1
Exhibit 10.7
STOCK EXCHANGE AGREEMENT
AMONG
NORTH AMERICAN TEL-COM GROUP, INC.,
AND
XXXXX XXX AND XXXXX BACK
March 31, 1998
2
TABLE OF CONTENTS
PAGE
----
AGREEMENT.............................................................................................. 1
1. Definitions................................................................................... 1
2. Exchange Transaction.......................................................................... 6
(a) Basic Transaction.................................................................... 6
(b) Consideration........................................................................ 6
(c) The Closing.......................................................................... 6
(d) Deliveries at Closing................................................................ 7
3. Representations and Warranties Concerning the Transaction..................................... 7
(a) Representations and Warranties of the Transferors.................................... 7
(b) Representations and Warranties of the North American................................. 8
4. Representations and Warranties Concerning Target.............................................. 11
(a) Organization, Qualification, and Corporate Power..................................... 11
(b) Authorization of Transaction......................................................... 11
(c) Capitalization....................................................................... 11
(d) Noncontravention..................................................................... 12
(e) Brokers' Fees........................................................................ 12
(f) Title to Assets...................................................................... 12
(g) Subsidiaries......................................................................... 12
(h) Financial Statements................................................................. 12
(i) Events Subsequent to Most Recent Fiscal Year End..................................... 13
(j) Undisclosed Liabilities.............................................................. 15
(k) Legal Compliance..................................................................... 15
(l) Tax Matters.......................................................................... 15
(m) Real Property........................................................................ 17
(n) Intellectual Property................................................................ 18
(o) Tangible Assets...................................................................... 20
(p) Inventory............................................................................ 20
(q) Contracts............................................................................ 20
(r) Notes and Accounts Receivable........................................................ 21
(s) Powers of Attorney................................................................... 21
(t) Insurance............................................................................ 21
(u) Litigation........................................................................... 21
(v) Commitments and Warranties........................................................... 22
(w) Liability for Services Performed..................................................... 22
(x) Employees............................................................................ 22
(y) Employee Benefits.................................................................... 22
(z) Guaranties........................................................................... 24
(aa) Environmental, Health, and Safety Matters............................................ 24
(ab) Certain Business Relationships with Target........................................... 26
i
3
(ac) Customers and Suppliers.............................................................. 26
(ad) Disclosure........................................................................... 26
5. Pre-Closing Covenants......................................................................... 26
(a) General.............................................................................. 27
(b) Notices and Consents................................................................. 27
(c) Operation of Business................................................................ 27
(d) Preservation of Business............................................................. 27
(e) Full Access.......................................................................... 27
(f) Notice of Developments............................................................... 28
(g) Exclusivity.......................................................................... 28
(h) No Termination of Transferors' Obligation by Subsequent Incapacity................... 28
6. Post-Closing Covenants........................................................................ 28
(a) General.............................................................................. 28
(b) Litigation Support................................................................... 28
(c) Transition........................................................................... 29
(d) Confidentiality...................................................................... 29
(e) Stock Options........................................................................ 29
(f) Independent Accountants.............................................................. 29
(g) Employees of Target.................................................................. 29
(h) Tax Matters.......................................................................... 29
7. Conditions to Obligation to Close............................................................. 30
(a) Conditions to Obligation of the North American....................................... 30
(b) Conditions to Obligation of the Transferors.......................................... 32
(c) Post-Closing Obligation of Transfers................................................. 33
8. Remedies for Breaches of This Agreement....................................................... 34
(a) Survival of Representations and Warranties........................................... 34
(b) Indemnification Provisions for Benefit of North American............................. 34
(c) Indemnification Provisions for Benefit of the Transferors............................ 36
(d) Matters Involving Third Parties...................................................... 36
(e) Determination of Adverse Consequences................................................ 37
(f) Basket............................................................................... 37
(g) Other Indemnification Provisions..................................................... 38
9. Post-Closing Adjustment of Consideration...................................................... 38
10. Tax Matters................................................................................... 40
(a) Tax Periods Ending on or Before the Closing Date..................................... 40
(b) Tax Periods Beginning Before and Ending After the Closing Date....................... 40
(c) Cooperation on Tax Matters........................................................... 41
(d) Tax Sharing Agreements............................................................... 42
(e) S Corporation Status................................................................. 42
(f) Certain Taxes........................................................................ 42
ii
4
11. Termination................................................................................... 42
(a) Termination of Agreement............................................................. 42
(b) Effect of Termination................................................................ 43
12. Miscellaneous................................................................................. 43
(a) Press Releases and Public Announcements.............................................. 43
(b) No Third-Party Beneficiaries......................................................... 43
(c) Entire Agreement..................................................................... 43
(d) Succession and Assignment............................................................ 43
(e) Counterparts......................................................................... 44
(f) Headings............................................................................. 44
(g) Notices.............................................................................. 44
(h) Governing Law........................................................................ 45
(i) Amendments and Waivers............................................................... 45
(j) Severability......................................................................... 46
(k) Expenses............................................................................. 46
(l) Construction......................................................................... 46
(m) Incorporation of Exhibits, Annexes, and Schedules.................................... 46
(n) Specific Performance................................................................. 46
(o) Submission to Jurisdiction........................................................... 46
(p) WAIVER OF JURY TRIAL................................................................. 47
Exhibit A--Intentionally Omitted
Exhibit B--Financial Statements
Exhibit C--List of Key Employees
Exhibit D--Opinion of Transferors' Counsel
Exhibit E--[NOT APPLICABLE]
Exhibit F--Secretary and Incumbency Certificate (Target)
Exhibit G--Employment Agreements
Exhibit H--Opinion of North American's Counsel
Exhibit I--Secretary and Incumbency Certificate (North American)
Annex I--Exceptions to the Transferors' Representations and Warranties
Concerning the Transaction
Annex II--Exceptions to the North American's Representations and Warranties
Concerning the Transaction
Disclosure Schedule--Exceptions to Representations and Warranties
Concerning Target
iii
5
STOCK EXCHANGE AGREEMENT
Agreement entered into as of March 31, 1998, by and among North
American Tel-Com Group, Inc., a Florida corporation ("North American"), and
Xxxxx Xxx and Xxxxx Back (the "Transferors"), the sole shareholders of Excel
Cable Construction, Inc., a Florida corporation ("Target"). North American and
the Transferors are referred to collectively herein as the "Parties."
The Transferors in the aggregate owns all of the outstanding capital
stock of Target.
This Agreement contemplates the transfer by Transferors of all of the
issued and outstanding capital stock of Target to North American. The
Transferors will receive cash and capital stock in North American in exchange
for their capital stock in Target.
Simultaneously herewith, North American is entering into stock
exchange agreements for the acquisition of all of the issued and outstanding
capital stock of each of Mich-Com Cable Services Incorporated, Kenya
Corporation, and CableMasters Corp. (together with this Agreement, the
"Exchange Agreements") and a Securities Purchase Agreement with HIG Cable, Inc.
All of the parties to the Exchange Agreements intend for the transfers
contemplated pursuant to the Exchange Agreements to be treated as a single
transaction qualifying under Section 351 of the Code (as that term is hereafter
defined).
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1. DEFINITIONS.
"ACCREDITED INVESTOR" has the meaning set forth in Regulation
D promulgated under the Securities Act.
"ADVERSE CONSEQUENCES" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses,
expenses, and fees, including court costs and reasonable attorneys' fees and
expenses, and any other cost of enforcing a party's rights under this
Agreement.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act.
"AFFILIATED GROUP" means any affiliated group within the
meaning of Code Section 1504(a) or any similar group defined under a similar
provision of state, local or foreign law.
"APPLICABLE RATE" means the corporate base rate of interest
publicly announced from time to time by PNC Bank, N.A.
6
"BASIS" means any past or present fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction that forms or could form the
basis for any specified consequence.
"CLOSING" has the meaning set forth in Section 2(c) below.
"CLOSING DATE" has the meaning set forth in Section 2(c)
below.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONFIDENTIAL INFORMATION" means any information concerning
the businesses and affairs of Target that is not already generally available to
the public.
"CONSIDERATION" has the meaning set forth in Section 2(b)
below.
"CONTROLLED GROUP OF CORPORATIONS" has the meaning set forth
in Code Section 1563.
"DISCLOSURE SCHEDULE" has the meaning set forth in Section 4
below.
"EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan), (d) Employee Welfare Benefit Plan or (e)
bonus, incentive, stock purchase, stock ownership, stock option, stock
appreciation right, severance, salary continuation, termination, change of
control or other material fringe benefit plan or program.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in
ERISA Section 3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in
ERISA Section 3(1).
"ENVIRONMENTAL, HEALTH, AND SAFETY REQUIREMENTS" shall mean
all federal, state, local and foreign statutes, regulations, ordinances and
other provisions having the force or effect of law, all judicial and
administrative orders and determinations, all contractual obligations and all
common law concerning public health and safety, worker health and safety, and
pollution or protection of the environment, including without limitation all
those relating to the presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution, labeling, testing,
processing, discharge, release, threatened release, control, or cleanup of any
Hazardous Materials (which, for purposes of this Agreement, shall xxxxx any
hazardous materials, substances or wastes, chemical substances or mixtures,
pesticides, pollutants, contaminants, toxic chemicals, petroleum products or
byproducts, asbestos, polychlorinated biphenyls, noise or radiation), each as
amended and as now or hereafter in effect.
2
7
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA AFFILIATE" means (i) any corporation included with
Target in a controlled group of corporations within the meaning of Section
414(b) of the Code; (ii) any trade or business (whether or not incorporated)
which is under common control with Target within the meaning of Section 414(c)
of the Code; (iii) any member of an affiliated service group of which Target is
a member within the meaning of Section 414(m) of the Code; or (iv) any other
person or entity treated as an affiliate of Target under Section 414(o) of the
Code.
"EXCHANGE AGREEMENTS" has the meaning set forth in the
preface above.
"EXCHANGES" means the transactions contemplated under the
Exchange Agreements.
"FIDUCIARY" has the meaning set forth in ERISA Section 3(21).
"FINANCIAL STATEMENT" has the meaning set forth in Section
4(h) below.
"GAAP" means United States generally accepted accounting
principles as in effect from time to time.
"HIG" refers to HIG Cable, Inc., a Cayman Islands corporation.
"XXXX-XXXXX-XXXXXX ACT" means the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976, as amended.
"INDEMNIFIED PARTY" has the meaning set forth in Section 8(d)
below.
"INDEMNIFYING PARTY" has the meaning set forth in Section
8(d) below.
"INTELLECTUAL PROPERTY" means (a) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications, and patent
disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof, (b)
all trademarks, service marks, trade dress, logos, trade names, and corporate
names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection therewith, (d) all mask works and all applications,
registrations, and renewals in connection therewith, (e) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals),
3
8
(f) all computer software (including data and related documentation), (g) all
other proprietary rights, and (h) all copies and tangible embodiments thereof
(in whatever form or medium).
"KNOWLEDGE" means that which is known by a person and that of
which a person has constructive knowledge based upon information readily
available to that person in the performance of such person's duties. In the
case of North American or Target, "Knowledge" means the "Knowledge" of its
respective directors and executive officers.
"LIABILITY" means any liability (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"MATERIAL ADVERSE EFFECT" means, individually or together
with other adverse effects, any material adverse effect on the assets,
liabilities, results of operations, business condition (financial or otherwise)
or prospects of Target or on Target's ability to consummate the transactions
contemplated hereby or the ability of the North American to operate the
business of Target immediately after the Closing in substantially the same
manner as such business is conducted prior to Closing.
"MOST RECENT BALANCE SHEET" means the balance sheet contained
within the Most Recent Financial Statements.
"MOST RECENT FINANCIAL STATEMENTS" has the meaning set forth
in Section 4(h) below.
"MOST RECENT FISCAL PERIOD END" has the meaning set forth in
Section 4(h) below.
"MOST RECENT FISCAL YEAR END" has the meaning set forth in
Section 4(h) below.
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA
Section 3(37).
"NATIONAL SECURITIES EXCHANGE" shall have the meaning
ascribed to that term in the rules and regulations promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934.
"NORTH AMERICAN" has the meaning set forth in the preface
above.
"NORTH AMERICAN CLASS A COMMON SHARES" means any share of the
Class A Common Stock, par value $.01 per share, of North American.
"NORTH AMERICAN CLASS B COMMON SHARES" means any share of the
Class B Common Stock, par value $.01 per share, of North American.
"NORTH AMERICAN COMMON STOCK" means any share of the common
stock, par value $.01 par share, of North American.
4
9
"NORTH AMERICAN SERIES A PREFERRED SHARES" means any share of
the Series A Convertible Preferred Stock, par value $.01 per share, of North
American.
"NORTH AMERICAN PREFERRED STOCK" means any share of the
preferred stock, par value $.01 per share, of North American.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of
business consistent with past custom and practice (including with respect to
quantity and frequency).
"PARTY" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PERSON" means an individual, a partnership, a corporation,
an association, a joint stock company, a trust, a joint venture, an
unincorporated organization, or a governmental entity (or any department,
agency, or political subdivision thereof).
"PROHIBITED TRANSACTION" has the meaning set forth in ERISA
Section 406 and Code Section 4975.
"REPORTABLE EVENT" has the meaning set forth in ERISA Section
4043.
"SECURITIES ACT" means the Securities Act of 1933, as
amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act
of 1934, as amended.
"SECURITIES PURCHASE AGREEMENT" means the Securities Purchase
Agreement of even date herewith, by and between North American and HIG,
including exhibits thereto.
"SECURITY INTEREST" means any mortgage, pledge, lien,
encumbrance, charge, or other security interest, other than (a) mechanic's,
materialmen's, and similar liens that could not reasonably be expected to have
a Material Adverse Effect, (b) liens for Taxes not yet due and payable or for
Taxes that the taxpayer is contesting in good faith through appropriate
proceedings disclosed on Section 4(l) of the Disclosure Schedule, (c) purchase
money liens and liens securing rental payments under capital lease arrangements
disclosed in the Most Recent Financial Statements, and (d) other liens arising
in the Ordinary Course of Business and not incurred in connection with the
borrowing of money, so long as such liens could not reasonably be expected to
have a Material Adverse Effect.
"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement of
North American of even date herewith.
5
10
"SUBSIDIARY" means any corporation with respect to which a
specified Person (or a Subsidiary thereof) owns a majority of the common stock
or has the power to vote or direct the voting of sufficient securities to elect
a majority of the directors.
"TARGET" has the meaning set forth in the preface above.
"TARGET SHARE" means any share of the Common Stock, par value
$1.00 per share, of Target.
"TARGET SHAREHOLDER" means any Person who or which holds any
Target Shares.
"TAX" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Code Section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed or not,
and any obligations under any agreements or arrangements with respect to any of
the foregoing.
"TAX RETURN" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"THIRD PARTY CLAIM" has the meaning set forth in Section 8(d)
below.
"TRANSFERORS" has the meaning set forth in the preface above.
2. EXCHANGE TRANSACTION.
(a) BASIC TRANSACTION. On and subject to the terms and
conditions of this Agreement, North American agrees to acquire from the
Transferors, and the Transferors agree to transfer to North American, all of
their Target Shares for the consideration specified below in this Section 2.
(b) CONSIDERATION. North American agrees to deliver to the
Transferors at Closing (i) cash in the amount of $2,009,000 payable by wire
transfer or other immediately available funds and (ii) 563,200 North American
Class B Common Shares (collectively, the "Consideration"). The Consideration
shall be subject to adjustment pursuant to the provisions of Section 9 hereof.
The Consideration shall be allocated among the Transferors in proportion to
their respective holdings of Target Shares as set forth in Section 4(c) hereof.
(c) THE CLOSING. The closing of the transactions contemplated
by this Agreement (the "CLOSING") shall take place at the offices of Holland &
Knight LLP in Miami,
6
11
Florida, commencing at 9:00 a.m. local time on March 31, 1998 or such other
date, time and place as the Parties may mutually determine (the "CLOSING
DATE").
(d) DELIVERIES AT CLOSING. At the Closing, (i) the
Transferors will deliver to the North American the various certificates,
instruments, and documents referred to in Section 7(a) below, (ii) North
American will deliver to the Transferors the various certificates, instruments,
and documents referred to in Section 7(b) below, and (iii) the Transferors will
deliver to North American stock certificates representing all of their Target
Shares, endorsed in blank or accompanied by duly executed assignment documents,
and (iv) North American will deliver to the Transferors the Consideration
specified in Section 2(b) above.
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
(a) REPRESENTATIONS AND WARRANTIES OF THE TRANSFERORS. Each
Transferor represents and warrants to North American that the statements
contained in this Section 3(a) are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Section 3(a)), except as set forth in Annex I
attached hereto.
(i) AUTHORIZATION OF TRANSACTION. Such Transferor
has full power and authority to execute and deliver this Agreement and
to perform his obligations hereunder. This Agreement constitutes the
valid and legally binding obligation of such Transferor, enforceable
in accordance with its terms and conditions except to the extent
enforcement thereof may be limited by applicable bankruptcy,
reorganization, insolvency or moratorium laws, or other laws affecting
the enforcement of creditors' rights or by the principles governing
the availability of equitable remedies. Such Transferor need not give
any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency or any
other Person in order to consummate the transactions contemplated by
this Agreement.
(ii) NONCONTRAVENTION. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court
to which such Transferor is subject or (B) conflict with, result in a
breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or
cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which such Transferor is
a party or by which he is bound or to which any of his assets is
subject.
(iii) BROKERS' FEES. Such Transferor has, or prior
to Closing will have, paid any fees or commissions due from Transferor
to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement. Such Transferor agrees that he will
pay any additional amounts that may become due from him or Target to
any such
7
12
broker, finder or agent in the future, including as a result of any
indemnification obligations.
(iv) INVESTMENT. Such Transferor (A) understands
that, except as contemplated under the Stockholders Agreement, the
North American Class B Common Shares that he will receive as part of
the Purchase Price have not been, and will not be, registered under
the Securities Act, or under any state securities laws, and are being
offered and sold in reliance upon federal and state exemptions for
transactions not involving any public offering, (B) is acquiring such
North American Class B Common Shares solely for his own account for
investment purposes, and not with a view to the distribution thereof,
(C) is a sophisticated investor with knowledge and experience in
business and financial matters, (D) has received certain information
concerning North American and has had the opportunity to obtain
additional information as desired in order to evaluate the merits and
the risks inherent in holding the North American Class B Common
Shares, (E) is able to bear the economic risk and lack of liquidity
inherent in holding the North American Class B Common Shares, and (F)
is an Accredited Investor for the reasons set forth on Annex I.
(v) TARGET SHARES. Such Transferor holds of record
and owns beneficially all of his issued and outstanding Target Shares,
as further described in Section 4(c) hereof, free and clear of any
restrictions on transfer (other than any restrictions under the
Securities Act and state securities laws), Taxes, security interests
liens or other encumbrances, options, warrants, purchase rights,
contracts, commitments, equities, claims, and demands. Such Transferor
is not a party to any option, warrant, purchase right, or other
contract or commitment that could require such Transferor to sell,
transfer, or otherwise dispose of any capital stock of Target (other
than this Agreement). Such Transferor is not a party to any voting
trust, proxy, shareholders agreement, or other agreement or
understanding with respect to the voting of any capital stock of
Target.
(vi) DISCLOSURE. Neither this Agreement nor any of
the exhibits, attachments, written statements, documents, certificates
or other items prepared for or supplied to North American by such
Transferor with respect to the transactions contemplated hereby
contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make each statement contained
herein or therein not misleading. There is no fact which such
Transferor has not disclosed to the North American herein and of which
such Transferor is aware which could be anticipated to have a Material
Adverse Effect.
(b) REPRESENTATIONS AND WARRANTIES OF THE NORTH AMERICAN.
North American represents and warrants to Transferors that the statements
contained in this Section 3(b) are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Section 3(b)), except as set forth in Annex II
attached hereto.
8
13
(i) ORGANIZATION OF THE NORTH AMERICAN. North
American is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Florida. Correct and
complete copies of the charter and bylaws of North American (as
amended to date) are included as part of Annex II. The names and
titles of each officer and director of North American is set forth in
Annex II.
(ii) CAPITALIZATION OF NORTH AMERICAN. The entire
authorized capital stock of North American consists of (i) 98,000,000
shares of North American Common Stock, including 10,000,000 North
American Class A Common Shares, 20,000,000 North American Class B
Common Shares, and 68,000,000 Shares of undesignated North American
Common Stock and (ii) 2,000,000 shares of North American Preferred
Stock including 100,000 designated as North American Series A
Preferred Shares. The issued and outstanding capital stock of North
American, immediately prior to (i) the closing of the transactions
contemplated pursuant to the Exchange Agreements and (ii) the proposed
exchange of 100,000 North American Series A Preferred Shares with HIG,
consists of 1,946,330 North American Class A Common Shares, no North
American Class B Common Shares and no North American Preferred Stock.
The issued and outstanding capital stock of North American,
immediately following the (i) closing of the transactions contemplated
pursuant to the Exchange Agreements and (ii) the proposed exchange of
100,000 North American Series A Preferred Shares to HIG, shall consist
of 1,946,330 North American Class A Shares, 50,011,800 North American
Class B Shares and 100,000 North American Series A Preferred Shares,
held of record as set forth in Annex II hereto. All of the issued and
outstanding North American Class A Common Shares have been, and upon
issuance pursuant to the Exchange Agreements and the Securities
Purchase Agreement, respectively, the 5,011,800 Class B Common Shares
and the 100,000 North American Series A Preferred Shares will be, duly
authorized, validly issued, fully paid, and nonassessable. Except as
disclosed in Annex II, there are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights,
exchange rights, or other contracts or commitments that could require
North American to issue, sell, or otherwise cause to become
outstanding any of its capital stock. Except as disclosed in Annex II,
there are no outstanding or authorized stock appreciation, phantom
stock, profit participation, or similar rights with respect to North
American. Except as disclosed in Annex II, there are no voting trusts,
proxies or other agreements or understandings with respect to the
voting of the capital stock of North American.
Included as part of Annex II is an unaudited pro
forma balance sheet for North American, dated as of the date of this
Agreement, which gives effect on a pro forma basis to (i) the
consummation of the transactions contemplated by the Exchange
Agreements, (ii) the exchange of 100,000 North American Series A
Preferred Shares to HIG and (iii) the proposed $10,000,000 Revolving
Credit Facility and $19,000,000 Term Loan from PNC Bank, N.A.
9
14
Also included as part of Annex II is a table listing
the percentage of North American capital stock attributable to each
class of shareholders of North American immediately following the
closing of (i) the transactions contemplated by the Exchange
Agreements and (ii) the transactions contemplated by the Securities
Purchase Agreement.
(iii) OPERATION. North American has not conducted
any activities or incurred any liabilities other than in connection
with the Exchanges and in connection with securing financing for the
Exchanges.
(iv) AUTHORIZATION OF TRANSACTION. North American
has full power and authority (including full corporate power and
authority) to execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement constitutes the valid and
legally binding obligation of North American, enforceable in
accordance with its terms and conditions except to the extent
enforcement thereof may be limited by applicable bankruptcy,
reorganization, insolvency or moratorium laws, or other laws affecting
the enforcement of creditors' rights or by the principles governing
the availability of equitable remedies. North American need not give
any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency or any
other Person in order to consummate the transactions contemplated by
this Agreement.
(v) NONCONTRAVENTION. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court
to which either North American is subject or any provision of their
respective charter or bylaws or (B) conflict with, result in a breach
of, constitute a default under, result in the acceleration of, create
in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which North American is a party or
by which North American is bound or to which any of its assets is
subject.
(vi) BROKERS' FEES. North American has, or prior to
the Closing will have, paid any fees or commissions due from North
American to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement. North American agrees
that they will pay any additional amounts that may become due from
North American to any such broker, finder or agent in the future,
including as a result of any indemnification obligations.
(vii) DISCLOSURE. Neither this Agreement nor any of
the exhibits, attachments, written statements, documents, certificates
or other items prepared for or supplied to the Transferors by the
North American with respect to the transactions contemplated hereby
contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make each statement contained
herein or therein not
10
15
misleading. There is no fact which North American has not disclosed to
the Transferors herein and of which North American or any of the its
officers or directors is aware and which could be anticipated to have
a material adverse effect on the operations of North American after
the Closing.
4. REPRESENTATIONS AND WARRANTIES CONCERNING TARGET. The Transferors
jointly and severally represent and warrant to the North American that the
statements contained in this Section 4 are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date
of this Agreement throughout this Section 4), except as set forth in the
Disclosure Schedule delivered by the Transferors to the North American on the
date hereof and initialed by the Parties (the "DISCLOSURE SCHEDULE"). The
Disclosure Schedule shall be effective to modify only those representations and
warranties to which the Disclosure Schedule makes explicit reference. The
Disclosure Schedule will be arranged in paragraphs corresponding to the
lettered and numbered paragraphs contained in this Section 4.
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. Target
is a corporation duly organized, validly existing, and in good standing under
the laws of the jurisdiction of its incorporation. Target is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required. Target has full corporate power and
authority and all licenses, permits, and authorizations necessary to carry on
the businesses in which it is engaged and in which it presently proposes to
engage and to own and use the properties owned and used by it. Section 4(a) of
the Disclosure Schedule lists the directors and officers of Target. Correct and
complete copies of the charter and bylaws of Target (as amended to date) are
included as part of Section 4(a) of the Disclosure Schedule. The minute books
(containing the records of meetings of the stockholders, the board of
directors, and any committees of the board of directors), the stock certificate
books, and the stock record books of Target are correct and complete and an
true and correct copy thereof has been provided to North American. Target is
not in default under or in violation of any provision of its charter or bylaws.
(b) AUTHORIZATION OF TRANSACTION. [INTENTIONALLY LEFT BLANK]
(c) CAPITALIZATION. The entire authorized capital stock of
Target consists of 5,000 Target Shares, of which 1,000 Target Shares are issued
and outstanding and no Target Shares are held in treasury. All of the issued
and outstanding Target Shares have been duly authorized, are validly issued,
fully paid, and nonassessable, and are held of record and owned beneficially
solely by the Transferors in the following amounts: Xxxxx Xxx - 520 Target
Shares, and Xxxxx Back - 480 Target Shares. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights, preemptive rights or other contracts or commitments
that could require Target to issue, sell, or otherwise cause to become
outstanding any of its capital stock or securities convertible or exchangeable
for, or any options, warranties, or rights to purchase, any of such capital
stock. There are no outstanding obligations of Target to repurchase, redeem or
otherwise acquire any capital stock or any securities convertible into or
exchangeable for such capital stock or any options, warrants or
11
16
rights to purchase such capital stock or securities. There are no outstanding
or authorized stock appreciation, phantom stock, profit participation, or
similar rights with respect to Target. There are no voting trusts, proxies, or
other agreements or understandings with respect to the voting, transfer,
dividend or other rights (such as registration rights under the Securities Act)
of the capital stock of Target.
(d) NONCONTRAVENTION. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated
hereby, will (i) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of
any government, governmental agency, or court to which Target is subject or any
provision of the charter or bylaws of Target or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which Target is a party or by which it is bound or to which any
of its assets is subject (or result in the imposition of any Security Interest
upon any of its assets). Target need not give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any Person,
government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
(e) BROKERS' FEES. Target has, or prior to Closing will have,
paid any fees or commissions due from Target to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement. Transferors
agrees that they will pay any additional amounts that may become due from
Target to any such broker, finder or agent in the future, including as a result
of any indemnification obligations.
(f) TITLE TO ASSETS. Target has good and marketable title to,
or a valid leasehold interest in, the properties and assets used by it, located
on its premises, or shown on the Most Recent Balance Sheet or acquired after
the date thereof, free and clear of all Security Interests (other than the
Security Interests disclosed on the face of the Most Recent Balance Sheet),
except for properties and assets disposed of in the Ordinary Course of Business
since the date of the Most Recent Balance Sheet, none of which disposals are
expected to have a Material Adverse Effect. The consummation of the
transactions contemplated by this Agreement will not affect Target's good and
marketable title to, or valid leasehold interest in, the properties and assets
described in the preceding sentence.
(g) SUBSIDIARIES. Target does not currently have, and has
never had, any Subsidiaries and does not own any securities of any other
Person.
(h) FINANCIAL STATEMENTS. Attached hereto as EXHIBIT B are
the following financial statements (collectively the "FINANCIAL STATEMENTS"):
(i) audited consolidated balance sheets and statements of income, changes in
stockholders' equity, and cash flow including the audit report thereon as of
and for the fiscal year ended December 31, 1997 (the "MOST RECENT FISCAL YEAR
END") for Target; (ii) unaudited consolidated balance sheets and statements of
income for the fiscal years ended December 31, 1995, and December 31, 1996 and
(iii)
12
17
unaudited consolidated balance sheets and statements of income, (the "MOST
RECENT FINANCIAL STATEMENTS") as of and for the period from January 1, 1998,
through February 28, 1998 (the "MOST RECENT FISCAL PERIOD END") for Target. The
Financial Statements (including the notes thereto) have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby, present fairly the financial condition of Target as of such
dates and the results of operations of Target for such periods, are correct and
complete, and are consistent with the books and records of Target (which books
and records are correct and complete); provided, however, that the Most Recent
Financial Statements are subject to normal year-end adjustments (which will not
be material individually or in the aggregate) and lack footnotes.
Target's cash balance, in its corporate bank accounts, as of
the Closing Date is less than $1,000.00.
(i) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. Since
the Most Recent Fiscal Year End and except as disclosed in the Disclosure
Schedule, there has not occurred any Material Adverse Effect. Without limiting
the generality of the foregoing, since that date:
(i) Target has not sold, leased, transferred, or
assigned any of its assets, tangible or intangible, other than for a
fair consideration in the Ordinary Course of Business;
(ii) Target has not entered into any agreements,
contracts, leases, or licenses either involving more than $10,000 in
the aggregate, having a term greater than 12 months or outside the
Ordinary Course of Business;
(iii) no party (including any of Target) has
accelerated, terminated, modified, or cancelled any agreements,
contracts, leases, or licenses involving more than $10,000 in the
aggregate to which Target is a party or by which it is bound;
(iv) Target has not imposed or allowed to be imposed
any Security Interest upon any of its assets, tangible or intangible;
(v) Target has not made any capital expenditures
involving more than $10,000 in the aggregate or outside the Ordinary
Course of Business;
(vi) Target has not made any capital investment in,
any loan to, or any acquisition of the securities or assets of, any
other Person;
(vii) Target has not issued any note, bond, or other
debt security or created, incurred, assumed, or guaranteed any
indebtedness for borrowed money or capitalized lease obligation
involving more than $10,000 in the aggregate;
13
18
(viii) Target has not delayed or postponed the
payment of accounts payable and other Liabilities outside the Ordinary
Course of Business;
(ix) Target has not cancelled, compromised, waived,
or released any right or claim either involving more than $10,000 in
the aggregate or outside the Ordinary Course of Business;
(x) Target has not granted any license or sublicense
of any rights under or with respect to any Intellectual Property;
(xi) there has been no change made or authorized in
the charter or bylaws of any of Target;
(xii) Target has not issued, sold, or otherwise
disposed of any of its capital stock or securities convertible into or
exchangeable for such stock, or granted any options, warrants, or
other rights to purchase or obtain any of such capital stock or
securities;
(xiii) Target has not declared, set aside, or paid
any dividend or made any distribution with respect to its capital
stock (whether in cash or in kind) or redeemed, purchased, or
otherwise acquired any of its capital stock or other securities;
(xiv) Target has not experienced any damage,
destruction, or loss (whether or not covered by insurance) to its
property involving more than $10,000 in the aggregate;
(xv) Target has not made any loan to, or entered
into any other transaction with, any of its directors, officers, and
employees or their "Associates" (as defined in Rule 12b-2 under the
Exchange Act);
(xvi) Target has not entered into any employment
contract or collective bargaining agreement, written or oral, or
modified the terms of any existing such contract or agreement;
(xvii) Target has not granted any increase in any
compensation of any of its directors, officers, or other employees;
(xviii) Target has not adopted, amended, modified,
or terminated any bonus, profit-sharing, incentive, severance, or
other plan, contract, or commitment for the benefit of any of its
directors, officers, and employees (or taken any such action with
respect to any other Employee Benefit Plan);
(xix) Target has not made any other change in
employment terms for any of its directors, officers, and employees
outside the Ordinary Course of Business;
14
19
(xx) Target has not made or pledged to make any
charitable or other capital contribution outside the Ordinary Course
of Business;
(xxi) there has not been any other material
occurrence, event, incident, action, failure to act, or transaction
outside the Ordinary Course of Business involving Target; and
(xxii) Target has not increased, or experienced any
change in assumptions underlying or method of calculating, any bad
debt, contingency, tax or other reserves or changed its accounting
practices, methods or assumptions (including changes in estimates or
valuation methods); or written down the value of any assets; and
(xxiii) Target has not committed to any of the
foregoing.
(j) UNDISCLOSED LIABILITIES. Except as disclosed in Section
4(j) of the Disclosure Schedule, Target does not have any Liability, except for
(i) Liabilities set forth on the face of the Most Recent Balance Sheet (rather
than in any notes thereto) and (ii) Liabilities which have arisen after the
Most Recent Fiscal Period End in the Ordinary Course of Business (none of which
results from, arises out of, relates to, is in the nature of, or was caused by
any breach of contract, breach of warranty, tort, infringement, or violation of
law and none of which could reasonably be expected to have a Material Adverse
Effect).
(k) LEGAL COMPLIANCE. Target and its predecessors and
Affiliates has complied, in all material respects, with all applicable laws
(including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof), and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has been
filed or commenced against any of them alleging any failure so to comply.
(l) TAX MATTERS.
(i) Target has filed all Tax Returns that it was
required to file. All such Tax Returns were correct and complete in
all respects. All Taxes owed by Target (whether or not shown on any
Tax Return) have been paid or are fully and adequately accrued and
adequately disclosed on the Most Recent Balance Sheet. Target is not
currently the beneficiary of any extension of time within which to
file any Tax Return. No claim has ever been made by an authority in a
jurisdiction where Target does not file Tax Returns that it is or may
be subject to taxation by that jurisdiction. There are no Security
Interests on any of the assets of Target that arose in connection with
any failure (or alleged failure) to pay any Tax.
(ii) Target has withheld and paid all Taxes required
to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder,
or other third party.
15
20
(iii) Neither Transferors nor Target has Knowledge
that any authority expects to assess any additional Taxes for any
period for which Tax Returns have been filed. There is no action, suit
or proceeding, investigation, dispute or claim now pending or
threatened concerning any Tax Liability of Target or proposed
adjustment to the taxable income of Target either (A) claimed or
raised by any authority in writing or (B) as to which any of the
Transferors and Target have Knowledge based upon personal contact with
any agent of such authority. Section 4(l) of the Disclosure Schedule
lists all Tax Returns filed with respect to Target for the last three
completed tax years, indicates those Tax Returns that have been
audited, and indicates those Tax Returns that currently are the
subject of audit. The Transferors have delivered to the North American
correct and complete copies of all Tax Returns, examination reports,
and statements of deficiencies assessed against or agreed to by Target
since January 1, 1994.
(iv) Target has not waived any statute of
limitations in respect of Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency.
(v) Target has not filed a consent under Code
Section 341(f) concerning collapsible corporations. Target has not
made any payments, is not obligated to make any payments, or is not a
party to any agreement that under certain circumstances could obligate
it to make any payments that will not be deductible under Code Section
280G or that would give rise to any obligation to indemnify any Person
for any excise tax payable pursuant to Code Section 4999. The Target
has not been a United States real property holding corporation within
the meaning of Code Section 897(c)(2) during the applicable period
specified in Code Section 897(c)(1)(A)(ii). Target has disclosed on
its federal income Tax Returns all positions taken therein that could
give rise to a substantial understatement of federal income Tax within
the meaning of Code Section 6662. Neither Target nor any predecessor
or affiliate thereof is a party to any Tax allocation, sharing,
indemnification or similar agreement. Target (A) has not been a member
of an Affiliated Group filing a consolidated federal income Tax Return
(other than a group the common parent of which was Target) and (B)
does not have any Liability for the Taxes of any Person (other than
any of Target and its Subsidiaries) under Reg. Section 1.1502-6 (or
any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise. No indebtedness of
Target consists of "corporate acquisition indebtedness" within the
meaning of Code Section 279.
(vi) Section 4(l) of the Disclosure Schedule sets
forth as of the most recent practicable date the basis for Federal
income tax purposes of Target in its assets.
(vii) The unpaid Taxes of Target (A) did not, as of
the Most Recent Fiscal Period End, exceed the reserve for Tax
Liability (provided, however, that the reserve for Tax Liability shall
not include any reserve for deferred taxes established to reflect
timing differences between book and Tax income) set forth on the face
of the Most Recent Balance Sheet (rather than in any notes thereto)
and (B) do not, and will not as of the
16
21
Closing Date, exceed that reserve as adjusted for the passage of time
through the Closing Date in accordance with the past custom and
practice of Target in filing its Tax Returns.
(viii) Target has properly qualified as an S
corporation for federal income tax purposes within the meaning of
Section 1361 of the Code at all times since February 12, 1988.
(m) REAL PROPERTY. Target does not own any real property.
Section 4(m) of the Disclosure Schedule lists and describes briefly all real
property leased or subleased to Target. The Transferors have delivered to North
American correct and complete copies of the leases and subleases listed in
Section 4(m) of the Disclosure Schedule (as amended to date). With respect to
each lease and sublease listed in Section 4(m) of the Disclosure Schedule:
(A) the lease or sublease is legal, valid,
binding, enforceable, and in full force and effect;
(B) the lease or sublease will continue to
be legal, valid, binding, enforceable, and in full force and
effect on identical terms following the consummation of the
transactions contemplated hereby;
(C) no party to the lease or sublease is in
breach or default, and no event has occurred which, with
notice or lapse of time, would constitute a breach or default
or permit termination, modification, or acceleration
thereunder;
(D) no party to the lease or sublease has
repudiated any provision thereof;
(E) there are no disputes, oral agreements,
or forbearance programs in effect as to the lease or
sublease;
(F) Target has not received a notice from
the lessor indicating that the lease will not be renewed at
the end of its current term for any additional terms provided
for in the lease;
(G) the term of the lease will continue for
a minimum of six months past the Closing Date;
(H) with respect to each sublease, the
representations and warranties set forth in subsections (A)
through (G) above are true and correct with respect to the
underlying lease;
(I) Target has not assigned, transferred,
conveyed, mortgaged, deeded in trust, or encumbered any
interest in the leasehold or subleasehold;
17
22
(J) all facilities leased or subleased
thereunder have received all approvals of governmental
authorities (including licenses and permits) required in
connection with the operation thereof and have been operated
and maintained in accordance with applicable laws, rules, and
regulations;
(K) all facilities leased or subleased
thereunder are supplied with utilities and other services
necessary for the operation of said facilities; and
(L) the Transferors are not aware of any
pending or threatened foreclosure or other enforcement
proceedings relating to the real property underlying the
leases or subleases set forth in Section 4(m) of the
Disclosure Schedule that could result in Target's loss of
possession of such real property.
(n) INTELLECTUAL PROPERTY.
(i) Target owns or has the right to use pursuant to
license, sublicense, agreement, or permission in writing all
Intellectual Property necessary for the operation of the businesses of
Target as presently conducted and as presently proposed to be
conducted. Each item of Intellectual Property owned or used by Target
immediately prior to the Closing hereunder will be owned or available
for use by Target on identical terms and conditions immediately
subsequent to the Closing hereunder. Target has taken all necessary
action to maintain and protect each item of Intellectual Property that
it owns or uses.
(ii) Target has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of third parties, and none of the Transferors and the
directors and officers (and employees with responsibility for
Intellectual Property matters) of Target has ever received any charge,
complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that
Target must license or refrain from using any Intellectual Property
rights of any third party). To the Knowledge of Transferors and
Target, no third party has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of Target.
(iii) Section 4(n)(iii) of the Disclosure Schedule
identifies each patent or registration which has been issued to Target
with respect to any of its Intellectual Property, identifies each
pending patent application or application for registration which
Target has made with respect to any of its Intellectual Property, and
identifies each license, agreement, or other permission which Target
has granted to any third party with respect to any of its Intellectual
Property (together with any exceptions). The Transferors have
delivered to North American correct and complete copies of all such
patents, registrations, applications, licenses, agreements, and
permissions (as amended to date) and have made available to North
American correct and complete copies of all other written
documentation evidencing ownership and prosecution (if applicable) of
each such
18
23
item. Section 4(n)(iii) of the Disclosure Schedule also identifies
each trade name or unregistered trademark used by Target in connection
with any of its businesses. With respect to each item of Intellectual
Property required to be identified in Section 4(n)(iii) of the
Disclosure Schedule:
(A) Target possesses all right, title, and
interest in and to the item, free and clear of any Security
Interest, license, or other restriction;
(B) the item is not subject to any
outstanding injunction, judgment, order, decree, ruling, or
charge;
(C) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending
or is threatened which challenges the legality, validity,
enforceability, use, or ownership of the item; and
(D) Target has never agreed to indemnify
any Person for or against any interference, infringement,
misappropriation, or other conflict with respect to the item.
(iv) Section 4(n)(iv) of the Disclosure Schedule
identifies each item of Intellectual Property that any third party
owns and that Target uses pursuant to license, sublicense, agreement,
or permission. The Transferors have delivered to the North American
correct and complete copies of all such licenses, sublicenses,
agreements, and permissions (as amended to date). With respect to each
item of Intellectual Property required to be identified in Section
4(n)(iv) of the Disclosure Schedule:
(A) the license, sublicense, agreement, or
permission covering the item is legal, valid, binding,
enforceable, and in full force and effect;
(B) the license, sublicense, agreement, or
permission will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated
hereby;
(C) no party to the license, sublicense,
agreement, or permission is in breach or default, and no
event has occurred which with notice or lapse of time would
constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(D) no party to the license, sublicense,
agreement, or permission has repudiated any provision
thereof;
(E) with respect to each sublicense, the
representations and warranties set forth in subsections (A)
through (D) above are true and correct with respect to the
underlying license;
19
24
(F) the underlying item of Intellectual
Property is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
(G) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending
or is threatened which challenges the legality, validity, or
enforceability of the underlying item of Intellectual
Property; and
(H) Target has never granted any sublicense
or similar right with respect to the license, sublicense,
agreement, or permission.
(v) To the Knowledge of Transferors and Target,
Target will not interfere with, infringe upon, misappropriate, or
otherwise come into conflict with, any Intellectual Property rights of
third parties as a result of the continued operation of its businesses
as presently conducted and as presently proposed to be conducted.
(vi) None of the Transferors and Target has any
Knowledge of any new products, inventions, procedures, or methods of
manufacturing or processing that any competitors or other third
parties have developed which reasonably could be expected to supersede
or make obsolete any product or process of any of Target.
(o) TANGIBLE ASSETS. Target owns or leases all buildings,
machinery, equipment, and other tangible assets necessary for the conduct of
its business as presently conducted and as presently proposed to be conducted.
Each such tangible asset has been maintained in accordance with normal industry
practice, is in good operating condition and repair (subject to normal wear and
tear), and is suitable for the purposes for which it presently is used and
presently is proposed to be used. Section 4(o) of the Disclosure Schedule lists
all tangible assets owned by Target.
(p) INVENTORY. Target does not have any inventory.
(q) CONTRACTS. Section 4(q) of the Disclosure Schedule lists
all the contracts and other agreements to which Target is a party. The
Transferors have delivered to the North American a correct and complete copy of
each written agreement listed in Section 4(q) of the Disclosure Schedule (as
amended to date). With respect to each such agreement: (A) the agreement is
legal, valid, binding, enforceable, and in full force and effect; (B) the
agreement will continue to be legal, valid, binding, enforceable, and in full
force and effect on identical terms following the consummation of the
transactions contemplated hereby; (C) no party is in breach or default, and no
event has occurred which with notice or lapse of time would constitute a breach
or default, or permit termination, modification, or acceleration, under the
agreement; and (D) no party has repudiated any provision of the agreement.
Section 4(q) of the Disclosure Schedule lists each currently outstanding bid or
proposal for business submitted by Target in excess of $1,000,000.
20
25
(r) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts
receivable of Target are reflected properly on the Most Recent Balance Sheet in
accordance with GAAP, are valid receivables subject to no setoffs or
counterclaims, are current and collectible, and, will be collected in
accordance with their terms at their recorded amounts, subject only to the
reserve for bad debts set forth on the face of the Most Recent Balance Sheet
(rather than in any notes thereto) as adjusted for the passage of time through
the Closing Date in accordance with the past custom and practice of Target.
(s) POWERS OF ATTORNEY. There are no outstanding powers of
attorney executed on behalf of Target.
(t) INSURANCE. Section 4(t) of the Disclosure Schedule
includes a true, correct and complete list of all policies of insurance
(including policies providing property, casualty, liability, and workers'
compensation coverage and bond and surety arrangements) to which Target is a
party, a named insured, or otherwise the beneficiary of coverage. Genuine and
complete copies of each of the insurance policies listed in Section 4(t) of the
Disclosure Schedule have been provided to North American.
With respect to each such insurance policy: (A) the policy is legal, valid,
binding, enforceable, and in full force and effect; (B) the policy will
continue to be legal, valid, binding, enforceable, and in full force and effect
on identical terms following the consummation of the transactions contemplated
hereby; (C) neither Target nor any other party to the policy is in breach or
default (including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of time,
would constitute such a breach or default, or permit termination, modification,
or acceleration, under the policy; (D) neither Target, any ERISA Affiliate nor
the North American shall be subject to a retroactive rate adjustment, loss
sharing arrangement or other actual or contingent liability and (E) to
Transferors' or Target's Knowledge, no party to the policy has repudiated any
provision thereof. Target has been fully covered at all times during the past 5
years by insurance in scope and amount customary and reasonable for the
businesses in which it has engaged during the aforementioned period. Section
4(t) of the Disclosure Schedule describes any self-insurance arrangements
affecting Target.
(u) LITIGATION. Section 4(u) of the Disclosure Schedule sets
forth each instance in which Target (i) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (ii) is a party, or
to the Knowledge of Transferors or Target, is threatened to be made a party to
any claim, action, suit, proceeding, hearing, or investigation of, in, or
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator. Except as set
forth in Section 4(u) of the Disclosure Schedule, there is no other pending, or
to the knowledge of Transferors or Target, threatened claim, arbitration
proceeding, action, suit, investigation or other proceeding against or involving
Target or any property or rights of Target or any officer or director or Target.
None of the actions, suits, proceedings, hearings, and investigations set forth
in Section 4(u) of the Disclosure Schedule could result in any material adverse
change in the business, financial condition, operations, results of operations,
or future prospects of Target. Neither the Transferors nor the directors
21
26
and officers (and employees with responsibility for litigation matters) of
Target has any reason to believe that any such action, suit, proceeding,
hearing, or investigation may be brought or threatened against Target.
(v) COMMITMENTS AND WARRANTIES. All services provided by the
Company have been performed in conformity with all applicable contractual
commitments (written or oral) and all express and implied warranties (written
or oral), and Target has no Liability and, to the Knowledge of the Transferors
and Target, there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any Liability) in connection with any such services.
ss.4(v) of the Disclosure Schedule includes copies of the standard forms of
agreement entered into between Target and its customers. Target has not entered
into any written or oral agreements with any of its customers that include
guaranties, warranties, or indemnity provisions other than those included in
the agreements included as part of Section 4(v) of the Disclosure Schedule.
Neither Target nor the Transferors has received notice (written or
oral) from any of its customers stating that the customer intends to reduce the
volume of business that it currently conducts with Target or to cease doing
business with Target.
(w) LIABILITY FOR SERVICES PERFORMED. Target has no Liability
(and, to Transferors' Knowledge, there is no Basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim, or
demand against any of them giving rise to any Liability) arising out of any
injury to individuals or property as a result of or in connection with any
services provided by Target.
(x) EMPLOYEES. To the Knowledge of the Transferors or Target,
no executive, key employee, or group of employees has any plans to terminate
employment with Target. Target is not currently, nor at any prior time has
been, a party to or bound by any collective bargaining agreement, nor has
Target experienced any strikes, grievances, claims of unfair labor practices,
or other collective bargaining disputes. Target has not committed any unfair
labor practice. Neither the Transferors nor Target have any Knowledge of any
organizational effort presently being made or threatened by or on behalf of any
labor union with respect to employees of Target.
(y) EMPLOYEE BENEFITS.
(i) Section 4(y) of the Disclosure Schedule lists
each Employee Benefit Plan that Target or any ERISA Affiliate
maintains, contributes to, or is required to contribute to or under
which Target or any ERISA Affiliate has any liability.
(A) Each such Employee Benefit Plan (and
each related trust, insurance contract, or fund) complies in
form and in operation in all respects with the applicable
requirements of ERISA, the Code, and other applicable laws.
22
27
(B) All required reports and disclosures
(including Form 5500 Annual Reports, Summary Annual Reports,
PBGC-1's, and Summary Plan Descriptions) have been filed or
distributed appropriately with respect to each such Employee
Benefit Plan. The requirements of Part 6 of Subtitle B of
Title I of ERISA and of Code Section 4980B have been met with
respect to each such Employee Benefit Plan which is an
Employee Welfare Benefit Plan.
(C) All contributions (including all
employer contributions and employee salary reduction
contributions) which are due have been paid to each such
Employee Benefit Plan which is an Employee Pension Benefit
Plan and all contributions for any period ending on or before
the Closing Date which are not yet due have been paid to each
such Employee Pension Benefit Plan or accrued in accordance
with the past custom and practice of Target and in accordance
with GAAP. All premiums or other payments for all periods
ending on or before the Closing Date have been paid with
respect to each such Employee Benefit Plan which is an
Employee Welfare Benefit Plan.
(D) Each such Employee Benefit Plan which
is an Employee Pension Benefit Plan now meets and at all
times since inception have met the requirements of a
"qualified plan" under Code Section 401(a) and has received,
within the last two years, a favorable determination letter
from the Internal Revenue Service.
(E) As of the Closing Date, the market
value of assets under each such Employee Benefit Plan which
is an Employee Pension Benefit Plan (other than any
Multiemployer Plan) will equal or exceed the present value of
all vested and nonvested Liabilities thereunder determined in
accordance with PBGC methods, factors, and assumptions
applicable to an Employee Pension Benefit Plan terminating on
such date.
(F) The Transferors have delivered to the
North American correct and complete copies of the plan
documents and summary plan descriptions including all
amendments thereto, the most recent determination letter
received from the Internal Revenue Service, the three most
recent Form 5500 Annual Reports (including all schedules
thereto), the three most recent annual premium payment forms
filed with the PBGC, and all related trust agreements,
insurance contracts, and other funding agreements which
implement each such Employee Benefit Plan.
(ii) With respect to each Employee Benefit Plan that
Target or any ERISA Affiliate maintains, contributes to, or is
required to contribute to or under which Target or any ERISA Affiliate
has any liability:
23
28
(A) No such Employee Benefit Plan which is
an Employee Pension Benefit Plan (other than any
Multiemployer Plan) has been completely or partially
terminated or been the subject of a Reportable Event as to
which notices would be required to be filed with the PBGC. No
proceeding by the PBGC to terminate any such Employee Pension
Benefit Plan (other than any Multiemployer Plan) has been
instituted or threatened.
(B) There have been no Prohibited
Transactions with respect to any such Employee Benefit Plan.
No Fiduciary has any Liability for breach of fiduciary duty
or any other failure to act or comply in connection with the
administration or investment of the assets of any such
Employee Benefit Plan. No action, suit, proceeding, hearing,
or investigation with respect to any such Employee Benefit
Plan (other than routine claims for benefits) is pending or
threatened. Neither the Transferors nor Target have any
Knowledge of any Basis for any such action, suit, proceeding,
hearing, or investigation.
(C) Neither Target nor any ERISA Affiliate
has not incurred, and none of the Transferors and the
directors and officers (and employees with responsibility for
employee benefits matters) of Target has any reason to expect
that Target or any ERISA Affiliate will incur, any Liability
to the PBGC (other than PBGC premium payments) or otherwise
under Title IV of ERISA (including any withdrawal Liability)
or under the Code with respect to any such Employee Benefit
Plan which is an Employee Pension Benefit Plan.
(iii) Neither Target nor any ERISA Affiliate
contributes to, ever has contributed to, or ever has been required to
contribute to any Multiemployer Plan or has any Liability (including
withdrawal Liability) under any Multiemployer Plan.
(iv) Neither Target nor any ERISA Affiliate
maintains or contributes to, or has ever been required to contribute
to any Employee Welfare Benefit Plan providing medical, health, or
life insurance or other welfare-type benefits for current or future
retired or terminated employees, their spouses, or their dependents
(other than in accordance with Code Section 4980B).
(z) GUARANTIES. Target is not a guarantor or otherwise is
liable for any Liability or obligation (including indebtedness) of any other
Person.
(aa) ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS.
(i) Target and its predecessors and Affiliates have
complied and are in compliance with all Environmental, Health, and
Safety Requirements.
(ii) Without limiting the generality of the
foregoing, Target and its Affiliates have obtained and complied with,
and are in compliance with, all permits,
24
29
licenses and other authorizations that are required pursuant to
Environmental, Health, and Safety Requirements for the occupation of
its facilities and the operation of its business; a list of all such
permits, licenses and other authorizations is set forth on the
attached "ENVIRONMENTAL AND SAFETY PERMITS SCHEDULE."
(iii) Neither Target nor its predecessors or
Affiliates has received any written or oral notice, report or other
information regarding any actual or alleged violation of
Environmental, Health, and Safety Requirements, or any liabilities or
potential liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise), including any investigatory, remedial or
corrective obligations, relating to any of them or its facilities
arising under Environmental, Health, and Safety Requirements.
(iv) None of the following exists at any property or
facility owned or operated by Target: (1) underground storage tanks,
(2) asbestos-containing material in any form or condition, (3)
materials or equipment containing polychlorinated biphenyls, or (4)
landfills, surface impoundments, or disposal areas.
(v) None of Target or its predecessors or Affiliates
has treated, stored, disposed of, arranged for or permitted the
disposal of, transported, handled, or released any substance,
including without limitation any hazardous substance, or owned or
operated any property or facility (and no such property or facility is
contaminated by any such substance) in a manner that has given or
would give rise to liabilities, including any liability for response
costs, corrective action costs, personal injury, property damage,
natural resources damages or attorney fees, pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended ("CERCLA"), the Solid Waste Disposal Act, as
amended ("SWDA") or any other Environmental, Health, and Safety
Requirements.
(vi) Neither this Agreement nor the consummation of
the transaction that is the subject of this Agreement will result in
any obligations for site investigation or cleanup, or notification to
or consent of government agencies or third parties, pursuant to any of
the so-called "transaction-triggered" or "responsible property
transfer" Environmental, Health, and Safety Requirements.
(vii) Neither Target nor its predecessors or
Affiliates has, either expressly or by operation of law, assumed or
undertaken any liability, including without limitation any obligation
for corrective or remedial action, of any other Person relating to
Environmental, Health, and Safety Requirements.
(viii) No facts, events or conditions relating to
the past or present facilities, properties or operations of Target or
any of its predecessors or Affiliates will prevent, hinder or limit
continued compliance with Environmental, Health, and Safety
Requirements, give rise to any investigatory, remedial or corrective
obligations pursuant to Environmental, Health, and Safety Requirements
(whether on-site or off-site), or give
25
30
rise to any other liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise) pursuant to Environmental, Health, and
Safety Requirements, including without limitation any relating to
onsite or offsite releases or threatened releases of hazardous
materials, substances or wastes, personal injury, property damage or
natural resources damage.
(ab) CERTAIN BUSINESS RELATIONSHIPS WITH TARGET. Neither the
Transferors, their Affiliates, any director or employee of Target, or any
relatives of Transferors, or any person living in the same residence as such
persons, has been involved in any business arrangement or relationship with
Target within the past 12 months, and neither the Transferors nor their
Affiliates nor any of such other persons own leases, licenses, or otherwise has
any interest in any asset, tangible or intangible, which is used in the
business of Target or any contract, lease or commitment to which Target is a
party. Target is not indebted to any officer, director or employee of Target
for any liability or obligation. No officer, director or employee of Target is
indebted to Target for any liability or obligation.
(ac) CUSTOMERS AND SUPPLIERS. No purchase order or commitment
of Target is in excess of normal requirements, nor are prices provided therein
in excess of current market prices for the products or services to be provided
thereunder. No material supplier of Target has advised Target in writing within
the past year that it will stop, or decrease the rate of, supplying materials,
products or services to Target and no material customer of Target has advised
Target in writing within the past year that it will stop, or decrease the rate
of buying materials, products or services from Target. Section 4(ac) of the
Disclosure Schedule sets forth a list of (a) each customer that accounted for
more that 5% of the consolidated revenues of Target during the last full fiscal
year or the interim period through the date of the Most Recent Financial
Statements and the amount of revenues accounted for by such customer during
each such period and (b) each supplier that is the sole supplier of any
significant product or component to Target. The consummation of the
transactions contemplate hereby will not have a material adverse effect on
Target's relationship with any customer or supplier listed in Section 4(ac) of
the Disclosure Schedule.
(ad) DISCLOSURE. Neither this Agreement nor any of the
exhibits, attachments, written statements, documents, certificates or other
items prepared for or supplied to the North American by or on behalf of Target
or the Transferors with respect to the transactions contemplated hereby
contains any untrue statement of a material fact or omits to state any material
fact necessary in order to make each statement contained herein or therein not
misleading. There is no fact which Target or the Transferors has not disclosed
to the North American herein and of which the Transferors, Target, or any of
Target's officers or directors is aware and which could be anticipated to have
a Material Adverse Effect.
5. PRE-CLOSING COVENANTS. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing.
26
31
(a) GENERAL. Each of the Parties will use his or its best
efforts to take all action and to do all things necessary, proper, or advisable
in order to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions
set forth in Section 7 below).
(b) NOTICES AND CONSENTS. The Transferors will cause Target
to give any notices to third parties, and will cause Target to use its best
efforts to obtain any third party consents, that the North American reasonably
may request in connection with the matters referred to in Section 4(d) above.
Each of the Parties will (and the Transferors will cause Target to) give any
notices to, make any filings with, and use its best efforts to obtain any
authorizations, consents, and approvals of governments and governmental
agencies in connection with the matters referred to in Section 3(a)(ii),
ss.3(b)(vi), and Section 4(d) above. Without limiting the generality of the
foregoing, each of the Parties will file (and the Transferors will cause Target
to file) any Notification and Report Forms and related material that he or it
may be required to file with the Federal Trade Commission and the Antitrust
Division of the United States Department of Justice under the Xxxx-Xxxxx-Xxxxxx
Act, will use his or its best efforts to obtain (and the Transferor will cause
Target to use its best efforts to obtain) an early termination of the
applicable waiting period, and will make (and the Transferors will cause Target
to make) any further filings pursuant thereto that may be necessary, proper, or
advisable in connection therewith.
(c) OPERATION OF BUSINESS. The Transferors will not cause or
permit Target to engage in any practice, take any action, or enter into any
transaction outside the Ordinary Course of Business. Without limiting the
generality of the foregoing, the Transferors will not cause or permit Target to
(i) declare, set aside, or pay any dividend or make any distribution with
respect to its capital stock or redeem, purchase, or otherwise acquire any of
its capital stock or (ii) otherwise engage in any practice, take any action, or
enter into any transaction of the sort described in Section 4(i) above.
(d) PRESERVATION OF BUSINESS. The Transferors will cause
Target to keep its business and properties substantially intact, including its
present operations, physical facilities, working conditions, and relationships
with lessors, licensors, suppliers, customers, and employees.
(e) FULL ACCESS. The Transferors will permit, and will cause
Target to permit, representatives of North American to have full access at all
reasonable times, and in a manner so as not to interfere with the normal
business operations of Target, to all premises, properties, personnel, books,
records (including Tax records), contracts, and documents of or pertaining to
Target. At the request of North American, Transferors will permit, and will
cause Target to permit, the lenders and the investors who are expected to
provide the capital necessary to consummate the transactions contemplated
hereby, and their respective counsel, to have the same access as permitted to
the North American in accordance with the immediately preceding sentence.
27
32
(f) NOTICE OF DEVELOPMENTS. The Transferors will give prompt
written notice to the North American of any breach of any of the
representations and warranties in Section 4 above. Each Party will give prompt
written notice to the others of any breach of any of his or its own
representations and warranties in Section 3 above. No disclosure by any Party
pursuant to this Section 5(f), however, shall be deemed to amend or supplement
Annex I, Annex II, or the Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
(g) EXCLUSIVITY. The Transferors will not (and the
Transferors will not cause or permit Target to) (i) solicit, initiate, or
encourage the submission of any proposal or offer from any Person relating to
the acquisition of any capital stock or other voting securities, or any
substantial portion of the assets, of Target (including any acquisition
structured as a merger, consolidation, or share exchange) or (ii) participate
in any discussions or negotiations regarding, furnish any information with
respect to, assist or participate in, or facilitate in any other manner any
effort or attempt by any Person to do or seek any of the foregoing. The
Transferors will notify the North American immediately if any Person makes any
proposal, offer, inquiry, or contact with respect to any of the foregoing.
(h) NO TERMINATION OF TRANSFERORS' OBLIGATION BY SUBSEQUENT
INCAPACITY. Transferors specifically agree that their obligations hereunder,
including, without limitation, the obligations pursuant to Section 8 hereof,
shall not be eliminated by his or her death or incapacity.
6. POST-CLOSING COVENANTS. The Parties agree as follows with respect
to the period following the Closing.
(a) GENERAL. In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, each of the Parties will take such further action (including the
execution and delivery of such further instruments and documents) as any other
Party reasonably may request, all at the sole cost and expense of the
requesting Party (unless the requesting Party is entitled to indemnification
therefor under Section 8 below). The Transferors acknowledge and agree that
from and after the Closing North American will be entitled to possession of all
documents, books, records (including Tax records), agreements, and financial
data of any sort relating to Target.
(b) LITIGATION SUPPORT. In the event and for so long as any
Party actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving Target, each of the other Parties will cooperate
with him or it and his or its counsel in the contest or defense, make available
their personnel, and provide such testimony and access to their books and
records as shall be necessary in connection with the contest or defense, all at
the sole cost and expense of the contesting or defending Party (unless the
contesting or defending Party is entitled to indemnification therefor under
Section 8 below).
28
33
(c) TRANSITION. The Transferors will not take any action that
is designed or intended to have the effect of discouraging any lessor,
licensor, customer, supplier, or other business associate of Target from
maintaining the same business relationships with Target after the Closing as it
maintained with Target prior to the Closing. The Transferors will refer all
customer inquiries relating to the businesses of Target to the North American
from and after the Closing.
(d) CONFIDENTIALITY. [INTENTIONALLY LEFT BLANK]
(e) STOCK OPTIONS. Within 90 days after the Closing, North
American will adopt a stock incentive plan (the "Stock Incentive Plan")
pursuant to which stock options and other forms of stock-based compensation may
be awarded to the officers, directors and employees of North American and its
subsidiaries. North American agrees that upon adoption of the Stock Incentive
Plan, it shall grant options to purchase an aggregate of up to 50,000 shares of
North American common stock, at an exercise price of $5.00 per share (the
"Options"), to the key employees of Target named in EXHIBIT C to this
Agreement. The terms and conditions of the Options and the number of Options to
be awarded to each key employee shall be determined by the Board of Directors
of North American at the time of grant.
(f) INDEPENDENT ACCOUNTANTS. After the Closing, Transferors
shall (i) use reasonable efforts to cause Target's past and present independent
auditors and accounting personnel to make available to North American and its
representatives all financial information, including the right to examine all
working papers pertaining to audits or reviews previously or hereafter made by
such auditors, and (ii) provide such cooperation as North American and its
representatives may request in connection with any audit or review of Target
that North American may direct its representatives to make. Without limiting
the generality of the foregoing, Transferors agree that he will cooperate with,
and cause Target's past and present independent auditors, accounting personnel
and other necessary persons to cooperate with the North American in the
preparation of any documents filed by the North American with the U.S.
Securities and Exchange Commission in connection with an offering of
securities, to the extent information about Target is required therein.
(g) EMPLOYEES OF TARGET. North American agrees that, for a
period of one year after the Closing Date, the group health benefits, vacation,
and paid holidays provided to employees of Target will be comparable to such
items provided by Target to such employees prior to the Closing Date. Although
North American has no present intention of dismissing any current employees of
Target, nothing in this section is intended to impose any obligation on North
American to retain any such employees.
(h) TAX MATTERS. The Transferors covenant and agree not to
take any action, or fail to take any action, with respect to Taxes, that would
have an adverse effect on the North American on or after the Closing Date,
including, without limitation, amending or otherwise supplementing any Tax
Return or report of Target with respect to any period prior to the Closing Date
without the consent of the North American. If any taxing authority conducts any
audit or
29
34
investigation relating to Target prior to the Closing Date, the North American
may, in its sole election, have the right to supervise such audit or
investigation and provide any response required in connection therewith.
North American agrees not to take any action after the Closing Date
that would affect the ability of the transfers contemplated under the Exchange
Agreements to be treated as a single transaction qualifying under Section 351
of the code.
(i) In the event North American has not closed a Qualified
Public Offering (as defined in the Stockholders Agreement) on or prior to April
15, 1999, then, at the written request of the Transferors, on or prior to May
15, 1999 North American shall lend up to $355,250 (pro rata between the
Transferors according to stock ownership as of the date hereof) with a maturity
of one year, interest free, secured on a non recourse basis with 71,050 shares
of North American's common stock; provided that the Transferor's right to
borrow funds hereunder shall be reduced by the number of shares used to reduce
or offset indemnification claims.
7. CONDITIONS TO OBLIGATION TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF THE NORTH AMERICAN. The
obligation of North American to consummate the transactions to be performed by
it in connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth in
Section 3(a) and Section 4 above shall be true and correct in all
material respects at and as of the Closing Date and there shall not
have occurred any Material Adverse Effect;
(ii) the Transferors and Target shall have performed
and complied with all of his covenants hereunder in all material
respects through the Closing;
(iii) Target shall have procured all of the third
party consents specified in Section 5(b) above;
(iv) no action, suit, or proceeding shall be pending
or threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction, or
before any arbitrator, wherein an unfavorable injunction, judgment,
order, decree, ruling, or charge would (A) prevent consummation of any
of the transactions contemplated by this Agreement, (B) cause any of
the transactions contemplated by this Agreement to be rescinded
following consummation, (C) affect adversely the right of Target to
own its assets and to operate its businesses (and no such injunction,
judgment, order, decree, ruling, or charge shall be in effect);
(v) the Transferors shall have delivered to the
North American a certificate, which pursuant to its terms authorizes
PNC Bank, N.A. and HIG to rely
30
35
thereon to the same extent as if the certificate was addressed
directly to them, to the effect that each of the conditions specified
above in Section 7(a)(i)-(iv) is satisfied in all respects;
(vi) all applicable waiting periods (and any
extensions thereof) under the Xxxx-Xxxxx-Xxxxxx Act shall have expired
or otherwise been terminated and the Parties shall have received all
other authorizations, consents, and approvals of governments and
governmental agencies referred to in Section 3(a)(ii), Section
3(b)(vi), and Section 4(d) above;
(vii) the North American shall have received from
counsel to the Transferors an opinion in form and substance as set
forth in EXHIBIT D attached hereto, addressed to the North American
and which pursuant to its terms authorizes PNC Bank, N.A. and HIG to
rely thereon to the same extent as if it were addressed directly to
them, and dated as of the Closing Date;
(viii) the North American shall have obtained on
terms and conditions reasonably satisfactory to it the proceeds of all
of the financing it needs in order to consummate the transactions
contemplated by all of the Exchange Agreements.
(ix) all actions to be taken by the Transferors in
connection with the consummation of the transactions contemplated
hereby and all certificates, opinions, instruments, and other
documents required to effect the transactions contemplated hereby will
be reasonably satisfactory in form and substance to the North
American.
(x) at least five business days prior to the
Closing, the North American shall have received the Most Recent
Balance Sheet. The Most Recent Balance Sheet will reflect (A)
Shareholders' Equity of at least $1,005,177 and include a $463,111
reserve for deferred tax liability and (B) notes payable and capital
lease obligations not exceeding $210,000. North American shall not
have objected to, challenged or otherwise repudiated any of the
amounts included in the Most Recent Balance Sheet.
(xi) North American shall have received an
appraisal, from an appraiser selected by the North American, that
states that the fair market value of Target's tangible assets listed
in Section 4(o) of the Disclosure Schedule is at least equal to the
book value of such assets reflected in the Closing Balance Sheet.
(xii) [INTENTIONALLY LEFT BLANK];
(xiii) Target shall have delivered evidence of its
qualification to do business in each jurisdiction where it is so
qualified and a certificate of good standing issued by the Secretary
of State of each such jurisdiction demonstrating that Target is in
good standing in that jurisdiction;
31
36
(xiv) Target shall have delivered landlord consent
and estoppel certificates, in form and substance satisfactory to the
North American, relating to each of the real property leases listed in
Section 4(m) of the Disclosure Schedule;
(xv) Target shall have delivered (A) payoff letters
relating to all existing indebtedness of Target to creditors for
borrowed money and (B) UCC-3 financing statements executed by such
creditors releasing any security interests of such creditors in
Target's assets;
(xvi) Target shall have delivered the resignations
of all directors of Target that Buyer shall have requested;
(xvii) Transferors shall have entered into
Employment Agreements with Target in the form attached hereto as
EXHIBIT G;
(xviii) On or prior to the Closing Date, North
American shall have closed the transactions contemplated by each of
the other Exchange Agreements;
(xix) [INTENTIONALLY LEFT BLANK]
(xx) all actions to be taken by the Transferors in
connection with consummation of the transactions contemplated hereby
and all certificates, opinions, instruments, and other documents
required to effect the transactions contemplated hereby will be
reasonably satisfactory in form and substance to the North American.
North American may waive any condition specified in this Section 7(a) if it
executes a writing so stating at or prior to the Closing.
(b) CONDITIONS TO OBLIGATION OF THE TRANSFERORS. The
obligation of the Transferors to consummate the transactions to be performed by
them in connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth in
Section 3(b) above shall be true and correct in all material respects
at and as of the Closing Date;
(ii) the North American shall have performed and
complied with all of its covenants hereunder in all material respects
through the Closing;
(iii) no action, suit, or proceeding shall be
pending or threatened before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign
jurisdiction, or before any arbitrator, wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this
Agreement or (B) cause any of the transactions
32
37
contemplated by this Agreement to be rescinded following consummation
(and no such injunction, judgment, order, decree, ruling, or charge
shall be in effect);
(iv) the North American shall have delivered to the
Transferors a certificate to the effect that each of the conditions
specified above in Section 7(b)(i)-(iii) is satisfied in all respects;
(v) all applicable waiting periods (and any
extensions thereof) under the Xxxx-Xxxxx-Xxxxxx Act shall have expired
or otherwise been terminated and the Parties shall have received all
other authorizations, consents, and approvals of governments and
governmental agencies referred to in Section 3(a)(ii), Section
3(b)(v), and Section 4(d) above;
(vi) Transferors shall have entered into an
Employment Agreement with Target, in the form attached hereto as
EXHIBIT G (Transferors covenant and agree to execute the Employment
Agreement as of the Closing Date);
(vii) Transferors shall have received from counsel
to the North American an opinion in form and substance as set forth in
EXHIBIT H attached hereto, addressed to the Transferors, and dated as
of the Closing Date;
(viii) Buyer shall have delivered a Secretary and
Incumbency Certificate in the form attached hereto as EXHIBIT I;
(ix) This Agreement and the transactions
contemplated hereby shall have been approved by the Board of Directors
and Shareholders of North American;
(x) on or prior to the Closing Date, the
transactions contemplated pursuant to each of the other Exchange
Agreements, and the Securities Purchase Agreement shall have been
closed; and
(xi) all actions to be taken by the North American
in connection with consummation of the transactions contemplated
hereby and all certificates, opinions, instruments, and other
documents required to effect the transactions contemplated hereby will
be reasonably satisfactory in form and substance to the Transferors.
The Transferors may waive any condition specified in this Section 7(b) if he
executes a writing so stating at or prior to the Closing.
(c) POST-CLOSING OBLIGATION OF TRANSFERS. Transferors shall
use best efforts to obtain an Employment Agreement between Target and Xxx
Xxxxxxx in the form attached hereto as EXHIBIT G within 30 days of the Closing
Date.
33
38
8. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations, warranties, covenants and agreements of the Parties contained
in this Agreement or in any certificate, document, instrument or agreement
delivered pursuant to this Agreement shall survive the Closing hereunder
(notwithstanding any due diligence investigations that may have been undertaken
by the damaged Party) and continue in full force and effect through all
statutes of limitations. Notwithstanding the foregoing, no claim for
indemnification in respect of a breach of a representation or warranty shall be
made after the date three years from and after the Closing Date, except that a
claim for indemnification in respect of a breach of the representations set
forth in Section 3(a), 3(b), 4(a)-(f), 4(l), 4(y) and 4(aa) may be made at
anytime following the Closing Date and are not subject to the foregoing three
year limitation.
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF NORTH AMERICAN.
(i) In the event the Transferors breach (or in the
event any third party alleges facts that, if true, would mean the
Transferors have breached) any of their representations, warranties
(or any of such representations or warranties is untrue or
inaccurate), covenants and agreements contained herein or in any
certificate, document, instrument or agreement delivered pursuant to
this Agreement, and, provided that the Indemnified Buyers (as
hereafter defined) make a written claim for indemnification against
the Transferors pursuant to Section 12(g) below within the applicable
claim period provided in 8(a) above, then the Transferors agree to
indemnify North American and each of its officers, directors,
employees, representatives and shareholders (the "Indemnified Buyers")
from and against the entirety of any Adverse Consequences the
Indemnified Buyers may suffer through and after the date of the claim
for indemnification (including any Adverse Consequences the
Indemnified Buyers may suffer after the end of any applicable claim
period) resulting from, arising out of, relating to, in the nature of,
or caused by the breach (or the alleged breach).
(ii) The Transferors agree to indemnify the
Indemnified Buyers from and against the entirety of any Adverse
Consequences the Indemnified Buyers may suffer resulting from, arising
out of, relating to, in the nature of, or caused by any Liability of
Target (x) for any Taxes of Target with respect to any Tax year or
portion thereof ending on or before the Closing Date or for any Tax
year beginning before and ending after the Closing Date to the extent
allocable (determined in a manner consistent with Section 9(b)) to the
portion of such period beginning before and ending on the Closing
Date), to the extent such Taxes are not reflected in the reserve for
Tax Liability shown on the face of the Closing Date Balance Sheet;
provided, however, that the reserve for Tax Liability shall not
include any reserve for deferred taxes established to reflect timing
differences between book and tax income, and (y) for the unpaid Taxes
of any Person (other than Target) under Reg. Section 1.1502-6 (or any
similar provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
34
39
(iii) Transferors agree to indemnify North American
from and against the entirety of any Adverse Consequences North
American may suffer resulting from, arising out of, relating to, in
the nature of, or caused by the activities of any entity which at any
time has been owned, in whole or in part, by Target.
(iv) Transferors agree to indemnify North American
from and against the entirety of any Adverse Consequences the North
American may suffer resulting from, arising out of, relating to, in
the nature of, or caused by any Retained Liabilities (as hereafter
defined). As used herein, the term Retained Liabilities means all
liabilities, claims, commitments, demands or obligations of Target (or
any subsidiary of Target) existing or arising out of any facts or set
of operative facts existing on or prior to the Closing Date, except
for any such liabilities, claims, commitments, demands or obligations
of Target (or any subsidiary of Target) set forth (A) on the face of
the Closing Date Balance Sheet or (B) in Section 4(j) of the
Disclosure Schedule.
(v) Transferors agree to indemnify North American
from and against the entirety of any Adverse Consequences the North
American may suffer resulting from, or arising out of, relating to, or
in the nature of or caused by any claim by a stockholder or former
stockholder of Target or any other Person seeking to assert: (i)
ownership or rights to ownership of any shares of capital stock of
Target or any Subsidiary, (ii) any rights of a stockholder (other than
the right to receive the Purchase Price) including any option,
preemptive rights or rights to receive notice or to vote, (iii) any
rights under Target's charter, bylaws or other constituent documents,
or (iv) any claim that his shares of capital stock were to be
repurchased by Target.
(vi) Transferors agree to indemnify North American
from and against the entirety of any Adverse Consequences the North
American may suffer resulting from, or arising out of, relating to, or
in the nature of or caused by any claim by a dissenting shareholder
that the Purchase Price is less than the fair value of his shares.
(vii) Without limiting any other provision in this
Section 8, Transferors agree to indemnify North American from and
against the entirety of any Adverse Consequences North American may
suffer as a result of a taxing authority taking the position that any
former or current subcontractor of Target should have been, at any
time prior to the Closing Date, treated as an employee of Target.
(viii) Without limiting any other provision in this
Section 8, Transferors agree to indemnify North American from and
against the entirety of any Adverse Consequences North American may
suffer as a result of Target's failure to be duly authorized to
conduct business and in good standing under the laws of any
jurisdiction where such qualification is or has been required as of or
prior to the Closing Date. The indemnification obligations of
Transferors under this Section 8(b)(viii) shall not be limited or
otherwise affected in any manner by any disclosures made by the
Transferors in the Disclosure Schedule.
35
40
(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE TRANSFERORS.
(i) In the event North American breaches (or in the
event any third party alleges facts that, if true, would mean the
North American had breached) any of their representations, warranties
(or any of such representations or warranties is untrue or
inaccurate), covenants and agreements contained herein or in any
certificate, document, instrument or agreement delivered pursuant to
this Agreement, and, provided that the Transferors make a written
claim for indemnification against North American pursuant to Section
12(g) below within the applicable claim period provided in 8(a) above,
then North American agrees to indemnify the Transferors and each of
their representatives (the "Indemnified Transferors") from and against
the entirety of any Adverse Consequences the Indemnified Transferors
may suffer through and after the date of the claim for indemnification
(including any Adverse Consequences the Indemnified Transferors may
suffer after the end of any applicable claim period) resulting from,
arising out of, relating to, in the nature of, or caused by the breach
(or the alleged breach).
(ii) North American agrees to indemnify the
Indemnified Transferors from and against the entirety of any Adverse
Consequences the Indemnified Transferors may suffer as a result of
Target's failure to pay any amounts due, for periods after the Closing
Date, under any of the contracts, leases and other agreements set
forth in Section 4(q) of the Disclosure Schedule as to which
Transferors are personal guarantors; provided, however, that
Transferors shall not be entitled to indemnification pursuant to this
Section 8(c)(ii) to the extent that North American is otherwise
entitled to indemnification from the Transferors in connection with
the matters described in this Section 8(c)(ii).
(d) MATTERS INVOLVING THIRD PARTIES.
(i) If any third party shall notify any party
entitled to indemnification hereunder (the "INDEMNIFIED PARTY") with
respect to any matter (a "THIRD PARTY CLAIM") which may give rise to a
claim for indemnification against any other Party (the "INDEMNIFYING
PARTY") under this Section 8, then the Indemnified Party shall promptly
notify each Indemnifying Party thereof in writing; PROVIDED, HOWEVER,
that no delay on the part of the Indemnified Party in notifying any
Indemnifying Party shall relieve the Indemnifying Party from any
obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is materially prejudiced.
(ii) Any Indemnifying Party will have the right to
defend the Indemnified Party against the Third Party Claim with
counsel of its choice reasonably satisfactory to the Indemnified Party
so long as (A) the Indemnifying Party notifies the Indemnified Party
in writing within 15 days after the Indemnified Party has given notice
of the Third Party Claim that the Indemnifying Party will indemnify
the Indemnified Party from and against the entirety of any Adverse
Consequences the Indemnified Party may suffer resulting from, arising
out of, relating to, in the nature of, or caused by the Third Party
36
41
Claim, (B) the Indemnifying Party provides the Indemnified Party with
evidence reasonably acceptable to the Indemnified Party that the
Indemnifying Party will have the financial resources to defend against
the Third Party Claim and fulfill its indemnification obligations
hereunder, (C) the Third Party Claim involves only money damages and
does not seek an injunction or other equitable relief, (D) settlement
of, or an adverse judgment with respect to, the Third Party Claim is
not, in the good faith judgment of the Indemnified Party, likely to
establish a precedential custom or practice materially adverse to the
continuing business interests of the Indemnified Party, (E) the named
parties to the Third Party Claim do not include both the Indemnified
Party and the Indemnifying Party, and (F) the Indemnifying Party
conducts the defense of the Third Party Claim actively and diligently.
(iii) So long as the Indemnifying Party is
conducting the defense of the Third Party Claim in accordance with
Section 8(d)(ii) above, (A) the Indemnified Party may retain separate
co-counsel at its sole cost and expense and participate in the defense
of the Third Party Claim, (B) the Indemnified Party will not consent
to the entry of any judgment or enter into any settlement with respect
to the Third Party Claim without the prior written consent of the
Indemnifying Party (not to be withheld unreasonably), and (C) the
Indemnifying Party will not consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim
without the prior written consent of the Indemnified Party (not to be
withheld unreasonably).
(iv) In the event any of the conditions in
Section 8(d)(ii) above is or becomes unsatisfied, however, (A) the
Indemnified Party may defend against, and consent to the entry of any
judgment or enter into any settlement with respect to, the Third Party
Claim in any manner it reasonably may deem appropriate (and the
Indemnified Party need not consult with, or obtain any consent from,
any Indemnifying Party in connection therewith), (B) the Indemnifying
Parties will reimburse the Indemnified Party promptly and periodically
for the costs of defending against the Third Party Claim (including
reasonable attorneys' fees and expenses), and (C) the Indemnifying
Parties will remain responsible for any Adverse Consequences the
Indemnified Party may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the Third Party Claim to the
fullest extent provided in this Section 8.
(e) DETERMINATION OF ADVERSE CONSEQUENCES. The Parties shall
take into account the time cost of money (using the Applicable Rate as the
discount rate) in determining Adverse Consequences for purposes of this Section
8. All indemnification payments under this Section 8 shall be deemed
adjustments to the Consideration.
(f) BASKET. The Transferors shall not be obligated to
indemnify North American pursuant to this Section 8 for any Adverse
Consequences in respect of a breach of (or inaccuracy in) a representation or
warranty until the aggregate amount of all Adverse Consequences in respect of
breaches (or inaccuracies) in representation or warranties exceeds $10,000 (the
"Trigger Amount"). Once the aggregate Adverse Consequences in respect of
37
42
breaches (or inaccuracies) in representation or warranties exceed the Trigger
Amount, North American shall be entitled to indemnification for the full amount
of all Adverse Consequences in respect of breaches (or inaccuracies) in
representation or warranties above the Trigger Amount.
The foregoing limitation on the indemnification obligations of
Transferors shall not apply to any breach of any covenants or agreements of
Transferors in this Agreement. In addition, notwithstanding the foregoing
provisions of this paragraph, such limitations shall not apply to breaches of
(or inaccuracies in) any of the representations or warranties in the following
provisions of this Agreement: Sections 3(a), 4(a), 4(b), 4(c), 4(d) and 4(e).
Further, the foregoing limitations of liability shall not apply to any breach
of any representation or warranty if such representation or warranty was made
with actual knowledge or reckless disregard of its falsity or inaccuracy or
incompleteness.
In calculating the amount of Adverse Consequences incurred arising out
of or related to any breach of a representation or warranty, references to
"material" or "Material Adverse Effect" or "knowledge" or "Knowledge" or other
materiality or similar qualifications, including as expressed in accounting
concepts such as GAAP, shall be disregarded. No right of indemnification
hereunder shall be limited by reason of any investigation or audit conducted
before or after the Closing by any party hereto or the knowledge of such party
of any breach of any representation, warranty, covenant or agreement by the
other party at any time.
(g) OTHER INDEMNIFICATION PROVISIONS. The foregoing
indemnification provisions are in addition to, and not in derogation of, any
statutory, equitable, or common law remedy (including without limitation any
such remedy arising under Environmental, Health, and Safety Requirements) any
Party may have with respect to Target, or the transactions contemplated by this
Agreement. The Transferors hereby agree that he or it will not make any claim
for indemnification against Target by reason of the fact that he or it was a
director, officer, employee, or agent of any such entity or was serving at the
request of any such entity as a partner, trustee, director, officer, employee,
or agent of another entity (whether such claim is for judgments, damages,
penalties, fines, costs, amounts paid in settlement, losses, expenses, or
otherwise and whether such claim is pursuant to any statute, charter document,
bylaw, agreement, or otherwise) with respect to any matter for which a Buyer
Indemnified Party may be entitled to indemnification from the Transferors as
provided in this Section 8.
(h) The aggregate of all amounts required to be paid by
Transferor to North American shall be paid pursuant to the provision of
Section 9(g).
9. POST-CLOSING ADJUSTMENT OF CONSIDERATION.
(a) Within 60 days after the Closing Date, North American
will prepare and deliver to the Transferors a draft balance sheet (the "DRAFT
CLOSING DATE BALANCE SHEET") for Target as of the close of business on the
Closing Date (determined as though the Parties had not consummated the
transactions contemplated by this Agreement but on the accrual basis of
38
43
accounting). North American will prepare the Draft Closing Date Balance Sheet
in accordance with GAAP applied on a basis consistent with the preparation of
the Financial Statements.
(b) If either Transferor has any objections to the Draft
Closing Date Balance Sheet, he will deliver a detailed statement describing his
objections to North American within 30 days after receiving the Draft Closing
Date Balance Sheet. North American and the Transferors will use reasonable
efforts to resolve any such objections themselves. If the Parties do not obtain
a final resolution within 30 days after North American has received the
statement of objections, however, North American and Transferors will select an
accounting firm mutually acceptable to them to resolve any remaining
objections. If North American and the Transferors are unable to agree on the
choice of an accounting firm, the will select a nationally-recognized
accounting firm by lot (after excluding their respective regular outside
accounting firms). The determination of any accounting firm so selected will be
set forth in writing and will be conclusive and binding upon the Parties. North
American will revise the Draft Closing Date Balance Sheet as appropriate to
reflect the resolution of any objections thereto pursuant to this Section 9(b).
The "CLOSING DATE BALANCE SHEET" shall mean the Draft Closing Date Balance
Sheet together with any revisions thereto pursuant to this Section 9(b).
(c) In the event the Parties submit any unresolved objections
to an accounting firm for resolution as provided in Section 9(b) above, any
expenses relating to the engagement of the accounting firm shall be allocated
between the Transferors and North American by the accounting firm in proportion
to the amount in dispute which is decided in favor of the challenging party.
(d) North American will make the work papers and back-up
materials used in preparing the Draft Closing Date Balance Sheet available to
Transferors and their accountants and other representatives at reasonable times
and upon reasonable notice during (A) the preparation by North American of the
Draft Closing Date Balance Sheet, (B) review by the Transferors of the Draft
Closing Date Balance Sheet, and (C) the resolution by the Parties of any
objections thereto.
(e) The Consideration, will be adjusted as follows:
(i) If the Shareholder's Equity set forth in the
Closing Date Balance Sheet is less than the Shareholder's Equity set
forth in the Most Recent Balance Sheet, the Transferors will pay to
the North American an amount equal to such deficiency (plus interest
thereon at the Applicable Rate from the Closing Date) within three
business days after the date on which the Revised Closing Date Balance
Sheet finally is determined pursuant to Section 9(b).
(ii) If the notes payable of Target set forth in the
Closing Date Balance Sheet are greater than the notes payable and
capital lease obligations of Target set forth on the Most Recent
Balance Sheet, the Transferors will pay to the North American an
amount equal to such excess (plus interest thereon at the Applicable
Rate from the
39
44
Closing Date) within three business days after the date on which the
Closing Date Balance Sheet finally is determined pursuant to Section
9(b) above.
(f) In addition to the adjustments to the Consideration, if
any, made pursuant to Section 9(e) above, if the cash balances of Target in its
corporate bank accounts or on hand as of April 1, 1998 do not equal at least
$100,000, the Transferors will pay to North American an amount equal to such
deficiency (plus interest thereon at the Applicable Rate from the Closing Date)
within three business days after the date on which the Closing Date Balance
Sheet is finally determined pursuant to Section 9(b) above.
(g) The aggregate of all amounts required to be paid by
Transferor to North American pursuant to Section 9(e) and Section 8 shall be
paid 100% in North American Class B Common Stock (valued at $5.00 per share) up
to $355,250, then 100% in cash up to $50,000, and thereafter 49% in cash and
51% in North American Class B Common Shares (valued at $5.00 per share). The
cash portion of any such payment shall be made by wire transfer or delivery of
other immediately available funds.
10. TAX MATTERS. The following provisions shall govern the allocation
of responsibility as between North American and Transferors for certain tax
matters following the Closing Date:
(a) TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE.
Transferors shall prepare or cause to be prepared and timely file or cause to
be timely filed all Tax Returns for Target for all periods ending on or prior
to the Closing Date which are filed after the Closing Date (the "Pre-Closing
Period"). Such Tax Returns shall be prepared by treating items on such Tax
Return in a manner consistent with the past practices with respect to such
items, unless otherwise required by law (income tax returns shall be based on
the cash basis of accounting). Transferors shall permit North American to
review and comment on each such Tax Return described in the preceding sentence
prior to filing. North American shall pay the amounts due for Taxes of Target
with respect to the Pre-Closing Periods, up to the amount reflected in the
reserve for Tax Liability shown on the face of the Closing Date Balance Sheet.
Provided, however, that the reserve for Tax Liability shall not include any
reserve for deferred taxes established to reflect timing differences between
book and tax income. Transferors agree that they will pay, when due, all
amounts due for Taxes of Target with respect to Pre-Closing Periods, that
exceed the reserve for Tax Liability (provided, however, that the reserve for
Tax Liability shall not include any reserve for deferred taxes established to
reflect timing differences between book and Tax income) shown on the face of
the Closing Date Balance Sheet.
(b) TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING
DATE. North American shall prepare or cause to be prepared and file or cause to
be filed any Tax Returns of Target for Tax periods which begin before the
Closing Date and end after the Closing Date. North American shall permit
Transferors to review and comment on each such Tax return described in the
preceding sentence prior to filing. Transferors shall pay to North American
within fifteen (15) days after the date on which Taxes are paid with respect to
such periods an
40
45
amount equal to the portion of such Taxes which relates to the portion of such
Taxable period ending on the Closing Date to the extent such Taxes are not
reflected in the reserve for Tax Liability shown on the face of the Closing
Date Balance Sheet or, provided, however, that the reserve for Tax Liability
shall not include any reserve for deferred taxes established to reflect timing
differences between book and tax income. For purposes of this Section, in the
case of any Taxes that are imposed on a periodic basis and are payable for a
Taxable period that includes (but does not end on) the Closing Date, the
portion of such Tax which relates to the portion of such Taxable period ending
on the Closing Date shall (x) in the case of any real and personal property
Taxes, be deemed to be the amount of such Tax for the entire Taxable period
multiplied by a fraction the numerator of which is the number of days in the
Taxable period ending on the Closing Date and the denominator of which is the
number of days in the entire Taxable period, and (y) in the case of any other
Tax be deemed equal to the amount which would be payable if the relevant
Taxable period ended on the Closing Date. Any credits relating to a Taxable
period that begins before and ends after the Closing Date shall be taken into
account as though the relevant Taxable period ended on the Closing Date. All
determinations necessary to give effect to the foregoing allocations shall be
made in a manner consistent with prior practice of Target.
(c) COOPERATION ON TAX MATTERS.
(i) North American, Target and Transferors shall
cooperate fully, as and to the extent reasonably requested by the
other party, in connection with the filing of Tax Returns pursuant to
this Section and any audit, litigation or other proceeding with
respect to Taxes. Such cooperation shall include the retention and
(upon the other party's request) the provision of records and
information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a
mutually convenient basis to provide additional information and
explanation of any material provided hereunder. Target and Transferors
agree (A) to retain all books and records with respect to Tax matters
pertinent to Target relating to any taxable period beginning before
the Closing Date until the expiration of the statute of limitations
(and, to the extent notified by North American or Transferors, any
extensions thereof) of the respective taxable periods, and to abide by
all record retention agreements entered into with any taxing
authority, and (B) to give the other party reasonable written notice
prior to transferring, destroying or discarding any such books and
records and, if the other party so requests, Target or Transferors, as
the case may be, shall allow the other party to take possession of
such books and records.
(ii) North American and Transferors further agree,
upon request, to use their best efforts to obtain any certificate or
other document from any governmental authority or any other Person as
may be necessary to mitigate, reduce or eliminate any Tax that could
be imposed (including, but not limited to, with respect to the
transactions contemplated hereby).
41
46
(iii) North American and Transferors further agree,
upon request, to provide the other party with all information that
either party may be required to report pursuant to Section 6043 of the
Code and all Treasury Department Regulations promulgated thereunder.
(iv) Transferors agree that promptly after the
Closing Date, he will prepare and file any required S Corporation
federal and state tax returns for Target for the period from January
1, 1997 through the Closing Date and will pay all applicable Taxes for
that period, as more particularly described in Section 10(e) below.
(d) TAX SHARING AGREEMENTS. All tax sharing agreements or
similar agreements with respect to or involving Target shall be terminated as
of the Closing Date and, after the Closing Date, Target shall not be bound
thereby or have any liability thereunder.
(e) S CORPORATION STATUS. If Target is an S Corporation,
Transferors acknowledge that as a result of the consummation of the
transactions contemplated by this Agreement, Target's S Corporation status will
terminate as of the Closing Date. Notwithstanding anything in this Section 10
to the contrary, Transferors agree that they will file any required S
Corporation federal, state or local tax returns for Target for the period from
January 1, 1997 through the Closing Date and will pay all applicable Taxes for
such period. Transferors will elect under Section 1362(e)(3) of the Code not to
have the pro rata allocation method of Section 1362(e)(2) of the Code apply to
Target's final taxable year as an S Corporation.
(f) CERTAIN TAXES. All transfer, documentary, sales, use,
stamp, registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement, shall be paid by
Transferors when due, and Transferors will, at its own expense, file all
necessary Tax Returns and other documentation with respect to all such
transfer, documentary, sales, use, stamp, registration and other Taxes and
fees, and, if required by applicable law, North American will, and will cause
its affiliates to, join in the execution of any such Tax Returns and other
documentation.
11. TERMINATION.
(a) TERMINATION OF AGREEMENT. The Parties may terminate this
Agreement as provided below:
(i) North American and the Transferors may terminate
this Agreement by mutual written consent at any time prior to the
Closing;
(ii) North American may terminate this Agreement by
giving written notice to the Transferors at any time prior to the
Closing (A) in the event the Transferors have breached any
representation, warranty, or covenant contained in this Agreement in
any material respect, North American has notified the Transferors of
the breach, and the breach has continued without cure for a period of
30 days after the notice of breach or
42
47
(B) if the Closing shall not have occurred on or before April 15,
1998, by reason of the failure of any condition precedent under
Section 7(a) hereof (unless the failure results primarily from the
North American itself breaching any representation, warranty, or
covenant contained in this Agreement); and
(iii) the Transferors may terminate this Agreement
by giving written notice to North American at any time prior to the
Closing (A) in the event North American has breached any
representation, warranty, or covenant contained in this Agreement in
any material respect, the Transferors have notified the North American
of the breach, and the breach has continued without cure for a period
of 30 days after the notice of breach or (B) if the Closing shall not
have occurred on or before April 15, 1998, by reason of the failure of
any condition precedent under Section 7(b) hereof (unless the failure
results primarily from the Transferors themselves breaching any
representation, warranty, or covenant contained in this Agreement).
(b) EFFECT OF TERMINATION. If any Party terminates this
Agreement pursuant to Section 11(a) above, all rights and obligations of the
Parties hereunder shall terminate without any Liability of any Party to any
other Party (except for any Liability of any Party then in breach).
12. MISCELLANEOUS.
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall
issue any press release or make any public announcement relating to the subject
matter of this Agreement prior to the Closing without the prior written
approval of the North American and the Transferors; PROVIDED, HOWEVER, that any
Party may make any public disclosure it believes in good faith is required by
applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing Party will use its
best efforts to advise the other Parties prior to making the disclosure).
(b) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not
confer any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns and the Indemnified Parties
referred to in Section 8 hereof.
(c) ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or among
the Parties, written or oral, to the extent they related in any way to the
subject matter hereof.
(d) SUCCESSION AND ASSIGNMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the Parties
named herein and their respective successors and permitted assigns. No Party
may assign either this Agreement or any of his or its rights, interests, or
obligations hereunder without the prior written approval of the North American
and the Transferors; PROVIDED, HOWEVER, that the North American may (i) assign
any or all of its rights and interests hereunder to one or more of its
Affiliates, (ii) designate one
43
48
or more of its Affiliates to perform its obligations hereunder (in any or all
of which cases the North American nonetheless shall remain responsible for the
performance of all of its obligations hereunder) and (iii) without the approval
of the Transferors assign their rights and interests hereunder to its lenders
(and any agent for the lenders), and the Parties consent to any exercise by
such lenders (and such agents) of their rights and remedies with respect to
such collateral.
(e) COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) HEADINGS. The section headings contained in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
(g) NOTICES. All notices, requests, demands, claims, and
other communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
IF TO THE TRANSFERORS: COPY TO:
---------------------- --------
Xxxxx Xxx Ansbacher & Xxxxxxxxx
Xxxxx Back 0000 Xxxxxxxxxx Xxxx.
c/o Excel Cable Construction, Inc. Suite 100
0000 Xxxxxxxxxx Xxxxx Xxxxx Xxxxxxxxxxxx, Xxxxxxx 00000
Xxxxxxxxxxxx, Xxxxxxx 00000 Attn: Xxxxxxx Xxxxxxxxx, Esq.
44
49
IF TO THE NORTH AMERICAN: COPY TO:
------------------------- --------
North American Tel-Com Group, Inc. Holland & Knight LLP
0000 Xxxx Xxxxx Xxxxx Xxxx, Xxx. 000 0 Xxxx Xxxxxxx Xxxx., 00xx Xxxxx
Xxxx Xxxx Xxxxx, XX 00000 Ft. Xxxxxxxxxx, Xxxxxxx 00000
Attn: Xxxxxxx X. Xxxxxxxx Attn: Xxxx X. Xxxxxx, Esq.
Holland & Knight LLP
000 Xxxxxxxx Xxxxxx
Xxxxx, Xxxxxxx 00000
Attn: Xxxxxxxx X. Xxxxxx, Esq.
H.I.G. Capital Management, Inc.
0000 Xxxxxxxx Xxx Xxxxx, Xxxxx 0000
Xxxxx, Xxxxxxx 00000
Attn: Xxxx X. Xxxxxxxx
White & Case, LLP
First Union Financial Tower
Suite 4900
000 X. Xxxxxxxx Xxxx.
Xxxxx, Xxxxxxx 00000
Attn: Xxxxx X. Xxxxxxxx, Esq.
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been
duly given unless and until it actually is received by the intended recipient.
Any Party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other
Parties notice in the manner herein set forth.
(h) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Florida without
giving effect to any choice or conflict of law provision or rule (whether of
the State of Florida or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Florida.
(i) AMENDMENTS AND WAIVERS. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
the North American and the Transferors. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
45
50
(j) SEVERABILITY. Any term or provision of this Agreement
that is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
(k) EXPENSES. Each of the Parties will bear his or its own
costs and expenses (including legal fees and expenses) incurred in connection
with this Agreement and the transactions contemplated hereby. The Transferors
agree Target has not borne or will bear any of the Transferors' costs and
expenses (including any of their legal fees and expenses) in connection with
this Agreement or any of the transactions contemplated hereby.
(l) CONSTRUCTION. The Parties have participated jointly in
the negotiation of this Agreement. In the event an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as if
drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local,
or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
(m) INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The
Exhibits, Annexes, Schedules and Certificates identified in this Agreement are
incorporated herein by reference and made a part hereof.
(n) SPECIFIC PERFORMANCE. Each of the Parties acknowledges
and agrees that the other Parties would be damaged irreparably in the event any
of the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter (subject to the provisions set
forth in Section 10(o) below), in addition to any other remedy to which they
may be entitled, at law or in equity.
(o) SUBMISSION TO JURISDICTION. Each of the Parties submits
to the jurisdiction of any state or federal court sitting in Palm Beach County,
Florida, in any action or proceeding arising out of or relating to this
Agreement and agrees that all claims in respect of the action or proceeding may
be heard and determined in any such court. Each of the Parties waives any
defense of inconvenient forum to the maintenance of any action or proceeding so
brought and
46
51
waives any bond, surety, or other security that might be required of any other
Party with respect thereto. Any Party may make service on any other Party by
sending or delivering a copy of the process to the Party to be served at the
address and in the manner provided for the giving of notices in Section 12(o)
above. Nothing in this Section 12(g), however, shall affect the right of any
Party to bring any action or proceeding arising out of or relating to this
Agreement in any other court or to serve legal process in any other manner
permitted by law or at equity. Each Party agrees that a final judgment in any
action or proceeding so brought shall be conclusive and may be enforced by suit
on the judgment or in any other manner provided by law or at equity.
In any action or proceeding arising out of or relating to this
Agreement, the prevailing party shall be entitled to recover reasonable
attorney's fees and costs from the other party to the action or proceeding.
(p) WAIVER OF JURY TRIAL. THE PARTIES HEREBY IRREVOCABLY
WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY AND TO
THE FULLEST EXTENT PERMITTED BY LAW WAIVE ANY RIGHTS THAT THEY MAY HAVE TO
CLAIM OR RECEIVE CONSEQUENTIAL OR SPECIAL DAMAGES IN CONNECTION WITH ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
*****
47
52
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
NORTH AMERICAN TEL-COM, INC.
By:
-------------------------------
Xxxxxxx X. Xxxxxxxx
TRANSFERORS
----------------------------------
Xxxxx Xxx
----------------------------------
Xxxxx Back
48
