Exhibit 2.1
AGREEMENT OF PURCHASE AND SALE
Agreement of Purchase and Sale (this "Agreement"), dated as of June 4,
1999, by and among Xxxxxxxxxxx.xxx, Inc., a Delaware corporation ("Buyer"),
Applied Cellular Technology, Inc., a Missouri corporation ("ACT"), and Xxxxx
Xxxxxx and Xxxx Xxxxxx, (each individually, a "Seller" and collectively, the
"Sellers").
W I T N E S S E T H:
WHEREAS, Sellers are the owners of all shares of the issued and
outstanding common stock, no par value, of Bostek, Inc.., a Massachusetts
corporation ("Bostek"), and Micro Components International, Incorporated, a
Massachusetts corporation ("Micro Components") (Bostek and Micro Components
each, a "Company" and collectively, the "Companies");
WHEREAS, the Companies are engaged in the business of buying and
selling of computer components from manufacturers and distributors whether from
excess inventory, refurbished equipment or off-lease (the "Business");
WHEREAS, at the Closing (as defined in Section 1.02), the Companies
will have minimum Target Book Value (as defined in Section 1.04(d)) of
$4,500,000 on a consolidated basis (subject to adjustment as provided herein);
and
WHEREAS, upon the terms and subject to the conditions set forth in
this Agreement, Sellers desire to sell to Buyer, and Buyer desires to buy from
Sellers, all of the outstanding shares of common stock of the Companies (the
"Stock").
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements, and upon the terms and subject to the
conditions, hereinafter set forth, the parties do hereby agree as follows:
ARTICLE I
TERMS OF PURCHASE AND SALE
1.01. Sale of the Stock. Upon the terms and subject to the conditions
set forth in this Agreement, at the Closing, Sellers shall sell to Buyer, and
Buyer shall purchase from Sellers, the Stock.
1.02. The Closing. (a) The closing of the transactions contemplated
hereby (the "Closing") shall take place at Xxxxxxxx, Xxxxxxx & Xxxxxxx, 000
Xxxxxxx Xxxxxx, Xxxxxx, XX, commencing at 9:00 a.m. (Boston time) on the later
of (i) June 21, 1999, and (ii) the fifth business day after termination or
expiration of the applicable waiting period (and any extension thereof) under
the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended, and the
rules and regulations thereunder (the "HSR Act"), or at such other time and/or
place and/or on such other date as the parties may mutually agree (the "Closing
Date").
(b) At the Closing, Buyer shall deliver to Sellers:
(i) the First Payment (as defined in Section 1.03(a));
(ii) the certificates referred to in Article VI;
(iii) the Employment Agreements; and
(iv) such other instruments and documents, in form and
substance reasonably acceptable to Sellers, as may
be necessary to effect the Closing.
(c) At the Closing, Sellers shall deliver to Buyer:
(d) certificates representing the Stock, duly endorsed in blank for
transfer or accompanied by duly executed stock powers assigning the Stock in
blank
(ii) the certificates referred to in Article V;
(iii) the Employment Agreements;
(iv) the corporate minute books and stock books for
each Company;
(v) a certified copy of the certificate of
incorporation of each Company, and a good standing
certificate for each of them issued by the
Secretary of State of the Commonwealth of
Massachusetts; and
(vi) such other instruments and documents, in form and
substance reasonably acceptable to Buyer, as may
be necessary to effect the Closing.
1.03. Purchase Price and Payment. (a) Subject to increase as provided
in Section 1.03(c) and adjustment as set forth elsewhere herein, the aggregate
purchase price to be paid by Buyer for the Stock shall be $25,000,000 (the
"Purchase Price"), payable as follows and subject to adjustment as described
below:
(i) on the Closing Date, $10,000,000 shall be paid in
U.S. dollars by wire transfer of immediately
available funds to an account or accounts
designated by Sellers not less than 24 hours prior
to the Closing Date (the "First Payment");
(ii) within thirty days following the closing of the
initial public offering of shares of common stock
of Buyer pursuant to a registration statement on
Form S-1 filed and effective under the Act,
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$10,000,000 shall be paid in shares of common
stock of Buyer (the number of shares being
determined by dividing $10,000,000 by the price
charged to the public for a share of common stock
of Buyer sold in such public offering), and
(iii) on the later of (x) January 3, 2000 and (y) the
six month anniversary of the Closing Date,
$5,000,000 shall be paid in U.S. dollars by wire
transfer of immediately available funds to an
account or accounts designated by Sellers not less
than 24 hours prior to such date; provided
however, if there shall be a Change of Control (as
defined below) of Buyer or the Company prior to
the payment of such $5,000,000, then immediately
prior to the consummation thereof, Buyer shall
deposit $5,000,000 into escrow to be held and
disbursed in accordance with the terms hereof.
(b) If (i) Buyer has not completed an IPO prior to the first
anniversary of the Closing Date or (ii) prior to both the first anniversary of
the Closing Date and prior to the completion of an IPO, there is a Change of
Control of Buyer or the Company, then in lieu of the payment pursuant to Section
1.03(a)(ii), Buyer shall immediately pay to Sellers $10,000,000 in U.S. dollars
by wire transfer of immediately available funds to an account or
accountsdesignated by Sellers not less than 24 hours prior to such date.
As used herein, a "Change of Control" of a Person shall mean that the
Person shall consummate any sale, merger or similar transaction, the result of
which is that those persons who hold (in the aggregate) 100% of the voting stock
of such Person immediately prior to such transaction hold, together with their
affiliates, less than 50% of the voting stock of such Person (or the surviving
or resulting entity) immediately following such transaction, provided however,
that a public offering of securities or the exercise of employee options (or
conversion of other convertible securities) shall not be deemed a change of
control.
(c) In addition to the payments provided in Section 1.03(a), the
purchase price shall be increased in accordance with the following, subject to
Sections 1.03(d) and 1.03(e):
(i) on or prior to February 15, 2000, Buyer shall pay
to Sellers an amount (the "First Earnout Payment")
equal to $1.25 multiplied by the amount of EBIT of
the Company for the period from the July 1, 1999
to December 31, 1999;
(ii) on or prior to August 15, 2000, Buyer shall pay to
Sellers an amount (the "Second Earnout Payment")
equal to (x) $1.25 multiplied by the amount of
EBIT of the Company for the period from July 1,
1999 to June 30, 2000, minus (y) the First Earnout
Payment;
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(iii) on or prior to February 15, 2001, Buyer shall pay
to Sellers an amount (the "Third Earnout Payment")
equal to (x) $1.25 multiplied by the amount of
EBIT of the Company for the period from July 1,
1999 to December 31, 2000, minus (y) the sum of
the First Earnout Payment and the Second Earnout
Payment;
(iv) on or prior to August 15, 2001, Buyer shall pay to
Sellers an amount equal to (x) $1.25 multiplied by
the amount of EBIT of the Company for the period
from July 1, 1999 to June 30, 2001, minus (y) the
sum of the First Earnout Payment, the Second
Earnout Payment and the Third Earnout Payment.
(b) The aggregate amount paid to Sellers pursuant to Section 1.03(c)
shall be capped at $5,000,000. If Buyer has paid an aggregate of $5,000,000 (net
of any amounts repaid by Sellers pursuant to Section 1.03(e)) pursuant to
Section 1.03(c), its future obligations under Section 1.03(c) shall terminate.
If Sellers voluntarily resign their employment with the Companies, or are
terminated for cause (as defined in his Employment Agreement) (or one Seller
voluntarily resigns and the other is terminated for cause), all obligations of
Buyer pursuant to Section 1.03(c) shall terminate.
(c) If the amount calculated in clauses (i), (ii), (iii), or (iv) of
Section 1.03(c) shall be negative, then on the payment date indicated in such
clause, Sellers shall pay Buyer such amount, less any amounts previously paid to
Buyer pursuant to this Section 1.03(d). Notwithstanding the preceding sentence,
Sellers shall in no event be required to pay, pursuant to this Section 1.03(e),
amounts (in the aggregate) in excess of amounts received by them (in the
aggregate) pursuant to Section 1.03(c).
(d) "EBIT" for a given period shall mean earnings for such period
before interest and income taxes, determined in accordance with GAAP (as defined
in Section 1.04(b)), plus any management fees imposed by Buyer on the Companies
following the Closing. EBIT shall be calculated without including (i) any
Closing costs, (ii) any costs in connection with the filing of the Section
338(h)(10) Elections (as defined in Section 4.09) (including any enhanced
depreciation of assets caused thereby), and (iii) costs in connection with an
IPO of Buyer.
1.04. Closing Balance Sheet; True-up Payment. (a) As promptly as
practicable but in any event within 90 days following the Closing Date, Buyer
shall prepare, or cause to be prepared, and deliver to Sellers an unaudited
consolidated pro forma balance sheet of the Companies as of the close of
business on the day immediately preceding the Closing Date (the "Closing Balance
Sheet"). There shall be attached to the Closing Balance Sheet an annex setting
forth in reasonable detail the computation of the True-up Payment (as defined in
Section 1.04(d)).
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(b) The Closing Balance Sheet shall be prepared in accordance with
U.S. generally accepted accounting principles ("GAAP"), determined as of 11:59
p.m. on the day immediately preceding the Closing Date as if such date was the
Companies' normal year-end and applied on a consistent basis with the Annual
Financial Statements (as defined in Section 2.04(a)), except that (i) no
reserves, liabilities, asset valuation allowances or similar items reflected on
the March 31 Balance Sheet (as defined in Section 2.04(a)) or created thereafter
shall be reserved or shall be reallocated to cover any other reserve, liability,
asset valuation allowance or similar item required to be provided for on the
Closing Balance Sheet; (ii) any asset which is required to be reflected in the
Closing Balance Sheet which is not reflected in the March 31 Balance Sheet,
unless acquired thereafter, shall be excluded from the Closing Balance Sheet,
and any other asset which is reflected on the March 31 Balance Sheet that is
required to be reflected on the Closing Balance Sheet shall be recorded on the
Closing Balance Sheet on the same basis on which it was recorded on the March 31
Balance Sheet, provided that such amounts shall be adjusted in accordance with
GAAP for depreciation, amortization, valuation provision and the like, to the
extent appropriate; (iii) no deferred income tax asset or income tax liability
shall be included on the Closing Balance Sheet; (iv) no Income Tax asset or
Income Tax liability shall be included on the Closing Balance Sheet; and (v) no
intercompany accounts shall be included on the Closing Balance Sheet.
(c) The Closing Balance Sheet delivered by Buyer to Sellers and the
computation of the True-up Payment annexed thereto shall be conclusive and
binding upon the parties unless Sellers, within 30 days after the delivery to
Sellers of the Closing Balance Sheet, notify Buyer in writing that Sellers
dispute any of the amounts set forth therein, specifying the nature of the
dispute and the basis therefor. The parties shall in good faith attempt to
resolve any dispute, in which event the Closing Balance Sheet and the
computation of the True-up Payment, as amended to the extent necessary to
reflect the resolution of the dispute, shall be conclusive and binding upon the
parties. If the parties do not reach agreement resolving the dispute within 10
days after notice is given by Sellers to Buyer pursuant to the second preceding
sentence, the parties shall submit the dispute to the department specializing in
resolution dispute of the New York office of Deloitte & Touche LLP for
resolution; provided, that if Deloitte & Touche LLP has had a material
relationship with either Buyer or Sellers or any of their respective affiliates
within the two years preceding the appointment or Deloitte & Touche LLP refuses
to accept such appointment, the parties shall submit the dispute to such other
nationally recognized independent accounting firm that is mutually agreeable to
the parties, which firm shall not have had a material relationship with either
Buyer or Sellers or their respective affiliates within the two years preceding
the appointment (such accounting firm, the "Arbiter"), for resolution. If the
parties cannot agree on the selection of such an independent accounting firm to
act as Arbiter, the parties shall request the American Arbitration Association
to appoint such a firm, and such appointment shall be conclusive and binding
upon the parties. Promptly, but no later than 20 days after its acceptance of
its appointment as Arbiter, the Arbiter shall determine, based solely on
presentations by Buyer and Sellers, and not by independent review, only those
issues in dispute and shall render a report as to the dispute and the resulting
computation of the Closing Balance Sheet and the True-up Payment, if any, which
shall be conclusive and binding upon the parties. In resolving any disputed
item, the Arbiter (x) shall be bound by the provisions of paragraph (b) of this
Section 1.04 and (y) may not assign a value to any item greater than the
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greatest value for such item claimed by either party or less than the smallest
value for such item claimed by either party. The fees, costs and expenses of the
Arbiter (i) shall be borne by Sellers in the proportion that the aggregate
dollar amount of such disputed items so submitted that are unsuccessfully
disputed by Sellers (as finally determined by the Arbiter) bears to the
aggregate dollar amount of such items so submitted and (ii) shall be borne by
Buyer in the proportion that the aggregate dollar amount of such disputed items
so submitted that are successfully disputed by Sellers (as finally determined by
the Arbiter) bears to the aggregate dollar amount of such items so submitted.
Buyer and Sellers each shall make available to the other (upon the request of
the other) their respective work papers generated in connection with the
preparation or review of the Closing Balance Sheet.
(d) As used herein, (i) the term "Final Closing Balance Sheet" shall
mean the Closing Balance Sheet which has become conclusive and binding upon the
parties pursuant to paragraph (c) of this Section 1.04, (ii) the term "Closing
Book Value" shall mean the amount obtained by subtracting the total liabilities
of the Companies, as set forth in the Final Closing Balance Sheet, from the
total assets of the Companies, as set forth in the Final Closing Balance Sheet,
and (iii) the term "Target Book Value" shall mean $4,500,000 minus any Tax
Distribution Amount (as defined in Section 4.09). If the Target Book Value
exceeds the Closing Book Value, the amount of such excess shall be the "True-up
Payment." If the True-up Payment is greater than zero, the amount thereof shall
be paid by Sellers to the Companies in accordance with the provisions of
paragraph (e) of this Section 1.04.
(e) The amount of any True-up Payment shall bear interest at an annual
rate equal to 4% per annum from and including the Closing Date to, but not
including, the date of payment. Any amount payable as True-up Payment (plus
interest determined pursuant to the immediately preceding sentence) shall be
paid by wire transfer of immediately available funds to an account designated in
writing by Buyer. Such payment shall be made on the third business day following
(i) the last day on which Sellers may, pursuant to the first sentence of
paragraph (c) of this Section 1.04, notify Buyer that it disputes any of the
amounts set forth in the Closing Balance Sheet, if Sellers shall not notify
Buyer of any dispute, or such earlier date as Sellers shall advise Buyer of the
absence of any dispute, or (ii) the date mutual agreement is reached as to the
amount of the True-up Payment, if any, in the event of a dispute that is settled
by the parties without resort to the Arbiter, or (iii) the receipt of the report
of the Arbiter in the event of a dispute which is settled by the Arbiter, as
applicable.
(f) Buyer shall provide Sellers and its accountants reasonable access
to the books and records of the Companies, to any other information, including
work papers of its accountants, and to any employees of the Companies to the
extent reasonably necessary for Sellers to review the Closing Balance Sheet.
Sellers shall provide Buyer and its accountants reasonable access to the books
and records of Sellers, any other information, including work papers of its
accountants, and to any employees of Sellers to the extent reasonably necessary
for Buyer in connection with the preparation of the Closing Balance Sheet and in
connection with any objections to the Closing Balance Sheet raised by Sellers.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLERS
Each Seller represents and warrants to Buyer on the date hereof and on
the Closing Date as follows:
2.01. Capitalization. The authorized capital stock of Bostek consists
of 15,000 shares of common stock, no par value, 2,000 shares of which are issued
and outstanding; the shares of Bostek are owned of record and beneficially as
set forth in Schedule 2.01. The authorized capital stock of Micro Components
consists of 10,000 shares of common stock, no par value, 2,000 shares of which
are issued and outstanding; the shares of Micro Components are owned of record
and beneficially as set forth in Schedule 2.01. All of the shares comprising the
Stock are validly issued, fully paid and non-assessable and are owned
beneficially and of record by Sellers free and clear of all liens, security
interests, restrictions, options, proxies, voting trusts or other encumbrances
("Encumbrances"). There are outstanding no securities convertible into,
exchangeable for, or carrying the right to acquire, equity securities of either
Company, or subscriptions, warrants, options, rights or other arrangements or
commitments obligating either Company to issue or dispose of any of its equity
securities or any ownership interest therein. The sale and delivery of the Stock
to Buyer pursuant to Article I hereof will vest in Buyer legal and valid title
to the Stock, free and clear of all Encumbrances (other than Encumbrances
created or suffered by Buyer).
2.02. Organization; Subsidiaries. (a) The Companies are corporations
duly organized, validly existing and in good standing under the laws of their
respective jurisdictions of incorporation and have all requisite corporate power
and authority to carry on their businesses as they are now being conducted. Each
Company is duly qualified to do business and is in good standing as a foreign
corporation in all jurisdictions where the nature of the property owned or
leased by it, or the nature of the business conducted by it, makes such
qualification necessary and the absence of such qualification would,
individually or in the aggregate, have a material adverse effect on the business
or financial condition of the Companies taken as a whole. True and complete
copies of the charter and by-laws of each Company have previously been delivered
to Buyer. True and complete copies of the minute books of each Company have
previously been made available to Buyer.
(b) Neither Company has a direct or indirect equity interest in any
entity.
2.03. Corporate Power and Authority; Effect of Agreement. Sellers are
individuals with all requisite power and authority to execute, deliver and
perform this Agreement and to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by Sellers and
constitutes the valid and binding obligation of Sellers, enforceable against
each Seller in accordance with its terms, except to the extent that such
enforceability (i) may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to creditors' rights generally, and
(ii) is subject to general principles of equity. The execution, delivery and
performance by Sellers of this Agreement and the consummation by Sellers of the
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transactions contemplated hereby will not, with or without the giving of notice
or the lapse of time, or both, (w) violate, or require any consent under, any
Commitment (as defined in Section 2.08), except as set forth in Schedule
2.08(b), (x) violate any law, rule or regulation to which either Seller or
either Company is subject or require any authorization, consent, approval,
exemption or other action by or notice to any governmental authority, (y)
violate any order, judgment or decree applicable to either Seller or either
Company, or (z) violate any provision of the Certificate of Incorporation or the
By-laws of either Company.
2.04. Financial Statements. (a) Sellers have delivered to Buyer (i)
the unaudited pro forma balance sheet of each Company as of March 31, 1999
(collectively, the "March 31 Balance Sheet") and unaudited pro forma statements
of operations and cash flows of each Company for the three-month period then
ended, (ii) audited balance sheets of Bostek as of December 31 of each of 1997
and 1998, and audited statements of operations and cash flows of Bostek for the
twelve-month periods then ended, including the footnotes thereto, and (iii)
unaudited balance sheet of Micro Components as of December 31, 1998 and
unaudited statement of operations of Micro Components for the twelve-month
period then ended (the financial statements listed in clauses (ii) and (iii),
the "Annual Financial Statements" and the financial statements listed in clauses
(i), (ii) and (iii), collectively, the "Financial Statements"), copies of which
are included in Schedule 2.04. The Financial Statements fairly present in all
material respects the financial position and the results of operations and cash
flows of the Companies, taken as a whole, for the respective dates or periods
(as the case may be) indicated therein and have been prepared in conformity with
GAAP consistently applied (subject, in the case of unaudited statements, to the
absence of footnotes and normal year-end adjustments). All of the assets,
liabilities, income, costs and expenses reflected in the Financial Statements
are related to the Business and arose out of and were incurred in the ordinary
course of the Business. All related party transactions have been accounted for
by use of consistent accounting policies and methodologies which would not
affect the comparability of such financial information in any material way.
(b) Except as specifically reflected in the Financial Statements or
elsewhere in the Schedules or as contemplated by this Agreement, neither Company
has any liabilities, commitments or obligations of any kind whatsoever (whether
secured or unsecured and whether accrued, absolute, contingent, direct, indirect
or otherwise), other than any liabilities, commitments or obligations incurred
after March 31, 1999 in the ordinary course of business.
2.05. Absence of Certain Changes or Events. Except as set forth in
Schedule 2.05 or reflected in the March 31 Balance Sheet or permitted or
contemplated by this Agreement, since March 31, 1999, neither Company has (a)
suffered any material damage, destruction or casualty loss to its physical
properties; (b) incurred or discharged any material obligation or liability or
entered into any other material transaction except in the ordinary course of
business; (c) suffered any material adverse change in the business, financial
condition, assets, liabilities, operations or results of operations of the
Companies taken as a whole; (d) increased the rate or terms of compensation
payable or to become payable by either Company to its directors, officers or key
employees or increased the rate or terms of any bonus, pension or other employee
benefit plan covering any of its directors, officers or key employees, except in
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each case increases occurring in the ordinary course of business in accordance
with its customary practices (including normal periodic performance reviews and
related compensation and benefit increases) or as required by any pre-existing
Commitment identified in Schedule 2.08; (e) consummated, or agreed to
consummate, any sale, lease or other transfer or disposition of any properties
or assets except for the sale of inventory items in the ordinary course of
business and except for the sale of any tangible personal property that, in the
reasonable judgment of the Companies, has become uneconomic, obsolete or worn
out; (f) incurred, assumed or guaranteed any indebtedness for borrowed money;
(g) granted any mortgage, pledge, lien or encumbrance on any of its material
properties or assets; (h) entered into, amended or terminated any material
Commitment, or waived any material rights thereunder except in the ordinary
course of business; (i) made any grant of credit to any customer or distributor
on terms or in amounts materially more favorable than those that have been
extended to such customer or distributor in the past, or (j) paid any dividend
or made any other distribution to or for the benefit of either Seller other than
payment of his regular salary. Since March 31, 1999, the Companies have been
operated in all material respects in the ordinary course in a manner consistent
with past practice.
2.06. Assets and Properties. (a) Each Company has good title to all of
the material tangible personal assets and properties which it purports to own
(including those reflected on the March 31 Balance Sheet, except for assets and
properties sold, consumed or otherwise disposed of in the ordinary course of
business since the date of the March 31 Balance Sheet, which are not
individually or in the aggregate material), free and clear of all Encumbrances,
except (a) as set forth in Schedule 2.06(a), and (b) liens for taxes not yet due
and payable or due but not delinquent or being contested in good faith by
appropriate proceedings. Except as set forth in Schedule 2.06(a), the assets
owned or leased by the Companies constitute all the assets used in and necessary
to conduct the Business as currently conducted.
(b) All material tangible property and assets owned or utilized by the
Companies are in good operating condition and repair (except for ordinary wear
and tear), free from any defects (except such minor defects as do not interfere
with the use thereof in the conduct of the normal operations), have been
maintained consistent with the standards generally followed in the industry and
are sufficient to carry on the Business as presently conducted. All buildings,
plants and other structures owned or otherwise utilized by either Company are in
good condition and repair (except for ordinary wear and tear) in all material
respects.
(c) Neither Company owns or has owned any real property.
(d) Schedule 2.06(d) sets forth a list of all real property leased by
either Company (the "Leased Real Property"). Sellers have made available to
Buyer true and complete copies of all leases and subleases relating to the
Leased Real Property. With respect to the Leased Real Property, (i) the
Companies have good and valid leasehold estates in the Leased Real Property,
free and clear of all Encumbrances, and (ii) all existing water, sewer, gas,
electricity, telephone and other utilities required for the construction, use,
occupancy, operation and maintenance of the Leased Real Property are adequate in
all material respects for the use, occupancy, operation and maintenance thereof,
as currently conducted or currently exists. Except as set forth on Schedule
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2.06(d), (A) each such lease or sublease is legal, valid, binding and
enforceable and in full force and effect and (B) the consummation of the
transactions contemplated by this Agreement will not cause a material breach or
require any third party consent under any such lease or sublease.
(e) Except as set forth on Schedule 2.06(e), (i) neither Seller and
neither Company has received notice of any pending or, to the knowledge of
Sellers, threatened condemnation or eminent domain proceedings or their local
equivalent with respect to the Owned Real Property or the Leased Real Property,
(ii) the Owned Real Property, the Leased Real Property, the use and occupancy
thereof by the Companies, and the conduct of the Business thereon and therein do
not violate any deed restrictions, applicable law consisting of building codes,
zoning, subdivision or other land use or similar laws the violation of which
would materially adversely affect the use, value or occupancy of any such
property or the conduct of the Business thereon, (iii) neither Seller and
neither Company has received written notice of a material violation of the
restrictions or laws described in the foregoing clause (ii), and (iv) none of
the structures or improvements on any of the Leased Real Property encroaches
upon real property of another person or entity, and no structure or improvement
of another person or entity encroaches upon any of the Leased Real Property,
which would materially interfere with the use thereof in the ordinary course of
business.
2.07. Intellectual Property. (a) Each item of Company Intellectual
Property (as defined in Section 2.07(j)) is set forth on Schedule 2.07.
(b) Except as set forth on Schedule 2.07(b): (i) each item of Company
Intellectual Property will be owned or available for use by the Companies on
identical terms and conditions immediately subsequent to the Closing as they
were by the Companies immediately prior to the Closing; (ii) all registered
patents, trademarks, service marks and copyrights listed on Schedule 2.07(a) are
valid and subsisting and in full force and effect and are not subject to any
taxes or other fees except for annual filing and maintenance fees; (iii) to
Sellers' knowledge, there has been no notice, claim or assertion that any item
of Company Intellectual Property is invalid, and to Sellers' knowledge, there
are no facts that would cause a reasonable person to conclude that any item of
Company Intellectual Property is invalid; (iv) to Sellers' knowledge, the
Companies have the sole and exclusive right to use all of the Company
Intellectual Property in all jurisdictions in which the Business is conducted or
proposed to be conducted, and the consummation of the transactions contemplated
hereby will not alter or impair any such rights; (v) Sellers have delivered to
Buyer all documents with respect to any invention, process, design, computer
program or other know-how or trade secret included in the Company Intellectual
Property, which documents are accurate in all material respects and reasonable
sufficient detail and content to identify and explain such invention, process,
design, computer program or other know-how or trade secret and to facilitate its
full and proper use without reliance on the special knowledge or memory of any
person; (vi) the Company Intellectual Property is all the Intellectual Property
that is necessary for the Companies to own or license to effectively operate the
Business as presently conducted; and (vii) the Companies have taken all
reasonably necessary and desirable action to maintain and protect each item of
Company Intellectual Property.
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(c) Other than as set forth on Schedule 2.07(c), neither Company has
interfered with, infringed upon, misappropriated or otherwise come into conflict
with any Intellectual Property rights of third parties, and neither Seller has
received (and neither Company) any charge, complaint, claim, demand or notice
alleging any such interference, infringement, misappropriation or violation
(including any claim that either Company must license or refrain from using any
Intellectual Property rights of any third party). Other than as set forth on
Schedule 2.07(c), to Sellers' knowledge no third party has interfered with,
infringed upon, misappropriated or otherwise come into conflict with any Company
Intellectual Property.
(d) With respect to each item of Company Intellectual Property, except
as set forth on Schedule 2.07(c): (i) the Companies possess all right, title and
interest in and to the item, free and clear of any Encumbrance, license or other
restriction; (ii) the item is not subject to any outstanding order, decree,
ruling or charge; (iii) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim or demand is pending or, to Sellers' knowledge,
threatened, which challenges the legality, validity, enforceability, use or
ownership of the item; (iv) neither Company has ever agreed to indemnify any
person for or against any interference, infringement, misappropriation or other
conflict with respect to the item; (v) each license, sublicense, agreement or
permission covering the item is, and immediately after the Closing will be,
legal, valid, binding, enforceable and in full force and effect; (vi) to
Sellers' knowledge no party to any license, sublicense, agreement or permission
is in breach or default, and no event has occurred which with notice or lapse of
time would constitute a breach or default or permit termination, modification or
acceleration thereunder; (vii) no party to any license, sublicense, agreement or
permission has repudiated any provision thereof; (viii) with respect to any
sublicense, the representations and warranties set forth in subsections (i)
through (vii) above are true and correct with respect to the underlying license;
(ix) with respect to each license, sublicense, agreement or permission, the
underlying item of Company Intellectual Property is not subject to any
outstanding injunction, judgment, order, decree, ruling or charge; (x) with
respect to each license, sublicense, agreement or permission, no action, suit,
proceeding, hearing, investigation, charge, complaint, claim or demand is
pending or is threatened which challenges the legality, validity or
enforceability of the underlying item of Company Intellectual Property; and (xi)
with respect to each license, sublicense, agreement or permission, Sellers have
not granted any sublicense or similar right with respect to the license,
sublicense, agreement or permission.
(f) The continued operation of the Business as presently conducted and
as presently proposed to be conducted will not interfere with, infringe upon,
misappropriate, or otherwise come into conflict with, any Intellectual Property
rights of third parties.
(g) To Sellers' knowledge, none of either Company's employees (x) is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or (y) is subject to any judgment, decree or
order of any court or administrative agency, that would interfere with the use
of such employee's best efforts to promote the interests of the Business as
presently conducted, will conflict with, result in a breach of, or constitute a
default under, any contract, covenant or instrument under which any of such
employees is now obligated.
11
(h) The Business, as currently conducted, does not and will not need
to utilize any inventions of either Seller or of any of its employees, former
employees, directors, shareholders or persons it currently intends to hire, the
rights to which have not been fully assigned to either Company.
(i) As used herein:
"Intellectual Property" shall mean (i) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereon, and all patents, patent applications and patent
disclosures, together with all reissuances, continuations, continuations-in
part, revisions, extensions and reexaminations thereof, (ii) all trademarks,
service marks, trade dress, logos, trade names, domain 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, (iii) all copyrightable
works, all copyrights and all applications, registrations and renewals in
connection therewith, (iv) all mask works and all applications, registrations
and renewals in connection therewith, (v) all trade secrets and confidential
business information (including ideas, research and development, know-how,
formulas, compositions, manufacturing and production processes and techniques,
methods, schematics, technology, technical data, designs, drawings, flowcharts,
block diagrams, specifications, customer and supplier lists, pricing and cost
information and business and marketing plans and proposals), (vi) all computer
software (including data and related documentation), (vii) all other proprietary
rights, (viii) all copies and tangible embodiments of the foregoing (in whatever
form or medium) and (ix) all licenses or agreements in connection with the
foregoing.
"Company Intellectual Property" shall mean all Intellectual Property
which is used (regularly or from time to time) in connection with the operation
of the Business.
2.08. Commitments. (a) Schedule 2.08 sets forth, as of the date
hereof, each contract or agreement, whether written or oral (including any and
all amendments thereto), to which either Company is a party or by which either
Company is bound (collectively, the "Commitments") of the following types:
(i) Commitments for the sale of any real or personal
(tangible or intangible) properties other than in
the ordinary course of business, or for the grant
of any option or preferential rights to purchase
any such properties;
(ii) Commitments for the construction, modification or
repair of any building, structure or facility or
for the incurrence of any capital expenditures or
for the acquisition of fixed assets, providing for
aggregate payments in excess of $30,000;
(iii) Commitments relating to the acquisition by either
Company of any operating business or the capital
12
stock of any other person or entity that have not
been consummated or that have been consummated but
contain representations, covenants, guaranties,
indemnities or other obligations that remain in
effect;
(iv) Commitments pursuant to which any party is
required to purchase or sell a stated portion of
its requirements or output to another party or
perform a stated amount of service for, on behalf
of, or upon the referral of another party;
(v) Commitments relating to any Litigation;
(vi) Commitments relating to the lending or borrowing
of money, including loan agreements, guarantees of
any liabilities, performance bonds, letters of
credit, bankers acceptances and similar
instruments or arrangements;
(vii) Commitments under which either Company agrees to
indemnify any person or entity;
(viii) Commitments containing covenants of either Company
not to compete, do business in any line of
business or in any geographical area or with any
person or entity, or to disclose certain
information, or covenants of any person or entity
not to compete with either Company in any line of
business or in any geographical area or disclose
information concerning either Company;
(ix) Commitments pursuant to which either Company (A)
leases, subleases, licenses or otherwise has the
right to use any personal property or (B) is the
lessor of any personal property;
(x) Commitments in respect of any joint venture,
partnership or other similar arrangement
(including, without limitation, any joint
development agreement);
(xi) Commitments relating to any governmental or
regulatory authority, including without
limitation, the Federal Aviation Administration;
(xii) Commitments for the lease or sub-lease of any real
property;
(xiii) Commitments for the licensing of any real
property;
13
(xiv) Commitments relating to outstanding letters of
credit or performance bonds or creating any
obligation or liability as guarantor, surety,
co-signer, endorser, co-maker, indemnitor or
otherwise in respect of the obligation of any
person or entity, except as endorser or maker of
checks or letters of credit endorsed or made in
the ordinary course of business;
(xv) Commitments that involve in excess of $30,000 in
the aggregate or that may not be terminated on
less than 90 days' notice;
(xvi) Commitments (other than those specified in any of
clauses (i) through (xv) of this paragraph (a))
which relate to or affect the Business or any of
the assets or properties of either Company in any
way that are material to the Business; and
(xvi) Commitments currently in negotiation by either
Company of a type which if entered into would be
required to be listed on Schedule 2.08(a) or to be
disclosed on any other Schedule hereto.
(b) Except as set forth in Schedule 2.08(b), all of the Commitments
referred to in the preceding paragraph (a) are valid, binding, in full force and
effect and enforceable in accordance with their terms against the Companies, and
to the knowledge of Sellers, against the respective counterparties to such
Commitments. Complete copies (or, if oral, full written descriptions) of all
Commitments required to be so listed, including all amendments thereto, and
complete copies of all standard form Commitments used in the conduct of the
Business, have been delivered to Buyer. Except as set forth in Schedule 2.08(b),
(i) there is no breach, violation or default and no event which, with notice or
lapse of time or both, would constitute a breach, violation or default, or give
rise to any Encumbrance or right of termination, modification, cancellation,
prepayment, suspension, limitation, revocation or acceleration under, any
Commitment listed in Schedule 2.08(a), except for breaches, violations and
defaults, or Encumbrances or rights of termination, modification, cancellation,
prepayment, suspension, limitation, revocation or acceleration which,
individually or in the aggregate, are not material and (ii) neither of the
Companies nor, to the knowledge of Sellers, any other party to any of the
Commitments listed in Schedule 2.08(a) is in material arrears in respect of the
performance or satisfaction of the terms and conditions on its part to be
performed or satisfied under any of such Commitments and no material waiver or
material indulgence has been granted by any of the parties thereto.
2.09. Litigation. Except as set forth in Schedule 2.09, there is no
claim, suit, action or proceeding in any court or before any governmental or
regulatory authority ("Litigation") pending or, to Sellers' knowledge,
14
threatened, involving either Company, the Business or any assets or liabilities
of any of the foregoing. Except as set forth in Schedule 2.09, neither Company
is subject to any outstanding orders, rulings, judgments, injunctions, writs,
decrees or actions including, without limitation, any actions brought by any
regulatory authority.
2.10. Compliance with Laws. Except as set forth in Schedule 2.10, the
Companies have been and are in material compliance with all applicable laws,
rules, regulations and orders relating to the operation, conduct or ownership of
the Business. The Companies have all material permits, licenses, certificates
and authorizations of governmental and regulatory authorities necessary for the
conduct of their business as presently conducted.
2.11. Employee Benefit Plans. (a) Schedule. Schedule 2.11(a) contains
a true and complete list of each Company Benefit Plan and each Employee
Agreement. Neither Sellers, either Company nor any ERISA Affiliate has any plan
or commitment, whether legally binding or not, to establish any new Company
Benefit Plan, to enter into any new Employee Agreement or to modify or to
terminate any Company Benefit Plan or Employee Agreement (except to the extent
required by law and as previously disclosed to Buyer or as required by this
Agreement), nor has any intention to do any of the foregoing been communicated
to Employees.
(b) Documents. The Companies have provided, or have made available, to
Buyer (i) current, accurate and complete copies of all documents embodying or
relating to each Company Benefit Plan and each Employee Agreement, including all
amendments thereto, written interpretations thereof and trust or funding
agreements with respect thereto; (ii) the two (2) most recent annual actuarial
valuations, if any, prepared for each Company Benefit Plan; (iii) the two (2)
most recent annual reports (Series 5500 and all schedules thereto), if any,
required under ERISA in connection with each Company Benefit Plan or related
trust; (iv) a statement of alternative form of compliance pursuant to Department
of Labor Regulation ss. 2520.104-23, if any, filed for each Company Benefit Plan
which is an "employee pension benefit plan" as defined in Section 3(2) of ERISA
for a select group of management or highly compensated employees; (v) the most
recent determination letter received from the IRS, if any, for each Company
Benefit Plan and related trust which is intended to satisfy the requirements of
Section 401(a) of the Code; (vi) if the Company Benefit Plan is funded, the most
recent annual and periodic accounting of Company Benefit Plan assets; (vii) the
most recent summary plan description with respect to each Company Benefit Plan;
and (viii) all material communications to any Employee or Employees relating to
each Company Benefit Plan.
(c) Compliance. With respect to each Company Benefit Plan (i) the
Companies, Sellers, and each ERISA Affiliate have performed all obligations
required to be performed by them under each Company Benefit Plan and Employee
Agreement and neither the Companies, Sellers, nor any ERISA Affiliate is in
material default under or in violation of, any Company Benefit Plan, (ii) each
Company Benefit Plan has been established and maintained in accordance with its
terms and in material compliance with all applicable laws, statutes, orders,
rules and regulations, including but not limited to ERISA and the Code,
including without limiting the foregoing, the timely filing of all required
reports, documents and notices, where applicable, with the IRS and the
Department; (iii) each Company Benefit Plan intended to qualify under Section
401 of the Code is, and since its inception has been, so qualified and a
15
determination letter has been issued by the IRS to the effect that each such
Company Benefit Plan is so qualified and that each trust forming a part of any
such Company Benefit Plan is exempt from tax pursuant to Section 501(a) of the
Code and no circumstances exist which would adversely affect this qualification
or exemption; (iv) no "prohibited transaction," within the meaning of Section
4975 of the Code or Section 406 of ERISA, has occurred with respect to any
Company Benefit Plan; (v) no action or failure to act and no transaction or
holding of any asset by, or with respect to, any Company Benefit Plan has or may
subject either Company, either Seller, or any ERISA Affiliate or any fiduciary
to any tax, penalty or other liability, whether by way of indemnity or
otherwise; (vi) there are no actions, proceedings, arbitrations, suits or claims
pending, or to the knowledge of Sellers or any ERISA Affiliate, threatened or
anticipated (other than routine claims for benefits) against either Company,
either Seller or any ERISA Affiliate or any administrator, trustee or other
fiduciary of any Company Benefit Plan with respect to any Company Benefit Plan
or Employee Agreement, or against any Company Benefit Plan or against the assets
of any Company Benefit Plan; (vii) no event or transaction has occurred with
respect to any Company Benefit Plan that would result in the imposition of any
tax under Chapter 43 of Subtitle D of the Code; (viii) each Company Benefit Plan
can be amended, terminated or otherwise discontinued without liability to the
Companies, Sellers or any ERISA Affiliate; (ix) the Companies, Sellers and each
ERISA Affiliate have made all payments with respect to all periods through the
date hereof, and will make a pro-rata payment for the period ending as of the
Closing Date, in each case which are required by each Company Benefit Plan, each
related trust or by law to be made to, or with respect to each Company Benefit
Plan (including all insurance premiums or intercompany charges with respect to
each Company Benefit Plan); (x) no Company Benefit Plan is under audit or
investigation by the IRS, the Department or the PBGC, and to the knowledge of
Sellers or any ERISA Affiliate no such audit or investigation is pending or
threatened; and (xi) no liability under any Company Benefit Plan has been funded
nor has any such obligation been satisfied with the purchase of a contract from
an insurance company as to which either Company or any of its Subsidiaries has
received notice that such insurance company is insolvent or is in rehabilitation
or any similar proceeding.
(d) Pension Plans. Neither the Companies, Sellers, nor any ERISA
Affiliate presently sponsors, maintains, contributes to, nor have the Companies,
Sellers nor any ERISA Affiliate ever sponsored, maintained, contributed to, or
been required to contribute to, a Pension Plan which is subject to Title IV of
ERISA.
(e) Multi-Employer Plans. The Companies, Sellers and any ERISA
Affiliate have never contributed to or been required to contribute to, or
incurred any withdrawal liability (within the meaning of Section 4201 of ERISA)
to any Multi-Employer Plan.
(f) No Post-Employment Obligations. Neither the Companies, Sellers nor
any ERISA Affiliate (i) maintains or contributes to any Company Benefit Plan
which provides, or has any liability to provide, life insurance, medical,
severance or other employee welfare benefits to any Employee upon his retirement
or termination of employment, except as may be required by Section 4980B of the
Code; or (ii) has ever represented, promised or contracted (whether in oral or
written form) to any Employee (either individually or to Employees as a group)
that such Employee(s) would be provided with life insurance, medical, severance
16
or other employee welfare benefits upon their retirement or termination of
employment, except to the extent required by Section 4980B of the Code.
(g) Effect of Transaction. The execution of, and performance of the
transactions contemplated in, this Agreement will not (either alone or upon the
occurrence of any additional or subsequent events) (i) constitute an event under
any Company Benefit Plan, Employee Agreement, trust or loan that will or may
result in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Employee, (ii) result in the
triggering or imposition of any restrictions or limitations on the right of the
Companies or Buyer to amend or terminate any Company Benefit Plan and receive
the full amount of any excess assets remaining or resulting from such amendment
or termination, subject to applicable taxes, or (iii) result in any payment or
benefit that will or may be made by the Companies, either Seller, Buyer or any
of their respective affiliates with respect to any Employee and that will be
characterized as an "excess parachute payment," within the meaning of Section
280G(b)(1) of the Code.
(h) Employment Matters. Each Company and each Seller (i) is in
material compliance with all applicable federal, state and local laws, rules and
regulations (domestic and foreign) respecting employment, employment practices,
labor, terms and conditions of employment and wages and hours, in each case,
with respect to Employees; (ii) has withheld all amounts required by law or by
agreement to be withheld from the wages, salaries and other payments to
Employees; (iii) is not liable for any arrears of wages or any taxes or any
penalty for failure to comply with any of the foregoing; and (iv) is not liable
for any payment to any trust or other fund or to any governmental or
administrative authority, with respect to unemployment compensation benefits,
social security or other benefits for Employees.
(i) Labor. No Employees are currently represented by any labor union
for purposes of collective bargaining and to Sellers' knowledge no activities
the purpose of which is to achieve such representation of all or some of such
Employees are threatened or ongoing. No work stoppage or labor strike against
either Company by Employees is pending or threatened. Neither Company and
neither Seller (i) is involved in, or to Sellers' knowledge threatened with, any
labor dispute, grievance, or litigation relating to labor matters involving any
Employees, including, without limitation, violation of any federal, state or
local labor, safety or employment laws (domestic or foreign), charges of unfair
labor practices or discrimination complaints; (ii) has engaged in any unfair
labor practices within the meaning of the National Labor Relations Act or the
Railway Labor Act; or (iii) is presently, nor has been in the past a party to,
or bound by, any collective bargaining agreement or union contract with respect
to Employees and no such agreement or contract is currently being negotiated by
Sellers or any of its affiliates.
(j) 501(c)(9) Trust. No Company Benefit Plan or Employee Agreement is
funded by a trust described in Section 501(c)(9) of the Code.
(k) Welfare Plan Funding. With respect to each Welfare Plan, all
claims incurred by Employees thereunder for which either Company is, or will
17
become, liable are (i) insured pursuant to a contract of insurance whereby the
insurance company bears any risk of loss with respect to such claims; (ii)
covered under a contract with a health maintenance organization (an "HMO")
pursuant to which the HMO bears the liability for such claims, or (iii)
reflected as a liability or accrued for on either Company's balance sheet.
(l) Controlled Group Liability. The Companies have no liability,
contingent or otherwise, to, or with respect to any Benefit Plan (other than the
Company Benefit Plans and Employee Agreements which are listed on Schedule
2.11(a)), which is now or previously has been sponsored, maintained, contributed
to, or required to be contributed to, by Sellers or any ERISA Affiliate.
For the purposes of this Section 2.11, the following terms shall have
the meanings indicated:
"Benefit Plan" means each plan, program, policy, payroll practice,
contract, agreement or other arrangement providing for compensation, severance,
termination pay, performance awards, stock or stock-related awards, fringe
benefits or other employee benefits of any kind, whether formal or informal,
funded or unfunded, written or oral and whether or not legally binding,
including, without limitation, each "employee benefit plan," within the meaning
of Section 3(3) of ERISA and each "multi-employer plan" within the meaning of
Sections 3(37) or 4001(a)(3) of ERISA.
"Code" means the Internal Revenue Code of 1986, as amended and any
regulations promulgated or proposed thereunder.
"Company Benefit Plan" means each Benefit Plan (other than an Employee
Agreement) which is now or previously has been sponsored, maintained,
contributed to, or required to be contributed to, or with respect to which any
withdrawal liability (within the meaning of Section 4201 of ERISA) has been
incurred, by either Company, either Seller or any ERISA Affiliate for the
benefit of any Employee, and pursuant to which either Company, either Seller or
any ERISA Affiliate has or may have any liability, contingent or otherwise.
"Department" means the U.S. Department of Labor.
18
"Employee" means each current, former, or retired employee, officer,
consultant, independent contractor, agent or director of each Company.
"Employee Agreement" means each management, employment, severance,
consulting, non-compete, confidentiality, or similar agreement or contract
between either Company or either Seller and any Employee pursuant to which
either Company or either Seller has or may have any liability contingent or
otherwise.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended and any regulations promulgated or proposed thereunder.
"ERISA Affiliate" means each business or entity which is a member of a
"controlled group of corporations," under "common control" or an "affiliated
service group" with either Company within the meaning of Sections 414(b), (c) or
(m) of the Code, or required to be aggregated with either Company under Section
414(o) of the Code, or is under "common control" with either Company, within the
meaning of Section 4001(a)(14) of ERISA.
"IRS" means the Internal Revenue Service.
"Multi-Employer Plan" means each Company Benefit Plan which is a
"multi-employer plan" within the meaning of Sections 3(37) or 4001(a)(3) of
ERISA.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Pension Plan" means each Company Benefit Plan (other than a
Multi-Employer Plan) which is an "employee pension benefit plan" within the
meaning of Section 3(2) of ERISA.
"Welfare Plan" means each Company Benefit Plan which is an "employee
welfare benefit plan" within the meaning of Section 3(1) of ERISA.
2.12. Environmental Matters. (a) (i) Except as set forth in Schedule
2.12(a)(i), each Company at all times has been operated, and is, in material
compliance with all applicable Environmental Laws, including all limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in all applicable Environmental Laws.
19
(ii) Except as set forth in Schedule 2.12(a)(ii), each
Company (1) has obtained, and is in compliance
with, all material permits, licenses,
authorizations, registrations and other
governmental consents required by applicable
Environmental Laws ("Environmental Permits"), and
(2) has made all appropriate filings for issuance
or renewal of such Environmental Permits.
(iii) Except as set forth on Schedule 2.12(a)(iii), all
of the assets and properties owned, leased,
operated or controlled by either Company are free
of any Hazardous Substances (except those
authorized pursuant to and in accordance with
Environmental Permits held by the Companies) and
are free of all contamination arising out of,
relating to, or resulting from any Hazardous
Substances, and to Sellers' knowledge there has
been no release or other dissemination at any time
of any Hazardous Substances at, on, or about,
under or within any assets or properties owned,
leased, operated or controlled by either Company
or any predecessor thereof (other than pursuant to
and in accordance with Environmental Permits).
(iv) Except as set forth in Schedule 2.12(a)(iv), there
are no claims, notices (including, without
limitation, notices that either Company is or may
be a potentially responsible person or otherwise
liable in connection with any waste disposal or
other site containing Hazardous Substances),
civil, criminal or administrative actions, suits,
hearings, investigations, inquiries or proceedings
pending or to Sellers' knowledge threatened that
are based on or related to any Environmental
Matters (including, without limitation, the
failure to comply with any Environmental Law or
the failure to have, or to comply with, any
Environmental Permits).
(v) Except as set forth in Schedule 2.12(a)(v), to
Sellers' knowledge there are no past or present
conditions, events, circumstances, facts,
activities, practices, incidents, actions,
omissions or plans: (1) that may interfere with or
prevent continued compliance by the Companies with
Environmental Laws or the requirements of
Environmental Permits, or (2) that may give rise
to any liability or other obligation under any
Environmental Laws that may require either Company
to incur any Environmental Costs, or (3) that may
form the basis of any claim, action, suit,
20
proceeding, hearing, investigation or inquiry
against or involving either Company.
(vi) Except as set forth in Schedule 2.12(a)(vi), there
are no underground or aboveground storage tanks,
incinerators or surface impoundments at, on, under
or within, or to Sellers' knowledge about, any of
the assets or properties leased, operated or
controlled by either Company. Schedule 2.12(a)(vi)
also lists all underground or aboveground storage
tanks, incinerators or surface impoundments that
were removed from any such assets or properties
since the Companies have operated or leased such
property (and to Sellers' knowledge prior
thereto).
(vii) Except as set forth on Schedule 2.12(a)(vii),
neither Company has used any waste disposal site,
or otherwise disposed of, transported, or arranged
for the transportation of, any Hazardous
Substances to any place or location.
(viii) Except as set forth in Schedule 2.12(a)(viii), no
lien exists, and to Sellers' knowledge no
condition exists which could result in the filing
of a lien, against any assets or properties owned,
leased, operated or controlled by either Company
under any Environmental Law or relating to any
Environmental Matter.
(b) Sellers have delivered to Buyer true and complete copies and
results of any reports, studies, analyses, tests, or monitoring
in the possession of or concerning the Companies, in each case
relating to any Environmental Matters (including without
limitation any Hazardous Substances at, on, about, under or
within any assets or properties owned, leased, operated or
controlled by either Company or any predecessor thereof).
For the purposes of this Section 2.12, the following terms shall have
the meanings indicated:
"Environmental Costs" means, without limitation, any actual or
potential investigation, cleanup, remediation, removal, or other response costs
(which without limitation shall include costs to cause either Company to come
into compliance with Environmental Laws), expenses (including without limitation
fees and disbursements of consultants, counsel, and other experts in connection
with any environmental investigation, testing, audits or studies, response
actions, or litigation), losses, liabilities or obligations (including without
limitation, liabilities or obligations under any lease or other contract),
payments, damages (including without limitation any actual, punitive or
consequential damages under any statutory laws, common law cause of action or
contractual obligations or otherwise, including without limitation damages (a)
of third parties for personal injury or property damage, or (b) to natural
resources), civil or criminal fines or penalties, judgments, and amounts paid in
21
settlement arising out of, relating to, or resulting from any Environmental
Matter.
"Environmental Laws" means, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. xx.xx. 9601 et
seq., the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C.
xx.xx. 11001 et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
xx.xx. 6901 et seq., the Toxic Substances Control Act, 15 U.S.C. xx.xx. 2601 et
seq., the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. xx.xx.
136 et seq., the Clean Air Act, 42 U.S.C. xx.xx. 7401 et. seq., the Clean Water
Act (Federal Water Pollution Control Act), 33 U.S.C. xx.xx. 1251 et seq., the
Safe Drinking Water Act, 42 U.S.C. xx.xx. 300f et seq., the Occupational Safety
and Health Act, 29 U.S.C. xx.xx. 641, et seq., the Hazardous Materials
Transportation Act, 49 U.S.C. xx.xx. 1801, et seq., as any of the above statutes
have been or may be amended from time to time, all rules and regulations
promulgated pursuant to any of the above statutes, and any other foreign,
federal, state or local law, statute, ordinance, rule or regulation governing
Environmental Matters, as the same have been or may be amended from time to
time, including any common law cause of action providing any right or remedy
relating to Environmental Matters, all indemnity agreements and other
contractual obligations (including leases, asset purchase and merger agreements)
relating to Environmental Matters, and all applicable judicial and
administrative decisions, orders, and decrees relating to Environmental Matters.
"Environmental Matter" means any matter arising out of, relating to,
or resulting from pollution, contamination, protection of the environment, human
health or safety, health or safety of employees, sanitation, and any matters
relating to emissions, discharges, disseminations, releases or threatened
releases, of Hazardous Substances into the air (indoor and outdoor), surface
water, groundwater, soil, land surface or subsurface, buildings, facilities,
real or personal property or fixtures or otherwise arising out of, relating to,
or resulting from the manufacture, processing, distribution, use, treatment,
storage, disposal, transport, handling, release or threatened release of
Hazardous Substances.
"Hazardous Substances" means any pollutants, contaminants, toxic or
hazardous or extremely hazardous substances, materials, wastes, constituents,
compounds, chemicals, natural or man-made elements or forces (including, without
limitation, petroleum or any by-products or fractions thereof, any form of
natural gas, Xxxxxx Amendment materials, lead, asbestos and asbestos-containing
materials ("ACM"), building construction materials and debris, polychlorinated
biphenyls ("PCBs") and PCB-containing equipment, radon and other radioactive
elements, ionizing radiation, electromagnetic field radiation and other
non-ionizing radiation, sonic forces and other natural forces, infectious,
carcinogenic, mutagenic, or etiologic agents, pesticides, defoliants,
explosives, flammables, corrosives and urea formaldehyde foam insulation) that
are regulated by, or form the basis of liability under, any Environmental Laws.
2.13. Consents. Except as set forth in Schedule 2.13 and under the HSR
Act, no consent, approval or authorization of, or exemption by, or filing with,
any governmental authority or third party is required to be obtained or made by
22
either Sellers or either Company in connection with the execution, delivery and
performance by Sellers of this Agreement or the taking by Sellers of any other
action contemplated hereby.
2.14. Taxes. (a) Except as set forth in Schedule 2.14(a), all Tax
Returns required to be filed by or with respect to each Company have been
properly and timely filed and all such Tax Returns are complete and accurate in
all material respects. Except to the extent reserved or reflected against on the
March 31 Balance Sheet, all Taxes due with respect to such Tax Returns or which
are otherwise due and payable by each Company have been paid in full excluding
those arising as a result of the Section 338(h)(10) Elections referred to in
Section 4.09. All Taxes required to be withheld and paid over by each Company to
any relevant taxing authority in connection with payments to employees,
independent contractors, creditors, stockholders or to third parties have been
so withheld and paid over.
(b) Except as set forth in Schedule 2.14(b): (i) no Tax authority in a
jurisdiction where neither Company files Tax Returns has made a claim, assertion
or threat that either Company or is or may be subject to Tax in such
jurisdiction; (ii) no deficiencies for any Tax have been threatened, proposed,
asserted or assessed against either Company which have not been satisfied; (iii)
no audits or examinations with respect to either Company are ongoing or have
been threatened or proposed by the Internal Revenue Service or the appropriate
state, local or foreign Tax authority; (iv) no waivers or extensions of statutes
of limitation with respect to Taxes have been given by or requested with respect
to either Company; (v) there are no tax rulings, requests for rulings, or
closing agreements relating to either Company which could affect the liability
for Taxes of either Company for any period (or portion of a period) after the
Closing; (vi) no power of attorney has been granted by either Company with
respect to any matter relating to Taxes of either Company which is currently in
force.
(c) Neither Company is a party to or liable under any Tax Sharing
Agreement. Except as set forth in Schedule 2.14(c), each Company has not, with
respect to any taxable period for which the applicable statute of limitations
has not run, filed a combined, consolidated or unitary Tax Return with respect
to any affiliated group of which either Seller is not the common parent.
Schedule 2.14(c) sets forth a complete list of all states, territories and
jurisdictions (foreign and domestic) in which either Company has filed Income
Tax Returns for taxable periods ending on or after December 31, 1991.
(d) Bostek is, and since its formation has been, and will be until the
Closing Date, properly qualified as an "S Corporation" under Section 1361(a) of
the Code, and Bostek is, and since its formation has been, and will be until the
Closing Date so properly qualified for state and local Income Tax purposes
pursuant to analogous state or local provisions in the jurisdictions set forth
in Schedule 2.14(c).
(e) There are no Tax liens on any assets of either Company, except
liens for Taxes not yet due and payable;
23
(f) As used in this Agreement:
(i) The term "Tax" (including, with correlative
meaning, the terms "Taxes" and "Taxable") includes
all federal, state, local and foreign income,
profits, franchise, gross receipts, environmental,
customs duty, capital stock, communications
services, severance, stamp, payroll, sales,
employment, unemployment, disability, use,
property, withholding, excise, production, value
added, occupancy and other taxes, duties or
assessments of any nature whatsoever, together
with all interest, penalties and additions imposed
with respect to such amounts and any interest in
respect to such penalties and additions, and
includes any liability for Taxes of another person
by contract, as a transferee or successor, under
Treasury Regulationss. 1.1502-6 or analogous
state, local, or foreign law provision, or
otherwise.
(ii) The term "Income Tax" means any federal, state,
local or foreign Tax or Taxes (i) based upon,
measured by, or calculated with respect to, net
income or net receipts, proceeds or profits, or
(ii) based upon, measured by, or calculated with
respect to multiple bases (including, but not
limited to, corporate franchise or occupation
Taxes) if such Tax may be based upon, measured by,
or calculated with respect to one or more bases
described in (i) above.
(iii) The term "Tax Return" includes all returns and
reports (including elections, declarations,
disclosures, schedules, estimates and information
returns) required to be supplied to a Tax
authority relating to Taxes.
(iv) The term "Income Tax Return" includes all Tax
Returns relating to Income Taxes.
(vi) The term "Treasury Regulations" means the
regulations prescribed under the Code.
(vii) The term "Sellers' Group" means any "affiliated
group" (as defined in Section 1504(a) of the Code
without regard to the limitations contained in
Section 1504(b) of the Code) that includes either
Seller or any predecessor of or successor to
either Seller (or another such predecessor or
successor).
(g) Since March 31, 1999, neither Company has made any payment or
distribution of cash or other assets to Sellers other than those set forth on
24
Schedule 2.14(g), which schedule sets forth the purpose of each such payment
(including, in the case of distributions to pay taxes, the quarter and year in
respect of which the tax obligation accrued).
2.15. Fees. Except as set forth on Schedule 2.15, neither Company and
neither Seller has paid or become obligated to pay any fee or commission to any
broker, finder or intermediary in connection with the transactions contemplated
hereby.
2.16. Significant Customers and Suppliers. Schedule 2.16 sets forth a
list of (i) the ten most significant suppliers in materials or services to the
Business during the last twelve months ("Major Suppliers") and (ii) the ten most
significant customers of products or services of the Business during the last
twelve months (the "Major Customers"). Except as set forth on Schedule 2.16, no
Major Supplier or Major Customer has during the last twelve months decreased
materially or, to the knowledge of Sellers , threatened to materially decrease
or limit materially its provision of services or supplies to the Business. To
Sellers' knowledge, there has been no termination, cancellation or limitation
of, or any material modification or change in, the business relationships of the
Business, with any Major Supplier or Major Customer.
2.17. Intercompany Transactions. Schedule 2.17 sets forth a list of
(a) all transactions between either Company, on the one hand, and either Seller
or any of either Seller's affiliates, on the other hand, since January 1, 1997,
(b) all assets, properties and services of either Company used by Sellers or any
of its affiliates, or vice versa, at any time since January 1, 1997 and (c) all
Commitments between either Company, on the one hand, and either Seller or any of
either Seller's affiliates, on the other hand. The Business has been conducted
by Sellers using only assets of the Companies and Sellers have no other business
lines or activities that are used in connection with, or similar to, the
Business.
2.18. Insurance. All of the material assets of the Companies and all
aspects of the Business that are of insurable character are covered by insurance
with reputable insurers against risks of liability, casualty and fire and other
losses and liabilities customarily obtained to cover comparable businesses and
assets in amounts, scope and coverage which are consistent with prudent industry
practice. Neither Company is in default with respect to its obligations under
any material insurance policy maintained by it. Schedule 2.18 sets forth a list
of all insurance coverage carried by the Companies, the carrier and the terms
and amount of coverage. All such policies and other instruments are in full
force and effect and all premiums with respect thereto have been paid. Neither
Company has failed to give any notice or present any claim under any such
insurance policy in due and timely fashion or as required by any of such
insurance policies, and neither Company has otherwise, through any act, omission
or non-disclosure, jeopardized or impaired full recovery of any claim under such
policies, and there are no claims by either Company under any of such policies
to which any insurance company is denying liability or defending under a
reservation of rights or similar clause. Neither Company has received notice of
any pending or threatened termination of any of such policies or any premium
increases for the current policy period with respect to any of such policies and
the consummation of the transactions contemplated by this Agreement will not
result in any such termination or premium increase.
25
2.19. Year 2000. Except as set forth on Schedule 2.19, the internal
hardware and software and interfaces related to such hardware and software are
Year 2000 Compliant and, to Sellers' knowledge, customer and vendor software and
interfaces related to such hardware and software are Year 2000 Compliant.
"Year 2000 Compliant" means the successful operation prior to, during
and after January 1, 2000 without error relating to or as a result of date data,
the successful management and manipulation of data involving dates, including
single century formulas and multi-century formulas and the obtaining of correct
results for date calculations that are both chronologically earlier and later
than December 31, 1999 and in date calculations using the date September 9,
1999.
2.20. Sole Representations and Warranties. The representations and
warranties contained in this Article II are the only representations and
warranties made by Sellers in connection with the transactions contemplated by
this Agreement and supersede any and all previous written or oral statements
made by the Companies and Sellers to Buyer.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Sellers on the date hereof and
on the Closing Date as follows:
3.01. Organization. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, and has all requisite corporate power and authority to carry on
its business as it is now being conducted, and to execute, deliver and perform
this Agreement and to consummate the transactions contemplated hereby.
3.02. Corporate Power and Authority; Effect of Agreement. The
execution, delivery and performance by Buyer of this Agreement and the
consummation by Buyer of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Buyer. This
Agreement has been duly and validly executed and delivered by Buyer and
constitutes the valid and binding obligation of Buyer, enforceable against Buyer
in accordance with its terms, except to the extent that such enforceability (i)
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to creditors' rights generally, and (ii) is subject to
general principles of equity. The execution, delivery and performance by Buyer
of this Agreement and the consummation by Buyer of the transactions contemplated
hereby will not, with or without the giving of notice or the lapse of time, or
both, (i) violate, or require any consent under, any material contract or other
commitment of Buyer, (ii) violate any provision of law, rule or regulation to
which Buyer is subject, (iii) violate any order, judgment or decree applicable
to Buyer or (iv) violate any provision of the Certificate of Incorporation or
the By-laws of Buyer; except, in each case, for violations which in the
aggregate would not materially hinder or impair the consummation of the
transactions contemplated hereby.
26
3.03. Consents. Except under the HSR Act, no consent, approval or
authorization of, or exemption by, or filing with, any governmental authority or
third party is required to be obtained or made by Buyer in connection with the
execution, delivery and performance by Buyer of this Agreement, or the taking by
Buyer of any other action contemplated hereby.
3.04. Availability of Funds. Buyer will have available on the Closing
Date sufficient funds to enable it to consummate the transactions contemplated
by this Agreement.
3.05. Purchase for Investment. Buyer is purchasing the Stock for
investment and not with a view to any public resale or other distribution
thereof.
3.06. Fees. Neither Buyer nor any of Buyer's affiliates has paid or
become obligated to pay any fee or commission to any broker, finder or
intermediary (other than bonus arrangements with employees of Buyer) in
connection with the transactions contemplated hereby.
3.07. Registration Rights. Except as set forth on Schedule 3.07, Buyer
has not granted as of the date hereof any registration rights with respect to
any of its equity securities or guaranteed the sales price of any equity
security upon the sale thereof by any shareholder.
3.08. Sole Representations and Warranties. The representations and
warranties contained in this Article III are the only representations and
warranties made by Buyer in connection with the transactions contemplated by
this Agreement and supersede any and all previous written or oral statements
made by Buyer to either Company or to either Seller.
ARTICLE IV
COVENANTS
4.01. Compliance with Antitrust Laws; Regulatory and Other Consents.
(a) Each of Buyer and Sellers shall make all required filings under the HSR Act
not later than five business days from the date hereof and otherwise cooperate
with the other in making filings under the HSR Act and shall use its best
efforts to take, or cause to be taken, all actions necessary, proper or
advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement, including using its best efforts to
resolve such objections, if any, as the Antitrust Division of the Department of
Justice (the "Antitrust Division") or the Federal Trade Commission (the "FTC")
or state antitrust enforcement or other governmental authority (collectively,
the "Regulatory Agencies") may assert under the antitrust laws with respect to
the transactions contemplated hereby. In the event an action is instituted by
any person or entity challenging the transactions contemplated hereby as
violative of the antitrust laws, each of Buyer and Sellers shall use their best
efforts to resist or resolve such action.
(b) The parties agree to cooperate in obtaining any consents of any
third parties (in addition to the Antitrust Division, the FTC or other parties
or agencies, whose consents or approvals are covered elsewhere herein) required
in connection with the transactions contemplated hereunder (each, a "Required
27
Consent"). The parties agree that in the event such a Required Consent is not
obtained prior to the Closing and the Closing occurs, Sellers will, subsequent
to the Closing, cooperate with Buyer and the Companies in attempting to obtain
the Required Consent.
(c) Subject to the terms and conditions in this Agreement, each of the
parties hereto shall use its reasonable best efforts to take promptly, or cause
to be taken, all actions and to do promptly, or cause to be done, all things
necessary, proper or advisable under applicable law to consummate and make
effective the transactions contemplated hereby.
4.02. Conduct of Business. Except as may be otherwise contemplated by
this Agreement or required by any of the documents listed in the Schedules to
this Agreement or except as Buyer may otherwise consent to in writing, from the
date hereof and prior to the Closing, Sellers shall cause the Companies to (i)
in all material respects, operate the Business only in the ordinary course; (ii)
use their reasonable efforts to preserve intact their business organization and
not make or institute any material changes in its methods of purchase, sale,
management, accounting or operation; (iii) maintain their properties, machinery
and equipment in sufficient operating condition and repair to enable them to
operate their business in all material respects in the manner in which their
business is currently operated, except for substantial maintenance required by
reason of fire, flood, earthquake or other acts of God; (iv) use their
reasonable efforts to continue all material existing insurance policies (or
comparable insurance) of or relating to each Company in full force and effect;
(v) use their reasonable efforts to keep available until the Closing the
services of their present officers, employees and agents (as a group); (vi) use
their reasonable efforts to preserve their relationships with their material
lenders, suppliers, customers, licensors and licensees and others having
material business dealings with either Company such that their business will not
be materially impaired; (vii) not acquire assets or capital stock or other
interest in any other entity; (viii) not enter into, modify or amend any
employment, severance, stay-pay, termination or similar agreements or
arrangements or grant any bonus, salary increase, severance or termination pay
to any employee, officer, director or consultant other than in the ordinary
course of business consistent with past practice; (ix) not enter into, adopt or
amend any employee benefit or similar plan; (x) not enter into, modify or waive
any confidentiality, standstill or non-compete agreement or arrangement; (xi)
create any Encumbrance on any property or asset (whether tangible or intangible)
of either Company outside the ordinary course of business; (xii) sell, assign,
transfer, lease or otherwise dispose of any assets of either Company; (xiii) not
take any action that would likely result in any of the representations and
warranties set forth in Article II becoming false or inaccurate in any material
respect; (xiv) not enter into or consummate any transactions with an affiliate
which transaction is outside the ordinary course of business or unrelated to the
Business; and (xv) not agree in writing or otherwise to do any of the things
prohibited by this Section 4.02.
4.03. Access. From the date hereof and prior to the Closing, Sellers
shall provide or cause the Companies to provide Buyer and its counsel,
accountants and other representatives (a) with such information as Buyer may
from time to time reasonably request with respect to the Companies, the Business
and the transactions contemplated by this Agreement; (b) reasonable access upon
28
reasonable notice to the properties, books, contracts, documents and records of
the Companies and the Business as Buyer may from time to time reasonably
request; (c) access to employees, agents and representatives for the purposes of
such meetings and communications as Buyer reasonably desires; and (d) with the
prior consent of Sellers in each instance (which consent shall not be
unreasonably withheld), access to vendors, customers, manufacturers of its
machinery and equipment, and others having business dealings with the Companies.
Such access shall include without limitation access to the books, records,
schedules, work papers and audit programs of the Companies and the Companies'
accountants and access to representatives of such accountants. Any disclosure
whatsoever during such investigation by Buyer shall not constitute an
enlargement of or additional representations or warranties of Sellers beyond
those specifically set forth in this Agreement except as otherwise expressly
provided herein. As promptly as practicable after the date hereof, Sellers and
Buyer shall cooperate in taking reasonable actions toward integrating the
Business with Buyer's operations.
4.04. No Solicitation. From the date of this Agreement until the
Closing or until terminated pursuant to Article VIII, other than in connection
with the transactions contemplated hereby, none of the Companies or Sellers
shall solicit, propose or facilitate (including by way of providing information
regarding the Business or either Company to any third party), directly or
indirectly, any inquiries, discussions or proposals for, continue or enter into
negotiations looking toward, or enter into or consummate any agreement or
understanding in connection with any proposal regarding any purchase or other
acquisition of all or any portion of the Business (other than the ordinary
course of business sale of inventory or replacement of assets), either Company
or any of the equity securities (whether newly issued or currently outstanding)
of either Company, or any merger, business combination or recapitalization
involving either Company, and Sellers will cause each Company's officers,
directors, employees, representatives, agents and affiliates to refrain from any
of the above.
4.05. Further Assurances. At any time or from time to time after the
Closing, each party shall, at the request of the other party, execute and
deliver any further instruments or documents and take all such further action as
such other party may reasonably request in order to evidence the consummation of
the transactions contemplated hereby.
4.06. Confidentiality Agreements. At the Closing, Sellers shall
provide to Buyer a list of all parties who received confidential information
with respect to either Company in connection with the potential acquisition of
either Company and copies of any confidentiality agreements entered into with
respect thereto. Sellers agree, at the request of Buyer or either Company, to
use their reasonable best efforts to enforce their rights under such
confidentiality agreements on behalf of Buyer and the Companies.
4.07. Notice. Sellers shall have a continuing obligation to promptly
notify Buyer in writing as to any matter hereafter arising or discovered which
becomes known to Sellers prior to the Closing (except for matters brought to
Sellers' attention by Buyer in writing) which, if existing or known at the date
of this Agreement, would have been required to be set forth or described in any
Schedule to this Agreement or otherwise would have resulted in any
representation or warranty of Sellers contained herein being false or inaccurate
29
in any material respect. No disclosure made by Sellers following the date hereof
shall be deemed to amend or modify any representation or warranty contained in
this Agreement or the Schedules hereto.
4.08. Confidentiality. Sellers agree that neither Seller nor any of
either Seller's affiliates will disclose any Confidential Information (as
defined below) after the date hereof to any third party, except as required by
law. "Confidential Information" shall mean any information concerning either
Company which is in the possession of Sellers and its affiliates (other than the
Companies) on the date hereof or on the Closing Date relating to the Business,
other than information which is or becomes available to the public (other than
as a result of the disclosure by Sellers or any of their affiliates (other than
the Companies) of such information in contravention of the covenants set forth
in this Section 4.08.
4.09. Responsibility for Taxes; Returns; Audits.
(a) Indemnification.
(1) Sellers shall be responsible for and indemnify and hold
harmless Buyer and its affiliates, including the Companies, from
and against any Losses arising with respect to:
(i) all Taxes of the Companies for any Taxable year or
period ending on or before the Closing Date, including
without limitation all Taxes arising from the Section 338
Elections,
(ii) for any Taxable year or period beginning before and
ending after the Closing Date, all Taxes of each Company for
the portion of such taxable period ending on and including
the Closing Date, and
(iii) all Taxes of Sellers or any affiliate thereof (other
than the Companies); provided, however, that Sellers shall
be permitted to cause Bostek to make distributions to
Sellers in accordance with Section 4.09(h). For purposes of
this Section 4.09(a), Sellers' obligation to indemnify Buyer
and its affiliates with respect to Taxes other than Income
Taxes shall apply only to the extent that the Losses
incurred with respect to any such Tax exceeds the reserves
for such Tax on the March 31 Balance Sheet, as such Balance
Sheet may be adjusted to reflect solely (i) any payments out
of such reserves and (ii) the operations of the Companies in
the ordinary course of business, subsequent to the date of
such Balance Sheet prior to the Closing Date.
30
(2) For purposes of this Section
4.09(a), whenever it is necessary to determine the
liability for Taxes of either Company for a
portion of a Taxable year or period that begins
before and ends after the Closing Date, the
determination of such Taxes for the portion of the
year or period ending on, and the portion of the
year or period beginning after, the Closing Date
shall be determined (i) in the case of Income
Taxes, based upon an interim closing of the books
of each Company (as appropriate) as of the close
of business on the Closing Date and (ii) in the
case of Taxes other than Income Taxes, (a) with
respect to sales, transfer, excise, gains, and
other Taxes based upon transfers or transactions,
based upon whether the relevant transaction
occurred on or prior to, or subsequent to, the
Closing Date, and (b) in the case of all other
Taxes (including real and personal property Taxes)
based upon the relative number of days in the
portion of the taxable period up to and including
the Closing Date and the relative number of days
in the portion of the taxable period subsequent to
the Closing Date.
(b) Tax Returns; Filing and Payments.
(1) Buyer shall timely prepare (or cause
to be prepared), and shall timely file, subject to
the participation, review and consent of Sellers
(which consent will not be unreasonably withheld)
(or cause to be timely filed) all Income Tax
Returns of each Company for any Taxable year or
period ending on or before the Closing Date which
are not required to be filed on or before the
Closing Date ("Short Period Returns"). The Short
Period Returns shall reflect, among other required
items (i) taxable income of Bostek (including
separately stated items) arising from the Section
338(h)(10) Elections; (ii) other taxable income of
Bostek (including separately stated item); and
(iii) the amount of Bostek's gain recognized, if
any, pursuant to Section 1374 of the Code and
related tax liability under Section 1374 and its
state counterpart. Such Short Period Returns shall
be prepared and filed in accordance with past
practice and custom and on such Tax Returns, no
positions shall be taken, elections made (other
than the Section 338(h)(10) Elections), or methods
adopted that are inconsistent with positions
taken, elections made, or methods used in filing
similar Tax Returns in prior periods. Sellers
shall, consistent with the manner that payments
31
must be made with respect to each of such Income
Tax Returns, upon written notice by Buyer, provide
Buyer with funds to timely pay the Tax liability
shown on such Income Tax Return.
(2) Buyer shall prepare, subject to the
participation, review and consent of Sellers
(which consent will not be unreasonably withheld)
(or cause to be prepared) and file (or cause to be
filed) all Income Tax Returns of the Companies for
any Taxable year or period commencing prior to the
Closing Date and ending subsequent to the Closing
Date. Sellers shall, consistent with the manner
that payments must be made with respect to each
such Income Tax Return, upon written notice by
Buyer, provide Buyer with funds to timely pay the
portion of the Tax liability shown on such Income
Tax Return which is described as being the
responsibility of Sellers under Section 4.09(a),
and Buyer shall pay or cause to be paid such
amounts to the appropriate Tax authority.
(3) With respect to any Tax Return
referred to in clause 4.09(b)(1) and 4.09(b)(2)
above, Buyer shall provide Sellers a draft of such
Tax Return and Tax information (including, without
limitation, work papers and schedules) for review
of such Tax Return in a timely manner no later
than 30 days prior to the due date (taking into
account valid extensions) for the filing of such
Tax Return. The parties shall consult in good
faith with regard to the form and content of such
Returns, provided that, in the event of any
disagreement, the Returns shall be filed in the
form set forth by the party with responsibility
for the preparation of the Return. Neither Buyer
nor any of Buyer's affiliates shall amend, refile,
or otherwise modify (without the prior written
consent of Sellers) any Tax Return relating in
whole or in part to Bostek with respect to any
taxable year ending before the Closing Date.
(c) Termination of Tax Sharing Agreements; Powers of Attorney.
(1) Any Tax Sharing Agreement to which
either Company is a party shall be terminated as
of the Closing Date, and neither Company shall
have further obligations thereunder. For purposes
of this Agreement, the term "Tax Sharing
Agreement" includes any agreement or arrangement,
whether or not written, providing for the sharing
32
or allocation of liability for Taxes of the
parties thereto.
(2) All powers of attorney granted by
either Company with respect to Taxes shall be
revoked as of the Closing Date.
(3) Sellers agree that between the date
of the Agreement and the Closing Date, it will not
cause or permit either Company to (i) make any
change in such Company's Tax accounting methods,
any new election with respect to Taxes or any
modification or revocation of any existing
election with respect to Taxes or (ii) settle or
otherwise dispose of any Tax audit, dispute, or
other Tax proceeding, in each case without Buyer's
express written consent thereto.
(d) Section 338 Elections.
(1) At Buyer's option, Sellers will join
with Buyer in making timely elections under
Section 338(h)(10) of the Code and any
corresponding elections under state, local or
foreign tax law with respect to the purchase and
sale of the stock of Bostek (collectively, the
"Section 338(h)(10) Elections"). Sellers and Buyer
shall cooperate in all necessary actions to effect
the Section 338(h)(10) Elections and shall report
the transactions consistent with the making of the
Section 338(h)(10) Elections and shall take no
position contrary thereto without the written
consent of the other party.
(2) If the Section 338(h)(10) Elections
are made, Sellers will have an Income Tax
liability in an amount equal to the Section
338(h)(10) Payment (as defined below).
Notwithstanding anything to the contrary in
Section 4.09(a), Buyer shall pay to Sellers, not
later than 30 days before the Section 338(h)(10)
Payment must be paid by Sellers to the applicable
governmental authority, an amount equal to (i) the
difference between (x) the combined Federal and
State Income Tax liability of the Sellers assuming
the Section 338(h)(10) Elections were made, and
(y) the combined Federal and State Income Tax
liability of the Sellers assuming the Section
338(h)(10) Elections were not made (the "Section
338(h)(10) Payment"), plus (ii) a gross up payment
equal to the additional Taxes incurred by Sellers
by virtue of receiving the Section 338(h)(10)
Payment. Buyer shall pay Sellers all federal,
state, local and foreign entity level taxes
33
incurred by Bostek under Section 1374 or its
equivalent as a result of, arising from or
attributable to the making of the Section
338(h)(10) Elections, up to a maximum of
[$56,000], such payment to be made not later than
30 days before the same must be paid by Sellers to
the applicable governmental authority. Buyer shall
indemnify Sellers against Losses arising out of
any failure by Buyer to make the payments required
of Buyer pursuant to this paragraph (2).
(3) Buyer shall be responsible for
preparing drafts of all forms, attachments and
schedules necessary to effectuate the Section
338(h)(10) Elections including, without
limitation, IRS Form 8023 or applicable successor
form, and any similar forms on applicable
successor forms under applicable state or local
income tax laws (the "Section 338(h)(10) Forms"),
subject to the review and consent of Sellers
(which consent will not be unreasonably withheld).
Sellers shall cooperate in good faith with Buyer
and shall promptly file with Buyer all information
reasonably requested by Buyer and relevant to the
preparation of the Section 338(h)(10) Forms.
Sellers and Buyer shall attempt in good faith to
execute at or prior to the Closing any and all
such Section 338(h)(10) Forms. In the event,
however, any Section 338(h)(10) Forms are not
executed at the Closing, at least 45 days prior to
the latest date for the filing of each Section
338(h)(10) Forms, Buyer shall furnish Sellers with
a copy of each such form for its review and
comment, together with Buyer's proposed
determination of the MADSP (as defined in
applicable Treasury Regulations under Section 338)
and allocation of the MADSP to the assets of
Bostek (the "Allocation").
(4) Buyer and Sellers agree to consult
in good faith with regard to the proposed
determination of the MADSP and the Allocation,
provided that Sellers shall accept Buyer's final
determination of the MADSP and the Allocation
(which Buyer shall provide to Sellers at least
fifteen days prior to the due date for filing of
the Section 338(h)(10) Forms), to the extent that
they are reasonable and consistent with applicable
Tax law. Sellers and Buyer will reflect such
Allocation in all applicable Tax Returns filed by
any of them, including but not limited to the
Section 338(h)(10) Forms. Sellers , Buyer and
Bostek shall not take a position before any Tax
authority or otherwise (including in any Tax
Return) inconsistent with the determination of the
34
MADSP and the Allocation unless and to the extent
required to do so pursuant to a determination (as
defined in Section 1313(a) of the Code or any
similar state or local law).
(e) Assistance and Cooperation.
(1) From and after the Closing Date, to
the extent reasonably requested by the other
party, Sellers and Buyer shall assist and
cooperate with the other party in the preparation
of any Tax Return which the other party is
responsible to file pursuant to Section 4.09(b)
herein and shall assist and cooperate with the
other party in preparing for any audits or
disputes relating to Taxes for which the other
party is responsible pursuant to this Agreement.
From and after the Closing Date, Sellers and Buyer
shall, pursuant to the other party's reasonable
request, make available to the other party all
information, records and documents reasonably
available to that party which are necessary for
the preparation of any Tax Return or resolution of
any audit or dispute. In all such cases, the party
seeking assistance or cooperation shall bear the
expenses of the other party incurred in connection
with respect thereto. Buyer and Sellers
acknowledge that any information obtained in
connection with the preparation of any Tax Return
, audit or other disputes pursuant to this Section
4.09(e) is of a confidential nature and each will
use reasonable commercial efforts under the
circumstances to maintain such confidentiality
(except to the extent that such information
suggests or is evidence of a breach of an
obligation from Buyer to Sellers or vice versa).
(2) From and after the Closing Date,
Sellers and Buyer shall provide timely notice to
the other in writing of any pending or threatened
tax audits or assessments of the Companies for
taxable periods for which the other is liable
under this Agreement, and shall furnish the other
with copies of all correspondence received from
any taxing authority in connection with any tax
audit or information request with respect to any
such taxable period.
(f) Certain Taxes. Sellers shall bear, and shall indemnify and hold
harmless Buyer and its affiliates (including the Companies) from and against,
all sales, transfer, stamp, documentary, real estate transfer, real estate
gains, and other similar Taxes incurred in connection with the transactions
contemplated by this Agreement. Sellers shall timely file any Returns required
35
to be filed in connection with such Taxes, and Buyer shall cooperate with
Sellers in such preparation.
(g) Contests.
(1) Subject to the provisions of this
Section 4.09(g) Sellers shall have the right, at
their own expense, to control, manage and be
responsible for any audit, contest, or similar
proceeding with respect to Income Taxes for any
Taxable year or period ending on or before the
Closing Date and shall have the right to settle or
contest in its discretion any such audit, contest
or proceeding; provided, however, that (i) Sellers
shall not have the right to control any such
proceeding unless they first acknowledge in
writing their obligation to fully indemnify Buyer
for the Taxes at issue in the proceeding; (ii) no
settlement or disposition of any such proceeding
shall be made without Buyer's consent (which
consent shall not be unreasonably withheld) if the
same reasonably could be expected to affect
Buyer's liability for Tax in any taxable period or
portion of a taxable period ending after the
Closing Date; (iii) Buyer and Sellers shall
jointly control any Income Tax proceeding relating
to a taxable period that begins before, and ends
after, the Closing Date; and (iv) Buyer shall have
the right to attend and participate in (but not
control) at its own expense, any proceeding to the
extent that it relates to Income Taxes, other than
Income Taxes for which either Company filed a Tax
Return as part of the consolidated, combined, or
unitary group of which Sellers are the common
parent.
(2) Except for proceedings the control
of which is determined pursuant to Section
4.09(g)(1) above, Buyer shall, at its own expense,
control, manage and solely be responsible for any
audit, contest, claim, proceeding or inquiry with
respect to Income Taxes for any Taxable year or
period ending after the Closing Date, and shall
have the exclusive right to settle or contest any
such audit, contest, claim, proceeding or inquiry
without the consent of any other party, provided
Sellers do not have an obligation to indemnify
Buyer for Taxes at issue in the proceeding (in
which case the provisions of Article IX shall
govern.
(h) Subchapter S Tax Distributions. On or prior to the Closing Date,
Bostek may distribute to Sellers, with respect to their shares of common stock
36
in Bostek, an aggregate amount (the "Tax Distribution Amount") equal to (i) the
estimated aggregate federal and state income tax liability of such Sellers with
respect to the S corporation income from the normal operation of Bostek during
the period beginning on April 1, 1999 and ending on the Closing Date, determined
without taking into account items of income, gain, deduction, loss and the
likely result of the Section 338(h)(10) Elections and the transactions
contemplated hereby, minus (ii) the amount previously distributed for such
purpose. The Tax Distribution Amount shall be calculated by Bostek's independent
auditors (subject to review and consent of Buyer and its accountants, which
consent will not be unreasonably withheld), and the amount of Sellers' aggregate
federal and state income tax liability as a result of ownership of stock in
Bostek shall be calculated at a rate not to exceed the rate determined based on
the following: (i) each Seller is a natural person and resident of the
Commonwealth of Massachusetts, (ii) each Seller is subject to the highest
marginal federal and state income tax rates for 1999, and (iii) the allocations
for Bostek shall be deemed, for 1999, to be the sole source of income and loss
of the Sellers.
4.10. Cooperation with Public Filings. Each Seller shall cooperate,
and shall cause each Company and each Company's accountants to cooperate, with
Buyer and its affiliates and advisors in the preparation and filing of any
registration statement or other public filings (and any related documentation or
filings) in a timely fashion and shall use, and cause each Company to use, his
or its reasonable best efforts to assist Buyer in having any such registration
statement declared effective by the Securities and Exchange Commission as
promptly as practicable and in maintaining the effectiveness of any such
registration statement. If Sellers shall obtain knowledge of any information
pertaining to either Company that would require any amendment or supplement to
any registration statement, Sellers shall so advise Buyer in writing and shall
promptly furnish Buyer with all information as shall be required for such
amendment or supplement and shall promptly take such action as shall be required
to amend or supplement any such registration statement. Without limiting the
generality of the foregoing, Sellers shall use their best efforts to cause the
Companies' accountants (i) to issue a consent to the inclusion of their opinion
on the Companies' audited financial statements for 1998 and 1997, (ii) to issue
a consent to be referred to as experts in the appropriate sections of any
registration statement, and (iii) to provide a "comfort letter" in form and
substance reasonably acceptable to any underwriter of Buyer. Sellers acknowledge
that any breach of the foregoing will result in significant harm to Buyer with
Losses including the cost of causing an audit to be performed and the cost of
delaying the filing of any such registration statement. In addition, if
necessary, (i) Sellers shall use its reasonable best efforts to cause its
accountants to prepare an audited income statement for 1996 in as timely a
fashion as possible and consent the inclusion of their opinion thereon, and (ii)
Sellers shall cause Bostek's former accountants to issue a consent to the
inclusion of their opinion on the Companies' audited income statement for 1996.
4.11. Cash Management; Financing Arrangements. Sellers will cooperate
with Buyer in making preparations for the Companies to participate in banking
and financing programs of Buyer.
4.12. Non-Competition Agreement. Each Seller agrees that for a period
commencing on the date hereof and ending on the later of (i) the fifth
anniversary of the Closing Date, and (ii) one year following the date of such
37
Seller's termination of employment with each Company and its affiliates, such
Seller shall not, without the prior written consent of Buyer, (a) engage in any
Competitive Activity anywhere in the world (including, without limitation,
anywhere in the United States of America) or (b) directly or indirectly solicit
for employment, including, without limitation, recommending to any subsequent
employer the solicitation for employment of, any employee of either Company. The
parties hereto acknowledge and agree that (x) Sellers will receive substantial
and valuable benefits under this Agreement in consideration of the covenants and
agreements of Sellers set forth in this Section 4.12, (y) Buyer would not have
executed and delivered this Agreement, or agreed to consummate the transactions
contemplated hereby upon the terms and conditions set forth in this Agreement,
if Sellers had not entered into the covenants and agreements set forth in this
Section 4.12 and (z) the parties intend that such agreements and covenants be
enforceable and that it would be grossly inequitable if a court or judicial
tribunal were to not enforce such covenants and agreements to the fullest extent
provided herein. "Competitive Activity" shall mean engaging in any of the
following activities: (i) serving as a director of any Competitor; (ii) directly
or indirectly (x) controlling any Competitor or (y) owning any equity or debt
interests in any Competitor (other than equity or debt interests which are
publicly traded and do not exceed 5% of the particular class of interests then
outstanding) (it being understood that, if any such interests in any Competitor
are owned by an investment vehicle or other entity in which Sellers owns an
equity interest, a portion of the interests in such Competitor owned by such
entity shall be attributed to Sellers, such portion determined by applying the
percentage of the equity interest in such entity owned by Sellers to the
interests in such Competitor owned by such entity); (iii) directly or indirectly
soliciting, diverting, taking away, appropriating or otherwise interfering with
any of the customers or suppliers of the Business; or (iv) employment by
(including serving as an officer of), or providing consulting services to, any
Competitor. "Competitor" shall mean any entity that is engaged in the business
of buying and selling of computer components from manufacturers and distributors
whether from excess inventory, refurbished equipment or off-lease, without
regard to size, or is engaged in owning, operating or acquiring directly or
indirectly one or more Competitors, without regard to size. Notwithstanding
anything contained herein to the contrary, if Buyer, ACT or any successor or
assignee thereof shall be in default with respect to any of its obligations
under this Agreement, and such default shall continue for 15 business days (10
business days in the case of payment obligations) after Sellers provide written
notice of such defaults to Buyer, the covenants contained in this Section 4.12
shall be terminated and of nor further force or effect without further action
required by Sellers.
4.13. Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the Securities and Exchange Commission which
may permit the sale of restricted securities (as that term is used in Rule 144
under the Act) to the public without registration, Buyer agrees to do the
following so long as either Seller owns any of the shares of stock received
pursuant to Section 1.03(a)(ii) and such shares are restricted securities:
(a) beginning 90 days following the effective date of an IPO, make and
keep public information available as those terms are understood and defined in
Rule 144 of the Act;
38
(b) use its reasonable commercial efforts to file with the Securities
and Exchange Commission in a timely manner all reports and other documents
required of Buyer under the Act and the Securities Exchange Act of 1934, as
amended, after it has become subject to such reporting requirements; and
(c) furnish to Sellers, upon request therefor, a copy of the most
recent annual or quarterly report of Buyer, and such other reports and documents
so filed as either Seller may reasonably request in availing itself of any rule
or regulation of the Securities and Exchange Commission allowing a Seller to
sell any such securities without registration..
4.14. Parent Guaranty. From and after the Closing until the
consummation by Buyer of an IPO, ACT, for itself and for its successors and
assigns, hereby unconditionally guarantees the obligations of Buyer contained
herein including but not limited to the obligations contained in Section 1.03.
4.15. Exhibit and Schedule Completion; Tax Matters. Within 5 days from
the date hereof, Sellers shall deliver to Buyer all schedules and exhibits
hereto being prepared by Sellers and Buyer shall have 4 days after receipt
thereof to review such schedules and exhibits. If any of such schedules or
exhibits is not acceptable to Buyer in its sole discretion, Buyer shall have the
right to terminate this Agreement within such 4 day period. Buyer shall continue
its tax analysis of the Companies and, within 5 days from the date hereof, Buyer
shall deliver to Sellers an amendment to Section 4.09 hereof or a notice to
Sellers indicating that no amendment is required, and Sellers shall have 4 days
after receipt thereof to review such amendment or notice. If Sellers (in their
sole discretion) do not execute such amendment or notice within such 4 day
period, then this Agreement shall terminate. If this Agreement shall terminate
pursuant to this Section 4.15, then neither party shall have any obligation to
the other for any breach hereunder and this Agreement shall be deemed to have
never been entered into by the parties hereto.
ARTICLE V
CONDITIONS TO BUYER'S OBLIGATIONS
The obligation of Buyer to consummate the transactions contemplated by
this Agreement shall be subject to the satisfaction (or waiver) on or prior to
the Closing Date of all of the following conditions:
5.01. Representations, Warranties and Covenants of Sellers. Sellers
shall have complied in all material respects with its agreements and covenants
contained herein to be performed on or prior to the Closing Date, and the
representations and warranties of Sellers contained herein in the aggregate
shall be true in all material respects on and as of the Closing Date with the
same effect as though made on and as of the Closing Date, except (a) as
otherwise contemplated hereby, and (b) to the extent that any such
representations and warranties were made as of a specified date and as to such
representations and warranties the same shall continue on the Closing Date to
have been true in all material respects as of the specified date. For purposes
of the preceding sentence, specific material adverse effect and materiality
qualifiers contained in individual representations and warranties shall be
disregarded. Buyer shall have received a certificate of Sellers, dated as of the
39
Closing Date and signed by each Seller, certifying as to the fulfillment of the
condition set forth in this Section 5.01.
5.02. No Prohibition. No statute, rule or regulation or order of any
court or administrative agency shall be in effect which prohibits Buyer from
consummating the transactions contemplated hereby.
5.03. Consents. The applicable waiting period under the HSR Act shall
have expired or been terminated and all other consents, approvals,
authorizations, exemptions and waivers from governmental agencies and third
parties that shall be required for the consummation of the transactions
contemplated hereby, including those listed on Schedule 5.03, shall have been
obtained in form and substance reasonably satisfactory to Buyer.
5.04. Employment Agreements. Each Seller shall have executed
employment agreements in the form of Exhibit 5.04 (the "Employment Agreements").
5.05. No Material Adverse Change. Since March 31, 1999, the Companies
shall have not suffered any material adverse change in the business, assets,
liabilities or results of operations of the Companies taken as a whole except
for changes as result of general economic or industry conditions.
ARTICLE VI
CONDITIONS TO SELLERS' OBLIGATIONS
The obligation of Sellers to consummate the transactions contemplated by
this Agreement shall be subject to the satisfaction (or waiver) on or prior to
the Closing Date of all of the following conditions:
6.01. Representations, Warranties and Covenants of Buyer. Buyer shall
have complied in all material respects with its agreements and covenants
contained herein to be performed on or prior to the Closing Date, and the
representations and warranties of Buyer contained herein in the aggregate shall
be true in all material respects on and as of the Closing Date with the same
effect as though made on and as of the Closing Date, except (a) as otherwise
contemplated hereby, and (b) to the extent that any such representations and
warranties were made as of a specified date and as to such representations and
warranties the same shall continue on the Closing Date to have been true in all
material respects as of the specified date. For purposes of the preceding
sentence, specific material adverse effect and materiality qualifiers contained
in individual representations and warranties shall be disregarded. Sellers shall
have received a certificate of Buyer, dated as of the Closing Date and signed by
an officer of Buyer, certifying as to the fulfillment of the condition set forth
in this Section 6.01.
6.02. No Prohibition. No statute, rule or regulation or order of any
court or administrative agency shall be in effect which prohibits Sellers from
consummating the transactions contemplated hereby.
40
6.03. HSR Act. The applicable waiting period under the HSR Act shall
have expired or been terminated.
ARTICLE VII
STOCK CERTIFICATES; LEGEND
7.01. Securities Laws; Legend. (a) Each Seller represents and warrants
that: (i) he understands that the shares of common stock of Buyer being issued
pursuant to Section 1.03(a) have not been and will not be registered under the
Securities Act of 1933, as amended (the "Act"), and it is the intention of the
parties hereto that the issuance of such securities be exempt from registration
under the Act and the rules promulgated thereunder by the Securities and
Exchange Commission; (ii) he understands that the shares of common stock of
Buyer being issued pursuant to Section 1.03(a) may not be sold, transferred,
assigned, exchanged, pledged, encumbered or otherwise disposed of unless they
are registered under the Act or an exemption from registration is available;
(iii) he is acquiring the shares of common stock of Buyer being issued pursuant
to Section 1.03(a) for investment for his own account and not with a view to the
distribution thereof; (iv) he has, or together with his advisers, if any, have,
such knowledge and experience in financial and business matters that he is, or
the together with his advisers, if any, are, and will be capable of evaluating
the merits and risks relating to his acquisition of shares of common stock
pursuant to Section 1.03(a); (v) he has been given the opportunity to obtain
information and documents relating to Buyer and to ask questions of and receive
answers from representatives of Buyer concerning Buyer; and (vi) he is able to
bear the economic risk of a total loss of value of his interest in Buyer.
Sellers covenant that neither shall directly or indirectly sell, transfer,
assign, exchange, pledge, encumber or otherwise dispose of any shares of common
stock of Buyer obtained pursuant to Section 1.03(a) until after the first
anniversary of the Closing Date and then only in compliance with the Act.
(b) The certificates representing shares of common stock of Buyer
issued pursuant to Section 1.03(a) shall bear the following legend:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or any securities
regulatory authority of any state, and may not be sold, transferred,
assigned, exchanged, pledged, encumbered or otherwise disposed of
except in compliance with all applicable securities laws and except in
accordance with the provisions of a Agreement of Purchase and Sale, a
copy of which is available for inspection at the offices of the
Company."
ARTICLE VIII
TERMINATION PRIOR TO CLOSING
8.01. Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) By the mutual written consent of Buyer and Sellers; or
(b) By either Buyer or Sellers, by giving written notice of such
termination to the other party, if the Closing shall not have occurred on or
41
prior to July 31, 1999; provided that the terminating party is not in material
breach of its obligations under this Agreement; or
(c) By either Buyer or Sellers, by giving written notice of such
termination to the other party, if there shall have been a material breach by
the other party of any of its covenants or agreements contained herein and any
such breach results in a failure to be able to satisfy a condition to the
terminating party's obligation to consummate the transactions provided herein;
or
(d) By either Buyer or Seller as provided in Section 4.15.
8.02. Effect on Obligations. Termination of this Agreement pursuant to
this Article VIII shall terminate all obligations of the parties hereunder,
except for the obligations under Sections 9.11, 9.12 and 9.13 and this Section
8.02; provided, however, that nothing shall relieve the defaulting or breaching
party (whether or not it is the terminating party) from any liability to the
other party hereto.
ARTICLE IX
MISCELLANEOUS
9.01. Survival. The representations and warranties of the parties
hereto contained herein or in any agreement, certificate (including the Sellers'
Certificate and the Buyer's Certificate) or other document executed at or prior
to the Closing in connection herewith (an "Ancillary Document") shall expire on
the 18 month anniversary of the Closing Date, except that the representations
and warranties set forth in Sections 2.01, 2.07, 2.12 and 2.14 of this Agreement
shall survive the Closing Date until the expiration of the applicable statute of
limitations (including any extensions thereof). After the expiration of such
periods, any claim by a party hereto based upon any such representation or
warranty shall be of no further force and effect, except to the extent a party
has asserted a claim in accordance with this Article IX for breach of any such
representation or warranty prior to the expiration of such period, in which
event any representation or warranty to which such claim relates shall survive
with respect to such claim until such claim is resolved as provided in this
Article IX. The covenants and agreements of the parties hereto shall survive the
Closing until performed in accordance with their terms.
9.02. Agreement to Indemnify. (a) From and after the Closing Date,
Buyer shall indemnify, defend and hold harmless Sellers and any affiliate of
Sellers and each of Sellers' respective agents and representatives, and each of
Sellers' heirs, executors, successors and assigns (collectively, "Sellers'
Indemnified Group") from and against any liability, loss, damage, claim
(including third-party claims, whether or not meritorious), cost or expense
(including, without limitation, reasonable attorneys' fees and disbursements)
(collectively, "Losses") incurred or suffered by Sellers' Indemnified Group to
the extent the Losses arise out of, or result from (i) the failure of any
representation or warranty made by Buyer herein or in any Ancillary Document to
have been true when made and as of the Closing Date or (ii) the breach of any
covenant or agreement of Buyer contained herein or in any Ancillary Document.
42
(b) From and after the Closing Date, Sellers shall indemnify, defend
and hold harmless Buyer and any affiliate of Buyer and each of their respective
directors, officers, employees, agents and representatives, and each of the
heirs, executors, successors and assigns of any of the foregoing (collectively,
"Buyer's Indemnified Group") from and against all Losses incurred or suffered by
Buyer's Indemnified Group to the extent the Losses arise out of, or result from
(i) the failure of any representation or warranty made by Sellers herein or in
any Ancillary Document to have been true when made and as of the Closing Date,
(ii) the breach of any covenant or agreement of Sellers contained herein or in
any Ancillary Document, or (iii) any asset, property, right, obligation or
liability of either Company not primarily related to the Business including,
without limitation, any of the foregoing arising out of any discontinued
operation of either Company.
9.03. Indemnification Procedure. (a) The party seeking indemnification
under this Agreement (the "Indemnified Party") shall promptly notify the party
from which indemnification is being sought (the "Indemnifying Party") of the
facts and circumstances upon which the Indemnified Party intends to base a claim
for indemnification hereunder ("Notices"). Notice shall in all events be
considered prompt if given (a) no later than 30 days after the Indemnified Party
learns of the facts upon which it will claim such indemnification or (b) if
earlier, in sufficient time to allow the Indemnifying Party to exercise its
rights pursuant to this Section 9.03; provided, however, that the failure to
provide such Notice of claims promptly (so long as a notice of claims is given
before the date on which the applicable representation or warranty ceases to
survive) shall not affect the obligations of the Indemnifying Party hereunder
except to the extent the Indemnifying Party is prejudiced thereby. The
Indemnifying Party shall have the right, at its own cost, to participate jointly
in the defense of any third-party claim, demand, lawsuit or other proceeding in
connection with which the Indemnified Party has claimed indemnification
hereunder, and may elect to take over the defense of such claim within 10 days
following Notice thereof upon its written unconditional acknowledgment of its
obligation to indemnify the Indemnified Party with respect to such claim;
provided, however, that Sellers shall not be permitted to take over the defense
of any claim brought by any customer or supplier of the Business against any
member of Buyer's Indemnified Group for which indemnification is available
pursuant to this Article IX, and such member of Buyer's Indemnified Group shall
defend such claim; provided, further, that such member of Buyer's Indemnified
Group shall not settle or otherwise dispose of such claim without the consent of
Sellers, which consent shall not be unreasonably withheld or delayed. If the
Indemnifying Party makes such an election, (x) it shall keep the Indemnified
Party informed as to the status of such matter and shall send promptly copies of
all pleadings to the Indemnified Party, (y) with respect to any issue involved
in such claim, it shall have the sole right, with respect to claims or portions
of claims seeking monetary damages only, to settle or otherwise dispose of such
claim on such terms as it, in its sole discretion, shall deem appropriate;
provided, however, that the consent of the Indemnified Party to the settlement
or disposition shall be required if such settlement or disposition shall result
in any liability to, equitable relief against or adverse business effect on the
Indemnified Party, which consent shall not be unreasonably withheld or delayed,
and (z) the Indemnified Party shall have the right to participate jointly in the
defense of such claim, but shall do so at its own cost not subject to
reimbursement under Section 9.02. If the Indemnifying Party does not elect to
take over the defense of a third-party claim, the Indemnified Party shall have
the right to contest, compromise or settle such claim in the exercise of its
43
reasonable judgment; provided, however, that the consent of the Indemnifying
Party to any compromise or settlement of such claim shall be required if such
compromise or settlement shall result in any liability to the Indemnifying
Party, which consent shall not be unreasonably withheld or delayed.
(b) Notwithstanding the provisions of Section 9.03(a), with respect to
any third-party claim or demand that the Indemnifying Party is defending, the
Indemnified Party shall have the right to retain separate counsel to represent
it and the Indemnifying Party shall pay the fees and expenses of such separate
counsel if there are conflicts that make it reasonably necessary for separate
counsel to represent the Indemnified Party and the Indemnifying Party.
9.04. Other Indemnification Matters. (a) The indemnification provided
in this Article IX shall be the sole and exclusive remedy for any inaccuracy or
breach of any representation or warranty made by Sellers or Buyer in this
Agreement or in any Ancillary Document. All amounts payable by one party in
indemnification of the other (whether or not as provided in Section 9.04(d))
shall be considered an adjustment to the Purchase Price.
(b) Upon making any payment to an Indemnified Party for any
indemnification claim pursuant to this Article IX, the Indemnifying Party shall
be subrogated, to the extent of such payment, to any rights which the
Indemnified Party may have against any other parties with respect to the subject
matter underlying such indemnification claim.
(c) The amount of any Losses shall be computed net of any insurance
proceeds received by the Indemnitee or its Affiliates in connection therewith.
(d) The amount of any Losses shall be computed net of any tax benefit
realized by the Indemnitee or its Affiliates as a result of such Loss, or the
amount of any tax benefit realized by the Indemnitee as a result of any payment
made.
(e) Notwithstanding anything herein to the contrary, if either Seller
shall have indemnification obligations pursuant to this Agreement, such payment
shall be made 50% (or such other proportion as Buyer and Sellers may agree) in
cash by immediately available funds and 50% (or such other proportion as Buyer
and Sellers may agree) by transfer by such Seller of the number of shares having
an aggregate market value equal to the indemnification obligation of Sellers.
For purposes hereof, "market value" for a share of common stock of Buyer shall
be the average closing price per share of common stock of Buyer for the 10
trading days immediately preceding the date on which Buyer reclaims such shares.
If any future payment obligation pursuant to Section 1.03(c) shall be reduced
pursuant to clause (ii) above, the amount so reduced shall be deemed "paid" for
purposes of Section 1.03.
(f) With respect to Sellers' liability for claims made under clause
(b)(i) of Section 9.02: (i) Sellers shall have no liability for such claims
until the aggregate amount of the Losses incurred by Buyer's Indemnified Group
shall exceed $250,000, in which case Seller shall be liable only for the portion
44
of the Losses exceeding $250,000 (the "Deductible"), and (ii) Sellers shall have
no liability for such claims in excess of $2,500,000 (the "Cap"); provided,
however, that claims for breaches of any representations or warranties contained
in Sections 2.01, 2.12, 2.14, 2.15 and 2.17 shall not be subject to the
Deductible or the Cap.
(g) The material adverse effect and materiality (or correlative
meaning) qualifications included in the representations, warranties and
covenants shall have no effect on any provisions in this Article IX concerning
the indemnities of Sellers with respect to such representations, warranties and
covenants, each of which is given as though there were no material adverse
effect or materiality (or correlative meaning) qualification for purposes of
such indemnities.
9.05. Interpretive Provisions. (a) Whenever used in this Agreement,
"to Sellers' knowledge" or "to the knowledge of Sellers" shall mean the actual
knowledge of either of the Sellers and the knowledge that either would have
after due and reasonable inquiry.
(b) The words "hereof," "herein," "hereby" and "hereunder" and words
of similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision thereof.
(c) For purposes of this Agreement, each Company shall be deemed to be
affiliates of Sellers prior to the Closing and affiliates of Buyer after the
Closing.
9.06. Entire Agreement. This Agreement (including the Schedules) and
the Ancillary Documents constitute the sole understanding of the parties with
respect to the subject matter hereof.
9.07. Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties hereto; provided, however, that this
Agreement may not be assigned by either party hereto without the prior written
consent of the other (except that Buyer may without the prior written consent of
Sellers assign this Agreement to any affiliate of Buyer so long as such assignee
shall execute a counterpart of this Agreement agreeing to be bound by the
provisions hereof as "Buyer," and agreeing to be jointly and severally liable
with the assignor and any other assignee for all of the obligations of the
assignor hereunder, but no such assignment of this Agreement or any of the
rights or obligations hereunder shall relieve Buyer of its obligations under
this Agreement. Notwithstanding anything contained in this Agreement to the
contrary, nothing in this Agreement, express or implied, is intended to confer
on any person other than the parties hereto or their respective heirs,
successors, executors, administrators and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
9.08. Headings. The headings of the Articles, Sections and paragraphs
of this Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction hereof.
9.09. Modification and Waiver. No amendment, modification or
alteration of the terms or provisions of this Agreement shall be binding unless
the same shall be in writing and duly executed by the parties hereto, except
that any of the terms or provisions of this Agreement may be waived in writing
45
at any time by the party which is entitled to the benefits of such waived terms
or provisions. No waiver of any of the provisions of this Agreement shall be
deemed to or shall constitute a waiver of any other provision hereof (whether or
not similar). No delay on the part of any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof.
9.10. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument.
9.11. Expenses. Except as otherwise provided herein, each Seller and
Buyer shall pay all costs and expenses incurred by him or it or on his or its
behalf in connection with this Agreement and the transactions contemplated
hereby, including, without limiting the generality of the foregoing, fees and
expenses of its own financial consultants, accountants and counsel.
9.12. Notices. Any notice, request, instruction or other document to
be given hereunder by any party hereto to any other party shall be in writing
and shall be given (and will be deemed to have been duly given upon receipt) by
delivery in person, by electronic facsimile transmission, by overnight courier
or by registered or certified mail, postage prepaid,
if to Sellers to:
000 Xxxxxxx Xxxxxx
Xxxxxxx, XX 00000
Attention: Xxxxx Xxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to:
Xxxxxxxx, Xxxxxxx & Xxxxxxx
A Professional Corporation
000 Xxxxxxx Xxxxxx
Xxxxxx, XX 00000
Attention: Xxxxx Xxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
if to Buyer to it at:
0000 Xxxxx 00 Xxxxx
Xxxxxxxxxx, XX 00000
Attention: Xxxx Xxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to:
Applied Cellular Technology, Inc.
000 Xxxxx Xxxx Xxx, Xxxxx. 000
Xxxx Xxxxx, XX 00000
Attention: Xxxxxxx Xxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
46
or at such other address for a party as shall be specified by like notice.
9.13. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware without giving effect to
the principles of conflicts of law. Each of the parties hereto hereby
irrevocably and unconditionally consents to submit to the exclusive jurisdiction
of the courts of the State of Delaware and of the United States of America, in
each case located in the County of New Castle, for any Litigation arising out of
or relating to this Agreement and the transactions contemplated hereby (and
agrees not to commence any Litigation relating thereto except in such courts),
and further agrees that service of any process, summons, notice or document by
U.S. registered mail to its respective address set forth in this Agreement shall
be effective service of process for any Litigation brought against it in any
such court. Each of the parties hereto hereby irrevocably and unconditionally
waives any objection to the laying of venue of any Litigation arising out of
this Agreement or the transactions contemplated hereby in the courts of the
State of Delaware or the United States of America, in each case located in the
County of New Castle, and hereby further irrevocably and unconditionally waives
and agrees not to plead or claim in any such court that any such Litigation
brought in any such court has been brought in an inconvenient forum.
9.14. Public Announcements. Neither Sellers nor Buyer shall make any
public statements, including, without limitation, any press releases, with
respect to this Agreement and the transactions contemplated hereby without the
prior written consent of the other party except as may be required by law. If a
public statement is required to be made by law, the parties shall consult with
each other in advance as to the contents and timing thereof.
9.15. Payments to Sellers. In connection with any payment obligation
of Buyer hereunder, Sellers shall provide Buyer with payment instructions. In
the absence of joint instructions by Sellers, Buyer shall be deemed to have
discharged such payment obligation by paying one half of such payment obligation
to each Seller (in accordance with the instructions received by such Seller).
[Remainder of Page Intentionally Left Blank]
47
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed on its behalf as of the date first above written.
BUYER:
XXXXXXXXXXX.XXX, INC.
By:
-----------------------------
Name:
Title:
APPLIED CELLULAR TECHNOLOGY, INC.
By:
-----------------------------
Name:
Title:
SELLERS:
--------------------------------
XXXXX XXXXXX
--------------------------------
XXXX XXXXXX
48
AGREEMENT OF PURCHASE AND SALE
Dated as of June 4, 1999
by and among
XXXXXXXXXXX.XXX, INC.,
APPLIED CELLULAR TECHNOLOGY, INC.,
XXXXX XXXXXX
and
XXXX XXXXXX
ARTICLE I TERMS OF PURCHASE AND SALE 1
1.01. SALE OF THE STOCK 1
1.02. THE CLOSING 2
1.03. PURCHASE PRICE AND PAYMENT 3
1.04. CLOSING BALANCE SHEET; TRUE-UP PAYMENT 5
ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLERS 8
2.01. CAPITALIZATION 8
2.02. ORGANIZATION; SUBSIDIARIES 9
2.03. CORPORATE POWER AND AUTHORITY; EFFECT OF AGREEMENT 9
2.04. FINANCIAL STATEMENTS 9
2.05. ABSENCE OF CERTAIN CHANGES OR EVENTS 10
2.06. ASSETS AND PROPERTIES 11
2.07. INTELLECTUAL PROPERTY 12
2.08. COMMITMENTS 15
2.09. LITIGATION 18
2.10. COMPLIANCE WITH LAWS 18
2.11. EMPLOYEE BENEFIT PLANS 18
2.12. ENVIRONMENTAL MATTERS 24
2.13. CONSENTS 27
2.14. TAXES 27
2.15. FEES 30
2.16. SIGNIFICANT CUSTOMERS AND SUPPLIERS 30
2.17. INTERCOMPANY TRANSACTIONS 30
2.18. INSURANCE 30
2.19. YEAR 2000 31
2.20. SOLE REPRESENTATIONS AND WARRANTIES 31
ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER 32
3.01. ORGANIZATION 32
3.02. CORPORATE POWER AND AUTHORITY; EFFECT OF AGREEMENT 32
3.03. CONSENTS 32
3.04. AVAILABILITY OF FUNDS 33
3.05. PURCHASE FOR INVESTMENT 33
3.06. FEES 33
3.07. REGISTRATION RIGHTS 33
3.08. SOLE REPRESENTATIONS AND WARRANTIES 33
ARTICLE IV COVENANTS 33
4.01. COMPLIANCE WITH ANTITRUST LAWS; REGULATORY AND OTHER CONSENTS 33
4.02. CONDUCT OF BUSINESS 34
4.03. ACCESS 35
4.04. NO SOLICITATION 36
4.05. FURTHER ASSURANCES 36
4.06. CONFIDENTIALITY AGREEMENTS 36
4.07. NOTICE 36
4.08. CONFIDENTIALITY 37
4.09. RESPONSIBILITY FOR TAXES; RETURNS; AUDITS 37
4.10. COOPERATION WITH PUBLIC FILINGS 43
4.11. CASH MANAGEMENT; FINANCING ARRANGEMENTS 44
4.12. NON-COMPETITION AGREEMENT 44
4.13. RULE 144 REPORTING 45
4.14. PARENT GUARANTY 46
4.15. EXHIBIT AND SCHEDULE COMPLETION; TAX MATTERS 46
ARTICLE V CONDITIONS TO BUYER'S OBLIGATIONS 46
5.01. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLERS 46
5.02. NO PROHIBITION 47
5.03. CONSENTS 47
5.04. EMPLOYMENT AGREEMENTS 47
5.05. NO MATERIAL ADVERSE CHANGE 47
ARTICLE VI CONDITIONS TO SELLERS' OBLIGATIONS 48
6.01. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER 48
6.02. NO PROHIBITION 48
6.03. HSR ACT 48
ARTICLE VII STOCK CERTIFICATES; LEGEND 48
7.01. SECURITIES LAWS; LEGEND 48
ARTICLE VIII TERMINATION PRIOR TO CLOSING 49
8.01. TERMINATION 49
8.02. EFFECT ON OBLIGATIONS 50
ARTICLE IX MISCELLANEOUS 50
9.01. SURVIVAL 50
9.02. AGREEMENT TO INDEMNIFY 51
9.03. INDEMNIFICATION PROCEDURE 51
9.04. OTHER INDEMNIFICATION MATTERS 53
9.05. INTERPRETIVE PROVISIONS 54
9.06. ENTIRE AGREEMENT 54
ii
9.07. SUCCESSORS AND ASSIGNS 54
9.08. HEADINGS 55
9.09. MODIFICATION AND WAIVER 55
9.10. COUNTERPARTS 55
9.11. EXPENSES 55
9.12. NOTICES 55
9.13. GOVERNING LAW 57
9.14. PUBLIC ANNOUNCEMENTS 57
9.15. PAYMENTS TO SELLERS 57
iii
Term Defined
Index of Defined Terms
Term Defined
---- -------
ACM Section 2.12(b)
Act Section 7.02
Allocation Section 4.09(d)(3)
Ancillary Document Section 9.01
Annual Financial Statements Section 2.04(a)
Antitrust Division Section 4.01(a)
Arbiter Section 1.04(c)
Benefit Plan Section 2.11(l)
Business Recitals
Buyer Preamble
Buyer's Indemnified Group Section 9.02(b)
Closing Balance Sheet Section 1.04(a)
Closing Book Value Section 1.04(d)
Closing Date Section 1.02
Closing Section 1.02
Code Section 2.11(l); Section 2.14(f)(v)
Commitments Section 2.08(a)
Company Recitals
Company Benefit Plan Section 2.11(l)
Company Intellectual Property Section 2.07(j)
Competitive Activity Section 4.12
Competitor Section 4.12
Confidential Information Section 4.08
Deductible Section 9.04(b)
Department Section 2.11(l)
EBIT Section 1.03(e)
Employee Agreement Section 2.11(l)
Employee Section 2.11(l)
Encumbrances Section 2.01
Environmental Costs Section 2.12(b)
Environmental Laws Section 2.12(b)
Environmental Matter Section 2.12(b)
Environmental Permits Section 2.12(a)(ii)
ERISA Affiliate Section 2.11(l)
ERISA Section 2.11(l)
Final Closing Balance Sheet Section 1.04(d)
Financial Statements Section 2.04(a)
First Payment Section 1.03
First Earnout Payment Section 1.03
FTC Section 4.01(a)
GAAP Section 1.04(b)
Hazardous Substances Section 2.12(b)
HMO Section 2.11(k)
HSR Act Section 1.02
Income Tax Return Section 2.14(f)(iv)
Income Tax Section 2.14(f)(ii)
Indemnified Party Section 9.03(a)
Indemnifying Party Section 9.03(a)
Intellectual Property Section 2.07(j)
IRS Section 2.11(l)
Leased Real Property Section 2.06(d)
Litigation Section 2.09
Losses Section 9.02(a)
Major Customers Section 2.16
Major Suppliers Section 2.16
March 31 Balance Sheet Section 2.04(a)
Market Value Section 1.03
Multi-Employer Plan Section 2.11(l)
Notices Section 9.03(a)
Owned Real Property Section 2.06(c)
PBGC Section 2.11(l)
PCBs Section 2.12(b)
Pension Plan Section 2.11(l)
Products Section 2.17
Purchase Price Section 1.02
Regulatory Agencies Section 4.01(a)
Required Consent Section 4.01(b)
Second Earnout Payment Section 1.03
Section 338 Elections Section 4.09(d)(1)
Section 338(h)(10) Elections Section 4.09(d)(1)
Section 338(h)(10) Forms Section 4.09(d)(3)
Sellers' Group Section 2.14(f)(vii)
Sellers Preamble
Sellers' Indemnified Group Section 9.02(a)
Special Indemnifications 9.04(c)
Stock Recitals
Subsidiaries Section 2.02(b)
Target Book Value Section 1.04(d)
Tax Distribution Amount Section 4.09
Tax Return Section 2.14(f)(iii)
Tax Sharing Agreement Section 4.09(c)(1)
Tax Section 2.14(f)(i)
Third Earnout Payment Section 1.03
Treasury Regulations Section 2.14(f)(vi)
True-up Payment Section 1.04(d)
Welfare Plan Section 2.11(l)
Year 2000 Problem Section 2.20
Schedule 3.07
Registration Rights
Applied Cellular Technology and Messrs. Xxxxxxx and Xxxxxxxx have registration
rights requiring Buyer to register their shares, however each of the foregoing
will be subject to a lock-up agreement with Buyer's underwriters.
No shareholder has guaranteed sales price for any equity security, except that
if there is no IPO in certain specified period, Messrs. Xxxxxxx and Xxxxxxxx
have agreements which allow them to put a portion of their interest in Buyer to
ACT.
