EXHIBIT 10.(w)
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STOCK PURCHASE AGREEMENT
By and Among
XXXXXXX ENTERPRISES, INC., MACDONALD CONTRACT SALES, INC.,
XXXXXXXX XXXXXXX AND XXXXX XXXXXXX, AS TRUSTEES
OF THE XXXXXXX FAMILY TRUST,
XXXXXXXX XXXXXXX, XXXXX XXXXXXX,
XXXXXXXXXXXX-XXXX CO.
and
GUEST SUPPLY, INC.
As of April 23, 1999
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Table of Contents
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Page
SECTION I. PURCHASE AND SALE OF THE SHARES........................................................... 1
1.01 Purchase and Sale of the Shares........................................................... 1
1.02 Discharge of Funded Indebtedness.......................................................... 2
SECTION II. THE PURCHASE PRICE; REGISTRATION RIGHTS................................................... 2
2.01 Purchase Price............................................................................ 2
2.02 Purchase Price Adjustment................................................................. 2
2.03 Registration Rights....................................................................... 4
2.04 Section 338(h)(10) Election and Allocation................................................ 6
SECTION III. REPRESENTATIONS, WARRANTIES OF THE KAPADIAS AND THE SHAREHOLDER........................... 8
3.01 Organization and Qualification............................................................ 8
3.02 Authority................................................................................. 9
3.03 No Legal Bar; Conflicts................................................................... 9
3.04 Capitalization............................................................................ 9
3.05 Financial Statements; No Undisclosed Liabilities.......................................... 9
3.06 Absence of Certain Changes................................................................ 10
3.07 Accounts Receivable; Inventories.......................................................... 11
3.08 No Dividends, Loans, Etc.................................................................. 11
3.09 Real Property Owned or Leased............................................................. 11
3.10 Title to Assets; Condition of Property.................................................... 12
3.11 Taxes..................................................................................... 13
3.12 Compliance with Applicable Law; Permits; Authorizations................................... 14
3.13 Contractual and Other Obligations; Customers and Suppliers................................ 15
3.14 Compensation.............................................................................. 16
3.15 Employee Benefit Plans.................................................................... 16
3.16 Labor Relations........................................................................... 18
3.17 Insurance................................................................................. 18
3.18 Conduct of Business; Allowances........................................................... 19
3.19 Patents, Trademarks, Etc.................................................................. 19
3.20 Power of Attorney; Bank Accounts.......................................................... 19
3.21 No Foreign Person......................................................................... 20
3.22 Books and Records......................................................................... 20
3.23 Litigation; Disputes...................................................................... 20
3.24 Insider Interests; Intercompany Transactions.............................................. 20
3.25 Year 2000 Compliance...................................................................... 20
3.26 Disclosure................................................................................ 21
3.27 Use of Names.............................................................................. 21
3.28 Accounts Payable; Indebtedness, Etc....................................................... 21
3.29 Location of Business and Assets........................................................... 21
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SECTION IV. REPRESENTATIONS, WARRANTIES OF THE SHAREHOLDER AND THE KAPADIAS........................... 21
4.01 Authority................................................................................. 21
4.02 Ownership of Shares....................................................................... 21
4.03 No Legal Bar; Conflicts................................................................... 22
4.04 Investment................................................................................ 22
SECTION V. REPRESENTATIONS, WARRANTIES OF THE PURCHASER AND THE ISSUER............................... 23
5.01 Organization.............................................................................. 23
5.02 Authority................................................................................. 23
5.03 No Legal Bar; Conflicts................................................................... 23
5.04 SEC Documents............................................................................. 24
SECTION VI. COVENANTS OF THE SHAREHOLDER, THE COMPANIES, THE KAPADIAS, THE PURCHASER AND THE ISSUER.. 24
6.01 Publicity................................................................................. 24
6.02 Encumbrances.............................................................................. 24
6.03 Confidential Information.................................................................. 24
6.04 Brokers and Finders....................................................................... 24
6.05 Cash Management........................................................................... 25
6.06 Acquisition Proposals..................................................................... 25
6.07 HSR Act Filing............................................................................ 25
6.08 Correspondence............................................................................ 26
SECTION VII. CONDUCT OF THE COMPANIES PRIOR TO CLOSING................................................. 26
7.01 Operation of the Business................................................................. 26
7.02 Capital Stock, Etc........................................................................ 26
7.03 Changes; Contracts; Claims................................................................ 26
7.04 Preservation of Organization, Employees and Business Relationships........................ 27
7.05 Notice of Adverse Developments; Litigation................................................ 27
7.06 Payment of Taxes.......................................................................... 27
7.07 Documents, Etc............................................................................ 27
7.08 No Loans, Advances, Etc................................................................... 27
7.09 Books and Records and Interim Financial Statements........................................ 28
7.10 Compliance with Laws...................................................................... 28
7.11 Sale of Assets............................................................................ 28
7.12 Discharge of Obligations.................................................................. 28
7.13 Revenues; Accounts Receivable; Inventory.................................................. 28
7.14 Facilities................................................................................ 28
7.15 Cooperation............................................................................... 28
SECTION VIII. CLOSING................................................................................... 29
8.01 Time and Place of Closing................................................................. 29
8.02 Termination............................................................................... 29
8.03 Effect on Obligations..................................................................... 29
8.04 Return of Documentation................................................................... 30
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8.05 Delivery of Shares........................................................................ 30
SECTION IX. CONDITIONS TO THE SHAREHOLDER'S OBLIGATION TO CLOSE....................................... 30
9.01 No Litigation............................................................................. 30
9.02 Representations, Warranties and Covenants................................................. 30
9.03 Other Certificates........................................................................ 31
9.04 Opinion of the Purchaser's and the Issuer's Counsel....................................... 31
9.05 Employment Agreement...................................................................... 31
9.06 Xxxx-Xxxxx-Xxxxxx......................................................................... 31
9.07 Payoff of Funded Indebtedness............................................................. 31
SECTION X. CONDITIONS TO THE PURCHASER'S OBLIGATION TO CLOSE......................................... 31
10.01 No Litigation............................................................................. 31
10.02 Representations, Warranties and Covenants................................................. 31
10.03 Other Certificates........................................................................ 32
10.04 Opinion of the Companies' and the Shareholder's Counsel................................... 32
10.05 Environmental............................................................................. 32
10.06 Sale of All the Shares.................................................................... 32
10.07 Resignations.............................................................................. 32
10.08 Consents.................................................................................. 32
10.09 Transfer of Building...................................................................... 32
10.10 Employment Agreements..................................................................... 33
10.11 Financing................................................................................. 33
10.12 No Material Adverse Change................................................................ 33
10.13 Xxxx-Xxxxx-Xxxxxx......................................................................... 33
10.14 Regulation S-X and Adjusted EBITDA Certificate............................................ 33
10.15 Payoff of Funded Indebtedness............................................................. 33
SECTION XI. INDEMNIFICATION........................................................................... 33
11.01 Indemnification by the Shareholder and the Kapadias....................................... 33
11.02 Indemnification by the Purchaser and the Issuer........................................... 34
11.03 Procedure for Indemnification............................................................. 34
11.04 Subrogation............................................................................... 35
11.05 Validity.................................................................................. 36
11.06 Time Periods for Representation and Warranty Indemnifications............................. 36
11.07 Indemnity Escrow; Offset.................................................................. 36
11.08 Limits on Indemnification................................................................. 38
SECTION XII. NON-COMPETITION AGREEMENT................................................................. 38
12.01 Solicitation of Employees................................................................. 38
12.02 Noncompetition............................................................................ 38
SECTION XIII. MISCELLANEOUS............................................................................. 39
13.01 Notices................................................................................... 39
13.02 Survival of Representations............................................................... 40
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13.03 Entire Agreement.......................................................................... 40
13.04 Further Assurances........................................................................ 40
13.05 Expenses.................................................................................. 40
13.06 Injunctive Relief......................................................................... 41
13.07 Invalidity................................................................................ 41
13.08 Successors and Assigns.................................................................... 41
13.09 Governing Law............................................................................. 42
13.10 Counterparts.............................................................................. 42
13.11 Knowledge................................................................................. 42
13.12 Interpretation............................................................................ 42
13.13 Gender and Number......................................................................... 42
13.14 Joint and Several Obligations............................................................. 42
13.15 Headings.................................................................................. 42
13.16 Independence of Covenants and Representations and Warranties.............................. 42
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EXHIBITS
A. FORM OF XXXXXXX EMPLOYMENT AGREEMENT
B. FORM OF CONVERTIBLE NOTE
C. FORM OF ESCROW AGREEMENT
ANNEX
A. DEFINITIONS
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") made as of the 23rd
day of April, 1999 by and among Xxxxxxxxxxxx-Xxxx Co., a Delaware corporation
(the "Purchaser"), Xxxxxxx Enterprises, Inc., a California corporation ("KEI"),
MacDonald Contract Sales, Inc., a corporation organized and existing under the
laws of Ontario, Canada ("MCSI"; and together with KEI collectively, the
"Companies"), Xxxxxxxx Xxxxxxx and Xxxxx Xxxxxxx, as Trustees of the Xxxxxxx
Family Trust (the "Shareholder"), the owner of all of the issued and outstanding
shares of capital stock of each of the Companies, Xxxxxxxx Xxxxxxx ("X.
Xxxxxxx"), Xxxxx Xxxxxxx ("X. Xxxxxxx"; and together with X. Xxxxxxx, the
"Kapadias"), and Guest Supply, Inc., a New Jersey corporation (the "Issuer").
Capitalized terms used herein and not defined in the specific Section in which
they are used shall have the meanings assigned to such terms in Annex A hereof.
W I T N E S S E T H:
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WHEREAS, the Companies are engaged in the business of purchasing and
distributing textiles and related items for the lodging industry (such
activities and all incidental or related businesses of each of the Companies
being herein referred to as the "Business");
WHEREAS, the Shareholder is the holder of all of the issued and
outstanding shares of capital stock of each of the Companies, (all such shares
of capital stock held by the Shareholder being hereinafter collectively referred
to as the "Shares");
WHEREAS, the Purchaser is a wholly owned subsidiary of the Issuer;
WHEREAS, the Kapadias are trustees and beneficiaries of the
Shareholder and, as such, will derive direct economic benefit from the
transactions contemplated hereby, and in order to induce the Purchaser and the
Issuer to enter into this Agreement and consummate the transactions contemplated
hereby, each of the Kapadias hereby agrees to make the representations,
warranties, covenants and agreements contained herein; and
WHEREAS, the Purchaser desires to acquire from the Shareholder, and
the Shareholder desires to sell to the Purchaser, all of the Shares held by such
Shareholder.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth and intending to be legally
bound, the parties hereto hereby agree as follows:
SECTION I.
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PURCHASE AND SALE OF THE SHARES
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1.01 Purchase and Sale of the Shares . (a) Subject to the terms and
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conditions of this Agreement and on the basis of the representations,
warranties, covenants and agreements
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herein contained, at the Closing, the Shareholder agrees to sell, assign and
convey to the Purchaser, free and clear of all Liens, and the Purchaser agrees
to purchase, acquire and accept from the Shareholder, and the Issuer shall cause
the Purchaser to purchase, acquire and accept, all of the Shares held by such
Shareholder.
(b) The parties hereto acknowledge and agree that the Purchaser may
designate the Issuer or a direct or indirect wholly owned subsidiary of the
Issuer to acquire the Shares provided, however, that the Purchaser's payment
obligations hereunder shall not be affected by such designation by the
Purchaser.
1.02 Discharge of Funded Indebtedness . On the Closing Date, the
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Purchaser and the Issuer shall pay or cause to be paid all amounts outstanding
as of the Closing Date under all Funded Indebtedness. The Shareholder shall
designate to the Purchaser in writing the aggregate pay-off amount for each
Funded Indebtedness Holder as of the Closing Date and the accounts (at a bank or
other financial institution) to which such pay-off amounts shall be wired, which
designation shall be accompanied by written instructions (or other pay-off
letters) from each Funded Indebtedness Holder setting forth the amounts owed,
the pay-off instructions and related matters.
SECTION II.
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THE PURCHASE PRICE; REGISTRATION RIGHTS
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2.01 Purchase Price . The aggregate purchase price, subject to
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adjustment pursuant to Section 2.02 below, for the Shares (the "Purchase Price")
shall be payable at the Closing as follows: (i) in cash, by wire transfer to an
account designated by the Shareholder, an amount equal to $18,000,000 (the "Cash
Purchase Price"), (ii) a five-year convertible subordinated promissory note of
the Issuer substantially in the form of Exhibit B attached hereto (the "Note"),
payable to the Shareholder in the principal amount of $5,000,000, bearing
interest at a fixed annual rate equal to the greater of (A) the lowest
applicable federal rate under Section 1274(d) of the Code or (B) 4%, payable
quarterly, and convertible, into a number of shares of common stock, without par
value, of the Issuer (the "Common Stock") equal to the then outstanding
principal amount owed under the Note divided by the Conversion Price, and (iii)
the issuance to the Shareholder of 45,198 shares of Common Stock (such Common
Stock, together with the Common Stock issuable upon the conversion of the Note,
collectively, the "Purchase Price Common Stock"). The payment by the Purchaser
of the Purchase Price as provided above shall, subject to adjustment as provided
in Section 2.02 below, constitute full and final payment to the Shareholder of
the Purchase Price for the Shares.
2.02 Purchase Price Adjustments . (a) In the event that the
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Companies' Adjusted EBITDA as set forth on the Adjusted EBITDA Certificate is
less than $3,350,000, then the Cash Purchase Price paid at the Closing shall be
reduced by an amount equal to (A) such deficiency multiplied by (B) 7.8.
(b)(i) In the event that the Companies' Closing Adjusted Net Worth is
less than $7,155,000, then the Cash Purchase Price shall be reduced by the
amount of such deficiency, all in accordance with the provisions of this Section
2.02, and (ii) in the event that the Companies'
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Closing Adjusted Net Worth, is greater than $7,355,000, then the Cash Purchase
Price shall be increased by the lesser of (A) $3,000,000 or (B) the amount of
such excess, all in accordance with the provisions of this Section 2.02.
(c) (i) As promptly as practicable following the Closing Date, but in
no event later than 60 days thereafter (the "60-Day Period"), the Shareholder
shall cause Xxxxxxxxx Xxxxx & Xxxxxxxxxx to prepare and deliver to the Purchaser
and the Shareholder (1) an audited combined balance sheet of the Companies as of
the Closing Date (the "Closing Balance Sheet") and (2) a statement of the amount
of the Closing Adjusted Net Worth. The Closing Balance Sheet shall be prepared
in accordance with GAAP, consistently applied, and otherwise, to the extent
consistent with GAAP, in a manner consistent with the preparation of the
Companies' audited balance sheet as at December 31, 1998. All reasonable
expenses incurred in connection with the preparation and delivery of the audited
Closing Balance Sheet shall be borne one-half by the Shareholder and one-half by
the Purchaser. The Shareholder shall request Xxxxxxxxx Kuhen & Xxxxxxxxxx to
permit the Shareholder, the Purchaser and their respective representatives to
review all work papers with respect to the Closing Balance Sheet.
(ii) During the 60-Day Period and during the 30-Day Period, the
Purchaser shall, at the request of the Shareholder, on reasonable prior notice
from the Shareholder and during normal business hours, afford the Shareholder
and the Kapadias access to the Companies' books and records with respect to the
Business and otherwise reasonably cooperate with the Shareholder and the
Kapadias in connection with their evaluation of the Closing Balance Sheet.
(d) On the thirtieth day after the date on which the Closing
Balance Sheet has been delivered to the Shareholder and the Purchaser (or such
earlier date as the parties hereto agree in writing), if the Closing Adjusted
Net Worth shown on the Closing Balance Sheet is not disputed by the Shareholder
or the Purchaser pursuant to Section 2.02(e) hereof, (i) in the event that the
Closing Adjusted Net Worth exceeds the $7,355,000, then the Purchaser shall pay
to the Shareholder, by bank wire transfer, the lesser of (A) $3,000,000 or (B)
the amount of such excess and (ii) in the event that the Closing Adjusted Net
Worth is less than $7,155,000, then the Shareholder shall pay to the Purchaser,
by bank wire transfer, the amount of such deficiency. In addition, it is
understood and agreed that if the Shareholder or the Purchaser does not deliver
a Dispute Notice to the other party hereto within 30 days after the delivery of
the Closing Balance Sheet to the Shareholder and the Purchaser (the "30-Day
Period"), then the Closing Balance Sheet shall be deemed accepted in all
respects by the Shareholder, the Purchaser and the Kapadias and shall be final
and binding upon the parties hereto with the effects set forth in clauses (i)
and (ii) of this subsection (d).
(e) If the Shareholder or the Purchaser disputes the Closing Adjusted
Net Worth, the disputing party shall give written notice (the "Dispute Notice")
to the nondisputing party within the 30-Day Period, which Dispute Notice shall
specify in reasonable detail the matters and the reasons for such dispute and
the amount(s) in dispute. If the Shareholder and the Purchaser are unable to
resolve the disputed matters within 30 days after receipt by the nondisputing
party of the Dispute Notice, all disputed matters raised in the Dispute Notice
and not so resolved (the "Disputed Matters") shall be submitted to the Los
Angeles, California office of (i) Xxxxxx Xxxxxxxx LLP, and if such firm refuses
to accept such engagement, (ii) Pricewaterhouse Coopers LLP, and if such firm
refuses to accept such engagement then (iii) such
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other nationally recognized independent accounting firm as is chosen by mutual
agreement of the Shareholder and the Purchaser acting in good faith (such firm
which accepts the engagement, the "Independent Auditor"), for final resolution
in accordance with the terms and provisions of this Agreement. The Purchaser, on
the one hand, and the Shareholder, on the other hand shall each be permitted to
submit a written position to the Independent Auditor regarding the Disputed
Matters. The Purchaser and the Shareholder shall use their respective best
efforts to cause the Independent Auditor to make its determination as to the
resolution of the Disputed Matters (the "Determination") as soon as possible,
but in no event later than 60 days after receipt of the Disputed Matters. The
Determination shall be final and binding upon the parties hereto and shall be
limited to the Disputed Matters. The Independent Auditor's Determination shall
be reflected in a written report which shall be delivered promptly by the
Independent Auditor to the Shareholder and the Purchaser, which written report
shall, in addition to setting forth the resolution of the Disputed Matters, set
forth the Closing Adjusted Net Worth determined in accordance with the terms
hereof (and after giving effect to such resolution) and shall set forth, after
giving effect to the foregoing determinations, which of clauses (i) or (ii) of
subsection (d) above is applicable in the circumstances. One-half of all fees
and disbursements of the Independent Auditor shall be paid by the Purchaser and
one-half of such fees and disbursements shall be paid by the Shareholder. Any
payment to be made as a consequence of the Determination by the Independent
Auditor shall be made, free and clear of any deductions or set-off by bank wire
transfer of immediately available funds, not later than three (3) business days
after the receipt of the Determination by the Shareholder and the Purchaser, in
accordance with the provisions of clauses (i) and (ii) of Section 2.02(d).
(f) All amounts paid pursuant to this Section 2.02 shall be paid by
bank wire transfer of immediately available funds and shall bear interest from
and after the Closing Date, until paid, at the per annum rate equal to the prime
rate of PNC Bank (or its successors), as in effect from time to time, on the
basis of a 360-day year and the actual number of days elapsed.
2.03 Registration Rights . (a) In the event that, at any time or
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from time to time, the Issuer proposes to register any shares of the Issuer's
Common Stock (the "Registration Shares"), under the Securities Act, other than
pursuant to a registration statement on Forms S-4 or S-8 or any successor to
such Forms, for the purpose of the sale or other transfer of the Registration
Shares by the Issuer, the Issuer shall mail or deliver a written notice (a
"Registration Notice") of its intention so to register the Registration Shares
to the Shareholder, in the event that the Shareholder (or a Section 2.03
Transferee) continues to hold the Purchase Price Common Stock on the day before
such Registration Notice is sent, at least 30 days prior to the filing of the
registration statement covering the Registration Shares.
(b) In the event that a Registration Notice shall have been so mailed
or delivered, the Shareholder, at its election, may deliver to the Issuer a
written notice (a "Supplemental Notice") (i) specifying the number of shares of
Purchase Price Common Stock proposed to be sold or otherwise transferred by the
Shareholder (the "Supplemental Registration Shares"), (ii) describing the
proposed manner of sale or other transfer thereof and (iii) requesting the
registration thereof under the Securities Act; provided, however, that such
Supplemental Notice shall be so delivered not more than 15 days after the date
of delivery to the Shareholder of a Registration Notice.
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(c) From and after receipt of a Supplemental Notice, the Issuer shall,
subject to the sale or other transfer of some or all of the Supplemental
Registration Shares, use its best efforts to cause the public sale of the
Supplemental Registration Shares to be registered under the Securities Act and
to effect and to comply with all such qualifications and requirements as may be
necessary to permit the public sale or other transfer of the Supplemental
Registration Shares; provided, however, that if (i) in the case of an
underwritten public offering of securities, the managing underwriter shall
advise the Issuer that inclusion of some or all of the Supplemental Registration
Shares would, in such managing underwriter's judgment, interfere with the
proposed distribution of the securities in respect of which registration was
originally to be effected, then the Issuer may, upon written notice to the
Shareholder, allocate the Supplemental Registration Shares to be included in the
registration statement (if and to the extent such allocation is stated by such
managing underwriter as necessary to eliminate such interference) pro rata among
holders of Supplemental Registration Shares on the basis of the number of shares
of the Issuer's Common Stock held by such holders or (ii) any firm of counsel
representing the Issuer in connection with such registration shall advise the
Issuer and the Shareholder in writing that one or more of the steps contemplated
hereby is not necessary to permit the sale of the Supplemental Registration
Shares in a transaction constituting a public offering within the meaning of the
Securities Act, then the Issuer shall not be required to take any action with
respect to such step or steps.
(d) The Shareholder agrees to furnish the Issuer such information
regarding itself, and the proposed distribution of the Supplemental Registration
Shares by such Shareholder as the Issuer may from time to time reasonably
request in writing in order to prepare a registration statement and prospectus
or any supplement or amendment thereto pursuant to the Securities Act and the
rules and regulations promulgated thereunder.
(e) The Issuer shall pay all expenses (the "Registration Expenses")
necessary to effect under the Securities Act any registration statements,
amendments or supplements filed pursuant to this Section 2.03 (other than
underwriters' discounts and commissions and brokerage commission and fees, if
any, payable with respect to securities sold by the Shareholder and other than
legal fees and expenses of counsel to the Shareholder), including without
limitation, printing expenses, fees of the Commission and The New York Stock
Exchange, Inc., and accounting and legal fees and expenses of the Issuer.
(f) If the Registration Shares are to be distributed by or through one
or more underwriter(s), as determined by the Issuer in its sole discretion, the
Issuer will have the sole right to select the managing underwriter(s) to
administer the offering.
(g) In the event of any registration pursuant to this Section 2.03
covering the Supplemental Registration Shares, the Issuer will indemnify and
hold harmless the Shareholder (if securities of the Shareholder are included in
the subject registration statement) against any Damages which arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in any such registration statement, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that the Issuer will not
be liable to the Shareholder in any such case to the extent that any such
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Damage arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
said preliminary prospectus, said final prospectus, or any said amendment or
supplement, in reliance upon and in conformity with written information
furnished by the Shareholder specifically for use in the preparation thereof.
(h) In the event of any registration pursuant to this Section 2.03
covering the Supplemental Registration Shares, the Shareholder (if securities of
the Shareholder are included in the subject registration statement) shall, in
the instances and to the extent set forth in this subsection (h), indemnify and
hold harmless the Issuer, each of its directors and officers who has signed any
registration statement, and each person, if any, who controls the Issuer within
the meaning of the Securities Act, against any Damages, to which the Issuer or
any such director, officer, or controlling person may become subject, under the
Securities Act or otherwise, insofar as such Damages, arise out of or are based
upon any untrue or alleged untrue statement of any material fact contained in
said registration statement, said preliminary prospectus, said final prospectus,
or said amendment or supplement thereto, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in said
registration statement, said preliminary prospectus, said final prospectus, or
said amendment or supplement, in reliance upon and in conformity with written
information furnished by the Shareholder specifically for use in the preparation
thereof.
(i) With respect to any underwritten offering, each of the
Shareholders severally and not jointly shall, in addition to the foregoing,
provide the underwriter of such offering with customary representations and
warranties, and indemnification, in each instance as shall be reasonably
requested by the underwriter, provided, however, that any such agreement to
indemnify an underwriter with respect to any preliminary prospectus shall not
inure to the benefit of any such underwriter to the extent that any Damages of
any such underwriter results solely from an untrue statement of material fact
contained in, or the omission of a material fact from, such preliminary
prospectus which untrue statement or omission was corrected in the final
prospectus, if such underwriter failed to send or give a copy of the final
prospectus to the Person asserting such loss, claim, damage or liability at or
prior to the written confirmation of the sale of such securities to such Person,
and provided further that any such agreement by any of the Shareholder to
indemnify an underwriter shall be on a several (and not joint) basis in
proportion to the number of securities sold by the Shareholder in such
underwritten offering and shall be limited in amount to the net proceeds
received by such Shareholder in such underwritten offering.
(j) It is understood and agreed that notwithstanding anything to the
contrary contained herein, the rights and benefits of this Section 2.03 may be
assigned or otherwise transferred to a Section 2.03 Transferee. Any attempted
assignment or transfer in violation of this subsection (j) shall be void and of
no force or effect.
2.04 Section 338(h)(10) Election and Allocation. (a) The
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Purchaser and the Shareholder agree that, at the election of the Purchaser (the
"Election"), they shall jointly elect to treat the purchase of the Shares of KEI
as an acquisition of assets in accordance with Section
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338(h)(10) of the Code (the "338(h)(10) Election"). In order to effect a timely
338(h)(10) Election (and any comparable election under state or local tax law)
with respect to the acquisition of the Shares of KEI by the Purchaser, the
Purchaser and the Shareholder shall jointly execute copies of Internal Revenue
Service Form 8023 and all attachments required to be filed therewith pursuant to
applicable Treasury regulations (collectively, the "Form 8023"). Following the
Closing, in the event that the Election occurs, the Purchaser and Shareholder
will file the Form 8023 with the Internal Revenue Service (with a copy to the
Shareholder) in order to effect a timely 338(h)(10) Election. In the event the
Election occurs, the Purchaser and the Shareholder agree otherwise to take all
necessary action to make a timely 338(h)(10) Election (and any comparable
election under state or local tax law) with respect to the acquisition of the
Shares of KEI by the Purchaser. The Purchaser and the Shareholder shall
otherwise cooperate fully with each other in the making of such election.
(b) In the event that the Election occurs, the Purchase Price paid by
the Purchaser for the Shares of KEI (which solely for this purpose shall include
the liabilities of KEI and any other amounts required to be included in the
"adjusted deemed sale price" under Section 338(h)(10) of the Code) shall be
allocated to the assets of KEI in a manner which is intended to comply with the
allocation method required by Section 338(h)(10) of the Code. In such event,
the parties shall fully cooperate to comply with all substantive and procedural
requirements of Section 338(h)(10) of the Code and any regulations thereunder,
and the allocation shall be adjusted, if and to the extent deemed necessary by
the Purchaser, to comply with the requirements of Section 338(h)(10) of the
Code. Except as required by applicable law, neither the Purchaser nor the
Shareholder nor the Kapadias will take, nor permit any Affiliate to take, for
federal, state or local income tax purposes, any position inconsistent with the
Section 338(h)(10) Election or the allocation set forth in the Form 8023 filed
by the Purchaser, or, if applicable, any adjusted allocation. It is understood
and agreed that without Shareholder's consent, no part of the Purchase Price
shall be allocated to the covenant not to compete set forth in Section XII
hereof.
(c) (i) As promptly as practicable following the Closing Date, KEI
shall prepare and deliver, or cause to be prepared and delivered, to the
Purchaser and the Shareholder all income Tax Returns of KEI for the short
taxable year ending on the date prior to the Closing Date (the "Short Year Tax
Returns"), which Short Year Tax Returns, if the Election is made, shall reflect
all Taxes arising as a result of the 338(h)(10) Election. All costs of
preparation of the Short Year Tax Returns shall be borne by KEI.
(ii) In the event that the Election occurs and there are any
Incremental Taxes, (x) the amount of such Incremental Taxes (the "Adjustment
Amount") shall be due and owing by the Purchaser and the Issuer to the
Shareholder within 30 days after delivery of the Short Year Tax Returns to the
Purchaser, by wire transfer to the Shareholder and (y) an amount equal to the
federal, state and local taxes payable by the Shareholder in respect of the
Adjustment Amount shall be due and owing by the Purchaser to the Shareholder and
shall be paid at the same time the Adjustment Amount is paid. In addition, in
the event that the Election occurs, the Purchaser and the Issuer agree to
reimburse the Shareholder and/or the Kapadias for all reasonable out-of-pocket
costs and expenses of third parties incurred by them (or any of them) arising
from or related to the matters contemplated by this Section 2.04, it being the
intent of the
8
parties that the Shareholder and/or Xxxxxxx be made whole for any and all such
costs and expenses as if the 338(h)(10) Election had not taken
place.
(iii) Unless prohibited by a change in applicable law or regulation,
if the Election shall have occurred, the Shareholder shall report income and
gain from the deemed sale of KEI's assets (occurring by reason of the 338(h)(10)
Election) on the installment method to the extent attributable to the Note. In
the event that there is a final determination or other conclusion satisfactory
to the Purchaser (it being understood and agreed that, following the Closing,
the conduct, settlement and other disposition of any claims, disputes, audits or
inquires with respect to Taxes or other amounts in respect of Taxes otherwise
payable by the Shareholder, the Companies (or either of them), the Purchaser
and/or the Issuer by reason of this Agreement and the transactions contemplated
hereby (including, but not limited to, such in respect of the subject matter of
this clause (iii); provided that in the case of a settlement by the Purchaser of
a claim in respect of the subject matter of this clause (iii), the indemnity set
forth in this clause (iii) is concurrrently made available to the Shareholder)
shall be controlled by the Purchaser and the Issuer, at their election, and, if
so elected, at their sole cost and expense, and that all parties hereto shall
cooperate with the Purchaser and the Issuer in connection therewith, and the
parties hereto shall keep each other informed as to the status of such matters)
that the installment method was not available to the Shareholder in respect of
the Note by reason of the 338(h)(10) Election, the Purchaser and the Issuer
shall indemnify the Shareholder for any Damages (including interest and
penalties) incurred by it in respect of such final determination or other
conclusion satisfactory to the Purchaser.
SECTION III.
-----------
REPRESENTATIONS, WARRANTIES
OF THE KAPADIAS AND THE SHAREHOLDER
-----------------------------------
Except as set forth on the Disclosure Schedule attached hereto and
made part hereof, each of the Kapadias and the Shareholder, jointly and
severally, hereby represent and warrant to each of the Purchaser and the Issuer
as of the date hereof, that:
3.01 Organization and Qualification . Each of the Companies is duly
------------------------------
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization and has full power and authority to own its
respective properties and to conduct the businesses in which it is now engaged.
Each of the Companies is in good standing in each other jurisdiction wherein the
failure so to qualify could have a Material Adverse Effect. Neither of the
Companies has any subsidiaries, owns any capital stock or other proprietary
interest, directly or indirectly, in any other corporation, association, trust,
partnership, joint venture or other entity, nor have any agreement with any
person, firm or corporation or other entity to acquire any such capital stock or
other proprietary interest. Accurate and complete copies of the certificate of
incorporation, including all amendments thereto and restatements thereof, and
by-laws each of the Companies and of the corporate minutes and the stock record
books of each of the Companies have been delivered to the Purchaser. Complete
and accurate records with respect to the issuance, transfer, redemption and
cancellation of shares of capital stock are set forth in or together with such
stock record books.
9
3.02 Authority. The execution and delivery by each of the
---------
Companies of this Agreement and each other instrument or document required to be
executed and delivered by either of the Companies pursuant hereto, the
performance by each of the Companies of its respective covenants and agreements
hereunder and thereunder and the consummation by each of the Companies of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate and shareholder action. This Agreement and each other
instrument or document required to be executed and delivered by either of the
Companies pursuant hereto constitutes a valid and legally binding obligation of
each of the Companies party thereto, enforceable against each of the Companies
party thereto in accordance with its terms.
3.03 No Legal Bar; Conflicts. Neither the execution and delivery
-----------------------
of this Agreement or any other instrument or document required to be executed
and delivered by either of the Companies pursuant hereto, nor the consummation
of the transactions contemplated hereby or thereby, violates or will violate any
provision of the certificate of incorporation or by-laws of either of the
Companies, respectively, or any statute, ordinance, regulation, order, judgment
or decree of any court or other Governmental Authority or other Permit, or
conflicts with or will conflict with or results in or will result in any breach
or modification of any of the terms of or constitutes or will constitute a
default under or results in or will result in the termination of or the creation
of any Lien, acceleration right or other right pursuant to the terms of any
Contract or Permit or will in any way affect the continuation, validity or
effectiveness of any Contract or Permit. No consents, approvals or
authorizations of, or designations, registrations, declarations or filings with
or notices to, any Governmental Authority or any other person or entity
(including, without limitation, pursuant to the terms of any Contract, Permit or
otherwise) are required in connection with the execution and delivery of this
Agreement or any other instrument or document required to be executed and
delivered by either of the Companies pursuant hereto, or the consummation of the
transactions contemplated hereby or thereby.
3.04 Capitalization. The authorized capital stock of KEI consists
--------------
of 24,000 shares of common stock, no par value, of which 15,048 shares are
issued and outstanding. The authorized capital stock of MCSI consists of an
unlimited number of shares of common stock, no par value, of which 10,000 shares
are issued and outstanding. The Shares constitute all of the issued and
outstanding shares of capital stock of each of the Companies. All of the issued
and outstanding shares of capital stock of each of the Companies have been duly
and validly authorized and issued, are fully paid and non-assessable and are
owned beneficially and of record by the Shareholder, in each case free and clear
of all Liens. There are no outstanding subscriptions, warrants, options, calls,
commitments or other rights or agreements to which either of the Companies,
either of the Kapadias or the Shareholder is subject to or bound relating to the
issuance, sale, transfer or redemption of shares of capital stock or other
securities of either of the Companies and no person other than the Shareholder
has any interest in the capital stock of either of the Companies. No shares of
capital stock or other securities of either of the Companies are reserved for
any purpose. At the Closing, the Shareholder will deliver to the Purchaser good
and valid title to the Shares free and clear of all Liens.
3.05 Financial Statements; No Undisclosed Liabilities .
------------------------------------------------
(a) The Companies and the Shareholder have delivered to the Purchaser
the Companies' balance sheets as at December 31, 1996, December 31, 1997,
December 31, 1998
10
and the related statements of operations, retained earnings and cash flows for
the 12-month periods then ended, which in the case of such statements for the
year ended December 31, 1998 are audited (collectively, the "Annual Financial
Statements"), and the Companies' balance sheet as at February 28, 1999 (the
"Balance Sheet") and the related statement of operations for the 2-month period
then ended (the "Interim Financial Statements" and collectively with the Annual
Financial Statements and the financial statements required to be delivered
pursuant to Section 10.14, the "Financial Statements"). The Financial Statements
are complete and correct in all material respects, have been prepared from the
books and records of each of the Companies and in accordance with GAAP
consistently applied and maintained throughout the periods indicated, and fairly
present the financial condition of each of the Companies as at their respective
dates and the results of their respective operations for the periods covered
thereby.
(b) Except to the extent set forth in or reserved against in the
Balance Sheet or as identified in the Disclosure Schedule, and except for
current liabilities (determined in accordance with GAAP, consistently applied)
incurred since the Balance Sheet Date in the ordinary course of business
consistent with past practices, neither of the Companies has liabilities or
obligations of any nature, whether accrued, absolute, known or unknown,
contingent or otherwise, whether due or to become due, whether properly
reflected under generally accepted accounting principles as a liability or a
charge or reserve against an asset or equity account or not, and whether the
amount thereof is readily ascertainable or not.
3.06 Absence of Certain Changes . Except as set forth in the
--------------------------
Disclosure Schedule, subsequent to December 31, 1998, there has not been with
respect to either of the Companies or the Business any (a) material adverse or
prospective material adverse change in the condition (financial or otherwise),
results of operation, assets, properties, business or prospects; (b) material
damage or destruction (whether or not insured) affecting the assets, properties,
business or operations; (c) labor dispute or threatened labor dispute involving
any employee; (d) actual or threatened material dispute with any material
customer or supplier or actual or threatened material loss of business from any
material customer or supplier or, to the knowledge of either of the Companies or
either of the Shareholder, any event or circumstance which could reasonably be
expected to result in any such dispute or loss of business; (e) changes in the
methods or procedures for billing or collection of customer accounts or
recording of customer accounts receivable or reserves for doubtful accounts; (f)
sale, assignment or transfer of any of the assets, except in the ordinary course
of business, consistent with past practice; (g) cancellation of any debts or
waivers of any claims or rights of substantial value; (h) agreements or
commitments for capital expenditures in excess of $25,000 (individually or in
the aggregate) for repairs or additions to property, plant, equipment or
tangible capital assets other than as approved by the Purchaser in writing; (i)
change in any method of accounting or accounting principles; (j) increase in the
compensation, commission, bonus or other direct or indirect remuneration payable
or to become payable to any salesman, distributor, agent or employee other than
increases in salary to its employees in the ordinary course of business,
consistent with past practice; (k) any Liens with respect to any of the assets
or the Business; (l) Contracts entered into requiring the payment by either of
the Companies of $25,000 or more; or (m) agreement or commitment to do any of
the foregoing.
11
3.07 Accounts Receivable; Inventories .
--------------------------------
(a) All accounts receivable of each of the Companies which are
reflected in the Balance Sheet, and all such accounts receivable which will have
arisen since the Balance Sheet Date, are valid and shall have arisen only from
bona fide arms-length transactions in the ordinary course of the business. All
accounts receivable are fully and correctly reflected on the Financial
Statements or, with respect to accounts receivable arising after the Balance
Sheet Date, on the books and records of each of the Companies, in each case, in
accordance with GAAP consistently applied. To the knowledge of each of the
Companies and the Shareholder, no basis exists for the assertion of any
counterclaim or set-off or the repayment of any accounts receivable or payments
heretofore received by either of the Companies. The Disclosure Schedule sets
forth the amount of all commissions (and the rate of commission) paid or payable
to sales personnel, and to whom paid or due, with respect to all accounts
receivable by either of the Companies as of March 31, 1999.
(b) All items of inventories reflected on the Balance Sheet, or
thereafter acquired by either of the Companies (and not subsequently disposed of
in the ordinary course of business) ("Inventory"), are sufficient for the
requirements of the Business in the ordinary course and, as a whole, consist of
items of a quality and quantity which are merchantable and fully usable in the
normal course of the Business. The values at which such Inventories are carried
on the Balance Sheet, or in the case of Inventory acquired following the Balance
Sheet Date on the books and records of each of the Companies, reflect the normal
inventory valuation policy of each of the Companies (including the writing down
of or reserving against the value of slow-moving or obsolete inventory) and
stating Inventories at the lower of cost or market (on a first-in, first-out
method), in each case in accordance with GAAP consistently applied.
3.08 No Dividends, Loans, Etc . (a) Subsequent to December 31,
------------------------
1998, neither of the Companies has (i) except for the distribution to the
Shareholder of KEI's undistributed net profit for periods prior to the Closing
Date and except for the Transfer of the Building, declared or paid any dividend
(whether in cash, in property or otherwise) or made any other distribution of
any kind in respect of its capital stock, and neither of the Companies has any
obligation (contingent or otherwise) to pay any dividends or make any other
distribution of any kind, or (ii) purchased, redeemed or otherwise acquired or
disposed of or issued any shares of capital stock or any notes, bonds or other
securities of any kind and has no obligation (contingent or otherwise) to do any
of the foregoing. Each of the Companies has paid on a timely basis in all
material respects (i) all amounts due and payable under Company Indebtedness,
leases and other contractual obligations and (ii) all other amounts due and
payable to any persons or entities. Neither of the Companies has any
outstanding loans or advances to the Shareholder, either of the Kapadias or to
any Affiliate of the Shareholder or of either of the Kapadias.
(b) The Disclosure Schedule accurately and completely sets forth all
of the Company Indebtedness. There is no issued or outstanding Funded
Indebtedness on the Closing Date.
3.09 Real Property Owned or Leased . (a) A list and description of
-----------------------------
all real property leased to or owned by either of the Companies or in which
either of the Companies has any interest is set forth in the Disclosure Schedule
(the "Real Property"). All such leased Real
12
Property is held subject to written leases or other agreements which are valid
and effective in accordance with their respective terms, and there are no
existing defaults or events of default which could have a Material Adverse
Effect, or events which with notice or lapse of time or both would constitute
defaults which could have a Material Adverse Effect, thereunder on the part of
either of the Companies. True and complete copies of all such leases, together
with any amendments thereto, have been delivered to the Purchaser. Neither of
the Companies nor the Shareholder has any knowledge of any default or claimed or
purported or alleged default which could have a Material Adverse Effect or state
of facts which with notice or lapse of time or both would constitute a default
which could have a Material Adverse Effect on the part of any other party in the
performance of any obligation to be performed or paid by such other party under
any lease referred to on the Disclosure Schedule. Neither of the Companies nor
the Shareholder has received any written or oral notice to the effect that any
lease will not be renewed at the termination of the term thereof or that any
such lease will be renewed only at a substantially higher rent.
(b) (i) Neither of the Companies nor the Shareholder has received
any written notice of, nor are any of them aware of, any violation of any laws,
rules, regulations or ordinances relating to the Real Property or requesting or
requiring the performance of any repairs, alterations or other work in order so
to comply.
(ii) Neither of the Companies nor the Shareholder has received
any written notice of, and neither of them is aware of, any currently proposed
or pending assessment for public improvements or of any condemnation, taking by
eminent domain or similar proceedings with respect to any portion of the Real
Property.
(iii) The buildings and other improvements constituting a part
of the Real Property have no material structural, roof or other defects and such
buildings and improvements (including, without limitation, all plumbing,
heating, electrical, air conditioning, ventilation and other mechanical systems
and equipment) are in good working order, condition and repair, normal wear and
tear excepted.
(iv) The Real Property (and uses to which it is put) conforms
in all material respects with all applicable laws, rules, ordinances,
regulations and all applicable agreements to which either of the Companies is a
party or by which the Real Property is subject to or bound, including, without
limitation, those relating to zoning, environmental, health and safety standards
and the rules and regulations relating thereto.
3.10 Title to Assets; Condition of Property . (a) Each of the
--------------------------------------
Companies has good, valid and marketable title to all of its respective
properties and assets, real, personal and mixed, tangible and intangible,
including, without limitation, the properties and assets reflected in the
Balance Sheet (except for assets leased under leases set forth on the Disclosure
Schedule, and except for accounts receivable collected upon and Inventory or
other assets disposed of since the Balance Sheet Date in the ordinary course of
business, consistent with past practice), free and clear of all Liens except for
the Liens listed on the Disclosure Schedule (i) securing certain equipment used
by the Companies and described thereon (the "Permitted Equipment Liens") (ii)
Permitted Encumbrances (collectively together with Permitted Equipment Liens,
"Permitted Liens"), and (iii) arising under Funded Indebtedness listed on the
Disclosure Schedule.
13
(b) All of the assets and properties (including, without limitation,
all equipment and the improvements, fixtures and appurtenances on or to the Real
Property) owned or leased by either of the Companies pursuant to written leases
set forth on the Disclosure Schedule are in good operating condition and repair,
normal wear and tear excepted, and have been maintained and serviced in
accordance with reasonable business practices, are suitable for the purposes for
which they presently are being used and constitute all of the assets and
properties used in the operations of, and necessary to operate, the Business as
presently conducted. None of the assets or properties owned or leased by either
of the Companies (or uses to which they are put) fails to conform in any
material respect with any applicable agreement, law, ordinance or regulation.
Except with respect to assets leased pursuant to valid leases set forth on the
Disclosure Schedule, each of the Companies owns all the properties and assets
located at or on the Real Property and owns all of the properties and assets
necessary for the conduct of the Business.
3.11 Taxes . (a) Each of the Companies has filed or caused to be
-----
filed on a timely basis all federal, state, province, local, foreign and other
tax returns, reports and declarations (collectively, as amended, the "Tax
Returns") required to be filed by such Company and has paid all taxes,
including, but not limited to, income, gross receipts, capital stock, profits,
stamp, occupation, transfer, value added, excise, franchise, sales, use,
property (whether real, personal or mixed), employment, unemployment,
disability, withholding, social security and workers' compensation taxes and
estimated income and franchise tax payments, and interest, penalties, fines,
costs and assessments (collectively, "Taxes"), due and payable with respect to
the periods covered by such Tax Returns. All Tax Returns filed by or on behalf
of either of the Companies are true, complete and correct. There are no Tax
Liens on any of the properties or assets, real, personal or mixed, tangible or
intangible, of either of the Companies. No deficiency in Taxes of either of the
Companies or for any period has been asserted by any taxing authority which
remains unpaid at the date hereof. No Tax Returns of either of the Companies
covering any period after December 31, 1988 have been audited or are presently
the subject of an audit. No written inquiries or notices have been received by
either of the Companies from a taxing authority with respect to possible claims
for Taxes which have not been resolved prior to the date hereof, and neither of
the Companies has any reason to believe that such an inquiry or notice is
pending or threatened, and there is no basis for any additional claims or
assessments for Taxes. Neither of the Companies has agreed to the extension of
the statute of limitations with respect to any Tax Returns or Tax periods.
There are no assessments relating to either of the Companies' Tax Returns
pending or threatened. Each of the Companies has delivered to the Purchaser
copies of the federal and state income (or franchise) Tax Returns filed by each
of the Companies for the past three years. KEI has elected, pursuant to Section
1362 of the Code, to be treated as an S corporation, as that term is defined in
Section 1361 of the Code, for federal and any applicable state tax purposes,
which election is valid and in full force and effect. The Shareholder is a
qualifying trust under Section 1361(c)(2) of the Code. Neither of the Companies
is nor has ever been, the common parent or a member of any affiliated group of
corporations filing a consolidated federal income tax return, and is not a party
to any tax sharing agreement or other arrangement pursuant to which it could be
liable for the Taxes of any third party.
(b) The accrual for Taxes reflected in the Financial Statements
accurately reflects the total amount of all unpaid Taxes, whether or not
disputed and whether or not presently due and payable, of each of the Companies
as of the close of the period covered by the
14
Financial Statements. Adequate accruals and reserves have been made in the
Financial Statements and the books and records of each of the Companies for the
payment of all unpaid federal, state, local and other Taxes of each of the
Companies for all periods through the respective dates thereof, through the
Closing Date, whether or not yet due and payable and whether or not disputed by
either of the Companies, and nothing has occurred subsequent to the dates of
such Financial Statements or such accruals or reserves in such books and records
which make such accruals and reserves inadequate.
3.12 Compliance with Applicable Law; Permits; Authorizations .
-------------------------------------------------------
(a) General. Neither of the Companies is in default under, nor has
-------
either of the Companies failed to comply with or is otherwise in violation of,
any law, statute, ordinance, regulation or any order, judgment or decree of any
court or other Governmental Authority, and the Real Property is in compliance
with all laws, statutes, ordinances, regulations, orders, judgments and decrees
of any Governmental Authority except where such default or failure to comply
(individually or in the aggregate) could not have a Material Adverse Effect.
Neither of the Companies nor the Shareholder has any knowledge of any basis for
assertion of any violation of the foregoing or for any claim for compensation or
damages or otherwise arising out of any violation of the foregoing. Neither of
the Companies nor the Shareholder has received any notification of any asserted
present or, since December 31, 1992, past failure to comply with any of the
foregoing which has not been satisfactorily responded to in the time period
required thereunder.
(b) Permits. Set forth in the Disclosure Schedule, is a complete and
-------
accurate list of all permits, licenses, approvals, franchises, notices and
authorizations issued by any Governmental Authority (collectively the "Permits")
and held by either of the Companies. The Permits are all the permits, licenses,
approvals, franchises, notices and authorizations required for the conduct of
the Business. All the Permits are in full force and effect and neither of the
Companies has engaged in any activity which would cause or permit revocation or
suspension of any such Permit, and no action or proceeding looking to or
contemplating the revocation or suspension of any such Permit is pending or
threatened. There are no existing defaults or events of default or events or
states of fact which with notice or lapse of time or both would constitute a
default by either of the Companies.
(c) Environmental. (i) Each of the Companies and the Shareholder,
-------------
has duly complied with, and the Business is conducted and has been conducted in
compliance with, all Environmental Laws, except where the failure to comply
(individually or in the aggregate) could not have a Material Adverse Effect.
(ii) Each of the Companies has been issued all required federal, state
and local permits, licenses, certificates and approvals relating to (A) air
emissions, (B) discharges to surface water or ground water, (C) noise emissions,
(D) solid or liquid waste disposal, (E) the use, generation, storage,
transportation or disposal of toxic or hazardous substances or wastes (intended
hereby and hereafter to include any and all such materials listed in any
applicable federal, state or local law, code or ordinance and all rules and
regulations promulgated thereunder, as hazardous or potentially hazardous
(including, without limitation, (1) any chemical, compound, material or
substance that is defined, listed in, or otherwise classified
15
pursuant to, any of the Environmental Laws as a "hazardous substance,"
"hazardous material," "hazardous waste," "toxic substance" or "toxic pollutant,"
(2) petroleum, natural gas, natural gas liquids, liquefied natural gas,
synthetic gas usable for fuel and drilling fluids, produced waters, and other
wastes associated with the exploration, development or production of crude oil,
natural gas or geothermal resources and (3) any "medical waste" as defined in
any of the Environmental Laws or the disposition of which is regulated by any
law, ordinance or regulation) or (F) other environmental matters (collectively,
"Hazardous Substances").
(iii) Neither of the Companies nor the Shareholder has received
notice of, nor does either of the Companies nor the Shareholder know of any
facts which might give rise to, any Environmental Claim made or threatened
against or affecting either of the Companies.
(iv) Neither of the Companies has generated, treated, transported,
stored, recycled, discharged, emitted, disposed of or released any Hazardous
Substances, arranged for the generation, treatment, transport, storage,
recycling, discharge, emission, disposal or release of any Hazardous Substances,
which might give rise to any liability or corrective or remedial obligation
under any Environmental Laws, in each case, with respect to the Real Property or
any other real property.
(v) To the knowledge of each of the Companies or the Shareholder,
no polychlorinated biphenyls, radioactive material, urea formaldehyde, lead,
asbestos, asbestos-containing material or underground storage tank (active or
abandoned) is or has been present at the Real Property.
(vi) None of the Real Property, nor any property to which either of
the Companies has, directly or indirectly, transported or arranged for the
transportation of any Hazardous Substances, is listed on the National Priorities
List promulgated pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), on CERCLIS (as
referred to in CERCLA) or on any similar federal, state or foreign list of sites
requiring investigation or clean-up.
3.13 Contractual and Other Obligations; Customers and Suppliers .
----------------------------------------------------------
(a) Set forth in the Disclosure Schedule hereto is a complete and accurate list
of each contract, agreement, license, lease, guarantee or commitment (or other
agreement relating to contingent obligations of either of the Companies)
(written or oral), by which either of the Companies or any of the assets or
properties of either of the Companies is bound (x) with respect to which the
outstanding obligation of any party thereto is in excess of $25,000, with
respect to which either of the Companies leases any real or personal property
used in the conduct of the Business, or which is material to any of the assets
or properties of either of the Companies or the Business, (y) with customers of
either of the Companies (other than open purchase orders calling for current
delivery and obtained in the ordinary course of Business) and involving in
excess of $25,000, and (z) in respect of obligations and liabilities of either
of the Companies pursuant to uncompleted orders for the purchase by either of
the Companies of materials, supplies, equipment or services for the requirements
of the Business with respect to which the remaining obligation of either of the
Companies arising under any such uncompleted order is in excess of $25,000; all
of the foregoing described under clauses (x), (y) and (z) above, together with
all other contracts, agreements, purchase orders, insurance policies, plans,
contingent obligations, or
16
other instruments or documents to which either of the Companies or any of their
respective assets or properties is subject or bound, being herein collectively
referred to as the "Contracts" and singularly referred to as a "Contract."
(b) Neither of the Companies is in default under any Contract and no
claim of such a default has been made and no event has occurred which with the
giving of notice or the lapse of time or both would constitute such default
under any Contract, except where such default (individually or in the aggregate)
could not have a Material Adverse Effect. To the knowledge of each of the
Companies and the Shareholder, no other party to any Contract is in default
thereunder. Each of the Contracts has been entered into in the ordinary course
of business and is at arms' length. Each of the Companies has delivered to the
Purchaser true and complete copies of each written, and true and complete
written descriptions of each oral, Contract to which it is a party. Each of the
Contracts is in full force and effect and is a legal, valid and binding
obligation of each party thereto.
(c) There exists no actual or, to the knowledge of either of the
Companies or the Shareholder, threatened (or facts which might reasonably be
anticipated to result in a) termination, cancellation or limitation of, or any
material modification or change in, the business relationships of either of the
Companies with any of the ten largest customers of either of the Companies in
the conduct of the Business (measured by dollar volume of net sales) during the
12-month period ended December 31, 1998 or with any of the ten largest suppliers
of either of the Companies in the conduct of the Business (measured by dollar
volume of expenditures by each of the Companies, respectively) during the 12-
month period ended December 31, 1998. There exists no condition or state of
facts or circumstances known to either of the Companies or the Shareholder
involving customers or suppliers of or to either of the Companies which could
materially affect the Business after the consummation of the transactions
contemplated by this Agreement.
3.14 Compensation . Set forth in the Disclosure Schedule, with
------------
respect to each of the Companies, is a complete and accurate list of (a) all
agreements, plans, arrangements or commitments with employees, shareholders,
consultants, independent contractors, sales representatives, agents or any
family members of any employee, shareholder, consultant or agent, with regard to
compensation, benefits or perquisites and (b) all full-time and part-time
employees and their respective positions, job categories and salaries. All
bonuses heretofore granted to employees have been paid in full to such
employees. Neither the execution of this Agreement nor the transactions
contemplated by this Agreement will result in any liability for severance pay or
similar payment requirements to any employee, sales representative, independent
contractor, consultant, distributor agent or Affiliate of either of the
Companies.
3.15 Employee Benefit Plans . Except as set forth in the Disclosure
----------------------
Schedule, neither of the Companies maintains or sponsors, or contributes to, any
pension, profit-sharing, savings, bonus, incentive or deferred compensation,
severance pay, medical, life insurance, welfare or other employee benefit plan.
All pension, profit-sharing, savings, bonus, incentive or deferred compensation,
severance pay, medical, life insurance, welfare or other employee benefit plans
within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended (hereinafter referred to as "ERISA"), in which the
employees participate (such plans and related trusts, insurance and annuity
contracts, funding media and related agreements
17
and arrangements being hereinafter referred to as the "Benefit Plans") comply
with all requirements of the Department of Labor and the Internal Revenue
Service, and with all other applicable law, and neither of the Companies has
taken or failed to take any action with respect to the Benefit Plans which might
create any liability on the part of either of the Companies or the Purchaser.
Each "fiduciary" (within the meaning of Section 3(21)(A) of ERISA) as to each
Benefit Plan has complied with all requirements of ERISA and all other
applicable laws in respect of each such Benefit Plan. Each of the Companies has
furnished to the Purchaser copies of all Benefit Plans and all financial
statements, actuarial reports and annual reports and returns filed with the
Internal Revenue Service with respect to such Benefit Plans for the three plan
years prior to the date hereof, and will furnish the Purchaser with copies of
any of the foregoing so filed after the date hereof. Such financial statements
and actuarial reports and annual reports and returns are and shall be true,
correct and complete and none of the actuarial assumptions underlying such
documents have changed since the respective dates thereof. In addition:
(i) Neither of the Companies maintains, sponsors or contributes
to, nor has ever withdrawn from, maintained, sponsored or contributed
to a "defined benefit plan" (within the meaning of Section 3(35) of
ERISA) or a "multiemployer plan" (within the meaning of Section 3(37)
of ERISA);
(ii) Each Benefit Plan intended to be qualified under Section
401(a) of the Code has received a favorable determination letter from
the Internal Revenue Service as to its qualification under Section
401(a) of the Code;
(iii) No "prohibited transaction" (within the meaning of Section
406 of ERISA or Section 4975(c) of the Code) has occurred with respect
to any Benefit Plan;
(iv) No provision of any Benefit Plan or of any agreement, and
no act or omission of either of the Companies in any way limits,
impairs, modifies or otherwise affects the right of either of the
Companies or the Purchaser unilaterally to amend or terminate any
Benefit Plan after the Closing, subject to the requirements of
applicable law;
(v) No policy, plan, program, arrangement, understanding or
agreement exists which could result in the payment by either of the
Companies or the Purchaser of money or any other property or rights or
accelerate or provide any other rights or benefits, to any employee of
either of the Companies that would not have been required but for the
consummation of the transactions contemplated herein;
(vi) There are no contributions which are or hereafter will be
required to be made to trusts in connection with any Benefit Plan that
would constitute a "defined contribution plan" (within the meaning of
Section 3(34) of ERISA);
(vii) Other than claims in the ordinary course for benefits with
respect to the Benefit Plans, there are no actions, suits or claims
(including claims for income taxes, interest, penalties, fines or
excise taxes with respect thereto)
18
pending with respect to any Benefit Plan, or to the knowledge of
either of the Companies or the Shareholder, any circumstances
(including without limitation arising out of the operation or
termination of any Benefit Plan) which might give rise to any such
action, suit or claim (including claims for income taxes, interest,
penalties, fines or excise taxes with respect thereto);
(viii) All reports, returns and similar documents with respect
to the Benefit Plans required to be filed with any Governmental
Authority have been so filed on or before their due date, including
extensions of each due date, or, if not currently due, will be filed
when due;
(ix) Neither of the Companies has any obligation to provide
health or other welfare benefits to former, retired or terminated
employees, except as specifically required under Section 4980B of the
Code or Section 601 of ERISA. Each of the Companies has complied with
the notice and continuation requirements of Section 4980B of the Code
and Section 601 of ERISA and the regulations thereunder; and
(x) Neither of the Companies is a party to any agreement,
contract or arrangement that would result, separately or in the
aggregate, in any payment (whether or not in connection with any
termination of employment or otherwise) of any "excess parachute
payment" within the meaning of Section 280G of the Code.
3.16 Labor Relations. There have been no violations of any
---------------
applicable Federal, state, province or local statutes, laws, ordinances, rules,
regulations, orders or directives with respect to the employment of individuals
by, or the employment practices or work conditions of, either of the Companies,
or the terms and conditions of employment, wages and hours. Neither of the
Companies is engaged in any unfair labor practice or other unlawful employment
practice and there are no charges of unfair labor practices or other employee-
related complaints pending or threatened against each of the Companies before
the National Labor Relations Board, the Equal Employment Opportunity Commission,
the Occupational Safety and Health Review Commission, the Department of Labor or
their Canadian equivalent (including, without limitation, pursuant to the
Ontario Human Rights Code, the Occupational Health and Safety Act, the Workplace
Safety and Insurance Act (Ontario), the Employment Standards Act or the Pay
Equity Act, in each case of the Province of Ontario), if applicable, or any
other Governmental Authority. There is no strike, picketing, slowdown or work
stoppage or organizational attempt pending, threatened against or involving
either of the Companies or the Business. No issue with respect to union
representation is pending or threatened with respect to the employees of either
of the Companies. No union or collective bargaining unit or other labor
organization has ever been certified or recognized by either of the Companies as
the representative of any of the employees of either of the Companies. Each of
the Companies has complied with the Workers Adjustment and Retraining
Notification Act and its Canadian equivalent, if applicable.
3.17 Insurance . Each of the Companies maintains insurance policies
---------
covering all of the assets and properties of each of the Companies (including,
without limitation, all of the Real Property) and the various occurrences which
may arise in connection with the operation of
19
the Business. Such policies are in full force and effect, all premiums due
thereon have been paid in full and each of the Companies has complied in all
material respects with the provisions of such policies. A complete and accurate
list of all insurance policies of each of the Companies is set forth on the
Disclosure Schedule. There are no notices of any pending or threatened
termination or premium increases with respect to any of such policies. Since
December 31, 1993, neither of the Companies has had any casualty loss or other
occurrence which may give rise to any claim of any kind not covered by insurance
and neither of the Companies nor the Shareholder is aware of any occurrence
which may give rise to any claim of any kind not covered by insurance. No third
party has filed any claim against either of the Companies for personal injury,
property damage or other occurrence of a kind for which liability insurance is
generally available which is not fully insured, subject to applicable
deductibles. All claims against either of the Companies covered by insurance
since December 31, 1993 have been reported to the insurance carrier on a timely
basis and are listed on the Disclosure Schedule.
3.18 Conduct of Business; Allowances . Neither of the Companies is
-------------------------------
restricted from conducting the Business in any manner or location by agreement
or court decree. Neither of the Companies has any obligation outside of the
ordinary course of business to make allowances to any customers. The Business
is conducted entirely through each of the Companies (and not through any other
subsidiary, Affiliate, partner or any other person or entity), and each of the
Companies conducts no other business other than the Business.
3.19 Patents, Trademarks, Etc . Set forth on the Disclosure
------------------------
Schedule is a list and brief description of each of the Companies' patents,
registered and common law trademarks, service marks, trade names, copyrights and
other similar rights and applications for and all contracts, agreements,
licenses or other rights with respect to each of the foregoing. Each of the
Companies owns all unencumbered right, title and interest in and to all such
respective proprietary rights. The proprietary rights listed on the Disclosure
Schedule are all such rights necessary to the conduct of the Business as
currently conducted; no adverse claims have been made and no dispute has arisen
with respect to any of said proprietary rights; the operation of each of the
Companies and the use by each of the Companies of its respective proprietary
rights do not involve infringement of any patent, trademark, service xxxx, trade
name, copyright, agreement, license or similar right; and neither of the
Companies nor the Shareholder has received any notice or has any knowledge of
any claimed conflict with respect to any of the foregoing, nor is either of the
Companies or the Shareholder aware of any claim or assertion that any of the
foregoing proprietary rights are invalid or defective in any way or aware of any
facts or prior act upon which such a claim or assertion could be based. Neither
the execution of this Agreement nor the consummation of the transactions
contemplated by this Agreement will in any way affect the continuation, validity
or effectiveness of any such proprietary rights or any contract, agreement,
license or other right referred to on the Disclosure Schedule or require the
consent, waiver, approval, authorization of, notice to, or designation,
registration, declaration or filing with, any party or third party in respect of
any such proprietary rights, contract, agreement, license or other right.
3.20 Power of Attorney; Bank Accounts . Neither of the Companies
--------------------------------
has granted any power of attorney (revocable or irrevocable) to any person, firm
or corporation for any purpose whatsoever. Set forth on the Disclosure Schedule
is a complete and accurate list of (i) the name of each institution in which
either of the Companies has a bank account, securities
20
account, safe-deposit box, lockbox account or any other account, the title and
number of such accounts and the names of all persons authorized to draw thereon
or have access thereto and (ii) all marketable securities and all other notes or
other obligations evidenced by written instruments and attributable to, or
utilized in, any aspect of the Business and reflected in the Financial
Statements or thereafter acquired by either of the Companies.
3.21 No Foreign Person . Neither the Shareholder nor either of the
-----------------
Kapadias is a foreign person within the meaning of Section 1445(b)(2) of the
Code.
3.22 Books and Records . The books and records of each of the
-----------------
Companies are complete and correct in all material respects, have been
maintained in accordance with GAAP consistently applied and in accordance with
good business practices and accurately reflect the basis for the financial
position and results of operations of each of the Companies set forth in the
Financial Statements. True and complete copies of all of such books and records
have been made available for inspection by the Purchaser and its
representatives.
3.23 Litigation; Disputes . There are no claims, disputes, actions,
--------------------
suits, investigations or proceedings pending or, to the knowledge of either of
the Companies or the Shareholder, threatened against or affecting either of the
Companies, the Business, any of the Real Property or any of the other properties
or assets of either of the Companies, or in respect of any Environmental Claim.
None of the matters set forth on the Disclosure Schedule could (individually or
in the aggregate), if adversely determined against either of the Companies, have
a Material Adverse Effect. To the knowledge of either of the Companies and the
Shareholder, there is no reasonable basis for any such claim, dispute, action,
suit, investigation or proceeding. Neither of the Companies is in default in
respect of any judgment, order, writ, injunction or decree of any Governmental
Authority.
3.24 Insider Interests; Intercompany Transactions . No present or
--------------------------------------------
former stockholder, partner, principal, officer, director, employee or Affiliate
of either of the Companies or any immediate or other family member of any such
person or any person, corporation, partnership, trust or other entity in which
any such person is an officer, director, principal, partner or stockholder (a)
is presently a party to any transaction or arrangement with either of the
Companies, (b) owns any interest in any of the assets or properties of either of
the Companies, (c) owns any interest in, controls or is an employee, officer,
director or agent of, or consultant to any other entity which is a competitor,
supplier, customer, vendor, landlord or tenant of either of the Companies or (d)
is indebted or liable to, owns any interest in, or owns, holds or has guaranteed
any obligation or debt of either of the Companies.
3.25 Year 2000 Compliance . Each of the Companies has conducted a
--------------------
review and assessment of its computer hardware and software and has implemented
a program to analyze and address the risk that its respective computer hardware
and software may be unable to recognize and properly execute data-sensitive
functions involving certain dates prior to and any dates after December 31, 1999
(the "Year 2000 Problem"); and each of the Companies' computer hardware and
software are and will be able to process all date information prior to and after
December 31, 1999, without any errors, aborts, delays or other interruptions in
operations associated with the Year 2000 Problem.
21
3.26 Disclosure . No representation or warranty made under this
----------
Agreement (including the Exhibits and the Disclosure Schedule) or any
certificate or other document delivered by either of the Companies or the
Shareholder or any representative thereof pursuant hereto, and none of the
information furnished by either of the Companies or the Shareholder set forth
herein, including the Exhibits or Schedules hereto, or in any document delivered
by either of the Companies, the Shareholder or any representative thereof to the
Purchaser or any representative of the Purchaser, contains any untrue statement
of a material fact or omits to state a material fact necessary to make the
statements herein or therein not misleading.
3.27 Use of Names. To the knowledge of each of the Companies and
------------
the Shareholder, there are no other persons or businesses having the right to
use or using the name "NASCO Supply" or any variants thereof or any other
tradename, trademark or service xxxx under which either of the Companies
currently conducts the Business and no person or business has ever attempted to
restrain either of the Companies from using such name or any variants thereof.
3.28 Accounts Payable; Indebtedness, Etc. Since December 31, 1998,
-----------------------------------
the accounts and notes payable and accrued expenses of each of the Companies
have been paid when due and otherwise in the ordinary course of business and in
a manner consistent with past practice.
3.29 Location of Business and Assets. Set forth on the Disclosure
-------------------------------
Schedule is each location (specifying state, county and city) where each of the
Companies (a) has a place of business, (b) owns or leases real property or (c)
owns, leases or stores any other property, including inventory, equipment and
furniture.
SECTION IV.
----------
REPRESENTATIONS, WARRANTIES
OF THE SHAREHOLDER AND THE KAPADIAS
------------------------------------
Except as set forth on the Disclosure Schedule attached hereto and
made a part hereof, each of the Kapadias and the Shareholder, jointly and
severally, hereby represent and warrant to each of the Purchaser and the Issuer,
as of the date hereof that:
4.01 Authority. Each of the Kapadias and the Shareholder has all
---------
necessary power, authority and legal right to execute and deliver this Agreement
and each other instrument or document required to be executed and delivered by
either of the Kapadias or the Shareholder pursuant hereto and to perform their
respective covenants and agreements hereunder and thereunder, and this Agreement
and each other instrument or document required to be executed and delivered by
either of the Kapadias or the Shareholder pursuant hereto constitutes a valid
and legally binding obligation of either of the Kapadias or the Shareholder,
enforceable against either of the Kapadias or the Shareholder in accordance with
its terms.
4.02 Ownership of Shares. The Shareholder owns all of the Shares,
-------------------
which Shares represent all of the issued and outstanding shares of capital stock
of each of the Companies, free and clear of all Liens (including without
limitation any restriction on the right to vote, sell or
22
otherwise dispose of the Shares), and the Shareholder has the unrestricted right
to transfer the Shares to the Purchaser and, upon transfer of such Shares to the
Purchaser hereunder, the Purchaser will acquire good, valid and marketable title
to such Shares, free and clear of all Liens.
4.03 No Legal Bar; Conflicts . Neither the execution and delivery
-----------------------
of this Agreement or any other instrument or document required to be executed
and delivered by either of the Kapadias or the Shareholder pursuant hereto, nor
the consummation of the transactions contemplated hereby or thereby, violates
any statute, ordinance, regulation, order, judgment or decree of any court or
other Governmental Authority or other Permit, or conflicts with or will result
in any breach or modification of any of the terms of or constitute a default
under or result in the termination of or the creation of any Lien, acceleration
right or other right pursuant to the terms of or will in any way affect the
continuation, validity or effectiveness of any contract or agreement to which
either of the Kapadias or the Shareholder is a party or by which either of the
Kapadias or the Shareholder or any of their respective assets or properties is
bound or any Permit. No consents, approvals or authorizations of, or filings
with, any Governmental Authority or any other person or entity are required in
connection with the execution and delivery of this Agreement or any other
instrument or document required to be executed and delivered by either of the
Kapadias or the Shareholder pursuant hereto, or the consummation of the
transactions contemplated hereby or thereby.
4.04 Investment.
----------
(a) Each of the Shareholder and the Kapadias has had access to the
Issuer's Annual Report on Form 10-K for the fiscal year ended September 30, 1998
and the Issuer's 1999 Proxy Statement (collectively, the "SEC Documents") and
such other information relating to the business and affairs of the Issuer which
the either of the Kapadias or the Shareholder has reasonably requested, and all
additional information which either of the Kapadias or the Shareholder has
considered necessary to verify the accuracy of the information so received.
Such person has had the opportunity to ask questions of and receive answers from
the Issuer concerning the business and condition (financial and other) of the
Issuer and concerning the terms and conditions of the transactions contemplated
by this Agreement.
(b) Each of the Shareholder and the Kapadias understands and agrees
that the Issuer shall issue and deliver to the Shareholder the Purchase Price
Common Stock to be delivered pursuant to this Agreement in one or more
transactions exempt from the registration requirements of the Securities Act;
that for such purpose the Purchaser and the Issuer will rely upon the
representations and warranties contained in this Section 4.04; and that such
exception from registration may not be available unless such representations and
warranties are correct. The Shareholder is an "accredited investor" as such
term is defined in Rule 501 under the Securities Act.
(c) Each of the Shareholder and the Kapadias understands and agrees
that, under existing rules of the Commission, a holder of the Purchase Price
Common Stock may be unable to sell its shares of Common Stock, except to the
extent that its shares of Common Stock may be sold (i) pursuant to an effective
registration statement covering such shares pursuant to the Securities Act, (ii)
in transactions exempt from the registration requirements of the Securities
23
Act or (iii) subject to the restrictions contained in Rule 144 under the
Securities Act ("Rule 144").
(d) Each of the Shareholder and the Kapadias is familiar with the
provisions of Rule 144 under the Securities Act and the limitations upon the
availability and applicability of such rule.
(e) Each of the Shareholder and the Kapadias is a sophisticated
investor familiar with the type of risks inherent in the acquisition of
restricted securities such as shares of Common Stock and each of the Kapadias'
and the Shareholder's financial position is such that each of the Kapadias and
the Shareholder can afford to retain any such shares of Common Stock for an
indefinite period of time without realizing any direct or indirect cash return
on the investment.
(f) The Shareholder intends to acquire the shares of Common Stock
payable pursuant to 2.01 hereof or issuable upon conversion of the Note for the
Shareholder's own account and not with a view to, or for sale in connection
with, the distribution thereof within the meaning of the Securities Act.
SECTION V.
---------
REPRESENTATIONS, WARRANTIES
OF THE PURCHASER AND THE ISSUER
-------------------------------
The Purchaser and the Issuer, jointly and severally, hereby represent
and warrant to each of the Companies and the Shareholder, as of the date hereof
that:
5.01 Organization. The Purchaser is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of Delaware
and has full corporate power and authority to purchase the Shares. The Issuer
is a corporation duly organized, validly existing and in good standing under the
laws of the State of New Jersey and has full corporate power and authority to
issue the Purchase Price Common Stock.
5.02 Authority. The execution and delivery of this Agreement by
---------
the Purchaser and the Issuer, the performance by each of the Purchaser and the
Issuer of its respective covenants and agreements hereunder and the consummation
by the Purchaser and the Issuer of the transactions contemplated hereby have
been duly authorized by all necessary corporate action, and this Agreement
constitutes a valid and legally binding obligation of each of the Purchaser and
the Issuer, enforceable against each of the Purchaser and the Issuer in
accordance with its terms.
5.03 No Legal Bar; Conflicts. Neither the execution and delivery
-----------------------
of this Agreement by the Purchaser or the Issuer, nor the consummation of the
transactions contemplated hereby by the Purchaser or the Issuer, violates or
will violate any provision of the certificate of incorporation or by-laws of the
Purchaser or the Issuer, respectively, or any statute, ordinance, regulation,
order, judgment or decree of any court or other Governmental Authority, or
conflicts with or will conflict with or results in or will result in any breach
or modification of any of the terms of or constitutes or will constitute a
default under or results in or will result in
24
the termination of or the creation of any Lien pursuant to the terms of or will
in any way affect the continuation, validity or effectiveness of any contract or
agreement to which either of the Purchaser or the Issuer is a party or by which
either of the Purchaser or the Issuer or any of their respective assets is
bound.
5.04 SEC Documents. Each of the SEC Documents did not, at the time
-------------
each such document was filed with the Commission, and does not as of the date
hereof, contain any untrue statement of material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
SECTION VI.
----------
COVENANTS OF THE SHAREHOLDER,
THE COMPANIES, THE KAPADIAS, THE PURCHASER AND THE ISSUER
---------------------------------------------------------
6.01 Publicity. Prior to the Closing and except as otherwise
---------
required by applicable law, each of the Companies, each of the Kapadias, and the
Shareholder, on the one hand, and the Purchaser and the Issuer, on the other
hand, covenant and agree that any and all publicity (whether written or oral)
and notices to third parties concerning the sale of the Shares and other
transactions contemplated by this Agreement shall be subject to the prior
written approval of the other parties, which approval shall not be unreasonably
withheld or delayed.
6.02 Encumbrances. The Shareholder covenants and agrees to cause,
------------
on or prior to the Closing, any and all mortgages, security interests, pledges
or similar encumbrances of any kind whatsoever which affect the assets or
properties of either of the Companies or the Business (other than leases, but
including without limitation those which affect the Real Property, but excluding
Permitted Liens) to be released, discharged and terminated in full to the
Purchaser's satisfaction; provided, however that the Purchaser and the Issuer
shall have satisfied their obligations under Section 1.02 hereof.
6.03 Confidential Information. Each of the Kapadias and the
------------------------
Shareholder acknowledges that after the Closing the Purchaser and each of the
Companies could be irreparably damaged if either of the Kapadias' or the
Shareholder's confidential knowledge of each of the Companies or the Business
were disclosed to or utilized on behalf of any person, firm, corporation or
other business entity other than the Purchaser or its Affiliates, and each of
the Kapadias and the Shareholder covenants and agrees that no such person will,
following the Closing Date, other than in the furtherance of the business of the
Purchaser and the Companies, without the prior written consent of the Purchaser,
disclose (or permit to be disclosed) or use in any way any such confidential
information, unless (i) compelled to disclose such confidential information by
judicial or administrative process or, in the opinion of its counsel, by other
requirements of law, (ii) such confidential information is available to the
public through no fault of such Shareholder or (iii) such confidential
information becomes available to such person from a third party who is under no
confidential or fiduciary obligation to the Purchaser or either of the Companies
with respect to such confidential information.
6.04 Brokers and Finders. (a) Neither the Purchaser nor the
-------------------
Issuer shall have any obligation to pay any brokerage, finders of similar fees
or other similar compensation to any
25
person, firm, corporation or other entity dealt with by either of the Kapadias,
the Shareholder or either of the Companies in connection with this Agreement and
the transactions contemplated hereby, the fees, expenses and other amounts owing
in connection therewith will be the sole responsibility of the Kapadias and the
Shareholder, and the Kapadias and the Shareholder hereby agree to indemnify and
save the Purchaser Indemnified Parties and each of the Companies harmless from
any and all Damages arising from any claim for any such fee or other
compensation.
(b) The Kapadias and the Shareholder shall not have any obligation to
pay any brokerage, finders or similar fees or other compensation to any person,
firm, corporation or other entity dealt with by the Purchaser or the Issuer in
connection with this Agreement and the transactions contemplated hereby, and
each of the Purchaser and the Issuer hereby agrees to indemnify and save the
Kapadias and the Shareholder harmless from any and all Damages arising from any
claim for any such fee or other compensation.
6.05 Cash Management. The Kapadias and the Shareholder shall cause
---------------
the checking and all other bank accounts of each of the Companies to maintain on
deposit sufficient amounts following the Closing Date to pay in full all checks
and drafts of each of the Companies drawn on or prior to the Closing Date.
6.06 Acquisition Proposals. (a) Each of the Companies, the
---------------------
Kapadias and the Shareholder covenant and agree that, from and after the date of
this Agreement and until the earlier to occur of the termination of the
Agreement or the Closing, none of them shall directly or indirectly (i) take any
action to solicit, initiate or encourage any Company Acquisition Proposal or
(ii) engage in negotiations with, or disclose any nonpublic information relating
to either of the Companies or the Business or afford access to the properties,
books or records of either of the Companies or the Business to any person or
entity that may be considering making, or has made, a Company Acquisition
Proposal. Each of the Companies, the Kapadias or the Shareholder, as the case
may be, shall promptly notify the Purchaser after receipt of a Company
Acquisition Proposal or any indication that any person or entity is considering
making a Company Acquisition Proposal or any request for nonpublic information
relating to either of the Companies or the Business or for access to the
properties, books or records of either of the Companies or the Business by any
person or entity that may be considering making, or has made, a Company
Acquisition Proposal.
(b) The Issuer and the Purchaser covenant and agree that, from and
after the date of this Agreement and until the earlier to occur of the
termination of this Agreement or the Closing, neither they nor any subsidiary or
representative of either will, directly or indirectly, initiate any proposal or
make any offer, or enter into any agreement or understanding (written or oral),
concerning the purchase (whether by merger, purchase of capital stock or
purchase of businesses and/or assets) by either of them of another entity (other
than the Companies) or negotiate or enter into or entertain discussions with any
person or entity (other than the Companies, the Shareholder and the Kapadias)
concerning any such purchase.
6.07 HSR Act Filing. The parties hereto recognize that a pre-
--------------
merger notification must be filed with the Federal Trade Commission (the "FTC")
and the Department of Justice (the "DOJ") pursuant to the HSR Act and each of
the Companies and the Shareholder,
26
on the one hand, and the Purchaser, on the other hand, hereby agree to cooperate
fully with each other to supply and file the required documentation. The parties
hereto agree that, promptly following the execution of this Agreement by all
parties (but in no event later than five (5) business days following such
execution), the Issuer and each of the Companies will prepare and file with the
FTC and the DOJ all required documents under the HSR Act, including a complete
notification and report form, will seek early termination of the HSR Act waiting
period in connection with such filing, will fully cooperate with each other in
connection with the preparation and filing of such documents, and will use their
respective best efforts to promptly comply with all formal or informal requests
for additional information by the FTC or the DOJ in respect of such filing.
6.08 Correspondence. Each of the Kapadias and the Shareholder
--------------
covenant and agree that, subsequent to the Closing, such person will deliver to
the Purchaser, promptly after the receipt thereof, all inquiries, correspondence
and other materials and items received by such person (other than in X.
Xxxxxxx'x capacity as an officer of the Companies) from any person or entity
relating to either of the Companies or to the operation of the Business or to
any of the assets or properties of either of the Companies.
SECTION VII.
-----------
CONDUCT OF THE COMPANIES PRIOR TO CLOSING
-----------------------------------------
Each of the Companies, each of the Kapadias and the Shareholder hereby
covenant and agree with the Purchaser and the Issuer that, from and after the
date of execution of this Agreement and until the Closing:
7.01 Operation of the Business. Each of the Companies shall at all
-------------------------
times operate the Business in the ordinary course of business and in a manner
consistent with prior practices and in accordance with the other provisions of
this Section VII, unless otherwise agreed by the Purchaser in writing.
7.02 Capital Stock, Etc. Neither of the Companies nor the
------------------
Shareholder will, directly or indirectly, (a) issue, sell, pledge, dispose of,
encumber, purchase, acquire, assign or transfer, the Shares (or any of them) or
any other stock of any class of either of the Companies or any options,
warrants, securities or rights of any kind, convertible into or exercisable or
exchangeable for the Shares (or any of them) or other shares of stock of any
class of either of the Companies or any other entity, (b) declare or pay any
dividend or make any other distribution of any kind in respect of its capital
stock (whether in cash, property or otherwise), other than the distribution to
the Shareholder of KEI's undistributed net profit for periods prior to the date
of the Closing and other than the distribution to the Shareholder of the
Building or (c) agree to do any of the foregoing. Neither of the Companies will
amend, modify or change its respective articles of incorporation or by-laws, or
merge or consolidate with or into any other corporation or other entity, or
agree to do any of the foregoing.
7.03 Changes; Contracts; Claims. Neither of the Companies shall
--------------------------
make any material change with regard to either of the Companies (other than the
distribution to the Shareholder of the Building), the Business or the terms of
any Contract, as the case may be, or
27
fail to perform any of its obligations with respect thereto. Neither of the
Companies shall enter into any contract or agreement requiring the payment by
either of the Companies of $25,000 or more individually or $50,000 or more in
the aggregate, other than in the ordinary course of business, without the prior
written consent of the Purchaser which consent shall not be unreasonably
withheld or delayed. Neither of the Companies shall waive, cancel, sell or
otherwise dispose of for less than the fair value thereof any claim or right
either of the Companies has against others.
7.04 Preservation of Organization, Employees and Business
----------------------------------------------------
Relationships. Each of the Companies will use its respective best efforts to
-------------
(a) preserve the present business organization of each of the Companies intact;
(b) preserve each of the Companies' respective goodwill; (c) keep available the
services of the present employees of each of the Companies; and (d) preserve
present relationships with entities or persons having commercial dealings with
either of the Companies.
7.05 Notice of Adverse Developments; Litigation. Each of the
------------------------------------------
Companies, each of the Kapadias and the Shareholder will promptly, upon
becoming aware thereof, notify the Purchaser of (a) any material problems or
material adverse developments with respect to either of the Companies or the
Business, or (b) any litigation, arbitration or governmental or administrative
proceeding pending or overtly threatened against either of the Companies or the
Business, or in respect of this Agreement or the consummation of the
transactions contemplated hereby.
7.06 Payment of Taxes. Each of the Companies shall file on a
----------------
timely basis (including under applicable extensions) all Tax Returns required to
be filed by it and pay all Taxes due and payable with respect to the periods
covered by such Tax Returns (whether or not reflected thereon).
7.07 Documents, Etc. Each of the Companies, each of the Kapadias
--------------
and the Shareholder will furnish and make available to the Purchaser, its
counsel, accountants and authorized representatives, such financial, legal and
other documents, records and information relating to either of the Companies or
the Business, and shall grant complete access to the Purchaser and its
representatives to all of the assets and properties of either of the Companies
and to its personnel as the Purchaser, its counsel, accountants and its
authorized representatives may from time to time reasonably request.
7.08 No Loans, Advances, Etc. Neither of the Companies shall make
-----------------------
or incur any lease, new debt for borrowed money, loans or Lien or otherwise
encumber any of the assets or properties owned or used by either of the
Companies, or make any bonus or similar payments, distributions, loans or
advances to any officer, employee, director or shareholder (or any related
parties or other Affiliates thereof) of either of the Companies, other than (i)
the distribution to the Shareholder of KEI's undistributed net profit for
periods prior to the Closing Date, (ii) borrowings under KEI's bank credit
facility to fund the distribution contemplated by clause (i) above, (iii) the
Transfer of the Building, (iv) the payment of bonuses to employees or other
persons of KEI in an amount not to exceed $570,000 in the aggregate and to the
extent accrued on KEI's income statement for its 1998 fiscal year, (v) bonuses
paid to either of the Kapadias as
28
officers of KEI, and (vi) other normal and necessary transactions in the
ordinary course of business of either of the Companies.
7.09 Books and Records and Interim Financial Statements. Each of
--------------------------------------------------
the Companies will maintain its respective books and records in accordance with
GAAP, on a basis consistent with past practice, and each of the Companies will
furnish to the Purchaser, for each calendar month from and after December 31,
1998, financial statements of each of the Companies, including, without
limitation, a statement of operations and a balance sheet, all prepared in
accordance with GAAP but without footnotes, within twenty (20) days of the end
of each calendar month (commencing with January 1999) ending prior to the
Closing Date, and each certified by the Chief Financial Officer or President of
each of the Companies as being a true and accurate representation of the
financial condition and results of operations of each of the Companies as of
their respective dates.
7.10 Compliance with Laws. Each of the Companies shall use its
--------------------
respective best efforts to comply in all material respects with all laws, rules
and regulations applicable to either of the Companies and the conduct of the
Business.
7.11 Sale of Assets. Neither of the Companies will (a) sell, lease
--------------
or dispose of any of the assets or properties owned or used by either of the
Companies, other than the disposition of assets which are not material
(individually or in the aggregate) to the Business in the ordinary course of
business consistent with past practice and other than the distribution to the
Shareholder of KEI's undistributed net profit for periods prior the Closing Date
and other than the Transfer of the Building or (b) fail to maintain the assets
and properties of either of the Companies in good condition and repair, normal
wear and tear excepted.
7.12 Discharge of Obligations. Each of the Companies shall (i)
------------------------
maintain its respective accounts payable and accrued expenses on a reasonably
current basis and (ii) make payments on all normal and recurring installments of
debt, leases, contractual obligations and other amounts due third parties, if
any, as they become due.
7.13 Revenues; Accounts Receivable; Inventory. Each of the
----------------------------------------
Companies shall not affect any material change in methods or procedures for
billing, collection or recording of customer accounts receivable or reserves for
doubtful accounts. Each of the Companies shall maintain such levels of Inventory
as are necessary and sufficient to operate the Business in the ordinary course.
7.14 Facilities. Each of the Companies shall, taking into account
----------
the fact that the Companies are presently undertaking an upgrade of their
respective management information systems, maintain and service facilities in
accordance with normal policies, and any repairs, maintenance and improvements
to such facilities will be made as necessary in the normal course of business.
7.15 Cooperation. Each of the Companies, each of the Kapadias and
-----------
the Shareholder shall cooperate fully with the Purchaser and use their
respective best efforts to obtain all consents and approvals necessary for the
sale of the Shares and the consummation of the transactions contemplated hereby,
including the furnishing of all financial and other
29
information reasonably required by the person or entity whose consent or
approval is being sought.
SECTION VIII.
------------
CLOSING
-------
8.01 Time and Place of Closing. The closing of the purchase and
-------------------------
sale of the Shares (the "Closing") shall be held at 10:00 A.M. at the offices of
Xxxxxx & Xxxxxx, 000 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx within five (5) business
days after the conditions precedent set forth in Sections IX and X hereof have
been satisfied or waived, or, in any event, at such other time, date and place
as the parties shall mutually agree (the "Closing Date").
8.02 Termination. This Agreement may be terminated, and the
-----------
transactions contemplated hereby may be abandoned:
(a) at any time before the Closing, by written agreement of the
Shareholder and the Purchaser;
(b) at any time before the Closing, by either the Purchaser or the
Shareholder, in writing, in the event that there exists any order, decree,
determination or ruling of any Governmental Authority which would cause or
construe the consummation of the transactions contemplated by this Agreement to
be in violation of any applicable law, or which otherwise restrains, enjoins or
prohibits such consummation;
(c) without limiting any other right or remedy hereunder or otherwise,
at any time before the Closing, by either the Purchaser, on the one hand, or the
Shareholder, on the other hand, in writing, without liability to the terminating
party on account of such termination, if such terminating party (and, in the
case of the Shareholder, the Shareholder, each of the Kapadias and each of the
Companies), as the case may be, is not then in material breach of this Agreement
and (i) the other party (and in the case of the Shareholder, each of the
Kapadias, each of the Companies or the Shareholder), as the case may be, shall
fail to timely perform in any material respect any of such person's covenants or
agreements contained herein required to be performed prior to the Closing Date
or (ii) any of the representations or warranties of the other party(s),
contained herein shall not have been true and correct in all material respects
on the date such representation or warranty was made or deemed made hereunder;
or
(d) the Shareholder or the Purchaser may terminate this Agreement at
any time after April 30, 1999 and prior to the Closing, effective upon giving
written notice to the other parties, provided the failure to consummate the
Closing by such date was not caused by the party giving such notice (and in the
case of the Shareholder, such failure was not caused by either of the Companies,
either of the Kapadias or the Shareholder).
8.03 Effect on Obligations. Termination of this Agreement pursuant
---------------------
to Section 8.02 shall terminate all obligations of the parties to each other
hereunder, except for the obligations under Sections 6.04 and 13.05 and,
provided, however, that, notwithstanding the foregoing, the termination of this
Agreement pursuant to clauses (c) or (d) of Section 8.02 shall not relieve any
party of any liability with respect to any breach of any representation,
warranty,
30
covenant or agreement herein by such party, or limit or preclude any remedy any
party may have against such breaching party with respect to any such breach.
8.04 Return of Documentation. Following a termination in
-----------------------
accordance with Section 8.02, the Purchaser shall use its best efforts to return
all agreements, documents, contracts, instruments and other books and records of
either of the Companies provided by the Companies to the Purchaser or any
representatives of the Purchaser in connection with the transactions
contemplated by this Agreement, and the Shareholder shall use its best efforts
to and shall cause each of the Companies to use their respective best efforts to
return all agreements, documents, contracts, instruments and other books and
records of the Purchaser provided by the Purchaser or any representative of the
Purchaser in connection with the transactions contemplated by this Agreement.
8.05 Delivery of Shares. Delivery of the Shares shall be made by
------------------
the Shareholder to the Purchaser at the Closing by delivering one or more
original certificates in negotiable form, representing the Shares. Each such
certificate evidencing the Shares shall be duly endorsed in blank, or be
accompanied by stock transfer powers duly executed in blank, and shall be
accompanied by all requisite documentary or stock transfer taxes affixed thereto
and cancelled.
SECTION IX.
----------
CONDITIONS TO THE SHAREHOLDER'S OBLIGATION TO CLOSE '
---------------------------------------------------
The obligations of the Shareholder to sell the Shares and for it to
otherwise consummate the transactions contemplated by this Agreement at the
Closing are subject to the following conditions precedent, any or all of which
may be waived by the Shareholder in its sole discretion, and each of which the
Purchaser hereby agrees to use its best efforts to satisfy at or prior to the
Closing:
9.01 No Litigation. No action, suit or proceeding against either
-------------
of the Companies, the Business, either of the Kapadias or the Shareholder
relating to the consummation of any of the transactions contemplated by this
Agreement including, without limitation any governmental action seeking to delay
or enjoin any such transactions shall be pending or threatened.
9.02 Representations, Warranties and Covenants. The
-----------------------------------------
representations and warranties made by the Purchaser or the Issuer herein shall
be true and correct as of the date hereof and as of the date of the Closing with
the same force and effect as though such representations and warranties had been
made as of the date of the Closing, and on the date of the Closing, each of the
Purchaser and the Issuer shall deliver to the Shareholder a certificate dated
the date of the Closing to such effect. All the terms, covenants and conditions
of this Agreement to be complied with and performed by the Purchaser or the
Issuer on or before the date of the Closing shall have been duly complied with
and performed, and on the date of the Closing, the Purchaser shall deliver to
the Shareholder a certificate dated the date of the Closing to such effect.
31
9.03 Other Certificates. The Companies and the Shareholder shall
------------------
have received such other certificates (including good standing certificates and
certified copies of its articles of incorporation and by-laws), instruments and
other documents, in form and substance satisfactory to each of the Companies and
the Shareholder and their counsel, as they shall have reasonably requested in
connection with the transactions contemplated hereby.
9.04 Opinion of the Purchaser's and the Issuer's Counsel. The
---------------------------------------------------
Shareholder shall have received an opinion of Xxxxxx & Xxxxxx, counsel for the
Purchaser and the Issuer, in each case delivered to the Shareholder pursuant to
the instructions of each of the Purchaser and the Issuer, dated the date of the
Closing, in form and substance satisfactory to the Shareholder and its counsel.
9.05 Employment Agreement. The Xxxxxxx Employment Agreement,
--------------------
substantially in the form of Exhibit A hereto, shall have been entered into
between X. Xxxxxxx and the Issuer.
9.06 Xxxx-Xxxxx-Xxxxxx. All waiting periods applicable to the
-----------------
transactions contemplated by this Agreement under the HSR Act shall have expired
or been terminated.
9.07 Pay-Off of Funded Indebtedness. All of the Funded
------------------------------
Indebtedness shall have been paid in full, all mortgages, security interests and
other Liens securing or otherwise arising under or relating to such Funded
Indebtedness shall have been released, discharged and terminated in full, in
each case in form and substance satisfactory to the Shareholder and its counsel,
and all capital stock, assets, property or other collateral of any kind held by
any Funded Indebtedness Holder, escrow agent or other person as security for
such Funded Indebtedness shall have been delivered to the Companies, the
Purchaser or its designees. Any and all personal guarantees by either of the
Kapadias to guaranty all or any portion of the Funded Indebtedness shall have
been released, discharged and terminated in full, in each case in form and
substance satisfactory to each of the Kapadias and their counsel.
SECTION X.
---------
CONDITIONS TO THE PURCHASER'S OBLIGATION TO CLOSE '
-------------------------------------------------
The obligation of the Purchaser to purchase the Shares and otherwise
consummate the transactions contemplated by this Agreement at the Closing is
subject to the following conditions precedent, any or all of which may be waived
by the Purchaser and the Issuer in their sole discretion, and each of which each
of the Companies, the Kapadias and the Shareholder hereby agree to use their
respective best efforts to satisfy at or prior to the Closing:
10.01 No Litigation . No action, suit or proceeding against either of
-------------
the Companies, the Business, either of the Kapadias, the Shareholder, the
Purchaser or the Issuer relating to the consummation of any of the transactions
contemplated by this Agreement shall be pending or threatened.
10.02 Representations, . The representations and warranties made by
each of the Companies, the Kapadias and Warranties and Covenants the Shareholder
herein shall be true and correct at and as of the date hereof and as of the date
of the Closing with the same force
32
and effect as though such representations and warranties had been made at and as
of the date of the Closing, and on the date of the Closing, each of the
Companies, the Kapadias and the Shareholder shall deliver to the Purchaser and
the Issuer a certificate dated the date of the Closing to such effect. All the
terms, covenants and conditions of this Agreement to be complied with and
performed by each of the Companies, the Kapadias and the Shareholder on or
before the date of the Closing shall have been duly complied with and performed,
and on the date of the Closing, each of the Companies, the Kapadias and the
Shareholder shall deliver to the Purchaser a certificate dated the date of the
Closing to such effect.
10.03 Other Certificates. The Purchaser and the Issuer shall have
------------------
received such other certificates (including good standing certificates and
certified copies of its articles of incorporation and by-laws), instruments and
other documents, in form and substance satisfactory to the Purchaser and the
Issuer and counsel for the Purchaser and the Issuer, as either the Purchaser or
the Issuer shall have reasonably requested in connection with the transactions
contemplated hereby.
10.04 Opinions of the Companies. The Purchaser and the Issuer shall
-------------------------
have received an opinion of (i) Xxxxxxxx, and the Shareholder's Xxxxxxx &
Xxxxxxxx, counsel for KEI and the Shareholder and (ii) XxXxxxx Xxxxxxx Counsels
Laurent & Cord counsel for MCSI, in each case delivered to the Purchaser and the
Issuer pursuant to the instructions of each of the Companies and the
Shareholder, dated the date of the Closing, in form and substance satisfactory
to the Purchaser, the Issuer and their counsel.
10.05 Environmental. The Purchaser shall have obtained, to its sole
-------------
satisfaction, satisfactory Phase I, Phase II and other environmental studies.
10.06 Sale of All the Shares. All the Shares, shall be sold and
----------------------
delivered to the Purchaser (or its designee) at the Closing free and clear of
all Liens.
10.07 Resignations. Each of the Companies shall have delivered to
------------
the Purchaser resignations of all the officers and directors of each of the
Companies, such resignations to be effective as of the Closing.
10.08 Consents. The Purchaser and the Issuer shall have received
--------
evidence satisfactory to the Purchaser and the Issuer of receipt by each of the
Companies and the Shareholder of the consents of third parties as set forth on
the Disclosure Schedule, in each case which consents shall not provide for the
acceleration of any liabilities or any other detriment to the Purchaser, the
Issuer, either of the Companies or the Business and shall be in form and
substance satisfactory to the Purchaser and the Issuer. In addition, the
Purchaser and the Issuer shall have obtained all corporate (including the
Issuer's Board of Director approval) and all third party consents, including
consents of lenders and amendments to existing loan and credit documentation,
approvals or authorizations, if any, necessary or desirable for the consummation
of the transactions contemplated by this Agreement.
10.09 Transfer of Building. Prior to the Closing, the Shareholder
--------------------
shall deliver to the Purchaser evidence, in form and substance satisfactory to
the Purchaser, that the Building and
33
all associated indebtedness has been transferred to the
Shareholder, the Kapadias or an Affiliate of the Kapadias (the "Transfer").
10.10 Employment Agreements. The Xxxxxxx Employment Agreement,
---------------------
substantially in the form of Exhibit A hereto, shall have been entered into
between X. Xxxxxxx and the Issuer. In addition, the Purchaser or its designee
shall have entered into employment and other arrangements satisfactory to it
with sales and other personnel employed by or rendering services to the
Companies, including, without limitation, the Companies' head of sales and the
head of MCSI's operations.
10.11 Financing. On or prior to the Closing, the Purchaser shall
---------
have obtained financing in amounts and upon terms and rates acceptable to the
Purchaser in its sole discretion to enable the Purchaser to consummate the
transactions contemplated by this Agreement.
10.12 No Material Adverse Change. Since December 31, 1998, there
--------------------------
shall not have been any material adverse or prospective material adverse change
in the condition (financial or otherwise), results of operations, assets,
properties, business or prospects of either of the Companies, except for (i) the
Transfer of the Building and (ii) distributions and dividends permitted by
Section 7.08 hereof.
10.13 Xxxx-Xxxxx-Xxxxxx. All waiting periods applicable
-----------------
to the transactions contemplated by this Agreement under the HSR Act shall have
expired or been terminated.
10.14 Regulation S-X and Adjusted EBITDA Cetificate.
---------------------------------------------
The Purchaser and the Issuer shall have received (i) financial statements for
such Adjusted EBITDA Certificate fiscal years of each of the Companies and in
such form as may be required by Regulation S-X promulgated by the Commission
under the Securities Act ("Regulation S-X"), audited by Xxxxxxxxx Kuhen &
Xxxxxxxxxx or other independent certified public accountants (mutually agreed to
by the parties hereto), accompanied by an unqualified opinion thereon from such
accountants, (ii) confirmation that such audited financial statements have been,
and the interim financial statements of each of the Companies covering the
period since the end of each of the Companies' last fiscal year are, presented
in conformity with the accounting rules of Regulation S-X and (iii) the Adjusted
EBITDA Certificate.
10.15 Pay-Off of Funded Indebtedness. All of the Funded
------------------------------
Indebtedness shall have been paid in full, all mortgages, security interests and
other Liens securing or otherwise arising under or relating to such Funded
Indebtedness shall have been released, discharged and terminated in full, in
each case in form and substance satisfactory to the Purchaser and its counsel,
and all capital stock, assets, property or other collateral of any kind held by
any Funded Indebtedness Holder, escrow agent or other person as security for
such Funded Indebtedness shall have been delivered to the Companies, the
Purchaser or its designees.
SECTION XI.
-----------
INDEMNIFICATION
---------------
11.01 Indemnification by the Shareholder and the Kapadias. From
---------------------------------------------------
and after the Closing Date, the Shareholder and each of the Kapadias, jointly
and severally, shall indemnify
34
and hold harmless each of the Purchaser Indemnified Parties from and against any
and all Damages which are sustained or incurred by any of the Purchaser
Indemnified Parties in connection with or by reason of (a) the breach by either
of the Companies, either of the Kapadias or the Shareholder of any of their
respective covenants, agreements or obligations hereunder or under any of the
other certificates, agreements or other documents delivered by any such person
in connection herewith, (b) the breach or inaccuracy of any of the
representations or warranties made by either of the Companies, either of the
Kapadias or the Shareholder herein (including in any Exhibit or the Disclosure
Schedule) or in any certificate, agreement or other document delivered pursuant
hereto by either of the Companies, either of the Kapadias or the Shareholder or
(c) the matters, including any additional Taxes payable (except to the extent
reserved on the Closing Balance Sheet), set forth in Section 3.11 paragraph 1 of
the Disclosure Schedule.
11.02 Indemnification by the Purchaser and the Issuer. From and
-----------------------------------------------
after the Closing Date, the Purchaser and the Issuer, jointly and severally,
shall indemnify and hold harmless each of the Shareholder Indemnified Parties
from and against any and all Damages sustained or incurred by any of the
Shareholder Indemnified Parties in connection with or by reason of (a) the
breach by the Purchaser or the Issuer of any of their respective covenants,
agreements or obligations hereunder or under any of the other certificates,
agreements or other documents delivered by the Purchaser or the Issuer in
connection herewith or (b) the breach or inaccuracy of any of the
representations or warranties made by the Purchaser or the Issuer herein or in
any certificate, agreement or other document delivered pursuant hereto by the
Purchaser or the Issuer.
11.03 Procedure for Indemnification. (a) In the event that any
-----------------------------
Shareholder Indemnified Party, on the one hand, or any Purchaser Indemnified
Party, on the other hand, shall sustain or incur any Damages in respect of which
indemnity may be sought by such party pursuant to this Section XI or any other
provision of this Agreement (each, an "Indemnification Matter"), the party
indemnified hereunder (the "Indemnitee") shall notify the party(s) providing
indemnification (collectively, the "Indemnitor") by sending written notice to
the Indemnitor (each, an "Indemnity Notice"). In the case of an Indemnification
Matter involving a third-party claim, which, if successful, could result in an
indemnity payment hereunder, an Indemnity Notice shall be given within 30 days
after the discovery by an Indemnitee of the filing or assertion of any claim
against the Indemnitee stating the nature and basis of such claim; provided,
however, that any inadvertent delay or failure to notify any Indemnitor of any
claim shall not relieve it from any liability except to the extent that the
defense of such action is materially prejudiced or materially adversely affected
by such delay or failure to notify.
(b) In the case of third-party claims, the Indemnitee shall give the
Indemnitor a reasonable opportunity (i) to conduct any proceedings or
negotiations in connection therewith and necessary or appropriate to defend the
Indemnitee (provided such are pursued in a professional and diligent manner),
(ii) to take all other reasonable steps or proceedings to settle or defend any
such claims, provided that the Indemnitor shall not settle any such claim which
is solely for money damages without the prior written consent of the Indemnitee,
which consent shall not be unreasonably withheld or delayed, and shall not
settle any other such third-party claim without the prior written consent of the
Indemnitee (including, without limitation, if such claim seeks or such
settlement imposes equitable remedies or injunctive relief on the Indemnitee),
and (iii) to employ counsel designated by the Indemnitor and satisfactory to the
35
Indemnitee to contest any such claim or liability in the name of the Indemnitee
or otherwise. The Indemnitor shall, within twenty (20) days of receipt of an
Indemnity Notice of such claim (the "Indemnity Notice Period"), give written
notice to the Indemnitee of its intention to assume the defense of such claim.
If defendants in any action include any Indemnitee and any Indemnitor and any
Indemnitee shall have been advised by its counsel that there may be legal
defenses available to such Indemnitee which are different from or in addition to
those available to any Indemnitor, or if a conflict of interest exists between
any Indemnitee and any Indemnitor, then in either case, the Indemnitee shall
have the right to employ its own counsel in such action, and, in such event (or
in the event that the Indemnitor does not timely assume the defense within the
Indemnity Notice Period as provided in the immediately succeeding sentence), the
reasonable fees and expenses of the Indemnitee's counsel shall be borne by the
Indemnitor and shall be paid by the Indemnitor from time to time within thirty
(30) days of receipt of appropriate invoices therefor. If the Indemnitor does
not deliver to the Indemnitee within the Indemnity Notice Period written notice
that the Indemnitor shall assume the defense of any such claim or litigation
resulting therefrom pursuant to and in accordance with the provisions of this
Section XI, the Indemnitee may defend against any such claim or litigation in
such manner as it may reasonably deem appropriate and the Indemnitee may settle
such claim or litigation on such terms as it may reasonably deem appropriate,
all at the expense of the Indemnitor. The costs and expenses of all
proceedings, contests or lawsuits and all other Damages sustained or incurred
with respect to such claims, proceedings or litigations shall be borne solely by
the Indemnitor. In the event that the Indemnitor does timely assume the defense
as provided above, the Indemnitee shall have the right to participate fully in
such defense (including, without limitation, with counsel of its choice), at its
sole expense (except as otherwise provided herein), and the Indemnitor shall
reasonably cooperate with the Indemnitee in connection with such participation,
and in all cases the Indemnitor shall keep the Indemnitee fully informed as to
all matters concerning each third-party claim and shall promptly notify the
Indemnitee in writing of any and all significant developments relating thereto.
Within five (5) business days after the occurrence of a final order or other
determination with respect to each third-party claim by any court, panel of
arbitrator(s) or Governmental Authority having jurisdiction thereof, the
Indemnitor shall pay the Indemnitee the amount of Damages sustained or incurred
by the Indemnitee which have not theretofore been paid to the Indemnitee as
provided above.
(c) In the event that an Indemnification Matter does not involve a
third-party claim, the Indemnitor shall within thirty (30) days after the date
of an Indemnity Notice pay to the Indemnitee the amount of Damages payable
pursuant to Section 11.01 or 11.02 hereof, as the case may be, and which are at
the time sustained or incurred by the Indemnitee and shall thereafter pay any
other Damages payable pursuant to Section 11.01 or 11.02 hereof, as the case may
be, and related to the same Indemnity Notice on demand.
11.04 Subrogation . Neither of the Shareholder nor either of the
-----------
Kapadias shall be subrogated to any or all rights of any Purchaser Indemnified
Party(s) in respect of any customer of or supplier to either of the Companies
with respect to any Damages for which the Purchaser Indemnified Party(s) has
been indemnified by the Shareholder or the Kapadias hereunder (all of which
rights of subrogation are expressly hereby irrevocably and unconditionally
waived and released by the Kapadias and the Shareholder). Without limiting the
generality of the foregoing, it is expressly understood and agreed that neither
the Shareholder nor the Kapadias shall be entitled to any indemnification, right
of contribution or other right of recovery from either of the
36
Companies in connection with any claim made by any Purchaser Indemnified
Party(s) against the Shareholder or either of the Kapadias hereunder, all of
which are hereby irrevocably and unconditionally waived and released by the
Shareholder and each of the Kapadias. No Purchaser Indemnified Party shall be
required to make any claim against any other person or entity or to take any
other action in order to pursue any claim against the Shareholder or either of
the Kapadias.
11.05 Validity. The indemnification agreements provided for in
--------
this Section XI shall apply notwithstanding any investigation made at any time
by or on behalf of any party hereto.
11.06 Time Periods for Representation and Warranty Indemnifications.
-------------------------------------------------------------
The representations and warranties contained in or made pursuant to this
Agreement shall expire on the fourth anniversary of the Closing, provided that
the representations and warranties contained in Sections 3.02, 3.11 and 4.01
hereunder shall survive for the applicable statute of limitations and the
representations and warranties contained in Sections 3.04 and 4.02 and all
covenants and agreements hereunder shall survive indefinitely, and provided
further that if written notice is properly given under this Section XI with
respect to any alleged breach or inaccuracy of a representation or warranty to
which such party is entitled to be indemnified hereunder prior to the applicable
expiration date, such representation or warranty shall continue indefinitely
until the applicable claim is finally resolved.
11.07 Indemnity Escrow; Offset . (a) At the Closing, the
------------------------
Purchaser, the Issuer, the Kapadias, the Shareholder and Xxxxxxxx, Xxxxxxx &
Xxxxxxxx (the "Escrow Agent") will enter into an escrow agreement (the "Escrow
Agreement"), in substantially the form of Exhibit C hereto. The Purchaser and
the Issuer, on the one hand, and/or the Kapadias and the Shareholder, on the
other hand, as applicable, shall deposit immediately available funds and/or
shares of Common Stock (collectively, the "Indemnity Escrow Amount" and,
together with all earnings, dividends or proceeds thereon, collectively, the
"Indemnity Escrow Deposit") into separate escrow accounts (collectively, the
"Escrow Account") in such amounts, if any, and at such times as provided in
Section 11.07(b) below. The Indemnity Escrow Deposit will be held, invested and
disbursed as provided herein and in the Escrow Agreement.
(b) The Purchaser and the Issuer shall have the right (but not the
obligation, and such right shall not limit or affect any other right or remedy
which it might have hereunder or otherwise), subject to the terms hereof, to
satisfy any claims for Damages under Section XI of this Agreement or otherwise
by offsetting amounts payable to the Shareholder under the Note by written
notice to the Shareholder (each, an "Offset Notice") and/or by recourse to the
Indemnity Escrow Deposit, if any, pursuant to and in accordance with the terms
of this Agreement and the Escrow Agreement, only on the condition that (i) in
the event that the Purchaser and the Issuer offset against interest payments
under the Note, then the Purchaser and the Issuer will deposit into the Escrow
Account by wire transfer of immediately available funds an amount equal to such
offset within 10 Business Days after delivery of the Offset Notice (unless the
Shareholder agrees in writing to such offset amount or any portion thereof on or
prior to such 10th Business Day, in which event only the disputed portion shall
be so deposited into escrow), which escrow amount will be held by the Escrow
Agent until, and disposed of in accordance with, the final resolution of the
claims giving rise to the interest payment and the Escrow Agreement, and (ii) in
37
the event that the Note is outstanding on the fifth anniversary of the Closing
Date, the Shareholder does not elect to convert the Note and there are
unresolved offset claims against amounts under the Note as of such date, then
the Purchaser and the Issuer will deposit into the Escrow Account on such date
by wire transfer of immediately available funds an amount equal to the aggregate
amount of such unresolved offset claims (excluding amounts previously funded
pursuant to clause (i) above), which escrow amount will be held by the Escrow
Agent until, and disposed of in accordance with, the final resolution of such
unresolved claims and the Escrow Agreement, and the remaining balance of the
Note, if any, shall be paid to the Shareholder on such date. It is understood
and agreed that the rights of offset against the Note set forth in this Section
11.07(b) are the only rights of offset available to the Purchaser and the Issuer
hereunder. In addition, as a condition to converting the Note into shares of
Common Stock, the Shareholder shall deposit into the Escrow Account on the date
of such conversion by wire transfer of immediately available funds the
applicable amount set forth in the next sentence of this Section 11.07(b), all
to satisfy any indemnity claims for Damages which any of the Purchaser
Indemnified Parties may have against the Shareholder. The amount of the funding
by the Shareholder pursuant to its election to convert the Note shall be (the
"Conversion Amount"): $3,000,000 if the Note is converted on or before the
second anniversary of the Closing Date, $2,000,000 if the Note is converted
following the second anniversary of the Closing Date but on or before the third
anniversary of the Closing Date and $1,000,000 if the Note is converted
following the third anniversary of the Closing Date but on or before the fourth
anniversary of the Closing Date; provided, however, in the event that the
aggregate amount of Damages claimed, as of such conversion date, for all
indemnity claims that have been made by the Purchaser Indemnified Parties and
not finally resolved pursuant to this Agreement or previously funded into the
Escrow Account exceed the applicable Conversion Amount (such excess, the "Excess
Amount"), then the Issuer shall deposit into the Escrow Account (and not deliver
to the Shareholder) a number of shares (the "Escrow Shares") of Common Stock (up
to, but not to exceed the total number of shares issuable upon conversion of the
Note) equal to the Excess Amount divided by FMV as of the conversion date. On
or prior to the date which is 5 Business Days after the fifth anniversary of the
Closing Date, each of the Purchaser, the Issuer, the Kapadias and the
Shareholder shall instruct the Escrow Agent to remit to the Shareholder from the
Escrow Account an aggregate amount equal to (A) the sum of (x) the Conversion
Amount, if any (payable in cash), and (y) the Escrow Shares, if any (payable in
kind and valued at their FMV as of the fifth anniversary of the Closing Date)
less (B) the aggregate amount of all Damages claimed by the Purchaser
Indemnified Parties on or prior to such date and not finally resolved pursuant
to this Agreement; provided, however, that such payments to the Shareholder
shall first be made from the Escrow Shares, if any, and then from the Conversion
Amount, if any. Notwithstanding any provision herein or in the Escrow Agreement
to the contrary, upon the determination of any claims for Damages payable to the
Purchaser Indemnified Parties hereunder, in the event that the Escrow Account
contains cash and shares of Common Stock, such payments shall first be made from
such cash until no cash remains in the Escrow Account and then from shares of
Common Stock in the Escrow Account. In addition, to the extent that any shares
of Common Stock have been deposited into the Escrow Account pursuant to this
Section 11.07, then any and all dividends or other proceeds relating thereto
(including cash, stock or other property) shall be deposited into the Escrow
Account and become part of the Indemnity Escrow Deposit.
38
11.08 Limits on Indemnification . The Purchaser Indemnified
-------------------------
Parties, on the one hand, and the Shareholder Indemnified Parties, on the other
hand, shall not be entitled to indemnification for Damages pursuant to this
Section XI, other than Damages arising from the inaccuracy of any of the
representations and warranties contained in Sections 3.04 and 4.02 hereof (in
which case the limits set forth in this Section 11.08 shall be inapplicable),
unless and until the aggregate amount of Damages to which all Purchaser
Indemnified Parties or the Shareholder Indemnified Parties, as the case may be,
are entitled to indemnification under this Section XI exceeds $25,000, and then
only for such excess amount, if any.
SECTION XII.
-----------
NON-COMPETITION AGREEMENT
-------------------------
12.01 Solicitation of Employees. Prior to the Closing Date,
-------------------------
neither of the Kapadias, the Shareholder (including the trust and the Kapadias,
but not including any successor trustee of the Shareholder in such successor
trustee's personal capacity) nor any of their Affiliates will, directly or
indirectly, through any agent or otherwise, solicit the employment of any of the
employees of either of the Companies, or discourage any such employees from
remaining employed with either of the Companies after the Closing ; provided,
however, that notwithstanding anything to the contrary contained in this Section
12.01, nothing contained in this Section 12.01 shall be deemed to limit or
restrict the prerogative of either of the Companies (acting through their
respective officers, including X. Xxxxxxx) to terminate employees of either of
the Companies in the ordinary course of business and consistent with past
practice.
12.02 Noncompetition. In consideration of the Purchaser's and the
--------------
Issuer's covenants, agreements and payments contemplated hereby, and recognizing
the interest of the Purchaser and the Issuer to protect, among other matters,
the goodwill of the Companies and of the Business, each of the Kapadias and the
Shareholder hereby covenant and agree, for the benefit of the Purchaser, the
Issuer and their respective successors and assigns, that neither the Shareholder
(including the trust and the Kapadias, but not including any successor trustee
of the Shareholder in such successor trustee's personal capacity), neither of
the Kapadias nor other Affiliates will, during the period commencing on the
Closing Date and ending on the fifth anniversary of the Closing Date:
(a) engage, directly or indirectly, whether as principal, consultant,
manager, operator, employee, partner, agent, stockholder, limited partner or
other investor or owner (other than an investment of not more than one percent
(1%) of the stock or equity of any corporation (other than the Issuer or any
successor thereto) the capital stock of which is listed on a national securities
exchange or whose stock is regularly traded in the over-the-counter market), in
any activity or business venture which is in competition with either of the
Companies or the Business as now conducted (or any component thereof); or
(b) other than in the conduct of the Business for the benefit of the
Purchaser Group, use, divulge or transfer to any person, partnership,
corporation or other entity any trade secrets, customer lists or other
confidential or proprietary information with respect to the Purchaser, either of
the Companies or the Business, or any other member of the Purchaser Group; or
39
(c) directly or indirectly, through any agent or otherwise, employ,
solicit or entice or endeavor to solicit or entice the employment of any person
who is or was during the past three (3) years an employee of the Purchaser Group
at any time, either for its, his or her own account or for any individual, firm,
corporation or other entity; or
(d) directly or indirectly, through any agent or otherwise, solicit or
entice or endeavor to solicit or entice away from either of the Companies any
customer or supplier of any member of the Purchaser Group at any time, either
for its, his or her own account or for any individual, firm, corporation or
other entity.
SECTION XIII.
------------
MISCELLANEOUS
-------------
13.01 Notices. All notices, requests or instructions hereunder
-------
shall be in writing and delivered personally, sent by telecopy, sent by Federal
Express or other nationally recognized overnight carrier, or sent by registered
or certified mail, postage prepaid, as follows:
(1) If to the Shareholder and/or the Kapadias after the Closing:
c/o Xx. Xxxxxxxx Xxxxxxx
00000 Xxxxxxxx Xxxxxx
Xxxxxxxxxx, Xxxxxxxxxx 00000
Telecopy No.: (000) 000-0000
with copies to:
Xxxxxxxx, Xxxxxxx & Xxxxxxxx
00000 Xxxxxxx Xxxxxxxxx, 00xx xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxx X. Xxxxxxxx, Esq.
Telecopy No.: (000) 000-0000
(2) If to the Companies, the Shareholder and/or the Kapadias
prior to the Closing:
c/o Xx. Xxxxxxxx Xxxxxxx
00000 Xxxxxxxx Xxxxxx
Xxxxxxxxxx, Xxxxxxxxxx 00000
Telecopy No.: (000) 000-0000
with copies to:
Xxxxxxxx, Xxxxxxx & Xxxxxxxx
00000 Xxxxxxx Xxxxxxxxx, 00xx xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxx X. Xxxxxxxx, Esq.
Telecopy No.: (000) 000-0000
40
(3) If to the Purchaser, the Issuer (whether before or after the
Closing) or to the Companies (after the Closing):
Guest Supply, Inc.
0000 X.X. Xxxxxxx Xxx
Xxxxxxxx Xxxxxxxx, Xxx Xxxxxx 00000
Attention: President
Telecopy No.: (000) 000-0000
with copies to:
Xxxxxx & Xxxxxx
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx X. Cost, Esq.
Telecopy No.: (000) 000-0000
Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be deemed received on the date of delivery,
if hand delivered, telecopied or by overnight courier, and three (3) business
days after the date of mailing, if mailed by certified mail, return receipt
requested.
13.02 Survival of Representations. Except as provided in Section
---------------------------
11.06 hereof, each representation, warranty, covenant and agreement of the
parties hereto herein contained shall survive the Closing, notwithstanding any
investigation at any time made by or on behalf of any party hereto.
13.03 Entire Agreement. This Agreement (including Annex A, the
----------------
Exhibits and Schedules hereto) and the documents referred to herein contain the
entire agreement among the parties hereto with respect to the transactions
contemplated hereby and supersedes all prior agreements, understandings,
negotiations and discussions, whether written or oral, of the parties, except
for that certain Confidentiality Agreement dated September 15, 1998 between KEI
and the Issuer ("Confidentiality Agreement"), which Confidentiality Agreement
shall remain in full force and effect until the closing Date occurs, and no
amendment or modification hereof shall be effective unless in writing and signed
by the party against which it is sought to be enforced.
13.04 Further Assurances. The Shareholder, each of the Kapadias
------------------
and each of the Companies, on the one hand, and the Purchaser and the Issuer on
the other hand, shall use such party's best efforts to take such actions as may
be necessary or reasonably requested by the other to carry out and consummate,
and otherwise give effect to, the transactions contemplated by this Agreement.
Without limiting the generality of the foregoing, each of the Purchaser and the
Issuer agrees to use its respective best efforts to satisfy the condition set
forth in Section 10.11 hereof.
13.05 Expenses. Except as specifically set forth herein, each of
--------
the parties hereto shall bear such party's own expenses in connection with this
Agreement and the transactions contemplated hereby whether or not the Closing
occurs; provided however that, without limiting
41
Section 2.02 hereof, the Companies may pay the expenses of the Shareholder in
connection with this Agreement and the transactions contemplated hereby.
13.06 Injunctive Relief. In the event of a breach or threatened
-----------------
breach by either the Shareholder or the Kapadias, on the one hand, of its
respective obligations hereunder, or by either the Purchaser or the Issuer on
the other hand, of its respective obligations hereunder, the parties hereto
hereby consent and agree that the non-breaching party shall be entitled to an
injunction or similar equitable relief restraining such breaching party from
committing or continuing any such breach or threatened breach or granting
specific performance of any act required to be performed by the breaching party
under any such provision, without the necessity of showing any actual damage or
that money damages would not afford an adequate remedy and without the necessity
of posting any bond or other security. The parties hereto hereby consent to the
exclusive jurisdiction of the Federal courts for the Southern District of
California for any proceedings under this Section 13.06 or otherwise. The
parties hereto further agree that the service of process or of any other papers
upon such person by registered mail at their respective addresses set forth
herein shall be deemed good, proper and effective service upon them. Nothing
herein shall be construed as prohibiting the Purchaser or the Issuer, on the one
hand, or the Shareholder or the Kapadias, on the other hand, from pursuing any
other remedies at law or in equity which it or they may have.
13.07 Invalidity. Should any provision of this Agreement be held
----------
by a court or arbitration panel of competent jurisdiction to be enforceable only
if modified, such holding shall not affect the validity of the remainder of this
Agreement, the balance of which shall continue to be binding upon the parties
hereto with any such modification to become a part hereof and treated as though
originally set forth in this Agreement. In any event, should one or more of the
provisions of this Agreement be held to be invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any other provisions hereof, and if such provision or provisions are not
modified as provided above, this Agreement shall be construed as if such
invalid, illegal or unenforceable provisions had never been set forth herein.
13.08 Successors and Assigns. This Agreement shall be binding upon
----------------------
and inure to the benefit of the successors and permitted assigns of each of the
Companies, the Shareholder, the Purchaser and the Issuer, respectively, and the
legal representatives and heirs of each of the Kapadias. Prior to the Closing,
the Purchaser's and the Issuer's rights or interests under this Agreement (but
not their respective obligations) may be assigned to any member of the Purchaser
Group, and after the Closing, the Purchaser's and the Issuer's rights or
interest under this Agreement (but not their respective obligations) may be (a)
assigned to any member of the Purchaser Group, (b) assigned in connection with a
sale of all or substantially all of the assets of the Purchaser or the Issuer,
or direct or indirect consolidated subsidiaries or (c) collaterally assigned to
any bank(s) or other financial institution(s) which has extended credit to any
member of the Purchaser Group. Except as set forth in Section 2.03(j) hereof,
neither of the Kapadias nor the Shareholder may assign any of their respective
rights, interests or obligations under this Agreement. Any attempted assignment
in violation of this Section 13.08 shall be null and void. For purposes of this
Section 13.08, references to this Agreement shall not be deemed to include
references to the Xxxxxxx Employment Agreement, the Note or the Purchase Price
Common Stock.
42
13.09 Governing Law. The validity of this Agreement and of any of
-------------
its terms or provisions, as well as the rights and duties of the parties under
this Agreement, shall be construed pursuant to and in accordance with the laws
of the State of New Jersey, without regard to the conflicts of laws provisions
thereof.
13.10 Counterparts. This Agreement may be executed in
------------
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
13.11 Knowledge. Whenever used in this Agreement, the words "to
---------
the knowledge of either of the Companies," "to the knowledge of the Shareholder"
or similar words or phrases shall mean the knowledge or awareness of either of
the Companies, either of the Kapadias or the Shareholder which either of the
Companies, either of the Kapadias or the Shareholder would obtain in the
exercise of reasonable diligence and after due injury, and shall include,
without limitation, the knowledge of the officers and directors of each of the
Companies, it being understood and agreed that such knowledge or awareness of
either of the Companies on the one hand, either of the Xxxxxxx, on the other
hand, or the Shareholder, on the other hand, for purposes hereof, shall also be
attributed to the other such parties.
13.12 Interpretation. The parties hereto agree that this Agreement
--------------
is the product of negotiations between sophisticated parties and individuals,
all of whom were represented by counsel, and each of whom had an opportunity to
participate in, and did participate in, the drafting of each provision hereof.
Accordingly, ambiguities in this Agreement, if any, shall not be construed
strictly or in favor of or against any party hereto but rather shall be given a
fair and reasonable construction without regard to the rule of contra
------
proferentum.
-----------
13.13 Gender and Number. All pronouns used herein shall be deemed
-----------------
to refer to the masculine, feminine or neuter, singular or plural, as the
identity or number of the person, persons, entity or entities may require.
13.14 Joint and Several Obligations. Except as expressly set
-----------------------------
forth herein, the Kapadias and the Shareholder shall be jointly and severally
liable for all agreements, covenants and other obligations of the Kapadias, or
either of them, and for all agreements, covenants and other obligations of the
Shareholder, in any case, as set forth in or arising under this Agreement. In
addition, the Issuer shall be jointly and severally liable for all agreements,
covenants and other obligations of the Purchaser as set forth in or arising
under this Agreement.
13.15 Headings. The headings to the Sections of this Agreement
--------
have been inserted solely for convenience of reference and shall not modify,
define or limit the express provisions of this Agreement.
13.16 Independence of Covenants and Representations and Warranties.
------------------------------------------------------------
All covenants hereunder shall be given independent effect so that if a
particular action or condition is not permitted by any of such covenants, the
fact that it would be permitted by an exception to, or be otherwise within the
limitations of, another covenant shall not avoid the occurrence of a default if
such action is taken or condition exists. In addition, all representations and
warranties hereunder shall be given independent effect so that if a particular
representation or warranty
43
proves to be incorrect or is breached, the fact that another representation or
warranty concerning the same or similar subject matter is correct or is not
breached will not affect the incorrectness of or a breach of a representation
and warranty hereunder. The Exhibits and the Disclosure Schedule attached hereto
are hereby made part of this Agreement in all respects. Section references in
the Disclosure Schedule refer to the specific Section of the Agreement with
respect to which the Companies, the Kapadias and the Shareholder are making a
disclosure. A disclosure under one Section referenced in the Schedule relates
only to the Section of the Agreement referenced, and not to any other Section of
the Agreement, unless expressly so stated, or a cross-reference is made from one
Section of the Schedule to another Section of the Schedule.
* * *
44
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the date first above written.
COMPANIES:
XXXXXXX ENTERPRISES, INC.
By:/s/ Xxxxxxxx Xxxxxxx
--------------------
Name: Xxxxxxxx Xxxxxxx
Title:President
MACDONALD CONTRACT SALES, INC.
By:/s/ Xxxxx Xxxxxxx
-----------------
Name: Xxxxx Xxxxxxx
Title:Vice President
SHAREHOLDER:
/s/ Xxxxxxxx Xxxxxxx
--------------------------------------
Xxxxxxxx Xxxxxxx, as Trustee of The
Xxxxxxx Family Trust
/s/ Xxxxx Xxxxxxx
-----------------------------------
Xxxxx Xxxxxxx, as Trustee of The
Xxxxxxx Family Trust
INDIVIDUALS:
/s/ Xxxxxxxx Xxxxxxx
-----------------------------------
Xxxxxxxx Xxxxxxx
/s/ Xxxxx Xxxxxxx
-----------------------------------
Xxxxx Xxxxxxx
45
PURCHASER:
XXXXXXXXXXXX - XXXX CO.
By:/s/ Xxxx X. Xxxxx
-----------------
Name: Xxxx X. Xxxxx
Title: Vice President
ISSUER:
GUEST SUPPLY, INC.
By:/s/ Xxxx X. Xxxxx
-----------------
Name: Xxxx X. Xxxxx
Title: Vice President
Annex A
Index of Definitions
Certain Definitions. The following terms when used herein shall have the
meanings assigned to them below (certain other terms are defined elsewhere in
this Agreement):
"Adjusted EBITDA" shall have the meaning set forth in the definition of
"Adjusted EBITDA Certificate" below.
"Adjusted EBITDA Certificate" shall mean a certificate signed by Xxxxxxxxx
Kuhen & Xxxxxxxxxx and addressed to the Shareholder and the Purchaser setting
forth the amount of the Companies' combined audited earnings before interest,
income taxes, depreciation, amortization, and bonus or similar payments paid by
either of the Companies (whether paid during or following the end of the fiscal
year ended December 31, 1998) to either or both of the Kapadias or any of their
Affiliates for or in respect of the fiscal year ended December 31, 1998 (as
determined in accordance with GAAP, consistently applied and as computed from
the audited statements of operations of the Companies delivered to the Purchaser
and the Issuer pursuant to Section 10.14(i) and after elimination of inter-
Company transactions (the "Adjusted EBITDA")).
"Affiliate" shall mean, with respect to any person, any other person
directly or indirectly controlling (including but not limited to all directors,
managers, partners and officers of such person), controlled by, or under direct
or indirect common control with such person.
"Annual Financial Statements" shall have the meaning set forth in Section
3.05(a) hereof.
"Balance Sheet" shall have the meaning set forth in Section 3.05(a) hereof.
"Balance Sheet Date" shall mean February 28, 1999.
"Benefit Plans" shall have the meaning set forth in Section 3.15 hereof.
"Building" shall mean that building and real property located at 00000
Xxxxxxxx Xxxx., Xxxxxx, Xxxxxxxxxx.
"Business" shall have the meaning set forth in the recitals hereof.
"Business Day" shall mean a day other than a Saturday or Sunday or other
day on which commercial banks in New York, New York are authorized or required
to close.
"Cash Purchase Price" shall have the meaning set forth in Section 2.01
hereof.
"CERCLA" shall have the meaning set forth in Section 3.12(c)(vi) hereof.
"Closing" shall have the meaning set forth in Section 8.01 hereof.
2
"Closing Adjusted Net Worth" shall mean the Companies' combined adjusted
net worth as of the Closing Date (prior to giving effect to the transactions
contemplated hereby) and as set forth on the Closing Balance Sheet and
calculated as follows: (i) total assets minus (ii) total liabilities plus (iii)
Funded Indebtedness and minus (iv) to the extent included in clause (i) above,
the net book value of the Building, all as determined in accordance with GAAP,
consistently applied and after elimination of inter-Company transactions.
"Closing Balance Sheet" shall have the meaning set forth in Section
2.02(c)(i) hereof.
"Closing Date" shall have the meaning set forth in Section 8.01 hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commission" shall mean the U.S. Securities and Exchange Commission.
"Common Stock" shall have the meaning set forth in Section 2.01 hereof.
"Companies" shall have the meaning set forth in the recitals hereof.
"Company Acquisition Proposal" shall mean any offer or proposal for, or any
indication of interest in, a merger or other business combination involving
either of the Companies or the acquisition of any equity interest in, or all or
a substantial portion of the assets of, either of the Companies or the Business,
other than the transactions contemplated by this Agreement.
"Company Indebtedness" shall mean any obligations and liabilities created,
issued or incurred by either of the Companies for (i) borrowed money, including
without limitation, Funded Indebtedness, bank loans, mortgages, notes payable,
(ii) capital lease obligations, (iii) guarantees of indebtedness of others, (iv)
letters of credit and (v) loans from the Shareholder or any Affiliate of the
Shareholder, and all principal, interest, fees, prepayment penalties or other
amounts due or owing with respect thereto.
"Company Indebtedness Holder" shall mean each holder of Company
Indebtedness.
"Confidentiality Agreement" shall have the meaning set forth in Section
13.03 hereof.
"Contracts" shall have the meaning set forth in Section 3.13(a) hereof.
"Conversion Price" shall mean $13.275.
"Damages" shall mean any and all losses, claims, assessments, demands,
damages, liabilities, obligations, costs and expenses, including without
limitation, reasonable fees and disbursements of counsel sustained or incurred
by the Purchaser Indemnified Parties (or any of them) or the Shareholder
Indemnified Parties (or any of them), as the case may be, in any action,
dispute, claim or proceeding between any of the Purchaser Indemnified Parties,
on the one hand, and any of the Shareholder Indemnified Parties, on the other
hand, or involving a third-party claim against any of the Purchaser Indemnified
Parties or any of the Shareholder Indemnified Parties, as the case may be, and
other out-of-pocket costs and expenses incurred in connection
3
with investigating, preparing or defending or preventing any action, suit or
proceeding, commenced or threatened, or any claim whatsoever.
"Determination" shall have the meaning set forth in Section 2.02(e) hereof.
"Disclosure Schedule" shall mean the Disclosure Schedule attached hereto
and made part hereof as provided in Section 13.16 hereof.
"Dispute Notice" shall have the meaning set forth in Section 2.02(e)
hereof.
"Disputed Matters" shall have the meaning set forth in Section 2.02(e)
hereof.
"DOJ" shall have the meaning set forth in Section 6.07 hereof.
"Environmental Claim" means any notice or claim by any person or entity
alleging potential liability (including potential liability for investigatory
costs, cleanup costs, governmental response costs, natural resource damages,
property damages, personal injuries or penalties) arising out of, based on or
resulting from (i) the generation, treatment, storage, transportation or
recycling of any Hazardous Substance or the presence, or release, discharge,
disposal or emission into the environment, of any Hazardous Substances at the
Real Property or any other real property, whether or not presently or formerly
owned or leased by either of the Companies or any Affiliate of either of the
Companies or the Shareholder or (ii) any violation, or alleged violation, of any
Environmental Laws.
"Environmental Laws" means all federal, state, provincial, local and
foreign laws, rules and regulations relating to environmental health and safety
matters, the pollution or protection of the environment (including ambient air,
surface water, ground water, land surface or subsurface strata) or the
protection of human health and safety from environmental hazards, including laws
and regulations relating to emissions, discharges, releases or threatened
releases of Hazardous Substances, or otherwise relating to the manufacturer,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Substances.
"ERISA" shall have the meaning set forth in Section 3.15 hereof.
"Financial Statements" shall have the meaning set forth in Section 3.05(a)
hereof.
"FMV" shall mean the average of the closing price of Common Stock as
reported on The New York Stock Exchange for the five Business Days immediately
preceding the applicable date of conversion of the Note or the fifth anniversary
of the Closing Date, as the case may be.
"Funded Indebtedness" shall mean all funded obligations and liabilities
created, issued or incurred by either of the Companies for borrowed money from
banks and other financial institutions.
"Funded Indebtedness Holders" shall mean the banks and other financial
institutions holding Funded Indebtedness.
"FTC" shall have the meaning set forth in Section 6.07 hereof.
4
"GAAP" shall mean generally accepted accounting principles.
"Governmental Authority" shall mean the collective reference to any court,
tribunal, government, or governmental or administrative agency, authority or
instrumentality, federal, state or local, or domestic or foreign.
"Hazardous Substances" shall have the meaning set forth in Section
3.12(c)(ii) hereof.
"HSR Act" shall mean the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976, as amended.
"Incremental Taxes" shall mean the excess of (A) the aggregate amount of any
Taxes actually imposed on the Shareholder in respect of or as a result of the
purchase of the Shares of KEI and the making of the Section 338(h)(10) election
(in the year made) contemplated by Section 2.04, over (B) the aggregate amount
of any Taxes that would have been imposed on the Shareholder (in the year made)
in respect of or as a result of the purchase of the Shares of KEI in accordance
with this Agreement had no Section 338(h)(10) election been made. It is
understood and agreed that (i) the amount of Incremental Taxes shall be reduced
to reflect any Tax savings attributable to the deductibility of one (or more)
Tax in computing the amount of another Tax , (ii) the calculation of the
Incremental Taxes shall be based upon the highest individual marginal Federal,
state and local income tax rates applicable to the Shareholder for the year of
payment and shall take into account the Federal deduction for state and local
income taxes and (iii) Incremental Taxes shall not include any Taxes payable by
reason of the breach by any party hereto of their covenants and agreements set
forth herein.
"Indemnification Matter" shall have the meaning set forth in Section
11.03(a) hereof.
"Indemnitee" shall have the meaning set forth in Section 11.03(a) hereof.
"Indemnitor" shall have the meaning set forth in Section 11.03(a) hereof.
"Indemnity Notice" shall have the meaning set forth in Section 11.03(a)
hereof.
"Indemnity Notice Period" shall have the meaning set forth in Section
11.03(b) hereof.
"Independent Auditor" shall have the meaning set forth in Section 2.02(d)
hereof.
"Interim Financial Statements" shall have the meaning set forth in Section
3.05(a) hereof.
"Inventory" shall have the meaning set forth in Section 3.07(b) hereof.
"Xxxxxxx Employment Agreement" shall mean the employment agreement between
X. Xxxxxxx and KEI, substantially in the form of Exhibit A attached hereto.
"Kapadias" shall have the meaning set forth in the recitals hereof.
"Liens" shall mean all liens, mortgages, pledges, charges, security
interests, covenants, easements, restrictions, adverse claims or other
encumbrances of any kind whatsoever and howsoever arising.
5
"Material Adverse Effect" shall mean a material adverse effect individually
or in the aggregate on the businesses, properties, assets, condition (financial
or other), results of operations or prospects of either of the Companies or the
Business.
"Permits" shall have the meaning set forth in Section 3.12(b) hereof.
"Permitted Encumbrances" shall mean, with respect to the Real Property, (a)
laws, rules, regulations and ordinances of general applicability which are not
violated by the existing improvements at the Real Property or the current use
thereof, (b) easements, rights of way, covenants, conditions and other matters
set forth in the Disclosure Schedule and which, individually or in the
aggregate, do not materially affect the Real Property or the use thereof, and
(c) encumbrances for taxes and assessments either not yet due and payable or
being contested in good faith and in a timely and appropriate manner.
"Permitted Equipment Liens" shall have the meaning set forth in Section
3.10(a) hereof.
"Permitted Liens" shall have the meaning set forth in Section 3.10(a)
hereof.
"Purchase Price" shall have the meaning set forth in Section 2.01(a)
hereof.
"Purchase Price Common Stock" shall have the meaning set forth in Section
2.01 hereof.
"Purchaser Group" shall mean, collectively, the Issuer, the Purchaser, each
of the Companies, and each of the Issuer's subsidiaries (direct or indirect).
"Purchaser Indemnified Parties" shall mean the Issuer, the Purchaser, each
of the Companies and each of their respective officers, directors and other
Affiliates.
"Real Property" shall have the meaning set forth in Section 3.09(a) hereof.
"Registration Expense" shall have the meaning set forth in Section 2.03(e)
hereof.
"Registration Notice" shall have the meaning set forth in Section 2.03(a)
hereof.
"Registration Shares" shall have the meaning set forth in Section 2.03(a)
hereof.
"Regulation S-X" shall have the meaning set forth in Section 10.14 hereof.
"Rule 144" shall have the meaning set forth in Section 4.04(c) hereof.
"SEC Documents" shall have the meaning set forth in Section 4.04 hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Section 2.03 Transferee" shall mean any trustor or beneficiary of the
Shareholder or any other trust established for the benefit of any trustor or
beneficiary (or any child thereof) of the Shareholder and/or any charitable
organization.
"Shareholder Indemnified Parties" shall mean the Shareholder and each of
the Kapadias.
6
"Shareholder" shall have the meaning set forth in the recitals hereof.
"Shares" shall have the meaning set forth in the recitals hereof.
"60-Day Period" shall have the meaning set forth in Section 2.02(c)(i)
hereof.
"Supplemental Notice" shall have the meaning set forth in Section 2.03(b)
hereof
"Tax Returns" shall have the meaning set forth in Section 3.11(a) hereof.
"Taxes" shall have the meaning set forth in Section 3.11(a) hereof.
"30-Day Period" shall have the meaning set forth in Section 2.02(d) hereof.
"Transfer" shall have the meaning set forth in Section 10.09 hereof.
"Year 2000 Problem" shall have the meaning set forth in Section 3.25
hereof.
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