EXHIBIT 2.1
________________________________________________________________________________
ASSET PURCHASE AGREEMENT
BY AND AMONG
VERTICALNET, INC.
(a Pennsylvania corporation),
XXXX.xxx LLC
(a Delaware limited liability company),
R.W. ELECTRONICS TRUST
(a Massachusetts business trust),
R.W. ELECTRONICS, INC.
(a Massachusetts corporation),
XXXXXX X. XXXXXXXX
and
XXXXX X. XXXXXXXX
________________________________________________________________________________
TABLE OF CONTENTS
Page
1. DEFINITIONS 1
2. SALE AND PURCHASE.................................................. 11
2.1 Agreement to Sell and Purchase................................ 11
2.2 Purchase Price................................................ 13
2.3 Escrow Account................................................ 13
2.4 Allocation of the Purchase Price.............................. 13
2.5 Assumption of Liabilities..................................... 14
2.6 Post-Closing Purchase Price Adjustment........................ 15
2.7 Consent of Third Parties...................................... 16
3. CLOSING............................................................ 17
3.1 Location, Date................................................ 17
3.2 Deliveries.................................................... 17
4. REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE SELLER PARTIES.. 18
4.1 Corporate Status.............................................. 18
4.2 Authorization................................................. 19
4.3 Consents and Approvals........................................ 19
4.4 Stock Ownership............................................... 19
4.5 Financial Statements.......................................... 19
4.6 Title to Purchased Assets and Related Matters................. 20
4.7 Real Property................................................. 20
4.8 Certain Personal Property..................................... 21
4.9 Non-Real Estate Leases........................................ 21
4.10 Accounts Receivable........................................... 22
4.11 Inventory..................................................... 22
4.12 Liabilities................................................... 22
4.13 Taxes......................................................... 22
4.14 Subsidiaries.................................................. 23
4.15 Legal Proceedings and Compliance with Law..................... 23
4.16 Contracts..................................................... 24
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TABLE OF CONTENTS
(continued)
Page
4.17 Insurance..................................................... 25
4.18 Intellectual Property......................................... 25
4.19 Software...................................................... 28
4.20 Employee Relations............................................ 29
4.21 ERISA......................................................... 29
4.22 Corporate Records............................................. 32
4.23 Absence of Certain Changes.................................... 32
4.24 Previous Sales; Warranties.................................... 33
4.25 Customers and Suppliers....................................... 33
4.26 Operation of the Business..................................... 33
4.27 Finder's Fees................................................. 33
4.28 Investment Representations.................................... 33
4.29 Additional Information........................................ 35
4.30 Transactions with Affiliates.................................. 35
4.31 Accuracy of Information....................................... 35
5. REPRESENTATIONS AND WARRANTIES OF THE BUYER AND VERT............... 35
5.1 Organizational Status......................................... 35
5.2 Authorization................................................. 36
5.3 Financing..................................................... 36
5.4 Consents and Approvals........................................ 36
5.5 Finder's Fees................................................. 36
5.6 Reports....................................................... 36
5.7 Accuracy of Information....................................... 36
6. COVENANTS OF THE SELLER PARTIES.................................... 37
6.1 Conduct of the Business....................................... 37
6.2 Access to Information......................................... 38
6.3 Satisfaction of Liabilities................................... 39
6.4 No Solicitation............................................... 39
6.5 Competition and Confidentiality............................... 39
6.6 Transfer of Purchased Assets and Business..................... 40
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TABLE OF CONTENTS
(continued)
Page
6.7 Employees and Business Relations.............................. 41
6.8 Related Parties............................................... 41
6.9 Restrictions on Transfer...................................... 41
6.10 Update Disclosure Schedules................................... 41
7. COVENANTS OF BUYER AND VERT......................................... 42
7.1 Related Parties............................................... 42
7.2 Bulk Sales.................................................... 42
7.3 Registration Rights........................................... 42
8. MUTUAL COVENANTS................................................... 45
8.1 Fulfillment of Closing Conditions............................. 45
8.2 Employees..................................................... 45
8.3 Disclosure of Certain Matters................................. 46
8.4 Additional Financial Statements............................... 46
8.5 Public Announcements.......................................... 46
8.6 Transfer Taxes................................................ 46
8.7 Confidentiality............................................... 47
8.8 Expenses...................................................... 47
8.9 Accounts Receivable........................................... 47
8.10 Inventory..................................................... 47
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER PARTIES.......... 48
9.1 Representations and Warranties................................. 48
9.2 Agreements, Conditions and Covenants.......................... 48
9.3 Legality...................................................... 48
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE BUYER................... 48
10.1 Representations and Warranties................................ 48
10.2 Agreements, Conditions and Covenants.......................... 49
10.3 Legality...................................................... 49
10.4 Due Diligence Review.......................................... 49
10.5 Disclosure Schedules.......................................... 49
10.6 Seller Required Consents and Approvals........................ 49
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TABLE OF CONTENTS
(continued)
Page
10.7 Third Party Consents.......................................... 49
11. INDEMNIFICATION.................................................... 50
11.1 By the Seller Parties........................................ 50
11.2 By VERT and the Buyer........................................ 50
11.3 Procedure for Claims......................................... 50
11.4 Claims Period................................................ 54
11.5 Third Party Claims........................................... 54
11.6 Effect of Investigation or Knowledge......................... 54
12. TERMINATION........................................................ 55
12.1 Grounds for Termination...................................... 55
12.2 Effect of Termination........................................ 55
13. GENERAL MATTERS.................................................... 56
13.1 Contents of Agreement........................................ 56
13.2 Amendment, Parties in Interest, Assignment, Etc.............. 56
13.3 Further Assurances........................................... 56
13.4 Interpretation............................................... 56
13.5 Counterparts................................................. 56
13.6 Disclosure Schedules......................................... 57
14. REMEDIES........................................................... 57
15. NOTICES............................................................ 57
16. GOVERNING LAW...................................................... 58
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Schedules
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Exhibits
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ASSET PURCHASE AGREEMENT
------------------------
This ASSET PURCHASE AGREEMENT is made as of the 16th day of February 2000,
by and among R.W. ELECTRONICS, INC., a Massachusetts corporation d/b/a Real
World (the "Seller" or the "Company"), R.W. ELECTRONICS TRUST, a Massachusetts
business trust (the "Trust"), XXXXXX X. XXXXXXXX ("Xxxxxxxx"), XXXXX X. XXXXXXXX
("LeSaffre" and together with Benedict, the "Stockholders"), XXXX.xxx LLC, a
Delaware limited liability company (the "Buyer") and VERTICALNET, INC., a
Pennsylvania corporation ("VERT" and together with the Buyer, the "Buyer
Parties"). Certain other terms are used herein as defined below in Section 1 or
elsewhere in this Agreement.
BACKGROUND
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The Stockholders own all of the issued and outstanding beneficial interests
of the Trust and are the sole trustees of the Trust.
The Trust owns all of the issued and outstanding shares of the capital
stock of the Seller. The Seller owns and operates the Business (defined below).
This Agreement sets forth the terms and conditions upon which the Buyer is
purchasing the Purchased Assets (defined below) and assuming the Assumed
Liabilities (defined below) from the Seller and the Seller is selling the
Purchased Assets and transferring the Assumed Liabilities to the Seller.
WITNESSETH
----------
NOW, THEREFORE, the Parties, intending to be legally bound hereby, for good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and in consideration of the mutual covenants contained herein,
hereby agree as follows:
1. Definitions.
-----------
For convenience, certain terms used in more than one part of this Agreement
are listed in alphabetical order and defined or referred to below (such terms as
well as any other terms defined elsewhere in this Agreement shall be equally
applicable to both the singular and plural forms of the terms defined).
"Accounts Receivable" means, as of any date, any trade accounts receivable,
notes receivable, bid, performance, lease, utility or other deposits, employee
advances and other miscellaneous receivables of the Business.
"Acquisition Proposal" means, with regard to the Seller, a proposal or
offer (other than pursuant to this Agreement) for a tender or exchange offer,
merger, consolidation or other business combination, purchase or sale of an
equity interest or purchase or sale of the Seller's assets or any part of its
Business, other than a sale of Inventory in the ordinary course of business.
"Affiliates" means, with respect to a particular Party, Persons or entities
controlling, controlled by or under common control with that Party, as well as
any officers and their nuclear family members, directors and their nuclear
family members, and majority-owned entities of that Party and of its other
Affiliates. For the purposes of the foregoing, ownership, directly or
indirectly, of any of the voting stock or other equity interest shall be deemed
to constitute control. For purposes of the foregoing, nuclear family members
shall include spouses, parents and children.
"Agreement" means this Agreement, the Exhibits and the Disclosure Schedules
hereto.
"Assumed Liabilities" is defined in Section 2.5(a).
"Balance Sheet" is defined in Section 4.5.
"Balance Sheet Date" is defined in Section 4.5.
"Benedict" is defined above in the preamble.
"Benefit Plan" means (x) any pension plan, 401(k) plan, profit-sharing
plan, health or welfare plan, and any other employee benefit plan (within the
meaning of Section 3(3) of ERISA) that is maintained or sponsored by the Seller
or to which the Seller contributes or for which the Seller otherwise has or may
have any liability, contingent or otherwise, either directly or as a result of
an ERISA Affiliate, and (y) any other benefit arrangement, obligation, or
practice, whether or not legally enforceable, to provide benefits, other than
salary, as compensation for services rendered, to one or more present or former
employees, directors, agents, or independent contractors, that is maintained or
sponsored by the Seller or to which the Seller contributes or for which the
Seller otherwise has or may have any liability, contingent or otherwise, either
directly or as a result of an ERISA Affiliate, including, without limitation,
employment agreements, severance policies or agreements, executive compensation
arrangements, incentive arrangements, sick leave, vacation pay, salary
continuation, consulting or other compensation arrangements, workers'
compensation, bonus plans, stock option, stock grant or stock purchase plans,
medical insurance, life insurance, tuition reimbursement programs or scholarship
programs, any plans subject to section 125 of the Code, and any plans providing
benefits or payments in the event of a change of ownership or control, and any
employee longevity program and benefits offered by the Seller.
"Xxxx of Sale, Assignment and Assumption Agreement" means a xxxx of sale,
assignment and assumption agreement by and between the Seller and the Buyer in
substantially the same form as Exhibit A.
"Building Leases" means (a) that certain lease dated February 1, 2000 by
and between Roadrunner Realty Trust, as lessor, and the Seller, as lessee, for
suites 1-4, 000 Xxxxxxx Xxxxxx, Xxxxxxx, Xxxxxxxxxxxxx and (b) that certain
lease dated September 14, 1999 by and between
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W9/TIB Real Estate LP, as lessor, and the Seller, as lessee, for a portion of
the premises located at 000 Xxxxxxxxxxx Xxxxxx, Xxxxxxxxxx, Xxxxxxxxxxxxx.
"Business" means the entire business, operations, facilities and Assets
(other than the Excluded Assets) of the Seller.
"Business Day" means a day other than a Saturday or Sunday, or a day on
which the banking institutions of the Commonwealth of Pennsylvania or the
Commonwealth of Massachusetts are authorized or obligated by law or executive
order to close.
"Buyer" is defined above in the preamble.
"Buyer Parties" is defined above in the preamble.
"Charter Documents" means a Person's certificate or articles of
incorporation, certificate defining the rights and preferences of securities,
articles of organization, general or limited partnership agreement, certificate
of limited partnership, joint venture agreement, declaration of trust or similar
document governing the entity.
"Closing" is defined in Section 3.1.
"Closing Certificates" means the certificates to be delivered by the Seller
at the Closing under Section 3.2 and any other provisions hereof.
"Closing Date" is defined in Section 3.1.
"Closing Financial Statements" is defined in Section 8.4.
"Closing Payment" is defined in Section 2.2(a).
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the United States Securities and Exchange Commission.
"Common Stock" means the Common Stock of VERT, $0.01 par value per share.
"Component" means any software, Software Product, Custom Software,
Hardware, Database or Embedded Control in which Seller has an ownership
interest.
"Confidential Information" means any confidential information or Trade
Secrets of the Seller, including personnel information, advertising and
marketing plans or systems, distribution and sales methods or systems, sales and
profit figures, customer and client lists, customer, client and supplier
information and any relationships with dealers, distributors, wholesalers,
customers, clients, suppliers and any other Persons who have, or have had,
business dealings with the Business.
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"Consulting Agreement" means the Consulting Agreement between the Buyer and
Benedict in substantially the same form as Exhibit B.
"Contract" means any written or oral contract, agreement, lease,
instrument, or other document or commitment, arrangement, undertaking, practice
or authorization that is binding on any Person or its property under any
applicable Law.
"Copyrights" means any copyrights in both published and unpublished works.
"Court Order" means any judgment, decree, injunction, order or ruling of
any federal, state, local or foreign court or governmental or regulatory body or
authority that is binding on any person or its property under applicable Law.
"Custom Software" means any computer software that has been developed or
designed for use in the Business.
"Database" means any data and other information recorded, stored,
transmitted and retrieved in electronic form by a System or any Component,
whether located on any Components of a System or archived in storage media of a
type employed or used in conjunction with any Component or System.
"Default" means (a) a breach, default or violation, (b) the occurrence of
an event that with or without the passage of time or the giving of notice, or
both, would constitute a breach, default or violation or cause an Encumbrance to
arise, or (c) with respect to any Contract, the occurrence of an event that with
or without the passage of time or the giving of notice, or both, would give rise
to a right of termination, renegotiation or acceleration or a right to receive
damages or a payment of penalties.
"Disclosure Schedule" means any of the Schedules hereto containing
information relating to the Seller pursuant to Section 4 and other provisions
hereof that has been provided to the Buyer on the date hereof.
"Effective Date" means the date on which a registration statement
identified in Section 7.3 is declared effective by the Commission.
"Embedded Control" means any microprocessor, microcontroller, smart
instrumentation or other sensor, driver, monitor, robotic or other device
containing a semiconductor, memory circuit, BIOS, PROM or other microchip.
"Employment Agreement" means the Employment Agreement between the Buyer and
LeSaffre in substantially the same form as Exhibit C.
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"Encumbrances" means any lien, mortgage, security interest, pledge,
restriction on transferability, defect of title or other claim, charge or
encumbrance of any nature whatsoever on any property or property interest,
including any restriction on the use, voting, transfer, receipt of income or
other exercise of any attributes of ownership.
"Environmental Condition" is defined in Section 4.15(b).
"Environmental Law" means all Laws and Court Orders relating to pollution
or protection of the environment as well as any principles of common law under
which a Party may be held liable for the Release or discharge of any Hazardous
Substance into the environment.
"Environmental Liability" means any liability, known or unknown, relating
to or arising out of an Environmental Condition.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all regulations and rules issued thereunder, or any successor law.
"ERISA Affiliate" means any person that, together with the Seller, is or
was at any time treated as a single employer under Section 414 of the Code or
Section 4001 of ERISA and any general partnership of which the Seller is or has
been a general partner. For purposes of Section 4.21, the term "Seller"
includes any ERISA Affiliate.
"Escrow Agent" means the entity mutually selected by the Seller and the
Buyer to serve as escrow agent pursuant to the terms of the Escrow Agreement.
"Escrow Agreement" means the escrow agreement by and among the Seller, the
Buyer and the Escrow Agent in the form of Exhibit D.
"Escrow Stock" means 132,471 shares of Common Stock (equal to $25,000,000
divided by the Interim Period Average Price).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Firm Stock" means 44,510 shares of Common Stock (equal to $8,400,000
divided by the Interim Period Average Price).
"Floating Stock" means shares of Common Stock equal to the number of shares
computed using the formula set forth on Schedule 1.
"GAAP" means generally accepted US accounting principles.
"Governmental Permits" means any governmental permits, licenses,
registrations, certificates of occupancy, approvals and other governmental
authorizations.
5
"Hardware" means any mainframe, midrange computer, personal computer,
notebook or laptop computer, server, switch, printer, modem, driver, peripheral
or any component of any of the foregoing, all as used in the Business.
"Hazardous Substances" means any toxic, carcinogenic or hazardous gaseous,
liquid or solid material or waste that may or could pose a hazard to the
environment or human health or safety including (a) any "hazardous substances"
as defined by the federal Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. " 9601 et seq., (b) any "extremely hazardous
-- ----
substance," "hazardous chemical," or "toxic chemical" as those terms are defined
by the federal Emergency Planning and Community Right-to-Know Act, 42 U.S.C. "
11001 et seq., (c) any "hazardous waste," as defined under the federal Solid
-- ----
Waste Disposal Act, as amended by the Resource Conservation and Recovery Act, 42
U.S.C. " 6901 et seq., (d) any "pollutant," as defined under the federal Water
-- ----
Pollution Control Act, 33 U.S.C. " 1251 et seq., as any of such laws in clauses
-- ----
(a) through (d) as amended, and (e) any regulated substance or waste under any
Laws or Court Orders that have been enacted, promulgated or issued by any
federal, state or local governmental authorities concerning protection of the
environment.
"HSR Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976,
as amended.
"Immaterial Lease" is defined in Section 4.9.
"Initial Issuance Average Price" means the average closing price of the
Common Stock as reported by the Nasdaq National Market for the period from and
including the trading day immediately after the date of this Agreement to the
trading day immediately prior to the Effective Date, as adjusted for stock
dividends, combinations, stock splits or similar events.
"Intellectual Property" means any Copyrights and registrations or
applications for registration of Copyrights in any jurisdiction, and any
renewals or extensions thereof, Patents, Trademarks, technology rights and
licenses, Trade Secrets, franchises, inventions, discoveries, know-how,
formulae, specifications and ideas, rights in research and development, and
commercially practiced processes and inventions, whether patentable or not in
any jurisdiction and any other intellectual property used by the Seller.
"Interim Period Average Price" means the average closing price of the
Common Stock as reported by the Nasdaq National Market for the period from and
including December 17, 1999 to the trading day immediately prior to the date of
this Agreement, as adjusted for stock dividends, combinations, stock splits or
similar events.
"Inventory" means all inventory of the Company, including raw materials,
supplies, packaging supplies, work in process and finished goods and inventory
carried on the books of the Seller as "inventory under management."
"Law" means any statute, law, ordinance, regulation, order or rule of any
federal, state, local, foreign or other governmental or quasi-governmental
agency or body or of any other type of
6
regulatory body, including those covering environmental, energy, safety, health
and welfare, pensions, employee benefits, transportation, bribery, record
keeping, zoning, antidiscrimination, antitrust, retirement, wage and hour, and
price and wage control matters.
"LeSaffre" is defined above in the preamble.
"Liability" means any direct or indirect liability, indebtedness,
obligation, expense, claim, loss, damage, deficiency, guaranty or endorsement of
or by any person, absolute or contingent, accrued or unaccrued, due or to become
due, liquidated or unliquidated.
"Litigation" means any lawsuit, action, arbitration, administrative, quasi-
administrative or other proceeding, criminal prosecution or governmental
investigation or inquiry.
"Material Adverse Effect" means a material adverse effect on the Business,
including the assets, financial condition, results of operations, liquidity,
products, competitive position, customers and customer relations thereof.
"Minor Contract" means any Contract that is terminable by a party on not
more than 30 days" notice without any Liability and any Contract under which the
obligation of a party (fulfilled and to be fulfilled) involves an amount of less
than $25,000.
"Net Assets" means the difference between (a) the Purchased Assets
(including deposits, prepaid expenses, Inventory and Accounts Receivable), and
(b) the Assumed Liabilities computed on an accrual basis in accordance with GAAP
consistently applied. Notwithstanding the foregoing, current assets (other than
Inventory) that have maturities of one year or less from the Closing Date and
are owned directly rather than through a money market account shall be valued at
their face unpaid principal amount plus accrued but unpaid interest thereon
through the Closing Date, with longer-term obligations and investments of this
nature, if any, to be valued at their market values on the Closing Date.
"Net Asset Target" is defined in Section 2.6(a).
"Net Asset Valuation" is defined in Section 2.6(a).
"Net Asset Value" is defined in Section 2.6(b).
"Non-Assignable Contract" is defined in Section 2.7.
"Non-Competition Period" is defined in Section 6.5.
"Non-Real Estate Leases" is defined in Section 4.9.
"Off-the-Shelf-Software" is defined in Section 4.18(a)(i).
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"Ordinary course" or "ordinary course of business" means the ordinary
course of business for the Business that is consistent with past practices.
"Other Real Estate Leases" is defined in Section 4.7.
"Parties" means the Buyer Parties and the Seller Parties.
"Patents" means any patents together with any extensions, reexaminations
and reissues of such patents, patents of addition, patent applications,
divisions, continuations, continuations-in-part, and any subsequent filings in
any country or jurisdiction claiming priority therefrom.
"Person" means any natural person, business trust, corporation,
partnership, limited liability company, joint stock company, proprietorship,
association, trust, joint venture, unincorporated association or any other legal
entity of whatever nature.
"Pledge Agreement" means the Pledge Agreement between the Seller and the
Buyer in substantially the same form as Exhibit E.
"Prime Rate" means the prime lending rate as announced from time to time in
The Wall Street Journal.
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"Purchased Assets" is defined in Section 2.1(a).
"Purchase Price Adjustment" is defined in Section 2.2(d).
"Purchase Price Allocation" is defined in Section 2.4(a).
"Real Property" is defined in Section 4.7.
"Required Registration Statement" is defined in Section 7.3(a).
"Release" means any release, spill, emission, leaching, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, or leaching into the indoor
or outdoor environment, or into or out of any property.
"Securities Act" means the Securities Act of 1933, as amended.
"Seller" is defined above in the preamble.
"Seller Parties" means the Seller, the Trust and the Stockholders.
"Seller Representatives" means any investment advisors, accountants,
counsel, agents or other Persons who may act on behalf of the Seller.
8
"Seller Required Consents" is defined in Section 4.3.
"Seller's knowledge" or "knowledge of the Seller" means the actual
knowledge of either of the Stockholders.
"Shares" means those shares of (i) Firm Stock, (ii) Floating Stock and
(iii) Escrow Stock.
"Software Products" means all computer operating, security or programming
software, that is owned by or licensed to Seller or used, in whole or in part,
directly or indirectly, or has been developed or designed for or is in the
process of being developed or designed for use, in whole or in part, directly or
indirectly, in the conduct of the Business of any nature whatsoever, including
all systems software, all applications software, whether for general business
usage (e.g., accounting, finance, word processing, graphics, spreadsheet
analysis, etc.) or specific, unique-to-the-Business usage (e.g., telephone call
processing, etc.), and any and all documentation and object and source codes
related thereto.
"Stockholders" is defined in the preamble.
"System" means any combination of any software, Software Product, Custom
Software, Hardware, Database or Embedded Control.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Taxes" means all taxes, duties, charges, fees, levies or other assessments
imposed by any taxing authority including income, gross receipts, value-added,
excise, withholding, personal property, real estate, sale, use, ad valorem,
license, lease, service, severance, stamp, transfer, payroll, employment,
customs, duties, alternative, add-on minimum, estimated and franchise taxes
(including any interest, penalties or additions attributable to or imposed on or
with respect to any such assessment).
"Termination Date" is defined in Section 3.1.
"Tonneson" means Xxxxxxxx & Company CPAs PC.
"Trade Secrets" means any know-how, trade secrets, customer lists,
software, know-how and other technical information, data, process technology,
plans, drawings (including engineering and auto-cad drawings), innovations,
designs, ideas, proprietary information and blue prints, owned, used or licensed
either directly or indirectly (as licensor or licensee) by the Seller and used
in the operation of the Business, except for any such item that is generally
available to the public.
"Trademarks" means any registered trademarks, registered service marks,
trademark and service xxxx applications and unregistered trademarks and service
marks, brand names, certification
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marks, trade dress, goodwill associated with the foregoing and registrations in
any jurisdictions of, and applications in any jurisdiction to register, the
foregoing, including any extension, modification or renewal of any such
registration or application used by the Seller in the operation of the Business.
"Transaction Documents" means this Agreement, the Xxxx of Sale, Assignment
and Assumption Agreement, the Escrow Agreement, the Employment Agreement, the
Consulting Agreement and the Pledge Agreement.
"Transactions" means the purchase and sale of the Purchased Assets at the
Closing and the other transactions contemplated by the Transaction Documents.
"US" means the United States of America.
"Welfare Plan" is defined in Section 4.21(g).
"Year 2000 Compliant" means:
(a) As applied to any Component or product, that each such Component
or product: (i) is designed (or has been modified) to be used after January 1,
2000; (ii) operates without error arising from the creation, recognition,
acceptance, calculation, display, storage, retrieval, accessing, comparison,
sorting, manipulation, processing or other use of dates or date-based, date-
dependent or date-related data, including century recognition, day-of-the-week
recognition, leap years, date values and interfaces of date functionalities; and
(iii) is not adversely affected by the advent of the year 2000, the advent of
the twenty-first century or the transition from the twentieth century through
the year 2000 and into the twenty-first century.
(b) As applied to any System, that: (i) each Component of such System
is designed (or has been modified) in conformance with the criteria set forth in
subparagraph (a), above; (ii) the design architectures and functionalities
embodying, reflecting or affecting the criteria set forth in subparagraph (a),
above, of all Components of such System (or the methods used to modify them) are
compatible and, when operated in, on or in conjunction with any other Component
of such System, will not cause such System or any of its Components to fail to
satisfy the criteria set forth in subparagraph (a), above.
(c) As applied to the Company, that: (i) each information system and
infrastructure system that is material to its Business conforms to the criteria
set forth in subparagraphs (a) and (b) above; and (ii) no information system or
infrastructure system that is material to its Business receives data from or
communications with any Component or System external to itself (whether or not
such external Component or System is the Company's or any third party's) that
does not conform to the criteria set forth in subparagraphs (a) and (b) above.
"Year 2000 Problem" means any actual or potential failure of the Company or
any of its Systems, Components or products, other than Inventory, to be Year
2000 Compliant.
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2. Sale and Purchase:
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2.1 Agreement to Sell and Purchase.
(a) At the Closing, the Seller shall grant, sell, convey, assign,
transfer and deliver to the Buyer, and the Buyer shall purchase from the Seller,
all right, title and interest of the Seller in and to all of the assets,
properties, and rights of every kind, and description, real, personal and mixed,
tangible and intangible wherever situated constituting or used in the Business
on the Closing Date other than the Excluded Assets (the "Purchased Assets"),
free and clear of all Encumbrances (subject to Section 3.2(a)(iii)), but
including the following:
(i) all Accounts Receivable;
(ii) all Inventory;
(iii) all furniture, fixtures, automobiles, leasehold
improvements, tooling, machinery and equipment;
(iv) all customer records, including principal contacts,
addresses and telephone numbers, purchasing history, equipment demographics,
payment information and any other information;
(v) all records with respect to suppliers, employees and other
aspects of the Business;
(vi) all Patents;
(vii) all Trade Secrets;
(viii) all Copyrights;
(ix) all manufacturing, warehouse and office supplies;
(x) all Software Products, Off-the-Shelf Software and Custom
Software (including documentation and related object and source codes);
(xi) all Trademarks;
(xii) all rights under the Building Leases, the Other Real
Estate Leases and the Non-Real Estate Leases, and any easements, deposits or
other rights pertaining thereto;
(xiii) all rights under any Governmental Permits;
(xiv) all rights related to any prepaid expenses;
(xv) all the assets of the Seller as set forth on the Balance
Sheet and
11
those assets of the Seller whose ownership by the Seller is implied by the
assumptions made in the preparation of the Balance Sheet, except as otherwise
indicated on Schedule 2.1;
(xvi) all equity interests owned by the Seller in any Person;
(xvii) all notes receivable from non-shareholder employees of
the Seller (aggregating $53,600);
(xviii) all rights under any Contracts except to the extent
specified in Section 2.5;
(xix) all goodwill and other intangible assets of the Seller;
and
(xx) all universal resource locators used by the Seller in
connection with the Business.
(b) Notwithstanding the foregoing, the Purchased Assets shall not
include any of the following (the "Excluded Assets"):
(i) the corporate seals, Charter Documents, minute books,
stock books, tax returns, books of account or other records having to do with
the corporate organization of the Seller;
(ii) the rights that accrue or will accrue to the Seller under
this Agreement; or
(iii) the Excluded Assets specified on Schedule 2.1.
2.2 Purchase Price. In addition to the assumption of the Assumed
--------------
Liabilities, the aggregate price to be paid by the Buyer to the Seller for the
purchase of the Purchased Assets shall be $78 million (the "Purchase Price").
The Buyer shall pay the Purchase Price as follows:
(a) at the Closing, the Buyer shall pay to the Seller $10,000,000
(the "Closing Payment") by a wire transfer of immediately available funds, in
accordance with written instructions provided by the Seller to the Buyer prior
to the Closing Date;
(b) at the Closing, the Buyer shall deliver the Escrow Shares to the
Escrow Agent in accordance with the Escrow Agreement. Such consideration
delivered to the Escrow Agent, together with any investment proceeds thereon and
any distributions with respect thereto as provided in the Escrow Agreement, are
referred to collectively herein as the "Escrow Funds;"
(c) at the Closing, the Buyer shall deliver to the Seller a stock
certificate(s) representing the Firm Stock and the Floating Stock; and
(d) after the Closing, the Buyer or the Seller, as appropriate, shall
pay the
12
Purchase Price Adjustment.
2.3 Escrow Account. At the Closing, the Seller and the Buyer shall enter
--------------
into the Escrow Agreement with the Escrow Agent under which the Escrow Agent
shall hold the Escrow Funds for possible claims against the Seller under Section
11 hereof.
2.4 Allocation of the Purchase Price. The Purchase Price shall be
--------------------------------
allocated among the Purchased Assets in accordance with the respective fair
market values of the Inventory and other Purchased Assets pursuant to an
allocation schedule prepared by the Buyer and the Seller after the Closing in
accordance with Section 1060 of the Code and the regulations adopted thereunder
(the "Purchase Price Allocation"). Neither the Seller nor the Buyer will take a
position on any income tax return, before any governmental agency charged with
the collection of any income tax, or in any judicial proceeding that is in any
way inconsistent with the terms of this Section 2.4, and the Seller and the
Buyer shall file Form 8594 with the US Internal Revenue Service in a manner
consistent with the Purchase Price Allocation. Although the Parties agree that
no portion of the Purchase Price will be allocated to the covenant contained in
Section 6.5 hereof, the allocation of the Purchase Price set forth herein is for
tax purposes only and shall not in any way affect the enforceability of the
covenant contained in Section 6.5.
2.5 Assumption of Liabilities.
-------------------------
(a) At the Closing, the Buyer shall assume and agree to pay,
discharge or perform, as appropriate, when due only the Liabilities of the
Seller specifically identified below in this Section 2.5(a) (the "Assumed
Liabilities"):
(i) all expenses, accounts payable and other Liabilities of the
Business set forth on Schedule 2.5(a), and in each case as set forth on the
Balance Sheet (to the extent that they shall not have been satisfied prior to
the Closing);
(ii) all expenses, accounts payable and other Liabilities of the
Business set forth on Schedule 2.5(a) arising after the date of the Balance
Sheet that were incurred in the ordinary course of business; and
(iii) any Contracts related to the Business, identified as
assumed Contracts on Schedule 4.16 and those Contracts related to the Business
that would have been identified as an assumed Contract on Schedule 4.16, but for
such Contract being designated as a Minor Contract; provided, however, that the
-------- -------
aggregate amount of Liabilities assumed by the Buyer pursuant to such Minor
Contracts shall not exceed $250,000.
(b) Notwithstanding paragraph (a) above or any other provision of
this Agreement, the Buyer is not assuming under this Agreement or any other
Transaction Document any Liability that is not specifically identified as an
Assumed Liability under Section 2.5(a), including any of the following (each, an
"Unassumed Liability"): (i) Liabilities arising out of any Default by the Seller
of any provision of any Contract; (ii) any product liability or similar claim
for injury to any Person or property, regardless of when made or asserted, that
arises out of or is
13
based upon any express or implied representation, warranty, agreement or
guarantee made by the Seller, or alleged to have been made by the Seller, or
that is imposed or asserted to be imposed by operation of law in connection with
any service performed or product sold or leased by or on behalf of the Seller on
or prior to the Closing; (iii) any Federal, foreign, state or local income or
other Tax payable with respect to the Business, the Purchased Assets, or other
properties or operations of the Seller or any member of any affiliated group of
which the Seller is a member for a period prior to the Closing Date; (iv) any
Liabilities under or in connection with any Excluded Assets; (v) any Liabilities
arising prior to the Closing Date or as a result of the Closing for severance,
bonuses or any other form of compensation to any employees, agents or
independent contractors of the Seller, whether or not employed by the Buyer
after the Closing and whether or not arising or under any applicable Law,
Benefit Plan or other arrangement with respect thereto; (vi) any Liabilities of
the Seller arising or incurred in connection with the negotiation, preparation
and execution of this Agreement and the Transactions (except as otherwise
provided in Section 2.6(d)); (vii) any Environmental Liability arising from or
related to circumstances existing on or before the Closing Date; (viii)
Liabilities arising from or related to any Contracts as to which a Seller
Required Consent is not obtained by the Closing Date regardless of whether the
Buyer waives delivery of the Seller Required Consent; (ix) any Liabilities to
give credits or take other remedial actions for defective goods or services; (x)
any Liability arising from those items set forth on Schedule 4.15(a) and any
Liabilities arising from any claims that should have been but were not set forth
on Schedule 4.15(a); (xi) any Liability arising from any Benefit Plan; (xii) any
Liability of the Seller arising from or related to any employment discrimination
charge, sexual harassment claim or any ERISA based on the acts or omissions of
the Seller during any period prior to the Closing Date; (xiii) any Liabilities
related to trademark infringement or other similar claims related to the use of
the marks "REAL WORLD" and "TECHNOLOGY TRADING COMPANY"; (xiv) all liabilities
for the payment of premiums under the Seller's insurance contracts; (xv) all
promissory notes listed on Schedule 4.16; and (xvi) any other Liabilities,
regardless of when made or asserted, that are not specifically assumed
hereunder.
2.6 Post-Closing Purchase Price Adjustment.
--------------------------------------
(a) The Purchase Price shall be increased or decreased on a dollar-
for-dollar basis to the extent that the value of the Net Assets of the Business
as set forth on the Closing Balance Sheet (the "Net Asset Value") shall be
greater or less, respectively, than $6,750,000 (the "Net Asset Target") as
determined by Tonneson in accordance with Section 2.6(b) (the "Net Asset
Valuation"). The Parties shall cause such accountants to perform the Net Asset
Valuation in connection with the preparation of the Closing Financial Statements
to be prepared under Section 8.4 within 45 days after the Closing Date and,
within 10 days of the completion of the Net Asset Valuation, to provide the
Parties notice (the "Asset Notice") of the results of the Net Asset Valuation
and whether such results provide for an increase or decrease in the Purchase
Price. Within 20 days of receipt of the Asset Notice, or, in the alternative,
within 20 days of the final resolution of any dispute of the Net Asset
Valuation, the Purchase Price Adjustment shall be paid by wire transfer of
immediately available funds as follows:
14
(i) if the Net Asset Value is greater than the Net Asset
Target, then VERT shall pay to the Seller an amount equal to the amount by which
the Net Asset Value exceeds the Net Asset Target;
(ii) if the Net Asset Value is equal to the Net Asset Target,
then there shall be no adjustment to the Purchase Price; or
(iii) if the Net Asset Value is less than the Net Asset Target,
then the Seller Parties shall pay to VERT an amount equal to the amount by which
the Net Asset Value is less than the Net Asset Target (the "Net Asset
Deficiency"). To the extent the Net Asset Deficiency is in excess of $500,000,
the Seller Parties shall be entitled to defer, on an interest-free basis,
payment of any amount of the Net Asset Deficiency in excess of $500,000 until 30
days following the Effective Date. If the Seller Parties fail to pay such amount
to the Buyer by the specified time, the Buyer shall be entitled to recover the
Net Asset Deficiency by setting off against any amounts that may be due to the
Stockholders under the Employment Agreement or Consulting Agreement.
(b) The Net Asset Value shall be determined in accordance with GAAP,
consistently applied and in accordance with the Seller's past practices.
(c) VERT may dispute the Net Asset Valuation in the following manner.
Within 10 days of receipt of the Asset Notice, VERT shall give the Seller notice
of its disagreement with the Net Asset Valuation (the "Dispute Notice"), and
such notice shall specify in detail the nature of the disagreement. During the
20 days after the day on which any Dispute Notice is given, VERT and the Seller
shall attempt to resolve such dispute. If they fail to reach a written agreement
regarding the dispute, VERT shall refer the matter to KPMG LLP, and request KPMG
LLP to also determine the Net Asset Value (the "Second Asset Valuation") within
30 days of such request. VERT shall give the Seller prompt notice of the results
of the Second Asset Valuation. The average of the Net Asset Value determined by
Tonneson and of the Net Asset Value determined by KPMG LLP shall be the final
and binding Net Asset Valuation for the purposes of determining the Purchase
Price Adjustment.
(d) Prior to the Closing, VERT and Tonneson shall agree on Xxxxxxxx'x
cost of preparing the Net Asset Valuation and the financial statements to be
prepared under Section 8.4. VERT shall pay the fees and expenses of Tonneson
with respect to the Net Asset Valuation unless a Second Asset Valuation is
required, in which case the Seller shall be responsible for paying the fees and
expenses of Tonneson if the Second Asset Valuation produces a Net Asset
Valuation that is less than 95% of that produced by Tonneson. VERT shall pay the
fees and expenses of KPMG LLP with respect to a Second Asset Valuation, if such
a valuation is requested under this Section 2.6.
(e) Any rights accruing to any Party under this Section 2.6 shall be
in addition to and independent of the rights to indemnification under Section 11
and any payments made to any Party under this Section 2.6 shall not be subject
to the requirements of Section 11.
15
2.7 Consent of Third Parties. Nothing in this Agreement shall be
------------------------
construed as an attempt by the Seller to assign to the Buyer pursuant to this
Agreement any Contract, permit, franchise, claim or asset included in the
Purchased Assets that is by its terms or by law nonassignable without the
consent of any other party or parties, unless such consent or approval shall
have been given, or as to which all the remedies for the enforcement thereof
available to the Seller would not by law pass to Buyer as an incident of the
assignments provided for by this Agreement (a "Non-Assignable Contract"). To the
extent that any Seller Required Consent in respect of, or a novation of, a Non-
Assignable Contract shall not have been obtained on or before the Closing Date,
the Buyer may elect to proceed with the Closing, in which case, the Seller shall
continue to use reasonable efforts to obtain any such Seller Required Consent or
novation after the Closing Date until such time as it shall have been obtained,
and the Seller shall cooperate with the Buyer in any economically feasible
arrangement to provide that the Buyer shall receive the interest of the Seller
in the benefits under such Non-Assignable Contract, including performance by the
Seller as agent if economically feasible, provided that Buyer shall undertake to
pay or satisfy the corresponding Liabilities under the terms of such Non-
Assignable Contract to the extent that the Buyer would have been responsible
therefor if such consent or approval had been obtained. The Seller shall pay and
discharge, and shall indemnify and hold harmless the Buyer and its Affiliates
from and against, any and all out-of-pocket costs of seeking to obtain or
obtaining any such Seller Required Consent whether before or after the Closing
Date. Nothing contained in this Section 2.7 or elsewhere in this Agreement shall
be deemed a waiver by the Buyer of its right to have received on the Closing
Date an effective assignment of all of the Purchased Assets or of the covenant
of the Seller to obtain all of the Seller Required Consents, nor shall this
Section 2.7 or any other provision of this Agreement be deemed to constitute an
agreement to exclude from the Purchased Assets any Contracts as to which a
Seller Required Consent may be necessary.
3. Closing.
-------
3.1 Location, Date. The closing for the Transactions (the "Closing")
--------------
shall be held at the offices of Xxxxxx, Xxxxx & Bockius LLP in Philadelphia,
Pennsylvania, at 10:00 a.m. (local time) as promptly as practicable (and in any
event within three Business Days) after the date on which there has been a
satisfaction or waiver of the conditions to the consummation of the Transactions
set forth in Sections 9 and 10, but in any event not later than June 16, 2000
(the "Termination Date"), unless the Parties agree in writing to another date or
place. The date on which the Closing occurs is referred to herein as the
"Closing Date."
3.2 Deliveries. At the Closing, subject to the terms and conditions
----------
contained herein:
(a) The Seller Parties shall deliver to the Buyer the following
items:
(i) an executed copy of each Transaction Document to which they
are each a party;
(ii) a certificate of the Chief Executive Officer of the Seller
to the effect set forth in Sections 10.1 and 10.2, and each such certificate
shall be deemed a
16
representation of the related parties for the purposes of Section 11;
(iii) executed releases or payoff letters (including per diem
rates of interest) of any Encumbrance identified on Schedule 4.6 in forms
satisfactory to the Buyer in its sole discretion;
(iv) all Seller Required Consents (or in lieu thereof waivers).
Such Seller Required Consents (or in lieu thereof, waivers) shall (A) be in a
form and substance reasonably satisfactory to the Buyer, (B) not be subject to
the satisfaction of any condition that has not been satisfied or waived and (C)
be in full force and effect, except where the failure to obtain any such consent
(or in lieu thereof, waiver) could not reasonably be expected, individually or
in the aggregate with other such failures, to materially adversely affect the
Buyer, the Purchased Assets, the Assumed Liabilities or the Business or
otherwise result in a diminution of the benefits of the Transactions to the
Buyer; and
(v) such other instruments and documents of conveyance and
transfer, in form reasonably satisfactory to the Buyer and its counsel, as shall
be necessary and effective to transfer and assign to, and vest in, the Buyer all
of the Seller's right, title and interest in and to the Purchased Assets.
Simultaneously with such deliveries, all such steps will be taken by the Seller
as may be required to put the Buyer in actual possession and operating control
of the Purchased Assets.
(b) The Buyer shall deliver to the Seller Parties:
(i) an executed copy of each Transaction Document to which it
is a party;
(ii) a certificate of an executive officer of the Buyer to the
effect set forth in Sections 9.1 and 9.2 with respect to the Buyer, and each
such certificate shall be deemed a representation of the related parties for the
purposes of Section 11.
(c) Buyer shall deliver the Closing Payment, the Firm Stock and the
Floating Stock to the Seller and the Escrow Funds to the Escrow Agent in
accordance with Section 2.2(b).
(d) The Parties shall also deliver to each other the respective
agreements, legal opinions and other documents and instruments in addition to
good standing certificates, certified resolutions, cross receipts and such other
items as may be reasonably requested.
4. Representations and Warranties with respect to the Seller Parties.
-----------------------------------------------------------------
The Seller Parties, jointly and severally, hereby represent and warrant to the
Buyer Parties as follows:
4.1 Corporate Status. The Seller is a corporation duly organized, validly
----------------
existing and in good standing under the Laws of Massachusetts and is qualified
to do business as a
17
foreign corporation in any jurisdiction where it is required to be so qualified,
except where the failure to be so qualified as a foreign corporation would not
have a Material Adverse Effect. The Trust is a business trust duly created,
validly existing and in good standing under the laws of the Commonwealth of
Massachusetts and is qualified to do business as a foreign entity in any
jurisdiction where it is required to be so qualified, except where the failure
to so qualify would not have a Material Adverse Effect. The Charter Documents
and bylaws of the Seller and the Charter Documents of the Trust that have been
delivered to the Buyer as of the date hereof are effective under applicable Laws
and are current, correct and complete.
4.2 Authorization. The Seller has the requisite power and authority to
-------------
(a) own the Purchased Assets, (b) carry on the Business, (c) execute and deliver
the Transaction Documents to which it is or will be a party, and (d) perform the
Transactions performed or to be performed by the Seller that Seller is or will
be a party thereto. Such execution, delivery and performance by the Seller has
been duly authorized by all necessary corporate action. Each Transaction
Document executed and delivered by a Seller Party has been duly executed and
delivered by the Seller Party and constitutes a valid and binding obligation of
such Seller Party, enforceable against such Seller Party in accordance with its
terms, subject to applicable laws of bankruptcy, insolvency, moratorium and
other laws affecting the rights of creditors generally.
4.3 Consents and Approvals. Except for any filings, consents or approvals
----------------------
specified in Schedule 4.3 (collectively the "Seller Required Consents"), neither
the execution and delivery by a Seller Party of the Transaction Documents to
which it is a party, nor the performance of the Transactions performed or to be
performed by such Seller Party, require any filing, consent, renegotiation or
approval, constitute a Default or cause any payment obligation to arise under
(a) any Law or Court Order to which a Seller Party is subject, (b) the Charter
Documents or bylaws of the Seller or (c) any Contract, Governmental Permit or
other document to which a Seller Party is a party or by which the Business,
Purchased Assets or other assets of the Seller may be bound.
4.4 Stock Ownership. The Trust is the sole record and beneficial owner of
---------------
all of the issued and outstanding capital stock of the Seller. The Stockholders
are the sole record and beneficial holders of all of the issued and outstanding
beneficial interests of the Trust.
4.5 Financial Statements. The Seller has delivered to the Buyer correct
--------------------
and complete copies of (i) unaudited monthly financial statements of the
Business, which do not include footnotes and which are subject to year-end
adjustments, consisting of the balance sheet of the Business as of the end of
each month for January 1, 1999 through December 31, 1999 and the related
statements of income for the months then ended and (ii) audited financial
statements of the Business consisting of the balance sheet of the Business as of
December 31, 1997, 1998 and 1999 and the related statements of income and cash
flows for the years then ended. All such financial statements are referred to
herein collectively as the "Financial Statements." Complete copies of the
Financial Statements are attached hereto as Schedule 4.5. The Financial
Statements are consistent in all material respects with the books and records of
the Seller, and there have not been or will not be any material transactions
that have not been recorded in the
18
accounting records underlying such Financial Statements. The balance sheets
included in the Financial Statements (a) present fairly the financial condition
of the Seller, and the Purchased Assets and the Assumed Liabilities as of the
dates thereof and (b) do not include any assets that are not intended to
constitute part of the Business or the Purchased Assets after giving effect to
the Transactions (other than the Excluded Assets). The income statements
included in the Financial Statements present fairly the results of operation of
the Business for the periods indicated thereon. The income statements included
in the Financial Statements do not reflect any operations that are not intended
to constitute part of the Business or the Purchased Assets after giving effect
to the Transactions (other than the Excluded Assets), and such statements
reflect all material costs that historically have been incurred by the Business
(other than Unassumed Liabilities). There are no Liabilities arising out of,
relating to or connected with the Business except (a) as set forth or reflected
on the Financial Statements, (b) for items disclosed in the Disclosure Schedules
to this Agreement, (c) for purchase contracts and orders for Inventory in the
normal course of the Business, (d) for Liabilities incurred since the Balance
Sheet Date and not in violation of this Agreement in the ordinary course of the
Business consistent with past practice and (e) Liabilities pursuant to this
Agreement. The Financial Statements have been prepared in accordance with GAAP
consistently applied and present fairly the financial position and Assets and
Liabilities of the Business as of the dates thereof, and the results of its
operations for the periods then ended, subject to normal recurring year-end
adjustments and the absence of notes in the case of unaudited Financial
Statements. The balance sheet of the Seller as of November 30, 1999 that is
included in the Financial Statements is referred to herein as the "Balance
Sheet," and the date thereof is referred to as the "Balance Sheet Date."
4.6 Title to Purchased Assets and Related Matters. The Seller has good
---------------------------------------------
and marketable title to, valid leasehold interests in or valid licenses to use,
all of the Purchased Assets, free from any Encumbrances except those specified
in Schedule 4.6. The use of the Purchased Assets is not subject to any
Encumbrances (other than those specified in the preceding sentence), and such
use does not encroach on the property or rights of any Person. All Real Property
and tangible personal property (other than Inventory) included in the Purchased
Assets are suitable for the purposes for which they are used, in good working
condition, reasonable wear and tear excepted, and are free from any known
defects. The Purchased Assets constitute all of the assets and services required
for the continued operation of the Business by the Buyer as operated by the
Seller during the past 12 months. The Purchased Assets, taken as a whole,
constitute all the properties and assets relating to or used or held for use in
connection with the Business during the past 12 months (except for Inventory
sold, cash disposed of, Accounts Receivable collected, prepaid expenses
realized, Contracts fully performed, properties or assets replaced by equivalent
or superior assets, in each case in the ordinary course of business and the
Excluded Assets). Except for the Excluded Assets, there are no assets or
properties used in the operation of the Business that are owned by any Person
other than the Seller that will not be licensed or leased to the Buyer under
valid, current license arrangements or leases.
4.7 Real Property. Schedule 4.7 accurately describes all real estate used
-------------
in the operation of the Business as well as any other real estate possessed or
leased by the Seller (including street addresses and legal descriptions where
known), and the improvements
19
(including fixtures, buildings and other structures) located on such real estate
together with all rights, privileges, easements, licenses, hereditaments and
other appurtenances relating thereto (collectively, the "Real Property"), and
lists any leases other than the Building Leases under which any such Real
Property is possessed (the "Real Estate Leases"). Except as set forth on
Schedule 4.7, neither the Seller nor any Affiliate thereof has any ownership
interest in any real property used in the Business. Schedule 4.7 also accurately
describes, to the Seller's knowledge, any other real estate previously owned,
leased or otherwise operated by the Seller or any predecessor thereof and the
time periods of any such ownership, lease or operation. All of the Real Property
(a) is usable in the ordinary course of business and is in good operating
condition and repair and (b) conforms with any applicable Laws relating to its
construction, use and operation. The Real Property complies with applicable
zoning Laws. The Seller, or the landlord of any Real Property leased by the
Seller, has obtained all licenses and rights-of-way from governmental entities
or private parties that are necessary to ensure vehicular and pedestrian ingress
and egress to and from the Real Property. Each Building Lease and Real Estate
Lease is in full force and effect and has not been assigned, modified,
supplemented or amended except as indicated in this Agreement and neither
landlord nor tenant under any such lease is in default under any such lease, and
no circumstance or set of facts exist which, with the giving of notice or
passage of time, or both, would permit landlord or tenant to terminate any such
lease. Except as set forth on Schedule 4.7, no lease which is in any manner
related to the Real Property requires the consent or approval of any party
thereto in connection with the consummation of the transactions contemplated by
this Agreement.
4.8 Certain Personal Property. Schedule 4.8 is a complete schedule of all
-------------------------
fixed assets, describing all items of tangible personal property that were
included in the Balance Sheet at a carrying value of at least $5,000. Except as
specified in Schedule 4.8 and other than the purchase of Inventory in the
ordinary course of business, since the Balance Sheet Date, the Seller has not
acquired any items of tangible personal property that have a carrying value in
excess of $50,000. All of such personal property included in Schedule 4.8 is,
and any such personal property acquired after the date hereof in accordance with
Section 6.1 will be, usable in the ordinary course of business, and conforms and
will conform with any applicable Laws relating to its construction, use and
operation. Except for those items subject to the Non-Real Estate Leases, no
Person other than the Seller owns any vehicles, equipment or other tangible
assets located on the Real Property that have been used in the Business or that
are necessary for the operation of the Business. The Purchased Assets are
suitable for the purposes for which such assets are currently used or are held
for use, and are in good working condition, subject to normal wear and tear, and
there are no facts or conditions affecting the Purchased Assets that could,
individually or in the aggregate, materially interfere in any respect with the
use, occupancy or operation thereof as used, occupied or operated for the 12
months preceding the date hereof or their adequacy for such use.
4.9 Non-Real Estate Leases. Schedule 4.9 lists all assets and property
----------------------
used in the Business (other than Real Property) that are possessed by the Seller
under an existing lease, including all trucks, automobiles, forklifts,
machinery, equipment, furniture and computers, except for any lease under which
the aggregate annual payments are less than $25,000 (each, an
20
"Immaterial Lease"). Schedule 4.9 also lists the leases under which such assets
and property listed in Schedule 4.9 are possessed. All of such leases (excluding
Immaterial Leases) are referred to herein as the "Non-Real Estate Leases."
4.10 Accounts Receivable. The Accounts Receivable included in the
-------------------
Purchased Assets are bona fide Accounts Receivable created in the ordinary
course of business. All of the Accounts Receivable included in the Purchased
Assets are collectible within 90 days from the respective dates of sale, without
taking into account any reserve to be included in the determination of the
Accounts Receivable specified in the Balance Sheet. No Seller Party knows of any
facts or circumstances (other than general economic conditions) that are likely
to result in any increase in the uncollectability of such Accounts Receivable.
Schedule 4.10 contains a list of all Accounts Receivable by customer name,
invoice number, invoice date, and amount.
4.11 Inventory. Except as described in Schedule 4.11, the Inventory
---------
included in the Purchased Assets consists of items of good, usable and
merchantable quality in all material respects and none of such Inventory is
damaged or obsolete. Such Inventory is recorded in the Financial Statements in
accordance with GAAP at the lower of cost (determined on the weighted-average
method) or market (based upon net realizable value). Schedule 4.11(a) contains a
list of all Inventory by product description, date acquired and cost, which
separates with an appropriate heading, (i) Inventory being held under the Nortel
contract, (ii) Inventory that is matched to a sales order, (iii) Inventory with
scheduled ship dates more than 90 days from signing, and (iv) Inventory held
with no sales orders.
4.12 Liabilities. The Seller does not have any Liabilities, other than (a)
-----------
Liabilities specified on Schedule 4.12, (b) Liabilities specified in the Balance
Sheet (except as heretofore paid or discharged) or (c) Liabilities incurred in
the ordinary course since the Balance Sheet Date that, individually or in the
aggregate, are not material to the Business
4.13 Taxes. Except as set forth in Schedule 4.13, the Seller has duly
-----
filed all Tax Returns that it was required to file. All such Tax Returns were
true, correct and complete in all material respects. The Seller has paid all
Taxes that have come due whether or not shown on such returns or pursuant to any
assessment received. All Taxes that the Seller has been required by Law to
withhold or to collect have been duly withheld and collected and have been paid
over to the proper governmental authorities or are properly held by the Seller
for such payment. The Seller has not received any notice from any taxing
authority in any jurisdiction where the Seller does not pay Taxes that it is or
may be subject to taxation by that jurisdiction. There are no proceedings or
other actions, nor is there any basis for any proceedings or other actions, for
the assessment and collection of additional Taxes of any kind for any period for
which returns have or should have been filed. There are no liens for Taxes on
any of the assets of the Seller (except for liens for Taxes not yet due and
payable). None of the Assumed Liabilities is an obligation to make payments that
will not be deductible under Section 280G of the Code. Each of the foreign
entities has been treated as a disregarded entity for US federal income tax
purposes under the applicable section of the IRC and the applicable Treasury
Regulations thereunder.
4.14 Subsidiaries. Except as set forth on Schedule 4.14, the Seller does
------------
not own,
21
directly or indirectly, any interest or investment (whether equity or debt) in
any corporation, partnership, limited liability company, trust, joint venture or
other legal entity.
4.15 Legal Proceedings and Compliance with Law.
-----------------------------------------
(a) Except as set forth in Schedule 4.15(a), there is no Litigation
that is pending or, to the Seller's knowledge, threatened against the Seller or
any Purchased Asset. There has been no material Default under any Laws,
including Environmental Laws, applicable to the Business or any Purchased Asset
and the Seller has not received any notices from any governmental entity
regarding any alleged Defaults applicable to the Seller or any Purchased Asset
under any Laws. There has been no Default with respect to any Court Order
applicable to the Seller or any Purchased Asset.
(b) Without limiting the generality of Section 4.15(a), except as
described in Schedule 4.15(b), there has not been any Environmental Condition
(i) at the premises at which the Business is or has been conducted by the
Seller, any Affiliate thereof or any predecessor of any of them, (ii) at any
property owned, leased or operated at any time by the Seller, any Person
controlled by the Seller or any predecessor of any of them, or (iii) to the
knowledge of the Seller, at any property at which wastes have been deposited or
disposed by or at the behest or direction of any of the foregoing, nor has the
Seller received notice of any such Environmental Condition. "Environmental
Condition" means any condition or circumstance, including a Release or the
presence of Hazardous Substances, whether created by the Seller or any third
party, at or relating to any such property or premises specified in any of
clauses (i) through (iii) of this paragraph (b) that has or may reasonably be
expected to (A) requires abatement or correction under an Environmental Law, (B)
gives rise to any civil or criminal liability on the part of the Seller under an
Environmental Law, or (C) has created a public or private nuisance.
(c) The Seller has delivered to the Buyer complete copies of any
written reports, studies or assessments in the possession or control of the
Seller or any Affiliate thereof that relate to any Environmental Condition.
Schedule 4.15(c) identifies any other reports, studies or assessments that
relate to any Environmental Condition of which any Seller Party has knowledge.
(d) The Seller has obtained and is in full compliance with all
Governmental Permits relating to the Business or any Purchased Asset, all of
which are listed in Schedule 4.15(d) along with their respective expiration
dates, that are required for the complete operation of the Business as currently
operated. All of such Governmental Permits are currently valid and in full force
and the Seller has filed such timely and complete renewal applications as may be
required with respect to such Governmental Permits. To the knowledge of the
Seller, no revocation, cancellation or withdrawal thereof has been threatened.
4.16 Contracts.
---------
(a) Schedule 4.16 lists all current Contracts of the following types
to which
22
the Seller is a party or by which it is bound, except for Minor Contracts:
(i) Contracts with any present or former stockholder,
director, officer, employee, partner or consultant of the Seller or any
Affiliate thereof;
(ii) Contracts for the future purchase of, or payment for,
supplies or products, or for the lease of any real or personal property from or
the performance of services by a third party, in excess of $25,000 in any
individual case, or any Contracts for the sale of products that involve an
amount in excess of $25,000 with respect to any one supplier or other party,
other than purchase orders for the purchase or sale of Inventory in the ordinary
course of business;
(iii) Contracts to sell or supply products or to perform
services that involve an amount in excess of $25,000 in any individual case;
(iv) Contracts to lease to or to operate for any other party
any real or personal property that involve an amount in excess of $25,000 in any
individual case;
(v) Any license, franchise, distributorship, sales agency of
other arrangements, including those that relate in whole or in part to any
software technical assistance or other know-how used in the past 24 months;
(vi) Any notes, debentures, bonds, conditional sale agreements,
equipment trust agreements, letter of credit agreements, reimbursement
agreements, loan agreements or other Contracts for the borrowing or lending of
money (including loans to or from officers, directors, partners, stockholders or
Affiliates of the Seller or any members of their immediate families), agreements
or arrangements for a line of credit or for a guarantee of, or other undertaking
in connection with, the indebtedness of any other Person;
(vii) Contracts for any capital expenditure or leasehold
improvements;
(viii) Any Contracts under which any Encumbrances exist;
(ix) Contracts limiting or restraining the Seller from engaging
or competing in any business with any Person; and
(x) Any other Contracts (other than Minor Contracts and those
described in any of (i) through (ix) above) not made in the ordinary course of
business.
(b) The Seller has delivered to the Buyer complete and correct copies
of all written Contracts, together with all amendments thereto, and accurate
descriptions of all material terms of all oral Contracts, set forth or required
to be set forth on Schedule 4.16.
(c) The Contracts listed in Schedule 4.16 and the Minor Contracts
excluded from Schedule 4.16 based on the term or amount thereof are referred to
herein as the "Seller
23
Contracts." The Seller is not in Default under any Seller Contracts (including
any Real Estate Leases and Non-Real Estate Leases), which Default could result
in a Liability on the part of the Seller in excess of $10,000 in any individual
case, and the aggregate Liabilities that could result from all such Defaults do
not exceed $50,000. The Seller has not received any communication from, or given
any communication to, any other party indicating that the Seller or such other
party, as the case may be, is in material Default under any Seller Contract. To
the knowledge of the Seller, (i) none of the other parties in any such Seller
Contract is in material Default thereunder and (ii) each such Seller Contract is
enforceable against any other parties thereto in accordance with terms thereof.
4.17 Insurance. Schedule 4.17 lists all policies or binders of insurance
---------
held by or on behalf of the Seller, specifying with respect to each policy the
insurer, the amount of the coverage, the type of insurance, the risks insured,
the expiration date, the policy number and any pending claims thereunder. There
is no material Default with respect to any such policy or binder, nor has there
been any failure to give any notice or present any claim under any such policy
or binder in a timely fashion or in the manner or detail required by the policy
or binder. There is no notice of non-renewal or cancellation with respect to, or
disallowance of any claim under, any such policy or binder that has been
received by the Seller.
4.18 Intellectual Property.
---------------------
(a) Contracts.
---------
(i) Schedule 4.18(a)(i) contains a complete and accurate list
and summary description, including any royalties paid or received by the Seller,
of all Contracts relating to the Intellectual Property to which the Seller is a
party or by which the Seller is bound, except for any license implied by the
sale of a product and perpetual, paid-up royalty free and transferable license
rights for "off-the-shelf" third party application software that the Seller
licenses for use in the Business, in any individual case, under a license with a
maximum payment obligation on the part of the Seller of less than $10,000 ("Off-
the-Shelf Software"). There are no outstanding and, to the Seller's knowledge,
no threatened disputes or disagreements with respect to any such Contract.
Except for any rights under written licenses or other written Contracts related
to Intellectual Property, no current or former employee of the Seller and no
other Person owns or has any proprietary, financial or other interest, direct or
indirect, in whole or in part, and including any right to royalties or other
compensation, in any of the Intellectual Property, or in any application
therefor.
(ii) All employees and consultants of the Seller who are
involved in the design, review, evaluation or development of the Intellectual
Property have executed a nondisclosure agreement (a "Confidentiality
Agreement").
(iii) Except as specified on Schedule 4.18(a)(iii), to the
Seller's knowledge, none of the employees or consultants of the Seller is
subject to any contractual or legal restrictions that might interfere with the
use of his or her best efforts to promote the interests of the Business. To the
Seller's knowledge, no employee of the Seller has entered into
24
any Contract that restricts or limits in any way the scope or type of work in
which the employee may be engaged or requires the employee to transfer, assign
or disclose information concerning his or her work to anyone other than the
Seller.
(iv) To the Seller's knowledge, no employee or consultant of the
Seller (a) has used any other Persons' Trade Secrets or other information that
is confidential in the course of his or her work or (b) is, or is currently
expected to be, in Default under any term of any employment contract, agreement
or arrangement relating to the Intellectual Property, or any Confidentiality
Agreement or any other Contract or any restrictive covenant relating to the
Intellectual Property, or the development or exploitation thereof.
(b) Know-How Necessary for the Business.
-----------------------------------
(i) The Intellectual Property constitutes all of the
Intellectual Property that has been used or relied upon in the operation of the
Business during the past 12 months. Except as described on Schedule 4.18(b)(i),
the Seller is the owner of all right, title and interest in and to each item of
the Intellectual Property, free and clear of any Encumbrances, and has the right
to use, without payment to a third party, all of the Intellectual Property.
(ii) Except as set forth in Schedule 4.18(b)(ii) all former and
current employees of the Seller have executed written Contracts with the Seller
that assign to the Seller all rights to any inventions, improvements,
discoveries or information made during or derived from their relationship to the
Seller.
(c) Patents.
-------
(i) The Seller has no ownership interest in any Patent.
(ii) To the Seller's knowledge, the Seller does not infringe,
nor has the Seller been alleged to infringe, any patent or other proprietary
right of any other Person.
(d) Trademarks.
----------
(i) Schedule 4.18(d)(i) contains a complete and accurate list
and summary description of all Trademarks in which the Seller has an ownership
interest. The Seller is the owner of all right, title and interest in and to
each of the Trademarks, free and clear of any Encumbrances.
(ii) All Trademarks that have been registered with the US Patent
and Trademark Office are currently in compliance with all formal legal
requirements (including the timely post-registration applications), are valid
and enforceable, and are not subject to any maintenance fees or taxes or actions
falling due within 90 days after the Closing Date.
(iii) Except as set forth on Schedule 4.18(d)(iii), no Trademark
has been or is now involved in any opposition, invalidation or cancellation and,
to the Seller's
25
knowledge, no such action is threatened with respect to any of the Trademarks.
(iv) To the Seller's knowledge, there is no potentially
interfering trademark or trademark application of any third party with respect
to any Trademark that has been registered with the US Patent and Trademark
Office.
(v) Except as set forth on Schedule 4.18(d)(v), to the Seller's
knowledge, no Trademark is infringed or has been challenged or threatened in any
way. The Seller does not, to its knowledge, infringe, nor has the Seller been
alleged to infringe, any trade name, trademark or service xxxx of any third
party.
(vi) All products and materials containing a registered
Trademark bear the proper federal registration notice where permitted by law.
(e) Copyrights.
----------
(i) The Seller has no Copyrights.
(ii) To the Seller's knowledge, the Seller does not infringe,
nor has the Seller been alleged to infringe, any copyright or any third party or
is a derivative work based on the work of at third party.
(f) Trade Secrets.
-------------
(i) With respect to each Trade Secret, the documentation
relating to such Trade Secret is current, accurate, and sufficient in detail and
content to identify and explain it and to allow its full and proper use without
reliance on the knowledge or memory of any individual.
(ii) The Seller has taken all reasonable precautions to protect
the secrecy, confidentiality and value of its Trade Secrets.
(iii) The Seller has good title and an absolute right to use its
Trade Secrets. The Trade Secrets are not part of the public knowledge or
literature, and, to the Seller's knowledge, have not been used, divulged, or
appropriated either for the benefit of any Person (other than the Seller) or to
the detriment of the Business. No Trade Secret is subject to any adverse claim
or has been challenged or threatened in any way.
4.19 Software.
--------
(a) Schedule 4.19(a) contains a complete list of all the Software
Products. Each Component performs substantially in accordance with the
specifications, documentation and other written material used in connection with
the sale, license, distribution, marketing or use thereof and is free of defects
in programming and operation except such defects as would not materially and
adversely affect the use of such Component for its intended purposes.
26
(b) Except as specified on Schedule 4.19(b), all right, title and
interest in and to each Component is owned by the Seller, free and clear of all
Encumbrances. No government funding was utilized in the development of any of
the Software Products. To the Seller's knowledge, the sale, license,
distribution, marketing or use of each Component by the Seller does not violate
any rights of any other Person, and the Seller has not received any
communication alleging such a violation. Except as specified on Schedule
4.19(b), the Seller does not have any obligation to compensate any Person for
the sale, license, distribution, marketing or use of the Components. The Seller
has not granted to any other Person any license, option or other right in or to
any of the Software Products.
(c) The Seller does not have any obligation owing to any Person to
maintain, modify, improve or upgrade any of the Components, except under a
customer-specific services agreement.
(d) The Seller has kept secret and has not disclosed the source codes
for the Software Products to any Person other than to those Persons identified
on Schedule 4.19(d).
(e) There is no Year 2000 Problem with respect to the Business. Any
license for the use of any Component permits the Seller or a third party to make
all modifications, conversions or corrections necessary to permit such Component
used in the Business to operate compatibly, in conformance with their respective
specifications and to be Year 2000 Compliant, and any source code necessary to
take any such action is validly in the possession of the Seller or an authorized
agent or is subject to a source code escrow agreement. Except as set forth on
Schedule 4.19(e), no Component of any System used in the Business is subject to
the federal export control Laws.
(f) Except as set forth on Schedule 4.19(f), the Seller is not a
party to electronic data interchange, electronic funds transfer or electronic
commerce either through direct transmission to or from a third party's
information system or infrastructure system or through the Internet or any
website of the Seller or any third party.
(g) Schedule 4.19(g) lists all Contracts between or among the Seller,
any employee thereof and a third party that imparts or that imparted an
obligation of noncompetition, secrecy, confidentiality or non-disclosure upon
the Seller, any employee thereof or any third party. Except as described in
Schedule 4.19(g), the Seller has no reason to believe that the Seller or any
employee thereof either is or was under any obligation of noncompetition,
secrecy, confidentiality or non-disclosure to any third party.
(h) Any Custom Software included in the Purchased Assets, together
with all know-how and processes used in connection therewith, functions as
intended, is in machine-readable form, and includes all computer programs,
materials, tapes, know-how, object and source codes and procedures used by the
Seller.
4.20 Employee Relations. Except as set forth on Schedule 4.20, the Seller
------------------
is not (a) a party to, involved in or, to the Seller's knowledge, threatened by,
any labor dispute or unfair
27
labor practice charge, employment discrimination charge or other employment or
labor related claims, nor (b) currently negotiating any collective bargaining
agreement. The Seller has not experienced during the last three years any work
stoppage. The Seller has delivered to the Buyer a complete and correct list of
the names and salaries, bonus and other cash compensation of all current
employees (including officers) of the Seller engaged in performing services for
the Seller whose cash compensation for 1999 is expected to be at least $20,000.
4.21 ERISA.
-----
(a) Schedule 4.21 contains a complete and accurate list of all
Benefit Plans applicable to all Seller employees, and that is sponsored or
maintained by the Seller or under which the Seller is obligated to contribute or
participate. The Seller has delivered to the Buyer (i) accurate and complete
copies of all such Benefit Plan documents, all formal and informal amendments,
and all other documents relating thereto, including (if applicable) all summary
plan descriptions, trust agreements, service agreements, summary annual reports
and insurance contracts, (ii) all employee manuals and handbooks containing
personnel or employee relations policies, (iii) all Internal Revenue Service
determination letters for the Benefit Plans, if applicable, (iv) accurate and
complete detailed summaries of all unwritten Benefit Plans, (v) accurate and
complete copies of the most recent financial statements and actuarial reports
with respect to all such Benefit Plans for which financial statements or
actuarial reports are required or have been prepared, (vi) all notices that were
issued within the last three years by the Internal Revenue Service, US
Department of Labor, or any other governmental entity with respect to the
Benefit Plans, and (vii) accurate and complete copies of all annual reports for
all such Benefit Plans (for which annual reports are required) prepared within
the last three years. Each such Benefit Plan providing benefits that are funded
through a policy of insurance is indicated by the word "insured" placed by the
listing of the Benefit Plan in Schedule 4.21.
(b) All such Benefit Plans conform (and at all times have conformed)
in all respects to, and are being administered and operated (and have at all
time been administered and operated) in compliance with, the requirements of
ERISA, the Code and all other applicable Laws. All returns, reports and
disclosure statements required to be made under ERISA and the Code with respect
to all such Benefit Plans have been timely filed or delivered, except where the
failure to so file or deliver would not have a Material Adverse Effect. There
have not been any "prohibited transactions," as such term is defined in Section
4975 of the Code or Section 406 of ERISA or breach of any fiduciary duty
described in Section 404 of ERISA involving any of the Benefit Plans that could
subject Seller to any material penalty or tax imposed under the Code or ERISA.
(c) Except as is set forth in Schedule 4.21, any such Benefit Plan
that is intended to be qualified under Section 401(a) of the Code and exempt
from tax under Section 501(a) of the Code has been determined by the Internal
Revenue Service to be so qualified or an application for such determination is
pending. Any such determination that has been obtained remains in effect and has
not been revoked, and with respect to any application that is pending, the
Seller does not have any reason to suspect that such application for
determination will be
28
denied. Nothing has occurred since the date of any such determination that is
reasonably likely to adversely affect such qualification or exemption, or result
in the imposition of excise taxes or income taxes on unrelated business income
under the Code or ERISA with respect to any such Benefit Plan. Copies of the
most recent Internal Revenue Service determination letters, if any, have been
delivered to the Buyer. Except as set forth in Schedule 4.21, the Seller has
never maintained or contributed to any other Benefit Plan.
(d) The Seller does not sponsor, maintain or contribute to, and has never
sponsored, maintained or contributed to, or had any liability with respect to
any employee benefit plan subject to Section 302 of ERISA, Section 412 of the
Code or Title IV of ERISA, nor does it have a current or contingent obligation
to, or ever had an obligation to, or have any other liability with respect to,
contribute to any multiemployer plan (as defined in Section 3(37) of ERISA). The
Seller does not have any liability with respect to any benefit plan or
arrangement other than with respect to such Benefit Plans.
(e) There are no pending or, to the knowledge of the Seller, any
threatened claims by or on behalf of any such Benefit Plans, or by or on behalf
of any individual participants or beneficiaries of any such Benefit Plans,
alleging any breach of fiduciary duty on the part of the Seller or any of its
officers, directors or employees under ERISA or any other applicable Law, or
claiming benefit payments (other than those made in the ordinary operation of
such plans), nor is there, to the knowledge of the Seller, any basis for such
claim. The Benefit Plans are not the subject of any pending (or to the knowledge
of the Seller, any threatened) investigation or audit by the Internal Revenue
Service, the Department of Labor or the Pension Benefit Guaranty Corporation
("PBGC") or any other governmental entity, and no matters are pending with
respect to a Benefit Plan under any Internal Revenue Service program.
(f) The Seller has paid all amounts that the Seller is required to pay as
contributors to the Benefit Plans as of the last day of the most recent fiscal
year of each of the Benefit Plans; all benefits accrued under any funded or
unfunded Benefit Plan will have been paid, accrued, or otherwise adequately
reserved in accordance with GAAP as of the Balance Sheet Date; and all monies
withheld from employee payroll with respect to Benefit Plans have been
transferred to the appropriate Benefit Plan in a timely manner as required by
applicable Law.
(g) The Seller does not maintain any welfare benefit fund within the
meaning of Section 419 of the Code. With respect to any such Benefit Plan that
is an employee welfare benefit plan (within the meaning of Section 3(1) of
ERISA) (a "Welfare Plan") and except as specified in Schedule 4.21, (i) each
Welfare Plan for which contributions are claimed by the Seller as deductions
under any provision of the Code complies with all applicable requirements
pertaining to such deduction, (ii) with respect to any welfare benefit fund
(within the meaning of Section 419 of the Code) related to a Welfare Plan, there
is no disqualified benefit (within the meaning of Section 4976(b) of the Code)
that would result in the imposition of a tax under Section 4976(a) of the Code,
(iii) any Benefit Plan that is a group health plan (within the meaning of
Section 4980B(g)(2) of the Code) complies, and in each and every case has
29
complied, with all of the applicable requirements of Section 4980B of the Code,
ERISA, Title XXII of the Public Health Service Act, the applicable provisions of
the Social Security Act, the Health Insurance Portability and Accountability Act
of 1996, and other applicable laws, and (iv) all Welfare Plans may be amended or
terminated at any time on or after the Closing Date. Except as specified in
Schedule 4.21, no Benefit Plan provides any health, life or other welfare
coverage to employees of the Seller beyond termination of their employment with
the Seller by reason of retirement or otherwise, other than coverage as may be
required under Section 4980B of the Code or Part 6 of ERISA, or under the
continuation of coverage provisions of the Laws of any state or locality.
(h) Except as otherwise set forth on Schedule 4.21, neither the execution
and delivery of this Agreement nor the consummation of the Transactions will (i)
result in any payment to be made by the Seller or an Affiliate of the Seller
becoming due to any employee or former employee, officer or director, or (ii)
increase or vest any benefits payable under any Benefit Plan.
(i) Except as otherwise set forth on Schedule 4.21, any amount that could
be received (whether in cash or property or the vesting of property) as a result
of any of the Transactions by any employee, officer or director of the Seller
who is a disqualified individual (as such term is defined in proposed Treasury
Regulation Section 1.280G-1) under any employment, severance or termination
agreement, other compensation arrangement or Benefit Plan currently in effect
will not be characterized as an excess parachute payment (as such term is
defined in Section 280G(b)(1) of the Code). The Seller has not declared or paid
any bonus compensation in contemplation of the Transactions.
(j) All Persons classified by the Seller as independent contractors
satisfy and have at all times satisfied the requirements of all applicable Law
to be so classified; the Seller has fully and accurately reported their
compensation on IRS Forms 1099 when required to do so; and the Seller has no
obligations to provide benefits with respect to such Persons under the Benefit
Plans or otherwise. No individuals are currently providing, or have ever
provided, services to the Seller pursuant to a leasing agreement or similar type
of arrangement, nor has the Seller entered into any arrangement whereby services
will be provided by such Persons.
(k) Except as provided in this Agreement, the Seller has made no plan or
commitment, whether or not legally binding, to create any additional Benefit
Plan or to modify or change any existing Benefit Plan. No statement, either
written or oral, has been made by the Seller to any Person with regard to any
Benefit Plan that was not in accordance with the Benefit Plan and that could
have an adverse economic consequence to the Seller.
4.22 Corporate Records. The minute books of the Seller contain complete,
-----------------
correct and current copies of its Charter Documents and bylaws and of all
material minutes of meetings, resolutions and other proceedings of its Board of
Directors and stockholders. The stock record books of the Seller are complete,
correct and current.
4.23 Absence of Certain Changes. Except as set forth on Schedule 4.23, the
--------------------------
30
Business has been conducted in the ordinary course since December 31, 1998, and
there has not been with respect to the Seller any of the items specified below
since December 31, 1998:
(a) any change that has had or is reasonably likely to have a
Material Adverse Effect;
(b) any distribution or payment declared or made in respect of its
capital stock by way of dividends, purchase or redemption of shares or
otherwise, except for dividends distributed to the Stockholders solely for the
payment of taxes consistent with past practices;
(c) any increase in the compensation payable or to become payable to
any director, officer, employee or agent, except for increases for non-officer
employees made in the ordinary course of business, nor any other change in any
employment or consulting arrangement;
(d) any sale, assignment or transfer of Purchased Assets, or any
additions to or transactions involving any Purchased Assets, other than those
made in the ordinary course of business;
(e) other than in the ordinary course of business, any waiver or
release of any claim or right or cancellation of any debt held; or
(f) any payments to any Affiliate of a Seller Party, other than wages
and reimbursements in accordance with past practices and except as specified in
Schedule 4.23.
4.24 Previous Sales; Warranties. The Seller has not breached any express
--------------------------
or implied warranties in connection with the sale or distribution of goods or
the performance of services, except for breaches that, individually and in the
aggregate, are not material and are consistent with past practice of the
Business.
4.25 Customers and Suppliers. The Seller has used reasonable business
-----------------------
efforts to maintain, and currently maintains, good working relationships with
all of the customers and suppliers of the Business. Schedule 4.25 specifies for
each year of the three years ending December 31, 1997, 1998 and 1999 the names
of the respective customers that were, in the aggregate, the 20 largest
customers in terms of dollar value of products or services, or both, sold by the
Business. Except as specified on Schedule 4.25, none of such customers has given
Seller notice terminating, canceling or threatening to terminate or cancel any
Contract or relationship with the Seller. Schedule 4.25 also specifies for each
year of the three years ending December 31, 1997, 1998 and 1999 the names of the
respective suppliers that were, in the aggregate, the 20 largest suppliers in
terms of dollar value of products or services, or both, used by the Seller. None
of such suppliers has given the Seller notice terminating, canceling or
threatening to terminate or cancel any Contract or relationship with the Seller.
4.26 Operation of the Business. Except as described on Schedule 4.26, (a)
-------------------------
the Business has been conducted only through the Seller and not through any
other divisions or any direct or indirect subsidiary or Affiliate of the Seller,
and (b) no part of the Business has been
31
operated by any Person other than the Seller. No Person other than the Seller
owns or possesses any assets or properties that have been used in the Business,
other than Persons who have granted to the Seller leasehold interests in or
valid licenses to use other assets or properties used in the Business pursuant
to Contracts that are listed on Schedule 4.16. Neither the Seller nor any
Affiliate of the Seller, engages, directly or indirectly, in any business
activities that are competitive with the Business.
4.27 Finder's Fees. Except for Xxxxxx Xxxxxxxx LLP, no Person retained by
-------------
the Seller is or will be entitled to any commission or financial advisor's or
similar fee in connection with the Transactions.
4.28 Investment Representations.
--------------------------
(a) No Seller Party has relied on any purchaser representative, or a
Buyer Party, in connection with the acquisition of the Shares hereunder. Each
Seller Party (i) has such knowledge, sophistication and experience in business
and financial matters that it is capable of evaluating the merits and risks of
an investment in the Shares, (ii) fully understands the nature, scope and
duration of the limitations on transfer contained in this Agreement and (iii)
can bear the economic risk of an investment in the Shares and can afford a
complete loss of such investment. Each Seller Party has had an adequate
opportunity to ask questions and receive answers from the officers of the Buyer
Parties concerning any and all matters relating to the transactions described
herein including without limitation the background and experience of the
officers and directors of the Buyer Parties. Each Seller Party has asked any and
all questions in the nature described in the preceding sentence and all
questions have been answered to its satisfaction. Each Seller Party acknowledges
that the officers of the Buyer Parties have not assured, guaranteed or otherwise
led any Seller Party to expect any particular level of performance in the market
value or other value of the Shares.
(b) Each Seller Party further represents, warrants, acknowledges and
agrees that it (i) is acquiring the Shares under this Agreement for its own
account, and not on behalf of other persons, and for investment and not with a
view to the resale or distribution of all or any part of the Shares and (ii)
will not sell or otherwise transfer the Shares prior to the Effective Date
unless, in the opinion of counsel who is satisfactory to the Buyer Parties, the
transfer can be made without violating the registration provisions of the
Securities Act and the rules and regulations promulgated thereunder.
(c) Each Seller Party further represents, warrants, acknowledges and
agrees that it is making an investment decision based solely on its review of
the documents filed publicly by VERT with the Securities and Exchange Commission
and the terms of the Transaction Documents and is not relying, and has not
relied, upon anything outside of the immediately aforementioned sources in
making its investment decision.
(d) Each Seller Party, individually, represents and warrants that it
is an accredited investor as that term is defined in Rule 501(a) of Regulation
D. Each Seller Party understands that the Shares are being offered and sold to
it in reliance upon specific exemptions
32
from the registration requirements of United States federal and state securities
laws and that the Buyer Parties are relying upon the truth and accuracy of, and
the Seller Parties' compliance with, the representations, warranties,
agreements, acknowledgments and understandings of the Seller Parties set forth
herein in order to determine the availability of such exemptions and the
eligibility of the Seller Parties to acquire the Shares.
(e) The Seller Parties each understand that no United States federal
or state agency or any other government or governmental agency has passed upon
or made any recommendation or endorsement of the Shares.
(f) Each Seller Party understands that, until such time as the Shares
have been registered under the Securities Act or otherwise may be sold pursuant
to Rule 144 or any other applicable exemption without any restriction as to the
number of securities as of a particular date that can then be immediately sold,
the Shares may bear a restrictive legend in substantially the following form
(and a stop-transfer order may be placed against transfer of the certificates
for such Securities):
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL SATISFACTORY TO THE
ISSUER, IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN
COMPARABLE TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
4.29 Additional Information. Schedule 4.29 accurately sets forth the
----------------------
following:
(a) the names of all officers, directors, managers and members of the
Seller;
(b) the names of all Persons holding powers of attorney from a Seller
Party and a summary statement of the terms thereof; and
(c) all names under which each Seller Party has conducted any
Business or which they have otherwise used at any time during the past five
years.
4.30 Transactions with Affiliates. Except as set forth on Schedule 4.30,
----------------------------
no Affiliate of any Seller Party owns or has a controlling ownership interest in
any Person that is a party to any Contract with respect to the Purchased Assets
or the Business.
4.31 Accuracy of Information. No representation or warranty by a Seller
-----------------------
Party in any Transaction Document, and no information contained therein or
otherwise delivered by or on behalf of a Seller Party to the Buyer in connection
with the Transactions, including the Financial Statements, Disclosure Schedules
and Exhibits hereto contains any untrue statement of a material fact or omits to
state any material fact necessary in order to make the statements contained
herein
33
or therein not misleading in light of the circumstances under which such
statements were made.
5. Representations and Warranties of the Buyer and VERT. The Buyer and
----------------------------------------------------
VERT, jointly and severally, hereby represent and warrants to the Seller
Parties, as follows:
5.1 Organizational Status. VERT is a corporation duly organized, validly
---------------------
existing and in good standing under the Laws of Pennsylvania and is qualified to
do business in any jurisdiction where it is required to be so qualified except
where the failure to so qualify would not have a Material Adverse Effect. The
Buyer is a limited liability company duly organized, validly existing and in
good standing under the Laws of Delaware and is qualified to do business in any
jurisdiction where it is required to be so qualified except where the failure to
so qualify would not have a Material Adverse Effect.
5.2 Authorization. Each of VERT and the Buyer have the requisite power
--------------
and authority to execute and deliver the Transaction Documents to which it is a
party and to perform the Transactions performed or to be performed by it. Such
execution, delivery and performance by VERT or the Buyer has been duly
authorized by all necessary corporate action. Each Transaction Document executed
and delivered by VERT or the Buyer has been duly executed and delivered by such
party and constitutes a valid and binding obligation of such party, enforceable
against it in accordance with its terms, subject to applicable laws of
bankruptcy, insolvency, moratorium and other laws affecting the rights of
creditors generally.
5.3 Financing. VERT has the funds required to pay the Purchase Price in
---------
accordance with Section 2.2 and to consummate the Transactions.
5.4 Consents and Approvals. Except for filings that may be required to
----------------------
comply with the HSR Act, neither the execution and delivery by the Buyer of the
Transaction Documents to which it is a party, nor the performance of the
Transactions performed or to be performed by the Buyer, require any filing,
consent or approval (other than the approval of the Board of Directors of the
Buyer), constitute a Default or cause any payment obligation to arise under (a)
any Law or Court Order to which the Buyer is subject, (b) the Charter Documents
or operating agreement of the Buyer or (c) any Contract, Governmental Permit or
other document to which the Buyer is a party or by which the properties or other
assets of the Buyer may be bound.
5.5 Finder's Fees. No Person retained by the Buyer is or will be entitled
-------------
to any commission or finder's or similar fee in connection with the
Transactions.
5.6 Reports. VERT has heretofore delivered or made available to the Seller
-------
Parties, in the form filed with the Commission, together with any amendments
thereto, all documents that VERT has filed with the Commission (collectively,
the "SEC Reports"). The SEC Reports were prepared substantially in accordance
with the requirements of the Securities Act or the Exchange Act, as the case may
be, and the rules and regulations promulgated under such act, and did not at the
time they were filed contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of
34
the circumstances under which they were made, not misleading.
5.7 Accuracy of Information. No representation or warranty by VERT or the
-----------------------
Buyer in any Transaction Document contains any untrue statement of a material
fact.
6. Covenants of the Seller Parties.
-------------------------------
6.1 Conduct of the Business. Between the date of this Agreement and the
-----------------------
Closing Date:
(a) The Seller shall conduct its Business in all material respects in
the ordinary course and use commercially reasonable efforts to maintain the good
will of all current business relationships.
(b) The Seller shall use commercially reasonable efforts to preserve
substantially intact its business organization and keep available the services
of each of its present officers and employees.
(c) The Seller shall not, without the prior written consent of the
Buyer, which consent shall not be, in the Buyer's sole discretion, unreasonably
withheld, delayed or conditioned, amend its Charter Document or bylaws, if
applicable, and shall not, without the prior written consent of the Buyer:
(i) issue, sell or otherwise dispose of any of its capital
stock, or create, sell or otherwise dispose of any options, rights, conversion
rights or other agreements or commitments of any kind relating to the issuance,
sale or disposition of any of its capital stock;
(ii) reclassify, split up or otherwise change its capital stock;
(iii) be party to any merger, consolidation or other business
combination other than in strict conformity with the terms and procedures set
forth on Schedule 6.1(c); or
(iv) sell, lease, license or otherwise dispose of any of the
Purchased Assets (including, but not limited to rights with respect to the
Intellectual Property), except in the ordinary course of business;
(d) The Seller shall not, without the prior written consent of the
Buyer, which consent shall not be, in the Buyer's sole discretion, unreasonably
withheld, delayed or conditioned:
(i) declare, make or pay any dividends or other distributions,
except for distributions to the Stockholders for the payment of 1999 state and
federal income taxes and the payment of up to two quarters of estimated 2000
state and federal taxes prior to their due dates;
35
(ii) borrow any funds or otherwise become subject to,
whether directly or by way of guarantee or otherwise, any indebtedness for
borrowed money, except for borrowings in the ordinary course of business under
the Seller's existing line of credit from Fleet Bank;
(iii) acquire or dispose any of the Purchased Assets, other
than Inventory in the ordinary course of business consistent with past
practices;
(iv) create any material Encumbrance on any of the Purchased
Assets;
(v) except in the ordinary course of business, increase in
any manner the compensation of any partner, director or officer or increase in
any manner the compensation of any class of employees;
(vi) except as set forth on Schedule 6.1(d)(vi), create or
materially modify any bonus, deferred compensation, pension, profit sharing,
retirement, insurance, stock purchase, stock option, or other fringe benefit
plan, arrangement or practice or any other employee benefit plan;
(vii) enter into, amend, modify, terminate (partially or
completely), grant any waiver under or give any consent with respect to any
Contract, except in the ordinary course of business;
(viii) violate, breach or default under in any material
respect, or take or fail to take any action that (with or without notice or
lapse of time or both) would constitute a material violation or breach of, or
default under any term or provision of any Contract or any License;
(ix) engage in any transaction with respect to its Business
with any partner, officer, director, Affiliate or associate of a Seller Party or
any associate of any such partner, officer, director or Affiliate, except for
the continuation of existing business relationships with any such party that has
been disclosed to the Buyer hereunder;
(x) make any capital expenditure or acquire any property or
assets for a cost in excess of $5,000 in any one case or $70,000 in the
aggregate, except for the acquisition of Inventory in the ordinary course of
business and consistent with past practices;
(xi) enter into any agreement that materially restricts it
from carrying on its Business;
(xii) cancel any material debts of others or waive any
material claims or rights;
(xiii) act or omit from taking any action that would cause any
of the
36
representations and warranties in Section 4 to be inaccurate; or
(xiv) entering into any Contract to do or engage in any of the
foregoing.
6.2 Access to Information. From the date hereof and up to and including
---------------------
the Closing Date, the Seller shall give the Buyer Parties and its
representatives (including VERT's accountants, counsel, consultants, employees
and such other representatives as VERT may designate from time to time), upon
reasonable notice and during normal business hours, full access to the Real
Property, Contracts, books, records and affairs of the Seller. The Seller
Parties shall cause the Seller's officers and employees to furnish to VERT all
documents, records and information (and copies thereof) related to the Business
as VERT or its representatives may reasonably request.
6.3 Satisfaction of Liabilities. After the Closing, the Stockholders
---------------------------
shall cause the Seller to satisfy, in accordance with the terms thereof, any and
all third party Liabilities that are not Assumed Liabilities: provided, however,
that the Seller shall be entitled to dispute or challenge any such liabilities
prior to satisfying the same.
6.4 No Solicitation. From and after the date hereof and up to and
---------------
including the Termination Date, without the prior written consent of the Buyer
Parties, the Seller Parties will not, and will not authorize or permit any
Seller Representative to, directly or indirectly, solicit, negotiate, initiate
or encourage (including by way of furnishing information) or take any other
action to facilitate any inquiries or the making of any proposal that
constitutes or may reasonably be expected to lead to an Acquisition Proposal
from any Person, or engage in any discussion or negotiations relating thereto or
accept any Acquisition Proposal. Any Seller Party that receives any such
inquiries, offers or proposals shall (a) notify VERT orally and in writing of
any such inquiries, offers or proposals (including the terms and conditions of
any such proposal and the identity of the Person making it), within 48 hours of
the receipt thereof, (b) keep VERT informed of the status and details of any
such inquiry, offer or proposal, and (c) give VERT five days' advance notice of
any agreement to be entered into with, or any information to be supplied to, any
Person making such inquiry, offer or proposal.
6.5 Competition and Confidentiality.
-------------------------------
(a) During the period beginning on the Closing Date and ending on the
third anniversary thereof (the "Non-Competition Period"), no Seller Party nor
any Affiliate of a Seller Party (each, a "Restricted Party") shall, within North
America, directly or indirectly, in any capacity, render services, engage or
have a financial interest in, any business that shall be competitive with any of
those business activities that have constituted part of the Business at any time
during the past 12 months from the date hereof, nor shall any Restricted Party
assist any Person that shall be engaged in any such business activities,
including making available any information or funding to any such Person;
provided, however, that nothing in this Section 6.5(a) shall prohibit any
Restricted Party from owning up to 5% of the issued and outstanding securities
of any publicly traded company. During the Non-Competition Period, no Restricted
Party shall solicit any employee of the Business hired by the Buyer for the
purposes of having any such
37
employee terminate his or her employment with the Buyer. In addition, during the
Non-Competition Period, each Restricted Party immediately shall inform any
Person that inquires about the Business that the Business has been sold to the
Buyer, and such Restricted Party shall promptly inform the Buyer of such
inquiry. If a court determines that the foregoing restrictions are too broad or
otherwise unreasonable under applicable Law, including with respect to time or
space, the court is hereby requested and authorized by the Parties to revise the
foregoing restriction to include the maximum restrictions allowable under
applicable Law. Each Restricted Party acknowledges, however, that this Section
6.5 has been negotiated by the Parties and that the geographical and time
limitations, as well as the limitation on activities, are reasonable in light of
the circumstances pertaining to the Business.
(b) No Restricted Party will, at any time, represent that it is
continuing to carry on the Business, except in connection with any Restricted
Party's employment by the Buyer following the Closing.
(c) Each Seller Party recognizes and acknowledges that by reason of
its involvement with the Business, it has had access to Trade Secrets relating
to the Business. Each Seller Party acknowledges that such Trade Secrets are a
valuable and unique asset and covenants that it will not allow the disclosure of
any such Trade Secrets to any Person for any reason whatsoever, unless such
information is in the public domain through no wrongful act of such Seller Party
or such disclosure is required by law.
(d) The terms of this Section 6.5 shall apply to any Restricted Party
that is not one of the Parties to the same extent as if it were a party hereto,
and each Seller Party shall take whatever reasonable actions may be necessary to
cause any of its controlled Affiliates to adhere to the terms of this Section
6.5.
(e) In the event of any breach or threatened breach by any Restricted
Party of any provision of this Section 6.5, the Buyer shall be entitled to
injunctive or other equitable relief, restraining such party from using or
disclosing any Trade Secrets in whole or in part, or from engaging in conduct
that would constitute a breach of the obligations of a Restricted Party under
this Section 6.5. Such relief shall be in addition to and not in lieu of any
other remedies that may be available, including an action for the recovery of
Damages.
(f) It is expressly acknowledged and emphasized that the agreements
of the Seller Parties to be bound by the terms and conditions of this Section
6.5 are material and indispensable to this Agreement and that without the
agreements of the Selling Parties to be bound by this Section 6.5, as well as
the other provisions of this Agreement, the Buyer Parties would not have entered
into this Agreement.
6.6 Transfer of Purchased Assets and Business. On and prior to the
-----------------------------------------
Closing Date, the Seller Parties shall take such reasonable steps as may be
necessary or appropriate, in the judgment of the Buyer, at and after the Closing
so that the Buyer shall be placed in actual possession and control of all of the
Purchased Assets and the Business. In furtherance thereof, the Seller shall
execute and deliver such additional instruments of conveyance and transfer as
the
38
Buyer may reasonably require, in the judgment of the Buyer, in order to more
effectively vest in it, and put it in possession of, the Purchased Assets.
6.7 Employees and Business Relations. From the date hereof and up to and
--------------------------------
including the Closing Date, the Seller shall use commercially reasonable efforts
(but shall not be required to increase wages or benefits) to keep available the
services of the current employees and agents of the Seller and to maintain its
relations and goodwill with the suppliers, customers, distributors of the Seller
and any others having a business relation with the Seller. The Seller authorizes
the Buyer to offer employment to any of the Seller's employees as of the Closing
Date, and the Seller shall terminate on the Closing Date the employment of any
of its employees who desire to accept offers of employment from the Buyer. In
addition, between the date of this Agreement and the Closing Date, to the extent
requested by the Buyer, the Seller shall introduce the Buyer to the customers
and suppliers of Seller and recommend that they continue doing business with the
Buyer after the Closing Date.
6.8 Related Parties. The Stockholders shall cause the Seller and any
---------------
other controlled Affiliate to the take or refrain from taking any action that
may be necessary to carry out the Transactions.
6.9 Restrictions on Transfer. Except as provided in Schedule 6.9, the
------------------------
Seller Parties shall not, until the second anniversary of the Closing Date, (i)
offer, pledge (other than pursuant to the Pledge Agreement), sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any Shares or (ii) enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of any Shares regardless of whether any such
transaction described above is to be settled by delivery of the Shares, in cash
or otherwise, (each, a "Prohibited Share Action") without the prior written
consent of VERT. In furtherance of the foregoing, the Seller Parties acknowledge
and understood that VERT and its transfer agent, are hereby authorized to
decline to make any transfer of securities if such transfer would constitute a
violation or breach of this Section 6.9. Notwithstanding the foregoing, the
Seller shall be entitled to transfer the Shares to an entity directly or
indirectly wholly-owned by LeSaffre and Benedict; provided that such entity
-------------
agrees to be bound by the terms of this Agreement and the Transaction Documents.
6.9 Update Disclosure Schedules. Between the date hereof and the Closing
---------------------------
Date, the Seller Parties shall promptly disclose to VERT in writing any
information set forth in the Disclosure Schedules that is no longer complete,
true or applicable and any information of the nature of that set forth in the
Disclosure Schedules that arises after the date hereof and that would have been
required to be included in the Disclosure Schedules if such information had been
obtained on the date of delivery thereof.
6.10 Termination of seller's 401(k) Plan. The Seller shall take whatever
-----------------------------------
action is necessary to cause the adoption of resolutions to terminate the R.W.
Electronics, Inc. Profit Sharing Plan (the "Seller's 401(k) Plan") as of the
Closing Date, subject to the subsequent approval of the Internal Revenue Service
(the "IRS"). The Seller shall, within 90 days after the
39
Closing Date, apply for a post-Closing determination from the IRS that the
termination of the Seller's 401(k) Plan has not adversely affected the Seller's
401(k) Plan's qualified status under section 401(a) of the Code or the exempt
status of the related trust under section 501(a) of the Code. The Seller shall
take all reasonable and necessary steps to obtain a favorable determination
letter from the IRS on the Seller's 401(k) Plan and its related trust. The
Seller shall, within 60 days after receipt of such favorable determination
letter, make final distributions from the Seller's 401(k) Plan in accordance
with the terms of the Plan. Upon the reasonable request of the Seller, the Buyer
shall reasonably make available to the Seller no more than five of the Seller's
former employees employed by the Buyer on or after the Closing Date for purposes
of assisting the Seller in the preparation of the aforementioned determination
letter; provided, however, that the Seller shall promptly reimburse the Buyer
for any reasonable expenses incurred by the Buyer in so assisting the Seller.
7. Covenants of Buyer and VERT.
---------------------------
7.1 Related Parties. VERT shall cause any other controlled Affiliate to
---------------
take or refrain from taking any action that may be necessary to carry out the
Transactions.
7.2 Bulk Sales. The Buyer and VERT hereby waives the Seller's compliance
----------
with any bulk sales laws that may apply to the Transactions, including with
respect to Taxes; provided, however, that the Seller Parties hereby, jointly and
severally, indemnify the Buyer and VERT against any Damages that either the
Buyer or VERT may incur that it would not have incurred if the Seller had
complied with any such bulk sales laws.
7.3 Registration Rights.
(a) VERT shall use reasonable efforts to cause to be declared
effective by the Commission, within 180 days from the Closing Date, a
registration statement (the "Required Registration Statement") with respect to
the Shares. If the Required Registration Statement is not declared effective
within 180 days from the Closing Date, then, for each complete 30 day period
thereafter, 5% of the Firm and Escrow Stock (in the aggregate) then subject to
Section 6.9 shall be removed from the restriction set forth in Section 6.9. VERT
shall use its best efforts to cause the Required Registration Statement to
remain effective for 12 months after the Effective Date.
(b) If VERT proposes to file a separate registration statement with
respect to the Common Stock prior to the filing of the Required Registration
Statement, the Buyer shall give prompt notice to the Seller Parties and will
include in such registration (the "Piggyback Registration") subject to the
allocation provisions discussed in Sections 7.3(d) and 7.3(e), all Shares with
respect to which VERT has received, within five Business Days after such notice
is given by VERT, written request for inclusion; provided, however, that the
Seller Parties shall have no Piggyback Registration rights in connection with a
registration statement filed in connection with VERT's 5 1/4% Convertible
Subordinated Debentures (the "Convertible
40
Debentures").
(c) VERT will pay the expenses related to registration of the Shares;
provided, however, the Seller Parties shall pay any underwriting commissions and
selling expenses related to the registration of the Shares.
(d) If a Piggyback Registration is an underwritten primary
registration on behalf of VERT and the managing underwriter advises VERT in
writing that marketing factors require a limitation on the number of Shares to
be offered and sold, there shall be included in the offering only that number of
Shares, if any, that such managing underwriter reasonably believes, in its sole
discretion, will not jeopardize the success of the offering.
(e) If a Piggyback Registration is initiated as an underwritten
secondary registration on behalf of the holders of the Common Stock, and the
managing underwriters advise VERT in writing that marketing factors require a
limitation on the number of Shares to be offered and sold, VERT will allocate
the securities to be included as follows: pro rata on the basis of the number of
shares of Common Stock owned among (i) any other Person selling in the
registration and (ii) the Seller Parties.
(f) If a Piggyback Registration is underwritten, the Seller Parties
shall not be entitled to select the investment bank(s) or manager(s) nor shall
the Seller Parties be entitled to make decisions regarding the underwriting
arrangements for the offering.
(g) VERT shall furnish to the Stockholders such reasonable number of
copies of the Required Registration Statement, such prospectuses as are
contained in the Required Registration Statement and such other documents as the
Stockholders may reasonably request in order to facilitate the offering of the
Shares.
(h) VERT shall prepare and promptly file with the Commission and
promptly notify the Holders of the filing of such amendments or supplements to
the Required Registration Statement or prospectuses contained therein as may be
necessary to correct any statements or omissions, if, at the time when a
prospectus relating to the Shares is required to be delivered under the
Securities Act, any event shall have occurred as a result of which any such
prospectus as then in effect would include an untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. Upon the delivery of any notice by VERT to the Stockholders that the
Required Registration Statement or the prospectus contained therein contains an
untrue statement of a material fact or omits to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or if VERT is engaged in any conduct
that, in the good faith judgment of VERT's Chief Financial Officer, requires the
Stockholders to refrain from selling Shares under such prospectus, the
Stockholders shall not sell any Shares under such prospectus until VERT has
informed the Stockholders that the Stockholders can once again sell Shares under
such prospectus. VERT shall also advise the Stockholders promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of any stop order by
the Commission suspending the effectiveness of the Required
41
Registration Statement or the initiation or threatening of any proceeding for
that purpose and promptly use its reasonable efforts to prevent the issuance of
any stop order or to obtain its withdrawal if such stop order should be issued.
(i) The Stockholders shall furnish VERT with such information regarding
the Stockholders as VERT may reasonably request and as shall be required in
connection with any registration, qualification or compliance referred to in
this Agreement.
(j) Indemnification.
---------------
(i) VERT will indemnify and hold harmless the Stockholders from
and against any and all losses, damages, liabilities, costs and expenses to
which the Stockholders or any such controlling person may become subject under
the Securities Act or otherwise, insofar as such losses, claims, damages,
liabilities, costs or expenses are caused by any untrue statement or alleged
untrue statement of any material fact contained in the Required Registration
Statement, any prospectus contained therein or any amendment or supplement
thereto, or arise out of or based upon the omission or alleged omission to state
therein 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; provided, however, that, VERT will not be liable in any such
case to the extent that any such loss, claim, damage, liability, cost or expense
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission so made in conformity with information furnished
by or on behalf of a Stockholder.
(ii) Each of the Stockholders, jointly and severally, will
indemnify and hold harmless VERT and each person, if any, who controls VERT
within the meaning of the Securities Act, from and against any and all losses,
damages, liabilities, costs and expenses to which VERT or any such controlling
person may become subject under the Securities Act or otherwise, insofar as such
losses, damages, liabilities, costs or expenses are caused by any untrue
statement or alleged untrue statement of any material fact contained in the
Required Registration Statement, any prospectus contained therein or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein 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, to the extent that
such untrue statement or alleged untrue statement or omission or alleged
omission was so made in reliance upon and in strict conformity with written
information furnished by or on behalf of a Stockholder for use in the
preparation thereof.
(iii) Promptly after receipt by an indemnified party pursuant to the
provisions of Section 7.3(j)(i) or (ii) of notice of the commencement of any
action involving the subject matter of the foregoing indemnity provisions, such
indemnified party will, if a claim thereof is to be made against the
indemnifying party pursuant to the provisions of Section 7.4(j)(i) or (ii),
promptly notify the indemnifying party of the commencement thereof; but the
omission to so notify the indemnifying party will not relieve it from any
liability which it may have hereunder unless the indemnifying party has been
materially prejudiced thereby nor will such failure to so notify the
indemnifying party relieve it from any liability which it may have to
42
any indemnified party otherwise than hereunder. In case such action is brought
against any indemnified party and it notifies the indemnifying party of the
commencement thereof, the indemnifying party shall have the right to participate
in, and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party; provided, however, if the defendants in
any action include both the indemnified party and the indemnifying party and
there is a conflict of interest which would prevent counsel for the indemnifying
party from also representing the indemnified party, the indemnified party or
parties shall have the right to select separate counsel to participate in the
defense of such action on behalf of such indemnified party or parties. After
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party will not be liable to such
indemnified party pursuant to the provisions of Section 7.4(j)(i) or (ii) for
any legal or other expense subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation, unless (x) the indemnified party shall have employed counsel in
accordance with the provisions of the preceding sentence, (y) the indemnifying
party shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after the notice of the
commencement of the action or (z) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party.
8. Mutual Covenants.
----------------
8.1 Fulfillment of Closing Conditions. Between the date of this Agreement
---------------------------------
and the Closing Date, each Party shall use commercially reasonable efforts to
fulfill the conditions specified in Sections 9 and 10. In connection with the
foregoing, each Party will (a) refrain from any actions that would cause any of
its representations and warranties to be inaccurate as of the Closing, and take
any reasonable actions within its control that would be necessary to prevent
its representations and warranties from being inaccurate as of the Closing, (b)
execute and deliver the applicable agreements and other documents referred to
in Sections 9 and 10, (c) comply with all applicable Laws in connection with
its execution, delivery and performance of this Agreement and the Transactions,
(d) use commercially reasonable efforts to obtain in a timely manner all
necessary waivers, consents and approvals required under any Laws (including
any approval required under the HSR Act), Contracts or otherwise, including any
Seller Required Consents in the case of the Seller and (e) use commercially
reasonable efforts to take, or cause to be taken, all other actions and to do,
or cause to be done, all other things reasonably necessary, proper or advisable
to consummate and make effective as promptly as practicable the Transactions.
8.2 Employees.
---------
(a) At least 10 Business Days prior to the Closing Date, the Seller
shall provide the Buyer a list of all employees of the Seller who have been
engaged in the Business at any time during the past 12 months ("Eligible
Employees") identified by name, US social security number (if applicable, and,
if not, a valid I-9 Form for such employee), hire date and then current base
salary or hourly wage. The Buyer shall offer, or cause to be offered, employment
to all employees of the Seller upon such terms as the Buyer deems appropriate.
The
43
Seller shall not take any actions to prevent or inhibit its employees from
accepting employment with the Buyer. The Seller shall remain solely responsible
for all Liabilities arising out of or related to any legal duty or obligation,
pursuant to any express or implied contract, policy, plan, statute, ordinance,
regulation, or common law, that it or its agents may have had, have or will
have, as the employer of any employee of the Business (including without
limitation, in connection with the consummation of the Transactions). Without
limiting the foregoing, the Seller shall retain all responsibility and liability
with respect to the Benefit Plans, and the Buyer shall have no responsibility or
liability with respect to the Benefit Plans.
(b) No later than 5 Business Days prior to the Closing Date, the Seller
shall provide the Buyer with a list of all employees, former employees,
dependents or other beneficiaries of the Seller who have experienced a COBRA
qualifying event, as defined in ERISA Section 603, and as of the Closing Date
are either (i) eligible to receive COBRA coverage or (ii) are receiving COBRA
coverage. The Seller shall provide the Buyer with an updated list on the Closing
Date. On and after the Closing Date, the Buyer shall provide COBRA coverage to
the extent required by law to the individuals specified on the list provided to
the Buyer by the Seller on the Closing Date.
(c) No later than 10 Business Days prior to the Closing Date, the Seller
shall provide each of the Seller's employees with an outstanding loan under the
Seller's 401(k) Plan with the opportunity to receive a loan directly from the
Seller to enable the employee to repay such outstanding loan balance under the
Seller's 401(k) Plan. The Seller's loan to the employee shall be evidenced by a
legally enforceable note on substantially the same terms as the employee's loan
under the Seller's 401(k) Plan. Within 10 Business Days prior to the Closing
Date, the Seller shall provide Buyer with a list of all employees who have
entered into loans with the Seller and copies of the notes evidencing such
loans. The Buyer hereby agrees to assume only those outstanding loans for those
specified employees who become employees of the Buyer on the Closing Date. Such
loans shall be assumed by the Buyer under the same terms and conditions of such
loan between the Seller and the specified employees.
8.3 Disclosure of Certain Matters. The Seller Parties on the one hand,
-----------------------------
and Buyer on the other hand, shall give the Seller Parties and the Buyer,
respectively, prompt notice of any event or development that occurs that (a) had
it existed or been known on the date hereof would have been required to be
disclosed by such Party under this Agreement, (b) would cause any of the
representations and warranties of such Party contained herein to be inaccurate
or otherwise misleading, except as contemplated by the terms hereof or (c) gives
any such Party any reason to believe that any of the conditions set forth in
Section 9 or 10 will not be satisfied prior to the Termination Date (defined
below).
8.4 Additional Financial Statements. Within 45 days after the Closing
-------------------------------
Date, the Parties shall cause Xxxxxxxx to prepare and deliver to the Parties
audited financial statements of the Business for the period from January 1, 2000
until the Closing Date consisting of a balance
44
sheet as of the Closing Date and related statements of income and cash flows for
the period then ended (the "Closing Financial Statements"). In preparing the
Closing Financial Statements, Xxxxxxxx shall follow GAAP, consistently applied
and in accordance with the Seller's past practices.
8.5 Public Announcements. Any public announcement or similar publicity
--------------------
with respect to this Agreement or the Transactions will be issued, if at all, at
such time and in such manner as VERT determines; provided, however, that VERT
shall seek the prior consent of the Seller as to the form of the announcement.
Unless consented to by VERT in advance or required by Law, prior to the Closing,
the Seller Parties shall keep this Agreement strictly confidential and may not
make any disclosure of this Agreement to any Person other than the Seller's
Representatives. The Seller Parties and VERT will consult with each other
concerning the means by which the Seller's employees, customers, and suppliers
and others having dealings with the Seller will be informed of the Transactions,
and the Buyer Parties will have the right to be present for any such
communication.
8.6 Transfer Taxes. The Seller and the Buyer shall each pay at the
--------------
Closing one-half of all state and local sales, documentary and other transfer
taxes, if any, due as a result of the purchase, sale or transfer of the
Purchased Assets hereunder. The Buyer shall have no liability with respect to
the so-called Massachusetts "Sting Tax."
8.7 Confidentiality. If the Transactions are not consummated, each Party
---------------
shall treat all information obtained in its investigation of another Party or
any Affiliate thereof, and not otherwise known to them or already in the public
domain, as confidential and shall return to such other Party or Affiliate all
copies made by it or its representatives of confidential information provided by
such other Party or Affiliate.
8.8 Expenses. Except as otherwise provided herein, the Parties shall
--------
each pay all of their respective legal, accounting and other expenses incurred
by such Party in connection with the Transactions.
8.9 Accounts Receivable. Immediately following the 90 day anniversary of
-------------------
the Closing Date, or as soon thereafter as is practicable for the Buyer, the
Parties shall review Schedule 4.10 and determine whether all of the Accounts
Receivable listed on such schedule have been collected. If there are any
amounts on such schedule that have not been collected, the Seller shall have 10
additional Business Days following such review to collect any then outstanding
Accounts Receivable that were listed on Schedule 4.10. If after such 10 day
period, any Accounts Receivable listed on Schedule 4.10 remain uncollected,
after taking into account the bad debt reserve reflected on the Financial
Statements, the Buyer shall be entitled to recover such amount from the Escrow
Funds. The Seller shall be entitled to receive such uncollected Accounts
Receivable from the Buyer and shall be entitled to retain any amounts collected
therefrom. If it is determined that any portion of the bad debt reserve remains
available after application of the bad debt reserve to any uncollected
outstanding Accounts Receivable listed on Schedule 4.10, the amount of such
remainder shall be paid to the Seller in cash by the Buyer (such amount, the "AR
Reserve Remainder"). To the extent there is any disagreement between
45
the Buyer and the Seller under this Section 8.9 as to the amounts set forth on
Schedule 4.10 and whether such amounts were collected, notice of such dispute
must be provided in writing to the non-disputing party within 10 Business Days
following the review of Schedule 4.10 provided for in this Section 8.9, and the
parties will negotiate in good faith to resolve the dispute among themselves
within 10 days of the delivery of such notice. If the dispute is not resolved in
such time period, it shall be adjudicated by nationally recognized public
accountants chosen by the Buyer and the determination of such accountants shall
be determinative of the matter.
8.10 Inventory. Immediately following the 90 day anniversary of the
---------
Closing Date, or as soon thereafter as is practicable for the Buyer, the Parties
shall review Schedule 4.11(a) and determine the amount of Inventory on such
schedule that was sold since the Closing Date and the amount at which the
Inventory was sold. If any Inventory listed on Schedule 4.11(a) other than
Inventory under management pursuant to the Nortel Agreement remains unsold or
was sold in the ordinary course of business at a price below the price at which
it was listed on Schedule 4.11(a), after taking into account the inventory
reserve reflected on the Financial Statements, the Buyer shall be entitled to
recover such aggregate amount from the Escrow Funds. The Seller shall be
entitled to receive the unsold Inventory from the Buyer and shall be entitled to
liquidate such Inventory in a mutually agreed upon manner between the Buyer and
the Seller. The Seller shall be entitled to the proceeds of such liquidation. If
it is determined that any portion of the inventory reserve remains available
after application of the inventory reserve to any unsold Inventory listed on
Schedule 4.11(a), the amount of such remainder shall be paid to the Seller in
cash by the Buyer (such amount, the "Inventory Reserve Remainder"). To the
extent there is any disagreement between the Buyer and the Seller under this
Section 8.10 as to the amounts set forth on Schedule 4.11(a) and whether such
Inventory was sold and the price at which any Inventory was sold, notice of such
dispute must be provided in writing to the non-disputing party within 10
Business Days following the review of the Parties of Schedule 4.11(a) as
provided in this Section 8.10, and the parties will negotiate in good faith to
resolve the dispute among themselves within 10 days of the delivery of such
notice. If the dispute is not resolved in such time period, it shall be
adjudicated by nationally recognized public accountants chosen by the Buyer and
the determination of such accountants shall be determinative of the matter.
9. Conditions Precedent to Obligations of the Seller Parties.
---------------------------------------------------------
All obligations of the Seller Parties to consummate the Transactions are
subject to the satisfaction (or waiver by the Seller) prior thereto of each of
the following conditions:
9.1 Representations and Warranties. The representations and warranties
------------------------------
of the Buyer Parties contained in this Agreement shall be true and correct on
the date hereof and (except to the extent such representations and warranties
speak as of an earlier date) shall also be true and correct on and as of the
Closing Date with the same force and effect as if made on and as of the Closing
Date; provided, however, that for purposes of this Section 9.1 only, such
representations and warranties shall be deemed to be true and correct unless the
failure or failures of such representations and warranties to be so true and
correct, individually or in the aggregate, result or would reasonably be
expected to result in a material reduction in the benefits to be
46
received by the Seller hereunder.
9.2 Agreements, Conditions and Covenants. The Buyer Parties shall have
------------------------------------
performed or complied with all agreements, conditions and covenants required by
this Agreement to be performed or complied with by it on or before the Closing
Date; provided, however, that for purposes of this Section 9.2 only, the Buyer
Parties shall have deemed to have complied with such agreements, conditions and
covenants unless the failure or failures to do so, individually or in the
aggregate, result or would reasonably be expected to result in a material
reduction in the benefits to be received by the Seller hereunder.
9.3 Legality. No Law or Court Order shall have been enacted, entered,
--------
promulgated or enforced by any court or governmental authority that is in effect
and has the effect of making the Transactions illegal or otherwise prohibiting
the consummation of the Transactions. The Parties shall have received any
clearance that may be required under the HSR Act.
10. Conditions Precedent to Obligations of the Buyer. All obligations of the
------------------------------------------------
Buyer Parties to consummate the Transactions are subject to the satisfaction (or
waiver by all such Parties) prior thereto of each of the following conditions:
10.1 Representations and Warranties. The representations and warranties
------------------------------
of the Seller Parties contained in this Agreement shall be true and correct on
the date hereof and (except to the extent such representations and warranties
speak as of an earlier date) shall also be true and correct on and as of the
Closing Date, except for changes contemplated by this Agreement, with the same
force and effect as if made on and as of the Closing Date; provided, however,
that for purposes of this Section 10.1 only, such representations and warranties
shall be deemed to be true and correct unless the failure or failures of such
representations and warranties to be so true and correct, individually or in the
aggregate, result or would reasonably be expected to result in a material
reduction in the benefits to be received by the Buyer Parties hereunder.
10.2 Agreements, Conditions and Covenants. The Seller Parties shall have
------------------------------------
performed or complied in all material respects with all agreements, conditions
and covenants required by this Agreement to be performed or complied with or by
them on or before the Closing Date; provided, however, that for purposes of this
Section 10.2 only, the Seller Parties shall have deemed to have complied with
such agreements, conditions and covenants unless the failure or failures to do
so, individually or in the aggregate, results or would reasonably be expected to
result in a material reduction in the benefits to be received by the Buyer
Parties hereunder.
10.3 Legality. No Law or Court Order shall have been enacted, entered,
--------
promulgated or enforced by any court or governmental authority that is in effect
and (a) has the effect of making the Transactions illegal or otherwise
prohibiting the consummation of the Transactions or (b) in the reasonable
discretion of VERT, has a reasonable likelihood of causing a material reduction
in the benefits to be received by the Buyer Parties hereunder.
10.4 Due Diligence Review. The Buyer Parties shall have completed and
--------------------
shall be
47
fully satisfied in its sole discretion with the results of its review of, and
its other due diligence investigations with respect to, among other things, the
Business, management, operations, results of operations, assets, Liabilities,
properties, Purchased Assets, employee benefits matters, prospects and condition
(financial and otherwise) of the Seller, including contacts with customers,
suppliers and employees.
10.5 Disclosure Schedules. VERT, in its sole discretion, shall be
--------------------
satisfied with the form and substance of the Disclosure Schedules and any
updated versions thereof.
10.6 Seller Required Consents and Approvals. All consents, approvals and
--------------------------------------
actions of, filings with and notices to any governmental or regulatory authority
(including any clearance that may be required under the HSR Act) necessary to
permit the Buyer Parties and the Seller Parties to perform their obligations
under this Agreement, to enable the Buyer to operate the Business as it was
operated on the date hereof by the Seller and to consummate the Transactions (i)
shall have been duly obtained, made or given, (ii) shall be in form and
substance reasonably satisfactory to VERT, (iii) shall not be subject to the
satisfaction of any condition that has not been satisfied or waived and (iv)
shall be in full force and effect, and all terminations or expirations of
waiting periods imposed by any governmental or regulatory authority necessary
for the consummation of the transactions contemplated by this Agreement and the
Transaction Documents shall have occurred.
10.7 Third Party Consents. All consents (or in lieu thereof waivers) to
--------------------
the performance by the Buyer and the Seller of their obligations under this
Agreement or to the consummation of the transaction contemplated hereby as are
required under any Contract to which the Buyer or the Seller is a party or by
which any of their respective assets are bound (i) shall have been obtained,
(ii) shall be in form and substance reasonably satisfactory to the Buyer, (iii)
shall not be subject to the satisfaction of any condition that has not been
satisfied or waived and (iv) shall be in full force and effect, except where the
failure to obtain any such consent (or in lieu thereof waiver) could not
reasonably be expected, individually or in the aggregate with other such
failures, to have a Material Adverse Effect or otherwise result in a material
diminution of the benefits of the Transactions to the Buyer.
10.8 Lease termination. The Roadrunner Realty Trust Building Lease for
-----------------
Suites 1 through 4 at 000 Xxxxxxx Xxxxxx, Xxxxxxx, Xxxxxxxxxxxxx, shall have
been terminated.
11. Indemnification.
----------------
11.1 By the Seller Parties. From and after the Closing Date, the Seller
---------------------
Parties, jointly and severally, shall indemnify and hold harmless each of VERT
and the Buyer and (if any) their respective successors and assigns, and their
respective officers, directors, employees, stockholders, agents, Affiliates and
any Person who controls any of such Persons within the meaning of the Securities
Act or the Exchange Act (each, an "Indemnified Buyer Party") from and against
any liabilities, claims, demands, judgments, losses, costs, damages or expenses
whatsoever (including reasonable "attorneys", "consultants" and other
professional fees and disbursements of every kind, nature and description
incurred by such Indemnified Buyer Party in
48
connection therewith, including consequential and punitive damages)
(collectively, "Damages") that such Indemnified Buyer Party may sustain, suffer
or incur and that result from, arise out of or relate to (a) any breach of any
of the representations, warranties, covenants or agreements of a Seller Party
contained in this Agreement, (b) any Unassumed Liability, (c) any Liability
arising out of or related to the actual or constructive termination of any
employee, (d) any Liability (other than any Liability relating to COBRA
obligations set forth under Section 8.2(b)) arising out of employment-related
claims relating to, or arising out of, the continued employment of employees of
the Seller (i.e., those who have not accepted employment with the Buyer as of
the Closing Date), (e) any Liability of the Seller involving any Excluded Asset,
and (f) any Liability that arises out of, or relates to, the loans assumed by
the Buyer in accordance with Section 8.2(c), provided, however, that such
indemnification hereunder shall not be limited by any minimum, maximum, or time
period that otherwise would apply to indemnified items.
11.2 By VERT and the Buyer. From and after the Closing Date, VERT and the
---------------------
Buyer, jointly and severally, shall indemnify and hold harmless the Seller
Parties and their respective successors and assigns, and (if any) their
respective officers, directors, employees, stockholders, agents, Affiliates and
any Person who controls any of such Persons within the meaning of the Securities
Act or the Exchange Act (each, an "Indemnified Seller Party") from and against
any Damages that such Indemnified Seller Party may sustain, suffer or incur and
that result from, arise out of or relate to (a) any breach of any of the
respective representations, warranties, covenants or agreements of the Buyer
contained in this Agreement, and (b) any Assumed Liability.
11.3 Procedure for Claims.
--------------------
(a) Any Person who desires to seek indemnification under any part of
this Section 11 (each, an "Indemnified Party") shall give written notice in
reasonable detail (a "Claim Notice") to each Party responsible or alleged to be
responsible for indemnification hereunder (an "Indemnitor") and the Escrow Agent
prior to any applicable Expiration Date (as defined in Section 11.4). Such
notice shall briefly explain the nature of the claim and the parties known to be
invoked, and shall specify the amount thereof. If the matter to which a claim
relates shall not have been resolved as of the date of the Claim Notice, the
Indemnified Party shall estimate the amount of the claim in the Claim Notice,
but also specify therein that the claim has not yet been liquidated (an
"Unliquidated Claim"). If an Indemnified Party gives a Claim Notice for an
Unliquidated Claim, the Indemnified Party shall also give a second Claim Notice
(the "Liquidated Claim Notice") within 60 days after the matter giving rise to
the claim becomes finally resolved, and the Second Claim Notice shall specify
the amount of the claim. Each Indemnitor to which a Claim Notice is given shall
respond to any Indemnified Party that has given a Claim Notice (a "Claim
Response") within 30 days (the "Response Period") after the later of (i) the
date that the Claim Notice is given or (ii) if a Claim Notice is first given
with respect to an Unliquidated Claim, the date on which the Liquidated Claim
Notice is given. Any Claim Response shall specify whether the Indemnitor giving
the Claim Response disputes the claim described in the Claim Notice. If any
Indemnitor fails to give a Claim Response within the Response Period, such
Indemnitor shall be deemed not to dispute the claim described in the
49
related Claim Notice. If any Indemnitor elects not to dispute a claim described
in a Claim Notice, whether by failing to give a timely Claim Response in
accordance with the terms hereof or otherwise, then the amount of such claim
shall be conclusively deemed to be an obligation of such Indemnitor.
(b) If any Indemnitor shall be obligated to indemnify an Indemnified
Party pursuant to this Section 11, such Indemnitor shall pay to such Indemnified
Party the amount to which such Indemnified Party shall be entitled within 15
Business Days after the day on which such Indemnitor became so obligated to the
Indemnified Party. If the Indemnified Party shall be an Indemnified Buyer Party,
it shall first seek payment of the Damages to which it is entitled under this
Section 11 from the Escrow Funds, but only to the extent that Escrow Funds are
then being held by the Escrow Agent and are not subject to other claims for
indemnification; thereafter, if the amount of the Escrow Funds available for
payment of Damages is less than the amount of Damages to which such Indemnified
Buyer Party is entitled, such Indemnified Buyer Party shall seek indemnification
directly from the Seller Parties. If any Indemnitor fails to pay all or part of
any indemnification obligation when due, then such Indemnitor shall also be
obligated to pay to the applicable Indemnified Party interest on the unpaid
amount for each day during which the obligation remains unpaid at an annual rate
equal to the Prime Rate plus 5%.
(c) The claims period for the Escrow Funds shall commence on the date
hereof and shall continue until the date on which VERT timely files or should
have filed its Annual Report on Form 10-K for the year ending December 31, 2000
in accordance with the rules and regulations of the Commission (the "Claims
Period"). Upon the expiration of the Claims Period, any Escrow Funds then
remaining shall be released to the Seller; provided, however, that if any claim
is pending as of the expiration of the Claims Period, Escrow Funds in an amount
equal to the amount of any pending claims shall remain in escrow with the Escrow
Agent pursuant to the Escrow Agreement until such claims are finally resolved.
Any Claim Notice shall be considered timely made for the purposes of this
Section 11 if given prior to the termination of the Claims Period and in
accordance with the notice requirements of Section 15. Any Claim Response shall
be considered timely made for the purposes of this Section 11 if given prior to
the termination of the Response Period and in accordance with the notice
requirements of Section 15.
(d) If, during the Response Period, an Indemnified Party receives a Claim
Response from the Indemnitor, then for a period of 45 days (the "Resolution
Period") after the Indemnified Party's receipt of such Claim Response, the
Indemnified Party and the Indemnitor shall endeavor to resolve any dispute
arising therefrom. If such dispute is resolved by the parties during the
Resolution Period, the amount that the parties have specified as the amount to
be paid by the Indemnitor, if any, as settlement for such dispute shall be
conclusively deemed to be an obligation of such Indemnitor. If the parties are
unable agree upon a resolution to such dispute prior to the expiration of the
Resolution Period (or any extension thereto to which the Indemnitor and
Indemnified Party agree in writing), the issue shall be presented to the
American Arbitration Association in Philadelphia, Pennsylvania (the "AAA") for
determination. The written
50
determination of the AAA shall be binding upon the Parties.
(e) If the Indemnified Party is an Indemnified Buyer Party and, pursuant
to Section 11(b), such Indemnified Buyer Party is obligated to seek any portion
of the funds to which such Indemnified Buyer Party is entitled from the Escrow
Funds, then, within two Business Days from the date on which such Indemnified
Buyer Party became entitled to such funds, the Indemnified Buyer Party and the
Indemnitor shall provide joint written instructions to the Escrow Agent as to
(i) the amount of funds, if any, to be dispersed from the Escrow Funds and (ii)
instructions as to the manner in which such funds shall be dispersed by the
Escrow Agent.
(f) Notwithstanding any other provision of this Section 11, except as
provided below in this Section 11.3(f), the Indemnified Buyer Parties on the one
hand, and the Indemnified Seller Parties on the other hand, shall be entitled
to indemnification hereunder with respect to any claim for Damages only when the
aggregate of all Damages to such Indemnified Parties from all such breach of
representations or warranties, plus, in the case of the Indemnified Buyer
Parties, the AR Reserve Remainder and/or the Inventory Reserve Remainder, if
any, exceeds $200,000 (the "Deductible Amount") and then only to the extent of
such excess amount. The foregoing limitation with respect to the Deductible
Amount shall not apply, however, to (a) any breach of the Seller Parties"
representations or warranties under Sections 4.1 through and including 4.6 or
4.13 and (b) a breach of any representations or warranties of a Party to this
Agreement that were made with an intent to mislead or defraud or with a reckless
disregard of the accuracy thereof. In addition, in the case of the Claim that
may be made based on a breach of a representation or warranty as well as on any
other item described in clauses (a) through (e) of the first sentence of Section
11.1, such limitations regarding the Deductible Amount shall not apply to the
extent that such Claim is not based solely on an asserted breach of a
representation or warranty. Notwithstanding the foregoing, the maximum
limitation for claims arising out of or related to any matters set forth in
clause (a) shall be $25,000,000. In addition, the calculation of the
Deductible Amount shall include any Damages incurred by an Indemnified Party for
which the Indemnified Party would have been entitled to claim indemnification
under this Section 11 with respect to a breach of a representation or warranty
but for such Claim being excluded as a result of the qualification of such
representation or warranty by the knowledge of a particular party or related
exceptions.
(g) (i) It is the intent of the Parties that the Escrow Funds
consist of at least $25,000,000, prior to any claims for indemnification that
may be made by the Indemnified Buyer Parties. Upon the Effective Date of the
Required Registration Statement, the Seller shall have the right, during the 45
day period following the Effective Date to instruct the Escrow Agent to release
to a broker mutually satisfactory to the Buyer and the Seller from the Escrow
Funds a sufficient number of shares (the "Monetization Shares") of the Escrow
Stock that the Seller reasonably believes will generate at least $25,000,000 in
net proceeds pursuant to a sale under the Required Registration Statement (the
"Monetization Notice"). The Seller shall, as a condition to the release of the
Escrow Stock for sale pursuant to this Section 11.3(g), provide the broker with
written instructions (with a copy of such instructions simultaneously provided
to the
51
Escrow Agent and the Buyer) providing for the proceeds of the sale of such
Escrow Stock to be wired directly to the Escrow Agent to be placed into the
escrow account. The Escrow Agent shall release to the Seller the remaining
shares of Escrow Stock (the "Excess Escrow Shares"), as well as any cash
proceeds in excess of $25,000,000 following the sale of the Monetization Shares.
The Excess Escrow Shares shall be immediately subject to the restrictions
provided in Section 6.9. Furthermore, on or prior to the expiration of the 45-
day period following the Effective Date, the Seller shall have the right to
deliver to the Escrow Agent an irrevocable letter of credit from the Seller,
LeSaffre and/or Benedict in favor of VERT or the Buyer that shall expire no
earlier than the expiration of the Claims Period in the amount of $25,000,000
from a financial institution reasonably acceptable to the Seller and the Buyer
(the "Letter of Credit").
(ii) If the Seller does not deliver a Monetization Notice
and does not deliver the Letter of Credit, after the expiration of the 45-day
period following the Effective Date, the Seller shall, upon the Buyer's written
instruction, instruct the Escrow Agent to release to a broker mutually
satisfactory to the Buyer and the Seller from the Escrow Funds the Monetization
Shares for sale under the Required Registration Statement. The Seller shall
provide the broker with written instructions (with a copy of such instructions
simultaneously provided to the Escrow Agent and the Buyer) providing for the
proceeds of the sale of such Escrow Stock to be wired directly to the Escrow
Agent to be placed into the escrow account. The Escrow Agent shall release to
the Seller the Excess Escrow Shares, as well as any cash proceeds in excess of
$25,000,000 following the sale of the Monetization Shares.
(h) If, prior to the sale of Monetization Shares or the delivery
of a Letter of Credit as provided in Section 11.3(g), an Indemnified Buyer Party
is entitled to indemnification under Section 11, the Indemnified Buyer Party
shall elect between recovering its Damages (i) directly from a reduction in the
Escrow Stock or (ii) by deferring the recovery of its claim until such time as
the Monetization Shares are sold or a Letter of Credit is delivered, as provided
in Section 11.3(g). If an Indemnified Buyer Party elects to recover its Damages
from a reduction in the Escrow Stock, the Escrow Stock shall be valued, on a per
share basis, according to the per share price of the Common Stock as reported on
the Nasdaq National Market on the date immediately preceding the date on which
the Seller becomes obligated to pay such claim under this Section 11. Prior to
any such recovery of Damages from a reduction in the Escrow Stock, the Seller
shall be given the option to pay the Buyer such Damages in cash. If the price of
the Common Stock has fallen such that the aggregate market value of the Escrow
Stock is insufficient to satisfy completely any claim submitted by an
Indemnified Buyer Party, the Indemnified Buyer Party shall be entitled to
recover any deficiency directly from the Firm Stock pursuant to the Pledge
Agreement. If an Indemnified Buyer Party elects to defer recovery, it shall be
entitled to recover from the proceeds of the sale of the Monetization Shares or
by drawing down on the Letter of Credit, in addition to the amount of Damages to
which they are otherwise entitled, interest on the deferred portion of its
indemnified claim at annual rate equal to Prime Rate (as measured from the date
the deferral began).
11.4 Claims Period. Any claim for indemnification under this Section 11
-------------
shall be made by giving a Claim Notice under Section 11.3 on or before the
applicable "Expiration Date"
52
specified below in this Section 11.4, or the claim under this Section 11 shall
be invalid. The following claims shall have the following respective "Expiration
Dates": (a) the date on which VERT timely files or should have filed its Annual
Report on Form 10-K for the year ending December 31, 2000 --any claims that are
not specified in any of the succeeding clauses; (b) the date on which the
applicable statute of limitations expires--any claim for Damages related to (i)
a breach of any representations or warranties of a Party to this Agreement that
were made with an intent to mislead or defraud or with a reckless disregard of
the accuracy thereof, or (ii) any claim with respect to Taxes; and (c) in
perpetuity -- any Unassumed Liability. If more than one of such Expiration Dates
applies to a particular claim, the latest of such Expiration Dates shall be the
controlling Expiration Date for such claim. So long as an Indemnified Party
gives a Claim Notice for an Unliquidated Claim on or before the applicable
Expiration Date, such Indemnified Party shall be entitled to pursue its rights
to indemnification with respect to any claim detailed in such Claim Notice
regardless of the date on which such Indemnified Party gives the related
Liquidated Claim Notice.
11.5 Third Party Claims. An Indemnified Party that desires to seek
------------------
indemnification under any part of this Section 11 with respect to any actions,
suits or other administrative or judicial proceedings (each, an "Action") that
may be instituted by a third party shall give each Indemnitor prompt notice of a
third party's institution of such Action. After such notice, any Indemnitor
may, or if so requested by such Indemnified Party, any Indemnitor shall,
participate in such Action or assume the defense thereof, with counsel
satisfactory to such Indemnified Party; provided, however, that such Indemnified
Party shall have the right to participate at its own expense in the defense of
such Action; and provided, further, that the Indemnified Party shall not consent
to the entry of any judgment or enter into any settlement, except with the
written consent of the Indemnitor (which consent shall not be unreasonably
withheld). Any failure to give prompt notice under this Section 11.5 shall not
bar an Indemnified Party's right to claim indemnification under this Section 11,
except to the extent that an Indemnitor shall have been harmed by such failure.
11.6 Effect of Investigation or Knowledge. Any claim by the Buyer for
------------------------------------
indemnification shall not be adversely affected by any investigation by or
opportunity to investigate afforded to the Buyer, nor shall such a claim be
adversely affected by the Buyer's knowledge on or before the Closing Date of any
breach of the type specified in the first sentence of Section 11.1 or of any
state of facts that may give rise to such a breach. The waiver of any condition
based on the accuracy of any representation or warranty, or on the performance
of or compliance with any covenant or obligation, will not adversely affect the
right to indemnification, payment of Damages or other remedy based on such
representations, warranties, covenants or obligations.
12. Termination.
-----------
12.1 Grounds for Termination. The Parties may terminate this Agreement at
-----------------------
any time before the Effective Time as provided below:
(a) by mutual written consent of each of the Seller Parties and the
Buyer
53
Parties;
(b) by any Party, if the Closing shall not have been consummated on or
before the Termination Date; provided, however, that the right to terminate this
Agreement under this Section 12.1(b) shall not be available to any Party whose
failure to fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Closing to occur on or before the Termination
Date;
(c) by any Party, if a court of competent jurisdiction or governmental,
regulatory or administrative agency or commission shall have issued a Court
Order (which Court Order the parties shall use commercially reasonable efforts
to lift) that permanently restrains, enjoins or otherwise prohibits the
Transactions, and such Court Order shall have become final and nonappealable;
(d) by VERT, if a Seller Party shall have breached any of its covenants
hereunder in any material respect or if the representations and warranties of
the Seller Parties contained in this Agreement or in any certificate or other
writing delivered by a Seller Party pursuant hereto shall not be true and
correct in any material respect, and, if such breach is subject to cure, the
Seller Parties, have not cured such breach within 10 Business Days of the
Buyer's notice of an intent to terminate; or
(e) by a Seller Party, if a Buyer Party shall have breached any of its
covenants hereunder or if the representations and warranties of the Buyer
Parties contained in this Agreement or in any certificate or other writing
delivered by the Buyer pursuant hereto shall not be true and correct in any
material respect, and, if such breach is subject to cure, the Buyer has not
cured such breach within 10 Business Days of notice of an intent to terminate.
12.2 Effect of Termination. If this Agreement is terminated pursuant to
---------------------
Section 12.1, any Party may pursue any legal or equitable remedies that may be
available if such termination is based on a breach of another Party.
13. General Matters.
---------------
13.1 Contents of Agreement. This Agreement, together with the other
---------------------
Transaction Documents, sets forth the entire understanding of the Parties with
respect to the Transactions and supersedes all prior agreements or
understandings among the parties regarding those matters.
13.2 Amendment, Parties in Interest, Assignment, Etc. This Agreement may
-----------------------------------------------
be amended, modified or supplemented only by a written instrument duly executed
by each of the Parties. If any provision of this Agreement shall for any reason
be held to be invalid, illegal, or unenforceable in any respect, such
invalidity, illegality, or unenforceability shall not affect any other provision
hereof, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. This Agreement shall
be binding upon and inure to the benefit of and be enforceable by the respective
heirs, legal representatives, successors and permitted assigns of the Parties.
Nothing in this Agreement shall confer any
54
rights upon any Person other than the Parties and their respective heirs, legal
representatives, successors and permitted assigns, except as provided in Section
11. No Party shall assign this Agreement or any right, benefit or obligation
hereunder. Any term or provision of this Agreement may be waived at any time by
the Party entitled to the benefit thereof by a written instrument duly executed
by such Party.
13.3 Further Assurances. At and after the Closing, the Parties shall
------------------
execute and deliver any and all documents and take any and all other actions
that may be deemed reasonably necessary by their respective counsel to complete
the Transactions.
13.4 Interpretation. Unless the context of this Agreement clearly
--------------
requires otherwise, (a) references to the plural include the singular, the
singular the plural, and the part the whole, (b) references to any gender
include all genders (c) "or" has the inclusive meaning frequently identified
with the phrase "and/or," (d) "including" has the inclusive meaning frequently
identified with the phrase "but not limited to," (e) references to "hereunder"
or "herein" relate to this Agreement and (f) all currencies refer to United
States dollars. The section and other headings contained in this Agreement are
for reference purposes only and shall not control or affect the construction of
this Agreement or the interpretation thereof in any respect. Section,
subsection, schedule and exhibit references are to this Agreement unless
otherwise specified. Each accounting term used herein that is not specifically
defined herein shall have the meaning given to it under GAAP.
13.5 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be binding as of the date first written above,
and all of which shall constitute one and the same instrument. Each such copy
shall be deemed an original, and it shall not be necessary in making proof of
this Agreement to produce or account for more than one such counterpart.
13.6 Disclosure Schedules. Any items listed or described on the
--------------------
Disclosure Schedules shall be listed or described under a caption that
specifically identifies the section(s) of this Agreement to which the item
relates (which, in each case, shall constitute the only valid disclosure with
respect to such section(s)).
14. Remedies.
--------
The indemnification rights under Section 11 are independent of and in
addition to such rights and remedies as the parties may have at law or in equity
or otherwise for any misrepresentation, breach of warranty or failure to fulfill
any agreement or covenant hereunder on the part of any Party, including the
right to seek specific performance, rescission or restitution, none of which
rights or remedies shall be affected or diminished by Section 11.
15. Notices.
-------
All notices that are required or permitted hereunder shall be in writing
and shall be sufficient if personally delivered or sent by registered or
certified mail, facsimile message or Federal Express
55
or other nationally recognized overnight delivery service. Any notices shall be
deemed given upon the earlier of the date when received at, or the third day
after the date when sent by registered or certified mail or the day after the
date when sent by Federal Express or facsimile to, the address or facsimile
number set forth below, unless such address or facsimile number is changed by
notice to the other Parties:
If to Seller Parties:
Xxxxx X. XxXxxxxx
000 Xxxx Xxxx Xxxx
Xxxxx Xxxxxxx, XX 00000
and
Xxxxxx X. Xxxxxxxx
00 Xxxxxxx Xxxxxx
Xxxx 000, Xxxxxxxxx Xxxxx
Xxxxxx, XX 00000
with a required copy to:
XxXxxxxxx, Will & Xxxxx
00 Xxxxx Xxxxxx
Xxxxxx, XX 00000-0000
Attn: Xxxxxx X. Xxxxxx, P.C.
FAX: 000-000-0000
If to the Buyer Parties:
VerticalNet, Inc.
000 Xxxxxxx Xxxx
Xxxxxxx, XX 00000
Attn: Xxxx X. Xxxxxx and
Xxxxx@xxxxxxxxxxx.xxx
FAX: 000-000-0000
with a required copy to:
Xxxxxx, Xxxxx & Bockius LLP
0000 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000-0000
Attn: Xxxxxxx X. Xxxxxxx, Esq.
FAX: 000-000-0000
56
16. Governing Law.
-------------
This Agreement shall be construed and interpreted in accordance with the
laws of the Commonwealth of Pennsylvania without regard to its provisions
concerning choice of laws or choice of forum. The Parties hereby irrevocably
submit themselves to the non-exclusive jurisdiction of the state and federal
courts sitting in the Commonwealth of Pennsylvania and agree and consent that
services of process may be made upon it in any legal proceedings relating hereto
by any means allowed under state or federal law.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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[SIGNATURE PAGE TO ASSET PURCHASE AGREEMENT]
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the day and year first written above.
R.W. ELECTRONICS, INC. d/b/a Real World
By:______________________________
Name:
Title:
R.W. ELECTRONICS TRUST
By:______________________________
Name:
Title:
_________________________________
XXXXX X. XXXXXXXX
_________________________________
XXXXXX X. XXXXXXXX
VERTICALNET, INC.
By:______________________________
Name: Xxxx X. Xxxxxx
Title: Sr. Vice President and Chief Financial Officer
XXXX.xxx LLC
By:______________________________
Name: Xxxx X. Xxxxxx
Title: Chief Financial Officer
58
