EXHIBIT 2.02
MERGER AGREEMENT
THIS MERGER AGREEMENT (the "Agreement") is entered into this 29th day of
June, 1999, by and among EUROPEAN MICRO HOLDINGS, INC., a Nevada corporation
(the "PARENT"), AMERICAN MICRO ACQUISITION CORP., a wholly-owned subsidiary of
the Parent and a Florida corporation (the "MERGER SUB"), AMERICAN SURGICAL
SUPPLY CORP. OF FLORIDA D/B/A AMERICAN MICRO COMPUTER CENTER, a Florida
corporation (the "COMPANY"), and the persons named as "Shareholders" on the
signature pages hereto (each a "SHAREHOLDER" and collectively the
"SHAREHOLDERS").
RECITALS:
A. The Shareholders own all of the outstanding capital stock of the
Company. The authorized capital stock of the Company consists of 7,500 shares of
common stock, par value $1.00 per share, 300 of which are issued and outstanding
(the "COMPANY COMMON STOCK").
B. Upon the terms and subject to the conditions set forth in this
Agreement, the Company shall merge with and into the Merger Sub (the "Merger")
with Merger Sub surviving, in accordance with the Florida Business Corporation
Act (the "FLORIDA BCA").
C. Capitalized terms used in this Agreement, which are not defined when
first used, shall have the meanings assigned to them in Section 1.3 hereof. For
the purposes hereof, references to the Company shall mean American Surgical
Supply Corp. of Florida d/b/a American Micro Computer Center up to and including
the Closing Date and thereafter shall mean the Merger Sub, which shall include
the operations of the Company.
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual premises herein set forth
and certain other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties hereto agree as follows:
1. THE MERGER AND RELATED TRANSACTIONS.
1.1. MERGER. In accordance with the provisions of this Agreement,
the Florida BCA and other applicable law, on the Closing Date (as defined
below), the Company shall be merged with and into the Merger Sub, which shall be
the surviving corporation (hereinafter sometimes referred to as the "Surviving
Corporation") and shall continue its corporate existence under the laws of the
State of Florida as a wholly-owned subsidiary of the Parent. As of the Closing,
the name of the Merger Sub shall be American Micro Computer Center, Inc. and the
separate existence of the Company shall cease. On the Closing Date and by virtue
of the Merger and without any action on the part of the Shareholders, all of the
then issued and outstanding shares of capital stock of the Company shall be
automatically canceled and shall entitle the Shareholders to receive the Merger
Consideration set forth in Section 1.2 hereof.
1.2. MERGER CONSIDERATION AND PAYMENT.
1.2.1. MERGER CONSIDERATION. The merger consideration (the
"Merger Consideration") (of which twenty five thousand dollars ($25,000) shall
be paid to each Shareholder as consideration for the covenant against unfair
competition set forth in Section 2.6 hereof) shall be equal to the sum of:
(a) Book Value Amount; plus
(b) 1998 Normalized Earnings Payment Amount; plus
(c) Earn-Out Amount.
1.2.2. MANNER OF PAYMENT. The Merger Consideration shall be
payable as follows: (a) at Closing, an amount equal to the sum of (i) Book Value
Amount, plus (ii) 1998 Normalized Earnings Payment Amount (collectively, the
"First Installment"); (b) within thirty (30) days of the completion of an audit
of the Company's financial statements for the year ended December 31, 1999 by
the Parent's independent certified public accountants and in no event later than
May 1, 2000, the First Earn-Out Amount (the "Second Installment"); and (c)
within thirty (30) days of the completion of an audit of the Company's financial
statements for the year ended December 31, 2000 by the Parent's Accountants and
in no event later than May 1, 2001, an amount equal to the Second Earn-Out
Amount (the "Third Installment"). The First Installment shall be paid in
immediately available funds. The Second Installment and Third Installment shall,
at the option of the Parent, be paid in cash or in shares (the "Parent's
Shares") of common stock, par value $0.01 per share (the "Parent's Common
Stock"), or any combination of cash or shares; provided that the Parent need not
pay each Shareholder in the same form of consideration. Notwithstanding the
foregoing, any Parent's Shares issued hereunder shall be salable by each
Shareholder over the sixty (60) trading day period either pursuant to an
effective registration statement or pursuant to an exemption from registration.
The number of Parent's Shares to be issued in payment of any portion of the
Merger Consideration shall be equal to: (a) the portion of the Merger
Consideration payable in Parent's Shares, divided by (b) the Per Share Value (as
defined herein); provided that in the event the Parent elects to pay any portion
of the Merger Consideration in Parent's Shares, then the Shareholders shall
notify the Parent within five (5) business days of his election to either hold
such Parent Shares or to sell such shares immediately. In the event a
Shareholder elects to immediately sell his Parent' Shares, he shall sell the
Parent's Shares in accordance with the Parent's instructions; provided, further,
that if the Shareholders cannot sell any such shares within a sixty (60) trading
day period commencing fifteen (15) days after the Shareholders' receipt of such
shares, then the Shareholders shall return any remaining Parent's Shares to the
Parent and the Parent shall promptly pay to the Shareholders any remaining
portion of the Merger Consideration less the net proceeds received by the
Shareholders for any Parent's Shares sold by the Shareholders. In the event that
the sale of the Parent's Shares by the Shareholders results in net proceeds of
less than the amount of either the Second Installment or the Third Installment
(as applicable), then the Parent shall pay to the Shareholders the difference in
cash within twenty-eight (28) days of being notified the amount of any
shortfall.
1.3. CERTAIN DEFINITIONS.
1.3.1. "BOOK VALUE AMOUNT" means an amount equal to the
Company's combined shareholder's equity (stated capital, paid-in surplus and
retained earnings) as of the Closing Date (as defined herein). The Book Value
Amount shall be determined as provided herein and in accordance with generally
accepted accounting principles ("GAAP") consistently applied (except for the
reserves for inventory obsolescence and allowance for doubtful accounts
receivable), and shall be based on the financial statements of the Company for
the applicable period, as audited (or reviewed) by Parent's independent
certified public accountants and accepted by Parent. For purposes of paying the
First Installment, the Book Value Amount shall be estimated by the parties based
on the most recently completed monthly financial statements of the Company prior
to Closing, which is expected to be May 31, 1999 (the "ESTIMATED BOOK VALUE").
The Book Value Amount shall be adjusted as set forth in Subsection 1.4.2 hereof.
1.3.2. "1998 NORMALIZED EARNINGS PAYMENT AMOUNT" means two
(2) times the After-Tax Earnings of the Company in the twelve (12) month
calendar period ended December 31, 1998, as adjusted by adding back
non-recurring items and subtracting an assumed tax rate of 34%, all as set forth
on EXHIBIT "A" hereto.
1.3.3. The "EARN-OUT AMOUNT" means the sum of (i) two (2)
times the After-Tax Earnings of the Company (the "FIRST EARN-OUT AMOUNT") in the
twelve (12) month calendar period ended December 31, 1999 (the "FIRST EARN-OUT
PERIOD") and (ii) two (2) times the After-Tax Earnings of the Company (the
"SECOND EARN-OUT AMOUNT") in the twelve (12) month calendar period ended
December 31, 2000 (the "SECOND EARN-OUT PERIOD").
1.3.4. "AFTER-TAX EARNINGS" means net income after taxes for
the Company computed as provided herein and otherwise in accordance with GAAP,
and shall be based on the financial statements of the Company for the applicable
period, as audited (or reviewed and accepted) by Parent's independent certified
public accountants. In determining After-Tax Earnings, the Company's net
earnings shall be adjusted a set forth in Subsection 1.4.3. hereof. The Parent
shall cause its accountants to complete their audit of the Company's financial
statements as soon as practicable and in no event later than one-hundred-twenty
(120) days after the end of the First Earn-Out Period and the Second Earn-Out
Period, respectively.
1.3.5. "PER SHARE VALUE" means the average closing price for
the Parent's Common Stock on the Nasdaq Stock Market during the thirty (30)
trading days ending on the last trading day before the date of issuance of the
Parent's Common Stock in question.
1.4. CERTAIN ADJUSTMENTS.
1.4.1. FORCE MAJEURE. The Earn-Out Period shall be suspended
for so long as the Company is unable to conduct its business by reason of an
event of Force Majeure (confirmed to Parent's reasonable satisfaction). "FORCE
MAJEURE" shall mean acts of God, strikes, explosions, fires, flood, embargo,
storm, or acts of war or terrorism that directly prevent the Company from
conducting its business. Upon the occurrence of an event of Force Majeure, the
Shareholders shall immediately provide the Parent with written notice thereof
(the "FORCE MAJEURE NOTICE"). The Earn-Out Period shall be suspended from the
date on which the Force Majeure Notice is received by Parent until such
condition no longer prevents the Company from conducting its business. The
Earn-Out Period shall be extended by the number of days such Earn-Out Period is
suspended hereunder. Notwithstanding the foregoing, in no event shall any
Earn-Out Period be extended pursuant to this Subsection 1.4.1 for more than an
aggregate of ninety (90) days. The Shareholders shall use all reasonable efforts
to prevent and reduce to a minimum and mitigate the effect of any event of Force
Majeure, and to ensure resumption of normal business operations after the
termination of any event of Force Majeure.
1.4.2. ADJUSTMENTS TO BOOK VALUE AMOUNT. Book Value Amount
shall be reduced by an amount equal to the difference between (a) the sum of any
accounts receivable (or any portion thereof) identified on the financial
statements of the Company as of the Closing which are not collected in full,
without any set-off, within one hundred fifty (150) days after Closing, plus any
inventory identified on the financial statements of the Company as of the
Closing not sold by the Company within two hundred forty (240) days after
Closing and (b) any applicable provision for doubtful accounts receivable and
inventory obsolescence agreed to in accordance with Section 1.3.1 as of the
Closing. After Closing and completion of the audit (or the review and
acceptance) by the Parent's independent certified public accountants (which
shall be completed within sixty (60) days of the Closing), the Book Value Amount
shall be adjusted up or down as finally determined in accordance with Section
1.3.1, and each party shall pay in cash to the other within fifteen (15) days
after the Book Value Amount is finally determined such amounts as may be
necessary to give effect to the correct Book Value Amount, as finally
determined. Except for any payments required by the immediately preceding
sentence, payments due hereunder with respect to any adjustments to the Book
Value Amount under this Subsection 1.4.2 shall be paid by delivery on the
applicable determination date (i.e. within one hundred fifty (150) days after
Closing in the case of accounts receivable and within two hundred forty (240)
days after Closing in the case of inventory) of one or more promissory notes
which shall bear interest at the rate of eight percent (8%) per annum and shall
mature on the Second Installment payment date. Amounts due under the notes may
be set-off against any installments due to Shareholders under Subsection 1.2.2
hereof. Any account receivable or inventory which results in a reduction in Book
Value Amount under this Subsection 1.4.2 shall be assigned to the Shareholders
upon execution by Shareholders of the promissory note referred to above.
1.4.3. ADJUSTMENTS TO AFTER-TAX EARNINGS. After-Tax Earnings
shall be reduced by (a) any compensation paid to Xxxx X. Xxxxxxxxx pursuant to
Section 2.13 hereof; (b) any compensation paid to Xxxx X. Xxxxxxxxx pursuant to
Section 2.13 hereof; (c) any professional fees and other expense directly
related to the Company, including accounting and legal fees (excluding any costs
incurred by Parent in connection with this Agreement), and (d) any expenses and
costs (including interest) related to inter-company or other indebtedness used
to finance the Company's operations or to replace the Company's existing
indebtedness. The After-Tax Earnings for 1999 shall be adjusted by adding back
non-recurring items and subtracting an assumed tax rate of 34% for the period
between January 1, 1999 and the Closing Date, all as set forth on Exhibit "B"
hereto. No part of the Merger Consideration or any interest thereon (including
any amortization of goodwill or any other intangible asset) shall be charged
against the Company for the purpose of calculating After-Tax Earnings under this
Agreement.
1.5. CLOSING. The parties to this Agreement shall file Articles of
Merger (as defined below) pursuant to the Florida BCA, cause the Merger to
become effective and consummate the other transactions contemplated by this
Agreement (the "CLOSING") no later than July 15, 1999; provided, in no event
shall the Closing occur prior to the satisfaction of the conditions precedent
set forth in Sections 6, 7 and 8 hereof. The date of Closing is referred to
herein as the "CLOSING DATE." The Closing shall take place at the offices of
counsel to Parent, or at such other place as may be mutually agreed upon by
Parent and Shareholders. At the Closing, (i) Shareholders shall deliver to
Parent the original stock certificates representing the Company Common Stock,
together with stock powers duly executed in blank; and (ii) Parent shall pay
Shareholders the First Installment.
1.6. RESOLUTION OF ACCOUNTING DISPUTES. Upon receipt of any
computation of the Book Value Amount, After-Tax Earnings, 1998 Normalized
Earnings Payment Amount, First Earn-Out Amount, Second Earn-Out Amount and the
tax payments required pursuant to Section 2.19 hereunder (collectively, the
"ACCOUNTING DETERMINATIONS"), Shareholders shall have a period of thirty (30)
days after their receipt of such computation to review the same. If Shareholders
disagree with any such computation, they shall object to same by written notice
to Parent (an "OBJECTION NOTICE"), which notice shall: (i) describe in detail
the basis for the objection; and (ii) be delivered to Parent within such thirty
(30) day period. For a period of thirty (30) days following Parent's receipt of
the Objection Notice, the parties shall cause the Shareholders' certified public
accountants (the "SHAREHOLDERS' ACCOUNTANTS") and the Parent's Accountants to
attempt to agree on the item(s) in question. If after such thirty (30) day
period no agreement is reached, the dispute shall be resolved by an independent
accounting firm jointly selected by Parent and Shareholders (the "INDEPENDENT
ACCOUNTANTS"), whose determination shall, absent manifest error, be final and
binding upon the parties. In connection with the Accounting Determinations and
related reviews and audits, (i) Parent shall pay the fees of Parent's
Accountants; (ii) Shareholders shall pay the fees of Shareholders' Accountants;
and (iii) the fees of the Independent Accountants shall be allocated and paid by
Parent or the Shareholders, or divided among them, on a basis determined by the
Independent Accountants to be fair, taking into account the correctness of the
positions asserted by each of them with respect to the disputed matters resolved
by such firm.
1.7. PLAN OF MERGER; ARTICLES OF MERGER. The parties to this
Agreement shall cause the Company and the Merger Sub to enter into a plan of
merger on the date hereof, a copy of which is attached hereto as Exhibit "C"
(the "Plan of Merger"), and, at Closing, to execute the Articles of Merger in
the form attached hereof as Exhibit "D" (the "Articles of Merger"). The Articles
of Merger shall be filed with the Secretary of State of Florida on the Closing
Date in accordance with the Florida BCA.
1.8. APPROVAL OF MERGER. By their execution of this Agreement, each
Shareholder of the Company hereby ratifies, approves and adopts the Plan of
Merger for all purposes under the Florida BCA. On or before the execution of
this Agreement, the Boards of Directors of the Parent, the Merger Sub and the
Company shall have approved this Agreement, the Plan of Merger and the
transactions contemplated hereby and thereby, and the Parent shall have approved
the same as the sole shareholder of the Merger Sub.
2. ADDITIONAL AGREEMENTS.
2.1. ACCESS AND INSPECTION, ETC. The Shareholders have allowed and
shall allow Parent and its authorized representatives full access during normal
business hours from and after the date hereof and prior to the Closing Date to
all of the properties, books, contracts, commitments and records of the Company
for the purpose of making such investigations as the Parent may reasonably
request in connection with the transactions contemplated hereby (including the
taking of a physical inventory), and shall cause the Company to furnish Parent
such information concerning its affairs as Parent may reasonably request. The
Shareholders have caused and shall cause the personnel of the Company to assist
Parent in making such investigation and shall use their best efforts to cause
the counsel, accountants, engineers and other non-employee representatives of
the Company to be reasonably available to Parent for such purposes. The
Shareholders shall cause the Company to comply with all obligations of the
Company under this Agreement.
2.2. CONFIDENTIAL TREATMENT OF INFORMATION. From and after the date
hereof, the parties hereto shall and shall cause their representatives to hold
in confidence this Agreement (including the Schedules hereto), all matters
relating hereto and all data and information obtained with respect to the other
parties or their business, except such data or information as is published or is
a matter of public record, or as compelled by legal process. In the event this
Agreement is terminated pursuant to Section 10 hereof, each party shall promptly
return to the other(s) any statements, documents, schedules, exhibits or other
written information obtained from them in connection with this Agreement, and
shall not retain any copies thereof.
2.3. PUBLIC ANNOUNCEMENTS. After the date hereof and prior to
Closing, none of the parties hereto shall make any press release, statement to
employees or other disclosure of this Agreement or the transactions contemplated
hereby without the prior written consent of the other parties, except as may be
required by law. Neither the Company nor the Shareholders shall make any such
disclosure unless the Parent shall have received prior notice of the
contemplated disclosure and has had adequate time and opportunity to comment on
such disclosure, which shall be satisfactory in form and content to the Parent
and its counsel.
2.4. SECURITIES LAW COMPLIANCE.
2.4.1. The Company covenants and agrees that the Parent
Shares to be issued to the Shareholders hereunder shall be issued either (i)
pursuant to an effective registration statement under the Securities Act of
1933, as amended, or (ii) pursuant to an exemption therefrom. In either event,
if the Company elects to issue the Parent's Shares to a Shareholder, then the
Company shall take all actions necessary in order that such Shareholder is
capable of selling the Parent Shares so issued within the sixty (60) trading day
period set forth in Section 1.2.2 hereof.
2.4.2. Each Shareholder has received and reviewed copies of
the following disclosure documents filed by Parent with the U.S. Securities and
Exchange Commission (collectively, the "SEC DOCUMENTS"): (i) Quarterly Reports
on Form 10-Q for the three month periods ended March 31, 1999, December 31, 1998
and September 30, 1998 and (ii) Annual Report on Form 10-K for the year ended
June 30, 1998.
2.5. COMPANY FINANCING. Parent shall use commercially reasonable
efforts to cause the Shareholders to be released from any personal guarantees
executed with respect to obligations of the Company.
2.6. COVENANT AGAINST UNFAIR COMPETITION.
(a) Except for services to be provided to Parent or the
Company pursuant to written contracts and in consideration for the payment of
$25,000 to each Shareholder (which amount comprises a portion of the Merger
Consideration), no Shareholder will, for a period of two (2) years following the
Closing Date, for his own account or jointly with another, directly or
indirectly, for or on behalf of any individual, partnership, corporation or
other legal entity, as principal, agent or otherwise:
(i) own, control, manage, be employed by, consult
with, or otherwise participate in, a business involved within the Trade Area (as
hereinafter defined) in (1) the wholesale distribution of computers, computer
products, peripherals and related parts, components and equipment (collectively,
the "Products") or (2) any other business conducted by the Company during the
year preceding the Closing Date (the activities described in this clause (i) are
hereinafter referred to collectively as the "Business");
(ii) solicit or induce, or in any manner attempt to
solicit or induce, any person employed by the Company, the Parent or any
subsidiary of the Parent to leave such employment, whether or not such
employment is pursuant to a written contract and whether or not such employment
is at will, or hire any person who has been employed by the Company, the Parent
or any subsidiary of the Parent at any time during the six (6) month period
preceding such hiring by the Company, the Parent or any subsidiary of the Parent
(as applicable); or
(iii) use or disclose any trade secrets or
confidential information concerning the Business or any segment thereof. Trade
secrets and confidential information concerning the Business shall include, but
not be limited to, (1) lists of names and addresses of customers and suppliers
of the Company; and (2) software and computer programs, market research and data
bases, sources of leads and methods of obtaining new business, and methods of
purchasing, marketing, selling, performing and pricing products and services
employed by the Company in the Business or any segment thereof.
(b) As used herein, the term "Trade Area" shall mean
the United States and any other geographic area in which the Company conducted
any significant business activities within the twelve (12) month period
immediately prior to Closing.
(c) Shareholders recognize the importance of the
covenant contained in this Section 2.6 and acknowledge that, based on their past
experience and training as the founders and executives of the Company and the
projected expansion of the Company's business, the restrictions imposed herein
are: (i) reasonable as to scope, time and area; (ii) necessary for the
protection of the Company's legitimate business interests, including, without
limitation, the Company's trade secrets, goodwill, and its relationship with
customers and suppliers; and (iii) not unduly restrictive of any Shareholder's
rights as an individual. Shareholders acknowledge and agree that the covenants
contained in this Section 2.6 are essential elements of this Agreement and that
but for these covenants, Parent would not have agreed to purchase the Company
Common Stock or enter into this Agreement. Such covenants shall be construed as
agreements independent of any other provision of this Agreement. The existence
of any claim or cause of action against Parent by the Shareholders, whether
predicated on the breach of this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Parent of the covenants contained in this
Section 2.6.
(d) If any Shareholder commits a breach or threatens to
commit a breach of any of the provisions of this Section 2.6, Parent shall have
the right and remedy, in addition to any others that may be available, at law or
in equity, to have the provisions of this Section 2.6 specifically enforced by
any court having equity jurisdiction, through injunctive or other relief
(without any bond or security being required to be posted), it being
acknowledged that any such breach or threatened breach will cause irreparable
injury to Parent and the Company, the amount of which will be difficult to
determine, and that money damages will not provide an adequate remedy to Parent
and the Company.
(e) If any covenant contained in this Section 2.6, or
any part thereof, is hereafter construed to be invalid or unenforceable, the
same shall not affect the remainder of the covenants, which shall be given full
effect, without regard to the invalid portions, and any court having
jurisdiction shall have the power to reduce the duration, scope and/or area of
such covenant and, in its reduced form, said covenant shall then be enforceable.
If a Shareholder breaches the covenants set forth in this Section 2.6, the
running of the two (2) year noncompete period described herein (but not his
obligation) shall be tolled for so long as such breach continues.
2.7. BEST EFFORTS. Subject to the terms and conditions provided in
this Agreement, each of the parties shall use its best efforts in good faith to
take or cause to be taken as promptly as practicable all reasonable actions that
are within its power to cause to be fulfilled those conditions precedent to its
obligations or the obligations of the other parties to consummate the
transactions contemplated by this Agreement that are dependent upon its actions.
2.8. FURTHER ASSURANCES. The parties shall deliver any and all other
instruments or documents required to be delivered pursuant to, or necessary or
proper in order to give effect to, the provisions of this Agreement, including,
without limitation, all necessary stock powers and such other instruments of
transfer as may be necessary or desirable to transfer ownership of the Company
Common Stock and to consummate the transactions contemplated by this Agreement.
2.9. COMPANY OPERATIONS. From the Closing Date and until the end of
the Second Earn-Out Period, (a) neither Parent nor any of its affiliates shall:
(i) charge management, overhead or other fees to the Company, except for the
standard management fee charged to other Parent subsidiaries which shall be
charged to the Company only; or (ii) allocate or assign additional employees or
employee compensation to the Company which are not reasonably required to
properly manage or conduct its business; and (b) the Company will operate as a
wholly-owned subsidiary of Parent. Subject to Section 2.11 and until the end of
the Second Earn-Out Period, Shareholders shall manage the day-to-day operations
of the Company, subject to the provisions of Section 2.11 hereof and subject to
the terms of their respective employment agreements and consistent with the
manner in which the business of the Company has theretofore been conducted, and
Shareholders shall cause the Company to expend all sums and take all actions
that are usual and customary for the Company to preserve its business and
further its prospects as an ongoing enterprise. If during the Earn-Out Period
the Shareholders shall be unable to manage the day-to-day operations of the
Company for any reason, including, without limitation, the termination of their
respective employment agreements, the Parent shall (a) cause the Company to be
managed in the manner contemplated by this Section 2.9, and (b) use its best
efforts to maximize the After-Tax Earnings of the Company.
2.10. SHAREHOLDER LOANS.
(a) Within thirty (30) days of the Closing, Parent
shall pay and satisfy the outstanding principal balance and accrued interest on
the shareholder loan payable by the Company to Xxxx X. Xxxxxxxxx in an amount
not to exceed $300,000, which shall be reduced by the book value of the Lincoln
Town Car to be transferred to Xxxx X. Xxxxxxxxx on or before the Closing.
(b) At Closing, the loan owed by Xxxx X. Xxxxxxxxx to
the Company shall be offset against the amounts owed to Xxxx X. Xxxxxxxxx under
the First Installment.
2.11. INVENTORY ALLOCATION. On or before the Closing Date and
through the end of the Second Earn-Out Period, the Parent and Shareholders shall
establish a committee consisting of Xxxx X. Xxxxxxxxx, Xxxxx X.Xxxxxxxx, Xxxxx
Xxxx and Xxx Xxxx to oversee the allocation of inventory among the Parent and
its subsidiaries and the Company during the period from the Closing Date until
the end of the Second Earn-Out Period. In addition, the Parent and Shareholders
shall agree upon a committee charter which shall more fully set forth the
committee's duties in reviewing issues of inventory allocation, including a
procedure pursuant to which Xxxxx Xxxxxxx shall cast the deciding vote in the
event of the deadlock of the committee members.
2.12. FAIRNESS OPINION. The Parent shall have received an opinion
from Xxxxxx Xxxxxx & Company, Inc. or another investment banking firm or other
financial advisor satisfactory to the Parent in its sole discretion stating that
the transaction taken as a whole is fair from a financial point of view to the
Parent and its public shareholders.
2.13. EMPLOYMENT MATTERS.
(a) At Closing, Xxxx X. Xxxxxxxxx will execute and
deliver an employment agreement with the Merger Sub in the form of EXHIBIT "E"
hereto, which agreement will include a non-compete provision extending through
the term of employment and for a period of two (2) years following the
termination of the employment agreement.
(b) At Closing, Xxxx X. Xxxxxxxxx will execute and
deliver an employment agreement with the Merger Sub in the form of EXHIBIT "F",
which agreement shall provide for a base salary of One Hundred Four Thousand
($104,000) Dollars, a company car and a non-compete provision extending for the
term of employment and for a period of two (2) years following termination of
the Employment Agreement.
(c) Xxxx Xxxxx shall have entered into an employment
agreement, in form and substance satisfactory to the Parent.
2.14. MODIFICATION OF NOTES PAYABLE. The Company and the
Shareholders shall use their best commercial efforts to modify the notes payable
identified on the 1998 Company Balance Sheet (as defined in Section 3.6 hereof)
and any other notes payable arising after December 31, 1998 in accordance with
the terms of this Agreement to extend the maturity date for a period of at least
one year from the Closing Date, at the same interest rate and with the right of
prepayment without penalty. The Company shall provide the Parent with written
notice of the modifications to the notes payable (if any) referenced in this
Section at least five (5) days prior to the Closing. The Parent shall have until
Closing to accept such modifications and to proceed to Closing or to reject such
modifications and to terminate this Agreement.
2.15. MODIFICATION OF REAL PROPERTY LEASE. The Shareholders hereby
grant to the Company, which grant shall be effective as of the Closing, the
irrevocable option to renew that certain Real Estate Lease (the "LEASE") dated
as of September 1997 between the Shareholders and the Company for two (2)
additional successive terms of three (3) years each, the first renewal period
commencing on September 1, 2002 and the second renewal period commencing on
September 1, 2005 (each, a "RENEWAL TERM"). The terms and conditions of the
Lease during any Renewal Term shall remain unchanged except that the rental
during any Renewal Term shall increase by a fraction, the numerator of which
shall be the CPI-U, as that term is defined below, for the month immediately
preceding the applicable Renewal Term, and the denominator of which shall be the
CPI-U for the month immediately preceding the Closing in the case of the first
Renewal Term and the month immediately preceding the first Renewal Term in the
case of the second Renewal Term. The "CPI-U" shall mean the "Consumer Price
Index-Seasonally Adjusted U.S. City Average For All Items For All Urban
Consumers, (1982-84=100)," published monthly in the "Monthly Labor Review" of
the Bureau of Labor Statistics of the United States Department of Labor. In
order to exercise this option, the Company shall give the Shareholders at least
ninety (90) days' written notice prior to the termination of the then current
term of the Lease.
2.16. CERTAIN TAX MATTERS.
(a) ALLOCATION OF MERGER CONSIDERATION. The Parent and
the Shareholders agree that the Merger Consideration and the liabilities of the
Company (plus other relevant items) will be allocated to the assets of the
Company for all purposes (including tax and financial accounting) in a manner
consistent with the fair market values set forth on Schedule 2.16 hereto. The
Parent, the Company and the Shareholders will file all tax returns (including
amended returns and claims for refund) and information reports in a manner
consistent with such values.
(b) S CORPORATION STATUS. Prior to the Closing Date,
the Company and the Shareholders will not revoke the Company's election to be
taxed as an S corporation within the meaning of Sections 1361 and 1362 of the
Code. In addition, prior to the Closing Date, the Company and the Shareholders
will not take or allow any action other than the Merger pursuant to this
Agreement that would result in the termination of the Company's status as a
validly electing S corporation within the meaning of Code Sections 1361 and 1362
of the Code.
(c) TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE.
The Parent shall prepare or cause to be prepared and filed or cause to be filed
all tax returns for the Company for all periods ending on or prior to the
Closing Date which are filed after the Closing Date. The Parent shall permit the
Shareholders to review and comment on each such tax return described in the
preceding sentence prior to filing and shall make such revisions to such tax
returns as are reasonably requested by the Shareholders. To the extent permitted
by applicable law, the Shareholders shall include any income, gain, loss,
deduction or other tax items for such periods on their tax returns in a manner
consistent with the Schedule K-1s furnished by the Company to the Shareholders
for such periods. The Shareholders shall reimburse the Parent for any taxes of
the Company with respect to such period within fifteen (15) days after payment
by the Parent or the Company.
(d) COOPERATION ON TAX MATTERS.
(i) The Parent, the Company and the Shareholders
shall cooperate fully, as and to the extent reasonably requested by the other
party, in connection with the filing of tax returns pursuant to this Section and
any audit, litigation or other proceeding with respect to taxes. Such
cooperation shall include the retention and (upon the other party's request) the
provision of records and information which are reasonably relevant to any such
audit, litigation or other proceeding and making employees available on a
mutually convenient basis to provide additional information and explanation of
any material provided hereunder. The Company and the Shareholders agree (A) to
retain all books and records with respect to tax matters pertinent to the
Company relating to any taxable period beginning before the Closing Date until
the expiration of the statute of limitations (and, to the extent notified by the
Parent or the Shareholders, any extensions thereof) of the respective taxable
periods, and to abide by all record retention agreements entered into with any
taxing authority, and (B) to give the other party reasonable written notice
prior to transferring, destroying or discarding any such books and records and,
if the other party so requests, the Company or the Shareholders, as the case may
be, shall allow the other party to take possession of such books and records.
(ii) The Parent and Shareholder further agree, upon
request, to use their best efforts to obtain any certificate or other document
from any governmental authority or any other person as may be necessary to
mitigate, reduce or eliminate any tax that could be imposed (including, but not
limited to, with respect to the transactions contemplated hereby).
2.17. RELEASE OF CLAIMS BY SHAREHOLDERS. Effective as of the Closing
Date, and except for (i) the indebtedness owed to Xxxx X. Xxxxxxxxx by the
Company in an amount not to exceed $300,000 reduced by the book value of the
Lincoln Town Car to be transferred to Xxxx X. Xxxxxxxxx on or before the Closing
and (ii) any obligations arising out of this Agreement (including, without
limitation, any liability incurred by the Shareholders with respect to the
guarantees referred to in Section 2.5 hereof), each Shareholder, and each of
their successors, predecessors, assigns, agents, advisors, legal
representatives, partners and all persons acting by, through or under each of
them, hereby release the Company and each of its successors, predecessors,
assigns, agents, advisors, officers, directors, employees, legal
representatives, partners and all persons acting by, through or under each of
them, from any and all claims, obligations, causes of action, actions, suits,
contracts, controversies, agreements, promises, damages, demands, costs,
attorneys' fees and liabilities of any nature whatsoever from the beginning of
time up to and including the Closing Date, in law or at equity, whether known
now or on the Closing Date, anticipated or unanticipated, suspected or claimed,
fixed or contingent, liquidated or unliquidated, arising out of, in connection
with or relating to any matter, cause or thing whatsoever.
2.18. NO-SHOP. From the date hereof until the termination of this
Agreement, neither the Company nor the Shareholders shall, directly or
indirectly, make, solicit, initiate or encourage submission of proposals or
offers from any persons (including any of their employees or officers) relating
to an Acquisition Proposal. As used herein, "Acquisition Proposal" means any
proposal or offer involving a liquidation, dissolution, recapitalization,
merger, consolidation or acquisition or purchase of all or substantially all of
the assets of, or equity interest in, the Company or other similar transaction
or business combination involving the Company. Each of the Company and the
Shareholders shall immediately cease and cause to be terminated all discussions
or negotiations with third parties with respect to any Acquisition Proposal, if
any, exiting on the date hereof.
2.19. TAX PROTECTION POLICY.
(a) Within thirty (30) days of the Closing, the Parent
shall pay to the Shareholders an amount equal to the difference between (a) the
tax liability which would have been applicable to the Shareholders had the
Shareholders sold the Company Common Stock instead of agreeing to the Merger and
(b) the actual tax liability of the Shareholders. In addition and within thirty
(30) days of the Closing, the Parent shall pay to the Shareholders an amount
such that the net amount retained by the Shareholders after deduction of the tax
liability imposed on such payment shall be equal to the amount set forth in the
immediately preceding sentence.
(b) In the event installment sale treatment under the
applicable provisions of the Code is unavailable to the Shareholders as a result
of the Merger, then the Parent shall advance without interest to the
Shareholders, within thirty (30) days of the Parent's receipt of written notice
from the Shareholders, an amount equal to the difference between (a) the tax
liability which would have been applicable to the Shareholders had installment
sale treatment been available and (b) the actual tax liability of the
Shareholders. The Parent shall offset any advance hereunder against the Second
Earn-Out Amount. In the event the Second Earn-Out Amount is insufficient to
satisfy the advance payable pursuant to this Section, then the Shareholders
shall repay such advance in cash not later than the payment date of the Third
Installment in accordance with Section 1.2.2 hereof.
(c) The amount set forth in the Section 2.19 shall be
determined by the Shareholders and reviewed and accepted by the Parent, subject
to the dispute resolution set forth in Section 1.6 hereof.
3. REPRESENTATIONS, COVENANTS AND WARRANTIES OF THE SHAREHOLDERS.
To induce Parent and Merger Sub to enter into this Agreement and to
consummate the transactions contemplated hereby, the Company and the
Shareholders jointly and severally represent and warrant to and covenant with
Parent and Merger Sub as follows:
3.1. ORGANIZATION; COMPLIANCE. The Company is a corporation duly
organized, validly existing and in good standing under the laws of Florida. The
Company is: (a) entitled to own or lease its properties and to carry on its
business as and in the places where such business is now conducted, and (b) duly
licensed and qualified in all jurisdictions where the character of the property
owned by it or the nature of the business transacted by it makes such license or
qualification necessary, except where the failure to do so would not result in a
material adverse effect on the Company. Schedule 3.1 lists all locations where
the Company has an office or place of business and the nature of the ownership
interest in such property (fee, lease, or other).
3.2. CAPITALIZATION AND RELATED MATTERS.
(a) The Company has an authorized capital consisting of
7,500 shares of common stock, 300 of which are issued and outstanding at the
date hereof. All shares of Company Common Stock are duly and validly issued,
fully paid and nonassessable. No shares of Company Common Stock (i) were issued
in violation of the preemptive rights of any shareholder, or (ii) are held as
treasury stock.
(b) There are not outstanding any securities
convertible into capital stock of the Company nor any rights to subscribe for or
to purchase, or any options for the purchase of, or any agreements providing for
the issuance (contingent or otherwise) of, or any calls, commitments or claims
of any character relating to, such capital stock or securities convertible into
such capital stock. The Company: (i) is not subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any of
its capital stock; or (ii) has no liability for dividends or other distributions
declared or accrued, but unpaid, with respect to any capital stock.
(c) Each Shareholder is, and will be at Closing, the
record and beneficial owner of one hundred fifty (150) shares of Company Common
Stock, free and clear of all claims, liens, options, agreements, restrictions,
and encumbrances whatsoever and no Shareholder is a party to any agreement,
understanding or arrangement, direct or indirect, relating to the Company Common
Stock, including, without limitation, agreements, understandings or arrangements
regarding voting or sale of such stock.
3.3. SUBSIDIARIES. The Company owns (a) no shares of capital stock
of any other corporation, including any joint stock company, and (b) no other
proprietary interest in any company, partnership, trust or other entity,
including any limited liability company.
3.4. EXECUTION; NO INCONSISTENT AGREEMENTS; ETC.
(a) This Agreement is a valid and binding agreement of
each Shareholder, enforceable in accordance with its terms, except as such
enforcement may be limited by bankruptcy or similar laws affecting the
enforcement of creditors' rights generally, and the availability of equitable
remedies. Each Shareholder has the absolute and unrestricted right, power,
authority, and capacity to execute and deliver this Agreement and the documents
to be delivered by him in connection with the Closing and to perform his
obligations under this Agreement.
(b) Except as set forth in Schedule 3.4, the execution
and delivery of this Agreement by the Shareholders does not, and the
consummation of the transactions contemplated hereby will not, constitute a
breach or violation of the charter or bylaws of the Company, or a default under
any of the terms, conditions or provisions of (or an act or omission that would
give rise to any right of termination, cancellation or acceleration under) any
note, bond, mortgage, lease, indenture, agreement or obligation to which the
Company or any Shareholder is a party, pursuant to which the Company or any
Shareholder
otherwise receives benefits, or to which any of the properties of the Company or
any Shareholder is subject, or violate any judgment, order, decree, statute or
regulation applicable to the Company or the Shareholders or by which any of them
may be subject.
3.5. CORPORATE RECORDS. The statutory records, including the stock
register and minute books of the Company, fully reflect all issuances, transfers
and redemptions of its capital stock, currently show and will correctly show the
total number of shares of its capital stock issued and outstanding on the date
hereof and on the Closing Date, the charter or other organizational documents
and all amendments thereto, the bylaws as amended and currently in force. To the
knowledge of Shareholders, the books of account, minute books, stock record,
books, and other records of the Company, all of which have been made available
to Parent, are complete and correct and have been maintained in accordance with
sound business practices. The minute books of the Company contain accurate and
complete records of all meetings held of, and corporate action taken by, the
shareholders, the Board of Directors, and committees of the Boards of Directors
of the Company, and no meeting of any such shareholders, Board of Directors, or
committee has been held for which minutes have not been prepared and are not
contained in such minute books. At the Closing, all of those books and records
will be in the possession of the Company.
3.6. FINANCIAL STATEMENTS.
(a) The Shareholders have delivered to Parent (i) the
audited balance sheet of the Company as of December 31, 1998, and the related
statements of income, stockholders' equity and cash flows of the Company for the
fiscal year ended December 31, 1998 and the independent auditors' report thereon
and (ii) the unaudited balance sheet of the Company as of May 31, 1999 and the
unaudited statements of income of the Company for the three months ended May 31,
1999 (the balance sheet as of December 31, 1998 is hereinafter referred to as
the "1998 COMPANY BALANCE SHEET"). All the foregoing financial statements, and
any financial statements delivered pursuant to Subsection (c) below, are
referred to herein collectively as the "COMPANY FINANCIAL STATEMENTS."
(b) The Company Financial Statements have been and will
be prepared in accordance with GAAP throughout the periods involved, subject, in
the case of interim financial statements, to normal recurring year-end
adjustments (the effect of which will not, individually or in the aggregate, be
materially adverse) and the absence of notes (that, if presented, would not
differ materially from those included in the 1998 Company Balance Sheet),
applied on a consistent basis, and fairly reflect and will reflect in all
material respects the financial condition of the Company as at the dates thereof
and the results of the operations of the Company for the periods then ended, and
are true and complete and are consistent with the books and records of the
Company.
(c) Until Closing, the Shareholders will furnish to
Parent unaudited interim financial statements of the Company for each month
subsequent to May 31, 1999 as soon as practicable but in any event within thirty
(30) days after the close of any such month.
3.7. LIABILITIES. The Company has no debt, liability or obligation
of any kind, whether accrued, absolute, contingent or otherwise, except: (a)
those reflected on the 1998 Company Balance Sheet, including the notes thereto,
and (b) liabilities incurred in the ordinary course of business since December
31, 1998, none of which have had or will have a material adverse effect on the
financial condition of the Company.
3.8. ABSENCE OF CHANGES. Except as described in Schedule 3.8, from
December 31, 1998 to the date of this Agreement:
(a) there has not been any adverse change in the
business, assets, liabilities, results of operations or financial condition of
the Company or in its relationships with suppliers, customers, employees,
lessors or others, other than changes in the ordinary course of business, none
of which, singularly or in the aggregate, have had or will have a material
adverse effect on the business, properties or financial condition of the
Company;
(b) there has not been any: (i) change in the Company's
authorized or issued capital stock, retirement, or other acquisition by the
Company of any shares of any such capital stock; (ii) a declaration or payment
of any dividend or other distribution or payment in respect of shares of capital
stock, except as set forth on Schedule 3.29; (iii) amendment to the articles of
incorporation or bylaws of the Company; (iv) increase by the Company of any
bonuses, salaries, or other compensation to any shareholder, director, officer,
or (except in the ordinary course of business) employee or entry into any
employment, severance, or similar agreement with any director, officer, or
employee; (v) adoption of, or increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other employee benefit plan for or with any employees of the
Company; (vi) sale (other than sales of inventory in the ordinary course of
business), lease, or other disposition of any asset or property of the Company
or mortgage, pledge, or imposition of any lien or other encumbrance on any
material asset or property of the Company; (vii) cancellation or waiver of any
claims or rights with a value to the Company in excess of $10,000; (viii)
material change in the accounting methods used by the Company; or (ix)
agreement, whether oral or written, by the Company to do any of the foregoing;
and
(c) the Company has complied with the covenants and
restrictions set forth in Section 5 to the same extent as if this Agreement had
been executed on, and had been in effect since, December 31, 1998.
3.9. TITLE TO PROPERTIES. The Company has good and marketable title
to all of its properties and assets, real and personal, including, but not
limited to, those reflected in the 1998 Company Balance Sheets (except as since
sold or otherwise disposed of in the ordinary course of business, or as
expressly provided for in this Agreement), free and clear of all encumbrances,
liens or charges of any kind or character except: (a) those securing liabilities
of the Company incurred in the ordinary course (with respect to which no default
exists); (b) liens of 1999 real estate and personal property taxes; and (c)
imperfections of title and encumbrances, if any, which, in the aggregate (i) are
not substantial in amount; (ii) do not detract from the value of the property
subject thereto or impair the operations of the Company or; and (iii) do not
have a material adverse effect on the business, properties or assets of the
Company.
3.10. COMPLIANCE WITH LAW. The business and activities of the
Company has at all times been conducted in accordance with its articles of
incorporation and bylaws and any applicable law, regulation, ordinance, order,
License (defined below), permit, rule, injunction or other restriction or ruling
of any court or administrative or governmental agency, ministry, or body, except
where the failure to do so would not result in a material adverse effect on the
Company.
3.11. TAXES. The Company has duly filed all federal, state, and
material local and foreign tax returns and reports, and all returns and reports
of all other governmental units having jurisdiction with respect to taxes
imposed on it or on its income, properties, sales, franchises, operations or
employee benefit plans or trusts, all such returns were complete and accurate
when filed, and all taxes and assessments payable by the Company have been paid
to the extent that such taxes have become due. All taxes accrued or payable by
the Company for all periods through May 31, 1999 have been accrued or paid in
full, whether or not due and payable and whether or not disputed. The Company
has withheld proper and accurate amounts from its employees for all periods in
full compliance with the tax withholding provisions of applicable foreign,
federal, state and local tax laws. There are no waivers or agreements by the
Company for the extension of time for the assessment of any taxes. There are not
now any examinations of the income tax returns of the Company pending, or any
proposed deficiencies or assessments against the Company of additional taxes of
any kind. The Shareholders shall cause the Company to duly and timely prepare
and file all federal, state, and material local and foreign tax returns and
reports for 1999, and all returns and reports of all other governmental units
having jurisdiction with respect to taxes imposed on the Company or on its
income, properties, sales, franchises, operations or employee benefit plans or
trusts, and all such returns will be complete and accurate when filed. The
Company has been a validly existing S Corporation within the meaning of Sections
1361 and 1362 of the Code since its inception and the Company will be an S
Corporation up to and including the Closing Date.
3.12. REAL PROPERTIES. The Company does not have an interest in any
real property, except for the Leases (as defined below).
3.13. LEASES OF REAL PROPERTY. All leases pursuant to which the
Company is lessee of any real property (the "LEASES") are listed in Schedule
3.13 and are valid and enforceable in accordance with their terms. There is not
under any of such leases any material default or any claimed material default by
the Company or any event of default or event which with notice or lapse of time,
or both, would constitute a material default by the Company and in respect to
which the Company has not taken adequate steps to prevent a default on its part
from occurring. The copies of the Leases heretofore furnished to Parent are
true, correct and complete, and such Leases have not been modified in any
respect since the date they were so furnished, and are in full force and effect
in accordance with their terms. The Company is lawfully in possession of all
real properties of which they are a lessee (the "LEASED PROPERTIES").
3.14. Contingencies. Except as disclosed on Schedule 3.14, there are
no actions, suits, claims or proceedings pending, or to the knowledge of
Shareholders threatened against, by or affecting, the Company in any court or
before any arbitrator or governmental agency that may have a material adverse
effect on the
Company or which could materially and adversely affect the right or ability of
any Shareholder to consummate the transactions contemplated hereby. To the
knowledge of the Shareholders, there is no valid basis upon which any such
action, suit, claim, or proceeding may be commenced or asserted against the
Company. There are no unsatisfied judgments against the Company and no consent
decrees or similar agreements to which the Company is subject and which could
have a material adverse effect on the Company.
3.15. INTELLECTUAL PROPERTY RIGHTS. The Company has: (a) the
exclusive right to use the name American Micro Computer Center in Florida, and
the use of such name does not conflict with or infringe upon the rights of any
other person, and (b) made all material filings and publications required to
register and perfect such exclusive right. The Company is not, and will not be,
subject to any liability, direct or indirect, for infringement damages,
royalties, or otherwise, by reason of (a) the use of the name "American Micro
Computer Center" in or outside the United States or (b) the business operations
of the Company, at any time prior to the Closing Date.
3.16. MATERIAL CONTRACTS. Schedule 3.16 contains a complete list of
all contracts of the Company which involve consideration in excess of the
equivalent of $10,000 or have a term of one year or more (the "MATERIAL
CONTRACTS"). The Company has delivered to Parent a true, correct and complete
copy of each of the written contracts, and a summary of each oral contract,
listed on Schedule 3.16. Except as disclosed in Schedule 3.16: (a) the Company
has performed all material obligations to be performed by it under all such
contracts, and is not in material default thereof, and (b) no condition exists
or has occurred which with the giving of notice or the lapse of time, or both,
would constitute a material default by the Company or accelerate the maturity
of, or otherwise modify, any such contract, and (c) all such contracts are in
full force and effect. No material default by any other party to any of such
contracts is known or claimed by the Company or any Shareholder to exist.
3.17. INSURANCE. Schedule 3.17 contains a complete list of all
policies of insurance presently maintained by the Company all of which are, and
will be maintained through the Closing Date, in full force and effect; and all
premiums due thereon have been paid and the Company has not received any notice
of cancellation with respect thereto. The Company has heretofore delivered to
Parent or its representatives a true, correct and complete copy of each such
insurance policy.
3.18. EMPLOYMENT AND LABOR MATTERS. Schedule 3.18 sets forth the
name, position, employment date, and 1998 compensation (base and bonus) of each
employee of the Company who earned $25,000 or more in 1998. The Company is not a
party to any collective bargaining agreement (whether industry wide or on a
company level) or agreement of any kind with any union or labor organization.
There has not been any attempt by any union or other labor organization to
organize the employees of the Company at any time in the past five (5) years.
Except as disclosed in Schedule 3.18, the Company is not a party to or bound by
any employment contract, consulting agreement, deferred compensation agreement,
bonus plan, incentive plan, profit sharing plan, retirement agreement, or other
employee compensation agreement. The Company is not aware that any officer or
key employee, or that any group of key employees, intends to terminate their
employment with the Company, nor does the Company have a present intention to
terminate the employment of any of the foregoing.
3.19. EMPLOYEE BENEFIT MATTERS.
(a) Except as disclosed in Schedule 3.19, the Company
does not provide, nor is it obligated to provide, directly or indirectly, any
benefits for employees other than salaries, sales commissions and bonuses,
including, but not limited to, any pension, profit sharing, stock option,
retirement, bonus, hospitalization, insurance, severance, vacation or other
employee benefits (including any housing or social fund contributions) under any
practice, agreement or understanding.
(b) Each employee benefit plan maintained by or on
behalf of the Company or any other party (including any terminated pension
plans) which covers or covered any employees or former employees of the Company
(collectively, the "EMPLOYEE BENEFIT PLAN") is listed in Schedule 3.19. The
Company has delivered to Parent true and complete copies of all such plans and
any related documents. With respect to each such plan: (i) no litigation,
administrative or other proceeding or claim is pending, or to the knowledge of
the Shareholders, threatened or anticipated involving such plan; (ii) there are
no outstanding requests for information by participants or beneficiaries of such
plan; and (iii) such plan has been administered in compliance in all material
respects with all applicable laws and regulations.
(c) The Company has timely made payment in full of all
contributions to all of the Employee Benefit Plans which the Company was
obligated to make prior to the date hereof; and there are no contributions
declared or payable by the Company to any Employee Benefit Plan which, as of the
date hereof, has not been paid in full.
3.20. POSSESSION OF FRANCHISES, LICENSES, ETC. The Company: (a)
possess all material franchises, certificates, licenses, permits and other
authorizations (collectively, the "Licenses") from governmental authorities,
political subdivisions or regulatory authorities that are necessary for the
ownership, maintenance and operation of its business in the manner presently
conducted; (b) are not in violation of any provisions thereof; and (c) have
maintained and amended, as necessary, all Licenses and duly completed all
filings and notifications in connection therewith.
3.21. ENVIRONMENTAL MATTERS. Except as disclosed in Schedule 3.21:
(i) the Company is not in violation, in any material respect, of any
Environmental Law (as defined below); (ii) the Company has received all permits
and approvals with respect to emissions into the environment and the proper
collection, storage, transport, distribution or disposal of Wastes (as defined
below) and other materials required for the operation of its business at present
operating levels; and (iii) the Company is not liable or responsible for any
material clean up, fines, liability or expense arising under any Environmental
Law, as a result of the disposal of Wastes or other materials in or on the
property of the Company (whether owned or leased), or in or on any other
property, including property no longer owned, leased or used by the Company. As
used herein, (a) "ENVIRONMENTAL LAWS" means, collectively, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, the
Superfund Amendments and Reauthorization Act of 1986, the Resource Conservation
and Recovery Act, the Toxic Substances Control Act, as amended, the Clean Air
Act, as amended, the Clean Water Act, as amended, any other "Superfund" or
"Superlien" law or any other federal, or applicable state or local statute, law,
ordinance, code, rule, regulation, order or decree (foreign or domestic)
regulating, relating to, or imposing liability or standards of conduct
concerning, Wastes, or the environment; and (b) "WASTES" means and includes any
hazardous, toxic or dangerous waste, liquid, substance or material (including
petroleum products and derivatives), the generation, handling, storage,
disposal, treatment or emission of which is subject to any Environmental Law.
3.22. INVENTORIES. At Closing, Shareholders will deliver to Parent a
complete and accurate list, as of a date not more than five (5) business days
prior to the Closing Date, of the products, materials and supplies and spare
parts (the "INVENTORY") then owned by the Company. Except as otherwise provided
on Schedule 3.22, the Inventory, as of the Closing Date: (a) will represent
items of a quality and quantity usable and saleable in the ordinary course of
business at the book value reflected as of the Closing Date, (b) will be free
from defects, (c) will not be obsolete, (d) will conform in all material
respects to customary trade standards for such inventory in the Company's
current markets and (e) will be sold, subject to any applicable reserves for
inventory obsolescence shown on the Company's books and records (which reserves
are adequate and calculated consistent with past practice), within two hundred
forty (240) days of the Closing Date for an amount at least equal to its book
value. There are no express or implied warranty obligations of the Company
which, singularly or in the aggregate, will have a material adverse effect on
the business, properties or financial condition of the Company.
3.23. ACCOUNTS RECEIVABLE. On the Closing Date, the Shareholders
will deliver to Parent a complete and accurate list, as of a date not more than
five (5) business days prior to the Closing Date, of the accounts and notes
receivable due to the Company (including, without limitation, receivables from
advances to employees and the Shareholders), which includes an aging of all
accounts and notes receivable showing amounts due in thirty (30) day aging
categories (collectively, the "ACCOUNTS RECEIVABLES"). As of the Closing Date,
the Accounts Receivable: (a) will represent valid obligations arising from sales
actually made or services actually performed in the ordinary course of business;
(b) will be current and collectible net of any applicable reserves shown on the
Company's books and records (which reserves are adequate and calculated
consistent with past practice); (c) subject to such reserves, will be collected
in full, without any set-off, within one hundred fifty (150) days after the
Closing Date; and (d) are not and will not be subject to any contest, claim,
defense or right of set-off, other than rebates and returns in the ordinary
course of business.
3.24. AGREEMENTS AND TRANSACTIONS WITH RELATED PARTIES. Except as
disclosed on Schedule 3.24, and except as disclosed in the Parent Financial
Statements, the Company is not, and since December 31, 1997 has not been, a
party to any contract, agreement, lease or transaction with, or any other
commitment to, (a) a Shareholder, (b) any person related by blood, adoption or
marriage to a Shareholder, (c) any director or officer of the Company, (d) any
corporation or other entity in which any of the foregoing parties has, directly
or indirectly, at least five percent (5.0%) beneficial interest in the capital
stock or other type of equity interest in such corporation or other entity, or
(e) any partnership in which any such party is a general partner or a limited
partner having a five percent (5%) or more interest therein (any or all of the
foregoing being herein referred to as a "RELATED PARTY" and collectively as the
"RELATED PARTIES"). Without limiting the generality of the foregoing, except as
set forth in Schedule 3.24, and except as disclosed in the Company Financial
Statements no Related Party, directly or indirectly, owns or controls any assets
or properties which are or have since December 31, 1997 been used in the
business of the Company.
3.25. BUSINESS PRACTICES. Except as disclosed on Schedule 3.25, the
Company has not, at any time, directly or indirectly, made any contributions or
payment, or provided any compensation or benefit of any kind, to any municipal,
county, state, federal or foreign governmental officer or official, or any other
person charged with similar public or quasi-public duties, or any candidate for
political office. The Company's books, accounts and records (including, without
limitation, customer files, product packaging and invoices) accurately describe
and reflect, in all material respects, the nature and amount of the Company's
products, purchases, sales and other transactions. Without limiting the
generality of the foregoing, the Company has not engaged, directly or
indirectly, in: (a) the practice known as "double-invoicing;" or (b) the
incorrect or misleading labeling, marketing or sale of refurbished goods as new
goods or the sale of rebuilt goods as original manufactured equipment.
3.26. CONDITION AND SUFFICIENCY OF ASSETS. The buildings and
equipment leased or owned by the Company are generally in good operating
condition and repair, and are adequate for the uses to which they are being put.
The buildings and equipment of the Company are sufficient for the continued
conduct of the Company's business after the Closing in substantially the same
manner as conducted prior to the Closing.
3.27. ACCOUNTING SYSTEM. The Company's accounting software is owned
or licensed by the Company, free and clear of all claims, liens and
encumbrances, and the transactions contemplated hereby will not result in a
breach of any license or other agreement with respect to the accounting
software. The Company's accounting software is in good working order and
condition, free from defects (latent and patent), has been maintained in
accordance with the manufacturer's recommended maintenance program, if any, and
is suitable for maintaining the books and records of the Company and all other
purposes for which it is intended.
3.28. YEAR 2000 COMPLIANCE. All of the Company's material properties
and assets, real and personal, including, but not limited to, those reflected on
the 1998 Company Balance Sheet and any business systems, equipment or processes
using or relying upon computer hardware, microchips, software or their
components (such as computer networks, hardware and software and all related
business functions) used in the regular course of the business shall: (a) handle
date information before, during and after January 1, 2000, including but not
limited to accepting date input, providing date output, and performing
calculations on dates or portions of dates without error; (b) function
accurately and without interruption before, during and after January 1, 2000
without any change in operations associated with the advent of the new century;
(c) respond to two-digit year-date input in a way that resolves the ambiguity as
to century in a disclosed, defined and predetermined manner, and (d) store and
provide output of date information. All third parties upon whom the Company
relies to operate its business are compliant with the foregoing requirements
that no notice of defect or noncompliance has been received from any third
party.
3.29. DIVIDENDS AND OTHER DISTRIBUTIONS. Schedule 3.29 sets forth
the dates and amounts of all dividends and other distributions declared, paid or
payable by the Company to the Shareholders between January 1, 1999 and the date
hereof, which Schedule 3.29 shall be updated as of the Closing Date to set forth
all dividends and other distributions through the Closing Date.
3.30. FULL DISCLOSURE. No representation or warranty of the
Shareholders contained in this Agreement, and none of the statements or
information concerning the Company contained in this Agreement and the
Schedules, contains or will contain as of the date hereof and as of the Closing
Date any untrue statement of a material fact nor will such representations,
warranties, covenants or statements taken as a whole omit a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
4. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.
To induce the Shareholders to enter into this Agreement and to
consummate the transactions contemplated hereby, each of Parent and Merger Sub
represent and warrant to and covenants with the Shareholders as follows:
4.1. ORGANIZATION. Each of Parent and Merger Sub is a corporation
duly organized, validly existing and in good standing under the laws of their
respective states of incorporation. Parent and each of its subsidiaries is
entitled to own or lease its properties and to carry on its business as and in
the places where such business is now conducted, and Parent and each of its
subsidiaries is duly licensed and qualified in all jurisdictions where the
character of the property owned by it or the nature of the business transacted
by it makes such license or qualification necessary, except where such failure
would not result in a material adverse effect on Parent or its subsidiaries.
4.2. CAPITALIZATION AND RELATED MATTERS.
(a) Parent has authorized capital stock consisting of
20,000,000 shares of common stock, par value $0.01 per share, of which 4,933,000
shares were issued and outstanding as of the date hereof, and 1,000,000 shares
of preferred stock, none of which are issued. The Parent owns all of the
outstanding capital stock of the Merger Sub. The Parent's Shares will be, when
issued, duly and validly authorized and fully paid and non-assessable, and will
be issued to the Shareholders free of all encumbrances, claims and liens
whatsoever.
(b) Except as set forth in Schedule 4.2, and except for
employee stock options to purchase shares of Parent's Common Stock, Parent does
not have outstanding any securities convertible into capital stock, nor any
rights to subscribe for or to purchase, or any options for the purchase of, or
any agreements providing for the issuance (contingent or otherwise) of, or any
calls, commitments or claims of any character relating to, its capital stock or
securities convertible into its capital stock.
4.3. EXECUTION; NO INCONSISTENT AGREEMENTS; ETC.
(a) Subject to the Parent's Board approval contemplated
by Section 7.5 hereof, the execution and delivery of this Agreement and the
performance of the transactions contemplated hereby have been duly and validly
authorized and approved by Parent, the Merger Sub and this Agreement is a valid
and binding agreement of Parent and the Merger Sub, enforceable against Parent
and the Merger Sub in accordance with its terms, except as such enforcement may
be limited by bankruptcy or similar laws affecting the enforcement of creditors'
rights generally, and the availability of equitable remedies.
(b) The execution and delivery of this Agreement by
Parent and the Merger Sub does not, and the consummation of the transactions
contemplated hereby will not, constitute a breach or violation of the charter or
bylaws of Parent or the Merger Sub, or a default under any of the terms,
conditions or provisions of (or an act or omission that would give rise to any
right of termination, cancellation or acceleration under) any material note,
bond, mortgage, lease, indenture, agreement or obligation to which Parent or any
of its subsidiaries is a party, pursuant to which any of them otherwise receive
benefits, or by which any of their properties may be bound.
4.4. FINANCIAL STATEMENTS. Parent has delivered to the Company the
consolidated audited balance sheets of Parent as at June 30, 1997 and 1998, the
consolidated unaudited balance sheet as of March 31, 1999, the consolidated
audited statement of income for the two fiscal years ended June 30, 1997 and
1998, and the unaudited statement of income for the nine months ended March 31,
1999 (collectively, the "PARENT FINANCIAL STATEMENTS"). The Parent Financial
Statements have been prepared in accordance with GAAP, applied on a consistent
basis (except that the unaudited statements do not contain all the disclosures
required by GAAP), and fairly reflect in all material respects the consolidated
financial condition of Parent and its subsidiaries as at the dates thereof and
the consolidated results of Parent's operations for the periods then ended.
Since March 31, 1999, there has been no material adverse change in the assets or
liabilities, in the business or condition, financial or otherwise, of the
Parent, or in its results of operations.
4.5. LIABILITIES. Neither Parent nor any of its subsidiaries has any
material debt, liability or obligation of any kind, whether accrued, absolute,
contingent or otherwise, except (a) those reflected on the Parent Financial
Statements, including the notes thereto, and (b) liabilities incurred in the
ordinary course of business since March 31, 1999, none of which have had or will
have a material adverse affect on the financial condition of Parent and its
subsidiaries taken as a whole.
4.6. CONTINGENCIES. There are no actions, suits, claims or
proceedings pending or, to the knowledge of Parent's management, threatened
against, by or affecting Parent or any of its subsidiaries in any court or
before any arbitrator or governmental agency which could have a material adverse
effect on Parent or its subsidiaries or which could materially and adversely
affect the right or ability of the Parent to consummate the transactions
contemplated hereby. To the knowledge of Parent, there is no valid basis upon
which any such action, suit, claim or proceeding may be commenced or asserted
against the Parent. There are no unsatisfied judgments against Parent and no
consent decrees or similar agreements to which Parent is subject and which could
have a material adverse effect on Parent or its subsidiaries or which could
materially and
adversely affect the right or ability of the Parent to consummate the
transactions contemplated hereby.
4.7. FULL DISCLOSURE. No representation or warranty of Parent
contained in this Agreement, and none of the statements or information
concerning Parent contained in this Agreement and the Schedules, contains or
will contain as of the date hereof and as of the Closing Date any untrue
statement of a material fact nor will such representations, warranties,
covenants or statements taken as a whole omit a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
5. CONDUCT OF BUSINESS OF THE COMPANY PENDING CLOSING.
The Company and the Shareholders covenant and agree that between the
date hereof and the Closing Date:
5.1. BUSINESS IN THE ORDINARY COURSE. Except as set forth in
Schedule 5.1, the business of the Company shall be conducted only in the
ordinary course, and consistent with past practice. Without limiting the
generality of the foregoing, and except as set forth in Schedule 5.1 or as
otherwise approved in writing by Parent:
(a) The Company shall not enter into any contract,
agreement or other arrangement which would constitute a Material Contract,
except for contracts to sell or supply goods or services to customers in the
ordinary course of business at prices and on terms substantially consistent with
the prior operating practices of the Company;
(b) except for sales of personal property in the
ordinary course of its business, the Company shall not sell, assign, transfer,
mortgage, convey, encumber or otherwise dispose of, or cause the sale,
assignment, transfer, mortgage, conveyance, encumbrance or other disposition of
any of the assets or properties of the Company or any interest therein;
(c) the Company shall not acquire any material assets,
except expenditures made in the ordinary course of business as reasonably
necessary to enable the Company to conduct its normal business operations and to
maintain its normal inventory of goods and materials, at prices and on terms
substantially consistent with current market conditions and prior operating
practices;
(d) the Company shall maintain in full force and effect
all insurance policies referred to in Section 3.17 hereof or other insurance
equivalent thereto;
(e) the books, records and accounts of the Company
shall be maintained in the usual, regular and ordinary course of business on a
basis consistent with prior practices and in accordance with GAAP;
(f) the Company shall use its best efforts to preserve
its business organization, to preserve the good will of its suppliers, customers
and others having business relations with the Company, and to retain the
services of key employees and agents of the Company after the Closing Date on
terms acceptable to Parent;
(g) except as they may terminate in accordance with the
terms of this Agreement, the Company shall keep in full force and effect, and
not cause a default of any of its obligations under, each of their contracts and
commitments;
(h) the Company shall duly comply in all material
respects with all laws applicable to it and to the conduct of its business;
(i) the Company shall not create, incur or assume any
liability or indebtedness, except in the ordinary course of business consistent
with past practices;
(j) the Company shall not make or commit to make any
capital expenditures in excess of ten thousand dollars ($10,000) in the
aggregate;
(k) other than as contemplated in this Agreement, the
Company shall not apply any of its assets to the direct or indirect payment,
discharge, satisfaction or reduction of any amount payable directly or
indirectly to or for the benefit of any Shareholder or any Related Party; and
(l) neither the Company nor a Shareholder shall take or
omit to take any action which would render any of the Shareholders'
representations or warranties untrue or misleading, or which would be a breach
of any of the Shareholders' covenants.
5.2. NO MATERIAL CHANGES. The Company shall not, without the prior
written consent of the Parent which consent shall not be unreasonably withheld,
materially alter its organization, capitalization, or financial structure,
practices or operations. Without limiting the generality of the foregoing:
(a) no change shall be made in the articles of
incorporation or bylaws of the Company;
(b) no change shall be made in the authorized or issued
capital stock of the Company;
(c) the Company shall not issue or grant any right or
option to purchase or otherwise acquire any of its capital stock or other
securities;
(d) no dividend or other distribution or payment shall
be declared or made with respect to any of the capital stock of the Company in
excess of an aggregate of $100,000; and
(e) no change shall be made affecting the banking
arrangements of the Company, except as set forth in Section 2.14.
5.3. COMPENSATION. No increase shall be made in the compensation or
employee benefits payable or to become payable to any director, officer,
employee or agent of the Company, and no bonus or profit-share payment or other
arrangement (whether current or deferred) shall be made to or with any such
director, officer, employee or agent, except in the ordinary course of business
and consistent with prior practices.
5.4. NOTIFICATION. Each party to this Agreement shall promptly
notify the other parties in writing of the occurrence, or threatened occurrence,
of any event that would constitute a breach or violation of this Agreement by
any party or that would cause any representation or warranty made by the
notifying party in this Agreement to be false or misleading in any respect.
Shareholders will promptly notify Parent of any event of which any Shareholder
obtains knowledge which could have a material adverse effect on the business,
assets, financial condition or prospects of the Company. Shareholders shall have
the right to update the Schedules to this Agreement immediately prior to
Closing; provided, if such update discloses any breach of a representation,
warranty, covenant or obligation of Shareholders, Parent shall have the right to
then exercise its available rights and remedies hereunder.
6. CONDITIONS TO OBLIGATIONS OF ALL PARTIES.
The obligation of the Shareholders and Parent to consummate the
transactions contemplated by this Agreement are subject to the satisfaction, on
or before the Closing, of each of the following conditions; any or all of which
may be waived in whole or in part by the joint agreement of Parent and the
Shareholders:
6.1. ABSENCE OF ACTIONS. No action or proceeding shall have been
brought or threatened before any court or administrative agency to prevent the
consummation or to seek damages in a material amount by reason of the
transactions contemplated hereby, and no governmental authority shall have
asserted that the within transactions (or any other pending transaction
involving Parent, any of its subsidiaries, the Shareholders or the Company when
considered in light of the effect of the within transactions) shall constitute a
violation of law or give rise to material liability on the part of the
Shareholders, the Company or Parent or its subsidiaries.
6.2. CONSENTS. The parties shall have received from any suppliers,
lessors, lenders, lien holders or governmental authorities, bodies or agencies
having jurisdiction over the transactions contemplated by this Agreement, or any
part hereof, such consents, authorizations and approvals as are necessary for
the consummation hereof, including, without limitation, the consents listed on
Schedule 6.2.
6.3. COMPLIANCE WITH AGREEMENTS AND CONDITIONS. The Parent shall
have performed and complied with all material agreements and conditions required
by this Agreement to be performed or complied with by them prior to or on the
Closing Date.
6.4. HSR ACT. All applicable waiting periods under the Xxxx Xxxxx
Xxxxxx Antitrust Improvements Act of 1976, as amended (the "HSR Act"), shall
expire or have been terminated.
7. CONDITIONS TO OBLIGATIONS OF PARENT.
All obligations of Parent to consummate the transactions contemplated by
this Agreement are subject to the fulfillment and satisfaction of each and every
of the following conditions on or prior to the Closing, any or all of which may
be waived in whole or in part by Parent:
7.1. REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained in Section 3 of this Agreement and in any certificate,
instrument, schedule, agreement or other writing delivered by or on behalf of
the Shareholders in connection with the transactions contemplated by this
Agreement shall be true, correct and complete in all material respects (except
for representations and warranties which are by their terms qualified by
materiality, which shall be true, correct and complete in all respects) as of
the date when made and shall be deemed to be made again at and as of the Closing
Date and shall be true, correct and complete at and as of such time in all
material respects (except for representations and warranties which are by their
terms qualified by materiality, which shall be true, correct and complete in all
respects).
7.2. COMPLIANCE WITH AGREEMENTS AND CONDITIONS. The Shareholders
shall have performed and complied with all material agreements and conditions
required by this Agreement to be performed or complied with by them and by the
Company prior to or on the Closing Date.
7.3. ABSENCE OF MATERIAL ADVERSE CHANGES. No material adverse change
in the business, assets, financial condition, or prospects of the Company shall
have occurred, no substantial part of the assets of the Company not
substantially covered by insurance shall have been destroyed due to fire or
other casualty, and no event shall have occurred which has had or will have a
material adverse effect on the business, assets, financial condition or
prospects of the Company.
7.4. CERTIFICATE OF THE SHAREHOLDERS. The Shareholders shall have
executed and delivered, or caused to be executed and delivered, to Parent one or
more certificates, dated the Closing Date, certifying in such detail as Parent
may reasonably request to the fulfillment and satisfaction of the conditions
specified in Sections 7.1 through 7.3 above.
7.5. BOARD APPROVAL. This Agreement and the transactions
contemplated hereby shall have been approved by (a) the unanimous approval of
the special Acquisition Committee of the Parent's Board of Directors formed for
the purpose of evaluating this Agreement and the transactions contemplated
hereby and, upon the approval of such committee, (b) the approval of the
Parent's Board of Directors.
7.6. FAIRNESS OPINION. The Parent shall have received an opinion
from Xxxxxx Xxxxxx & Company Inc. or another investment banking firm or other
financial advisor satisfactory to the Parent in its sole discretion stating that
the transaction taken as a whole is fair from a financial point of view to the
Parent and its public shareholders.
7.7. MODIFICATION OF NOTES PAYABLE. The notes payable identified on
the 1998 Company Balance Sheet and any other notes payable arising after
December 31, 1998 shall have been modified in accordance with Section 2.14
hereof.
7.8. SATISFACTORY RESULTS OF INSPECTION. The results of the
inspection referred to in Section 2.1 (including, without limitation, the taking
of a physical inventory) hereof shall be satisfactory to the Parent in its sole
discretion.
7.9. EXECUTION OF EMPLOYMENT AGREEMENT BY XXXX X. XXXXXXXXX. The
Parent shall have received a copy of the employment agreement in the form of
EXHIBIT "E" hereto which has been duly executed by Xxxx X. Xxxxxxxxx.
7.10. EXECUTION OF EMPLOYMENT AGREEMENT BY XXXX X. XXXXXXXXX. The
Parent shall have received a copy of the Employment Agreement in the form of
EXHIBIT "F" hereto which has been duly executed by Xxxx X. Xxxxxxxxx.
7.11. EXECUTION OF EMPLOYMENT AGREEMENT BY XXXX XXXXX. The Parent
shall have received a copy of the Employment Agreement of Xxxx Xxxxx in a form
and substance satisfactory to Parent which has been duly executed by Xxxx Xxxxx.
8. CONDITIONS TO OBLIGATIONS OF THE SHAREHOLDERS.
All of the obligations of the Shareholders to consummate the
transactions contemplated by this Agreement are subject to the fulfillment and
satisfaction of each and every of the following conditions on or prior to the
Closing, any or all of which may be waived in whole or in part by the
Shareholders:
8.1. REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained in Section 4 of this Agreement and in any certificate,
instrument, schedule, agreement or other writing delivered by or on behalf of
Parent in connection with the transactions contemplated by this Agreement shall
be true and correct in all material respects (except for representations and
warranties which are by their terms qualified by materiality, which shall be
true, correct and complete in all respects) when made and shall be deemed to be
made again at and as of the Closing Date and shall be true at and as of such
time in all material respects (except for representations and warranties which
are by their terms qualified by materiality, which shall be true, correct and
complete in all respects).
8.2. COMPLIANCE WITH AGREEMENTS AND CONDITIONS. Parent shall have
performed and complied with all material agreements and conditions required by
this Agreement to be performed or complied with by Parent prior to or on the
Closing Date.
8.3. ABSENCE OF MATERIAL ADVERSE CHANGES. No material adverse change
in the business, assets, financial condition, or prospects of Parent and its
subsidiaries, taken as a whole, shall have occurred, no substantial part of the
assets of Parent and its subsidiaries, taken as a whole, shall have been
destroyed due to fire or other casualty, and no event shall have occurred which
has had, or will have a material adverse effect on the business, assets,
financial condition or prospects of Parent and its subsidiaries, taken as a
whole.
8.4. CERTIFICATE OF PARENT. Parent shall have delivered to the
Shareholders a certificate, executed by an executive officer and dated the
Closing Date, certifying in such detail as counsel for the Shareholder may
reasonably request to the fulfillment and satisfaction of the conditions
specified in Sections 8.1 through 8.3 above.
8.5. EXECUTION OF EMPLOYMENT AGREEMENT BY THE COMPANY. Xxxx X.
Xxxxxxxxx shall have received a copy of the Employment Agreement in the form of
EXHIBIT "E" hereto duly executed by the Merger Sub.
8.6. EXECUTION OF EMPLOYMENT AGREEMENT BY THE COMPANY. Xxxx X.
Xxxxxxxxx shall have received a copy of the Employment Agreement in the form of
EXHIBIT "F" hereto duly executed by the Merger Sub.
9. INDEMNITY.
9.1. INDEMNIFICATION BY SHAREHOLDERS. Subject to Section 9.5,
Shareholders (hereinafter collectively called the "SHAREHOLDER INDEMNITOR")
shall jointly and severally defend, indemnify and hold harmless Parent and the
Merger Sub and their direct and indirect parent corporations, subsidiaries
(including the Company after Closing) and affiliates, their officers, directors,
employees and agents (hereinafter collectively called "PARENT INDEMNITEES")
against and in respect of any and all loss, damage, liability, fine, penalty,
cost and expense, including reasonable attorneys' fees and amounts paid in
settlement (collectively, "PARENT LOSSES"), suffered or incurred by any Parent
Indemnitee by reason of, or arising out of:
(a) any misrepresentation, breach of warranty or breach
or nonfulfillment of any agreement of any Shareholder contained in this
Agreement or in any certificate, schedule, instrument or document delivered to
Parent by or on behalf of the Shareholders or the Company pursuant to the
provisions of this Agreement (without regard to materiality thresholds contained
therein); and
(b) any liabilities of the Company of any nature
whatsoever (including tax liability, penalties and interest), whether accrued,
absolute, contingent or otherwise, (i) existing as of the date of the 1998
Company Balance Sheet, and required to be shown therein in accordance with GAAP,
to the extent not reflected or reserved against in full in the 1998 Company
Balance Sheet; or (ii) arising or occurring between December 31, 1998 and the
Closing Date, except for liabilities arising in the ordinary course of business,
none of which shall have a material adverse effect on the Company; and
(c) any liabilities of the Company in connection with
the AT&T UniPlan Service with FlatRate Agreement (the "AT&T DISPUTE") as more
particularly described on Schedule 3.14.
9.2. INDEMNIFICATION BY PARENT. Subject to Section 9.5, Parent and
Merger Sub (hereinafter called the "PARENT INDEMNITOR") shall jointly and
severally defend, indemnify and hold harmless each Shareholder (hereinafter
called "SHAREHOLDER INDEMNITEE") against and in respect of any and all loss,
damage, liability, cost and expense, including reasonable attorneys' fees and
amounts paid in settlement (collectively, "SHAREHOLDER LOSSES"), suffered or
incurred by Shareholder Indemnitee by reason of or arising out of:
(a) any misrepresentation, breach of warranty or breach
or non-fulfillment of any material agreement of Parent contained in this
Agreement or in any other certificate, schedule, instrument or document
delivered to the Shareholders by or on behalf of Parent pursuant to the
provisions of this Agreement (without regard to materiality thresholds contained
therein); and
(b) any liabilities of the Company of any nature
whatsoever (including tax liability, penalties and interest), whether accrued,
absolute, contingent or otherwise, arising from the Parent's ownership or
operation of the Company after Closing, but only so long as such liability is
not the result of an act or omission of the Company or any Shareholder occurring
prior to Closing. Parent Losses and Shareholder Losses are sometimes
collectively referred to as "INDEMNIFIABLE LOSSES."
9.3. DEFENSE OF CLAIMS.
(a) Each party seeking indemnification hereunder (an
"INDEMNITEE"): (i) shall provide the other party or parties (the "INDEMNITOR")
written notice of any claim or action by a third party arising after the Closing
Date for which an Indemnitor may be liable under the terms of this Agreement,
within ten (10) days after such claim or action arises and is known to
Indemnitee, and (ii) shall give the Indemnitor a reasonable opportunity to
participate in any proceedings and to settle or defend any such claim or action.
The expenses of all proceedings, contests or lawsuits with respect to such
claims or actions shall be borne by the Indemnitor. If the Indemnitor wishes to
assume the defense of such claim or action, the Indemnitor shall give written
notice to the Indemnitee within ten (10) days after notice from the Indemnitee
of such claim or action, and the Indemnitor shall thereafter assume the defense
of any such claim or liability, through counsel reasonably satisfactory to the
Indemnitee, provided that Indemnitee may participate in such defense at their
own expense, and the Indemnitor shall, in any event, have the right to control
the defense of the claim or action.
(b) If the Indemnitor shall not assume the defense of,
or if after so assuming it shall fail to defend, any such claim or action, the
Indemnitee may defend against any such claim or action in such manner as they
may deem appropriate and the Indemnitees may settle such claim or litigation on
such terms as they may deem appropriate but subject to the Indemnitor's
approval, such approval not to be unreasonably withheld; provided, however, that
any such settlement shall be deemed approved by the Indemnitor if the Indemnitor
fails to object thereto, by written notice to the Indemnitee, within fifteen
(15) days after the Indemnitor's receipt of a written summary of such
settlement. The Indemnitor shall promptly reimburse the Indemnitee for the
amount of all expenses, legal and otherwise, incurred by the Indemnitee in
connection with the defense and settlement of such claim or action.
(c) If a non-appealable judgment is rendered against
any Indemnitee in any action covered by the indemnification hereunder, or any
lien attaches to any of the assets of any of the Indemnitee, the Indemnitor
shall immediately upon such entry or attachment pay such judgment in full or
discharge such lien unless, at the expense and direction of the Indemnitor, an
appeal is taken under which the execution of the judgment or satisfaction of the
lien is
stayed. If and when a final judgment is rendered in any such action, the
Indemnitor shall forthwith pay such judgment or discharge such lien before any
Indemnitee is compelled to do so.
9.4. WAIVER. The failure of any Indemnitee to give any notice or to
take any action hereunder shall not be deemed a waiver of any of the rights of
such Indemnitee hereunder, except to the extent that Indemnitor is actually
prejudiced by such failure.
9.5. LIMITATIONS ON INDEMNIFICATION. Notwithstanding anything to the
contrary contained in this Agreement:
9.5.1. TIME LIMITATION. No party shall be responsible
hereunder for any Indemnifiable Loss unless the Indemnitee shall have provided
such party with written notice containing a reasonable description of the claim,
action or circumstances giving rise to such Indemnifiable Loss within three (3)
years after the Closing Date (the "Indemnity Notice Period"); provided, however,
that:
(a) with respect to any Indemnifiable Loss resulting or
arising from any breach of a representation or warranty of Shareholders relating
to taxes, or any tax liability of the Company arising or relating to periods
prior to the Closing Date, the Indemnity Notice Period shall extend for the full
duration of the statute of limitations; and
(b) there shall be no limit on the Indemnity Notice
Period for indemnity claims: (i) against Shareholders for Indemnifiable Losses
arising or resulting from a breach of a representation or warranty relating to
Environmental Laws, or any liability which relates to the handling or disposal
of Wastes or the failure to comply with any Environmental Law; and (ii) against
any party based on fraud or intentional breach or misrepresentation.
9.5.2. CAPS ON LOSSES. The aggregate liability of each
Shareholder after Closing for Parent Losses shall not exceed an amount equal to
the portion of the Merger Consideration paid to each Shareholder, except for
Parent Losses (a) based upon fraud or intentional breach or intentional
misrepresentation or (b) related to any tax or tax liability of the Company for
periods prior to the Closing Date. The aggregate liability of Parent and the
Merger Sub after Closing for Seller Losses shall not exceed the Merger
Consideration.
9.5.3. BASKET. No party shall have any liability hereunder
for Indemnifiable Losses after Closing, with respect to a breach of the
representations and warranties contained herein, until the aggregate of all
Indemnifiable Losses for which the Shareholders as a group or Parent and Merger
Sub as a group, as applicable, are responsible under this Agreement exceeds
Twenty-Five Thousand ($25,000) Dollars (the "Basket"); provided that once such
Basket is exceeded for the Shareholders as a group or Parent and Merger Sub as a
group, as applicable, the responsible party or parties shall be responsible for
all Indemnifiable Losses, from the first dollar as if such Basket never existed;
and further provided that this Section 9.5.3 shall not limit in any respect
indemnity claims: (a) based upon fraud or intentional breach or intentional
misrepresentation; (b) arising from a breach by the Parent Indemnitor of any
covenant contained in this Agreement; (c) arising from the AT&T Dispute; (d)
arising from a breach by the Shareholders of any representation or warranty
contained in Section 3.2 hereof; or (e) related to any tax or tax liability of
the Company for periods prior to the Closing Date.
9.5.4. OFFSET. Each of Parent and Merger Sub shall have the
right to offset any Parent Losses against amounts due the Shareholders under
this Agreement, including, without limitation, the Earn-Out Amount or a
promissory note delivered to Parent pursuant to Section 1.4.2 hereof. Each of
Parent and Merger Sub shall collect all Parent Losses by exercising its right of
offset against such amount until the aggregate of such Parent Losses exceeds the
amounts due the Shareholders; thereafter, the Parent Losses may be collected
directly from the Shareholders.
10. TERMINATION.
10.1. TERMINATION. This Agreement may be terminated at any time on
or prior to the Closing:
(a) By mutual consent of Parent and the Shareholders;
or
(b) At the election of Parent if: (i) a Shareholder has
breached or failed to perform or comply with any of his representations,
warranties, covenants or obligations under this Agreement; or (ii) any of the
conditions precedent set forth in Section 6 or 7 is not satisfied as and when
required by this Agreement; or (iii) the Closing has not been consummated by
August 15, 1999; or
(c) At the election of the Shareholders if: (i) Parent
or the Merger Sub has breached or failed to perform or comply with any of its
representations, warranties, covenants or obligations under this Agreement; or
(ii) any of the conditions precedent set forth in Section 6 or 8 is not
satisfied as and when required by this Agreement; or (iii) if the Closing has
not been consummated by August 15, 1999.
10.2. MANNER AND EFFECT OF TERMINATION. Written notice of any
termination ("Termination Notice") pursuant to this Section 10 shall be given by
the party electing termination of this Agreement ("Terminating Party") to the
other party or parties (collectively, the "Terminated Party"), and such notice
shall state the reason for termination. The party or parties receiving
Termination Notice shall have a period of ten (10) days after receipt of
Termination Notice to cure the matters giving rise to such termination to the
reasonable satisfaction of the Terminating Party. If the matters giving rise to
termination are not cured as required hereby, this Agreement shall be terminated
effective as of the close of business on the tenth (10th) day following the
Terminated Party's receipt of Termination Notice. Upon termination of this
Agreement prior to the consummation of the Closing and in accordance with the
terms hereof, this Agreement shall become void and of no effect, and none of the
parties shall have any liability to the others, except that nothing contained
herein shall relieve any party from: (a) its obligations under Sections 2.2 and
2.3; or (b) liability for its intentional breach of any representation, warranty
or covenant contained herein, or its intentional failure to comply with the
terms and conditions of this Agreement or to perform its obligations hereunder.
11. MISCELLANEOUS.
11.1. NOTICES.
(a) All notices, requests, demands, or other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given upon receipt if delivered in person, or upon the
expiration of four (4) days after the date sent, if sent by federal express (or
similar overnight courier service) to the parties at the following addresses:
(i) If to Parent of the Merger Sub:
European Micro Holdings, Inc.
0000 X.X. 000xx Xxxxxx, Xxxx X-00
Xxxxx, Xxxxxxx 00000
Attn: Xxxxx X.Xxxxxxxx, Co-President
and
Acquisition Committee of European Micro Holdings, Inc.
x/x Xxxxxxx Xxxxxx
Xxxx Xxxx & Xxxxxxx
XxxxxxxXxxx Xxxxx - Xxxxx 0000
000 Xxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxxx 00000
and
Acquisition Committee of European Micro Holdings, Inc.
c/o Xxxx Xxxxx, Esquire
Catlin, Saxon, Xxxxxx and Xxxxx
1700 Xxxxxx X. XxXxxx Building
000 Xxxx Xxxxxxx Xxxxxx
Xxxxx, Xxxxxxx 00000-0000
with a copy to:
Xxxxxxx X. Xxxxxx, Esq.
Xxxxxxxxxxx & Xxxxxxxx LLP
000 Xxxxx Xxxxxxxx Xxxx.
Xxxxx 0000, Xxxxx Xxxxxx
Xxxxx, Xxxxxxx 00000
(ii) If to the Shareholders:
Xx. Xxxx X. Xxxxxxxxx
0000 X.X. 000xx Xxxxxx, Xxxx X-00
Xxxxx, Xxxxxxx 00000
(b) Notices may also be given in any other manner
permitted by law, effective upon actual receipt. Any party may change the
address to which notices, requests, demands or other communications to such
party shall be delivered or mailed by giving notice thereof to the other parties
hereto in the manner provided herein.
11.2. SURVIVAL. Except as provided in the next sentence, the
representations, warranties, agreements and indemnifications of the parties
contained in this Agreement or in any writing delivered pursuant to the
provisions of this Agreement shall survive any investigation heretofore or
hereafter made by the parties and the consummation of the transactions
contemplated herein and shall continue in full force and effect after the
Closing, subject to the limitations of Section 9.5. The representations,
warranties and agreements of the Company contained in this Agreement shall not
survive the Closing.
11.3. COUNTERPARTS; INTERPRETATION. This Agreement may be executed
in any number of counterparts, each of which shall be deemed an original, and
all of which shall constitute one and the same instrument. This Agreement
supersedes all prior discussions and agreements between the parties with respect
to the subject matter hereof, and this Agreement contains the sole and entire
agreement among the parties with respect to the matters covered hereby. All
Schedules hereto shall be deemed a part of this Agreement. This Agreement shall
not be altered or amended except by an instrument in writing signed by or on
behalf of all of the parties hereto. No ambiguity in any provision hereof shall
be construed against a party by reason of the fact it was drafted by such party
or its counsel. For purposes of this Agreement: "herein", "hereby", "hereunder",
"herewith", "hereafter" and "hereinafter" refer to this Agreement in its
entirety, and not to any particular subsection or paragraph. References to
"including" means including without limiting the generality of any description
preceding such term. Nothing expressed or implied in this Agreement is intended,
or shall be construed, to confer upon or give any person other than the parties
hereto any rights or remedies under or by reason of this Agreement.
11.4. GOVERNING LAW. The validity and effect of this Agreement shall
be governed by and construed and enforced in accordance with the laws of the
State of Florida, without regard to principles of conflicts of laws thereof. Any
dispute, controversy or question of interpretation arising under, out of, in
connection with or in relation to this Agreement or any amendments hereof, or
any breach or default hereunder, shall be litigated in the state or federal
courts in Miami-Dade County, Florida, U.S.A. Each of the parties hereby
irrevocably submits to the jurisdiction of any state or federal court sitting in
Miami-Dade County, Florida. Each party hereby irrevocably waives, to the fullest
extent it may effectively do so, the defense of an inconvenient forum to the
maintenance of any such action in Miami-Dade County, Florida.
11.5. SUCCESSORS AND ASSIGNS; ASSIGNMENT. This Agreement shall be
binding upon
and shall inure to the benefit of the parties hereto and their respective heirs,
executors, legal representatives, and successors; provided, however, that no
Shareholder may assign this Agreement or any rights hereunder, in whole or in
part.
11.6. PARTIAL INVALIDITY AND SEVERABILITY. All rights and
restrictions contained
herein may be exercised and shall be applicable and binding only to the extent
that they do not violate any applicable laws and are intended to be limited to
the extent necessary to render this Agreement legal, valid and enforceable. If
any terms of this Agreement not essential to the commercial purpose of this
Agreement shall be held to be illegal, invalid or unenforceable by a court of
competent jurisdiction, it is the intention of the parties that the remaining
terms hereof shall constitute their agreement with respect to the subject matter
hereof and all such remaining terms shall remain in full force and effect. To
the extent legally permissible, any illegal, invalid or unenforceable provision
of this Agreement shall be replaced by a valid provision which will implement
the commercial purpose of the illegal, invalid or unenforceable provision.
11.7. WAIVER. Any term or condition of this Agreement may be waived
at any time by the party which is entitled to the benefit thereof, but only if
such waiver is evidenced by a writing signed by such party. No failure on the
part of a party hereto to exercise, and no delay in exercising, any right, power
or remedy created hereunder, shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, power or remedy by any such party
preclude any other future exercise thereof or the exercise of any other right,
power or remedy. No waiver by any party hereto to any breach of or default in
any term or condition of this Agreement shall constitute a waiver of or assent
to any succeeding breach of or default in the same or any other term or
condition hereof.
11.8. HEADINGS. The headings as to contents of particular paragraphs
of this Agreement are inserted for convenience only and shall not be construed
as a part of this Agreement or as a limitation on the scope of any terms or
provisions of this Agreement.
11.9. EXPENSES. Except as otherwise expressly provided herein, all
legal and other costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by Parent or the
Shareholders as each party incurs such expenses, and none of such expenses shall
be charged to or paid by the Company.
11.10. FINDER'S FEES. Parent represents to the Shareholders that no
broker, agent, finder or other party has been retained by it in connection with
the transactions contemplated hereby and that no other fee or commission has
been agreed by the Parent to be paid for or on account of the transactions
contemplated hereby. Shareholders represent to Parent that no broker, agent,
finder or other party has been retained by Shareholders or the Company in
connection with the transactions contemplated hereby and that no other fee or
commission has been agreed by the Shareholders or the Company to be paid for or
on account of the transactions contemplated hereby.
11.11. GENDER. Where the context requires, the use of the singular
form herein shall include the plural, the use of the plural shall include the
singular, and the use of any gender shall include any and all genders.
11.12. ACCEPTANCE BY FAX. This Agreement shall be accepted,
effective and binding, for all purposes, when the parties shall have signed and
transmitted to each other, by telecopier or otherwise, copies of the signature
pages hereto.
11.13. ATTORNEYS FEES. In the event of any litigation arising under
the terms of this Agreement, the prevailing party or parties shall be entitled
to recover its or their reasonable attorneys fees and court costs from the other
party or parties.
11.14. OPPORTUNITY TO HIRE COUNSEL; ROLE OF XXXXXXXXXXX & XXXXXXXX
LLP. Each Shareholder acknowledges that he has been advised and has been given
an opportunity to hire counsel with respect to this Agreement and the
transactions contemplated hereby. Each Shareholder further acknowledges that the
law firm of Xxxxxxxxxxx & Xxxxxxxx llp has solely represented the Parent in
connection with this Agreement and the transactions contemplated hereby and no
other person.
11.15. TIME IS OF THE ESSENCE. It is understood and agreed among the
parties hereto that time is of the essence in this Agreement and this applies to
all terms and conditions contained herein.
11.16. NO JURY TRIAL. THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS AGREEMENT AND ANY DOCUMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION
HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE PARTIES' ACCEPTANCE OF THIS AGREEMENT.
IN WITNESS WHEREOF, the parties have executed this Agreement to be duly
executed by their duly authorized officers as of the day and year first above
written.
PARENT:
EUROPEAN MICRO HOLDINGS, INC.
By: /s/ Xxxxx Xxxxxxx
--------------------------------------
Name: Xxxxx Xxxxxxx
--------------------------------------
Title: Co-President
MERGER SUB:
AMERICAN MICRO ACQUISITION CORP.
By: /s/ Xxxxx Xxxxxxx
--------------------------------------
Name: Xxxxx Xxxxxxx
--------------------------------------
Title: Co-President
--------------------------------------
SHAREHOLDERS:
/s/ Xxxx X. Xxxxxxxxx
--------------------------------------
Xxxx X. Xxxxxxxxx
/s/ Xxxx X. Xxxxxxxxx, Trustee
--------------------------------------
Xxxx X. Xxxxxxxxx, Trustee,
Xxxx X. Xxxxxxxxx Declaration of Trust
dated 9/24/98
THE COMPANY:
AMERICAN SURGICAL SUPPLY CORP. OF
FLORIDA D/B/A AMERICAN MICRO
COMPUTER CENTER
By: /s/ Xxxx X. Xxxxxxxxx
--------------------------------------
Name: Xxxx X. Xxxxxxxxx
--------------------------------------
Title: President
--------------------------------------
