1
EXHIBIT 2.1
================================================================================
STOCK PURCHASE AGREEMENT
by and between
XXXXXXXXX CORPORATION OF AMERICA,
XXXXXXXXX CORPORATION
and
XXXXXX CORPORATE HOUSING, INC,
XXXXX XXXXXX
and
XXXXXXX XXXXXX
November 1, 1997
================================================================================
2
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement is made this 1st day of November, 1997
(the "Agreement") by and among XxxxxXxxx Corporation of America, a Maryland
corporation ("Buyer"), XxxxxXxxx Corporation, a publicly traded Maryland
corporation ("XxxxxXxxx"), Xxxxx Xxxxxx, Xxxxxxx Xxxxxx (Xxxxx Xxxxxx and
Xxxxxxx Xxxxxx together are referred to as "Sellers") and Xxxxxx Corporate
Housing, Inc., a New York corporation (the "Company").
WHEREAS, Sellers own 100 shares of the Company's common stock, par
value $0.01 per share, constituting all the issued and outstanding shares of
capital stock of the Company (the "Shares");
WHEREAS, Sellers desire to sell and Buyer desires to purchase the
Shares on the terms and conditions hereinafter set forth;
WHEREAS, as a condition to purchasing the Shares and executing this
Agreement, Buyer has requested that each of Xxxxx Xxxxxx and Xxxxxxx Xxxxxx
execute a non-competition agreement in the form attached hereto as Exhibit
_____ (the "Non-Compete Agreements"), and each of Xxxxx Xxxxxx and Xxxxxxx
Xxxxxx has agreed to do so, and that each of Xxxxx Xxxxxx and certain of the
Company's key sales officers execute employment agreements with the Buyer (the
"Employment Agreements,"), and Xxxxx Xxxxxx and those officers have agreed to
do so; and
NOW, THEREFORE, in consideration of the mutual promises contained in
this Agreement and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE I
SALE OF SHARES AND CLOSING
1.01 SALE AND PURCHASE OF STOCK. Sellers agree to sell to Buyer,
and Buyer agrees to purchase from Sellers, all the right, title and interest of
Sellers in and to the Shares at the Closing (as defined in Section 1.03) on the
terms and subject to the conditions set forth in this Agreement. By virtue of
its acquisition of the Shares, the parties agree that Buyer
(a) is obtaining all of the Company's rights under and to
the ongoing Company leases and contracts as of the Closing Date, which
include leases to tenants as well as underlying property leases
between the Company as lessee and third-party property owners or
managers as lessor;
2
3
(b) shall have the rights to use the Company's 800
telephone numbers and telephone numbers relating to the Company's New
York City office, and that these numbers will remain with the Company;
and
(c) is obtaining all rights to use the trademarks,
service marks and trade names of the Company.
1.02 PURCHASE PRICE. The aggregate purchase price for the Shares
(the "Purchase Price") shall be composed of (i) the Closing Date Payment, (ii)
the Post-Closing Formula Payment and (iii) the Post-Closing Adjustment,
calculated as follows:
(a) Closing Date Payment. The Closing Date Payment shall
be equal to (i) $7,199,010 plus (ii) $949,323, which is the "Tangible
Net Book Value" (defined as tangible assets less liabilities) recorded
on the Company's September 30, 1997 balance sheet prepared by the
Company's regular certified public accountants (the "Company's
Accountants"). The Closing Date Payment shall be payable
$6,204,752.25 in cash and the balance by the issuance to Sellers of
186,000 shares of XxxxxXxxx'x common stock (the "Purchase Shares").
The Purchase Shares shall have the "piggyback" registration rights
provided in Section 3.06 hereto, and shall be eligible for resale
under Rule 144 of the Securities Act of 1933, as amended (the "Act"),
upon the expiration of Sellers' holding period of the Purchase Shares
under Rule 144 of the Act. The Closing Date Payment shall be
delivered in the manner provided in Section 1.03.
(b) Post-Closing Formula Payment. Subject to the
adjustment procedure relating to the determination of 1997 Adjusted
EBIT set forth in Section 1.02(d), on or prior to the later of March
1, 1998 or the date that is twenty (20) days after the Adjustment
Determination Date, Buyer will pay Sellers the dollar amount equal to
(i) .0548 multiplied by (ii) an amount equal to 5.75 multiplied by the
amount by which 1997 Adjusted EBIT, as defined in Section 1.02(c)
below exceeds $1,200,000.
(c) Post-Closing Adjustment. The Post-Closing Adjustment
shall be computed by aggregating the result of the calculations
described in Sections 1.02(c)(i), (ii) and (iii), and shall be paid in
the manner provided in Section 1.02(c)(iv) and 1.02(d):
(i) Between the Closing Date and December 31, 1997,
Buyer will continue to operate the Company and its business in
the usual manner and in the ordinary course. Regardless of
whether Buyer and XxxxxXxxx maintain the separate corporate
existence of the Company during this period, Buyer and
XxxxxXxxx will nonetheless continue to
3
4
operate all of the Company's business, accounts, receivables
and leases as a separate business or division, will not
transfer any assets or leases out of such separate business or
division, will not transfer into such separate business or
division any other business operations of Buyer, XxxxxXxxx or
their affiliates and will maintain separate books and records
for such separate business or division. For purposes of
calculating 1997 Adjusted EBIT pursuant to this Section
1.02(c)(i), there will be no charges for Buyer's or
Xxxxxxxxx'x corporate overhead, management fees or similar
impositions on such separate business or division by Buyer or
XxxxxXxxx and there will be no charges for any additional
personnel assigned to such separate business or division by
Buyer or XxxxxXxxx or services provided to such separate
business or division by Buyer or XxxxxXxxx. An accounting
review of the Company will be conducted by the Company's
Accountants as at and for the year ended December 31, 1997 and
the calculation of Post-Closing Adjustments by the Company's
Accountants shall be delivered to Buyer no later than March 1,
1998. Utilizing the methodology set forth in the attached
Exhibit A-1 of projected 1997 Company calendar year results,
the Company's Accountants shall prepare a calculation of 1997
actual earnings before interest and taxes (the "1997 Actual
EBIT"), which shall be subject to adjustment pursuant to the
adjustment procedure provisions set forth in Section 1.02(d).
An amount equal to adjusted earnings before interest and taxes
of the Company for the 1997 calendar year (the "1997 Adjusted
EBIT") shall be calculated by the Company's Accountants by
increasing the 1997 Actual EBIT by the net amount of the
adjustments set forth in Exhibit A-2. In the event that the
1997 Adjusted EBIT is in excess of $1,200,000, Buyer shall
make a payment to Sellers equal to 5.75 times such excess. In
the event that 1997 Adjusted EBIT is less than $1,200,000,
Sellers shall make a payment to Buyer equal to 5.75 times such
deficiency. For purposes of calculating 1997 Adjusted EBIT
and Closing Date Tangible Net Book Value, (A) there will be no
charges, accruals or reserves for taxes paid or payable due to
the Section 338(h)(10) election referred to in the second-last
sentence of Section 1.04; (B) with respect to any signing
bonuses and related payroll overhead (such as taxes, FICA,
worker's compensation and Medicare) provided by the Company to
the sales personnel listed on Schedule 4.08, there will be an
accrual for all such expenses for purposes of calculating
Closing Date Tangible Net Book Value, but the amount of such
expenses will be excluded in calculating 1997 Adjusted EBIT;
(C) the methodology used in determining the bad debt reserve
amount as at December 31, 1997 shall be consistent with the
methodology utilized by the Company in determining such
reserve in the September 30, 1997 Financial Statements, but
shall reflect any material deterioration in the ability of
customers to make payment or
4
5
any material adverse trends in the recent payment histories of
any customers; and (D) 1997 Adjusted EBIT shall be decreased
by the actual amount of MCI long distance telephone savings in
1997 attributable to the MCI contract that was entered into in
1997.
(ii) Subject to the adjustment procedure provisions
set forth in Section 1.02(d), Tangible Net Book Value as at
the Closing Date will be determined by an accounting review by
the Company's Accountants utilizing the methodology set forth
in the attached Exhibit B of September 30, 1997 Company
Tangible Net Book Value. In the event that Tangible Net Book
Value at the Closing Date is in excess of Tangible Net Book
Value at September 30, 1997, Buyer shall make a payment to
Sellers equal to such excess. In the event that Tangible Net
Book Value at the Closing Date is less than Tangible Net Book
Value at September 30, 1997, Sellers shall make a payment to
Buyer equal to such deficiency.
(iii) On the Adjustment Determination Date (as
defined in Section 1.02(c)(v) below), the Buyer shall notify
Sellers of the amount of receivables included in Tangible Net
Book Value as at the Closing Date that had not yet been
collected by the Company as of the Adjustment Determination
Date, which notice shall include a detailed listing of the
specific uncollected receivables, which shall be subject to
verification by Sellers and their representatives. To the
extent such uncollected amount exceeds the amount of the bad
debt reserve that had been reflected in Tangible Net Book
Value as at the Closing Date, Sellers shall make a payment to
Buyer equal to such excess. To the extent such bad debt
reserve exceeds such uncollected amount, Buyer shall make a
payment to Sellers equal to such excess. If Sellers make a
payment for any such uncollected accounts receivable, Buyer
shall assign such uncollected accounts receivable to Sellers
as of the date of such payment, and Sellers may pursue
collection for their own account. The Company and Buyer will
use reasonable efforts to collect the receivables of the
Company existing on the Closing Date. Customer payments will
be applied as directed by such customers, or, if no direction
is given by a customer, first to such customer's oldest
invoices outstanding. Sellers shall be permitted to assist
the Company and Buyer in the collection of such receivables
and on or before January 15, 1998 Company and Buyer shall
notify Sellers of any Closing Date receivables that have not
yet been collected.
(iv) Sellers shall pay the costs of the Company's
Accountants in preparing the foregoing statements and reviews.
Buyer shall pay the costs of Buyer's accountants in any
analysis and reviews they may
5
6
perform as to such statements and any audit that may be
necessary to satisfy XxxxxXxxx'x public company filing
obligations, including any filing of Form 8-K with the
Securities and Exchange Commission.
(v) The net adjustment due to Sellers pursuant to
Sections 1.02(c)(i), (ii) and (iii) above, if any, shall be
paid by Buyer, or the net adjustment due to Buyer pursuant to
Sections 1.02(c)(i), (ii) and (iii) above, if any, shall be
paid by Sellers, by wire transfer of immediately available
funds to the account designated by the party entitled to
receive such payment on or prior to the later of the date that
is twenty (20) days after Sellers deliver to Buyer the
Sellers' calculations of the aggregate amount due to or owed
by Sellers as the Post-Closing Adjustment or March 1, 1998.
(d) If prior to the later of the date that is 20 days
following delivery by Sellers or the Company's Accountants of their
calculation of the Post-Closing Adjustment (the "Adjustment
Determination Date") or March 1, 1998, Buyer has not given Sellers
notice of its objections to the amount calculated by Sellers as the
Post-Closing Adjustment, then the amount calculated by Sellers shall
be the Post-Closing Adjustment. If Buyer gives notice of any
objection, and Buyer and the Sellers cannot mutually agree on the
amount of the Post-Closing Adjustment within 10 days after such notice
of Buyer's objection, then the issues in dispute will be submitted to
an independent firm of independent certified public accountants to be
mutually agreed upon by the Sellers and the Buyer (the "Accountants"),
for resolution. If issues in dispute are submitted to Accountants for
resolution, (i) each party will furnish to the Accountants such work
papers and other documents and information relating to the disputed
issues as the Accountants may request and as are available to that
party, and will be afforded the opportunity to present to the
Accountants any material relating to the determination and to discuss
the determination with the Accountants; (ii) the determination by the
Accountants, as set forth in a notice delivered to both parties by the
Accountants, will be binding and conclusive on the parties; and (iii)
the Buyer and the Sellers will each bear 50% of the fees of the
Accountants for such determination. In the event Buyer validly
objects to Sellers calculation of the Post-Closing Adjustment, payment
of the amount in dispute to Sellers may be deferred until final
determination pursuant to this Section 1.02(d), but any amount not in
dispute must be paid within twenty (20) days after the Adjustment
Determination Date.
1.03 SIGNING AND CLOSING.
(a) The signing and closing of the transactions
contemplated in this Agreement (the "Closing") will take place at the
offices of Xxxxxxx, Xxxxxxxxx
6
7
LLP in New York City, New York, at______ a.m. on November ___, 1997,
or at such other place, date and time as is mutually agreeable to
Buyer and Sellers. The Closing will be effective as of the close of
business on the October 31, 1997 (the "Closing Date").
(b) The parties agree to consummate the following
"Closing Transactions" effective as of the Closing Date:
(i) Sellers will assign and transfer to Buyer good
and valid title in and to the Shares, free and clear of all
liens, by delivering to Buyer a stock certificate or
certificates representing the Shares, duly endorsed for
transfer or accompanied by duly executed stock powers endorsed
in blank;
(ii) Buyer shall deliver to Sellers 75% of the
Closing Date Payment by wire transfer of immediately available
funds to the account designated by Sellers to Buyer prior to
the Closing;
(iii) XxxxxXxxx shall deliver to Sellers a stock
certificate, bearing the following restrictive legend,
representing the Purchase Shares:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS.
SUCH SHARES OF STOCK MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF WITHOUT EITHER (i) AN OPINION
OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH
TRANSFER MAY LAWFULLY BE MADE WITHOUT REGISTRATION OR
QUALIFICATION UNDER THE FEDERAL SECURITIES ACT OF
1933, AS AMENDED, AND ALL APPLICABLE STATE SECURITIES
LAWS; OR (ii) SUCH REGISTRATION OR QUALIFICATION
and
(iv) Each of the parties shall deliver to the other
the documents required to be delivered pursuant to this
Agreement, including without limitation the executed
Non-Competition Agreements and the Employment Agreements
discussed in Section 4.08 hereof.
1.04 SECTION 338(h)(10) ELECTION. Buyer and Sellers agree to make
or cause to be made a timely, effective and irrevocable joint election under
Section 338(h)(10) of the Internal Revenue Code of 1986, as amended (the
"Code"), in form and substance
7
8
satisfactory to Buyer and Sellers, with respect to the Company and to file such
election in the manner required by applicable Treasury Regulations. Buyer and
Sellers agree that the September 30, 1997 Balance Sheet (as defined herein)
contains a list of the assets as at September 30, 1997 to which the Modified
Aggregate Deemed Sale Price ("MADSP"), as defined under applicable Treasury
Regulations, would be allocated if the Closing were held on September 30, 1997,
with the amount, if any, by which MADSP exceeds Tangible Net Book Value being
allocated to goodwill; the methodology on such list will be utilized in
allocating the MADSP to the assets of the Company as at the Closing Date based
on the Closing Date balance sheet of the Company utilized by the Company's
Accountants in determining Closing Date Net Tangible Book Value, with the
amount, if any, by which MADSP exceeds Tangible Net Book Value being allocated
to goodwill. Such allocation has been determined by Buyer and Sellers, after
taking into account the applicable Treasury Regulations and the fair market
value of such assets. Sellers shall prepare for filing all of the tax returns,
information returns and statements (the "Election Reports") that may be
required pursuant to Section 338(h)(10) of the Code and applicable Treasury
Regulations, which returns shall be subject to review by Buyers prior to
filing. Buyer shall provide information that may be required by Sellers for
the purpose of preparing such Election Reports and execute and file such
Election Reports as requested by Sellers. Buyer and Sellers shall file all
other returns and tax information on a basis that is consistent with such
Election Reports prepared by Sellers. Buyer and Sellers shall jointly comply
with the requirements under any applicable state and local law so that the
joint election under Section 338(h)(10) of the Code is also valid and effective
for purposes of such state and local law. Sellers will be responsible for
payment of taxes to be borne by the Company solely as a result of the Section
338(h)(10) election, including the New York City and State corporate level
income taxes resulting from a 338(h)(10) election. No representation or
warranty is made by the Sellers as to the ability of the Company, Buyer or
XxxxxXxxx to obtain any tax benefits by reason of the Section 338(h)(10)
election.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF SELLERS AND THE COMPANY
Except as set forth in the Disclosure Schedule delivered by Sellers to
Buyer and XxxxxXxxx on the date hereof (the "Disclosure Schedule," which sets
forth the exceptions to the representations and warranties contained in this
Article II under captions referencing the Sections to which such exceptions
apply), Sellers and the Company jointly and severally represent and warrant as
follows:
2.01 CORPORATE ORGANIZATION AND GOOD STANDING. The Company is duly
organized, validly existing, and in good standing under the laws of the State
of New York. The Company has the power and authority and all authorizations,
licenses,
8
9
permits and certifications necessary to own, lease and operate properties and
to carry on its business as it is now being conducted, and to enter into and
perform its commitments under each of the agreements to be executed by the
Company pursuant to this Agreement. The copies of the Company's Articles of
Incorporation and Bylaws, which have been furnished by the Sellers and the
Company to Buyer prior to the date hereof, reflect all amendments made thereto
and are correct and complete as of the date hereof. The Company is not
qualified to do business as a foreign corporation in any jurisdiction.
2.02 AUTHORIZATION, NO CONFLICTS. Each of the Sellers and the
Company have the power, capacity and authority to execute and deliver this
Agreement and to consummate the transactions contemplated herein (including,
without limitation, the power to sell, transfer and convey the Shares as
provided by this Agreement). The execution, delivery and performance of this
Agreement and any related agreement by the Company have been duly and validly
authorized by its Board of Directors and shareholders and by all other
necessary corporate action on the part of the Company and the Sellers. This
Agreement and any agreements related to the Agreement (the "Related
Agreements") constitute the legally valid and binding obligations of Sellers
and the Company, enforceable against Sellers and the Company in accordance with
their respective terms. The execution, delivery and performance of this
Agreement by Sellers and the Company and the execution, delivery and
performance of any Related Agreements and the consummation of the contemplated
transactions by Sellers and the Company will not violate or constitute a breach
or default, whether upon lapse of time and/or the occurrence of any act or
event or otherwise, under the Articles of Incorporation or Bylaws of the
Company or any other contract, commitment or arrangement of Sellers or the
Company, or result in the imposition of any encumbrance against any of the
Shares or the Company or violate any law, except for any default that may
result from the failure of Sellers, Company or the Buyer to obtain the
consents, approvals, transfers or terminations referred to in Schedule 2.02.
2.03 OWNERSHIP OF CAPITAL STOCK. Sellers own, beneficially and of
record, all right, title and interest in and to the Shares, free and clear of
any security interests, claims, liens, pledges, options, encumbrances, charges,
agreements, voting trusts proxies or other arrangements, restrictions or
limitations of any kind, and on the date hereof, the delivery by Sellers of a
certificate or certificates in the manner set forth in Section 1.03 of this
Agreement will transfer good and valid title to the Shares to Buyer, free and
clear of any security interests, claims, liens, pledges, options, encumbrances,
charges, agreements, voting trusts, proxies or other arrangements, restrictions
or other legal or equitable limitations of any kind.
2.04 SUBSIDIARIES. The Company does not own any stock, partnership
interest, joint venture interest or any other security or ownership interest
issued by any other corporation, organization or entity.
9
10
2.05 CAPITAL STOCK. The authorized capital stock of the Company
consists of 500 shares of Common Stock, par value $0.01 per share, of which, as
of the date hereof, 100 shares are issued and outstanding, all of which are
owned beneficially and of record by Sellers, free and clear of any security
interests, claims, liens, pledges, options, encumbrances, charges, agreements,
voting trusts, proxies or other arrangements, restrictions or other legal or
equitable limitations of any kind. All of the Shares have been duly authorized
and are validly issued, fully paid and nonassessable. The Company has no other
equity securities or securities containing any equity features authorized,
issued or outstanding. There are no agreements or other rights or arrangements
existing that provide for the sale or issuance of capital stock by the Company
and there are no rights, subscriptions, warrants, options, conversion rights or
agreements of any kind outstanding to purchase or otherwise acquire from the
Company any shares of capital stock or other securities of the Company of any
kind. There are no agreements or other obligations (contingent or otherwise)
that may require the Company to repurchase or otherwise acquire any shares of
its capital stock.
2.06 FINANCIAL STATEMENTS. Sellers and the Company have delivered
to Buyer (a) balance sheets relating to the Company as at December 31, 1995 and
December 31, 1996 and statements of income for the fiscal periods then ended;
and (b) a balance sheet relating to the Company as at September 30, 1997 (the
"September 30, 1997 Balance Sheet") and statements of income for the period
then ended (the documents provided under Sections 2.06(a) and (b) are
hereinafter referred to as the "Financial Statements"). True and correct
copies of the Financial Statements are attached hereto as Exhibit D. All such
Financial Statements are true, correct and accurate in all respects, have been
compiled in accordance with statements on standards for accounting and review
services issued by the American Institute of Certified Public Accountants.
2.07 ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed or
recorded on the September 30, 1997 Balance Sheet, the Company has no obligation
or liability (whether accrued, absolute, contingent, unliquidated or otherwise,
whether due or to become due and whether or not insured) arising out of
transactions or events heretofore entered into, or any action or inaction, or
any state of facts existing, with respect to or based upon transactions or
events heretofore occurring, except for (i) liabilities which have arisen after
the date of the September 30, 1997 Balance Sheet arising in the ordinary course
of business, (ii) as otherwise set forth in the Disclosure Schedule, or (iii)
liabilities under contracts, leases and commitments disclosed on Schedule 2.09
hereto.
2.08 NO MATERIAL ADVERSE CHANGES. Since September 30, 1997, there
has been no material adverse change in customer, employee or supplier
relations, or the business condition of the Company, provided however, that
this statement is
10
11
specific to the Company and that Sellers make no representations as to general
economic conditions or the corporate housing industry in any geographic area.
2.09 CONTRACTS AND COMMITMENTS.
(a) Schedule 2.09 contains an accurate and complete list of
all the contracts of the Company, whether oral or written. To the
best knowledge of the Company and Sellers, each such contract is valid
and in full force and effect, the Company has duly performed all of
its obligations thereunder, and no breach or default, alleged breach
or default, or event which would (with the passage of time, notice or
both) constitute a breach or default thereunder by the Company or any
other party or obligor with respect thereto, has occurred or as a
result of this Agreement or consummation of the transactions
contemplated by this Agreement will occur. The Company is not in
receipt of any claim of default under any contract or commitment.
Consummation of the transactions contemplated by this Agreement will
not (and will not give any person a right to) terminate or modify any
rights of, or accelerate or augment any obligation of, the Company or
Sellers under any of such contracts.
(b) With respect to any of the Company's customer leases (a
"Lease"), in addition to the representations set forth in Section
2.09(a) above, the Company represents itself to be the absolute owner
of each such Lease, and all security deposits and prepaid rents held
by the Company with respect thereto. In addition, (i) all Leases are
valid and in full force and have not been modified, amended or
terminated, except as stated herein; (ii) there are no outstanding
assignments or pledges by the Company thereof or of the rents, income
and profits due or to become due thereunder; and (iii) each lessee is
paying rent and other charges as required under its Lease.
(c) Prior to the date of this Agreement, Seller has made
available to Buyer for Buyer's review a true and correct copy of each
written contract or commitment, together with all amendments, waivers
or other changes thereto, and the Disclosure Statement contains a
written description of each oral contract or commitment under the
caption referencing this Section 2.09.
2.10 ABSENCE OF CERTAIN DEVELOPMENTS. Since September 30, 1997,
the Company has not (except with the prior approval of Buyer or as specifically
permitted or required by this Agreement):
(a) borrowed any amount or incurred or become subject to
any liability in excess of $50,000, except (i) current liabilities
incurred in the ordinary course of business and (ii) liabilities under
contracts entered into in the ordinary course of business;
11
12
(b) mortgaged, pledged or subjected to any lien, charge
or any other encumbrance, any of its assets with a fair market value
in excess of $25,000, except (i) liens for current property taxes not
yet due and payable, (ii) liens in respect of pledges or deposits
under workers' compensation laws, (iii) liens set forth under the
caption referencing this Section 2.10(b) in the Disclosure Schedule,
or (iv) liens voluntarily created in the ordinary course of business,
all of which liens aggregate less than $50,000;
(c) discharged or satisfied any lien or encumbrance or
paid any liability, in each case with a value in excess of $50,000,
other than current liabilities paid in the ordinary course of
business;
(d) sold, assigned or transferred (including, without
limitation, transfers to any employees, affiliates or shareholders)
any tangible assets with a fair market value in excess of $10,000, or
canceled any debts or claims, in each case, except in the ordinary
course of business;
(e) sold, assigned or transferred (including, without
limitation, transfers to any employees, affiliates or shareholders)
any patents, trademarks, trade names, copyrights, trade secrets or
other intangible assets;
(f) disclosed, to any person other than Buyer and
XxxxxXxxx and authorized representatives of Buyer and XxxxxXxxx, any
proprietary confidential information;
(g) waived any rights of material value or suffered any
extraordinary losses or adverse changes in collection loss experience,
whether or not in the ordinary course of business or consistent with
past practice;
(h) declared or paid any dividends or other distributions
with respect to any shares of the Company's capital stock or redeemed
or purchased, directly or indirectly, any shares of the Company's
capital stock or any options;
(i) issued, sold or transferred any of its equity
securities, securities convertible into or exchangeable for its equity
securities or warrants, options or other rights to acquire its equity
securities, or any bonds or debt securities;
(j) taken any other action or entered into any other
transaction other than in the ordinary course of business and in
accordance with past custom and practice, or entered into any
transaction with any "insider" (as defined in Article 2.19 hereof)
other than employment arrangements
12
13
otherwise disclosed in this Agreement and the Disclosure Schedule, or
the transactions contemplated by this Agreement;
(k) to the best knowledge of Sellers and the Company,
suffered any material theft, damage, destruction or loss of or to any
property or properties owned or used by it, whether or not covered by
insurance;
(l) made or granted any bonus or any wage, salary or
compensation increase to any director, officer, employee who earns
more than $50,000 per year, or consultant or made or granted any
increase in any employee benefit plan or arrangement, or amended or
terminated any existing employee benefit plan or arrangement, or
adopted any new employee benefit plan or arrangement or made any
commitment or incurred any liability to any labor organization;
(m) made any single capital expenditure or commitment
therefor in excess of $25,000;
(n) made any loans or advances to, or guarantees for the
benefit of, any persons such that the aggregate amount of such loans,
advances or guarantees at any time outstanding is in excess of
$10,000;
(o) made charitable contributions or pledges which in the
aggregate exceed $10,000; or
(p) made any change in accounting principles or practices
from those utilized in the preparation of the Financial Statements.
2.11 TITLE TO PROPERTIES.
(a) The Company does not own any real property.
(b) To the best knowledge of the Company and Sellers, the
Company's property leases (the "Property Leases") are in full force
and effect. The Company holds a valid and existing leasehold interest
under each of the Property Leases for the term set forth under such
caption in the Disclosure Schedule. The Company has made available to
Buyer complete and accurate copies of each of the Property Leases, and
none of the Property Leases has been modified in any respect, except
to the extent that such modifications are disclosed by the copies made
available to Buyer. To the best knowledge of the Company and the
Sellers, the Company is not in default, and no circumstances exist
which, if unremedied, would, either with or without notice or the
passage of time or both, result in any default under any of the
13
14
Property Leases; nor, to the best knowledge of the Company and
Sellers, is any other party to any of the Property Leases in default.
(c) The Company owns good and marketable title to each of
the tangible properties and tangible assets reflected in the Closing
Date Net Tangible Book Value, free and clear of all liens and
encumbrances, except for (i) liens for current taxes not yet due and
payable, (ii) liens set forth under the caption referencing this
Section 2.11 in the Disclosure Schedule, and (iii) liens in respect of
pledges or deposits under workers' compensation laws, all of which
liens under this clause (iii) aggregate less than $50,000.
(d) All of the equipment and other tangible assets
included in Tangible Net Book Value as at the Closing Date are in good
condition and repair, ordinary wear and tear excepted, and are usable
in the ordinary course of business. There are no defects in such
assets or other conditions relating thereto which, in the aggregate,
materially adversely affect the operation or value of such assets.
2.12 GOVERNMENT APPROVALS. No governmental approval,
authorization, order, license, permit, or consent, and no registration, filing
or declaration with any governmental authority, is required in connection with
Sellers' or the Company's execution, delivery and performance of this Agreement
and the Related Agreements.
2.13 TAX MATTERS.
(a) The Company has had a valid election to be treated as
an S corporation under Section 1362 of the Code, in effect for all
taxable years, such election has not been revoked or otherwise
terminated, and no event has occurred which with a lapse of time would
cause such election to be revoked or otherwise terminated. The
Company never has been a member of any affiliated, combined or unitary
group for purposes of any Taxes (as defined below).
(b) The Company has: (i) timely filed (or has had timely
filed on its behalf) all returns, declarations, reports, estimates,
information returns, schedules and statements ("Returns") required to
be filed or sent by it in respect of any Taxes or required to be filed
or sent by it by any taxing authority having jurisdiction over the
Company; (ii) timely and properly paid (or has had paid on its behalf)
all Taxes shown to be due and payable on such Returns; (iii)
established on its September 30, 1997 Balance Sheet, in accordance
with generally accepted accounting principles, reserves that are
adequate for the payment of any Taxes not yet due and payable; (iv)
complied with all applicable laws, rules, and regulations relating to
the withholding of
14
15
Taxes and the payment thereof. All Returns filed by or on behalf of
the Company are correct and complete. The Company has not requested
any extension of time within which to file any Return, which Return
has not since been filed. There are no liens for Taxes upon any
assets of the Company, except liens for Taxes not yet due.
(c) The Company has provided to Buyer true and complete
copies of all Returns filed by or on behalf of the Company for all
periods ending on or after 1994.
(d) No deficiency for any Taxes has been proposed,
asserted or assessed against the Company that has not been resolved
and paid in full. No waiver, extension or comparable consent given by
the Company regarding the application of the statute of limitations
with respect to any Taxes or Returns is outstanding, nor is any
request for any such waiver or consent pending. There has been no Tax
audit or other administrative proceeding or court proceeding with
regard to any Taxes or Returns, nor is any such Tax audit or other
proceeding pending, nor is any such Tax audit or other proceeding
threatened with regard to any Taxes or Returns. The Company is not
aware of any unresolved claims or disputes concerning the liability
for Taxes of the Company that would exceed the estimated reserves
established on its books and records.
(e) The Company is not a party to any tax sharing
agreement, contract or arrangement that would cause the Company to be
obligated to pay any Tax obligation of any other person. The Company
is not a party to any agreement, contract or arrangement that would
result, separately or in the aggregate, in the payment of any "excess
parachute payments" within the meaning of Section 280G of the Code and
the consummation of the transactions contemplated by this Agreement
will not be a factor causing payments to be made by the Company that
are not deductible (in whole or in part) under Section 280G of the
Code. No property of the Company is property that the Company is or
will be required to treat as being owned by another person under the
provisions of Section 168(f)(8) of the Code (as in effect prior to
amendment by the Tax Reform Act of 1986) or is "tax-exempt use
property" within the meaning of Section 168 of the Code. The Company
has not engaged in any transaction that would result in a deemed
election under Section 338(e) of the Code and will not engage in any
such transaction within any applicable "consistency period" (as such
term is defined in Section 338 of the Code). The Company has not
filed any consent under Section 341(f) of the Code. The Company is
not, and has not been at any time, a "United States real property
holding corporation" within the meaning of Section 897(c)(2) of the
Code.
15
16
(f) For purposes of this Agreement, the term "Taxes"
means all taxes, charges, fees, levies, or other assessments,
including, without limitation, all net income, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits,
license, withholding, payroll, employment, social security,
unemployment, excise, estimated, severance, stamp, occupation,
property, or other taxes, customs duties, fees, assessments, or
charges of any kind whatsoever, including, without limitation, all
interest and penalties thereon, and additions to tax or additional
amounts imposed by any taxing authority, domestic or foreign, upon the
Company.
2.14 INTELLECTUAL PROPERTY RIGHTS. The Disclosure Schedule
describes under the caption referencing this Section 2.14 all rights in
trademarks, service marks, trade names, corporate names, copyrights mask works,
trade secrets, know-how or other intellectual property rights owned by,
licensed to or otherwise controlled by the Company or used in, developed for
use in or necessary to the conduct of the Company's business as now conducted
or planned to be conducted. The Company owns and possesses all right, title
and interest, or holds a valid license, in and to the rights set forth under
such caption. The Disclosure Schedule describes under the caption referencing
this Section 2.14 all intellectual property rights that have been licensed to
third parties and those intellectual property rights that are licensed from
third parties. The Company has not received any notice of, nor are there any
facts known to the Company which indicate a likelihood of, any infringement or
misappropriation by, or conflict from, any third party with respect to the
Company's intellectual property rights; no claim by any third party contesting
the validity of any of the Company's intellectual property rights has been
made, is currently outstanding or, to the best knowledge of the Sellers and the
Company, is threatened; and neither the Sellers nor the Company have received
any notice of any infringement, misappropriation or violation by the Company of
any intellectual property rights of any third parties and, to the best
knowledge of Sellers and the Company, neither the Company nor Sellers have
infringed, misappropriated or otherwise violated any such intellectual property
rights.
2.15 LITIGATION. There are no actions, suits, proceedings, orders
or investigations pending or, to the best knowledge of the Company, threatened
against the Company, at law or in equity, or before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign.
2.16 EMPLOYEES. (a) To the best knowledge of Sellers and the
Company, no executive employee of the Company and no group of the Company's
employees has any plans to terminate his or its employment; (b) the Company has
complied with all laws relating to the employment of labor, including
provisions thereof relating to wages, hours, equal opportunity, collective
bargaining and the payment of social security and other taxes; (c) the Company
has no material labor relations problem
16
17
pending and its labor relations are satisfactory; (d) there are no workers'
compensation claims pending against the Company nor is the Company aware of any
facts that would give rise to such a claim; (e) to the best knowledge of the
Company, no employee of the Company is subject to any secrecy or noncompetition
agreement or any other agreement or restriction of any kind that would impede
in any way the ability of such employee to carry out fully all activities of
such employee in furtherance of the business of the Company; and (f) no
employee or former employee of the Company has any claim with respect to any
intellectual property rights of the Company set forth under the caption
referencing Section 2.14 hereof in the Disclosure Schedule. The Disclosure
Schedule, under the caption referencing this Section 2.16, lists, as of the
date set forth in the Disclosure Schedule, each employee of the Company and the
position, title, remuneration (including any scheduled salary or remuneration
increases), date of employment and accrued vacation pay of each such employee.
2.17 EMPLOYEE BENEFIT PLANS; ERISA.
(a) Section 2.17(a) of the Disclosure Schedule contains a
complete list of all employee benefit plans, programs, policies and
arrangements (the "Plans") that the Company maintains or contributes
to on behalf of their current or former employees and all dependents
and beneficiaries of such employees or former employees. No such
plan, program, policy or arrangement exists that is not written.
Except as set forth under the caption referencing Section 2.17(a)
hereof in the Disclosure Schedule, with respect to all employees and
former employees of the Company and all dependents and beneficiaries
of such employees and former employees, (i) the Company does not
maintain or contribute to any nonqualified deferred compensation or
retirement plans, contracts or arrangements; (ii) the Company does not
maintain or contribute to any qualified defined contribution plans (as
defined in Section 3(34) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), or Section 414(i) of the Code;
(iii) the Company does not maintain or contribute to any qualified
defined benefit plans (as defined in Section 3(35) of ERISA or Section
414(j) of the Code); and (iv) the Company does not maintain or
contribute to any employee welfare benefit plans (as defined in
Section 3(1) of ERISA). The Company has heretofore delivered to Buyer
true and complete copies of (i) each Plan; (ii) the most recent
financial statements and annual report or return for the Plans, if
any; and (iii) the most recently prepared actuarial valuation reports,
if any, and, where applicable, (A) complete copies of each of the
latest reports filed with respect to such Plan with the IRS or the
Department of Labor; (B) copies of ruling and determination letters
issued with respect to such Plan; and (C) true and complete copies of
any amendment to such Plan made subsequent to any Plan amendments
covered by any such determination letter.
17
18
(b) (i) There have been no prohibited transactions within
the meaning of Section 406 of Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), or Section 4975 of the Code, for which
there is no statutory, class or individual exemption, with respect to
any of the Plans; (ii) the Company has not incurred, directly or
indirectly, any liability pursuant to Title IV of ERISA that has not
been satisfied in full; (iv) the Company has not incurred, directly or
indirectly, any liability relating to any "accumulated funding
deficiency" (as defined in Section 302 of ERISA and Section 412 of the
Code) whether or not waived; (v) each of the Plans has been operated
and administered in all material respects in accordance with its terms
and with applicable laws; (vi) with respect to each of the Plans, all
required contributions that are due have been made and a proper
accrual has been made for all contributions due in the current fiscal
year and there are no actions, suits or claims pending or threatened,
other than routine uncontested claims for benefits; and (vii) each of
the Plans which is intended to be "qualified" within the meaning of
Section 401(a) of the Code has been determined by the IRS to be so
qualified and no material fact exists that would jeopardize such
qualification and every other Plan that is intended to comply with the
terms and requirements of applicable statutes does so comply in all
material respects.
(c) No Plan is (or ever has been) a multi-employer plan
within the meaning of Section 3(37) of ERISA. The Company has not
actual or potential liabilities under Section 4201 of ERISA for any
complete or partial withdrawal from a multi-employer plan. The
Company has no actual or potential liability for death or medical
benefits after separation from employment, other than (i) under the
employee benefit plans or programs (whether or not subject to ERISA)
set forth under the caption referencing this Section 2.17(c) in the
Disclosure Schedule and (ii) health care continuation benefits
described in Section 4980B of the Code.
(d) None of the Company and any of its directors,
officers, employees or other "fiduciaries," as such term is defined in
Section 3(21) of ERISA, has committed any breach of fiduciary
responsibility imposed by ERISA or any other applicable law with
respect to the Plans which would subject the Company, Buyer,
XxxxxXxxx, Buyer's and XxxxxXxxx'x subsidiaries or any of their
respective directors, officers or employees to any liability under
ERISA or any applicable law.
(e) The Company has not incurred any liability for any
tax or civil penalty or any disqualification of any employee benefit
plan (as defined in Section 3(3) of ERISA) imposed by Sections 4980B
and 4975 of the Code and Part 6 of Title I and Section 502(i) of
ERISA.
18
19
(f) Except as set forth in Section 2.17(b) of the Disclosure
Schedule or as provided in Sections 203(c), 204(g) or 204(h) of ERISA
or Section 411 of the Code, no condition, agreement or Plan provision
limits the right of the Company to amend, cut back or terminate any
Plan, including without limitation, any retiree medical plan.
2.18 INSURANCE. The Disclosure Schedule, under the caption
referencing this Section 2.18, lists and briefly describes each insurance
policy maintained by the Company with respect to the Company's properties,
assets and operations and sets forth the date of expiration of each such
insurance policy. All of such insurance policies are in full force and effect
and are issued by insurers of recognized responsibility. The Company is not in
default with respect to its obligations under any of such insurance policies.
2.19 AFFILIATE TRANSACTIONS. Except as disclosed in the Disclosure
Schedule under the caption referencing this Section 2.19, and other than
pursuant to this Agreement, no officer, director or employee of the Company or
any member of the immediate family of the Sellers or of any such officer,
director or employee of the Company, or any entity in which any of such persons
owns any beneficial interest (other than any publicly-held corporation whose
stock is traded on a national securities exchange or in the over-the-counter
market and less than one percent of the stock of which is beneficially owned by
any of such persons) (collectively "insiders"), has any agreement with the
Company (other than normal employment arrangements) or any interest in any
property, real, personal or mixed, tangible or intangible, used in or
pertaining to the business of the Company (other than ownership of capital
stock of the Company). None of the insiders has any direct or indirect
interest in any competitor, supplier or customer of the Company or in any
person, firm or entity from whom or to whom the Company leases any property, or
in any other person, firm or entity with whom the Company transacts business of
any nature. For purposes of this Section 2.19, the members of the immediate
family of Sellers or of an officer, director or employee shall consist of the
spouse, parents, children, siblings, mothers- and fathers-in-law, sons- and
daughters-in-law, and brothers- and sisters-in-law of such officer, director or
employee.
2.20 CUSTOMERS AND SUPPLIERS. The Disclosure Schedule, under the
caption referencing this Section 2.20, lists the ten largest customers and
suppliers of the Company for the fiscal year ended 1996 and for the nine-month
period ended September 30, 1997 and sets forth opposite the name of each such
customer or supplier the approximate percentage of net sales or purchases by
the Company attributable to such customer or supplier for each such period.
Since September 30, 1997, no customer or supplier listed on the Disclosure
Schedule under the caption referencing this Section 2.20 has indicated that it
will stop or significantly decrease the rate of business done with the Company.
19
20
2.21 OFFICERS AND DIRECTORS; BANK ACCOUNTS. The Disclosure
Schedule, under the caption referencing this Section 2.21, lists all officers
and directors of the Company and all of the Company's bank accounts
(designating each authorized signer).
2.22 COMPLIANCE WITH LAWS; PERMITS.
(a) The Company and its officers, directors, agents and
employees have complied in all material respects with all applicable
laws, regulations and other requirements, including, but not limited
to, federal, state, local and foreign laws, ordinances, rules,
regulations and other requirements pertaining to equal employment
opportunity, employee retirement, affirmative action and other hiring
practices, occupational safety and health, workers' compensation,
unemployment and building and zoning codes, which materially affect
the business of the Company and to which the Company may be subject,
and no claims have been filed against the Company alleging a violation
of any such laws, regulations or other requirements. The Company is
not relying on any exemption from or deferral of any law, regulation
or other requirement specifically relating to corporate interim
housing businesses that, to Sellers' knowledge without any inquiry by
Sellers into the applicability or availability to Buyer of any such
exemption or deferral, would not be available to Buyer or XxxxxXxxx
after it acquires the Company's properties, assets and business.
(b) The Company has, in full force and effect, all
licenses, permits and certificates, from federal, state, local and
foreign authorities (including, without limitation, federal and state
agencies regulating occupational health and safety) necessary to
conduct its business and own and operate its properties. A true,
correct and complete list of all the Permits is set forth under the
caption referencing this Section 2.22 in the Disclosure Schedule. The
Company has conducted its business in compliance with all material
terms and conditions of the Permits.
(c) Neither the Sellers nor the Company have made or
agreed to make gifts of money, other property or similar benefits
(other than incidental gifts of articles of nominal value) to any
actual or potential customer, supplier, governmental employee or any
other person in a position to assist or hinder the Company in
connection with any actual or proposed transaction.
(d) In particular, but without limiting the generality of
the foregoing, the Company has not violated and has no liability, and
has not received a notice or charge asserting any violation of or
liability under, the federal Occupational Safety and Health Act of
1970 or any other federal or
20
21
state acts (including rules and regulations thereunder) regulating or
otherwise affecting employee health and safety.
2.23 ENVIRONMENTAL MATTERS. The Company is in material compliance
with all applicable environmental laws.
2.24 BROKERAGE. No third party shall be entitled to receive any
brokerage commissions, finder's fees, fees for financial advisory services or
similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement made by or on behalf of Sellers
or the Company, other than the fees and expenses of Xxxxxx X. Xxxxxxxx, who has
been retained by Sellers as financial advisor and which fees and expenses will
be paid by Sellers.
2.25 DISCLOSURE. Neither this Agreement nor any of the Exhibits
hereto nor any of the documents delivered by or on behalf of Sellers and the
Company nor the Disclosure Schedule nor any of the financial statements referred
to in Section 2.06 hereof, taken as a whole, contain any untrue statement of a
material fact regarding the Sellers, the Company or its business or any of the
other matters dealt with in this Article II relating to the Sellers, the Company
or the transactions contemplated by this Agreement. There is no fact specific to
the Company which has not been disclosed to Buyer and XxxxxXxxx of which Sellers
or any officer or director of the Company is aware which could materially affect
adversely the business, including operating results, assets, customer relations
and employee relations, of the Company; provided, however, that Sellers make no
representation as to general economic conditions or the corporate housing
industry in any geographic area, and provided further that Sellers make no
guaranty of future business of the Company and no representation or warranty as
to possible changes in legislation, regulation or taxation or policies relating
thereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF BUYER AND XXXXXXXXX
Buyer and XxxxxXxxx jointly and severally represent, warrant, and
covenant as follows:
3.01 CORPORATE ORGANIZATION AND GOOD STANDING. Each of XxxxxXxxx
and Buyer is duly organized, validly existing, and in good standing under the
laws of the State of Maryland. Each of XxxxxXxxx and Buyer has the power and
authority and all authorizations, licenses, permits and certifications
necessary to own, lease and operate properties and to carry on its business
as it is now being conducted, and to enter into and perform its commitments
under each of the agreements to be
21
22
executed by it pursuant to this Agreement. The copies of the Articles of
Incorporation and Bylaws of XxxxxXxxx and Buyer, which have been furnished by
XxxxxXxxx and Buyer to Sellers prior to the date hereof, reflect all amendments
made thereto and are correct and complete as of the date hereof.
3.02 BUYER IS SUBSIDIARY OF XXXXXXXXX. XxxxxXxxx owns all of the
outstanding capital stock of Buyer.
3.03 AUTHORITY; APPROVAL OF TRANSACTIONS. Each of Buyer and
XxxxxXxxx has the power, capacity and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution,
delivery and performance of this Agreement and any related agreement by Buyer
and XxxxxXxxx have been duly and validly authorized by the Board of Directors of
Buyer and XxxxxXxxx and by all other necessary corporate action on the part of
Buyer and XxxxxXxxx. This Agreement and the Related Agreements constitute the
legally valid and binding obligations of Buyer and XxxxxXxxx, enforceable
against Buyer and XxxxxXxxx in accordance with their respective terms. The
execution, delivery, and performance of this Agreement and any Related
Agreements by Buyer and XxxxxXxxx do not, and the consummation of the
transactions contemplated hereby will not, violate or constitute a breach or
default, whether upon lapse of time and/or the occurrence of any act or event or
otherwise, under the Articles of Incorporation or Bylaws of Buyer and XxxxxXxxx
or any other contract, commitment or arrangement of Buyer and XxxxxXxxx, or
violate any law.
3.04 LEGAL MATTERS. There is no suit, action, arbitration,
legal, administrative or other proceeding or governmental investigation
pending or, to the best knowledge of Buyer and XxxxxXxxx, threatened against
or related to it which might adversely affect or restrict its ability to
consummate the transactions contemplated hereby or materially adversely affect
the business or financial condition of Buyer or XxxxxXxxx.
3.05 BROKERS. No brokers, finders, or other persons have been
engaged, or brokers' fees, finders' fees, or commissions incurred, by Buyer
and XxxxxXxxx in connection with the transactions contemplated by this
Agreement.
3.06 PIGGYBACK REGISTRATION RIGHTS. The Purchase Shares shall
have the following piggyback registration rights:
(a) If XxxxxXxxx shall propose to file a
registration statement on Forms X-0, X-0, X-0 or any
successor or similar form(s) under the Act (except
registrations on such Forms or similar form(s) solely
for registration of securities in connection with an
employee benefit plan, dividend reinvestment or stock
option plan or a merger or consolidation) covering a
public offering of XxxxxXxxx'x Common Stock within
two years from the date
22
23
of this Agreement, XxxxxXxxx will notify the Sellers
at least thirty days prior to each such filing and
will include in the registration statement (to the
extent permitted by applicable regulation), but on
one occasion only (except as otherwise set forth in
the last sentence of this Section 3.06(a) below)
under this Section 3.06, the Purchase Shares to the
extent requested by Sellers, which request must made
in writing within ten days after the receipt of any
such notice. If the registration statement filed
pursuant to the thirty day notice has not become
effective within six months following the date such
notice is given to Sellers, ExecuStay must again
notify Sellers in the manner provided above.
Notwithstanding, the number of Purchase Shares
proposed to be registered thereby shall be reduced
upon the request of the managing underwriter(s) of
such offering. If, as a result of such a request by
the managing underwriter(s), less than all of the
Purchase Shares are registered, the Sellers' shall be
entitled for a period of two years following such
registration to another one-time right to register
the remaining Shares in accordance with the
provisions of this Section 3.06.
(b) All expenses of any such
registration statement referred to in this Section
3.06, except the fees of counsel to Sellers and
underwriting commission or discounts, filing fees,
and any transfer or other taxes applicable to such
Purchase Shares, shall be borne by the XxxxxXxxx.
(c) Upon effectiveness of a registration
statement which includes some or all of the Purchase
Shares, the rights under this Section 3.06 shall
terminate. The rights under this Section 3.06 shall
be available exclusively to Sellers, their heirs and
the personal representatives of their estates, and
shall not be available to any transferee or purchaser
of the Purchase Shares.
(d) XxxxxXxxx will furnish the Sellers
with a reasonable number of copies of any prospectus
included in such filings and will amend or
supplement, at XxxxxXxxx'x expense, the same as
required during the period of required use thereof.
(e) In the case of the filing of any
registration statement, and to the extent permissible
under the Act, and controlling precedent thereunder,
XxxxxXxxx and Sellers shall provide cross
indemnification agreements to each other in customary
scope covering the accuracy and completeness of the
information furnished by each.
(f) Sellers agree to cooperate with
XxxxxXxxx in the preparation and filing of any such
registration statement, and in furnishing of
information concerning the Sellers for inclusion
therein, or in any efforts by XxxxxXxxx to establish
that the proposed sale is exempt under the Act as to
any proposed distribution.
23
24
3.07 RULE 144 ELIGIBILITY. With a view to making available the
benefits of Rule 144 of the Securities and Exchange Commission (the
"Commission") which may at any time permit the sale of the Purchase Shares to
the public without registration, XxxxxXxxx agrees to use its best efforts to
file with the Commission in a timely manner all reports and other documents
required of Buyer under the Act and the Exchange Act and will cooperate with
Sellers in securing the necessary clearances from XxxxxXxxx'x transfer agent,
including the delivery by XxxxxXxxx'x counsel of appropriate opinions. If
XxxxxXxxx shall fail to file such reports and documents, or if for any other
reason due to actions or inactions by XxxxxXxxx, or due to a change in Rule 144
or any successor rules or regulations, the Sellers are precluded from utilizing
Rule 144 to sell the Purchase Shares, the two-year period for piggyback
registration rights referred to in Section 3.06 shall be extended for the same
period or periods that Sellers are so precluded from utilizing Rule 144.
3.08 INVESTMENT INTENT. Buyer is purchasing the Shares for its own
account with the present intention of holding the Shares for investment purposes
and not with a view to or for sale in connection with any distribution of the
Shares in violation of any applicable securities law. Buyer will refrain from
transferring or otherwise disposing of any of the Shares, or any interest
therein, in such manner as to cause Seller to be in violation of the
registration requirements of the Securities Act of 1933, as amended, or
applicable state securities or blue sky laws.
3.09 CAPITAL STOCK. The authorized capital stock of XxxxxXxxx
consists of 45,000,000 shares of Common Stock, par value $0.01 per share, of
which, as of the date hereof, 6,797,500 shares are issued and outstanding, and
5,000,000 shares of preferred stock, par value $0.01 per share, none of which
has been issued. All of the Purchase Shares have been duly authorized and upon
delivery in accordance with the terms of this Agreement, will be validly issued,
fully paid and nonassessable and the issuance of the Purchase Shares will be
made in accordance with applicable state and federal securities laws. XxxxxXxxx
shall make all necessary filings with NASDAQ so that the Purchase Shares are
properly listed as issued and outstanding under NASDAQ rules.
3.10 GOVERNMENT APPROVALS. No governmental approval, authorization,
order, license, permit, or consent, and no registration, filing or declaration
with any governmental authority, is required in connection with Buyer's or
XxxxxXxxx'x execution, delivery and performance of this Agreement and the
Related Agreements.
3.11 DISCLOSURE. XxxxxXxxx has made all filings (collectively, the
"Public Reports") with the Securities and Exchange Commission (the "SEC") that
it has been required to make under the Securities Act of 1933 and the Securities
Exchange Act of 1934 (the "SEC Acts"). Each of the Public Reports, including
without limitation,
24
25
XxxxxXxxx'x Prospectus/Registration Statement for its initial public offering,
has complied with the SEC Acts in all material respects. None of the Public
Reports, including without limitation, XxxxxXxxx'x Prospectus/Registration
Statement for its initial public offering, contained any untrue statement of a
material fact or omitted to state a material fact necessary in order to make
the statements made therein, in light of the circumstances under which they are
made, not misleading.
ARTICLE IV
CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Shares and to take the other actions
required to be taken by Buyer and XxxxxXxxx at the Closing shall be subject to
the satisfaction, at or prior to the Closing, of each of the following
conditions (any of which may be waived by Buyer and XxxxxXxxx, in whole or in
part):
4.01 SURVIVAL. Notwithstanding any investigation made by or on
behalf of Buyer and XxxxxXxxx or the results of any such investigation and
notwithstanding the participation of Buyer and XxxxxXxxx in the Closing, the
representations and warranties contained in Article II hereof shall survive the
Closing for the periods set forth in Article VI.
4.02 COMPLIANCE. Sellers and the Company have performed and
complied in all material respects with all agreements and conditions required by
this Agreement to be performed and complied with by them prior to or on Closing.
4.03 REGULATORY FILINGS. Except as otherwise set forth in the
Disclosure Schedule, Sellers and the Company have made or caused to be made all
necessary filings and submissions under any laws or regulations applicable to
the Company for the consummation of the transactions contemplated herein.
4.04 CONSENTS AND APPROVALS. Except as otherwise set forth in the
Disclosure Schedule, Sellers and the Company have obtained, or caused to be
obtained, each consent and approval necessary in order that the transactions
contemplated herein not constitute a breach or violation of, or result in a
right of termination or acceleration of, or creation of any encumbrance on any
of the Company's assets pursuant to the provisions of, any agreement,
arrangement or undertaking of or affecting the Company or Sellers or any
license, franchise or permit of or affecting the Company or Sellers.
4.05 NO RELATED LITIGATION. There is no instituted or pending
action or proceeding before any court or governmental authority or agency,
domestic or foreign, or, to the best of Sellers' knowledge, threatened action or
proceeding, to which the Company or the Sellers are a party (i) challenging or
seeking to make
25
26
illegal, or to delay or otherwise directly or indirectly restrain or prohibit,
the consummation of the transactions contemplated hereby or seeking to obtain
material damages in connection with such transactions, (ii) seeking to prohibit
direct or indirect ownership or operation by Buyer or XxxxxXxxx of all or a
material portion of the business or assets of the Company and its subsidiaries,
as a result of the transactions contemplated hereby, (iii) seeking to
invalidate or render unenforceable any material provision of this Agreement or
any of the Related Agreements, or (iv) otherwise relating to and materially
adversely affecting the transactions contemplated hereby.
4.06 OPINION OF COUNSEL. Sellers and the Company have delivered to
Buyer and XxxxxXxxx an opinion of counsel, dated as of Closing, in form and
substance reasonably satisfactory to Buyer and its counsel, to the effect that:
(a) The Company is a corporation duly
organized, validly existing, and in good standing
under the laws of the State of New York, and has the
corporate power to own and lease its properties and
conduct its businesses.
(b) This Agreement and any other
agreement executed in connection herewith by the
Company or either of the Sellers have been duly
authorized by the Company, and, when executed by the
Company and the Sellers, shall constitute the valid,
legally binding obligations in accordance with their
respective terms except that such enforceability may
be limited by bankruptcy, insolvency, reorganization,
rehabilitation, moratorium, or similar laws now or
hereafter in effect affecting creditors' rights
generally; and specific performance and injunctive
and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
(c) The execution and delivery of this
Agreement and any other agreement in connection
herewith, and the consummation of the transactions
contemplated hereby or thereby will not, except as
otherwise set forth in the Disclosure Schedule,
result in any breach in the terms or conditions of,
or constitute a default under, any instrument or
obligation to which the Company or Sellers are a
party or are bound and which are known to such
counsel, or violate any existing order, writ,
injunction or decree of any court, administrative
agency or governmental body to which the Company or
the Sellers are bound and which are known by such
counsel.
4.07 NON-COMPETITION AGREEMENT OF SELLERS. Each of the Sellers
have executed and delivered to Buyer and XxxxxXxxx the Non-Competition Agreement
in the form attached as Exhibit E, on or before the Closing Date, the execution
and delivery of such agreements being a material inducement to the Buyer and
XxxxxXxxx to enter into this Agreement.
26
27
4.08 EMPLOYMENT AGREEMENTS. Xxxxx Xxxxxx has executed and delivered
to Buyer, on or before the Closing Date, an employment agreement with Buyer in
the form attached as Exhibit F, and the Company's sales personnel listed on
Schedule 4.08 have executed and delivered to Buyer, on or before the Closing
Date, two-year employment agreements with Buyer. It is understood that the
execution and delivery of the employment agreements is a material inducement to
Buyer and XxxxxXxxx to enter into this Agreement.
4.09 CLOSING DOCUMENTS. On the Closing Date, Sellers and the
Company have delivered to Buyer and XxxxxXxxx all of the following:
(a) certificates executed by Xxxxx and
Xxxxxxx Xxxxxx, dated the Closing Date, stating that
the covenants set forth in Section 4.02 above have
been satisfied;
(b) copies of the third party and
governmental consents and approvals referred to in
Sections 4.03 and 4.04 above, if any;
(c) the stock certificate or certificates
issued to Sellers representing the Shares, duly
endorsed for transfer or accompanied by a duly
executed stock power, with requisite stock transfer
stamps, if any, attached;
(d) the Company's minute books, stock
transfer records, corporate seal and other materials
related to the Company's corporate administration;
(e) a copy of the Articles of Incorporation
of the Company, certified by the Secretary of State
of the State of New York, and a Certificate of Good
Standing from the Secretaries of State of New York
evidencing the good standing of the Company;
(f) a copy of the text of the resolutions
adopted by the board of directors of the Company
authorizing the execution, delivery and performance
of this Agreement and the consummation of all of the
transactions contemplated by this Agreement and a
copy of the bylaws of the Company, along with a
certificate executed by the Secretary of the Company
certifying to Buyer and XxxxxXxxx that such copies
are true, correct and complete copies of such
resolutions and bylaws and that such resolutions and
bylaws were duly adopted and have not been amended or
rescinded;
(g) incumbency certificates executed on
behalf of the Company by its corporate secretary
certifying the signature and office of each officer
executing this Agreement or any of the Related
Agreements;
27
28
(h) an executed copy of each of the Related Agreements;
(i) executed resignations of each of the Company's officers
and directors, effecting their immediate resignations from such
positions; and
(j) such other certificates, documents and instruments as
Buyer and XxxxxXxxx reasonably requests related to the transactions
contemplated hereby.
ARTICLE V
CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE
Sellers' obligation to sell the Shares and to take
the other actions required to be taken by Sellers at the Closing shall be
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions (any of which may be waived by Sellers, in whole or in
part):
5.01 SURVIVAL. Notwithstanding any investigation
made by or on behalf of Sellers or the Company or the results of any such
investigation and notwithstanding the participation of Sellers or the Company
in the Closing, the representations and warranties contained in Article III
hereof shall survive the Closing for the periods set forth in Article VI.
5.02 COMPLIANCE. Buyer and XxxxxXxxx has performed and complied in
all material respects with all agreements and conditions required by this
Agreement to be performed and complied with by it prior to or on Closing.
5.03 REGULATORY FILINGS. XxxxxXxxx and the Buyer have made or
caused to be made all necessary filings and submissions under any laws or
regulations applicable to XxxxxXxxx and the Buyer for the consummation of the
transactions contemplated herein.
5.04 CONSENTS AND APPROVALS. XxxxxXxxx and the Buyer have obtained,
or caused to be obtained, each consent and approval necessary in order that the
transactions contemplated herein not constitute a breach or violation of, or
result in a right of termination or acceleration of, or creation of any
encumbrance on any of their respective assets pursuant to the provisions of, any
agreement, arrangement or undertaking of or affecting XxxxxXxxx or the Buyer or
any license, franchise or permit of or affecting XxxxxXxxx or the Buyer.
5.05 EMPLOYMENT AGREEMENTS. Buyer has executed and delivered to
Xxxxx Xxxxxx, on or before the Closing Date, an employment agreement with Xxxxx
Xxxxxx in the form attached as Exhibit F.
28
29
5.06 NO RELATED LITIGATION. There is no instituted or pending
action or proceeding before any court or governmental authority or agency,
domestic or foreign, or, to the best of XxxxxXxxx'x and Buyer's knowledge,
threatened action or proceeding, to which XxxxxXxxx or the Buyer are a party (i)
challenging or seeking to make illegal, or to delay or otherwise directly or
indirectly restrain or prohibit, the consummation of the transactions
contemplated hereby or seeking to obtain material damages in connection with
such transactions, (ii) seeking to prohibit direct or indirect ownership or
operation by Buyer or XxxxxXxxx of all or a material portion of the business or
assets of the Company and its subsidiaries, as a result of the transactions
contemplated hereby, (iii) seeking to require direct or indirect issuances,
transfer or sale by Buyer or XxxxxXxxx of any of the Shares, (iv) seeking to
invalidate or render unenforceable any material provision of this Agreement or
any of the Related Agreements, or (v) otherwise relating to and materially
adversely affecting the transactions contemplated hereby. No action has been
taken, or any statute, rule, regulation, judgment, order or injunction enacted,
entered, enforced, promulgated, issued or deemed applicable to the transactions
contemplated hereby by any federal, state or foreign court, government or
governmental authority or agency, which would reasonably be expected to result,
directly or indirectly, in any of the consequences referred to in the preceding
sentence.
5.07 CLOSING DOCUMENTS. On the Closing Date, Buyer and XxxxxXxxx
have delivered to Sellers (i) a certificate of Xxxx Xxxxxxxx, dated the Closing
Date, stating that the covenants set forth in Section 5.02 above have been
satisfied; (ii) an executed copy of each of the Related Agreements; (iii) the
stock certificate or certificates issued to Sellers representing the Purchase
Shares, which certificates shall include the restrictive legend set forth in
Section 1.03(b) hereof; (iv) a copy of each of the text of the resolutions
adopted by the board of directors of the Buyer and XxxxxXxxx authorizing the
execution, delivery and performance of this Agreement and the consummation of
all of the transactions contemplated by this Agreement; and (v) incumbency
certificates executed on behalf of the Buyer and XxxxxXxxx by its corporate
secretary certifying the signature and office of each officer executing this
Agreement or any of the Related Agreements.
5.08 OPINION OF COUNSEL. Buyer and XxxxxXxxx have delivered to
Sellers an opinion of counsel, dated as of Closing, in form and substance
reasonably satisfactory to Sellers and their counsel, to the effect that:
(a) Each of XxxxxXxxx and Buyer is a
corporation duly organized, validly existing, and in
good standing under the laws of the State of Maryland
and has the corporate power to own and lease its
properties and conduct its businesses.
29
30
(b) This Agreement and any other
agreement executed in connection herewith by the
Buyer and XxxxxXxxx have been duly authorized by each
of them, and, when executed by each of them, shall
constitute the valid, legally binding obligations in
accordance with their respective terms except that
such enforceability may be limited by bankruptcy,
insolvency, reorganization, rehabilitation,
moratorium, or similar laws now or hereafter in
effect affecting creditors' rights generally; and
specific performance and injunctive and other forms
of equitable relief may be subject to equitable
defenses and to the discretion of the court before
which any proceeding therefor may be brought.
(c) The execution and delivery of this
Agreement and any other agreement in connection
herewith, and the consummation of the transactions
contemplated hereby or thereby will not result in any
breach in the terms or conditions of, or constitute a
default under, any instrument or obligation to which
XxxxxXxxx or the Buyer is a party or is bound, and
which in each case is known to such counsel, or
violate any existing order, writ, injunction or
decree of any court, administrative agency or
governmental body to which XxxxxXxxx or the Buyer is
bound and which in each case is known by such
counsel.
(d) The Purchase Shares have been duly
authorized by all requisite corporate action and,
upon issuance and delivery as described in this
Agreement, will be validly issued, fully paid and
nonassessable and the issuance of the Purchase Shares
will be made in accordance with applicable federal
and state securities laws.
ARTICLE VI
INDEMNIFICATION
6.01 INDEMNIFICATION BY SELLERS. (a) Subject to the limitations of
Section 6.01(b), Sellers jointly and severally agree to indemnify in full Buyer
and XxxxxXxxx and their officers, directors, employees, agents and stockholders
(collectively, the "Buyer Indemnified Parties") and hold them harmless against
any loss, liability, deficiency, damage, expense or cost (including reasonable
legal expenses) (collectively, "Losses"), which Buyer Indemnified Parties may
suffer, sustain or become subject to, as a result of (i) any misrepresentation
in any of the representations and warranties of Sellers contained in this
Agreement or in any exhibits, schedules, certificates or other documents
delivered or to be delivered by or on behalf of Sellers pursuant to the terms of
this Agreement or otherwise referenced or incorporated in this Agreement
(collectively, the "Related Documents"), (ii) any breach of, or failure to
perform, any agreement of Sellers contained in this Agreement or any of the
Related Documents, or (iii) any "Claims" (as defined in
30
31
Section 6.03(a) hereof) or threatened Claims against the Buyer Indemnified
Parties due to the operation of the business of the Company prior to the
Closing Date or any action or inaction of Sellers or the Company prior to the
closing Date with respect to the business of the Company prior to the Closing
Date other than Losses relating to matters disclosed in this Agreement, the
Disclosure Schedule or the Financial Statements (collectively, "Buyer Losses"),
provided that Losses relating to the tax matters covenants and warranties of
Section 2.13 shall be included in Buyer Losses regardless of the disclosure in
Schedule 2.13.
(b) Sellers shall be jointly and severally liable to the
Buyer Indemnified Parties for any Buyer Losses (i) only if Buyer or another
Buyer Indemnified Party delivers to Sellers written notice, setting forth in
reasonable detail the identity, nature and amount of Buyer Losses related to
such claim or claims, prior to the date that is 18 months after the Closing Date
or, with respect to Claims relating to Section 2.13, the seventh anniversary of
the Closing Date, and (iii) only if the aggregate amount of all Buyer Losses
exceeds $75,000 (the "Basket Amount"), in which case Sellers shall be jointly
and severally obligated to indemnify the Buyer Indemnified Parties only the
amount of such excess. The Buyer Indemnified Party's failure to provide the
detail required by clause (i) in the preceding sentence shall not constitute
either a breach of this Agreement by the Buyer Indemnified Party or any basis
for Sellers to assert that the Buyer Indemnified Party did not comply with the
terms of this Section 6.01 sufficient to cause the Buyer Indemnified Party to
have waived its rights under this Section 6.01.
6.02 INDEMNIFICATION BY BUYER AND XXXXXXXXX. (a) Subject to the
limitations of Section 6.02(b), Buyer and XxxxxXxxx jointly and severally agree
to indemnify in full the Sellers, and their agents, successors, assigns, heirs
and personal representatives of their respective estates, Apartment Furniture
Rentals Associates (a New York general partnership), its partners, and the
officers, directors and shareholders of its partners, and AFRA Enterprises,
Inc. (a New Jersey corporation) and its officers, directors and shareholders
(collectively, the "Seller Indemnified Parties") and hold them harmless against
any Losses which any of the Seller Indemnified Parties may suffer, sustain or
become subject to as a result of (i) any misrepresentation in any of the
representations and warranties of Buyer or XxxxxXxxx contained in this
Agreement or in any of the Related Documents, (ii) any breach of, or failure to
perform, any agreement of Buyer or XxxxxXxxx contained in this Agreement or any
of the Related Documents (collectively, "Seller Losses"), (iii) any Claims or
threatened Claims against Seller Indemnified Parties due to the operation of
the business of the Company, Buyer or any successor or assign (including by
merger into Buyer or any affiliate thereof) from and after the Closing Date or
any action or inaction of the Company, Buyer or any successor or assign
(including by merger into Buyer or any affiliate thereof) with respect to the
business of the Company or such successor or assign from and after the Closing
Date, (iv) any liabilities or obligations whatsoever, including Claims or
threatened Claims, arising
31
32
out of those guarantees disclosed on the Disclosure Schedule of Company
obligations made by the Seller Indemnified Parties or any of them, (v) any
liabilities or obligations whatsoever, including Claims or threatened Claims,
arising out of the Seller Indemnified Parties being the tenants of record on
property leases utilized by the Company, (vi) any liabilities or obligations of
Seller Indemnified Parties under the existing AFRA Group Health Plan and other
employee benefit plans for periods after the Closing Date for which such plans
are continued for employees of the Company or its successors or assigns, or
(vii) any liabilities or obligations of Seller Indemnified Parties arising out
of violations or breaches by the Company or Buyer or their affiliates occurring
after the Closing Date of the covenants, restrictions and obligations set forth
in the National Business Relationship Agreement and Consulting Agreement
between the Company and CORT Furniture Rental Corporation, which agreements are
referenced in Schedule 2.09.
(b) Buyer and XxxxxXxxx shall be liable to the Seller
Indemnified Parties for any Seller Losses (i) only if Sellers or another
Sellers Indemnified Party delivers to Buyer written notice, setting forth in
reasonable detail the identity, nature and amount of Seller Losses related to
such claim or claims prior to the date that is 18 months after the Closing Date
and (ii) only if the aggregate amount of all Seller Losses exceeds the Basket
Amount, in which case Buyer and XxxxxXxxx shall be obligated to indemnify the
Seller Indemnified Parties for only the amount of such excess. The Sellers
Indemnified Party's failure to provide the detail required by clause (i) in the
preceding sentence shall not constitute either a breach of this Agreement by
the Sellers Indemnified Party or any basis for Buyer or XxxxxXxxx to assert
that the Sellers Indemnified Party did not comply with the terms of this
Section 6.02 sufficient to cause the Sellers Indemnified Party to have waived
its rights under this Section 6.02.
6.03 METHOD OF ASSERTING CLAIMS. As used herein, an "Indemnified
Party" shall refer to a "Buyer Indemnified Party" or "Sellers Indemnified
Party," as applicable, the "Notifying Party" shall refer to the party hereto
whose Indemnified Parties are entitled to indemnification hereunder, and the
"Indemnifying Party" shall refer to the party hereto obligated to indemnify such
Notifying Party's Indemnified Parties.
(a) In the event that any of the Indemnified Parties is made a
defendant in or party to any action or proceeding, judicial or administrative,
instituted by any third party, the liability or the costs or expenses of which
are Losses giving rise to indemnity under this Article VI (any such third party
action or proceeding being referred to as a "Claim"), the Notifying Party shall
give the Indemnifying Party prompt notice thereof. The failure to give such
notice shall not affect any Indemnified Party's ability to seek reimbursement
unless such failure has materially and adversely affected the Indemnifying
Party's ability to defend successfully a Claim. The Indemnifying Party shall be
entitled to contest and defend
32
33
such Claim; provided, that the Indemnifying Party (i) has a reasonable basis
for concluding that such defense may be successful and (ii) diligently contests
and defends such Claim. Notice of the intention so to contest and defend shall
be given by the Indemnifying Party to the Notifying Party within 20 business
days after the Notifying Party's notice of such Claim (but, in all events, at
least five business days prior to the date that an answer to such Claim is due
to be filed). Such contest and defense shall be conducted by reputable
attorneys employed by the Indemnifying Party. The Notifying Party shall be
entitled at any time, at its own cost and expense (which expense shall not
constitute a Loss unless the Notifying Party reasonably determines that the
Indemnifying Party is not adequately representing or, because of a conflict of
interest, may not adequately represent, any interests of the Indemnified
Parties, and only to the extent that such expenses are reasonable), to
participate in such contest and defense and to be represented by attorneys of
its or their own choosing. If the Notifying Party elects to participate in
such defense, the Notifying Party will cooperate with the Indemnifying Party in
the conduct of such defense. Neither the Notifying Party nor the Indemnifying
Party may concede, settle or compromise any Claim without the consent of the
other party, which consents will not be unreasonably withheld. Notwithstanding
the foregoing, (i) if a Claim seeks equitable relief or (ii) if the subject
matter of a Claim relates to the ongoing business of any of the Indemnified
Parties, which Claim, if decided against any of the Indemnified Parties, would
materially adversely affect the ongoing business or reputation of any of the
Indemnified Parties, then, in each such case, the Indemnified Parties alone
shall be entitled to contest and defend such Claim in the first instance,
provided that the Indemnified Parties still cannot settle the Claim without the
other party's consent, which may not be unreasonably withheld.
(b) In the event any Indemnified Party should have a claim
against any Indemnifying Party that does not involve a Claim, the Notifying
Party shall deliver a notice of such claim with reasonable promptness to the
Indemnifying Party. If the Indemnifying Party notifies the Notifying Party that
it does not dispute the claim described in such notice or fails to notify the
Notifying Party within 30 days after delivery of such notice by the Notifying
Party whether the Indemnifying Party disputes the claim described in such
notice, the Loss in the amount specified in the Notifying Party's notice will
be conclusively deemed a liability of the Indemnifying Party and the
Indemnifying Party shall pay the amount of such Loss to the Indemnified Party
on demand.
(c) After the Closing, the rights set forth in this Article VI
shall be each party's sole and exclusive remedies against the other party
hereto for misrepresentations or breaches of covenants contained in this
Agreement and the Related Documents. Notwithstanding the foregoing, nothing
herein shall prevent any of the Indemnified Parties from bringing an action
based upon allegations of fraud or other intentional breach of an obligation of
or with respect to either party in connection with this Agreement and the
Related Documents. In the event such
33
34
action is brought, the prevailing party's attorneys' fees and costs shall be
paid by the nonprevailing party.
(d) Any indemnification payable under this Article VI shall be,
to the extent permitted by law, an adjustment to purchase price.
6.04 LIMITATIONS. For the purposes of this Article VI, in computing
such individual or aggregate amounts of claims, the amount of each claim shall
be deemed to be an amount net of any insurance proceeds and any indemnity,
contribution, warranty, refund, replacement or other similar payment recovered
by the Indemnified Parties from any third party with respect thereto and net of
any reserves or accruals therefor set forth on the balance sheet utilized in
computing Closing Date Tangible Net Book Value.
6.05 POST-CLOSING LIABILITIES; MITIGATION OF DAMAGES. The Sellers
shall have no liability under any provision of this Agreement for any
liabilities and damages to the extent that such liabilities and damages relate
primarily to actions taken by the Buyer or its affiliates, including, without
limitation, the Company, after the Closing Date except for liabilities and
damages relating to negligence of either Seller in the course of such Sellers
employment by the Company subsequent to the Closing Date. Each party hereto
shall take and shall cause its affiliates to take all reasonable steps to
mitigate all possible liabilities and damages upon and after becoming aware of
any event which could reasonably be expected to give rise to such liabilities
and damages.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.01 REPAYMENT OF SHAREHOLDER LOAN. Buyer hereby agrees to repay,
or to cause the Company to repay, within ten (10) days after the Closing Date,
the outstanding balance of that certain shareholder loan in the amount of
$1,515,854.43 (the "Shareholder Loan"), recorded on the Company's balance sheet
plus interest accrued from July 1, 1997 through the date of repayment.
7.02 BANK GUARANTEE. Buyer shall, by no later than the date of
repayment of the Shareholder Loan referred to in Section 7.01, either fully pay
and satisfy all indebtedness of the Company to Chase Manhattan Bank and
terminate its working capital lines with such bank, or, shall obtain a written
termination of Sellers' and Seller Indemnified Party's guarantees of such
indebtedness of the Company. Until such termination date, the Company and Buyer
shall utilize such working capital line solely for the working capital needs of
the business of the Company itself and not for any other affiliates of Buyer or
XxxxxXxxx.
34
35
7.03 TAXES.
(a) The parties hereto agree to make the election under
Section 1362 (e)(3) of the Internal Revenue Code (and corresponding provisions
of state tax laws) so that the taxable year of the Company in which the Closing
occurs consists of two taxable years, with the first such taxable year ending
on the date of the Closing Date, and the second such taxable year beginning on
the day after the Closing Date and ending at the end of the calendar year, and
the parties hereto shall at the Closing and thereafter sign all necessary
consents and elections and promptly thereafter file the same with the Internal
Revenue Service and applicable state agencies. The Sellers shall prepare and
file with the applicable governmental authorities all tax returns relating to
the Company with respect to any period or portion thereof that ends on or
before the Closing Date; and the Buyer shall prepare and file with the
applicable governmental authorities all tax returns relating to the Company
with respect to any period commencing after the Closing Date.
(b) After the Closing, the Buyer shall promptly notify the
Sellers in writing of the commencement of any tax audit or administrative or
judicial proceeding or of any demands or claim on the Buyer or the Company that
would affect any taxes payable by the Company for periods on or prior to the
Closing Date. The Sellers may elect to direct, through counsel and/or
accountants of their own choosing, a response to or contest of any audit claim,
or administrative or judicial proceeding involving any preclosing tax
liabilities. Buyer shall cooperate and cause the Company or its successors to
cooperate in each such proceeding. Neither Sellers on the one hand, nor Buyer
and the Company on the other hand, may settle or compromise any asserted tax
liability that would impose liability on the other party without the other
party's written consent to settlement or compromise, which shall not be
unreasonably withheld. Buyer shall be responsible for all taxes of the Company
attributable to the periods after the Closing Date or for any accrued taxes or
taxes payable set forth on the balance sheet utilized in the computation of
Tangible Net Book Value at the Closing Date.
(c) The Sellers on the one hand, and XxxxxXxxx, Buyer and
the Company on the other hand, will provide each other with such cooperation
and information as either of them reasonably may require of the other in filing
any tax returns, amended return or claim for refund or determining the
liability for taxes or a right to refund or participating in or conducting any
contest, audit or other proceeding in respect of taxes. Such cooperation and
information shall include providing copies of relevant tax returns or portions
thereof together with accompanying schedules and work papers. Any information
exchanged under this paragraph shall be kept confidential except as may
otherwise be necessary in connection with the communication with governmental
authorities or the filing of returns of claims, or response to an audit or
contest.
35
36
7.04 POST-CLOSING ACCESS. In order to facilitate the resolution of
any claims made by or against or incurred by the Sellers, from and after the
Closing, the Buyer shall (i) upon two (2) business days advance notice afford
the employees and authorized agents and representatives of the Sellers'
reasonable access, during normal business hours, to the offices, properties,
books and records of the Buyer, the Company, and any of their respective
successors, and (ii) within a reasonable time following a request, furnish to
the employees and authorized agents and representatives of the Sellers such
additional financial and other information regarding the Company, including any
successors, the assets, properties, goodwill and business of the Company, and
any successors, and their respective businesses as the Sellers may from time to
time reasonably request.
7.05 BOOKS AND RECORDS.
(a) The Buyer agrees that it shall preserve and keep all
books and records of the Company in the Buyer's possession for a period of at
least seven (7) years from the Closing Date. During such seven-year period,
duly authorized representatives of the Sellers shall, upon reasonable notice,
have access thereto during normal business hours to examine, inspect and, at
Buyer's expense, copy such books and records.
(b) If, in order properly to prepare documents (including
tax returns and filing) required to be filed with governmental authorities or
its financial statements, it is necessary that any party hereto or any
successors be furnished with additional information relating to the Company or
its business, and such information is in the possession of any other party
hereto, such party agrees to use its best efforts to furnish such information
to such requesting party, at the cost and expense of the party being furnished
such information.
7.06 SEVERANCE, ETC. The Buyer covenants and agrees that it shall
be solely and exclusively responsible for any and all termination, severance
and other amounts payable, whether imposed by law or contract, resulting from,
or related to, the termination of employment of any of the Company's employees
at or after the Closing.
7.07 NO BENEFIT TO OTHERS. The representation, warranties,
covenants and agreements contained in this Agreement are for the sole benefit
of the parties hereto and their respective successors and assigns and they
shall not be construed as conferring and are not intended to confer any rights
on any other persons. Except to the extent of the parties' obligations to each
other under this Agreement, the provisions of this Agreement shall not be
construed and are not intended to create any personal liability on the part of
any party for any liabilities or obligations of the Company to any third
persons who are not a party to this Agreement.
36
37
ARTICLE VIII
MISCELLANEOUS
8.01 PRESS RELEASES AND ANNOUNCEMENTS. The initial press release
announcing the Closing of the transactions contemplated hereby shall be prepared
jointly by Sellers and XxxxxXxxx. Sellers and the Company shall not make any
press release (or make any other public announcement) related to this Agreement
or the transactions contemplated hereby or make any announcement to the
employees, customers or suppliers of the Company without prior written approval
of Buyer and XxxxxXxxx, except as may be necessary to make disclosure to comply
with the requirements of this Agreement or applicable law. If any such press
release or public announcement is so required, Sellers shall consult with Buyer
and XxxxxXxxx prior to making such disclosure, and the parties shall use all
reasonable efforts, acting in good faith, to agree upon a text for such
disclosure which is satisfactory to both parties.
8.02 EXPENSES. Except as otherwise expressly provided for herein,
the parties to this Agreement will pay all of their own expenses (including
attorneys' and accountants' fees and, in the case of Sellers, the expenses of
the Company for the Company Accountants, Xxxxxxx, Xxxxxxxxx LLP, and Xxxxxx X.
Xxxxxxxx) in connection with the negotiation of this Agreement, the performance
of their respective obligations hereunder and the consummation of the
transactions contemplated by this Agreement (whether consummated or not).
8.03 FURTHER ASSURANCES. Sellers, Buyer and XxxxxXxxx each agree
that, on and after the Closing Date, it shall take all appropriate action and
execute any documents, instruments or conveyances of any kind which may be
reasonably necessary or advisable to carry out any of the provisions hereof.
8.04 AMENDMENT AND WAIVER. This Agreement may not be amended or
waived except in a writing executed by the party against which such amendment or
waiver is sought to be enforced. No course of dealing between or among any
persons having any interest in this Agreement will be deemed effective to modify
or amend any part of this Agreement or any rights or obligations of any person
under or by reason of this Agreement.
8.05 NOTICES. Any notice or other communication required, permitted
or desirable hereunder, shall be sufficiently given if sent by United States
Mail, postage prepaid, addressed as follows:
SELLERS: Xxx. Xxxxx Xxxxxx
Xx. Xxxxxxx Xxxxxx
000 Xxxx Xxx Xxxxxx, #0X
37
38
New York, New York 10024
With Copy To: Xxxxxxx, Xxxxxxxxx LLP
0 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxxxx X. Xxxxxxxx
Xxxxxx X. Xxxxxxxx
00 Xxxxxxx Xxxxxx
Xxxxxxxxx, Xxx Xxxx 00000
COMPANY: Xxxxxx Corporate Housing, Inc.
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
BUYER: Xxxx X. Xxxxxxxx, President
and XXXXXXXXX XxxxxXxxx Corporation
0000 Xxxxxxxxxxxx Xxxxx
Xxxxxxxxxxxx, XX 00000
With Copy To: Xxxxxx & Whitney LLP
000 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
Attn: Xxxx X. Xxxxxx
8.06 ASSIGNMENT. This Agreement and all of the provisions hereof
will be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, except that neither this Agreement
nor any of the rights, interests or obligations hereunder may be assigned by
either party hereto without the prior written consent of the other party hereto.
8.07 SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement.
8.08 COMPLETE AGREEMENT. This Agreement and the Related Agreements
and other exhibits hereto, the Disclosure Schedule and the other documents
referred to herein contain the complete agreement between the parties and
supersede any prior understandings, agreements or representations by or between
the parties, written or oral, which may have related to the subject matter
hereof in any way.
38
39
8.09 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and/or by facsimile signature, any one of which need not contain
the signatures of more than one party, but all such counterparts taken together
will constitute one and the same instrument.
8.10 GOVERNING LAW. The internal law, without regard to conflicts of
laws principles, of the State of New York will govern all questions concerning
the construction, validity and interpretation of this Agreement and the
performance of the obligations imposed by this Agreement. The parties hereto
further agree that any action brought to enforce any right or obligation under
this Agreement shall be subject to the exclusive jurisdiction of the Courts of
the State of New York.
8.11 TIME IS OF THE ESSENCE. Time is material and of the essence
with regard to the performance of all obligations and the payment of all sums
pursuant to this Agreement.
8.12 HEADINGS. The headings set forth herein are for convenience
only and shall not be used in interpreting the text of the sections in which
they appear.
8.13 INCORPORATION OF EXHIBITS AND SCHEDULES. Each of the Exhibits,
Schedules and Certificates attached hereto is by this reference incorporated
herein and made a part of this Agreement.
8.14 KNOWLEDGE. As used in this Agreement, the term "knowledge,"
with respect to each Seller, means the actual knowledge of such person after due
inquiry, and with respect to the Buyer, means the actual knowledge after due
inquiry of any of its respective executive officers.
8.15 JOINT LIABILITY. XxxxxXxxx and Buyer (and from and after
Closing Date, the Company) shall be jointly and severally liable for all
obligations under this Agreement to Sellers, and from and after the Closing, the
Company shall be obligated to comply with all provisions of this Agreement
applicable to Buyer or XxxxxXxxx.
8.16 FUTURE LEASES. All property leases entered into, renewed or
amended from and after the Closing Date shall be in the corporate capacity of
the Company or its successors or assigns and neither the Company, Buyer or their
affiliates shall enter into, renew or amend any property lease in the name of
Sellers, AFRA, Xxxx Xxxxx or any other Seller Indemnified Party.
39
40
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement under seal on the day and year first above written.
BUYER COMPANY
XXXXXXXXX CORPORATION XXXXXX CORPORATE HOUSING, INC.
OF AMERICA
By: By:
--------------------- -----------------------
Xxxx X. Xxxxxxxx,
-----------------------
President President
XXXXXXXXX XXXXXXX
XXXXXXXXX CORPORATION XXXXX XXXXXX
By:
--------------------- ------------------------
Xxxx X. Xxxxxxxx,
President XXXXXXX XXXXXX
------------------------
40
