Exhibit 2
AGREEMENT AND PLAN OF MERGER
BETWEEN
ELECTRIC CITY CORP.
ELECTRIC CITY ACQUISITION CORPORATION
AND
SWITCHBOARD APPARATUS, INC.
XXXX XXXXXXXXXXXX
XXXXXX XXXXXX
AND
XXXXXX XXXXX
August 31, 2000
TABLE OF CONTENTS
AGREEMENT AND PLAN OF MERGER
ARTICLE DESCRIPTION PAGE
MERGER .........................................................................................................1
1.1 MERGER..........................................................................................1
1.2 FILING OF CERTIFICATE OF MERGER.................................................................2
1.3 EFFECTIVE DATE OF MERGER........................................................................2
1.4 DIRECTORS.......................................................................................2
1.5 OFFICERS........................................................................................3
1.6 CONVERSION OF SHARES............................................................................3
1.7 LEGEND..........................................................................................3
1.8 REGISTRATION....................................................................................4
1.9 INFORMATION FOR S-1.............................................................................4
1.10 PURCHASE PRICE..................................................................................4
1.11 THE CLOSING.....................................................................................4
1.12 ESCROW..........................................................................................5
1.13 PUBLICATION.....................................................................................6
Certain Effects of Merger.........................................................................................6
2.1 EFFECT OF MERGER................................................................................6
2.2 FURTHER ASSURANCES..............................................................................7
Business Plan.....................................................................................................8
Representations and warranties of Shareholders and the Company....................................................8
4.1 ORGANIZATION....................................................................................8
4.2 CORPORATE ACTION................................................................................8
4.3 STOCK...........................................................................................9
4.4 SUBSIDIARIES AND QUALIFICATION..................................................................9
4.5 FINANCIAL STATEMENTS...........................................................................10
4.6 AFFILIATED TRANSACTIONS........................................................................10
4.7 LICENSES.......................................................................................11
4.8 PRODUCT LIABILITY..............................................................................11
4.9 ASSETS.........................................................................................11
4.10 TITLE..........................................................................................12
4.11 CONTRACTS......................................................................................14
4.12 LITIGATION AND COMPLIANCE WITH LAW.............................................................16
4.13 NO DEFAULTS....................................................................................17
4.14 CHANGES........................................................................................17
ARTICLE DESCRIPTION PAGE
4.15 ENVIRONMENTAL WARRANTIES.......................................................................18
4.16 BROKERS........................................................................................21
4.17 EMPLOYEE RELATIONS.............................................................................21
4.18 EMPLOYEES; DIRECTORS; OFFICERS.................................................................21
4.19 BANKS, POWERS OF ATTORNEY......................................................................21
4.20 INSURANCE......................................................................................22
4.21 INDEBTEDNESS...................................................................................22
4.22 OPTIONS, ETC...................................................................................22
4.23 PATENTS, TRADEMARKS, ETC.......................................................................23
4.24 ACCOUNTS PAYABLE...............................................................................24
4.25 ACCOUNTS RECEIVABLE............................................................................24
4.26 INVENTORY......................................................................................24
4.27 LIABILITIES....................................................................................25
4.28 TAXES..........................................................................................25
4.29 EMPLOYEE PLANS.................................................................................26
4.30 NO OFFERS OF EMPLOYMENT........................................................................26
4.31 NO SOLICITATION OF BUSINESS; USE OF INFORMATION................................................26
4.32 CONTRACTS......................................................................................27
4.33 MISCELLANEOUS..................................................................................27
REPRESENTATIONS AND WARRANTIES OF BUYER..........................................................................27
5.1 INCORPORATION..................................................................................27
5.2 NO DEFAULTS; COMPLIANCE WITH LAW...............................................................27
5.3 CORPORATE ACTION...............................................................................28
5.4 BROKERS........................................................................................28
5.5 CAPITAL STRUCTURE..............................................................................28
5.6 NASDAQ APPLICATION.............................................................................29
COVENANTS OF SHAREHOLDERS AND THE COMPANY PENDING THE CLOSING DATE...............................................29
6.1 SHAREHOLDER APPROVAL...........................................................................29
6.2 FULL ACCESS AND FINANCIALS.....................................................................29
6.3 CONDUCT OF BUSINESS............................................................................30
6.4 OTHER ACTION...................................................................................30
6.5 ORGANIZATION, GOOD WILL........................................................................32
6.6 CONSENTS TO LEASES, CONTRACTS..................................................................32
6.7 REPRESENTATIONS AND WARRANTIES.................................................................32
6.8 NOTICE OF PROCEEDINGS..........................................................................33
6.9 NOTICE OF REFUSAL TO PATRONIZE OR SUPPLY.......................................................33
6.10 CORPORATE ACTION...............................................................................33
6.11 UPDATED SCHEDULES..............................................................................33
COVENANTS OF BUYER PENDING THE CLOSING DATE......................................................................34
7.1 REPRESENTATIONS AND WARRANTIES.................................................................34
7.2 NO OFFERS OF EMPLOYMENT........................................................................34
7.3 NO SOLICITATION OF BUSINESS; USE OF INFORMATION................................................34
ARTICLE DESCRIPTION PAGE
7.4 NOTICE OF PROCEEDINGS..........................................................................35
7.5 CORPORATE ACTION...............................................................................35
CONDITIONS TO THE OBLIGATIONS OF SHAREHOLDERS....................................................................35
8.1 REPRESENTATIONS, WARRANTIES, COVENANTS.........................................................35
8.2 OPINION OF COUNSEL.............................................................................36
CONDITIONS TO THE OBLIGATIONS OF BUYER...........................................................................37
9.1 REPRESENTATIONS, WARRANTIES, COVENANTS.........................................................37
9.2 PROCEEDINGS....................................................................................38
9.3 NON-COMPETITION AGREEMENTS.....................................................................39
9.4 CONSENTS TO LEASES, CONTRACTS..................................................................39
9.5 OPINION OF COUNSEL.............................................................................39
TERMINATION......................................................................................................39
10.1 TERMINATION....................................................................................39
10.2 EFFECT OF TERMINATION..........................................................................40
INDEMNIFICATION..................................................................................................40
11.1 SURVIVAL.......................................................................................40
11.2 INDEMNIFICATION OF BUYER.......................................................................40
11.3 NOTICE OF CLAIMS; PROCEDURE FOR INDEMNIFICATION................................................42
11.4 LIMITATION ON INDEMNIFICATION..................................................................44
RIGHT OF FIRST OFFER AND RIGHT OF FIRST NEGOTIATION..............................................................45
12.1 RIGHT OF FIRST OFFER...........................................................................45
12.2 RIGHT OF FIRST REFUSAL.........................................................................46
MISCELLANEOUS....................................................................................................47
13.1 MATERIAL.......................................................................................47
13.2 EXPENSES.......................................................................................47
13.3 SHAREHOLDERS' TAX LIABILITIES..................................................................48
13.4 ASSIGNMENTS....................................................................................48
13.5 FURTHER ASSURANCES.............................................................................48
13.6 NOTICES........................................................................................48
13.7 CAPTIONS.......................................................................................50
13.8 LAW GOVERNING..................................................................................50
13.9 ARBITRATION....................................................................................50
13.10 WAIVER OF PROVISIONS...........................................................................50
13.11 COUNTERPARTS...................................................................................51
13.12 ENTIRE AGREEMENT...............................................................................52
SCHEDULE 1.4.....................................................................................................52
SCHEDULE 1.5.....................................................................................................54
ARTICLE DESCRIPTION PAGE
SCHEDULE 4.6.....................................................................................................52
SCHEDULE 4.9.....................................................................................................53
SCHEDULE 4.10.1..................................................................................................54
SCHEDULE 4.10.2..................................................................................................55
SCHEDULE 4.10.3..................................................................................................56
SCHEDULE 4.10.5..................................................................................................57
SCHEDULE 4.11....................................................................................................58
SCHEDULE 4.12....................................................................................................59
SCHEDULE 4.13....................................................................................................60
SCHEDULE 4.14....................................................................................................61
SCHEDULE 4.17....................................................................................................62
SCHEDULE 4.18....................................................................................................63
SCHEDULE 4.19....................................................................................................64
SCHEDULE 4.20....................................................................................................65
SCHEDULE 4.21....................................................................................................66
SCHEDULE 4.23....................................................................................................67
SCHEDULE 4.25....................................................................................................68
SCHEDULE 4.26....................................................................................................69
SCHEDULE 4.28....................................................................................................70
SCHEDULE 6.6.....................................................................................................71
SCHEDULE 9.3.....................................................................................................72
ARTICLE DESCRIPTION PAGE
EXHIBITS
Exhibit A Certificate of Merger
Exhibit B Indemnity and Stockholder Agreement
Exhibit C Escrow Agreement
Exhibit D Business Plan
Exhibit E Employment Agreement and Stock Option Letter Agreement
for Xxxx Xxxxxxxxxxxx
Exhibit F Legal Opinion of Schwartz, Cooper, Xxxxxxxxxxx & Xxxxxx, Chtd.
Exhibit G Non-Competition Agreement
Exhibit H Legal Opinion of Xxxxxxxx & Xxxxxxx
GLOSSARY
TERM PAGE
---- ----
"BUYER" .........................................................................................................1
"ACQUISITION".....................................................................................................1
"SHAREHOLDER".....................................................................................................1
"SHAREHOLDERS"....................................................................................................1
"COMPANY".........................................................................................................1
"SHARES" .........................................................................................................1
"COMMON STOCK"....................................................................................................1
"GENERAL CORPORATION LAW".........................................................................................2
"SURVIVING CORPORATION"...........................................................................................2
"CERTIFICATE OF MERGER"...........................................................................................2
"EFFECTIVE DATE"..................................................................................................2
"ELECTRIC CITY STOCK".............................................................................................3
"SEC" .........................................................................................................4
"S-1 REGISTRATION STATEMENT"......................................................................................4
"CLOSING".........................................................................................................4
"CLOSING DATE"....................................................................................................4
"ESCROWEE"........................................................................................................5
"ESCROW TERMINATION DATE".........................................................................................5
"BUSINESS PLAN"...................................................................................................8
"YEAR END STATEMENTS"............................................................................................10
"INTERIM STATEMENTS".............................................................................................10
"FINANCIAL STATEMENTS"...........................................................................................10
"BALANCE SHEET DATE".............................................................................................10
"DECEMBER 31, 1999 BALANCE SHEET"................................................................................10
"AFFILIATE OF A SHAREHOLDER".....................................................................................11
"ASSETS" ........................................................................................................12
"PERMITTED LIENS"................................................................................................13
"CONTRACT".......................................................................................................16
"ENVIRONMENTAL AUDITS"...........................................................................................18
"ACMs" ........................................................................................................19
"ENVIRONMENTAL LAWS".............................................................................................20
"HAZARDOUS MATERIAL(S)"..........................................................................................21
"EEW KIT PATENT".................................................................................................23
"CURRENT"........................................................................................................24
"KEY EMPLOYEES"..................................................................................................32
"REAL ESTATE"....................................................................................................37
"INDEMNIFIED PARTY"..............................................................................................40
"LOSS AND EXPENSE"...............................................................................................40
"FIRST RIGHT ASSETS".............................................................................................45
"OFFER NOTICE"...................................................................................................45
"THIRD PARTY OFFER"..............................................................................................46
AGREEMENT OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is dated as of August 31, 2000, and
is between ELECTRIC CITY CORP., a Delaware corporation ("BUYER"), and ELECTRIC
CITY ACQUISITION CORPORATION, a Delaware corporation ("ACQUISITION"), on the one
hand, and XXXX XXXXXXXXXXXX, XXXXXX XXXXXX and XXXXXX XXXXX (each a
"SHAREHOLDER" and collectively, the "SHAREHOLDERS") and SWITCHBOARD APPARATUS,
INC., an Illinois corporation (the "COMPANY"), on the other hand.
WHEREAS, the Shareholders own all of the outstanding capital stock of
the Company (collectively, the "SHARES");
WHEREAS, Buyer desires to acquire from the Shareholders all of the
issued and outstanding Shares solely in exchange for shares of common stock, par
value $0.0001 of Buyer (the "COMMON STOCK") in a transaction the parties desire
to be a tax-free transaction which is described in Section 368 of the Internal
Revenue Code of 1986, as amended;
WHEREAS, in order to consummate the transactions contemplated herein,
Acquisition has been formed and the Company will be merged with and into
Acquisition (with Acquisition as the surviving corporation), upon and subject to
the terms as further specified in this Agreement;
NOW, THEREFORE, the parties agree as follows:
ARTICLE 1.
MERGER
1.1 MERGER. Upon due satisfaction of all the conditions precedent set
forth herein, at the Effective Date (as defined below), Company shall be merged
with and into Acquisition on the terms and conditions set forth in this
Agreement and as permitted by and in accordance with the General
Corporation Law of the State of Delaware (the "GENERAL CORPORATION LAW") and the
Illinois Business Corporation Act (the "IBCA"). Thereupon, the separate
existence of the Company shall terminate and Acquisition, as the surviving
corporation (the "SURVIVING CORPORATION"), shall continue to exist under and be
governed by the General Corporation Law, with its Articles of Incorporation and
its By-Laws as in effect at the Effective Date to remain unchanged, unless and
until amended subsequent thereto and except that, pursuant to the Certificate of
Merger (as defined below), the name of Acquisition shall be changed to
"SWITCHBOARD APPARATUS, INC."
1.2 FILING OF CERTIFICATE OF MERGER. Upon the Closing (as defined
below), the Company and Acquisition will cause the Certificate of Merger in
substantially the form of Exhibit A attached hereto (the "CERTIFICATE OF
MERGER") to be executed, acknowledged and filed with the Secretary of State of
the State of Delaware as provided in Section 252 of the General Corporation Law,
and the Surviving Corporation shall thereafter cause a copy of the Certificate
of Merger, certified by the Secretary of State of Delaware, to be recorded in
the appropriate counties' Recorders' offices, all in accordance with Section 103
of the General Corporation Law, and in the offices of such other public
officials within and without the State of Delaware as may be required by law,
including the IBCA.
1.3 EFFECTIVE DATE OF MERGER. The Merger shall become effective
immediately upon the filing of the Certificate of Merger with the Secretary of
State of the State of Delaware, and if so required by the IBCA, the Secretary of
State of the State of Illinois. The date and time of such effectiveness is
herein referred to as the "EFFECTIVE DATE".
1.4 DIRECTORS. From and after the Effective Date, the members of the
Board of Directors of the Surviving Corporation shall consist of the individuals
identified on Schedule 1.4 attached hereto until their respective successors
have been duly elected and qualified or until their earlier
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death, resignation or removal in accordance with the Surviving Corporations's
Articles of Incorporation and By-laws; provided the Surviving Corporation takes
all corporate action required to effectuate the provisions of this Section.
1.5 OFFICERS. From and after the Effective Date, the officers of the
Surviving Corporation shall initially consist of the individuals identified on
Schedule 1.5 attached hereto until their respective successors have been duly
elected and qualified or until their earlier death, resignation or removal in
accordance with the Surviving Corporation's By-laws; provided the Surviving
Corporation takes all corporate action required to effectuate the provisions of
this Section.
1.6 CONVERSION OF SHARES. At the Effective Date, the then issued
shares of common stock of the Company outstanding shall, without any further
action on the part of Acquisition, the Company or the respective holders of such
shares, be converted into a number of shares of Common Stock of Buyer equal to
$1,941,750 divided by the Value Per Share (as defined herein) as of the Closing
Date (as hereinafter defined). The Shares which are converted into Common Stock
of Buyer pursuant to this Section are hereinafter referred to as "ELECTRIC CITY
STOCK". For purposes of this Agreement, the Value Per Share of the Common Stock
will be the average closing price of a share of Common Stock of Buyer during the
thirty (30) day period prior to the Closing as reported on the OTC Bulletin
Board exchange for such day.
1.7 LEGEND. Each certificate evidencing the Electric City Stock shall
bear the following legend:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES
LAWS OF ANY STATE OR OTHER JURISDICTION (TOGETHER, THE
"SECURITIES LAWS") AND MAY NOT BE OFFERED FOR SALE, SOLD OR
OTHERWISE TRANSFERRED OR ENCUMBERED IN THE ABSENCE OF COMPLIANCE
WITH SUCH SECURITIES LAWS AND UNTIL THE ISSUER THEREOF SHALL HAVE
RECEIVED FROM
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COUNSEL ACCEPTABLE TO IT A WRITTEN OPINION REASONABLY
SATISFACTORY TO IT THAT THE PROPOSED DISPOSITION WILL NOT VIOLATE
ANY APPLICABLE SECURITIES LAWS."
1.8 REGISTRATION. Within 90 days after the date hereof, Buyer will
file with the Securities and Exchange Commission ("SEC") a registration
statement on Form S-1 (together with all amendments and supplements thereto, the
"S-1 REGISTRATION STATEMENT") covering the Electric City Stock. Buyer shall
maintain the effectiveness of the S-1 Registration Statement until the earlier
of (a) the date on which all shares of the Electric City Stock covered by the
S-1 Registration Statement have been sold by the Shareholders, or (b) the first
anniversary of the Closing Date. On or prior to the Closing Date, each
Shareholder shall enter into an Indemnity and Stockholder Agreement in the form
attached hereto as Exhibit B.
1.9 INFORMATION FOR S-1. The Shareholders represent and warrant that
no information to be furnished by any of the Shareholders for use in the S-1
Registration Statement will contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
contained therein not misleading.
1.10 PURCHASE PRICE. The purchase price to be paid by Buyer for the
Shares shall consist of the Electric City Stock.
1.11 THE CLOSING. The closing of the transactions provided for in this
Agreement (the "CLOSING") shall be held in the offices of Schwartz, Cooper,
Xxxxxxxxxxx & Xxxxxx, Chtd.,180 North LaSalle, Xxxxxxx, Xxxxxxxx 00000, counsel
for Buyer and Acquisition, at 12 Noon local time on August 31, 2000, provided
the conditions described in Articles 8 and 9 are satisfied, or at such other
time and place as hereafter shall be mutually agreed upon by the parties (the
"CLOSING DATE").
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1.12 ESCROW. At Closing, the Shareholders shall deposit fifteen
percent (15%) of the Electric City Stock with Chicago Title and Trust Company
("ESCROWEE") (or, in the event Chicago Title and Trust Company declines to act
as escrow agent, with another third party to be hereafter chosen by Buyer) as
escrow agent. The escrow shall terminate eighteen (18) months after the
Effective Date ("ESCROW TERMINATION DATE"). The Shareholders shall each have the
right, subject to Securities Laws and SEC rules and regulations, to direct the
Escrowee to sell all or any part of their proportionate share of the Electric
City Stock and to invest the proceeds of such Electric City Stock in (a) any
evidence of debt, maturing not more than one year after such time, issued or
guaranteed by the United States government or any agency thereof, (b) commercial
paper, maturing not more than one year from the date of issue, or corporate
demand notes, in each case rated at least A-l by Standard & Poor's Ratings Group
or P-l by Xxxxx'x Investors Service, Inc., or (c) any certificate of deposit (or
time deposits represented by such certificates of deposit) or banker's
acceptance, maturing not more than one year after such time, or overnight
federal funds transactions that are issued or sold by a commercial banking
institution that is a member of the Federal Reserve System and has a combined
capital and surplus and undivided profits of not less than $500,000,000. Any and
all such invested proceeds shall remain a part of the escrow until released as
hereinafter provided and pursuant to the terms of the Escrow Agreement attached
hereto as Exhibit C. Upon Buyer's receipt from a third party, or assertion, of a
claim for which Sellers are to indemnify Buyer under Article 11, if the Sellers
do not timely object to such claim, the Buyer shall cause such payment to be
made by instructing Escrowee to either withdraw shares of Electric City Stock,
or to withdraw any cash proceeds (including liquidating any invested proceeds
and withdrawing the same) from the escrow and delivering such shares or cash to
the Indemnified Party (as defined herein) in
5
payment of any such indemnification claim (with each such withdrawn share to be
valued at the average closing price for a share of Common Stock of Buyer during
the 30 day period prior to said payment). On the Escrow Termination Date, Buyer
shall direct the Escrowee to distribute the Electric City Stock or cash proceeds
remaining in escrow to the Shareholders in the same proportion as they deposited
the Electric City Stock in the escrow; provided, however, in the event that
there are any claims for indemnification pending pursuant to Article 11 on such
date, the distribution from the escrow shall only be made to the extent of any
Electric City Stock or cash proceeds remaining in the Escrow in excess of such
unresolved claims, and the shares or cash proceeds in the escrow shall continue
to remain available for the payment of any such pending claims. The costs and
expenses of the Escrow shall be borne solely by Buyer.
1.13 PUBLICATION. Other than the press release published March 24,
2000, or as may be required by law, the Shareholders, Buyer, Acquisition and the
Company shall not issue any press release or other public or private
announcement of the transaction contemplated by this Agreement until after this
Agreement is consummated on the Closing Date. Any such press release or other
announcement issued on the Closing Date shall be mutually acceptable to all the
parties hereto.
ARTICLE 2.
CERTAIN EFFECTS OF MERGER
2.1 EFFECT OF MERGER. Upon and after the Effective Date, the separate
existence of the Company shall cease and shall be merged into Acquisition, with
Acquisition as the Surviving Corporation possessing all rights, privileges,
immunities and franchises of a public or a private nature of each of the
constituent corporations; and all property, real, personal and mixed and all
debts due on whatever account, including subscriptions to shares and all other
choses in action, and all and
6
every other interest of or belonging to or due to each of the constituent
corporations shall be taken and deemed to be transferred to and vested in the
Surviving Corporation without further act or deed; and the title to any real
estate or any interest therein, vested in any of the constituent corporations
shall not revert to or be in any way impaired by reason of the merger
contemplated herein. The Surviving Corporation shall, after the Effective Date,
be responsible for, and shall indemnify the Shareholders and the officers and
directors of the Company against, all the liabilities and obligations of each of
the constituent corporations (except to the extent of any liability or
obligation arising due to the gross negligence or willful misconduct of any such
Shareholder, officer or director, or arising due to a breach by the Company or
any Shareholder of a representation, warranty or covenant contained in this
Agreement), and any claim existing, or action or proceeding pending by or
against any of such corporations may be prosecuted or defended by the Surviving
Corporation as if such merger had not taken place. Neither the rights of
creditors nor any liens upon the property of any of the constituent corporations
shall be impaired by the merger contemplated herein.
2.2 FURTHER ASSURANCES. If at any time after the Effective Date, the
Surviving Corporation shall consider or be advised that any further deeds,
assignments or assurances in law or any other things are necessary, desirable or
proper:
(a) to perfect, confirm, or record or otherwise vest, in
Acquisition the title to any property or rights of the
constituent corporations acquired or to be acquired by
reason of, or as a result of the Merger; or
(b) otherwise to carry out the purpose of this Agreement
then the Shareholders and Acquisition, and its officers and directors shall and
will execute and deliver all such deeds, assignments and assurances in law and
do all other things necessary, desirable or proper to vest, perfect or confirm
title to such property or rights in the Surviving Corporation and
7
otherwise to carry out the purposes of this Agreement, and the proper officers
and directors of the constituent corporations and the Surviving Corporation are
severally fully authorized in their respective names thereof or otherwise to
take any and all such action.
ARTICLE 3.
BUSINESS PLAN
Attached hereto as Exhibit D is the business plan (the "BUSINESS PLAN")
developed and delivered by the Shareholders, outlining (i) proposed goals and
objectives for the Surviving Corporation, and (ii) the means to achieve such
goals and objectives. Buyer and Shareholders intend that the Surviving
Corporation will implement the Business Plan in all material respects; however,
Buyer and Shareholders acknowledge that the projections in the Business Plan are
in no way a representation or guaranty by Shareholders or the Company as to the
Surviving Corporation's actual future performance.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS AND THE COMPANY
Each Shareholder and the Company, jointly and severally among all of
them, represent and to Buyer as follows:
4.1 ORGANIZATION. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Illinois.
The Company has full corporate power and authority to carry on its business as
it is now being conducted and will be conducted on the Closing Date, and to own,
lease and operate its assets, business and properties.
4.2 CORPORATE ACTION. All corporate action and proceedings necessary
to be taken by or on the part of the Company in connection with the transactions
contemplated by this Agreement and
8
necessary to make the same effective have been duly and validly taken, and this
Agreement has been duly and validly authorized, executed and delivered by the
Company and constitutes its valid and binding agreement, enforceable in
accordance with and subject to its terms, except as limited by applicable
bankruptcy, insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and general equity principles.
4.3 STOCK. The Company has authorized capital stock consisting solely
of 100,000 shares, par value $0.00 each, of which 12,500 shares are issued and
outstanding, all of which are owned beneficially and of record by Shareholders
as follows: Xxxx Xxxxxxxxxxxx, 8,750 shares, Xxxxxx Xxxxxx, 1,875 shares and
Xxxxxx Xxxxx, 1,875 shares. There are no shares held in the treasury of the
Company. The Company has no securities authorized, issued or outstanding which
are convertible into or exercisable for capital stock. The Shares constitute all
of the outstanding shares of capital stock of the Company, have been duly
authorized and validly issued, and are fully paid and non-assessable. Each
Shareholder is the lawful owner of record and beneficial owner of the Shares
listed above and has full power and authority to enter into and perform this
Agreement, and each Shareholder represents he owns such Shares free and clear of
any security interests, pledges, mortgages, claims, liens, and encumbrances of
any kind whatsoever other than any security interests, pledges, mortgages,
claims, liens or other encumbrances created by action of Buyer. On the date of
this Agreement, the Shareholders will cause the Company to close its stock
transfer books and the Company will not prior to the Closing record the transfer
of any such Shares.
4.4 SUBSIDIARIES AND QUALIFICATION. The Company does not own or hold
any interest in any partnership, proprietorship, corporation or other business
entity. The Company has delivered to Buyer certified and complete copies of (a)
the Articles of Incorporation of the Company and all
9
amendments thereto, and (b) the By-laws of the Company as currently in effect.
The Company is duly licensed or qualified to do business and is in good standing
and authorized to do business in each state and jurisdiction in which such
licensing or qualification is required, except where the failure to so qualify
or be licensed to do business would not have a material adverse effect on the
Company.
4.5 FINANCIAL STATEMENTS. The Company has delivered to Buyer a copy
of the reviewed balance sheet, statement of income and statement of cash flow of
the Company as of and for the fiscal years ended December 31, 1997, December 31,
1998 and December 31, 1999 (collectively, the "YEAR END STATEMENTS"), together
with balance sheets, statements of income and equity, and statements of cash
flow of the Company as of and for the three-month period ended June 30, 2000
("INTERIM STATEMENTS"). The Year End Statements and the Interim Statements are
collectively referred to herein as the "FINANCIAL STATEMENTS".
The Financial Statements (a) are correct and complete in accordance
with the books and records regularly maintained by the Company, (b) have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis, and (c) fairly present the financial condition, results of
operations, changes in equity and cash flow for the respective periods covered
by the Financial Statements.
December 31, 1999 is sometimes referred to herein as the "BALANCE SHEET
DATE" and the December 31, 1999 balance sheet of the Company is sometimes
referred to herein as the "DECEMBER 31, 1999 BALANCE SHEET".
4.6 AFFILIATED TRANSACTIONS. Except as described in Schedule 4.6
attached hereto, as of the date hereof, neither any Shareholder nor any
Affiliate of a Shareholder (as defined below) is
10
indebted to, or is a creditor of, or a guarantor of any obligation of or a party
to any contract, agreement, license, option, commitment or other arrangement,
written or oral, express or implied, with the Company. For purposes of this
Agreement, an "AFFILIATE OF A SHAREHOLDER" means any employee, officer or
director of a Shareholder, any spouse or family member (including in-laws) of a
Shareholder, or any corporation, partnership or other entity in which a
Shareholder (or spouse or family member) has any equity or ownership interest
exceeding twenty percent (20%) in the aggregate.
4.7 LICENSES. To the best knowledge of the Shareholders and the
Company, all permits and licenses necessary for the operation of the Company in
the ordinary course of business have been obtained and are in full force and
effect, except where the failure to obtain any permit and/or license would not
have a material adverse effect on the Company. No material violation exists in
respect of any such license or permit. No proceeding is pending or threatened to
revoke or limit any such license or permit.
4.8 PRODUCT LIABILITY. No claims or demands have been made against
the Company alleging injury to individuals or property as a result of the
ownership, possession or use of any product manufactured or sold by the Company.
All products sold by the Company prior to the Closing Date and all work in
process produced by the Company prior to the Closing Date are and will be of
good quality, merchantable and in compliance with the requirements of the
respective purchase agreements under which such goods are or will be sold.
4.9 ASSETS. The assets of the Company include (a) all assets and
properties, real and personal, tangible and intangible, of every kind and
description used or held for use in connection with the business and operations
of the Company as a going concern, including without limitation,
11
rights under contracts and leases, real and personal property, plant and
equipment, inventories, intangibles, trademarks, copyrights and goodwill, and
(b) those assets listed Schedule 4.9 attached hereto. The assets described in
(a) and (b) are sometimes referred to herein as the "ASSETS". Except as
disclosed in Schedule 4.9, all of the Assets, whether real or personal, owned or
leased, are in good operating condition and repair (with the exception of normal
wear and tear) and, to the best knowledge of the Company and the Shareholders,
are free from defects other than such minor defects as do not interfere with the
continued use thereof in conduct of normal operations. The Assets constitute all
the assets, properties and rights which are required for the operation of the
Company as it is presently operated.
4.10 TITLE.
4.10.1 Schedule 4.10.1 attached hereto contains descriptions
of all of the real property included in the Assets (including improvements
thereon). Except as set forth on Schedule 4.10.1, the Company has good and
marketable fee title to said real property and improvements, free and clear of
all mortgages, security interests, liens, charges or encumbrances of any nature
whatsoever, other than Permitted Liens (defined below).
4.10.2 Schedule 4.10.2 attached hereto describes all real
property leases or subleases included in the Assets. Said leases and subleases
are valid, binding and enforceable in accordance with their terms, and (i)
neither the Company nor any landlord is in default thereunder, (ii) there are no
offsets or defenses by either the Company or any landlord or tenant against a
tenant or landlord, respectively, and (iii) the transactions contemplated by
this Agreement will not affect or impair the terms, validity or enforceability
of any of such leases or subleases, or require the consent of any party thereto
which shall not have been obtained prior to the Closing Date.
12
4.10.3 The Company owns or leases all the furniture, equipment,
tangible personal property and leasehold improvements (the foregoing items being
listed on Schedule 4.10.3) located in the structures referred to in Schedules
4.10.1 and 4.10.2 or otherwise included in the Assets (except those
insubstantial personal effects owned by the Shareholders and the employees of
the Company). All the Assets (other than assets or property sold or otherwise
disposed of after December 31, 1999 as permitted by this Agreement) are either
(i) owned free and clear of all security interests, mortgages, pledges, liens,
conditional sales agreements, leases, encumbrances or charges of any nature
whatsoever except as set forth on Schedule 4.10.3 or (ii) subject to valid,
binding and enforceable leases which are listed on Schedule 4.10.3 as to which
neither party thereto is in default, there are no defenses or offsets by either
party thereto against the other, and the transactions contemplated by this
Agreement will not affect or impair the terms, validity or enforceability
thereof or require the consent of any party thereto. Notwithstanding the
foregoing, the Shareholders and employees of the Company may remove their
personal effects from the Company's premises prior to the Closing; any such
personal effects constituting office equipment or machinery are listed on
Schedule 4.10.3.
4.10.4 To the best knowledge of the Shareholders and the Company,
all of the aforesaid real estate, improvements, appurtenances and leasehold
improvements are in compliance with all applicable material ordinances and
regulations and building, zoning and other laws. The buildings, machinery and
equipment of the Company are in good and serviceable condition are fit for the
purposes for which they are currently being and are intended to be used.
4.10.5 As used herein, the term "PERMITTED LIENS" means liens for
taxes not yet due and payable and such imperfections of title which will not
affect the marketability or the full use and
13
enjoyment of the affected asset for its intended purposes. Any such Permitted
Liens are listed on Schedule 4.10.5.
4.11 CONTRACTS. Except for the contracts listed on Schedule 4.11
attached hereto (true and complete copies of each of such contract having
previously been furnished by Shareholders to Buyer), the Company is not a party
to any:
(a) contract for the purchase of inventory, materials or supplies
(except inventory, materials or supplies purchased in the ordinary course of
business at market prices and in reasonable quantities) or equipment or any
capital item or items involving a consideration of more than $5,000 per contract
or $25,000 in the aggregate;
(b) contract not made in the ordinary and usual course of
business;
(c) contracts with customers (except for purchase orders placed
by customers in the ordinary course of business);
(d) contract with any labor union or other labor organization;
(e) employment, bonus, pension, profit-sharing, retirement,
severance, stock purchase, hospitalization, life, accident or medical insurance,
or other plans or agreements providing employee benefits of any kind for any of
the employees of the Company;
(f) any agreement for the employment of any individual on a
full-time, part-time, consulting or other basis;
(g) any contract with any employee, officer, director or
Shareholder of the Company relating to the present or future compensation or
other benefits available to such person, any transaction between such person and
the Company or otherwise;
14
(h) any contract pursuant to which the Company made or will make
loans or has or will have incurred debts or become a guarantor or surety or
pledged its credit on or otherwise become responsible with respect to any
undertaking of another;
(i) licenses or franchises relating to the business of the
Company;
(j) lease of personal property to or from any person which (i)
has a term, including renewal options exercisable by any other party thereto,
ending more than 30 days after the date of this Agreement or (ii) provides for
rent in excess of $5,000 during any 12 month period;
(k) distributor or sales agency or advertising contract which is
not terminable by the Company without penalty upon notice of 30 days or less;
(l) contract continuing over a period of more than 30 days from
the date hereof for the sale or purchase of goods or services;
(m) contract not terminable by the Company without penalty within
30 days from the date of this Agreement;
(n) contract terminable by any other party besides the Company;
(o) any contract of any nature which involves an unperformed
commitment in excess of, or goods or services having a value in excess of,
$5,000 individually or $25,000 in the aggregate (excluding any contracts covered
by any other subsection of this Section 4.11);
(p) any contract regarding any lien, pledge, security interest or
other encumbrance upon any Assets;
(q) any contract involving any restrictions relating to the
Company or its business with respect to (i) the geographical area of operations,
scope or type of business of the Company or (ii) confidentiality; or
15
(r) any other contract, either written or oral.
The Company has performed all obligations required to be performed, and
is not in default, under any contract to which it is a party or by which it or
its property is bound. As of the Closing Date the Company shall have performed
all obligations and shall not be in default under any such contract and under
any contract entered into between the date of this Agreement and the Closing
Date.
As used in this Agreement, "CONTRACT" means any contract, lease,
agreement, arrangement, commitment or understanding, written or oral, expressed
or implied.
4.12 LITIGATION AND COMPLIANCE WITH LAW. Except as set forth on
Schedule 4.12 attached hereto, there are no actions, suits or proceedings
pending or, to the best knowledge of the Company and the Shareholders,
threatened relating to the Company or the Shareholders, before or by any court
or federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign. The Company is in
compliance with all applicable laws, statutes, regulations, orders, writs,
injunctions and decrees of any court or federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, and any applicable arbitration decisions, relating to the
Company. Shareholders' have no knowledge of any basis for any claim for
compensation or damage or other relief against the Company from any violation of
the foregoing except as set forth on Schedule 4.12. All such notices regarding
alleged non-compliance and orders, writs, injunctions, decrees and arbitration
decisions are listed on Schedule 4.12 and copies of such notices, orders, writs,
injunctions, decrees and arbitration decisions have been delivered to Buyer.
16
4.13 NO DEFAULTS. Neither the execution and delivery by Shareholders
and the Company of this Agreement nor the consummation by Shareholders and the
Company of the transactions contemplated hereby is an event which, of itself or
with the giving of notice or the passage of time or both, constitutes a
violation of or will conflict with or result in breach of or any default under
the terms, conditions or provisions of any judgment, law or regulation to which
Shareholders or the Company are subject, or of the Company's Articles of
Incorporation or By-Laws, or of any agreement or instrument to which the Company
or the Shareholders are a party or by which any are bound, or result in the
creation or imposition of any lien, charge or encumbrance of any nature
whatsoever on any of the Assets or on the Shares or result in the acceleration
of the due date of any obligation of the Company or any Shareholder or have a
material adverse effect on the business of the Company, except as disclosed in
Schedule 4.13 attached hereto.
4.14 CHANGES. Except as shown on Schedule 4.14 attached hereto, since
the Balance Sheet Date, the Company has not:
(a) mortgaged, pledged or subjected to lien or any other
encumbrance, any of the Assets;
(b) sold or transferred any of the Assets (except for sales from
inventory in the ordinary course of business) without replacement thereof with
an asset of equivalent kind, condition and value;
(c) increased the compensation or benefits payable or to become
payable to the Company's directors, officers, employees or agents, except for
regularly scheduled normal increases consistent with historical practices to
those employees whose annual base compensation is $30,000 or less;
17
(d) suffered any damage, destruction or loss (whether or not
covered by insurance) or the acquisition or taking of property by any
governmental authority;
(e) experienced any strike, slow-down, picketing, lock-out or
other work stoppage;
(f) issued, sold, purchased or redeemed, or agreed to issue,
sell, purchase or redeem, any of the Company's capital stock or security
convertible into the Company's capital stock or any other stock, bond, right,
option or other security of the Company, or entered into any transaction other
than in the ordinary course of business;
(g) borrowed any money;
(h) modified any contract nor has there been any acceleration,
termination, cancellation or adverse modification to any contract by which the
Company is bound;
(i) paid or declared any dividend, or made any other payment or
distribution with respect to any of the Shares; or
(j) entered in any transaction, other than contemplated by this
Agreement, not in the ordinary course of business consistent with past
practices.
4.15 ENVIRONMENTAL WARRANTIES.
4.15.1 The Company has provided Buyer prior to the date hereof:
(i) all environmental audits, assessments or occupational health studies and all
analyses of any groundwater, soil, air or asbestos samples taken from any
facility owned or occupied by the Company undertaken by, or at the direction of,
the Company or any of its employees or counsel, or any governmental agency
(collectively, the "ENVIRONMENTAL AUDITS"); (ii) all written communications
between the Company and any environmental agencies regarding property owned or
used by the
18
Company; and (iii) all Occupational Safety and Health Administration claims made
against the Company. In addition, Buyer has obtained that certain Phase I
Environmental Assessment Report dated May 19, 2000, created by STS Consultants
Limited for the benefit of Buyer, regarding the real property leased by the
Company at 0000 X. 00xx Xxxxxx, Xxxxxxxxx, Xxxxxxxx (the "PHASE I").
4.15.2 All action, work and other steps recommended to be taken
pursuant to the Environmental Audits, if any, have been taken. The Company has
provided Buyer with copies of all certificates and other documents necessary to
verify that all such action, work and steps recommended to be taken under the
Environmental Audits have been taken.
4.15.3 Other than as disclosed in the Environmental Audits and
the Phase I, no Hazardous Materials (as hereinafter defined), friable asbestos
or friable asbestos containing materials ("ACMs") are, or have been located in
or about any real property owned or leased by the Company, into the environment,
or discharged, treated, managed, recycled, placed or disposed of by the Company
or anyone else, at, on or under any real property owned or leased by the
Company, and no Hazardous Materials or ACMs formerly located on the real
property owned or leased by the Company have been disposed of at any off-site
waste disposal.
4.15.4 Other than as disclosed in the Environmental Audits and
the Phase I, no portion of any real properties owned or leased at any time by
the Company is being used, has been used, for the disposal, storage, recycling,
treatment, processing or other handling of Hazardous Materials.
4.15.5 Other than as disclosed in the Environmental Audits and
the Phase I, no above ground or underground storage tanks are located on or
under any real properties currently or previously owned or leased by the
Company.
19
4.15.6 Other than as disclosed in the Environmental Audits and
the Phase I, the Company has not disposed of any substance (other than human
sewage) into any plumbing or septic tank.
4.15.7 Other than as disclosed in the Environmental Audits and
the Phase I, the Company is operating in compliance in all material respects
with all applicable Environmental Laws (as hereinafter defined).
4.15.8 Other than as disclosed in the Environmental Audits and
the Phase I, no investigation, administrative order or notice, consent, order
and agreement, litigation, settlement or environmental claim or lien with
respect to Hazardous Materials or ACMs is proposed, threatened or in existence
with respect to any real properties now or previously owned or leased by the
Company or with respect to any off-site waste disposal to which waste relating
to the operations of the Company has been taken.
4.15.9 Other than as disclosed in the Environmental Audits and
the Phase I, the Company has not received any summons, citation or written
notice from any person, entity or governmental agency whatsoever concerning any
violation or alleged violation of Environmental Laws or the Storage, dumping or
discharge of any Hazardous Materials or ACMs arising out of or with respect to
any real properties now or previously owned or leased by the Company.
4.15.10 The term "ENVIRONMENTAL LAWS" shall mean the Federal
Clean Air Act, Federal Water Pollution Control Act, Resource Conservation and
Recovery Act, Solid Waste Disposal Act, Toxic Substance Control Act and
Comprehensive Environmental Response, Compensation and Liability Act, and any
other federal, state or local laws, regulations or other requirements regulating
or otherwise concerning Hazardous Materials or the environment. The term
20
"HAZARDOUS MATERIAL(S)" shall mean any hazardous, toxic or dangerous substance,
pollutant, contaminant, waste or other material regulated under Environmental
Laws; ACMs; oil and petroleum products and natural gas, natural gas liquids,
liquified natural gas, and synthetic gas usable for fuel; chemicals subject to
the OSHA Hazard Communication Standard; and industrial process and pollution
control wastes whether or not hazardous within the meaning of the Federal
Resource Conversation and Recovery Act.
4.16 BROKERS. Shareholders and the Company represent that there is no
broker or finder or similar person who would have any valid claim against the
Company or any party to this Agreement for a fee, commission or brokerage in
connection with this Agreement or the transactions contemplated hereby as a
result of any agreement, understanding or action by Shareholders or the Company.
4.17 EMPLOYEE RELATIONS. Except as shown on Schedule 4.17 attached
hereto, there are no labor disputes, grievances, notices or other proceedings
pending or, to the best knowledge of the Company and the Shareholders,
threatened, nor does a basis exist for any such dispute or grievance between the
Company on the one hand, and any employee of the Company, on the other hand, and
there are no collective bargaining units representing any of the employees of
the Company.
4.18 EMPLOYEES; DIRECTORS; OFFICERS. Schedule 4.18 attached hereto
lists all employees of the Company and their respective titles, salaries and
benefits. Schedule 4.18 also lists all directors and officers of the Company.
4.19 BANKS, POWERS OF ATTORNEY. Schedule 4.19 attached hereto is a
correct and complete list setting forth the name of each bank in which the
Company has an account or safe deposit box,
21
the name of each person authorized to draw thereon or to have access thereto,
and the name of each person holding a power of attorney from the Company.
4.20 INSURANCE. Schedule 4.20 attached hereto is a list and brief
description of all policies of insurance (showing the name of carrier and type
of insurance) held by or on behalf of the Company. The Company has its
buildings, plants, properties and operations, including but not limited to
machinery, equipment and inventories, adequately insured against loss or damage
by fire and all other hazards and risks of the character usually insured against
by persons operating similar properties in the localities where such properties
are located (including personal liability and business interruption insurance
insuring all contracts whether or not the Company has begun work pursuant to
such contracts) under valid and enforceable policies issued by insurers of
recognized responsibility. Such insurance coverage will be continued in full
force and effect through the Closing Date. The Company has not been refused any
insurance by an insurance carrier to which it has applied for insurance during
the past three years. The Company is in compliance with all applicable
requirements of its insurance carriers.
4.21 INDEBTEDNESS. Schedule 4.21 attached hereto is a correct and
complete list of all instruments, agreements or arrangements pursuant to which
the Company has borrowed any money, incurred any indebtedness or established any
line of credit or letter of credit which is currently outstanding and which
represents a liability or potential liability of the Company. True and complete
copies of all such written instruments, agreements or arrangements have
previously been delivered to Buyer.
4.22 OPTIONS, ETC. There is no outstanding right, subscription,
warrant, call, preemptive right, option or other agreement of any kind to
purchase or otherwise to receive from the Company
22
any shares of the capital stock or any other security of the Company and there
is not outstanding security of any kind convertible into such capital stock.
4.23 PATENTS, TRADEMARKS, ETC. Schedule 4.23 attached hereto sets
forth a correct and complete list of all copyrights, patents, trademarks, trade
names, service marks, processes, inventions, and formulae applied for, issued to
or owned by the Company, or under which the Company or Shareholders are licensed
or franchised or which the Company or Shareholders license to others, all of
which are valid, in good standing and uncontested and all of which are included
in the Assets. The Company possesses all copyrights, patents, inventions,
formulae, processes (secret or otherwise), trademarks, trade names and service
marks necessary to conduct the Company's business as presently conducted. The
Company has not received any notice with respect to any alleged infringement or
unlawful use of any copyright, patent, trademark, trade name, service xxxx,
process, invention or formula or other intangible property right owned by
others. Except as disclosed on Schedule 4.23 attached hereto, no shareholder,
director, officer or employee of the Company has any interest in any such
copyright, patent, trade name, trademark, service xxxx, process, invention or
formula. The Company has not granted any outstanding licenses or other rights to
any copyright, patent, invention, formula, process, trademark, trade name or
service xxxx listed on Schedule 4.23. The United States Letters Patent number
for the EEW Kit Patent (as defined herein) is 5,933,319. The owners of the EEW
Kit Patent are Intel Corporation and Switchboard. The "EEW KIT PATENT" shall
mean that certain device, presently used by the Company, which allows work on an
electrical distribution panel without shutting off the power to panel. Other
than the rights owned by Intel Corporation pursuant to that certain Ownership
Agreement dated December 11, 1997, neither Mr.
23
Hoppensteadt nor Switchboard have granted or licensed any ownership rights or
rights to use the EEW Kit to any other party.
4.24 ACCOUNTS PAYABLE. Except for liabilities contested in the normal
course of business, the Company was current on all accounts payable reflected on
the June 30, 2000 Balance Sheet and will be current on all accounts payable
included on the Closing Date. For purposes of this Section, "CURRENT" shall mean
that no such payable has been or will have been outstanding after the due date
of the invoice, or after any due date extended by the Company for a customary
period of time in the ordinary course of business.
4.25 ACCOUNTS RECEIVABLE. The accounts receivable and unbilled work in
process of the Company, as of the date hereof, are listed on Schedule 4.25
hereto and as reflected on the most recent balance sheet delivered to Buyer, are
actual and bona fide accounts receivable and unbilled work in process which
arose in the ordinary and usual course of the business, represent valid
obligations due to the Company, and, to the best knowledge of the Company and
the Shareholders, are not subject to defenses or set-off claims, except to the
extent reflected in the allowance for doubtful accounts on the Balance Sheet.
4.26 INVENTORY. Except as disclosed on Schedule 4.26 attached hereto,
no inventory is held by the Company on consignment from any other person or
entity or is held by any other person or entity on consignment for the Company.
The Inventory held by the Company is usable or saleable in the ordinary course
of business except for obsolete inventory not reflected on the Company's
Financial Statements. The finished goods included in inventory comply in all
material respects with the Company's specifications therefor. All raw materials
and work in process included in inventory are items which are used in making the
finished goods of the Company's business.
24
4.27 LIABILITIES. All liabilities, absolute or contingent, of the
Company incurred subsequent to the Balance Sheet Date have been or will have
been incurred only in the ordinary course of business and with the consent of
the Company. The Company has not incurred any liabilities since the Balance
Sheet Date, without the prior written consent of Buyer, which individually are
in excess of $10,000, or which in the aggregate are in excess of $50,000 (except
for the purchase of inventory, materials and/or supplies, or the sale of
products to customers, in the ordinary course of business, and except for the
payment by the Company of the reasonable fees and expenses of the Shareholders
incurred in connection with the negotiation and consummation of this Agreement).
4.28 TAXES. All federal, state, county, local and foreign tax returns,
reports and declarations of estimated tax or estimated tax deposit forms
required to be filed by the Company have been duly filed, or are being contested
in good faith pursuant to appropriate proceedings. The Company has paid all
taxes which have become due and has paid all installments of estimated taxes
due, except to the extent any such taxes are being contested in good faith
pursuant to appropriate proceedings. All taxes and other assessments and levies
which the Company is required by law to withhold or to collect have been duly
withheld and collected, and have been paid over to the proper governmental
authorities or are held by the Company in separate bank accounts for such
payment, or are being contested in good faith pursuant to appropriate
proceedings. All tax disputes or contests are described on Schedule 4.28 hereto.
The Company has adequate reserves on the Balance Sheet for the payment of all
taxes of any kind, whether disputed or not, and whether accrued, due, absolute,
contingent or otherwise, which were or which may be payable by the Company for
any periods or fiscal years prior to and including the Effective Date, including
all taxes imposed before or after the
25
Effective Date which are attributable to any such period or fiscal year. Except
as disclosed on Schedule 4.28 attached hereto, where such returns and reports
have not been audited and either approved or settled, there has not been any
waiver or extension of any applicable statute of limitations, and the Company
has not received any notice of deficiency or adjustment, and complete copies of
such returns or reports have been furnished to Buyer. Any disputes or contests
by the Company regarding taxes will not have a material adverse effect on the
Company, and the Company shall indemnify and hold Buyer harmless from any loss,
cost or expense, including without limitation, any penalties or fines, incurred
by the Company on account of any such dispute or contest.
4.29 EMPLOYEE PLANS. The Company has no pension plans or employee
welfare benefit plans (as such terms are defined in the Employment Retirement
Income Security Act of 1974, as amended).
4.30 NO OFFERS OF EMPLOYMENT. Prior to the Closing Date and within two
years after the Closing Date or within two years after the termination of this
Agreement, as the case may be, neither the Shareholders nor the Company will
offer employment or employ any person employed by the Buyer, except for
employment by the Company if the Closing occurs, as set forth herein, or as
agreed in writing by the parties.
4.31 NO SOLICITATION OF BUSINESS; USE OF INFORMATION. If for any
reason the transactions contemplated in this Agreement are not consummated,
Shareholders and the Company agree that for a period of two (2) years after this
Agreement is terminated, neither the Shareholders nor the Company shall (i)
solicit business from any customer of the Buyer, excluding customers which had
been or are customers of the Company as of March 23, 2000 or whose business had
been solicited
26
by the Company as of March 23, 2000 or (ii) use any information obtained during
the negotiation or attempted consummation of the transactions contemplated
herein for any purpose.
4.32 CONTRACTS. All current contracts entered into by the Company for
the furnishing of goods or services provide for the receipt of payment at such
amounts as are consistent with past practice.
4.33 MISCELLANEOUS. No representation or warranty made by Shareholders
or the Company in this Agreement, and no statement made in any certificate,
document, exhibit or schedule expressly required to be furnished hereunder,
contains or will contain any untrue statement of a fact or omits or will omit to
state any fact necessary to make such representation or warranty or statement,
in light of the circumstances under which such representation, warranty or
statement was made, not misleading to a prospective purchaser of all of the
stock of the Company.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Shareholders as follows:
5.1 INCORPORATION. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Buyer has
full corporate power and authority to carry on its business as it is now being
conducted and will be conducted on the Closing Date, and to own, lease and
operate its assets, business and properties.
5.2 NO DEFAULTS; COMPLIANCE WITH LAW. Neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby is an event which, of itself or with the giving of notice or the passage
of time or both, constitutes a violation of or will conflict with or result in a
breach of or default under the terms, conditions or provisions of any
27
judgment, law or regulation to which Buyer is subject, or Buyer's Articles of
Incorporation or by-laws, or any agreement or instrument to which Buyer is a
party or by which it is bound. Buyer is in compliance with all applicable laws,
statutes, regulations, orders, writs, injunctions and decrees of any court or
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, and any applicable
arbitration decisions, relating to Buyer.
5.3 CORPORATE ACTION. All corporate actions and proceedings necessary
to be taken by or on the part of Buyer in connection with the transactions
contemplated by this Agreement and necessary to make the same effective have
been duly and validly taken, and this Agreement has been duly and validly
authorized, executed and delivered by Buyer and constitutes its valid and
binding agreement, enforceable in accordance with and subject to its terms,
except as limited by applicable bankruptcy, insolvency, reorganization or other
similar laws affecting the enforcement of creditors' rights generally and
general equitable principles.
5.4 BROKERS. There is no broker or finder or similar person who would
have any valid claim against Shareholders for a fee, commission or brokerage in
connection with this Agreement or the transactions contemplated hereby as a
result of any agreement, understanding or action by Buyer, and Buyer will
indemnify the Company and the Shareholders against any such fee, commission or
brokerage incurred by Buyer.
5.5 CAPITAL STRUCTURE. Buyer currently has 30 million shares of
common stock authorized and 5 million shares of preferred stock authorized. As
of the date hereof, 28.5 million shares of common stock of the Buyer are issued
and outstanding and 0 shares of preferred stock are issued and
28
outstanding, and all such issued and outstanding shares of common stock have
been duly authorized and are fully paid and non-assessable.
5.6 NASDAQ APPLICATION. Buyer has, as of the date hereof, filed an
application to the National Association of Securities Dealers for listing of the
Common Stock on the National Association of Securities Dealers Automatic
Quotation System ("NASDAQ"). Buyer has used its best efforts to file a complete
and accurate application for listing on NASDAQ, but Buyer makes no
representation as to the likelihood of such application being approved.
ARTICLE 6.
COVENANTS OF SHAREHOLDERS AND THE COMPANY PENDING THE CLOSING DATE
Shareholders and the Company covenant and agree that from the date
hereof through and including the Closing Date:
6.1 SHAREHOLDER APPROVAL. Each Shareholder hereby agrees to vote in
favor of the transactions contemplated by this Agreement and will not exercise
any rights under Article 11 of the Illinois Business Corporation Act.
6.2 FULL ACCESS AND FINANCIALS.
6.2.1 Buyer and its authorized representatives will have full
access during normal business hours, upon reasonable notice to the Company, to
all (i) properties, books, records, contracts and documents of the Company or
relating to the Company's current and former employees, customers and suppliers
and (ii) shall be allowed to inspect and cause tests to be made of the Assets
and facilities of the Company through the Closing Date. Shareholders and the
Company will make available to Buyer and such authorized representatives all
information with
29
respect to the affairs and business of the Company as Buyer may reasonably
request. Nothing contained in this Section, nor the exercise by Buyer of its
rights hereunder, will relieve Shareholders or the Company from or limit any
liability which may arise out of any breach of any representation, warranty,
covenant or agreement contained in this Agreement. In the event Buyer is not
satisfied with the results of its inspection and due diligence pursuant to this
Section, Buyer may terminate this Agreement without any liability whatsoever to
Shareholders or the Company and shall be relieved of its obligations hereunder,
other than Buyer's obligations pursuant to Section 7.3
6.2.2 Shareholders, within 5 days after completion thereof, will
provide Buyer with copies of internally prepared balance sheets and operating
statements related to the Company for each monthly accounting period between the
date of this Agreement and the Closing Date.
6.3 CONDUCT OF BUSINESS. The Company will carry on its business, in
the ordinary course and in the same manner as such business has been carried on
heretofore, and will (i) use its best efforts to do all things necessary to
preserve the assets and properties of the Company, (ii) maintain and keep the
tangible properties included in the Assets in good repair, working order and
condition, and from time to time make all needful and proper repairs, renewals
and replacements and (iii) perform on a timely basis all lawful obligations to
be performed by either of them pursuant to the terms of each agreement,
contract, undertaking or commitment by which either of them is bound.
6.4 OTHER ACTION. Without the prior written consent of Buyer, neither
Shareholders, nor the Company will:
6.4.1 Issue, sell, purchase or redeem, or grant options to
purchase or otherwise agree to sell, purchase or redeem, any shares of capital
stock or any other securities of the Company;
6.4.2 Amend the Company's articles of incorporation or by-laws;
30
6.4.3 Prepay any liability for borrowed money;
6.4.4 Enter into any new line or type of business;
6.4.5 Pay any obligation or liability, except to pay, when due,
obligations or liabilities reflected in the June 30, 2000 Balance Sheets or
incurred since June 30, 2000 in the ordinary course of business;
6.4.6 Enter into or modify any contract or lease described in or
of the type described in Sections 4.10 and 4.11 hereof;
6.4.7 Pay any bonus to or increase the compensation payable to or
any other benefits of any employee of the Company except as required by
collective bargaining agreements previously disclosed to Buyer;
6.4.8 Distribute any dividend to any Shareholder;
6.4.9 Enter into any contract or commitment, incur any liability,
absolute or contingent, waive any right or enter into any other transaction, not
(i) in the ordinary course of business and of the scope and magnitude heretofore
entered into, and/or (ii) in an amount greater than $5,000 individually or
$25,000 in the aggregate (except inventory, materials or supplies purchased in
the ordinary course of business at market prices and in reasonable quantities,
or the sale of products to customers, in the ordinary course of business);
6.4.10 modify any material contract, except in the ordinary
course of business;
6.4.11 Sell (except for sales from inventory in the ordinary
course of business), transfer, mortgage, pledge or subject any of the Assets to
any lien or encumbrance;
6.4.12 enter into any transaction not in the ordinary course of
business; or
31
6.4.13 Take any action after the date hereof, the reasonably
foreseeable result of which would be to cause any representation or warranty
contained in this Agreement to be or become inaccurate.
6.5 ORGANIZATION, GOOD WILL. The Company and Shareholders will
preserve the Company's business organizations intact, will retain their present
key employees, and will use their best efforts to preserve the good will of
their suppliers, customers and others having business relations with them. For
purposes of this Section "KEY EMPLOYEES" shall mean Xxxx Xxxxxxx, Xxx Xxxxxxx
and Xxxxx Xxxxxxxxxxxx.
6.6 CONSENTS TO LEASES, CONTRACTS. With respect to all leases,
licenses and other contracts and instruments which require the consent of
another party by reason of the transactions provided for herein or related
hereto, at no cost to Buyer, Shareholders and the Company will use their best
efforts to obtain or cause to be obtained such consent, without thereby
affecting or impairing the terms or the validity or enforceability thereof.
Schedule 6.6 sets forth all leases, licenses and other contracts and instruments
which require the consent of another party by reason of the transactions
provided for herein or related hereto.
6.7 REPRESENTATIONS AND WARRANTIES. The Company and the Shareholders
shall give detailed written notice to Buyer promptly upon the occurrence of or
becoming aware of: (a) the impending or threatened occurrence of any event which
would cause, or would have caused had such event occurred or been known to
Shareholders prior to the date hereof, of any of the Shareholders' or the
Company's representations or warranties contained in this Agreement to be untrue
or be contravened, (b) any adverse development in the condition (financial or
otherwise) or operations of the Company or (c) the failure of any condition
precedent to the transactions contemplated herein.
32
6.8 NOTICE OF PROCEEDINGS. Shareholders will promptly notify Buyer in
writing upon becoming aware of any order or decree or any complaint (or threat
thereof) praying for an order or decree restraining or enjoining the
consummation of this Agreement or the transactions contemplated hereunder, or
upon receiving any notice from any person, firm or corporation or any
governmental department, court, agency or commission of his or its intention to
institute an investigation into, or institute a suit or proceeding to restrain
or enjoin the consummation of, this Agreement or such transactions, or to
nullify or render ineffective this Agreement or such transactions if
consummated.
6.9 NOTICE OF REFUSAL TO PATRONIZE OR SUPPLY. Neither Shareholders
nor the Company are aware or have knowledge that any of the Company's customers
or suppliers will refuse to patronize or supply, or do not intend to patronize
or supply, Acquisition or any affiliate of Buyer, if such refusal or refusals,
independently or in the aggregate, would be likely to have a material adverse
effect on the Company.
6.10 CORPORATE ACTION. To the extent within their control,
Shareholders and the Company will take all necessary corporate and other action
required to carry out the transactions contemplated by this Agreement.
6.11 UPDATED SCHEDULES. On the Closing Date, Shareholders and the
Company will furnish Buyer with revised schedules as may be necessary to make
accurate and current as of the Closing Date each of the Schedules referred to in
this Agreement; provided, however, that if such revisions have a material
adverse effect on the Company or the Surviving Corporation, either individually
or in the aggregate, then the parties hereto shall agree upon an appropriate
reduction in the amount of Electric City Stock to be delivered to the
Shareholders hereunder; further provided, however, if the
33
parties do not reach such agreement Buyer and Acquisition may terminate this
Agreement without any liability or obligation of them to the Shareholders or the
Company.
ARTICLE 7.
COVENANTS OF BUYER PENDING THE CLOSING DATE
Buyer covenants and agrees that from the date hereof through and
including the Closing Date:
7.1 REPRESENTATIONS AND WARRANTIES. Buyer shall give detailed
written notice to Shareholders promptly upon the occurrence of or becoming aware
of the impending or threatened occurrence of any event which would cause, or
would have caused had such event occurred or been known to Buyer prior to the
date hereof, any of the representations and warranties of Buyer contained in
this Agreement to become untrue or be violated.
7.2 NO OFFERS OF EMPLOYMENT. Prior to the Closing Date and within two
years after the Closing Date or within two years after the termination of this
Agreement, as the case may be, Buyer will not offer employment or employ any
person employed by the Company, except for employment by Buyer if the Closing
occurs, as set forth herein, or as agreed to in writing by the parties.
7.3 NO SOLICITATION OF BUSINESS; USE OF INFORMATION. If for any
reason the transactions contemplated in this Agreement are not consummated,
Buyer agrees that for a period of two (2) years after this Agreement is
terminated, Buyer shall not (i) solicit business from any customer of the
Company identified by Buyer as a result of its inspection pursuant to Section
6.2.1 hereof, excluding customers which had been or are customers of Buyer as of
March 23, 2000 or whose business had been solicited by Buyer as of March 23,
2000 or (ii) use any information obtained during its inspection pursuant to
Section 6.2.1 hereof to the disadvantage of the Company or Shareholders.
34
7.4 NOTICE OF PROCEEDINGS. Buyer will promptly notify Shareholders in
writing upon becoming aware of any order or decree or any complaint (or threat
thereof) praying for an order or decree restraining or enjoining the
consummation of this Agreement or the transactions contemplated hereunder, or
upon receiving any notice from any person, firm or corporation or any
governmental department, court, agency or commission of his or its intention to
institute an investigation into, or institute a suit or proceeding to restrain
or enjoin the consummation of this Agreement or such transactions, or to nullify
or render ineffective this Agreement or such transactions if consummated.
7.5 CORPORATE ACTION. To the extent within its reasonable control and
subject to the provisions of this Agreement, Buyer will take all necessary
corporate and other action required to carry out the transactions contemplated
by this Agreement, and will use its reasonable efforts to do all things
necessary to ensure that Buyer's representations and warranties will be true and
accurate at and as of the Closing Date.
ARTICLE 8.
CONDITIONS TO THE OBLIGATIONS OF SHAREHOLDERS
The obligations of Shareholders under this Agreement are, at their
option, subject to the fulfillment of the following conditions prior to or at
the Closing Date:
8.1 REPRESENTATIONS, WARRANTIES, COVENANTS.
8.1.1 Each of the representations and warranties of Buyer set
forth in this Agreement or in any certificate, document, exhibit or schedule
expressly required to be furnished by it hereunder shall have been true and
accurate in all material respects as of the date when made, shall be deemed to
be made again on and as of the Closing Date and shall then be true and accurate
in all material respects;
35
8.1.2 Buyer shall have performed and complied with each and every
material covenant and agreement required by this Agreement to be performed or
complied with by it prior to or at the Closing Date, other than the delivery by
Buyer of the Electric City Stock; and
8.1.3 Buyer shall have delivered to Shareholders a certificate of
an officer of Buyer, dated the Closing Date, certifying to the fulfillment of
the conditions set forth in Sections 8.1.1 and 8.1.2.
8.1.4 Buyer and Xx. Xxxxxxxxxxxx shall have entered into an
employment and option agreement in substantially the same form as Exhibit E
attached hereto. Buyer shall guarantee the payments due and payable Xx.
Xxxxxxxxxxxx under such employment agreement in the event Acquisition dissolves
or is sold or transferred to a person or entity that is less creditworthy than
is Buyer as of the date hereof.
8.1.5 There shall be no litigation pending or threatened (nor
shall any basis exist for any such litigation) against or involving Buyer or
Acquisition or their business, assets or facilities, or against or involving
Buyer or Acquisition, which has, or if decided adversely to Buyer or Acquisition
would be likely to have, a material adverse effect, either individually or in
the aggregate, on the financial condition, business, assets, facilities,
properties or prospects of Buyer's or Acquisition's business, or upon the
ability of Buyer or Acquisition to conclude the transactions contemplated in
this Agreement.
8.2 OPINION OF COUNSEL. Shareholder shall have received an opinion of
Schwartz, Cooper, Xxxxxxxxxxx & Xxxxxx, Chtd., counsel to Buyer, dated the
Closing Date, in the form attached to this Agreement as Exhibit F.
36
ARTICLE 9.
CONDITIONS TO THE OBLIGATIONS OF BUYER
The obligations of Buyer under this Agreement are, at its option,
subject to the fulfillment of the following conditions prior to or at the
Closing Date:
9.1 REPRESENTATIONS, WARRANTIES, COVENANTS.
9.1.1 Each of the representations and warranties of Shareholders
and the Company set forth in this Agreement or in any certificate, document,
exhibit or schedule expressly required to be furnished by it hereunder shall
have been true and accurate in all material respects as of the date when made,
shall be deemed to be made again on and as of the Closing Date and shall then be
true and accurate in all material respects;
9.1.2 Shareholders and the Company shall have performed and
complied with each and every material covenant and agreement required by this
Agreement to be performed or complied with by them prior to or at the Closing
Date;
9.1.3 Shareholders shall have delivered to Buyer certificates of
the Chief Executive Officer and the Chief Financial Officer of the Company,
dated the Closing Date, certifying to the fulfillment of the conditions set
forth in Sections 9.1.1 and 9.1.2;
9.1.4 Acquisition shall, concurrently with the consummation of
the transactions contemplated herein, be assigned Switchboards's interest as
tenant under the lease for the real estate commonly known as 0000 Xxxxx 00xx
Xxx, Xxxxxxxxx, Xxxxxxxx (the "REAL ESTATE"), which Real Estate is currently
used by the Company in its business. Furthermore, concurrently with the
consummation of the transactions contemplated herein, Buyer shall enter into a
contract to acquire the Real Estate
37
and the improvements thereon, which acquisition shall be consummated January 2,
2001. Such acquisition shall be on terms satisfactory to Buyer and owner of the
Real Estate.
9.1.5 Prior to the Closing, Buyer shall have made arrangements
satisfactory to it for employment of those employees of the Company whom the
Buyer desires to employ. Furthermore, Buyer and Xx. Xxxxxxxxxxxx shall have
entered into an employment and option agreement in substantially the form of
Exhibit E attached hereto.
9.1.6 INTENTIONALLY OMITTED.
9.1.7 There shall be no litigation pending or threatened (nor
shall any basis exist for any such litigation) against or involving the Company
or its business, assets or facilities, or against or involving any Shareholder,
which has, or if decided adversely to the Company or Shareholders would be
likely to have, a material adverse effect, either individually or in the
aggregate, on the financial condition, business, assets, facilities, properties
or prospects of the Company's business, or upon the ability of Shareholders to
conclude the transactions contemplated in this Agreement.
9.1.8 The aggregate liability of the Company for borrowed money
(excluding working capital loans under the Company's existing facility with
Oxford Bank) and under capital leases will not exceed $455,000.
9.1.9 The Company will have a net worth of not less than $440,000
determined in accordance with generally accepted accounting principles,
consistently applied.
9.2 PROCEEDINGS. No action or proceeding not disclosed on
Schedule 4.12 shall have been instituted and be pending or be threatened against
Shareholders or the Company which reasonably
38
could be expected to have an adverse effect on the business of the Company
following the Closing Date.
9.3 NON-COMPETITION AGREEMENTS. Each of the individuals listed on
Schedule 9.3 attached hereto will at Closing enter into a non-competition
agreement in the form of Exhibit G attached hereto.
9.4 CONSENTS TO LEASES, CONTRACTS. Acquisition shall have obtained
consents to the transfer of the leases, licenses, contracts and instruments set
forth on Schedule 6.6 or such other arrangements shall have been made so that
Acquisition shall obtain the benefits of such leases, licenses, contracts and
instruments.
9.5 OPINION OF COUNSEL. Buyer shall have received an opinion of
Xxxxxxxx and Xxxxxxx, attorneys for the Shareholders and the Company, dated the
Closing Date, in the form attached to this Agreement as Exhibit H.
ARTICLE 10.
TERMINATION
10.1 TERMINATION. This Agreement may be terminated at any time prior
to the Closing Date by delivering notice to the respective parties of such
termination. This Agreement may only be terminated upon the happening of the
following :
(a) by unanimous consent of the Company, Buyer and Acquisition;
(b) by Buyer and Acquisition if any condition in Article 9 is not
satisfied prior to or on the Closing Date;
(c) by Buyer and Acquisition if the revised schedules, if any,
delivered pursuant to Section 6.11 contain a revision which may have an adverse
effect on the Company or the
39
Surviving Corporation and the parties hereto do not agree to a reduction in the
amount of Electric City Stock to be delivered to the Shareholders.
(d) by the Company if any condition if Article 8 is not
satisfied.
10.2 EFFECT OF TERMINATION. If this Agreement is terminated pursuant
to Section 10.1 no party hereto shall have any liability or further obligation
to any other party to this Agreement except that any termination shall be
without prejudice to the rights of any party hereto arising out of a breach by
the other party of any covenant or agreement contained in this Agreement.
ARTICLE 11.
INDEMNIFICATION
11.1 SURVIVAL. The several representations, warranties, covenants and
agreements of the parties made pursuant to this Agreement shall be deemed to be
made on and as of the date of this Agreement and on and as of the Closing Date,
shall survive the Closing Date and shall not expire until February 28, 2002.
11.2 INDEMNIFICATION OF BUYER. Each Shareholder and the Company
jointly and severally agrees that they shall indemnify and hold Buyer, its
officers, directors, shareholders, employees, attorneys, accountants and agents
(each, an "INDEMNIFIED PARTY") harmless from and against any and all damages,
claims, losses, expenses, costs, obligations, and liabilities including, without
limiting the generality of the foregoing, liabilities for reasonable attorneys'
fees ("LOSS AND EXPENSE"), incurred or suffered by an Indemnified Party arising
out of, relating to or resulting from any of the following: (a) any breach of or
any inaccuracy in any representation or warranty made by the Shareholders or the
Company pursuant to this Agreement; (b) any breach of or failure by Shareholders
or the Company to perform any covenant or obligation of the Shareholders or the
40
Company set forth in or contemplated by this Agreement; (c) any warranty or
other claim pertaining to products produced or service performed by the Company
(including predecessor companies) on or before the Closing Date; (d) the use,
operation or ownership of any of the assets of the Company or the business or
operation of the business of the Company on or prior to the Closing Date; (e)
the laws, statutes and regulations referred to in Section 4.12 or any failure to
comply therewith; (f) any litigation, pending suit, claim, proceeding or cause
of action, including, without limitation, those lawsuits listed on Schedule
4.12, and including, without limitation, any claim, cause of action, lawsuit or
proceeding related thereto or arising therefrom or from the same circumstances
or set of facts as those underlying lawsuits listed on Schedule 4.12, whether
now or existing or hereafter brought, (g) any claims by or liabilities with
respect to any employee of the Company regarding his or her employment or
termination of employment by the Company on or prior to the Closing Date,
including, but not limited to, any and all group insurance claims, worker's
compensation claims or liabilities arising out of any accidents illness or other
events which occurred on or prior to the Closing Date, (h) accounts receivable
which were not entered into in the ordinary course of business; (i) product
liability claims for products, to the extent such products were at least
partially manufactured prior to the Closing Date; (j) any violations of
applicable ordinances and regulations and building, zoning and other laws
regarding any real estate, improvements, appurtenances and leasehold
improvements referred to in Section 4.10; and (k) any taxes, fines, penalties or
other costs or expenses which are required to be paid as per the Illinois
Department of Revenue or Illinois Department of Employment Security in
connection with the bulk sales filings to be filed at Closing.
41
11.3 NOTICE OF CLAIMS; PROCEDURE FOR INDEMNIFICATION.
11.3.1 If an Indemnified Party believes that it has suffered or
incurred any Loss and Expense, such Indemnified Party shall notify the
Shareholders in writing describing such Loss and Expense, the amount thereof, if
known, and the method of computation of such Loss and Expense, all with
reasonable particularity and containing a reference to the provisions of this
Agreement in respect of which such Loss and Expense shall have occurred. If any
action at law or suit in equity is instituted by a third party with respect to
which an Indemnified Party intends to claim any liability or expense as Loss and
Expense under this Article 11, such Indemnified Party shall promptly notify
Shareholders of such action or suit. Notwithstanding the foregoing, the right to
indemnification hereunder shall not be affected by any failure of an Indemnified
Party to give such notice or delay by an Indemnified Party in giving such notice
unless, and then only to the extent that, the rights and remedies of the
Shareholders' shall have been materially prejudiced as a result of the failure
to give, or delay in giving, such notice.
11.3.2 If such indemnity shall arise from the claim of a third
party, the Indemnified Party shall permit the Shareholders to assume the defense
of any such claim and any litigation resulting from such claim with counsel
satisfactory to the Indemnified Party but at the Shareholders' expense. Failure
by Shareholders to notify an Indemnified Party of its election to defend any
such claim or action by a third party within fourteen (14) days after notice
thereof shall have been given to Shareholders shall be deemed a waiver by
Shareholders of their right to defend such claim or action.
11.3.3 If the Shareholders assume the defense of such claim or
litigation resulting therefrom, then counsel selected by the Shareholders shall
be subject to approval by the Indemnified
42
Party. The obligations of the Shareholders hereunder as to such claim shall
include taking all steps necessary in the defense or settlement of such claim or
litigation and holding the Indemnified Party harmless from and against any and
all Losses or Expenses caused by or arising out of any settlement approved by
the Indemnified Party or any judgment in connection with such claim or
litigation. Shareholders shall keep the Indemnified Party fully informed of the
status of such claims and litigation. The Shareholders shall not, in the defense
of such claim or any litigation resulting therefrom, consent to entry of any
judgment (other than a judgment of dismissal on the merits without costs) except
with the written consent of the Indemnified Party or enter into any settlement
(except with the written consent of the Indemnified Party) which does not
include as an unconditional term thereof the giving by the claimant or a
plaintiff of a release of the Indemnified Party from all liability in respect of
such claim or which acts as an admission of a violation of any law, rule,
regulation, ordinance, policy or order. Anything in this Article 11 to the
contrary notwithstanding, the Indemnified Party may, with counsel of its choice
and at its expense, participate in the defense of any such claim or litigation.
11.3.4 If the Shareholders shall not assume the defense of any
such claim by a third party or litigation resulting therefrom after receipt of
notice from such Indemnified Party in accordance herewith, the Indemnified Party
may defend against such claim or litigation in such manner as it deems
appropriate, and unless the Shareholders shall deposit with the Indemnified
Party a sum in cash, letter of credit or bond, equal to the total amount
demanded in such claim or litigation plus the Indemnified Party's reasonable
estimate of the costs of defending the same, the Indemnified Party may settle
such claim or litigation on such terms as it may deem appropriate. The
Indemnified Party shall inform the Shareholders of the status of such claim or
litigation from time to time upon
43
the Shareholders' request, and, prior to settling such claim or litigation, the
Indemnified Party shall advise the Shareholders of the terms, provisions and
conditions of any proposed settlement; PROVIDED, HOWEVER, that the Shareholders
will not have any rights to accept, decline or modify the proposed settlement,
nor to direct the Indemnified Party to do any of the foregoing. The Shareholders
shall promptly reimburse the Indemnified Party for the amount of such settlement
and for all other Losses and Expenses incurred by the Indemnified Party in
connection with the defense against or settlement of such claim or litigation.
The terms of such settlement shall be binding upon the Shareholders and the
Shareholders shall have no right to challenge such settlement.
11.3.5 Shareholders shall promptly pay to the third party the
amount of any final and unappealable judgment rendered with respect to any claim
by such third party in litigation and shall reimburse the Indemnified Party and
for all other Losses and Expenses incurred by the Indemnified Party in
connection with the defense against such claim or litigation, whether or not
resulting from, arising out of, or incurred with respect to, the act of a third
party.
11.3.6 Any payment pursuant to this Section 11.3 shall be made
not later than thirty (30) days after receipt by Shareholders of written notice
from the Indemnified Party stating the amount thereof and the indemnity payment
requested. Any payment not made when due shall bear interest at a rate per annum
equal to the Prime Rate plus 3% per annum for each day until paid. "PRIME RATE"
means the rate of interest as reported in THE WALL STREET JOURNAL from time to
time, changing as and when the Prime Rate changes.
11.4 LIMITATION ON INDEMNIFICATION. Notwithstanding anything herein to
the contrary, the Shareholders shall not be obligated to pay any amounts to an
Indemnified Party until the aggregate amount which the Shareholders would have
been obligated to pay for all indemnity claims but for
44
this Section 11.4 equals $25,000, and at such time the indemnifying party shall
be obligated to pay all amounts for indemnification then owing by the
Shareholders (including the amounts aggregated to reach the $25,000 threshold)
up to the aggregate amount of $2,291,750, except that such limitation shall not
apply to any claims for indemnification arising from the willful misconduct or
fraudulent acts or omissions of the Company and/or any Shareholder, or arising
from a breach by the Company and/or any Shareholder of any representation,
warranty or covenant contained in this Agreement. Furthermore, Xxxxxx Xxxxx'x
total liability for indemnification claims shall not exceed the value of
Electric City Stock he receives, such value to be calculated as of the Closing.
11.5 EXCLUSION FROM $25,000 THRESHOLD. Notwithstanding anything herein
to the contrary, including but not limited Section 11.4 above, Sellers shall
immediately pay any amounts due per Section 11.2(k) above, or at Buyer's
election, reimburse Acquisition or Buyer for such amounts.
ARTICLE 12.
RIGHT OF FIRST OFFER AND RIGHT OF FIRST NEGOTIATION.
12.1 RIGHT OF FIRST OFFER. So long as Xx. Xxxxxxxxxxxx is employed by
Acquisition, in the event Acquisition intends to sell, out of the ordinary
course of business, substantially all of the assets acquired by it from
Switchboard (the "FIRST RIGHT ASSETS"), Acquisition shall notify Xx.
Xxxxxxxxxxxx of its intention to sell the First Right Assets (the "OFFER
NOTICE"). The Offer Notice shall contain the principal terms, including the
price, upon which Acquisition desires to sell the First Right Assets. Xx.
Xxxxxxxxxxxx shall have five business days from receipt of the Offer Notice in
which to notify Acquisition that he elects to acquire the First Right Assets on
the terms set forth in the Offer Notice. If Xx. Xxxxxxxxxxxx rejects or fails to
accept in writing the Offer Notice within such five business day period,
Acquisition shall be free to enter into negotiations with third parties
45
for the sale of the First Right Assets. However, Acquisition shall not enter
into any agreement for the sale of the First Right Assets with a third party on
terms more favorable to the third party than those terms contained in the Offer
Notice. In the event Xx. Xxxxxxxxxxxx timely accepts the terms set forth in the
Offer Notice, Acquisition and Xx. Xxxxxxxxxxxx shall negotiate an appropriate
definitive agreement for the sale and purchase of the First Right Assets,
including the terms set forth in the Offer Notice. However, if for any reason
Acquisition and Xx. Xxxxxxxxxxxx shall not have entered into such definitive
agreement within thirty days after the date Xx. Xxxxxxxxxxxx accepts the Offer
Notice, all of Xx. Xxxxxxxxxxxx'x rights in the First Right Assets shall expire
and Acquisition shall have the right to sell the First Right Assets to any third
party on any terms acceptable to Acquisition in its sole discretion. Subject to
the last sentence of this Section 12.1, Acquisition shall be obligated to offer
the First Right Assets to Xx. Xxxxxxxxxxxx each time Acquisition makes a new
offer to sell the First Right Assets on terms that are more favorable to the
potential purchaser than the previous offer. If not sooner terminated, Xx.
Xxxxxxxxxxxx'x rights under this subsection shall expire on the fifth
anniversary of the Closing Date.
12.2 RIGHT OF FIRST REFUSAL. So long as Xx. Xxxxxxxxxxxx is employed
by Acquisition, in the event Acquisition receives a bona fide offer from a third
party to purchase the First Right Assets (a "THIRD PARTY OFFER") and Acquisition
desires to accept the Third Party Offer, Acquisition shall deliver a copy of the
Third Party Offer to Xx. Xxxxxxxxxxxx. Xx. Xxxxxxxxxxxx shall have five business
days from receipt of the Third Party Offer in which to notify Acquisition that
he intends to acquire the First Right Assets on the terms set forth in the Third
Party Offer. If Xx. Xxxxxxxxxxxx rejects or fails to accept in writing the terms
set forth in the Third Party Offer, Acquisition shall be free to sell the First
Right Assets to such third party on the terms set forth in the Third Party
Offer.
46
In the event Xx. Xxxxxxxxxxxx timely accepts the terms set forth in the Third
Party Offer, (i) Acquisition and Xx. Xxxxxxxxxxxx shall negotiate an appropriate
definite agreement for the sale and purchase of the First Right Assets,
including the terms set forth in the Third Party Offer and (ii) Xx. Xxxxxxxxxxxx
shall reimburse such third party for the expenses it incurred relating to the
Third Party Offer (including conducting due diligence and negotiating the Third
Party Offer); PROVIDED, that Xx. Xxxxxxxxxxxx shall only be obligated to
reimburse such third party up to an amount equal to 1.5% of the purchase price
set forth in such Third Party Offer. However, if for any reason Acquisition and
Xx. Xxxxxxxxxxxx shall not have entered into such definitive agreement within
thirty days after the date Xx. Xxxxxxxxxxxx accepts the terms set forth in the
Third Party Offer, all of Xx. Xxxxxxxxxxxx'x rights in the First Right Assets
shall expire and Acquisition shall have the right to sell the First Right Assets
to such third party on the terms set forth in the Third Party Offer. Subject to
the last sentence of this Section 12.2, Acquisition shall be obligated to offer
the First Right Assets to Xx. Xxxxxxxxxxxx each time Acquisition receives a new
offer to sell the First Right Assets on terms that are more favorable to the
potential purchaser than the previous offer (provided that the new offer is
acceptable to Acquisition). If not sooner terminated, Xx. Xxxxxxxxxxxx'x rights
under this subsection shall expire on the fifth anniversary of the Closing Date.
ARTICLE 13.
MISCELLANEOUS
13.1 MATERIAL. For purposes of this Agreement, any item shall be
deemed material if it equals or exceeds $10,000 or if such items in the
aggregate equal or exceed $25,000 (exclusive of costs and expenses of
investigating and defending such item, such as attorneys' fees and accountants'
fees).
47
13.2 EXPENSES. The Company shall bear its expenses, and the expenses
of the Shareholders, and the Buyer shall bear its expenses, incurred in
connection with the transactions contemplated by this Agreement, including
without limitation, accounting and legal fees incurred in connection herewith.
13.3 SHAREHOLDERS' TAX LIABILITIES. All income tax liabilities
(whether arising before, on or after the Closing Date) of the Shareholders shall
be paid by Shareholders as they become due.
13.4 ASSIGNMENTS. This Agreement shall not be assigned by any party
hereto without the prior written consent of the other party, except that Buyer
may assign this Agreement to an affiliate of Buyer.
13.5 FURTHER ASSURANCES. From time to time prior to, at and after the
Closing Date, each party will execute all such instruments and take all such
actions as the other party shall reasonably request in connection with carrying
out and effectuating the intent and purpose hereof and all transactions and
things contemplated by this Agreement, including, without limitation, the
execution and delivery of any and all confirmatory and other instruments in
addition to those to be delivered on the Closing Date, and any and all actions
which may reasonably be necessary or desirable to complete the transactions
contemplated hereby.
13.6 NOTICES. All notices, demands and other communications which may
or are required to be given hereunder or with respect hereto shall be in
writing, shall be given either by personal delivery or by recognized overnight
delivery service, and shall be deemed to have been given or made when personally
delivered, addressed as follows:
48
If to Buyer or Acquisition:
Electric City Corp.
0000 Xxxxxxxxx Xxxx
Xxx Xxxxx Xxxxxxx, Xxxxxxxx 00000
Attn: Xxxxxxx Xxxxxxx
with a copy to:
Schwartz, Cooper, Xxxxxxxxxxx & Xxxxxx, Chtd.
000 Xxxxx XxXxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxx X. Xxxxxxxxx, Esq.
or to such other address as Buyer may from time to time designate.
If to Shareholders:
Xx. Xxxx Xxxxxxxxxxxx
00 X 000
Xxxx Xxxxx, Xxxxxxxx 00000
Mr. Xxxxxx Xxxxxx
0000 Xxxxxxxxx Xxxx
Xxxxxx, Xxxxxxxx00000
Xx. Xxxxxx Xxxxx
00000 Xxxxx Xxxx
Xxxxxxxx, Xxxxxxxx 00000
with a copy to:
Xxxxxxxx & Xxxxxxx
000 X. Xxxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxx, Esq.
Goschi & Goschi Ltd.
000 Xxxxx XxXxxxx Xxxxxx
Xxxxx 0000
Xxxxxxx, XX 00000
Attn: Xxxxx X. Xxxxxx, Esq.
49
If to the Company:
Switchboard Apparatus, Inc.
0000 Xxxxx 00xx Xxx
Xxxxxxxxx, Xxxxxxxx
Attn: Xxxxx Xxxxxx
with a copy to:
Xxxxxxxx & Xxxxxxx
000 X. Xxxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxx, Esq.
Goschi & Goschi Ltd.
000 Xxxxx XxXxxxx Xxxxxx
Xxxxx 0000
Xxxxxxx, XX 00000
Attn: Xxxxx X. Xxxxxx, Esq.
or to such other address as Shareholder may from time to time designate.
13.7 CAPTIONS. The captions of Articles and sections of this
Agreement are for convenience only and shall not control or affect the meaning
or construction of any of the provisions of this Agreement.
13.8 LAW GOVERNING. This Agreement shall be governed by, construed,
and enforced in accordance with the internal laws (as opposed to the laws of
conflict) of the State of Illinois.
13.9 ARBITRATION. In the event of any and all disagreements and
controversies arising from this Agreement or any other written agreements
between the parties hereto, such disagreements and controversies shall be
subject to binding arbitration as arbitrated in accordance with the then current
Commercial Arbitration Rules of the American Arbitration Association in Chicago,
Illinois before one neutral arbitrator. Any party may apply to the arbitrator
seeking injunctive relief until the
50
arbitration award is rendered or the controversy is otherwise resolved. Without
waiving any remedy under this Agreement, any party may also seek from any court
having jurisdiction any interim or provisional relief that is necessary to
protect the rights or property of that party, pending the establishment of the
arbitral tribunal (or pending the arbitral tribunal's determination of the
merits of the controversy). In the event of any such disagreement or
controversy, neither party shall directly or indirectly reveal, report, publish
or disclose any information relating to such disagreement or controversy to any
person, firm or corporation not expressly authorized by the other party to
receive such information or use such information or assist any other person in
doing so, except to comply with actual legal obligations of such party, or
unless such disclosure is directly related to an arbitration proceeding as
provided herein, including, but not limited to, the prosecution or defense of
any claim in such arbitration. The costs and expenses of the arbitration
(excluding attorneys' fees) shall be paid by the non-prevailing party or as
determined by the arbitrators.
13.10 WAIVER OF PROVISIONS. The terms, agreements, covenants,
representations, warranties and conditions of this Agreement may be waived only
by a written instrument executed by the party waiving compliance. The failure of
any party at any time or times to require performance of any provision of this
Agreement shall in no manner affect the right at a later date to enforce the
same. No waiver by any party of any condition or the breach of any provision,
term, agreement, covenant, representation or warranty contained in this
Agreement in :any one or more instances shall be deemed to be or construed as a
further or continuing waiver of any such condition or of the breach of any other
provision, term, agreement, covenant, representation or warranty.
51
13.11 COUNTERPARTS. This Agreement may be executed in several
counterparts, and all counterparts so executed shall constitute one agreement,
binding on all of the parties hereto, notwithstanding that all the parties are
not signatory to the original or the same counterpart.
13.12 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
among the parties and supersedes and cancels any and all prior agreements
between them relating to the subject matter hereof, and may not be amended
except in a writing signed by the party to be bound.
52
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their duly authorized officers, all as of the day and year first
above written.
ELECTRIC CITY ACQUISITION
CORPORATION, a Delaware corporation
By:
--------------------------
Its:
--------------------------
ELECTRIC CITY CORP.,
a Delaware corporation
By:
--------------------------
Its:
--------------------------
SWITCHBOARD APPARATUS, INC.,
an Illinois corporation
By
--------------------------
Its
--------------------------
-----------------------------------------
XXXX XXXXXXXXXXXX
-----------------------------------------
XXXXXX XXXXXX
-----------------------------------------
XXXXXX XXXXX
SCHEDULE 1.4
DIRECTORS
1. President of Switchboard (Xxxx Xxxxxxxxxxxx)
2. President of Electric City (Xxxx Xxxxxx)
3. CFO of Electric City (Xxxxxxx Xxxxxxx)
4. General Counsel to Electric City (Xxxx Xxxx)
5. Chief Operating Officer (Xxxxx Xxxxxxxx)
SCHEDULE 1.5
OFFICERS
1. President - Xxxx Xxxxxxxxxxxx
2. Treasurer - CFO of Electric City (Xxxxxxx Xxxxxxx)
3. Secretary - General Counsel to Electric City (Xxxx Xxxx)
EXHIBIT A
Certificate of Merger
EXHIBIT B
Indemnity and Stockholder Agreement
EXHIBIT C
Escrow Agreement
EXHIBIT D
Business Plan
EXHIBIT E
Employment Agreement and Stock Option Letter Agreement
for Xxxx Xxxxxxxxxxxx
EXHIBIT F
Legal Opinion of Schwartz, Cooper, Xxxxxxxxxxx & Xxxxxx, Chtd.
EXHIBIT G
Non-Competition Agreement
EXHIBIT H
Legal Opinion of Xxxxxxxx & Xxxxxxx
