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Exhibit 2.10
STOCK PURCHASE AGREEMENT
BY AND AMONG
OSAGE SYSTEMS GROUP, INC.,
A DELAWARE CORPORATION
AND
XXXX XXXXXXXXX,
XXXXXXX XXXXXX,
XXXXX XXXXXX AND
XXXXX XXXXX,
THE SHAREHOLDERS OF OPEN BUSINESS SYSTEMS, INC.,
AN ILLINOIS CORPORATION
JUNE 22, 1998
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TABLE OF CONTENTS
ARTICLE Page
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ARTICLE I SALE AND TRANSFER OF SHARES...................................................................1
1.1 Sale and Purchase of the Shares...............................................................1
1.2 Consideration.................................................................................1
1.3 Calculation of Earn-Out.......................................................................3
1.4 Adjustment Amount.............................................................................6
1.5 Escrow Consideration..........................................................................7
1.6 Incremental Tax Amount........................................................................7
ARTICLE II CLOSING.......................................................................................8
2.1 Closing Date..................................................................................8
2.2 Closing Transactions..........................................................................8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS ..........................................11
3.1 Organization, Qualification and Status.......................................................11
3.2 Corporate Instruments and Records............................................................11
3.3 Capitalization...............................................................................11
3.4 Ownership of Shares..........................................................................12
3.5 No Subsidiary................................................................................12
3.6 Authority of Shareholders....................................................................12
3.7 No Violation.................................................................................13
3.8 Financial Statements.........................................................................13
3.9 Absence of Undisclosed and Contingent Liabilities............................................14
3.10 No Adverse Changes...........................................................................14
3.11 Guarantees...................................................................................14
3.12 Tax Matters..................................................................................14
3.13 Litigation...................................................................................16
3.14 Leased Real Property.........................................................................16
3.15 Owned Tangible Personal Property.............................................................17
3.16 Condition of Buildings and Tangible Personal Property........................................17
3.17 Accounts and Notes Receivable................................................................17
3.18 Material Contracts...........................................................................18
3.19 Inventories..................................................................................19
3.20 Purchase Commitments and Bids................................................................19
3.21 Banking Matters..............................................................................20
3.22 Labor and Employment Matters.................................................................20
3.23 Termination of Business Relationships........................................................21
3.24 Customers....................................................................................21
3.25 Product Warranties...........................................................................21
3.26 Insurance....................................................................................21
3.27 Compliance with Laws.........................................................................22
3.28 Licenses and Permits.........................................................................22
3.29 No Interest in Suppliers.....................................................................22
3.30 All Business Conducted by the Company........................................................22
3.31 Environmental Matters........................................................................22
3.32 Intellectual Property Matters................................................................23
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3.33 Investment Intent............................................................................24
3.34 Disclosure...................................................................................25
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER......................................................26
4.1 Organization and Qualification...............................................................26
4.2 Corporate Instruments and Records............................................................26
4.3 Authorization; Valid and Binding Obligation..................................................26
4.4 Litigation...................................................................................27
4.5 Stock Consideration..........................................................................27
4.6 Capitalization...............................................................................27
4.7 SEC Reports..................................................................................28
4.8 No Violations................................................................................28
4.9 Undisclosed Liabilities......................................................................29
4.10 Disclosure...................................................................................29
4.11 No Adverse Changes...........................................................................29
4.12 Investment Intent............................................................................29
ARTICLE V AGREEMENTS OF THE PARTIES....................................................................29
5.1 Access to Information........................................................................29
5.2 Confidentiality; No Solicitation.............................................................30
5.3 Interim Operations...........................................................................31
5.4 Permissible Distributions to Shareholders....................................................34
5.5 Consents.....................................................................................34
5.6 Filings......................................................................................34
5.7 All Reasonable Efforts.......................................................................35
5.8 Public Announcements.........................................................................35
5.9 Notification of Certain Matters..............................................................35
5.10 Financial Statements.........................................................................36
5.11 Documents at Closing.........................................................................36
5.12 Satisfaction of Guarantees...................................................................36
5.13 Prohibition on Trading in Buyer Stock........................................................36
5.14 Tax Matters/Section 338(h)(10) Election......................................................37
5.15 Change in Control............................................................................38
5.16 Subsequent Acquisitions......................................................................39
5.17 Governmental Authority.......................................................................39
5.18 Absence of Broker or Finder..................................................................39
5.19 Cooperation; Further Assurances..............................................................39
5.20 Further Mutual Covenants.....................................................................40
5.21 Restrictions on Transfer of Osage Stock......................................................40
5.22 Corporate Direction..........................................................................40
5.23 Public Company Status........................................................................40
ARTICLE VI CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER.............................................41
6.1 Accuracy of Representations and Warranties; Shareholders Performance.........................41
6.2 No Adverse Change............................................................................41
6.3 No Loss......................................................................................41
6.4 No Injunction; Consents......................................................................41
6.5 Actions by the Shareholders..................................................................41
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6.6 Uniform Commercial Code Searches.............................................................41
ARTICLE VII CONDITIONS TO THE OBLIGATIONS OF THE SHAREHOLDERS ...........................................42
7.1 Accuracy of Representations and Warranties; Buyer Performance................................42
7.2 No Adverse Change............................................................................42
7.3 No Loss......................................................................................42
7.4 No Injunction; Consents......................................................................42
7.5 Actions by Buyer.............................................................................42
7.6 Consents and Proceedings.....................................................................42
7.7 Acquisitions.................................................................................43
ARTICLE VIII TERMINATION .................................................................................43
8.1 Termination Events...........................................................................43
8.2 Effect of Termination........................................................................43
8.3 Extension; Waiver............................................................................44
ARTICLE IX INDEMNIFICATION/SURVIVAL OF REPRESENTATIONS AND WARRANTIES...................................44
9.1 Indemnification..............................................................................44
9.2 Survival.....................................................................................45
9.3 Methods of Asserting Claims for Indemnification..............................................45
9.4 Limitations on Amount........................................................................46
ARTICLE X MISCELLANEOUS................................................................................46
10.1 Exclusive Remedies...........................................................................46
10.2 Notices......................................................................................47
10.3 Entire Agreement; Assignment.................................................................48
10.4 Binding Effect; Benefit......................................................................48
10.5 Headings.....................................................................................48
10.6 Counterparts.................................................................................48
10.7 Governing Law................................................................................48
10.8 Arbitration..................................................................................48
10.9 Severability.................................................................................48
10.10 Release and Discharge. ......................................................................49
10.11 Expenses. ...................................................................................49
10.12 Amendment and Modification. .................................................................49
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EXHIBITS
A - ESCROW AGREEMENT
B - PROMISSORY NOTE
C - PLEDGE AGREEMENT
D - REGISTRATION RIGHTS AGREEMENT
E - EMPLOYMENT AND NONCOMPETITION AGREEMENT
F - FORM 8023
SCHEDULES
3.1 ORGANIZATION, QUALIFICATION AND STATUS
3.3 CAPITALIZATION
3.6 AUTHORITY OF SHAREHOLDERS
3.7 NO VIOLATION
3.8 FINANCIAL STATEMENTS
3.10 NO ADVERSE CHANGES
3.11 GUARANTEES
3.12 TAX MATTERS
3.13 LITIGATION
3.14 LEASED REAL PROPERTY
3.15 OWNED TANGIBLE PERSONAL PROPERTY
3.17 ACCOUNTS AND NOTES RECEIVABLE
3.18 MATERIAL CONTRACTS
3.21 BANKING AND PERSONNEL MATTERS
3.22 LABOR AND EMPLOYMENT MATTERS
3.24 CUSTOMERS
3.25 PRODUCT WARRANTIES
3.26 INSURANCE
3.28 LICENSES AND PERMITS
3.31 ENVIRONMENTAL MATTERS
3.32 INTELLECTUAL PROPERTY MATTERS
4.4 LITIGATION
4.6 CAPITALIZATION
4.7 SEC REPORTS
5.14 TAX MATTERS/SECTION 338(h)(10) ELECTION
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement"), made this
22nd day of June, 1998, by and between Osage Systems Group, Inc., a Delaware
corporation ("Buyer"), and Xxxx Xxxxxxxxx, Xxxxxxx Xxxxxx, Xxxxx Xxxxxx and
Xxxxx Xxxxx, the shareholders (collectively, the "Shareholders") of Open
Business Systems, Inc., an Illinois corporation (the "Company").
WITNESSETH:
WHEREAS, the Shareholders own 100% of the issued and
outstanding capital stock of the Company, which stock consists of an aggregate
of 1600 shares of common stock, no par value (the "Shares"); and
WHEREAS, the Shareholders desire to sell, and Buyer desires to
purchase, all of the Shares for the consideration and on the terms set forth
herein.
NOW, THEREFORE, for and in consideration of the premises and
the mutual covenants and agreements set forth in this Agreement and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby, the parties hereto agree
as follows:
ARTICLE I
SALE AND TRANSFER OF SHARES
1.1 Sale and Purchase of the Shares.
Subject to the terms and conditions of this Agreement, at the "Closing"
(as defined herein), the Shareholders shall sell, assign, transfer, convey and
deliver to Buyer, and Buyer shall purchase and accept from Shareholders, the
Shares, in the manner and for the consideration set forth in this Article .
1.2 Consideration.
The Shareholders shall deliver to Buyer good and sufficient
certificates for the Shares, duly assigned in blank, with any required transfer
stamps or taxes paid and affixed thereto and cause the entire right, title and
interest in and to the Shares to be transferred of record to Buyer, free and
clear of any claim, suit, proceeding, call, commitment, voting trust, proxy,
restriction, limitation, security interest, pledge, lien or encumbrance of any
kind or nature whatsoever, other than restrictions under the Securities Act of
1933, as amended (the "Act"), or applicable state securities laws; and in
consideration thereof Buyer shall pay and deliver to the Shareholders as the
purchase price for the Shares, the following:
(a) At the Closing, subject to Section 1.5 relating to the deposit of
the "Escrow Consideration" (as defined below), the sum of Two Million Dollars
($2,000,000) in cash,
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cashier's check or by wire transfer to the account (or accounts) specified in
writing to Buyer at least three (3) days prior to Closing (the "Cash
Consideration").
(b) At the Closing, also subject to Section 1.5, delivery of
certificates representing that number of shares of the common stock, par value
$0.01 per share, of Buyer (the "Osage Stock") having an aggregate Closing value
(the "Closing Value") equal to $2,000,000 (the "Stock Consideration"), as
adjusted pursuant to the succeeding sentences. For purposes of the Agreement,
the Closing Value shall be determined based upon the lesser of: (x) $6.00 per
share of Osage Stock, or (y) the average closing price on the OTC Bulletin Board
of the Osage Stock for the ten (10) trading days immediately preceding the third
trading day preceding the "Closing Date" (as defined herein). By way of
illustration, if the average closing price pursuant to clause (y) is $5 per
share, the Shareholders would be entitled to receive 400,000 shares ($2,000,000
/ $5) but, if the average closing price pursuant to clause (y) is $8 per share,
the Shareholders would be entitled to receive 333,333 1/3 shares ($2,000,000 /
$6), having an aggregate value of $2,666,666.67 (333,333 1/3 x $8).
(c) Subsequent to Closing, the Shareholders, as additional
consideration for the Shares, shall be entitled to receive additional shares of
Osage Stock ("Additional Shares"), having a value of up to a maximum of
$1,000,000 for each "Measurement Period," as defined below (the "Maximum
Earn-Out"), depending upon the Company's achievement of certain levels of sales
revenue and pre-tax net income (the "Earn-Out"). The Earn-Out shall continue
over the three (3) years immediately following the Closing Date (the "Earn-Out
Period") and shall be calculated for each one year period beginning on July 1
and ending on June 30 of the following year (each, a "Measurement Period") in
the manner set forth in Section 1.3 hereof.
Clauses (a) - (c), together with the Adjustment Amount, as
provided in Section 1.4 herein, shall constitute the "Purchase Price".
(d) The Purchase Price shall be allocated among and issued to the
Shareholders in the proportion of their share ownership of the outstanding
common stock of the Company at the Closing in accordance with the percentages
identified on Schedule 3.3 hereof.
(e) The Stock Consideration and any Additional Shares of Osage Stock,
when and if delivered, shall be fully paid and non-assessable and shall be free
an clear of all liens, levies and encumbrances except that all of such Osage
Stock shall be "restricted securities" pursuant to Rule 144, promulgated under
the Act.
(f) In the event of any share dividend share split, recapitalization,
merger, consolidation, combination or share exchange involving Osage Stock (a
"Corporate Restructuring") and the Shareholders shall then own any Osage Stock,
the Shareholders shall be entitled to participate in the Corporate Restructuring
to the same extent as all other owners of Osage Stock. Further, to the extent
there is any Corporate Restructuring prior to the end of the Earn-Out Period,
the Additional Shares which have not yet been issued pursuant to Section 1.3
shall be appropriately adjusted to apply to and pertain to the number and class
of securities which would have been issued to the Shareholders in connection
with the Corporate Restructuring had
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such Additional Shares been issued to the Shareholders immediately prior to such
transaction, and an appropriate adjustment shall also be made to the price per
share described in Section 1.3(h), if required.
1.3 Calculation of Earn-Out.
(a) Year One.
(i) Sales Revenues:
(A) If during the first Measurement Period following
Closing ("Year One"), the Company generates sales revenues between $10,000,000
and $15,000,000, Additional Shares shall be issued having a value equal to the
product of $500,000 and the percentage calculated by dividing the amount by
which the revenues exceeded $10,000,000 by 5,000,000. For example, if sales
revenues of $12,500,000 are achieved, then the Shareholders shall be issued such
Additional Shares having a value equal to $250,000 [$500,000 x ($12,500,000 -
$10,000,000) / 5,000,000].
(B) If during Year One, the Company generates sales
revenues in excess of $15,000,000, Additional Shares shall be issued under this
clause (i) having a value equal to $500,000. But see subparagraph (h) below.
(C) If during Year One, the Company generates sales
revenues of less than $10,000,000, no Additional Shares shall be issued under
this clause (i).
(ii) Pre-Tax Net Income:
(A) In addition to any Additional Shares issued
pursuant to Section 1.3(a)(i) above, if during Year One, the Company realizes
pre-tax net income between $400,000 and $600,000, Additional Shares shall be
issued having a value equal to the product of $500,000 and the percentage
calculated by dividing the amount by which the pre-tax net income realized
exceeded $400,000 by 200,000. For example, if pre-tax net income of $500,000 is
realized, then the Shareholders shall be issued such Additional Shares having a
value equal to $250,000.
(B) If during Year One, the Company realizes pre-tax
net income in excess of $600,000, Additional Shares shall be issued under this
clause (ii) having a value equal to $500,000. But see subparagraph (h) below.
(C) If during Year One, the Company realizes pre-tax
net income of less than $400,000, no Additional Shares shall be issued under
this clause (ii). But see subparagraph (h) below.
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(b) Year Two.
(i) Sales Revenues:
(A) If during the second Measurement Period following
Closing ("Year Two"), the Company generates sales revenues between $12,000,000
and $18,000,000, Additional Shares shall be issued having a value equal to the
product of $500,000 and the percentage calculated by dividing the amount by
which the revenues exceeded $12,000,000 by 6,000,000. For example, if sales
revenues of $15,000,000 are achieved, then the Shareholders shall be issued such
Additional Shares having a value equal to $250,000.
(B) If during Year Two, the Company generates sales
revenues in excess of $18,000,000, Additional Shares shall be issued under this
clause (i) having a value equal to $500,000. But see subparagraph (h) below.
(C) If during Year Two, the Company generates sales
revenues of less than $12,000,000, no Additional Shares shall be issued under
this clause (i).
(ii) Pre-Tax Net Income:
(A) In addition to any Additional Shares issued
pursuant to Section 1.3(b)(i) above, if during Year Two, the Company realizes
pre-tax net income between $480,000 and $720,000, Additional Shares shall be
issued having a value equal to the product of $500,000 and the percentage
calculated by dividing the amount by which the pre-tax net income realized
exceeded $480,000 by 240,000. For example, if pre-tax net income of $600,000 is
realized, then the Shareholders shall be issued such Additional Shares having a
value equal to $250,000.
(B) If during Year Two, the Company realizes pre-tax
net income in excess of $720,000, Additional Shares shall be issued under this
clause (ii) having a value equal to $500,000. But see subparagraph (h) below.
(C) If during Year Two, the Company realizes pre-tax
net income of less than $480,000, no Additional Shares shall be issued under
this clause (ii).
(c) Year Three.
(i) Sales Revenues:
(A) If during the third Measurement Period following
Closing ("Year Three"), the Company generates sales revenues between $15,000,000
and $21,000,000, Additional Shares shall be issued having a value equal to the
product of $500,000 and the percentage calculated by dividing the amount by
which the revenues exceeded $15,000,000 by 6,000,000. For example, if sales
revenues of $18,000,000 are achieved, then the Shareholders shall be issued such
Additional Shares having a value equal to $250,000.
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(B) If during Year Three, the Company generates sales
revenues in excess of $21,000,000, Additional Shares shall be issued under this
clause (i) having a value equal to no more than $500,000. But see subparagraph
(h) below.
(C) If during Year Three, the Company generates sales
revenues of less than $15,000,000, no Additional Shares shall be issued under
this clause (i).
(ii) Pre-Tax Net Income:
(A) In addition to any Additional Shares issued
pursuant to Section 1.3(c)(i) above, if during Year Three, the Company realizes
pre-tax net income between $600,000 and $840,000, Additional Shares shall be
issued having a value equal to the product of $500,000 and the percentage
calculated by dividing the amount by which the pre-tax net income realized
exceeded $600,000 by 240,000. For example, if pre-tax net income of $720,000 is
realized, then the Shareholders shall be issued such Additional Shares having a
value equal to $250,000.
(B) If during Year Three, the Company realizes
pre-tax net income in excess of $840,000, Additional Shares shall be issued
under this clause (ii) having a value equal to $500,000. But see subparagraph
(h) below.
(C) If during Year Three, the Company realizes
pre-tax net income of less than $600,000, no Additional Shares shall be issued
under this clause (ii).
(d) For purposes of this Section 1.3, the term "sales revenue" shall be
defined as gross revenues of the Company less any and all discounts, allowances
and returns.
(e) For the purposes of this Section 1.3, the term "pre-tax net income"
shall be calculated by Buyer's independent auditors in conformity with generally
accepted accounting principles (subject to the application of subsection (f)
below), and consistent with the past practices and accounting methods of the
Company without reduction for administrative/overhead charges other than
reasonable out-of-pocket costs actually paid by Buyer on behalf of Company. If
the Shareholders dispute the determination of Buyer's auditors with respect to
pre-tax net income, Shareholders may, at their own cost, retain independent
auditors to review such determination. Following such review, if Shareholders
continue to dispute the determination of Buyer's auditors, the parties may
submit the matter to arbitration in accordance with the terms of Section 10.8
hereof; provided, however, that in the event that the Shareholders prevail in
arbitration, Buyer shall reimburse the Shareholders for the fees and costs
incurred in connection with the review.
(f) The Earn-Out is intended by the parties as additional consideration
for the Shares, and towards that end, the integrity of the Company as a separate
accounting and operating unit will be preserved. Consistent with the foregoing,
the "sales revenue" and "pre-tax net income" of the Company shall be determined
on a stand-alone basis and shall not include the sales, net income, net loss or
other operating results associated with or realized by the Company from any
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subsidiaries or interests in other companies owned or acquired by the Company
whether as a result of Section 5.16 hereafter, or otherwise. In the event that
the Company acquires another entity during a Measurement Period, "pre-tax net
income" shall exclude the costs associated with such acquisitions.
(g) The "sales revenue" and "pre-tax net income" of the Company shall
be determined as soon as possible, but in all events within ninety (90) days
after the expiration of each Measurement Period, and at such time the Buyer
shall deliver such Additional Shares to the Shareholders on a pro rata basis in
accordance with the percentage interests of each Shareholder as set forth on
Schedule 3.3 hereto, accompanied by a certificate of Buyer's Chief Financial
Officer attesting to the method by which, and including the financial statements
with reference to which, the number of Additional Shares were calculated. If any
two of the Shareholders notify the Buyer that they object to the computations
set forth in the aforesaid certificate, and the Buyer and such Shareholders
shall not reach agreement on such issues within 30 days after such notification,
the parties shall submit the issue to Buyer's independent auditors for their
review and determination. Thereafter, if any two of the Shareholders disagree
with the determination of Buyer's independent auditors, then the issue shall be
submitted to arbitration by a nationally recognized accounting firm independent
of any of the parties hereto as shall be mutually acceptable to the Buyer and
such Shareholders for resolution of the disagreement, it being agreed that the
Buyer will share half of the fees and expenses of such accounting firm and the
Shareholders in the aggregate, will share half of the fees and expenses of such
accounting firm.
(h) The number of Additional Shares to be distributed to the
Shareholders pursuant to subparagraph 1.3(a)-(c) above shall be determined by
dividing the value of such Additional Shares (as so established) by the price
determined based on the lesser of (i) the average closing price of Buyer's
common stock for the ten (10) trading days immediately preceding the date of
issuance thereof, or (ii) $7.00 per share. By way of illustration, if the
average Closing price pursuant to clause (i) is $6 per share, the Shareholders
would be entitled to receive 166,666 2/3 shares (1,000,000 / $6), but if the
average closing price pursuant to clause (i) is $9 per share, the Shareholders
would be entitled to receive 142,857.14 shares(1,000,000 / $7) having an
aggregate value of $1,285,714.29 (142,857.14 x $9).
1.4 Adjustment Amount.
Buyer agrees to pay to the Shareholders, in cash, the difference
between (i) the "Registration Value" (as defined below) of the Stock
Consideration on the "Registration Date" (also as defined below), and (ii)
$2,000,000, provided the Registration Value is lower than $2,000,000 (such
lesser amount hereinafter referred to as the "Adjustment Amount"). The
"Registration Value" shall be an amount equal to the average closing price per
share of the Osage Stock on the principal exchange, market or quotation system
upon which such shares regularly trade at the time, for the twenty (20) trading
days preceding the "Registration Date" multiplied by the number of shares of the
Osage Stock included in the Stock Consideration. The "Registration Date" shall
be defined as the earlier of (i) the date that the public resale of such shares
is permitted pursuant to an effective registration statement filed with the
Securities and Exchange
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Commission; or (ii) the date that the public resale of some or all of the Shares
is permitted by virtue of Rule 144 promulgated under the Act , to the extent
that Rule 144 permits the public resale of such shares. In the absence of an
effective registration statement, the Adjustment Amount shall only be determined
as to that number of shares of the Stock Consideration that may be publicly
resold pursuant to Rule 144. The determination shall be made separately for each
share of Osage Stock owned by the Shareholders as the "Registration Date" for
each such share of Osage Stock occurs. Payment of the Adjustment Amount shall be
made within fifteen (15) days of the determination thereof.
1.5 Escrow Consideration.
(a) At the Closing, Buyer shall deposit into escrow the components of
the Purchase Price identified in subparagraph 1.5(b) hereafter (the "Escrow
Consideration"). The Stock Consideration component set forth below shall serve
on a non-exclusive basis as collateral for the indemnification obligations of
the Shareholders pursuant to this Agreement, and the Cash Consideration
component set forth below shall be offset against the "Deficiency" as provided
in Section 5.10 hereof. Buyer consents to the appointment of Levenfeld,
Eisenberg, Janger & Xxxxxxxxx as the escrow agent (the "Escrow Agent"). The
deposit, maintenance and ultimate disposition of the Escrow Consideration shall
be governed by the terms of an escrow agreement, the form of which is attached
hereto as Exhibit A (the "Escrow Agreement").
(b) The Escrow Consideration shall consist of:
(i) 10% of the Cash Consideration identified in Section 1.2(a)
herein (the "Escrow Cash"); and
(ii) 50% of the shares of the Stock Consideration identified
in Section 1.2(b) herein (the "Escrow Shares").
1.6 Incremental Tax Amount.
(a) It is intended by the parties that the transactions covered by this
Agreement, shall not be treated by the parties as a tax-free reorganization
under the Internal Revenue Code of 1986, as amended (the "Code") As further
provided in Section 5.14, a Code Section 338(h)(ii) election will be made for
tax purposes. Buyer intends that the Shareholders should not be burdened by tax
greater (or sooner) than that which they would have suffered had the transaction
qualified as a tax-free reorganization under the Code. To that end, Buyer shall,
from time to time loan to the Shareholders sums equal to the incremental amount
of federal and state (if any) income taxes incurred by each of them in
connection with the sale of their Shares, in excess of the amount of such
federal and state income taxes that would have been incurred by them as a result
of the sale of their Shares, had the transaction been structured as a tax free
reorganization under the Code. Such amount is hereinafter referred to as the
"Incremental Tax Amount." The Incremental Tax Amount shall be loaned to the
Shareholders no later than 15 days prior to the date on which each such
Shareholder's income tax return is due for filing (or on such earlier dates that
estimated tax payments are due) and a copy of such tax returns shall once filed,
be provided
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to the Buyer to verify the timely submission of such returns. Such
loans shall be made pursuant to the terms of a promissory note, a form of which
is attached hereto as Exhibit B (the "Note"), to be executed by the Shareholder
upon advancement of the Incremental Tax Amount. Said Note shall be secured by a
pledge, pursuant to a pledge agreement (the "Pledge Agreement"), a form of which
is attached hereto as Exhibit C, of that portion of the Stock Consideration
received by the Shareholder having a value equal to the principal amount of the
Note. Buyer does not indemnify Seller for any tax consequences of the notes
being non-interest bearing to the extent interest must be imputed for federal
income tax purposes on such advances.
(b) The amount and due dates for advances of the Incremental Tax Amount
to the Shareholders shall be provided by the Shareholders in written notices
(each a "Tax Notice") to the Buyer no later than 60 days prior to each required
payment hereunder. Buyer shall have 20 days in which to review the Tax Notice
and shall advise the Shareholders of any objection to the same. If Buyer objects
to the computation of the Incremental Tax Amount or the due dates associated
therewith, and the Buyer and the Shareholders shall not reach agreement on such
issues within 30 days after Buyer has notified the Shareholders of its
objection, the Buyer and Shareholders shall submit the issue to arbitration by a
nationally recognized accounting firm independent of any of the parties hereto
as shall be mutually acceptable to the Buyer and the majority of the
Shareholders for resolution of the disagreement, it being agreed that the Buyer
and each of the Shareholders will jointly share the fees and expenses of such
accounting firm. Notwithstanding any dispute or arbitration which may arise
pursuant hereto, Buyer shall advance to Shareholders that portion of the
Incremental Tax Amount requested by Shareholders in the Tax Notice which is not
disputed or objected to by Buyer, such advance to occur within 30 days after
delivery of the Tax Notice.
ARTICLE II
CLOSING.
2.1 Closing Date.
The purchase and sale (the "Closing") provided for in this Agreement
will take place at the offices of the Company's counsel at 00 Xxxx Xxxxxx
Xxxxxx, 00xx Xxxxx, Xxxxxxx, Xxxxxxxx, at 9:30 a.m. (local time) on the later of
(i) June 22, 1997 or (ii) at such other time and place as the parties may agree.
The date of the Closing is hereinafter referred to as the "Closing Date." In no
event shall the Closing take place later than June 30, 1998 (the "Termination
Date").
2.2 Closing Transactions.
At the Closing, the following transactions shall occur, all of such
transactions being deemed to occur simultaneously:
(a) The Shareholders will deliver, or shall cause to be delivered, to
the Buyer, the following documents and shall take the following actions:
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(1) The Shareholders shall surrender and deliver to the Buyer
the certificate or certificates representing all of the Shares;
(2) A certificate shall be executed by the Shareholders to the
effect that: (i) all representations and warranties made by the Shareholders
under this Agreement are true and correct as of the Closing, as though
originally given to Buyer on said date; and (ii) the conditions precedent
identified at Sections 6.2 and 6.3 have been satisfied;
(3) A certificate of good standing shall be delivered by the
Shareholders from the Secretary of State of the State of Illinois, dated at or
about the Closing, to the effect that the Company is in good standing under the
laws of such state;
(4) An incumbency certificate shall be delivered by the
Shareholders signed by all of the officers of the Company dated at or about the
Closing;
(5) Certified Articles of Incorporation shall be delivered by
the Shareholders dated at or about the Closing and a copy of the Bylaws of the
Company certified by the Secretary of the Company dated at or about the Closing;
(6) The Escrow Agreement, in the form of Exhibit A, shall be
executed and delivered by the Shareholders, Buyer and the Escrow Agent;
(7) A registration rights agreement (the "Registration Rights
Agreement"), the form of which is attached hereto as Exhibit D, shall be
executed and delivered by the Shareholders;
(8) An employment and noncompetition (the "Employment
Agreement"), the form of which is attached hereto as Exhibit E, shall be
executed and delivered by each of the Shareholders;
(9) Each of the officers and directors of the Company shall
have tendered their resignation from such offices in form and substance
satisfactory to Buyer;
(10) The delivery of an opinion of counsel of the Shareholders
in form and substance satisfactory to the Buyer;
(11) Each of the Shareholders has executed Internal Revenue
Form 8023 as more fully set forth in Section 5.14; and
(12) Each of the parties to this Agreement shall have
otherwise executed whatever documents and agreements, provided whatever consents
or approvals and taken all such actions as are required under this Agreement.
(b) Buyer will deliver, or shall cause to be delivered, to the
Shareholders, the following documents and shall take the following actions:
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(1) Subject to subparagraph (3) herein, Buyer shall deliver or
shall cause to be delivered to the Shareholders certificates representing the
Stock Consideration;
(2) Subject to subparagraph (3) herein, Buyer shall deliver or
shall cause to be delivered to the Shareholders, the Cash Consideration by wire
transfer of immediately available funds to the bank account designated in
writing by the Shareholders at least three (3) days prior to Closing;
(3) The Buyer shall deliver the Escrow Consideration into
escrow pursuant to the terms of the Escrow Agreement;
(4) A certificate shall be executed by the Buyer's Chief
Executive Officer to the effect that all representations and warranties of the
Buyer under this Agreement are true and correct as of the Closing, as though
originally given to the Shareholders on said date;
(5) A certificate of good standing and certified copies of
Buyer's certificate of incorporation shall be delivered by Buyer from the
Secretary of the State of Delaware dated at or about the Closing that the Buyer
is in good standing under the laws of said state;
(6) Certified board resolutions shall be delivered by the
Buyer dated at or about the Closing authorizing the transactions contemplated
under this Agreement;
(7) An incumbency certificate shall be delivered by Buyer
signed by all of the officers thereof dated at or about the Closing;
(8) Buyer will execute and deliver an Employment Agreement
with each of the Shareholders, the form of which is attached hereto as Exhibit
E;
(9) Buyer will execute and deliver the Registration Rights
Agreement with the Shareholders, the form of which is attached hereto as Exhibit
D;
(10) The delivery of an opinion of counsel of Buyer in form
and substance satisfactory to the Shareholders;
(11) Execution of Internal Revenue Form 8023 as more fully set
forth in Section 5.13; and
(12) Each of the parties to this Agreement shall have
otherwise executed whatever documents and agreements, provided whatever consents
or approvals and shall have taken all such actions as are required under this
Agreement.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
As a material inducement to Buyer to execute this Agreement and
consummate the transactions contemplated hereby, each of the Shareholders,
jointly and severally, hereby makes the following representations and warranties
to Buyer. The representations and warranties are true and correct in all
material respects at this date, and will be true and correct in all material
respects on the Closing as though made on and as of such date.
3.1 Organization, Qualification and Status.
The Company is a corporation duly incorporated and organized, validly
existing and in good standing under the laws of the State of Illinois. The
Company has full corporate power and authority to own, lease and use its
properties and to carry on its business as presently conducted. The Company is
duly qualified or licensed to do business and in good standing as a foreign
corporation in each of the jurisdictions in which the nature of its business or
the character of the properties and assets which it owns or leases makes such
qualification or licensing necessary. A listing of all such jurisdictions is set
forth on Schedule 3.1 hereto.
Except as set forth on Schedule 3.1 hereto, the Company has not, during
the six- (6-) year period immediately preceding the date hereof, changed its
name, been the surviving entity of a merger, consolidation or other
reorganization, or acquired all or substantially all of the assets of any person
or entity. Schedule 3.1 also sets forth all fictitious names under which the
Company or such predecessors have conducted business.
3.2 Corporate Instruments and Records.
The copies of the Company's articles of incorporation and bylaws, each
certified by the Secretary of the Company and heretofore furnished to Buyer, are
true, correct and complete and each include all amendments to the date hereof.
The Company's minute books, as made available to Buyer, contain a true, complete
and correct record of all corporate action taken on or prior to the date hereof
at the meetings of its shareholders and directors and committees thereof. The
stock certificate books and ledgers of the Company, as made available to Buyer
for inspection, are true, correct and complete, and accurately reflect, at the
date hereof, the ownership of the outstanding capital stock of the Company by
the Shareholders.
3.3 Capitalization.
The authorized capital stock of the Company consists of 10,000 shares
of common stock, no par value, of which 1600 shares are issued and outstanding.
The Shares are held beneficially and of record by the Shareholders in the
denominations set forth opposite each Shareholder's name on Schedule 3.3 hereto,
and no shares are held in the treasury of the Company. All of the Shares are
validly issued, fully paid and non-assessable and entitled to vote at
shareholder meetings. None of the Shares has been issued in violation of any
preemptive rights of shareholders or transferred in violation of any transfer
restrictions relating thereto. There are no
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authorized or outstanding options, warrants, convertible securities,
subscription rights, puts, calls, unsatisfied pre-emptive rights or other rights
of any nature to purchase or otherwise receive, or to require the Company to
purchase, redeem or acquire, any shares of the capital stock or other securities
of the Company and there is no outstanding security of any kind convertible into
such capital stock. There are no existing shareholder agreements, voting
agreements or voting trusts respecting any shares of the capital stock of the
Company, except for those described in Schedule 3.3, which shall be extinguished
at Closing. None of the shares of capital stock or other securities of the
Company were issued in violation of the Act or any other legal requirement.
3.4 Ownership of Shares.
Each of the Shareholders owns and holds, beneficially and of record,
the entire right, title and interest in and to the number of Shares set forth
opposite his name on Schedule 3.3 hereto, free and clear of any claim, suit,
proceeding, call, commitment, voting trust, proxy, restriction, limitation,
security interest, pledge or lien or encumbrance of any kind or nature
whatsoever (except as disclosed on Schedule 3.3), and has full power and
authority to vote said Shares and to approve the transactions contemplated by
this Agreement, such Shares constituting, in the aggregate, all of the issued
and outstanding shares of capital stock of the Company. Each Shareholder has
full power and authority to vote, transfer and dispose of the Shares, free and
clear of any claim, suit, proceeding, call, voting trust, proxy, restriction,
security interest, lien or other encumbrance of any kind or nature whatsoever
other than restrictions under the Act, applicable state securities laws, and the
restrictions described on Schedule 3.3.
3.5 No Subsidiary.
The Company does not have any subsidiary or any ownership interest in
any other entity. The Company is not a party to any joint venture arrangement
(other than those Material Contracts which may be construed as joint ventures)
and does not have the right to acquire any securities of or ownership interests
in any other person or entity.
3.6 Authority of Shareholders.
Each Shareholder has full power and authority to enter into this
Agreement, and to consummate the transactions contemplated hereby, without the
consent of or notice to any third-party (other than the Shareholders), and to
comply with the terms, conditions and provisions hereof. This Agreement has been
duly authorized, executed and delivered by each Shareholder and is, and each
other agreement or instrument of such Shareholder contemplated by it will be,
the legal, valid and binding agreement of such Shareholder, enforceable against
such Shareholder in accordance with its terms. Except as set forth on Schedule
3.6, the execution, delivery and performance of this Agreement and the other
agreements of the Shareholders contemplated hereby (collectively, the
"Shareholders' Agreements") do not require the consent of or notice to any
third-party. Neither the execution and delivery of the Shareholders' Agreements
nor the consummation of the transactions contemplated thereby will conflict with
or result in any violation of or constitute a default under any term of the
articles of incorporation or bylaws of the
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Company, or any agreement, mortgage, debt instrument, indenture, or other
instrument, judgment, decree, order, award, law or regulation by which the
Company or the Shareholders are bound, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the assets of the Company,
or result in the cancellation, modification, revocation or suspension of any
license, certificate, permit or authorization held by the Company, except as set
forth in Schedule 3.6.
3.7 No Violation.
The Company is not in default under or in violation of any provision of
(a) its articles of incorporation or bylaws, or (b) any agreement,
understanding, arrangement, indenture, contract, lease, sublease, loan
agreement, note, restriction, obligation or liability to which it is a party or
by which it is bound or to which it or its assets are subject and which is
material to the Company (individually, an "Instrument" and collectively, the
"Instruments"). Except as set forth in Schedule 3.7, neither the execution and
delivery of this Agreement by the Shareholders, nor the consummation of the
transactions contemplated hereby or thereby, nor compliance with the terms
hereof or thereof, (in a way that has a material adverse effect upon the
Company) will (i) conflict with or result in a breach of any of the terms,
conditions or provisions of the articles of incorporation or bylaws of the
Company, nor (ii) violate, conflict with or result in a breach of or default
under any of the terms, conditions or provisions of any Instrument, nor (iii)
accelerate or give to others any interests or rights, including rights of
acceleration, termination, modification or cancellation, under any Instrument or
in or with respect to the business or assets of the Company, nor (iv) result in
the creation of any lien, claim, charge or encumbrance on the assets, capital
stock or properties of the Company, nor (v) conflict with, violate or result in
a breach of or constitute a default under any law, statute, rule, judgment,
order, decree, injunction, ruling or regulation of any government, governmental
agency, authority or instrumentality, court or arbitration tribunal to which the
Company or any of its assets or properties is subject, nor (vi) require the
Company to give notice to, or obtain an authorization, approval, order, license,
franchise, declaration or consent of, or make a filing with, any foreign,
federal, state, county, local or other governmental or regulatory body or other
person, other than any filings required to be made with the Federal Trade
Commission ("FTC") and Antitrust Division of the Department of Justice ("Justice
Department") of Notification and Report Forms pursuant to the Xxxx-Xxxxx-Xxxxxx
Antitrust Improvements Act of 1976, as amended ("HSR Act") and the rules
promulgated thereunder.
3.8 Financial Statements.
(a) Schedule 3.8 hereto contains true and correct and complete copies
of the following financial statements of the Company at the dates and for the
periods specified:
A copy of the Company's unaudited financial statements for its most
recently completed fiscal year ended December 31, 1997 (the "Unaudited Financial
Statements") and an unaudited financial statement for the five month period
ended May 31, 1998 (the "Interim Financial Statement"). Unless otherwise
referred to, the Unaudited Financial Statements and the Interim
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Financial Statement shall be referred to as the "Financial Statements." Such
Financial Statements present in all material respects the financial position of
the Company as of the dates thereof and the results of operations for the
periods then ended (subject to normal year-end adjustments). There have been no
material adverse changes in the financial condition, assets or liabilities of
the Company from the date of the Interim Financial Statement to the date hereof,
except changes in the ordinary course of business, none of which, either singly
or in the aggregate, has been materially adverse. Since the date of the Interim
Financial Statement, the Company has conducted its business in a normal and
customary manner. The books and records of the Company from which the Financial
Statements were prepared properly and accurately record the transactions and
activities which they purport to record.
3.9 Absence of Undisclosed and Contingent Liabilities.
Except for obligations arising in the ordinary course of business after
May 31, 1998, and other obligations of the Company under the Material Contracts
and contracts that would be Material Contracts except for the amount involved,
the Shareholders know of no basis for the assertion against the Company by any
person of a valid claim based on a liability which is not disclosed within the
Financial Statements.
3.10 No Adverse Changes.
Except as and to the extent set forth on the Financial Statements, to
the extent contained in this Agreement or as set forth on Schedule 3.10, since
December 31, 1997 the Company has been operated in the ordinary course and there
has not been a material adverse change in the condition (financial or
otherwise), properties, assets, liabilities, rights, operations or business of
the Company.
3.11 Guarantees.
(a) The Company has not guaranteed, become surety or contingent obligor
for or assumed any obligation, debt or dividend of any person or entity. No
assets owned by the Company are or have been pledged, hypothecated, delivered
for safekeeping, subjected to a security interest or otherwise provided in any
way as security for payment or performance of any obligation of a person other
than the Company.
(b) Schedule 3.11 identifies all obligations and liabilities of the
Company for which the Shareholders have provided or been caused to incur
personal guarantees thereof, which guarantees will be released or extinguished
at the Closing pursuant to Section 5.12.
3.12 Tax Matters.
Attached hereto as Schedule 3.12 are the Company's federal tax returns
on Form 1120S for the years ended December 31, 1996 and December 31, 1997 (the
"Tax Returns"). Except as set forth on Schedule 3.12 attached hereto:
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(a) The Company (i) has timely and properly filed or caused to be filed
all tax returns which it is or has been required to file on or prior to the date
hereof, by any jurisdiction to which it is or has been subject (and which are
identified on Schedule 3.12 hereto), all such tax returns being true and correct
and complete in all respects, (ii) has timely paid or caused to be paid in full
all taxes which are or have become due and payable to all taxing authorities
with respect to such returns and periods, (iii) has made or caused to be made
all withholdings of taxes required to be made by it, and such withholdings have
either been paid to the appropriate governmental agency or set aside in
appropriate accounts for such purpose, and (iv) has otherwise satisfied, in all
material respects, all applicable laws and agreements with respect to the filing
of tax returns and the payment of taxes.
(b) The Company has properly accrued and reflected within its Financial
Statements, and has thereafter to the date hereof properly accrued, and will
from the date hereof through the Closing Date properly accrue, all liabilities
for taxes and assessments, all such accruals being in the aggregate sufficient
for payment of all such taxes and assessments.
(c) There are no unassessed tax deficiencies proposed or threatened
against the Company, nor are there any agreements, waivers, or other
arrangements providing for extension of time with respect to the assessment or
collection of any tax against the Company or any actions, suits, proceedings,
investigations or claims now pending against the Company with respect to any
tax, or any matter under discussion with any federal, state, local or foreign
authority relating to any taxes.
(d) The Company is not and has never been a member of an affiliated
group of corporations (within the meaning of Section 1504 of the Internal
Revenue Code of 1986, as amended (the "Internal Revenue Code")).
(e) The Company is not a party to, is not bound by, and does not have
any obligation under any tax sharing, tax indemnity, or similar agreement.
(f) The Company has not made and will not make a change in method of
accounting for a taxable year beginning on or before the Closing Date, which
would require it to include any adjustment under Section 481(a) of the Internal
Revenue Code in taxable income for any taxable year beginning on or after the
Closing Date.
(g) Shareholders are not foreign persons so that Section 897 and 6039C
of the Internal Revenue Code are not applicable to the transactions provided for
hereunder.
(h) From the date of the Company's inception as a "C-Corporation"
through and including the date of its election to be an "S-Corporation," the
Company was not subject to and did not accrue any "built-in gains" as provided
in Section 1374 of the Code that have not been recognized as taxable income by
the Company prior to this transaction. The Company, since the date of its
election as an "S-Corporation," has been a qualified "S Corporation" as that
term is defined in the Internal Revenue Code, and has never revoked or
terminated such election, nor has it taken any action which would threaten,
jeopardize or disqualify the Company from its S
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Corporation status. In accordance with the Section 338(h)(10) election, the
Company's final "S Corporation" return shall report any gain or loss from the
deemed sale under Section 338.
For purposes of this Agreement, "tax" and "taxes" shall include all
income, gross receipts, franchise, excise, transfer, severance, value added, ad
valorum, sales, use, wage, payroll, workmen's compensation, employment,
occupation, and real and personal property taxes; taxes measured by or imposed
on capital; levies, imposts, duties, license and legislation fees; other taxes
imposed by a federal, state, municipal, local, foreign or other governmental
authority or agency, including assessments in the nature of taxes; including
without limitation, interest, penalties, fines, assessments and deficiencies
relating to any tax or taxes; and including transferee or secondary liability
for taxes and any taxes due as a result of being a member of any affiliated,
consolidated, combined or unitary group or any liability in respect of taxes
under a tax sharing, tax allocation, tax indemnity or other agreement.
For purposes of this Agreement, "tax return" or "tax returns" shall
mean all returns, reports, estimates, schedules, declarations, information
statements and documents relating to or required to be filed in connection with
any taxes pursuant to the statutes, rules or regulations of any federal, state,
local or foreign government taxing authority.
3.13 Litigation.
Except as set forth on Schedule 3.13, there are no actions, suits or
proceedings at law or in equity, or arbitration proceedings, or claims, demands
or investigations, pending or threatened by or against the Company, or state of
facts existing which is reasonably likely to give rise to any such action, suit,
proceeding, claim, demand or investigation; there are no proceedings pending or
threatened against or involving the Company by or before any governmental board,
department, commission, bureau, instrumentality or agency (including but not
limited to any federal, state, local or foreign governmental agency or body
concerned with control of foreign exchange, energy, environmental protection or
pollution control, franchising or other distribution arrangements, antitrust or
trade regulation, civil rights, labor or discrimination, wages and hours, safety
or health, zoning or land use), or state of facts existing which is reasonably
likely to give rise to any such proceedings; and the Company is not in violation
of any order, ruling, decree or judgment of any court or arbitration tribunal or
governmental board, department, commission, bureau, instrumentality or agency.
3.14 Leased Real Property.
The Company is the lessee under the real estate leases described on
Schedule 3.14 hereto. True, correct and complete copies of said leases and any
amendments, extensions and renewals thereof have heretofore been delivered by
the Company to Buyer. The Company now enjoys and on the Closing Date will enjoy
quiet and undisturbed possession under each of said leases. The Company's
interest in each of such leases is free and clear of
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any mortgages and liens created by the Company, is not subject to any deeds of
trust, assignments, subleases or rights of any third parties created by the
Company, other than the lessor thereof (or those in favor of the lessor's
mortgagee). To the knowledge of the Shareholders, such leased real estate is
free and clear of any zoning or use or building restriction or any pending,
proposed or threatened zoning or use or building restriction which would now, or
on the Closing Date or thereafter, interfere with the present or any intended
use by the Company of any of such leased real estate. Said leases now are, and
on the Closing Date will be, valid and binding and in full force and effect, and
are not now, and on the Closing Date will not be, in default as to the payment
of rent or otherwise. The consummation of the transactions contemplated by this
Agreement will not constitute an event of default under any of said leases and
the continuation, validity and effectiveness of such leases will not be
adversely affected by the transactions contemplated by this Agreement.
3.15 Owned Tangible Personal Property.
Schedule 3.15 sets forth a list of the tangible personal property of
the Company (the "Tangible Personal Property"). Except as set forth on Schedule
3.15 hereto and except for property disposed of in the ordinary course of
business of the Company, the Company has and will have at the Closing all right,
title and interest in, and good title to, the Tangible Personal Property free
and clear of any claim, lease, pledge, mortgage, security interest, conditional
sale agreement or other title retention agreement, restriction, lien or
encumbrance of any kind or nature whatsoever. True, complete and correct copies
of all leases and licenses relating to the Tangible Personal Property have
heretofore been delivered by the Company to Buyer.
3.16 Condition of Buildings and Tangible Personal Property.
To the knowledge of the Shareholders, all of the premises occupied, and
substantially all of the items of Tangible Personal Property are in operating
condition and repair, comply in all material respects with applicable laws,
regulations and ordinances, including but not limited to zoning, building and
fire codes and are suitable and sufficient for the present conduct of the
Company's business. Each item of Tangible Personal Property is adequately
covered by one of the insurance policies described in Section hereto.
3.17 Accounts and Notes Receivable.
Each of the accounts receivable of the Company referred to on the
Financial Statements constitutes a valid claim in the full amount thereof
against the debtor charged therewith on the books of the Company to which each
such account is payable and has been acquired in the ordinary course of
business. Except as set forth in Schedule 3.17, each account receivable is fully
collectible to the extent of the face value thereof (less the amount of the
allowance for the doubtful accounts reflected on the Financial Statements) no
later than ninety (90) days after such account receivable is due. No account
debtor has any valid setoff, deduction or defense with respect thereto, and no
account debtor has asserted any such setoff, deduction or defense. There are no
accounts receivable which arise pursuant to an agreement with the United States
Government or any agency or instrumentality thereof.
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3.18 Material Contracts.
(a) Schedule 3.18 sets forth a list of each of all material contracts
(the "Material Contracts") of the Company, whether oral, written or implied, or
other agreements, leases, surety arrangements or other commitments to which the
Company is a party, under which the Company may become subject to any obligation
or liability, or by which the Company or any of its assets may become bound,
including the following:
(i) each arrangement, agreement, contract or understanding
that involves performance of services or delivery of goods or materials by the
Company in an amount or for a value in excess of $25,000;
(ii) each arrangement, agreement, contract or understanding
that was not entered into in the ordinary course of business and that involves
expenditures or receipts by the Company in excess of $25,000;
(iii) each lease, rental or occupancy agreement, license,
installment and conditional sale agreement, and other arrangement, agreement,
contract or understanding affecting the ownership of, leasing of, title to, use
of, or any leasehold or other interest in, any real or personal property (except
personal property leases and installment and conditional sales agreements having
a value per item or aggregate payments of less than $25,000 and with terms of
less than one year);
(iv) each licensing agreement or other arrangement, agreement,
contract or understanding with respect to patents, trademarks, copyrights, or
other intellectual property, including agreements with current or former
employees, consultants, or contractors regarding the appropriation or the
nondisclosure of any intellectual property assets of the Company;
(v) each collective bargaining agreement or other arrangement,
agreement, contract or understanding with any labor union or other employee
representative of a group of employees;
(vi) each joint venture, partnership, and other arrangement,
agreement, contract or understanding (however named) involving a sharing of
profits, losses, costs, or liabilities by the Company with any other person;
(vii) each arrangement, agreement, contract or understanding
containing covenants that in any way purport to restrict the business activity
of the Company;
(viii) each arrangement, agreement, contract or understanding
providing for payments to or by any person based on sales, purchases, or
profits, other than direct payments for goods;
(ix) each power of attorney that is currently effective and
outstanding;
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(x) each arrangement, agreement, contract or understanding for
capital expenditures in excess of $25,000;
(xi) each written warranty, guaranty, and or other similar
undertaking with respect to contractual performance extended by the Company
other than in the ordinary course of business; and
(xii) each amendment, supplement, and modification (whether
oral or written) in respect of any of the foregoing.
(b) The Material Contracts constitute all of the material agreements
and instruments which are necessary to operate the business as currently
conducted by the Company. True, correct and complete copies of each Material
Contract described and listed under subsection 3.18(a) have been made available
to Buyer prior to the date hereof. The term "Material Contract" excludes
purchase orders entered into in the ordinary course for personality or inventory
which may be returned to the vendor without penalty. All of the Material
Contracts are valid, binding and enforceable against the respective parties
thereto in accordance with their respective terms. Neither the Company and, to
the best of the Shareholders' knowledge, nor any other party, is in default or
in arrears under the terms thereof, and no condition exists or event has
occurred which, with the giving of notice or lapse of time or both, would
constitute a default thereunder.
3.19 Inventories.
All of the Company's inventories are reflected in the Financial
Statements at cost or market, whichever is lower; now are and on the Closing
Date will be good and salable or usable in the ordinary course of the business
of the Company; now are and on the Closing Date will be of sufficient quality
for the normal operation of the Company's business; did not on the date of the
Financial Statements contain, do not now contain, and on the Closing Date will
not contain, any obsolete items.
3.20 Purchase Commitments and Bids.
All accepted and unfulfilled orders for the sale of merchandise or
services entered into by the Company in the operation of its business, and the
aggregate of all commitments for the purchase of merchandise or supplies by the
Company were made in the ordinary course of the operations of the Company. There
are no claims against the Company or the Shareholders to return merchandise by
reason of alleged overshipments, defective merchandise or otherwise, or of
merchandise in the hands of customers under an understanding that such
merchandise would be returnable. Each outstanding bid, proposal, commitment or
unfulfilled order which relates to the operations of the Company was priced upon
terms consistent with the Company's past practices.
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3.21 Banking Matters.
Schedule 3.21 hereto contains a true, complete and correct list of the
names of all banks and other financial institutions (with account numbers) in
which the Company has an account or safe deposit box, and of all brokerage firms
and other entities and persons holding funds or investments of the Company, and
the names of all persons authorized to draw thereon or have access thereto.
3.22 Labor and Employment Matters.
(a) Schedule 3.22 contains a complete list of (i) the names of all
incumbent directors and officers of the Company; (ii) the names and job
designations, descriptions and locations of all employees, consultants and
agents of the Company, the current remuneration of each, and (iii) all
employment arrangements, pension, retirement, profit sharing and bonus plans,
and all deferred compensation, health, welfare, all severance management, and
other similar plans for the benefit of any employees of the Company, including
employee plans ("Employee Benefit Plan"). Subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), the Company at present is
not, and during the five (5) year period preceding the Closing Date, has not
been a sponsor of, party to or obligated to contribute to any employee benefit
plan (as defined in Section 3(3) of ERISA), and has not been a party to any
collective bargaining agreement currently in effect or in effect during the
five-year period preceding the Closing Date, except as set forth on Schedule
3.22 hereto. The Company has never been a member of a "controlled group of
corporations" within the meaning of Internal Revenue Code Section 414(b) or (c)
is or has ever maintained a defined benefit pension plan or contributed to a
multiemployer plan as defined in Section 3(37) of ERISA. True, correct and
complete copies of each Employee Benefit Plan has heretofore been delivered by
the Company to Buyer.
(b) With respect to each Employee Benefit Plan,
(1) there is no litigation, disputed claim (other than routine
claims for benefits), governmental proceeding, inquiry or investigation pending
or threatened with respect to each such Plan, its related trust, or any
fiduciary, administrator or sponsor of such Plan;
(2) each such Plan has been established, maintained, funded
and (to the knowledge of Shareholders) administered in all material respects in
accordance with its governing documents, and any applicable provisions of ERISA,
the Internal Revenue Code, other applicable law, and all regulations promulgated
thereunder.
(c) Except as disclosed on Schedule 3.22, the Company is not obligated
to and does not (directly or indirectly) provide death benefits or health care
coverage to any former employees or retirees.
(d) The Company has complied with all applicable provisions of the
Immigration Reform and Control Act of 1986.
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3.23 Termination of Business Relationships.
No supplier of the Company which cannot be replaced on commercially
reasonable terms has evidenced to the Company any intention to cancel or
terminate its business relationship with the Company. No key employee of the
Company has notified the Company or any Shareholder of his/her intent or desire
to terminate employment with the Company.
3.24 Customers.
Set forth on Schedule 3.24 is a list of the five largest customers the
Company based on the percentage of revenue represented by those customers for
the fiscal year ended December 31, 1997. The relationship of the Company with
its suppliers and customers are good commercial working relationships, no
supplier or customer of the Company has canceled, curtailed or otherwise
terminated or threatened to cancel or otherwise terminate, his or its
relationship with the Company, except that the mix of the Company's customers
and suppliers changes from time to time in the ordinary course of the Company's
business.
3.25 Product Warranties.
Except as set forth on Schedule 3.25, there are no liabilities of or
claims against the Company or any Shareholder, and no liabilities or claims are
threatened against the Company or any Shareholder, with respect to any product
liability (or similar claim) or product warranty (or similar claim) claim that
relates to any product manufactured or sold by the Company or any of the
Shareholders in the operations of the Company, except for standard warranty,
service and maintenance obligations made in the ordinary course of the
operations of the Company to purchasers of its products and services.
3.26 Insurance.
Schedule 3.26 sets forth a list of all the Company's insurance
policies. The Company maintains insurance covering its assets, business,
equipment, properties, operations and employees with such coverage, in such
amounts, and with such deductibles and premiums as are consistent with insurance
coverage provided for other companies of comparable size and in comparable
industries. All of such policies are in full force and effect and all premiums
payable have been paid in full and the Company is in full compliance with the
terms and conditions of such policies. The Company has not received any notice
from any issuer of such policies of its intention to cancel or refusal to renew
any policy issued by it or of its intention to renew any such policy based on a
material increase in premium rates other than in the ordinary course of
business. None of such policies are subject to cancellation by virtue of the
Agreement or the consummation of the other transactions contemplated herein.
There is no claim by the Company pending under any of such policies as to which
coverage has been questioned or denied.
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3.27 Compliance with Laws.
The Company has complied in all material respects with all applicable
laws, statutes, rules and regulations, orders of federal, state, local and
foreign governments and governmental agencies applicable to it and its business,
assets, properties and operations and no claim of violation of any such laws or
regulations has been made prior to the date hereof.
3.28 Licenses and Permits.
The Company has secured all licenses, franchises, permits and other
authorizations from federal, state, local and other governmental or
administrative authorities (an "Authority") applicable to its assets, properties
and operations or necessary for the conduct of its business (the "Permits"),
except for any of the foregoing, the absence of which, either alone or in the
aggregate, would not have a material adverse effect upon the business or
financial condition of the Company. Except as set forth in Schedule 3.28, (a)
each of said Permits is in full force and effect, (b) the Company (or other
designated permittee or licensee thereunder) is in compliance with the terms,
provisions and conditions thereof, (c) there are no outstanding violations,
notices of noncompliance therewith, judgments, consent decrees, orders or
judicial or administrative action(s) or proceedings(s) affecting any of said
Permits and (d) no condition exists and no event has occurred which (whether
with or without notice, lapse of time or the occurrence of any other event)
would permit the suspension or revocation of any of said permits other than by
expiration of the term set forth therein. To the knowledge of the Shareholders,
consummation of the transactions contemplated by this Agreement will not affect
the validity, enforceability or effectiveness of any such Permit and no filing
with or consent authorization or approval of any Authority is required in
connection with the consummation of the transactions contemplated hereby.
3.29 No Interest in Suppliers.
Neither the Company nor the Shareholders have any direct or indirect
equity interest in, or power to control the business or affairs of, or intention
to acquire such interest in or control of, any person that is a manufacturer,
supplier, lender, lessor or provider of services or equipment to the Company.
3.30 All Business Conducted by the Company.
The business and operations of the Company are conducted exclusively by
the Company, and not by the Shareholders or any other business entity whether or
not affiliated with the Company.
3.31 Environmental Matters.
Except as set forth on Schedule 3.31 hereto, (i) the Company is
currently in compliance with all applicable Environmental Laws, and has obtained
all permits and other authorizations from, and submitted all forms, fees,
registrations, reports and similar filings to, the appropriate
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person or governmental agency needed, or required, to operate its facilities in
compliance with the applicable Environmental Laws; (ii) the Company has not
violated any applicable Environmental Law; (iii) the Shareholders are unaware of
any present requirement of any applicable Environmental Law which is due to be
imposed upon it which will increase its cost of complying with the Environmental
Laws; (iv) all past on-site generation, treatment, processing, storage and
disposal of Waste, including Hazardous Waste, by the Company and its
predecessors have been done in compliance with the currently applicable
Environmental Laws; (v) all past off-site transportation, treatment, processing,
storage and disposal of Waste, including Hazardous Waste, generated by the
Company and its predecessors have been done in compliance with the currently
applicable Environmental Laws; (vi) the Company and its predecessors have not
released, spilled, leaked or otherwise discharged into the environment any
Regulated Substance except as expressly authorized by the applicable
Environmental Laws; and (vii) the Company and its predecessors have not used or
otherwise managed any Regulated Substance except in strict compliance with all
applicable Environmental Laws.
As used in this Agreement, the terms (i) "Environmental Laws" include
but are not limited to any federal, state, foreign or local law, statute,
charter or ordinance, and any rule, regulation, binding interpretation, binding
policy, permit, order, court order or consent decree issued pursuant to any of
the foregoing, which pertains to, governs or otherwise regulates any of the
following activities: (a) the emission, discharge, release or spilling of any
Regulated Substance into the air, surface water, groundwater, soil or substrata
and (b) the manufacturing, processing, sale, generation, treatment,
transportation, storage, disposal, labeling or other management of any Waste,
including any Hazardous Waste or Regulated Substance; (ii) "Waste" and
"Hazardous Waste" include any substance defined as such by any applicable
Environmental Law; and (iii) "Regulated Substances" include any substance the
manufacturing, processing, sale, generation, treatment, transportation, storage,
disposal, labeling or other management or use of which is regulated by any
applicable Environmental Law.
3.32 Intellectual Property Matters.
(a) The corporate name of the Company and the trade names and service
marks listed on Schedule 3.32 are the only names and service marks which are
used by the Company in the operation of its business (the "Names and Service
Marks"). The Company owns, or has enforceable rights to use all intellectual
property presently in use by it and necessary for the operation of its business
as now being conducted, which intellectual property includes, but is not limited
to, licenses, patents, trademarks, trade names, service marks, copyrights, trade
secrets, customer lists, inventions, formulas, methods, processes and other
proprietary information (the "Intellectual Property"). There are no outstanding
licenses or consents granting third parties the right to use the Intellectual
Property owned by the Company other than these entered into in the ordinary
course of business. The Company has received no notice of any adversely held
patent, invention, trademark, copyright, service xxxx or tradename of any
person, or any claims of any other person relating to any of the Intellectual
Property subject hereto. There is no presently known threatened use or
encroachment of any such Intellectual Property. To the knowledge of the
Shareholders, the manufacture, sale or use of any products now or heretofore
manufactured or
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sold by the Company did not and does not infringe (nor has any claim been made
that any such action infringes) the intellectual property rights of others.
(b) To the knowledge of Shareholders, all Intellectual Property of the
Company is Millennium Compliant. "Millennium Compliant" shall mean the ability
of software to provide all of the following functions: (a) consistently handle
date information before, during, and after January 1, 2000, including but not
limited to accepting date input, providing date output, and performing
calculations on dates or portions of dates; (b) function accurately, in
accordance with the published documentation, and without interruption before,
during, and after January 1, 2000, without any change in operations associated
with the advent of the new century; (c) respond to two-digit year-date input in
a way that resolves any ambiguity as to century in a disclosed, defined, and
predetermined manner; and (d) store and provide output of date information in
ways that are unambiguous as to century. This paragraph (b) shall not apply to
third party software purchased or licensed by the Company for use in its
business.
3.33 Investment Intent.
(a) Except with respect to the registration rights granted to the
Shareholders pursuant to the terms of the Registration Rights Agreement, the
shares included in the Stock Consideration are not being registered under the
Act on the basis of the statutory exemption provided by Section 4(2) thereof,
relating to transactions not involving a public offering, and the Buyer's
reliance on the statutory exemption thereof is based in part on the
representations contained in this Agreement.
(b) Each Shareholder represents (i) that he has, or as of the Closing,
will have reviewed such quarterly, annual and periodic reports of the Buyer as
have been filed with the Securities and Exchange Commission since December 22,
1997 (the "Reports") and that he has such knowledge and experience in financial
and business matters that he is capable of utilizing the information set forth
therein, concerning Buyer to evaluate the risk of investing in the Buyer; (ii)
that he has been advised that the Stock Consideration to be issued to him by the
Buyer will not be registered under the Act, except as otherwise provided in this
Agreement or the Registration Rights Agreement, and accordingly, such
Shareholder may only be able to sell or otherwise dispose of such shares in
accordance with Rule 144, an applicable exemption from registration under the
Act, or except as otherwise provided in this Agreement; (iii) that the Osage
Stock will be held for investment and not with a view to, or for resale in
connection with the public offering or distribution thereof; (iv) that the Osage
Stock so issued will not be sold without registration thereof under the Act
(unless such shares are subject to registration or in the opinion of counsel to
the Buyer an exemption from such registration is available), or in violation of
any law; and (v) that the certificate or certificates representing the Osage
Stock to be issued will be imprinted with a legend in form and substance
substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("THE
ACT"). THESE SECURITIES
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MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF AN EXEMPTION
FROM REGISTRATION, UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, BASED ON AN OPINION LETTER OF COUNSEL FOR THE COMPANY
OR A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE
COMMISSION.
and Buyer is hereby authorized to notify its transfer agent of the status of the
Osage Stock and to take such other action, including but not limited to, the
placing of a "stop-transfer" order on the transfer agent's books and records to
assure compliance with the Act.
(c) Each Shareholder has either upon the date hereof or before the
Closing hereunder, been afforded the opportunity to review and is familiar with
the Reports and has based his decision to invest solely on the information
contained therein, and the information contained within this Agreement and the
associated exhibits and schedules, and has not been furnished with any other
literature, prospectus or other information except as included in the Reports or
this Agreement, and except for such other information provided to Shareholders
in connection with Section 3.33(d), below.
(d) Each Shareholder has been given the opportunity to ask questions
about the Company and is satisfied that any information about the Buyer and
Osage Stock have been answered to such Shareholder's satisfaction.
(e) Each Shareholder understands that no federal or state agency has
approved or disapproved the Osage Stock, passed upon or endorsed the merits of
the transfer of such shares set forth within this Agreement or made any finding
or determination as to the fairness of such shares for investment.
3.34 Disclosure.
Neither this Agreement nor any other document, certificate, exhibit,
statement or schedule furnished or to be furnished by or on behalf of the
Company to Buyer in connection with the transactions contemplated hereby
contains or will contain any untrue statement of a material fact, or omits or
will omit to state a material fact necessary to make the factual statements
contained therein, in light of the circumstances under which made, not
misleading.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
As a material inducement to the Shareholders to execute this Agreement
and to consummate the transactions contemplated hereby, Buyer hereby makes the
following representations and warranties to the Shareholders. The
representations and warranties are true and correct in all material respects at
this date, and will be true and correct in all material respects on the Closing
as though made on and as of such date.
4.1 Organization and Qualification.
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, having a United States
taxpayer identification number 00-0000000, and SEC File No. 0-22808. Buyer has
the corporate power and authority to carry on its business as presently
conducted. Buyer is duly qualified or licensed to do business and in good
standing as a foreign corporation in each of the jurisdictions in which the
nature of its business or the character of the properties and assets which it
owns or leases makes such qualification or licensing necessary.
4.2 Corporate Instruments and Records.
The copies of the Buyer's certificate of incorporation and bylaws, each
certified by the Secretary of the Buyer and heretofore furnished to
Shareholders, are true, correct and complete and each include all amendments to
the date hereof. The Buyer's minute books, as made available to Shareholders,
contain a true, complete and correct record of all corporate action taken on or
prior to the date hereof at the meetings of its shareholders and directors and
committees thereof.
4.3 Authorization; Valid and Binding Obligation.
Buyer has full corporate power and authority to execute and deliver
this Agreement and to perform its obligations hereunder. This Agreement has been
duly executed and delivered by Buyer and constitutes, and the other documents to
be executed and delivered pursuant hereto when executed and delivered by Buyer
will constitute, the legal, valid and binding obligations of Buyer, enforceable
against it in accordance with its terms. The execution, delivery and performance
of this Agreement and the other agreements of the Buyer contemplated hereby
(collectively, the "Buyer's Agreements") do not require the consent of or notice
to any third-party. Neither the execution and delivery of the Buyer's Agreements
nor the consummation of the transactions contemplated thereby will conflict with
or result in any violation of or constitute a default under any term of the
certificate of incorporation or bylaws of the Buyer, or any agreement, mortgage,
debt instrument, indenture, or other instrument, judgment, decree, order, award,
law or regulation by which the Buyer is bound, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the assets of the
Buyer, or result in the cancellation, modification, revocation or suspension of
any license, certificate, permit or authorization held by the Buyer.
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4.4 Litigation.
Except as set forth on Schedule 4.4, there are no actions, suits or
proceedings at law or in equity, or arbitration proceedings, or claims, demands
or investigations, pending or threatened against or involving the Buyer, or
state of facts existing which could give rise to any such action, suit,
proceeding, claim, demand or investigation; there are no proceedings pending or
threatened against or involving the Buyer by or before any governmental board,
department, commission, bureau, instrumentality or agency (including but not
limited to any federal, state, local or foreign governmental agency or body
concerned with control of foreign exchange, energy, environmental protection or
pollution control, franchising or other distribution arrangements, antitrust or
trade regulation, civil rights, labor or discrimination, wages and hours, safety
or health, zoning or land use), or state of facts existing which could give rise
to any such proceedings; and the Buyer is not in violation of any order, ruling,
decree or judgment of any court or arbitration tribunal or governmental board,
department, commission, bureau, instrumentality or agency.
4.5 Stock Consideration.
Shares to be issued as Stock Consideration and any Additional Shares
issued pursuant to this Agreement will be, upon issuance, duly authorized,
validly issued, fully paid and non-assessable with no liability on the part of
the holders thereof.
4.6 Capitalization.
(a) As of June 8, 1998, the outstanding capital stock of the Buyer
consists solely of: (A) 8,133,628 shares of common stock par value $0.01 per
share (the "Common Stock"); (B) 10 shares of Series A Preferred Stock; (C) 50
shares of Series B $3.00 Convertible Preferred Stock; (D) 105.3 shares of Series
C $3.00 Convertible Preferred Stock; (E) Options to purchase 2,100,000 shares of
the Common Stock at exercise prices ranging from $3.00 to $4.50 per share; (F)
warrants to purchase 100,000 shares of common stock at an exercise price at
$4.25 issued in connection with a recent private placement; and (G) 11,554
redeemable warrants at an exercise price of $1,000 per share. All outstanding
shares of capital stock of Buyer have been duly authorized and validly issued
and are fully paid and nonassessable and free of preemptive rights. Except as
otherwise set forth herein, within the Buyer's SEC Reports or on Schedule 4.6,
there are no outstanding or presently authorized warrants, preemptive rights,
subscription rights, options or related commitments or agreements of any nature
to issue any of Buyer's securities or to sell, pledge, assign or otherwise
transfer such securities.
(b) Buyer has and will have a sufficient number of its authorized but
unissued shares of Common Stock to permit it to issue the Stock Consideration
and any Additional Shares due in connection with the Agreement, including
Buyer's other obligations to issue shares of its Common Stock upon exercise of
any option, warrant or other right to acquire the same.
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4.7 SEC Reports.
Buyer has heretofore delivered to Shareholders copies of its Annual
Report on Form 10-KSB for the year ended December 31, 1997, its Proxy Statement
relating to its Annual Meeting held on June 12, 1998, its quarterly report on
Form 10-QSB for the quarterly period ended March 31, 1998, all Current Reports
on Form 8-K since December 22, 1997 and a Prospectus dated June 10, 1998 (the
"Buyer's SEC Reports"). As of their date of filing, the Buyer's SEC Reports did
not contain any untrue statements of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances in which they were made, not misleading.
Furthermore, except as set forth on Schedule 4.7, or as otherwise disclosed in
Buyer's SEC Reports, or otherwise in this Agreement or any schedule thereto,
Buyer has experienced no material adverse change in its financial condition,
properties, business or prospects since the date thereof. The Buyer's SEC
Reports have been prepared in compliance with all applicable securities laws,
rules and regulations, and the financial statements included therein had been
prepared in accordance with general accepted accounting principles, consistently
applied, and fairly presented the financial condition of Buyer as of the date
and for the periods covered thereby.
4.8 No Violations.
The Buyer is not in default under or in violation of any provision of
(a) its certificate of incorporation or bylaws, or (b) any agreement,
understanding, arrangement, indenture, contract, lease, sublease, loan
agreement, note, restriction, obligation or liability to which it is a party or
by which it is bound or to which it or its assets are subject (individually, an
"Instrument" and collectively, the "Instruments"). Neither the execution and
delivery of this Agreement by the Buyer, nor the consummation of the
transactions contemplated hereby or thereby, nor compliance with the terms
hereof or thereof, will (i) conflict with or result in a breach of any of the
terms, conditions or provisions of the certificate of incorporation or bylaws of
the Buyer, nor (ii) violate, conflict with or result in a breach of or default
under any of the terms, conditions or provisions of any Instrument, nor (iii)
accelerate or give to others any interests or rights, including rights of
acceleration, termination, modification or cancellation, under any Instrument or
in or with respect to the business or assets of the Buyer, nor (iv) result in
the creation of any lien, claim, charge or encumbrance on the assets, capital
stock or properties of the Buyer, nor (v) conflict with, violate or result in a
breach of or constitute a default under any law, statute, rule, judgment, order,
decree, injunction, ruling or regulation of any government, governmental agency,
authority or instrumentality, court or arbitration tribunal to which the Buyer
or any of its assets or properties is subject, nor (vi) require the Buyer to
give notice to, or obtain an authorization, approval, order, license, franchise,
declaration or consent of, or make a filing with, any foreign, federal, state,
county, local or other governmental or regulatory body or other person, other
than any filings required to be made with the Federal Trade Commission ("FTC")
and Antitrust Division of the Department of Justice ("Justice Department") of
Notification and Report Forms pursuant to the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976, as amended ("HSR Act") and the rules promulgated
thereunder.
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4.9 Undisclosed Liabilities.
Except as otherwise disclosed in this Agreement or any Schedules
thereto, Buyer does not have any liabilities or obligations of any nature, fixed
or contingent, that will not be shown or otherwise provided for in the Buyer SEC
Reports, except for liabilities and obligations arising subsequent to the date
of such Buyer's SEC Reports in the ordinary course of business, none of which
individually or in the aggregate will be materially adverse to the business or
financial condition of Buyer. There are no material loss contingencies (as such
term is used in Statement of Financial Accounting Standards No. 5 of the
Financial Accounting Standards Board) of Buyer that will not be adequately
provided for.
4.10 Disclosure.
Neither this Agreement, nor any other document, certificate, exhibit,
statement or schedule furnished or to be furnished by or on behalf of the Buyer
to Shareholders in connection with the transactions contemplated hereby contains
or will contain any untrue statement of a material fact, or omits to state a
material fact necessary to make the factual statements contained herein or
therein, in light of the circumstances under which such statements are made, not
misleading.
4.11 No Adverse Changes.
Since the date of the most recent Buyer's SEC Reports to the date of
this Agreement, the business of the Buyer has been operated in the ordinary
course and there has not been any materially adverse change in the business,
condition (financial or otherwise), results of operations, properties, assets,
liabilities, earnings or net worth of Buyer.
4.12 Investment Intent.
(a) The Buyer represents (i) that it has, or as of the Closing, will
have such knowledge and experience in financial and business matters that he is
capable of evaluating the risk of purchasing the Shares; (ii) that it has been
advised that the Shares purchased by it will not be registered under the Act,
except as otherwise provided in this Agreement; and (iii) that the Shares will
be held for investment and not with a view to, or for resale in connection with
the public offering or distribution thereof.
ARTICLE V
AGREEMENTS OF THE PARTIES
5.1 Access to Information.
(a) At all times prior to the Closing or the earlier termination of
this Agreement in accordance with the provisions of Article 8, and in each case
subject to Section 5.2 below, each of the parties hereto shall provide to the
other parties (and the other parties' authorized representatives) full access
during normal business hours and upon reasonable prior notice to the
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premises, properties, books, records, assets, liabilities, operations,
contracts, personnel, financial information and other data and information of or
relating to such party (including without limitation all written proprietary and
trade secret information and documents, and other written information and
documents relating to intellectual property rights and matters), and will
cooperate with the other party in conducting its due diligence investigation of
such party.
(b) Subsequent to Closing, Buyer shall provide to the Shareholders (and
their authorized representatives) full access during normal business hours and
upon reasonable prior notice, to the books and records of the Company as is
reasonably necessary for the Shareholders in connection with their obligations
as set forth in Section 5.14(a).
5.2 Confidentiality; No Solicitation.
(a) With respect to information concerning the Company that is made
available to Buyer pursuant to the terms of this Agreement, Buyer agrees that it
shall hold such information in strict confidence, shall not use such information
except for the sole purpose of evaluating the Agreement and related transactions
and shall not disseminate or disclose any of such information other than to its
directors, officers, employees, shareholders, affiliates, agents and
representatives who need to know such information for the sole purpose of
evaluating the Agreement and the related transactions (each of whom shall be
informed in writing by Buyer of the confidential nature of such information and
directed by Buyer in writing to treat such information confidentially). If this
Agreement is terminated pursuant to the provisions of Section 8, Buyer shall
immediately return all such information, all copies thereof and all information
prepared by Buyer based upon the same; provided, however, that one copy of all
such material may be retained by Buyer's outside legal counsel for purposes only
of resolving any disputes under this Agreement. The above limitations on use,
dissemination and disclosure shall not apply to information that (i) is learned
by Buyer from a third party entitled to disclose it; (ii) becomes known publicly
other than through Buyer or any party who received the same through Buyer,
provided that Buyer has no knowledge that the disclosing party was subject to an
obligation of confidentiality; (iii) is required by law or court order to be
disclosed by Buyer; or (iv) is disclosed with the express prior written consent
thereto of the Shareholders. Buyer shall undertake all necessary steps to ensure
that the secrecy and confidentiality of such information will be maintained in
accordance with the provisions of this paragraph (a). Notwithstanding anything
contained herein to the contrary, in the event a party is required by court
order or subpoena to disclose information which is otherwise deemed to be
confidential or subject to the confidentiality obligations hereunder, prior to
such disclosure, the disclosing party shall (if permitted by law): (i) promptly
notify the non-disclosing party and, if having received a court order or
subpoena, deliver a copy of the same to the non-disclosing party; (ii) cooperate
with the non-disclosing party, at the expense of the non-disclosing party in,
obtaining a protective or similar order with respect to such information; and
(iii) provide only such of the confidential information as the disclosing party
is advised by its counsel is necessary to strictly comply with such court order
or subpoena.
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(b) With respect to information concerning Buyer that is made available
to the Shareholders pursuant to the provisions of this Agreement, each
Shareholder agrees that he shall hold such information in strict confidence,
shall not use such information except for the sole purpose of evaluating the
Agreement and the related transactions, and shall not disseminate or disclose
any of such information other than to the Company's directors, officers,
employees, affiliates, agents and representatives who need to know such
information for the sole purpose of evaluating the Agreement and the related
transactions (each of whom shall be informed in writing by the Shareholders of
the confidential nature of such information and directed by such party in
writing to treat such information confidentially). If this Agreement is
terminated pursuant to the provisions of Section 8, each Shareholder agrees to
return immediately all such information, all copies thereof and all information
prepared by either the Shareholders or the Company based upon the same;
provided, however, that one copy of all such material may be retained by the
Shareholders' legal counsel for purposes only of resolving any disputes under
this Agreement. The above limitations on use, dissemination and disclosure shall
not apply to information that (i) is learned by any of the Shareholders from a
third party entitled to disclose it; (ii) becomes known publicly other than
through any of the Shareholders or any party who received the same through any
of such Shareholders, provided that such Shareholder has no knowledge that the
disclosing party was subject to an obligation of confidentiality; (iii) is
required by law or court order to be disclosed by any of the Shareholders; or
(iv) is disclosed with the express prior written consent thereto of Buyer. Each
of the Shareholders agrees to undertake all necessary steps to ensure that the
secrecy and confidentiality of such information will be maintained in accordance
with the provisions of this paragraph (b). Notwithstanding any thing contained
herein to the contrary, in the event a party is required by court order or
subpoena to disclose information which is otherwise deemed to be confidential or
subject to the confidentiality obligations hereunder, prior to such disclosure,
the disclosing party shall (if permitted by law): (i) promptly notify the
non-disclosing party and, if having received a court order or subpoena, deliver
a copy of the same to the non-disclosing party; (ii) cooperate with the
non-disclosing party at the expense of the non-disclosing party in obtaining a
protective or similar order with respect to such information; and (iii) provide
only such of the confidential information as the disclosing party is advised by
its counsel is necessary to strictly comply with such court order or subpoena.
5.3 Interim Operations.
During the period from March 31, 1998 and continuing until the Closing:
(a) The Shareholders agree (except as expressly contemplated by or
disclosed within this Agreement, including any Exhibits and Schedules hereto, or
to the extent that Buyer shall otherwise consent in writing) that as to the
Company:
(1) The Company shall carry on its business in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted and, to the extent consistent with such business, use all reasonable
efforts to preserve intact its present business organization,
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37
keep available the services of its present officers and employees and preserve
its relationships with customers, suppliers and others having business dealings
with it;
(2) The Company shall not and shall not propose to: (a)
declare, set aside or pay any dividend, on, or make other distributions in
respect of, any of its capital stock, or purchase or redeem any shares of its
capital stock other than a cash dividend to be distributed to the Shareholders
in an amount equal to the Shareholders' liability for federal and state taxes on
the earnings from operations of the Company during 1998 through the Closing Date
(exclusive of any income or gain on sale associated with the transactions
covered by this Agreement) as more fully described at Section 5.4 hereafter; (b)
split, combine or reclassify any of its capital stock or issue, authorize or
propose the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock; (c) redeem, repurchase or
otherwise acquire any shares of its capital stock; or (d) otherwise change its
capitalization.
(3) Except as contemplated by this Agreement, the Company
shall not sell, issue, pledge, authorize or propose the sale or issuance of,
pledge or purchase or propose the purchase of, any shares of its capital stock
of any class or securities convertible into, or rights, warrants or options to
acquire, any such shares or other convertible securities.
(4) The Company shall not amend its articles of incorporation
or its Bylaws.
(5) The Company shall not sell, lease, pledge, encumber or
otherwise dispose of or agree to sell, lease, pledge, encumber or otherwise
dispose of, any of its assets that are material except in the ordinary course of
business consistent with prior practice and in no event amounting in the
aggregate to more than $75,000.
(6) The Company shall not incur any indebtedness for borrowed
money or guarantee any such indebtedness or issue or sell any debt securities of
the Company or guarantee any debt securities of others other than in the
ordinary course of business consistent with prior practice and in no event
(disregarding for these purposes ordinary trade accounts payable and operating
accruals) amounting in the aggregate to more than $75,000.
(7) The Company shall not adopt or amend in any material
respect any collective bargaining agreement or Employee Benefit Plan.
(8) The Company shall not grant to any Shareholder-employee
any increase in compensation or in severance or termination pay, or enter into
any employment agreement with any executive officer.
(9) The Company shall not acquire (by merger, consolidation or
acquisition of stock or assets or otherwise) any corporation, partnership or
other business organization or subdivision thereof, or make any investment by
either purchase of stock or securities, contributions to capital, property
transfer or, except in the ordinary course of business, purchase of any property
or assets, of any other individual or entity.
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(10) The Company shall not make any material tax election or
settle or compromise any material federal, state, local or foreign tax
liability.
(11) The Company shall not waive, release, grant or transfer
any rights of material value or modify or change in any material respect any
Material Contract other than in the ordinary course of business and consistent
with past practice.
(12) The Company shall not enter into any agreement or
arrangement to do any of the foregoing. The Company shall not take any action,
or fail to take any action, that is reasonably likely to result in any of the
representations and warranties of the Company set forth in this Agreement
becoming untrue in any material respect.
(b) Buyer agrees (except as expressly contemplated by or disclosed
within this Agreement, including any Exhibits and Schedules hereto, or to the
extent that the Shareholders shall otherwise consent in writing that:
(1) Buyer shall carry on its business in the usual, regular
and ordinary course in substantially the same manner as heretofore conducted
and, to the extent consistent with such business, use all reasonable efforts to
preserve intact its present business organization and preserve its relationships
with customers, suppliers and others having business dealings with it.
(2) Intentionally Deleted.
(3) Buyer shall not (and shall not propose to) (a) declare or
pay any dividend, on, or make other distributions in respect of, any of its
capital stock, (b) split, combine or reclassify any of its capital stock or
issue, authorize or propose the issuance of any other securities in respect of,
in lieu of or in substitution for shares of its capital stock, (c) repurchase or
otherwise acquire any shares of its capital stock or (d) otherwise change the
terms of any classes of its capital stock in a manner that may be adverse to the
Shareholders.
(4) Buyer shall not sell, lease, pledge, encumber or otherwise
dispose of, or agree to sell, lease, pledge, encumber or otherwise dispose of,
any of its assets that are material, or any other assets except in the ordinary
course of business consistent with prior practice (except that Buyer intends to
secure a working capital line of credit from a commercial bank that will likely
require a blanket lien on Buyer's assets to secure such loan).
(5) Buyer shall not adopt or amend in any material respect any
collective bargaining agreement or Employee Benefit Plan (as defined herein).
(6) Buyer shall not enter into any agreement or arrangement to
do any of the foregoing. Buyer shall not take any action, or fail to take any
action, that is reasonably likely to result in any of their representations and
warranties set forth in this Agreement becoming untrue in any material respect.
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5.4 Permissible Distributions to Shareholders.
(a) In recognition of the Company's status as an S Corporation, Buyer
has agreed to permit the Shareholders to withdraw from the Company funds to
assist each of the Shareholders in the payment of the Shareholders' federal and
state income tax liability for the taxable earnings of the Company for the
fiscal year ended December 31, 1997 in an aggregate amount (to the extent such
distributions have not already been withdrawn by the Shareholders) not to exceed
$125,000.
(b) In connection with the Shareholders' federal and state income tax
liability from January 1, 1998 through the Closing Date, the Shareholders may
withdraw funds from the Company in an amount estimated to be equal to the
Shareholders' aggregate individual tax liabilities for the taxable earnings of
the Company from January 1, 1998 through the Closing Date, exclusive of any
income or gains resulting from the Section 338(h)(10) election. All amounts not
previously distributed to the Shareholders to cover the taxes described herein,
shall be distributed to the Shareholders once all parties are satisfied as to
the determination of the Company's taxable income from operations from January
1, 1998 through the Closing Date, however, in no event later than the 15th day
prior to the due date of the final S-Corporation tax return for the taxable
period January 1, 1998 through the Closing Date. In the event that the amounts
withdrawn by the Shareholders on or before the Closing Date are greater or less
than the total amount that the Shareholders are cumulatively entitled to
withdraw under this section, then after notice to this effect, Buyer and the
Shareholders, as the case may be, shall make payment to the other to reconcile
the difference within sixty (60) days of such notice, and if such payments are
not timely received within sixty (60) days of such notice, the amount to be paid
by the party so obligated shall be increased by fifteen (15%) percent.
(c) For the purposes hereof, the tax rate applicable to the taxable
earnings of the Company shall be computed without regard, and prior to, any
additional taxes or increased tax rate caused by the gain on sale associated
with the sale of the Shares covered by this Agreement.
5.5 Consents.
Buyer and the Shareholders shall cooperate and use their best efforts
to obtain, prior to the Closing, all licenses, permits, consents, approvals,
authorizations, qualifications and orders of governmental authorities and
parties to contracts as are necessary for the consummation of the transactions
contemplated by this Agreement; provided, however, that no loan agreement or
contract for borrowed monies shall be repaid and no contract shall be amended
materially to increase the amount payable thereunder or otherwise to be
materially more burdensome in order to obtain any such consent, approval or
authorization without first obtaining the written approval of the other parties
hereto.
5.6 Filings.
(a) Buyer and the Shareholders shall, as promptly as practicable, make
any required filing, and any other required submissions, under any law, statute,
order rule or regulation with
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respect to the Agreement and the related transactions and shall cooperate with
each other with respect to the foregoing. After the Closing, Buyer shall timely
file a current report on Form 8-K relating to the Agreement and the transactions
contemplated hereby.
(b) From and after the Closing Date and until at least one year after
the last Measurement Period identified within this Agreement, assuming it
remains the owner of the outstanding stock of the Company, Buyer shall continue
to make all filings required by the Securities and Exchange Commission as may be
necessary to allow the Shareholders to avail themselves of Rule 144.
5.7 All Reasonable Efforts.
Subject to the terms and conditions of this Agreement and to the
fiduciary duties and obligations of the boards of directors of the parties
hereto to their respective shareholders, as advised by their counsel, each of
the parties to this Agreement shall use all reasonable efforts to take, or cause
to be taken, all action and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations, or to remove any
injunctions or other impediments or delays, legal or otherwise, as soon as
reasonable practicable, to consummate the transactions contemplated by this
Agreement.
5.8 Public Announcements.
Neither the Shareholders nor the Buyer shall disclose to the public or
to any third party the existence of this Agreement or the transactions
contemplated hereby or any other material non-public information concerning or
relating to the other party hereto, other than with the express prior written
consent of the other party hereto, except as may be required by law or court
order or to enforce the rights of such disclosing party under this Agreement, in
which event the contents of any proposed disclosure shall be discussed with the
other party before release; provided, however, that notwithstanding anything to
the contrary contained in this Agreement, any party hereto may disclose this
Agreement to any of its directors, officers, employees, shareholders,
affiliates, agents and representative who need to know such information for the
sole purpose of evaluating the Agreement, and to any party whose consent is
required in connection with this Agreement. The parties anticipate issuing a
mutually acceptable, joint press release announcing the execution of this
Agreement and the consummation of the transactions provided for herein.
5.9 Notification of Certain Matters.
The Shareholders shall give prompt notice to Buyer, and Buyer shall give prompt
notice to Shareholders, of (a) the occurrence or non-occurrence of any event,
the occurrence or non-occurrence of which would cause any of its representations
or warranties in this Agreement to be untrue or inaccurate in any material
respect, as to the Company or the Shareholders, at or prior to the Closing, and,
as to Buyer, as of or prior to the Closing and (b) any material failure of the
Shareholders, on the one hand, or Buyer, on the other hand, as the case may be,
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by them
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41
under this Agreement; provided, however, the delivery of any notice pursuant to
this Section shall not limit or otherwise affect the remedies available to the
party receiving such notice under this Agreement as expressly provided in this
Agreement.
5.10 Financial Statements.
(a) Within seventy-five (75) days after the Closing, the Company shall
cause to be prepared an audit for the calendar year ending December 31, 1997
(the "Audited Financial Statements"). The Audited Financial Statements shall not
reflect any material adverse changes from the Unaudited Financial Statements. If
the Stockholders' Equity reflected on the Audited Financial Statements is less
than the amount reflected on the Unaudited Financial Statements, less the up to
$125,000 tax distribution described in Section 5.4(a)(i), then the amount of the
difference between the Stockholders' Equity reflected on the Audited Financial
Statement, less the up to $125,000 tax distribution described in Section
5.4(a)(i), and the amount reflected on the Unaudited Financial Statements (the
"Deficiency") shall be applied against the Escrow Cash on a dollar for dollar
basis.
(b) The cost of the Audited Financial Statements shall be borne by the
Buyer. The Shareholders shall take all reasonable actions and provide whatever
cooperation is necessary to facilitate the prompt preparation of the Audited
Financial Statements.
5.11 Documents at Closing.
Each party to this Agreement agrees to execute and deliver at the
Closing the Exhibits and other documents identified in Section 2.2.
5.12 Satisfaction of Guarantees.
Buyer agrees to take all action as may be reasonably required to have
the Shareholders (and their spouses, if applicable) released from the guarantees
and to the extent not so released, shall satisfy or assume in full the
guarantees of Shareholders (and their spouses, if applicable) identified on
Schedule 3.11 hereto as of the Closing Date, and Buyer shall indemnify the
Shareholders (and their spouses, if applicable) against all liabilities
associated with the guarantees from and after the Closing Date.
5.13 Prohibition on Trading in Buyer Stock.
The Shareholders acknowledge that the United States securities laws
prohibit any person who has received material non-public information concerning
the matters which are the subject matter of this Agreement from purchasing or
selling the securities of the Buyer, or from communicating such information to
any person under circumstances in which it is reasonably foreseeable that such
person is likely to purchase or sell securities of the Buyer. Accordingly, each
Shareholder agrees that he will not purchase or sell any securities of the
Buyer, or communicate such information to any other person under circumstances
in which it is reasonably foreseeable that such person is likely to purchase or
sell securities of the Buyer, until no earlier
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42
than 72 hours following the dissemination of a Current Report on Form 8-K to the
SEC announcing the Closing pursuant to this Agreement provided that the Form 8-K
is required and timely filed.
5.14 Tax Matters/Section 338(h)(10) Election.
(a) The Shareholders will timely and properly file or cause to be filed
all tax returns of the Company which are due or which will become due with
respect to periods ending through the Closing Date, all such tax returns to be
true and correct and complete in all material respects, and the Shareholders
will pay or cause to be paid in full when due all taxes, if any, which become
due and payable pursuant to such returns, or assessments received by them on or
before the Closing Date; in that regard, the Company shall provide Shareholders
with such reasonable access to the books and records of the Company as is
necessary to complete and file such tax returns. Shareholders shall present for
Buyer's review and Buyer shall be entitled to review all final federal and state
S-corporation returns which shall include gains, if any, resulting from the
Section 338(h)(10) election to be filed by the parties hereto, thirty (30) days
prior to the filing of any such return. In addition, Shareholders agree that any
and all costs of preparing such return shall be borne exclusively by the
Shareholders.
(b) The Shareholders and Buyer shall jointly execute Form 8023 at
Closing, and thereafter shall jointly make an election on a timely basis with
respect to the Company under Section 338(h)(10) of the Internal Revenue Code
(the "Code") on Form 8023 or in such other manner as may be required by rule or
regulation of the Internal Revenue Service, and shall jointly make an election
in the manner required under any analogous provision of state or local law as
the Buyer shall designate or as shall be required, concerning the transactions
contemplated by this Agreement. Form 8023 is attached hereto as Exhibit F. The
Buyer shall, with the assistance and cooperation of the Shareholders, prepare
all such Section 338(h)(10) forms required as attachments to Form 8023 (and all
forms under analogous provisions of state or local law) in accordance with
applicable tax laws and shall on such Form 8023 allocate the Purchase Price in a
manner consistent with Section 338 of the Code, and the Buyer shall deliver such
forms and related documents to the Shareholders at least 60 days prior to the
due date of filing. The Form 8023 shall be prepared as to total purchase
consideration, on a basis consistent with the value of the Purchase
Consideration attributed thereto under Paragraphs 1.2(a) and 1.2(b) of this
Agreement. The Shareholders shall deliver to the Buyer at least 30 days prior to
the due date of filing such completed forms as are required to be filed under
Section 338(h)(10) of the Code (and analogous provisions of state or local law).
The Shareholders shall not be obligated to indemnify the Buyer or the Company
for any amount of Illinois replacement tax attributable to the Section
338(h)(10) election. The Shareholders and Buyer shall jointly execute any
amended Form 8023's (and all forms under analogous provisions of state or local
law) as may become necessary after the initial filing to the extent post-closing
adjustments to Purchase Price arise under the provisions of this Agreement.
(c) The Shareholders and Buyer agree that the fair market value of the
assets shall initially approximate the amount set forth on Schedule 5.14 hereto.
The Shareholders and the
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Buyer agree that following the Closing, the Buyer shall, at its expense, perform
or cause to be performed a complete initial valuation of the assets of the
Company and allocation of purchase price prepared in a manner consistent with
Section 338 of the Code. Buyer shall provide the Shareholders with drafts of
such valuation of assets and allocation of modified aggregate deemed sale price
("MADSP") (as defined under Treasury Regulations) within 150 days after the
Closing Date. If any two or more Shareholders provide notification to the Buyer
that they object to such drafts and shall not reach agreement with Buyer on the
computation or allocation within 30 days after notification, Buyer and
Shareholders shall submit the issue to arbitration to a nationally recognized
accounting firm as shall be mutually acceptable to Buyer and the Shareholders
for resolution of the disagreement within 10 days. The fees and expenses of such
accounting firm shall be borne 50% by Buyer and 50% by the Shareholders (in the
aggregate). The valuations and allocations determined pursuant to this Section
shall be used for purposes of all relevant tax returns, reports and filings.
5.15 Change in Control.
In furtherance of the general covenant described in Section 1.3(f),
Buyer will not, during the Earn-Out Period, sell or attempt to sell a
controlling interest in the common stock of the Company, or substantially all of
the assets or operations of the Company (a "Change in Control Transaction")
without having first secured the consent of the Shareholders who shall have the
right to review the proposed transaction in order to assure, in their reasonable
judgment, that the proposed Change in Control Transaction will not adversely
affect the ability of the Shareholders to realize the Maximum Earn-Out or
otherwise impair the economic viability of the Company. In the event that the
Shareholders withhold their consent to the Change in Control Transaction in
accordance with the foregoing, Buyer may, nevertheless, proceed with the
proposed Change in Control Transaction provided Buyer pays to the Shareholders
the Maximum Earn-Out, in which event, the Shareholders' right to receive any
Additional Shares in connection the Earn-Out shall terminate. For the purposes
hereof, a Change in Control Transaction shall not include (i) a merger,
reorganization or other transaction resulting in the sale of the stock or a
controlling interest in Buyer, (ii) an overall sale of the operations of Buyer
consisting of the sale of Buyer's stock ownership interest in at least 75% of
its operating subsidiaries; (iii) a sale of a controlling interest in any of
Buyer's principal operating subsidiaries, other than the Company. For purposes
hereof, the Maximum Earn-Out will be calculated with reference to the Maximum
Earn-Out (as defined in Section 1.2(c)) for each Measurement Period that has not
closed, converted into a dollar amount upon application of Section 1.3(h), using
the last trading day of the calendar week prior to the Change of Control
Transaction as the last day of the ten day pricing period in clause (i) of
Section 1.3(h). Payment of the Maximum Earn-Out required hereunder shall be made
on the closing date of the Change in Control Transaction giving rise to the
required payment.
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5.16 Subsequent Acquisitions.
(a) In the event that, during the Earn-Out Period, Buyer determines to
acquire another business engaged in the same general line of business as the
Company and whose headquarters or principal operations are located within a 100
mile radius of Chicago, Illinois, subject to subparagraph (b) below, such
acquisitions (i) will be accomplished through the Company such that the acquired
business shall be operated as a direct subsidiary or division of the Company,
and (ii) will not be undertaken without the consent of a majority in interest of
the Shareholders who remain employed by the Company, whose consent shall not be
unreasonably withheld.
(b) The obligations set forth in subparagraph (a) above shall only
apply if at the time any such acquisition is undertaken, the Shareholders earned
any Additional Shares for the immediately preceding Measurement Period and the
Company is demonstrating, through interim results of operations, a likelihood
that the Shareholders will be entitled to receive Additional Shares for the
current Measurement Period. For acquisitions considered prior to the end of the
first Measurement Period, the Buyer's obligations as set forth in subparagraph
(a) above shall only apply if the Company is demonstrating, through interim
results of operations, a likelihood that the Shareholders will be entitled to
receive Additional Shares for such Measurement Period.
5.17 Governmental Authority.
If so required, the parties shall have filed with the Federal Trade
Commission and the Antitrust Division of the Department of Justice notification
and report forms with respect to the transactions contemplated hereby pursuant
to the HSR Act and the rules promulgated thereunder, and the waiting period
required to expire under the HSR Act and rules, including any extension thereof,
shall have expired.
5.18 Absence of Broker or Finder.
There is no investment banker, broker, finder or other similar
intermediary which has been retained by, or is authorized by, the Shareholders
to act on its behalf who might be entitled to any fee or commission from the
Buyer or the Company; there is no investment banker, broker, finder or other
similar intermediary which has been retained by, or is authorized by, the Buyer
to act on its behalf who might be entitled to any fee or commission from the
Shareholders or the Company upon consummation of the transactions contemplated
by this Agreement.
5.19 Cooperation; Further Assurances.
Each party to this Agreement agrees to cooperate fully with the other
parties hereto and their counsel and accountants and other representatives, will
use best efforts to cause satisfaction of the conditions to consummation of the
transactions contemplated herein as promptly as possible, and will refrain from
a course of action inconsistent with this Agreement. Each party shall, upon
request of any of the other parties hereto, at any time and from time to time
execute, acknowledge, deliver and perform all such further acts, deeds,
assignments, transfers,
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conveyances, powers of attorney and instruments of further assurances as may be
necessary or appropriate to carry out the provisions and intent of this
Agreement.
5.20 Further Mutual Covenants.
Buyer and the Shareholders shall refrain from taking any action which
would render any representations or warranties contained in Articles or of this
Agreement inaccurate as of the Closing Date and shall promptly notify the other
party upon the happening of any event or taking of any action which renders any
such representation or warranty inaccurate. Each party shall promptly notify the
other of any action, suit or proceeding that shall be instituted or threatened
against such party to restrain, prohibit, or otherwise challenge the legality of
any transaction contemplated by this Agreement.
5.21 Restrictions on Transfer of Osage Stock.
The Shareholders agree not to sell, transfer or otherwise dispose of
the Osage Stock (including private sales) until the first anniversary of the
Closing Date and, in the absence of an effective registration statement, any
such sales prior to the second anniversary of the Closing Date, may be subject
to restrictions upon resale as if the Shareholders are deemed "affiliates" and
such sales are taking place in accordance with Rule 144, promulgated under the
Act, as it is presently enacted.
5.22 Corporate Direction.
During the Earn-Out Period, Buyer agrees: (i) to operate the Company in
the normal course of business; (ii) pursue business opportunities arising from
the Company through the Company; (iii) not to divert business of the Company or
customers of the Company away from the Company (whether to a subsidiary of Buyer
or the Company or otherwise); and (iv) provided that the Shareholders remain
employed by the Company, to consult the Shareholders periodically on the
direction of the Company and to involve the Shareholders in the day-to-day
management of the Company.
5.23 Public Company Status.
During the Earn-Out Period, and assuming Buyer remains the owner of the
outstanding stock of the Company, Buyer shall remain a public company with
reporting obligations under the Securities Exchange Act of 1934, as amended.
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ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER
The obligations of Buyer hereunder shall be subject to the following
conditions, any or all of which may be waived in writing by Buyer:
6.1 Accuracy of Representations and Warranties; Shareholders Performance.
Each of the representations and warranties of the Shareholders
contained herein shall be true and correct in all material respects on and as of
the Closing Date with the same effect as though made on and as of such date and
the Shareholders shall have performed and complied in all material respects with
each of the agreements, covenants, stipulations, terms and conditions contained
herein and required to be performed or complied with by it on or prior to the
Closing Date.
6.2 No Adverse Change.
Since the date of the Financial Statements, there shall have been no
material adverse change in the financial condition, assets or liabilities of the
Company.
6.3 No Loss.
Since the date of the Financial Statements, the Company shall not have
suffered any loss on account of fire, flood, accident, strike or other calamity
which has had or is likely to have an adverse effect on the financial condition
or any assets of the Company, whether or not such loss shall have been covered
by insurance.
6.4 No Injunction; Consents.
No action, proceeding or investigation shall have been instituted or
threatened to set aside the transactions provided for herein or to enjoin or
prevent the consummation of the transactions contemplated hereby and all
required consents and approvals for the consummation of the transactions
contemplated hereby shall have been secured.
6.5 Actions by the Shareholders.
The Shareholders shall have taken all actions and executed such
documents as set forth in Section 2.2 hereof.
6.6 Uniform Commercial Code Searches.
Uniform Commercial Code searches (which searches shall be made or
caused to be made by and at the expense of Buyer) of filings made pursuant to
Article 9 thereof in all jurisdictions where any assets of the Company are
located, in form, scope and substance reasonably satisfactory to Buyer and its
counsel, shall not disclose any liens, claims, security interests or
encumbrances against any of such assets disclosed thereby except liens, claims,
security interests
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or encumbrances that are disclosed in Financial Statements, this Agreement, or
are otherwise released or terminated by the Company prior to or at the time of
Closing.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE SHAREHOLDERS
The obligations of the Shareholders shall be subject to the following
conditions, any or all of which may be waived in writing by the Shareholders:
7.1 Accuracy of Representations and Warranties; Buyer Performance.
Each of the representations and warranties of Buyer set forth in
Article hereof shall be true and correct in all respects on and as of the
Closing Date with the same effect as though made on and as of such date and
Buyer shall have in all respects performed and complied with each of the
agreements, covenants, stipulations, terms and conditions contained herein and
required to be performed or complied with by Buyer on or prior to the Closing
Date.
7.2 No Adverse Change.
Since the date of the most recent Buyer's Form 10 QSB filed with the
SEC there shall have been no adverse change in the financial condition, assets
or liabilities of the Buyer.
7.3 No Loss.
Since the date of the most recent Buyer's SEC Report, the Buyer shall
not have suffered any loss on account of fire, flood, accident, strike or other
calamity which has had or is likely to have an adverse effect on the financial
condition or any assets of the Buyer, whether or not such loss shall have been
covered by insurance.
7.4 No Injunction; Consents.
No action, proceeding or investigation shall have been instituted or
threatened to set aside the transactions provided for herein or to enjoin or
prevent the consummation of the transactions contemplated hereby and all
required consents and approvals for the consummation of the transactions shall
have been secured.
7.5 Actions by Buyer.
Buyer shall have taken all actions and executed such documents as set
forth in Section 2.2 hereof.
7.6 Consents and Proceedings.
The Buyer shall have obtained all of the consents, authorizations,
orders or approvals required in order to execute and deliver this Agreement and
to perform its obligations hereunder
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and thereunder and all actions, proceedings, instruments and documents deemed
necessary or appropriate by Shareholders and their counsel to effectuate this
Agreement and the consummation of the transactions contemplated hereby, or
incidental thereto, shall have been obtained and all other related legal matters
shall have been approved by such counsel.
7.7 Acquisitions.
There have been no acquisitions by Buyer since April 24, 1998.
ARTICLE VIII
TERMINATION
8.1 Termination Events.
This Agreement may, by notice given prior to or at the Closing, be
terminated:
(a) by either Buyer or the Shareholders if a material breach of any
provision of this Agreement has been committed by the other party and such
breach has not been waived;
(b) by Buyer if any of the conditions in Article 6 have 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 Buyer to comply with its
obligations under this Agreement), and Buyer has not waived such condition on or
before the Closing Date; or (ii) by the Shareholders, if any of the conditions
in Article 7 have 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
Shareholders to comply with his obligations under this Agreement), and
Shareholders have not waived such condition on or before the Closing Date;
(c) by mutual consent of Buyer and the Shareholders; or
(d) by either Buyer or the Shareholders 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 the
Termination Date, or such later date as the parties may agree upon.
8.2 Effect of Termination.
Each party's right of termination under Section 8.1 is in addition to
any other rights it may have under this Agreement or otherwise, and the exercise
of a right of termination will not be an election of remedies. If this Agreement
is terminated pursuant to Section 8.1, all further obligations of the parties
under this Agreement will terminate, except that the obligations in Sections
10.11, and 5.2 and 5.8 will survive; provided, however, that if this Agreement
is terminated by a party because of the breach of the Agreement by the other
party or because one or more of the conditions to the terminating party's
obligations under this
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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.
8.3 Extension; Waiver.
Any time prior to the Closing, the parties may (a) extend the time for
the performance of any of the obligations or other acts of any other party under
or relating to this Agreement; (b) waive any inaccuracies in the representations
or warranties by any other party or (c) waive compliance with any of the
agreements of any other party or with any conditions to its own obligations. Any
agreement on the part of any other 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.
ARTICLE IX
INDEMNIFICATION/SURVIVAL OF REPRESENTATIONS AND WARRANTIES
9.1 Indemnification.
(a) The Shareholders shall jointly and severally indemnify, defend and
hold harmless Buyer from and against any and all demands, claims, actions or
causes of action, judgments, assessments, losses, liabilities, damages or
penalties and reasonable attorneys' fees and related disbursements
(collectively, "Claims") incurred by Buyer which arise out of or result from a
misrepresentation, breach of warranty, or breach of any covenant or agreement of
the Shareholders contained herein or in the Schedules annexed hereto or in any
deed, exhibit, closing certificate, schedule or any ancillary certificates or
other documents or instruments furnished by the Shareholders pursuant hereto or
in connection with the transactions contemplated hereby or thereby.
(b) Buyer shall indemnify, defend and hold harmless the Shareholders
from and against any and all Claims, as defined at subsection 9.1(a) above,
incurred by the Shareholders which arise out of or result from a material
misrepresentation, breach of warranty or breach of any covenant of Buyer
contained herein or in the Schedules annexed hereto or in any deed, exhibit,
closing certificate, schedule or any ancillary certificates or other documents
or instruments furnished by Buyer pursuant hereto or in connection with the
transactions contemplated hereby or thereby.
(c) The right to indemnification, payment of damages or other remedy
based on any representations, warranties, covenants and obligations contained
within 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. The waiver of
any condition based on the accuracy of any representation or warranty, or on the
performance of or compliance with any covenant or obligation, will not affect
the right to indemnification, payment of damages, or other remedy based on such
representations, warranties, covenants and obligations.
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9.2 Survival.
(a) All representations and warranties contained in or made pursuant to
this Agreement or in any agreement, certificate, document or statement delivered
pursuant hereto shall survive the Closing for a period of one (1) year from the
Closing Date, unless otherwise specified in such agreement, certificate or
document; provided, however, that notwithstanding the foregoing, (i) the
representations and warranties set forth in Section 3.31 (relating to
environmental matters) and 3.12 (relating to taxes) and all covenants and
agreements of the parties relating to the subject matter(s) thereof shall
survive the Closing for the period equal to the statute of limitations
applicable to Claims arising under such subject matters.
9.3 Methods of Asserting Claims for Indemnification.
All claims for indemnification under this Agreement shall be asserted
as follows:
(a) Third Party Claims. In the event that any Claim for which a party
(the "Indemnitee") would be entitled to indemnification under this Agreement is
asserted against or sought to be collected from the Indemnitee by a third party
the Indemnitee shall promptly notify the other party (the "Indemnitor") of such
Claim, specifying the nature thereof, the applicable provision in this Agreement
or other instrument under which the Claim arises, and the amount or the
estimated amount thereof (the "Claim Notice"). The Indemnitor shall have thirty
(30) days (or, if shorter, a period to a date not less than ten (10) days prior
to when a responsive pleading or other document is required to be filed but in
no event less than ten (10) days from delivery or mailing of the Claim Notice)
(the "Notice Period") to notify the Indemnitee (a) whether or not it disputes
the Claim and (b) if liability hereunder is not disputed, whether or not it
desires to defend the Indemnitee. If the Indemnitor elects to defend by
appropriate proceedings, such proceedings shall be promptly settled or
prosecuted to a final conclusion in such a manner as to avoid any risk of damage
to the Indemnitee; and all costs and expenses of such proceedings and the amount
of any judgment shall be paid by the Indemnitor.
If the Indemnitee desires to participate in, but not control, any such
defense or settlement, it may do so at its sole cost and expense. If the
Indemnitor has disputed the Claim, as provided above, and shall not defend such
Claim, the Indemnitee shall have the right to control the defense or settlement
of such Claim, in its sole discretion, and shall be reimbursed by the Indemnitor
for its reasonable costs and expenses of such defense. Neither Indemnitee nor
Indemnitor shall be liable for any settlement of any Claim without the prior
written consent of the other party.
(b) Non-Third Party Claims. In the event that the Indemnitee should
have a Claim for indemnification hereunder which does not involve a Claim being
asserted against it or sought to be collected by a third party, the Indemnitee
shall promptly send a Claim Notice with respect to such Claim to the Indemnitor.
If the Indemnitor does not notify the Indemnitee in writing within thirty (30)
days of the date of the Claim Notice, then such Claim shall be submitted to
arbitration pursuant to Section 10.8 hereof. If the Indemnitor disputes the
amount of such Claim, the controversy in question shall be submitted to
arbitration pursuant to Section 10.8 hereafter.
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(c) Right of Set-Off. Subject to the terms of the Escrow Agreement, in
the event a Claim arises pursuant to subparagraph 9.1(a), in addition to any of
its other rights under this paragraph 9, Buyer shall have the right to apply the
amount of the Claim which is agreed to by the other party against the amounts
identified at subparagraph 1.4; provided, however, that this subparagraph shall
not be the exclusive remedy of Buyer in the event a Claim arises pursuant to
subparagraph 9.1(a).
9.4 Limitations on Amount.
(a) Notwithstanding the provisions of this Article 9, the Indemnitor
shall not be required to indemnify the Indemnitee with respect to Claims (other
than Claims relating to tax matters and environmental matters and all costs of
defense for any such Claim), until the aggregate amount of such Claims shall
exceed $50,000 (the "Indemnitor's Floor"); provided, however, if such Claims in
the aggregate exceed the amount of the Indemnitor's Floor, the Indemnitor shall
indemnify Indemnitee for all Claims in excess of the Indemnitor's Floor. The
Indemnitor's Floor shall not be applicable to Claims that relate to tax matters
and environmental matters and all costs of defense for any such Claims. To the
extent that any Claim is predicated on the uncollectability of an account
receivable to the extent that it exceeds the Indemnitor's Floor, the receivable
in question shall be assigned to Shareholders as a condition of Buyer's Claim.
(b) Notwithstanding the provisions of this Article 9, the Buyer's
liability with respect to matters set forth in subsection 9.1(b) above for
damages shall be limited to the amount of the Purchase Price. The Shareholders'
aggregate liability with respect to matters set forth in subsection 9.1(a) shall
also be limited to One Million Dollars ($1 million), except for damages arising
out of a breach of the representations and warranties at Sections 3.1 to 3.6
inclusive, Sections 3.12 and 3.31, and any and all fraudulent actions, in which
case the maximum liability of the Shareholders shall be limited to the Purchase
Price.
ARTICLE X
MISCELLANEOUS
10.1 Exclusive Remedies.
The right to indemnification under Article IX of the Agreement shall be
the exclusive remedy for a breach of a representation, warranty, covenant or
other provision of this Agreement except that Buyer and the Shareholders shall
have the right to obtain injunctive relief to restrain any breach or otherwise
to specifically enforce the provisions of this Agreement, it being agreed by the
parties that money damages alone would be inadequate to compensate Buyer or the
Shareholders, as the case may be, for such breach or other failure to perform
the obligations under this Agreement.
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10.2 Notices.
All notices requests, demands, waivers and other communications
required or permitted to be given under this Agreement shall be in writing and
shall be deemed to have been duly given on the date if delivered personally, or
upon the second business day after it shall have been deposited by certified or
registered mail with postage prepaid, or the next day when sent by recognized
overnight courier (e.g., Federal Express or DHL), as follows (or at such other
address for a party as shall be specified by like notice):
if to the Shareholders:
Xx. Xxxx Xxxxxxxxx Xx. Xxxxx Xxxxxx
000 Xxxx Xxxx 0000 Xxxxxx Xxxx Xxxxx
Xxxxxxxx, XX 00000 Xxxxxxxxxx, XX 00000
Telephone Number: (000) 000-0000 Telephone Number: (000) 000-0000
Mr. Xxxxxxx Xxxxxx Mr. Xxxxx Xxxxx
0000 Xxxxxxxxx Xxxx 000 X. Xxxx, #000
Xxxxxx, XX 00000 Xxxxxxx, XX 00000
Telephone Number: (000) 000-0000 Telephone Number: (000) 000-0000
with a copy to: Xxxxxxx X. Xxxxxxx, Esquire
Levenfeld, Eisenberg, Janger & Xxxxxxxxx
21st Floor, 00 Xxxx Xxxxxx Xx.
Xxxxxxx, XX 00000-0000
and
if to Buyer, to it at: Xx. Xxxx Xxxxxxxxxx, Chief Executive Officer
Osage Systems Group, Inc.
0000 X. Xxxxxxxxx Xxxx, Xxxxx 000
Xxxxxxx, XX 00000
with a copy to: Xxxxxxx X. Xxxxx, Esquire
Xxxxxxxx Xxxxxxxxx, P.C.
Eleven Xxxx Xxxxxx, 00xx Xxxxx
Xxxxxxxxxxxx, XX 00000
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10.3 Entire Agreement; Assignment.
This Agreement, including all Exhibits and Schedules hereto,
constitutes the entire Agreement among the parties with respect to its subject
matter and supersedes all prior agreements and understandings, both written and
oral, among the parties or any of them with respect to such subject matter and
shall not be assigned by operation of law or otherwise.
10.4 Binding Effect; Benefit.
This Agreement shall inure to the benefit of and be binding upon the
parties and their respective successors and assigns. Nothing in this Agreement
is intended to confer on any person other than the parties to this Agreement or
their respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
10.5 Headings.
The descriptive headings of the sections of this Agreement are inserted
for convenience only, do not constitute a part of this Agreement and shall not
affect in any way the meaning or interpretation of this Agreement.
10.6 Counterparts.
This Agreement may be executed in two or more counterparts and
delivered via facsimile, each of which shall be deemed to be an original, and
all of which together shall be deemed to be one and the same instrument.
10.7 Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Illinois, without regard to the laws that might
otherwise govern under principles of conflicts of laws applicable thereto.
10.8 Arbitration.
If a dispute arises as to the interpretation of this Agreement, it
shall be decided finally in an arbitration proceeding conforming to the Rules of
the American Arbitration Association applicable to commercial arbitration then
in effect at the time of the dispute. The arbitration shall take place in
Chicago, Illinois. The decision of the Arbitrators shall be conclusively binding
upon the parties and final, and such decision shall be enforceable as a judgment
in any court of competent jurisdiction. The parties shall share equally the
costs of the arbitration.
10.9 Severability.
If any term, provision, covenant or restriction of this Agreement is
held by a court of competent jurisdiction or other authority to be invalid,
void, unenforceable or against its
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54
regulatory policy, the remainder of this Agreement shall remain in full force
and effect and shall in no way be affected, impaired or invalidated.
10.10 Release and Discharge.
By virtue of his execution of this Agreement, as of the Closing and
thereafter, each Shareholder hereby agrees to release, remise and forever
discharge the Company from and against any and all debts, obligations,
liabilities and amounts owing from the Company to any such Shareholder prior to
the Closing, and the Company is not obligated to take any action or make any
payments to third parties on behalf of the Shareholders. The release and
discharge contained in this Section 10.10 shall not extend to the Shareholders'
normal wages and benefits accrued for only the most recent payroll period to the
Closing Date or any of the Shareholders' rights under this Agreement or any
instrument ancillary thereto (e.g., the Employment Agreements).
10.11 Expenses.
Except as set forth in this Article 10, the Shareholders shall pay all
fees and expenses incurred by them and the Company in connection with the
transactions provided for hereunder, including the fees and expenses of
Shareholders' counsel and accountants; and Buyer shall pay all expenses incurred
by it in connection with the transactions provided for hereunder, including the
fees and expenses of its counsel and accountants.
10.12 Amendment and Modification.
This Agreement may be amended, by written agreement of Buyer and the
Shareholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of Buyer and the Shareholders.
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IN WITNESS WHEREOF, each of the parties has executed or caused this
Agreement to be executed as of the date first above written.
ATTEST: OSAGE SYSTEMS GROUP, INC.
/s/ Xxxxx X. Xxxxx By: /s/Xxxx Xxxxxxxxxx,
--------------------- -----------------------
Secretary Xxxx Xxxxxxxxxx,
Chief Executive Officer
WITNESS: SHAREHOLDERS
/s/ Xxxxxxx Xxxxxxx /s/ Xxxx Xxxxxxxxx
--------------------- ------------------
Xxxx Xxxxxxxxx
/s/ Xxxxxxx Xxxxxxx /s/ Xxxxxxx Xxxxxx
--------------------- ------------------
Xxxxxxx Xxxxxx
/s/ Xxxxxxx Xxxxxxx /s/ Xxxxx Xxxxxx
--------------------- ------------------
Xxxxx Xxxxxx
/s/ Xxxxxxx Xxxxxxx /s/ Xxxxx Xxxxx
--------------------- ------------------
Xxxxx Xxxxx
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