STOCK PURCHASE AGREEMENT
By and Among
STONEPATH GROUP, INC.
a Delaware corporation
(Stonepath)
and
STONEPATH LOGISTICS INTERNATIONAL SERVICES, INC.
a Delaware corporation
(Purchaser)
and
GLOBAL TRANSPORTATION SERVICES, INC.
a Washington corporation
(Company)
and
THE SHAREHOLDERS OF GLOBAL
TRANSPORTATION SERVICES, INC.
(Shareholders)
and
XXXXX X. XXXXX
(Shareholders' Agent)
March 5, 2002
TABLE OF CONTENTS
Article Page
ARTICLE I SALE AND TRANSFER OF SHARES............................................................................1
1.1 Sale and Purchase of the Shares............................................................1
1.2 Purchase Price.............................................................................2
1.3 Purchase Price Adjustment..................................................................7
1.4 Acceleration of Earn-Out Payments..........................................................8
1.5 Objections; Dispute Resolution.............................................................9
ARTICLE II CLOSING..............................................................................................11
2.1 Closing Date..............................................................................11
2.2 Closing Transactions......................................................................11
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS..................................13
3.1 Organization, Qualification and Status....................................................13
3.2 Corporate Instruments and Records.........................................................14
3.3 Capitalization............................................................................14
3.4 Ownership of Shares.......................................................................14
3.5 No Subsidiary.............................................................................15
3.6 Authority of Shareholders.................................................................15
3.7 No Violation..............................................................................15
3.8 Financial Statements......................................................................16
3.9 Absence of Undisclosed and Contingent Liabilities.........................................16
3.10 No Adverse Changes........................................................................17
3.11 Guarantees................................................................................19
3.12 Tax Matters...............................................................................19
3.13 Litigation................................................................................21
3.14 Real Property.............................................................................21
3.15 Owned Tangible Personal Property..........................................................21
3.16 Condition of Buildings and Tangible Personal Property.....................................22
3.17 Accounts and Notes Receivable.............................................................22
3.18 Material Contracts........................................................................22
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3.19 Inventories...............................................................................24
3.20 Relationship With Related Persons.........................................................25
3.21 Banking Matters...........................................................................25
3.22 Labor and Employment Matters..............................................................25
3.23 Termination of Business Relationships.....................................................26
3.24 Customers.................................................................................26
3.25 Product and Service Warranties............................................................27
3.26 Insurance.................................................................................27
3.27 Compliance with Laws......................................................................27
3.28 Licenses and Permits......................................................................27
3.29 Environmental Matters.....................................................................28
3.30 Intellectual Property Matters.............................................................28
3.31 Absence of Certain Business Practices.....................................................28
3.32 Brokers or Finders........................................................................29
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER AND STONEPATH............................................29
4.1 Organization and Qualification............................................................29
4.2 Corporate Instruments and Records.........................................................29
4.3 Authorization; Valid and Binding Obligation...............................................30
4.4 Litigation; Orders........................................................................30
4.5 No Violations.............................................................................30
4.6 Investment Intent.........................................................................31
4.7 Stonepath SEC Documents...................................................................31
4.8 Brokers or Finders........................................................................32
ARTICLE V COVENANTS OF THE PARTIES PENDING CLOSING..............................................................32
5.1 Access to Information.....................................................................32
5.2 Interim Operations........................................................................32
5.3 Documents at Closing......................................................................34
5.4 Audited Financial Statements..............................................................35
5.5 Employment Agreements.....................................................................35
5.6 Notification of Certain Matters...........................................................35
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5.7 HSR Act; Other Filings....................................................................35
5.8 Satisfaction of Conditions; Cooperation; Further Assurances...............................36
5.9 Further Mutual Covenants..................................................................36
5.10 Satisfaction of Guarantees................................................................36
5.11 Employee Benefits.........................................................................37
ARTICLE VI CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER AND STONEPATH...................................37
6.1 Accuracy of Representations and Warranties; Company and Shareholders Performance......38
6.2 No Adverse Change.........................................................................38
6.3 No Injunction; Consents...................................................................38
6.4 Deliveries by the Company and the Shareholders............................................38
6.5 Employment Agreements.....................................................................38
6.6 Uniform Commercial Code Searches..........................................................38
6.7 Completion of Audited Financial Statements................................................39
6.8 Bank Indebtedness.........................................................................39
6.9 Cash Balance..............................................................................39
ARTICLE VII CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE SHAREHOLDERS...................................39
7.1 Accuracy of Representations and Warranties; Purchaser Performance.........................39
7.2 No Adverse Change.........................................................................39
7.3 No Injunction; Consents...................................................................40
7.4 Deliveries by Purchaser and Stonepath.....................................................40
7.5 Consents and Proceedings..................................................................40
7.6 Employment Agreements.....................................................................40
7.7 Stonepath Available Cash Balance..........................................................40
ARTICLE VIII TERMINATION........................................................................................40
8.1 Termination Events........................................................................40
8.2 Automatic Termination.....................................................................41
8.3 Effect of Termination.....................................................................41
8.4 Extension; Waiver.........................................................................41
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ARTICLE IX INDEMNIFICATION; SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND CERTAIN COVENANTS....................42
9.1 Indemnification by Shareholders and the Company...........................................42
9.2 Indemnification by Purchaser and Stonepath................................................42
9.3 Expiration of Representations, Warranties and Covenants...................................43
9.4 Maximum Liability of Each Shareholder.....................................................43
9.5 No Implied Representations................................................................44
9.6 Indemnification Claims....................................................................44
9.7 Defense of Third Party Actions............................................................44
9.8 No Right of Contribution or Claim; Subrogation............................................45
9.9 Exclusivity...............................................................................45
9.10 Right of Set-Off..........................................................................45
ARTICLE X ADDITIONAL AGREEMENTS OF THE PARTIES..................................................................46
10.1 Prohibition on Trading in Stonepath Stock.................................................46
10.2 Non Solicitation of Other Offers..........................................................46
10.3 Confidentiality...........................................................................47
10.4 Injunctive Relief.........................................................................48
10.5 Further Acts and Assurances...............................................................49
10.6 Public Announcements......................................................................49
10.7 Tax Matters...............................................................................50
10.8 Arbitration...............................................................................52
ARTICLE XI MISCELLANEOUS........................................................................................53
11.1 Definitions...............................................................................53
11.2 Cumulative Remedies; Waiver...............................................................63
11.3 Notices...................................................................................63
11.4 Entire Agreement; Assignment..............................................................64
11.5 Binding Effect; Benefit...................................................................65
11.6 Headings..................................................................................65
11.7 Counterparts..............................................................................65
11.8 Governing Law.............................................................................65
11.9 Severability..............................................................................65
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11.10 Expenses..................................................................................65
11.11 Amendment and Modification................................................................66
11.12 Shareholders' Agent.......................................................................66
11.13 RELEASE AND DISCHARGE.....................................................................67
11.14 Supplementation of Schedules..............................................................67
11.15 Time of Essence...........................................................................68
11.16 Construction..............................................................................68
Exhibits
--------
A - Stonepath Guaranty Agreement
B - Shareholders' Schedules
C - Form of Key Employee Employment Agreement
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Stock purchase AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement"), made and
entered into this 5th day of March, 2002, by and among Stonepath Logistics
International Services, Inc., a Delaware Corporation, ("Purchaser"), a
wholly-owned subsidiary of Stonepath Group, Inc., a Delaware corporation
("Stonepath"), Stonepath, Global Transportation Services, Inc., a Washington
corporation (the "Company"), the shareholders of the Company listed on the
signature page of this Agreement (collectively, the "Shareholders") and Xxxxx X.
Xxxxx, an individual residing in the State of Washington (the "Shareholders'
Agent"). Defined terms used herein shall have the meanings set forth in Section
11.1 of this Agreement. Purchaser, Stonepath, the Company, the Shareholders and
the Shareholders' Agent are each referred to individually herein as a "Party,"
and collectively as the "Parties."
WITNESSETH:
WHEREAS, the Shareholders own beneficially and of record 100%
of the issued and outstanding capital stock of the Company, consisting of
143,250 shares of common stock, no par value (the "Shares");
WHEREAS, the Shareholders desire to sell, and Purchaser
desires to purchase, all of the Shares for the consideration and on the terms
set forth herein; and
WHEREAS, the Shareholders have elected to appoint the
Shareholders' Agent as their sole and exclusive agent, representative and
attorney-in-fact under this Agreement before and after the Closing of the
transactions contemplated hereby.
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.
In reliance upon the representations, warranties and covenants
contained in this Agreement as of the date hereof and on the date of the closing
of the transactions described in this Agreement (the "Closing"), the Purchaser
agrees to purchase the Shares from the Shareholders, and the Shareholders agree
to sell, transfer, convey, assign and deliver the Shares to the Purchaser,
subject to and on the terms and conditions set forth in this Agreement, such
sale, transfer, conveyance, assignment and delivery of the Shares causing the
entire right, title and interest in and to the Shares to be transferred
beneficially and of record to Purchaser, free and clear of any Encumbrances or
Rights of any kind or nature whatsoever; and at such time the Shares will be
fully paid and non-assessable. At the Closing, the Shareholders will deliver to
the Purchaser certificates evidencing the Shares duly endorsed in blank or with
stock powers duly executed by the Shareholders. In consideration thereof,
Purchaser shall pay and deliver to the Shareholders the purchase price for the
Shares set forth in and in accordance with Section 1.2.
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1.2 Purchase Price.
(a) The purchase price for the Shares shall be Five Million
Dollars ($5,000,000), plus up to an additional Seven Million Dollars
($7,000,000) in purchase consideration, all payable in accordance with and
subject to adjustment pursuant to the further provisions of this Section 1.2 and
Sections 1.3, 1.4 and 1.5 (the "Purchase Price").
(b) Purchaser shall pay the Purchase Price to the Shareholders as
follows:
(i) Five Million Dollars ($5,000,000) (the "Cash Payment Amount")
shall be paid in immediately available funds to the Shareholders at the Closing;
(ii) Subject to the terms of Section 1.2(b)(iii) below, Five
Million Dollars ($5,000,000) (the "Base Earn-Out Amount") shall be paid to the
Shareholders in installments of One Million Dollars ($1,000,000) per year (each
a "Base Earn-Out Payment") covering the five-year earn-out period immediately
following the Closing (the "Earn-Out Period"). The Base Earn-Out Payments will
be based on the Net Income Before Taxes of the Company, calculated in accordance
with Sections 1.2(b)(iii), 1.2(c) and 1.5 below, during each of the calendar
years (or prorated portion) that fall within the Earn-Out Period. The Base
Earn-Out Payments shall be made on April 1st of each of the years 2003 through
2008, or such earlier date in any such year as Stonepath is required to file its
Form 10-K with the SEC pursuant to the rules and regulations under the Exchange
Act (the "Earn-Out Payment Dates"), following each calendar year (or shorter
period) in which Net Income Before Taxes is determined. With the recognition
that the Base Earn-Out Payments will be based upon two periods of less than a
full calendar year (i.e., those periods that fall between the Closing Date and
December 31, 2002, and between January 1, 2007 and the fifth anniversary of the
Closing), the Base Earn-Out Payment and the corresponding "Targeted Amount" (as
defined below) of Net Income Before Taxes, shall, for those two periods, be
prorated on a daily basis by multiplying each of the Targeted Amount and Base
Earn-Out Payments, as applicable, by the percentage obtained by dividing the
number of days within the relevant period by 365 days.
(iii) Subject to the provisions of this Section 1.2(b)(iii),
payment of each Base Earn-Out Payment shall be contingent upon the Company
achieving Net Income Before Taxes for the calendar year (or portion thereof)
preceding each Earn-Out Payment Date in an amount no less than Two Million
Dollars (the "Targeted Amount"). On each Earn-Out Payment Date, Purchaser and
Stonepath shall prepare and deliver to the Shareholders a certificate (the
"Annual Earn-Out Certificate") signed by the Chief Financial Officer of
Stonepath setting forth the amount and method of calculating Net Income Before
Taxes for the prior calendar year (or portion thereof) and the calculation of
the Base Earn-Out Payment then due, if any. If Net Income Before Taxes for the
calendar year (or portion thereof) preceding an Earn-Out Payment Date is less
than the Targeted Amount (such deficiency, the "Shortfall Amount"), then the
Base Earn-Out Payment for such period shall be an amount equal to (x) the
quotient obtained by dividing (i) the Company's Net Income Before Taxes for such
period by (ii) the Targeted Amount, multiplied by (y) the Base Earn-Out Payment
amount; provided, however, that no Base Earn-Out Payment shall be made in the
event that the Company's Net Income Before Taxes for the calendar year (or
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portion thereof) preceding the Earn-Out Payment Date is less than $500,000
(prorated in the manner set forth in Section 1.2(b)(ii) for less than full year
periods). By way of illustration only, if Net Income Before Taxes during any
full calendar year is $550,000, then the Base Earn-Out Payment for such period
would be $275,000 (($550,000/$2,000,000) x ($1,000,000)). Any Shortfall Amount
shall be recovered on a dollar-for-dollar basis to the extent that in any
calendar year (or portion thereof) during the Earn-Out Period (backwards or
forwards, but only available for application once), Net Income Before Taxes
exceeds the Targeted Amount (the amount of such excess hereinafter the "Excess
Amount"). The Excess Amount shall be applied on a dollar-for-dollar basis as
directed by the Shareholders to reduce any Shortfall Amount in any prior or
subsequent calendar year (or portion thereof) during the Earn-Out Period and the
corresponding Base Earn-Out Payments shall be adjusted accordingly; ;
providedthat any given dollar of the Excess Amount shall only be available for
application against a Shortfall Amount once. Without limiting the foregoing
provisions, the following examples of the application of this Section
1.2(b)(iii) are offered for clarity:
EXAMPLE OF SHORTFALL/EXCESS APPLICATION
Example #1
Net Income (Shortfall Amount)/ Cumulative Payment to
Year Before Taxes Excess Amount Shortfall/Excess Shareholders
---- ------------ ------------- ---------------- ------------
1 $1,600,000 ($400,000) ($400,000) $800,000
2 $1,900,000 ($100,000) ($500,000) $950,000
3 $2,500,000 $500,000 - $1,250,000(1)
--------------
(1) Comprised of: (i) $1 million paid on the first $2 million of Net Income
Before Taxes; (ii) $200,000 attributable to the deemed addition of $400,000
of the Shortfall Amount to the Net Income Before Taxes in year 1, and (iii)
$50,000 attributable to the deemed addition of $100,000 of the Shortfall
Amount to the Net Income Before Taxes in year 2.
Example #2
Net Income (Shortfall Amount)/ Cumulative Payment to
Year Before Taxes Excess Amount Shortfall/Excess Shareholders
---- ------------ ------------- ---------------- ------------
1 $1,600,000 ($400,000) ($400,000) $800,000
2 $1,900,000 ($100,000) ($500,000) $950,000
3 $2,250,000 $250,000 ($250,000) $1,125,000(1)
--------------
(1) Comprised of: (i) $1 million paid on the first $2 million of Net Income
Before Taxes; and (ii) $125,000 attributable to the deemed addition of
$250,000 of the Shortfall Amount to the Net Income Before Taxes in year 1.
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Example #3
Net Income (Shortfall Amount)/ Cumulative Payment to
Year Before Taxes Excess Amount Shortfall/Excess Shareholders
---- ------------ ------------- ---------------- ------------
1 $300,000 ($1,700,000) ($1,700,000) 0
2 $2,300,000 $300,000 ($1,400,000) $1,300,000(1)
3 $3,000,000 $1,000,000 ($400,000) $1,500,000(2)
4 $4,000,000 $2,000,000 $1,600,000 $1,200,000(3)
5 $100,000 ($1,900,000) ($200,000) $850,000(4)
--------------
(1) Comprised of: (i) $1,000,000 paid on the first $2,000,000 of Net Income
Before Taxes, and (ii) $300,000 attributable to the deemed application of
the year 2 Excess Amount to the year 1 Net Income Before Taxes.
(2) Comprised of: (i) $1,000,000 paid on the first $2,000,000 of Net Income
Before Taxes, and (ii) $500,000 attributable to the deemed application of
the year 3 Excess Amount to the year 1 Net Income Before Taxes.
(3) Comprised of: (i) $1,000,000 paid on the first $2,000,000 of Net Income
Before Taxes, and (ii) $200,000 attributable to the deemed application of a
portion of the year 4 Excess Amount to the year 1 Net Income Before Taxes,
which amount caps at the Targeted Amount.
(4) Comprised of: $800,000 attributable to the deemed application of the
remaining year 4 Excess Amount to the year 5 Net Income Before Taxes.
Example #4
Net Income (Shortfall Amount)/ Cumulative Payment to
Year Before Taxes Excess Amount Shortfall/Excess Shareholders
---- ------------ ------------- ---------------- ------------
1 $100,000 ($1,900,000) ($1,900,000) 0
2 $300,000 $(1,700,000) ($3,600,000) 0
3 $2,250,000 $250,000 ($3,350,000) $1,275,0001(1)
--------------
(1) Comprised of: (i) $1,000,000 paid on the first $2,000,000 of Net Income
Before Taxes for year 3, and (ii) $275,000 attributable to the deemed
application of the year 3 Excess Amount to the year 2 Net Income Before
Taxes, such application required to ensure the maximum Base Earn-Out Payment
to Shareholders in year 3.
Any Shortfall Amount not recovered on or before the final Earn-Out Payment Date
shall no longer be recoverable. For the purposes of this Section 1.2(b)(iii),
the Base Earn-Out Payment and Targeted Amount for periods of less than a full
calendar year shall be prorated on a daily basis in the manner set forth in
Section 1.2(b)(ii).
(iv) Additional payments (each an "Additional Earn-Out Payment")
shall be paid to the Shareholders in an amount equal to forty percent (40%) of
the amount by which the Company's cumulative Net Income Before Taxes (calculated
in accordance with this Section 1.2) over the course of the Earn-Out Period
(taking into account losses as well as income during any calendar year or
portion thereof) exceeds Ten Million Dollars ($10,000,000) (the "Additional
Earn-Out Threshold"). The Annual Earn-Out Certificate for the years 2007 and
2008 shall include the amount of the Company's cumulative Net Income Before
Taxes. If the Additional Earn-Out Threshold has been reached as of the end of
December 31, 2006, the Purchaser shall make an advance payment on the Earn-Out
Payment Date in 2007 in an amount equal to fifty percent (50%) of the amount of
the Additional Earn-Out Payment calculated as at December 31, 2006. The
remaining balance of the Additional Earn-Out Payment otherwise owed on the
Earn-Out Payment Date in 2007, together with any amount of the Additional
Earn-Out Payment earned for the period from January 1, 2007 through the end of
the Earn-Out Period, shall be immediately due and payable on the final Earn-Out
Payment Date. In no event shall the Additional Earn-Out Payment (including any
advance payment described in this Section 1.2(b)(iv)) exceed Two Million Dollars
($2,000,000).
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(c) The following principles shall apply for the purpose of
computing Net Income Before Taxes and the Earn-Out Payments:
(i) Net Income Before Taxes shall be determined based upon
separate financial statements of the Company derived from the audited
consolidated financial statements of Stonepath for each of the years in the
Earn-Out Period;
(ii) The Company shall continue to be accounted for as a separate
operating unit;
(iii) No existing customer or customer accounts, or accounts
generated by the Company after the Closing, which could otherwise be serviced by
the Company shall be diverted to Purchaser, Stonepath, or any Affiliate of
Stonepath or the Purchaser without adequate financial provision, reasonably
acceptable to the Shareholders, being made to appropriately credit the Company
as if it had performed the service;
(iv) Any business of new customers generated after the Closing by
the Company and serviced by the Company shall be credited to the Company;
(v) Any business of new customers generated after the Closing by
the Purchaser, Stonepath, or any Affiliate (other than the Company) of Purchaser
or Stonepath which is managed or serviced by the Company shall be credited to
the Company;
(vi) Net Income Before Taxes shall be determined without offset
for:
(1) any overhead or management charges, including without
limitation group wide management or information systems, of Purchaser or
Stonepath which may otherwise be charged by Purchaser, Stonepath or any
Affiliate (other than the Company) of Purchaser or Stonepath;
(2) any amortization or depreciation of intangibles which are
either (a) created by the transactions occurring at the Closing or (b) are not
intangibles of the Company;
(3) any direct or indirect charges against net income associated
with periodic or interim impairment analysis of the goodwill of the Company (or
any reporting unit associated with the Company's Business) created by the
transactions occurring at the Closing;
(4) any depreciation, amortization, interest or other direct or
indirect charges or expenses against net income associated with financings or
other debt obligations, or any payments or prepayments thereof, whether
currently existing or later incurred, other than the actual cost of financings
or other debt obligations incurred in connection with operation of the Company's
business or the New Locations;
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(5) expenses associated with any capital expenditures in excess of
the average capital expenditures of the Company during the three (3) year period
preceding Closing; provided, however, that offsets shall be made for the actual
cost of capital expenditures incurred in connection with the New Locations;
(6) any executive compensation charged to the Company by Stonepath
or any Affiliate of Stonepath (other than the Company), other than compensation
of the Key Employees or such other employees whose compensation is approved in
advance by the Shareholders;
(7) the cost of any insurance, other than that portion of the
actual market cost of insurance policies purchased by the Purchaser or Stonepath
which is reasonably allocable to the Company;
(8) extraordinary income or expense, such as casualties or gain or
loss on dispositions, other than any such extraordinary items incurred by the
Company; and
(9) any charges relating to consummation of the transactions
contemplated by this Agreement which are first booked after the Closing Date;
provided, however, that, subject to the items listed above in subparagraphs
1.2(c)(vi)(1) through (9), in determining the Earn-Out Payments, offsets shall
be made for (x) direct costs of the Company which are otherwise paid or incurred
by the Purchaser or Stonepath on behalf of the Company, or (y) that portion of
Stonepath's shared administrative services provided by Stonepath directly for
the benefit of the Company, in each case which are:
(a) agreed to in writing by the Shareholders; or
(b) (1) for services which replace services previously obtained
directly by the Company internally or from third parties, and (2) provided at no
greater than market rates available from unaffiliated third party vendors.
(vii) The expenses associated with any additional management or
employees retained by Stonepath, other than (a) replacements of such management
or employees who have left employment with the Company or (b) those that are
approved in writing by the Shareholders, which in each case may be charged to
Net Income Before Taxes.
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(viii) Operations that are acquired or developed by the Company in
new locations after the Closing (i.e., those start-up locations outside the
scope of the Company's existing four locations as of the Closing) (the "New
Locations"), will be accounted for separately during the Earn-Out Period, with
the objective of determining the combined net income or net losses from the
operation of all New Locations. For the purposes of computing the Earn-Out
Payments and the Additional Earn-Out Payment, any net income from the operation
of the New Locations in a calendar year (or portion hereof) shall be determined
in a manner consistent with Section 1.2(c) and included in the determination of
Net Income Before Taxes. Furthermore, any combined net losses from the operation
of the New Locations in a calendar year (or portion thereof) shall be excluded
from the determination of Net Income Before Taxes for the calendar year (or
portion thereof) in which they are incurred; provided, however, any such
excluded losses shall, until absorbed, thereafter serve as an offset against the
net income from the operation of the New Locations in any subsequent calendar
year (or portion thereof) of the Earn-Out Period.
(ix) Any new operations that are acquired by Purchaser or
Stonepath and operated or managed by the Company after the Closing ("Acquired
Locations"), shall also be accounted for separately with the objective of
determining the combined net income or net losses from the operation of Acquired
Locations. For the purposes of computing the Earn-Out Payments and the
Additional Earn-Out Payment, any net income from the operation of the Acquired
Locations in a calendar year (or portion thereof) shall be determined in a
manner consistent with this Section 1.2(c) and included in the determination of
Net Income Before Taxes. Furthermore, any combined net losses from the operation
of the Acquired Locations in a calendar year (or portion thereof) shall be
excluded from the determination of Net Income Before Taxes for the calendar year
(or portion thereof) in which they are incurred; provided, however, any such
excluded losses shall, until absorbed, thereafter serve as an offset against the
combined net income from the operation of the Acquired Locations in any
subsequent year (or portion thereof) of the Earn-Out Period; provided further,
however, all acquisition-related costs and expenses incurred by the Company, the
Purchaser, or any of their Affiliates shall, until absorbed, serve as an offset
against the net income from the operation of the Acquired Locations in any
subsequent calendar year (or portion thereof) of the Earn-Out Period.
(d) The Purchase Price, when payable, shall be paid to each
Shareholder in accordance with each such Shareholder's respective percentage
ownership interest in the Shares, as such interest is identified on the
signature page(s) to this Agreement (each a "Pro Rata Share").
(e) Stonepath and Purchaser hereby guarantee the due performance,
execution, observance and payment by the Purchaser of all of the Purchaser's
obligations and duties arising under, in connection with or incident to this
Agreement and any Ancillary Documents executed in connection with the
transactions subject to this Agreement, all upon the terms and conditions set
forth in the Guaranty Agreement in the form attached hereto as Exhibit A.
1.3 Purchase Price Adjustment.
(a) Promptly following the Closing Date (but in any event within
forty five (45) days after the Closing Date), the Purchaser shall cause to be
prepared and delivered to the Shareholders a certification (the "Closing
Certificate") prepared by KPMG (the "Closing Date Accountants"). The Closing
Certificate shall include:
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(i) A balance sheet of the Company as of the Closing Date (the
"Closing Date Balance Sheet");
(ii) An identification of the Working Capital set forth in the
Closing Date Balance Sheet.
(iii) Copies of all supplementary documents, work papers and other
data relating to the Closing Certificate; and
(iv) Such other supplementary evidence as the Shareholders may
reasonably request either before or after the delivery of the Closing
Certificate.
(b) In the event that the Working Capital set forth in the Closing
Date Balance Sheet is less than Five Hundred Thousand Dollars ($500,000) (the
"Minimum Working Capital Amount"), the Shareholders shall pay to Purchaser
dollar-for-dollar in immediately available funds the amount of such deficit to
Purchaser within five (5) business days after the end of the Response Period or,
in the event the Shareholders have delivered to the Purchaser a timely Objection
Notice under Section 1.5, within five (5) business days after the final
determination of the Independent Accountants pursuant to Section 1.5(c).
(c) In the event that the Company's Working Capital set forth in
the Closing Date Balance Sheet is greater than the Minimum Working Capital
Amount, the Purchaser shall pay to each Shareholder dollar-for-dollar in
immediately available funds his Pro Rata Share of the amount of such surplus
within five (5) business days of the Response Period or, in the event the
Shareholders have delivered to the Purchaser a timely Objection Notice under
Section 1.5, within five (5) business days after the final determination of the
Independent Accountants pursuant to Section 1.5(c).
(d) The Closing Date Balance Sheet shall include the report of the
Closing Date Accountants, based on the balance sheet of the Company as of the
close of business on the Closing Date in accordance with GAAP applied on a basis
consistent with the historical practices of the Company and the Financial
Statements.
(e) The Closing Date Accountant's report on the Closing Date
Balance Sheet shall be unqualified. The expense of the preparation of the
Closing Date Balance Sheet by the Closing Date Accountants shall be borne by the
Purchaser.
1.4 Acceleration of Earn-Out Payments.
(a) Effective in conjunction with and immediately upon
consummation of a Corporate Transaction involving the Company, Purchaser or
Stonepath, the Accelerated Earn-Out Payment shall, at the discretion of the
Shareholders, become immediately due and payable in cash. The Company, Purchaser
or Stonepath, as applicable, shall provide the Shareholders written notice of
any impending Corporate Transaction no less than five (5) business days prior to
the anticipated closing date of such Corporate Transaction.
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(b) Upon the occurrence of an Event of Default, Purchaser shall
have a six (6) month period from the date of such Event of Default (the "Cure
Period") during which to cure subject to the following terms and conditions.
(i) At such time during the Cure Period as Stonepath has an
Available Cash Balance equal to or greater than the Cash Payment Threshold,
Purchaser shall pay in cash the full amount due and owing to the Shareholders as
of the date of such Event of Default (the "Default Payment Amount"), plus
interest on the Default Payment Amount at an annual rate of eight percent (8%)
from the date of the Event of Default through the date of payment. In the event
Purchaser fails to make any payment as required under this Section 1.4(b)(i),
then the Accelerated Earn-Out Payment shall, at the discretion of the
Shareholders and two days after the Shareholders have delivered to the Purchaser
written notice of such default, become immediately due and payable. The
Purchaser shall no less frequently than every thirty (30) days during the Cure
Period provide the Shareholders with a certificate of Stonepath's then current
Available Cash Balance.
(ii) In the event Stonepath becomes or is Bankrupt, then the
Accelerated Earn-Out Payment shall automatically become immediately due and
payable in cash.
(iii) In the event Stonepath becomes or is Insolvent, then the
Accelerated Earn-Out Payment shall become due and payable ten (10) calendar days
after delivery of notice by the Shareholders to Stonepath of such Insolvency.
(iv) In the event the Default Payment Amount remains unpaid at the
end of the Cure Period, then the Accelerated Earn-Out Payment shall, at the
discretion of the Shareholders, become immediately due and payable in cash.
(c) Except in the event of acceleration pursuant to Section
1.4(b)(ii) which shall require no notice to be effective, the Shareholders shall
deliver written notice of their intent to exercise their acceleration rights
under Section 1.4(a) or 1.4(b) to Purchaser, and such acceleration shall be
effective immediately (except as expressly provided in Sections 1.4(b)(i) and
(iii)) upon Purchaser's receipt of such notice in accordance with Section 11.3.
(d) Stonepath shall deliver notice to Shareholders no less than
five (5) business days in advance of any voluntary bankruptcy or insolvency
filing or petition, dissolution or winding-up.
(e) The acceleration remedies provided for herein are
non-cumulative, and the exercise or non-exercise of any such rights by the
Shareholders shall not prohibit or preclude the Shareholders from seeking any
other remedies available to them including, without limitation, pursuant to the
Guaranty Agreement or otherwise.
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1.5 Objections; Dispute Resolution.
(a) If the Shareholders conclude that any matter reported in an
Annual Earn-Out Certificate or Closing Certificate is not accurate, the
Shareholders shall, within thirty (30) days after their receipt of the such
Annual Earn-Out Certificate or Closing Certificate (the "Response Period"),
deliver to the Purchaser a written statement (the "Objection Notice"): (i)
setting forth in reasonable detail the nature of the objections to each of any
discrepancies believed to exist, and (ii) requesting all additional information
required by the Shareholders to perform calculations relating to matters
contained in such certificate. If no Objection Notice is given within the
Response Period, then the calculations set forth in an Annual Earn-Out
Certificate or Closing Certificate, as applicable, shall be controlling for all
purposes of this Agreement and, (A) in the case of an Annual Earn-Out
Certificate, Purchaser shall pay the Shareholders the amount, if any, which it
is obligated to pay in accordance with Sections 1.2(b)(ii) and (iv), and (B) in
the case of the Closing Certificate, the Shareholders shall pay the Purchaser
the amount, if any, which they are obligated to pay in accordance with Section
1.3(b) of this Agreement and the Purchaser shall pay the Shareholders the
amount, if any, which it is obligated to pay in accordance with Section 1.3(c)
of this Agreement.
(b) The Purchaser and the Shareholders shall use good faith
efforts to jointly resolve any properly noticed objections and discrepancies
within fifteen (15) days of the receipt by the Purchaser of an Objection Notice,
which resolution, if achieved, shall be fully and completely binding upon all
Parties to this Agreement and not subject to further review, appeal, or dispute.
(c) If Purchaser and the Shareholders are unable to resolve the
objections and discrepancies to their mutual satisfaction within such fifteen
(15) day period, then the matter shall be submitted to an accounting firm of
national reputation mutually acceptable to Purchaser and the Shareholders (the
"Independent Accountants"). In submitting a dispute to the Independent
Accountants, the Purchaser, the Company and the Shareholders shall concurrently
furnish, at their own expense, to the Independent Accountants and the other
Party such documents and information as the Independent Accountants may request.
Each Party may also furnish to the Independent Accountants such other
information and documents as it deems relevant, with copies of such submission
and all such documents and information being concurrently given to the other
Party. Neither Party shall have or conduct any communication, either written or
oral, with the Independent Accountants without the other Party either being
present or receiving a concurrent copy of any written communication. The
Independent Accountants may conduct a conference concerning the objections and
disagreements between the Purchaser and the Shareholders, at which conference
each Party shall have the right to (i) present its documents, materials and
other evidence (previously provided to the Independent Accountants and the other
Party), and (ii) have present its or their advisors, accountants and/or counsel.
The Independent Accountants shall promptly (but not to exceed thirty (30) days
from the date of engagement of the Independent Accountants) render a decision on
the issues presented, and such decision shall be final and binding on all of the
Parties to this Agreement.
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(d) The fees, costs and expenses of the Independent Accountants in
performing their duties with respect to an engagement under Section 1.4(c) shall
be borne equally by the Purchaser and the Shareholders.
(e) In connection with their review of the Closing Date Balance
Sheet and all other matters arising under the Closing Certificate and Annual
Earn-Out Certificates, the Purchaser shall afford the Shareholders and their
representatives complete access to the books, records, personnel and facilities
of or pertaining to the Company.
ARTICLE II
CLOSING
2.1 Closing Date.
The Closing of the purchase and sale of the Shares shall take
place at the offices of the Company at 0000 Xxxxx Xxxxxx South, 2nd Floor,
Seattle, Washington, or its counsel at 0000 Xxxxxxxx Xxxxx, Xxxxxxxx,
Xxxxxxxxxx, as soon as practicable after the conditions to the Closing set forth
in Articles VI and VII have been satisfied. The date of the Closing is
hereinafter referred to as the "Closing Date." Subject to the provisions of
Article VIII, failure to consummate the purchase and sale provided for in this
Agreement on the date and time and at the place determined pursuant to this
Section 2.1 will not result in the termination of this Agreement and will not
relieve any Party of any obligation under this Agreement.
2.2 Closing Transactions.
At the Closing, the following transactions shall occur, all of
such transactions being deemed to occur simultaneously:
(a) The Company and the Shareholders, as applicable, shall deliver
to the Purchaser the following:
(1) A certificate or certificates representing all of the Shares
duly endorsed by the Shareholders in blank or accompanied by assignments
separate from certificate duly endorsed in blank;
(2) A certificate of the Shareholders to the effect that: (i) all
representations and warranties made by the Shareholders under this Agreement are
true and correct in all material respects as of the Closing Date, as though
originally given to Purchaser on the Closing Date; (ii) the Company and the
Shareholders have performed all obligations required to be performed by them
under this Agreement prior the Closing Date; and (iii) the conditions precedent
identified in Article VI have been satisfied or waived in writing;
(3) A certificate of existence/authorization of the Secretary of
State of Washington, dated within fifteen (15) days of the Closing Date, to the
effect that the Company is in good standing under the laws of such state;
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(4) An incumbency certificate signed by all of the officers of the
Company dated at or about the Closing Date;
(5) Copies of the Company's amended and restated articles of
incorporation and amended and restated bylaws certified by the Secretary of the
Company dated at or about the Closing Date;
(6) An Employment Agreement executed by each of the Shareholders;
(7) The resignation of each officer and director of the Company in
form and substance satisfactory to Purchaser;
(8) An opinion of the Company's counsel in form and substance
satisfactory to the Purchaser;
(9) Termination agreements in form and substance satisfactory to
the Purchaser terminating any and all agreements between the Shareholders and
the Company;
(10) Either (i) evidence satisfactory to the Purchaser that all
outstanding Bank Indebtedness has been repaid in full or (ii) a request that the
Purchaser apply a portion of the purchase price to be paid at the Closing to the
repayment in full of all outstanding Bank Indebtedness;
(11) A non-foreign person affidavit as required by Section 1445 of
the Code from certain of the Shareholders; and
(12) Such other documents, agreements, consents, and approvals as
are required under this Agreement or as may be reasonably requested by the
Purchaser.
(b) Purchaser and Stonepath, as applicable, will deliver to the
Company and the Shareholders the following:
(1) Purchaser shall deliver or shall cause to be delivered to the
Shareholders the Cash Payment Amount by wire transfer of immediately available
funds to the bank accounts designated in writing by the Shareholders at least
three (3) days prior to Closing;
(2) Certificates of the Purchaser's Chief Executive Officer and
Stonepath's Chief Executive Officer to the effect that: (i) all representations
and warranties of the Purchaser and Stonepath (as applicable) under this
Agreement are true and correct in all material respects as of the Closing Date,
as though originally given to the Shareholders on the Closing Date; (ii) each of
the Purchaser and Stonepath (as applicable) has performed all required
obligations to be performed by it under this Agreement prior the Closing Date;
and (iii) the conditions precedent identified in Article VII have been satisfied
or waived;
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(3) Certificates of good standing of the Secretary of the State of
Delaware, dated within fifteen (15) days of the Closing Date, that each of the
Purchaser and Stonepath is in good standing under the laws of said state;
(4) Certified resolutions of each of the Purchaser's and
Stonepath's board of directors, dated at or about the Closing Date, authorizing
the transactions contemplated under this Agreement;
(5) Incumbency certificates signed by all of the officers of the
Purchaser and Stonepath, respectively, dated at or about the Closing Date;
(6) The Employment Agreements executed by the Purchaser or the
Company, as applicable;
(7) Opinion of the Purchaser's and Stonepath's counsel in form and
substance satisfactory to the Shareholders;
(8) The Stonepath Guaranty Agreement; and
(9) Such additional documents, agreements, consents, and approvals
as are required under this Agreement or as may be reasonably requested by the
Shareholders.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS
As a material inducement to Purchaser to execute this Agreement
and the Ancillary Agreements and consummate the transactions contemplated hereby
and thereby, each of the Shareholders, severally but not jointly, and the
Company hereby represent to the Purchaser that each of the following
representations and warranties are true and correct as of the date of this
Agreement and will be true and correct as of the Closing Date, except as
otherwise set forth in written disclosure schedules (the "Shareholders'
Schedules") delivered to Purchaser pursuant to this Article III, a copy of which
is attached to this Agreement as Exhibit B. The Shareholders' Schedules are
numbered to correspond to the various sections of this Article III setting forth
certain exceptions to the representations and warranties contained in this
Article III and certain other information required by this Agreement; provided,
however, that any information disclosed in any section of the Shareholders'
Schedules shall be deemed to be disclosed and incorporated in any other part of
the Shareholders' Schedules, and shall modify and except the representations and
warranties applicable thereto, where such incorporation is reasonable under the
circumstances.
3.1 Organization, Qualification and Status.
(a) The Company and Global Container are each corporations duly
incorporated and organized, validly existing and authorized under the laws of
the State of Washington. 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. Each
jurisdiction in which the Company is qualified or licensed to do business as a
foreign corporation is set forth in Section 3.1(a) of the Shareholders'
Schedules.
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(b) 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. Section 3.1(b) of the
Shareholders' Schedules 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 articles of incorporation and bylaws of the
Company and Global Container, each certified by the Secretary of the Company and
heretofore furnished to Purchaser, are true, correct and complete and each
include all amendments to the date hereof. The minute books of the Company and
Global Container, as made available to Purchaser, 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 Purchaser 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.
(a) The authorized capital stock of the Company consists of
250,000 shares of common stock, no par value, of which 143,250 shares are issued
and outstanding and constitute the Shares. All of the Shares are held
beneficially and of record by the Shareholders, 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, and 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. None of
the Shares are subject to any preemptive or other right created by statute, the
Company's amended and restated articles of incorporation or amended and restated
bylaws, by contract, or otherwise. There are no authorized or outstanding
options, warrants, convertible securities, subscription rights, puts, calls,
unsatisfied preemptive 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. None of
the shares of capital stock or other securities of the Company were issued in
violation of the Securities Act, state securities laws, or any other legal
requirement.
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(b) The authorized capital stock of Global Container consists of
100,000 shares of common stock, no par value, of which 100,000 are issued and
outstanding. All outstanding shares of Global Container common stock are held
beneficially and of record by the Company, free and clear of all Rights and
Encumbrances.
3.4 Ownership of Shares.
The Shareholders own and hold, beneficially and of record, the
entire right, title, and interest in and to the Shares, free and clear of all
Rights and Encumbrances. Each Shareholder has full power and authority to vote
the Shares owned by him and to approve the transactions contemplated by this
Agreement. Except as set forth in the Shareholders' Schedules, each Shareholder
has the full power and authority to vote, transfer and dispose of the Shares
owned by him, free and clear of any Right or Encumbrance of any kind or nature
whatsoever other than restrictions under the Securities Act and applicable state
securities laws. At the Closing, the Purchaser will acquire good title to the
Shares, free and clear of all Rights and Encumbrances. Other than the
transactions contemplated by this Agreement, there is no outstanding vote, plan,
pending proposal, or other right of any Person to acquire, or to cause the
redemption of, the Shares or to effect the merger or consolidation of the
Company with or into any other Person.
3.5 No Subsidiary.
Except as set forth in the Shareholders' Schedules, the Company
does not have any Subsidiary or any ownership interest in any other entity and
the Company is not a party to any joint venture arrangement and does not have
the right or obligation to acquire any securities of or ownership interests in
any other person or entity.
3.6 Authority of Shareholders.
Each Shareholder has the full capacity, power and authority to
enter into this Agreement and the Ancillary Agreements to which such Shareholder
is a party and to consummate the transactions contemplated hereby and thereby
and to comply with the terms, conditions and provisions hereof and hereof. This
Agreement and the Ancillary Agreements to which a Shareholder is a Party has
been duly authorized, executed and delivered by each Shareholder and are the
legal, valid and binding obligations of such Shareholder, enforceable against
such Shareholder in accordance with its terms. No notices to, declaration,
filing or registration with, approvals or consents of, or assignments by, any
Persons (including Governmental Authorities) are necessary to be made or
obtained by the Company or the Shareholders in connection with the execution,
delivery or performance by the Company or any of the Shareholders of this
Agreement.
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3.7 No Violation.
Neither the Company nor Global Container is in default under or in
violation of any provision of its respective articles of incorporation or
bylaws. To each Shareholder's Knowledge, neither the Company nor Global
Container is in material default or material breach of any agreement,
understanding, arrangement, indenture, contract, lease, sublease, license,
sublicense, franchise, 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"). Except as set forth in the Shareholders' Schedules, neither the
execution and delivery of this Agreement or the Ancillary Agreements by the
Company and the Shareholders, 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 amended and restated articles of incorporation or amended and
restated bylaws of the Company or Global Container; (ii) violate, conflict with
or result in a breach of or default under any of the terms, conditions or
provisions of any Instrument; (iii) accelerate or give to others any interests
or rights, including rights of acceleration, termination, modification or
cancellation, under any Instrument; (iv) result in the creation of any
Encumbrance on the assets, capital stock or properties of the Company or Global
Container; (v) conflict with, violate or result in a breach of or constitute a
default under, any Applicable Law to which the Company or Global Container or
any of its assets or properties is subject; (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 Governmental Authority or
any other Person; or (vii) affect the validity, enforceability or effectiveness
of any Permit.
3.8 Financial Statements.
(a) Annex 3.8(a) to the Shareholders' Schedules contains true and
correct and complete copies of the audited financial statements of the Company
for the years ended December 31, 1999, and December 31, 2000, and unaudited
financial statements for the most recent completed year ended December 31, 2001
(collectively, the "Financial Statements"). The Financial Statements have been
prepared in conformity with GAAP applied on a consistent basis, and present
fairly the financial position and results of operations and cash flows of the
Company at the dates and for the periods covered by such Financial Statements,
except that the unaudited financial statements for the year ended December 31,
2001 do not contain footnotes. 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.
(b) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed
with management's authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in accordance with GAAP and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's authorization, and (iv) the recorded accountability
for assets is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(c) The Company has not engaged in any transaction, maintained any
bank account, or used any corporate funds except for the transactions, bank
accounts or funds which have been and are reflected in the Company's books and
records.
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3.9 Absence of Undisclosed and Contingent Liabilities.
(a) Except as set forth in the Shareholders' Schedules, the
Company has no Liabilities except (i) Liabilities which are reflected and
properly reserved against in the Financial Statements, (ii) Liabilities incurred
in the Ordinary Course of Business since December 31, 2001, and (iii)
Liabilities arising under the Material Contracts set forth in the Shareholders'
Schedules or which are not required to be disclosed on such Shareholders'
Schedules and which have arisen in the Ordinary Course of Business.
(b) Except as set forth in the Shareholders' Schedules, none of
the Liabilities described in this Section 3.9(a) relates to any breach of
contract, breach of warranty, tort, infringement or violation of law, or arose
out of any action, order, writ, injunction, judgment, or decree outstanding or
claim, suit, litigation, proceeding, investigation or dispute.
(c) The reserves for Liabilities set forth on the balance sheets
included in the Financial Statements are reasonable.
3.10 No Adverse Changes.
Since December 31, 2001, except as set forth in the Shareholders'
Schedules, the Company has operated in the Ordinary Course of Business and has
not:
(a) Sold, leased, assigned or otherwise transferred any material
properties or assets, or disposed of or permitted to lapse any rights in any
Permit or Intellectual Property owned or used by the Company, other than in the
Ordinary Course of Business, or organized any new business entity or acquired
any equity securities, assets, properties, or business of any Person or any
equity or ownership interest in any business or merged with or into or
consolidated with any other Person;
(b) Suffered, sustained or incurred any material loss or waived or
released any material right or claim, whether or not in the Ordinary Course of
Business;
(c) Suffered, sustained or incurred any material damage,
destruction or casualty loss to any material properties or assets, whether or
not covered by insurance;
(d) Engaged in any transaction not in the Ordinary Course of
Business;
(e) Made any capital expenditure in excess of $25,000 individually
or $100,000 in the aggregate;
(f) Subjected any of its properties or assets to any Encumbrance,
whether or not in the Ordinary Course of Business;
(g) Issued any note, bond or other debt security or created,
incurred or assumed any indebtedness for borrowed money or capitalized lease
obligation, or otherwise incurred any material Liability, except current
Liabilities incurred in the Ordinary Course of Business;
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(h) Discharged or satisfied any Encumbrance, or paid any material
Liability, other than current Liabilities shown on the most recent balance sheet
included in the Financial Statements, and current Liabilities incurred in the
Ordinary Course of Business since December 31, 2001;
(i) Declared, set aside or paid a dividend or made any other
distribution with respect to any class or series of capital stock of the
Company, except for those S Corporation distributions necessary to cover
applicable pass-through Taxes on the Company's net income prior to the Closing,
or directly or indirectly redeemed, purchased or otherwise acquired any shares
of any class or series of the Company's capital stock;
(j) Increased the salary, wage or other compensation or level of
benefits payable or to become payable by the Company to any of its employees,
officers, or directors, including, without limitation, granting, paying or
accruing any bonus, incentive compensation, service award, or other similar
benefit, other than any wage increases or raises to non-officer or non-director
employees in the Ordinary Course of Business;
(k) Loaned money to any Person or guaranteed any loan to or
Liability of any Person, whether or not in the Ordinary Course of Business;
(l) Except as described in the Shareholders' Schedules, amended or
terminated any Material Contract, except in the Ordinary Course of Business;
(m) Changed accounting methods or practices (including, without
limitation, any change in depreciation, amortization or cost accounting policies
or rates) or reevaluated any of the Company's assets;
(n) Suffered, sustained or incurred any Material Adverse Change;
(o) Incurred any termination of any material customer account or
group of accounts or received notice from any customer, supplier, vendor,
Governmental Authority or any other Person which could give rise to or result in
a Material Adverse Effect on the Company;
(p) Delayed, postponed, or failed to pay any Liability outside of
the Ordinary Course of Business;
(q) Entered into any employment contract or collective bargaining
agreement, written or oral, or modified the terms of any existing such contract
or agreement or adopted, amended, modified or terminated any benefit plan for
the benefit of any of the Companies' directors, officers or employees;
(r) Made any change or amendment in its amended and restated
articles of incorporation, amended and restated bylaws, or other governing
instruments;
(s) Issued or sold any securities; acquired, directly or
indirectly, by redemption or otherwise, any securities; reclassified, split-up
or otherwise changed any such equity security; or granted or entered into any
options, warrants, calls or commitments of any kind with respect thereto;
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(t) Incurred any Liability other than in the Ordinary Course of
Business;
(u) Disposed of, or permitted to lapse, any Intellectual Property
rights or disclosed any trade secret, process or know-how to any Person not an
employee;
(v) Entered into any contract other than in the Ordinary Course of
Business; and/or
(w) Entered into any contract to do any of the foregoing.
3.11 Guarantees.
(a) Except as set forth in the Shareholders' Schedules, the
Company has not guaranteed, become surety or contingent obligor for or assumed
any obligation, debt or dividend of any Person. No assets of 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) Section 3.11(b) identifies all obligations and liabilities of
the Company for which the Shareholders have provided or been caused to incur
personal guarantees thereof (the "Shareholders' Guarantees").
3.12 Tax Matters.
(a) Section 3.12(a) of the Shareholders' Schedules contains a list
of the Tax Returns which the Company has filed for any taxable periods ended on
or after December 31, 1997. The Company has provided the Purchaser with true,
correct, and complete copies of all such Tax Returns.
(b) Except as set forth on Section 3.12(b) of the Shareholders'
Schedules:
(i) The Company (A) 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, all
such tax returns being true and correct and complete in all respects (B) has
timely paid or caused to be paid in full all Taxes which are or have become due
and payable to all taxing authorities as set forth on such returns and periods,
(C) 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
(D) 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.
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(ii) The Company has properly accrued and reflected in its
Financial Statements, and has thereafter to the date hereof properly accrued,
and will from the date hereof up to but excluding the Closing Date properly
accrue, all liabilities for Taxes. To each Shareholder's Knowledge, all such
accruals are in the aggregate sufficient for payment of all such taxes and
assessments.
(iii) To each Shareholder's Knowledge, 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. There
are no actions, suits, proceedings, investigations or claims now pending against
the Company with respect to any Tax, or any matter under discussion between the
Company and any Governmental Authority relating to any Taxes.
(iv) The Company is not and has never been a member of an
affiliated group of corporations (within the meaning of Section 1504 of the
Code).
(v) 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.
(vi) 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.
(vii) Except as set forth in the Shareholders' Schedules, none of
the Shareholders are foreign persons so that Section 897 and 6039C of the
Internal Revenue Code are not applicable to the transactions provided for
hereunder.
(viii) The Company, since October 1, 1992, has been a validly
electing "S Corporation" as that term is defined in Sections 1361 and 1362 of
the Code, and has never revoked or terminated such election, nor has it taken
any action which would disqualify the Company from its S 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.
(ix) The Company has a Subsidiary that is a "qualified subchapter
S subsidiary" within the meaning of Section 1361(b)(3)(B) of the Code.
(x) Except as set forth in the Shareholders' Schedules, the
Company has not in the past ten (10) years, (A) acquired assets from another
corporation in a transaction in which the Company's Tax basis for the acquired
assets was determined, in whole or in part, by reference to the Tax basis of the
acquired assets (or any other property) in the hands of the transferor, or (B)
acquired the stock of any corporation which is a "qualified subchapter S
subsidiary".
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(xi) The Shareholders' Schedules identify all audits of the
Company's Tax Returns, including a reasonably detailed description of the nature
and outcome of each audit. The Company has not given or been requested to give
waivers or extensions of any statute of limitations relating to the payment of
Taxes.
(xii) The Company has not filed a consent under Section 341(g) of
the Code concerning collapsible corporations. The Company is not a party to any
agreement, contract, arrangement or plan that has resulted or would result,
separately or in the aggregate, in the payment of (A) any "excess parachute
payment" within the meaning of Section 280G of the Code (or any corresponding
provision of state, local or foreign Tax law) or (B) any amount that will not be
fully deductible as a result of Section 162(m) of the Code (or any corresponding
provision of state, local or foreign Tax law. The Company has not been a United
States real property holding corporation within the meaning of Section 897(c)(2)
of the Code during the applicable period specified in Section 897(c)(1)(A)(ii)
of the Code. The Company has disclosed on its federal income Tax Returns all
positions taken therein that could give rise to a substantial understatement of
federal income Tax within the meaning of Section 6662 of the Code.
3.13 Litigation.
Except as set forth in the Shareholders' Schedules, there are no
actions, suits or proceedings at law or in equity, or arbitration proceedings,
or claims, demands or investigations, pending or, to each Shareholder's
Knowledge, Threatened (i) against or involving the Company or any of its
officers or directors (in their capacity as such), (ii) which seek to enjoin or
obtain damages in respect of the transactions contemplated by this Agreement, or
(iii) which would prevent the Company from consummating the transactions
contemplated by this Agreement. To each Shareholder's Knowledge, there are no
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 Authority, to each Shareholder's Knowledge, or state of facts
existing which is reasonably likely to give rise to any such proceedings. The
Company is not in violation of any Injunction.
3.14 Real Property.
(a) The Company has the right to use all real property necessary
for the conduct of its business as presently conducted. The Shareholders'
Schedules identify all such real property. Except as set forth in the
Shareholders' Schedules, the Company is not a party to any leases of real
property. The Company is the lessee under the real estate leases described on
the Shareholders' Schedules. True, correct and complete copies of said leases
and any amendments, extensions and renewals thereof have heretofore been
delivered by the Company to Purchaser. The Company enjoys quiet and undisturbed
possession under each of said leases. The Company's interest in each of such
leases is free and clear of any Encumbrances, 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. To each Shareholder's Knowledge, the
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 interfere with the present or any intended use by the
Company of any of such leased real estate. Said leases are valid and binding and
in full force and effect, and are not 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.
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(b) The Company does not own any real property.
3.15 Owned Tangible Personal Property.
The Company owns or has the right to use all personal property
necessary for the conduct of its business as presently conducted. The
Shareholders' Schedules set forth a list of the items of tangible personal
property owned by the Company where the replacement value of each item
individually exceeds $10,000 (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 all right, title and
interest in, and good title to, the Tangible Personal Property free and clear of
any Encumbrance of any kind or nature whatsoever. With respect to each item of
Tangible Personal Property, (i) there are no leases, subleases, licenses,
options, rights, or concessions or other agreements, written or oral, granting
to any party or parties the right of use of any portion of such item of Tangible
Personal Property, (ii) there are no outstanding options or rights of first
refusal in favor of any other party to purchase any such item of Tangible
Personal Property or portion thereof or interest therein, and (iii) there are no
parties other than the Company which are in possession of or are using such
Tangible Personal Property. Copies of all leases and licenses relating to the
Tangible Personal Property have heretofore been delivered by the Company to
Purchaser.
3.16 Condition of Buildings and Tangible Personal Property.
All of the premises occupied and the items of Tangible Personal
Property are in such operating condition and repair as are necessary for the
conduct of the Business and comply in all respects with Applicable Laws,
including but not limited to zoning, building and fire codes. Each item of
Tangible Personal Property is adequately covered by one of the insurance
policies described in Section 3.26 hereto.
3.17 Accounts and Notes Receivable.
To each Shareholder's Knowledge, each of the accounts receivable
of the Company included within the Financial Statements constitutes a valid
claim in the full amount thereof against the debtor charged therewith on the
books of the Company and has been acquired in the Ordinary Course of Business.
Neither the Company nor any Shareholder is aware of any reason that each account
receivable is not fully collectible to the extent of the face value thereof
(less the amount of the allowance for the doubtful accounts reflected on the
most recent balance sheet included in the Financial Statements) within the
normal collection cycle of the relevant customer. 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) Section 3.18(a) of the Shareholders' Schedules contains a list
of all of the material contracts of the Company which shall consist of all
agreements, leases, licenses, contracts, obligations, promises, commitments,
arrangements, understandings, or undertakings, (whether oral or written or
express or implied) 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 (collectively, the "Material Contracts") that
satisfy any of 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 $10,000;
(ii) each arrangement, agreement, contract or understanding that
was not entered into in the Ordinary Course of Business;
(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 $10,000 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 (regardless of whether the Company is the licensee
or licensor thereunder), 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;
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(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 or services;
(ix) each power of attorney that is currently effective and
outstanding;
(x) each arrangement, agreement, contract or understanding for
capital expenditures in excess of $10,000;
(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;
(xii) each confidentiality and non-disclosure agreement (whether
the Company is the beneficiary or the obligated party thereunder), other than
those entered into in the Ordinary Course of Business;
(xiii) each employment contract, consulting contract, or severance
agreement, including contracts (A) to employ or terminate officers or other
personnel and other contracts with present or former officers or directors of
the Company or (B) that will result in the payment by, or the creation of, any
Liability of the Company, any of the Shareholders, or the Purchaser to pay any
severance, termination, "golden parachute," or other similar payments to any
present or former personnel following termination of employment or otherwise as
a result of the consummation of the transactions contemplated by this Agreement;
(xiv) each arrangement, agreement, contract or understanding with
a Related Person;
(xv) any other arrangement, agreement, contract or understanding
under which the consequences of a default or termination would reasonably be
expected to have a Material Adverse Effect on the Business or the Company; and
(xvi) each material amendment, supplement, and modification
(whether oral or written) in respect of any of the foregoing.
(b) Accurate and complete copies of each Material Contract listed
in Section 3.18(a) of the Shareholders' Schedules have been made available to
Purchaser, at Purchaser's request, prior to the date hereof. All of the Material
Contracts are valid, binding and enforceable against the respective parties
thereto in accordance with their respective terms. Neither the Company nor, to
the Knowledge of the any Shareholder, any other party is in default or in
arrears under the terms of any Material Contract, 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. The Company has fulfilled, or taken
action to fulfill when due, all of its material obligations under each of the
Material Contracts. Neither the Company nor any of the Shareholders has any
reason to believe that the products or services called for by any executory
Material Contract cannot be supplied in accordance with the terms of such
Material Contract, and there is no reason to believe that any unfinished
Material Contract will, upon performance by the Company, result in a loss by the
Company. The Company has not committed any act, and there has been no omission,
which may result in, and there has been no occurrence which may give rise to,
Liability for breach of warranty (whether or not covered by insurance) on the
part of the Company with respect to services rendered or products sold by the
Company.
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3.19 Inventories.
All of the Company's inventories are reflected in the Financial
Statements at cost or market, whichever is lower; are good and salable or usable
in the Ordinary Course of Business; are of sufficient quality for the normal
operation of the Company's Business; and do not contain, any obsolete items
(except as provided for in the Financial Statements).
3.20 Relationship With Related Persons.
The Shareholders, directors, officers, and employees of the
Company, and their Related Persons do not have any interest in any of the
properties or assets of or used by the Company and do not own, of record or as a
beneficial owner, an equity interest or any other financial or profit interest
in any Person that (i) has had business dealings or a material financial
interest in any transaction with the Company, or (ii) has engaged or is engaged
in competition with the Company with respect to any line of products or services
of the Company in any market presently served by the Company (a "Competing
Business") (except for the ownership of less than three percent (3%) of the
outstanding capital stock of any Competing Business that is publicly traded on
any recognized exchange or in the over-the-counter market). Except as set forth
in the Shareholders' Schedules, the Shareholders, and no director or officer of
the Company and none of their Related Persons is a party to any contract with,
or has any claim against, the Company. All money owed by the Company to the
Shareholders or its directors or officers, or their Related Persons, (other than
for salary and bonuses) are for bona fide debts and are set forth in the
Shareholders' Schedules.
3.21 Banking Matters.
Section 3.21 of the Shareholders' Schedules 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 make withdrawals therefrom.
3.22 Labor and Employment Matters.
(a) The Shareholders' Schedules contain a complete list of all
written employment arrangements, pension, retirement, profit sharing and bonus
plans, and deferred compensation, health, welfare, severance management, and
other similar plans for the benefit of any employees of the Company ("Employee
Benefit Plans"), including employee plans 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 will not
have been, a sponsor of, party to or obligated to contribute to any employee
benefit plan (as defined in ss. 3(3) of ERISA). The Company at present is not,
and during the five (5) year period preceding the Closing Date will not have
been, a party to any collective bargaining agreement. The Company has never been
a member of a "controlled group of corporations" within the meaning of Section
414(b) or (c) of the Code and has never 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 have
heretofore been delivered by the Company to Purchaser.
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(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; and
(2) each such Plan has been established, maintained, funded and
administered in all material respects in accordance with its governing
documents, and any applicable provisions of ERISA, the Code and other Applicable
Laws.
(c) All directors, officers, and employees of the Company,
together with the current salaries, job descriptions, and locations of such
directors, officers and employees are set forth in the Shareholders' Schedules.
(d) Except as set forth in the Shareholders' Schedules and as
required under COBRA, 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.
(e) The Company has complied with all Applicable Laws respecting
employment practices, terms and conditions of employment, wages and hours, equal
employment opportunity, and the payment of social security and similar taxes.
The Company is not engaged in any unfair labor practice. The Company has
complied with all applicable provisions of the Immigration Reform and Control
Act of 1986.
(f) The Company has not entered into any severance or similar
arrangement in respect of any present or former employee that will result in an
obligation (absolute or contingent) of the Company to may any payment to any
present or former employee following termination of employment or upon
consummation of the transactions contemplated by this Agreement.
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 the Shareholder of his or her intent
or desire to terminate employment with the Company.
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3.24 Customers.
Set forth in Section 3.24 of the Shareholders' Schedules is a list
of the five largest customers of the Company based on the percentage of revenue
represented by those customers for calendar years 2000 and 2001. The
relationships of the Company with its suppliers and customers are good
commercial working relationships, and no supplier or customer of the Company has
canceled, curtailed or otherwise terminated or Threatened to cancel or otherwise
terminate, his, her, or its relationship with the Company, except that the mix
of the Company's customers changes from time to time in the Ordinary Course of
Business.
3.25 Product and Service Warranties.
Except as set forth in the Shareholders' Schedules, there are no
liabilities of or claims against the Company, and no liabilities or claims are
Threatened against the Company, with respect to any product liability (or
similar claim) or product or service warranty (or similar claim) claim that
relates to any product or service provided by the Company and involves an amount
in excess of $25,000 individually or $100,000 in the aggregate with all other
claims.
3.26 Insurance.
Schedule 3.26 of the Shareholders' Schedules identifies all of 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.
3.27 Compliance with Laws.
To each Shareholder's Knowledge, the Company has complied in all
material respects with all Applicable Laws applicable to it and its business,
assets, properties and operations and no claim of the violation of any such
Applicable Law has been asserted prior to the date hereof. Neither the Company
nor the Shareholder has received any notice to the effect that, or has been
otherwise advised that, the Company is not in compliance with any Applicable
Laws. Each of the Company and the Shareholder has no reason to anticipate that
any existing circumstances are likely to result in any material violation of any
Applicable Law.
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3.28 Licenses and Permits.
The Company has secured all Permits necessary for the conduct of
the Business, except for those Permits, the absence of which, either alone or in
the aggregate, would not have a Material Adverse Effect upon the Business or the
Company. With respect to each Permit, (a) such Permit 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 such Permit, 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 such
Permit other than by expiration of the term set forth therein.
3.29 Environmental Matters.
Except as set forth in the Shareholders' Schedules, to each
Shareholder's Knowledge (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 Person or Governmental Authority required to
operate its facilities in compliance with applicable Environmental Laws; (ii)
the Company has not violated any applicable Environmental Law; (iii) there is no
present requirement of any applicable Environmental Law which is due to be
imposed upon the Company which will increase its cost of complying with the
Environmental Laws; (iv) all on-site generation, treatment, processing, storage
and disposal of Waste and Hazardous Materials by the Company has been done in
compliance with currently applicable Environmental Laws; (v) all off-site
transportation, treatment, processing, storage and disposal of Waste and
Hazardous Materials generated by the Company has been done in compliance with
currently applicable Environmental Laws; (vi) the Company has not released,
spilled, leaked or otherwise discharged into the environment any Regulated
Substance except as expressly authorized by Environmental Laws; and (vii) the
Company has not used or otherwise managed any Regulated Substance except in
strict compliance with all Environmental Laws. This Section 3.29 constitutes the
sole and exclusive representation of the Shareholders with respect to
Environmental Laws and all other environmental and safety matters.
3.30 Intellectual Property Matters.
The corporate name of the Company and the trade names and service
marks listed in the Shareholders' Schedules are the only material names and
service marks which are used by the Company in the operation of the Business. To
each Shareholder's Knowledge, the Intellectual Property owned or licensed to the
Company constitutes all of the Intellectual Property necessary for the operation
of the Business as now being conducted. Except as set forth in the Shareholders'
Schedules, there are no outstanding licenses or consents granting third parties
the right to use the Intellectual Property owned by the Company. To each
Shareholder's Knowledge, the Company has received no notice of any adversely
held patent, invention, trademark, copyright, service xxxx or trade name, or
trade secret of any Person, or any claims of any other Person relating to any of
the Intellectual Property owned by the Company and material to the Business. To
each Shareholder's Knowledge, there is no presently known Threatened
infringement of any such Intellectual Property. The sale or use of any products
or services now or heretofore provided by the Company did not and does not
infringe (nor has any claim been made that any such action infringes) any third
party's registered copyrights or, to each Shareholder's Knowledge, trademarks or
tradenames. The Company's ownership or right to use any of the Intellectual
Property material to the Business will not cease by reason of the execution,
delivery, or performance of this Agreement.
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3.31 Absence of Certain Business Practices.
Except for customer or prospective customer entertainment
occurring in the Ordinary Course of Business, to each Shareholder's Knowledge,
neither the Company nor any Person authorized to act on its behalf, has within
the past six (6) years given or agreed to give any gift or similar benefit to
any customer, supplier, governmental employee or other Person who is or may be
in a position to help or hinder the Business (or assist the Company in
connection with any actual or proposed transaction) which (i) would subject the
Company to any damage or penalty in any civil, criminal or governmental
litigation or Proceeding, (ii) if not given in the past, would have had a
Material Adverse Effect on the Business or the Company, or (iii) if not
continued in the future, would adversely affect the financial condition,
Business or operations of the Company or which might subject the Company to suit
or penalty in any private or governmental litigation or Proceedings.
3.32 Brokers or Finders.
Except as set forth in the Shareholders' Schedules, neither the
Company nor the Shareholders have incurred any obligation or liability,
contingent or otherwise, for brokerage or finders' fees or agents commissions or
similar payments in connection with this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND STONEPATH
As a material inducement to the Shareholders to execute this
Agreement and the Ancillary Agreements and to consummate the transactions
contemplated hereby and thereby, Purchaser and Stonepath hereby represent and
warrant to the Shareholders that, except as set forth in the reports filed by
Stonepath with the SEC, each of the following representations and warranties are
true and correct as of the date of this Agreement and will be true and correct
as of the Closing Date.
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4.1 Organization and Qualification.
Each of Purchaser and Stonepath is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Each of Purchaser and Stonepath has the corporate power and authority to carry
on its business as presently conducted and as currently anticipated to be
conducted. Each of Purchaser and Stonepath 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 Purchaser's and Stonepath's certificate of
incorporation and bylaws, each certified by the Secretary of the Purchaser or
Stonepath, as applicable, and heretofore furnished to the Shareholders, are
true, correct and complete and each include all amendments to the date hereof.
The Purchaser's minute books, as made available to the Shareholders, contain
true, complete and correct records of all corporate action taken on or prior to
the date hereof at the meetings of their respective shareholders and directors
and committees of the board or by written consent.
4.3 Authorization; Valid and Binding Obligation.
Each of the Purchaser and Stonepath has all the unrestricted and
absolute right, power and authority to execute and deliver this Agreement and
the Ancillary Agreements, and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the Ancillary
Agreements to which the Purchaser or Stonepath is or will be a party and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of the Purchaser or
Stonepath, as applicable. This Agreement and the Ancillary Agreements to which
the Purchaser or Stonepath is a party have been or will be when executed and
delivered by the Purchaser or Stonepath, duly executed and delivered by the
Purchaser or Stonepath, as applicable, and constitute, or will constitute when
executed and delivered by the Purchaser or Stonepath, the valid and binding
obligations of the Purchaser or Stonepath, as applicable, enforceable against
the Purchaser or Stonepath, as applicable, in accordance with their respective
terms, except as such enforceability may be limited by (i) bankruptcy,
insolvency, moratorium or other similar legal requirements affecting or relating
to creditors' rights generally, and (ii) general principles of equity. No
notices to, declaration, filing or registration with, approvals or consents of,
or assignments by, any Persons (including Governmental Authorities) are
necessary to be made or obtained by the Purchaser or Stonepath in connection
with the execution, delivery or performance by the Purchaser or Stonepath of
this Agreement or the Ancillary Agreements.
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4.4 Litigation; Orders.
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 Purchaser or Stonepath, 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 Purchaser or Stonepath by or before any Governmental Authority,
department, commission, bureau, instrumentality or agency (including but not
limited to any Governmental Authority 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
neither the Purchaser nor Stonepath is in violation of any Injunction of any
Governmental Authority. There is no order, writ, injunction, judgment or decree
to which Purchaser, Stonepath or any of their respective assets owned or used by
them, is subject.
4.5 No Violations.
Neither Purchaser nor Stonepath is in default under or in
violation of any provision of (a) its respective certificate of incorporation or
bylaws, or (b) any Instrument to which either is a party or by which its
respective assets are subject. Neither the execution and delivery of the
Purchaser's Agreements by the Purchaser and Stonepath, nor the consummation of
the transactions contemplated thereby, nor compliance with the terms 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 Purchaser or
Stonepath, (ii) violate, conflict with or result in a breach of or default under
any of the terms, conditions or provisions of any Instrument, (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 Purchaser or Stonepath, (iv) result in
the creation of any Encumbrance on the assets, capital stock or properties of
the Purchaser or Stonepath, (v) conflict with, violate or result in a breach of
or constitute a default under any Applicable Law to which the Purchaser or
Stonepath or any of their respective assets or properties are subject, (vi)
require the Purchaser or Stonepath to give notice to, or obtain an
authorization, approval, order, license, franchise, declaration or consent of,
or make a filing with, any Governmental Authority or other Person.
4.6 Investment Intent.
Purchaser is acquiring the Shares for its own account and not with
a view to the distribution thereof within the meaning of Section 2(a)(11) of the
Securities Act. Purchaser acknowledges and agrees that the Shares have not been
registered under the Securities Act or under the securities laws of any
jurisdiction.
4.7 Stonepath SEC Documents.
(a) Stonepath has made available to the Company accurate and
complete copies (excluding copies of exhibits) of each report, registration
statement (on a form other than Form S-8) and definitive proxy statement filed
by Stonepath with the SEC between January 1, 2001, and the date of this
Agreement (the "Stonepath SEC Documents") which availability will be deemed
satisfied if such Stonepath SEC Documents are available in final form on the
SEC's website. As of the time it was filed with the SEC (or, if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing): (i) each of the Stonepath SEC Documents complied in all material
respects with the applicable requirements of the Securities Act or the Exchange
Act (as the case may be); and (ii) none of the Stonepath SEC Documents contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
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(b) The consolidated financial statements contained in the
Stonepath SEC Documents: (i) complied as to form in all material respects with
the published rules and regulations of the SEC applicable thereto; (ii) were
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered, except as may be indicated in the notes to such consolidated
financial statements and (in the case of unaudited statements) as permitted by
Form 10-Q of the SEC; and (iii) fairly present in all material respects the
consolidated financial position of Stonepath as of the respective dates thereof
and the consolidated results of operations of Stonepath for the periods covered
thereby, except that the unaudited interim financial statements were or when
filed are subject to normal and recurring year-end adjustments which were not or
are not expected to be material in amount.
4.8 Brokers or Finders.
Neither Purchaser nor Stonepath, or their respective directors,
officers or agents, has incurred any obligations or liability, contingent or
otherwise, for brokerage or finders' fees or agents' commissions or other
similar payments in connection with this Agreement or the transactions
contemplated hereby.
ARTICLE V
COVENANTS OF THE PARTIES PENDING CLOSING
The Parties to this Agreement, as applicable, covenant and agree,
from the date of this Agreement until the earlier of the Closing Date or the
termination of this Agreement in accordance with Article VIII hereof, as
follows:
5.1 Access to Information.
The Company shall give or cause to be given to the Purchaser, its
officers, employees, counsel, accountants and other representatives, upon
reasonable notice, access during normal business hours to the properties and
assets and all of the books, minute books, title papers, records, files,
contracts, insurance policies, environmental records and reports, licenses and
documents of every character and nature of the Company, and the Company shall
furnish or cause to be furnished to the Purchaser, its officers, employees,
counsel, accountants and other representatives, all of the information with
respect to the Company and/or the Company's properties or assets as any of them
may reasonably request. The Purchaser, its officers, counsel, or accountants
shall have the authority to interview, as reasonably necessary and without undue
disruption to the business of the Company, all employees, customers, vendors,
and suppliers, and the Company shall make such introductions as may be
requested; provided, however, that any contacts or interactions with the
Company's customers, vendors and suppliers shall be conducted only with the
prior consent of the Company and in a commercially reasonably manner consistent
with the best interests of the Company. In addition, the Purchaser may, subject
to the conditions stated above, at its sole cost and expense, through its
officers, employees, counsel, accountants and other representatives, conduct
such investigations and examinations of the Company's properties and assets as
it reasonably deems necessary or advisable, and the Company will provide
reasonable cooperation to such persons in such investigations.
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5.2 Interim Operations.
(a) The Company and the Shareholders agree during the period
commencing on the date of this Agreement through the Closing Date or termination
of the Agreement under Article VIII (except as expressly contemplated by this
Agreement, including any Exhibits and Schedules hereto, or to the extent that
Purchaser shall otherwise consent in writing, which consent shall not be
unreasonably withheld), that as to the Company:
(1) The Company shall carry on the Business in the Ordinary Course
of Business and use all commercially reasonable efforts to preserve intact its
present business organization, 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, except for those S Corporation distributions necessary
to cover applicable pass-through taxes on the Company's net income prior to
Closing, or purchase or redeem any shares 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) redeem, repurchase or
otherwise acquire any shares of its capital stock; or (d) otherwise change its
capitalization; provided, however, that the foregoing shall not preclude the
Company from complying with and fulfilling any obligations pursuant to any
written agreements in effect as of the date of this Agreement including, without
limitation, those agreements set forth in Section 3.3 of the Shareholders'
Schedules.
(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 amended and restated articles
of incorporation or its amended and restated 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 to the Company's Business or any
other assets except in the Ordinary Course of Business and in no event amounting
in the aggregate to more than $25,000.
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(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
amounting in the aggregate to more than $25,000.
(7) The Company shall not make any capital expenditures in excess
of $25,000 individually or $100,000 in the aggregate without the Purchaser's
prior written consent.
(8) The Company shall maintain the levels of materials and
supplies used in the Business consistent with Company's past practice for
similar periods of the calendar year.
(9) The Company shall not accelerate the collection of its
accounts receivable or delay the payment of its accounts payable or other
liabilities, in each case arising out of the operation of the Business in a
manner which would be inconsistent with past practice.
(10) The Company shall not adopt or amend in any material respect
any collective bargaining agreement or Employee Benefit Plan.
(11) Except for (a) payment of bonuses described in the
Shareholders' Schedules and (b) wage increases or raises to non-officer or
director employees in the Ordinary Course of Business, the Company shall not
grant to any employees any increase in compensation (except for the Employment
Agreements) or in severance or termination pay (other than pursuant to the
agreements listed in Section 3.3 of the Shareholders' Schedules), enter into any
employment agreement with any employee, or grant, pay or accrue to an employee,
any bonus or incentive compensation.
(12) 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.
(13) The Company shall not make any material Tax election or
settle or compromise any material Tax liability.
(14) 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.
(15) The Company shall not take any action, or fail to take any
action, that is not in the Ordinary Course of Business or that is reasonably
likely to result in any of the representations and warranties of the Company and
the Shareholders set forth in this Agreement becoming untrue in any material
respect.
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(16) The Company shall maintain in full force and effect all
insurance coverages for its properties and assets substantially comparable to
coverages existing on the date hereof.
(17) Within thirty (30) days of the close of each month after the
execution of this Agreement, the Company shall make available to the Purchaser a
preliminary unaudited balance sheet and income statement for the Company
disclosing the financial position and results of operations of the Company for
the preceding month and year-to-date.
(18) The Company shall not enter into, or modify, any contract
with a Related Person.
5.3 Documents at Closing.
Each Party, as applicable, shall execute and deliver at the
Closing the documents identified in Section 2.2.
5.4 Audited Financial Statements.
(a) The Company and the Shareholders shall cooperate with
Stonepath and the Purchaser for the purpose of allowing KPMG to audit the books
and records of the Company for the calendar year ended December 31, 2001 (the
"Audited Financial Statements"). The Company and the Shareholders shall assist
in the audit and facilitate the production of the Audited Financial Statements,
including providing access to the books and records of the Company in accordance
with Section 5.1 of this Agreement. In furtherance of the foregoing, the Company
shall execute and deliver such documents and instruments as may be required by
such accountants to complete the Audited Financial Statements.
(b) Purchaser shall pay all fees, costs and expenses arising from,
incident to or in connection with the audit of the books and records of the
Company and the preparation of the Audited Financial Statements, including the
fees, costs and expenses of the Company's independent accountants and legal
advisors in rendering services in connection with such audit and preparation and
review of the Audited Financial Statements.
5.5 Employment Agreements.
At and upon the Closing, (a) Purchaser shall cause the Company to
enter into the Employment Agreements substantially in the form contained within
Exhibit C with each of the Key Employees identified in Section 5.5 of the
Shareholders' Schedules, and (b) each Shareholder shall enter into an Employment
Agreement substantially in the form contained within Exhibit C.
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5.6 Notification of Certain Matters.
The Shareholders shall give prompt notice to Purchaser, and
Purchaser 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 or their representations or warranties in this Agreement to be
untrue or inaccurate in any material respect, and (b) any failure to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by it or them under this Agreement. 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.
5.7 HSR Act; Other Filings.
(a) If so required, the Parties shall file 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 Xxxx Xxxxx Xxxxxx Antitrust Improvements Act of 1976, as amended (the
"HSR Act") and the rules promulgated thereunder. In the event that the filing of
a premerger notification form is required under the HSR Act, the Purchaser shall
bear one hundred percent (100%) of the costs and expenses, including filing
fees, associated with preparation and defense of such filing.
(b) Purchaser and the Shareholders shall, as promptly as
practicable after the date of this Agreement, make any required filings,
notifications and any other required submissions, under any Applicable Law with
respect to the Agreement and the related transactions, including notifications
of change of ownership of the Company to the Federal Maritime Commission,
International Air Transport Association and U.S. Department of Treasury, and
shall cooperate with each other with respect to the foregoing. The Purchaser
shall bear one hundred percent (100%) of the costs and expenses, including
filing fees, associated with preparation and defense of such filings, up to a
maximum aggregate amount of $20,000 and the Shareholders shall pay (100%) of the
costs and expenses after the Purchaser has paid the first $20,000 of such costs
and expenses.
5.8 Satisfaction of Conditions; Cooperation; Further Assurances.
The Shareholders and the Company shall use all commercially
reasonable efforts to cause the conditions set forth in Article VI to be
satisfied. The Purchaser and Stonepath shall use all commercially reasonable
efforts to cause the conditions set forth in Article VII to be satisfied. Each
Party to this Agreement agrees to cooperate fully with the other Parties and
their counsel, accountants and other representatives and to use all commercially
reasonable efforts to do, or cause to be done, all things necessary, proper or
advisable under Applicable Laws, or to remove any injunctions or other
impediments or delays, legal or otherwise, as soon as reasonably practicable, to
facilitate Closing of the transactions contemplated by this Agreement, and will
refrain from a course of action inconsistent with this Agreement. Each Party
shall, upon request of any of the other Parties, at any time and from time to
time execute, acknowledge, deliver and perform all such further acts, deeds,
assignments, transfers, conveyances, powers of attorney and instruments of
further assurances as may be required to carry out the provisions and intent of
this Agreement and the Ancillary Agreements, including using all commercially
reasonable efforts to obtain or cause to be obtained all consents and approvals
necessary to consummate the transactions contemplated hereby.
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5.9 Further Mutual Covenants.
Purchaser, Stonepath and the Shareholders shall refrain from
taking any action which would render any representations or warranties contained
in Articles III or IV 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 Parties if he or it has discovered that
any representation or warranty made by another Party under this Agreement is
untrue or incorrect in any material respect. 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.
5.10 Satisfaction of Guarantees.
The Purchaser and Stonepath shall use all commercially reasonable
efforts prior to the Closing to cause the Shareholders to be released from the
Shareholders Guarantees. In the event that any release of Shareholders
Guarantee(s) has not been obtained at the Closing, the Purchaser shall make
continuous reasonable commercial efforts to have terminated, extinguished or
otherwise released any such remaining Shareholders Guarantee(s) (and provide all
documents and instruments to evidence such termination, extinguishment or
release) and shall defend, indemnify and hold the Shareholders harmless from any
and all matters with respect to such Shareholder Guarantees.
5.11 Employee Benefits.
Purchaser and Stonepath agree that all employees of the Company
who continue employment with Company, Purchaser or Stonepath after the Closing
Date (the "Continuing Employees") shall be eligible to continue to participate
in the Company's retirement (specifically, its 401(k) plan), health, vacation
and other non-equity based Employee Benefit Plans, as such plans are described
in (a) the Company's employee policy manual delivered to the Purchaser prior to
the date of this Agreement or (b) the policies listed under Section 3.22 of the
Shareholders' Schedules; provided, however, that if Purchaser or Stonepath
terminates any retirement, health, vacation or other Employee Benefit Plan of
the Company, then the Continuing Employees shall be eligible to participate in
Purchaser's or Stonepath's health, vacation and other non-equity based Employee
Benefit Plans, to substantially the same extent as employees of Purchaser or
Stonepath in similar positions and at similar grade levels. With respect to such
benefits and to the extent permitted under applicable employee benefit plans of
Purchaser or Stonepath, (after any necessary or desirable amendments thereto)
credit for service accrued by Continuing Employees (and eligible dependents) for
employment with the Company prior to the Closing Date shall be recognized
(except to the extent necessary to prevent duplication of benefits), any
pre-existing condition limitations (to the extent such limitations did not apply
to a pre-existing condition under a similar or corresponding Company Employee
Benefit Plan) and eligibility waiting periods applicable to any Continuing
Employee shall be waived, and employees shall be given credit for amounts paid
or vesting under any Company Employee Benefit Plan during the same period for
purposes of applying deductibles, co-payments and out-of-pocket maximums as
though such amounts had been paid in accordance with the terms and conditions of
the applicable employee benefit plan of Purchaser or Stonepath. With respect to
401(k) plan matters, Continuing Employees shall receive full credit for vesting
under the Company's 401(k) plan and shall continue to receive matching
contributions at current rates under the Company's 401(k) plan. The provisions
of this Section shall terminate at the end of the Earn-Out Period.
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ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER AND STONEPATH
The obligations of Purchaser and Stonepath hereunder shall be
subject to the following conditions, any or all of which may be waived in
writing by Purchaser and Stonepath:
6.1 Accuracy of Representations and Warranties; Company and
Shareholders Performance.
Each of the representations and warranties of the Company and the
Shareholders in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and on and as of the Closing Date with
the same effect as though made on and as of such date and the Company and the
Shareholders shall have performed and complied in all respects with each of the
agreements, covenants, stipulations, terms and conditions contained herein and
required to be performed or complied with by them on or prior to the Closing
Date.
6.2 No Adverse Change.
Since December 31, 2001, there shall have been no Material Adverse
Change with respect to the Company or the Business.
6.3 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 or waived.
6.4 Deliveries by the Company and the Shareholders.
The Company and the Shareholders, as applicable, shall have
executed and delivered to Purchaser at Closing the documents identified in
Section 2.2(a) hereof.
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6.5 Employment Agreements.
Each of the Key Employees shall have executed and delivered an
Employment Agreement.
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 Purchaser) 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 Purchaser and
its counsel, shall not disclose any Encumbrances against any of such assets
disclosed thereby except 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. Purchaser shall bear any and all
costs associated with conducting such searches.
6.7 Completion of Audited Financial Statements.
The Audited Financial Statements of the Company shall have been
completed and delivered to the Purchaser together with an audit report of the
auditing firm that contains no material qualifications and identifies no
material exceptions to generally accepted accounting principles. The Audited
Financial Statements shall conform in all material respects to the unaudited
financial statements for the year ended December 31, 2001, provided to Purchaser
under Section 3.8(a) of the Shareholders' Schedules, except to the extent any
such non-conformity does not represent a Company Material Adverse Effect.
6.8 Bank Indebtedness.
The Shareholders shall have either (i) furnished evidence
satisfactory to the Purchaser that all outstanding Bank Indebtedness has been
repaid in full or (ii) requested Purchaser apply that portion of the purchase
price to be paid at the Closing to the repayment in full of all outstanding Bank
Indebtedness.
6.9 Cash Balance.
The Company shall have a cash balance of no less than $100,000
immediately prior to the Closing, which cash balance shall be a component of
Working Capital.
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ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE SHAREHOLDERS
The obligations of the Company and 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; Purchaser Performance.
Each of the representations and warranties of Purchaser and
Stonepath in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and on and as of the Closing Date with the same
effect as though made on and as of such date and Purchaser 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 Purchaser or Stonepath on or prior to the Closing Date.
7.2 No Adverse Change.
Since December 31, 2001, there shall have been no Material Adverse
Change with respect to the Purchaser or Stonepath.
7.3 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.
7.4 Deliveries by Purchaser and Stonepath.
Purchaser and Stonepath, as applicable, shall have executed and
delivered to the Company and the Shareholders the documents and paid to the
Shareholder the amount identified in Section 2.2(b)(1) hereof, including the
Stonepath Guaranty Agreement.
7.5 Consents and Proceedings.
The Purchaser and Stonepath 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 and thereunder
and all actions, proceedings, instruments and documents deemed necessary or
appropriate by the 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.
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7.6 Employment Agreements.
The Purchaser shall have caused the Company to execute and deliver
the Employment Agreements to each of the Key Employees.
7.7 Stonepath Available Cash Balance.
At the Closing and after giving effect to Purchaser's payment of
the Cash Payment Amount, Stonepath (or its Affiliates, other than the Company)
shall have an Available Cash Balance of not less than $2,000,000.
ARTICLE VIII
TERMINATION
8.1 Termination Events.
This Agreement may, by written notice given prior to or at the
Closing, be terminated:
(a) by the Purchaser (on behalf of the Purchaser and Stonepath) if
a material breach of any provision of this Agreement has been committed by the
Company or the Shareholders and such breach has not been waived by the
Purchaser;
(b) by the Company (on behalf of the Company, the Shareholders,
and the Shareholders' Agent) if a material breach of any provision of this
Agreement has been committed by Stonepath or the Purchaser and such breach has
not been waived by the Company;
(c) by the Purchaser if any of the conditions in Article VI have
not been satisfied as of the Closing Date or if satisfaction of such condition
is or becomes impossible (other than through the failure of Purchaser or
Stonepath to comply with its obligations under this Agreement), and the
Purchaser has not waived such condition on or before the Closing Date;
(d) by the Company if any of the conditions in Article VII 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 the Company or
Shareholders to comply with their obligations under this Agreement), and the
Company has not waived such condition on or before the Closing Date; or
(e) by mutual consent of the Purchaser (on behalf of the Purchaser
and Stonepath) and the Company (on behalf of the Company, the Shareholders and
the Shareholders' Agent).
8.2 Automatic Termination.
This Agreement shall automatically terminate and shall be of no
further force or effect, except as expressly provided below in Section 8.3, on
and as of the Termination Date.
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8.3 Effect of Termination.
Each Party's right of termination under Sections 8.1 and 8.2 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 or 8.2, all further
obligations of the Parties under this Agreement will terminate; provided,
however, that the obligations in Sections 10.3 (Confidentiality), 10.6 (Public
Announcements), 11.10 (Expenses), and Article IX (Indemnification; Survival of
Representations and Warranties and Certain Covenants) will survive; provided
further, however, that if this Agreement is terminated by a Party because of a
material breach of the Agreement by another Party or because one or more of the
conditions to the terminating Party's obligations under this Agreement is not
satisfied as a result of another 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; provided further, however, that no
Party shall be liable for any consequential or punitive damages relating to or
arising from any termination of this Agreement.
8.4 Extension; Waiver.
Any time prior to the Closing, the Parties may (a) extend the
Termination Date or 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 and enforceable against such
Party only if set forth in an instrument in writing signed on by or on behalf of
such Party.
ARTICLE IX
INDEMNIFICATION; SURVIVAL OF REPRESENTATIONS AND WARRANTIES
AND CERTAIN COVENANTS
9.1 Indemnification by Shareholders and the Company.
Subject to the limitations set forth in this Article, the Company
(prior to and on the Closing) and each of the Shareholders (severally but not
jointly and only with respect to the period after the Closing) hereby covenant
and agree to indemnify and hold the Purchaser, its officers, directors,
employees, Affiliates, shareholders and agents, and each of their respective
heirs, personal representatives, successors and assigns, harmless from, against
and in respect of any and all losses, costs, expenses (including without
limitation, reasonable and documented attorneys' fees and disbursements of
counsel), Liabilities, damages, fines, penalties, charges, assessments,
judgments, settlements, claims, causes of action and other obligations of any
nature whatsoever (but excluding incidental, consequential and special damages
and Liability unless directly asserted by a third party pursuant to a third
party claim) (individually, a "Loss" and collectively "Losses") that any of them
may at any time directly suffer, sustain, incur or become subject to, arising
out of, based upon or resulting from or on account of each of the following:
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(a) the breach or inaccuracy of any representation or warranty
made by such Party in this Agreement, including the documents, instruments and
agreements (other than the Employment Agreements) to be executed and delivered
by the Shareholders pursuant hereto; provided, however, that the Shareholders
shall not be required to provide such indemnification for the breach or
inaccuracy of any such representation or warranty unless and until the
Purchaser, its officers, directors, employees, Affiliates and other
representatives shall have sustained cumulative Losses as a result of one or
more such breaches or inaccuracies of at least One Hundred Thousand Dollars
($100,000) (the "Basket Amount"). Once the aggregate amount of Losses exceeds
the Basket Amount, the Shareholders shall provide indemnification for all Losses
sustained as a result of such breach(es) or inaccuracies of the applicable
representations and warranties only for Losses in excess of the Basket Amount
(and shall have no Liability with respect to the Loss or Losses which comprise
the Basket Amount); or
(b) the breach of any covenant or agreement made by such Party in
this Agreement.
9.2 Indemnification by Purchaser and Stonepath.
Subject to the limitations set forth in this Article 9, the
Purchaser and Stonepath covenant and agree to defend, indemnify and hold the
Shareholders and the Shareholders' Agent (individually), and their respective
officers, trustees, beneficiaries, heirs, personal representatives, successors
and assigns, harmless from, against and in respect of any and all Losses that
any of them may at any time, directly or indirectly, suffer, sustain, incur or
become subject to, arising out of, based upon or resulting from or on account of
each of the following:
(a) the breach or inaccuracy of any representation or warranty
made by the Purchaser or Stonepath in this Agreement, including the documents,
instruments and agreements to be executed and/or delivered by the Purchaser or
Stonepath pursuant hereto and thereto; or
(b) the breach of any covenant or agreement made by the Purchaser
or Stonepath in this Agreement or the Guaranty Agreement executed and/or
delivered by the Purchaser or Stonepath pursuant hereto or thereto; or
(c) any Shareholder Guarantee.
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9.3 Expiration of Representations, Warranties and Covenants.
The covenants set forth in Section 5 shall terminate and expire,
and shall cease to be of any force or effect, on the Closing Date, and all
liability of the Parties hereto with respect to such covenants shall thereupon
be extinguished; provided, however, that the covenants contained in Sections
5.3(b) (payment for preparation of Audited Financial Statements), 5.6(b) (other
filings), 5.9 (Satisfaction of Guarantees) and 5.10 (Employee Benefits) shall
survive the Closing and continue to be binding and of full force and effect on
the Parties making such covenants. All other covenants and agreements contained
in, arising from, incident to, or in connection with this Agreement shall
survive the Closing indefinitely, until such covenants and agreements are fully
satisfied and require no further performance or forbearance, or the rights of a
Party hereto expire on a specific date by the terms hereof. All of the
representations and warranties set forth in this Agreement shall terminate and
expire, and shall cease to be of any force or effect, at 12:00 p.m. (Seattle
time) on the eighteenth (18th) month anniversary of the Closing Date, and all
liability of any Party with respect to such representations and warranties shall
thereupon be extinguished; provided, however, that the representations and
warranties set forth in Sections 3.1 (Organization, Qualification, and Status),
3.3 (Capitalization), 3.6 (Authority of Shareholders), 3.4 (Ownership of Shares)
and 3.7 (No Violation) shall survive the Closing through the twenty fourth
(24th) month anniversary of the Closing; provided further, however, that, if
prior to the applicable expiration date of a representation and warranty,
Purchaser shall have duly delivered a Claim Notice to such Shareholder in
conformity with all of the applicable procedures set forth in Section 9.6, then
the specific indemnification claim set forth in such Claim Notice shall survive
such date (and shall not be extinguished thereby).
9.4 Maximum Liability of Each Shareholder.
The total amount of the payments that any Shareholder can be
required to make under or in connection with this Agreement (including all
indemnification payments required to be made to Purchaser and all amounts
payable to any counsel retained by such Shareholder in accordance with Section
9.7) shall be limited to the aggregate amount of purchase price consideration
actually received by such Shareholder under this Agreement, and each
Shareholder's cumulative liability shall in no event exceed such amount.
9.5 No Implied Representations.
The Parties to this Agreement acknowledge that, except as
expressly provided in Articles III and IV of this Agreement, no Party hereto has
made or is making any representations or warranties whatsoever, implied or
otherwise.
9.6 Indemnification Claims.
(a) If any Party hereto (the "Claimant") wishes to assert an
indemnification claim against another Party hereto (the "Respondent"), the
Claimant shall deliver to the other Party a written notice (a "Claim Notice")
setting forth: (i) the specific representation, warranty, or covenant alleged to
have been breached by such other Party; (ii) a detailed description of the facts
and circumstances giving rise to the alleged breach of such representation,
warranty; or covenant and (iii) a detailed description of, and a reasonable
estimate of the total amount of, the Losses actually incurred or expected to be
incurred by the Claimant as a direct result of such alleged breach.
(b) Within fifteen (15) days of a Respondent's receipt of a Claim
Notice, Respondent shall accept or reject in writing the matter set forth in the
Claim Notice. Any dispute between Claimant and Respondent shall be resolved in
accordance with Section 10.8 of this Agreement.
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9.7 Defense of Third Party Actions.
If any Party hereto (the "Indemnitee") receives notice or
otherwise obtains knowledge of any matter or any threatened matter that may give
rise to an indemnification claim against the another Party hereto (the
"Indemnitor"), then the Indemnitee shall promptly deliver to the Indemnitor a
written notice describing such matter in reasonable detail. The failure by an
Indemnitee to provide such written notice by the Indemnitee to the Indemnitor
shall not affect any liability on the part of the Indemnitor under this Article
IX, except to the extent the Indemnitor is prejudiced by such failure. In the
event of a matter involving a third party claim against an Indemnitee, the
Indemnitor shall have the right, at its option and expense, to assume the
defense of any such claim with its own counsel reasonably acceptable to the
Indemnitor; provided, however, that the Indemnitee shall not be required to
permit such an assumption of the defense of such a claim which, if not first
paid, discharged or otherwise complied with, would result in a material
disruption or interruption of the business of the Indemnitee or any material
part thereof. Failure by the Indemnitor to notify the Indemnitee of its election
to defend any such third party claim within twenty (20) days after it has
received written notice thereof shall be deemed a waiver by the Indemnitor of
its right to assume the defense of such claim. If the Indemnitor timely elects
to assume the defense of any such third party claim, then:
(a) notwithstanding anything to the contrary contained in this
Agreement, the Indemnitor shall not be required to pay or otherwise indemnify
the Indemnitee against any attorneys' fees or other expenses incurred on behalf
of the Indemnitee in connection with such claim following the Indemnitor's
election to assume the defense of such claim;
(b) the Indemnitee shall make available to the Indemnitor all
books, records and other documents and materials that are under the direct or
indirect control of the Indemnitee or any of the Indemnitee's Affiliates and
that the Indemnitor considers necessary or desirable for the defense of such
claim;
(c) the Indemnitee shall execute such documents and take such
other actions as the Indemnitor may reasonably request for the purpose of
facilitating the defense of, or any settlement, compromise or adjustment
relating to, such claim;
(d) the Indemnitee shall otherwise fully cooperate as reasonably
requested by the Indemnitor in the defense of such Matter;
(e) the Indemnitor shall have the exclusive right to settle,
adjust or compromise such third party claim without the consent or approval of
the Indemnitee or any other Person, but only if the terms of such settlement,
adjustment, or compromise provide only for the payment of money for which the
Indemnitor is liable under this Agreement.
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9.8 No Right of Contribution or Claim; Subrogation.
After the Closing, the Shareholders shall not have any right of
contribution against the Company for any breach of representation, warranty,
covenant or agreement of the Company under this Agreement; provided, however,
that such waiver of rights shall in no manner constitute a waiver of or preclude
any claims by or rights of each Shareholder against the Company or the Company's
director and officer liability insurance carrier for indemnification,
advancement of expenses, coverage or contribution. Subject to the foregoing, to
the extent that any Party hereto (the "Indemnifying Party") makes or is required
to make any indemnification payment to another Party hereto (the "Indemnified
Party"), the Indemnifying Party shall be entitled to exercise, and shall be
subrogated to, any rights and remedies (including rights of indemnity, rights of
contribution and other rights of recovery) that the Indemnified Party or any of
the Indemnified Party's Affiliates may have against any other Person with
respect to any Losses, circumstances or matter to which such indemnification
payment is directly or indirectly related; provided, however, that the exercise
of such right of subrogation by an Indemnifying Party shall not have an adverse
effect upon the Indemnified Party.
9.9 Exclusivity.
The right of any Party hereto to assert indemnification claims and
receive indemnification payments pursuant to this Article IX shall be the sole
and exclusive right and remedy exercisable by such Party solely with respect to
any breach by any other Party hereto of any representation or warranty.
9.10 Right of Set-Off.
In the event the Purchaser has an Indemnification Claim under this
Article IX and has previously submitted a Claim Notice to a Shareholder in
accordance with Section 9.6, if after application and completion of all dispute
resolution procedures established in this Agreement Purchaser is determined to
have stated a valid claim for indemnification, then, in addition to any other
rights of Purchaser under this Article IX, Purchaser shall have the right to
apply the amount of the Losses against the amount of any future Earn-Out
Payments required to be paid to such Shareholder under this Agreement.
ARTICLE X
ADDITIONAL AGREEMENTS OF THE PARTIES
10.1 Prohibition on Trading in Stonepath 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 Stonepath, 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
Stonepath. Accordingly, the Shareholders agree that they will not purchase or
sell any securities of Stonepath, 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 Stonepath, until no earlier
than Seventy-Two (72) hours following the filing of a Current Report on Form 8-K
with the SEC announcing the Closing pursuant to this Agreement, provided that
the Form 8-K is required and timely filed.
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10.2 Non Solicitation of Other Offers.
During the term of this Agreement, the Shareholders and the
Company will not, and will not permit their respective representatives,
investment bankers, agents and affiliates to, directly or indirectly, (a)
solicit or encourage submission of or any inquiries, proposals or offers by, (b)
participate in any negotiations with, (c) afford any access to the properties,
books or records of the Company to, (d) accept or approve, or (e) otherwise
assist, facilitate or encourage, or enter into any contracts, agreements,
arrangements or understandings with, any person or group (other than the
Purchaser, Stonepath or their Affiliates, agents and representatives), in
connection with any "Acquisition Proposal" (as hereafter defined). The
Shareholders will promptly notify the Purchaser if any offer is made, any
discussions or negotiations are sought to be initiated, any inquiry, proposal or
contact is made or any information is requested with respect to any Acquisition
Proposal. For the purposes hereof, the term "Acquisition Proposal" shall mean
any proposal relating to the possible acquisition of the Company, whether by way
of merger, purchase of capital stock of the Company representing fifty percent
(50%) or more of the voting power or equity of the Company, or the purchase of
all or substantially all of the assets of the Company. Without limiting the
general nature of Section 11.4, the obligations of the Parties pursuant to this
Section 10.2 supersede and replace any similar obligations contained in Section
9 of that certain letter agreement between the Company and Stonepath dated
February 6, 2002.
10.3 Confidentiality.
(a) With respect to Confidential Information concerning the
Company and the Shareholders that is made available to Purchaser pursuant to the
terms of this Agreement, Purchaser and Stonepath each agree that they shall hold
such Confidential Information in strict confidence, shall not use such
information except for the sole purpose of evaluating, and performing the
Purchaser's and Stonepath's obligations and exercising the Purchaser's rights
under, this Agreement and shall not disseminate or disclose any of such
information other than to the directors, officers, employees, shareholders,
affiliates, agents and representatives of the Purchaser and Stonepath who need
to know such information for the sole purpose of evaluating, and performing the
Purchaser's and Stonepath's obligations and exercising the Purchaser's and
Stonepath's rights under, this Agreement (each of whom shall be informed by
Purchaser or Stonepath of the confidential nature of the Confidential
Information and directed by Purchaser or Stonepath to treat such information
confidentially). If this Agreement is terminated pursuant to the provisions of
Article VIII, Purchaser or Stonepath shall immediately return all such
Confidential Information of the Company, all copies thereof and all information
prepared by Purchaser or Stonepath based upon the same. The above limitations on
use, dissemination and disclosure shall not apply to Confidential Information
that (i) is learned by Purchaser or Stonepath from a third party under no
obligation of confidentiality; (ii) becomes known publicly other than through
any act or omission of Purchaser or Stonepath or any party who received the same
through Purchaser or Stonepath; provided, however, that Purchaser or Stonepath
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
Purchaser or Stonepath; (iv) is independently developed by Stonepath or any of
its Affiliates without the use of any Confidential Information received from the
Company or the Shareholders; or (v) is disclosed with the express prior written
consent thereto of the Company or the Shareholders. Purchaser and Stonepath
shall undertake all necessary steps to ensure that the secrecy and
confidentiality of such Confidential Information will be maintained in
accordance with the provisions of this subsection (a).
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(b) With respect to Confidential Information concerning Purchaser
and its Affiliates that is made available to the Shareholders pursuant to the
provisions of this Agreement, the Shareholders and the Company agree that they
shall hold such Confidential Information in strict confidence, shall not use
such Confidential Information except for the sole purpose of evaluating, and
performing the Shareholders' or the Company's obligations and exercising the
Shareholders' and the Company's rights under, this Agreement, and shall not
disseminate or disclose any of such Confidential 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, or
performing the Company's obligations or exercising the Company's rights under,
this Agreement and the related transactions (each of whom shall be informed by
the Shareholders or the Company of the confidential nature of the Confidential
Information and directed by such party to treat the Confidential Information
confidentially). If this Agreement is terminated pursuant to the provisions of
Article VIII, the Shareholders agree to return immediately all Confidential
Information, all copies thereof and all information prepared by either of the
Shareholders or the Company based upon the same. The above limitations on use,
dissemination and disclosure shall not apply to Confidential Information that
(i) is learned by the Shareholders or the Company from a third party under no
obligation of confidentiality; (ii) becomes known publicly other than through
any act or omission of the Shareholders or the Company or any party who received
the same through the Shareholders or the Company; provided, however, that the
Shareholders and the Company have 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 the Shareholders or the Company; (iv) is independently
developed by the Company or the Shareholders without the use of any Confidential
Information received from the Purchaser or its Affiliates or (v) is disclosed
with the express prior written consent thereto of Purchaser. The Shareholders
and the Company agree to undertake all necessary steps to ensure that the
secrecy and confidentiality of the Confidential Information will be maintained
in accordance with the provisions of this subsection (b).
(c) Notwithstanding anything contained in this Section to the
contrary, in the event a Party is required by court order or subpoena to
disclose Confidential Information which is subject to the confidentiality
obligations hereunder, prior to such disclosure, the disclosing Party shall: (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 of the
non-disclosing Party as the disclosing Party is advised by its counsel is
necessary to strictly comply with such court order or subpoena.
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(d) On and after the Closing, the Shareholders shall hold in
strict confidence all Confidential Information of the Company and the Business,
shall not disclose, publish or make use of such knowledge or information without
the consent of the Purchaser.
(e) Without limiting the general nature of Section 11.4, this
Section 10.3 shall replace and supercede in all respects the terms of a
Confidentiality Agreement entered into as of January 30, 2002, between Stonepath
and the Company.
10.4 Injunctive Relief.
The Parties agree that the remedy of damages at law for the breach
by any of them of any of the covenants, obligations or other provisions
contained in this Agreement, including those in Sections 10.1 (Prohibition on
Trading), 10.2 (Non-Solicitation of Other Offers), and 10.3 (Confidentiality),
is an inadequate remedy. In recognition of the irreparable harm that a violation
of such covenants would cause the Party or Parties whom such covenants,
obligations or other provisions benefit, the Parties agree that in addition to
any other remedies or relief that may be available to them, such injured Party
shall be entitled to (a) a decree or order of specific performance or mandamus
to enforce the observance and performance of such covenant, obligation or other
provision, and (b) an injunction against and restraining an actual or threatened
breach, violation or violations. The Parties agree that both damages and
specific performance shall be proper modes of relief and are not to be
considered alternative remedies.
10.5 Further Acts and Assurances.
The Parties agree that, at any time and from time to time, on and
after the Closing Date, upon the reasonable request of any other Party, they
will do or cause to be done all such further acts and things and execute,
acknowledge and deliver, or cause to be executed, acknowledged and delivered any
and all papers, documents, instruments, agreements, assignments, transfers,
assurances and conveyances as may be necessary or desirable to carry out and
give effect to the provisions and intent of this Agreement and the Ancillary
Agreements. In addition, from and after the Closing Date, the Purchaser and
Stonepath will afford to the Company, the Shareholders and their attorneys,
accountants and other representatives, access, during normal business hours, to
such personnel, books and records relating to Purchaser or Stonepath as may
reasonably be required in connection with the preparation of financial
information or the filing of Tax Returns and will cooperate in all reasonable
respects in connection with claims and proceedings asserted by or against third
parties, relating to or arising from the transactions contemplated hereby.
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10.6 Public Announcements.
(a) Neither the Shareholders nor the Purchaser, Stonepath or any
Affiliate, shall disclose to the public or to any third party the existence of
this Agreement or the transactions contemplated hereby or any other material
nonpublic information (as construed pursuant to Regulation FD under the
Securities Act) concerning or relating to any Party hereto, other than with the
express prior written consent of the Party regarding whom such disclosure would
be made; provided, however, that disclosure may be made (a) to the minimum
extent as may be required by law or court order, or (b) to enforce the rights of
such disclosing Party under this Agreement; provided further, 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, or performing its obligations or
exercising its rights under this Agreement.
(b) Notwithstanding anything contained in this Section to the
contrary, in the event a Party is required by court order or subpoena to
disclose material nonpublic information of another Party, prior to such
disclosure, the disclosing Party shall: (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 of the non-disclosing Party as the disclosing Party is
advised by its counsel is necessary to strictly comply with such court order or
subpoena.
(c) Stonepath shall have the right to make such public disclosures
of this Agreement and the transactions contemplated hereby as it determines in
good faith are required under applicable federal securities laws, in which event
the contents of any such disclosure shall be submitted to the Company and the
Shareholders' Agent for review and approval no later than two (2) business days
prior to the proposed disclosure.
(d) The Parties anticipate issuing a mutually acceptable joint
press release announcing the consummation of the transactions provided for
herein.
10.7 Tax Matters.
(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 for
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, shown to be due on such
returns; 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 Purchaser's
review and Purchaser 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, the Shareholders agree that
any and all costs of preparing such return shall be borne exclusively by the
Shareholders.
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(b) With respect to any other Tax Returns for any taxable period
that includes but does not end on the Closing Date (the "Straddle Tax Returns"),
Purchaser and Stonepath shall prepare a schedule (the "Apportionment Schedule")
apportioning the taxable income or loss and all other items of the Company
allocable to (i) the period up to and including the Closing Date and (ii) the
period after the Closing Date, by an interim closing of the books as of the end
of the day on the Closing Date.
(c) The Shareholders and Purchaser shall jointly make an election
on a timely basis with respect to the Company under Section 338(h)(10) of 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 Shareholders shall designate or as shall be required, concerning the
transactions contemplated by this Agreement. The Purchaser 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 Purchaser shall deliver such
forms and related documents to the Shareholders at least 60 days prior to the
due date of filing. The Shareholders shall deliver to the Purchaser 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 and Purchaser 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.
(d) The Company shall not be liable for any Tax under Section 1374
of the Code in connection with the deemed sale of Company's assets (including
the assets of any qualified subchapter S subsidiary) caused by the Section
338(h)(10) Election.
(e) The Shareholders and the Purchaser agree that the Purchaser
shall perform or cause to be performed an initial valuation of assets and
allocation of purchase price of the Company, for purposes of Section 338 of the
Code. The Purchaser shall provide the Shareholders with drafts of such valuation
of assets and allocation of the "modified aggregate deemed sale price" (as that
term is defined in the applicable Treasury Regulations) within one hundred
twenty (120) days after the Closing Date. The Shareholders shall have forty-five
(45) days to provide the Purchaser with any objections to such drafts. If the
Shareholders shall object to the computation or allocation by the Purchaser of
such amounts, and the Purchaser and the Shareholders shall not reach agreement
on the computation or allocation within thirty (30) business days after
notification by the Shareholders of their objection, the Purchaser and the
Shareholders shall submit the issue to arbitration by a nationally recognized
accounting firm as shall be mutually acceptable to the Purchaser and the
Shareholders for resolution of the disagreement within ten (10) days, it being
agreed that the Purchaser and the Shareholders will jointly share the fees and
expenses of such accounting firm. The valuations and allocations determined
pursuant to this Section 10.7 shall be used for purposes of all relevant Tax
Returns, reports and filings.
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(f) All transfer, documentary, stamp, registration, sales and use,
registration, stamp and similar Taxes and fees (including all penalties and
interest) imposed in connection with the sale of the Shares or any other
transaction that occurs pursuant to this Agreement shall be borne solely by the
Shareholders.
(g) After the Closing Date, each of the Shareholders, on the one
hand, and Purchaser, Stonepath and the Company on the other, shall (i) provide,
or cause to be provided, to each other's respective subsidiaries, officers,
employees, representatives and affiliates, such assistance as may reasonably be
requested by any of them in connection with the preparation of any Tax Return,
including any Straddle Tax Returns or associated Apportionment Schedule, or any
audit of the Company in respect of which the Shareholders, on the one hand, or
Purchaser, Stonepath or the Company on the other, as the case may be, are
responsible pursuant to this Section 10.7, and (ii) retain, or cause to be
retained, for so long as any such Taxable years or audits shall remain open for
adjustments, any records or information which may be relevant to any such Tax
Returns or audits. The assistance provided for in this Section 10.7 shall
include without limitation each of the Shareholders, Purchaser, Stonepath and
the Company (x) making their agents and employees and the agents and employees
of their respective subsidiaries and affiliates available to each other on a
mutually convenient basis to provide such assistance as might reasonably be
expected to be of use in connection with any such Tax Returns or audits and (y)
providing, or causing to be provided, such information as might reasonably be
expected to be of use in connection with any such Tax Returns or audits,
including without limitation records, returns, schedules, documents, work
papers, opinions, letters or memoranda, or other relevant materials relating
thereto.
(h) Each of the Shareholders, Purchaser, Stonepath and the Company
shall promptly inform, keep regularly apprised of the progress with respect to,
and notify the other party in writing not later than (i) five (5) business days
after receipt of any notice of any audit or (ii) ten (10) business days prior to
the settlement or final determination of any audit for which it was responsible
pursuant to this Section 10.7 which could affect the Tax liability of such other
party for any taxable year.
10.8 Arbitration.
(a) Any claim, dispute, or controversy of whatever nature arising
out of or relating to this Agreement or the Ancillary Agreements, including,
without limitation, any action or claim based on tort, contract, or statute, or
concerning the interpretation, effect, termination, validity, performance and/or
breach of this Agreement ("Dispute"), shall be resolved by final and binding
arbitration before a single arbitrator ("Arbitrator") selected from and
administered by AAA (the "Administrator") in accordance with its then existing
arbitration rules or procedures regarding commercial or business disputes. The
arbitration hearing shall be held in Denver, Colorado.
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(b) Depositions may be taken and full discovery may be obtained in
any arbitration commenced under this provision.
(c) The Arbitrator shall, within fifteen (15) calendar days after
the conclusion of the Arbitration hearing, issue a written award and statement
of decision describing the essential findings and conclusions on which the award
is based, including the calculation of any damages awarded. The Arbitrator shall
be authorized to award compensatory damages, but shall NOT be authorized (i) to
award non-economic damages, such as for emotional distress or pain and
suffering, (ii) to award punitive damages, or (iii) to reform, modify or
materially change this Agreement or any Ancillary Agreement; provided, however,
that the damage limitations described in parts (i) and (ii) of this sentence
will not apply if such damages are statutorily imposed. The Arbitrator also
shall be authorized to grant any temporary, preliminary or permanent equitable
remedy or relief he or she deems just and equitable and within the scope of this
Agreement or any Ancillary Agreement, including, without limitation, an
injunction or order for specific performance.
(d) Each Party shall bear its own attorney's fees, costs, and
disbursements arising out of the arbitration, and shall pay an equal share of
the fees and costs of the Administrator and the Arbitrator; provided, however,
the Arbitrator shall be authorized to determine whether a Party is the
prevailing Party, and if so, to award to that prevailing Party reimbursement for
its reasonable attorneys' fees, costs and disbursements (including, for example,
expert witness fees and expenses, photocopy charges, travel expenses, etc.),
and/or the fees and costs of the Administrator and the Arbitrator. Each Party
shall fully perform and satisfy the arbitration award within fifteen (15) days
of the service of the award.
(e) By agreeing to this binding arbitration provision, the Parties
understand that they are waiving certain rights and protections which may
otherwise be available if a Dispute between the parties were determined by
litigation in court, including, without limitation, the right to seek or obtain
certain types of damages precluded by this Section 10.8, the right to a jury
trial, certain rights of appeal, and a right to invoke formal rules of procedure
and evidence.
ARTICLE XI
MISCELLANEOUS
11.1 Definitions.
For purposes of this Agreement, the following terms have the
meanings specified:
"Accelerated Earn-Out Payment" shall mean as of the date of a
Corporate Transaction or Event of Default, the sum of (a) $5,000,000 less the
amount of Base Earn-Out Payments previously paid by Purchaser to the
Shareholders, plus (b) the amount, if any, of the Additional Earn-Out Payment
due and payable on such date in accordance with Section 1.2(b)(iv).
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"Acquired Locations" has the meaning set forth in Section
1.2(c)(ix) of this Agreement.
"Acquisition Proposal" has the meaning set forth in Section 10.2
of this Agreement.
"Additional Earn-Out Payment" has the meaning set forth in Section
1.2(b)(iv) of this Agreement.
"Additional Earn-Out Threshold" has the meaning set forth in
Section 1.2(b)(iv) of this Agreement.
"Administrator" has the meaning set forth in Section 10.8 of this
Agreement.
"Affiliate" of a Person means any other Person which, directly or
indirectly, controls, is controlled by, or is under common control with, such
Person. The term "control" (including, with correlative meaning, the terms
"controlled by" and "under common control with"), as used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
"Agreement" has the meaning set forth in the introductory
paragraphs of this Agreement.
"Ancillary Agreements" means the documents, instruments and
agreements to be executed and/or delivered pursuant to this Agreement or any
Ancillary Agreement including, without limitation, the Employment Agreements and
the Stonepath Guaranty Agreement.
"Annual Earn-Out Certificate(s)" has the meaning set forth in
Section 1.2(b)(iii).
"Applicable Law" or "Applicable Laws" means any and all laws,
ordinances, constitutions, regulations, statutes, treaties, rules, codes,
licenses, certificates, franchises, permits, requirements and Injunctions
adopted, enacted, implemented, promulgated, issued or entered by or under the
authority of any Governmental Authority having jurisdiction over a specified
Person or any of such Person's properties or assets.
"Apportionment Schedule" has the meaning set forth in Section
10.7(b) of this Agreement.
"Arbitrator" has the meaning set forth in Section 10.8 of this
Agreement.
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"Audited Financial Statements" has the meaning set forth in
Section 5.4(a) of this Agreement.
"Available Cash Balance" with respect to Stonepath (or its
Affiliates other than the Company) shall mean the amount of cash immediately
available (a) in unrestricted deposit accounts or (b) pursuant to an
unrestricted bank line of credit or similar credit facility, in either case the
withdrawal or draw-down of which amounts would not trigger any breach or default
under any commercial, financing or debt agreements of Stonepath.
"Bank Indebtedness" means all outstanding bank and other loans,
notes, lines of credit, debt instruments, capital leases and other indebtedness,
including the Company's current line of credit (loan #1000009501) to Key Bank in
the principal amount of $1,500,000 and term loan (loan #9001) to Key Bank in the
principal amount of $1,000,000, excluding trade payables and other current
liabilities (other than the current position of long-term liabilities).
"Bankrupt" with respect to Stonepath means Stonepath (a) files, or
consents by answer or otherwise to the filing against it of, a petition for
relief or reorganization or arrangement or any other petition in bankruptcy, for
liquidation or to take advantage of any bankruptcy, insolvency, reorganization,
moratorium or other similar law of any jurisdiction, (b) makes an assignment for
the benefit of its creditors, (c) consents to the appointment of a custodian,
receiver, trustee or other officer with similar powers with respect to it or
with respect to any substantial part of its property, (d) is adjudicated as
insolvent or to be liquidated, (e) takes corporate action for the purpose of any
of the foregoing,
"Base Earn-Out Amount" has the meaning set forth in Section
1.2(b)(ii) of this Agreement.
"Base Earn-Out Payment" has the meaning set forth in Section
1.2(b)(ii) of this Agreement.
"Basket Amount" has the meaning set forth in Section 9.1(a) of
this Agreement.
"Business" as used in this Agreement means the business and
operations of the Company on the date of this Agreement.
"Cash Payment Amount" has the meaning set forth in Section
1.2(b)(i) of this Agreement.
"Cash Payment Threshold" means two and one-half times (2.5x) the
Default Payment Amount.
"Claimant" has the meaning set forth in Section 9.6(a) of this
Agreement.
"Claim Notice" has the meaning set forth in Section 9.6(a) of this
Agreement.
"Closing" has the meaning set forth in Section 1.1 of this
Agreement.
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"Closing Certificate" has the meaning set forth in Section 1.3(a)
of this Agreement.
"Closing Date" has the meaning set forth in Section 2.1 of this
Agreement.
"Closing Date Accountants" has the meaning set forth in Section
1.3(a) of this Agreement.
"Closing Date Balance Sheet" has the meaning set forth in Section
1.3(a)(i) of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, and
the rules and regulations issued by the IRS pursuant to the Internal Revenue
Code or any successor law.
"Company" has the meaning set forth in the introductory paragraphs
to this Agreement.
"Competing Business" has the meaning set forth in Section 3.20 of
this Agreement.
"Confidential Information" means and includes, with respect to a
Party, any and all: (a) trade secrets concerning the business and affairs of
such Party, data, know-how, compositions, processes, designs, sketches,
photographs, graphs, drawings, inventions and ideas, past, current, and planned
research and development, customer lists, current and anticipated customer
requirements, price lists, market studies, business plans, computer software and
programs (including object code and source code), computer software and database
technologies, systems, structures and architectures (and related processes,
formulae, composition, improvements, devices, know-how, inventions, discoveries,
concepts, ideas, designs, methods and information), and any other information,
however documented, that is a trade secret within the meaning of applicable law;
and (b) information concerning the business and affairs of such Party (which
includes historical financial statements, financial projections and budgets,
historical and projected sales, capital spending budgets and plans, the names
and backgrounds of key personnel and personnel training techniques and
materials, however documented, that has been or may hereafter be provided or
shown to a receiving Party by such Party or by the directors, officers,
employees, agents, consultants, advisors, or other representatives including
legal counsel, accountants and financial advisors of such Party or is otherwise
obtained from review of such Party's documents or property or discussions with
such Party or its representatives, irrespective of the form of the
communication, and also includes all notes, analyses, compilations, studies,
summaries, and other material prepared by the receiving Party based, in whole or
in part, on any information included in the foregoing.
"Continuing Employee" has the meaning set forth in Section 5.11 of
this Agreement.
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"Corporate Transaction" means the occurrence, in a single
transaction or in a series of related transactions, of any one or more of the
following events: (a) a sale or other disposition of all or substantially all of
the assets of Purchaser, Stonepath or the Company to an unrelated third party;
(b) a sale or other disposition of at least sixty-six percent (66%) of the
outstanding voting securities of Purchaser, Stonepath or the Company to an
unrelated third party; (c) a merger, consolidation or similar transaction
involving Purchaser, Stonepath or the Company following which the Purchaser,
Stonepath or the Company, as applicable, is not the surviving corporation (other
than a merger effected exclusively for the purpose of changing the domicile of
such entity and other than a merger in which the shareholders of the Purchaser,
Stonepath, or the Company immediately prior to such merger hold thirty-four
percent (34%) or more of the outstanding capital stock of such surviving
corporation immediately after the consummation of such merger); or (d) a
"reverse merger" or similar transaction in which the Purchaser, Stonepath or the
Company is the surviving entity but in which the shareholders of such entity
immediately prior to such merger or similar transaction hold less than
thirty-four percent (34%) of the outstanding capital stock of such entity
immediately after the consummation of such merger or similar transaction.
"Cure Period" has the meaning set forth in Section 1.4(b) of this
Agreement.
"Default Payment Amount" has the meaning set forth in Section
1.4(b)(i).
"Dispute" has the meaning set forth in Section 10.8 of this
Agreement.
"Earn-Out Payments" means collectively, the Base Earn-Out Payments
and the Additional Earn-Out Payments.
"Earn-Out Payment Dates" has the meaning set forth in Section
1.2(b)(ii) of this Agreement.
"Earn-Out Period" has the meaning set forth in Section 1.2(b)(ii)
of this Agreement.
"Employee Benefit Plan" has the meaning set forth in Section
3.22(a) of this Agreement.
"Employment Agreements" means employment agreements between the
Purchaser or the Company, as applicable, and the Key Employees in form and
substance satisfactory to each such Key Employee and the Company.
"Encumbrance" means and includes:
(a) with respect to any personal property, any intangible
property or any property other than real property, any security or other
property interest or right, claim, lien, pledge, option, charge, security
interest, contingent or conditional sale, or other title claim or retention
agreement or lease or use agreement in the nature thereof, interest or other
right or claim of third parties, whether voluntarily incurred or arising by
operation of law, and including any agreement to grant or submit to any of the
foregoing in the future; and
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(b) with respect to any real property (whether and including
owned real estate or leased real estate), any mortgage, lien, easement,
interest, right-of-way, condemnation or eminent domain proceeding, encroachment,
any building, use or other form of restriction, encumbrance or other claim
(including adverse or prescriptive) or right of third parties (including
Governmental Authorities), any lease or sublease, boundary dispute, and
agreements with respect to any real property including: purchase, sale, right of
first refusal, option, construction, building or property service, maintenance,
property management, conditional or contingent sale, use or occupancy, franchise
or concession, whether voluntarily incurred or arising by operation of law, and
including any agreement to grant or submit to any of the foregoing in the
future.
"Environmental Laws" means any and all Applicable Laws (a)
regulating the use, treatment, generation, transportation, storage, control or
disposal of any Hazardous Material, including, but not limited to, the
Comprehensive Environmental Response, Compensation and Liability Act (42
X.X.X.xx. 9601 et seq.) ("CERCLA"), the Resource Conservation and Recovery Act
(42 X.X.X.xx. 6901 et seq.), the Hazardous Materials Transportation Act (49
X.X.X.xx. 1801 et seq.), the Federal Water Pollution Control Act (33 X.X.X.xx.
1251 et seq.), the Clean Water Act (33 X.X.X.xx. 1251 et seq.), the Clean Air
Act (42 X.X.X.xx. 7401 et seq.), and the Toxic Substances Control Act (15
X.X.X.xx. 2601 et seq.), and/or (b) relating to the protection, preservation or
conservation of the environment and public or worker health and safety, all as
existing, defined or interpreted as of the Closing Date.
"ERISA" has the meaning set forth in Section 3.22(a) of this
Agreement.
"Event of Default" means any failure by Purchaser to pay any
amount when due under Sections 1.2 or 1.4(a) of this Agreement, including any
Base Earn-Out Payment or Additional Earn-Out Payment. An Event of Default shall
be deemed to have occurred on and as of any date when an Earn-Out Payment owed
by Purchaser remains unpaid as of the close of business (Seattle time) on the
applicable Earn-Out Payment Date or date of any Additional Earn-Out Payment;
provided, however, that in the event an Objection Notice has been timely
delivered in accordance with Section 1.5(a), the Event of Default will be deemed
to occur on the date of a resolution of such dispute in accordance with Section
1.5(b) or 1.5(c).
"Excess Amount" has the meaning set forth in Section 1.2(b)(iii)
of this Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Family Member" with respect to any natural Person means the
following relatives of such Person and the entities designated: any child,
stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse,
sibling, niece, nephew, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, or sister-in-law, including adoptive
relationships, any person sharing such Person's household (other than a tenant
or employee), a trust in which these persons have more than fifty percent of the
beneficial interest, a foundation in which these persons control the management
of assets, and any other entity in which these persons own more than fifty
percent of the voting interests.
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"Financial Statements" has the meaning set forth in Section
3.8(a).
"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board and the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the accounting
profession), or in such other statements by such entity as may be in general use
by significant segments of the U.S. accounting profession, which are applicable
to the facts and circumstances on the date of determination.
"Global Container" means Global Container Line, Inc., a Washington
corporation and wholly-owned subsidiary of the Company.
"Governmental Authority" means any: (a) U.S. federal or state
government; or (b) U.S. federal or state governmental authority (including any
governmental agency, branch, board, commission, department, instrumentality,
office or other entity, and any court or other tribunal).
"Guaranty Agreement" has the meaning set forth in Section 1.2(e)
of this Agreement.
"Hazardous Materials" means any and all (a) dangerous, toxic or
hazardous pollutants, contaminants, chemicals, wastes, materials or substances
listed or identified in, or directly or indirectly regulated by, any Applicable
Laws, including Environmental Laws, and (b) any of the following, whether or not
included in the foregoing: polychlorinated biphenyls, asbestos in any form or
condition, urea-formaldehyde, petroleum, including crude oil or any fraction
thereof, natural gas, natural gas liquids, liquefied natural gas, synthetic gas
usable for fuel or mixtures thereof, nuclear fuels or materials, chemical
wastes, radioactive materials, explosives and known carcinogens.
"HSR Act" has the meaning set forth in Section 5.7 of this
Agreement.
"Indemnified Party" has the meaning set forth in Section 9.8 of
this Agreement.
"Indemnifying Party" has the meaning set forth in Section 9.8 of
this Agreement.
"Indemnitee" has the meaning set forth in Section 9.7 of this
Agreement.
"Indemnitor" has the meaning set forth in Section 9.7 of this
Agreement.
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"Independent Accountants" has the meaning set forth in Section
1.5(c) of this Agreement.
"Injunction" means any and all writs, rulings, awards, injunctions
(whether temporary, preliminary or permanent), judgments, decrees or orders
(whether executive, judicial or otherwise) adopted, enacted, implemented,
promulgated, issued or entered by or under the authority of any Governmental
Authority.
"Insolvency" or "Insolvent" with respect to Stonepath means
Stonepath (a) is generally not paying, or admits in writing its inability to
pay, its debts as they become due, or (b) has a deficit stockholders' equity on
any given date.
"Instrument" or "Instruments" has the meaning set forth in Section
3.7 of this Agreement.
"Intellectual Property" means any and all (a) inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications and patent
disclosures, together with all reissuances, continuations, continuations in
part, revisions, extensions and reexaminations thereof; (b) trademarks, service
marks, trade dress, logos, trade names, assumed names and corporate names,
together with all translations, adaptations, derivations and combinations
thereof and including all goodwill associated therewith, and all applications,
registrations and renewals in connection therewith; (c) copyrightable works, all
copyrights and all applications, registrations and renewals in connection
therewith; (d) mask works and all applications, registrations and renewals in
connection therewith; (e) trade secrets and confidential business information
(including ideas, research and development, know-how, technology, formulas,
compositions, manufacturing and production processes and techniques, technical
data, designs, drawings, specifications, customer and supplier lists, pricing
and cost information and business and marketing plans and proposals); (f)
computer software (including data and related software program documentation in
computer-readable and hard-copy forms); (g) other intellectual property and
proprietary rights of any kind, nature or description, including web sites, web
site domain names and other e-commerce assets and resources of any kind or
nature; and (h) copies of tangible embodiments thereof (in whatever form or
medium).
"Key Employees" means the Persons identified in Section 5.5 of the
Shareholders' Schedules.
"Knowledge" means with respect to a Shareholder, that any
Shareholder has actual knowledge of the relevant fact or circumstance, prior to
or as of the date of this Agreement and without any obligation of such
Shareholder to undertake an independent investigation of such fact or
circumstance.
"Liability" or "Liabilities" means any and all debts, liabilities
and/or obligations of any type, nature or description (whether known or unknown,
asserted or unasserted, secured or unsecured, absolute or contingent, accrued or
unaccrued, liquidated or unliquidated and whether due or to become due).
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"Loss" or "Losses" has the meaning set forth in Section 9.1 of
this Agreement.
"Material Adverse Effect" or "Material Adverse Change" means, in
connection with any Person, any event, change or effect that is materially
adverse, individually or in the aggregate, to the condition (financial or
otherwise), properties, assets, Liabilities, revenues, income, business,
operations, results of operations or prospects of such Person, taken as a whole.
In the case of the Company's results of operations, a Material Adverse Change
will be deemed to have occurred if there is a decrease of more than fifteen
percent (15%) in net income or ten percent (10%) in net revenues (excluding
pass-throughs) over the corresponding prior year period.
"Material Contracts" has the meaning set forth in Section 3.18(a)
of this Agreement.
"Minimum Working Capital Amount" has the meaning set forth in
Section 1.3(b) of this Agreement.
"Net Income Before Taxes" means the Company's net income before
federal, state and local income taxes, determined in accordance with the
provisions of Sections 1.2(b)(iii), 1.2(c) and 1.5 of this Agreement and GAAP.
"New Locations" has the meaning set forth in Section 1.2(c)(viii)
of this Agreement.
"Objection Notice" has the meaning set forth in Section 1.5(a) of
this Agreement.
"Ordinary Course of Business" means an action taken by a Person if
such action is consistent with the past practices of such Person and is taken in
the ordinary course of the normal day-to-day operations of such Person.
"Permit" means any and all permits, licenses, filings,
authorizations, approvals, or indicia of authority (and any pending applications
for approval or renewal of a Permit), to own, construct, operate, sell,
inventory, disburse or maintain any asset or conduct any business as issued by
any Governmental Authority.
"Person" means any individual, corporation (including any
non-profit corporation), general, limited or limited liability partnership,
limited liability company, joint venture, estate, trust, association,
organization, or other entity or Governmental Authority.
"Proceeding" means any suit, litigation, arbitration, hearing,
audit, investigation or other action (whether civil, criminal, administrative or
investigative) commenced, brought, conducted, or heard by or before, or
otherwise involving, any Governmental Authority or arbitrator.
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"Pro Rata Share" has the meaning set forth in Section 1.2(d) of
this Agreement.
"Purchase Price" has the meaning set forth in Section 1.2(a) of
this Agreement.
"Purchaser" has the meaning set forth in the introductory
paragraphs of this Agreement.
"Regulated Substance" means any substance the manufacturing,
processing, sale, generation, treatment, transportation, storage, disposal,
labeling or other management or use of which is regulated by applicable
Environmental Law.
"Related Person" or "Related Persons" means, with respect to a
natural Person:
(a) each Family Member; and
(b) any Affiliate of one or more members of such
individual's Family.
With respect to any other Person:
(i) any Affiliate of such Person; and
(ii) each Person that serves as a director, governor,
officer, manager, general partner, executor or trustee of such Person
(or in a similar capacity).
"Respondent" has the meaning set forth in Section 9.6(a) of this
Agreement.
"Response Period" has the meaning set forth in Section 1.5 of this
Agreement.
"Rights" means any and all outstanding subscriptions, warrants,
options, voting agreements, voting trusts, proxies, or other arrangements or
commitments obligating or which may obligate a Person to dispose of or vote any
securities, including, without limitation, the Shares.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Shareholders" means collectively all of the Shareholders, or
individually any of the Shareholders, identified on the signature page(s) of
this Agreement.
"Shareholders' Agent" has the meaning set forth in the
introductory paragraphs to this Agreement.
"Shareholders' Guarantees" has the meaning set forth in Section
3.11(b) of this Agreement.
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"Shareholders' Schedules" has the meaning set forth in the
introductory paragraph to Article III.
"Shares" has the meaning set forth in the introductory paragraphs
of this Agreement.
"Shortfall Amount" has the meaning set forth in Section
1.2(b)(iii) of this Agreement.
"Stonepath" has the meaning set forth in the introductory
paragraphs of this Agreement.
"Stonepath SEC Documents" has the meaning set for in Section
4.7(a) of this Agreement.
"Straddle Tax Returns" has the meaning set forth in Section
10.7(b) of this Agreement.
"Subsidiary" means, with respect to any Person (the "Owner"), any
corporation or other Person of which securities or other interests having the
power to elect a majority of that corporation's or other Person's board of
directors or similar governing body, or otherwise having the power to direct the
business and policies of that corporation or other Person (other than securities
or other interests having such power only upon the happening of a contingency
that has not occurred) are held by the Owner or one or more of its Subsidiaries.
When used without reference to a particular Person, "Subsidiary" means a
Subsidiary of the Company.
"Supplement" has the meaning set forth in Section 11.14.
"Tangible Personal Property" has the meaning set forth in Section
3.15 of this Agreement.
"Targeted Amount" has the meaning set forth in Section 1.2(b)(iii)
of this Agreement.
"Tax" or "Taxes" means (i) any and all net income, gross income,
gross revenue, gross receipts, net receipts, ad valorem, franchise, profits,
transfer, sales, use, social security, Medicare, employment, unemployment,
disability, license, withholding, payroll, privilege, excise, value-added,
severance, stamp, occupation, property, customs, duties, real estate and/or
other taxes, assessments, levies, fees or charges of any kind whatsoever imposed
by any Governmental Authority, together with any interest or penalty relating
thereto, and (ii) any payments under tax sharing arrangements between the
Company, Purchaser, Stonepath or any Affiliates.
"Tax Return" or "Tax Returns" means any return, declaration,
report, claim for refund or information return or statement relating to Taxes,
including, without limitation, any schedule or attachment thereto, any amendment
thereof, and any estimated report or statement.
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"Termination Date" means sixty (60) days after the date of this
Agreement.
"Threatened" means that a claim, Proceeding, dispute, action, or
other matter will be deemed to have been "Threatened" if any demand or statement
has been made in writing, or any notice has been given in writing that would
lead a reasonably prudent Person to conclude that such a claim, Proceeding,
dispute, action, or other matter will, with substantial certainty, be asserted,
commenced, taken or otherwise pursued in the future; provided, however, that the
foregoing shall not include customer billing disputes in the Ordinary Course of
Business.
"Waste" means any substance defined as such by any applicable
Environmental Law.
"Working Capital" means the excess of the Company's current
assets, including a cash component, over the Company's current liabilities,
determined in accordance with GAAP applied on a consistent basis with the
Company's historical financials, without giving effect to the consummation of
the transactions contemplated by this Agreement.
11.2 Cumulative Remedies; Waiver.
The rights and remedies of the Parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by any Party
in exercising any right under this Agreement or the documents referred to in
this Agreement shall operate as a waiver of such right, and no single or partial
exercise of any such right will preclude any other or further exercise of such
right or the exercise of any other right. Except as expressly set forth below in
Section 11.12, no claim or right arising under this Agreement can be discharged
by one Party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other Party or Parties. No waiver that may
be given by a Party shall be applicable except in the specific instance for
which it is given. No notice to or demand on one Party will be deemed to be a
waiver of any obligation of such Party or of the right of the Party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.
11.3 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, delivered and received upon delivery if
delivered personally, or on the second business day after it shall have been
deposited by certified or registered mail with postage prepaid, or sent by
telex, telegram or telecopier, to the Parties at the addresses below, or at such
other address or facsimile number for a Party as shall be specified by like
notice to all Parties:
if to the Company: Global Transportation Services, Inc.
0000 Xxxxx Xxxxxx Xxxxx, 0xx Xxxxx
Xxxxxxx, XX 00000
Fax: (000) 000-0000
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if to the Shareholders' Agent: Xxxxx X. Xxxxx
at the address of the Company above
if to the Shareholders: Xxxxx X. Xxxxx
W. Xxx Xxx
Xxxxx X. Xxxxx
Xxxxxxx X. Xxxxxxxx
at the address of the Company above
with a copy to: Xxxxxx X. Xxxxxx, Esquire
Cooley Godward LLP
0000 Xxxxxxxx Xxxxx
Xxxxxxxx, XX 00000
Tel: (000) 000-0000
Fax: (000) 000-0000
Email: Xxxxxxx@xxxxxx.xxx
if to Purchaser, to it at: Stonepath Logistics International
Services, Inc.
Xxx Xxxx Xxxxxx, Xxxxx 000
Xxxxxxxxxxxx, XX 00000
Attn: Xxxxxxx X. Xxxxx, General Counsel
Tel: (000) 000-0000
Fax: (000) 000-0000
with a copy to: Xxxxx North, Esquire
Xxxxxxxx Xxxxxxxxx Professional
Corporation
Eleven Xxxx Xxxxxx, 00xx Xxxxx
Xxxxxxxxxxxx, XX 00000
Tel: (000) 000-0000
Fax: (000) 000-0000
11.4 Entire Agreement; Assignment.
This Agreement, including all Exhibits and Schedules hereto,
together with the Ancillary Agreements, constitutes the entire agreement among
the Parties with respect to its subject matter hereof and supersedes all prior
and contemporaneous 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.
11.5 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.
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11.6 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.
11.7 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.
11.8 Governing Law.
This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without regard to the laws that might
otherwise govern under principles of conflicts of laws applicable thereto.
11.9 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 regulatory policy, the remainder of this
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
11.10 Expenses.
Except as set forth in this Section 5.4 or elsewhere in this
Agreement, 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
Purchaser and Stonepath shall pay all expenses incurred by them in connection
with the transactions provided for hereunder, including the fees and expenses of
their counsel and accountants.
11.11 Amendment and Modification.
This Agreement may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered by Purchaser, the Company and Shareholders' Agent.
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11.12 Shareholders' Agent.
(a) The Shareholders, pursuant to this Agreement, hereby appoint
Xxxxx X. Xxxxx as the Shareholders' Agent, who shall be the Shareholders'
representative and attorney-in-fact for each Shareholder. The Shareholders'
Agent shall have the authority to act for and on behalf of each of the
Shareholders, including without limitation, to amend this Agreement, to give and
receive notices and communications, waivers and consents under this Agreement,
to act on behalf of the Shareholders with respect to any matters arising under
this Agreement, to authorize delivery to the Purchaser and/or Stonepath of cash
and other property, to object to such deliveries, to agree to, negotiate, enter
into settlements and compromises of, and commence, prosecute, participate in,
settle, dismiss or otherwise terminate, as applicable, lawsuits and claims,
mediation and arbitration proceedings, and to comply with orders of courts and
awards on behalf of courts, mediators and arbitrators with respect to such
suits, claims or proceedings, and to take all actions necessary or appropriate
in the judgment of the Shareholders' Agent for the accomplishment of the
foregoing. In addition to and in furtherance of the foregoing, the Shareholders'
Agent shall have the right to (i) employ accountants, attorneys and other
professionals on behalf of the Shareholders, and (ii) incur and pay all costs
and expenses related to (A) the performance of its duties and obligations as the
Shareholders' Agent hereunder, and (B) the interests of the Shareholders under
this Agreement. The Shareholders' Agent shall for all purposes be deemed the
sole authorized agent of the Shareholders until such time as the agency is
terminated with notice to the Purchaser. Such agency may be changed by the
Shareholders from time to time upon not less than thirty (30) days prior written
notice to the Purchaser; provided, however, that the Shareholders' Agent may not
be removed unless all of the Shareholders agree to such removal and to the
identity of the substituted Shareholders' Agent. Any vacancy in the position of
the Shareholders' Agent may be filled by approval by those Shareholders who hold
or held a majority of the Shares prior to the Closing. No bond shall be required
of the Shareholders' Agent, and the Shareholders' Agent shall not receive
compensation for its services. Notices or communications to or from the
Shareholders' Agent shall constitute notice to or from each of the Shareholders
during the term of the Agreement.
(b) The Shareholders' Agent shall not incur any liability with
respect to any action taken or suffered by him or omitted hereunder as
Shareholders' Agent while acting in good faith and in the exercise of reasonable
judgment. The Shareholders' Agent may, in all questions arising hereunder, rely
on the advice of counsel and other professionals and for anything done, omitted
or suffered in good faith by the Shareholders' Agent based on such advice and
the Shareholders' Agent shall not be liable to anyone. The Shareholders' Agent
undertakes to perform such duties and only such duties as are specifically set
forth in this Agreement, and no covenants or obligations shall be implied under
this Agreement against the Shareholders' Agent; provided, however, that the
foregoing shall not act as a limitation on the powers of the Shareholders' Agent
determined by him to be reasonably necessary to carry out the purposes of his
obligations. The Shareholders shall severally and pro-rata, in accordance with
their respective pro-rata share of the Purchase Price, indemnify the
Shareholders' Agent and hold him harmless against any loss, liability or expense
incurred without gross negligence or bad faith on the part of the Shareholders'
Agent and arising out of or in connection with the acceptance or administration
of his duties under this Agreement. Specifically, each Shareholder hereby agrees
to reimburse the Shareholders' Agent for his Pro Rata Share of any reasonable
and documented costs or expenses (including attorneys' fees) incurred by the
Shareholders' Agent in pursuing a dispute pursuant to Section 1.5(c) of this
Agreement.
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(c) A decision, act, consent or instruction of the Shareholders'
Agent shall constitute a decision, act, consent or instruction from all of the
Shareholders and shall be final, binding and conclusive upon each of the
Shareholders. The Purchaser and Stonepath may rely upon any such decision, act,
consent or instruction of the Shareholders' Agent as being the decision, act,
consent or instruction of every such Shareholder. The Purchaser is hereby
relieved from any liability to any person for any acts done by it in accordance
with such decision, act, consent or instruction of the Shareholders' Agent. In
furtherance of the foregoing, any reference to a power of the Shareholders under
this Agreement, to be exercised or otherwise taken, shall be a power vested in
the Shareholders' Agent.
11.13 RELEASE AND DISCHARGE.
BY VIRTUE OF THEIR EXECUTION AND DELIVERY OF THIS AGREEMENT, AS OF
THE CLOSING AND THEREAFTER, THE SHAREHOLDERS HEREBY AGREE TO RELEASE, REMISE,
AND FOREVER DISCHARGE THE COMPANY FROM AND AGAINST ANY AND ALL DEBTS,
OBLIGATIONS, LIABILITIES, AND AMOUNTS OWING FROM THE COMPANY TO THE SHAREHOLDERS
AND THE COMPANY SHALL NOT BE OBLIGATED TO TAKE ANY ACTION OR MAKE ANY PAYMENTS
TO THIRD PARTIES ON BEHALF OF THE SHAREHOLDERS; PROVIDED, HOWEVER, THAT SUCH
RELEASE SHALL NOT CONSTITUTE A RELEASE OR WAIVER OF ANY SHAREHOLDER'S CLAIMS OR
DEMANDS AGAINST THE COMPANY FOR INDEMNIFICATION OR ADVANCEMENT OF EXPENSES IN
ACCORDANCE WITH THE COMPANY'S AMENDED AND RESTATED ARTICLES OF INCORPORATION AND
BYLAWS, OR FOR DEFENSE, SETTLEMENT OR PAYMENT RELATING TO ANY CLAIMS COVERED
UNDER THE TERMS AND CONDITIONS OF THE COMPANY'S DIRECTORS AND OFFICERS LIABILITY
INSURANCE POLICIES, AS CURRENTLY IN EFFECT OR HEREAFTER EXTENDED.
11.14 Supplementation of Schedules.
Prior to the Closing, the Shareholders or the Company may elect to
deliver a supplement ("Supplement") to one or more of the Shareholders'
Schedules previously delivered to the Purchaser and Stonepath. Any and all
Supplements must be in writing and must be delivered to the other Party before
the date that is three (3) business days prior to the scheduled Closing Date.
Purchaser and Stonepath shall be given the opportunity during the three (3)
business days following the delivery of the proposed Supplement to consider and
object to that Supplement. If Purchaser and Stonepath do not object to the
contents of the Supplement within such period, the Shareholders' Schedule in
question shall be deemed amended by the Supplement. If the Purchaser and
Stonepath object to a proposed Supplement, and the objection is not accepted by
the Party submitting the Supplement, the sole recourse and remedy of Purchaser
and Stonepath shall be termination of this Agreement in accordance Section 8.1
of this Agreement. In the event the Purchaser and Stonepath fail to terminate
this Agreement within five (5) days of the delivery of the objection, the
Supplement shall be deemed accepted by the Purchaser and Stonepath.
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11.15 Time of Essence.
Time is of the essence in this Agreement.
11.16 Construction.
(a) For purposes of this Agreement, whenever the context requires:
the singular number shall include the plural, and vice versa; the masculine
gender shall include the feminine and neuter genders; the feminine gender shall
include the masculine and neuter genders; and the neuter gender shall include
the masculine and feminine genders.
(b) As used in this Agreement, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
(c) References to "Dollars" or "$" in this Agreement shall refer
in all cases to United States Dollars.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, each of the undersigned has executed or caused this
Stock Purchase Agreement to be executed as of the date first above written.
ATTEST: STONEPATH LOGISTICS
INTERNATIONAL SERVICES, INC.
/s/ Xxxxxxx X. Xxxxx By: /s/ Xxxxxx X. Xxxxxx
---------------------------- ---------------------------------------
Secretary
Name: Xxxxxx X. Xxxxxx
------------------------------------
Title: CEO
------------------------------------
ATTEST: GLOBAL TRANSPORTATION SERVICES, INC.
/s/ Xxxxx X. Xxxxx By: /s/ Xxxxx X. Xxxxx
---------------------------- ---------------------------------------
Secretary
Name: Xxxxx X. Xxxxx
------------------------------------
Title: Managing Director
------------------------------------
SHAREHOLDERS Number of Percentage
Shares Interest
Witness
/s/ Xxxxxxx X. Xxxxxxxx /s/ Xxxxx X. Xxxxx 56,280 39.288%
--------------------------------- ----------------------------------------
Xxxxx X. Xxxxx
Witness
/s/ Xxxxxxx X. Xxxxxxxx /s/ Xxxxx X. Xxxxx 41,750 29.145%
--------------------------------- ----------------------------------------
Xxxxx X. Xxxxx
Witness
/s/ Xxxx X. Xxx /s/ W. Xxx Xxx 41,750 29.145%
--------------------------------- ----------------------------------------
W. Xxx Xxx
Witness
/s/ Xxxxx X. Xxxxx /s/ Xxxxxxx X. Xxxxxxxx 3,470 2.422%
--------------------------------- ----------------------------------------
Xxxxxxx X. Xxxxxxxx
SHAREHOLDERS' AGENT
Witness
/s/ Xxxxx X. Xxxxx /s/ Xxxxx X. Xxxxx
--------------------------------- ----------------------------------------
Xxxxx X. Xxxxx
ATTEST: STONEPATH GROUP, INC.
/s/ Xxxxxxx X. Xxxxx
---------------------------------
By: /s/ Xxxxxx X. Xxxxxx
Secretary ------------------------------------
Authorized Executive Officer Name: Xxxxxx X. Xxxxxx
----------------------------------
Title: CEO
----------------------------------
