earnout Note in the event
that the Company's EBIT during the Second Earnout Period is less than Six
Million Dollars ($6,000,000) or the Company's EBIT during the second twelve
month period following the Closing Date equals or is less than Three
Million Dollars ($3,000,000).
"(iii) In the event that the Company's EBIT during the Third Earnout
Period equals Nine Million Dollars ($9,000,000) and the Company's EBIT
during the third twelve month period following the Closing Date exceeds
Three Million Dollars ($3,000,000), within forty-five (45) days following
the Third Earnout Period, Buyer shall deliver to Homada LLC Buyer's
Promissory Note (the "Third Earnout Period Note") in an amount equal to One
Dollar ($1) for each One Dollar ($1) that the Company's EBIT during the
Third Earnout Period exceeds Nine Million Dollars ($9,000,000), minus (c)
the value of any First Earnout Period Note and Second Earnout Period Note;
provided, however, that the aggregate value of the Third Earnout Period
Note, the First Earnout Period Note and the Second Earnout Period Note
shall not exceed Four Million Five Hundred Thousand Dollars ($4,500,000).
The Company shall not be obligated to deliver any Third Earnout Period Note
to Homada LLC in the event that the Company's EBIT during the Third Earnout
Period is less than Nine Million Dollars ($9,000,000) or the Company's EBIT
during the third twelve month period following the Closing Date equals or
is less than Three Million Dollars ($3,000,000).
"(b) Buyer shall deliver to the Escrow Account established pursuant to
Section 2.02(b) of the Agreement, Buyer Common Stock, the Fair Market Value
of which is equal to the shortfall, if any, between the Fair Market Value
of all Buyer's Common
-7-
Stock held in the Escrow Account pursuant to Sections 2.02(b), 2.02(f) of
the Agreement, as amended, or this Section 2.04(b) and the combined total
of (1) the amount of any cash payments then due to Shareholders, (2) the
principal amount of the outstanding Buyer Promissory Notes issued to
Shareholders by Buyer pursuant to Section 2.02(f)(i), plus interest due
thereon, less payments previously made on said Notes, and (3) the principal
amount of the outstanding Buyer Promissory Notes issued to Homada LLC by
Buyer pursuant to Section 2.04(a), plus interest due thereon, less payments
previously made on said notes. The Fair Market Value of the Buyer Common
Stock shall be computed using the daily average closing bid price per share
of Buyer Common Stock for the ten (10) trading days immediately preceding
the date the Buyer's Promissory Note is to be delivered to Homada LLC
pursuant to Section 2.04(a)(i), (ii) or (iii), as applicable. If Buyer
Common Stock is no longer traded on the NASDAQ or on the Over the Counter
Market on a regular basis, Fair Market Value shall be computed by using the
daily average closing bid price per share of Buyer Common Stock for the ten
(10) trading days immediately preceding the date on which Buyer Common
Stock ceased trading on the NASDAQ and/or Over the Counter Market. Shares
placed in the Escrow Account pursuant to this section shall remain in the
Escrow Account until the earlier of (i) the date on which Buyer pays Homada
LLC the full amount due under all Buyer Promissory Notes issued pursuant to
Sections 2.04(a)(i), (ii) and (iii); (ii) the exercise by Homada LLC of its
option to receive Buyer Common Stock if Buyer's Promissory Notes are not
paid when due; or (iii) March 10, 2005. In the event that Buyer has not
paid any Buyer Promissory Note within 7 months of its original due date,
then Homada LLC shall have the option to take delivery of Buyer Common
Stock out of the Escrow Account in payment of the defaulted Buyer
Promissory Note in an amount equivalent to the amount then due under the
defaulted Buyer Promissory Note, including interest thereon. The Fair
Market Value of the Buyer Common Stock shall be computed using the daily
average closing bid price per share of Buyer Common Stock for the ten (10)
trading days immediately preceding the date on which Homada LLC exercises
its option to take delivery of Buyer Common Stock. Any securities, non-cash
dividends or other property distributable in respect of the Escrow Shares
shall be delivered to the Escrow Agent, who shall hold such securities,
non-cash dividends or other property in the Escrow Account. If Buyer Common
Stock is no longer traded on the NASDAQ or on the Over the Counter Market
on a regular basis, Fair Market Value shall be computed by using the daily
average closing bid price per share of Buyer Common Stock for the ten (10)
trading days immediately preceding the date on which Buyer Common Stock
ceased trading on the NASDAQ and/or Over the Counter Market. The fees of
the Escrow Agent shall be borne by Buyer."
"(c) Payments due under any Buyer Promissory Note(s) issued pursuant to
Section 2.04(a) shall be payable directly from Buyer or from the available
cash in Concepts 4, Inc. Payments towards any buyer Promissory Note may be
made from Concepts 4, Inc. in the discretion of a representative of the
Shareholders, but, only if, in the good faith business judgment of said
representative of the Shareholders, after making any such payment, Concepts
4, Inc. will retain sufficient cash to meet its cash flow requirements for
the following three (3) month period, based upon a review of the cash
position and
-8-
anticipated cash needs of Concepts 4, Inc. In the event that payments due
under a Buyer Promissory Note are made from the available cash of Concepts
4, Inc., an amount equal to ten percent of any such payment shall be paid
by Concepts 4, Inc. to Buyer."
(k) Except as specifically provided for in this Second Amendment, or
pursuant to loan agreements with Foothill Capital Corporation in existence
as of the date of this Amendment, until all payment obligations of Buyer to
Shareholders under the Agreement have been fulfilled, Buyer shall not cause
Concepts 4, Inc. to make any payment to Buyer or to any other party or to
incur any further obligation on behalf of Buyer or any other party of any
dividends, of any loans or in connection with any loans or any other
payments or obligations of any kind. This provision will be binding upon
any successor in interest of Buyer as a shareholder of Concepts 4, Inc.
Notwithstanding the foregoing, Shareholders shall use their best efforts to
arrange for a five year term loan for Concepts 4, Inc. in the amount of
$300,000 from Foothill Capital Corporation or any other responsible lender,
to be funded prior to December 10, 2000; all funds borrowed pursuant to
said term loan shall be used exclusively to reduce the obligations owing to
the Shareholders under Section 2.02(a)(iii)(C). If such funding is not
received by such date, Shareholders shall continue to use their best
efforts to obtain such borrowing after such date as long as the proceeds of
such borrowing are used exclusively to reduce obligations owing to the
Shareholders under the Agreement.
(l) The Employment Agreements between Concepts 4, Inc. and Xxxxx
Xxxxxx, Xxxx Xxxxx and Xxxxxx Xxxxxxxxxx, respectively, may be amended so
that, in the event that (1) there is a Default by Buyer as defined in
Section 2.02(e) of the Agreement, or (2) there is a change of ownership of
Concepts 4, Inc. or, (3) there is a change of control in the Board of
Directors of Buyer, then the liquidated damages amounts provided in
Sections 7.6(b) and 7.6(c) of the respective Employment Agreements will be
decreased by 1/24 of the liquidated damage amount specified in section
7.6(b) and by 1/12 of the liquidated damage amount specified in Section
7.6(c) for each month during which the employee remains employed by
Concepts 4, Inc. following the anniversary date specified in the respective
paragraphs.
3. References. All references in the Agreement to "Agreement," "herein,"
----------
"hereof," or terms of like import referring to the Agreement or any portion
thereof are hereby amended to refer to the Agreement as amended by this Second
Amendment.
4. No Implied Amendments. Except as expressly provided herein, the
---------------------
Agreement is not being amended, supplemented, or otherwise modified, and the
Agreement shall continue in force and effect in accordance with its terms.
5. Attorneys Fees. If the services of an attorney are required by any party
--------------
to secure the performance of this Second Amendment or otherwise on the breach or
default of another party to this Second Amendment, or if any judicial remedy,
litigation or arbitration is necessary to enforce or interpret any provision of
this Second Amendment or the rights and duties of any person in relation to it,
the prevailing party shall be entitled to reasonable attorney fees, costs, or
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other expenses, in addition to any other relief to which such party may be
entitled. Any award of damages following judicial remedy or arbitration as a
result of the breach of this Second Amendment or any of its provisions shall
include an award of prejudgment interest from the date of the breach at the
maximum amount of interest allowed by law. For purposes of this section,
"litigation" includes mandatory or voluntary arbitration or mediation of any
dispute relating to this Agreement and includes proceedings before a court of
law at the trial and/or appellate levels.
6. Counterparts. This Second Amendment may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all such
counterparts together shall constitute but one and the same agreement.
7. Governing Law. This Second Amendment shall be governed by and construed
-------------
in accordance with the internal laws (and not the law of conflicts) of the State
of Delaware.
IN WITNESS WHEREOF, each of the parties hereto has executed this Second
Amendment, or caused this Second Amendment to be executed on its behalf by a
representative duly authorized, as of the date first above written.
INTERIORS, INC.
By:_________________________
Xxx Xxxx
President
THE XXXXXX FAMILY TRUST DATED
MARCH 21,2000
____________________________
Xxxxx Xxxxxx, Trustee
____________________________
Xxxxxx Xxxxxxxxxx
THE XXXXX FAMILY TRUST DATED
OCTOBER 1, 1997
By:_________________________
Xxxx Xxxxx, Trustee
HOMADA, LLC
By: ________________________
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Xxxxx Xxxxxx, Managing Member
____________________________
Xxxxx Xxxxxx
____________________________
Xxxx Xxxxx
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EXHIBIT A
PROMISSORY NOTE
$______________ Mt. Xxxxxx, New York
[Date]
For value received, I promise to pay to _____[Shareholder]_____ or
order at Long Beach, California, or at such other place as may be designated in
writing by the holder(s) of this Note the sum of _______________________________
Dollars, with interest thereon from ___[date]___ on unpaid principal, until said
principal is paid, at the rate of Eight Percent (8%) per annum, based upon a 365
day year. Principal and Interest shall be due in full on ___[date]__.
Maker may prepay all or part of the principal balance due under this Note
without penalty or charge.
Each payment shall be credited first on interest then due and the remainder
on principal; interest shall thereupon cease upon the principal so credited.
In the event of any default in the payment of principal or interest as
herein provided, all sums so due, including interest, shall bear interest at the
rate set forth above, but such unpaid interest so compounded shall not exceed an
amount equal to simple interest on the unpaid principal at the maximum rate
permitted by law.
Principal and interest shall be payable in lawful money of the United
States.
If an action is instituted on this note, the undersigned promises to pay
such sum as the court may fix as attorney's fees.
INTERIORS, INC.
By:___________________________
Xxx Xxxx, President
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EXHIBIT B
Xxx Xxxx, Xxxxxx Xxxxxxxxx and Xxxxx X. Xxxxxxxx, and each of them, with full
power of substitution, are hereby authorized to represent and to vote the shares
of Class A Common Stock, $.001 par value of Interiors, Inc. held of record by
the undersigned on October 27, 2000, as directed and, in their discretion, on
all other matters which may properly come before the Annual Meeting of
Stockholders to be held on December 15, 2000 and at any adjournment or
postponement thereof, as if the undersigned were present and voting at the
meeting. This is a proxy coupled with an interest and is and shall be
irrevocable if all of the payments set forth in Section 2.02(a)(iii)(A), (B) and
(C) of the Stock Purchase Agreement between the undersigned and Interiors, Inc.,
among others, dated October 27, 1999, as amended, are paid in cash to
Shareholders, in an amount not less than $3,387,526 prior to December 10, 2000.
ELECTION OF DIRECTORS:
1) Xxx Xxxx, 2) Xxxxx Xxxxxx, 3) Xxxxxxx Xxxxxxxxxx and 4) Xxxxx X. Xxxxxx
X For All Nominees [Taurus] Withhold All Nominees
To withhold authority to vote for any individual nominee(s), write the
nominee's names on the space(s) provided below:
--------------------------------------------------------------------------------
Dated___________________, 2000
____________________________________
Signature
Dated___________________, 2000
____________________________________
Signature if held jointly
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
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