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EXHIBIT 10.22
AGREEMENT AND PLAN OF MERGER
by and among
Tekgraf, Inc., a Delaware corporation,
Tekgraf Sub I, Inc., a Georgia corporation,
and
Computer Graphics Technology, Inc.
a South Carolina corporation, and its shareholders
Dated as of March 23, 1998
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TABLE OF CONTENTS
ARTICLE I THE MERGER ............................................................................. 5
1.1 The Merger .............................................................................. 5
1.2 Effect of Merger ......................................................................... 5
1.3 Purchase Price Adjustment ................................................................ 7
1.4 The Closing .............................................................................. 13
1.5 Dissenting Shareholders .................................................................. 13
1.6 Certain Tax Agreements ................................................................... 14
ARTICLE II REPRESENTATIONS AND WARRANTIES ......................................................... 14
2.1 Representations and Warranties of the Company and the Company Shareholders ............... 14
2.2 Representations and Warranties of Acquisition Sub and Purchaser .......................... 31
2.3 Disclosure ............................................................................... 33
2.4 Disclosure ............................................................................... 33
2.5 Investment Representation of Company Shareholders ........................................ 33
ARTICLE III COVENANTS ............................................................................. 33
3.1 Covenants Against Disclosure ............................................................. 33
3.2 Access to Information .................................................................... 34
3.3 Interim Period ........................................................................... 34
3.4 Completion of Schedules .................................................................. 35
3.5 On and After Closing ..................................................................... 36
3.6 Continuity of Business Enterprise ........................................................ 36
3.7 Non-Competition .......................................................................... 36
3.8 Registration Statement ................................................................... 38
3.9 Company Indebtedness ..................................................................... 38
3.10 Further Assurances ....................................................................... 38
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ARTICLE IV CONDITIONS PRECEDENT TO OBLIGATIONS .................................................... 38
4.1 Conditions to Obligations of Acquisition Sub ............................................. 38
4.2 Conditions to Obligations of the Company and the Company Shareholders .................... 40
ARTICLE V INDEMNIFICATION ......................................................................... 40
5.1 Survival of Representations, Warranties, Covenants and Agreements ........................ 40
5.2 Indemnification of Acquisition Sub and Purchaser ......................................... 41
5.3 Indemnification of the Company Shareholders .............................................. 41
5.4 Procedure for Indemnification with Respect to Third-Party Claims ......................... 41
5.5 Procedure For Indemnification with Respect to Non-Third Party Claims ..................... 42
5.6 Escrowed Shares .......................................................................... 43
ARTICLE VI TERMINATION AND CONDITIONS SUBSEQUENT .................................................. 43
6.1 Termination .............................................................................. 43
6.2 Effect of Termination .................................................................... 43
ARTICLE VII MISCELLANEOUS PROVISIONS .............................................................. 44
7.1 Notice ................................................................................... 44
7.2 Entire Agreement ......................................................................... 44
7.3 Binding Effect: Assignment ............................................................... 44
7.4 Expenses of Transaction .................................................................. 44
7.5 Waiver; Consent .......................................................................... 44
7.6 Counterparts ............................................................................. 45
7.7 Severability ............................................................................. 45
7.8 Remedies of the Parties .................................................................. 45
7.9 Governing Law ............................................................................ 45
7.10 Arbitration; Attorneys' Fees ............................................................. 45
7.11 Cooperation and Records Retention ........................................................ 46
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of March ___, 1998, is made
and entered into by and among TEKGRAF, INC., a Delaware corporation
("Purchaser"), TEKGRAF SUB I, a Georgia corporation ("Acquisition Sub"),
COMPUTER GRAPHICS TECHNOLOGY, INC., a South Carolina corporation (the
"Company"), and the shareholders set forth on the signature page of this
Agreement (the oCompany Shareholderso). Acquisition Sub and the Company are
hereinafter sometimes referred to as the "Constituent Corporations" and
Acquisition Sub as the "Surviving Corporation".
WHEREAS, Purchaser, Acquisition Sub, and the Company desire that the
Company merge with and into Acquisition Sub (the "Merger"), upon the terms and
conditions set forth herein and in accordance with the Georgia Business
Corporation Code and the Code of Laws of South Carolina, with the result that
Acquisition Sub shall continue as the surviving corporation and the separate
existence of the Company (except as it may be continued by operation of law)
shall cease;
WHEREAS, Purchaser, Acquisition Sub, and the Company desire that, upon
the Merger, at the Effective Time (as hereinafter defined), all outstanding
shares of common [and preferred] stock of the Company be converted into shares
of common stock of Purchaser and cash as provided herein;
WHEREAS, the respective Boards of Directors of Purchaser, Acquisition
Sub, and the Company have approved the Merger; and
WHEREAS, the parties intend for the Merger to be accomplished under
Section 368(a)(2)(D) under the Internal Revenue Code of 1986, as amended;
NOW, THEREFORE, for and in consideration of the mutual representations,
warranties, covenants, agreements and conditions contained herein, and in order
to set forth the terms and conditions of the Merger and the mode of carrying the
same into effect, the parties hereto hereby agree as follows:
DEFINITIONS
"Accounts Receivable" has the meaning set forth in Section 2.1(kk).
"Accredited Investor" has the meaning set forth in Regulation D
promulgated under the Securities Act of 1933.
"Acquisition Sub" means Tekgraf Sub I, Inc., a Georgia corporation.
"Acquisition Sub Common Stock" means the common stock of Tekgraf Sub I,
Inc., par value $.001 per share.
"Acquisition Sub Indemnifiable Claims" has the meaning set forth in
Section 5.3.
"Acquisition Sub Share" means a share of Acquisition Sub Common Stock.
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"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act of 1934.
"Affiliated Group" means any affiliated group within the meaning of Code
(0) 1504(a).
"Articles of Merger" means the Articles of Merger respecting the Merger
as filed by the Parties with the Secretary of State of the State of South
Carolina.
"Audited Balance Sheet" has the meaning set forth in Section 2.1(e).
"Business" shall mean, collectively, the businesses conducted by the
Company including, among other things, the business of computer integration and
wholesale distribution of computer products.
"Capital Stock" has the meaning set forth in Section 2.1(b).
"Cash Consideration" has the meaning set forth in Section 1.2(e).
"Certificate of Merger" means the Certificate of Merger respecting the
Merger filed by the Parties with the Secretary of State of the State of Georgia.
"Claim" has the meaning set forth in Section 2.1(bb).
"Closing" has the meaning set forth in Section 1.4 below.
"Closing Date" has the meaning set forth in Section 1.4 below.
"Code" has the meaning set forth in Section 2.1(k).
"Company" means Computer Graphics Technology, Inc., a South Carolina
corporation.
"Company Indemnifiable Claims" has the meaning set forth in Section 5.2.
"Company Share" means a share of common stock of the Company, par value
$___.___ per share.
"Company Shareholder(s)" means any shareholder(s) of the Company.
"Company State" means the state of incorporation of the Company.
"Confidential Material" has the meaning set forth in Section 3.1(a).
"Contracts" has the meaning set forth in Section 2.1(r).
"Customers" has the meaning set forth in Section 2.1(dd).
"Damages" has the meaning set forth in Section 5.2.
"Dissenting Share" means any Company Share which any shareholder who or
which has exercised his or its appraisal rights under the South Carolina
Business Corporation Act holds of record.
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"Effective Time" has the meaning set forth in Section 1.2(a) below.
"Employees" has the meaning set forth in Section 2.1(z).
"Environmental Laws" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Resource Conservation and Recovery
Act of 1976, and the Occupational Safety and Health Act of 1970, each as
amended, together with all other laws (including rules, regulations, codes,
plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder)
of federal, state, local, and foreign governments (and all agencies thereof)
concerning pollution or protection of the environment, public health and safety,
or employee health and safety, including laws relating to emissions, discharges,
releases, or threatened releases of pollutants, contaminants, or chemical,
industrial, hazardous, or toxic materials or wastes into ambient air, surface
water, ground water, or lands or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants, or chemical, industrial, hazardous, or
toxic materials or wastes.
"Equity Consideration" has the meaning set forth in Section 1.2(e).
"ERISA" has the meaning set forth in Section 2.1(hh).
"Financial Statements" has the meaning set forth in Section 2.1(e).
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Xxxx-Xxxxx-Xxxxxx Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976, as amended.
"Hazardous Substance Issues" has the meaning set forth in Section
2.1(bb).
"Indemnifiable Claims" has the meaning set forth in Section 5.4(a).
"Indemnified Party" has the meaning set forth in Section 5.4(a).
"Indemnifying Party" has the meaning set forth in Section 5.4(a).
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information (including all applications,
registrations, and renewals in connection therewith), (f) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing, the production process and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and
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business and marketing plans and proposals), (g) all computer software
(including data and related documentation), (h) all other proprietary rights,
and (i) all copies and tangible embodiments thereof (in whatever form or
medium).
"Inventory" has the meaning set forth in Section 2.1(j).
"IRS" means the Internal Revenue Service.
"Knowledge" means the actual knowledge of all officers, directors and
shareholders of the Company, after reasonable investigation and due inquiry.
"Leased Properties" has the meaning set forth in Section 2.1(gg).
"Liens" has the meaning set forth in Section 2.1(i).
"Managing Shareholder" shall mean Xxxxx Xxxxxx, the current president of
the Company.
"Materials" has the meaning set forth in Section 2.1(r).
"Merger" has the meaning set forth in the recitals above and in Section
1.1 below.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Party" means a party to this Agreement and the Merger.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"Plan" has the meaning set forth in Section 2.1(hh).
"Purchaser Common Stock" shall mean the Class A Common Stock of
Purchaser, par value $.001 per share.
"Purchaser Shares" means shares of Purchaser Common Stock.
"Qualified Plans" has the meaning set forth in Section 2.1(hh).
"Related Property" has the meaning set forth in Section 2.1(t).
"Related Agreements" shall mean any and all escrow agreements and
employment agreements required to be executed in connection with this Agreement.
"Representatives" has the meaning set forth in Section 2.1(aa).
"Returns" has the meaning set forth in Section 2.1(k).
"SEC" means the Securities and Exchange Commission.
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"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Suppliers" has the meaning set forth in Section 2.1(r).
"Surviving Corporation" has the meaning set forth in Section 1.1 below.
"State" shall have the meaning set forth in Section 2.1(a).
"Taxes" has the meaning set forth in Section 2.1(k).
"Territory" has the meaning set forth in Section 3.5(a).
"Unaudited Annual Financial Statements" has the meaning set forth in
Section 2.1(e).
"Unaudited Financial Statements" has the meaning set forth in Section
2.1(e).
"Unaudited Interim Financial Statements" has the meaning set forth in
Section 2.1(e).
ARTICLE I
THE MERGER
Section 1.1 The Merger. On and subject to the terms and conditions of
this Agreement, the Company will merge with and into Acquisition Sub (the
"Merger") at the Effective Time. From and after the Effective Time, the separate
corporate existence of the Company shall cease, and Acquisition Sub shall
continue as the corporation surviving the Merger (the "Surviving Corporation").
Immediately after the Effective Time, the Surviving Corporation shall change its
name to "Computer Graphics Technology, Inc." and shall file with the Secretary
of State of the State of South Carolina its qualification to do business as a
foreign corporation. The parties shall cause the Certificate of Merger to be
filed with the Secretary of State of the State of Georgia and the Articles of
Merger to be filed with the Secretary of State of the State of South Carolina
promptly following the Closing.
Section 1.2 Effect of Merger.
(a) General. The Merger shall become effective at the time (the
"Effective Time") when the Articles of Merger filed with the Secretary of State
of the State of South Carolina and the Certificate of Merger filed with the
Secretary of State of the State of Georgia have become effective in accordance
with their terms and in accordance with the laws of each State. The Merger shall
have the effect set forth in Section 00-00-000 of the Code of Laws of South
Carolina and Section 14-2-1106 of the Georgia Business Corporation Code. The
Surviving Corporation may, at any time after the Effective Time, take any action
(including executing and delivering any document) in the name and on behalf of
the Surviving Corporation in order to carry out and effectuate the transactions
contemplated by this Agreement. Further, the Surviving Corporation shall possess
all of the rights, privileges, powers and franchises, and be subject to all the
restrictions, disabilities and duties, of each of the Constituent Corporations;
and the rights, privileges, powers and franchises of each of the Constituent
Corporations, and all property of and all debts due to any of the Constituent
Corporations on whatever
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account, shall be vested in the Surviving Corporation; and all property, rights,
privileges, powers and franchises, and all and every other interest shall be
thereafter as effectually the property of the Surviving Corporation as they were
of the Constituent Corporations, and the title to any real estate vested by deed
or otherwise in any of the Constituent Corporations shall not revert or be in
any way impaired by reason of the Merger, but all rights of creditors and all
liens upon any property of any of the Constituent Corporations shall be
preserved unimpaired, and all debts, liabilities and duties of the Constituent
Corporations shall attach to the Surviving Corporation and may be enforced
against it to the same extent as if said debts, liabilities and duties had been
incurred or contracted by it.
(b) Articles of Incorporation. The Articles of Incorporation of
Acquisition Sub in effect at and as of the Effective Time will remain the
Articles of Incorporation of the Surviving Corporation without any modification
or amendment, other than the change of the name of the Surviving Corporation, in
the Merger.
(c) Bylaws. The Bylaws of Acquisition Sub in effect at and as of the
Effective Time will remain the Bylaws of the Surviving Corporation without any
modification or amendment, other than the change of the name of the Surviving
Corporation, in the Merger.
(d) Directors and Officers. The initial directors of the Surviving
Corporation at and as of the Effective Time shall be comprised of the current
Acquisition Sub directors, and those persons listed on Exhibit D. The principal
officers of the Surviving Corporation at and as of the Effective Time shall be
as set forth in Exhibit D.
(e) Conversion of Shares. At and as of the Effective Time, in
consideration for the Capital Stock and in full payment therefor, each Company
Share shall be converted into the right to receive its pro rata share of (i)
Five Hundred Thousand Dollars ($500,000.00) (the "Cash Consideration") and (ii)
an aggregate of 330,000 shares of Purchaser Common Stock (the "Equity
Consideration," together with the Cash Consideration, hereinafter referred to
collectively as the "Purchase Price"), subject to the adjustments to the
Purchase Price set out in Section 1.3. All shares of Purchaser Common Stock
issued as herein described shall have identical rights as to dividends, voting
and all other matters. Except as expressly provided in this Agreement, there
shall be no other consideration paid to or for the account of the Company
Shareholders in connection with or relating to the transactions contemplated
hereby. However, the Equity Consideration shall be subject to equitable
adjustment in the event of a stock split, stock dividend, reverse stock split,
or other change in the number of Purchaser Shares outstanding. Each Dissenting
Share shall be converted into the right to receive payment from the Surviving
Corporation with respect thereto in accordance with the provisions set forth in
Section 1.5. No Company Share shall be deemed to be outstanding or to have any
rights other than those set forth above in this Section 1.2(e) after the
Effective Time. No fractional Purchaser Shares shall be issued, and, to the
extent that any shareholder would be entitled to receive fractional shares of
Purchaser Common Stock pursuant this Section, the number of Purchaser Shares
that such Company Shareholder is entitled to receive shall be rounded down to
the next lower whole number. Any such fractional share interests will not
entitle the holder thereof to vote or to any rights of a shareholder of
Purchaser.
(f) All shares of Capital Stock held by the Company as treasury stock
shall be retired and canceled and no shares of Purchaser Common Stock or other
consideration shall be delivered or paid in exchange therefor.
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(g) Each Purchaser Share issued and outstanding at and as of the
Effective Time will remain issued and outstanding thereafter.
Section 1.3 Purchase Price Adjustment.
(a) As used in this Section 1.3, the following capitalized terms shall
have the meanings set forth below:
"Actual Pre-Tax Profit" shall mean the pre-tax profit of the Surviving
Corporation, determined in accordance with generally accepted accounting
principles consistently applied ("GAAP"), for the Year. Except as otherwise
stated herein, the accounting principles employed shall be the same as those
applied by the Company on a consistent basis in prior years. Depreciation for
all plant and equipment shall be computed as follows: (i) items with a useful
life of three years or less when placed in service shall be depreciated using
the straight-line method of depreciation; (ii) items with a useful life of
greater than three years when placed in service shall be depreciated using the
declining-balance method of depreciation; (iii) items with a value of less than
$400.00 when purchased shall be expensed and written off immediately; (iv) prior
period adjustments and extraordinary items, as defined in APB Opinion 9, APB
Opinion 20 and FASB Statement 15 will be excluded from the definition of "Actual
Pre-Tax Profit;" and, (v) inventories will be accounted for on a cost basis
consistent with prior years, determined on a first-in, first-out basis and
providing for a write down to market value in those instances where the cost
exceeds the market value as of the date of the balance sheet. The "Actual
Pre-Tax Profit" shall be adjusted on a pro forma basis, as and if required, to
reflect profit or losses normally attributable to the Surviving Corporation due
to the manufacturers' co-op, advertising, market development or discount
programs, if such profit or losses are not received by or charged to Acquisition
Sub.
"Actual Tangible Net Asset Value" shall mean the aggregate amount of the
Current Assets less Liabilities on the Closing Date.
"Alternative Actual Pre-Tax Profit" shall mean the pre-tax profit of the
Surviving Corporation, determined in accordance with generally accepted
accounting principles consistently applied ("GAAP"), for the Alternative Year.
Other than the period for which it is calculated, it shall be computed in the
same manner as the Actual Pre-Tax Profit.
"Alternative Warranted Pre-Tax Profit" shall mean $575,000.
"Alternative Year" means the twelve month period beginning on the date
which is three months after the day after the Closing Date and ending on the
date which is fifteen months after the Closing Date.
"Current Assets" shall be used in all respects in accordance with GAAP
and comprises the aggregate of all cash, cash equivalents, receivables and
inventory, but specifically excludes all other fixed or current assets as
determined in accordance with GAAP and any deferred assets, including without
limitation deferred tax and deferred income, and valued in accordance with GAAP,
and on a basis in all material respects consistent with that adopted for the
purposes of the last audited financial statements of the Company and the value
of all receivables and inventory has been written down to realizable market
value and adequate provision has been made therefor.
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"Fixed Assets" shall be used in all respects in accordance with GAAP and
shall mean fixed assets at the values at which they were included in the latest
audited financial statements (or if acquired after the balance sheet date, their
cost), less depreciation calculated in accordance with the method adopted in the
financial statements. Fixed Assets shall specifically exclude, and no value
shall be attributable to, any intangible assets (including without limitation
goodwill, trademarks, service marks, formulas, franchise rights and patents),
and no asset shall be written up or revalued above its original cost less
applicable depreciation. "Liabilities" shall be used in all respects in
accordance with GAAP and shall mean all liabilities, whether long-term or
current, including without limitation Taxes, all actual liabilities of the
Company on the Closing Date, with proper provision in accordance with GAAP,
having been made therein for all other liabilities of the Company then
outstanding whether contingent, quantified, disputed or not, that are known or
reasonably should have been known, including without limitation the cost of any
work or material for which payment has been received or credit taken, any future
loss which may arise in connection with uncompleted contracts and any claims
against the Company in respect of completed contracts.
"Net Asset Value Shortfall" means the excess, if any, of the Warranted
Tangible Net Asset Value over the Actual Tangible Net Asset Value on the Closing
Date, subject to the limitations set forth in this Section 1.3.
"Net Asset Value Surplus" means the excess, if any, of the Actual
Tangible Net Asset Value over the Warranted Tangible Net Asset Value on the
Closing Date, subject to the limitations set forth in this Section 1.3.
"Profit Shortfall" means the excess, if any, of the Warranted Pre-Tax
Profit over the Actual Pre- Tax Profit, subject to the limitations set forth in
this Section 1.3.
"Profit Surplus" means the excess, if any, of the Actual Pre-Tax Profit
over $550,000, subject to the limitations set forth in this Section 1.3.
"Warranted Pre-Tax Profit" shall mean $525,000.
"Warranted Tangible Net Asset Value" shall mean $285,000.
"Year" means the twelve month period beginning on the day after the
Closing Date and ending on the first anniversary of the Closing Date.
(b) Each Company Shareholder agrees that the Warranted Pre-Tax Profit
and the Warranted Tangible Net Asset Value of the Company shall be not less than
the amounts set forth above. To the extent that any of the conditions set forth
below are met, the corresponding adjustments to the Purchase Price payable to
the Company Shareholders or the Purchaser, as the case may be, shall be made:
(i) In the event that there is a Net Asset Value Surplus, the
Purchase Price shall be increased by the amount of the Net Asset Value
Surplus. Such amount will be paid by the Purchaser, in cash, to the
Company Shareholders within ninety (90) days after the determination of
Actual Tangible Net Asset Value.
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(ii) In the event that there is a Net Asset Value Shortfall,
the Purchase Price shall be reduced by the amount of the Net Asset Value
Shortfall. Such amount will be paid, in cash, by the Company
Shareholders to Purchaser within thirty (30) days after the
determination of the Actual Tangible Net Asset Value.
(iii) In addition to any adjustments made pursuant to
subsections (i) and (ii) above, if the Actual Pre-Tax Profit for the
Year (or for the Alternative Year, if applicable) exceeds $550,000, the
Purchase Price shall be increased by the number of Purchaser Shares
determined by the following formula (the "Profit Surplus Adjustment"):
(Actual Pre-Tax Profit/$550,000 x 430,000) - 430,000
The number of Purchaser Shares required for the Profit Surplus
Adjustment shall be transferred to Company Shareholders within three
business days after the final determination of the amount of such Profit
Surplus Adjustment. In no event, however, shall the Purchase Price be
increased by more than 43,000 Purchaser Shares pursuant to this Profit
Surplus Adjustment (the "Adjustment Ceiling").
(iv) Also in addition to any adjustments made pursuant to
subsections (i) and (ii) above, in the event that the Warranted Pre-Tax
Profit exceeds the Actual Pre-Tax Profit for the Year (or the for
Alternative Year, if applicable), the Purchase Price shall be reduced by
the number of Purchaser Shares determined by the following formula (the
"Profit Shortfall Adjustment"):
430,000 - (Actual Pre-Tax Profit/$550,000 x 430,000)
The number of Purchaser Shares required for the Shortfall
Surplus Adjustment shall be transferred to Purchaser immediately within
three business days after receiving notice from Purchaser of the amount
of such Profit Shortfall Adjustment. In no event, however, shall the
Purchase Price be reduced by more than 100,000 Purchaser Shares pursuant
to this Profit Shortfall Adjustment (the "Adjustment Floor").
(v) In the event that there is a stock split, stock dividend,
reverse stock split or other change in the number of Purchaser Shares
outstanding, the formulae set forth in subsections (iii) and (iv) above,
the Adjustment Ceiling and the Adjustment Floor shall be proportionately
adjusted to reflect such a change in the number of Purchaser Shares.
(c) Any receivable of the Company existing as of the Closing Date that
remains uncollected by the Surviving Corporation or its successor 90 days after
the Closing Date, or such later date as determined by the Extension Option below
(the "Measurement Date"), or, as of such date, has been collected at less than
its full value as shown in Current Assets on the Closing Date shall be
considered a "Collection Shortfall." The Company Shareholders shall have the
option to extend the Measurement Date to a date that is 120 days after the
Closing Date by giving notice of such extension to Purchaser and Surviving
Corporation no later than the date which is 60 days after the Closing Date (the
"Extension Option"). In the event that there is a Collection Shortfall, (i) the
Surviving Corporation shall have the option of assigning such receivable to the
Company Shareholders, without representation or warranty, not more than 30 days
after the Measurement Date, and demanding the amount of the Collection
Shortfall, and upon such assignment, such Company Shareholders shall pay to the
Surviving Corporation such amount, in cash, within ten (10) days after demand;
provided that Surviving
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Corporation shall have exercised all reasonable efforts at collecting such
receivable at such full value; and (ii) the Company Shareholders shall have the
option of causing the Surviving Corporation to sell such receivable to the
Company Shareholders, without representation or warranty, not more than 120 days
after the Closing Date, and paying the amount of the Collection Shortfall, and
upon such assignment, the Company Shareholders shall pay Surviving Corporation
such amount, in cash, within ten (10) days after demand. The Company
Shareholders shall thereafter be free to pursue such collection measures as they
in their sole discretion shall deem necessary or appropriate. To the extent, if
any, that the Collection Shortfall remains unpaid after such ten (10) day
period, Surviving Corporation shall adjust the Purchase Price, effective as of
the Closing Date, in accordance with the provisions set forth in Section
1.3(b)(ii) above, adding Collection Shortfall to the Net Asset Value Shortfall.
(d) Any items of the Company's inventory existing as of the Closing Date
that remain unsold by the Surviving Corporation or its successor 90 days
thereafter, or such later date as chosen by the Company Shareholders upon
exercise of the Extension Option, set forth in Section 1.3(c) above, or which
have been sold at less than full value as shown in Current Assets on the Closing
Date shall be considered "Inventory Shortfall." Not more than thirty (30) days
after the Measurement Date, Surviving Corporation shall deliver and transfer
such unsold inventory to the Company Shareholders without representation or
warranty and shall demand the amount of the Inventory Shortfall, and upon such
transfer and delivery, the Company Shareholders shall pay the Surviving
Corporation such amount, in cash, within ten (10) days of demand; provided that
Surviving Corporation shall have exercised all reasonable efforts at selling
such inventory at such full value. Such Company Shareholders shall, at any time
after Surviving Corporation's demand of the Inventory Shortfall, be free to sell
such inventory as they in their sole discretion shall deem necessary or
appropriate. To the extent, if any, that the Inventory Shortfall remains unpaid
after such ten (10) day period, Surviving Corporation shall adjust the Purchase
Price, effective as of the Closing Date, in accordance with the provisions set
forth in Section 1.3(b)(ii) above, adding Inventory Shortfall to the Net Asset
Value Shortfall.
(e) Each Company Shareholder shall escrow twenty percent (20%) of the
Equity Consideration (the "Escrowed Shares") and the Company Shareholders shall
collectively escrow $100,000 of the Cash Consideration (the "Escrowed Cash"), to
be subject to redistribution by Purchaser and Acquisition Sub in the
circumstances described in this Section 1.3. The terms of the escrow shall be
substantially as set forth in the form of Escrow Agreement attached as Exhibit
1.3(e) hereto. Any Escrowed Cash not subject to redistribution for purposes of
this Section shall be released to the Company Shareholders after final
determination of the Actual Tangible Net Asset Value. The Escrowed Cash released
to the Company Shareholders shall include interest earned on such released
Escrowed Cash, to the extent that the Company Shareholders provide the escrow
agent with the appropriate paperwork required to invest such funds on a timely
basis. Upon determination of either a Profit Surplus Adjustment or a Profit
Shortfall Adjustment pursuant to the terms of Section 1.3(b), the number of
Escrowed Shares to be used to satisfy such Adjustment shall be calculated by
dividing the amount of the Adjustment by the twenty-day average trading price of
Purchaser Common Stock as quoted on the Nasdaq National Market System for the
twenty-day period ending on the date that the Adjustment is determined. Any
Escrowed Shares not subject to redistribution for the purposes of this Section
shall be released to the Company Shareholders as follows: one-half within thirty
(30) days after the determination of the application of this Section 1.3
pursuant to the provisions of subsection (b), (c) or (d) above, as the case may
be, and one-half on the first anniversary of the Closing Date, or, in the event
that the Company Shareholders elect to exercise the Alternative Year provisions
set forth in Section 1.3(g), at the end of the Alternative Year. In the event
that the Purchase Price Adjustment
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described in this Section 1.3 exceeds the number of Escrowed Shares and the
amount of Escrowed Cash available, Purchaser's recovery of shares or cash
pursuant to the Purchase Price Adjustment shall not be limited to the number of
available Escrowed Shares or the amount of Escrowed Cash. In the event that
Purchaser elects, pursuant to Section 1.3(h), to waive the Profit Surplus
Adjustment of Section 1.3(b)(iii) and the Profit Shortfall Adjustment of Section
1.3(b)(iv), the Escrowed Shares shall be transferred to the escrow account
established under Section 5.6 hereof, and such shares shall become subject to
all of the terms and conditions under Section 5.6, except that such shares shall
be released to the Company Shareholders pursuant to the provisions of that
certain Pledge, Security and Escrow Agreement executed in connection with
Section 5.6 hereof.
(f) As an example of the application of subsections (b) and (c) above,
in the event that the Actual Tangible Net Asset Value shall be $270,000 on the
Closing Date rather than the Warranted Tangible Net Asset Value of $285,000,
being a $15,000 shortfall in Warranted Tangible Net Asset Value, and an
additional shortfall is determined under subsection (c) above in the amount of
$10,000 and such amount remains unpaid, and in the event that the Actual Pre-Tax
Profit shall be $500,000, rather than the Warranted Pre-Tax Profit of $525,000,
being a $25,000 shortfall in Warranted Pre-Tax Profit, then the amount of Cash
Consideration shall be reduced by $25,000 and the number of Purchaser Shares to
be distributed to the Company Shareholders shall be reduced by 39,091 shares,
computed as follows:
430,000 - ($500,000 / $550,000 x 430,000) = 39,091 Shares
(g) For purposes of calculating the Purchase Price Adjustment under this
Section 1.3, the Company Shareholders shall have the option, at the end of the
Year, to calculate the Profit Surplus Adjustment, as set forth in Section
1.3(b)(iii), and the Profit Shortfall Adjustment, as set forth in Section
1.3(b)(iv), based on the Alternative Year rather than the Year. If the Company
Shareholders elect to exercise this option, the following substitutions shall be
made to the provisions of Sections 1.3(b)(iii) and (iv): the Alternative Actual
Pre-Tax Profit shall be substituted for the Actual Pre-Tax Profit, the
Alternative Warranted Pre-Tax Profit shall be substituted for the Warranted
Pre-Tax Profit and the dollar figure shall be increased from $550,000 to
$575,000, in the body of Section 1.3(b)(iii) and in the denominators of both
equations. Once the Company Shareholders elect to exercise this option, the
decision shall be final, and the Company Shareholders shall not be entitled to
calculate the Purchase Price Adjustment based on the Actual Pre-Tax Profit and
the Warranted Pre-Tax Profit.
(h) Purchaser shall have the exclusive option to waive the Profit
Surplus Adjustment set forth in Section 1.3(b)(iii) and the Profit Shortfall
Adjustment set forth in Section 1.3(b)(iv) by giving notice of its election to
exercise such option within 120 days after the Closing Date. In the event that
Purchaser makes such an election, there shall be no adjustments whatsoever
pursuant to Sections 1.3(b)(iii) and (iv).
(i) Until the end of the Year (or the end of the Alternative Year, if
the Shareholders elect to calculate the Purchase Price Adjustment on that
basis), the Purchaser covenants and agrees as follows:
(i) The business and assets of the Company, to which the
Surviving Corporation will succeed in the Merger, will be maintained
intact as a business unit, under the management and control of the
Managing Shareholder, and operating in substantially the same manner as
prior to the Merger, with substantially the same managerial and support
staff, working capital, and other business resources, as prior to the
Merger, so the Company Shareholders will not be
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disadvantaged, in their attempt to achieve the maximum Actual or
Alternative Pre-Tax Profit, by factors such as the combination of the
Company's business and assets with other businesses, or the diversion
of managers, employees, working capital and other resources to other
activities of Purchaser or its affiliates. In this connection, all
dealings and transactions between the Surviving Corporation and the
Purchaser and Purchaser's affiliates will be conducted on an arm's
length basis, except as set forth below, and on terms at least as
favorable to the Company as it could obtain from an unrelated third
party.
(ii) The Surviving Corporation shall be entitled to "Most
Favored Distributor" status, in that it shall be entitled to deal with
Purchaser and its affiliates on terms at least as favorable as any other
person or entity acting as a distributor, representative or in a similar
capacity for the Purchaser or any affiliate, and without limitation,
will be given the reasonable opportunity to become a distributor,
representative or seller of each of the products and product lines
offered now or in the future by Purchaser or its affiliates, except to
the extent that such products are licensed directly to Purchaser or one
or more affiliates of Purchaser by a third party.
(a) Specific service requests by Purchaser to Surviving
Corporation and vice versa for technical aid, special services,
advertising, and similar services will be charged on a basis of
cost. Operating capital advanced to Acquisition Sub., Surviving
Corporation or their successors by Purchaser will bear interest
at the Prime Rate charged by NationsBank N.A. of Delaware, or at
the rate Purchaser pays for the funds.
(b) General services such as auditing, tax, legal, etc. provided
or paid for by Purchaser for the Surviving Corporation in lieu
of obtaining such services from other sources will be charged to
the Surviving Corporation at cost on a basis consistent with
Purchaser's current practice. However, charges for such services
shall be limited to services provided and shall not exceed costs
at which Surviving Corporation could reasonably expect to obtain
similar services from other sources. Arbitrary charges by
Purchaser for management or administrative services which are
neither controllable by Surviving Corporation nor properly
chargeable against Surviving Corporations operations will be
excluded from any determination of Company's Actual or
Alternative Pre-Tax Profit.
(iii) The Surviving Corporation shall receive credit, in the
calculation of Actual or Alternative Pre-Tax Profit, for all credits
from its vendors and manufacturers for items such as advertising,
rebates, market development funds, and the like that are properly
attributable to Surviving Corporation.
(iv) The Surviving Corporation will be given credit for all
available anticipation, prepay or early pay discounts on
vendor/manufacturer charges and invoices that are properly attributable
to Surviving Corporation.
(v) In the event that Ricoh, a customer of the Company, ceases
to do business with the Surviving Corporation after the merger, the
Warranted Pre-Tax Profit or the Alternative Warranted Pre-Tax Profit, as
the case may be, shall be reduced by $50,000.
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(j) In the event that a "Change of Control," as defined below, occurs
prior to the end of the Year (or the Alternative Year, if Shareholders elect to
calculate the Purchase Price Adjustment on that basis), then, at Shareholder's
option, the Purchase Price Adjustment shall be waived, no such adjustment shall
occur and the Escrows provided under Section 1.3(e) shall be released. For
purposes hereof, a "change of Control" shall mean any transaction in which: (a)
individuals who were directors of the Purchaser, immediately prior to a Control
Transaction shall cease, within one year of any Control Transaction, to
constitute a majority of the Purchaser's Board of Directors (or of the Board of
Directors of any successor to Purchaser or to all or substantially all of its
assets), or (b) any entity, person or group which is not currently a shareholder
of the Purchaser acquires shares of the Purchaser in a transaction or series of
transactions that result in such entity, person or group directly or indirectly
owning beneficially 51% or more of the outstanding shares. Notwithstanding the
foregoing, an inssuance of shares by the Purchaser to more than one party in
connection with a capital-raising transaction shall not constitute a Change in
Control. "Control Transaction" shall mean (aa) any tender offer for or
acquisition of capital stock of Purchaser, (bb) any merger, consolidation, or
sale of all or substantially all of the assets of Purchaser which has been
approved by the shareholders, (cc) any contested election of directors of
Purchaser which results in a change in the majority of the Board of Directors of
Purchaser, or (dd) any combination of the foregoing which results in a change in
voting power sufficient to elect a majority of the Board of Directors of
Purchaser.
Section 1.4 The Closing. Subject to termination of this Agreement as
provided in Article VI below, the closing and consummation of the transactions
contemplated by this Agreement shall take place in the offices of Purchaser's
attorneys on such date that the conditions of closing set forth in Article IV
hereof have been satisfied or waived, or such other date as the parties hereto
may mutually select (the "Closing Date"), which in no event shall be after April
1, 1998, unless extended as provided herein. Purchaser and Acquisition Sub on
the one hand, and Company and Company Shareholders on the other hand, shall each
have the unilateral option to extend the Closing Date to a date which is not
more than 30 days after April 1, 1998, provided that the party electing to
exercise such option shall give written notice of its election to do so not
later than three (3) business days prior to April 1, 1998. Thereafter, the
parties may extend the Closing Date by mutual consent. The "Closing" shall mean
the deliveries to be made by the parties hereto on the Closing Date in
accordance with this Agreement, as follows: (i) Company will deliver to
Acquisition Sub and Purchaser the various certificates, instruments and
documents referred to in Section 4.1 below; (ii) Acquisition Sub and Purchaser
will deliver to Company the various certificates, instruments and documents
referred to in Section 4.2 below; (iii) each Company Shareholder shall deliver
to Acquisition Sub and Purchaser for cancellation the certificates representing
his shares of Capital Stock; (iv) Acquisition Sub and Purchaser will deliver the
consideration specified in Section 1.2 above, subject to any adjustments made
pursuant to Section 1.3; and (v) the Parties will file a Certificate of Merger
with the Secretary of State of the State of Georgia in substantially the form
attached hereto as Exhibit A and will file Articles of Merger with the Secretary
of State of the State of South Carolina in substantially the form attached
hereto as Exhibit B. The Merger shall be deemed to have become effective as of
12:01 a.m. Atlanta, Georgia Time on the Closing Date.
Section 1.5 Dissenting Shareholders. In the event that any holder of
Company Shares elects to exercise its dissenters rights pursuant to the
applicable provisions of the Code of Laws of South Carolina, and in the event
that Purchaser or Acquisition Sub have not otherwise terminated this Agreement
pursuant to Section 6.1, Purchaser and Acquisition Sub shall have the right to
terminate this Agreement on account of such shareholder's election. If
Purchaser and Acquisition Sub do not elect to terminate this Agreement, any
holder of Company Shares who perfects his or her dissenters' rights of
appraisal in accordance with and as contemplated by the applicable provisions of
the Code of Laws of
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South Carolina shall be entitled to receive the value of such shares in cash as
determined pursuant to such provision of the Code of Laws of South Carolina,
provided that no such payment shall be made to any dissenting shareholder unless
and until such dissenting shareholder has complied with the applicable
provisions of the Code of Laws of South Carolina and surrendered to the Company
the certificate or certificates representing the shares for which payment is
being made. In the event that after the Effective Time a dissenting shareholder
fails to perfect or effectively withdraws or loses his or her right to appraisal
and of payment for his or her shares, Surviving Corporation shall issue and
deliver the consideration to which such holder of shares is entitled under this
Article I (without interest) upon surrender by such holder of the certificate or
certificates representing the shares held by him or her.
Section 1.6 Certain Tax Agreements. The Parties intend to adopt this
Agreement and Merger as a tax-free reorganization under Section 368(a)(2)(D) of
the Internal Revenue Code of 1986, as amended. The parties shall not take a
position on any tax return or engage in any activities inconsistent with this
Section 1.6. The adoption of this Agreement and the approval of the Merger by
the Company Shareholders shall constitute the agreement by each Company
Shareholder that, without limiting the foregoing:
(a) Such Company Shareholder has not sold, exchanged, transferred or
disposed of Company Shares in contemplation of the Merger except as disclosed on
Schedule 1.6 attached hereto, and such Company Shareholder has no present intent
to and will not sell, exchange, transfer, dispose of or receive any such stock
in contemplation of the Merger, nor has such Company Shareholder entered into
any discussions or negotiations with regard to the possible sale, exchange,
transfer or other disposition of such stock.
(b) Such Company Shareholder is not subject to any obligation to sell,
exchange, transfer or otherwise dispose of all or any Purchaser Shares to be
received by such Company Shareholder in the Merger. Such Company Shareholder has
not entered into any discussion or negotiations with regard to the possible
sale, exchange, transfer or other disposition of all or any of the Purchaser
Shares. Such Company Shareholder has no plan or intent to engage in any
transaction or arrangement that would reduce such Company Shareholder's risk of
ownership in any way, including, without limitation, a short sale, hedging
transaction or otherwise, with respect to any or all of such Purchaser Shares.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the Company and the
Company Shareholders. All representations and warranties of the Company and the
Company Shareholders are accurate and material and are being made in order to
induce Purchaser and Acquisition Sub to enter into this Agreement. The Company
and each of the Company Shareholders hereby jointly and severally represent and
warrant to Purchaser and Acquisition Sub that:
(a) Organization. The Company is a corporation duly organized and
validly existing under the laws of the State of South Carolina (the "State"),
and has all requisite power and authority to lease, own, and operate its
properties and carry on the Business and operations and to directly own, lease,
and operate its assets. The Company is duly qualified or licensed to do business
as a corporation, and is in good standing in the State. The Company has
delivered to Purchaser and Acquisition Sub complete and accurate copies of its
Articles of Incorporation and Bylaws and all amendments thereto, and all minutes
and actions of its Board of Directors and shareholders. To the best of
Company's and Company
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Shareholders' Knowledge, neither the Company nor any of the Company
Shareholders is in violation of any of the provisions of the Articles of
Incorporation or the Bylaws.
(b) Capitalization and Ownership. The authorized and outstanding capital
stock of the Company (including without limitation all voting securities) (the
"Capital Stock") and its par value per share, if any, is as set forth on
Schedule 2.1(b) hereto. Each person listed on Schedule 2.1(b) is the lawful
owner of that number of the issued and outstanding shares of capital stock of
the Company set forth opposite such person's name, free and clear of any
restrictions upon transfer except as indicated in Schedule 2.1(b), all of which
restrictions shall be removed no later than the Closing Date. The shares of
Capital Stock (the "Company Shares") set forth on Schedule 2.1(b) constitute all
of the shares of capital stock of the Company and all such shares have been duly
authorized and are validly issued, fully paid and nonassessable, and to the best
of the Knowledge and belief of the Company and the Company Shareholders, have
been issued in compliance with all applicable federal and state securities laws.
There are no outstanding subscriptions, warrants, calls, options, conversion
rights, rights of exchange or other commitments, plans, agreements, or
arrangements of any nature under which the Company or the Company Shareholder
may be obligated to issue, assign, exchange, purchase, redeem or transfer any
shares of capital stock of the Company, and there are no shareholders'
agreements to which the Company or the Company Shareholders is a party, or
proxies, voting trust agreements or similar agreements or options executed by
the Company or the Company Shareholders or to which the Company Shares are
subject. There are no outstanding subscriptions, options, warrants, rights,
convertible securities or other agreements or commitments of any character
relating to the issued or unissued capital stock or other securities of the
Company obligating the Company or the Company Shareholders to grant, extend or
enter into any subscription, option, warrant, right, convertible security or
other similar agreement or commitment. The Company has satisfied all of its
obligations to all current and past shareholders, and none of such current or
past shareholders has any claims, or any basis therefor, against the Company
arising out of or relating to obligations of the Company to such current or past
shareholders. None of the shares of the Company's Capital Stock was issued
pursuant to awards, grants, or bonuses.
(c) Subsidiaries. Except as set forth in Schedule 2.1(c), the Company
does not own, directly or indirectly, any capital stock or other equity or
ownership or proprietary interest in any corporation, partnership, association,
limited liability company, trust, joint venture or other entity.
(d) Authorization. The Company and each of the Company Shareholders have
full power and authority to enter into this Agreement, to perform their
respective obligations hereunder and to consummate the transactions contemplated
hereby. Each corporate Company Shareholder is duly organized and existing under
the laws of the jurisdiction of its incorporation. The Company and/or each of
the Company Shareholders, as appropriate, have taken all necessary and
appropriate corporate action with respect to the execution and delivery of this
Agreement. This Agreement constitutes a valid and binding obligation of the
Company and the Company Shareholders (to the extent to which each is a party),
enforceable in accordance with its terms; except as limited by applicable
bankruptcy, insolvency, moratorium, reorganization or other laws affecting
contracts, creditors' rights and other laws and remedies generally.
(e) Financial Information. The Company will deliver its unaudited
consolidated balance sheets and related statements of operations and cash flows
at and for the fiscal years ended 1995, 1996 and 1997 (the "Unaudited Annual
Financial Statements") and will deliver the unaudited statements of operations
and cash flows at and for the period from the end of the Company's 1997 fiscal
year through February 28, 1998 (the "Unaudited Interim Financial Statements,"
together with the Unaudited Annual
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Financial Statements, collectively referred to herein as the "Unaudited
Financial Statements") within seven (7) days after the execution of this
Agreement. Within thirty (30) days after the Closing Date the Company will also
deliver an unaudited balance sheet as of the Closing Date (the "Unaudited
Balance Sheet," together with the Unaudited Financial Statements, collectively
referred to herein as the "Financial Statements"). To the best of the Knowledge
and belief of the Company and the Company Shareholders, the Financial Statements
will be prepared in accordance with Generally Accepted Accounting Principles
("GAAP") on a consistent basis throughout the periods indicated and with each
other and will present accurately the financial condition of the Company as of
the respective dates thereof and the results of operations for the periods then
ended. All of the Company's general ledgers, books, and records are located at
the Company's principal place of business in the State or at the offices of its
accountant. Purchaser or Acquisition Sub may, at their option, elect to engage,
at their own cost and expense, an accounting firm selected by them and
reasonably acceptable to the Company to audit the Unaudited Financial Statements
as of the Closing Date.
(f) Deposit Accounts; Powers of Attorney. Schedule 2.1(f) hereto lists:
(i) the name of each financial institution in which the
Company has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
There are no persons, corporations, firms or other entities holding a
general or special power of attorney from the Company.
(g) Liabilities and Obligations. Other than as set forth in the
Unaudited Financial Statements, Schedule 2.1(g) sets forth an accurate list at
the date of this Agreement of all liabilities of the Company, and any
significant liabilities incurred thereafter in the ordinary course of business
or liabilities which are not reflected in the balance sheet of any kind,
character, or description, whether accrued, absolute, secured or unsecured,
contingent or otherwise, together with, in the case of those liabilities which
are not fixed, an estimate of the maximum amount which may be payable. For each
such liability for which the amount is not fixed or is contested, whether in
litigation or otherwise, the Company shall provide the following information:
(i) a summary description of the liability together with the
following:
(a) copies of all material relevant documentation
relating thereto;
(b) amounts claimed and any other action or relief
sought; and
(c) name of claimant and all other parties to the claim,
suit, or proceeding.
(ii) the name of each court or agency before which such claim,
suit, or proceeding is pending;
(iii) the date such claim, suit, or proceeding was instituted;
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(iv) a reasonable estimate by the Company of the maximum amount,
if any, which is likely to become payable with respect to each such
liability. If no estimate is provided, the Company's best estimate shall
for purposes of this Agreement be deemed to be zero.
(h) Product and Service Warranties and Reserves. To the best of
Company's and Company Shareholders' Knowledge, except as set forth in Schedule
2.1(h), there are no product warranty claims relating to sales of the Company's
products occurring on or prior to the date of this Agreement. To the best of
Company's and Company Shareholders' Knowledge, the only express warranties,
written or oral, with respect to the products or services sold by the Company
are set forth in Schedule 2.1(h).
(i) Absence of Certain Changes and Events. Except as set forth in
Schedule 2.1(i) hereto, to the best of the Knowledge and belief of the Company
and the Company Shareholders, since the date of the Unaudited Annual Financial
Statements there has not been:
(i) Any material adverse change in the financial condition,
results of operation, assets, liabilities or prospects of the Company or
the Business, or any occurrence, circumstance, or combination thereof
which reasonably could be expected to result in any such material
adverse change;
(ii) Any transaction relating to or involving the Company, the
Business, the assets of the Company or the Company Shareholders which
was entered into or carried out by the Company or the Company
Shareholders other than for fair consideration in the Ordinary Course of
Business;
(iii) Any change by the Company in its accounting or tax
practices or procedures;
(iv) Any incurrence of any liability, other than liabilities
incurred in the Ordinary Course of Business consistent with past
practices;
(v) Any sale, lease, or disposition of, or any agreement to
sell, lease, or dispose of any of its properties (whether leased or
owned), or the assets of the Company, other than sales, leases, or
dispositions of goods, materials, or equipment in the Ordinary Course of
Business or as contemplated by this Agreement;
(vi) Any event permitting any of the assets or the properties
of the Company (whether leased or owned) to be subjected to any pledge,
encumbrance, security interest, lien, charge, or claim of any kind
whatsoever (direct or indirect) (collectively, "Liens");
(vii) Any increase in compensation or any adoption of, or
increase in, any bonus, incentive compensation, pension, profit sharing,
retirement, insurance, medical reimbursement or other employee benefit
plan, payment or arrangement to, for, or with any employee of the
Company, other than certain bonuses paid to the Company Shareholders and
disclosed in writing to the Acquisition Sub and Purchaser;
(viii) Any payment or distribution of any bonus to, or
cancellation of indebtedness owing from, or incurring of any liability
relating to any employees, consultants, directors, officers, or agents,
or any persons related thereto, other than certain bonuses paid to the
Company Shareholders;
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(ix) Any notice (written or unwritten) from any employee of
the Company that such employee has terminated, or intends to terminate,
such employee's employment with the Company;
(x) Any adverse relationship or condition with Suppliers (as
defined in Section 2.1 (q)(i) hereof), vendors, or Customers (as defined
in Section 2.1(ee) hereof) that may have an adverse effect on the
Company, the Business, or the assets of the Company;
(xi) Any event, including, without limitation, shortage of
materials or supplies, fire, explosion, accident, requisition or taking
of property by any governmental agency, flood, drought, earthquake, or
other natural event, riot, act of God or a public enemy, or damage,
destruction, or other casualty, whether covered by insurance or not,
which has had an adverse effect on the Company, the properties (whether
leased or owned), the Business, or the assets of the Company or any such
event which could be expected to have an adverse effect on the Company,
the properties (whether leased or owned), the Business, or the assets of
the Company;
(xii) Any modification, waiver, change, amendment, release,
rescission, accord and satisfaction, or termination of, or with respect
to, any term, condition, or provision of any contract, agreement,
license, or other instrument to which the Company or a Company
Shareholder is a party and relating to or affecting the Business or the
assets of the Company other than any satisfaction by performance in
accordance with the terms thereof in the Ordinary Course of Business;
(xiii) Any discharge or satisfaction of any Lien or payment of
any liabilities, other than in the Ordinary Course of Business;
(xiv) Any waiver of any rights of substantial value by the
Company, other than waivers having no material adverse effect on the
Company;
(xv) Any issuance of equity securities of the Company or any
issuance of warrants, calls, options or other rights calling for the
issuance, sale, or delivery of the Company's equity securities;
(xvi) Any declaration of any dividend or any distribution of
any shares of its capital stock, or redemption, purchase, or other
acquisition of any shares of its capital stock or any grant of an
option, warrant, or other right to purchase or acquire any such shares;
(xvii) Any amendment, or agreement to amend, the Company's
Articles of Incorporation or Bylaws, or any merger or consolidation
with, or any agreement to merge or consolidate with, any other
corporation, partnership, limited liability company or any other entity;
(xviii) Any reduction, or agreement to reduce, the cash or
short-term investments of the Company, other than to meet cash needs
arising in the Ordinary Course of Business;
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(xix) Any work interruptions, labor grievances or claims filed,
proposed law or regulation or any event of any character, materially
adversely affecting the Business or future prospects of the Company;
(xx) Any revaluation by the Company of any of its assets;
(xxi) Any loan by the Company to any person or entity, or any
guaranty by the Company of any loan; or
(xxii) To the best Knowledge of the Company and the Company
Shareholders, any other event or condition of any character which
materially adversely affects, or reasonably may be expected to so
affect, the assets of the Company, the Business, or the properties
(whether leased or owned) of the Company.
(j) Inventory. Schedule 2.1(j) sets forth the reasonable value of the
Company's inventory. All inventory is owned by the Company, including all goods
customarily sold and/or rented by the Company in connection with the Business
(whether located on the premises of the Company, in transit to or from such
premises, in other storage facilities, or otherwise) (collectively, the
"Inventory"), and the Company maintains appropriate records of such inventory.
The Company has continued to replenish the Inventory in a normal and customary
manner consistent with past practices. To the Knowledge of the Company and the
Company Shareholders, the Company has not received written or oral notice that
the Company will experience in the future any difficulty in obtaining, in the
desired quantity and quality and upon reasonable terms and conditions, the
vehicles, materials, supplies, or equipment required for the Business.
(k) Taxes.
(i) Definitions. For purposes of this Agreement:
(a) the term "Taxes" means (A) all federal, state,
local, foreign and other net income, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise,
profits, license, lease, service, service use,
withholding, payroll, employment, excise, severance,
stamp, occupation, premium, property, windfall profits,
customs, duties or other taxes, fees, assessments or
charges of any kind whatever, together with any interest
and any penalties, additions to tax or additional
amounts with respect thereto, (B) any liability for
payment of amounts described in clause (A) whether as a
result of transferee liability, of being a member of an
affiliated, consolidated, combined or unitary group for
any period, or otherwise through operation of law, and
(C) any liability for the payment of amounts described
in clauses (A) or (B) as a result of any tax sharing,
tax indemnity or tax allocation agreement or any other
express or implied agreement to indemnify any other
person; and the term "Tax" means any one of the
foregoing Taxes; and
(b) the term "Returns" means all returns, declarations,
reports, statements, claims for refund and other
documents required to be filed in respect of Taxes, and
the term "Return" means any one of the foregoing
Returns.
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(ii) To the best of the Knowledge and belief of the Company
and the Company Shareholders, the Company has properly completed and
filed on a timely basis (including extensions) and in correct form all
Returns required to be filed on or prior to the Closing Date. As of the
time of filing, the foregoing Returns correctly reflected the facts
regarding the income, business, assets, operations, activities, status
or other matters of the Company or any other information required to be
shown thereon. In particular, to the best of the Knowledge of the
Company and the Company Shareholders, the foregoing Returns are not
subject to unpaid penalties under Section 6662 of the Internal Revenue
Code of 1986, as amended (the "Code"), relating to accuracy-related
penalties (or any corresponding provision of state, local or foreign Tax
law) or any other unpaid penalties.
(iii) To the best of the Knowledge and belief of the Company
and the Company Shareholders, with respect to all amounts in respect of
Taxes imposed upon the Company, or for which the Company is liable,
whether to taxing authorities (as, for example, under law) or to other
persons or entities (as, for example, under tax allocation agreements),
with respect to all taxable periods ending on or before the Closing Date
and portions of periods commencing before the Closing Date and ending
after the Closing Date, all applicable tax laws and agreements have been
fully complied with, and all such amounts required to be paid by the
Company to taxing authorities or others on or before the Closing Date
have been paid, and all such amounts required to be paid by the Company
to taxing authorities or others after the Closing which have not been
paid are reflected on the Financial Statements of the Company.
(iv) No notices raising tax issues have been received by the
Company from any taxing authority in connection with any of the Returns.
No extensions or waivers of statutes of limitations with respect to the
Returns have been given by or requested from the Company. Schedule
2.1(l)(iv) sets forth taxable years for which examinations have been
completed, those years for which examinations are presently being
conducted, and those years for which required Returns have not yet been
filed. Except to the extent indicated in Schedule 2.1(l)(iv), all
deficiencies asserted or assessments made as a result of any
examinations have been fully paid, or are fully reflected as a liability
in the Financial Statements of the Company, or are being contested and
an adequate reserve therefor has been established and is fully reflected
in the Financial Statements of the Company.
(v) There are no liens for Taxes (other than for current
Taxes not yet due and payable) upon the assets of the Company.
(vi) The Company is not a party to or bound by (nor will the
Company become a party to or become bound by) any tax indemnity, tax
sharing or tax allocation agreement.
(vii) The Company has never been a member of an affiliated
group of corporations within the meaning of Section 1504 of the Code.
(viii) The Company has not filed a consent pursuant to the
collapsible corporation provisions of Section 341(f) of the Code (or any
corresponding provision of state, local or foreign income Tax law) or
agreed to have Section 341(f)(2) of the Code (or any corresponding
provision of state, local or foreign income Tax law) apply to any
disposition of any asset owned by it.
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(ix) None of the assets of the Company directly or indirectly
secures any debt the interest on which is tax exempt under Section
103(a) of the Code.
(x) None of the assets of the Company is "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
(xi) The Company has not made and will not make a deemed
dividend election under Treas. Reg. ss.1.1502-32(f)(2) or a consent
dividend election under Section 565 of the Code.
(xii) The Company has not agreed to make, nor is it required to
make, any adjustment under Sections 481(a) or 263A of the Code or any
comparable provision of state or foreign tax laws by reason of a change
in accounting method or otherwise.
(xiii) None of the Company Shareholders is other than a United
States person within the meaning of the Code.
(xiv) The Company is not party to any joint venture,
partnership, or other arrangement or contract which could be treated as
a partnership for federal income tax purposes.
(xv) The Company's tax basis of each of its assets is
reflected in its Unaudited Financial Statements.
(xvi) All elections with respect to Taxes made during the
fiscal years ended December 31, 1995, December 31, 1996 and December
31, 1997 are reflected on the Returns for such periods, copies of which
have been provided to Purchaser.
(l) Employee Payments.
(i) The hours worked by and payments made to the Company's
employees have not been in violation in any respect of the Fair Labor
Standards Act or any other applicable federal, foreign, state or local
laws dealing with such matters.
(ii) All payments due from the Company on account of employee
health and welfare insurance have been paid or accrued.
(iii) All severance, sick, or vacation payments by the Company,
which are or were due under the terms of any agreement or otherwise have
been paid or are described in Schedule 2.1(l)(iii).
(m) Compliance With Law. The Company has complied and is in compliance
with all applicable zoning decisions and, to the best of the Knowledge of the
Company and the Company Shareholders, has complied and is in compliance with all
applicable federal, state, and local laws, statutes, licensing requirements,
rules, and regulations, and judicial or administrative decisions. To the best of
the Knowledge and belief of the Company and the Company Shareholders, the
Company has been granted all licenses, permits (temporary and otherwise),
authorizations, and approvals from federal, state, and local government
regulatory or zoning bodies necessary to carry on the Business and maintain the
assets of the Company, all of which are currently valid and in full force and
effect. All
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such licenses, permits, authorizations and approvals shall be valid and in full
force and effect upon the consummation of the transactions contemplated by this
Agreement to the same extent as if the Company prior to the Closing Date were
continuing the Business and operations of the Company. To the best of the
Knowledge and belief of the Company and the Company Shareholders, there is no
order issued, or proceeding pending or threatened, or notice served with respect
to any violation of any law, ordinance, order, writ, decree, rule, or regulation
issued by any federal state, local, or foreign court or governmental agency or
instrumentality applicable to the Company. The Company has valid business
licenses to carry on its operations.
(n) No Disclosure Items. Except as otherwise indicated in Schedule
2.1(n), there is no adverse information with respect to the Company, the Company
Shareholder(s) or any officer, director or employee of the Company which
information would require disclosure in connection with a filing by the Company
under the federal securities acts. Neither the Company nor any Company
Shareholder has failed to disclose any material fact which would be required to
be disclosed for purposes of a proxy statement or other communication involved
in a public offering in accordance with the provisions of Rule 10b-5 or Rule
14a-9(a) of the U.S. Securities and Exchange Commission.
(o) Governmental Consents. To the best of the Knowledge of the Company
and the Company Shareholders, no consent, approval, order, or authorization of,
or registration, qualification, designation, declaration, or filing with, any
federal, state, local, or provincial governmental authority on the part of the
Company or the Company Shareholders is required in connection with the
consummation of the transactions contemplated hereunder.
(p) Intellectual Property.
(i) The Company and its subsidiaries own or have the right to
use pursuant to license, sublicense, agreement, or permission all
Intellectual Property necessary or desirable for the operation of the
business of the Company and its subsidiaries as presently conducted and
as presently proposed to be conducted by the Managing Shareholder. Each
item of Intellectual Property owned or used by any of the Company and
its subsidiaries immediately prior to the closing hereunder will be
owned or available for use by the Company, its subsidiaries, Surviving
Corporation or its subsidiaries on identical terms and conditions
immediately subsequent to the closing hereunder. Each of the Company and
its subsidiaries has taken all necessary and desirable action to
maintain and protect each item of Intellectual Property that it owns or
uses.
(ii) None of the Company and its subsidiaries has interfered
with, infringed upon, misappropriated, or otherwise come into conflict
with any Intellectual Property rights of third parties, and none of the
Company Shareholders and the directors and officers (and employees with
responsibility for Intellectual Property matters) of the Company and its
subsidiaries has ever received any charge, complaint, claim, demand, or
notice alleging any such interference, infringement, misappropriation,
or violation (including any claim that any of the company and its
subsidiaries must license or refrain from using any Intellectual
Property rights of any third party). To the Knowledge of any of the
Company Shareholders and the directors and officers (and employees with
responsibility for Intellectual Property matters) of the Company and its
subsidiaries, no third party has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of any of the Company and its subsidiaries.
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(iii) Schedule 2.1(p)(iii) identifies each patent or
registration which has been issued to any of the Company and its
subsidiaries with respect to any of its Intellectual Property,
identifies each pending patent application or application for
registration which any of the Company and its subsidiaries has made with
respect to any of its Intellectual Property, and identifies each
license, agreement, or other permission which any of the Company and its
subsidiaries has granted to any third party with respect to any of its
Intellectual Property (together with any exceptions). The Company has
delivered to the Acquisition Sub correct and complete copies of all such
patents, registrations, applications, licenses, agreements, and
permission (as amended to date) and has made available to the
Acquisition Sub correct and complete copies of all other written
documentation evidencing ownership and prosecution (if applicable) of
each such item. Schedule 2.1(p)(iii) also identifies each trade name or
unregistered trademark used by any of the Company and its subsidiaries
in connection with any of its businesses. With respect to each item of
Intellectual Property required to be identified in Schedule 2.1(p)(iii):
(a) the Company and its subsidiaries possess all right,
title, and interest in and to the item, free and clear
of any security interest, license, or other restriction;
(b) the item is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
(c) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or, to
the Knowledge of any of the Company Shareholders and the
directors and officers (and employees with
responsibility for Intellectual Property matters) of the
Company and its subsidiaries, is threatened which
challenges the legality, validity, enforceability, use,
or ownership of the item; and
(d) none of the Company and its subsidiaries has ever
agreed to indemnify any Person for or against any
interference, infringement, misappropriation, or other
conflict with respect to the item.
(iv) Schedule 2.1(p)(iv) identifies each item of Intellectual
Property that any third party owns and that any of the Company and its
subsidiaries uses pursuant to license, sublicense, agreement, or
permission. The Company has delivered to Purchaser and Acquisition Sub
correct and complete copies of all such licenses, sublicenses,
agreements, and permission (as amended to date). With respect to each
item of Intellectual Property required to be identified in Schedule
2.1(p)(iv):
(a) the license, sublicense, agreement, or permission
covering the item is legal valid, binding, enforceable,
and in full force and effect.
(b) the license, sublicense, agreement, or permission
will continue to be legal, valid, binding, enforceable,
and in full force and effect on identical terms
following the consummation of the transactions
contemplated hereby (including the assignments and
assumptions referred to above);
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(c) no party to the license, sublicense, agreement, or
permission is in breach or default, and no event has
occurred which with notice or lapse of time would
constitute a breach of default or permit termination,
modification, or acceleration thereunder;
(d) no party to the license, sublicense, agreement, or
permission has repudiated any provision thereof;
(e) with respect to each sublicense, the representations
and warranties set forth in subsections (A) through (D)
above are true and correct with respect to the
underlying license;
(f) the underlying item of Intellectual Property is not
subject to any outstanding injunction, judgment, order,
decree, ruling, or charge;
(g) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or, to
the Knowledge of any of the Company Shareholders and the
directors and officers (and employees with
responsibility for Intellectual Property matters) of the
Company and its subsidiaries, is threatened which
challenges the legality, validity, or enforceability of
the underlying item of Intellectual Property; and
(h) none of the Company and its subsidiaries has granted
any sublicense or similar right with respect to the
license, sublicense, agreement, or permission.
(v) None of the Company Shareholders and the directors and
officers (and employees with responsibility for Intellectual Property
matters) of the company and its subsidiaries has any Knowledge of any
new products, inventions, procedures, or methods of manufacturing or
processing that any competitors or other third parties have developed
which reasonably could be expected to supersede or make obsolete any
product or process of any of the Company and its subsidiaries.
(q) Restrictive Documents or Orders. To the best of the Knowledge of the
Company and the Company Shareholders, the Company is not a party to nor bound
under any agreement, contract, order, judgment, or decree, or any similar
restriction which adversely affects, or reasonably could be expected to
adversely affect (i) the continued operation by Surviving Corporation of the
Business and operations of the Company on and after the Closing Date on
substantially the same basis as said business was theretofore operated or (ii)
the consummation of the transactions contemplated by this Agreement.
(r) Contracts and Commitments.
(i) Schedule 2.1(r)(i) hereto sets forth a list of all material
written agreements and contracts, contract rights, licenses, and other
executory commitments (written or unwritten if known or if the Company
or the Company Shareholders reasonably should have known) other than
purchase and sale orders and quotations (collectively, the "Contracts")
including, without limitation, those contracts with insurance companies,
credit companies, governmental agencies, rental agencies, and all others
under which the Company is supplied with materials, supplies, or
equipment ("Materials") (such suppliers shall be referred to herein as
"Suppliers") to which the
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Company is a party or to which any of the assets of the Company are
subject. To the best of the Knowledge and belief of the Company and the
Company Shareholders, there are no oral agreements or commitments that
would have a material adverse effect on the Company.
(ii) The Company Shareholders and the Company have performed
all of their obligations under the terms of each Contract, and are not
in default thereunder, except as described in Schedule 2.1(r)(ii). No
event or omission has occurred which but for the giving of notice or
lapse of time or both would constitute a default by any party thereto
under any such Contract. Each such Contract is valid and binding on all
parties thereto and in full force and effect, and each Contract will
continue to be valid and binding on identical terms following the
consummation of the transaction contemplated hereby. The Company has
received no written or unwritten notice of default, cancellation, or
termination in connection with any such Contract. The Company is not now
and has never been a party to any governmental contracts subject to
price redetermination or renegotiation.
(iii) There has not been any notice (written or unwritten) from
any Supplier that any such Supplier will not continue to supply the
current level and type of Materials currently being provided by such
Supplier upon the same terms and conditions.
(s) Debt. Schedule 2.1(s) sets forth a list of all agreements for the
incurring of indebtedness for borrowed money and all agreements relating to
industrial development bonds to which the Company is a party or guarantor. None
of the obligations pursuant to such agreements are subject to acceleration by
reason of the consummation of the transactions contemplated hereby, nor would
the execution of this Agreement or the consummation of the transactions
contemplated hereby result in any default under such agreements. The Company has
furnished Purchaser and Acquisition Sub with true and correct copies of each
such agreement listed in Schedule 2.1(s). The Company is not in default under
any of the agreements listed thereon, nor is the Company aware of any event
that, with the passage of time, or notice, or both, would result in an event of
default thereunder.
(t) Related Property. Schedule 2.1(t)(i) hereto lists all of the
Company's ownership interests (except for leasehold interests set forth in
Schedule 2.1(gg)) in real property, machinery, equipment, tooling, furniture,
fixtures, motor vehicles, supplies, spare parts, computer equipment, printers,
copiers, software, telecommunications equipment, miscellaneous supplies, tools,
repair and maintenance parts, chemicals, and fixed assets related to the
Business and operations of the Company (the "Related Property"). To the best
Knowledge of the Company and the Company Shareholders, all of the Related
Property is in good operating condition, normal wear and tear excepted, and is
adequate and suitable for the purposes for which it is presently being used.
Schedule 2.1(t)(ii) hereto lists certain property that belongs solely to and
shall be retained by the Company Shareholders.
(u) Assets. The assets of the Company include all the assets necessary
to operate the Business in the same manner as the Business was operated by the
Company immediately prior to the Closing Date, and none of the Company
Shareholders, nor any family member or entity affiliated with the Company
Shareholders or any such family member, owns, or has any interest in, any asset
used in the operation of the Company.
(v) Title to the Property. The Company has good and marketable title to
the assets of the Company (including, but not limited to the Related Property)
and a valid and subsisting leasehold interest in all leased property. Except as
described in Schedule 2.1(v), the Company owns all of its assets and property
free and clear of any lien.
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(w) Litigation. Except as described in Schedule 2.1(w), none of the
Company, the Company Shareholders nor any of the Company's officers or directors
is engaged in, or has received any threat of, any litigation, arbitration,
investigation, or other proceeding relating to the Company, any of the Company
Shareholders, or the Company's officers, directors, employees, benefit plans,
properties, Proprietary Rights, the Business, or the assets, licenses, permits,
or goodwill of the Company; or against or affecting this Agreement, the Related
Agreements or the actions taken or contemplated in connection herewith and
therewith, nor, to the best of each's Knowledge, is there any reasonable basis
therefor. There is no action, suit, proceeding, or (to the best Knowledge of the
Company and the Company Shareholders) investigation pending or threatened
against the Company, or any of the Company Shareholders, or the officers or
directors of the Company, that questions the validity of this Agreement, the
Related Agreements, or the right of the Company or the Company Shareholders to
enter into this Agreement, the Related Agreements, any documents to be delivered
in connection with the Closing, or to consummate the transactions contemplated
hereby or thereby, or which might result in any adverse change in the assets of
the Company, the Business, conditions, or properties of the Company, or the
financial condition of the Company or the Company Shareholders. There is no
action, suit, proceeding, or investigation by the Company or the Company
Shareholders currently pending or which any of them currently intends to
initiate. None of the Company, the Company Shareholders, nor any of the
Company's officers or directors is bound by any judgment, decree, injunction,
ruling or order of any court, governmental, regulatory or administrative
department, commission, agency or instrumentality, arbitrator or any other
person which would or could have a material adverse effect on the Business or
the assets of the Company.
(x) No Conflict or Default. To the best of the Knowledge and belief of
the Company and the Company Shareholders, neither the execution and delivery of
this Agreement or the Related Agreements, nor compliance with the terms and
provisions hereof and thereof including, without limitation, the consummation of
the transactions contemplated hereby and thereby, will violate any statute,
regulation, or ordinance of any governmental or administrative authority, or
conflict with or result in the breach of any term, condition, or provision of
the Company's Articles of Incorporation or Bylaws, as presently in effect, or of
any agreement, deed, contract, mortgage, indenture, writ, order, decree, legal
obligation, or instrument to which the Company or the Company Shareholders is a
party or by which it or he or any of the assets of the Company are or may be
bound, or constitute a default (or an event which, with the lapse of time or the
giving of notice, or both, would constitute a default) thereunder.
(y) Consents. To the best of the Knowledge and belief of the Company and
the Company Shareholders, no consent, approval, or authorization of any person,
agency or third party or on the part of the Company or the Company Shareholders
is required in connection with the consummation of the transactions contemplated
hereunder.
(z) Labor Relations.
(i) To the best of the Knowledge and belief of the Company and
the Company Shareholders, with respect to the Business and operation of
the Company, the Company has not failed to comply in any respect with
Title VII of the Civil Rights Act of 1964, as amended, the Fair Labor
Standards Act, as amended, the Occupational Safety and Health Act of
1970, as amended, all applicable federal, state, and local laws, rules,
and regulations relating to employment, and all applicable laws, rules
and regulations governing payment of minimum
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wages and overtime rates, and the withholding and payment of taxes from
compensation of employees.
(ii) There are no labor controversies pending or, to the
Knowledge of the Company or the Company Shareholders, threatened between
the Company and any of its employees (the "Employees") or any labor
union or other collective bargaining unit representing any of the
Employees.
(iii) The Company has never entered into a collective bargaining
agreement or other labor union contract relating to the Business and
applicable to the Employees.
(iv) Except as set forth in Schedule 2.1(z), there are no
written employment or separation agreements, or oral employment or
separation agreements other than (1) those establishing an "at will"
employment relationship between the Company and any of the Employees and
which do not provide for any advance notice requirements to terminate an
Employee's employment or any severance or salary or benefits
continuation obligations on the part of the Company and (2) any unknown
future claims for wrongful termination based upon a theory of implied
agreements arising out of course of conduct.
(aa) Brokers' and Finders' Fees/Contractual Limitations. Neither the
Company Shareholders nor the Company is obligated to pay any other fees or
expenses of any broker or finder in connection with the origin, negotiation, or
execution of this Agreement, the Related Agreements, or in connection with any
transactions contemplated hereby and thereby. None of the Company Shareholders,
the Company, or any officer, director, employee, agent, or representative of the
Company (collectively, the "Representatives") is or has been subject to any
agreement, letter of intent, or understanding of any kind which prohibits,
limits, or restricts the Company, the Company Shareholders or the
Representatives from negotiating, entering into, and consummating this
Agreement, the Related Agreements, and the transactions contemplated hereby and
thereby.
(bb) Environmental and Safety Matters.
(i) To the best of the Knowledge and belief of the Company and
the Company Shareholders, the Company has all permits, licenses,
approvals and registrations required to be issued under applicable
Environmental Laws including federal, state and local laws, statutes and
regulations relating to the protection of human health, safety, the
environment and natural resources and, to the best of the Knowledge of
the Company and the Company Shareholders, is in compliance with the
terms and conditions thereunder. To the best of the Knowledge and belief
of the Company and the Company Shareholders, the Company is in
compliance with and there are no past or present conditions, activities,
actions, or plans which may prevent compliance with, any current or past
law related to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling, or the release,
emission, or discharge of any hazardous substance or hazardous waste
("Hazardous Substance Issues") or any regulations, plans, judgments,
injunctions, or notices promulgated or approved thereunder: (1) which
are applicable to the operations of the Company, or the Company
Shareholders, or the property owned or leased by the Company or the
Company Shareholders, or the assets of the Company, or the Business or
operations of the Company, or (2) which may give rise to any liability
of the Company, or the Company Shareholders or otherwise form the basis
of any ongoing or threatened claims, actions, demands, suits,
proceedings, hearings, studies, or investigations against or relating to
the Company, the property owned or leased by the
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Company or the Company Shareholders, or the Business, or the assets of
the Company, that are based on or related to any Hazardous Substance
Issues.
(ii) To the best of the Knowledge of the Company and the
Company Shareholders, no release of a hazardous substance has come to be
located on or beneath and remain located on or beneath any of the real
property upon which the Business is conducted or upon which any of the
property owned or leased currently or in the past by the Company or the
Company Shareholders or any predecessor which relates to the Business or
operations of the Company are held or maintained.
(iii) Schedule 2.1(bb) sets forth all reports, studies, and
evaluations conducted by the Company or the Company Shareholders, or
received by the Company or the Company Shareholders with respect to such
matters.
(iv) Neither the Company nor any of the Company Shareholders
has any Knowledge of the possible or actual presence, disposal, release
or threatened release of any hazardous substance or hazardous waste on
or under any adjacent properties.
(v) To the best of the Knowledge of the Company and the
Company Shareholders, the Company has not been alleged to be in
violation of, or been subject to any administrative, judicial, or
regulatory proceeding pursuant to, any applicable Environmental Laws
either now or any time during the past. No Claims (as hereinafter
defined) have been or are currently asserted against the Company based
on the Company's or any of the Company Shareholders' acts or failures to
act prior to the Closing Date with respect to hazardous substances or
hazardous wastes. As used herein, "Claim" shall mean any and all claims,
demands, orders, causes of action, suits, proceedings, administrative
proceedings, losses, judgments, decrees, debts, damages, liabilities,
court costs, attorneys' fees, and any other expenses incurred, assessed
or sustained by or against the Company or the Company Shareholders.
(vi) To the best of the Knowledge of the Company and the
Company Shareholders, none of the properties owned, leased, or operated
by the Company or any predecessor thereof are now, or were in the past,
listed on the National Priorities List of Superfund Sites, the
Comprehensive Environmental Response, Compensation and Liability
Information System, or any other state or local environmental database.
(cc) Certain Payments. To the best of the Company's and Company
Shareholders' Knowledge, the Company has not, and no person directly or
indirectly on behalf of the Company has, made or received any payment that was
not legal to make or receive.
(dd) Customers. To the best of the Knowledge and belief of the Company
and the Company Shareholders, Schedule 2.1(dd) hereto lists all of the customers
of the Company for the year 1997 to date (such customers referred to herein
individually as a "Customer"). No single Customer of the Company accounted for
more than ten percent (10%) of the net sales or rentals of the Company
(calculated on a unit basis) during 1997 except as set forth in Schedule
2.1(dd). The Company has furnished Purchaser and Acquisition Sub with complete
and accurate copies or descriptions of all current agreements (written or
unwritten) with such Customers. Neither the Company nor any of the Company
Shareholders is aware of any event, happening, or fact which would lead it or
him to believe that any of such Customers will not continue its current level of
purchases and/or rentals after the Closing Date.
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(ee) Books and Records. The books and records of the Company to which
Purchaser and Acquisition Sub and their accountants and attorneys have been
given access are the true books and records of the Company and truly and fairly
reflect the underlying facts and transactions in all respects.
(ff) Complete Disclosure. To the best of the Knowledge and belief of the
Company and the Company Shareholders, no representation or warranty by the
Company or the Company Shareholders in this Agreement, and no exhibit, schedule,
statement, certificate, or other writing furnished to Purchaser and Acquisition
Sub pursuant to this Agreement or the Related Agreements or in connection with
the transactions contemplated hereby and thereby, contains or will contain any
untrue statement or omits or will omit to state any fact necessary to make the
statements contained herein and therein not materially misleading. If the
Company or any of the Company Shareholders becomes aware of any fact or
circumstance which would change a representation or warranty of the Company or
the Shareholders, the Company and the Shareholders shall immediately give notice
of such fact or circumstance to Purchaser and Acquisition Sub. However, such
notification shall not relieve either the Company or the Shareholders of their
respective obligations under this Agreement.
(gg) Leased Properties. The Financial Statements and Schedule 2.1(gg)
hereto together list all personal property (including equipment leases) and real
property leased by the Company or by the Company Shareholders in connection with
the Business (the "Leased Properties") and the aggregate annual rent or other
fees payable under all such leases. The Company has a valid leasehold or
ownership interest in all of the Leased Properties, free and clear of any liens.
The negotiation and consummation of this Agreement and the transactions
contemplated hereby will not result in any penalties, the acceleration of
payments or the termination of any lease of Leased Properties.
(hh) Employees and Employee Benefit Plans.
(i) Other than as set forth in Schedule 2.1(hh) hereto, the
Company is not a party to any pension, profit sharing, savings,
retirement or other deferred compensation plan, or any bonus (whether
payable in cash or stock) or incentive program, or any group health plan
(whether insured or self-funded), or any disability or group life
insurance plan or other employee welfare benefit plan, or to any
collective bargaining agreement or other agreement, written or oral,
with any trade or labor union, employees' association or similar
organization. The Company is not a party to, nor has made any
contribution to or otherwise incurred any obligation under, any
"multi-employer plan" as defined in Section 3(37) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
(ii) With respect to each such plan set forth in Schedule
2.1(hh) (a "Plan"), the Company has furnished to Purchaser, Acquisition
Sub or their counsel complete and accurate copies of the Plan documents
(including trust documents, insurance policies or contracts, employee
booklets, summary plan descriptions and other authorizing documents, and
any material employee communications). With respect to each Plan subject
to ERISA as either an employee pension benefit plan within the meaning
of Section 3(2) of ERISA or an employee welfare benefit plan within the
meaning of Section 3(1) of ERISA, the Company has prepared in good faith
and timely filed all requisite governmental reports and, to the best of
Company's and Company Shareholders' Knowledge, has properly and timely
posted, or distributed all notices and reports to employees required to
be filed, posted, or distributed with respect to each Plan. Each Plan
has at all times been properly and completely funded by the Company and
has
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been operated and administered in all respects in accordance with its
terms and all applicable laws, including, but not limited to, ERISA and
the Code.
(iii) All Plans that are intended to qualify (the "Qualified
Plans") under Section 401(a) of the Code have been determined by the
Internal Revenue Service to be so qualified, and copies of such
determination letters are included as part of Schedule 2.1(hh) hereof.
Except as disclosed on Schedule 2.1(hh), all reports and other documents
required to be filed with any governmental agency or distributed to plan
participants or beneficiaries have been timely filed and distributed,
and copies thereof are included as part of Schedule 2.1(hh) hereof. The
Company further represents that:
(a) there have been no terminations, partial
terminations, or discontinuance of contributions to any
such Qualified Plan intended to qualify under Section
401(a) of the Code without notice to and approval by the
Internal Revenue Service;
(b) no such plan listed in Schedule 2.1(hh) subject to
the provisions of Title IV of ERISA has been terminated;
(c) there have been no "reportable events" (as that
phrase is defined in Section 4043 of ERISA) with respect
to any such plan listed in Schedule 2.1(hh); and
(d) The Company has not incurred any liability under
Section 4062 of ERISA.
(iv) Neither the Company nor any of the Company Shareholders has
made any oral or written communications to its current or former
employees that guarantee current or former employees continuation of
employer-provided benefits or retirement coverage under the Company's
welfare benefit plans or which would have any effect on the Surviving
Corporation's ability to terminate retiree or any other benefits to all
current or former employees.
(v) To the best of the Knowledge of the Company and the Company
Shareholders, the Company has not violated any of the health care
continuation coverage requirements of the Consolidated Omnibus Budget
Reconciliation Act of 1985 applicable to its Employees prior to the
Closing Date or any prior actions of or transactions entered into by the
Company or the Company Shareholders.
(ii) Compensation. The Company has delivered to Purchaser and
Acquisition Sub an accurate schedule, attached to this Agreement as Schedule 2.1
(ii), showing all officers, directors, and key employees of the Company and the
rate of compensation (and the portions thereof attributable to salary, bonus,
and other compensation, respectively) of the directors, officers, and key
employees.
(jj) Insurance. The Company maintains policies of insurance covering the
assets of the Company, properties, and Business in types and amounts as set
forth in Schedule 2.1(jj). To the best of the Knowledge and belief of the
Company and the Company Shareholders, the Company is in compliance with each of
such policies such that none of the coverage provided under such policies has
been invalidated and the Company has not received any written notice of
cancellation of any such
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policies. Schedule 2.1(jj) lists and describes all the Company insurance
policies in effect immediately prior to the time of Closing. To the Knowledge of
the Company and the Company Shareholders, such policies are with reputable
insurers and are in amounts sufficient for the prudent protection of the
properties and the Business of the Company.
(kk) Accounts and Notes Receivable. Schedule 2.1(kk) hereto sets forth
all accounts and notes receivable of the Company ("Accounts Receivable").
Schedule 2.1(kk) shows the aging of Accounts Receivable in amounts due in
thirty-day aging categories. All Accounts Receivable represent sales or rentals
actually made or services actually performed in the ordinary and usual course of
the Company's business.
(ll) Representations and Warranties on the Closing Date. The Company's
and the Company Shareholders' representations and warranties contained in this
Article II shall be true on and as of the Closing Date with the same force and
effect as though such representations and warranties had been made on such date,
except to the extent any such representations and warranties were made as of a
specified date, in which case such representations and warranties shall continue
on the Closing Date to have been true in all material respects as of such
specified date.
Section 2.2 Representations and Warranties of Acquisition Sub and
Purchaser. Acquisition Sub and Purchaser hereby represent and warrant to the
Company and the Company Shareholders that immediately prior to the time of
Closing:
(a) Organization and Standing. Acquisition Sub is a corporation duly
organized and validly existing under the laws of the State of Georgia, and has
all requisite power and authority to lease, own, and operate its properties and
carry on its business and operations and to directly own, lease, and operate its
assets. Acquisition Sub has delivered to the Company complete and accurate
copies of its Certificate of Incorporation and Bylaws and all amendments
thereto, and all minutes and actions of its Boards of Directors and
shareholders. Acquisition Sub is not in violation of any of the provisions of
its Certificates of Incorporation or Bylaws.
(b) Capitalization and Ownership. The authorized and outstanding capital
stock of Purchaser and its par value per share are as set forth on Purchaser's
Registration Statement on Form S-1, as updated and amended by reports filed with
the SEC pursuant to the requirements of the Securities Act of 1933 and the
Securities Exchange Act of 1934. The shares of Purchaser Common Stock set forth
in such Registration Statement and subsequent reports and filings made with the
SEC constitute all of the shares of capital stock of the Purchaser issued and
outstanding and have been duly authorized and validly issued, fully paid and
nonassessable, and to the best of the Knowledge and belief of Purchaser, issued
in compliance with all applicable federal and state securities laws. Except as
provided in such Registration Statement and subsequent reports and filings made
with the SEC, there are no outstanding subscriptions, warrants, calls, options,
conversion rights, rights of exchange or other commitments, plans, agreements,
or arrangements of any nature under which the Purchaser may be obligated to
issue, assign, exchange, purchase, redeem or transfer any shares of its capital
stock, and there are no shareholders' agreements to which the Purchaser or its
shareholders is a party, or proxies, voting trust agreements or similar
agreements or options executed by Purchaser or to which the Purchaser Common
Stock is subject. Except as provided in such Registration Statement and
subsequent reports and filings made with the SEC, there are no outstanding
subscriptions, options, warrants, rights, convertible securities or other
agreements or commitments of any character relating to the issued or unissued
capital stock or other securities of the Purchaser obligating Purchaser or, to
the best Knowledge of Purchaser, its shareholders to grant, extend or enter into
any subscription, option,
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warrant, right, convertible security or other similar agreement or commitment.
Upon issuance of shares of Purchaser Common Stock, as set forth herein, the
Company Shareholders shall acquire good and marketable title to the shares of
Purchaser Common Stock, free and clear of any liens, pledges, encumbrances,
security interests, charges, equities or restrictions of any nature imposed by
Purchaser, except as set forth in this Agreement. All of the issued and
outstanding capital stock of Acquisition Sub is owned by Purchaser. All of the
issued and outstanding capital stock of Acquisition Sub has been duly authorized
and validly issued, is fully paid and nonassessable, was offered, issued, sold
and delivered by Acquisition Sub in compliance with all applicable state and
federal laws concerning the issuance of securities, and was not issued in
violation of the preemptive rights of any past or present shareholder. No
capital stock of Acquisition Sub will be conveyed to the Company Shareholders in
the Merger. Within a reasonable time prior to Closing, Purchaser will provide to
Company Shareholders copies of its Registration Statement on Form S-1 and copies
of all subsequent Forms 10-K and 10-Q, to the extent that such copies are
reasonably available to Purchaser.
(c) Authorization. Acquisition Sub and Purchaser have full corporate
power and authority to enter into this Agreement, the Related Agreements, to
perform their obligations hereunder and thereunder, and to consummate the
transactions contemplated hereby and thereby, including, without limitation, the
execution and delivery of this Agreement and the Related Agreements. Acquisition
Sub and Purchaser have taken all necessary and appropriate corporate action with
respect to the execution and delivery of this Agreement and the Related
Agreements. This Agreement and the Related Agreements constitute valid and
binding obligations of Acquisition Sub, enforceable in accordance with their
respective terms; except as limited by applicable bankruptcy, insolvency,
moratorium, reorganization, or other laws affecting creditors' rights and
remedies generally, and other laws and remedies.
(d) Brokers' and Finders' Fees/Contractual Limitations. Neither
Purchaser nor Acquisition Sub is obligated to pay any fees or expenses of any
broker or finder in connection with the origin, negotiation, or execution of
this Agreement, the Related Agreements, or in connection with any transactions
contemplated hereby. Neither Purchaser, Acquisition Sub nor any officer,
director, employee, agent, or representative of Purchaser or Acquisition Sub
(collectively, the "Acquisition Sub Representatives") is or has been subject to
any agreement, letter of intent, or understanding of any kind which prohibits,
limits, or restricts Purchaser, Acquisition Sub or the Acquisition Sub
Representatives from negotiating, entering into, and consummating this
Agreement, the Related Agreements, and the transactions contemplated hereby and
thereby.
(e) Governmental Consents. To the best of the Knowledge of Purchaser and
Acquisition Sub, no consent, approval, order, or authorization of, or
registration, qualification, designation, declaration, or filing with, any
federal, state, local, or provincial governmental authority on the part of
Acquisition Sub or Purchaser is required in connection with the consummation of
the transactions contemplated hereunder.
(f) Complete Disclosure. To the best of the Knowledge and belief of
Purchaser and Acquisition Sub, no representation or warranty by Purchaser or
Acquisition Sub in this Agreement, and no exhibit, schedule, statement,
certificate, or other writing furnished to Company and Company Shareholders
pursuant to this Agreement or the Related Agreements or in connection with the
transactions contemplated hereby and thereby, contains or will contain any
untrue statement or omits or will omit to state any fact necessary to make the
statements contained herein and therein not materially misleading. If Purchaser
or Acquisition Sub becomes aware of any fact or circumstance which would change
a representation or warranty of Purchaser or Acquisition Sub, Purchaser and
Acquisition Sub
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shall immediately give notice of such fact or circumstance to Company and
Company Shareholders. However, such notification shall not relieve either
Purchaser or Acquisition Sub of their respective obligations under this
Agreement.
Section 2.3 Disclosure. Disclosure of any item on any schedule hereto
shall be deemed adequate disclosure of such item on all other schedules,
provided a specific cross-reference is set forth in each such other schedule.
Section 2.4 Investment Representation of Company Shareholders. Each
Company Shareholder (i) understands that the shares of Purchaser Common Stock
have not been, and will not be, registered under the Securities Act of 1933, or
under any state securities laws, and are being offered and sold in reliance upon
federal and state exemptions for transactions not involving any public offering,
(ii) is acquiring the shares of Purchaser Common Stock solely for his or its own
account for investment purposes, and not with a view of the distribution
thereof, (iii) is a sophisticated investor with knowledge and experience in
business and financial matters, (iv) has received certain information concerning
Purchaser and has had the opportunity to obtain additional information as
desired in order to evaluate the merits and the risks inherent in holding the
Purchaser Common Stock, (v) is able to bear the economic risk and lack of
liquidity inherent in holding the Purchaser Common Stock, and (vi) is an
Accredited Investor for the reasons set forth in the annexed subscription
documents and investment letter.
ARTICLE III
COVENANTS
Section 3.1 Covenants Against Disclosure.
(a) The terms and provisions of this Agreement, and any information
heretofore disclosed or to be disclosed in the future in connection herewith by
any party hereto to any other party, other than information which is in the
public domain or which the disclosing party authorizes the receiving party in
writing to disclose (such terms, provisions and information herein called the
"Confidential Material") shall be treated confidentially by the parties;
provided that any party may disclose Confidential Material of another party to
the receiving party's employees, accountants, attorneys and advisors, including
personal financial planners and advisors, who need to know the same (it being
understood that they shall be informed by the receiving party of the
confidential nature of the Confidential Material, and that the receiving party
shall cause them to treat the same confidentially), and otherwise to the extent
required by law; and provided further that any party may disclose the terms and
provisions of this Agreement after the later of six months after the Closing
Date or December 31, 1998.
(b) Furthermore, the parties may disclose the terms of this Agreement to
the managing shareholder and company shareholders of Martec, Inc., a California
corporation, and to the managing shareholder and company shareholders of New
England Computer Graphics, Inc., a Massachusetts corporation, and their
attorneys and accountants for the purpose of arriving at an agreement acceptable
to all parties. The parties acknowledge that remedies at law would be inadequate
to enforce the covenants contained in this Section 3.1 and therefore agree that
a party aggrieved hereunder may enforce such covenants through the remedy of
specific performance or other equitable relief. Should an aggrieved party have
cause to seek such relief, no bond shall be required, and the breaching party
shall pay all attorney's fees and court costs which the aggrieved party may
incur in enforcing the provisions of this Section.
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(c) The parties shall, by mutual agreement, draft a press release for
public dissemination. No party shall disseminate (except to the parties to this
Agreement) any press release or announcement concerning the transactions
contemplated by this Agreement or the Related Agreements or the parties hereto
or thereto without the prior written consent of the Company, Purchaser and
Acquisition Sub, except as required by law.
Section 3.2 Access to Information. Through April 1, 1998 (or such later
Closing Date as may be established), the Company will give Purchaser,
Acquisition Sub and their accountants, legal counsel, and other representatives
reasonable access, during normal business hours, at times mutually agreeable
among the parties, to all of the properties, books, contracts, commitments, and
records relating to the Business and the Company and to all officers and
managers of the Company, and the Company will furnish to Purchaser and
Acquisition Sub, their accountants, legal counsel and other representatives, at
the Company's expense (which expense shall not include the costs and fees of
Acquisition Sub's or Purchaser's accountants, legal counsel, and other
representatives), all such information that Company and the Company Shareholders
are reasonably able to produce concerning the Business or the Company as
Acquisition Sub and Purchaser may request. Acquisition Sub and Purchaser agree
to indemnify and hold the Company harmless from and against loss or damage the
Company may incur as a result of Purchaser's or Acquisition Sub's activities or
the activities of their agents, representatives or designees upon property owned
or occupied by the Company and against any and all claims for death or injury to
persons or properties arising out of or connected with Purchaser's or
Acquisition Sub's (or their agents', representatives' or designees') going upon
such property pursuant to the provisions of this Agreement. Such indemnification
shall be provided in accordance with the provisions of Article V hereof.
Section 3.3 Interim Period.
(a) During the period commencing on the date of this Agreement and
ending with the earlier to occur of the Closing Date or the termination of this
Agreement in accordance with its terms, the Company agrees that it will, except
as set forth on Schedule 3.3(a):
(i) carry on its respective businesses in substantially the
same manner as it has heretofore and not introduce any material new
method of management, operation or accounting;
(ii) maintain its respective properties and facilities,
including those held under leases, in as good working order and
condition as at present, ordinary wear and tear excepted;
(iii) perform all of its respective obligations under agreements
relating to or affecting its respective assets, properties, or rights;
(iv) keep in full force and effect present insurance policies
or other comparable insurance coverage;
(v) use its best efforts to maintain and preserve its business
organization intact, retain its respective present key employees, and
maintain its respective relationships with suppliers, customers, and
others having business relations with it;
(vi) maintain compliance with all permits laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies, and similar governmental authorities;
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(vii) maintain present debt and lease instruments and not enter
into new or amended debt or lease instruments; and
(viii) maintain present salaries and commission levels for all
officers, directors, employees and agents.
(b) During the period commencing on the date of this Agreement and
ending with the earlier to occur of the Closing Date or the termination of this
Agreement in accordance with its terms, the Company agrees that it will not,
except as set forth on Schedule 3.3(b):
(i) make any change in its Certificate or Articles of
Incorporation or Bylaws;
(ii) issue any securities, options, warrants, calls,
conversion rights or commitments relating to its securities of any kind;
(iii) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or purchase,
redeem or otherwise acquire or retire for value any shares of its stock
or declare any dividends or make any distributions (other than S
Corporation distributions), nor pay out any extraordinary bonuses in
excess of pro rata bonuses customarily paid, or fees, or commissions to
the Shareholders, directors, management or other personnel;
(iv) sell, assign, lease, or otherwise transfer or dispose of
any property or equipment except in the normal course of business;
(v) negotiate for the acquisition of any business or the
start-up of any new business;
(vi) merge or consolidate or agree to merge or consolidate
with or into any other corporation;
(vii) waive any material rights or claims;
(viii) commit a material breach of or amend or terminate any
material agreement or Permit;
(ix) enter into any other transaction outside the ordinary
course of its business consistent with past business practice or
prohibited hereunder; or
(x) change its accounts receivable collection practice or factor
its accounts receivable in any way.
Section 3.4 Completion of Schedules. The parties acknowledge that all of
the Schedules hereto may not be completed as of the date of execution of this
Agreement. All missing or incomplete schedules shall be compiled and agreed upon
within 15 days after execution of this Agreement.
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Section 3.5 On and After Closing.
(a) On and after the Closing Date, none of the shares of stock of
Purchaser which are subject to the escrow provisions of this Agreement shall be
transferred or pledged except pursuant to the provisions of this Agreement. The
voting rights with respect to such shares shall be exercisable by the owners of
such shares. Dividends, if any, declared on the Purchaser Common Stock during
the effectiveness of such escrow provisions shall be paid to and reinvested by
the escrow agent as the parties shall agree.
(b) After the Closing Date, the Managing Shareholder and Surviving
Corporation agree that they will not without the consent of Purchaser, which
consent shall not be unreasonably withheld:
(i) enter into any contract or commitment or incur, or agree to
incur, any liability or make any capital expenditures, except in the
normal course of business consistent with past practice involving
amounts less than $5,000;
(ii) create, assume, or permit to exist mortgage, pledge, or
other lien or encumbrance upon any assets or properties whether now
owned or hereafter acquired, except (1) with respect to purchase money
liens incurred in connection with the acquisition of equipment with an
aggregate cost not in excess of $10,000 necessary or desirable for the
conduct of the businesses of the Company, (2) liens for taxes either not
yet due or being contested in good faith and by appropriate proceedings
(and for which contested taxes adequate reserves have been established
and are being maintained) or materialmen's, mechanics', workers',
repairmen's, employees', or other like liens arising in the ordinary
course of business (the liens set forth in clause (2) being referred to
herein as "Statutory Liens"), or (3) liens set forth on Schedule 2.1(v)
hereto;
Section 3.6 Continuity of Business Enterprise. Surviving Company will
continue a historic business of the Company, or use or cause to be used, a
significant portion of the Company's business, in a manner which satisfies the
continuity of business enterprise requirement at Treas. Reg. (0) 1.365-1(d).
Section 3.7 Non-Solicitation.
(a) Except as set forth on Exhibit 3.7(a) hereto, commencing as of the
Closing Date and continuing for three (3) years thereafter, each of the Company
Shareholders agrees that it/he shall not engage (except in its/his respective
capacity as an employee of Surviving Corporation, Purchaser, or a subsidiary of
either Surviving Corporation or Purchaser, if applicable), directly or
indirectly, whether on its/his own account or as a shareholder (other than as a
less than 1 % shareholder of a publicly-held company), partner, joint venturer,
employee, consultant, advisor, and/or agent, of any person, firm, corporation,
or other entity, in any or all of the following activities:
(i) Solicit or attempt to solicit customers, suppliers, or
business patronage of the Company, Surviving Corporation, the Business
of either Surviving Corporation or Purchaser, or any of their affiliates
for the purpose of inducing him, her or it to purchase or receive
products or services competitive with those offered by Surviving
Corporation or Purchaser (provided, however, that this restriction shall
apply only to customers with whom such Company Shareholder had material
contact in connection with services provided by the
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Company Shareholder for or on behalf of the Company within the three
years prior to the date of this Agreement); or,
(ii) Encourage or solicit any Employees of or service providers
to Surviving Corporation, Purchaser, the Business of either Surviving
Corporation or Purchaser, or any of their affiliates to leave the
employment of or terminate their service relationship with Surviving
Corporation, Purchaser or any of their affiliates for any reason.
(b) All proprietary and confidential data or information (whether in
tangible form or held as personal knowledge) of the Company pertaining to its
business, other than Trade Secrets (as defined below), which is not generally
known to the public, including, without limitation, information regarding the
Company's customers or prospective customers (such as lists containing the
names, addresses, and telephone numbers and/or account information of customers
and prospective customers), marketing plans and methods, short-term and
long-term business plans, research and development, manufacturing costs and
processes, pricing, cost or profit factors, quality programs, contracts and
bids, or personnel gained by a Company Shareholder as a result of his, her or
its relationship with the Company shall be considered "Company Confidential
Information". The Company Shareholders shall regard and treat each item
constituting Company Confidential Information as strictly confidential and
wholly-owned by Surviving Corporation and Purchaser until the third anniversary
of the Closing Date, and the Company Shareholders shall not, for any reason in
any fashion, either directly or indirectly, use, sell, lend, lease, distribute,
license, give, transfer, assign, show, disclose, disseminate, reproduce, copy,
appropriate or otherwise communicate any such item or information to any entity
for any purpose other than strictly in accordance with the express terms of this
Agreement.
(c) All information constituting "trade secrets" of the Company as
generally recognized under applicable law shall be considered "Company Trade
Secrets". The Company Shareholders, at all times during which such item
continues to constitute a Company Trade Secret, shall regard and treat each item
constituting a Company Trade Secret as strictly confidential and wholly-owned by
Surviving Corporation and Purchaser, and the Company Shareholders shall not, for
any reason in any fashion, either directly or indirectly, use, sell, lend,
lease, distribute, license, give, transfer, assign, show, disclose, disseminate,
reproduce, copy, appropriate or otherwise communicate any such item or
information to any entity for any purpose other than strictly in accordance with
the express terms of this Agreement.
(d) The parties agree that due to the unique nature of the services and
capabilities of the Company and the Company Shareholders, there can be no
adequate remedy at law for any breach of their respective obligations under this
Article III, that any such breach may allow the Company Shareholders and/or
third parties to unfairly compete with Surviving Corporation, Purchaser or their
affiliates resulting in irreparable harm to Surviving Corporation, Purchaser or
their affiliates, and therefore, that upon any such breach or any threat
thereof, Surviving Corporation, Purchaser or their affiliates shall be entitled
to appropriate equitable relief in addition to whatever remedies it might have
at law.
(e) Each of the Company Shareholders acknowledges, represents and
warrants to Acquisition Sub and Purchaser that the covenants of each in this
Section 3.7 are reasonably necessary for the protection of Acquisition Sub's and
Purchaser's interests under this Agreement and are not unduly restrictive upon
him.
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Section 3.8 Registration Statement. Purchaser shall use its best
efforts, when it next files with the SEC a registration statement, to prepare
and file at its costs and expense such amendment to such registration statement
to cover the shares of Purchaser Common Stock issuable to the Company
Shareholders, and to keep same effective for a period of at least ninety(90)
days so as to permit Company or the Company Shareholders, as the case may be, to
resell such shares during such period of not less than ninety (90) days.
Purchaser shall further use its best efforts to list the shares on the Nasdaq
National Market System subject to official notice of issuance under the
Securities Exchange Act of 1934.
Section 3.9 Company Indebtedness. Acquisition Sub and Purchaser will use
their best efforts to arrange with Company's banks and/or lending institutions
to assign Company's line of credit or other indebtedness to Acquisition Sub and
will coordinate with Company Shareholder to effect a release of Company
Shareholder's personal guarantees. In the event that such attempts are
unsuccessful at Closing, Purchaser shall loan to Acquisition Sub an amount
sufficient to discharge such indebtedness and release such guarantees. Such loan
shall bear interest at the rate being charged by the bank or lending institution
whose loan is being discharged.
Section 3.10 Further Assurances. On or after the Closing Date, each
party shall prepare, execute, and deliver, at the preparer's expense, such
further instruments, and shall take or cause to be taken such other or further
action, as any party shall reasonably request of any other party at any time or
from time to time in order to consummate, in any other manner, the terms and
provisions of this Agreement.
ARTICLE IV
CONDITIONS PRECEDENT TO OBLIGATIONS
Section 4.1 Conditions to Obligations of Purchaser and Acquisition Sub.
Each and every obligation of Purchaser and Acquisition Sub to be performed on
the Closing Date shall be subject to the satisfaction on or before the Closing
Date of the following conditions (unless waived in writing by Purchaser or
Acquisition Sub), and the Company and the Company Shareholders shall exercise
all reasonable efforts in good faith to satisfy such conditions:
(a) Representations and Warranties. The representations and warranties
of each of the Company Shareholders and the Company set forth in Section 2.1 of
this Agreement shall have been true and correct when made and shall be true and
correct at and as of the Closing Date as if such representations and warranties
were made as of such date and time.
(b) Performance of Agreement. All covenants, conditions, and other
obligations under this Agreement and the Related Agreements which are to be
performed or complied with by the Company or each of the Company Shareholders,
as the case may be, including Boards of Directors approval and delivery of the
Balance Sheet, shall have been fully performed and complied with at or prior to
the Closing Date.
(c) No Material Adverse Change. Since the date of the Unaudited Annual
Financial Statements, there shall have occurred no material adverse change in
the financial condition, the business, the assets of the Company, or properties
of the Company which adversely affects the conduct of the Business as presently
being conducted, the assets of the Company, or the financial condition or
properties of the Company.
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(d) Absence of Governmental or Other Objection. There shall be no
pending or threatened lawsuit challenging the transaction by any body or agency
of the federal, state, or local government or by any third party, and the
consummation of the transaction shall not have been enjoined by a court of
competent jurisdiction as of the Closing Date and any applicable waiting period
under any applicable federal law shall have expired.
(e) Due Diligence Review. Purchaser and Acquisition Sub shall have
completed to its reasonable satisfaction their due diligence review of the
Company and its operations, the Business, the assets and financial condition of
the Company, and Purchaser and Acquisition Sub shall have received favorable
reviews from its advisors of the results of their due diligence review of the
Business.
(f) Certificate of President and Shareholders. The Company shall have
delivered to Purchaser and Acquisition Sub a certificate executed by its
President and the Company Shareholders, dated the date of the Closing Date, to
the effect that the conditions set forth in subsections (a)-(d) of this Section
4.1 have been satisfied with respect to the Company and the Company
Shareholders.
(g) Approval of Documents. The form and substance of all certificates,
instruments, opinions, and other documents delivered or to be delivered to
Purchaser and Acquisition Sub under this Agreement shall be reasonably
satisfactory to Purchaser and Acquisition Sub and their counsel.
(h) Execution of Related Agreements. Purchaser and Acquisition Sub shall
have received fully executed copies of the Related Agreements.
(i) Licenses. Acquisition Sub shall have received all licenses from all
appropriate governmental agencies to operate the Business in the same manner as
the Company operated the Business prior to the Closing Date and shall have
received a certificate, dated as of no earlier than ten (10) days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
Company's State of Incorporation and in each state in which the Company is
authorized to do business, showing that the Company is in good standing and
authorized to do business and that all state franchise and/or income tax returns
and taxes for the Company for all periods prior to the Closing have been filed
and paid. This condition shall be deemed satisfied in the event that the
Acquisition Sub fails to use reasonable diligence in applying for and pursuing
such licenses.
(j) Consents. Purchaser and Acquisition Sub shall have received each and
every consent, approval and waiver (if any) required for the execution of this
Agreement and the consummation of the transactions contemplated hereby.
(k) Resignations. The officers and directors of the Company shall have
delivered their resignations, effective upon delivery.
(l) Delivery of Share Certificates. The Company Shareholders shall have
delivered for cancellation their certificates representing all of the
outstanding Company Shares owned by each of them.
Section 4.2 Conditions to Obligations of the Company and the Company
Shareholders. Each and every obligation of the Company and the Company
Shareholders to be performed on the Closing Date shall be subject to the
satisfaction as of or before the Closing Date of the following
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conditions (unless waived in writing by the Company Shareholders or the
Company), and Purchaser and Acquisition Sub shall exercise all reasonable
efforts in good faith to satisfy such conditions:
(a) Representations and Warranties. The representations and warranties
of Acquisition Sub and Purchaser set forth in Section 2.2 of this Agreement
shall have been true and correct when made and shall be true and correct on and
as of the Closing Date as if such representations and warranties were made as of
such date and time.
(b) Performance of Agreement. All covenants, conditions, and other
obligations under this Agreement and the Related Agreements which are to be
performed or complied with by Acquisition Sub, as the case may be, including
Board of Directors and shareholder approval, as applicable, shall have been
fully performed and complied with at or prior to the Closing Date.
(c) Absence of Governmental or Other Objection. There shall be no
pending or threatened lawsuit challenging the transaction by any body or agency
of the federal, state, or local government or by any third party, and the
consummation of the transaction shall not have been enjoined by a court of
competent jurisdiction as of the Closing Date and any applicable waiting period
under any applicable federal law shall have expired.
(d) Certificate of Officers. Acquisition Sub shall have delivered to the
Company a certificate executed by its authorized officer, dated the date of the
Closing Date, to the effect that the conditions set forth in subsections (a)-(c)
of this Section 4.2 have been satisfied.
(e) Execution of Related Agreements. The Company shall have received
fully executed copies of the Related Agreements (and all other documents
required hereunder).
(f) Approval of Documents. The form and substance of all certificates,
instruments, opinions, and other documents delivered or to be delivered to the
Company Shareholders under this Agreement shall be reasonably satisfactory to
each of the Company Shareholders and their counsel.
ARTICLE V
INDEMNIFICATION
Section 5.1 Survival of Representations, Warranties, Covenants and
Agreements.
(a) All representations, warranties, covenants, and agreements of the
Company, the Company Shareholders, Purchaser and Acquisition Sub shall survive
the execution, delivery, and performance of this Agreement for two years from
the Closing Date. All representations and warranties of the Company, the Company
Shareholders, Purchaser and Acquisition Sub set forth in this Agreement shall be
deemed to have been made again by the Company, the Company Shareholders,
Purchaser and Acquisition Sub on and as of the Closing Date.
(b) As used in this Article V, except as otherwise indicated in this
Article V, any reference to a representation, warranty, agreement, or covenant
contained in any section of this Agreement shall include the schedule relating
to such section.
Section 5.2 Indemnification of Acquisition Sub and Purchaser. Each of
the Company Shareholders hereby agrees to indemnify and hold harmless
Acquisition Sub and Purchaser and their
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affiliates, the Company and the other Company Shareholders (collectively the
"Indemnified Parties") against any and all losses, liabilities, damages,
demands, claims, suits, actions, judgments, causes of action, assessments,
costs, and expenses, including, without limitation, interest, penalties,
attorneys' fees, any and all expenses incurred in investigating, preparing, and
defending against any litigation, commenced or threatened, and any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation (collectively, "Damages"), asserted against reasonably resulting
from, imposed upon, or incurred or suffered by the Indemnified Parties, directly
or indirectly, as a result of or arising from any inaccuracy in or breach or
nonfulfillment of any of the representations, warranties, covenants, or
agreements made by the Company or the Company Shareholders in this Agreement or
the Related Agreements or any facts or circumstances constituting such an
inaccuracy, breach, or nonfulfillment (all of which shall be referred to as
"Company Indemnifiable Claims").
Section 5.3 Indemnification of the Company Shareholders. Acquisition Sub
hereby agrees to indemnify and hold harmless each of the Company Shareholders
against any and all Damages (as defined in Section 5.2 above) asserted against,
reasonably resulting from, imposed upon, or incurred or suffered by such Company
Shareholders, directly or indirectly, as a result of or arising from any
inaccuracy in or breach or nonfulfillment of any of the representations,
warranties, covenants, or agreements made by Acquisition Sub in this Agreement
or the Related Agreements or any facts or circumstances constituting such an
inaccuracy, breach, or nonfulfillment or any claim against the Company which is
attributable to occurrences on or after the Closing Date (all of which shall be
referred to as "Acquisition Sub Indemnifiable Claims").
Section 5.4 Procedure for Indemnification with Respect to Third-Party
Claims.
(a) If any party hereto determines to seek indemnification (the party
seeking such indemnification hereinafter referred to as the "Indemnified Party"
and the party against whom such indemnification is sought is hereinafter
referred to as the "Indemnifying Party") under this Article V with respect to
Company Indemnifiable Claims where the Indemnified Party is Acquisition Sub or
any of its affiliates or Acquisition Sub Indemnifiable Claims where the
Indemnified Party is any of the Company Shareholders (such Claims shall be
referred to herein as "Indemnifiable Claims") resulting from the assertion of
liability by third parties, the Indemnified Party shall give notice to the
Indemnifying Parties within 60 days of the Indemnified Party becoming aware of
any such Indemnifiable Claim or of facts upon which any such Indemnifiable Claim
will be based; the notice shall set forth such material information with respect
thereto as is then reasonably available to the Indemnified Party. In case any
such liability is asserted against the Indemnified Party or its affiliates, and
the Indemnified Party notifies the Indemnifying Parties thereof, the
Indemnifying Parties will be entitled, if such Indemnifying Parties so elect by
written notice delivered to the Indemnified Party within 20 days after receiving
the Indemnified Party's notice, to assume the defense thereof with competent and
experienced counsel subject to the written consent of the Indemnified Party,
which consent shall not be unreasonably withheld. Notwithstanding the foregoing,
(i) the Indemnified Party or its affiliates shall also have the right to employ
its own counsel in any such case, but the fees and expenses of such counsel
shall be at the expense of the Indemnified Party unless the Indemnified Party or
its affiliates shall reasonably determine that there is a conflict of interest
between or among the Indemnified Party or its affiliates and any Indemnifying
Party with respect to such Indemnifiable Claim, in which case the Indemnified
Party shall select another attorney, subject to the consent of Indemnifying
Party, which consent shall not be unreasonably withheld, and the fees and
expenses of such counsel will be borne by such Indemnifying Parties, (ii) the
Indemnified Party shall have no obligation to give any notice of any assertion
of liability by a third party unless such assertion is in writing, and (iii) the
rights of the Indemnified Party or its affiliates to be indemnified hereunder in
respect of Indemnifiable Claims
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resulting from the assertion of liability by third parties shall not be
adversely affected by their failure to give notice pursuant to the foregoing
unless, and, if so, only to the extent that, such Indemnifying Parties are
materially prejudiced thereby; provided, however, the Indemnifying Party shall
not be liable for attorneys fees and expenses incurred by the Indemnified Party
prior to the Indemnified Party's giving notice to the Indemnifying Party of an
Indemnifiable Claim. With respect to any assertion of liability by a third party
that results in an Indemnifiable Claim, the parties hereto shall make available
to each other all relevant information in their possession material to any such
assertion.
(b) In the event that such Indemnifying Parties, within 20 days after
receipt of the aforesaid notice of an Indemnifiable Claim fail to assume the
defense of the Indemnified Party or its affiliates against such Indemnifiable
Claim, the Indemnified Party or its affiliates shall have the right to undertake
the defense, compromise, or settlement of such action on behalf of and for the
account, expense, and risk of such Indemnifying Parties.
(c) Notwithstanding anything in this Article V to the contrary, (i) if
there is a reasonable probability that an Indemnifiable Claim may materially
adversely affect the Indemnified Party or its affiliates, the Indemnified Party
or its affiliates shall have the right to participate in such defense,
compromise, or settlement and such Indemnifying Parties shall not, without the
Indemnified Party's written consent (which consent shall not be unreasonably
withheld), settle or compromise any Indemnifiable Claim or consent to entry of
any judgment in respect thereof unless such settlement, compromise, or consent
includes as an unconditional term thereof the giving by the claimant or the
plaintiff to the Indemnified Party a release from all liability in respect of
such Indemnifiable Claim.
Section 5.5 Procedure For Indemnification with Respect to Non-Third
Party Claims. In the event that the Indemnified Party asserts the existence of a
claim giving rise to Damages (but excluding claims resulting from the assertion
of liability by third parties), it shall give written notice to the Indemnifying
Parties. Such written notice shall state that it is being given pursuant to this
Section 5.5, specify the nature and amount of the claim asserted and indicate
the date on which such assertion shall be deemed accepted and the amount of the
claim deemed a valid claim (such date to be established in accordance with the
next sentence). If such Indemnifying Parties, within 30 days after the receipt
of notice by the Indemnified Party, shall not give written notice to the
Indemnified Party announcing their intent to contest such assertion of the
Indemnified Party, such assertion shall be deemed accepted and the amount of
claim shall be deemed a valid claim. In the event, however, that such
Indemnifying Parties contest the assertion of a claim by giving such written
notice to the Indemnified Party within said period, then the parties shall act
in good faith to reach agreement regarding such claim. If the parties hereto,
acting in good faith, cannot reach agreement with respect to such claim within
ten (10) days after notice thereof, such claim will be submitted to and settled
by arbitration pursuant to Section 7.10 hereof.
Section 5.6 Escrowed Shares. Each Company Shareholder shall escrow
twenty percent (20%) of the Purchaser Common Stock to be issued to such Company
Shareholder to be available for distribution to Purchaser in the event of an
Indemnified Claim not paid in cash by the Indemnifying Party. The number of
Purchaser Shares to be delivered to Purchaser in the event that there is an
Indemnifiable Claim for which Purchaser Shares are to be distributed to satisfy
such an Indemnifiable Claim pursuant to this Section 5.6 shall be calculated by
dividing the amount of the award for the Indemnifiable Claim by the twenty-day
average trading price of Purchaser Common Stock as quoted on the Nasdaq National
Market System for the twenty-day period ending on the date that the
Indemnifiable Claim is made. Such escrow shall expire on the date not less than
eighteen (18) months after the Date of Closing, when there shall be no pending
Indemnification Claim for which notice has been given
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under Section 5.4, and upon such expiration the share certificates shall be
delivered to the Company Shareholders. Not later than the Closing Date the
parties shall enter into a Pledge, Security and Escrow Agreement in
substantially the form and substance attached hereto as Exhibit 5.6(a). In the
event that Purchaser elects to waive the Profit Surplus Adjustment and the
Profit Shortfall Adjustment pursuant to Section 1.3(h) hereof, the amount of
Purchaser Common Stock placed in escrow pursuant to this Section 5.6 shall be
increased by the amount of Purchaser Common Stock then in the escrow account
established by Section 1.3(e) that is transferred to the escrow account
established by this Section 5.6.
ARTICLE VI
TERMINATION AND CONDITIONS SUBSEQUENT
Section 6.1 Termination.
(a) At any time prior to the time of Closing, this Agreement may be
terminated by express written consent of Purchaser, Acquisition Sub, the Company
and each of the Company Shareholders.
(b) Purchaser or Acquisition Sub may terminate this Agreement in the
event the conditions set forth in Section 4.1 of this Agreement have not been
satisfied or waived prior to the time of Closing.
(c) Each of the Company and the Company Shareholders may terminate this
Agreement in the event the conditions set forth in Section 4.2 of this Agreement
have not been satisfied or waived prior to the time of Closing.
(d) If the failure of such conditions to be fulfilled arises from the
fault or intentional act of a party hereto, such party shall be liable to the
other parties up to the amount of the documented out-of-pocket expense incurred
by such parties in negotiating, structuring and documenting the transaction
contemplated by this Agreement. No party shall be responsible for indirect,
special or expectancy damages for such nonfulfillment of conditions.
Section 6.2 Effect of Termination. In the event of termination as
provided in Section 6.1 above, Sections 3.1, 7.4 and 7.11 shall survive such
termination and continue in full force and effect.
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 7.1 Notice. All notices and other communications required or
permitted under this Agreement shall be delivered to the parties at the address
set forth below their respective signature blocks, or at such other address that
they designate by notice to all other parties in accordance with this Section
7.1. Any party delivering notice to Purchaser or Acquisition Sub shall deliver a
copy to: Xxxx Xxxxxxxxx, Xxxxxx Xxxxxxx Xxxxx & Xxxxxxxxxxx, L.L.P., First Union
Plaza, Suite 1400, 000 Xxxxxxxxx Xxxxxx, X.X., Xxxxxxx, Xxxxxxx 00000. Any party
delivering notice to Company or Company Shareholder shall deliver a copy to Xxxx
X. Xxxx, Xx., Wyche, Burgess, Xxxxxxx & Xxxxxx, P.A., 00 Xxxx Xxxxxxxxxx Xxx,
X.X. Xxx 000,Xxxxxxxxxx, Xxxxx Xxxxxxxx 00000-0000. All notices and
communications shall be deemed to have been received unless otherwise set forth
herein: (i) in the case of personal delivery, on the date of such delivery; (ii)
in the case of telex or facsimile transmission, on
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the date on which the sender receives confirmation by telex or facsimile
transmission that such notice was received by the addressee, provided that a
copy of such transmission is additionally sent by mail as set forth in (iv)
below; (iii) in the case of recognized, nationwide overnight air courier, on the
second business day following the day sent, with receipt confirmed by the
overnight courier; and (iv) in the case of mailing by first class certified or
registered mail, postage prepaid, return receipt requested, on the fifth
business day following such mailing.
Section 7.2 Entire Agreement. This Agreement, the exhibits and schedules
hereto, and the documents referred to herein embody the entire agreement and
understanding of the parties hereto with respect to the subject matter hereof,
and supersede all prior and contemporaneous agreements and understandings, oral
or written, relative to said subject matter.
Section 7.3 Binding Effect: Assignment. This Agreement and the various
rights and obligations arising hereunder shall inure to the benefit of and be
binding upon the Company and the Company Shareholders, their respective
successors and permitted assigns, and Purchaser, Acquisition Sub and their
successors and permitted assigns. Neither this Agreement nor any of the rights,
interests, or obligations in this Agreement shall be transferred or assigned (by
operation of law or otherwise) by the Company or the Company Shareholders
without the prior written consent of Acquisition Sub or Purchaser or their
assignees. Acquisition Sub and Purchaser may assign their rights, interests or
obligations hereunder without the prior written consent of the Company or the
Company Shareholders.
Section 7.4 Expenses of Transaction. Each party shall pay its
professional fees and expenses incurred in connection with the negotiation and
closing of this Agreement and the Related Agreements. The expenses of the
preparation of the Financial Statements shall be borne by Company except for the
1997 Audited Financial Statements, which shall be paid by Acquisition Sub.
Company and/or Company Shareholders, as the case may be, shall pay all
applicable sales, income, use, excise, transfer, documentary, and any other
taxes arising out of the transactions contemplated in this Agreement.
Section 7.5 Waiver; Consent. This Agreement may not be changed, amended,
terminated, augmented, rescinded, or discharged (other than by performance), in
whole or in part, except by a writing executed by the parties hereto, and no
waiver of any of the provisions or conditions of this Agreement or any of the
rights of a party hereto shall be effective or binding unless such waiver shall
be in writing and signed by the party claimed to have given or consented
thereto. Except to the extent that a party hereto may have otherwise agreed in
writing, no waiver by that party of any condition of this Agreement or breach by
the other party of any of its obligations or representations hereunder or
thereunder shall be deemed to be a waiver of any other condition or subsequent
or prior breach of the same or any other obligation or representation by the
other party, nor shall any forbearance by the first party to seek a remedy for
any noncompliance or breach by the other party be deemed to be a waiver by the
first party of its rights and remedies with respect to such noncompliance or
breach.
Section 7.6 Counterparts. This Agreement may be executed simultaneously
in multiple counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument.
Section 7.7 Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable statute, regulation or rule of
law, then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform to such statute,
regulation or rule of law, and the remainder of this Agreement and the
application of any such
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invalid or unenforceable provision to parties, jurisdictions or circumstances
other than to whom or to which it is held invalid or unenforceable shall not be
affected thereby nor shall the same affect the validity or enforceability of any
other provision of this Agreement.
Section 7.8 Remedies of the Parties. The Company and the Company
Shareholders acknowledge that, in addition to all other remedies to which
Purchaser and Acquisition Sub are entitled, Purchaser and Acquisition Sub shall
have the right to enforce the terms of this Agreement by a decree of specific
performance, provided Purchaser or Acquisition Sub is not in material default
hereunder. The parties also agree that the rights and remedies of each party to
this Agreement set forth in this Agreement and in all of the exhibits and
schedules attached hereto and documents referred to herein shall be cumulative
and share inure to the benefit of each such party.
Section 7.9 Governing Law. This Agreement shall in all respects be
construed in accordance with and governed by the laws of the State of Georgia.
Section 7.10 Arbitration; Attorneys' Fees.
(a) The parties agree to use reasonable efforts to resolve any dispute
arising out of this Agreement, but should a dispute remain unresolved ten (10)
days following notice of the dispute to the other party (but in no event prior
to said ten (10) days, except as specifically provided otherwise herein), such
dispute shall be finally settled by binding arbitration in Atlanta, Georgia in
accordance with the then current Commercial Arbitration Rules of the American
Arbitration Association (the "AAA") or such other mediation or arbitration
service as shall be mutually agreeable to the parties, and judgment upon the
award rendered by the arbitrator shall be final and binding on the parties and
may be entered in any court having jurisdiction thereof; provided, however, that
any party shall be entitled to appeal a question of law or determination of law
to a court of competent jurisdiction; and provided, further, however, that the
parties may first seek appropriate injunctive relief prior to, and/or in
addition to pursuing negotiation or arbitration. Such arbitration shall be
conducted by an arbitrator chosen by mutual agreement of the parties, or failing
such agreement, an arbitrator appointed by the AAA. There shall be limited
discovery prior to the arbitration hearing as follows: (a) exchange of witness
lists and copies of documentary evidence and documents related to or arising out
of the issues to be arbitrated, (b) depositions of all party witnesses, and (c)
such other depositions as may be allowed by the arbitrator upon a showing of
good cause. Depositions shall be conducted in accordance with the Georgia Code
of Civil Procedure and questions of evidence in any hearings shall be resolved
in accordance with the Federal Rules of Evidence. The arbitrator shall be
required to provide in writing to the parties the basis for the award or order
of such arbitrator, and a court reporter shall record all hearings (unless
otherwise agreed to by the parties), with such record constituting the official
transcript of such proceedings.
(b) In the event of arbitration or litigation filed or instituted
between the parties with respect to this Agreement or the Related Agreements,
the prevailing party will be entitled to receive from the other party all costs,
damages and expenses, including reasonable attorney's fees, incurred by the
prevailing party in connection with that action or proceeding whether or not the
controversy is reduced to judgment or award. The prevailing party will be that
party who may be fairly said by the arbitrator(s) or the court to have prevailed
on the major disputed issues.
Section 7.11 Cooperation and Records Retention. Each of the Company
Shareholders and Acquisition Sub shall (i) provide the other with access to such
records, original or copies, or assistance as may reasonably be requested by
them in connection with the preparation of any Tax Return, in
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connection with any audit or other examination by any Taxing authority or any
judicial or administrative proceedings relating to liability for Taxes, or
financial reporting obligations, (ii) each retain and provide the other, with
any records or other information which may be relevant to any such Tax Return,
audit or examination, proceeding or determination, or financial reporting
obligations, and (iii) each provide the other with any final determination of
any such audit or examination, proceeding or determination that affects any
amount required to be shown on any Tax Return of the other for any period. All
Tax Returns, supporting work schedules and other records or information which
may be relevant to such Tax Returns for all tax periods or portions thereof
ending before or including the Closing Date shall remain with Acquisition Sub or
the Company and shall be made available for inspection and copying by the
parties hereto during normal business hours.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
"Purchaser"
TEKGRAF, INC.
By: /s/ Xxx Xxxxxx
----------------------------------
Xxx Xxxxxx
President
Address: 0000 Xxxxxxx Xxxxx, Xxxxx X
Xxxxxxxx, Xxxxxxx 00000
"Acquisition Sub"
TEKGRAF SUB I, INC.
By: /s/ Xxxxxxx X. Xxxxxx
----------------------------------
Xxxxxxx X. Xxxxxx
President
Address: 0000 Xxxxxxx Xxxxx, Xxxxx X
Xxxxxxxx, Xxxxxxx 00000
[Signatures continued on next page.
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"Company"
COMPUTER GRAPHICS TECHNOLOGY, INC.
By: /s/ Xxxxx Xxxxxx
----------------------------------
Xxxxx Xxxxxx, [President]
Address:
"Company Shareholders"
By: /s/ Xxxxx Xxxxxx
----------------------------------
Xxxxx Xxxxxx
Address:
By: /s/ Xxx Xxxxxxxx
----------------------------------
Xxx Xxxxxxxx
Address:
By: /s/ Xxx Xxxxx
----------------------------------
Xxx Xxxxx
Address:
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51
[Georgia] EXHIBIT A
CERTIFICATE OF MERGER
MERGING
COMPUTER GRAPHICS TECHNOLOGY, INC.
(a South Carolina corporation)
WITH AND INTO
TEKGRAF SUB I, INC.
(a Georgia corporation)
The undersigned corporation, organized and existing under the laws of
the State of Georgia, DOES HEREBY CERTIFY:
1. That the name and state of incorporation of each of the constituent
corporations (the "Constituent Corporations") of the merger is as follows:
Name State of Incorporation
---- ----------------------
Computer Graphics Technology, Inc. South Carolina
Tekgraf Sub I, Inc. Georgia
2. That the surviving corporation of the merger shall be Tekgraf Sub I,
Inc.
3. That the Certificate of Incorporation of Tekgraf Sub I, Inc. shall
be the Certificate of Incorporation of the surviving corporation.
4. That the executed Agreement and Plan of Merger among the Constituent
Corporations and Tekgraf, Inc., a Delaware corporation, is on the file at the
principal place of business of the surviving corporation. The address of the
principal place of business of the surviving corporation is
--------------------
---------------------------------.
5. That a copy of the Agreement and Plan of Merger will be furnished by
the surviving corporation, on request and without cost, to any shareholder of
any of the Constituent Corporations.
6. That the Agreement and Plan of Merger has been duly approved by the
shareholders of each of the Constituent Corporations in accordance with the
provisions of applicable law.
52
IN WITNESS WHEREOF, the undersigned corporation has caused this
Certificate to be signed by its duly authorized officer, this ______ day of
_______________, 1998.
TEKGRAF SUB I, INC.
By:
----------------------------------
Name:
-----------------------
Title:
----------------------
00
XXXXXXX X
XXXXX XX XXXXX XXXXXXXX
SECRETARY OF STATE
ARTICLES OF MERGER
Pursuant to Section 00-00-000 of the 1976 South Carolina Code, as
amended, the undersigned as the surviving corporation in a merger or the
acquiring corporation in a share exchange, as the case may be, hereby submits
the following information:
1. The name of the surviving or acquiring corporation is Computer Graphics
Technology, Inc. (formerly known as TekGraf Sub I, Inc.), a Georgia
corporation.
2. Attached hereto and made a part hereof is a copy of the Plan of Merger
or Share Exchange (see Sections 00-00-000 (merger), 00-00-000 (share
exchange), 00-00-000 (merger of subsidiary into parent), 00-00-000
(merger or share exchange with a foreign corporation), and 00-00-000
(merger of a parent corporation into one of its subsidiaries)).
3. Complete the following information to the extent it is relevant with
respect to each corporation which is a party to the transaction:
(a) Name of the corporation: Computer Graphics Technology, Inc., a
Georgia corporation (formerly known as TekGraf Sub I, Inc.)
Complete either (1) or (2), whichever is applicable:
(1) Shareholder approval of the merger or stock
----- exchange was not required (See Sections
33-11-103(h), 33-11-104(a), and
33-11-108(a)).
(2) X The Plan of Merger or Share Exchange was
----- duly approved by shareholders of the
corporation as follows:
Number of Number of Number of Votes Number of Undisputed*
Voting Outstanding Votes Entitled Represented at Shares Voted
Group Shares to be Cast the Meeting For Against
------ ----------- -------------- ---------------- ----- -------
common
*NOTE: Pursuant to the Section 33-11-105(a)(3)(ii), the corporation
can alternatively state the total number of undisputed shares
cast for the amendment by each voting group together with a
statement that that number cast for the amendment by each
voting group was sufficient for approval by that voting group.
54
(b) Name of the corporation: Computer Graphics Technology, Inc. a
Georgia corporation (formerly known as TekGraf Sub I, Inc.)
Complete either (1) or (2), whichever is applicable:
(1) Shareholder approval of the merger or stock
----- exchange was not required (See Sections
33-11-103(h), 33-11-104(a), and
33-11-108(a)).
(2) X The Plan of Merger or Share Exchange was
----- duly approved by shareholders of the
corporation as follows:
Number of Number of Number of Votes Number of Undisputed*
Voting Outstanding Votes Entitled Represented at Shares Voted
Group Shares to be Cast the Meeting For Against
----- ------ ---------- ----------- --- -------
common
*NOTE: Pursuant to the Section 33-11-105(a)(3)(ii), the corporation
can alternatively state the total number of undisputed shares
cast for the amendment by each voting group together with a
statement that that number cast for the amendment by each
voting group was sufficient for approval by that voting group.
4. Unless a delayed date is specified, the effective date of this
document shall be the date it is accepted for filing by the
Secretary of State (See Sections 33-1-230(b)):
-------------------------.
Computer Graphics Technology, Inc. (formerly
known as TekGraf Sub I, Inc.), the Surviving
Corporation
Date: ___________________________
By:
---------------------------------
________________________PRESIDENT
(Signature and Office)
55
FILING INSTRUCTIONS
1. Two copies of this form, the original and either a duplicate original
or a conformed copy, must be filed.
2. Filing Fee (payable to the Secretary of State at the time of filing of
this document.)
Filing Fee $ 10.00
Filing Tax 100.00
3. TWO COPIES OF THE PLAN OF MERGER OR SHARE EXCHANGE MUST BE FILED WITH
THIS FORM AS AN ATTACHMENT.
Form Approved by South Carolina
Secretary of State 1/90
56
Plan of Merger of
COMPUTER GRAPHICS TECHNOLOGY, INC.
(A South Carolina Corporation)
Into
TEKGRAF SUB I, INC.
(A Georgia Corporation)
This Plan of Merger (the "Plan") by and between Computer Graphics
Technology, Inc. ("CGT"), a corporation organized and existing under the laws of
the State of South Carolina, and TekGraf Sub I, Inc. ("TSI"), a corporation
organized and existing under the laws of the State of Georgia (collectively the
"Parties").
WHEREAS, CGT and TSI deem it advisable and to the advantage, welfare
and best interest of each of them and their respective shareholders to merge and
consolidate their corporations pursuant to the terms and conditions of this Plan
(the "Merger");
WHEREAS, the directors and shareholders of each of the Parties have
approved and recommended the Merger of the two corporations; and
WHEREAS, the Parties and the shareholders of CGT have executed the
Agreement and Plan of Merger dated __________, 1998 (the "Agreement") providing,
among other things, for the merger of CGT into TSI in accordance with this Plan
of Merger.
NOW, THEREFORE, the Plan of Merger is as follows:
THE MERGER
1. Merger of CGT into TSI. Subject to the terms and conditions of this
Plan, the Agreement and in accordance with the provisions of the South Carolina
Business Corporations Act (the "Act") and the Georgia Business Corporation Code,
CGT shall be merged with and into TSI and the separate corporation existence of
CGT shall cease.
2. Effect of the Merger. TSI, the name of which shall be changed to
"Computer Graphics Technology, Inc." shall be the surviving corporation in the
Merger (sometimes hereinafter referred to as the "Surviving Corporation"). The
said Surviving Corporation shall, by virtue of the Merger, and in accordance
with the Act, possess all of the rights, privileges, powers, franchises and
properties and be subject to all the liabilities of CGT. The Surviving
Corporation shall be renamed Computer Graphics Technology, Inc.
3. Articles of Incorporation. The Articles of Incorporation of TSI in
effect immediately prior to the Merger shall be the Articles of Incorporation of
the Surviving Corporation except the name of the Surviving Corporation shall be
changed to Computer Graphics Technology, Inc.
57
4. By-laws. The By-laws of TSI in effect immediately prior to the
Merger shall be the By-laws of the Surviving Corporation unless and until
altered, amended or repealed as provided therein or in the Articles of
Incorporation of the Surviving Corporation, as amended.
5. Directors and Officers. The Directors and Officers of TSI
immediately prior to the Merger shall be the Directors and Officers of the
Surviving Corporation until their respective successors are duly elected or
qualified.
6. Principal Office. The principal office of the Surviving Corporation
in the State of South Carolina is located at ___________.
CAPITALIZATION AND CONVERSION OF SHARES
7. Capitalization of the Parties. The total number of shares of common
stock which TSI has authority to issue is ______ shares. There were _______
shares issued and outstanding on the date hereof. The total number of shares of
common stock which CGT has authority to issue is ______ shares. There were _____
shares issued and outstanding on the date hereof.
8. CGT Shares. On the date of the Merger, each issued and outstanding
share of common stock of CGT shall be converted into its pro rata share of Five
Hundred Thousand ($500,000) Dollars (the "Cash Consideration") and an aggregate
of 330,000 shares of the Class A Common Stock of TekGraf, Inc., the corporation
parent and the Equity Consideration are subject to post-closing adjustments,
escrow requirements and all of the other terms and conditions of the Agreement.
9. TSI Shares. The outstanding shares of TSI shall remain outstanding,
unaffected by the Merger.
10. All Necessary Action. The officers of the parties will promptly
cause to be executed, filed and/or recorded any documents prescribed by the laws
of the States of South Carolina and Delaware, and will cause to be performed all
necessary acts within said jurisdictions and elsewhere to effectuate the Merger.
The officers of CGT and of TSI are hereby authorized, empowered and directed to
do any and all acts and things, to make, execute, deliver, file and/or record
any and all instruments, papers and documents which shall be or become
necessary, proper or convenient to carry out or put into effect any of the
provisions of this Agreement.
58
EXHIBIT D
DIRECTORS
1. Xxxxxxx X. Xxxxxxx
2. Xxxxxxx X. Xxxxxx
3. Xxxxx Xxxxxx
59
Exhibit 1.3(e)
ESCROW AGREEMENT
This Escrow Agreement (this "Agreement") is entered into as of
______________, 1998, by and among TEKGRAF, INC., a Georgia corporation (the
"Purchaser"), TEKGRAF SUB ___, INC., a __________ corporation ("Acquisition
Sub"), __________________ (the "Company"), ___________________ (the "Company
Shareholders"), and ________________ (the "Shareholder Representative") and
_________________________________________ (the "Escrow Agent").
WHEREAS, the Purchaser and the Company have entered into an Agreement
and Plan of Merger (the "Merger Agreement") by and among the Company, the
Company Shareholders, Acquisition Sub and the Purchaser.
WHEREAS, the Merger Agreement provides that escrow accounts will be
established to secure the Company Shareholders' guaranty with respect to the
Warranted Pre-Tax Profit and the Warranted Tangible Net Asset Value of the
Company (each as defined in the Merger Agreement) on the terms and conditions
set forth herein.
WHEREAS, the parties hereto desire to establish the terms and
conditions pursuant to which such escrow accounts will be established and
maintained.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Defined Terms. Capitalized terms used in this Agreement and not
otherwise defined shall have the meanings given them in the Merger Agreement.
2. Consent of Company Shareholders. By virtue of the Company
Shareholders' approval of the Merger Agreement, the Company Shareholders who may
indirectly or directly receive cash and shares of Purchaser Common Stock
pursuant to the Merger Agreement have, without any further act of any Company
Shareholder, consented to: (a) the establishment of this escrow to secure the
Company Shareholders' guaranty with respect to the Warranted Pre-Tax Profit and
the Warranted Tangible Net Asset Value of the Company in the manner set forth
herein and in the Merger Agreement, (b) the appointment of the Shareholder
Representatives as their representatives for purposes of this Agreement and as
attorneys-in-fact and agents for and on behalf of each Company Shareholder, and
the taking by the Shareholder Representatives of any and all actions and the
making of any decisions required or permitted to be taken or made by them under
this Agreement, and (c) all of the other terms, conditions and limitations in
this Agreement and the Merger Agreement.
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3. Escrow and Warranty.
(a) Escrow of Cash. On the Closing Date, the Purchaser shall deposit
with the Escrow Agent $100,000 of the Cash Consideration. The Escrowed Cash
shall be held as a trust fund and shall not be subject to any lien, attachment,
trustee process or any other judicial process of any creditor of any party
hereto. The Escrow Agent agrees to accept delivery of the Escrowed Cash and to
hold the Escrowed Cash in an interest-bearing escrow account (the "Cash Escrow
Account"), subject to the terms and conditions of this Agreement.
(b) Escrow of Shares. On the Closing Date, the Purchaser shall deposit
with the Escrow Agent a certificate for the number of Escrowed Shares specified
in Section 1.3(e) of the Merger Agreement, issued in the name of the Escrow
Agent or its nominee. The Escrowed Shares shall be held as a trust fund and
shall not be subject to any lien, attachment, trustee process or any other
judicial process of any creditor of any party hereto. The Escrow Agent agrees to
accept delivery of the Escrowed Shares and to hold the Escrowed Shares in an
escrow account (the "Share Escrow Account"), subject to the terms and conditions
of this Agreement.
(c) Warranty. The Company Shareholders have agreed in Article I of the
Merger Agreement that the Warranted Pre-Tax Profit and the Warranted Tangible
Net Asset Value of the Company shall not be less than the amounts set forth in
Section 1.3(a) of the Merger Agreement. The Escrowed Shares shall be security
for such warranty obligation of the Company Shareholders, subject to the
limitations, and in the manner provided, in this Agreement.
(d) Dividends, Etc. Any securities distributable to the Company
Shareholders in respect of or in exchange for any of the Escrowed Shares,
whether by way of stock dividends, stock splits or otherwise, shall be delivered
to the Escrow Agent, who shall hold such securities in the Share Escrow Account.
Such securities shall be issued in the name of the Escrow Agent or its nominee
and shall be considered Escrowed Shares for purposes hereof. Any cash dividends
distributable to the Company Shareholders in respect of the Escrowed Shares
shall be distributed to the Company Shareholders.
(e) Voting of Shares. The Shareholder Representatives shall have the
right, in their sole discretion, on behalf of the Company Shareholders, to
direct the Escrow Agent in writing as to the exercise of any voting rights
pertaining to the Escrowed Shares, and the Escrow Agent shall comply with any
such written instructions. In the absence of such instructions, the Escrow Agent
shall not vote any of the Escrowed Shares.
(f) Transferability. The respective interests of the Company
Shareholders in the Escrowed Shares shall not be assignable or transferable,
other than by operation of law. Notice of any such assignment or transfer by
operation of law shall be given to the Escrow Agent and the Purchaser, and no
such assignment or transfer shall be valid until such notice is given.
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61
(g) Transfer of Shares Upon Waiver of Warranty. In the event the
Purchaser elects, pursuant to the provisions of Section 1.3(h) of the Merger
Agreement, to waive the Profit Shortfall Adjustment and the Profit Surplus
Adjustment, the Escrowed Shares shall be transferred, upon receipt of notice by
Escrow Agent from Purchaser of such waiver, into the escrow account created
pursuant to that certain Pledge, Security and Escrow Agreement dated as of even
date herewith, to be treated in all respects as escrow shares thereunder and the
Escrowed Shares in such case shall be distributed to the Company Shareholders
pursuant to the terms thereof.
4. Administration of Cash Escrow Account. The Escrow Agent shall
administer the Cash Escrow Account as follows:
(a) In the event that there is a Net Asset Value Shortfall (including
any Collection Shortfall or Inventory Shortfall that remains unpaid ten (10)
days after demand for payment thereof by Purchaser or Acquisition Sub to the
Company Shareholders), the Purchase Price shall be reduced by the amount of such
Net Asset Value Shortfall. Purchaser or Acquisition Sub shall provide to the
Escrow Agent and the Shareholder Representatives written notice of the amount of
such Net Asset Value Shortfall, and such amount, including any interest accrued
thereon (or such lesser amount as is then held in the Cash Escrow Account),
shall be paid to Purchaser by Escrow Agent within three (3) business days after
receipt of such notice.
(b) Any cash remaining in the Cash Escrow Account after payment of the
Net Asset Value Shortfall amount as set forth in subsection (a) above, shall be
distributed to the Company Shareholders pursuant to Section 6(a) hereof.
(c) In the event that the Net Asset Value Shortfall exceeds the amount
of Escrowed Cash available, Purchaser's recovery of cash pursuant to Section 1.3
of the Merger Agreement shall not be limited to the amount of Escrowed Cash
available.
5. Administration of Share Escrow Account. The Escrow Agent shall
administer the Share Escrow Account as follows:
(a) In the event that the Warranted Pre-Tax Profit exceeds the Actual
Pre-Tax Profit for the Year (or the Alternative Year, if applicable), the
Purchase Price shall be reduced by the number of Purchaser Shares equal to the
Profit Shortfall Adjustment, subject to the Adjustment Floor. In such event,
Purchaser or Acquisition Sub and the Shareholder Representatives shall provide
written notice to the Escrow Agent of the amount of the Profit Shortfall
Adjustment, and the Escrow Agent shall transfer, deliver and assign to Purchaser
such number of Escrowed Shares held in the Share Escrow Account which have a
Fair Market Value equal to the Profit Shortfall Adjustment (or such lesser
number of Purchaser Shares as is then held in the Share Escrow Account). The
Fair Market Value of the Escrowed Shares to be distributed shall be determined
in accordance with Section 7 hereof.
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62
(b) On the first anniversary of the Closing Date (or if the Alternative
Year is elected, at the end of the Alternative Year), the Escrow Agent shall
distribute to the Company Shareholders, in accordance with Sections 6(a) and (b)
below, one half of the Escrowed Shares remaining in the Share Escrow Account not
required for redistribution pursuant to Section 5(a) hereof. Any Escrowed Shares
remaining in the Share Escrow Account after payment of the Profit Shortfall
Adjustment amount as set forth in subsection (a) above, shall be distributed to
the Company Shareholders pursuant to Sections 6(a) and (b) hereof.
(c) In the event that the Profit Shortfall Adjustment exceeds the
number of Escrowed Shares available, Purchaser's recovery of Purchaser Shares
pursuant to Section 1.3 of the Merger Agreement shall not be limited to the
amount of Escrowed Shares available.
6. Release of Escrowed Cash and Escrowed Shares.
(a) Any distribution of all or a portion of the Escrowed Cash or the
Escrowed Shares to the Company Shareholders shall be made in accordance with the
percentages set forth opposite such holders' respective names on Exhibit B
attached hereto; provided, however, that the Escrow Agent shall withhold the
distribution of the portion of the Escrowed Cash or the Escrowed Shares
otherwise distributable to Company Shareholders who have not, according to
written notice provided by the Purchaser to the Escrow Agent, prior to such
distribution, surrendered their respective Certificates pursuant to the terms
and conditions of the Merger Agreement. Any such withheld cash or shares shall
be delivered to the Purchaser promptly after the Termination Date, and shall be
delivered by the Purchaser to the Company Shareholders to whom such shares would
have otherwise been distributed upon surrender of their respective Certificates.
Distributions of Escrowed Shares to the Company Shareholders shall be made by
mailing stock certificates to such holders at their respective addresses shown
on Exhibit B (or such other address as may be provided in writing to the Escrow
Agent by any such holder).
(b) No fractional Escrowed Shares shall be distributed to Purchaser or
Company Shareholders pursuant to this Agreement. Instead, the number of shares
that Purchaser or each Company Shareholder shall receive shall be rounded down
to the nearest whole number; and the Escrow Agent shall sell such number of
Escrowed Shares as is equal to the aggregate of the fractional shares that would
otherwise be distributed to the Purchaser or the Company Shareholders, as the
case may be, and shall distribute the proceeds of such sale to the Purchaser or
the Company Shareholders otherwise entitled to a fractional Escrowed Share based
upon the fraction of an Escrowed Share to which Purchaser or each such Company
Shareholder is otherwise entitled, as the case may be.
7. Valuation of Escrowed Shares. For purposes of this Agreement, the
Fair Market Value of the Escrowed Shares to be released from the Share Escrow
Account after a final determination of the Profit Shortfall Adjustment shall be
determined based upon the average closing prices of the Purchaser's Common Stock
on the Nasdaq National Market System for the twenty trading days immediately
preceding the date of such final determination.
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63
8. Fees and Expenses of Escrow Agent. The Purchaser, on the one hand,
and the Company Shareholders, on the other hand, shall each pay one-half of the
fees of the Escrow Agent for the services to be rendered by the Escrow Agent
hereunder.
9. Limitation of Escrow Agent's Liability.
(a) The Escrow Agent shall incur no liability with respect to any
action taken or suffered by it in reliance upon any notice, direction,
instruction, consent, statement or other documents believed by it to be genuine
and duly authorized, nor for other action or inaction except its own willful
misconduct or gross negligence. The Escrow Agent shall not be responsible for
the validity or sufficiency of this Agreement. In all questions arising under
the Escrow Agreement, the Escrow Agent may rely on the advice of counsel, and
for anything done, omitted or suffered in good faith by the Escrow Agent based
on such advice the Escrow Agent shall not be liable to anyone. The Escrow Agent
shall not be required to take any action hereunder involving any expense unless
the payment of such expense is made or provided for in a manner reasonably
satisfactory to it.
(b) The Purchaser and the Company Shareholders hereby, jointly and
severally, agree to indemnify the Escrow Agent for, and hold it harmless
against, any loss, liability or expense incurred without gross negligence or
willful misconduct on the part of Escrow Agent, arising out of or in connection
with its carrying out of its duties hereunder. The Purchaser, on the one hand,
and the Company Shareholders, on the other hand, shall each be liable for
one-half of such amounts.
10. Liability and Authority of Shareholder Representatives; Successors
and Assignees.
(a) The Shareholder Representatives shall incur no liability to the
Company Shareholders with respect to any action taken or suffered by them in
reliance upon any note, direction, instruction, consent, statement or other
documents believed by them to be genuinely and duly authorized, nor for other
action or inaction except their own willful misconduct or gross negligence. The
Shareholder Representatives may, in all questions arising under the Escrow
Agreement, rely on the advice of counsel and for anything done, omitted or
suffered in good faith by the Shareholder Representatives based on such advice,
the Shareholder Representatives shall not be liable to the Company Shareholders.
(b) In the event of the death or permanent disability of either
Shareholder Representative, or his resignation as a Shareholder Representative,
a successor Shareholder Representative shall be appointed by the other
Shareholder Representative or, absent its appointment, a successor Shareholder
Representative shall be elected by a majority vote of the Company Shareholders,
with each such Company Shareholder (or his or her successors or assigns) to be
given a vote equal to the number of votes represented by the Company Shares held
by such Company Shareholder immediately prior to the Effective Time. Each
successor
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64
Shareholder Representative shall have all of the power, authority, rights and
privileges conferred by this Agreement upon the original Shareholder
Representatives, and the term "Shareholder Representatives" as used herein shall
be deemed to include successor Shareholder Representatives.
(c) The Shareholder Representatives, acting jointly but not singly,
shall have full power and authority to represent the Company Shareholders, and
their successors, with respect to all matters arising under this Agreement and
all actions taken by any Shareholder Representative hereunder shall be binding
upon the Company Shareholders, and their successors, as if expressly confirmed
and ratified in writing by each of them. Without limiting the generality of the
foregoing, the Shareholder Representatives, acting jointly but not singly, shall
have full power and authority to interpret all of the terms and provisions of
this Agreement, to compromise any claims asserted hereunder and to authorize
payments to be made with respect thereto, on behalf of the Company Shareholders
and their successors. All actions to be taken by the Shareholder Representatives
hereunder shall be evidenced by, and taken upon, the written direction of a
majority thereof.
11. Amounts Payable by Company Shareholders. The amounts payable by
the Company Shareholders under this Agreement (i.e., the fees and expenses of
arbitrators payable pursuant to Section 16, the fees of the Escrow Agent payable
pursuant to Section 8 and the indemnification obligations pursuant to Sections
9(b)) shall be payable solely as follows. The Shareholder Representatives shall
notify the Escrow Agent of any such amount payable by the Company Shareholders
as soon as they become aware that any such amount is payable, with a copy of
such notice to the Purchaser. On the sixth business day after the delivery of
such notice, the Escrow Agent shall sell such number of Escrowed Shares (up to
the number of Escrowed Shares then available in the Escrow Account), subject to
compliance with all applicable securities laws, as is necessary to raise such
amount, and shall disburse such proceeds to the party to whom such amount is
owed in accordance with the instructions of the Shareholder Representatives;
provided that if the Purchaser delivers to the Escrow Agent (with a copy to the
Shareholder Representatives), within five business days after delivery of such
notice by the Shareholder Representatives, a written notice contesting the
legitimacy or reasonableness of such amount, then the Escrow Agent shall not
sell Escrowed Shares to raise the disputed portion of such claimed amount, and
such dispute shall be resolved by the Purchaser and the Shareholder
Representatives in accordance with the procedures set forth in Section 16.
12. Termination. This Agreement shall terminate upon the distribution
by the Escrow Agent of all of the Escrowed Cash and all of the Escrowed Shares
in accordance with this Agreement; provided that the provisions of Sections 9
and 10 shall survive such termination.
13. Notices. All notices, instructions and other communications given
hereunder or in connection herewith shall be in writing. Any such notice,
instruction or communication shall be sent either (i) by registered or certified
mail, return receipt requested, postage prepaid,
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65
or (ii) via a reputable nationwide overnight courier service, in each case to
the address set forth below. Any such notice, instruction or communication shall
be deemed to have been delivered two business days after it is sent by
registered or certified mail, return receipt requested, postage prepaid, or one
business day after it is sent via a reputable nationwide overnight courier
service.
If to the Purchaser and/or the Acquisition Sub:
Tekgraf, Inc.
0000 Xxxxxxx Xxxxxxxxx Xxxxx, Xxxxx X
Xxxxxxxx, Xxxxxxx 00000
If to the Company:
----------------------------------
----------------------------------
----------------------------------
If to the Shareholder Representative:
----------------------------------
----------------------------------
----------------------------------
If to the Escrow Agent:
----------------------------------
----------------------------------
----------------------------------
----------------------------------
Any party may give any notice, instruction or communication in
connection with this Agreement using any other means (including personal
delivery, telecopy or ordinary mail), but no such notice, instruction or
communication shall be deemed to have been delivered unless and until it is
actually received by the party to whom it was sent. Any party may change the
address to which notices, instructions or communications are to be delivered by
giving the other parties to this Agreement notice thereof in the manner set
forth in this Section 13.
14. Successor Escrow Agent. In the event the Escrow Agent becomes
unavailable or unwilling to continue in its capacity herewith, the Escrow Agent
may resign and be discharged from its duties or obligations hereunder by
delivering a resignation to the parties to this Escrow Agreement, not less than
60 days' prior to the date when such resignation shall take effect. The
Purchaser and the Shareholder Representatives shall appoint a successor
7
66
Escrow Agent and neither party shall unreasonably withhold approval of such
successor Escrow Agent. If, within such notice period, the Purchaser provides to
the Escrow Agent written instructions with respect to the appointment of a
successor Escrow Agent and directions for the transfer of any Escrowed Shares
then held by the Escrow Agent to such successor, the Escrow Agent shall act in
accordance with such instructions and promptly transfer such Escrowed Shares to
such designated successor.
15. General.
(a) Governing Law, Assigns. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Georgia without
regard to conflict-of-law principles and shall be binding upon, and inure to the
benefit of, the parties hereto and their respective successors and assigns.
(b) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(c) Entire Agreement. Except for those provisions of the Merger
Agreement referenced herein, this Agreement constitutes the entire understanding
and agreement of the parties with respect to the subject matter of this
Agreement and supersedes all prior agreements or understandings, written or
oral, between the parties with respect to the subject matter hereof.
(d) Waivers. No waiver by any party hereto of any condition or of any
breach of any provision of this Escrow Agreement shall be effective unless in
writing. No waiver by any party of any such condition or breach, in any one
instance, shall be deemed to be a further or continuing waiver of any such
condition or breach or a waiver of any other condition or breach of any other
provision contained herein.
(e) Amendment. This Agreement may be amended only with the written
consent of the Purchaser, the Escrow Agent and the Shareholder Representatives.
16. Arbitration; Attorneys' Fees.
(a) The parties agree to use reasonable efforts to resolve any dispute
arising out of this Agreement, but should a dispute remain unresolved ten (10)
days following notice of the dispute to the other party (but in no event prior
to said ten (10) days, except as specifically provided otherwise herein), such
dispute shall be finally settled by binding arbitration in Atlanta, Georgia in
accordance with the then current Commercial Arbitration Rules of the American
Arbitration Association (the "AAA") or such other mediation or arbitration
service as shall be mutually agreeable to the parties, and judgment upon the
award rendered by the arbitrator shall be final and binding on the parties and
may be entered in any court having jurisdiction thereof; provided, however, that
any party shall be entitled to appeal a question of
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67
law or determination of law to a court of competent jurisdiction; and provided,
further, however, that the parties may first seek appropriate injunctive relief
prior to, and/or in addition to pursuing negotiation or arbitration. Such
arbitration shall be conducted by an arbitrator chosen by mutual agreement of
the parties, or failing such agreement, an arbitrator appointed by the AAA.
There shall be limited discovery prior to the arbitration hearing as follows:
(a) exchange of witness lists and copies of documentary evidence and documents
related to or arising out of the issues to be arbitrated, (b) depositions of all
party witnesses, and (c) such other depositions as may be allowed by the
arbitrator upon a showing of good cause. Depositions shall be conducted in
accordance with the Georgia Code of Civil Procedure and questions of evidence in
all hearings shall be resolved in accordance with the Federal Rules of Evidence.
The arbitrator shall be required to provide in writing to the parties the basis
for the award or order of such arbitrator, and a court reporter shall record all
hearings (unless otherwise agreed to by the parties), with such record
constituting the official transcript of such proceedings.
(b) In the event of arbitration or litigation filed or instituted
between the parties with respect to this Agreement, the prevailing party will be
entitled to receive from the other party all costs, damages and expenses,
including reasonable attorney's fees, incurred by the prevailing party in
connection with that action or proceeding whether or not the controversy is
reduced to judgment or award. The prevailing party will be that party who may be
fairly said by the arbitrator(s) or the court to have prevailed on the major
disputed issues.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first above written.
PURCHASER:
TEKGRAF, INC.
By:
------------------------------------
Xxx X. Xxxxxx, President
ACQUISITION SUB:
TEKGRAF SUB __, INC.
By:
------------------------------------
__________, President
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SHAREHOLDER REPRESENTATIVE:
(SEAL)
-----------------------------------
ESCROW AGENT:
-----------------------------------------
By: -------------------------------------
Name:
--------------------------------
Title:
-------------------------------
COMPANY:
By:
--------------------------------------
___________, President
COMPANY SHAREHOLDERS:
(SEAL)
----------------------------------
(SEAL)
----------------------------------
(SEAL)
----------------------------------
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EXHIBIT B
Company Shareholder Percentage
------------------- ----------
%
%
%
11
70
EXHIBIT 3.7(a)
NON-SOLICITATION
NONE
71
Exhibit 5.6(a)
PLEDGE, SECURITY AND ESCROW AGREEMENT
This Pledge, Security and Escrow Agreement (this "Agreement") is
entered into as of ______________, 1998, by and among TEKGRAF, INC., a Georgia
corporation (the "Purchaser"), TEKGRAF SUB ___, INC. ("Acquisition Sub"),
[_________________ _______________________________], INC., a ____________
corporation (the "Company"), [_________________________________] (the "Company
Shareholders"), and ________ _________________ (the "Indemnification
Representatives") and [________________________________________] (the "Escrow
Agent").
WHEREAS, the Purchaser and the Company have entered into an Agreement
and Plan of Merger (the "Merger Agreement") by and among the Company, the
Company Shareholders, Acquisition Sub and the Purchaser.
WHEREAS, the Merger Agreement provides that an escrow account will be
established to secure the Company's and the Company Shareholders'
indemnification obligations to the Indemnified Parties under the Merger
Agreement on the terms and conditions set forth herein.
WHEREAS, the parties hereto desire to establish the terms and
conditions pursuant to which such escrow account will be established and
maintained.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Defined Terms. Capitalized terms used in this Agreement and not
otherwise defined shall have the meanings given them in the Merger Agreement.
2. Consent of Company Shareholders. By virtue of the Company
Shareholders' approval of the Merger Agreement, the Company Shareholders who may
indirectly or directly receive shares of Purchaser Common Stock pursuant to the
Merger Agreement (the "Indemnifying Shareholders") have, without any further act
of any Company Stockholder, consented to: (a) the establishment of this escrow
to secure the Company Shareholders' indemnification obligations under Article V
of the Merger Agreement in the manner set forth herein and therein, (b) the
appointment of the Indemnification Representatives as their representatives for
purposes of this Agreement and as attorneys-in-fact and agents for and on behalf
of each Indemnifying Shareholder, and the taking by the Indemnification
Representatives of any and all actions and the making of any decisions required
or permitted to be taken or made by them under this Agreement, and (c) all of
the other terms, conditions and limitations in this Agreement and the Merger
Agreement.
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3. Escrow and Indemnification.
(a) Escrow of Shares. On the Closing Date, the Purchaser shall deposit
with the Escrow Agent a certificate for the number of Purchaser Shares specified
in Section 5.6 of the Merger Agreement (the "Escrow Shares"), issued in the name
of the Escrow Agent or its nominee. In addition, in the event the Purchaser
elects, pursuant to the provisions of Section 1.3(h) of the Merger Agreement, to
waive the Profit Shortfall Adjustment and the Profit Surplus Adjustment, the
shares of Purchaser common stock held in the escrow account established by
Section 1.3(e) of the Merger Agreement shall be transferred into the escrow
account created pursuant to this Escrow Agreement (the "Transferred Shares"), to
be treated in all respects as Escrow Shares hereunder and the Transferred Shares
shall be distributed to the Company Shareholders pursuant to Section 5(a)
hereof. The Escrow Shares shall be held as a trust fund and shall not be subject
to any lien, attachment, trustee process or any other judicial process of any
creditor of any party hereto. The Escrow Agent agrees to accept delivery of the
Escrow Shares and to hold the Escrow Shares in an escrow account (the "Escrow
Account"), subject to the terms and conditions of this Agreement.
(b) Indemnification. The Indemnifying Shareholders have agreed in
Article V of the Merger Agreement to indemnify and hold harmless the Indemnified
Parties from and against specified Damages. The Escrow Shares shall be security
for such indemnity obligation of the Indemnifying Shareholders, subject to the
limitations, and in the manner provided, in this Agreement.
(c) Dividends, Etc. Any securities distributable to the Indemnifying
Shareholders in respect of or in exchange for any of the Escrow Shares, whether
by way of stock dividends, stock splits or otherwise, shall be delivered to the
Escrow Agent, who shall hold such securities in the Escrow Account. Such
securities shall be issued in the name of the Escrow Agent or its nominee and
shall be considered Escrow Shares for purposes hereof. Any cash dividends
distributable to the Indemnifying Shareholders in respect of the Escrow Shares
shall be distributed to the Indemnifying Shareholders.
(d) Voting of Shares. The Indemnification Representatives shall have
the right, in their sole discretion, on behalf of the Indemnifying Shareholders,
to direct the Escrow Agent in writing as to the exercise of any voting rights
pertaining to the Escrow Shares, and the Escrow Agent shall comply with any such
written instructions. In the absence of such instructions, the Escrow Agent
shall not vote any of the Escrow Shares.
(e) Transferability. The respective interests of the Indemnifying
Shareholders in the Escrow Shares shall not be assignable or transferable, other
than by operation of law. Notice of any such assignment or transfer by operation
of law shall be given to the Escrow Agent and the Purchaser, and no such
assignment or transfer shall be valid until such notice is given.
4. Administration of Escrow Account. The Escrow Agent shall administer
the Escrow Account as follows:
73
(a) If an Indemnified Party has incurred or suffered Damages for which
it is entitled to indemnification under Article V of the Merger Agreement, the
Indemnified Party shall, on or before the date of the expiration of the
representation, warranty, covenant or agreement to which such claim relates,
give written notice of such claim (a "Claim Notice") to the Indemnification
Representatives and the Escrow Agent. Each Claim Notice shall state the amount
of claimed Damages (the "Claimed Amount") and the basis for such claim. The date
which is eighteen (18) months after the Date of Closing.
(b) Within 20 days after delivery of a Claim Notice, the
Indemnification Representatives shall provide to the Indemnified Party, with a
copy to the Escrow Agent, a written response (the "Response Notice") in which
the Indemnification Representatives shall: (i) agree that Escrow Shares having a
Fair Market Value (as computed pursuant to Section 6) equal to the full Claimed
Amount may be released from the Escrow Account to the Indemnified Party, (ii)
agree that Escrow Shares having a Fair Market Value equal to part, but not all,
of the Claimed Amount (the "Agreed Amount") may be released from the Escrow
Account to the Indemnified Party or (iii) contest that any of the Escrow Shares
may be released from the Escrow Account to the Indemnified Party. The
Indemnification Representatives may contest the release of Escrow Shares having
a Fair Market Value equal to all or a portion of the Claimed Amount only based
upon a good faith belief that all or such portion of the Claimed Amount does not
constitute Damages for which the Indemnified Party is entitled to
indemnification under Article V of the Merger Agreement. If no Response Notice
is delivered by the Indemnification Representatives within such 20-day period,
the Indemnification Representatives shall be deemed to have agreed that Escrow
Shares having a Fair Market Value equal to all of the Claimed Amount may be
released to the Indemnified Party from the Escrow Account.
(c) If the Indemnification Representatives in the Response Notice agree
(or are deemed to have agreed) that Escrow Shares having a Fair Market Value
equal to all of the Claimed Amount may be released from the Escrow Account to
the Indemnified Party, the Escrow Agent shall, promptly following the earlier of
the required delivery date for the Response Notice or the delivery of the
Response Notice, transfer, deliver and assign to the Indemnified Party such
number of Escrow Shares held in the Escrow Account which have a Fair Market
Value equal to the Claimed Amount (or such lesser number of Escrow Shares as is
then held in the Escrow Account).
(d) If the Indemnification Representatives in the Response Notice agree
that Escrow Shares having a Fair Market Value equal to part, but not all, of the
Claimed Amount may be released from the Escrow Account to the Indemnified Party,
the Escrow Agent shall promptly following the delivery of the Response Notice
transfer, deliver and assign to the Indemnified Party such number of Escrow
Shares held in the Escrow Account which have a Fair Market Value equal to the
Agreed Amount (or such lesser number of Escrow Shares as is then held in the
Escrow Account). A determination with respect to the remainder of the Claimed
Amount shall be made in accordance with subsection 4(e) below.
(e) If the Indemnification Representatives in the Response Notice
contest the release of Escrow Shares having a Fair Market Value equal to all or
part of the Claimed Amount (the
74
"Contested Amount"), the matter shall be settled by binding arbitration in
Atlanta, Georgia. All claims shall be settled by three arbitrators in accordance
with the Commercial Arbitration Rules then in effect of the American Arbitration
Association (the "AAA Rules"). The Indemnification Representatives and the
Indemnified Party shall each designate one arbitrator within 15 days of the
delivery of the Indemnification Representatives' Response Notice contesting the
Claimed Amount. The Indemnification Representatives and the Indemnified Party
shall cause such designated arbitrators mutually to agree upon and designate a
third arbitrator; provided, however, that (i) failing such agreement within 45
days of delivery of the Indemnification Representatives' Response Notice, the
third arbitrator shall be appointed in accordance with the AAA Rules and (ii) if
either the Indemnification Representatives or the Indemnified Party fail to
timely designate an arbitrator, the dispute shall be resolved by the one
arbitrator timely designated. The Indemnifying Shareholders and the Indemnified
Party shall pay the fees and expenses of their respectively designated
arbitrators and shall bear equally the fees and expenses of the third
arbitrator. The Indemnification Representatives and the Indemnified Party shall
cause the arbitrators to decide the matter to be arbitrated pursuant hereto
within 60 days after the appointment of the last arbitrator. The arbitrators'
decision shall relate solely to whether the Indemnified Party is entitled to
receive the Contested Amount (or a portion thereof) pursuant to the applicable
terms of the Merger Agreement and this Agreement. The final decision of the
majority of the arbitrators shall be furnished to the Indemnification
Representatives, the Indemnified Party and the Escrow Agent in writing and shall
constitute a conclusive determination of the issue in question, binding upon the
Indemnification Representatives, the Indemnifying Shareholders, the Indemnified
Party and the Escrow Agent, and shall not be contested by any of them. Such
decision may be used in a court of law only for the purpose of seeking
enforcement of the arbitrators' award. After delivery of a Response Notice that
the Claimed Amount is contested by the Indemnification Representatives, the
Escrow Agent shall continue to hold in the Escrow Account a number of Escrow
Shares having a Fair Market Value sufficient to cover the Contested Amount (up
to the number of Escrow Shares then available in the Escrow Account),
notwithstanding the occurrence of the Termination Date, until (i) delivery of a
copy of a settlement agreement executed by the Indemnified Party and the
Indemnification Representatives setting forth instructions to the Escrow Agent
as to the release of Escrow Shares, if any, that shall be made with respect to
the Contested Amount or (ii) delivery of a copy of the final award of the
majority of the arbitrators setting forth instructions to the Escrow Agent as to
the release of Escrow Shares, if any, that shall be made with respect to the
Contested Amount. The Escrow Agent shall thereupon release Escrow Shares from
the Escrow Account (to the extent Escrow Shares are then held in the Escrow
Account) in accordance with such agreement or instructions; provided, however,
if the claim related to a third party claim the amount of which is contested and
the subject of litigation, the Escrow Agent shall not release the Escrow Shares
being held in connection with the Contested Amount of such third party claim
until a final order or other final resolution or settlement has been entered or
reached in the underlying litigation determining the amount of such claim,
whereupon the Escrow Agent shall release Escrow Shares from the Escrow Account
(to the extent Escrow Shares are then held in the Escrow Account) in accordance
with such final order or final resolution or settlement.
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5. Release of Escrow Shares.
(a) In the event that Purchaser elects, pursuant to the provisions of
Section 1.3(h) of the Merger Agreement, to waive the Profit Shortfall Adjustment
and the Profit Surplus Adjustment, one half of the Transferred Shares shall be
distributed to the Indemnifying Shareholders on the first anniversary of the
Closing Date. Promptly after the Termination Date, the Escrow Agent shall
distribute to the Indemnifying Shareholders all of the Escrow Shares (including
any remaining Transferred Shares) then held in escrow. Notwithstanding the
foregoing, if an Indemnified Party has previously given a Claim Notice which has
not then been resolved in accordance with Section 4, the Escrow Agent shall
retain in the Escrow Account after the Termination Date a number of Escrow
Shares (including Transferred Shares if necessary) having a Fair Market Value
equal to the Claimed Amount covered by any Claim Notice which has not then been
resolved. Any funds so retained in escrow shall be disbursed in accordance with
the terms of the resolution of such claims.
(b) Any distribution of all or a portion of the Escrow Shares to the
Indemnifying Shareholders shall be made in accordance with the percentages set
forth opposite such holders' respective names on Exhibit B attached hereto;
provided, however, that the Escrow Agent shall withhold the distribution of the
portion of the Escrow Shares otherwise distributable to Indemnifying
Shareholders who have not, according to written notice provided by the Purchaser
to the Escrow Agent, prior to such distribution, surrendered their respective
Certificates pursuant to the terms and conditions of the Merger Agreement. Any
such withheld shares shall be delivered to the Purchaser promptly after the
Termination Date, and shall be delivered by the Purchaser to the Indemnifying
Shareholders to whom such shares would have otherwise been distributed upon
surrender of their respective Certificates. Distributions to the Indemnifying
Shareholders shall be made by mailing stock certificates to such holders at
their respective addresses shown on Exhibit B (or such other address as may be
provided in writing to the Escrow Agent by any such holder). No fractional
Escrow Shares shall be distributed to Indemnifying Shareholders pursuant to this
Agreement. Instead, the number of shares that each Indemnifying Shareholder
shall receive shall be rounded down to the nearest whole number; and the Escrow
Agent shall sell such number of Escrow Shares as is equal to the aggregate of
the fractional shares that would otherwise be distributed to the Indemnifying
Shareholders and shall distribute the proceeds of such sale to the Indemnifying
Shareholders other-wise entitled to a fractional Escrow Share pro rata based
upon the fraction of an Escrow Shares to which each such Indemnifying
Shareholder is otherwise entitled.
6. Valuation of Escrow Shares. For purposes of this Agreement, the
Fair Market Value of the Escrow Shares to be retained in the Escrow Account
pending a final resolution of a claim shall be determined based upon the average
of the closing prices of the Purchaser Common Stock on the Nasdaq National
Market System for the twenty trading days immediately preceding the date on
which the claim is made. The Fair Market Value of the Escrow Shares to be
released from the Escrow Account after a final determination/resolution of a
claim shall be determined based upon the average closing prices of the
Purchaser's Common Stock on the Nasdaq National Market System for the twenty
trading days immediately preceding the date of such final
determination/resolution.
76
7. Fees and Expenses of Escrow Agent. The Purchaser, on the one hand,
and the Indemnifying Shareholders, on the other hand, shall each pay one-half of
the fees of the Escrow Agent for the services to be rendered by the Escrow Agent
hereunder.
8. Limitation of Escrow Agent's Liability.
(a) The Escrow Agent shall incur no liability with respect to any
action taken or suffered by it in reliance upon any notice, direction,
instruction, consent, statement or other documents believed by it to be genuine
and duly authorized, nor for other action or inaction except its own willful
misconduct or gross negligence. The Escrow Agent shall not be responsible for
the validity or sufficiency of this Agreement. In all questions arising under
the Escrow Agreement, the Escrow Agent may rely on the advice of counsel, and
for anything done, omitted or suffered in good faith by the Escrow Agent based
on such advice the Escrow Agent shall not be liable to anyone. The Escrow Agent
shall not be required to take any action hereunder involving any expense unless
the payment of such expense is made or provided for in a manner reasonably
satisfactory to it.
(b) The Purchaser and the Indemnifying Shareholders hereby, jointly and
severally, agree to indemnify the Escrow Agent for, and hold it harmless
against, any loss, liability or expense incurred without gross negligence or
willful misconduct on the part of Escrow Agent, arising out of or in connection
with its carrying out of its duties hereunder. The Purchaser, on the one hand,
and the Indemnifying Shareholders, on the other hand, shall each be liable for
one-half of such amounts.
9. Liability and Authority of Indemnification Representatives;
Successors and Assignees.
(a) The Indemnification Representatives shall incur no liability to the
Indemnifying Shareholders with respect to any action taken or suffered by them
in reliance upon any note, direction, instruction, consent, statement or other
documents believed by them to be genuinely and duly authorized, nor for other
action or inaction except their own willful misconduct or gross negligence. The
Indemnification Representatives may, in all questions arising under the Escrow
Agreement, rely on the advice of counsel and for anything done, omitted or
suffered in good faith by the Indemnification Representatives based on such
advice, the Indemnification Representatives shall not be liable to the
Indemnifying Shareholders.
(b) In the event of the death or permanent disability of either
Indemnification Representative, or his resignation as an Indemnification
Representative, a successor Indemnification Representative shall be appointed by
the other Indemnification Representative or, absent its appointment, a successor
Indemnification Representative shall be elected by a majority vote of the
Indemnifying Shareholders, with each such Indemnifying Shareholder (or his or
her successors or assigns) to be given a vote equal to the number of votes
represented by the Company Shares held by such Indemnifying Shareholder
immediately prior to the Effective Time. Each successor Indemnification
Representative shall have all of the power, authority, rights and privileges
conferred by this Agreement upon the original Indemnification
77
Representatives, and the term "Indemnification Representatives" as used herein
shall be deemed to include successor Indemnification Representatives.
(c) The Indemnification Representatives, acting jointly but not singly,
shall have full power and authority to represent the Indemnifying Shareholders,
and their successors, with respect to all matters arising under this Agreement
and all actions taken by any Indemnification Representative hereunder shall be
binding upon the Indemnifying Shareholders, and their successors, as if
expressly confirmed and ratified in writing by each of them. Without limiting
the generality of the foregoing, the Indemnification Representatives, acting
jointly but not singly, shall have full power and authority to interpret all of
the terms and provisions of this Agreement, to compromise any claims asserted
hereunder and to authorize payments to be made with respect thereto, on behalf
of the Indemnifying Shareholders and their successors. All actions to be taken
by the Indemnification Representatives hereunder shall be evidenced by, and
taken upon, the written direction of a majority thereof.
10. Amounts Payable by Indemnifying Shareholders. The amounts payable
by the Indemnifying Shareholders under this Agreement (i.e., the fees and
expenses of arbitrators payable pursuant to Section 4(e), the fees of the Escrow
Agent payable pursuant to Section 7 and the indemnification obligations pursuant
to Sections 8(b)) shall be payable solely as follows. The Indemnification
Representatives shall notify the Escrow Agent of any such amount payable by the
Indemnifying Shareholders as soon as they become aware that any such amount is
payable, with a copy of such notice to the Purchaser. On the sixth business day
after the delivery of such notice, the Escrow Agent shall sell such number of
Escrow Shares (up to the number of Escrow Shares then available in the Escrow
Account), subject to compliance with all applicable securities laws, as is
necessary to raise such amount, and shall disburse such proceeds to the party to
whom such amount is owed in accordance with the instructions of the
Indemnification Representatives; provided that if the Purchaser delivers to the
Escrow Agent (with a copy to the Indemnification Representatives), within five
business days after delivery of such notice by the Indemnification
Representatives, a written notice contesting the legitimacy or reasonableness of
such amount, then the Escrow Agent shall not sell Escrow Shares to raise the
disputed portion of such claimed amount, and such dispute shall be resolved by
the Purchaser and the Indemnification Representatives in accordance with the
procedures set forth in Section 4(e).
11. Termination. This Agreement shall terminate upon the later of the
Termination Date or the distribution by the Escrow Agent of all of the Escrow
Shares in accordance with this Agreement; provided that the provisions of
Sections 8 and 9 shall survive such termination.
12. Notices. All notices, instructions and other communications given
hereunder or in connection herewith shall be in writing. Any such notice,
instruction or communication shall be sent either (i) by registered or certified
mail, return receipt requested,
78
postage prepaid, or (ii) via a reputable nationwide overnight courier service,
in each case to the address set forth below. Any such notice, instruction or
communication shall be deemed to have been delivered two business days after it
is sent by registered or certified mail, return receipt requested, postage
prepaid, or one business day after it is sent via a reputable nationwide
overnight courier service.
If to the Purchaser and/or the Acquisition Sub:
Tekgraf, Inc.
0000 Xxxxxxx Xxxxxxxxx Xxxxx, Xxxxx X
Xxxxxxxx, Xxxxxxx 00000
If to the Company:
----------------------------------
----------------------------------
----------------------------------
----------------------------------
If to the Indemnification Representatives:
----------------------------------
----------------------------------
----------------------------------
----------------------------------
If to the Escrow Agent:
----------------------------------
----------------------------------
----------------------------------
----------------------------------
Any party may give any notice, instruction or communication in
connection with this Agreement using any other means (including personal
delivery, telecopy or ordinary mail), but no such notice, instruction or
communication shall be deemed to have been delivered unless and until it is
actually received by the party to whom it was sent. Any party may change the
address to which notices, instructions or communications are to be delivered by
giving the other parties to this Agreement notice thereof in the manner set
forth in this Section 12.
13. Successor Escrow Agent. In the event the Escrow Agent becomes
unavailable or unwilling to continue in its capacity herewith, the Escrow Agent
may resign and be discharged from its duties or obligations hereunder by
delivering a resignation to the parties to this Escrow Agreement, not less than
60 days' prior to the date when such resignation shall take effect. The
Purchaser and the Indemnification Representatives shall appoint a successor
Escrow Agent and neither party shall unreasonably withhold approval of such
successor Escrow Agent. If, within such notice period, the Purchaser provides to
the Escrow Agent written instructions with respect to the appointment of a
successor Escrow Agent and directions
79
for the transfer of any Escrow Shares then held by the Escrow Agent to such
successor, the Escrow Agent shall act in accordance with such instructions and
promptly transfer such Escrow Shares to such designated successor.
14. General.
(a) Governing Law, Assigns. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Georgia without
regard to conflict-of-law principles and shall be binding upon, and inure to the
benefit of, the parties hereto and their respective successors and assigns.
(b) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(c) Entire Agreement. Except for those provisions of the Merger
Agreement referenced herein, this Agreement constitutes the entire understanding
and agreement of the parties with respect to the subject matter of this
Agreement and supersedes all prior agreements or understandings, written or
oral, between the parties with respect to the subject matter hereof.
(d) Waivers. No waiver by any party hereto of any condition or of any
breach of any provision of this Escrow Agreement shall be effective unless in
writing. No waiver by any party of any such condition or breach, in any one
instance, shall be deemed to be a further or continuing waiver of any such
condition or breach or a waiver of any other condition or breach of any other
provision contained herein.
(e) Amendment. This Agreement may be amended only with the written
consent of the Purchaser, the Escrow Agent and the Indemnification
Representatives.
80
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first above written.
PURCHASER
TEKGRAF, INC.
By:
-----------------------------------------
Xxx X. Xxxxxx
President
ACQUISITION SUB:
TEKGRAF SUB ___, INC.
By:
-----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
ESCROW AGENT
-----------------------------------------
By:
-----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
81
[INDEMNIFICATION REPRESENTATIVE]
(SEAL)
--------------------------------------
Name:
---------------------------------------
COMPANY:
------------------------------------------
By:
-----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
COMPANY SHAREHOLDERS:
(SEAL)
--------------------------------------
Name:
---------------------------------------
(SEAL)
--------------------------------------
Name:
---------------------------------------
(SEAL)
--------------------------------------
Name:
---------------------------------------
82
EXHIBIT B
Indemnifying Shareholder Percentage
