Exhibit 2.1
STOCK PURCHASE AGREEMENT
by and among
Zones, Inc.
as Purchaser,
Corporate PC Source, Inc.
and
Xxxxxxxxx Xxxxxx, Xxxxxx Xxxxxxxxxx, Xxxxxx Xxxxxxxxxx, individually and as
Trustee of the Xxxxxx Xxxxxxxxxx Declaration of Trust
Dated September 17, 1997, and Xxxxxx Xxxxxxxxxx
as Sellers,
and
Xxxxxxxxx Xxxxxx, as Seller Representative
Dated as of
March 31, 2003
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated as of March 31, 2003, is entered into
by and among Zones, Inc., a Washington corporation (the "Purchaser"), Corporate
PC Source, Inc., an Illinois corporation (the "Company"), Xxxxxxxxx Xxxxxx,
Xxxxxx Xxxxxxxxxx, individually and as Trustee of the Xxxxxx Xxxxxxxxxx
Declaration of Trust Dated September 17, 1997, and Xxxxxx Xxxxxxxxxx,
individuals (the "Sellers" and, each, a "Seller"), and Xxxxxxxxx Xxxxxx, as the
Seller Representative. Certain capitalized terms used in this Agreement have the
meanings assigned to them in Section 10.1 hereof.
WHEREAS, the Sellers own beneficially and of record all of the issued and
outstanding equity securities of the Company, consisting of 400,000 shares (the
"Shares") of common stock (the "Company Stock"); and
WHEREAS, the Sellers desire to sell, and the Purchaser desires to purchase,
all of the outstanding equity securities of the Company at the Closing, which
will consist of the Shares owned by the Sellers, upon the terms and subject to
the conditions set forth herein; and
WHEREAS, concurrently with the execution and delivery of this Agreement,
the Sellers (other than Xx. Xxxxxx) are entering into a non-competition
agreement, substantially in the form attached hereto as Exhibit A (the
"Non-Compete Agreement"), and Xx. Xxxxxx is entering into an employment
agreement, substantially in the form attached hereto as Exhibit B (the
"Employment Agreement"), each of which will become effective as of the Closing
Date.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements set forth herein, the
parties hereto, intending to be legally bound hereby, agree as follows:
ARTICLE I
PURCHASE AND SALE OF THE SHARES
Section 1.1 Sale and Transfer of the Shares. Subject to the terms and
conditions of this Agreement, at the Closing the Sellers shall sell, convey,
assign, transfer and deliver to the Purchaser all of the Shares, free and clear
of all Encumbrances, except restrictions on transfer imposed by the Securities
Act and state securities laws.
Section 1.2 The Purchase Price. Subject to the terms and conditions of this
Agreement, in consideration of the aforesaid sale, conveyance, assignment,
transfer and delivery of the Shares, the Purchaser shall pay to the Sellers: (a)
the base aggregate purchase price of $7,381,000 (the "Base Purchase Price"),
which will include (i) $4,881,000 to be paid in cash (the "Base Cash Purchase
Price") at the Closing, and (ii) $2,500,000 to be paid in the form of the
promissory notes delivered at the Closing pursuant to Section 2.3 (the "Base
Promissory Note Consideration"); and (b) the Contingent Payments determined from
time to time pursuant to Section 1.4 below. The Base Cash Purchase Price and
Base Promissory Note Consideration to be paid by Purchaser to each Seller at the
Closing shall be the amount allocated to each of them as shown on attached
Exhibit 1.2 (the "Allocation Schedule"). The Base Purchase Price shall be
subject to the indemnification provisions set forth in Article VIII hereof. The
Base Promissory Note Consideration is subject to reduction for failure of the
Company to meet certain EBITDA thresholds, as described in such notes.
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Section 1.3 Post-Closing Adjustment.
(a) As promptly as reasonably practicable after the Closing (but in no
event later than ninety (90) days following the Closing Date), the Purchaser
shall cause to be prepared and delivered to the Seller Representative the
balance sheet of the Company as of the close of business on the Closing Date,
prepared in accordance with GAAP applied consistently with the Company's prior
practices (the "Closing Balance Sheet"), and a calculation of the Shareholders'
Equity of the Business on the Closing Date and the Adjustment Amount, if any
(the "Adjustment Amount Calculation"), specifying in reasonable detail such
calculations.
(i) Within thirty (30) calendar days after delivery to the Seller
Representative of the Closing Balance Sheet and the Adjustment Amount
Calculation, the Seller Representative shall have the right to furnish to
the Purchaser a statement (the "Objection Notice") setting forth in
reasonable detail any objections she may have to the Adjustment Amount
Calculation. If no Objection Notice is received by the Purchaser within
such 30 calendar day period or if the Seller Representative notifies the
Purchaser in writing that she accepts the Adjustment Amount Calculation
within such period, then the Adjustment Amount Calculation shall be deemed
to have been accepted by the Seller Representative, and the Sellers and
shall become final and binding upon the parties hereto.
(ii) If within fifteen (15) calendar days after the delivery of the
Objection Notice, the Purchaser and the Seller Representative are unable to
agree to an Adjustment Amount and Adjustment Amount Calculation, the
Company shall engage the Seattle office of Xxxx Xxxxx, LLP, and if Xxxx
Xxxxx, LLP is unable or unwilling to serve, the Seattle office of Ernst &
Young, and, if Ernst & Young is unable or unwilling to serve, another
nationally recognized accounting firm mutually agreed upon by the Purchaser
and the Seller Representative (the "Appraiser") to resolve any disputes
regarding the Adjustment Amount or the Adjustment Amount Calculation. The
Purchaser and the Seller Representative will direct the Appraiser to render
a determination within thirty (30) days of its retention, and the Purchaser
and the Seller Representative, the Sellers, and their respective agents
will reasonably cooperate with the Appraiser during its engagement. The
Appraiser will consider only those issues related to the Adjustment Amount
or Adjustment Amount Calculation that the Purchaser and the Seller
Representative have been unable to resolve. The determination of the
Appraiser will be conclusive, final and binding upon the parties hereto and
any amounts owing as a result thereof shall be paid in accordance with
subparagraph (b) below. The Sellers, on the one hand, and the Purchaser, on
the other hand, shall each pay one half of the fees and expenses of the
Appraiser. The Sellers shall be jointly and severally liable for paying
their portion of such expenses, and if they fail to pay any such expenses
and Purchaser as a consequence pays such expenses, Purchaser shall be
entitled to recover such expenses either (A) directly from the Sellers, or
(B) by set-off against any Contingent Payment that may become due in
accordance with Section 1.4, or (C) by set-off against any payments that
may become due under any Promissory Note, or (D) any combination of (A),
(B), and (C).
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(b) If the Adjustment Amount is a positive number, the Purchaser shall pay
to the Sellers, within five (5) days of the Purchaser receiving notice of the
final determination of the Adjustment Amount, in accordance with subparagraph
(a) above, the Adjustment Amount in accordance with the Contingent Payment
Sharing Ratios set forth on the Allocation Schedule. If the Adjustment Amount is
a negative number, the Sellers shall pay to the Purchaser, within five (5) days
of the Sellers receiving notice of the final determination of the Adjustment
Amount, in accordance with subparagraph (a) above, the Adjustment Amount. The
Sellers shall be jointly and severally liable for making any such required
payment to the Purchaser, and if they fail to make such payment Purchaser shall
be entitled to recover such payment either (A) directly from the Sellers, or (B)
by set-off against any Contingent Payment that may become due in accordance with
Section 1.4, or (C) by set-off against any payments that may become due under
any Promissory Note, or (D) any combination of (A), (B), and (C).
Section 1.4 Contingent Payments.
(a) General. As additional consideration for the Shares, but subject to the
rights of Purchaser to reduce by offset such Contingent Payments pursuant to
Article IX hereof, the Purchaser shall make contingent payments, on the terms
provided in clauses (b) through (d) of this Section 1.4 and at the times set
forth in Section 1.5 (each, a "Contingent Payment"), to the Sellers in
accordance with the provisions of this Section 1.4 and Sections 1.5 and 2.3(b)
hereof.
(b) First Contingent Payment. If the EBITDA set forth in the Earn Out
Report that Purchaser delivers to the Seller Representative pursuant to Section
1.5(a) (or if a Dispute Notice is given, the Final Disputed Amount) with respect
to Earn Out Period One (the "Period One EBITDA") equals or exceeds the Threshold
EBITDA for Earn Out Period One, then the Purchaser shall make a Contingent
Payment in an amount determined as follows:
(i) If the Period One EBITDA is equal to or less than Target EBITDA
for Earn Out Period One, an amount equal to the product of (A) the Period
One EBITDA and (B) the Total Earnout Percentage multiplier set forth on
attached Exhibit 1.4 that corresponds with Earn Out Period One;
(ii) If the Period One EBITDA is greater than Target EBITDA for Earn
Out Period One but less than 200% of Target EBITDA for Earn Out Period One,
an amount equal to the product of (A) the Period One EBITDA and (B) the
Total Earnout Percentage multiplier set forth on attached Exhibit 1.4 that
corresponds with Earn Out Period One; and
(iii) If the Period One EBITDA is equal to or greater than 200% of
Target EBITDA for Earn Out Period One, an amount equal to the product of
(A) the Period One EBITDA and (B) the Total Earnout Percentage multiplier
set forth on attached Exhibit 1.4 that corresponds with Earn Out Period
One;
provided, that if the Period One EBITDA is less than the Threshold
EBITDA for Earn Out Period One, no Contingent Payment shall be owing
with respect to Earn Out Period One;
(c) Second Contingent Payment. If the EBITDA set forth in the Earn Out
Report that Purchaser delivers to the Seller Representative pursuant to Section
1.5(a) (or if a Dispute Notice is given, the Final Disputed Amount) with respect
to Earn Out Period Two (the "Period Two EBITDA") equals or exceeds the Threshold
EBITDA for Earn Out Period Two, then Purchaser shall make a Contingent Payment
in an amount determined as follows:
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(i) If the Period Two EBITDA is equal to or less than Target EBITDA
for Earn Out Period Two, an amount equal to the product of (A) the Period
Two EBITDA and (B) the Total Earnout Percentage multiplier set forth on
attached Exhibit 1.4 that corresponds with Earn Out Period Two;
(ii) If the Period Two EBITDA is greater than Target EBITDA for Earn
Out Period Two, but less than 200% of Target EBITDA for Earn Out Period
Two, an amount equal to the product of (A) the Period Two EBITDA and (B)
the Total Earnout Percentage multiplier set froth on attached Exhibit 1.4
that corresponds with Earn Out Period Two; and
(iii) If the Period Two EBITDA is equal to or greater than 200% of
Target EBITDA for Earn Out Period Two, an amount equal to the product of
(A) the Period Two EBITDA and (B) the Total Earnout Percentage multiplier
set forth on attached Exhibit 1.4 that corresponds with Earn Out Period
Two; provided, that if the Period Two EBITDA is less than the Threshold
EBITDA for Earn Out Period Two, no Contingent Payment shall be owing with
respect to Earn Out Period Two;
(d) Third Contingent Payment. If the EBITDA set forth in the Earn Out
Report that Purchaser delivers to the Seller Representative pursuant to Section
1.5(a) (or if a Dispute Notice is given, the Final Disputed Amount) with respect
to Earn Out Period Three (the "Period Three EBITDA") equals or exceeds the
Threshold EBITDA for Earn Out Period Three, then the Purchaser shall make a
Contingent Payment in an amount determined as follows:
(i) If the Period Three EBITDA is equal to or less than Target EBITDA
for Earn Out Period Three, an amount equal to the product of (A) the Period
Three EBITDA and (B) the Total Earnout Percentage multiplier set forth on
attached Exhibit 1.4 that corresponds with Earn Out Period Three;
(ii) If the Period Three EBITDA is greater than Target EBITDA for Earn
Out Period Three but less than 200% of Target EBITDA for Earn Out Period
Three, an amount equal to the product of (A) the Period Three EBITDA and
(B) the Total Earnout Percentage multiplier set forth on attached Exhibit
1.4 that corresponds with Earn Out Period Three; and
(iii) If the Period Three EBITDA is equal to or greater than 200% of
Target EBITDA for Earn Out Period Three, an amount equal to the product of
(A) the Period Three EBITDA and (B) the Total Earnout Percentage multiplier
set forth on attached Exhibit 1.4 that corresponds with Earn Out Period
Three; provided, that if the Period One EBITDA is less than the Threshold
EBITDA for Earn Out Period Three, no Contingent Payment shall be owing with
respect to Earn Out Period Three.
Section 1.5 Timing of Payment of Contingent Payments; Procedure.
(a) No later than fifteen (15) days following the end of each Earn Out
Period, the Purchaser shall deliver to the Seller Representative a statement of
EBITDA for such Earn Out Period, which will set forth in reasonable detail the
calculation of such EBITDA and the Contingent Payment, if any, with respect to
such Earn Out Period (the "Earn Out Report").
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(b) The Purchaser shall make such Contingent Payment no later than
ten (10) days following the delivery of such Earn Out Report;
provided, that if the Seller Representative delivers notice of an
intent to examine the Company's books and records pursuant to Section
1.5(c) hereof, such Contingent Payment shall not be made until (i) ten
(10) days after the earlier of (A) the time period for delivering a
Dispute Notice for such Earn Out Period has passed, or (B) the Seller
Representative notifies the Purchaser in writing that she accepts the
Earn Out Report and the calculation of the Contingent Payment and will
not deliver a Dispute Notice with respect to the such Contingent
Payment, or, (ii) if the Seller Representative delivers a Dispute
Notice with respect to an Earn Out Period Contingent Payment, at the
times and in the amounts determined pursuant to Section 1.5(d) below.
In the event that the Seller Representative does not deliver a Dispute
Notice within the time period for delivering a Dispute Notice, the
amount of the Contingent Payment set forth on such Earn Out Report
shall be final for all purposes of this Agreement, absent fraud by the
Purchaser.
(c) The Purchaser agrees to keep, in accordance with its usual and
customary practice, full and accurate books of account and records of EBITDA and
the Purchaser further grants Seller Representative, at the Sellers' expense, the
right to examine such books and records, at the location of such records, for
the sole purpose of reviewing the calculation of EBITDA with respect to the
period that is the subject of an Earn Out Report, with prior written notice of
at least two (2) days delivered to the Purchaser within ten (10) days after the
delivery of such Earn Out Report, insofar as the books and records concern the
Company's EBITDA, for the sole purpose of verifying the amount of EBITDA with
respect to such Earn Out Report; provided, however, that any such examination
shall be required to be completed prior to the twentieth (20th) day following
the date on which the applicable Earn Out Report is delivered and no such
examination shall be permitted with respect to any period other than the period
referenced in the Earn Out Report. Purchaser shall keep all records connected
with EBITDA and all Earn Out Reports until one year after the conclusion of the
Earn Out Period.
(d) If, within fifteen (15) days after completing an examination of the
books of account and records of the Purchaser respecting EBITDA in accordance
with clause (b) above and, in any event, no later than twenty (20) days after
delivery of the applicable Earn Out Report, the Seller Representative delivers
to the Purchaser written notice (a "Dispute Notice") of any disagreement with
the amount of any Contingent Payment for any Earn Out Period that is the subject
of examination, the Purchaser and the Seller Representative shall seek to reach
an agreement on the amount of such Contingent Payment. If no agreement can be
reached as to the amount of the Contingent Payment within fifteen (15) days
after delivery of the Dispute Notice, the amount will be calculated in
accordance with Section 1.4 by retaining the Appraiser; provided, that the
engagement of the Appraiser shall be limited to reviewing the calculation of
EBITDA, as recorded by the Purchaser, for the Earn Out Period that is the
subject of the Earn Out Report. The Appraiser shall determine the disputed
EBITDA amount within thirty (30) days after the date of such Appraiser's
engagement (such determined amount, a "Final Disputed Amount"). The fees and
expenses of the Appraiser shall be paid solely by the Sellers; provided, that if
the Final Disputed Amount is more than three percent (3%) greater than the
Contingent Payment set forth in the applicable Earn Out Report, the Purchaser
shall pay the fees and expenses of the Appraiser. The Purchaser shall, within
ten (10) days of such determination, pay the Final Disputed Amount (as a
Contingent Payment) to the Sellers in accordance with the Contingent Payment
Sharing Ratio on the Allocation Schedule and Section 2.3(b). The determination
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of any Final Disputed Amount made by the Appraiser in accordance with this
Agreement shall, in the absence of fraud, collusion, or any form of corruption,
be conclusive, final, and binding on the parties. The Purchaser, the Seller
Representative, and the Appraiser shall have no liability resulting from or
related to the determination of any Final Disputed Amount, other than payment of
any amounts required by this Section 1.5(d), and the parties release one another
from all such liability.
Section 1.6 Escrow for Earn Out Period One. Notwithstanding the foregoing,
during Earn Out Period One, the Purchaser shall establish an escrow account with
U.S. Bank (the "Escrow Agent"), in favor of the Sellers for the purpose of
segregating a portion of the potential Contingent Payment for Earn Out Period
One. Within twenty five (25) days after the end of each of the first three
quarters of Earn Out Period One, the Purchaser shall place the amount calculated
as follows into such escrow account: 18.75% of the amount of the Contingent
Payment that would be due on estimated annualized EBITDA, if, and only if, such
annualized amount exceeds the Threshold EBITDA for Earn Out Period One, based
upon the quarterly results achieved year to date, as determined by Purchaser in
good faith. The Purchaser shall not be required to pay any other amounts into
such escrow. In no event will the Sellers be entitled to any Contingent Payment
for Earn Out Period One if the Threshold EBITDA for such period is not achieved,
regardless of any amount deposited in such escrow, and in such event such
escrowed amounts shall be immediately released to the Purchaser. The Escrow
Agent shall release the funds held in escrow in accordance with the provisions
of Sections 1.4, 1.5 and 2.3(b) hereof.
ARTICLE II
THE CLOSING
Section 2.1 The Closing. The sale and transfer of the Shares by the Sellers
to the Purchaser shall take place at the offices of Xxxx Xxxx Xxxx & Freidenrich
LLP, 000 Xxxxx Xxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxxxxx, at 8:00 a.m., Seattle,
Washington time, on March 31, 2003, following the satisfaction and/or waiver of
all conditions to closing set forth in Article VI, unless another date or place
is agreed in writing by the Purchaser and the Sellers.
Section 2.2 Deliveries by the Sellers. At the Closing, the Sellers shall
deliver to the Purchaser:
(a) Certificates representing all of the Shares, each such certificate to
be duly and validly endorsed in favor of the Purchaser or accompanied by a power
of attorney duly and validly executed by the Sellers and otherwise sufficient to
vest in the Purchaser good and valid title to such Shares free and clear of all
Encumbrances;
(b) The opinion of counsel referred to in Section 7.2(e) hereof;
(c) The compliance certificates referred to in Section 7.2(e) hereof;
(d) A Closing Statement comprising: (i) a list of all accounts receivable
for the Company, dated March 28, 2003; (ii) a list of all accounts payable for
the Company, dated March 28, 2003; (iii) a list of all cash and all other
distributions made by the Company during March 2003; (iv) a list of all
inventory held by the Company, dated March 28, 2003; (v) an Open Order Report
and Open Purchase Order (whether issued by the Company or a customer of the
Company) as of March 29, 2003 (which identifies all open purchase orders in
excess of $100,000); and (vi) a certificate signed by each of the Sellers
stating the good faith estimate of Shareholders' Equity of the Business (the
"Closing Statement");
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(e) The Spousal Consent in the form of attached Exhibit 2.2(e) from the
spouses of each Seller;
(f) A certification of non-foreign status for the Sellers in the form and
manner which complies with the requirements of section 1445 of the Code and the
regulations promulgated thereunder;
(g) All other previously undelivered documents required to be delivered by
this Agreement at or prior to the Closing in connection with the Transactions.
(h) The Bonus Agreement, substantially in the form attached hereto as
Exhibit 2.2(i) executed by Xxxx Xxxxx, Xxxx Xxxxxx and Xxxxxxx Xxxxxx (the
"Bonus Agreement"); and
Section 2.3 Deliveries by the Purchaser.
(a) At the Closing, the Purchaser shall deliver to each Seller:
(i) A wire transfer of immediately available funds to the accounts,
designated by such Seller, in an aggregate amount equal to such Seller's
portion of the Base Cash Purchase Price, as calculated pursuant to the
Allocation Schedule;
(ii) A promissory note, in the form attached hereto as Exhibit
2.3(a)(ii) (a "Non-Convertible Promissory Note"), representing such
Seller's portion of the Base Promissory Note Consideration, as calculated
pursuant to the Allocation Schedule, which note shall be subject to the
indemnification provisions set forth in Article IX hereof;
(iii) A convertible promissory note, in the form attached hereto as
Exhibit 2.3(a)(iii) (a "Convertible Promissory Note" and, together with the
Non-Convertible Promissory Note, the "Promissory Notes") representing such
Seller's portion of the Base Promissory Note Consideration, as calculated
pursuant to the Allocation Schedule, which note shall be subject to the
indemnification provisions set forth in Article IX hereof;
(iv) The compliance certificate referred to in Section 7.3(c); and
(v) Such other documents as are required by this Agreement and the
other Documents to be delivered by the Purchaser to the Sellers at or prior
to the Closing in connection with the Transactions.
(b) Subject to Sections 1.4, 1.5 and 1.6 and Article IX, on each Contingent
Payment Date, the Purchaser shall deliver to each Seller by wire transfer of
immediately available funds to a bank account or bank accounts, designated by
such Seller not less than two (2) days that is prior to each Contingent Payment
Date, an amount equal to such Seller's portion of the aggregate Contingent
Payment due, if any, as shown on the Allocation Schedule, less any amounts
setoff against such Seller's Contingent Payment.
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ARTICLE III
REPRESENTATIONS AND
WARRANTIES OF THE SELLERS
Each Seller represents with respect to himself or herself only (and not
with respect to any other Seller) as follows:
Section 3.1 Share Ownership; Good Title Conveyed. The Seller is the record
and beneficial owner of all of the Shares listed opposite such Seller's name on
the Allocation Schedule (the "Seller's Shares"). The Seller's Shares and the
certificates representing such Shares are now, and at all times through the
Closing shall be, held by the Seller, or by nominees or custodians for the sole
and exclusive benefit of the Seller, free and clear of all Encumbrances, except
for Encumbrances created by this Agreement and Encumbrances arising under the
Securities Act or state securities laws. The Seller does not own any securities,
equity, debt, convertible or otherwise, issued by the Company other than the
Seller's Shares, and does not have any right to acquire or possess any
securities, equity, debt, convertible or otherwise, issued by the Company other
than the Seller's Shares. Any powers of attorney, endorsements, assignments and
other instruments to be executed and delivered to the Purchaser at the Closing
will be valid and binding obligations of the Seller, enforceable in accordance
with their respective terms, and will effectively vest in the Purchaser good and
valid title to all the Seller's Shares to be transferred to the Purchaser
pursuant to and as contemplated by this Agreement free and clear of all
Encumbrances, except restrictions on transfer imposed by the Securities Act and
state securities laws. The Seller's spouse, if the Seller has a spouse, has no
interest, of record or beneficially, in the Seller's Shares. The Seller is the
sole owner of the Seller's Shares and does not share legal or beneficial
ownership with any other parties. The Seller's spouse, if the Seller has a
spouse, will execute the Spousal Consent attached hereto as Exhibit 2.2(e).
Section 3.2 Legal Power. The Seller is competent and has all requisite
power and authority to execute, deliver and perform this Agreement and the other
Documents to which he or she is a party and to consummate the Transactions.
Section 3.3 Enforceability. Each of this Agreement and the other Documents
to which the Seller is a party has been duly executed and delivered by the
Seller and constitutes a legal, valid and binding obligation of the Seller,
enforceable against the Seller in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or at law).
Section 3.4 No Approvals or Notices Required; No Conflicts. The execution,
delivery and performance of this Agreement and the other Documents by the
Seller, and the consummation of the Transactions, will not (a) constitute a
violation (with or without the giving of notice or lapse of time, or both) of
any provision of any law or any judgment, decree, order, regulation or rule of
any court, agency or other governmental authority applicable to the Seller, (b)
require any consent, approval or authorization of, or declaration, filing or
registration with, any Person, (c) result in a default (with or without the
giving of notice or lapse of time, or both) under, acceleration or termination
of, or the creation in any party of the right to accelerate, terminate, modify
or cancel, any agreement, lease, note or other restriction, Encumbrance,
obligation or liability to which the Seller is a party or by which it is bound
or to which any assets of the Seller are subject, or (d) result in the creation
of any lien or encumbrance upon the assets of the Seller, or upon any of
Seller's Shares or other securities of the Company.
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Section 3.5 Claims Against the Company. The Seller does not have any past,
present or contemplated claims against the Company or its officers or directors,
and the Company owes no amount to the Seller, including distributions on
allocations of income.
Section 3.6 Securities Law Representations and Warranties. The Seller
acknowledges that none of the Promissory Notes to be issued on the Closing Date,
or the shares of Purchaser Stock issuable upon conversion of the Convertible
Promissory Notes (collectively the "Securities") is being registered under the
Securities Act, or applicable state securities laws, but is being offered and
sold pursuant to exemptions from such laws, and that the Purchaser's reliance
upon such exemptions is predicated in part on the Seller's representations
contained herein. The Seller acknowledges that the Purchaser is relying in part
upon the Seller's representations and warranties contained herein for the
purpose of qualifying the offer and sale of the Securities for applicable
exemptions from registration or qualification pursuant to federal or state
securities laws, rules and regulations.
Section 3.7 Purchase Entirely for Own Account. The Securities will be
acquired for investment for the Seller's own account, not as a nominee or agent,
and not with a view to distributing all or any part thereof; the Seller has no
present intention of selling, granting any participation in or otherwise
distributing any of the Securities in a manner contrary to the Securities Act or
any applicable state securities law, and the Seller does not have any contract,
undertaking, agreement or arrangement with any Person to sell, transfer or grant
participations to such Person or to any third person with respect to any of the
Securities.
Section 3.8 Due Diligence. The Seller has been solely responsible for its
own due diligence investigation of the Purchaser and its business, and its
analysis of the merits and risks of the investment made in the Securities
through the Agreement, and is not relying on anyone else's analysis or
investigation of the Purchaser, its business or the merits and risks of the
Securities other than professional advisors employed specifically by the Seller
to assist the Seller. The Seller is not relying on any representations made by
or on behalf of Purchaser except those contained in Article V.
Section 3.9 Access to Information. The Seller believes he or she has been
given sufficient information regarding the Purchaser to enable Seller to make an
informed decision regarding the Transactions. The Purchaser has made available
to the Seller true and complete copies of its Annual Report on Form 10-K for the
year ended December 31, 2002.
Section 3.10 Sophistication. The Seller, either alone or with the
assistance of its professional advisor, is a sophisticated investor, is able to
fend for itself in the Transactions, and has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of the prospective investment in the Securities. The Seller has been
represented by an investment bank and experienced legal counsel with respect to
the Transactions.
Section 3.11 Accreditation. The Seller is familiar with the term
"accredited investor" and its use in connection with private placements of
securities under applicable federal and state laws. Accordingly, the Seller
represents and warrants that it is an accredited investor as such term is
defined in Rule 501(a) under the Securities Act and as defined pursuant to the
provisions of state securities laws applicable to the undersigned providing for
an exemption from registration or qualification of the offer and sale of the
Securities.
9
Section 3.12 Suitability. An investment in the Securities is suitable for
the Seller based upon its investment objectives and financial needs, and the
Seller has adequate net worth and means for providing for its current financial
needs and contingencies and has no need for liquidity of an investment with
respect to the Securities. The Seller's overall commitment to investments that
are illiquid or not readily marketable is not disproportionate to its net worth,
and investment in the Securities will not cause such overall commitment to
become excessive.
Section 3.13 Professional Advice. The Seller has obtained, to the extent it
deems necessary, its own professional advice with respect to the risks inherent
in the investment in the Securities, the condition of the Purchaser and the
suitability of the investment in the Securities in light of the Seller's
financial condition and investment needs. The Seller has been represented by an
investment bank and experienced legal counsel with respect to the Transactions.
Section 3.14 Ability to Bear Risk. The Seller is in a financial position to
acquire and hold the Securities and is able to bear the economic risk and
withstand a complete loss of its investment in the Securities. THE SELLER
RECOGNIZES THAT AN INVESTMENT IN THE SECURITIES IS AN INVESTMENT INVOLVING A
HIGH DEGREE OF RISK.
ARTICLE IV
ADDITIONAL SELLER REPRESENTATIONS AND WARRANTIES
REGARDING THE COMPANY
The Sellers, jointly and severally, represent and warrant to the Purchaser
regarding the Company that all of the statements contained in this Article IV
are true and complete as of the date of this Agreement (or, if made as of a
specified date, as of such date), and will be true and complete as of the
Closing Date as though made on the Closing Date, except as provided on the
Disclosure Schedule. Each exception and each response set forth in the
Disclosure Schedule is identified by reference to, or has been grouped under a
heading referring to, a specific individual section of this Agreement.
Section 4.1 Organization; Qualification of the Company. The Company (i) is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Illinois; (ii) has full corporate power and authority to
carry on its business as it is being and as it is proposed to be conducted and
to own and use the properties and assets it now owns; (iii) is duly qualified or
licensed to do business as a foreign corporation in good standing in every
jurisdiction in which the ownership and use of its property or the conduct of
its business requires such qualification, except where the failure to so qualify
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect; and (iv) has all requisite power and authority to
execute and deliver this Agreement and the other Documents to which the Company
is a party and perform its obligations hereunder and thereunder, and has taken
all necessary action to authorize the execution, delivery and performance of
this Agreement and the other Documents to which the Company is a party. The
Company has heretofore delivered to the Purchaser complete and correct copies of
the Organizational Documents of the Company as presently in effect. Part 4.1 of
the Disclosure Schedule sets forth each jurisdiction in which the Company is
qualified to do business as a foreign corporation. The Company is not obligated
to purchase, and does not own, directly or indirectly, any equity securities or
securities convertible into or exchangeable or exercisable for equity securities
of any Person or have any direct or indirect equity or ownership interest in any
Person, is not a partner in any partnership, or a member in any limited
liability company, or a joint venturer in any joint venture. The Company does
not have any Subsidiaries. The costs of qualifying the Company to do business in
any state in which it is required to be so qualified, including but not limited
to, Colorado and Wisconsin, will be included as an pre-closing Liability in the
Closing Balance Sheet.
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Section 4.2 Binding Agreement; Consents and Approvals; No Conflict, Default
or Violation.
(a) This Agreement has been duly executed and delivered by the Company and
constitutes a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law).
(b) Neither the execution, delivery or performance of this Agreement or any
other Document by the Sellers or the Company nor the consummation by the Sellers
or the Company of any of the Transactions will, directly or indirectly (with or
without notice of lapse of time or both):
(i) contravene, conflict with, or result in a violation of (A) any
provision of the Organizational Documents of the Company, or (B) any
resolution adopted by the board of directors or the equity holders of the
Company;
(ii) contravene, conflict with, or result in a violation of, or give
any Governmental Entity or other Person the right to challenge any of the
Transactions or to exercise any remedy or obtain any relief under, any Law
to which the Sellers or the Company, or any of the assets owned or used by
the Company, may be subject;
(iii) contravene, conflict with, or result in a violation of any of
the terms or requirements of, or give any Governmental Entity the right to
revoke, withdraw, suspend, cancel, terminate, or modify, any Permit that is
held by the Company or that otherwise relates to the business of, or any of
the assets owned or used by, the Company;
(iv) contravene, conflict with, or result in a violation or breach of
any provision of, or give any Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of,
or to cancel, terminate, or modify, any contract to which the Company or
the Sellers is a party, which would individually or in the aggregate have a
Material Adverse Effect on the Company; or
(v) result in the imposition or creation of any Encumbrance upon or
with respect to any of the assets owned or used by the Company.
Section 4.3 Capitalization. The authorized capital stock of the Company
consists of 1,000,000 shares of Company Stock. 400,000 shares of Company Stock
are issued and outstanding. Except as set forth immediately above, (i) there are
no equity securities of the Company authorized, issued or outstanding, (ii)
11
there are no existing options, warrants, calls, pre-emptive rights,
subscriptions or other rights, agreements, arrangements or commitments of any
character, relating to the issued or unissued equity securities of the Company,
obligating the Company to issue, transfer or sell or cause to be issued,
transferred or sold any equity securities of the Company or securities
convertible into or exchangeable or exercisable for such equity securities, or
obligating the Company to grant, extend or enter into any such option, warrant,
call, subscription or other right, agreement, arrangement or commitment, and
(iii) there are no outstanding contractual obligations of the Company to
repurchase, redeem or otherwise acquire any Shares or other equity securities of
the Company or any Person or to provide funds to make any investment (in the
form of a loan, capital contribution or otherwise) in any other Person. All
outstanding shares of Company Stock have been duly authorized, validly issued
and are fully paid and nonassessable. All outstanding securities of the Company
have been issued in compliance with state and federal securities laws. There are
no voting trusts or other agreements or understandings to which any Seller or
the Company is a party with respect to the voting of the equity securities of
the Company. The Allocation Schedule is true, correct and complete. The Shares
being purchased by the Purchaser pursuant to this Agreement will, as of the
Closing, constitute all of the outstanding securities, equity, debt, convertible
or otherwise, of the Company.
Section 4.4 Financial Statements.
(a) Part 4.4(a) of the Disclosure Schedule sets forth complete and accurate
copies of (i) the audited balance sheet of the Company as of December 31, 2002
(the "Balance Sheet," and the "Balance Sheet Date"), the audited balance sheet
of the Company as of December 31, 2001 and the related statements of income,
shareholders' equity and cash flows for the respective years then ended, and the
audited statements of income, shareholders' equity and cash flows for the period
ended December 31, 2000 (collectively, the "Company Balance Sheets"), (ii) the
unaudited, internal balance sheet of the Company as of February 28, 2003, and
(iii) the unaudited, internal statement of income, shareholders' equity and cash
flows for the two (2) months ended February 28, 2003. All of the financial
statements referred to in this Section 4.4(a) are collectively referred to
herein as the "Financial Statements."
(b) The Financial Statements, including the notes thereto, have been
prepared from, are in accordance with and accurately reflect, the books and
records of the Company. The Financial Statements present fairly in all material
respects the financial position and results of operations and cash flows of the
Company as of the dates and for the periods indicated in conformity with GAAP
applied on a consistent basis, except as otherwise noted therein (subject, in
the case of unaudited statements to normally recurring year-end accruals and
audit adjustments that are not material either individually or in the aggregate
and the absence of notes). All revenue reported in the Financial Statements is
properly recorded in the accounting period to which it relates in accordance
with GAAP. All employee bonuses of any kind or nature whatsoever (excluding only
those in excess of $119,000 to be paid pursuant to the Bonus Agreements),
including those payable in the event of a change of control of the Company, are
reflected as accrued liabilities on the Financial Statements or will be
reflected on the Closing Balance Sheet. All prepaid expenses of the Company,
reflected in the Financial Statements or existing on the Closing Date, represent
prepaid expenses actually made by the Company in the ordinary course of business
and are recorded in the Company's books and have future value consistent with
the presentation in the Balance Sheet. The Company has properly accrued for all
vacation and sick time in the Balance Sheets and will do so on the Closing
Balance Sheet in accordance with the personnel policies of the Company.
12
Section 4.5 No Undisclosed Liabilities. The Company has no Liabilities,
except (a) as and to the extent set forth on the Financial Statements, (b)
ordinary business expenses incurred since February 28, 2003, that are in the
ordinary course of business, consistent in amount with past practice, and not
prohibited by this Agreement, or (c) as otherwise specifically disclosed in the
Disclosure Schedule. The consummation of the Transactions will not give rise to
or cause any Liabilities to accrue. The Company no longer has a credit
arrangement with Deutsche Financial Services ("Deutsche"), and any security
interest or lien that Deutsche may have had against the assets of the Company
has been released and any financing statement filed with respect thereto has
been terminated.
Section 4.6 Books and Records. The books and records of the Company are
complete and correct in all material respects and have been maintained in
accordance with sound business practices, including the maintenance of an
adequate system of internal controls. True and complete copies of all minute
books and all stock record books of the Company have heretofore been delivered
to the Purchaser. Part 4.6 of the Disclosure Schedule lists all bank and
investment accounts of the Company, the institution at which each account is
held, the account number of each account, and the primary account
representative, if any.
Section 4.7 Absence of Certain Changes. Since the Balance Sheet Date and
except as required by this Agreement, the Company has conducted its business
only in the normal and ordinary course in a manner consistent with past practice
and there has not been any:
(a) grant of any registration rights; purchase, redemption, retirement, or
other acquisition by the Company of any equity securities; or, except as set
forth on Part 4.7(a) of the Disclosure Schedule, declaration or payment of any
dividend or other distribution or payment in respect of equity securities;
(b) amendment to the Organizational Documents of the Company;
(c) except as set forth in Part 4.7(c) of the Disclosure Schedule, entry
into any employment, severance, or similar contract with any director, officer,
consultant or executive employee;
(d) adoption of, or increase in the payments to or benefits under, any
Plan;
(e) entry into, termination of, or receipt of notice (oral or written) of
termination of any contract or transaction involving a total remaining
commitment by or to the Company of greater than $100,000 individually or
$250,000 in the aggregate (counting obligations or liabilities arising from one
transaction or a series of similar transactions, and all periodic installments
or payments under any lease or other agreement providing for periodic
installments or payments, as a single obligation or liability), except for
inventory purchases for which the Company has received a binding order from a
customer, or increase, or change in any assumptions underlying or methods of
calculating, any bad debt, contingency or other reserves;
(f) cancellation or waiver of any claims or rights with a value to the
Company greater than $25,000 individually or $50,000 in the aggregate;
(g) change in the accounting methods or practices used by the Company;
13
(h) any new election or change in any existing election relating to Taxes,
settlement of any claim or assessment relating to Taxes, consent to any claim or
assessment relating to Taxes, or waiver of the statute of limitations for any
such claim or assessment;
(i) write-down or write-off as uncollectible any notes or accounts
receivable, except for write-downs and write-offs in the ordinary course of
business and consistent with past practice;
(j) disposal or lapse of any rights to the use of any Intellectual
Property, or disposal of or disclosure to any Person other than employees of the
Company and representatives of the Purchaser any trade secret, formula, process,
know-how or other Intellectual Property not theretofore a matter of public
knowledge;
(k) payment, loan or advance of any amount to, or sale, transfer or lease
of any properties or assets (real, personal or mixed, tangible or intangible)
to, or agreement or arrangement with, any of its officers or directors or any
Affiliate or Associate of any of its officers or directors except as permitted
by this Agreement; or
(l) agreement, whether oral or written, by the Company to do any of the
foregoing.
Section 4.8 Title to Properties; Encumbrances; Condition of Properties. The
Company has good, valid and marketable title to all the properties and assets
reflected in the February 28, 2003 balance sheet (except for property sold since
the Balance Sheet Date in the ordinary course of business) and all of the
properties and assets purchased or otherwise acquired by the Company since the
date of the Balance Sheet. The rights, properties and other assets presently
owned, leased or licensed by the Company include all such rights, properties and
other assets necessary to permit the Company to conduct its business in all
material respects in the same manner as such business has been conducted prior
to the date hereof. The equipment owned or used by the Company is in good
operating condition and repair (normal wear and tear experienced in the
Company's ordinary course of business excepted) and are adequate for the uses to
which they are being put.
Section 4.9 Real Property; Leases. The Company has never owned, and does
not currently own, any Real Property. The Company has valid and existing
leasehold interests in all of the Real Property that it possesses or occupies
(or has similar rights to possess, operate or occupy) pursuant to its Leases
(the "Leased Real Property"). Part 4.9 of the Disclosure Schedule contains a
list of all Leases for Leased Real Property, the rental payments due thereunder,
and the expiration date of such Leases. A true and complete copy of each Lease
has heretofore been delivered to the Purchaser. Each Lease is valid, binding and
enforceable in accordance with its terms and is in full force and effect. The
leasehold estate created by each Lease is free and clear of all Encumbrances,
except for Permitted Liens. There are no material existing defaults by the
Company under any of the Leases. No event has occurred that (whether with or
without notice, lapse of time or the happening or occurrence of any other event)
would constitute a default under any Lease.
14
Section 4.10 Environmental Matters.
(a) To the Knowledge of the Sellers, the Company is in full compliance with
all applicable Environmental Laws, including, without limitation, those relating
to the disposal of used or returned equipment, including computer equipment.
Such compliance includes, but is not limited to, the possession by the Company
of all permits and other governmental authorizations required under all
applicable Environmental Laws, and compliance with the terms and conditions
thereof. All Permits currently held by the Company pursuant to the Environmental
Laws are identified in Part 4.10(a) of the Disclosure Schedule.
(b) The Company has not received any communication (written or oral),
whether from a Governmental Authority, citizens group, employee or otherwise,
that alleges that the Company is not in compliance with any Environmental Laws,
and there are no circumstances that may prevent or interfere with such
compliance in the future. The Company has delivered to the Purchaser prior to
the execution of this Agreement all information that is in the possession of or
reasonably available to the Company regarding environmental matters pertaining
to, or the environmental condition of, the Company or the compliance (or
non-compliance) by the Company with any Environmental Laws.
(c) There are no Environmental Claims pending or, to the Knowledge of the
Sellers, threatened against the Company or any Person for whom the Company may
have liability by law or contract.
(d) There are no past or present actions, activities, circumstances,
conditions, events or incidents, including the release, emission, discharge,
presence or disposal of any Materials of Environmental Concern, that could form
the basis of any Environmental Claim against the Company or against any Person
whose liability for any Environmental Claim the Company has retained or assumed
either contractually or by operation of law.
Section 4.11 Contracts and Commitments.
(a) Part 4.11(a) of the Disclosure Schedule sets forth a complete and
accurate list and type (e.g., customer contract, vendor contract, etc.) of each
Applicable Contract. The Company has not received any notice (oral or written)
from any party to any such Applicable Contract of the termination or threatened
termination thereof and to the Knowledge of the Sellers, none of the parties
thereto has given notice that it intends to reduce the amount of business
conducted with the Company or intends not to renew such contract on terms at
least as favorable to the Company as those currently in effect. There are no
material disputes with respect to any Applicable Contract. Each such Applicable
Contract is in full force and effect and constitutes a legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms and constitutes a legal, valid and binding obligation of each other
Person that is a party thereto, enforceable against each such other Person in
accordance with its terms. With respect to each such Applicable Contract, there
is not any default or event that, with notice or lapse of time or both, would
constitute a default. The Company is not in breach of any Applicable Contract,
and there does not exist any condition under any Applicable Contract that
constitutes a default or an event of default or will, with the giving of notice
or the passage of time, constitute a default or an event of default under any
Applicable Contract.
(b) The Company has provided to the Purchaser a complete and accurate copy
of each written Applicable Contract set forth in the Disclosure Schedule.
15
(c) Except as set forth in Part 4.11(c) of the Disclosure Schedule, to the
Knowledge of the Sellers, there are no outstanding Applicable Contracts or
proposals which will result in any loss to the Company upon completion or
performance thereof.
(d) Except as set forth in Part 4.11(d) of the Disclosure Schedule, the
Company does not have any outstanding contracts with or any outstanding
obligations to shareholders, directors, officers, employees, agents,
consultants, advisors, salesmen, sales representatives distributors or dealers.
(e) Except as set forth in Part 4.11(e) of the Disclosure Schedule, the
Company is not party to any employment agreement, or any other agreement, that
contains any severance or termination pay or Liabilities.
(f) The Company does not have outstanding any loan to any Person.
(g) The Company is not restricted by agreement from carrying on its
business anywhere in the world.
(h) The Company is not subject to any noncompetition agreement or any
similar restrictions in any agreement.
(i) The Company has not agreed with any other party to any division of
markets.
(j) The Company does not have any Liabilities, as guarantor, surety,
co-signer, endorser, co-maker, indemnitor or otherwise, in respect of the
obligation of any Person.
(k) The Company is not party to any contract pursuant to which it has
agreed to indemnify another Person for consequential damages.
(l) Part 4.11(l) of the Disclosure Schedule sets forth all contracts that
contain exclusivity provisions of any kind, including exclusive agreements to
buy or sell.
(m) The Company is not in violation of any "most favored nations"
provisions of any (i) Applicable Contract or (ii) purchase order in excess of
$100,000.
(n) Part 4.11(n) of the Disclosure Schedule sets forth all Applicable
Contracts that have a term greater than one year or that can only be terminated
by the Company upon more than sixty (60) days notice.
(o) Part 4.11(o) of the Disclosure Schedule lists all of the Company's
capital lease obligations, the term thereof, and the periodic payments due
thereunder;
(p) Part 4.11(p) of the Disclosure Schedule sets forth all Applicable
Contracts that include commitments to buy or sell products or services with an
aggregate value in excess of $250,000.
16
Section 4.12 Insurance. Part 4.12(a) of the Disclosure Schedule sets forth
a true and complete list of all insurance policies in force on the date hereof
with respect to the business or assets of the Company. All such policies are in
full force and effect, the Company has paid all premium installments due
thereon, and the Company is otherwise in compliance in all material respects
with the terms and provisions of such policies. Furthermore, (a) the Company has
not received any notice of cancellation or non-renewal of any such policy or
arrangement nor is the termination of any such policy or arrangements
threatened, (b) there is no claim pending under any of such policies or
arrangements as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or arrangements, (c) the Company has not received
any notice from any of its insurance carriers that any insurance coverage
presently provided for will not be available to the Company in the future, and
(d) none of such policies or arrangements provides for any retrospective premium
adjustment, experienced-based liability or loss sharing arrangement affecting
the Company.
Section 4.13 Litigation. There is no action, suit, inquiry, charge,
proceeding or investigation (a "Proceeding") by or before any Governmental
Entity pending or, to the Knowledge of the Sellers, threatened against or
involving the Company, or which questions or challenges or may have the effect
of preventing, delaying, making illegal or otherwise interfering with, any of
the Transactions and there is no valid basis for any such action, proceeding or
investigation. The Company is not subject to any judgment, order or decree.
Section 4.14 Compliance with Laws. The Company has complied in all material
respects and in a timely manner with all Laws that affect the Company or its
properties or assets, including all applicable privacy laws, and no notice,
charge, claim, action or assertion has been received by the Company or has been
filed, commenced or, to the Knowledge of the Sellers, threatened against the
Company alleging any material violation of any Law. The Company has not made or
delivered any improper or unlawful payments or benefits to its vendors,
customers, or any other Person to solicit or obtain business or to influence the
terms on which business is done with the Company. All material licenses, permits
and approvals (collectively, the "Permits") required under all Laws to be held
or secured by the Company are in full force and effect and will continue to be
so upon consummation of the Transactions. The Permits listed in Part 4.14 of the
Disclosure Schedule collectively constitute all of the material Governmental
Authorizations necessary to permit the Company to lawfully conduct and operate
its business in the manner the Company currently conducts and operates such
businesses and to permit the Company to own and use its assets in the manner in
which the Company currently owns and uses such assets.
Section 4.15 Employee Benefit Plans.
(a) Part 4.15(a) of the Disclosure Schedule sets forth a true and complete
list of each Plan. Neither the Company nor any ERISA Affiliate has any plan or
commitment, whether legally binding or not, to create any additional Plan or
modify or change any existing Plan that would affect any current or former
employee, consultant or director of the Company or any Affiliate.
(b) The Company has delivered to the Purchaser, with respect to all Plans,
where applicable, true, complete and correct copies of the following: (i) all
Plan documents (including all amendments thereto) for each written Plan or a
written description of any Plan that is not otherwise in writing and the most
recent summary plan description and any subsequent summaries of material
modifications or other material employee communications discussing any employee
benefit provided thereunder; (ii) Forms 5500 as filed with the IRS for the most
recent three Plan years; (iii) all trust agreements with respect to the Plans;
(iv) copies of any contracts with service providers and insurers providing
benefits for participants or liability insurance or bonding for the sponsors,
administrators or trustees of any Plan; (v) the most recent effective IRS
determination letter for all Plans qualified under Code section 401(a); (vi) and
all handbooks, manuals, and similar documents governing material employment
policies, practices and procedures.
17
(c) With respect to each Plan: (i) each Plan has been administered in
compliance in all respects with its terms including, but not limited to, any
provisions relating to contributions thereunder, and is in compliance in all
material respects with the applicable provisions of ERISA, the Code and all
other federal, state and other applicable laws, rules and regulations, as they
relate to such Plans (including, without limitation, provisions relating to
funding, filing, termination, reporting, disclosure and continuation coverage
obligations pursuant to the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended ("COBRA")); (ii) there are no Proceedings (other than routine
claims for benefits) pending, or to the Knowledge of the Company, threatened
with respect to any Plan, the assets of any trust thereunder, or the Plan
sponsor or the Plan administrator with respect to the design or operation of any
Plan; (iii) there is no pending or, to the Knowledge of the Sellers, threatened
proceeding, investigation or inquiry involving any Plan before the IRS, the DOL
or any other Governmental Entity; (iv) each Plan which is intended to be
"qualified" within the meaning of Section 401(a) of the Code is so qualified,
and any trust created pursuant to any such Plan is exempt from federal income
tax under Section 501(a) of the Code and the IRS has issued each such Plan a
favorable determination letter which is currently applicable; (v) the Sellers
are not aware of any circumstance or event which would adversely affect the
tax-qualified status of any such Plan or the tax-exempt status of any related
trust, or would cause the imposition of any Liability, penalty or tax under
ERISA or the Code with respect to any Plan; (vi) no unsatisfied liabilities to
participants, the IRS, the DOL, the PBGC or to any other Person have been
incurred as a result of the termination of any Plan; and (vii) there has not
been any amendment to, written interpretation of, or announcement (whether or
not written) by the Company, the Sellers, or any ERISA Affiliates thereof,
relating to, or change in employee participation or coverage under, any Plan
that would materially increase the expense of maintaining such Plan above the
level or expense incurred in respect thereof for the most recent fiscal year
ended prior to the date hereof.
(d) Neither the Company nor any of its ERISA Affiliates currently maintains
or sponsors or maintained or sponsored a "pension plan" (within the meaning of
Section 3(2) or ERISA), which is subject to Title IV of ERISA or Section 412 of
the Code. Neither the Company nor any of its ERISA Affiliates has a current
obligation to contribute or had an obligation to contribute to any
"multiemployer plan" (within the meaning of Section 3(37) of ERISA) or any
"multiple employer plan" (within the meaning of Section 413(c) of the Code).
(e) No Plan provides medical, surgical, hospitalization, death or similar
benefits (whether or not insured) for employees or former employees of the
Company for periods extending beyond their retirement or other termination of
service, other than (i) coverage mandated by COBRA or other applicable law, (ii)
death or retirement benefits under any Plan, or (iii) benefits the full cost of
which is borne by the current or former employee (or his or her beneficiary).
(f) Neither the execution and delivery of this Agreement nor the
consummation of the Transactions will, either alone or in combination with
another event, (i) entitle any current or former employee, director, consultant
or officer of the Company or any ERISA Affiliate to severance pay, unemployment
compensation or any other payment except as expressly provided for in this
Agreement, (ii) materially increase any benefits otherwise payable by the
Company or (iii) accelerate the time of payment or vesting, or increase the
amount of compensation due to any such employee, director, consultant or
officer.
18
(g) No amounts payable under the Plans or any other contract, agreement or
arrangement with respect to which the Company may have any liability will or
could fail to be deductible for federal income tax purposes by virtue of section
280G of the Code.
(h) Neither the Company, any Plan, any trust created thereunder, nor any
trustee or administrator thereof has engaged in a transaction in connection with
which the Company, any Plan, any such trust, or any trustee or administrator
thereof, or any party dealing with any Plan or any such trust could be subject
to either a civil penalty assessed pursuant to ERISA or a tax imposed pursuant
to Section 4975 or 4976 of the Code.
Section 4.16 Tax Matters.
(a) All Tax Returns required to be filed by the Company have been filed and
all such returns are true, complete, and correct in all material respects,
including all sales and use tax returns. All Taxes that are due or claimed to be
due by a Tax Authority from the Company have been paid, including all sales
and/or use taxes.
(b) There are no Encumbrances for Taxes (other than Taxes not yet due and
payable) upon any assets or properties of the Company.
(c) No Audits are presently pending with regard to any Taxes or Tax Returns
of the Company, and the Company has not received written notification that any
such Audit is threatened, contemplated, or may be initiated. Part 4.16(c) of the
Disclosure Schedule contains a list of Audits that were concluded with respect
to any Taxes or Tax Returns of the Company.
(d) To the Knowledge of Sellers, no deficiency or adjustment for any Taxes
has been proposed, asserted, threatened, or assessed against the Company. To the
Knowledge of Sellers, no issue has been raised by any Tax Authority in any Audit
of the Company that, if raised with respect to any other period not so audited,
could reasonably be expected to result in a material proposed deficiency or
adjustment for any period not so audited ending on or prior to Closing.
(e) Part 4.16(e) of the Disclosure Schedule lists all Applicable Contracts
pursuant to which the Company is obligated to indemnify another party for Taxes
of any kind.
(f) The Company has not waived any statutory period of limitations
applicable to the assessment of any Taxes.
(g) The Company has not received written notice of, and to the Knowledge of
Sellers no factual basis exists that would support, any claim made by an
authority in a jurisdiction where it does not file Tax Returns that it is or may
be subject to taxation by that jurisdiction.
(h) No power of attorney has been granted by or with respect to the Company
that currently continues in effect with respect to any matter relating to Taxes.
(i) The Company is not a party to, is not bound by and does not have any
obligation under any Tax sharing agreement, Tax indemnification agreement or
similar contract or arrangement.
19
(j) Except as set forth in Part 4.16(j) of the Disclosure Schedule, the
Company has not (i) received a ruling from any Tax Authority or signed an
agreement with respect thereto or (ii) signed any closing agreement with respect
to any Tax year.
(k) The Company has delivered or made available to the Purchaser complete
and accurate copies of each of (i) all audit reports, letter rulings, technical
advice memoranda and similar documents issued to the Company by a Governmental
Entity relating to the United States federal, state, local or foreign Taxes due
from or with respect to the Company and (ii) all closing agreements entered into
by the Company with any Tax Authority in each case existing on the date hereof.
(l) The Company has complied with all Laws relating to the payment and
withholding of Taxes and is not liable for any Taxes for failure to comply with
such Laws.
(m) The Company has not filed (and was not required to file) with respect
to any item a disclosure statement pursuant to Section 6662 of the Code or any
comparable disclosure with respect to foreign, state and/or local tax Laws.
(n) The Company has not filed any agreement or consent under Section 341(f)
of the Code.
(o) The Company has never been a member of an affiliated group filing a
consolidated federal Tax Return (or similar state or local filing group).
(p) Commencing with its inception, the Company has been, pursuant to a
proper election, properly classified as an "S corporation" under 1361 et seq. of
the Code and has continued, and will continue, to be properly classified as an S
corporation through the Closing.
(q) Part 4.16(q) of the Disclosure Schedule sets forth all jurisdictions in
which the Company is licensed to do business, all the jurisdictions in which the
Company collects and remits sales or use taxes.
(r) The consummation of the Transactions will not give rise to an excise
tax under Section 280G or 4999 of the Code.
(s) The amount of the Company's liability for unpaid Taxes (other than
state or federal income taxes that are the responsibility of the Sellers) for
all periods ending on or before the date of this Agreement do not, in the
aggregate, exceed the amount of the current liability accruals for Taxes
(excluding reserves for deferred Taxes) solely with respect to the Company as of
the date of this Agreement, and the amount of the Company's liability for such
unpaid Taxes for all periods ending on or before the Closing Date shall not, in
the aggregate, exceed the amount of the current liability accruals for such
Taxes (excluding reserves for deferred Taxes) as such accruals are reflected on
the Financial Statements.
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Section 4.17 Intellectual Property.
(a) Company IP Rights, Software and License Agreements. Part 4.17(a) of the
Disclosure Schedule sets forth a true and complete list of: (i) all Company IP
Rights for which there exists a registration (or application for registration)
of such right with any governmental authority; (ii) all material Trademarks used
by the Company; (iii) a true and complete list of all material Software used in
the business of the Company, and (iv) a true and complete list of all License
Agreements, true and complete copies of which have been made available to the
Purchaser for diligence purposes, and specifying whether the Company owns or
licenses the same. Each License Agreement is valid and binding on all parties
thereto and enforceable in accordance with its terms; (ii) to the Knowledge of
Sellers, there exists no event or condition that does or will result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default by any party under, such License Agreement. To the
knowledge of the Sellers, the execution and consummation of the Transactions
will not result in any loss or impairment of the Company's ownership or right to
use any Company IP Rights or Purchaser's ability to succeed to such ownership or
use rights.
(b) Ownership; Sufficiency. Except as set forth in Part 4.17(b) of the
Disclosure Schedule, the Company owns all right, title and interest in and to,
free of all liens and Encumbrances, or has a valid and unrestricted right to
exploit, all Company IP Rights and all IP Rights used in or necessary for the
conduct of the business of the Company, Seller has no Knowledge or reason to
believe that any such right is or may be invalid, non-subsisting, or
unenforceable, and there are no restrictions on the Company's rights to use any
Company IP Rights or the conduct of the business of the Company in order to
accommodate a third party. The Company has taken reasonable measures, consistent
with customary industry practice, to protect and preserve its Trade Secrets.
(c) Noninfringement. The Company has not, and the conduct of the business
of the Company will not, infringe the IP Rights of any third party. Except as
set forth in Part 4.17(c) of the Disclosure Schedule: (i) there is no pending or
threatened Proceeding before any court, agency, arbitral tribunal, or
registration authority in any jurisdiction relating in any way to Company IP
Rights, and the Company has neither sought nor received any opinions of counsel
related to any of the foregoing. Except as set forth in Part 4.17(c) of the
Disclosure Schedule, the Company has no Knowledge or reason to suspect that any
third party is or may be misappropriating, infringing, diluting or violating any
Company IP Rights.
(d) Privacy Policies. The Company does not have and has never had a privacy
policy. The Company has complied with all applicable privacy laws and
regulations regarding the collection, retention, use and disclosure of personal
information.
Section 4.18 Labor Matters.
(a) The Company is not a party to or bound by any collective bargaining or
similar agreement with any labor organization or work rules or practices agreed
to with any labor organization or employee association applicable to employees
of the Company.
(b) None of the employees of the Company is represented by any labor
organization and, to the Knowledge of the Company, there have been no union
organizing activities among the employees of the Company within the past five
years, nor does any question concerning representation exist concerning such
employees, and there are no negotiations or discussions currently pending or
occurring with any union or employee association regarding any collective
bargaining agreement or which might otherwise effect the Company.
(c) There is no labor strike, dispute, corporate campaign, slowdown,
stoppage or lockout actually pending, or to the Knowledge of the Company,
threatened against or affecting the Company and during the past five years there
has not been any such action.
(d) There is no unfair labor practice charge or complaint against the
Company pending or, to the Knowledge of the Company, threatened before the
National Labor Relations Board or any Governmental Entity.
(e) There is presently no pending grievance or arbitration proceeding
arising out of any collective bargaining agreement or other grievance procedure
relating to the Company.
Section 4.19 Employee Matters.
(a) Part 4.19(a) of the Disclosure Schedule contains a complete and
accurate list of the following information for each employee and consultant of
the Company, including each employee on leave of absence: name; job title and
date of hire; current compensation paid or payable (including bonus, if any) and
any change in compensation since December 31, 2002.
(b) There are no employment or consulting contracts or severance agreements
with any employees or consultants of the Company and all employees are employed
"at will." No employees are entitled to any share of the income of the business.
21
(c) To the Knowledge of the Seller, no Governmental Entity responsible for
the enforcement of labor or employment Laws intends to conduct an investigation
with respect to or relating to the Company, and no such investigation is in
progress.
(d) The Company has at all times been in material compliance with all
applicable Laws respecting employment and employment practices, terms and
conditions of employment, wages, hours of work, immigration, and occupational
safety and health, and is not engaged in any unfair labor practices as defined
in the National Labor Relations Act or other applicable Law.
(e) Sellers have no knowledge that the consummation of the Transactions is
reasonably likely to result in the departure of any of the persons executing the
Bonus Agreements.
(f) To the Knowledge of the Sellers, no employee of the Company has
breached any agreement to keep in confidence information acquired by that
employee in confidence or in trust prior to that employee's employment with the
Company, nor has any such employee, through his or her employment by the
Company, breached any noncompetition, nonsolicitation or noninterference
agreement.
Section 4.20 (Omitted)
Section 4.21 Warranties. The Company's Liability for any type of warranty
or warranties does not exceed $25,000. The Company is in compliance with all
applicable laws and registration or licensing requirements with respect to all
of its warranties.
22
Section 4.22 (Omitted)
Section 4.23 Disputed Accounts Payable. The Company has no disputes with
payees of its accounts payable, or unpaid invoices or bills representing amounts
alleged to be owed by the Company, or other alleged obligations of the Company,
which the Company has disputed or determined to dispute or refuse to pay, which
individually or in the aggregate exceed $10,000.
Section 4.24 Customers and Vendors/Suppliers. There has not been any
Material Adverse Change in the business relationship of the Company with any
customer who accounted for more than five percent (5%) of the Company's annual
sales during the period from January 1, 2002 to the date hereof or any supplier
or vendor from whom the Company purchased more than ten percent (10%) of its
goods or services during the same period. The Company has sufficient systems in
place to account for and track vendor or supplier rebates, and the Company has
not improperly billed any supplier or vendor for any rebate, and there are no
current disputes or indications from vendors or suppliers of disputes regarding
such rebates. There are no unrecorded Liabilities to customers and/or vendors
where rights of audit exist on invoice pricing which would violate pricing
agreements, including any most-favored nation clauses, outlined in any vendor
authorizations, statements of work, or other customer contracts. No customer or
supplier or vendor has given the Company notice that it is entitled to or
intends to exercise any right of set off or discount against amounts owed to or
becoming owning to the Company. The Company does not owe any supplier or vendor
or customer any amounts that are not reflected on the Financial Statements or
incurred in the ordinary course of business, consistent in amount with past
practice, and not prohibit by this Agreement, since February 28, 2003. There are
no current disputes or controversies with any of the Company's customers or
vendors that would in the aggregate be adverse to the Company in an amount in
excess of $10,000.
Section 4.25 Brokers or Finders. Except for Xxxxxx Xxxx Securities, whose
fees, commissions and expenses will be paid by the Sellers, no agent, broker,
investment banker, financial advisor or other firm or Person is or will be
entitled to any brokers' or finder's fee or any other commission or similar fee
from the Company, any Seller or any of their Affiliates in connection with any
of the Transactions. No legal fees, accounting fees, or other fees, expenses or
commissions relating to the Transactions will be among the liabilities of the
Company at Closing.
Section 4.26 Affiliate and Related Party/Associate Transactions. The
Company has not entered into and is not subject to any Affiliate Transaction or
any transaction with any Associate or Person related to the Sellers by blood or
marriage or otherwise. Prior to the Closing, the Company will terminate all such
transactions without any Liability to the Company therefor. As of the Closing,
the Company will not be subject to any Affiliate Transaction or related party or
Associate transaction and will not have any Liabilities or obligations to any
Seller or Person related to any Seller or Associate of Seller or Affiliate of
the Company, other than pursuant to this Agreement or the other Documents.
Section 4.27 Subsidiaries. Without in any way qualifying, limiting or
modifying the other representations and warranties in this Article IV or
indemnification provisions in Article IX or limiting the Purchaser's rights to
pursue remedies with respect to the breach of representations and warranties as
to the Company having no Subsidiaries, should the Company prove to have any
Subsidiaries, all the representations and warranties made in Article III with
respect to the Company shall also be deemed to be made with respect to such
Subsidiaries.
Section 4.28 No Material Adverse Change. Since the Balance Sheet Date,
there has not been any material adverse change in the business, properties,
prospects, assets, liabilities, condition (financial or otherwise) or results of
operation of the Company (a "Material Adverse Change") and no event has occurred
or circumstance exists except for those that could not, individually or in the
aggregate, reasonably be expected to result in such a Material Adverse Change.
23
Section 4.29 Government Sales. Part 4.29 of the Disclosure Schedule
contains a complete and accurate list of all contracts, grants, cooperative
agreements, or other agreements or supply relationships between the Company and
any agency of the United States government or any state, local or foreign
government or municipality.
Section 4.30 Full Disclosure. No representation or warranty by the Sellers
or the Company contained in this Agreement or the other Documents and no
statement contained in any document, certificate, or other writing furnished or
to be furnished by or on behalf of the Sellers or the Company to the Purchaser
or any of its representatives pursuant to the provisions hereof or in connection
with the Transactions contains or will contain any untrue statement of material
fact or omit or will omit to state any material fact necessary, in light of the
circumstances under which it was made, in order to make the statements herein or
therein not misleading.
Section 4.31 Distributions. Since February 28, 2003, the Company has made
no cash payments or distributions that would have the effect of reducing the
Shareholders' Equity of the Business below $3,318,000.
ARTICLE V
REPRESENTATIONS AND
WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to each Seller that all of the
statements contained in this Article V are true and complete as of the date of
this Agreement (or, if made as of a specified date, as of such date), and will
be true and complete as of the Closing Date as though made on the Closing Date.
Each exception set forth in the disclosure schedule delivered by the Purchaser
to the Sellers and the Company (the "Purchaser Disclosure Schedule") and each
other response to this Agreement set forth in the Purchaser Disclosure Schedule
is identified by reference to, or has been grouped under a heading referring to,
a specific individual section of this Agreement and relates only to such
section.
Section 5.1 Organization; Legal Power; Qualification of the Purchaser. The
Purchaser (i) is a corporation duly organized and validly existing under the
laws of the State of Washington; (ii) has all requisite corporate power and
authority to execute and deliver this Agreement and the other Documents to which
the Purchaser is a party and perform its obligations hereunder and thereunder;
and (iii) has taken all necessary action to authorize the execution, delivery
and performance of this Agreement and the other Documents to which the Purchaser
is a party.
Section 5.2 Binding Agreement; Consents and Approvals; No Conflict, Default
or Violation.
(a) Each of this Agreement and the other Documents to which the Purchaser
is a party has been duly executed and delivered by the Purchaser and constitutes
a legal, valid and binding obligation of the Purchaser, enforceable against the
Purchaser in accordance with its terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law).
24
(b) Neither the execution, delivery or performance of this Agreement or any
other Document by the Purchaser nor the consummation by the Purchaser of any of
the Transactions will, directly or indirectly (with or without notice or lapse
of time or both):
(i) contravene, conflict with, or result in a violation of any
provision of the Organizational Documents of the Purchaser;
(ii) contravene, conflict with, or result in a violation of, or give
any Governmental Entity or other Person the right to challenge any of the
Transactions or to exercise any remedy or obtain any relief under, any Law
to which the Purchaser, or any of the assets owned or used by the
Purchaser, may be subject;
(iii) contravene, conflict with, or result in a violation of any of
the terms or requirements of, or give any Governmental Entity the right to
revoke, withdraw, suspend, cancel, terminate, or modify, any Permit that is
held by the Purchaser or that otherwise relates to the business of, or any
of the assets owned or used by, the Purchaser;
(iv) contravene, conflict with, or result in a violation or breach of
any provision of, or give any Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of,
or to cancel, terminate, or modify, any contract to which the Purchaser is
a party; or
(v) result in the imposition or creation of any Encumbrance upon or
with respect to any of the assets owned or used by the Purchaser; excluding
from the foregoing clauses (iv) and (v) such violations, breaches or
defaults which could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on Purchaser.
Section 5.3 Investment Representation. The Purchaser acknowledges that the
Shares being acquired have not been registered under the Securities Act nor
qualified under applicable state securities laws in reliance on exemptions
therefrom. The Purchaser is acquiring the Shares for investment for its own
account, not as a nominee or agent, and not with a view to, or for resale in
connection with, any distribution thereof in violation of the Securities Act.
Section 5.4 No Loan Default. The Purchaser is not in default under any loan
or credit arrangement with any of Purchaser's lenders or creditors and the
Purchaser has been able to fulfill all of its covenants applicable to any
lending arrangement that the Purchaser has with any of its lenders or creditors.
Section 5.5 Material Adverse Change. Since the Balance Sheet Date, there
has not been any material adverse change in the business, properties, assets or
liabilities of the Purchaser that is reasonably likely to result in the
inability of the Purchaser to perform its obligations under the Promissory Notes
or to make the Contingent Payments.
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ARTICLE VI
COVENANTS
Section 6.1 Interim Operations of the Company. Each of the Sellers and the
Company covenants and agrees that, from the date hereof and prior to the Closing
Date, except as expressly provided in this Agreement or as may be agreed in
writing by the Purchaser:
(a) the business of the Company shall be conducted in the same manner as
heretofore conducted and only in the ordinary course consistent with past
practice, and each of the Sellers and the Company shall use its best efforts to
preserve the business organization of the Company, keep available the services
of the current officers and employees and maintain the existing relations with
customers, suppliers, creditors, business partners and others having business
dealings with the Company;
(b) the Company shall not institute any new methods of purchase, sale,
lease, management, accounting or operation or engage in any transaction or
activity other than in the ordinary course of business consistent with past
practice;
(c) except to comply with this Agreement, the Company and the Sellers shall
not: (i) amend the Organizational Documents of the Company, (ii) issue, sell,
transfer, pledge, dispose of or encumber any shares or other securities, equity,
debt, convertible or otherwise, (iii) declare, set aside or pay any dividend or
other distribution payable in cash, stock or property with respect to any shares
or other securities of the Company; (iv) split, combine or reclassify any shares
or other securities of the Company; or (v) redeem, purchase or otherwise acquire
directly or indirectly any shares or other securities of the Company;
(d) the Company shall not organize any Subsidiary or acquire any capital
stock or other equity securities, or equity or ownership interest in (or any
right or option to receive any of the foregoing) the business, of any other
Person;
(e) the Company shall not modify, amend or terminate any of its Applicable
Contracts or waive, release or assign any material rights or claims, except in
the ordinary course of business consistent with past practice;
(f) except in the ordinary course of business, the Company shall not: (i)
incur or assume any Indebtedness; (ii) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise) for
the obligations of any other Person; (iii) make any loans, advances or capital
contributions to, or investments in, any other Person; (iv) enter into any
material commitment or transaction (including any sale or lease of assets or
real estate, including any Leased Real Property); (v) write off as uncollectible
any notes or accounts receivable; or (vi) dispose of or permit to lapse any
rights to any Intellectual Property;
(g) the Company shall not lease, license, mortgage, pledge or encumber any
assets or any Leased Real Property other than in the ordinary course of business
consistent with past practice or transfer, sell or dispose of any assets or
dispose of or permit to lapse any rights to any Intellectual Property;
(h) the Company shall not (i) make any change in the compensation payable
or to become payable to any of its officers, directors, employees, agents or
consultants (other than normal recurring increases in the ordinary course of
business of wages payable to employees who are not officers or directors or
Affiliates of the Company) or to Persons providing management services, (ii)
enter into or amend any employment, severance, consulting, termination or other
agreement with, or Plan for, or make any loan or advance to, any of its
officers, directors, employees, Affiliates, agents or consultants or (iii) make
any change in its existing borrowing or lending arrangements for or on behalf of
any of such Persons pursuant to Plan or otherwise;
26
(i) the Company shall not (i) pay or agree to pay or make any accrual or
arrangement for payment of any pension, retirement allowance or other employee
benefit pursuant to any existing plan, agreement or arrangement to any officer,
director, employee or Affiliate or pay or agree to pay or make any accrual or
arrangement for payment to any officer, director, employee or Affiliate of any
amount relating to unused vacation days, except to the extent the Company is
unconditionally obligated to do so on the date hereof, (ii) adopt or pay, grant,
issue, accelerate or accrue salary or other payments or benefits pursuant to any
pension, profit-sharing, bonus, extra compensation, incentive, deferred
compensation, stock purchase, stock option, stock appreciation right, group
insurance, severance pay, retirement or other employee benefit plan, agreement
or arrangement, or any employment or consulting agreement with or for the
benefit of any director, officer, employee, agent or consultant, whether past or
present, except to the extent the Company is unconditionally obligated to do so
on the date hereof, or (iii) amend in any material respect any such existing
plan, agreement or arrangement in a manner inconsistent with the foregoing;
(j) the Company shall not permit any insurance policy naming it as a
beneficiary or a loss payable payee to be cancelled or terminated;
(k) the Company and the Sellers shall not adopt a plan of complete or
partial liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization of the Company;
(l) the Company shall not (i) fail to file, on a timely basis, including
allowable extensions, with appropriate Tax Authorities all Tax Returns required
to be filed by or with respect to the Company for taxable years or periods
ending on or before the Closing Date or fail to remit (or cause to be remitted)
any Taxes due in respect of such Tax Returns, (ii) incur any material obligation
to make any payment of, or in respect of, any Tax, except in the ordinary course
of business, (iii) settle any Audit, make or change any Tax election or file any
amended Tax Returns or make or change any accounting method relating to Taxes,
(iv) change any of the accounting methods used by it unless required by GAAP, or
(v) agree to extend or waive any statutory period of limitation for the
assessment of Tax;
(m) the Company shall not take, or agree to or commit to take, any action
that would or is reasonably likely to result in any of the conditions to the
Closing set forth in Article VII not being satisfied, or would make any
representation or warranty of the Company or the Sellers contained herein
inaccurate in any respect at, or as of any time prior to, the Closing Date, or
that would materially impair the ability of the Company, the Purchaser, or the
Sellers to consummate the Closing in accordance with the terms hereof or
materially delay such consummation; and
(n) the Company shall not enter into any agreement, contract or arrangement
to do any of the foregoing, or authorize, recommend, propose or announce an
intention to do, any of the foregoing.
27
Section 6.2 Access; Confidentiality.
(a) Between the date of this Agreement and the Closing, each of the Sellers
shall cause the Company to and the Company shall (i) with the prior consent of
the Sellers, afford the Purchaser and its authorized representatives reasonable
access to the officers, employees, agents, properties, offices, plants and other
facilities, books, and records, auditor's workpapers, (ii) with the prior
consent of the Sellers, permit the Purchaser to contact customers and vendors of
the Company, (iii) permit the Purchaser to make such inspections and to make
copies of such books and records as it may reasonably require and (iii) furnish
the Purchaser with such financial and operating data and other information as
the Purchaser may from time to time reasonably request. From the date hereof
until the time of Closing, the Company shall provide Buyer with monthly and
other financial statements of the Company as they become available internally at
the Company. The Purchaser and its authorized representatives shall conduct all
such inspections in a manner that is reasonably designed to limit disruptions to
the business and operations of the Company.
(b) Except as required by applicable Law or Governmental Entity, the
Company, the Purchaser and the Sellers shall not, and shall not permit any of
their respective Affiliates or representatives to, (i) make any public
announcement in respect of this Agreement or the Transactions, (ii) discuss or
disclose the contents and/or existence of this Agreement or the Transactions, or
(iii) discuss the nature of the Transactions or any other matter, directly or
indirectly, relating to this Agreement, without the prior written consent of the
Purchaser. Company and each of the Sellers agrees to cooperate with Purchaser,
as necessary, at or following the Closing in making a public announcement in
respect of this Agreement and the Transactions as required by law, as determined
by Purchaser in its sole discretion.
Section 6.3 Efforts and Actions to Cause Closing to Occur.
(a) Prior to the Closing, upon the terms and subject to the conditions of
this Agreement, the Purchaser, the Sellers, and the Company shall use their
respective reasonable best efforts to take, or cause to be taken, all actions,
and to do, or cause to be done and cooperate with each other in order to do, all
things necessary, proper or advisable (subject to any applicable Laws) to
consummate the Closing and the other Transactions as promptly as practicable
including, but not limited to the preparation and filing of all forms,
registrations and notices required to be filed to consummate the Closing and the
other Transactions and the taking of such actions as are necessary to obtain any
requisite approvals, authorizations, Consents, orders, licenses, Permits,
qualifications, exemptions or waivers by any third party or Governmental Entity.
In addition, no party hereto shall take any action after the date hereof that
could reasonably be expected to materially delay the obtaining of, or result in
not obtaining, any permission, approval or Consent from any Governmental Entity
or other Person required to be obtained prior to Closing.
(b) Prior to the Closing, each party shall promptly consult with the other
parties hereto with respect to, provide any necessary information with respect
to, and provide the other parties (or their respective counsel) with copies of,
all filings made by such party with any Governmental Entity or any other
information supplied by such party to a Governmental Entity in connection with
this Agreement and the Transactions. Each party hereto shall promptly provide
the other parties with copies of any communication received by such party from
any Governmental Entity regarding any of the Transactions. If any party hereto
or Affiliate thereof receives a request for additional information or
documentary material from any such Governmental Entity with respect to any of
the Transactions, then such party shall endeavor in good faith to make, or cause
to be made, as soon as reasonably practicable and after consultation with the
other parties, an appropriate response in compliance with such request. To the
extent that transfers, amendments or modifications of Permits are required as a
result of the execution of this Agreement, the other Documents or consummation
of any of the Transactions, the Sellers, and the Company shall use their best
efforts to effect such transfers, amendments or modifications.
28
(c) The Company and the Sellers shall use their respective best efforts to
obtain, prior to the Closing, the unconditional Consent to the Closing and the
other Transactions of each other party to each contract with the Company whose
Consent to the Closing and the other Transactions is required. All such Consents
shall be in writing and executed counterparts thereof shall be delivered to the
Purchaser at or prior to the Closing.
Section 6.4 Notification of Certain Matters.
(a) From time to time prior to the Closing, the Sellers, and the Company
shall promptly supplement or amend the Disclosure Schedule with respect to any
matter arising after the delivery thereof pursuant hereto that, if existing at,
or occurring on, the date of this Agreement, would have been required to be set
forth or described in the Disclosure Schedule.
(b) The Company and the Sellers shall give notice to the Purchaser promptly
after becoming aware of (i) the occurrence or non-occurrence of any event whose
occurrence or non-occurrence would be likely to cause either (A) any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date hereof to the
Closing Date or (B) any condition set forth in Article VI to be unsatisfied in
any material respect at any time from the date hereof to the Closing Date and
(ii) any material failure of the Sellers or the Company or any officer,
director, employee or agent thereof, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder.
(c) The Company shall deliver to the Purchaser copies of (i) all audit
reports, letter rulings, technical advice memoranda and similar documents issued
by a Governmental Entity relating to Taxes due from or with respect to the
Company and (ii) any closing agreements entered into by the Company with any
Taxing Authority, which come into the possession of the Company after the date
hereof.
Section 6.5 Post-Closing Covenants.
(a) If at any time after the Closing the Purchaser reasonably determines
that any deeds, bills of sale, instruments of conveyance, assignments,
assurances or any other actions or things are necessary or desirable (i) to
vest, perfect or confirm ownership (of record or otherwise) in the Purchaser,
its right, title or interest in, to or under any or all of the Shares, (ii) to
vest, perfect or confirm ownership (of record or otherwise) in the Company any
of its rights, properties or assets or (iii) otherwise to carry out this
Agreement, the Sellers shall execute and deliver all deeds, bills of sale,
instruments of conveyance, powers of attorney, assignments and assurances and
take and do all such other actions and things as may be reasonably requested by
the Purchaser in order to vest, perfect or confirm any and all right, title and
interest in, to and under such rights, properties or assets in the Purchaser or
the Company or otherwise to carry out this Agreement. In case at any time after
the Closing Date any further action is necessary, proper or advisable to carry
out the purposes of this Agreement, as soon as reasonably practicable, each
party hereto shall take, or cause its proper officers or directors to take, all
such necessary, proper or advisable actions.
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(b) Purchaser shall not amend, eliminate or alter in any way any rights of
indemnification or other similar protections that exist in the Company's
articles or bylaws prior to the Closing that are intended to protect the
officers and directors of the Company in a manner that adversely affects such
persons.
(c) The Company will pay certain bonus amounts which will be accrued either
on the Financial Statements or in the Closing Balance Sheet, including $119,000
to be paid to certain of the employees signing the Bonus Agreements. A portion
of those bonuses will be paid at or shortly following Closing and the balance
will be paid at or before December 31, 2003. To the extent that the bonuses have
been accrued for on either the Financial Statements or the Closing Balance Sheet
of the Company, the payment of the such amount to the employees as bonuses will
not be a charge against earnings for purposes of calculating EBITDA.
(d) Subject to the reserve set forth on the Closing Statement applicable to
accounts receivable, all Company accounts receivable, including, without
limitation, vendor receivables, will be collected in full, without any set off,
within ninety (90) days after the Closing (receivables that are not collected
within such ninety (90) day period shall be known as "Old Receivables"). On the
ninety-first (91st) day after the Closing, the Sellers shall pay the Purchaser
the difference between the Old Receivables and the amount reserved for such Old
Receivables, which is $146,654.00; or alternatively, the Purchaser shall pay the
Sellers the difference between the amount reserved for said accounts receivable
and the actual collected accounts receivable. In the event the Sellers are
required under this Section 6.5(d) to pay for such Old Receivables, any amounts
later collected by the Company with respect to such Old Receivables shall be
paid to Sellers.
(e) Subject to the valuation reserve set forth on the Closing Statement
applicable to inventory, the inventory of the Company set forth in the Closing
Statement will be sold for at least its book value within ninety (90) days after
the Closing. On the ninety-first (91st) day after the Closing, the Sellers shall
pay the Purchaser the amount by which the then-current value of such inventory
still on hand without demand or customer commitment to purchase (the "Discounted
Inventory") is less then the value of such inventory on the Closing Statement,
after reserves for both obsolescence and excess quantity which as of February
28, 2003, was $284,950; or alternatively, the Purchaser shall pay the Sellers
the amount by which the Discounted Inventory exceeds the value of such inventory
on the Closing Statement, after reserves for such inventory for both
obsolescence and excess quantity which as of February 28, 2003, was $284,950.
Such valuation analysis will be based on current market cost, as determined by
lowest available distribution or vendor direct cost, from Synnex, Xxxxxx Micro,
Tech Data, or Vendor Direct. In the event the Sellers are required to make any
payment to the Purchaser in accordance with this Section 6.5(e), the Sellers
shall be entitled to reimbursement by the Purchaser to the extent that any
Discounted Inventory is later sold for a price in excess of the foregoing
determined value (capped at the value reflected on the Closing Statement). In
the event that Purchaser is required to make payment to the Sellers in
accordance with this Section 6.5(e), the Purchaser shall be entitled to
reimbursement by the Sellers to the extent that the Discounted Inventory is
later sold for a prices that is less than the foregoing determined value (capped
at the value reflected on the Closing Statement).
Section 6.6 Tax Matters.
(a) The Sellers shall be responsible for all federal and state income Tax
Returns required or permitted by applicable Law to be filed by the Company (or
by the Sellers on their own behalf) with respect to periods that end on or
before the Closing Date, provided such Tax Returns are true and correct. Copies
of all such Tax Returns will be provided to the Purchase upon their filing with
the appropriate Tax Authority.
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(b) The Purchaser and the Company shall be responsible for, and shall have
ultimate discretion with respect to all Tax Returns required to be filed by the
Company with respect to the periods that begin after the Closing Date. The
Sellers shall be responsible for any Taxes with respect to periods ending on or
before the Closing Date.
(c) After the Closing Date, each of the Purchaser and the Company, on the
one hand, and the Sellers, on the other, shall (i) provide, or cause to be
provided, to each other's respective subsidiaries, officers, employees,
representatives and affiliates, such assistance as may reasonably be requested
by any of them in connection with the preparation of any Tax Return or any Audit
of the Company in respect of which Purchaser, the Company or the Sellers, as the
case may be, is responsible pursuant to Section 6.6(a) or (b) hereof, (ii)
retain, or cause to be retained, for so long as any such Taxable years or Audits
shall remain open for adjustments, any records or information which may be
relevant to any such Tax Returns or Audits, and (iii) compensate the other party
for all reasonable costs incurred by such other party in connection with
providing any assistance requested pursuant to clause (i) above. The assistance
provided for in this Section 6.6(c) shall include without limitation each of the
Purchaser, the Company and the Sellers (x) making their agents and employees and
the agents and employees of their respective subsidiaries and affiliates
available to each other on a mutually convenient basis to provide such
assistance as might reasonably be expected to be of use in connection with any
such Tax Returns or Audits and (y) providing, or causing to be provided, such
information as might reasonably be expected to be of use in connection with any
such Tax Returns or Audits, including without limitation records, returns,
schedules, documents, work papers, opinions, letters or memoranda, or other
relevant materials relating thereto.
(d) Each of the Purchaser and the Company and the Sellers, shall promptly
inform, keep regularly apprised of the progress with respect to, and notify the
other party in writing not later than ten days after the receipt of any notice
of any Audit in respect of any Tax Return for which it was responsible pursuant
to Section 6.6(a) or (b) hereof which could affect the Tax liability of such
other party for any taxable year.
Section 6.7 Exclusivity. From the date hereof until the earliest to occur
of (i) the Closing Date, or (ii) March 31, 2003, the Company and the Sellers
will not (and will use their respective best efforts to assure that the
Company's officers, directors, employees, agents and Affiliates do not on the
Company's behalf) take any action to solicit, initiate, seek, encourage, respond
to, or support any inquiry, proposal or offer from, furnish any information to,
or participate in any negotiations with, any Person (other than the Purchaser)
regarding any acquisition of the Company, any merger or consolidation with or
involving the Company, or any acquisition of a material portion of the equity or
assets of the Company. The Company and the Sellers represent and warrant that
any such negotiations in progress as of the date of that certain Letter of
Intent, dated as of March 3, 2003, between the Purchaser, the Company and the
Sellers, were terminated or suspended on or before the date of such letter. The
Company and the Sellers will immediately notify the Purchaser regarding any
contact by any Person (other than the Purchaser) regarding any offer, proposal
or inquiry regarding any such acquisition or financing of the Company. In no
event will the Company or the Sellers accept or enter into an agreement
concerning any such third party transaction.
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Section 6.8 Operations of the Company following the Closing. After Closing
and until the expiration of the Earn Out Period, the Purchaser covenants that it
shall cause: (i) for the purposes of this Agreement, the Company's financial
statements to be prepared on a standalone basis as if it were an independent
corporation and not part of a consolidated group; (ii) the Company to have
separate accounting treatment and procedures, consistently applied in accordance
with GAAP; (iii) any transactions between the Company and the Purchaser or with
Purchaser's Affiliates to be on terms and conditions as though Purchaser and the
Company were not Affiliated (i.e. arms-length) (other than with respect to
distributions from the Company to the Purchaser with respect to the shares of
capital stock of the Company held by Purchaser) or pursuant to such other terms
as Purchaser and the Seller Representative jointly determine; (iv) in the event
that any resources, assets or employees of the Company (other than Xxxxxxxxx
Xxxxxx) are used in connection with projects of the Purchaser or its Affiliates,
the Purchaser will compensate the Company on terms and conditions and as though
the Purchaser and the Company were not Affiliated (i.e. arms-length) or pursuant
to such other terms as the Purchaser and the Seller Representative jointly
determine; (v) in the event that any resources, assets or employees of the
Purchaser or its Affiliates (other than the Company) are used in connection with
projects of the Company, the Company will compensate Purchaser on terms and
conditions and as though the Purchaser and the Company were not Affiliated (i.e.
arms-length) or pursuant to such other terms as the Purchaser and the Seller
Representative jointly determine (vi) for purposes of calculating EBITDA, to
exclude as an item of expense any allocation of corporate overhead by the
Purchaser or any of its Affiliates (other than the Company) except to the extent
it is agreed upon in writing by the Seller Representative; (vii) the Company to
be in the same line of business after Closing as prior to Closing, unless agreed
upon in writing by the Seller Representative, (viii) the Company to receive its
portion (based on actual Company revenues) of "soft dollars" as that term is
commonly understood in the Company's line of business, including but not limited
to its right to receive all incentives, rebates, awards, reductions and other
incentives provided by the customers and suppliers of the Company, and (ix) the
Purchaser shall be expressly permitted to consolidate the lines of credit of the
Purchaser and the Company at any time after Closing, provided that any fees or
costs for such lines of credit shall be equitably allocated between the
Purchaser and the company to reflect their respective uses of such line of
credit, and the Sellers acknowledge that they are aware, and approve, of such
plans.
Section 6.9 Xxxxxxx Xxxxxxx. After the date hereof, each Seller shall not,
and shall cause any member of the immediate family or household of such Seller
not to, (a) engage in any transaction involving a purchase or sale of the
Purchaser's securities, including any offer to purchase or offer to sell, during
any period commencing with the date that he or she first receives material
nonpublic information concerning (i) the Purchaser or the Company (including
without limitation any information concerning any Earn Out Report) or (ii) any
Person that conducts business with the Purchaser or the Company (if such
information was obtained through the Seller's relationship with the Purchaser or
the Company), and ending at such time as such information is no longer material
or nonpublic; or (b) disclose such material nonpublic information to any other
Person (including family members) where such information may be used by such
Person to his or her profit by trading in the securities of the Purchaser or the
Persons to which such information relates.
ARTICLE VII
CONDITIONS
Section 7.1 Conditions to Each Party's Obligation to Effect the Closing.
The respective obligation of the Purchaser and the Sellers to effect the Closing
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:
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(a) Statutes; Court Orders. No Law shall have been enacted or promulgated
by any Governmental Entity which prohibits the consummation of the Transactions;
and there shall be no order or injunction of a court of competent jurisdiction
in effect precluding consummation of the Transactions; and
(b) No Proceedings. Since the date of this Agreement, there must not have
been commenced or threatened against the Purchaser, the Company, or the Sellers,
or against any Person affiliated with the Purchaser, the Company, or the
Sellers, any Proceeding: (i) involving any challenge to, or seeking damages or
other relief in connection with, any of the Transactions, or (ii) that may have
the effect of preventing, delaying, making illegal, or otherwise interfering
with any of the Transactions.
Section 7.2 Conditions to Obligations of the Purchaser to Effect the
Closing. The obligations of the Purchaser to consummate the Closing shall be
subject to the satisfaction or waiver on or prior to the Closing Date of each of
the following conditions:
(a) Representations and Warranties. All of the representations and
warranties of the Sellers set forth in this Agreement that are qualified as to
materiality shall be true and complete in all respects and each representation
or warranty that is not so qualified shall be true and complete in all material
respects as of the date of this Agreement and as of the Closing Date;
(b) Sellers' and the Company's Performance. All of the covenants and
obligations that the Sellers and the Company are required to perform or comply
with pursuant to this Agreement at or prior to the Closing shall have been duly
performed and complied with in all material respects;
(c) No Claim Regarding Equity Ownership or Sale Proceeds. There shall not
have been made or threatened by any Person any claim asserting that such Person
(a) is the holder or the beneficial owner of, or has the right to acquire or to
obtain beneficial ownership of, any Company Stock, or any other voting, equity,
or ownership interest in, the Company, or (b) is entitled to all or any portion
of the purchase price payable for the Shares;
(d) Shareholders' Equity of the Business. The Shareholders' Equity of the
Business will not be less than $3,318,000;
(e) Opinion. The Sellers shall have delivered to the Purchaser at the
Closing an opinion of Xxxxxxx Xxxxxxxx, X.X. counsel to the Sellers, dated the
Closing Date, substantially in the form attached as Exhibit 7.2(e).
(f) Employment Agreement and Non-Compete Agreements. Each of the Sellers
(other than Xx. Xxxxxx) shall have delivered the Non-Compete Agreement, and Xx.
Xxxxxx shall have delivered the Employment Agreement.
(g) Subordination Agreements. Each of the Sellers shall have executed a
Subordination Agreement with Transamerica Commercial Finance Corporation, in the
form approved by Sellers' counsel on March 31, 2003.
(h) Material Adverse Change. Since the Balance Sheet Date, there shall not
have been any Material Adverse Change and no event shall have occurred or
circumstance exists except for those that could not individually or in the
aggregate, reasonably be expected to result in a Material Adverse Change.
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(i) Termination of Seller Agreements. The following agreements by and among
the Sellers or by and among certain of the Sellers shall be terminated: (1) that
certain Stock Purchase Agreement dated December 31, 1999; (2) that certain
Pledge Agreement dated December 31, 1999, by and among Xxxxxxxxx X. Xxxxxx,
Xxxxxx X. Xxxxxxxxxx, and Xxxxxx X. Xxxxxxxxxx; and (3) that certain
Stockholders Agreement by and among the Company, Xxxxxx X. Xxxxxxxxxx, Xxxxxx X.
Xxxxxxxxxx and Xxxxxxxxx X. Xxxxxx dated December 31, 1999. The Sellers hereby
agree that such agreements shall be considered forever and irrevocably
terminated and of no further force or effect whatsoever effective as of Closing.
(j) Termination of 401(k) Plan. The Company will adopt a resolution prior
to Closing which will terminate its 401(k) Plan contingent on the Closing.
(k) Resignations; Powers. Messrs. Xxxxxx Xxxxxxxxxx and Xxxxxx Xxxxxxxxxx
shall have executed resignations as directors and officers of the Company in the
form of attached Exhibit 7.2(m).
(l) Bank Accounts. Xx. Xxxxxx shall have caused the Company to have removed
Messrs. Xxxxxx Xxxxxxxxxx and Xxxxxx Xxxxxxxxxx as Persons with power over the
Company's bank accounts and as Persons with signature authority with respect
thereto. The Company's Board shall have adopted resolutions authorizing and
directing the officers of the Company to (i) remove Messrs. Xxxxxx Xxxxxxxxxx
and Xxxxxx Xxxxxxxxxx as Persons with power over the Company's bank accounts and
as Persons with signature authority with respect thereto, and (ii) appoint
Messrs. Xxxxxx X. XxXxxxxx and Xxxx Xxxxxxx as Persons with power over the
Company's bank accounts and as Persons with signature authority with respect
thereto.
(m) Bonus Agreement. The Company shall have entered into the Bonus
Agreement with each of Messrs. Xxxx Xxxxx, Xxxx Xxxxxx, and Xxxxxxx Xxxxxx.
(n) Spousal Consents. The Spousal Consents of the spouse of each Seller in
the form or substantially the form of attached Exhibit 2.2(c) shall be
delivered.
(o) Xxxxxx Severance Agreement. The Xxxxxx xxxxxxxxx agreement shall have
been terminated.
(p) Compliance Certificate. The Sellers shall have delivered to the
Purchaser at the Closing a certificate signed by each of the Sellers, dated the
Closing Date, confirming the matters set forth in Sections 7.2(a) - (d), (h) --
(j), (l) and (o).
Section 7.3 Conditions to Obligations of the Sellers to Effect the Closing.
The obligations of the Sellers to consummate the Closing shall be subject to the
satisfaction or waiver on or prior to the Closing Date of each of the following
conditions:
(a) Representations and Warranties. All of the representations and
warranties of the Purchaser set forth in this Agreement that are qualified as to
materiality shall be true and complete in all respects and each representation
or warranty that is not so qualified shall be true and complete in all material
respects as of the date of this Agreement and as of the Closing Date;
34
(b) Purchasers' Performance. All of the covenants and obligations that the
Purchaser is required to perform or comply with pursuant to this Agreement at or
prior to the Closing must have been duly performed and complied with in all
material respects;
(c) Compliance Certificate. The Purchaser shall have delivered to the
Sellers at the Closing a certificate signed by an authorized officer of the
Purchaser, dated the Closing Date, confirming the matters set forth in Sections
7.3(a) and (b); and
(d) Opinion. The Purchaser shall have delivered to the Sellers at the
Closing an opinion of Xxxx Xxxx, counsel to Purchaser, dated the Closing Date,
substantially in the form attached as Exhibit 7.3(d).
ARTICLE VIII
TERMINATION
Section 8.1 Termination. This Agreement may be terminated at any time prior
to the Closing Date:
(a) by the Purchaser if a material breach of any provision of this
Agreement has been committed by any Seller or the Company and such breach has
not been waived;
(b) by the Sellers if a material breach of any provision of this Agreement
has been committed by the Purchaser and such breach has not been waived;
(c) (i) by the Purchaser if any of the conditions in Section 7.1 or 7.2 has
not been satisfied as of the Closing Date or if satisfaction of such a condition
is or becomes impossible (other than through the failure of the Purchaser to
comply with its obligations under this Agreement) and the Purchaser has not
waived such condition on or before the Closing Date or (ii) by the Sellers if
any of the conditions in Section 7.1 or 7.3 has not been satisfied as of the
Closing Date or if satisfaction of such a condition is or becomes impossible
(other than through the failure of the Sellers or the Company to comply with its
obligations under this Agreement) and the Sellers have not waived such condition
on or before the Closing Date;
(d) by mutual consent of the Purchaser and the Sellers; or
(e) by either the Purchaser or the Sellers if the Closing has not occurred
(other than through the failure of any party seeking to terminate this Agreement
to comply fully with its obligations under this Agreement) on or before April 1,
2003, or such later date as the Purchaser and the Sellers may agree upon.
Section 8.2 Effect of Termination. In the event of the termination of this
Agreement as provided under Section 8.1, written notice thereof shall forthwith
be given to the other party or parties specifying the provision hereof pursuant
to which such termination is made, and there shall be no liability or obligation
thereafter on the part of the Purchaser, the Company, or the Sellers except as
set forth in Section 8.1; provided, however, that if this Agreement is
terminated by a party because of the breach of this Agreement by the other party
or because one or more of the conditions to the terminating party's obligations
under this Agreement is not satisfied as a result of the other party's failure
to comply with its obligations under this Agreement, the terminating party's
right to pursue all legal remedies will survive such termination unimpaired.
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ARTICLE IX
INDEMNIFICATION
Section 9.1 Survival of Representations and Warranties. All of the
representations, warranties, covenants and obligations of the Seller contained
in Articles III, IV and VI, and of the Purchaser in Articles V and VI, shall
survive the Closing until the second anniversary of the Closing Date and the
representations and warranties contained in Section 4.16 shall survive the
Closing and continue in full force and effect until expiration of any applicable
statute of limitation or audit and examination period. Any claim relating to
fraud shall survive the Closing indefinitely. The right to indemnification,
payment of Damages (as defined in Section 9.2 hereof) or other remedy based on
any representations, warranties, covenants, and obligations contained in this
Agreement will not be affected by any investigation conducted with respect to,
or any knowledge acquired (or capable of being acquired) at any time, whether
before or after the execution and delivery of this Agreement or the Closing
Date, with respect to the accuracy or inaccuracy of or compliance with, any such
representation, warranty, covenant, or obligation.
Section 9.2 Indemnification and Payment of Damages by the Sellers.
(a) The Sellers will, with respect to Article III, Severally, and with
respect to Article IV and VI, jointly and severally, indemnify and hold harmless
the Purchaser and its officers, directors, employees, agents and Affiliates
(collectively, the "Purchaser Indemnified Parties") for, and will pay to such
indemnified persons the amount of, any loss, liability, claim, Taxes, damage or
expense (including costs of investigation and defense and reasonable attorneys'
and professionals' fees), whether or not involving a Third Party Claims, and not
considering the benefit of any such item to Purchaser for Tax purposes or any
insurance proceeds received by Purchaser (but will be net of insurance benefits
to the Company from policies of insurance that have been paid for by the
Company) (collectively, "Damages"), arising, directly or indirectly, from or in
connection with:
(i) any breach of any representation or warranty made by the Sellers
in Article III or Article IV by the Sellers or the Company pursuant to this
Agreement or the other Documents that confirms or otherwise relates to such
representations or warranties;
(ii) any breach by the Sellers of any covenant or obligation of the
Sellers or the Company in Article VI;
(iii) fraud by the Company or the Sellers in connection with this
Agreement and the transactions contemplated hereby.
(b) The Purchaser will indemnify and hold harmless the Sellers and their
respective Affiliates (together with the Purchaser Indemnified Parties, the
"Indemnified Parties," and each such party individually, an "Indemnified Party")
for, and will pay to such indemnified persons the amount of, any Damages
arising, directly or indirectly, from or in connection with:
(i) any breach of any representation or warranty made by the Purchaser
in Article V or the other Documents that confirms or otherwise relates to
such representations or warranties;
36
(ii) any breach by the Purchaser of any covenant or obligation of the
Purchaser in Article VI; and
(iii) fraud by the Purchaser in connection with this Agreement and the
transactions contemplated hereby.
Section 9.3 Thresholds and Limitations.
(a) No Indemnified Party shall be entitled to receive any indemnification
payment with respect to any claims for indemnification under this Article IX
until and only to the extent that the aggregate Damages for such Indemnified
Party would be otherwise entitled to receive indemnification exceed $100,000.
(b) An Indemnifying Party (defined below) shall not be obligated to defend
and hold harmless an Indemnified Party, or otherwise be liable to such party,
with respect to any claims for indemnification under this Article IX made by the
Indemnified Party after the expiration of the applicable time limitation
described in Section 9.1, except that indemnity may be sought after the
expiration of such time limitation if a Notice of Claim shall have been
delivered to the Indemnifying Party prior to the expiration of such time
limitation.
(c) The total liability of the Sellers on a several basis with respect to
Article III and joint and several in Article IV and VI for any claim for Damages
asserted by the Purchasers pursuant to this Agreement shall be limited to ninety
percent (90%) of the amount paid or payable by Purchaser pursuant to this
Agreement.
(d) The total liability of the Purchaser for any claim for Damages asserted
by the Sellers pursuant to this Agreement shall be limited to the maximum amount
the Sellers could receive under the Promissory Notes and the Contingent Payment,
taking into account the benefits the Sellers have received, or could receive,
under the Promissory Notes and the Contingent Payment. This provision does not
limit the Seller's rights to injunctive relief to compel the Purchaser's
compliance with this Agreement.
Section 9.4 Defense and Settlement of Third-Party Claims.
(a) If any third party shall notify any Indemnified Party with respect to
any matter (a "Third Party Claim") which may give rise to a claim for
indemnification against any other party (the "Indemnifying Party") under this
Article IX, then the Indemnified Party shall promptly notify the Indemnifying
Party (or, if the claim for indemnification is against the Sellers, the
Purchaser shall notify the Seller Representative) thereof in writing; provided,
however, that no delay on the part of the Indemnified Party in notifying the
Indemnifying Party or the Seller Representative, as the case may be, shall
relieve the Indemnifying Party from any obligation hereunder unless (and then
solely to the extent) the Indemnifying Party thereby is prejudiced.
(b) The Indemnifying Party will have the right to assume the defense of the
Third Party Claim with counsel of its choice reasonably satisfactory to the
Indemnified Party at any time within fifteen (15) days after the Indemnified
Party has given notice of the Third Party Claim; provided, however, that the
Indemnifying Party must conduct the defense of the Third Party Claim actively
and diligently thereafter in order to preserve its rights in this regard; and
provided, further, that the Indemnified Party may retain separate co-counsel at
its sole cost and expense and participate in the defense of the Third Party
Claim.
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(c) So long as the Indemnifying Party has assumed and is conducting the
defense of the Third Party Claim in accordance with Section 9.4(b) above, the
Indemnifying Party will not consent to the entry of any judgment or enter into
any settlement with respect to the Third Party Claim without the prior written
consent of the Indemnified Party (not to be withheld unreasonably), unless the
judgment or proposed settlement involves only the payment of money damages by
the Indemnifying Party and does not impose an injunction or other equitable
relief or any other Damages upon the Indemnified Party and will not give rise to
any increase in any Tax liability of the Purchaser, the Company, or any of their
Affiliates.
(d) In the event any of the conditions in Section 9.4(b) is or becomes
unsatisfied, however, (i) the Indemnified Party may defend against, and consent
to the entry of any judgment or enter into any settlement with respect to the
Third Party Claim in any manner it reasonably may deem appropriate (and the
Indemnified Party need not consult with, or obtain any consent from, the
Indemnifying Party in connection therewith), (ii) the Indemnifying Party will
reimburse the Indemnified Party promptly and periodically for the costs of
defending against the Third Party Claim (including attorneys fees and expenses),
(iii) the Indemnifying Party will remain responsible for any adverse
consequences the Indemnified Party may suffer resulting from, arising out of,
relating to, in the nature of, or caused by the Third Party Claim to the fullest
extent provided in this Article IX including payment of any judgment or
settlement.
Section 9.5 Establishment and Contesting of Indemnification Liability. To
be effective, any claim for indemnification by an Indemnified Party must be made
by a written notice (a "Notice of Claim") to the Indemnifying Party, given in
accordance with the provisions of Section 11.4 hereof and given as promptly as
practicable, but in any event: (a) if such claim relates to a third-party claim
under Section 9.4, within the time period set forth in Section 9.4(a) (which
Notice of Claim shall state the estimated maximum amount of such claim), or (ii)
if such claim does not relate to a third-party claim, within sixty (60) days
after the discovery of facts upon which the Indemnified Party intends to base a
claim for indemnification pursuant to this Article IX. Upon receipt of a Notice
of Claim, the Indemnifying Party shall have twenty (20) days thereafter to
contest the indemnification obligation with respect to such claim, or the amount
thereof, by written notice to the Indemnified Party (a "Contest Notice"). Such
Contest Notice shall specify the reasons or bases for the objection of the
Indemnifying Party to the claim. If no such Contest Notice is given within such
(20) day period, the obligation of the Indemnifying Party to pay the amount of
the Damages incurred or asserted by the Indemnified Party in connection with the
claim shall be deemed established and accepted by the Indemnifying Party. If a
Contest Notice relating to a non-Third Party Claim is given in such time period,
and the Indemnified Party and the Indemnifying Party are unable to reach
agreement with respect to any contested Damages within twenty (20) days of the
delivery of the Contest Notice, the matter shall be settled by binding
arbitration in Seattle, Washington as set forth in Section 11.8 below. The
Indemnified Party and the Indemnifying Party shall cause the arbitrator to
decide the matter to be arbitrated pursuant hereto within thirty (30) days after
the appointment of the arbitrator. The arbitrator's decision with respect to
such a Contest Notice shall relate solely to whether the Indemnified Party is
entitled to be indemnified for the contested Damages, or the contested portion
thereof, pursuant to the applicable terms of this Agreement. The final decision
of the arbitrator shall be furnished to the Indemnified Party and the
Indemnifying Party in writing and shall constitute the conclusive determination
of the issue in question binding upon the Indemnified Party and the Indemnifying
Party, and shall not be contested by any of them. Such decision may be used in a
court of law only for the purpose of seeking enforcement of the arbitrator's
decision. If a Contest Notice relating to a Third Party Claim is given in such
38
20-day time period, such Third Party Claim shall be deemed an Open Claim under
Section 9.6(b). Upon final determination of the amount of the Damages that is
the subject of an indemnification claim, whether such determination is the
result of an Indemnifying Party's acceptance of, or failure to contest, a Notice
of Claim, or a resolution of any dispute with respect thereto by agreement of
the parties, or a final, non-appealable court order of a court of competent
jurisdiction, or pursuant to Section 9.4(d) or otherwise (each, "Finally
Determined Damages"), the Indemnifying Party or parties shall be obligated to
pay the amount of such Finally Determined Damages within five (5) days of such
final determination.
Section 9.6 Right of Set-Off.
(a) In the event that the Indemnifying Parties are the Sellers, if the
Sellers shall fail to pay Purchaser any and all Finally Determined Damages
within the five (5) day period set forth in Section 9.5, in addition to any
other remedies provided for in this Agreement, upon notice to the Seller
Representative specifying the amount of such set-off, the Purchaser may, at its
sole discretion, set-off any such Damages, on a dollar-for-dollar basis, against
either (i) any unpaid Contingent Payment or (ii) any amount owing under the
Promissory Notes.
(b) During the pendency of any Third Party Claim that is the subject of a
Contest Notice, unless the Sellers have assumed all Liabilities for such Third
Party Claim, then such claim for Damages shall be deemed to be a "Open Claim,"
and the Purchaser may, at its sole discretion, reserve from (i) any unpaid
Contingent Payment and/or (ii) any amount owing under the Promissory Notes, an
amount equal in value (on a dollar-by-dollar basis) to the amount of such Open
Claim. Until such Open Claim is a claim with Finally Determined Damages, such
reserved amount shall not be due or payable, and in lieu of payment to the
Sellers, the Purchaser shall make such payments into an escrow account, pending
the final determination of such Open Claim. At the time that an Open Claim
becomes a claim with Finally Determined Damages, (x) if the Indemnifying Party
has failed to pay such Finally Determined Damages, the Purchaser may set-off the
amount of the Finally Determined Damages and instruct the Escrow Agent to pay
such amounts to itself in satisfaction of such set-off, or to the Sellers after
such set-off, and (y) if the Indemnifying Party has paid such Finally Determined
Damages, the Purchaser shall release the escrowed amounts and instruct the
Escrow Agent to pay such amounts to the Sellers.
(c) Neither the exercise nor failure to exercise such right of set-off will
constitute an election of remedies or limit the Purchaser in any manner in the
enforcement of any other remedies that may be available to it.
Section 9.7 Tax Effect of Indemnification Payments. All indemnity payments
made pursuant to this Agreement shall be treated for all Tax purposes as
adjustments to the Base Purchase Price.
Section 9.8 Seller Representative. To facilitate the implementation of the
Agreement and the Transactions, each Seller hereby does irrevocably authorize
and appoint Xxxxxxxxx Xxxxxx as seller representative (the "Seller
Representative") to take all actions set forth in clause (a) below:
(a) The Seller Representative shall have authority to act for and on behalf
of all Sellers with respect to the following matters:
(i) to receive notices in accordance with this Agreement;
39
(ii) to enter into agreements pursuant to which revenues or expenses
will be included or excluded from the calculation of EBITDA calculated
hereunder;
(iii) on behalf of the Sellers to resolve the Adjustment Amount
Calculation;
(iv) negotiate, determine, defend and settle any disputes that may
arise under or in connection with this Agreement; and
Provided, however, that the Purchaser can rely on any instructions of or any
consents executed by the Seller Representative as binding on all of the Sellers
for all purposes under this Agreement.
(b) The Seller Representative shall not be liable to any person or entity
for any action taken or any omission to act, in good faith, in connection with
their responsibilities as Seller Representative under this Agreement.
(c) The Seller Representative may not resign prior to eighteen (18) months
following the Closing without the prior written consent of the Purchaser. Upon
any such resignation, the Sellers (acting by written consent of Sellers who held
of record at least a majority of the shares of Company Stock outstanding
immediately prior to the Closing Date) shall promptly appoint a new Seller
Representative to replace such resigning Seller Representative with the same
powers and duties as such resigning Seller Representative, and if the Seller
Representative or any successor shall die or become unable to act as the Seller
Representative, a replacement shall promptly be appointed by a writing signed by
Sellers who held of record at least a majority of the shares of Company Stock
outstanding immediately prior the Closing Date.
(d) If the Sellers should fail to appoint a new Seller Representative as
provided in this Section 9.8 within thirty (30) days following the resignation,
death or inability to act of the current Seller Representation or its successor,
the parties agree that the Seller with the largest allocation of Base Purchase
Price as provided in the Allocation Schedule (other than the Seller that was the
Seller Representative being replaced thereof) shall be deemed to be the Seller
Representative for purposes of this Agreement until such Seller Representative
resigns, dies or is unable to act.
ARTICLE X
DEFINITIONS AND INTERPRETATION
Section 10.1 Definitions. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context clearly requires otherwise:
"AAA Rules" shall have the meaning set forth in Section 11.8(b).
"Adjustment Amount" shall mean the result obtained by subtracting
$3,318,000 from the Shareholders' Equity of the Business, determined pursuant to
Section 1.3 hereof.
"Adjustment Amount Calculation" shall have the meaning set forth in Section
1.3(a).
"Affiliate" shall have the meaning set forth in Rule 12b-2 of the Exchange
Act.
40
"Affiliate Transaction" or "Affiliate Transactions" shall mean any contract
or other arrangement between or among the Company on the one hand, and the
Sellers, or employees or directors of the Company and/or any Affiliate of any of
them, on the other hand.
"Agreement" or "this Agreement" shall mean this Stock Purchase Agreement,
together with the Exhibits and Appendices hereto and the Disclosure Schedule.
"Allocation Schedule" shall have the meaning set forth in Section 1.2.
"Applicable Contract" shall mean any contract, other than purchase orders,
under which the Company has or may become subject to any obligation or Liability
in excess of $100,000. "Appraiser" shall have the meaning given such term in
Sections 1.3(a)(ii) and 1.5(d).
"Associate" shall have the meaning set forth in Rule 12b-2 of the Exchange
Act.
"Audit" shall mean any audit, assessment of Taxes, other examination by any
Tax Authority, or any administrative or judicial proceeding or appeal of such
proceeding relating to Taxes.
"Balance Sheet" shall have the meaning set forth in Section 4.4(a).
"Balance Sheet Date" shall have the meaning set forth in Section 4.4(a).
"Base Cash Purchase Price" shall have the meaning set forth in Section 1.2.
"Base Promissory Note Consideration" shall have the meaning set forth in
Section 1.2.
"Base Purchase Price" shall have the meaning set forth in Section 1.2.
"Bonus Agreement" shall have the meaning set forth in Section 2.2(i).
"Closing" shall mean the closing referred to in Section 2.1.
"Closing Balance Sheet" shall have the meaning set forth in Section 1.3(a).
"Closing Date" shall mean the date on which the Closing occurs.
"COBRA" shall have the meaning set forth in Section 4.15(c).
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall have the meaning set forth in the preamble.
"Company IP Rights" shall mean all IP Rights that the Company either owns
or has a right to use.
"Company Stock" shall have the meaning set forth in the Recitals.
41
"Consent" shall mean any approval, consent, ratification, waiver or other
authorization.
"Contest Notice" shall have the meaning set forth in Section 8.5.
"Contingent Payment" shall have the meaning set forth in Section 1.4(a).
"Contingent Payment Date" means the date on which any Contingent Payment is
made or due, as the context indicates.
"Convertible Promissory Note" shall have the meaning set forth in Section
2.3(a)(iii).
"Copyrights" shall mean all U.S. and foreign copyrights (whether registered
or unregistered), including all rights to apply for, applications to register,
and registrations of any of the foregoing.
"Damages" shall have the meaning set forth in Section 9.2(a).
"Deutsche" has the meaning set forth in Section 4.5 hereof.
"Disclosure Schedule" shall mean the disclosure schedule of even date
herewith prepared by the Sellers and delivered to the Purchaser simultaneously
with the execution hereof.
"Dispute Notice" shall have the meaning set forth in Section 1.5(c).
"Documents" shall mean any documents or agreements required to be executed
and delivered at Closing by the Purchaser, Company or the Sellers.
"Domain Names" shall mean all Internet domain and realm name registrations
and applications therefor.
"Earn Out Period" means Earn Out Periods One, Two and Three.
"Earn Out Period One" is the first twelve-month period beginning on the
first day of the first calendar quarter of Purchaser's operations commencing on
or after the Closing Date. For example, if the Closing Date is March 31, 2003,
Earn Out Period One is the twelve-month period beginning on April 1, 2003 and
ending on March 31, 2004. If the Closing Date is April 15, 2003, Earn Out Period
One is the twelve-month period beginning on July 1, 2003, and ending on June 30,
2004.
"Earn Out Period Two" is the twelve-month period following Earn Out Period
One.
"Earn Out Period Three" is the twelve-month period following Earn Out
Period Two.
"Earn Out Report" shall have the meaning set forth in Section 1.5(a).
"EBITDA" shall have the meaning given such term on Exhibit 10.0.
"Employment Agreement" shall have the meaning set forth in the Recitals.
42
"Encumbrances" shall mean any and all liens, charges, security interests,
options, claims, mortgages, pledges, proxies, voting trusts or agreements,
obligations, understandings or arrangements or other restrictions on title or
transfer of any nature whatsoever.
"Environmental Claim" shall mean any claim, action, cause of action,
investigation or notice (written or oral) by any Person alleging actual or
potential liability for investigatory, cleanup or governmental response costs,
or natural resources or property damages, or personal injuries, attorney's fees
or penalties relating to (i) the presence, or release into the environment, of
any Materials of Environmental Concern at any location, now or in the past, or
(ii) circumstances forming the basis of any violation, or alleged violation, of
any Environmental Law.
"Environmental Law" shall mean each federal, state, local and foreign law
and regulation relating to pollution, protection or preservation of human health
or the environment including ambient air, surface water, ground water, land
surface or subsurface strata, and natural resources, and including each law and
regulation relating to emissions, discharges, releases or threatened releases of
Materials of Environmental Concern, or otherwise relating to the manufacturing,
processing, distribution, use, treatment, generation, storage, containment
(whether above ground or underground), disposal, transport or handling of
Materials of Environmental Concern, or the preservation of the environment or
mitigation of adverse effects thereon and each law and regulation with regard to
record keeping, notification, disclosure and reporting requirements respecting
Materials of Environmental Concern.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" shall mean any trade or business, whether or not
incorporated, that together with the Company would be deemed a "single employer"
within the meaning of Section 4001(b) of ERISA.
"Escrow Agent" has the meaning given such term in Section 1.6 hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC promulgated thereunder.
"Financial Statements" shall have the meaning set forth in Section 4.4(a).
"Finally Determined Damages" shall have the meaning set forth in Section
9.5.
"GAAP" shall mean United States generally accepted accounting principles as
in effect from time to time.
"Governmental Entity" shall mean a court, arbitral tribunal, administrative
agency or commission or other governmental or other regulatory authority or
agency.
"Indebtedness" shall mean (i) all indebtedness for borrowed money or for
the deferred purchase price of property or services (other than current trade
liabilities incurred in the ordinary course of business at customary or
prevailing costs and other terms and payable in accordance with customary
practices), (ii) any other indebtedness that is evidenced by a note, bond,
debenture or similar instrument, (iii) all obligations under financing and/or
capital leases, (iv) all obligations in respect of acceptances issued or
created, (v) all liabilities secured by any Encumbrances on any property and
(vi) all guarantee obligations.
43
"Indemnified Party" shall have the meaning set forth in Section 9.2(c).
"Indemnifying Party" shall have the meaning set forth in Section 9.4.
"IP Rights" shall mean all rights in Copyrights, Patents, Trade Secrets,
Trademarks, Domain Names and any other form of proprietary or exclusionary right
in any jurisdiction.
"IRS" shall mean the United States Internal Revenue Service or any
successor agency, and, to the extent relevant, the United States Department of
the Treasury.
"Knowledge." Each Seller will be deemed to have "Knowledge" of a particular
fact or other matter if such Seller is actually aware, or by conducting a
reasonable investigation should have become aware.
"Law" shall mean any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"Lease" shall mean each lease, sublease, license or other occupancy
agreement (as amended, modified or supplemented thereto) pursuant to which the
Company leases, subleases, possesses, operates or otherwise occupies any real or
personal property.
"Leased Real Property" shall have the meaning set forth in Section 4.9.
"Liabilities" shall mean liabilities and obligations, secured or unsecured,
whether absolute, accrued, contingent, fixed or otherwise, whether known or
unknown and whether or not due, including liabilities for Taxes and all
off-balance sheet liabilities and obligations.
"License Agreements" shall mean all agreements (including, without
limitation, license agreements, development agreements, distribution agreements,
settlement agreements, consent to use agreements and covenants not to xxx, other
than licenses for personal computer software that is generally available on
nondiscriminatory terms and has an individual acquisition cost of $5,000 or less
per software package) to which the Company is a party, granting or obtaining or
restricting any right in any Company IP Rights, or pursuant to which the Company
might become so bound or restricted upon occurrence of a condition precedent.
"Material Adverse Change" shall have the meaning set forth in Section 4.28.
"Material Adverse Effect" shall mean any event, circumstance, change or
effect that, when taken individually or together with all other adverse events,
circumstances, changes or effects, is or poses a substantial risk (but not
necessarily a probability) of being materially adverse to the business,
properties, prospects, assets, liabilities, condition (financial or otherwise)
or results of operations of the Company or on the ability of the Company to
consummate the Transactions.
"Materials of Environmental Concern" shall mean chemicals; pollutants;
contaminants; wastes; toxic or hazardous substances, materials and wastes;
petroleum and petroleum products; asbestos and asbestos-containing materials;
polychlorinated biphenyls; lead and lead-based paints and materials; and radon.
44
"Non-Compete Agreement" shall have the meaning set forth in the Recitals.
"Non-Convertible Promissory Note" shall have the meaning set forth in
Section 2.3(a)(ii).
"Notice of Claim" shall have the meaning set forth in Section 9.5.
"Objection Notice" shall have the meaning set forth in Section 1.3(a).
"Open Claim" shall have the meaning set forth in Section 9.6(b).
"Organizational Documents" shall mean (a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) the partnership agreement and
any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (d) the articles of organization, operating agreement and limited
liability company agreement of a limited liability company; (e) any charter or
similar document adopted or filed in connection with the creation, formation, or
organization of a Person; and (f) any amendment to any of the foregoing.
"Patents" shall mean all U.S. and foreign patents (including, without
limitation, provisionals, utility patents, divisionals, continuations,
continuations-in-part, renewals, reissues, reexaminations, extensions),
including all rights to apply for, applications for, and any issuances or
registrations of the foregoing.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Period One EBITDA" shall have the meaning set forth in Section 1.4(b).
"Period Two EBITDA" shall have the meaning set forth in Section 1.4(c).
"Period Three EBITDA" shall have the meaning set forth in Section 1.4(d).
"Permits" shall have the meaning set forth in Section 4.4.
"Permitted Liens" shall mean (a) mortgages or security interests shown on
the Balance Sheet as securing specified liabilities or obligations, with respect
to which no default (or event that, with notice or lapse of time or both, would
constitute a default) exists, (b) mortgages or security interests incurred in
connection with the purchase of property or assets after the date of the Balance
Sheet (such mortgages and security interests being limited to the property or
assets so acquired), with respect to which no default (or event that, with
notice or lapse of time or both, would constitute a default) exists and (c) with
respect to real property, (i) minor imperfections of title, if any, none of
which is substantial in amount, materially detracts from the value or impairs
the use of the property subject thereto, or materially impairs the operations of
the Company, and (ii) zoning laws and other land use restrictions that do not
materially impair the present or anticipated use of the property subject
thereto. All Permitted Liens are listed on Part 4.9 of the Disclosure Schedule.
45
"Person" shall mean a natural person, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Entity or other entity or organization.
"Plan" shall mean each bonus, deferred compensation, incentive
compensation, stock purchase, stock option, employment, consulting, severance or
termination pay, hospitalization or other medical, life or other insurance,
supplemental unemployment benefits, profit-sharing, pension or retirement plan,
program, agreement or arrangement, and each other "employee benefit plan"
(within the meaning of Section 3(3) of ERISA), whether formal or informal,
written or oral and whether legally binding or not, that is sponsored,
maintained or contributed to or was sponsored, maintained or contributed to at
any time by the Company or by any trade or business, whether or not incorporated
which together with the Company would be deemed to be a "single employer" within
the meaning of Section 4001 of ERISA (an "ERISA Affiliate") for the benefit of
any employee, former employee, consultant, officer, or director of the Company.
"Proceeding" shall have the meaning set forth in Section 4.13.
"Promissory Notes" shall have the meaning set forth in Section 2.3(a)(iii).
"Purchase Price" shall have the meaning set forth in Section 1.2(a).
"Purchaser" shall have the meaning set forth in the preamble.
"Purchaser Disclosure Schedule" shall have the meaning set forth in Article
V.
"Purchaser Indemnified Parties" shall have the meaning set forth in Section
9.2(a).
"Real Property" shall mean all real property that is or has been owned or
used by the Company or that is reflected as an asset of the Company on the
Balance Sheet.
"SEC" shall mean the United States Securities and Exchange Commission.
"Securities" shall have the meaning set forth in Section 3.1(f).
"Securities Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"Seller" and "Sellers" shall have the meaning set forth in the preamble.
"Seller Representative" shall have the meaning set forth in Section 9.8.
"Seller's Shares" shall have the meaning set forth in Section 3.1.
"Severally" means the pro rata share of the Sellers' ownership of the
Company and as set forth: Xxxxxx Xxxxxxxxxx - 27.95%; Xxxxxx Xxxxxxxxxx -
21.03%; and Xxxxxxxxx Xxxxxx - 51.02%.
"Shares" shall have the meaning set forth in the Recitals.
46
"Shareholders' Equity of the Business" means the sum of common stock, paid
in capital, retained earnings, and year-to-date earnings as of the Closing Date,
all as set forth in the Closing Balance Sheet.
"Software" shall mean all computer systems, applications, programs
(including all source code and object code), databases, compilations and data
collections (whether in human-readable or machine-readable form), and all
documentation related to any of the foregoing.
"Spousal Consent" means the consent of the spouse of a Seller in the form
of attached Exhibit 2.2(c).
"Subsidiary" shall mean, with respect to any Person, any corporation or
other organization, whether incorporated or unincorporated, of which (a) at
least a majority of the securities or other interests having by their terms
ordinary voting power to elect a majority of the Board of Directors or others
performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such Person or by
any one or more of its Subsidiaries, or by such Person and one or more of its
Subsidiaries or (b) such Person or any other Subsidiary of such Person is a
general partner (or manager or managing member, in the case of a limited
liability company) (excluding any such partnership where such Person or any
Subsidiary of such party does not have a majority of the voting interest in such
partnership).
"Target EBITDA" shall have the meaning set forth on Exhibit 10.0.
"Tax" or "Taxes" shall mean all Federal, state, local and foreign taxes,
and other assessments of a similar nature (whether imposed directly or through
withholding, e.g., employment taxes), including any interest, additions to tax,
or penalties applicable thereto.
"Tax Authority" shall mean the Internal Revenue Service and any other
national, regional, state, municipal, foreign or other governmental or
regulatory authority or administrative body responsible for the administration
of any Taxes.
"Tax Return" shall mean all Federal, state, local and foreign tax returns,
declarations, statements, reports, schedules, forms and information returns or
other documents and any amendments thereto or required to be filed with a Tax
Authority.
"Threshold EBITDA" shall have the meaning set forth on Exhibit 10.0.
"Trademarks" shall mean U.S. and foreign trademarks, trade dress, service
marks, designs, logos, slogans, trade names, corporate names and general
intangibles of like nature, together with goodwill, and all registrations and
applications to register the foregoing.
"Trade Secrets" shall mean all rights in U.S. and foreign trade secrets and
other proprietary or confidential information, in any format, whether tangible
or intangible. For example and without limitation, trade secrets includes all
subject matter that derives independent economic value, actual or potential,
from not being generally known to and not being readily ascertainable without
improper means by, other parties. Trade Secrets also include all rights
associated with non-public or unregistered Patents and Copyrights.
"Transactions" shall mean all the transactions provided for or contemplated
by this Agreement and the other Documents.
47
Section 10.2 Interpretation.
(a) When a reference is made in this Agreement to a section or article,
such reference shall be to a section or article of this Agreement unless
otherwise clearly indicated to the contrary.
(b) Whenever the words "include", "includes" or "including" are used in
this Agreement they shall be deemed to be followed by the words "without
limitation."
(c) The words "hereof", "herein" and "herewith" and words of similar import
shall, unless otherwise stated, be construed to refer to this Agreement as a
whole and not to any particular provision of this Agreement, and article,
section, paragraph, exhibit and schedule references are to the articles,
sections, paragraphs, exhibits and schedules of this Agreement unless otherwise
specified.
(d) The meaning assigned to each term defined herein shall be equally
applicable to both the singular and the plural forms of such term, and words
denoting any gender shall include all genders. Where a word or phrase is defined
herein, each of its other grammatical forms shall have a corresponding meaning.
(e) A reference to any party to this Agreement or any other agreement or
document shall include such party's successors and permitted assigns.
(f) A reference to any legislation or to any provision of any legislation
shall include any amendment to, and any modification or re-enactment thereof,
any legislative provision substituted therefor and all regulations and statutory
instruments issued thereunder or pursuant thereto.
(g) The parties have participated jointly in the negotiation and drafting
of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties, and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this
Agreement.
ARTICLE XI
MISCELLANEOUS
Section 11.1 Fees and Expenses. The Purchaser shall pay all of its costs
and expenses incurred in connection with this Agreement and the consummation of
the Transactions. The Company's fees and expenses related to the Transaction,
including all legal, accounting, financial advisory fees and expenses, finder's
fees, brokers or agent's fees or commissions, shall be borne by the Sellers. The
Sellers shall pay all costs and expenses incurred by each of the Sellers in
connection with this Agreement and the consummation of the Transactions either
directly or as an expense of the Company as long as the Shareholder's Equity of
the Business does not go below $3,318,000.
Section 11.2 Transfer Taxes. If the sale of the Shares triggers a transfer
or excise tax for which the Sellers are primarily responsible under law, the
Sellers will pay any and all such taxes. If the sale of the Shares triggers a
transfer or excise tax for which the Purchaser is primarily responsible under
law, the Purchaser will pay any and all such taxes.
48
Section 11.3 Amendment and Modification. This Agreement may be amended,
modified and supplemented in any and all respects, but only by a written
instrument signed by the Purchaser and the Sellers expressly stating that such
instrument is intended to amend, modify or supplement this Agreement.
Section 11.4 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if mailed, delivered personally, faxed
(which is confirmed) or sent by an overnight courier service, such as Federal
Express, to the parties at the following addresses (or at such other address for
a party as shall be specified by like notice):
if to the Purchaser, to:
Zones, Inc.
000 Xxxxx Xxxxx Xxx
Xxxxxx, XX 00000
Attention: Xxxxx Xxxxx
Telephone: (000) 000-0000
Fax: (000) 000-0000
with a copy to:
Xxxx Xxxx Xxxx & Freidenrich LLP
000 Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Attention: Xxxx X. Steel, Esq.
Telephone: (000) 000-0000
Fax: (000) 000-0000
if to the Sellers, at:
Xxxxxx Xxxxxxxxxx
000 Xxxxx Xxxxxxx
Xxxx Xxxxxx, XX 00000
Fax: (000) 000-0000
Xxxxxx Xxxxxxxxxx
0000 Xxxxx Xxxxx, Xxx 00X
Xxxxxxx, XX 00000
Fax: (000) 000-0000
Xxxxxxxxx Xxxxxx
000 Xxxx Xxxxxxxx, #0
Xxxxxxx, XX 00000
Fax: (000) 000-0000
with a copy to:
Xxxxxxx Xxxxxxxx, X.X.
0000 0xx Xxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx, XX 00000-0000
Attention: Xxxxx Xxxxxx, Esq.
Telephone: (000) 000-0000
Fax: (000) 000-0000
49
if to the Seller Representative, at
Xxxxxxxxx Xxxxxx
000 Xxxx Xxxxxxxx, #0
Xxxxxxx, XX 00000
Fax: (000) 000-0000
Section 11.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties.
Section 11.6 Entire Agreement; No Third Party Beneficiaries. This Agreement
(including the documents and the instruments referred to herein and therein) and
the Mutual Nondisclosure and Standstill Agreement, dated March 3, 2003, between
certain the parties hereto, which is hereby incorporated by reference and made a
party hereof and binding on all parties hereto: (a) constitutes the entire
agreement and supersede all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter hereof and
thereof, and (b) is not intended to confer upon any Person other than the
parties hereto and thereto any rights or remedies hereunder or thereunder.
Section 11.7 Severability. Any term or provision of this Agreement that is
held by a court of competent jurisdiction or other authority to be invalid, void
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction or other authority declares that any term or provision
hereof is invalid, void or unenforceable, the parties agree that the court
making such determination shall have the power to reduce the scope, duration,
area or applicability of the term or provision, to delete specific words or
phrases, or to replace any invalid, void or unenforceable term or provision with
a term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision.
Section 11.8 Governing Law; Arbitration; Jurisdiction; Venue.
(a) The parties agree that this Agreement, and any disputes arising under
this Agreement, will be governed by and construed in accordance with the laws of
the state of Washington, without giving effect to any conflict of laws
principles to the contrary; and
(b) Any controversy, dispute or claim arising out of or relating to this
Agreement or the breach hereof that cannot be settled by mutual agreement
(except for actions by any party seeking exclusively injunctive relief) shall be
exclusively subject to arbitration. Any party who is aggrieved shall deliver a
notice to the other parties hereto setting forth the specific points in dispute.
Any points remaining in dispute 20 calendar days after the giving of such notice
shall be submitted to binding arbitration as set forth below. All claims shall
be settled in accordance with the Commercial Arbitration Rules then in effect of
the American Arbitration Association (the "AAA Rules"), before a single
arbitrator appointed in accordance with AAA Rules. Such arbitration shall be
50
held in Seattle, Washington. The arbitrator may enter a default decision against
any party who fails to participate in the arbitration proceedings. The decision
of the arbitrator on the points in dispute will be final, unappealable and
binding, and judgment on the award may be entered in any court having
jurisdiction. Subject to the other terms of this Subsection (b), the parties
irrevocably consent to the jurisdiction and venue of the state and federal
courts located in King County, Washington in connection with any action relating
to this Agreement. Notwithstanding any other provision of this Agreement, the
arbitrator will be authorized to apportion its fees and expenses and the
reasonable attorneys' fees and expenses of the parties as the arbitrator deems
appropriate. In the absence of any such apportionment, the fees and expenses of
the arbitrator will be borne 50% by the Purchaser, on the one hand, and 50% by
the Company or, if the Closing has occurred, by the Sellers, jointly and
severally, on the other hand, and each such party will bear the fees and
expenses of its own attorneys. The parties agree that this clause has been
included to rapidly and inexpensively resolve any disputes between them with
respect to this Agreement, and that this clause shall be grounds for dismissal
of any court action commenced by either party with respect to this Agreement,
other than actions for exclusively injunctive relief and post-arbitration
actions seeking to enforce an arbitration award. The parties shall keep
confidential, and shall not disclose to any person, except as may be required by
law, the existence of any controversy hereunder, the referral of any such
controversy to arbitration, or the status or resolution thereof; provided, that
the Purchaser may make such disclosure to the extent it is required to disclose
such matters under applicable securities or accounting rules, as advised by its
counsel.
Section 11.9 Time of Essence. Each of the parties hereto hereby agrees
that, with regard to all dates and time periods set forth or referred to in this
Agreement, time is of the essence.
Section 11.10 Extension; Waiver. At any time prior to the Closing Date, the
parties may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties of the other parties contained in this Agreement
or in any document delivered pursuant to this Agreement or (c) waive compliance
by the other parties with any of the agreements or conditions contained in this
Agreement. Any agreement on the part of a party to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party. The failure of any party to this Agreement to assert any of its
rights under this Agreement or otherwise shall not constitute a waiver of those
rights.
Section 11.11 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
content of the other parties, except that the Purchaser may assign, any or all
of its rights and interests hereunder to any Affiliate of the Purchaser. Subject
to the preceding sentence, this Agreement shall be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors and
assigns.
Section 11.12 Further Assurances. The parties agree (a) to furnish upon
request to each other such further information, (b) to execute and deliver to
each other such other documents, and (c) to do such other acts and things, all
as the other party may reasonably request for the purpose of carrying out the
intent of this Agreement and the documents referred to in this Agreement.
Section 11.13 Telecopy Execution and Delivery. A facsimile, telecopy or
other reproduction of this Agreement may be executed by one or more parties
hereto, and an executed copy of this Agreement may be delivered by one or more
parties hereto by facsimile or similar electronic transmission device pursuant
to which the signature of or on behalf of such party can be seen, and such
execution and delivery shall be considered valid, binding and effective for all
purposes.
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IN WITNESS WHEREOF, the Purchaser, the Sellers, the Company and the Seller
Representative have executed this Agreement or caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first written above.
PURCHASER:
Zones, Inc.
By: /s/ XXXXXX X. XXXXXXXX
-------------------------------------------
Name: Xxxxxx X. XxXxxxxx
-------------------------------------------
Title: SVP & Chief Financial Officer
-------------------------------------------
SELLERS:
By: /s/ XXXXXXXXX XXXXXX
-------------------------------------------
Xxxxxxxxx Xxxxxx
By: /s/ XXXXXX XXXXXXXXXX
-------------------------------------------
Xxxxxx Xxxxxxxxxx, individually and as Trustee
of the Xxxxxx Xxxxxxxxxx Declaration of Trust
Dated September 17, 1997
By: /s/ XXXXXX XXXXXXXXXX
-------------------------------------------
Xxxxxx Xxxxxxxxxx
COMPANY:
Corporate PC Source, Inc.
By: /s/ XXXXXXXXX XXXXXX
-------------------------------------------
Name: Xxxxxxxxx Xxxxxx
-------------------------------------------
Title: President & Chief Executive Officer
-------------------------------------------
SELLER REPRESENTATIVE:
By: /s/ XXXXXXXXX XXXXXX
-------------------------------------------
Xxxxxxxxx Xxxxxx
52
