SHARE PURCHASE AGREEMENT
INTRODUCTION
THIS SHARE PURCHASE AGREEMENT is dated as of December 10, 1996. The
parties are XXXXXXX X. XXXXXXXX, XX. (the "Shareholder"), being the owner of all
of the issued and outstanding shares of capital stock of THE DURANGO & SILVERTON
NARROW GAUGE RAILROAD COMPANY, a Colorado corporation (the "Company"), the
COMPANY and FIRST AMERICAN RAILWAYS, INC., a Nevada corporation (the "Buyer").
BACKGROUND
The Shareholder owns 100,000 shares of the common stock of the Company
representing all of the issued and outstanding shares of capital stock thereof
(the "Shares"). The Buyer desires to purchase from the Shareholder, and the
Shareholder desires to sell to the Buyer, all of the Shares in exchange for the
Purchase Price in accordance with the terms and conditions set forth in this
Agreement.
Buyer has agreed to furnish upon execution hereof a nonrefundable
deposit of $2 million to Shareholder pursuant to the terms hereof in reliance
upon, among other things, the representations and warranties made by the
Shareholder.
NOW, THEREFORE, in consideration of the respective covenants,
representations and warranties herein contained, and intending to be legally
bound hereby, the parties hereto agree as follows:
TERMS AND CONDITIONS
1. DEFINITIONS.
For convenience and brevity, certain terms used in various
parts of this Agreement are listed in alphabetical order and defined or referred
to below (such terms to be equally applicable to both singular and plural forms
of the terms defined).
"ACQUISITION" means the acquisition of all of the Shares by
the Buyer and all related transactions provided for in or contemplated by this
Agreement or any Exhibit hereto.
"AGREEMENT" means this Share Purchase Agreement.
"ANCILLARY DOCUMENTS" means the documents to be delivered at
Closing, as described in Sections 3.3, 9 and 10 hereof.
"APPLICABLE LAW(S)" shall include, but shall not be limited
to, the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended by the Superfund Amendment and Reauthorization Act of 1986
("XXXX"), 42 U.S.C. section 9601, ET SEQ. (hereinafter collectively "CERCLA");
the Solid Waste Disposal Act,
as amended by the Resource Conservation and Recovery Act of 1976 ("RCRA") and
subsequent Hazardous and Solid Waste Amendments of 1984, also known as the 1984
"RCRA" amendments, 42 U.S.C. section 6901 ET SEQ.; the Hazardous Material
Transportation Act, 49 U.S.C. section 1801, ET SEQ.; the Clean Water Act, as
amended, 33 U.S.C. section 1311, ET SEQ.; the Clean Air Act, as amended, 42
U.S.C. section 7401-7642; the Toxic Substance Control Act, as amended, 15 U.S.C.
section 2601 ET SEQ.; thE Federal Insecticide, Fungicide, and Rodenticide Act
("FIFRA"), as amended, 7 U.S.C. section 136-136y; the Emergency Planning and
CommunitY Right-to-Know Act of 1986 ("EPCRTKA" or "EPCRA"), as amended, 42
U.S.C. section 11001, ET SEQ. (Title III of XXXX); the Occupational Safety and
Health Act of 1970 ("OSHA"), as amended, 29 U.S.C. section 651, ET SEQ.; any
similar state statute; and the regulations promulgated thereunder; any state or
local "Superfund" or "SuperLien" laws; and any other federal, state and/or local
laws or regulations, whether currently in existence, enacted or promulgated
prior to Closing, that govern or relate to:
(i) The existence, cleanup and/or remedy of
contamination of property;
(ii) The protection of the environment from
spilled, deposited or otherwise emplaced
contamination;
(iii) The control of hazardous or toxic substances
or wastes; or
(iv) The use, generation, discharge,
transportation, treatment, removal or
recovery of hazardous or toxic substances or
wastes, including building materials such as
asbestos.
"ASSETS" means all of the Company's assets, properties,
business, goodwill and rights of every kind and description, real and personal,
tangible and intangible, wherever situated and whether or not reflected on the
Latest Year-End Balance Sheet or the Interim Balance Sheet.
"BDO FINANCIALS" means those certain 1994 and 1995 unqualified
audited financial statements of the Company being prepared by BDO Xxxxxxx LLP to
be delivered by the Shareholder and/or the Company to the Buyer.
"BUSINESS" means the existing and prospective business,
operations, facilities and other Assets, financial condition, results of
operations, finances, markets, products, competitive position, customers and
customer relations and personnel of the Company.
"BUSINESS DAY" means any calendar day which is not a Saturday,
Sunday or public holiday under the laws of Florida.
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"BUYER" means First American Railways, Inc., a Nevada
corporation.
"BUYER NOTE" has the meaning set forth in paragraph 2.1,
below.
"BUYER SHARES" means 200,000 shares of the common stock of
Buyer, par value $.001 per share.
"CLAIM NOTICE" is defined in Section 8.2(a).
"CLOSING" and "CLOSING DATE" are defined in Section 3.1.
"CLOSING PAYMENT" means the aggregate amount of $13,800,000,
less (i) the amount outstanding under the Loan, along with any prepayment
penalties (if applicable), (ii) the Escrow Fund, if any, and (iii) Deficiencies
as defined in Section 3.2.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY" means The Durango & Silverton Narrow Gauge
Railroad Company, a Colorado corporation.
"CONTRACT" means any written or oral contract, agreement,
lease, plan, instrument or other document, commitment, arrangement, undertaking,
practice or authorization that is binding on any person or its property under
applicable law.
"COPYRIGHTS" means registered copyrights, copyright
applications and readily identifiable unregistered copyrights.
"COURT ORDER" means any judgment, decree, injunction, order or
ruling of any federal, state or local court or governmental or regulatory body
or authority that is binding on any person or its property under applicable law.
"DEFAULT" means (1) a breach of or default under any Contract,
(2) the occurrence of an event that with the passage of time or the giving of
notice or both would constitute a breach of or default under any Contract, or
(3) the occurrence of an event that with or without the passage of time or the
giving of notice or both would give rise to a right of termination,
renegotiation or acceleration under any Contract.
"DEPOSIT" shall mean the non-refundable (except as provided in
Sections 2.2 and 9.6) sum of $2 million paid to Shareholder upon execution
hereof, which amount shall be credited to the Purchase Price at Closing.
"EFFECTIVE DATE" means the date this Agreement is executed by
the last one of Buyer and the Shareholder.
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"EMPLOYEE BENEFIT PLANS" means "employee benefit plans" as
defined in Section 3(3) of ERISA and any other plan, policy, program, practice
or arrangement providing compensation or other benefits to any current or former
officer or employee of the Company, or any dependent or beneficiary thereof,
which are now or have been maintained by the Company, or any affiliate or under
which the Company or any affiliate has any obligation or liability, whether
actual or contingent, including, without limitation, all incentive, bonus,
deferred compensation, vacation, holiday, medical, disability, share purchase or
other similar plans, policies, programs, practices or arrangements.
"ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
"ESCROW AGENT" means Olle, Macaulay & Zorrilla, P.A.
"ESCROW AGREEMENT" means a written escrow agreement among the
Shareholder, the Buyer and the Escrow Agent substantially in the form of Exhibit
"A."
"ESCROW FUND" means $250,000 if deposited with the Escrow
Agent pursuant to Section 2.6(b), together with interest earned thereon, which
funds shall be held and disbursed by the Escrow Agent in accordance with this
Agreement and the Escrow Agreement.
"FEASIBILITY PERIOD" means the period beginning as of the date
hereof and terminating on December 16, 1996, at 7:00 P.M.
"GAAP" means generally accepted accounting principles as in
effect in the United States, consistently applied.
"HAZARDOUS SUBSTANCE(S)" shall be construed to include any
toxic or hazardous substance, material, or waste, and any other contaminant,
pollutant or constituent thereof, whether liquid, solid, semi-solid, sludge
and/or gaseous, including without limitation, chemicals, compounds, pesticides,
petroleum products including crude oil and any fraction thereof, asbestos
containing materials or other similar substances or materials which are
regulated or controlled by, under or pursuant to any federal, state or local
statutes, laws, ordinances, codes, rules, regulations, orders or decrees, not
limited to, the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended by the Superfund Amendment and Reauthorization Act of
1986 ("XXXX"), 42 U.S.C. section 9601, ET SEQ. (hereinafter collectively
"CERCLA"); the Solid Waste Disposal Act, as amended by the Resource Conservation
and Recovery Act of 1976 ("RCRA") and subsequent Hazardous and Solid Waste
Amendments of 1984, also known as the 1984 "RCRA" amendments, 42 U.S.C. section
6901 ET SEQ.; the Hazardous Material Transportation Act, 49 U.S.C. section 1801,
ET SEQ.; the Clean Water Act, as amended, 33 U.S.C. section 1311, ET SEQ.; the
Clean Air Act, as amended, 42 U.S.C. section 7401-7642; the Toxic Substance
Control Act, as
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amended, 15 U.S.C. section 2601 ET SEQ.; the Federal Insecticide, Fungicide, and
Rodenticide Act ("FIFRA"), as amended, 7 U.S.C. section 136-136y; the Emergency
Planning and Community Right-to-Know Act of 1986 ("EPCRTKA" or "EPCRA"), as
amended, 42 U.S.C. section 11001, ET SEQ. (Title III of XXXX); the Occupational
Safety and Health Act of 1970 ("OSHA"), as amended, 29 U.S.C. section 651, ET
SEQ.; any similar state statute; or in the regulations implementing such
statutes, or which has been or shall be determined prior to Closing by an agency
or a court to be a hazardous or toxic substance regulated under any other
Applicable Laws; or any substance or material that is or becomes regulated prior
to Closing by any federal, state, or local governmental authority.
"INSURANCE POLICY" shall mean a life insurance policy issued
by an insurer reasonably approved by Shareholder, and with terms reasonably
acceptable to him, insuring the life of Xxxxx X. Xxxxxx in the amount of Four
Million Dollars ($4,000,000.00), with premiums to be paid by Buyer, showing the
Buyer as the owner of the policy.
"INTELLECTUAL PROPERTY" means Copyrights, Patents, Trademarks,
technology rights and licenses, computer software (including without limitation
any source or object codes therefor or documentation relating thereto), trade
secrets, franchises, know-how, inventions and intellectual property rights.
"INTEREST RATE" means the rate equal to the rate published in
the "Money Rates" column of THE WALL STREET JOURNAL (or if such rate or THE WALL
STREET JOURNAL is no longer published, then any publicly available source of
similar market data) and described as "High-grade unsecured notes sold through
dealers by major corporations" and with a stated maturity date of 30 days (the
"Commercial Paper Rate") adjusted monthly, plus 650 basis points.
"INTERIM FINANCIAL STATEMENTS," "INTERIM BALANCE SHEET" and
"INTERIM BALANCE SHEET DATE" are defined in Section 4.7.
"IRS" means the Internal Revenue Service.
"KNOWLEDGE" means (a) when applied to the Company, the actual
knowledge (after reasonable investigation) of Xxxxxxx X. Xxxxxxxx, Xx.
("Xxxxxxxx") or L. Xxxxxxxxx Xxxxxxxxx, or any Vice President of the Company,
and (b) when applied to the Shareholder, the actual knowledge (after reasonable
investigation) of Xxxxxxxx.
"LATEST YEAR-END BALANCE SHEET" and "LATEST YEAR-END BALANCE
SHEET DATE" are defined in Section 4.7.
"LIABILITY" means any direct or indirect liability,
indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of
or by any person (other than endorsements of notes, bills and checks presented
to banks for collection or deposit in
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the ordinary course of business) of any type, whether accrued, absolute,
contingent, matured, unmatured or other.
"LICENSES" means licenses, franchises, permits, easements,
rights and other authorizations.
"LIEN" means any mortgage, lien, security interest, pledge,
encumbrance, restriction on transferability, defect of title, charge or claim of
any nature whatsoever on any property or property interest.
"LIENHOLDER" means the holder of or other person entitled to
any benefits arising under any Lien.
"LITIGATION" means any lawsuit, action, arbitration,
administrative or other proceeding, criminal prosecution or governmental
investigation or inquiry involving or affecting the Company, the Business, the
Assets or any Contracts to which the Company is a party or by which it or any of
the Assets or the Business may be bound or affected.
"LOAN" means that certain term loan given by Nations Financial
Capital Corporation ("Nations Financial") to the Company evidenced by a
promissory note (the "Note"), dated August 30, 1994, in the original principal
amount of $7 million, which Note has an outstanding principal balance as of the
date hereof of approximately $4.4 million. The Loan will be reduced prior to
closing through the payment of regular monthly payments.
"NONCOMPETE PERIOD" is defined in Section 11.1.
"NOTICE PERIOD" is defined in Section 8.2(a).
"PATENTS" means all patents and patent applications.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PENSION PLANS" means "employee pension benefit plans" as
defined in Section 3(2) of ERISA.
"PERMITTED LIENS" means liens for taxes not yet due and
payable and the security interests of Nations Financial.
"PURCHASE PRICE" has the meaning set forth in paragraph 2.1,
below.
"RAILROAD" means that certain narrow gauge railroad situated
entirely in the State of Colorado and extending generally from Durango, Colorado
to Silverton, Colorado.
"REGISTRATION RIGHTS AGREEMENT" means a Registration Rights
and Price Guaranty Agreement between Buyer and the
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Shareholder to be executed at Closing in the form attached as Exhibit "B."
"REGULATION" means any statute, law, ordinance, regulation,
order or rule of any federal, state, local or other governmental agency or body
or of any other type of regulatory body, including, without limitation, those
covering environmental, energy, safety, health, transportation, bribery,
recordkeeping, zoning, antidiscrimination, antitrust, wage and hour, price and
wage control matters, tax, and security matters.
"SHAREHOLDER" means Xxxxxxx X. Xxxxxxxx, Xx.
"SHARES" means 100,000 shares of the common stock of the
Company, no par value, which constitutes all of the issued and outstanding
capital stock of the Company.
"TRADEMARKS" means registered trademarks, registered service
marks, trademark and service xxxx applications and readily identifiable
unregistered trademarks and service marks.
"WARRANT" means a five-year warrant to purchase 600,000 shares
of Buyer's common stock at an exercise price of $5.00 per share issued in favor
of the Shareholder at Closing in the form attached hereto as Exhibit "C."
"WARRANT SHARES" means the shares of Buyer's common stock
underlying the Warrant.
2. SALE AND PURCHASE OF THE SHARES.
2.1 PURCHASE PRICE. The Buyer agrees to pay the Shareholder at
the Closing the purchase price by: (a) delivery of (i) its promissory note (the
"Buyer Note") in the form of Exhibit "D" attached hereto in the principal amount
of $4.2 million, which shall be subordinate to a purchase money loan to be
provided by a third party lender (the "Purchase Money Lender") in an amount not
to exceed $5.5 million, net of liquid collateral, (ii) the Buyer Shares, (iii)
the Warrant, (iv) the Closing Payment and (b) the Deposit previously delivered
to the Shareholder shall be credited to the Shareholder on the Closing Statement
(collectively, the "Purchase Price"). The Buyer Note shall be secured by
security interests in all of the assets of the Company and the Shares, which
security interests shall be subordinate to the lien of the Purchase Money
Lender.
Xxxxx X. Xxxxxx shall personally guarantee to Shareholder the
payment, performance and collection of the Buyer Note. In the event of Xxxxx X.
Xxxxxx'x death or mental incapacity prior to Closing, a sufficient amount of his
Common Stock of the Buyer shall be pledged as collateral for the Buyer Note.
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2.2 DEPOSIT. The Buyer must deliver the Deposit by wire
transfer to Shareholder's account within one Business Day after the Effective
Date. The Deposit shall be non-refundable, except that Buyer may obtain a refund
of its Deposit, together with interest thereon from the date delivered to
Shareholder, at the Interest Rate, (a) if within three Business Days after
delivery by Shareholder to the Buyer of the BDO Financials: (i) Buyer learns
that such financial statements make it impossible for the Buyer to obtain its
required financing before the Extended Closing Date provided for in Section 3.2
below; or (ii) review of due diligence documents recently made available to
Buyer located in the offices of the Company's Colorado counsel reveals any
material adverse matter affecting the Company or its operations, or (b) pursuant
to Section 9.6 hereof. The Deposit shall be nonrefundable under any other
circumstances, anything in this Agreement to the contrary notwithstanding.
Unless the Buyer gives the Shareholder notice of its intent to
terminate this Agreement on or before two Business Days after the last day of
the Feasibility Period, Buyer and Shareholder shall close the Agreement in
accordance with the terms and conditions hereof. In the event Buyer elects to
terminate this Agreement pursuant to the provisions hereof, the parties will be
relieved of any liability to each other, other than such liabilities as may
specifically survive hereunder.
2.3 SALE AND PURCHASE OF THE SHARES. Subject to the
post-Closing adjustment set forth in Section 2.7 hereof and subject to the terms
and conditions hereinafter set forth and on the basis of and in reliance upon
the representations, warranties, obligations and agreements set forth herein, at
the Closing the Shareholder shall sell to the Buyer and the Buyer shall purchase
from the Shareholder all of the Shares owned by the Shareholder in exchange for
the payment to the Shareholder of the Purchase Price.
2.4 DEFAULT BY THE SHAREHOLDER OR THE BUYER.
(a) DEFAULT BY SHAREHOLDER. Notwithstanding the
provisions of Section 2.3 and subject to the provisions of 3.2, if the
Shareholder breaches any of his covenants, representations or warranties under
this Agreement, or the Shareholder shall fail or refuse to deliver any of the
Shares as provided in Section 2.3, or if the Shareholder shall fail or refuse to
consummate the transactions described in this Agreement prior to or on the
Closing Date and if Buyer has performed all of its material obligations under
this Agreement, the Buyer, at its option, may refuse to make such acquisition
and thereby terminate all of its obligations hereunder and/or exercise all
available legal remedies, subject to the limitations of subparagraph 8.1(c). The
Shareholder acknowledges that the Shares are unique and otherwise not available
and agrees that in addition to any other remedies, the Buyer may invoke any
equitable remedies to enforce delivery of the Shares
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hereunder, including, without limitation, an action or suit for specific
performance.
(b) DEFAULT BY BUYER. If the Buyer fails to
perform its material obligations pursuant to the terms of this Agreement within
the time specified, and Shareholder has performed his obligations under this
Agreement, such event will constitute a default. In such event the Deposit will
be deemed to be full liquidated damages in consideration for the execution of
this Agreement. The Shareholder and the Buyer acknowledge that it would be
difficult, if not impossible, to ascertain the actual damages suffered by the
Shareholder as a result of any material default by the Buyer and agree that such
liquidated damages are a reasonable estimate of such damages. The Shareholder
further acknowledges and agrees that the Buyer was materially induced to enter
into this Agreement in reliance upon the Shareholder's agreement to receive the
Deposit as liquidated damages, as the Shareholder's sole and exclusive remedy,
and the Buyer would not have entered into this Agreement but for the
Shareholder's agreement to so limit the Shareholder's remedies.
2.5 ACCESS TO PROPERTY. The Shareholder has caused the Company
to deliver to the Buyer copies of all title information, including all
abstracts, title insurance policies, legal opinions and surveys relating to the
Real Property. The Buyer, its counsel, accountants, agents and other
representatives shall have full and reasonable access to the Real Property,
personal property, files, documents, records, permits, equipment, and all Assets
of the Company (the "Records"). The Shareholder will make the Records
immediately available to the Buyer at their current locations in Shareholder's
or the Company's offices for its complete examination and otherwise reasonably
cooperate with Buyer in connection with this paragraph. The Buyer's licensed
inspectors and professionals will also have the right to enter upon the Real
Property during business hours after reasonable notice for the purpose of
inspecting, at the sole cost and expense of the Buyer, the Real Property with
respect to soil conditions, environmental matters, roof, structure, HVAC,
electrical systems, plumbing, machinery, surveying matters and performing other
similar investigatory work as the Buyer considers appropriate, including,
without limitation, a Phase I and/or Phase II environmental audit (as
appropriate)of the Real Property. The Buyer will have the right to make
reasonable inquiries of tenants, governmental authorities, utility companies,
Shareholder-designated representatives of the Company and other like parties and
to make such feasibility studies and analyses as it considers appropriate. The
Buyer hereby covenants and agrees to use all reasonable efforts so that neither
the Buyer nor any of Buyer's representatives will interfere with the Company's
Businesection Any entry made on the Real Property by the Buyer and its
representatives will be at the sole risk of the Buyer. The right of inspection
will terminate when and if this Agreement is terminated. The Buyer hereby
covenants and agrees to
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indemnify and hold harmless the Company and the Shareholder from any and all
loss, liability, costs (inclusive of reasonable attorneys' fees and
disbursements), claims, demands, damages, actions, causes of action, and suits
actually and directly arising out of or in any manner related to the exercise by
the Buyer of the Buyer's rights under this paragraph. The Buyer will pay for all
work and inspections performed on or in connection with the Real Property and
will not permit the creation of any lien in favor of any contractor,
subcontractor, materialman, mechanic, surveyor, architect or laborer. The Buyer
further covenants and agrees that if this transaction does not close it will
repair any damage caused by Buyer.
2.6 ENVIRONMENTAL CLEAN-UP. If prior to Closing (i) the Real
Property is found to be contaminated such that Hazardous Substances located upon
or beneath the Real Property exceed concentrations permitted under Applicable
Law, or (ii) Buyer finds that Hazardous Substances were used, discharged,
generated, transported, treated, removed or disposed of by the Company other
than in accordance with Applicable Law, then the Buyer and Shareholder shall
close the transaction subject to Buyer's general right of termination set forth
in Section 2.2 and subject to the following terms and conditions:
(a) Buyer may perform any remedial or other
activities (a) required to clean up the Real Property so that the
amounts of Hazardous Substances present upon or beneath the Real
Property do not exceed amounts permitted under Applicable Law, (b)
necessary to bring the Company into compliance with Applicable Law
and/or (c) required to be performed by any appropriate agency or
governmental official to clean up or prevent the spread of Hazardous
Substances (the "Remedial Work"). The Shareholder shall pay for 50% of
the cost of such Remedial Work and any fines, penalties, preparation of
reports, attorneys' fees and any other cost or expense required to be
paid by Buyer arising out of the presence of Hazardous Substances on
the Real Property or failure of the Shareholder to comply with
Applicable Law (collectively, the "Expenses"); provided, however, that
Shareholder's maximum liability for the Remedial Work and the Expenses
shall not exceed $250,000;
(b) Up to $250,000 of the Closing Payment shall be
delivered to Escrow Agent as necessary to pay for the Shareholder's
proportionate share of the cost of the Remedial Work and Expenses as
reasonably estimated by Buyer. This amount shall be disbursed to Buyer
or Shareholder pursuant to the terms of the Escrow Agreement; and
(c) If, at any time prior to the Closing Date, Buyer
learns that the total cost of the Remedial Work, plus the Expenses,
will exceed $500,000, Buyer may elect to
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terminate this Agreement by delivering written notice to Shareholder of
such election, and the parties shall be relieved of any further
obligation under the Agreement except for indemnities surviving
hereunder.
2.7 POST-CLOSING ADJUSTMENT.
(a) PREPARATION OF CLOSING DATE BALANCE SHEET. Within
120 days after the Closing Date, (1) the Buyer shall cause the Company
to prepare a balance sheet for the Company as of the Closing Date (the
"Closing Date Balance Sheet"). The Closing Date Balance Sheet shall be
prepared in accordance with GAAP, using the same methods and criteria
employed by the Company in connection with its preparation of its
Latest Year-End Balance Sheet to the extent such methods are consistent
with GAAP and the BDO Financials, and shall present fairly the
Company's financial position as of the Closing Date. Upon completion of
the Closing Date Balance Sheet, copies thereof shall promptly be
provided to the Shareholder.
(b) RESOLUTION OF DISPUTES. Shareholder shall be
deemed to have accepted the Closing Date Balance Sheet unless within 15
days after delivery thereof to Shareholder, Shareholder gives notice to
the Buyer that he disputes any matter with respect to such Closing Date
Balance Sheet, then any such matters (the "Disputed Matters") shall be
submitted to arbitration at a neutral site in Florida, within 30 days
after such notice unless the parties agree in writing to extend such
30-day period in an attempt to negotiate a settlement of such Disputed
Matters. The arbitrator (the "Arbitrator") shall be any one of the
nationally recognized independent accounting firms which is on the date
hereof among the six largest such firms (the "Big Six accounting
firms") mutually agreed to by the Shareholder and the Buyer. Any
reference herein to the Big Six accounting firms shall be deemed to
include a reference to any member or employee thereof (who is a
certified public accountant) which any such firm may designate as the
Arbitrator on its behalf. If within 20 days following the expiration of
the 30-day period referred to above or any extension thereof the
Shareholder and the Buyer shall have failed to agree upon the selection
of the Arbitrator or any Arbitrator selected by them shall not have
agreed to perform the services called for hereunder, the Arbitrator
shall thereupon be selected in accordance with the rules of the
American Arbitration Association, with preference being given to any
one of the Big Six accounting firms or any member or employee thereof
(who is a certified public accountant) which or who may be willing to
perform such services, other than any such firm which is then employed
by the Company or the Buyer or any affiliate thereof. The Arbitrator
shall consider only the Disputed Matters and the arbitration shall be
conducted in accordance with the
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commercial arbitration rules of the American Arbitration Association
then in effect. The Arbitrator shall act promptly to resolve all
Disputed Matters and its decision with respect to all Disputed Matters
shall be final and binding upon the parties hereto and shall not be
appealable to any court. The costs and expenses of the Arbitrator shall
be shared equally by the Shareholder and the Buyer.
(c) DETERMINATION OF REQUIREMENTS. The Purchase Price
has been determined on the assumption, and the parties have entered
into this Agreement with the reasonable expectation that at Closing,
based on GAAP, (i) total shareholder's equity of the Company is at
least $2 million; (ii) current liabilities, excluding the current
portion of notes payable, do not exceed $600,000; (iii) fixed assets
are not less than $6.4 million; (iv) notes payable are not greater than
those amounts payable to Nations Financial; and (v) cash is not less
than contingent (recorded and/or unrecorded) liabilities, all as set
forth on the Disclosure Schedule attached hereto (collectively, the
"Balance Sheet Criteria"). The financial obligations of Shareholder to
the Company shall not be an Asset of the Company.
(d) ADJUSTMENT OF PURCHASE PRICE; PAYMENT. If the
Balance Sheet Criteria are not fully satisfied, then the Purchase Price
shall be reduced by that amount necessary to satisfy any asset
deficiency or reduce any excess liability, so that all of the Balance
Sheet Criteria are satisfied (which amount shall include interest at
the Interest Rate from the Closing Date to the date such amount is
paid); Shareholder shall pay to Buyer such amount within fifteen (15)
days after delivery of the Closing Date Balance Sheet to Shareholder
pursuant to subsection 2.7(a) hereof, or, if disputed, within ten (10)
days of the final resolution of such dispute.
3. CLOSING.
3.1 CLOSING DATE. The closing (the "Closing") of the sale and
purchase of the Shares shall take place at the offices of Olle, Macaulay &
Zorrilla, P.A., 000 Xxxxx Xxxxxxxx Xxxxxxxxx, Xxxxx 0000, Xxxxx, Xxxxxxx 00000,
at 10:00 A.M. local time, 47 calendar days after 3 business days following
delivery of the BDO Financials by Shareholder to Buyer pursuant to subparagraph
4.7, or at such other time or place or on such other date as the Buyer and the
Shareholder may agree to in writing. The date of the Closing is hereinafter
sometimes referred to as the "Closing Date".
3.2 EXTENDED CLOSING DATE/ADJUSTMENT TO CLOSING PAYMENT. The
Buyer shall have the right to extend the Closing Date for 14 calendar days;
provided that on or before the date which is three Business Days prior to the
scheduled Closing Date, the Buyer delivers to the Shareholder written notice of
its election to so
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extend the Closing Date. In addition, in the event Buyer has given written
notice to Shareholder prior to the Closing Date of any Deficiencies as defined
below, Buyer shall extend the Closing Date to allow Shareholder an opportunity
to: (i) remedy any inaccuracies contained in his representations or warranties
or those of the Company (whether such inaccuracies were based on intentional
misrepresentations or merely a lack of knowledge), (ii) to perform any agreement
or covenant hereunder, or (iii) to remedy or pay for any damage, loss,
deficiency, liability, cost, claim or expense resulting from, relating to or
arising out of clauses (i) or (ii) above (collectively, the "Deficiencies").
Shareholder shall use its "best efforts" to cure such Deficiencies after Buyer
has provided to Shareholder written notice thereof. Shareholder shall have 30
days after receipt of Buyer's written notice to cure such Deficiencies. To the
extent Shareholder fails to cure the Deficiencies, Buyer may in such instance
elect to either (x) cure the Deficiencies and receive a credit against the
Closing Payment for the amount necessary to cure the Deficiencies or (y) reduce
the Closing Payment by the amounts reasonably necessary to cure the
Deficiencies. Deficiencies shall include, without limitation, any unfunded or
underfunded pension obligations of the Company.
3.3 DELIVERIES. At the Closing, subject to the provisions of
this Agreement, the Shareholder shall deliver to the Buyer, free and clear of
all Liens, except for the lien of Nations Financial (the "Nations Lien"), the
certificate for the Shares in negotiable form, duly endorsed in blank, or with
separate notarized stock transfer power(s) attached thereto and signed in blank,
and with all applicable transfer taxes paid, in exchange for the delivery by the
Buyer to the Shareholder of
(a) a wire transfer in the amount of the Closing
Payment;
(b) a certificate for the Buyer Shares in negotiable
form, duly endorsed in blank, or with separate notarized stock transfer
power(s) attached thereto and signed in blank, and with all applicable
issuance taxes paid;
(c) the Warrant;
(d) a Second Deed of Trust in reasonable and
customary form, subordinated to the loan provided by the Purchase Money
Lender in an amount not to exceed $5.5 million, net of liquid
collateral (the "Bank Loan");
(e) a UCC-1 Financing Statement in reasonable and
customary form, subordinated to the Bank Loan;
(f) a personal guaranty of the Buyer Note executed
by Xxxxx X. Xxxxxx in reasonable and customary form;
13
(g) a collateral assignment of the proceeds of the
Insurance Policy (if, and only if, the Insurance Policy can be obtained
after using due diligence to obtain such policy, and if such Insurance
Policy cannot be obtained, then a pledge of Xxxxx X. Xxxxxx'x Common
Stock of the Buyer equal in value to the Buyer Note). Any proceeds from
the Insurance Policy shall be paid to the Buyer. To the extent amounts
remain outstanding under the Buyer Note, the necessary proceeds of the
Insurance Policy shall be paid to Shareholder to satisfy said amount.
Upon repayment of the Buyer Note, the Insurance Policy will be
cancelled;
(h) the Buyer Note;
(i) a security agreement in the "rolling stock" of
the Company, subordinated to the Bank Loan, in reasonable and
customary form;
(j) a stock pledge agreement for the Shares, subject
to the Bank Loan, in reasonable and customary form;
(k) an assignment from the Company to the Shareholder
of all rights to receive the pending refund of federal unemployment tax
of approximately $237,000 and the obligation under such assignment
shall be included as a payable to the Shareholder on the Closing Date
Balance Sheet; and
(l) an assignment from the Company to the Shareholder
of all rights to receive the pending refund of Colorado State Tourism
Tax in the approximate amount of $167,000. The obligation under such
assignment shall be included as a payable to the Shareholder on the
Closing Date Balance Sheet.
At the Closing, the Shareholder will deliver to the Buyer a
release of the guaranty given by the Company to General Electric Credit
Corporation ("GECC") guaranteeing a loan given by GECC to D&S Services, Inc.,
the written resignations of all the directors and officers of the Company
effective as of the Closing Date except for such directors and officers as the
Buyer shall designate in writing, and shall cause to be delivered to the
successor directors and officers all original minute books, stock record books,
books of account, corporate seals, Contracts and other documents, instruments
and papers belonging to the Company, 401K plans and plan documents,
environmental reports, appraisals, notices from welfare beneficiaries, actuarial
reports, personnel files and records, regulatory actions, original leases,
deeds, surveys, patents, patent applications, prints, schematics, drawings of
original trains, and shall cause full possession and control of all of the
Assets and of all other things and matters pertaining to the operation of the
Business to be transferred and delivered to
14
the directors and officers elected to succeed the resigned directors and
officers of the Company. At the Closing, the Shareholder shall also deliver to
the Buyer, and the Buyer shall deliver to the Shareholder, the certificates,
opinions and other instruments and documents referred to in Sections 9 and 10
and the Registration Rights Agreement.
3.4 TERMINATION. In the event that the Closing
shall not have taken place on or before March 31, 1997, all of the rights and
obligations of the parties under this Agreement shall terminate. In the event
that neither Buyer nor Shareholder has cured any Deficiencies under Section 3.2
or any matter under Section 9.6(ii), if any, by such date, Seller may elect at
any time thereafter to return the Deposit or extend the Closing Date as provided
in Sections 3.2 and 9.6 to effect such cure.
4. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER. The Shareholder
represents and warrants to the Buyer, except as set forth on the Disclosure
Schedule attached hereto, or otherwise known to Buyer, its officers, attorneys,
accountants or Xxxxxx X. Xxxxxx or Xxxxx X. Xxxxx or Xxxxx X. Xxxxxx, that:
4.1 ORGANIZATION AND STANDING. The Company is a corporation
duly organized, validly existing and in good standing under the laws of
Colorado, having full power and authority to carry on the Business as it has
been and is now being conducted and to own, lease and operate the Assets. Except
as set forth on the Disclosure Schedules, the Company has no subsidiaries and no
stock or other equity or ownership interest (whether controlling or not) in any
corporation, association, partnership, joint venture or other entity.
4.2 CAPITALIZATION AND SHARE OWNERSHIP. The Company's
authorized capital stock consists of 500,000 shares of Common Stock. There are
100,000 shares of the Company's Common Stock presently issued and outstanding
(previously defined as the "Shares"), all of which Shares are owned by the
Shareholder, free and clear of any Liens other than the Nations Lien. All of the
Shares have been duly authorized and validly issued, are fully paid and
nonassessable, were not issued in violation of the terms of any Contract binding
upon the Company, and were issued in compliance with all applicable charter
documents of the Company and all applicable federal and state securities or
"blue sky" laws and regulations. No equity securities of the Company, other than
the Shares, are issued or outstanding. There are, and have been, no preemptive
rights with respect to the issuance of the Shares. There are: (a) no existing
Contracts, subscriptions, options, warrants, calls, commitments or rights of any
character to purchase or otherwise acquire any capital shares or other
securities of the Company, whether or not presently issued or outstanding, from
any shareholder or the Company, at any time, or upon the happening of any stated
event; and (b) no Contracts, subscriptions, options,
15
warrants, calls, commitments or rights to purchase or otherwise acquire from the
Shareholder or the Company any such convertible or exchangeable securities.
4.3 AUTHORITY AND BINDING EFFECT. The Shareholder has the full
power and authority to execute, deliver and perform this Agreement and has taken
all actions necessary to secure all approvals required in connection therewith.
The execution and delivery of this Agreement and the consummation of the
transactions herein contemplated will not contravene or violate the Articles of
Incorporation or By-Laws of the Company. This Agreement constitutes the legal,
valid and binding obligation of the Shareholder, enforceable against the
Shareholder in accordance with its terms.
4.4 VALIDITY OF CONTEMPLATED TRANSACTIONS. To the best of
Shareholder's Knowledge, other than the Nations Lien, neither the execution and
delivery of this Agreement by the Shareholder nor the consummation of the
transactions contemplated hereby will contravene or violate any Regulation or
Court Order which is applicable to the Company or the Shareholder, or will
result in a Default under, or require the consent or approval of any party to,
any Contract or License relating to the Business or the Assets or to or by which
the Company or the Shareholder is a party or otherwise bound or affected, or
require the Company, Buyer or the Shareholder to notify or obtain any License
from any federal, state, local or other court or governmental agency or body or
from any other regulatory authority.
4.5 RESTRICTIONS. Neither the Company, nor the Shareholder is a
party to any Contract or subject to any restriction or any Court Order or
Regulation, not otherwise generally applicable to businesses similar to the
Business, which materially and adversely affects the Company, the Assets or the
Business or affects or restricts the ability of the Company or the Shareholder
to consummate the Acquisition.
4.6 THIRD-PARTY OPTIONS. There are no existing Contracts,
options, commitments or rights with, to or in any third party to acquire the
Company, any of the Assets or any interest therein or in the Businesection
4.7 FINANCIAL STATEMENTS. The Company and the Shareholder have
delivered to the Buyer (1) the Company's unqualified audited year-end balance
sheets at December 31, 1995, 1994 and 1993, (2) its related unqualified audited
statements of income and cash flows for the fiscal years then ended, and (3) all
related notes and schedules, each of which have been prepared by Xxxxxxx
Xxxxxxx, CPA ("Lansing"). All Liabilities of the Company at December 31, 1995,
required to be reflected or reserved for by GAAP are fully reflected or reserved
for in the Company's consolidated balance sheet at December 31, 1995, prepared
by
16
Lansing (the "Latest Year-End Balance Sheet"). December 31, 1995, is referred to
as the "Latest Year-End Balance Sheet Date" in other parts of this Agreement.
The Company and the Shareholder have also delivered to the Buyer a copy of the
unaudited balance sheet of the Company at September 30, 1996, and the related
unaudited statements of income and cash flows for the period from the Latest
Year-End Balance Sheet Date to September 30, 1996, prepared by the Company (the
"Interim Financial Statements"). September 30, 1996, is referred to as the
"Interim Balance Sheet Date" in other parts of this Agreement. All Liabilities
of the Company as of the Interim Balance Sheet Date required to be reflected or
reserved for by GAAP are fully reflected or reserved for in the Company's
consolidated balance sheet prepared by the Company at the Interim Balance Sheet
Date (the "Interim Balance Sheet"). All of the financial statements prepared by
Lansing and the Company referred to in this Section 4.7 were prepared in
accordance with GAAP and fairly present the financial position and results of
operations of the Company at the dates and for the periods covered and include
all adjustments that are necessary for a fair presentation of the information
shown. Within 30 days after the date hereof, the Company and the Shareholder
shall deliver to the Buyer (1) the Company's unqualified audited year-end
balance sheets at December 31, 1994 and 1995, (2) its related unqualified
audited statements of income and cash flows for the fiscal years then ended, and
(3) all related notes and schedules, each of which shall be prepared by BDO
Xxxxxxx, LLP.
4.8 BOOKS OF ACCOUNT; RETURNS AND REPORTS; TAXES. The books of
account of the Company fairly reflect, in accordance with GAAP, (1) all
transactions relating to the Company and (2) all items of income and expense,
assets and liabilities and accruals relating to the Company. The Company has not
engaged in any transaction, maintained any bank account or used any corporate
funds except for transactions, bank accounts and funds which have been and are
reflected in the normally maintained books and records of the Company. The
Company has duly filed all federal, state and local tax reports and returns and
all other reports and returns required to be filed by it pursuant to any
Regulation. The Company has duly made all deposits required by law to be made
with respect to employees' withholding taxes. The Company has duly paid or
accrued on its books of account all taxes, duties and charges (including
penalties and interest thereon) payable by it, and the amounts established as
provisions for taxes on the Latest Year-End Balance Sheet and the Interim
Balance Sheet are sufficient for the payment of all taxes (including penalties
and interest thereon) due as a result of activities which occurred during
periods covered by the Latest Year-End Balance Sheet and the Interim Balance
Sheet, respectively. The Company has not received any notice of assessment or
deficiency or proposed assessment from or by the IRS or any other taxing
authority in connection with its tax returns or reports and there is no pending
tax examination of or tax claim asserted against the Company or any of the
Assets. There is no tax
17
lien on any of the Assets except for liens for real estate taxes not yet due and
payable. All federal income tax returns filed by the Company have been audited
and/or settled through 1992, and no agreement for the extension of time or
waiver of the statute of limitations for the assessment of any deficiency or
adjustment for any year is in effect. True and correct copies of all federal and
state income tax returns filed by the Company for 1993 and 1994 have been
delivered to Buyer, and the Company has filed federal income tax returns for an
"S corporation" for 1993, 1994 and 1995, and further, any tax liability assessed
against the Shareholder or the Company thereunder or for subsequent periods up
to and including the Closing Date is or will be a personal liability of the
Shareholder.
4.9 UNDISCLOSED LIABILITIES. The Company does not have any
Liabilities except for:
(a) those Liabilities adequately and specifically
set forth or reserved for on the Interim Balance Sheet and not
heretofore paid or discharged;
(b) those Liabilities arising in the ordinary course
of its business consistent with past practice under any Contract
specifically disclosed on the Disclosure Schedule (or not required to
be disclosed because of the term or amount involved); and
(c) those Liabilities incurred, consistent with past
business practice in the ordinary course of its business since the
Interim Balance Sheet Date and not heretofore paid or discharged.
4.10 ACCOUNTS RECEIVABLE. All accounts receivable as set forth
on the Interim Balance Sheet or arising since the Interim Balance Sheet Date (1)
have arisen only in the ordinary course of business consistent with past
practice for goods sold and delivered or services performed and (2) are
collectible in full at the recorded amounts thereof (free of any, and subject to
no, defenses, setoffs, counterclaims, or costs of collection) in the ordinary
course of business (without resort to Litigation or assignment to a collection
agency), but in no event later than 90 days after the Closing Date, net of any
allowance for doubtful accounts reflected in the Interim Balance Sheet.
4.11 INVENTORY. The inventory as set forth on the Interim
Balance Sheet or arising since the Interim Balance Sheet Date was acquired and
has been maintained in accordance with the regular business practices of the
Company, consists of new and used, and unused items of a quality and quantity
usable or saleable in the ordinary course of business of the Company consistent
with past practice, and is valued at reasonable amounts based on the ordinary
course of business of the Company within the past six
18
months at prices equal to the lower of cost or market value on a
first-in-first-out basis. To the best of the Company's Knowledge, none of such
inventory is obsolete, unusable, slow moving, damaged or unsalable in the
ordinary course of the Company's business consistent with past practice.
4.12 TITLE TO ASSETS. Except as set forth on the Disclosure
Schedule, the Company owns outright and has good and marketable title to all of
the Assets, including without limitation the assets and properties set forth on
the Interim Balance Sheet (except for such as may have been disposed of in the
ordinary course of business since the Interim Balance Sheet Date), free and
clear of all Liens except Permitted Liens.
4.13 ALL TANGIBLE ASSETS. The Disclosure Schedule sets forth
accurate lists and summary descriptions of all tangible Assets where the value
of an individual item exceeds $500 or where an aggregate of similar items
exceeds $500, and of all leases, Licenses and other Contracts to which the
Company is a party or is otherwise bound which relate in whole or in part to
such Assets. In the Disclosure Schedule, such Assets listed have been grouped by
type and assigned location. The Assets listed on the Disclosure Schedule
constitute substantially all of the tangible assets used in or necessary to the
conduct of the Businesection
4.14 CONDITION OF ASSETS. All tangible assets and properties
which are part of the Assets and presently used and/or necessary to conduct the
Business are in good operating condition and repair subject to normal wear, and
are usable in the ordinary course of the Business consistent with past practice
and, to the best of the Company's Knowledge, conform in all material respects to
all applicable Regulations relating to their construction, use and operation. To
the best of the Company's Knowledge, there are no developments materially
affecting any such Asset which might curtail the present or future use thereof
for the purpose for which it was acquired. Except pursuant to leases described
on the Disclosure Schedule, no person other than the Company owns any vehicles,
equipment or other tangible Assets situated on the facilities used by the
Company in the Business (other than immaterial items of personal property owned
by the Company's employees) or necessary to the operation of the Businesection
4.15 REAL PROPERTY.
(a) TITLE. All real property (including, without
limitation, all interests in and rights to real property) and
improvements located thereon which are owned or leased by the Company
are listed on the Disclosure Schedule (the "Real Property"). The
Company owns outright, and has good and marketable title to, all of the
Real Property, free and clear of all Liens, except the defects, Liens,
adverse claims and other matters affecting the Company's title to or
possession
19
of the Real Property, expressly set forth in Schedule B to Title
Insurance Policy No. 063056611881 dated September 13, 1994 ("Title
Report") prepared by Ticor Title Insurance Co. attached as part of the
Disclosure Schedule.
(b) OPERATION OF RAILROAD. The Company owns all
right, title and interest in the Real Property and has all permits
necessary to operate the Railroad.
(c) ZONING. To the best of the Company's Knowledge,
there are no existing violations of zoning regulations.
(d) UTILITY SERVICES. To the best of the Company's
Knowledge, the water, electric, gas and sewer utility services and the
septic tank and storm drainage facilities currently available to the
Real Property are adequate for the present use of the Real Property by
the Company in conducting the Business, and there is no condition which
will result in the termination of the present access from the Real
Property to such utility services and other facilities.
(e) ACCESS. To the best of the Company's Knowledge:
(i) the Company has obtained all Licenses and rights-of-way, including
proof-of-dedication, over the Real Property or from private parties,
necessary to ensure vehicular and pedestrian ingress and egress to and
from the Real Property and, (ii) there are no restrictions on entrance
to or exit from the Real Property to adjacent public streets and no
conditions which will result in the termination of the present access
from the Real Property to existing highways and roads.
(f) ASSESSMENTS OR HAZARDS. The Company has received
no written notices, from any governmental body that the assessed value
of the Real Property has been determined to be greater than that upon
which county, township or school tax was paid for the 1995 tax year
applicable to each such tax, or from any insurance carrier of the
Company of fire hazards with respect to the Real Property.
(g) EMINENT DOMAIN. The Company has received no
notices, oral or written, and has no reason to believe, that any
governmental body having jurisdiction over the Real Property intends to
exercise the power of eminent domain or a similar power with respect to
all or any part of the Real Property.
(h) NO VIOLATIONS. The Company has received no
notices, oral or written, from any governmental body, and has no reason
to believe, that the Real Property or any improvements erected or
situate thereon, or the uses conducted
20
thereon or therein, violate any Regulations of any governmental body
having jurisdiction over the Real Property.
(i) IMPROVEMENTS. To the best of the Company's
Knowledge, the improvements located on the Real Property are in good
condition and are structurally sound, and all mechanical and other
systems located therein and presently used in the Business are in good
operating condition, subject to normal wear, and no condition exists
requiring material repairs, alterations or corrections.
(j) ENVIRONMENTAL MATTERS. To the best of the
Company's Knowledge, no Hazardous Substances or materials subject to
governmental regulation have been disposed of or otherwise come to be
located upon or beneath the Real Property. Except as provided in the
Disclosure Schedules and to the best of the Company's Knowledge, the
Real Property has not been investigated by any governmental
environmental agency, Board of Health or the public media for, and the
Company has received no inquiry from any governmental environmental
agency, Board of Health or the public media with respect to, possible
storage or disposal of any such Hazardous Substances or any such
materials subject to regulation by the Nuclear Regulatory Commission.
4.16 CONTRACTS.
(a) The Disclosure Schedule sets forth complete and
accurate lists or descriptions of:
(1) all Employee Benefit Plans; and
(2) all consents or approvals required
under any Contracts that are
necessary for the Shareholder to
complete the Acquisition or to avoid
a Default under such Contracts
arising from the Acquisition.
(b) Except as set forth on the Disclosure Schedule,
none of the Assets is leased by the Company from any third party,
whether affiliated or unaffiliated with the Company.
(c) Except as set forth on the Disclosure Schedule,
the Company is not a party to any:
(1) Contract with any present or former
employee or consultant;
(2) Contract for the future purchase of,
or payment for, supplies or products
or services;
21
(3) Contract to sell or supply products
or to perform services;
(4) Representative or sales agency
contract;
(5) Contract limiting or restraining it
from engaging or competing in any
lines of business with any person,
firm, corporation or other entity;
(6) license, franchise, distributorship
or other agreement, including those
which relate in whole or in part to
any ideas, technical assistance or
other know-how of or used by the
Company; or
(7) material Contract not otherwise
disclosed herein.
(d) All of the Contracts (including all customer
Contracts) to which the Company is a party or by which it or any of the
Assets is bound or affected are valid, binding and enforceable in
accordance with their terms. The Company has fulfilled, or taken all
action necessary to enable it to fulfill when due, all of its
obligations under each of such Contracts. All parties to such Contracts
have complied in all material respects with the provisions thereof, no
party is in Default thereunder and no notice of any claim of Default
has been given to the Company. There are, to the best of the Company's
Knowledge, no provisions of, or developments materially affecting, any
such Contract which might prevent the Company from realizing the
benefits thereof whether before or after the completion of the
Acquisition. With respect to any of such Contracts that are leases, the
Company has not received any notice of cancellation or termination
under any option or right reserved to the lessor, or any notice of
Default, thereunder.
4.17 EMPLOYEES. The Disclosure Schedule sets forth the names
and current annual salary rates or current hourly wages of all present employees
of the Company, together with the average number of hours worked per week, the
date of the last salary increase, the date of commencement of employment of each
employee with the Company, or its predecessor, and a summary of salary, bonuses
and other compensation, if any, paid or payable to each of such persons for or
in respect of that portion of the 1996 calendar year ending on the Interim
Balance Sheet Date. The Disclosure Schedule also sets forth the earnings for
each of such employees as reflected on Form W-2 for the 1995 calendar year.
4.18 LICENSES. The Disclosure Schedule sets forth a complete
list of all Licenses used in the operation of the Business
22
or otherwise held by the Company. The Company owns, possesses or lawfully uses
in the operation of its Business all Licenses which are necessary to conduct the
Business as now or previously conducted or to the ownership of the Assets, free
and clear of all Liens. The Company is not in Default, nor has it received any
notice of any claim of Default, with respect to any such License. Except as
otherwise governed by law, all such Licenses are renewable by their terms or in
the ordinary course of business without the need to comply with any special
qualification procedures or to pay any amounts other than routine and nominal
filing fees and will not be adversely affected by the completion of the
Acquisition. No present or former shareholder, director, officer or employee of
the Company or any affiliates of the Company, owns or has any material
proprietary, financial or other interest (direct or indirect) in any License
which the Company owns, possesses or uses to conduct its businesection
4.19 INTELLECTUAL PROPERTY.
(a) To the best of the Company's Knowledge, no
employee of the Company is, or is now expected to be, in default under
any term of any employment contract, agreement or arrangement relating
to any Intellectual Property or noncompetition arrangement, or any
other Contract or any restrictive covenant relating to the right of any
such officer or employee to be employed by the Company because of the
nature of the business conducted or to be conducted by the Company or
relating to the use of any Intellectual Property of others, and the
continued employment of the Company's officers and employees does not
subject the Company to any liability resulting from such a violation.
To the best of the Company's Knowledge, the Intellectual Property of
the Company was developed entirely by its employees during the time
they were employees only of the Company and such Intellectual Property
does not include any inventions of the employees made prior to the time
such employees became employees of the Company nor any Intellectual
Property of any previous employers of such employees.
(b) The Company owns or has a valid right to use the
Intellectual Property being used by the Company to conduct the
Business; and the conduct of the Business as now operated does not, and
to the best of the Company's Knowledge, will not conflict with valid
Intellectual Property rights of others. The Company has not received
any communication alleging that the Company has violated or, by
conducting its business as proposed would violate any of the
Intellectual Property rights of any other person or entity. The Company
does not have any obligation to compensate any person for the use of
any such Intellectual Property rights nor has the Company granted to
any person any license, option or other rights to use in any
23
manner any of the Intellectual Property of the Company, whether
requiring the payment of royalties or not.
(c) All Patents, Copyrights, Trademarks and computer
software used in the Business or owned by the Company are listed in the
Disclosure Schedule.
(d) The computer software of the Company included in
the Intellectual Property functions sufficiently for current operation
of the Business, and is the only software used by the Company in the
conduct of its businesection
4.20 COMPLIANCE WITH REGULATIONS AND COURT ORDERS. The Company
is not in violation of any Court Order or Regulation, and the Assets have not
been used or operated by the Company in violation of any Regulation or Court
Order. All Court Orders to which the Company is a party or subject are described
in the Disclosure Schedule. The Company has made all filings or notifications
required to be made by it under any Regulations applicable to the Company, the
Business or the Assets. Neither the Company, nor, to the best of the Company's
Knowledge, any officer, employee or agent of, nor any consultant to, the
Company, has unlawfully offered, paid, or agreed to pay, directly or indirectly,
any money or anything of value to, or for the benefit of, any individual who is
or was a candidate for public office, or an official or employee of any
governmental or regulatory body or authority or an officer or employee of any
client, customer or supplier of the Company.
4.21 CLAIMS. Except as listed in the Disclosure Schedule, there
is no Litigation pending or threatened against the Company, the Business or the
Assets. To the best of the Company's Knowledge, no claim has been asserted and
no event has occurred that might result in Litigation against the Company, the
Business or the Assets. To the best of the Company's Knowledge, there is no
reasonable basis for any such claim.
4.22 INSURANCE. The Company has provided Buyer with complete
copies (including endorsements) of all applicable insurance policies. The
Disclosure Schedule contains a true and complete description of the insurance
coverage applicable to the Company, the Business and the Assets for the past
five years, including amounts and lines of coverage, loss experience history by
line of coverage for the past five years, and a description of all claims in
excess of $5,000 for the past five years. All insurance coverage applicable to
the Company, the Business and/or the Assets is in full force and effect, is
valid, binding and enforceable in accordance with its terms against the
respective insurers, insures the Company in reasonably sufficient amounts
against all risks usually insured against by persons operating similar
businesses or properties in the localities where such businesses or properties
are located and has been issued by insurers of recognized
24
responsibility. There is no Default under any such coverage nor has there been
any failure to give notice or present any claim under any such coverage in a due
and timely fashion. There are no outstanding unpaid premiums except in the
ordinary course of business and no notice of cancellation or nonrenewal of any
such coverage has been received. To the best of the Company's Knowledge, there
are no provisions in such insurance policies for retrospective premium
adjustments. Neither the Company nor the Shareholder knows or has reason to know
of the occurrence of any event which reasonably might form the basis of any
claim against the Company, the Business or the Assets or which might materially
increase the insurance premiums payable for any such coverage. All liability
policies since May 2, 1992 have been claims made policies and with retroactive
dates of May 2, 1992 except the employers liability policy which has a
retroactive date of May 2, 1995. To the extent there are any occurrences, as
such term is defined in any claims-made policies, the Company shall notify its
insurance carrier(s) of such occurrences prior to the Closing. Except as
disclosed in the Disclosure Schedule, there are no outstanding performance bonds
covering or issued for the benefit of the Company.
4.23 LABOR MATTERS. There are no collective bargaining
agreements between the Company and any labor union or other representative of
employees. No strike, slowdown, picketing or work stoppage by any union or other
group of employees against the Company, or the Assets wherever located, and no
secondary boycott with respect to the Company's products or services, lockout by
the Company of any of its employees or any other labor trouble or other
occurrence, event or condition of a similar character, has occurred or been
threatened.
4.24 PENSION PLANS; EMPLOYEE BENEFIT PLANS.
(a) DISCLOSURE. Except as set forth on the Disclosure
Schedule, there are no Employee Benefit Plans.
(b) DISCLOSED PLANS. With respect to any such
Employee Benefit Plans disclosed, the Company has made all
contributions thereto which have accrued on its financial statements
and other books and records as a liability and the Company has
delivered to the Buyer copies of (1) all documents governing such
Plans, and all amendments thereto, (2) all reports filed by the Company
or Plan officials with respect to such Plans with the United States
Department of Labor, the IRS and any other federal or state regulatory
agency, (3) all summary plan descriptions, notices and other reporting
and disclosure material furnished to participants in any of such Plans,
(4) all actuarial, accounting and financial reports prepared with
respect to any of such Plans, and (5) all currently effective IRS
ruling or determination letters on any of such Plans; however, the
Company has not made a
25
contribution to the Durango & Silverton Narrow Gauge Railroad Company
Pension Plan for the plan year that began January 1, 1995, or the
current plan year that began January 1, 1996. To the extent required
contributions, along with accrued interest and penalties thereon are
payable in connection with such plan, such amounts shall be paid by the
Shareholder.
(c) COMPLIANCE WITH LAW. The provisions of each
Employee Benefit Plan and the administration of each Employee Benefit
Plan are and have been in all material respects in compliance with all
applicable Regulations, and neither the Company nor the Shareholder has
received or is aware of any claim or notice alleging to the contrary
with respect to any Employee Benefit Plan.
(d) TAX OR CIVIL LIABILITY. Neither the Company nor
the Shareholder has participated in any conduct, and neither the
Company nor the Shareholder will participate in any conduct to the
Closing Date or thereafter, that could result in the imposition upon
the Company, the Shareholder or the Buyer of either excise tax under
Section 4975 (relating to prohibited transactions) of the Code, or
civil liability under Section 502(i) of ERISA (also relating to
prohibited transactions).
(e) CLAIMS LIABILITY. There is no action, claim or
demand of any kind (other than routine claims for benefits) which has
been brought or, to the Company's Knowledge, threatened, against any
Employee Benefit Plan or the assets thereof, or against any fiduciary
of any such Plan.
(f) FIDUCIARY APPOINTMENTS AND CONDUCT. There have
not occurred any circumstances by reason of which the Company, the
Shareholder or the Buyer may be liable for:
(1) Appointment by the Company of any
person or entity as a fiduciary with
respect to any Employee Benefit Plan
where such person or entity was
legally disqualified from serving in
such capacity;
(2) Failure by the Company to monitor
the performance of its appointees as
fiduciaries with respect to any
Employee Benefit Plan or failure of
the Company to timely replace any
such fiduciary whose performance
failed to meet the standards imposed
by ERISA with respect to fiduciary
duties; or
(3) Action taken by a fiduciary with
respect to any Employee Benefit Plan
upon the
26
direction of, or with the
acquiescence of, the Company.
(g) MULTI-EMPLOYER PLANS. The Company does not
maintain or participate in, nor has it ever maintained or participated
in, any "multi-employer plans" as defined in Section 3(37) of ERISA.
(h) CONTROLLED GROUPS. The Company is not presently
or potentially liable with respect to any employee benefit plan
sponsored by any entity which, together with the Company, is a member
of a controlled group of corporations within the meaning of Section
414(b) of the Code, a group of trades or businesses under common
control within the meaning of Section 4(c) of the Code, or an
affiliated service group within the meaning of Section 414(m) of the
Code, whether such plan is a single employer plan, a multiple employer
plan or a multi-employer plan. Liability to which reference is made
herein includes, but is not limited to, liability for the underfunding
of such plan, whether or not such plan is terminated; liability for
unamortized funding deficiencies (whether or not waived); liability to
or on account of any multi-employer plan under any circumstances;
penalties, late payment fees or taxes with respect to any plan or the
administration of any plan; or liability with respect to fiduciary
conduct in connection with any such plan.
(i) REPORTING AND DISCLOSURE. The Company has filed
or caused to be filed on a timely basis each and every return, report,
statement, notice, declaration and other documents required by any
governmental agency with respect to each Employee Benefit Plan;
however, the Company has not filed the IRS form 5500 for the Durango &
Silverton Narrow Gauge Railroad Company Pension Plan for the plan year
that began January 1, 1995, or the PBGC Form 1 for that plan for that
plan year. Shareholder shall be obligated to pay any amounts due,
including, without limitation, penalties due related to its failure to
file such statements.
(j) PARTICIPANT AND BENEFICIARY NOTIFICATIONS. The
Company has delivered or caused to be delivered to every participant,
beneficiary and other party entitled to such material, all plan
descriptions, returns, reports, schedules, notices, statements and
similar materials.
4.25 TRANSACTIONS WITH AFFILIATES. No shareholder or director
or officer of the Company, or any member of his or her immediate family or any
other of its, his or her affiliates, owns or has an ownership interest in any
corporation or other entity other than Hi-Acres, Inc., or its affiliates or
subsidiaries that is or was during the last three years a party to, or in any
property which is or was during the last three years the subject
27
of, Contracts, business arrangements or relationships of any kind with the
Company. No transaction between the Company and the Shareholder or any other
person or affiliate described in this Section 4.25 will continue after Closing
except as disclosed on the Disclosure Schedule.
4.26 DELIVERY OF DOCUMENTS. The Company and the Shareholder
have delivered to the Buyer true, correct and complete copies of the Company's
charter documents and By-Laws and all written Contracts and other documents and
summaries of any material oral Contracts (including all amendments, supplements,
modifications or waivers currently in effect) described in this Agreement or in
the Disclosure Schedule.
4.27 NO MATERIAL ADVERSE DEVELOPMENTS. Other than the
retirement of the Shareholder's financial obligations to the Company, since the
Interim Balance Sheet Date, there has been no actual or threatened change in the
Business or, to the best of the Company's Knowledge, any event, condition or
state of facts, that is or might be material and adverse to the Company, the
Business or the Assets.
4.28 MATERIAL TRANSACTIONS. Other than retirement of the
Shareholder's financial obligations to the Company, since the Interim Balance
Sheet Date, the Business has been operated in the manner described in Section 6
and the Company has not taken any action that would have been prohibited by
Section 6 had that Section been effective since the Interim Balance Sheet Date.
4.29 HAZARDOUS WASTE. The Company does not now, nor has it
ever, generated, transported, stored, disposed of or treated solid wastes, or
Hazardous Substances within the meaning of any applicable Regulation in
violation of Applicable Law. The Company has provided to the Buyer true and
correct copies of all permits, filings and related correspondence with, to or
from any environmental or safety agency.
4.30 ADDITIONAL INFORMATION. The Disclosure Schedule contains
accurate lists and summary descriptions of the following:
(a) other than the loan to the Shareholder from the
Company, all accounts receivable of the Company reflected on the
Interim Balance Sheet, specifying in each case the account debtor and
the face amount of each receivable and reconciling the aggregate value
of all accounts receivable as of the Interim Balance Sheet Date to the
amount of such category set forth on the Interim Balance Sheet;
(b) all accounts payable and accrued expenses of the
Company reflected on the Interim Balance Sheet, specifying in each case
the payee, the face amount of each payable, the age of each payable
regardless of classification on the
28
balance sheet account, any defenses, setoffs or counterclaims that may
exist with respect thereto, and reconciling the aggregate value of all
accounts payable as of the Interim Balance Sheet Date to the amount of
such category set forth on the Interim Balance Sheet;
(c) the names of all present officers and directors
of the Company;
(d) the names and addresses of every bank and other
financial institution in which the Company maintains an account
(whether checking, savings or otherwise), lock box or safe deposit box,
and the account numbers and names of persons having signing authority
or other access thereto;
(e) the names of all persons authorized to borrow
money or incur or guarantee indebtedness on behalf of the
Company; and
(f) the names of all persons holding powers of
attorney from the Company and a summary statement of the terms thereof.
4.31 CORPORATE RECORDS. The minute books of the Company are
current and contain correct and complete copies of all charter documents of the
Company, including all amendments thereto and restatements thereof, and of all
minutes of meetings, resolutions and other actions and proceedings of its
shareholders and board of directors and all committees thereof, duly signed by
the Secretary or an Assistant Secretary, and the stock record book of the
Company is also current, correct and complete and reflects the issuance of all
of the Shares to the Shareholder.
4.32 LIMITED MANUFACTURING/PRODUCT WARRANTIES. The Company
does not manufacture and has not manufactured any product for sale, except in
the ordinary course of its business, and there are no warranties, express or
implied, written or oral, with respect to the products of the Business, and
there are no pending or threatened claims with respect to any such warranty, and
the Company has no liability with respect to any such warranty, whether known or
unknown, absolute, accrued, contingent or otherwise, and whether due or to
become due.
4.33 NO GOVERNMENTAL APPROVALS REQUIRED. The transactions
contemplated by this Agreement will not require the approval of the Interstate
Commerce Commission.
4.34 PARTICULATE AIR EMISSIONS. To the best of the Company's
Knowledge, the amount of particulate air emissions and volatile organic
compounds generated by the Company do not violate Colorado clean air standards
and do not require that the Company obtain a permit to generate such emissions.
29
4.35 ON THE JOB CLAIMS. To the best of the Company's
Knowledge, there are no pending or contingent employee on-the-job injury claims
regardless of the basis under which such a claim may be asserted.
4.36 XXXXXXXX XXXX FIRE. There is no contingent or actual
liability to the Company based on the Xxxxxxxx Xxxx Fire.
4.37 RAILROAD CARS. The purchase by Buyer of the Shares will
not trigger the repurchase option for the Cinco Animas and Nomad railroad cars
contained in that certain Agreement for Sale of Railroad Cars dated August 4,
1982 between the Cinco Animas Corporation and the Company.
4.38 FULL DISCLOSURE. There are and will be no materially
misleading misstatements in any of the representations and warranties made by
the Shareholder in this Agreement or in any of the certificates and instruments
delivered or to be delivered by the Company or the Shareholder pursuant to this
Agreement, including (without limitation) in the Disclosure Schedule, and the
Shareholder has not omitted to state any fact necessary to make such
representations and warranties not materially misleading.
4.39 ROADBED AND BRIDGE. To the best of Company's Knowledge,
nothing has come to the attention of the Company that would materially adversely
impact the findings of the inspection report of Xxxxxx & Xxxxxx of May 30, 1996,
regarding the structural soundness and sufficiency of the railroad bed and
bridges.
5. REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer hereby
represents and warrants to the Company and the Shareholder as follows:
5.1 ORGANIZATION AND STANDING. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of Nevada,
having all requisite corporate power and authority to perform its obligations
under this Agreement.
5.2 AUTHORITY AND BINDING EFFECT. The Buyer has the corporate
power and authority to execute, deliver and perform this Agreement and has taken
all actions necessary to secure all approvals required in connection therewith.
The execution, delivery and performance of this Agreement by the Buyer has been
duly authorized by all necessary corporation action. This Agreement constitutes
the legal, valid and binding obligation of the Buyer, enforceable against it in
accordance with its terms.
5.3 VALIDITY OF CONTEMPLATED TRANSACTIONS. Neither the
execution and delivery of this Agreement by the Buyer nor the consummation of
the transactions contemplated hereby by the Buyer will contravene or violate any
Regulation or Court Order which is applicable to the Buyer, or the Articles of
Incorporation or
30
By-Laws of the Buyer, or will result in a Default under any Contract to which
the Buyer is a party or by which it is otherwise bound.
5.4 CAPITALIZATION AND SHARE OWNERSHIP. The Buyer's authorized
capital stock consists of 100,000,000 shares of common stock, par value $.001
per share. There are 9,061,078 shares of the Buyer's common stock presently
issued and outstanding (subject to (i) the further issuance of shares in
connection with the proposed capital financing to raise funds to consummate this
transaction and (ii) the exercise of stock options, warrants and convertible
notes). All of the shares of Buyer's common stock to be issued to the
Shareholder in accordance with this Agreement have been duly authorized and,
when issued, will be validly issued, fully paid and nonassessable, will not be
issued in violation of the terms of any Contract binding upon the Buyer, and
will be issued in compliance with all applicable charter documents of the Buyer
and all applicable federal and state securities or "blue sky" laws and
regulations.
5.5 COMPLIANCE WITH REGULATIONS. Buyer is validly formed and is
in good standing in the State of Nevada, is operating in accordance with
applicable Regulations, and has made or will make all filings, disclosures and
notifications required by such Regulations to consummate this transaction.
6. CONDUCT OF BUSINESS PENDING CLOSING. Until the Closing or earlier
termination of this Agreement, except as may be approved by the Buyer in writing
or as otherwise expressly provided in this Agreement, the Shareholder shall
cause the Company to:
(a) operate the Business only in the ordinary course and in
substantially the same manner as it has been operated in the past and
not sell any of the Assets except for sales from inventory in the
ordinary course of business;
(b) not issue, repurchase or redeem or commit to issue,
repurchase or redeem, any shares of its capital stock, or other rights
to acquire such stock or any securities convertible into or
exchangeable for such stock;
(c) not declare or pay any dividend on, or make any other
distribution with respect to, the Shares other than for purposes of
retirement of Shareholder obligations to the Company, or distributions
no greater than the amount allocable to a shareholder of an S
corporation under Section 1366(a) of the Code for calendar year 1996
and the days of calendar year 1997 that precede the Closing Date;
provided, however, that (i) cash shall not be distributed unless a
sufficient amount of cash remains to satisfy the contingent liabilities
of the Company, in full, and (ii) no assets, other than cash, shall be
liquidated, paid or distributed;
31
(d) not (1) incur any additional amount of long or short-term
debt for money borrowed, (2) guarantee or agree to guarantee the
obligations of others, (3) indemnify or agree to indemnify others, or
(4) incur any other Liabilities other than those incurred in the
ordinary course of business consistent with past practice;
(e) keep in full force and effect insurance covering the
Company, the Assets and the Business comparable in amount and scope of
coverage to that now maintained;
(f) maintain the tangible Assets in their current condition
and working order, ordinary wear and tear excepted;
(g) use its reasonable efforts to retain the Company's
employees and maintain the Business so that such employees will remain
available to the Company on and after the Closing Date and to maintain
existing relationships with suppliers, customers and others having
business dealings with the Company and otherwise to preserve the
goodwill of the Business so that such relationships and goodwill will
be preserved on and after the Closing Date;
(h) not amend its Articles of Incorporation or By-Laws;
(i) not merge with or into any other corporation or sell,
assign, transfer, pledge or encumber any part of the Assets or agree to
do any of the foregoing;
(j) not enter into any Contract that is material, nor permit
any amendment or termination of any material Contract;
(k) not waive any rights of value or rights that would
otherwise accrue to the Company after the Closing Date;
(l) not increase the salaries of, or make any bonus or similar
payments to or establish or modify any Employee Benefit Plans for, any
of the Company's directors, officers or employees or enter into or
modify any employment, consulting or similar Contracts with any such
persons or agree to do any of the foregoing;
(m) continue to maintain all Employee Benefit Plans in
accordance with applicable Regulations, and ensure that no Employee
Benefit Plan, nor any trust related thereto, shall be amended or
terminated prior to the Closing Date, except for any such amendment as
may be required to comply with applicable Regulations;
(n) collect its accounts receivable in the ordinary course of
business consistent with past practice;
32
(o) pay its accounts payable in the ordinary course of
business consistent with past practice and not fail to pay or discharge
when due any Liabilities;
(p) use its best efforts to help the Shareholder complete the
Acquisition and obtain the satisfaction of the conditions specified in
Section 9;
(q) promptly notify the Buyer of any Default, the threat or
commencement of any Litigation, or any development that occurs before
the Closing that could in any way materially affect the Company, the
Assets or the Business;
(r) use its best efforts to obtain any consents or approvals
required under any Contracts (including customer Contracts) or
otherwise that are necessary to complete the Acquisition to avoid a
Default under any such Contracts;
(s) comply with all Regulations applicable to it and to the
conduct of its business;
(t) provide the Buyer with such financial and other reports of
the Business as may be reasonably requested;
(u) not make any capital expenditures in excess of $500;
(v) (1) give to the Buyer's officers, employees, counsel,
accountants and other representatives free and full access to and the
right to inspect, during normal business hours and upon reasonable
notice, all of the Assets, records, Contracts (including customer
Contracts) and other documents relating to the Business, (2) permit
them to consult with the officers, employees, accountants, counsel and
agents of the Company for the purpose of making such investigation of
the Company, the Business and the Assets and the Buyer shall desire to
make, provided that such investigation shall not unreasonably interfere
with the Company's business operations, and (3) make available to the
Buyer all such documents and copies of documents and records and
information with respect to the Company's affairs and copies of any
working papers relating thereto as the Buyer shall from time to time
reasonably request; and
(w) promptly disclose to the Buyer in writing any information
set forth in the Disclosure Schedule hereto which no longer is correct
and any information of the nature of that set forth in the Disclosure
Schedule which arises after the date hereof and which would have been
required to be included in the Disclosure Schedule if such information
had been obtained on the date hereof.
33
7. SURVIVAL OF REPRESENTATION AND WARRANTIES. All of the
representations, warranties, covenants and agreements made by each party in this
Agreement or in any attachment, exhibit, the Disclosure Schedule, certificate,
document or list delivered by any such party pursuant hereto or in connection
with the Acquisition shall survive the Closing and each party hereto shall be
entitled to rely upon the representations and warranties of the other party set
forth in this Agreement for a period of one year following Closing.
8. INDEMNIFICATION.
8.1 INDEMNIFICATION OBLIGATIONS.
(a) The Shareholder (an "indemnifying party") shall
indemnify and hold harmless the Buyer, and the Buyer (another
"indemnifying party") shall indemnify and hold harmless the Shareholder
from, against and in respect of any and all damages, losses,
deficiencies, liabilities, costs, claims and expenses resulting from,
relating to or arising out of any (1) misrepresentation, (2) breach of
warranty or (3) non-fulfillment of any agreement or covenant on the
part of such indemnifying party or parties hereunder.
(b) Notwithstanding anything herein to the contrary,
the Shareholder shall also indemnify and hold harmless the Buyer and
each person who "controls" the Buyer within the meaning of the
Securities Act of 1933, as amended, and each officer and director of
the Buyer and any such controlling person, at all times after the date
hereof from and against:
(1) any claim by any former shareholder
of the Company involving the
transactions contemplated hereby or
any prior transaction involving any
shares of capital stock of the
Company or any predecessor
corporation;
(2) without limiting the generality of
anything contained in this Section
8.1, any and all damages, losses,
deficiencies, liabilities, costs and
expenses of, or claims against, the
Buyer, or the Company, resulting
from, relating to or arising out of
the business, operations or assets
of the Company prior to the Closing
Date or the actions or omissions of
the Company's officers, directors,
shareholders, employees or agents
prior to the Closing Date
(including, without limitation, any
34
liability relating to, and any claim
which arises out of or is based
upon, negligence, strict liability,
or any express or implied
representation, warranty, agreement
or guarantee made by or on behalf of
the Company, or alleged to have been
made by or on behalf of the Company,
or which is imposed or asserted to
be imposed on the Company by
operation of law, in connection with
any product designed, used, rented,
sold, manufactured, shipped or
installed by or on behalf of the
Company, or for any service
performed by or on behalf of the
Company, in any case prior to the
Closing Date and irrespective of the
date that any claim, suit or other
cause of action related to any of
the foregoing is filed or otherwise
instituted against the Company;
provided, however, that the
foregoing shall not apply to the
Liabilities of the Company disclosed
on the Disclosure Schedule or
referred to in Section 4.9(a)
through (c)); and
(3) any and all costs, judgments,
claims, actions at law or in equity,
interest charges and reasonable
attorneys' fees with respect to any
cause of action or proceeding, by
any participant or dependent or
beneficiary of any participant,
arising out of or by reason of the
sponsorship by the Company of any
Employee Benefit Plan or Pension
Plan prior to the Closing Date.
(c) The maximum aggregate liability of Shareholder
under subsections (a) and (b) above shall be $4,000,000.
(d) Notwithstanding anything herein to the contrary,
Buyer shall indemnify and hold harmless the Shareholder, at all times
after the Closing Date from and against:
(1) any and all damages, losses,
deficiencies, liabilities, costs and
expenses of, or claims against, the
Shareholder, resulting from,
relating to or arising out of the
business, operations or assets of
the Company after the Closing Date
or the actions or omissions
occurring after the Closing
35
Date of the Company's officers,
directors, shareholders, employees
or agents; and
(2) any and all costs, judgments,
claims, actions at law or in equity,
interest charges and reasonable
attorneys' fees with respect to any
cause of action or proceeding, by
any participant or dependent or
beneficiary of any participant,
arising out of or by reason of the
sponsorship by the Company of any
Employee Benefit Plan or Pension
Plan after the Closing Date.
(d) Each indemnifying party or parties hereto will
indemnify and hold harmless the indemnified party or parties hereto
from, against and in respect of any and all actions, suits,
proceedings, demands, assessments, judgments, costs (including
attorneys' fees at the arbitration, pre-trial, trial and appellate
levels) and legal and other expenses incident to any of the foregoing
or to the enforcement of this Section 8.
8.2 METHOD OF ASSERTING CLAIMS, ETC. All claims for
indemnification under this Section 8 shall be asserted and resolved as
follows:
(a) In the event that any claim or demand for which
the Shareholder would be liable to the Buyer hereunder is asserted
against or sought to be collected by a third party, the Buyer shall
promptly notify the Shareholder of such claim or demand, specifying the
nature of such claim or demand and the amount or the estimated amount
thereof to the extent then feasible (which estimate shall not be
conclusive of the final amount of such claim or demand) (the "Claim
Notice"). The Shareholder shall have twenty days from its receipt of
the Claim Notice (the "Notice Period") to notify the Buyer (1) whether
or not the Shareholder disputes his liability to the Buyer hereunder
with respect to such claim or demand, and (2) if he does not dispute
such liability, whether or not he desires, at his sole cost and
expense, to defend the Buyer against such claim or demand; provided,
however, that the Buyer is hereby authorized prior to and during the
Notice Period to file any motion, answer or other pleading which it
shall deem necessary or appropriate to protect its interests. In the
event that the Shareholder notifies the Buyer within the Notice Period
that he does not dispute such liability and desires to defend against
such claim or demand, then except as hereinafter provided, the
Shareholder shall have the right to defend by appropriate proceedings,
which proceedings shall be timely settled or prosecuted to a final
conclusion in such a
36
manner as to reasonably avoid any risk of the Buyer becoming subject to
liability for any other matter. If the Buyer desires to participate in,
but not control, any such defense or settlement it may do so at its
sole cost and expense. If, in the reasonable opinion of the Buyer, any
such claim or demand involves an issue or matter which could have a
materially adverse effect on the business, operations, assets,
properties or prospects of the Business or any division of the Buyer or
an affiliate of the Buyer, the Buyer shall have the right to control
the defense or settlement of any such claim or demand, and its
reasonable costs and expenses thereof shall be included as part of the
potential indemnification obligations of the Shareholder hereunder. If
the Shareholder disputes his liability with respect to such claim or
demand or elects not to defend against such claim or demand, whether by
not giving timely notice as provided above or otherwise, then the
amount of any such claim or demand, or, if the same be contested by the
Buyer (but the Buyer shall not have any obligation to contest any such
claim or demand), then that portion thereof as to which such defense is
unsuccessful, shall be conclusively deemed to be a liability of the
Shareholder hereunder (subject, if the Shareholder has timely disputed
liability, to a determination that the disputed liability is covered by
these indemnification provisions).
(b) In the event that the Buyer should have a claim
against the Shareholder hereunder which does not involve a claim or
demand being asserted against or sought to be collected from it by a
third party, the Buyer shall promptly send a Claim Notice with respect
to such claim to the Shareholder. If the Shareholder does not notify
the Buyer within the Notice Period that he disputes such claim, the
amount of such claim shall be conclusively deemed a liability of the
Shareholder hereunder.
(c) All claims for indemnification made by the
Shareholder under this Section 8 shall be asserted and resolved under
the procedures set forth above in this Section 8.2 by substituting, as
appropriate, "the Buyer" for "Shareholder" and "Shareholder," as
appropriate, for "the Buyer."
8.3 PAYMENT.
(a) In the event that any party is required to make
any payment under this Section 8, such party shall promptly pay the
indemnified party the amount so determined. If there should be a
dispute as to the amount or manner of determination of any indemnity
obligation owed under this Section 8, the party from which
indemnification is due shall nevertheless pay when due such portion, if
any, of the obligation as shall not be subject to dispute. The
difference,
37
if any, between the amount of the obligation ultimately determined as
properly payable under this Section 8 and the portion, if any,
theretofore paid shall bear interest as provided in Section 8.3(c).
Upon the payment in full of any claim, either by setoff or otherwise,
the party or entity making payment shall be subrogated to the rights of
the indemnified party against any person, firm, corporation or other
entity with respect to the subject matter of such claim.
(b) The payment of such item as to which the Buyer is
entitled to payment under this Section 8 shall be the obligation of the
Shareholder and the Shareholder shall make full and prompt payment of
any and all such items to the Buyer.
(c) If all or part of any indemnification obligation
under this Agreement is not paid when due, then the indemnifying party
or parties shall pay the indemnified party or parties Interest at the
Interest Rate on the unpaid amount of the obligation for each day from
the date the amount became due until payment in full, payable on
demand.
8.4 SERVICE OF PROCESS, CONSENT TO JURISDICTION, ETC.
The Shareholder irrevocably and unconditionally (a) agrees that
any suit, action or other legal proceeding arising out of this Agreement may be
brought in the United States District Court for Colorado or if such court does
not have jurisdiction or will not accept jurisdiction, in any court of general
jurisdiction in Denver County, Colorado, (b) consents to the jurisdiction of any
such court in any suit, action or proceeding; and (c) waives any objection which
the Shareholder may have to the laying of venue of any such suit, action or
proceeding in any such court.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE BUYER. Subject to waiver
as set forth in Section 11.10, the obligations of the Buyer under this Agreement
are subject to the fulfillment prior to or at the Closing of each of the
following conditions:
9.1 REPRESENTATIONS TRUE AT CLOSING. The representations and
warranties of the Shareholder set forth in Section 4 shall be true and correct
on the Closing Date with the same effect as if made at that time.
9.2 PERFORMANCE BY THE SHAREHOLDER. The Shareholder shall have
performed and satisfied all agreements and conditions that they are required by
this Agreement to perform or satisfy prior to or on the Closing Date.
9.3 CERTIFICATE(S). The Buyer shall have received
certificate(s) from the Shareholder dated the Closing Date certifying in such
detail as the Buyer may reasonably request that
38
each of the conditions described in Sections 9.1 and 9.2 has been fulfilled.
9.4 FORM AND CONTENT OF DOCUMENTS. The form and content of all
documents, certificates and other instruments to be delivered by the Shareholder
shall be reasonably satisfactory to the Buyer.
9.5 OPINION OF COUNSEL. The Buyer shall have received the
written opinion dated the Closing Date of Zimmerman, Shuffield, Xxxxx &
Xxxxxxxxx, P.A., counsel for the Shareholder, in form and substance reasonably
satisfactory to both said firm and the Buyer.
9.6 LITIGATION AND OTHER MATTERS AFFECTING CLOSING. No Court
Order shall have been issued or entered which would be violated by the
completion of the Acquisition. No person who or which is not a party to this
Agreement shall have commenced or threatened to commence any Litigation seeking
to restrain or prohibit, or to obtain substantial damages in connection with,
this Agreement or the transactions contemplated by this Agreement, no Litigation
shall be pending against the Company and the PUC Approval, if required, shall
have been obtained; if any injunction, cease and desist order or other
restraining order or decree has been issued by any court or governmental body
against the Company and/or the Shareholder which seeks to prevent the transfer
contemplated by the Agreement, or attempts to seize the Assets of the Company or
materially restricts the day-to-day business operations of the Company, or PUC
Approval has not been obtained, if required, then, Buyer shall extend the
Closing Date for a reasonable period of time (not to exceed 90 days) to allow
Shareholder an opportunity to dissolve such injunction or order, and/or to allow
Buyer to obtain such PUC Approval. Shareholder and/or Buyer shall each use its
best efforts, including the bringing of any lawsuit, to dissolve such injunction
or order, or obtain such PUC Approval. If the injunction or order or PUC
Approval have not been resolved in a manner satisfactory to Buyer, in its sole
discretion, within such 90-day period, Buyer may terminate this Agreement. If
this Agreement is terminated pursuant to the provisions hereof, the Deposit,
together with interest thereon at the Interest Rate from the date paid to
Shareholder shall be immediately delivered by Shareholder to Buyer.
9.7 MATERIAL ADVERSE CHANGES. From the date hereof to the
Closing Date, neither the Company, the Business nor the Assets shall have been
materially adversely affected in any way, including, without limitation, by
fire, casualty, act of God or otherwise. There shall be no conditions existing
or threatened with respect to the Company, the Business or the Assets that might
be expected to have a material adverse effect on any of them.
9.8 REGULATORY COMPLIANCE AND APPROVALS. Except for PUC
Approval, the Buyer shall be satisfied that all approvals required
39
under any Regulations to carry out the Acquisition shall have been obtained and
that the parties shall have complied with all Regulations applicable to the
Acquisition.
9.9 CONSENTS. Except for PUC Approval, the Shareholder, or the
Company shall have delivered to the Buyer all consents required to be obtained
in connection with the Acquisition in order to avoid a Default under any
Contract (including any customer Contract) to or by which the Company is a party
or may be bound. The Company shall be free from burdensome restrictions and
conditions not applicable to the Company prior to the date of this Agreement.
9.10 BUYER REVIEW. The Buyer shall have completed and be
satisfied with its confidential review of the business, management, finances and
accounts receivable of the Company.
9.11 ESCROW AGREEMENT. The Buyer, the Shareholder and the
Escrow Agent shall have entered into the Escrow Agreement.
9.12 REGISTRATION RIGHTS AGREEMENT. The Buyer and the
Shareholder shall have entered into the Registration Rights Agreement.
9.13 CONSENTS AND APPROVALS. The Company shall have obtained
all consents and approvals necessary to complete the Acquisition and related
transactions.
9.14 LICENSES. All Licenses applicable to the Company and the
Business shall be in full force and effect and the consummation of the
transactions contemplated hereunder shall not constitute a default thereunder or
affect the operation of the Company or the Businesection
9.15 ENVIRONMENTAL LIABILITY. The total cost of the Remedial
Work, plus the Expenses (as defined in Section 2.6 hereof) will not exceed
$500,000.
9.16 SATISFACTION. The Loan shall be satisfied by Buyer at
Closing as provided in the Closing Payment as defined in Section 1.
9.17 ANCILLARY DOCUMENTS. Each entity other than the Buyer
which is a party to any of the Ancillary Documents shall have executed and
delivered such of the Ancillary Documents as it is a party thereto.
If the conditions precedent to the obligations of the Buyer to
close have not been satisfied on or before the Closing Date or the Extended
Closing Date, as applicable, Buyer may either (i) waive such condition(s)
precedent and proceed to close or (ii) terminate the Agreement.
40
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SHAREHOLDER. Subject to
waiver as set forth in Section 11.10, the obligations of the Shareholder under
this Agreement are subject to the fulfillment prior to or at the Closing of each
of the following conditions:
10.1 BUYER REPRESENTATIONS TRUE AT CLOSING. The representations
and warranties of the Buyer set forth in Section 5 shall be true and correct on
the Closing Date with the same effect as if made at that time.
10.2 PERFORMANCE BY THE BUYER. The Buyer shall have performed
and satisfied all agreements and conditions which it is required by this
Agreement to perform or satisfy prior to or on the Closing Date.
10.3 OFFICER'S CERTIFICATE. The Shareholder shall have received
a certificate from an appropriate officer of the Buyer dated the Closing Date
certifying in such detail as the Shareholder may reasonably request that each of
the conditions described in Sections 10.1 and 10.2 has been fulfilled.
10.4 INCUMBENCY CERTIFICATE. The Shareholder shall have received
a certificate of the Secretary or an Assistant Secretary of the Buyer dated the
Closing Date certifying as to the incumbency of the officers of the Buyer
signing for it and as to the authenticity of their signatures.
10.5 FORM AND CONTENT OF DOCUMENTS. The form and content of all
documents, certificates and other instruments to be delivered by the Buyer shall
be reasonably satisfactory to the Shareholder.
10.6 OPINION OF COUNSEL. The Shareholder shall have received the
written opinion of Olle, Macaulay & Zorrilla, P.A., counsel for the Buyer, dated
the Closing Date, in form and substance reasonably satisfactory to both said
firm and the Shareholder.
10.7 LITIGATION AFFECTING CLOSING. No Court Order shall have
been issued or entered which would be violated by the completion of the
Acquisition. No person who or which is not a party to this Agreement shall have
commenced or threatened to commence any Litigation seeking to restrain or
prohibit, or to obtain substantial damages in connection with, this Agreement or
the transactions contemplated by this Agreement.
10.8 REGULATORY COMPLIANCE AND APPROVAL. The Shareholder shall
be satisfied that all approvals required under any Regulations to carry out the
acquisition shall have been obtained and that the parties have complied with all
Regulations applicable to the Acquisition.
41
10.9 ANCILLARY DOCUMENTS. The Buyer and any other applicable
person or entity shall have executed and delivered each of the Ancillary
Documents to which it is a party.
10.10 MATERIAL ADVERSE CHANGES. From the date hereof to the
Closing Date, the Buyer has not been materially adversely affected in any way.
There shall be no conditions existing or threatened with respect to the Buyer
that might be expected to have a material adverse effect upon the Buyer.
10.11 ESCROW AGREEMENT. The Buyer, the Shareholder and the
Escrow Agent shall have entered into the Escrow Agreement.
10.12 REGISTRATION RIGHTS AGREEMENT. The Buyer and the
Shareholder shall have entered into the Registration Rights Agreement.
10.13 SATISFACTION. The Loan shall be satisfied by Buyer at
Closing as provided in the Closing Payment as defined in Section 1.
11. MISCELLANEOUS.
11.1 NONCOMPETITION. From the Closing Date until the end of the
third year following the Closing Date (the "Noncompete Period"), the
Shareholder, unless acting in accordance with the Buyer's prior written consent,
will not (directly or indirectly), own, manage, operate, join, control, finance
or participate in the ownership, management, operation, control or financing of,
or be connected as an officer, director, employee, principal, agent,
representative, consultant, investor, owner, partner, manager, joint venturer or
otherwise with, or permit his name to be used by or in connection with, or
lease, sell or permit to use any real property or interest therein owned by the
Shareholder, for use in, any competing business or enterprise engaged in the
railroad business in the United States; provided, however, that the provisions
of this Section 11.1 shall not be deemed to prohibit the ownership by the
Shareholder, of not more than five percent of any class of securities of any
corporation having a class of securities registered pursuant to the Securities
Exchange Act of 1934. the Shareholder acknowledges that (1) the provisions of
this Section 11.1 are reasonable and necessary to protect the legitimate
interests of the Buyer, (2) any violation of this Section 11.1 will result in
irreparable injury to the Buyer and the Company and that damages at law would
not be reasonable or adequate compensation to the Buyer and the Company for a
violation of this Section 11.1, and (3) the Buyer and the Company shall be
entitled to have the provisions of this Section 11.1 specifically enforced by
preliminary and permanent injunctive relief without the necessity of proving
actual damages and without posting bond or other security. In the event that the
provisions of this Section 11.1 should ever be deemed to exceed the time,
geographic, product or
42
any other limitations permitted by applicable law, then such provisions shall be
deemed reformed to the maximum permitted by applicable law.
11.2 NONSOLICITATION. the Shareholder agrees that, for the
Noncompete Period, he will not (directly or indirectly) call on or solicit for
the purpose of operating a company involved in the railroad business, or divert
or take away from the Company the business of (including, without limitation, by
divulging to any competitor or potential competitor of the Company or the Buyer
the name of), any person, firm, corporation or other entity who or which at the
Closing Date was, or at any time during the three years preceding the Closing
Date had been, a customer of the Company whose identity is known to the
Shareholder at the Closing Date as one whom the Company intends to solicit
within the succeeding year. Nothing contained in this Section 11.2 shall be
deemed to limit or impair, or be limited or impaired by, the provisions of
Section 11.1.
11.3 HIRING OF THE COMPANY'S EMPLOYEES. During the Noncompete
Period, the Shareholder will not (directly or indirectly) hire, offer or solicit
employment to any employee of the Company whose employment is continued by the
Company or the Buyer after the Closing Date, unless the Company or the Buyer
first terminates the employment of such employee. Nothing contained in this
Section 11.3 shall be deemed to affect in any manner any other provision of this
Agreement.
11.4 PAYMENT OF EXPENSES. The Shareholder and the Buyer will
each pay all legal, accounting and other fees and expenses which such party
incurs in connection with this Agreement and the transactions contemplated
hereby, and none of the expenses of the Shareholder shall be paid by the Company
or out of any of the Assets; provided, however, that if this Agreement is
legitimately terminated by Buyer pursuant to Section 11.6 or if the failure to
satisfy a condition of Closing arises out of the breach, existing at the time of
the execution of this Agreement, of a representation or warranty contained in
this Agreement, the Buyer shall be entitled to receive from the Shareholder
reimbursement of all third party expenses of the Buyer incurred between the date
of this Agreement and the date of termination.
11.5 TERMINATION BY MUTUAL CONSENT. This Agreement may be
terminated at any time on or prior to the Closing Date by mutual consent of the
Shareholder and the Buyer.
11.6 TERMINATION FOR BREACH. The Buyer may terminate its
obligations under this Agreement at any time prior to the Closing Date if the
Shareholder shall have breached any of its representations, warranties or other
obligations under this Agreement in any material respect. The Shareholder may
likewise terminate his obligations under this Agreement at any time prior to
43
the Closing Date if the Buyer shall have breached any of its representations,
warranties or other obligations under this Agreement in any material respect.
Such termination may be effected by written notice from either the Buyer or the
Shareholder, as appropriate, citing the reasons for termination and shall not
subject the terminating party to any liability for any valid termination.
11.7 BROKERS' AND FINDERS' FEES. The Shareholder and the Buyer
each to the other represents and warrants that all negotiations relative to this
Agreement have been carried on by them directly without the intervention of any
person, firm, corporation or other entity who or which may be entitled to any
brokerage fee or other commission in respect of the execution of this Agreement
or the consummation of the transactions contemplated hereby, and each of them
shall indemnify and hold the other or any affiliate of them harmless against any
and all claims, losses, liabilities or expenses which may be asserted against
any of them as a result of any dealings, arrangements or agreements by the
indemnifying party with any such person, firm, corporation or other entity.
11.8 ASSIGNMENT AND BINDING EFFECT. This Agreement may not be
assigned prior to the Closing by either party hereto without the prior written
consent of the other party. Subject to the foregoing, all of the terms and
provisions of this Agreement shall be binding upon and inure to the benefit of
and be enforceable by the heirs, executors, legal representatives, successors
and assigns of the Shareholder and by the successors and assigns of the Buyer.
11.9 WAIVER. Any term or provision of this Agreement may be
waived at any time by the party entitled to the benefit thereof by a written
instrument executed by such party.
11.10 NOTICES. Any notice, request, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given only if delivered personally, or by a
nationally recognized overnight courier service (e.g., Federal Express or United
Parcel Service) to the address set forth below (to the attention of the person
identified below), as follows:
If to Buyer: First American Railways, Inc.
0000 Xxxxxxxxx Xxxxxxxxx
Xxxxxxxxx, Xxxxxxx 00000
Attn: Chief Financial Officer
44
With required
copies to: Olle, Macaulay & Zorrilla, P.A.
0000 Xxxxx Xxxxxx
000 Xxxxx Xxxxxxxx Xxxxxxxxx
Xxxxx, Xxxxxxx 00000
Attention: Xxxxxx X. Xxxx, Esq.
If to the Shareholder Xxxxxxx X. Xxxxxxxx, Xx.
or Xxxxxxx X. Xxxxxxxx, 00000 X. X'Xxxxx Xxxx
Jr.: Xxxxx-Xx-Xxx-Xxxxx, XX 00000
With required
copies to: Xxxxxxxxx Xxxxxxxxx Xxxxx &
Sutcliffe, P.A.
000 X. Xxxxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Attn: Xxxxxxx X. Xxxxxxx, Esq.
If to the Escrow Agent: Olle, Macaulay & Zorrilla, P.A.
0000 Xxxxx Xxxxxx
000 Xxxxx Xxxxxxxx Xxxxxxxxx
Xxxxx, Xxxxxxx 00000
Attn: Xxxxxx X. Xxxx
or to such other address as the addressee may have specified in a notice duly
given to the sender and to counsel as provided herein. Such notice, request,
demand, waiver, consent, approval or other communication will be deemed to have
been given as of the date so delivered or faxed or, if mailed, three business
days after the date so mailed.
11.11 DUTIES OF THE ESCROW AGENT WITH RESPECT TO THE DEPOSIT. In
the event the Escrow Agent is in doubt as to its duties and liabilities under
the provisions of this Agreement, in its sole discretion, the Escrow Agent may
continue to hold the Deposit until the parties mutually agree in writing to
disbursement thereof, or until a judgment of a court of competent jurisdiction
determines the rights of the parties thereto or it may interplead the Deposit
with the Clerk of the Circuit Court of Dade County, Florida. Upon notifying all
parties concerning such action, all liability on the part of the Escrow Agent
will fully cease and terminate, except to account for the Escrow Fund. All
parties agree that the Escrow Agent will not be liable to any party or person
whomsoever for misdelivery to the Buyer or the Shareholder of the Escrow Fund,
unless such misdelivery is due to willful breach of this Agreement or gross
negligence on the part of the Escrow Agent, nor will the Escrow Agent be liable
for the failure of any financial institution in which the Escrow Fund is placed.
The Shareholder and the Buyer agree that the status of the Buyer's counsel as
the Escrow Agent under this Contract does not disqualify such law firm from
representing the Buyer in connection with this transaction and in any dispute
that may arise between the Buyer and
45
the Shareholder concerning this transaction, including any dispute or
controversy with respect to the Escrow Fund.
11.12 FLORIDA LAW TO GOVERN. This Agreement shall be governed
by and interpreted and enforced in accordance with the substantive laws of
Florida.
11.13 NO BENEFIT TO OTHERS. The representations, warranties,
covenants and agreements contained in this Agreement are for the sole benefit of
the parties hereto and the Company and their heirs, executors, legal
representatives, successors and assigns, and they shall not be construed as
conferring and are not intended to confer, any rights on any other persons.
11.14 CONTENTS OF AGREEMENT. This Agreement, together with any
documents referred to herein, sets forth the entire agreement of the parties
hereto with respect to the transactions contemplated hereby. This Agreement may
not be amended except by an instrument in writing signed by the parties hereto,
and no claimed amendment, modification, termination or waiver shall be binding
unless in writing and signed by the party against whom such claimed amendment,
modification, termination or waiver is sought to be enforced.
11.15 SECTION HEADINGS AND GENDER. All section headings and the
use of a particular gender are for convenience only and shall in no way modify
or restrict any of the terms or provisions hereof. Any reference in this
Agreement to a Section, Exhibit or Disclosure Schedule shall be deemed to be a
reference to a Section, Exhibit or Disclosure Schedule of this Agreement unless
the context otherwise expressly requires.
11.16 DISCLOSURE SCHEDULES AND EXHIBITS. All attachments,
Exhibits and the Disclosure Schedule referred to herein are intended to be and
hereby are specifically made a part of this Agreement.
11.17 COOPERATION. Subject to the provisions hereof, the parties
hereto shall use their best efforts to take, or cause to be taken, such action,
to execute and deliver, or cause to be executed and delivered, such additional
documents and instruments and to do, or cause to be done, all things necessary,
proper or advisable under the provisions of this Agreement and under applicable
law to consummate and make effective the transactions contemplated by this
Agreement. Buyer shall consent to the filing of a Code section 1362(e)(3)
election by the Company for the year in which the Closing occurs.
11.18 SEVERABILITY. Any provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall be ineffective to the extent
of such invalidity or unenforceability without invalidating or rendering
unenforceable the remaining provisions hereof, and any such invalidity or
unenforceability in
46
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
11.19 LITIGATION; PREVAILING PARTY. In the event that any party
hereto brings suit for any matter arising out of or in connection with a breach
of any of the terms or provisions of this Agreement, then the prevailing party
shall be entitled to recover from the non-prevailing party all reasonable court
costs and attorneys' fees and expenses incurred by the prevailing party in
connection with such litigation at the arbitration, pre-trail, trial and
appellate levels.
11.20 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which is an original and all of which together shall
be deemed to be one and the same instrument. This Agreement shall become binding
when one or more counterparts taken together shall have been executed and
delivered by all of the parties. It shall not be necessary in making proof of
this Agreement or any counterpart hereof to produce or account for any of the
other counterparts.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
WITNESSES: THE SHAREHOLDER:
[ILLEGIBLE] /s/ XXXXXXX X. XXXXXXXX, XX.
------------------------------ -------------------------------
Xxxxxxx X. Xxxxxxxx, Xx.
[ILLEGIBLE]
------------------------------
THE COMPANY:
[ILLEGIBLE] /s/ XXXXXXX X. XXXXXXXX, XX.
------------------------------ By: ----------------------------
Xxxxxxx X. Xxxxxxxx, Xx.
[ILLEGIBLE] President
------------------------------
BUYER:
FIRST AMERICAN RAILWAYS, INC.,
a Nevada corporation
[ILLEGIBLE] /s/ XXXXXXX X. XXXXXXXX
------------------------------ By: ----------------------------
Xxxxxxx X. Xxxxxxxx, Chief
[ILLEGIBLE] Financial Officer
------------------------------
47
ESCROW AGENT:
OLLE, MACAULAY & ZORRILLA, P.A.
[ILLEGIBLE] /s/ XXXXXX X. XXXX
------------------------------ By: ---------------------------
Xxxxxx X. Xxxx, President
[ILLEGIBLE]
------------------------------
JOINING IN FOR PURPOSES OF
AGREEING TO GUARANTEE AND
COLLATERALIZE (SET FORTH IN
SECTIONS 2.1 AND 3.3G):
/s/ XXXXX X. XXXXXX
--------------------------------
Xxxxx X. Xxxxxx
48
ADDENDUM TO SHARE PURCHASE AGREEMENT
THIS ADDENDUM TO SHARE PURCHASE AGREEMENT, (the "Addendum") is to that
certain Share Purchase Agreement dated as of December 10, 1996, by and between
XXXXXXX X. XXXXXXXX, XX., as Shareholder and FIRST AMERICAN RAILWAYS, INC., a
Nevada corporation, as Buyer (the "Contract").
W I T N E S S E T H:
WHEREAS, the Shareholder and the Buyer entered into the Contract for
the purpose of Buyer's purchase of all of the issued and outstanding shares of
capital stock of The Durango & Silverton Narrow Gauge Railroad Company (the
"Company"); and
WHEREAS, Buyer has requested that Shareholder modify the Contract as
further described hereinbelow; and
WHEREAS, the Shareholder has agreed to modify the Contract and accept
Buyer's revised terms of purchase but only upon certain conditions which are
also set forth hereinbelow.
NOW, THEREFORE, the Buyer and Shareholder, in consideration of the sum
of $10.00 and other good and valuable consideration, the receipt and sufficiency
of which is acknowledged by both parties hereto, further agree to modify the
terms of the Contract as follows:
AGREEMENTS
1. The above recitals are incorporated herein as true and correct and
are made a part hereof by this reference as are the existing terms of the
Contract, if not otherwise in conflict with this Addendum. In the event of any
conflict between this Addendum and the terms of the Contract, the terms of this
Addendum shall control, and the terms of the Contract shall be modified
accordingly.
2. Buyer shall acquire the Shares by delivery of the Buyer Note (as
modified and attached hereto as Exhibit "A") and the additional two Promissory
Notes attached hereto as Exhibits "B" and "C", respectively (all three
collectively referred to as the "Notes"). The terms of the Notes shall be as
shown in the attached Xxxxxxxx "X", "X" and "C". The Notes shall be subordinate
to the Loan as described in the Contract and any loan replacing the Loan secured
by Buyer but only to a limit of $8.5 million net of liquid collateral. Upon
closing of any such replacement loan, the Buyer must satisfy the promissory note
attached as Exhibit "B". In lieu of delivering the promissory note shown as
Exhibit "B", Buyer may pay Shareholder the principal amount thereof at Closing
by cashier's check or wire transfer. The Notes shall be secured in the same
fashion as described in the Contract concerning the Buyer Note. Xxxxx X. Xxxxxx
shall personally guaranty the payment, performance and
collection of the promissory notes attached as Exibits "A" and "C". Xxxxxxx
Xxxxxxxxxx shall personally guaranty the payment, performance and collection of
the promissory note attached as Exhibit "C" hereto. The terms of any
documentation (other than the current documentation already in place for the
Loan) to which the Notes are subordinated shall be reasonable and customary and
must be approved in writing by the Shareholder, which approval shall not be
unreasonably withheld.
3. As part of the Purchase Price, the Shareholder shall receive an
additional 1,010,000.00 warrants in addition to the 600,000.00 warrants already
shown in the Contract. The exercise price for the original warrants and the
additional warrants shall be $3.50 per share. The time period for exercising the
warrants is extended to six (6) years from Closing. The terms of the Warrant
shall be modified accordingly.
4. The amount of the Promissory Note shown at Exhibit "B" attached
hereto shall be the amount of $13,800,000.00 less (i) the principal amount
outstanding under the Loan as of Closing and (ii) the amount of $6.4 million.
5. The provisions of the Contract relating to the Escrow Agreement, the
Escrow Fund and the Escrow Agent are deleted. Buyer shall provide Shareholder
with copies of paid invoices for any Remedial Work and Shareholder shall
reimburse Buyer as required in the Contract. Before authorizing Remedial Work,
Buyer shall provide Shareholder written notice of the nature of such work and
the expected cost thereof. If Shareholder does not reasonably object to same
within seven (7) days of receipt, Buyer may authorize the Remedial Work and,
after completion of same, shall provide Shareholder with a paid invoice for
same. Shareholder shall pay to Buyer fifty percent (50%) of such invoice,
subject to the limitation of Shareholder's liability found in the Contract,
within seven (7) days of receipt of such invoice. If such payment is not made to
Buyer, Buyer may offset such sum against the next following interest payment
under the Notes.
6. The provisions of Section 2.7 of the Contract requiring a
Post-Closing Adjustment are deleted. The balance sheet for the Company as of
January 31, 1997 is attached as Exhibit "D" hereto and is represented by
Shareholder to be correct in all material respects; further, the accounts
payable of $398,590 due as of January 31, 1997 have been reduced by $128,000 and
the accrued wages and payroll taxes due as of that date have been paid in full,
all from sources outside of D&SNG. Buyer shall be responsible for directly
funding the cash flow requirements of the Company between the execution hereof
and the Closing pursuant to the agreement attached as Exhibit "E" hereto. A
portion of the $338,076 RRTA liability shown on the January 31, 1997 balance
sheet is being advanced, including an interest factor, and is being paid by
Shareholder to employees prior to Closing. At Closing, Buyer shall repay such
sum to Shareholder.
7. The requirement under Section 3.3 of the Contract that Shareholder
deliver to the Buyer a release of the GECC guaranty are modified so that the
Shareholder can make such delivery within thirty (30) days following Closing.
Shareholder shall use his best efforts to obtain such release and shall fully
indemnify Buyer for same in the event the release cannot be obtained.
2
8. Due to the increase in the amount of purchase money financing being
held by the Shareholder, both parties recognize the Shareholder's potential
liability for payments under Section 453A of the Code. Buyer has agreed to
compensate Shareholder for any impact of the potential Section 453A liability as
a contingent increase in the Purchase Price for the Shares. On or before
December 31st of each year following the date of the Closing, including the year
of Closing, Buyer shall pay to Shareholder the amount due under Section 453A(c)
for such year (the "Deferred Tax Liability") plus an additional amount resulting
from an interrelated computation intended to "gross-up" any payments by the
individual capital gains rate then applicable to Shareholder in order to
compensate the Shareholder for the additional income tax ramifications of his
receipt of any payments under this provision (in total the "Deferred Tax
Liability Payment"). Buyer shall then receive a corresponding credit for the
income tax savings to Shareholder resulting from the allowance of the Deferred
Tax Liability as an interest deduction under Section 453A(c)(5), which credit
may be applied by Buyer against the next following interest payment required
under the Notes.
9. In the event of the assessment of a prepayment penalty in connection
with the Loan, either at the Closing or upon a later repayment of the Loan, each
party shall pay one-half (1/2) of such penalty at the time of such payment.
10. Following Closing, Buyer shall allow Shareholder the personal
privilege of continuing his past practice of issuing Ambassador Cards and
complimentary fare tickets to third parties solely for the benefit of Company
and its marketing efforts, in his reasonable discretion so long as such action
by Shareholder is consistent with past practice.
11. Buyer and Shareholder contemplate that the manner of execution,
delivery and acceptance of the Notes shall occur in such a fashion that the
Notes will not be subject to documentary stamp taxes under the Florida Statutes.
Notwithstanding this expectation, Buyer shall be liable for payment of any such
taxes and any costs, fines, or penalties imposed thereon, regardless of when
same are imposed or against whom same are imposed, and shall fully indemnify
Shareholder for same. Buyer further waives any defenses to enforcement or
collection of the Notes due to non-payment of documentary stamp taxes as
provided in Florida Statutes section 201.08.
IN WITNESS WHEREOF, the parties hereto have duly executed this Addendum
as of the day and year first above written.
Witnesses: "SHAREHOLDER"
[ILLEGIBLE] /s/ XXXXXXX X. XXXXXXXX, XX.
------------------------------ --------------------------------------
Print Name:___________________ Xxxxxxx X. Xxxxxxxx, Xx.
/s/ XXXXXX X. XXXX
------------------------------
Print Name: Xxxxxx X. Xxxx
3
"THE COMPANY"
/s/ [ILLEGIBLE] /s/ XXXXXXX X. XXXXXXXX, XX.
------------------------------ By: -----------------------------------
Print Name:___________________ Xxxxxxx X. Xxxxxxxx, Xx.
as its President
/s/ XXXXXX X. XXXX
------------------------------
Print Name: Xxxxxx X. Xxxx
"BUYER"
FIRST AMERICAN RAILWAYS, INC.
a Nevada corporation
/s/ XXXXXX X. XXXX /s/ XXXXXXX XXXXXXXXXX
------------------------------ By: -----------------------------------
Print Name: Xxxxxx X. Xxxx Name: Xxxxxxx Xxxxxxxxxx
as its President & Chief Operating
Officer
[ILLEGIBLE]
------------------------------
Print Name: __________________
JOINING IN FOR THE PURPOSE OF AGREEING TO
ADDITIONALLY GUARANTY AS SET FORTH HEREIN:
------------------------------ ---------------------------------------
Print Name:___________________ Xxxxx X. Xxxxxx
------------------------------
Print Name:___________________
/s/ XXXXXX X. XXXX /s/ XXXXXXX XXXXXXXXXX
------------------------------ ---------------------------------------
Print Name: Xxxxxx X. Xxxx Xxxxxxx Xxxxxxxxxx
[ILLEGIBLE]
------------------------------
Print Name:___________________
4
