EXHIBIT 10.2
AGREEMENT AND PLAN OF ORGANIZATION
dated as of the 1st day of December 1997
by and among
PENTACON, INC.
AXS SOLUTIONS ACQUISITION COMPANY
(a subsidiary of Pentacon, Inc.)
AXS SOLUTIONS, INC.
and
the STOCKHOLDERS named herein
TABLE OF CONTENTS
Page
RECITALS ......................................................................1
1. THE MERGER............................................................5
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER....................5
1.2 EFFECTIVE TIME OF THE MERGER.................................5
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF
DIRECTORS OF SURVIVING CORPORATION...........................6
1.4 EFFECT OF MERGER.............................................6
2. CONVERSION OF STOCK...................................................7
2.1 MANNER OF CONVERSION.........................................7
3. DELIVERY OF MERGER CONSIDERATION......................................8
3.1 EXCHANGE OF COMPANY STOCK FOR PENTACON STOCK.................8
3.2 ENDORSED CERTIFICATES; DEFICIENCIES CURED....................8
4. CLOSING...............................................................8
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS..................................................9
5.1 DUE ORGANIZATION.............................................9
5.2 AUTHORIZATION...............................................10
5.3 CAPITAL STOCK OF THE COMPANY................................10
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING......10
5.5 NO BONUS SHARES.............................................10
5.6 SUBSIDIARIES; OWNERSHIP IN OTHER ENTITIES...................10
5.7 PREDECESSOR STATUS; ETC.....................................11
5.8 SPIN-OFF BY THE COMPANY.....................................11
5.9 FINANCIAL STATEMENTS........................................11
5.10 LIABILITIES AND OBLIGATIONS.................................11
5.11 ACCOUNTS AND NOTES RECEIVABLE...............................12
5.12 PERMITS AND INTANGIBLES.....................................12
5.13 ENVIRONMENTAL MATTERS.......................................13
5.14 PERSONAL PROPERTY...........................................14
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS...15
5.16 REAL PROPERTY...............................................15
5.17 INSURANCE...................................................16
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; LABOR MATTERS..........16
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5.19 EMPLOYEE PLANS..............................................17
5.20 COMPLIANCE WITH ERISA.......................................18
5.21 CONFORMITY WITH LAW; LITIGATION.............................19
5.22 TAXES.......................................................19
5.23 NO VIOLATIONS; NO CONSENT REQUIRED, ETC.....................20
5.24 GOVERNMENT CONTRACTS; MINORITY BASED CONTRACTS..............21
5.25 ABSENCE OF CHANGES..........................................21
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY........................22
5.27 VALIDITY OF OBLIGATIONS.....................................23
5.28 RELATIONS WITH GOVERNMENTS..................................23
5.29 DISCLOSURE..................................................23
5.30 PROHIBITED ACTIVITIES.......................................24
5.31 NO WARRANTIES OR INSURANCE..................................24
5.32 INTEREST IN CUSTOMERS AND SUPPLIERS AND RELATED-PARTY
TRANSACTIONS................................................24
5.33 AUTHORITY; OWNERSHIP; VALIDITY OF OBLIGATIONS...............24
5.34 PREEMPTIVE RIGHTS...........................................24
5.35 NO INTENTION TO DISPOSE OF PENTACON STOCK...................24
6. REPRESENTATIONS OF PENTACON AND NEWCO................................25
6.1 DUE ORGANIZATION............................................25
6.2 AUTHORIZATION...............................................25
6.3 CAPITAL STOCK OF PENTACON AND NEWCO.........................25
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING......26
6.5 SUBSIDIARIES................................................26
6.6 FINANCIAL STATEMENTS........................................26
6.7 LIABILITIES AND OBLIGATIONS.................................26
6.8 CONFORMITY WITH LAW; LITIGATION.............................26
6.9 NO VIOLATIONS...............................................27
6.10 VALIDITY OF OBLIGATIONS.....................................28
6.11 PENTACON STOCK..............................................28
6.12 NO SIDE AGREEMENTS..........................................28
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS................28
6.14 DISCLOSURE..................................................28
7. COVENANTS PRIOR TO CLOSING...........................................29
7.1 ACCESS AND COOPERATION; DUE DILIGENCE.......................29
7.2 CONDUCT OF BUSINESS PENDING CLOSING.........................29
7.3 PROHIBITED ACTIVITIES.......................................30
7.4 NO SHOP.....................................................32
7.5 NOTICE TO BARGAINING AGENTS.................................32
7.6 AGREEMENTS..................................................32
7.7 NOTIFICATION OF CERTAIN MATTERS BY THE STOCKHOLDERS
AND THE COMPANY.............................................32
7.8 AMENDMENT OF SCHEDULES......................................33
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7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT........34
7.10 FINAL FINANCIAL STATEMENTS..................................34
7.11 FURTHER ASSURANCES..........................................35
7.12 AUTHORIZED CAPITAL..........................................35
7.13 COMPLIANCE WITH THE XXXX-XXXXX-XXXXXX-XXXXXX ANTITRUST
IMPROVEMENTS ACT OF 1976 (THE "XXXX-XXXXX-XXXXXX ACT")......35
7.14 PRE-CLOSING NOTIFICATIONS...................................35
7.15 PAYMENT OF INDEBTEDNESS.....................................36
7.16 MINIMUM VALUE...............................................36
7.17 DIRECTORS. ................................................36
7.18 TRANSACTION REPORTING.......................................36
7.19 PERMITS.....................................................36
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS
AND COMPANY..........................................................36
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS..37
8.2 SATISFACTION................................................37
8.3 NO LITIGATION...............................................37
8.4 OPINION OF COUNSEL..........................................37
8.5 REGISTRATION STATEMENT......................................37
8.6 CONSENTS AND APPROVALS......................................37
8.7 GOOD STANDING CERTIFICATES..................................38
8.8 NO MATERIAL ADVERSE CHANGE..................................38
8.9 CLOSING OF IPO..............................................38
8.10 SECRETARY'S CERTIFICATE.....................................38
8.11 EMPLOYMENT AGREEMENTS.......................................38
8.12 TAX MATTERS.................................................38
8.13 EXCHANGE LISTING............................................38
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PENTACON
AND NEWCO............................................................38
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE AND OBLIGATIONS.39
9.2 NO LITIGATION...............................................39
9.3 SECRETARY'S CERTIFICATE.....................................39
9.4 NO MATERIAL ADVERSE EFFECT..................................39
9.5 STOCKHOLDERS' RELEASE.......................................39
9.6 SATISFACTION................................................40
9.7 TERMINATION OF RELATED PARTY AGREEMENTS.....................40
9.8 OPINION OF COUNSEL..........................................40
9.9 CONSENTS AND APPROVALS......................................40
9.10 GOOD STANDING CERTIFICATES..................................40
9.11 REGISTRATION STATEMENT......................................40
9.12 EMPLOYMENT AGREEMENTS.......................................40
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9.13 CLOSING OF IPO..............................................40
9.14 FIRPTA CERTIFICATE..........................................41
10. COVENANTS OF PENTACON AND THE STOCKHOLDERS AFTER
CLOSING..............................................................41
10.1 PRESERVATION OF TAX AND ACCOUNTING TREATMENT................41
10.2 PREPARATION AND FILING OF TAX RETURNS.......................41
10.3 DIRECTORS...................................................42
11. INDEMNIFICATION......................................................42
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS.................42
11.2 INDEMNIFICATION BY PENTACON.................................43
11.3 THIRD PERSON CLAIMS.........................................44
11.4 EXCLUSIVE REMEDY............................................45
11.5 LIMITATIONS ON INDEMNIFICATION..............................45
12. TERMINATION OF AGREEMENT.............................................46
12.1 TERMINATION.................................................46
12.2 LIABILITIES IN EVENT OF TERMINATION.........................47
13. NONCOMPETITION.......................................................47
13.1 PROHIBITED ACTIVITIES.......................................47
13.2 DAMAGES.....................................................48
13.3 REASONABLE RESTRAINT........................................48
13.4 SEVERABILITY; REFORMATION...................................49
13.5 INDEPENDENT COVENANT........................................49
13.6 MATERIALITY.................................................49
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION............................49
14.1 STOCKHOLDERS................................................49
14.2 PENTACON AND NEWCO..........................................50
14.3 DAMAGES.....................................................50
14.4 SURVIVAL....................................................51
15. TRANSFER RESTRICTIONS................................................51
15.1 TRANSFER RESTRICTIONS.......................................51
16. FEDERAL SECURITIES ACT REPRESENTATIONS...............................51
16.1 COMPLIANCE WITH LAW.........................................51
16.2 ECONOMIC RISK; SOPHISTICATION...............................52
17. REGISTRATION RIGHTS..................................................52
17.1 PIGGYBACK REGISTRATION RIGHTS...............................52
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17.2 REGISTRATION PROCEDURES.....................................53
17.3 INDEMNIFICATION.............................................54
17.4 UNDERWRITING AGREEMENT......................................55
17.5 RULE 144 REPORTING..........................................55
18. GENERAL..............................................................55
18.1 COOPERATION.................................................55
18.2 SUCCESSORS AND ASSIGNS......................................56
18.3 ENTIRE AGREEMENT............................................56
18.4 COUNTERPARTS................................................56
18.5 BROKERS AND AGENTS..........................................56
18.6 EXPENSES....................................................56
18.7 NOTICES.....................................................57
18.8 GOVERNING LAW...............................................58
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES..................58
18.10 EXERCISE OF RIGHTS AND REMEDIES.............................58
18.11 TIME........................................................58
18.12 REFORMATION AND SEVERABILITY................................58
18.13 REMEDIES CUMULATIVE.........................................58
18.14 CAPTIONS....................................................58
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ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Stockholders and Stock Ownership of the Company
Annex III - Certificate of Incorporation and By-Laws of Pentacon
and Newco
Annex IV - Form of Opinion of Counsel to Pentacon and Newco
Annex V - Form of Opinion of Counsel to Company and Stockholders
Annex VI - Form of Founder Employment Agreement
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SCHEDULES
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the Company
5.4 Transactions in Capital Stock, Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, Consents, etc.
5.24 Government Contracts
5.25 Absence of Changes
5.26 Deposit Accounts; Powers of Attorney
5.30 Prohibited Activities
5.31 No Warranties or Insurance
5.32 Related Party Transactions
6.3 Capital Stock of Pentacon and Newco
6.4 Options, Warrants and Rights
6.8 Litigation
6.9 No Violations
6.12 Side Agreements
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Notice to Bargaining Agents
7.6 Termination Agreements
7.15 Obligations to be Paid At Closing
9.7 Continuing Related Party Agreements
9.12 Employment Agreements
13.1 Prohibited Activities
18.5 Brokers and Agents
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AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (this "Agreement") is made as
of the 1st day of December, 1997, by and among PENTACON, INC., a Delaware
corporation ("Pentacon"), AXS SOLUTIONS ACQUISITION COMPANY, a Delaware
corporation ("Newco"), AXS SOLUTIONS, INC., a Delaware corporation (the
"Company"), and XXXX XXXXXX, XXXXXXX X. XXXXXX, XXXXXX XXXX, XXXXXXX X. XXXXX,
XXXX X. XXXXXX TRUST, XXXXXX X. XXXXXX TRUST, XXXXX X. XXXXXX TRUST, XXXX X.
XXXXXX TRUST, and OAKRIDGE TRUST (the "Stockholders"), who are all the
stockholders of the Company, who herein agree as follows:
RECITALS
WHEREAS, Newco is a corporation duly organized and existing under the
laws of the State of Delaware, having been incorporated on November 26, 1997,
solely for the purpose of completing the transactions set forth herein, and is a
wholly owned subsidiary of Pentacon, a corporation organized and existing under
the laws of the State of Delaware;
WHEREAS, the respective boards of directors of Newco and the Company
(which together are hereinafter collectively referred to as "Constituent
Corporations") deem it advisable and in the best interests of the Constituent
Corporations and their respective stockholders that Newco merge with and into
the Company pursuant to this Agreement and the applicable provisions of the laws
of the States of Delaware and the State of Incorporation (as hereinafter
defined);
WHEREAS, Pentacon is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of which
is entitled "Agreement and Plan of Organization," with each of the Other
Founding Companies (as defined herein) and their respective stockholders in
order to acquire additional fasteners companies;
WHEREAS, this Agreement and the Other Agreements constitute the
"Pentacon Plan of Organization;"
WHEREAS, the Stockholders and the boards of directors and the
stockholders of Pentacon, each of the Other Founding Companies and each of the
subsidiaries of Pentacon that are parties to the Other Agreements have approved
and adopted the Pentacon Plan of Organization as an integrated plan pursuant to
which the Stockholders and the stockholders of each of the other Founding
Companies will transfer the capital stock of each of the Founding Companies to
Pentacon and the Stockholders of each of the other Founding Companies will
acquire the stock of Pentacon (but not cash or other property) as a tax-free
transfer of property under Section 351 of the Code;
WHEREAS, the Board of Directors of the Company has approved this
Agreement as part of the Pentacon Plan of Organization in order to transfer the
capital stock of the Company to Pentacon;
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WHEREAS, unless the context otherwise requires, capitalized terms used
in this Agreement or in any schedule attached hereto and not otherwise defined
shall have the following meanings for all purposes of this Agreement:
"1933 ACT" means the Securities Act of 1933, as amended.
"1934 ACT" means the Securities Exchange Act of 1934, as amended.
"ACQUIRED PARTY" means the Company, any subsidiary and any member of a
Relevant Group.
"ACQUISITION COMPANIES" shall mean Newco and each of the other Delaware
companies wholly-owned by Pentacon prior to the Consummation Date.
"AFFILIATES" shall mean with respect to any person or entity, any other
person or entity that directly or indirectly, controls, is controlled, or is
under common control with such person or entity. For purposes hereof, control
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a Person, whether through
ownership of voting securities, by contract or otherwise.
"ARTICLES OF MERGER" shall mean those Articles or Certificates of
Merger with respect to the Merger in such forms as may be required by the laws
of the State of Delaware and the State of Incorporation.
"BALANCE SHEET DATE" has means September 30, 1997.
"CHARTER DOCUMENTS" has the meaning set forth in Section 5.1.
"CLOSING" has the meaning set forth in Section 4.
"CLOSING DATE" has the meaning set forth in Section 4.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY STOCK" has the meaning set forth in Section 2.1.
"CONSTITUENT CORPORATIONS" has the meaning set forth in the second
recital of this Agreement.
"CONSUMMATION DATE" has the meaning set forth in Section 4.
"DELAWARE GCL" has the meaning set forth in Section 1.4.
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"DRAFT REGISTRATION STATEMENT" means the draft dated November 28, 1997,
of the Registration Statement, and any corrections thereto and supplemental
information delivered by Pentacon to the Company for delivery to the
Stockholders prior to the time this Agreement is delivered by the Company and
the Stockholders to Pentacon.
"EFFECTIVE TIME OF THE MERGER" shall mean the time as of which the
Merger becomes effective, which shall occur on the Consummation Date.
"ENVIRONMENTAL LAW" has the meaning set forth in Section 5.13.
"ERISA" has the meaning set forth in Section 5.19.
"EXPIRATION DATE" has the meaning set forth in Section 5(A).
"FINANCIAL STATEMENTS" has the meaning set forth in Section 5.9(ii).
"FOUNDING COMPANIES" means:
Alatec Products, Inc., a California corporation;
AXS Solutions, Inc., a Delaware corporation;
Capitol Bolt & Supply, Inc., a Texas corporation;
Maumee Industries, Inc., an Indiana corporation; and
Sales Systems, Limited, a Pennsylvania corporation.
"XXXX-XXXXX-XXXXXX ACT" has the meaning set forth in Section 7.13.
"HAZARDOUS SUBSTANCE" has the meaning set forth in Section 5.13(c).
"INTERIM FINANCIAL STATEMENTS" has the meaning set forth in Section
5.9(ii).
"IPO" means the initial public offering of Pentacon Stock pursuant to
the Registration Statement described herein.
"LICENSES" has the meaning set forth in Section 5.12.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the subject entity and its subsidiaries taken as a whole.
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"MATERIAL DOCUMENTS" has the meaning set forth in Section 5.23(a).
"MERGER" means the merger of Newco with and into the Company pursuant
to this Agreement and the applicable provisions of the laws of the State of
Delaware and the laws of the State of Incorporation.
"NEWCO" has the meaning set forth in the first paragraph of this
Agreement.
"NEWCO STOCK" means the common stock, par value $.0l per share, of
Newco.
"OTHER AGREEMENTS" has the meaning set forth in the third recital
hereof.
"OTHER FOUNDING COMPANIES" means all of the Founding Companies other
than the Company.
"PBGC" has the meaning set forth in Section 5.19.
"PENTACON" has the meaning set forth in the first paragraph of this
Agreement.
"PENTACON CHARTER DOCUMENTS" has the meaning set forth in Section 6.1
"PENTACON STOCK" means the common stock, par value $.01 per share, of
Pentacon.
"PERSON" means an individual, partnership, joint venture, corporation,
bank, trust, unincorporated organization or other entity.
"PRICING" means the date of determination by Pentacon and the
Underwriters of the public offering price of the shares of Pentacon Stock in the
IPO; the parties hereto contemplate that the Pricing shall take place on the
Closing Date.
"PROHIBITED ACTIVITIES" has the meaning set forth in Section 5.30.
"QUALIFIED PLANS" has the meaning set forth in Section 5.20.
"REGISTRATION STATEMENT" means that certain registration statement on
Form S-1 to be filed with the SEC covering the shares of Pentacon Stock to be
issued in the IPO and all amendments thereto.
"RELEVANT GROUP" means the Company and any affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member.
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"RETURNS" means any returns, reports or statements (including any
information returns) required to be filed for purposes of reporting, computing
or otherwise required in connection with a particular Tax.
"SCHEDULE" means each Schedule attached hereto, which shall reference
the relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"STATE OF INCORPORATION" means the State of Delaware.
"STOCKHOLDERS" has the meaning set forth in the first paragraph of this
Agreement.
"SUBSIDIARIES" means with respect to a person or entity, any
corporation or other entity in which such person or entity owns a 5% or greater
ownership interest.
"SURVIVING CORPORATION" has the meaning set forth in Section 1.2.
"TAX" OR "TAXES" means all federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, withholding, employment, excise, property, deed, stamp, alternative
or add on minimum, or other taxes, assessments, duties, fees, levies or other
governmental charges, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"UNDERWRITERS" means the prospective underwriters identified in the
Draft Registration Statement.
"YEAR-END FINANCIAL STATEMENTS" has the meaning set forth in Section
5.9(i).
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and
delivered to Pentacon to be held for filing with the Secretary of State of the
State of Delaware and the Secretary of State (or other appropriate authority) of
the State of Incorporation on or effective as of the Consummation Date.
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
Newco shall be merged with and into the Company in accordance with the Articles
of Merger and the separate existence of Newco shall cease. The Company shall be
the surviving party in the Merger and the Company is sometimes hereinafter
referred to as the "Surviving Corporation". As a result of the Merger, the
outstanding shares of capital stock of Newco and the Company shall be converted
or canceled in the manner provided in Section 2.
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1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF
SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of the Company then in
effect shall be the Certificate of Incorporation of the Surviving
Corporation until changed as provided by law;
(ii) the By-laws of Newco then in effect shall become the
By-laws of the Surviving Corporation; and subsequent to the Effective
Time of the Merger, such By-laws shall be the By-laws of the Surviving
Corporation until they shall thereafter be duly amended (and such
By-laws shall be amended, if necessary, to comply with applicable state
law);
(iii) the Board of Directors of the Surviving Corporation
shall consist of the persons who are on the Board of Directors of the
Company immediately prior to the Effective Time of the Merger, provided
that Xxxxx Xxxxx shall become an additional director of the Surviving
Corporation effective as of the Effective Time of the Merger, and the
number of directors constituting the entire Board of Directors of the
Company shall be increased, if necessary, to accommodate the addition
of such additional director; the Board of Directors of the Surviving
Corporation shall hold office subject to the provisions of the laws of
the State of Incorporation and of the Certificate of Incorporation and
By-laws of the Surviving Corporation; and
(iv) the officers of the Company immediately prior to the
Effective Time of the Merger shall continue as the officers of the
Surviving Corporation in the same capacity or capacities, and effective
upon the Effective Time of the Merger Xxxxx Xxxxxxx shall become an
additional Vice President and Xxxxx Xxxxx will become the Secretary of
the Surviving Corporation, such officers to serve, subject to the
provisions of the Certificate of Incorporation and By-laws of the
Surviving Corporation, until their respective successors are duly
elected and qualified.
1.4 EFFECT OF MERGER. At the Effective Time of the Merger, the effect
of the Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware (the "Delaware GCL") and the laws of
the State of Incorporation. Except as herein specifically set forth, the
identity, existence, purposes, powers, objects, franchises, privileges, rights
and immunities of the Company shall continue unaffected and unimpaired by the
Merger and the corporate franchises, existence and rights of Newco shall be
merged with and into the Company, and the Company, as the Surviving Corporation,
shall be fully vested therewith. At the Effective Time of the Merger, the
separate existence of Newco shall cease and, in accordance with the terms of
this Agreement, the Surviving Corporation shall possess all the rights,
privileges, immunities and franchises, of a public, as well as of a private,
nature, and all property, real, personal and mixed, and all debts due on
whatever account, including subscriptions to shares, and all taxes, including
those due and owing and those accrued, and all other choses in action, and all
and every other interest of or belonging to or due to the Company or Newco shall
be transferred to, and vested in, the Surviving Corporation without further act
or deed; and all property, rights and privileges, powers and
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franchises and all and every other interest shall be thereafter as effectually
the property of the Surviving Corporation as they were of the Company and Newco;
and the title to any real estate, or interest therein, whether by deed or
otherwise, under the laws of the State of Incorporation vested in the Company or
Newco, shall not revert or be in any way impaired by reason of the Merger.
Except as otherwise provided herein, the Surviving Corporation shall thenceforth
be responsible and liable for all the liabilities and obligations of the Company
and Newco and any claim existing, or action or proceeding pending, by or against
the Company or Newco may be prosecuted as if the Merger had not taken place, or
the Surviving Corporation may be substituted in their place. Neither the rights
of creditors nor any liens upon the property of the Company or Newco shall be
impaired by the Merger, and all debts, liabilities and duties of the Company and
Newco shall attach to the Surviving Corporation, and may be enforced against
such Surviving Corporation to the same extent as if said debts, liabilities and
duties had been incurred or contracted by such Surviving Corporation.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding capital stock of the Company ("Company Stock") into shares of
Pentacon Stock and cash and (ii) outstanding Newco Stock into common stock of
the Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of Company Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the
Merger and without any action on the part of the holder thereof,
automatically shall be deemed to represent (1) the right to receive the
number of shares of Pentacon Stock set forth on Annex I hereto with
respect to such holder and (2) the right to receive the amount of cash
set forth on Annex I hereto with respect to such holder;
(ii) all shares of Company Stock that are held by the Company
as treasury stock or which are otherwise issued but not outstanding
shall be canceled and retired and shall cease to exist and no shares of
Pentacon Stock or other consideration shall be delivered or paid in
exchange therefor; and
(iii) each share of Newco Stock issued and outstanding
immediately prior to the Effective Time of the Merger, shall, by virtue
of the Merger and without any action on the part of Pentacon,
automatically be converted into one fully paid and non-assessable share
of common stock of the Surviving Corporation which shall constitute all
of the issued and outstanding shares of common stock of the Surviving
Corporation immediately after the Effective Time of the Merger.
All Pentacon Stock received by the Stockholders pursuant to this
Agreement shall, except for restrictions on resale or transfer described in
Sections 15 and 16 hereof, have the same rights as
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all the other shares of outstanding Pentacon Stock by reason of the provisions
of the Certificate of Incorporation of Pentacon or as otherwise provided by the
Delaware GCL. All Pentacon Stock received by the Stockholders shall be issued
and delivered to the Stockholders free and clear of any liens, claims or
encumbrances of any kind or nature. All voting rights of such Pentacon Stock
received by the Stockholders shall be fully exercisable by the Stockholders and
the Stockholders shall not be deprived nor restricted in exercising those
rights. At the Effective Time of the Merger, Pentacon shall have no class of
capital stock issued and outstanding other than the Pentacon Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 EXCHANGE OF COMPANY STOCK FOR PENTACON STOCK. On the Consummation
Date the Stockholders, who are the holders of all of the outstanding capital
stock of the Company, shall, upon surrender of their certificates, receive the
respective number of shares of Pentacon Stock and the amount of cash described
on Annex I hereto, said cash to be payable by certified check, or if hereafter
agreed by the Stockholder and Pentacon, by wire transfer.
3.2 ENDORSED CERTIFICATES; DEFICIENCIES CURED. The Stockholders shall
deliver to Pentacon at the Closing the certificates representing Company Stock,
duly endorsed in blank by the Stockholders, or accompanied by blank stock
powers, and with all necessary transfer tax and other revenue stamps, acquired
at the Stockholders' expense, affixed and canceled. The Stockholders agree
promptly to cure any deficiencies with respect to the endorsement of the stock
certificates or other documents of conveyance with respect to such Company Stock
or with respect to the stock powers accompanying any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions
reasonably necessary to prepare to (i) effect the Merger (including the
execution of the Articles of Merger which shall be placed in escrow with
Pentacon for filing with the appropriate authorities effective on the
Consummation Date, subject, however, to satisfaction or waiver of all conditions
precedent) and (ii) effect the conversion and delivery of shares referred to in
Section 3 hereof; provided, that such actions shall not include the actual
completion of the Merger or the conversion and delivery of the shares and
certified check(s) (or wire transfers) referred to in Section 3 hereof, each of
which actions shall only be taken upon the Consummation Date as herein provided.
In the event that there is no Consummation Date and this Agreement automatically
terminates as provided in this Section 4 the Articles of Merger shall not be
filed and shall be promptly returned to the Stockholders. The taking of the
actions described in clauses (i) and (ii) above (the "Closing") shall take place
on the closing date (the "Closing Date") at the offices of Xxxxxxx & Xxxxx
L.L.P, 4200 Texas Commerce Tower, 000 Xxxxxx, Xxxxxxx, Xxxxx 00000 or such place
as may be agreed between the Stockholders and Pentacon. On the Consummation Date
(x) the Articles of Merger shall be filed with the appropriate state authorities
so that they shall be, as early as practicable on the Consummation Date,
effective and the Merger shall thereby be effected, (y) all transactions
contemplated by this Agreement, including the conversion and delivery of shares,
the delivery of a certified check or checks (or wire
-8-
transfers) in an amount equal to the cash portion of the consideration which the
Stockholders shall be entitled to receive pursuant to Section 3 hereof shall
occur and be completed and (z) the closing with respect to the IPO shall occur
and be completed. The date on which the actions described in the preceding
clauses (x), (y) and (z) occurs shall be referred to as the "Consummation Date."
During the period from the Closing Date to the Consummation Date, this Agreement
shall be terminated by the parties only if the underwriting agreement in respect
of the IPO is terminated pursuant to the terms of such underwriting agreement.
This Agreement shall also in any event automatically terminate if the
Consummation Date has not occurred within 15 business days following the Closing
Date. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
STOCKHOLDERS
(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS.
Each of the Stockholders, jointly and severally, and the Company
represent and warrant that all of the following representations and warranties
in this Section 5(A) are true at the date of this Agreement, and that such
representations and warranties shall survive the Consummation Date for a period
of twenty-four months (the last day of such period being the "Expiration Date"),
except that the warranties and representations set forth in Sections 5.13 and
5.22 hereof shall survive until such time as the applicable statute of
limitations period has run or for five (5) years if there is no applicable
statute of limitations, which shall be deemed to be the Expiration Date for
Sections 5.13 and 5.22. For purposes of this Section 5, the term "Company" shall
mean and refer to the Company and all of its Subsidiaries, if any.
5.1 DUE ORGANIZATION. The Company is a corporation duly incorporated
and organized, validly existing and in good standing under the laws of the State
of Incorporation, and has the requisite power and authority to carry on its
business as it is now being conducted. The Company is duly qualified to do
business and is in good standing in each jurisdiction in which failure to so
qualify would reasonably be expected to have a Material Adverse Effect on the
Company. Schedule 5.1 sets forth a list of all jurisdictions in which the
Company is authorized or qualified to do business. True, complete and correct
copies of (i) the Certificate of Incorporation and By-laws, each as amended, of
the Company (the "Charter Documents"), and (ii) the stock records of the Company
(including, without limitation, a copy of the Company's stock ledger), are all
attached to Schedule 5.1. The Company has delivered complete and correct copies
of all minutes of meetings, written consents and other written evidence, if any,
of deliberations of or actions taken by the Company's Board of Directors, any
Committees of the Board of Directors and stockholders during the last five
years.
-9-
5.2 AUTHORIZATION. (i) The officers or other representatives of the
Company executing this Agreement have the authority to enter into and bind the
Company to the terms of this Agreement and (ii) the Company has the full legal
right, power and authority to enter into this Agreement and the Merger. The
directors and Stockholders have approved this Agreement and the transactions
contemplated hereby in all respects, and copies of all such resolutions,
certified by the Secretary or an Assistant Secretary of the Company as being in
full force and effect on the date hereof, are attached hereto as Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the Company are owned by the Stockholders in the
amounts set forth in Annex II. Each Stockholder, severally, represents and
warrants that except as set forth on Schedule 5.3, the shares of capital stock
of the Company owned by such Stockholder are owned free and clear of all liens,
security interests, pledges, charges, voting trusts, restrictions, encumbrances
and claims of every kind. All of the issued and outstanding shares of the
capital stock of the Company have been duly authorized and validly issued, are
fully paid and nonassessable, are owned of record and beneficially by the
Stockholders and further, such shares were offered, issued, sold and delivered
by the Company in compliance with all applicable state and Federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of any preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except as
set forth on Schedule 5.4, the Company has not acquired or redeemed any Company
Stock since January 1, 1995. Except as set forth on Schedule 5.4, (i) no option,
warrant, call, conversion right or commitment of any kind exists which obligates
the Company to issue any of its authorized but unissued capital stock; (ii) the
Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in respect thereof; and (iii) neither
the voting stock structure of the Company nor the relative ownership of shares
among any of its respective Stockholders has been altered or changed in
contemplation of the Merger and/or the Pentacon Plan of Organization. Except as
set forth in Schedule 5.4, there are no voting trusts, proxies or other
agreements or understandings to which the Company or any of the Stockholders is
a party or is bound with respect to the voting of any shares of capital stock of
the Company.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the Merger or the Pentacon Plan of Organization.
5.6 SUBSIDIARIES; OWNERSHIP IN OTHER ENTITIES. Except as set forth on
Schedule 5.6, the Company has no Subsidiaries. Except as set forth in Schedule
5.6, the Company does not presently own, of record or beneficially, or control,
directly or indirectly, any capital stock, securities convertible into capital
stock or any other equity interest in any corporation, association or business
-10-
entity nor is the Company, directly or indirectly, a participant in any joint
venture, partnership or other non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a listing of
all predecessor companies of the Company, including the names of any entities
acquired by the Company (by stock purchase, merger or otherwise) or owned by the
Company or from whom the Company previously acquired material assets, in any
case, from the earliest date upon which any Stockholder acquired his or her
stock in any Company. Except as disclosed on Schedule 5.7, the Company has not
been, within such period of time, a subsidiary or division of another
corporation or a part of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
Company or any other person or entity that is an Affiliate of the Company since
January 1, 1995.
5.9 FINANCIAL STATEMENTS. Complete and correct copies of the following
financial statements are attached hereto as Schedule 5.9:
(i) the balance sheets of the Company as of December 31, 1995
and 1996 and the related statements of operations, stockholder's equity
and cash flows for the two-year period ended December 31, 1996,
together with the related notes and schedules (such balance sheets, the
related statements of operations, stockholder's equity and cash flows
and the related notes and schedules are referred to herein as the
"Year-end Financial Statements"); and
(ii) the balance sheet of the Company as of September 30,
1997, (the "Interim Balance Sheet") and the related statements of
operations, stockholder's equity and cash flows for the nine-month
periods ended September 30, 1997, together with the related notes and
schedules (such balance sheets, the related statements of operations,
stockholder's equity and cash flows and the related notes and schedules
are referred to herein as the "Interim Financial Statements"). The
Year-end Financial Statements and the Interim Financial Statements are
collectively called the "Financial Statements".
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an accurate
list as of the Balance Sheet Date of (i) all liabilities of the Company which
are not reflected on the Interim Balance Sheet of the Company at the Balance
Sheet Date or otherwise reflected in the Interim Financial Statements at the
Balance Sheet Date except for those liabilities not required to be reflected or
disclosed under generally accepted accounting principles or F.A.S.B. 5 and which
were not reflected or disclosed in the Interim Balance Sheet, and (ii) all loan
agreements, indemnity or guaranty agreements, bonds, mortgages, pledges or other
security agreements to which the Company is a party or by which its properties
may be bound. Except as set forth on Schedule 5.10, since the Balance Sheet
Date, the Company has not incurred any liabilities or obligations of any kind,
character or description, whether accrued, absolute, secured or unsecured,
contingent or otherwise,
-11-
other than liabilities incurred in the ordinary course of business and
consistent with past practices. The Company has also delivered to Pentacon on
Schedule 5.10, in the case of those contingent liabilities related to pending or
threatened litigation, a good faith and reasonable estimate (to the extent the
Company can reasonably make an estimate) of the maximum amount which the Company
reasonably expects may be payable and the amount, if any, accrued or reserved
for each such potential liability on the Company's Financial Statements. If no
estimate is provided, the estimate shall for purposes of this Agreement be
deemed to be zero. For each such contingent liability or liability for which the
amount is not fixed or is contested, the Company has provided to Pentacon the
following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation
relating thereto;
(b) amounts claimed and any other action or
relief sought; and
(c) name of claimant and all other parties to
the claim, suit or proceeding;
(ii) the name of each court or agency before which such claim,
suit or proceeding is pending; and
(iii) the date (if any) on which such claim, suit or
proceeding was instituted or the date (period) to which such claim
relates.
5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an
accurate list of the accounts and notes receivable of the Company, as of the
Balance Sheet Date, including any such amounts which are not reflected in the
Interim Balance Sheet as of the Balance Sheet Date, and including receivables
from and advances to employees and the Stockholders, which are identified as
such. Except to the extent reflected on Schedule 5.11, such accounts, notes and
other receivables are collectible in the amounts shown on Schedule 5.11, net of
reserves reflected in the Interim Balance Sheet of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company holds all material licenses,
franchises, permits and other governmental authorizations ("Licenses") necessary
to conduct the business of the Company and the Company has delivered to Pentacon
an accurate list and summary description (which is set forth on Schedule 5.12)
of all such material Licenses, including any material trademarks, trade names,
patents, patent applications and copyrights owned or held by the Company or any
of its employees (including interests in software or other technology systems,
programs and intellectual property). At or prior to the Closing, all rights to
such trademarks, trade names, patents, patent applications, copyrights and other
intellectual property held by the Stockholders or their Affiliates will be
assigned or licensed to the Company for no additional consideration. The
Licenses and other rights listed on Schedule 5.12 are valid, and the Company has
not received any notice that any person intends to cancel, terminate or not
renew any such License or other right. The Company has conducted and is
conducting its business in compliance with the requirements, standards, criteria
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and conditions set forth in the Licenses and other rights listed on Schedule
5.12 and is not in violation of any of the foregoing. Except as specifically
provided in Schedule 5.12, the transactions contemplated by this Agreement will
not result in a default under or a breach or violation of, or adversely affect
the rights and benefits afforded to the Company by, any such Licenses or other
rights.
5.13 ENVIRONMENTAL MATTERS. Except as set forth in Schedule 5.13
attached hereto, (i) the Company has conducted its businesses in compliance with
all applicable Environmental Laws, including, without limitation, having all
environmental permits, licenses and other approvals and authorizations necessary
for the operation of its business as presently conducted, (ii) none of the
properties owned by the Company contain any Hazardous Substance as a result of
any activity of the Company in amounts exceeding the levels permitted by
applicable Environmental Laws, (iii) the Company has not received any notices,
demand letters or requests for information from any Federal, state, local or
foreign governmental entity or third party indicating that the Company may be in
violation of, or liable under, any Environmental Law in connection with the
ownership or operation of its business, (iv) there are no civil, criminal or
administrative actions, suits, demands, claims, hearings, investigations or
proceedings pending or to the knowledge of the Stockholders threatened, against
the Company relating to any violation, or alleged violation, of any
Environmental Law, (v) no reports have been filed, or are required to be filed,
by the Company concerning the release of any Hazardous Substance or the
threatened or actual violation of any Environmental Law, (vi) no Hazardous
Substance has been disposed of, released or transported in violation of any
applicable Environmental Law from any properties owned by the Company as a
result of any activity of the Company during the time such properties were
owned, leased or operated by the Company, (vii) there have been no environmental
investigations, studies, audits, tests, reviews or other analysis regarding
compliance or non-compliance with any applicable Environmental Law conducted by
or which are in the possession of or readily available to the Company relating
to the activities of the Company which are not listed on Schedule 5.13 attached
hereto prior to the date hereof, (viii) there are no underground storage tanks
on, in or under any properties owned by the Company and no underground storage
tanks have been closed or removed from any of such properties during the time
such properties were owned, leased or operated by the Company, (ix) there is no
asbestos or asbestos containing material present in any of the properties owned
by the Company, and no asbestos has been removed from any of such properties
during the time such properties were owned, leased or operated by the Company,
and (x) neither the Company nor any of its respective properties are subject to
any material liabilities or expenditures (fixed or contingent) relating to any
suit, settlement, court order, administrative order, regulatory requirement,
judgment or claim asserted or arising under any Environmental Law.
(b) As used herein, "ENVIRONMENTAL LAW" means any Federal, state, local
or foreign law, statute, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, legal doctrine, order, judgment, decree,
injunction, requirement or agreement with any governmental entity which is
applicable where the Company conducts or conducted business or owns or owned
property or is applicable to any disposal, transportation or release of
Hazardous Substances by or for the Company and, in each case, relates to (x) the
protection, preservation or restoration of the
-13-
environment (including, without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface land, subsurface land, plant and
animal life or any other natural resource) or to human health or safety or (y)
the exposure to, or the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release or disposal
of Hazardous Substances, in each case as amended and as in effect on the Closing
Date. The term Environmental Law includes, without limitation, (i) the Federal
Comprehensive Environmental Response Compensation and Liability Act of 1980, the
Superfund Amendments and Reauthorization Act, the Federal Water Pollution
Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act, the
Federal Resource Conservation and Recovery Act of 1976 (including the Hazardous
and Solid Waste Amendments thereto), the Federal Solid Waste Disposal and the
Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide and
Rodenticide Act, the Federal Occupational Safety and Health Act of 1970, each as
amended and as in effect on the Closing Date, and (ii) any common law or
equitable doctrine (including, without limitation, injunctive relief and tort
doctrines such as negligence, nuisance, trespass and strict liability) that may
impose liability or obligations for injuries or damages due to, or threatened as
a result of, the presence of, effects of or exposure to any Hazardous Substance.
(c) As used herein, "HAZARDOUS SUBSTANCE" means any substance presently
listed, defined, designated or classified as hazardous, toxic, radioactive, or
dangerous, or otherwise regulated, under any Environmental Law. Hazardous
Substance includes any substance to which exposure is regulated by any
government authority or any Environmental Law including, without limitation, any
toxic waste, pollutant, contaminant, hazardous substance, toxic substance,
hazardous waste, special waste, industrial substance or petroleum or any
derivative or by-product thereof, radon, radioactive material, asbestos or
asbestos containing material, urea formaldehyde foam insulation, lead or
polychlorinated biphenyls.
5.14 PERSONAL PROPERTY. The Company has delivered to Pentacon an
accurate list (which is set forth on Schedule 5.14) of (x) all personal property
material to the operations of the Company included in "plant, property and
equipment" on the Interim Balance Sheet of the Company, (y) all other personal
property owned by the Company with an individual fair market value in excess of
$5,000 (i) as of the Balance Sheet Date and (ii) acquired since the Balance
Sheet Date and (z) all material leases and agreements in respect of personal
property, including, in the case of each of (x), (y) and (z), (1) true, complete
and correct copies of all such leases and (2) an indication as to which assets
are currently owned, or were formerly owned, by Stockholders, relatives of
Stockholders, or Affiliates of the Company. Except as set forth on Schedule
5.14, (i) all material personal property used by the Company in its business is
either owned by the Company or leased by the Company pursuant to a lease
included on Schedule 5.14, (ii) all of the personal property listed on Schedule
5.14 is in working order and condition sufficient for the operation of the
Company's business, ordinary wear and tear excepted and (iii) all leases and
agreements included on Schedule 5.14 are in full force and effect and constitute
valid and binding agreements of the Company and of the other parties (and their
successors) thereto in accordance with their respective terms.
-14-
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS
(a) The Company has delivered to Pentacon an accurate list (which is
set forth on Schedule 5.15) of all customers (persons or entities) representing
5% or more of the Company's annual revenues for the period covered by any of the
most current Year-End Financial Statements. Except to the extent set forth on
Schedule 5.15, none of such customers have canceled or substantially reduced or,
to the knowledge of the Company and the Stockholders, are currently attempting
or threatening to cancel a contract or substantially reduce utilization of the
services provided by the Company.
(b) The Company has listed on Schedule 5.15 all material contracts,
commitments and similar agreements to which the Company is a party or by which
it or any of its properties are bound (including, but not limited to, contracts
with significant customers, joint venture or partnership agreements, contracts
with any labor organizations, strategic alliances and options to purchase land),
other than agreements listed on Schedules 5.10, 5.14 or 5.16, (a) in existence
as of the Balance Sheet Date and (b) entered into since the Balance Sheet Date,
and in each case has delivered (or, in the case of supplier and distributor
contracts and customer contracts on standard purchase forms, has made available)
true, complete and correct copies of such agreements to Pentacon. The Company
has also indicated on Schedule 5.15 a summary description of all plans or
projects commenced or approved in the last six (6) months and involving the
opening of new operations, expansion of existing operations, the acquisition of
any personal property, business or assets requiring, in any event, the payment
of more than $20,000 by the Company during any 12-month period.
(c) Except as set forth on Schedule 5.15, since January 1, 1995, the
Company has not experienced any difficulties in obtaining any inventory items
necessary to the operation of its business, and, to the knowledge of the Company
and the Stockholders, no such shortage of supply of inventory items is
threatened or pending. To the knowledge of the Company and the Stockholders, no
customer or supplier of the Company will cease to do business with, or
substantially reduce its purchases from, the Company after the consummation of
the transactions contemplated hereby.
(d) The Company is not required to provide any bonding or other
financial security arrangements in any material amount in connection with any
transactions with any of its customers or suppliers.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real property
owned or leased by the Company at the date hereof and all other real property,
if any, used by the Company in the conduct of its business. The Company has good
and insurable title to any real property owned by it that is shown on Schedule
5.16, other than property intended to be sold or distributed prior to the
Closing Date, subject to no mortgage, pledge, lien, conditional sales agreement,
encumbrance or charge, except for:
-15-
(i) liens reflected on Schedules 5.10 or 5.16 as securing
specified liabilities (with respect to which no material default
exists);
(ii) liens for current taxes not yet payable and assessments
not in default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other
exceptions to title which do not adversely affect the current use of
the property.
True, complete and correct copies of all leases and agreements in
respect of such real property leased by the Company are attached to Schedule
5.16, and an indication as to which such properties, if any, are currently
owned, or were formerly owned, by Stockholders or Affiliates of the Company or
Stockholders is included in Schedule 5.16. Except as set forth on Schedule 5.16,
all of such leases included on Schedule 5.16 are in full force and effect and
constitute valid and binding agreements of the Company and of the other parties
(and their successors) thereto in accordance with their respective terms.
5.17 INSURANCE. Set forth on Schedule 5.17 is an accurate list as of
the Balance Sheet Date of all insurance policies carried by the Company, (ii) an
accurate list of all insurance loss runs (to the extent available) or workers
compensation claims received for the past three policy years. True, complete and
correct copies of all insurance policies currently in effect have been delivered
or made available to Pentacon. Such insurance policies evidence all of the
insurance that the Company is required to carry pursuant to all of its contracts
and other agreements and pursuant to all applicable laws, and, in the reasonable
judgment of the Company's management, provide adequate coverage against the
risks involved in the Company's business. All of such insurance policies are
currently in full force and effect and are scheduled to remain in full force and
effect through the Consummation Date. Since January 1, 1995, no insurance
carried by the Company has been canceled by the insurer and the Company has not
been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; LABOR MATTERS.
(a) The Company has delivered to Pentacon an accurate list (which is
set forth on Schedule 5.18) showing all officers, directors and key employees of
the Company, listing all employment agreements with such officers, directors and
key employees and the rate of compensation (and the portions thereof
attributable to salary, bonus and other compensation, respectively) of each of
such persons as of (i) the Balance Sheet Date and (ii) the date hereof. The
Company has provided to Pentacon true, complete and correct copies of any
existing employment agreements for persons listed on Schedule 5.18. Since the
Balance Sheet Date and except as described in Schedule 5.18, there have been no
increases in the compensation payable or any special bonuses to any officer,
director, key employee or other employee, except ordinary salary increases
implemented on a basis consistent with past practices and bonuses, as described
in Schedule 5.18.
-16-
(b) Except as set forth on Schedule 5.18, (i) the Company is not bound
by or subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union, (ii) no employees of the
Company are represented by any labor union or covered by any collective
bargaining agreement, (iii) to the best knowledge of the Company, no campaign to
establish such representation is in progress and (iv) there is no pending or, to
the knowledge of the Company and the Stockholders, threatened labor dispute
involving the Company and any group of its employees nor has the Company
experienced any labor interruptions over the past three years.
(c) Except as set forth in Schedule 5.18 attached hereto, (i) there are
no significant controversies pending or, to the knowledge of the Company and the
Stockholders, threatened between the Company and any of its employees, (ii) the
Company has complied in all material respects with all laws relating to the
employment of labor, including, without limitation, any provisions thereof
relating to wages, hours, collective bargaining, and the payment of social
security and similar taxes, and (iii) to the knowledge of the Company and the
Stockholders, no person has asserted that the Company is liable in any material
amount for any arrears of wages or any taxes or penalties for failure to comply
with any of the foregoing.
5.19 EMPLOYEE PLANS. Schedule 5.19 accurately reflects all employee
benefit plans of the Company, including all employment agreements and other
agreements or arrangements containing "golden parachute" or other similar
provisions, and deferred compensation agreements, together with true, complete
and correct copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on Schedule 5.19, the
Company does not sponsor, maintain or contribute to any plan program, fund or
arrangement that constitutes an "employee pension benefit plan", and neither the
Company nor any subsidiary has any obligation to contribute to or accrue or pay
any benefits under any deferred compensation or retirement funding arrangement
on behalf of any employee or employees (such as, for example, and without
limitation, any individual retirement account or annuity, any "excess benefit
plan" (within the meaning of Section 3(36) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) or any non-qualified deferred
compensation arrangement). For the purposes of this Agreement, the term
"employee pension benefit plan" shall have the same meaning as is given that
term in Section 3(2) of ERISA. The Company has not sponsored, maintained or
contributed to any employee pension benefit plan other than the plans set forth
on Schedule 5.19, and the Company is not or could not be required to contribute
to any retirement plan pursuant to the provisions of any collective bargaining
agreement establishing the terms and conditions or employment of any of the
Company's employees.
Except as set forth on Schedule 5.19, the Company is not now, or will
not as a result of its past activities become, liable to the Pension Benefit
Guaranty Corporation ("PBGC") or to any multiemployer employee pension benefit
plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 5.19 and the
administration thereof are in compliance with their terms and all applicable
provisions of ERISA and the regulations issued
-17-
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the Company with respect to any
plan listed on Schedule 5.19 as of the Balance Sheet Date have either been
fulfilled in their entirety or are fully reflected on the Interim Balance Sheet
as of the Balance Sheet Date.
5.20 COMPLIANCE WITH ERISA. Except as set forth on Schedule 5.20, All
such plans listed on Schedule 5.19 that are intended to qualify (the "Qualified
Plans") under Section 401 (a) of the Code are, and have been so qualified and
have been determined by the Internal Revenue Service to be so qualified, and
copies of the most recent determination letters with respect thereto are
attached to Schedule 5.19. Except as disclosed on Schedule 5.20, all reports and
other documents required to be filed with any governmental agency or distributed
to plan participants or beneficiaries (including, but not limited to, actuarial
reports, audits or tax returns) have been timely filed or distributed, and
copies of the most recent reports and filing relating thereto are included as
part of Schedule 5.19 hereof. Neither Stockholders, any such plan listed in
Schedule 5.19, nor the Company has engaged in any transaction prohibited under
the provisions of Section 4975 of the Code or Section 406 of ERISA. No such Plan
listed in Schedule 5.19 has incurred an accumulated funding deficiency, as
defined in Section 412(a) of the Code and Section 302(l) of ERISA; and the
Company has not incurred any liability for excise tax or penalty due to the
Internal Revenue Service nor any liability to the PBGC. The Stockholders further
represent that except as set forth on Schedule 5.19 hereto:
(i) there have been no terminations, partial terminations or
discontinuations of contributions to any Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and approval
by the Internal Revenue Service;
(ii) no plan listed in Schedule 5.19 subject to the provisions
of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase
is defined in Section 4043 of ERISA) with respect to any such plan
listed in Schedule 5.19;
(iv) the Company (including any subsidiaries) has not incurred
liability under Section 4062 of ERISA; and
(v) to the knowledge of the Company and the Stockholders, no
circumstances exist pursuant to which the Company would be reasonably
likely to have any direct or indirect liability whatsoever (including,
but not limited to, any liability to any multiemployer plan or the PBGC
under Title IV of ERISA or to the Internal Revenue Service for any
excise tax or penalty, or being subject to any statutory lien to secure
payment of any such liability) with respect to any plan now or
heretofore maintained or contributed to by any entity other
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than the Company that is, or at any time was, a member of a "controlled
group" (as defined in Section 412(n)(6)(B) of the Code) that includes
the Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13 or in other Schedules to this Agreement, the Company is
not in violation of any law or regulation or any order of any court or Federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality having jurisdiction over it; and except to the extent
set forth on Schedule 5.10 or 5.13, there are no claims, actions, suits or
proceedings, pending or, to the knowledge of the Company and the Stockholders,
threatened against or affecting, the Company, at law or in equity, or before or
by any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over any of them
and no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received by the Company, and, to the knowledge of the
Company and the Stockholders, there is no basis for any such claim, action, suit
or proceeding. The Company has conducted and is now conducting its business in
substantial compliance with the requirements, standards, criteria and conditions
set forth in applicable Federal, state and local statutes, ordinances, orders,
approvals, variances, rules and regulations.
5.22 TAXES.
(a) Except as set forth in Schedule 5.22, the Company has timely filed
all requisite Federal, state and other Tax Returns or extension requests for all
fiscal periods ended on or before the Balance Sheet Date; and except as set
forth on Schedule 5.22, the Company has no notice that any examinations are in
progress or that any claims are pending against it for federal, state and other
Taxes (including penalties and interest) for any period or periods prior to and
including the Balance Sheet Date and no notice of any claim for Taxes, whether
pending or threatened, has been received. Except as set forth in Schedule 5.22,
all Tax, including interest and penalties (whether or not shown on any Tax
Return) owed by the Company has been paid or accrued in its financial accounts.
The amounts shown as accruals for Taxes on the Company Financial Statements are
sufficient for the payment of all Taxes of the kinds indicated (including
penalties and interest) for all fiscal periods ended on or before that date.
Copies of (i) any tax examinations, (ii) extensions of statutory limitations and
(iii) the federal and local income Tax Returns and franchise Tax Returns of
Company for their last three (3) fiscal years, or such shorter period of time as
any of them shall have existed, are attached hereto as Schedule 5.22 or have
otherwise been delivered to Pentacon. The Company has a taxable year ended
December 31. Except as set forth on Schedule 5.22, Company uses the accrual
method of accounting for income tax purposes, and the Company's methods of
accounting have not changed in the past five years. The Company is not an
investment Company as defined in Section 351(e)(1) of the Code. Except as set
forth in Schedule 5.22, the Company is not and has not during the last five
years been a party to any tax sharing agreement or agreement of similar effect.
The Company is not and has not during the last five years been a member of any
consolidated group. Except as set forth on Schedule 5.22, the Company has not
received, been denied, or applied for any private letter ruling during the last
ten years.
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(b) The Stockholders made a valid election under the provisions of
Subchapter S of the Code and the Company has not, within the past twelve (12)
months, been taxed under the provisions of Subchapter C of the Code. The
Stockholders shall pay all income taxes with respect to the Company payable for
all periods through and including the Closing Date which are not reflected on
the Company's financial statements as being obligations owing by the Company.
5.23 NO VIOLATIONS; NO CONSENT REQUIRED, ETC.
(a) The Company is not in violation of any Charter Document. Except as
set forth in Schedule 5.23, neither the Company nor, to the best knowledge of
the Company and the Stockholders, any other party thereto, is in default under
any lease, instrument, agreement, license, or permit set forth on Schedule 5.12,
5.13, 5.14, 5.15 or 5.16, or any other material agreement to which it is a party
or by which its properties are bound (the "Material Documents").
(b) Except as set forth in Schedule 5.23, the execution and delivery of
this Agreement by each of the Company and the Stockholders do not violate,
conflict with or result in a breach of any provision of, or constitute a default
(or an event which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate the performance
required by, or result in a right of termination or acceleration under, or
result in the creation of any lien, security interest, charge or encumbrance
upon any of the properties or assets of the Company under any of the terms,
conditions or provisions of (i) the Charter Documents (ii) any statute, law,
ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit
or license of any court or governmental authority applicable to the Company or
any of its properties or assets, or (iii) any Material Document or other
material instrument, obligation or agreement of any kind to which the Company or
any of the Stockholders is now a party or by which any of the Stockholders or
the Company or any of its properties or assets may be bound or affected. The
consummation by the Company and the Stockholders of the transactions
contemplated hereby will not result in any violation, conflict, breach, right of
termination or acceleration or creation of liens under any of the terms,
conditions or provisions of the items described in clauses (i) through (iii) of
the preceding sentence, subject, in the case of the terms, conditions or
provisions of the items described in clause (iii) above, to obtaining (prior to
the Effective Time of the Merger) such consents as may be required from
commercial lenders, lessors or other third parties.
(c) Except as set forth on Schedule 5.23, none of the Material
Documents requires notice to, or the consent or approval of, any governmental
agency or other third party with respect to any of the transactions contemplated
hereby in order to remain in full force and effect, and consummation of the
transactions contemplated hereby will not give rise to any right to termination,
cancellation or acceleration or loss of any material right or benefit.
(d) Except (i) for the filings by Pentacon in connection with the IPO
of the Registration Statement, (ii) for the declaration of the effectiveness
thereof by the SEC and filings with various state blue sky authorities, (iii)
for the making of the merger filings with the Secretary of State of the State of
Delaware and the State of Incorporation in connection with the Merger, (iv) for
filings in
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connection with listing on the NASDAQ National Market System or New York Stock
Exchange or other nationally recognized securities exchange; (v) for possible
filings under the Xxxx-Xxxxx-Xxxxxx Act as contemplated in Section 7.13 and (vi)
as set forth in Schedule 5.23, neither the Company nor the Stockholders are
required to make any declaration, filing or registration with, or notice to, or
obtain any authorization, consent or approval of, any governmental or regulatory
body or authority is necessary for the execution and delivery of this Agreement
by the Company and the Stockholders or the consummation by the Company and the
Stockholders of the transactions contemplated hereby.
(e) Except as set forth on Schedule 5.23, none of the Material
Documents prohibits the use or publication by the Company, Pentacon or Newco of
the name of any other party to such Material Document, and none of the Material
Documents prohibits or restricts the Company from freely providing services or
selling products to any other customer or potential customer of the Company,
Pentacon, Newco or any Other Founding Company.
5.24 GOVERNMENT CONTRACTS; MINORITY BASED CONTRACTS. Except as set
forth on Schedule 5.24, the Company is not now a party to any governmental
contract that, by its express terms, is subject to price redetermination or
renegotiation or that is customarily subject to price redetermination or
renegotiations in the ordinary course of business. Except as set forth on
Schedule 5.24, the Company is not now a party to any material contract based on
minority ownership which would be canceled or otherwise materially adversely
impacted by completion of the Pentacon Plan of Organization.
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set
forth on Schedule 5.25 or as otherwise contemplated hereby, there has not been:
(i) any Material Adverse Effect with respect to the Company;
(ii) any damage, destruction or loss (whether or not covered
by insurance), alone or in the aggregate, materially adversely
affecting the properties or business of the Company;
(iii) any change in the authorized capital of the Company or
its outstanding securities or any change in its ownership interests or
any grant of any options, warrants, calls, conversion rights or
commitments;
(iv) any declaration or payment of any dividend or
distribution in respect of the capital stock or any direct or indirect
redemption, purchase or other acquisition of any of the capital stock
of the Company except for distributions that would have been permitted
after the date hereof under Section 7.3(iii) hereof,
(v) any increase in the compensation, bonus, sales commissions
or fee arrangement payable or to become payable by the Company to any
of its officers, directors, Stockholders, employees, consultants or
agents, except for ordinary and customary bonuses and salary increases
for employees in accordance with past practice;
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(vi) any work interruptions, labor grievances or claims filed,
or any event or condition of any character, materially adversely
affecting the business or future prospects of the Company;
(vii) any sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of Company outside of
the ordinary course of business to any person, including, without
limitation, the Stockholders and their affiliates;
(viii) any cancellation, or agreement to cancel, any
indebtedness or other obligation owing to the Company, including
without limitation any indebtedness or obligation of any Stockholders
or any affiliate thereof;
(ix) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of the
assets, property or rights of the Company or requiring consent of any
party to the transfer and assignment of any such assets, property or
rights;
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets
outside of the ordinary course of the Company's business;
(xi) any waiver of any material rights or claims of the
Company;
(xii) any amendment or termination of any Material Document;
(xiii) any transaction by the Company outside the ordinary
course of its business;
(xiv) any cancellation or termination of a Material Document
or material customer contract with a customer or client prior to the
scheduled termination date; or
(xv) any other distribution of property or assets by the
Company other than in the ordinary course of business and other than
distributions of real estate and other assets as permitted by this
Agreement.
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. Schedule 5.26 sets forth an
accurate schedule as of the date of the Agreement of:
(i) the name of each financial institution in which the
Company has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
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(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or
have access thereto.
Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the Company and
a description of the terms of such power.
5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by the Company and the performance of the transactions contemplated
herein have been duly and validly authorized by the Board of Directors of the
Company and this Agreement has been duly and validly authorized by all necessary
corporate action and is a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms.
5.28 RELATIONS WITH GOVERNMENTS. None of the Company, any of the
Stockholders, or any Affiliate of any of them has given or offered anything of
value to any governmental official, political party or candidate for government
office in violation of any applicable laws, rules or regulations, nor has it or
any of them otherwise taken any action which would cause the Company to be in
violation of the Foreign Corrupt Practices Act of 1977, as amended or any
applicable law of similar effect.
5.29 DISCLOSURE. (a) This Agreement, including the Annexes and
Schedules hereto, furnished to Pentacon by the Company and the Stockholders in
connection herewith, do not contain an untrue statement of a material fact or
omit to state a material fact necessary to make the statements herein and
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the foregoing does not apply to statements
contained in or omitted from any of such documents made or omitted in reliance
upon information furnished in writing by Pentacon or Newco.
(b) The Company and the Stockholders acknowledge and agree (i) that
there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant thereto
will occur at a particular price or within a particular range of prices or occur
at all; (ii) that neither Pentacon or any of its officers, directors, agents or
representatives nor any Underwriter shall have any liability to the Company, the
Stockholders or any other person affiliated or associated with the Company for
any failure of the Registration Statement to become effective, the IPO to occur
at a particular price or within a particular range of prices or to occur at all;
and (iii) that the decision of Stockholders to enter into this Agreement, or to
vote in favor of or consent to the proposed Merger, has been or will be made
independent of, and without reliance upon, any statements, opinions or other
communications, or due diligence investigations which have been or will be made
or performed by any prospective Underwriter, relative to Pentacon or the
prospective IPO.
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5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30, the
Company has not, between the Balance Sheet Date and the date hereof, taken any
of the actions which are prohibited ("Prohibited Activities") in Section 7.3.
5.31 NO WARRANTIES OR INSURANCE. Except as set forth on Schedule 5.31,
to the knowledge of the Company or the Stockholders, the Company has no
liability or potential liability to any person under any product or service
warranty and the Company does not offer or sell insurance or consumer protection
plans or other similar arrangements that could result in the Company being
required to make any material payment to or perform any material service for any
person thereunder.
5.32 INTEREST IN CUSTOMERS AND SUPPLIERS AND RELATED-PARTY
TRANSACTIONS. Except as described on Schedule 5.32, no Stockholder, officer,
director or Affiliate of the Company (i) possesses, directly or indirectly, any
financial interest in, or is a director, officer, employee or affiliate of, any
corporation, firm, association or business organization that is a client,
supplier, customer, lessor, lessee or competitor of the Company, or (ii) is a
party to an agreement or relationship, that involves the receipt by such person
of compensation or property from the Company other than through a customary
employment relationship.
(B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS.
Each Stockholder severally, but not jointly, represents and
warrants that the representations and warranties set forth below are true as of
the date of this Agreement as they relate to such Stockholder and that the
representations and warranties set forth in this Sections 5(B) shall survive the
Consummation Date.
5.33 AUTHORITY; OWNERSHIP; VALIDITY OF OBLIGATIONS. Such Stockholder
has the full legal right, power and authority to enter into this Agreement. Such
Stockholder owns beneficially and of record all of the shares of the Company
stock identified on Annex II as being owned by such Stockholder, and, such
Company Stock is owned free and clear of all liens, encumbrances and claims of
every kind. This Agreement is a legal, valid, and binding obligation of each
Stockholder.
5.34 PREEMPTIVE RIGHTS. Such Stockholder does not have, or hereby
waives, any preemptive or other right to acquire shares of Company Stock or
Pentacon Stock that such Stockholder has or may have had. Nothing herein,
however, shall limit or restrict the rights of any Stockholder to acquire
Pentacon Stock pursuant to (i) this Agreement or (ii) any option granted by
Pentacon.
5.35 NO INTENTION TO DISPOSE OF PENTACON STOCK. No Stockholder is under
any binding commitment or contract to sell, exchange or otherwise dispose of
shares of Pentacon Stock received as described in Section 3.1.
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6. REPRESENTATIONS OF PENTACON AND NEWCO
Pentacon and Newco, jointly and severally, represent and warrant to the
Stockholders that all of the following representations and warranties in this
Section 6 are true at the date of this Agreement and, subject to Section 7.8
hereof, shall be true at the time of Closing and the Consummation Date, and that
such representations and warranties shall survive the Consummation Date for a
period of twenty-four months (the last day of such period being the "Expiration
Date"), except that (i) the warranties and representations set forth in Section
6.14 hereof shall survive until such time as the limitations period has run for
all tax periods ended on or prior to the Consummation Date, which shall be
deemed to be the Expiration Date for Section 6.14 and (ii) solely for purposes
of determining whether a claim for indemnification under Section 11.2(iv) hereof
has been made on a timely basis, and solely to the extent that in connection
with the IPO, any of the Stockholders actually incurs liability under the 1933
Act, the 1934 Act, or any other Federal or state securities laws, the
representations and warranties of Pentacon and Newco set forth herein shall
survive until the expiration of any applicable limitations period, which shall
be deemed to be the Expiration Date for such purposes.
6.1 DUE ORGANIZATION. Pentacon and Newco are each corporations duly
incorporated and organized, validly existing and in good standing under the laws
of the State of Delaware, and each has the requisite power and authority to
carry on its business as it is now being conducted. Pentacon and Newco are each
qualified to do business and are each in good standing in each jurisdiction in
which the nature of its business makes such qualification necessary. True,
complete and correct copies of the Certificate of Incorporation and By-laws,
each as proposed to be amended, of Pentacon and Newco (the "Pentacon Charter
Documents") are all attached hereto as Annex III.
6.2 AUTHORIZATION. (i) The respective officers or other representatives
of Pentacon and Newco executing this Agreement have the authority to enter into
and bind Pentacon and Newco to the terms of this Agreement and (ii) Pentacon and
Newco have the full legal right, power and authority to enter into this
Agreement and the Other Agreements and consummate the Merger. All corporate acts
and other proceedings required to have been taken by Pentacon and Newco to
authorize the execution, delivery and performance of this Agreement and the
consummation of the Merger have been duly and properly taken.
6.3 CAPITAL STOCK OF PENTACON AND NEWCO. The authorized capital stock
of Pentacon and Newco is as set forth in Schedule 6.3 and the Draft Registration
Statement. All of the issued and outstanding shares of the capital stock of
Newco are owned by Pentacon and all of the issued and outstanding shares of the
capital stock of Pentacon are owned by the persons set forth on Schedule 6.3
hereof, in each case, free and clear of all liens, security interests, pledges,
charges, voting trusts, restrictions, encumbrances and claims of every kind. All
of the issued and outstanding shares of the capital stock of Pentacon and Newco
have been duly authorized and validly issued, are fully paid and nonassessable,
and further, such shares were offered, issued, sold and delivered by Pentacon
and Newco in compliance with all applicable state and Federal laws concerning
the issuance of
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securities. Further, none of such shares were issued in violation of the
preemptive rights of any past or present stockholder of Pentacon or Newco.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for
the Other Agreements and except as set forth in the Draft Registration Statement
or in Schedule 6.3 hereof, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates Pentacon or Newco to issue any of
their respective authorized but unissued capital stock; (ii) no voting trust,
voting agreement, proxy or other agreements or understandings exist with respect
to the voting of any shares of capital stock of Pentacon; and (iii) neither
Pentacon nor Newco has any obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any of its equity securities or any interests
therein or to pay any dividend or make any distribution in respect thereof.
Schedule 6.4 also includes a list of all outstanding options, warrants or other
rights to acquire shares of the stock of Pentacon.
6.5 SUBSIDIARIES. Newco has no subsidiaries. Pentacon has no
subsidiaries except for Newco and each of the companies identified as "Newco" in
each of the Other Agreements. Except as set forth in the preceding sentence,
neither Pentacon nor Newco presently owns, of record or beneficially, or
controls, directly or indirectly, any capital stock, securities convertible into
capital stock or any other equity interest in any corporation, association or
business entity, and neither Pentacon nor Newco, directly or indirectly, is a
participant in any joint venture, partnership or other non-corporate entity.
6.6 FINANCIAL STATEMENTS. The financial statements of Pentacon included
in the Draft Registration Statement (the "Pentacon Financial Statements") have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
thereon), and the balance sheet included therein presents fairly the financial
position of Pentacon as of its date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement, Pentacon and Newco have no material liabilities,
contingent or otherwise, except as set forth in or contemplated by this
Agreement and the Other Agreements and except for fees generally described in
Part II of the Draft Registration Statement and incurred in connection with the
transactions contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth in
the Draft Registration Statement, neither Pentacon nor Newco is in violation of
any law or regulation or any order of any court or Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them and except to the extent
set forth in Schedule 6.8, there are no material claims, actions, suits or
proceedings, pending or, to the knowledge of Pentacon or Newco, threatened
against or affecting, Pentacon or Newco, at law or in equity, or before or by
any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over either of them
and no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received.
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Pentacon and Newco have conducted and are conducting their respective businesses
in substantial compliance with the requirements, standards, criteria and
conditions set forth in applicable Federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and are not in violation, in any material respect, of any of the
foregoing.
6.9 NO VIOLATIONS. (a) Neither Pentacon nor Newco is in violation of
any Pentacon Charter Document. None of Pentacon, Newco, or, to the knowledge of
Pentacon and Newco, any other party thereto, is in default under any lease,
instrument, agreement, license, or permit to which Pentacon or Newco is a party,
or by which Pentacon or Newco, or any of their respective properties, are bound
(collectively, the "Pentacon Documents"); and (a) the rights and benefits of
Pentacon and Newco under the Pentacon Documents will not be adversely affected
by the transactions contemplated hereby and (b) the execution and delivery of
this Agreement and the Other Agreements by Pentacon and Newco and the
performance of their obligations hereunder and thereunder do not, and the
consummation of the transactions contemplated hereby and thereby and compliance
with the terms hereof and thereof will not, conflict with, or result in any
violation or default (with or without notice or lapse of time, or both), under
or give rise to a right of termination, cancellation, or acceleration of any
obligation or to loss of a material benefit under, or result in the creation of
any lien upon any of the assets of Pentacon or Newco under, any provision of (i)
the Certificate of Incorporation or Bylaws of Pentacon Charter Documents or the
comparable governing instruments of Newco, (ii) any note, bond, mortgage,
indenture or deed of trust or any license, lease, contract, commitment,
agreement or arrangement to which Pentacon or Newco is a party or by which any
of their respective properties or assets are bound or (iii) any judgment, order,
decree or law, ordinance, rule or regulation, applicable to Pentacon or Newco or
their respective properties or assets.
(b) Except as set forth on Schedule 6.9 or in Section 6.9(c), none of
the Pentacon Documents requires notice to, or the consent or approval of, any
governmental agency or other third party with respect to any of the transactions
contemplated hereby in order to remain in full force and effect and consummation
of the transactions contemplated hereby will not give rise to any right to
termination, cancellation or acceleration or loss of any right or benefit.
(c) Except (i) for the filings by Pentacon in connection with the IPO
of the Registration Statement, (ii) for the declaration of the effectiveness
thereof by the SEC and filings with various state blue sky authorities, (iii)
filings with blue sky authorities in connection with the transactions
contemplated by this Agreement, (iv) for the making of the merger filings with
the Secretary of State of the State of Delaware and the State of Incorporation
in connection with the Merger, (v) for filings in consideration for listing on
the NASDAQ National Market System or the New York Stock Exchange or other
nationally recognized securities exchange; and (vi) for possible filings under
the Xxxx-Xxxxx-Xxxxxx Act as contemplated in Section 7.13, Purchaser is not
required make any declaration, filing or registration with, or notice to, or
obtain any authorization, consent or approval of, any governmental or regulatory
body or authority is necessary for the execution and delivery of this Agreement
by NEWCO or Pentacon or the consummation by the Newco and Pentacon of the
transactions contemplated hereby.
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6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement and the Other Agreements by Pentacon and Newco and the performance of
the transactions contemplated herein and therein have been duly and validly
authorized by the respective Boards of Directors and stockholders of Pentacon
and Newco and this Agreement and the Other Agreements have been duly and validly
authorized by all necessary corporate action and are legal, valid and binding
obligations of Pentacon and Newco, enforceable against them in accordance with
their respective terms.
6.11 PENTACON STOCK. At the time of issuance thereof and delivery to
the Stockholders, the Pentacon Stock to be delivered to the Stockholders
pursuant to this Agreement will constitute valid and legally issued shares of
Pentacon, fully paid and nonassessable, and with the exception of restrictions
upon resale set forth in Sections 15 and 16 hereof, will be identical in all
substantive respects (which do not include the form of certificate upon which it
is printed or the presence or absence of a CUSIP number on any such certificate)
to the Pentacon Stock issued and outstanding as of the date hereof by reason of
the provisions of the Delaware GCL. The Pentacon Stock issued and delivered to
the Stockholders shall at the time of such issuance and delivery be free and
clear of any liens, claims or encumbrances of any kind or character. The shares
of Pentacon Stock to be issued to the Stockholders pursuant to this Agreement
will not be registered under the 1933 Act, except as provided in Section 17
hereof.
6.12 NO SIDE AGREEMENTS. Except as set forth in Schedule 6.12, neither
Pentacon nor Newco has entered or will enter into any agreement with any of the
Founding Companies or any of the Stockholders of the Founding Companies or
Pentacon other than the Other Agreements and the agreements contemplated by each
of the Other Agreements, including the employment agreements and real property
leases referred to herein or entered into in connection with the transactions
contemplated hereby and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. Pentacon was formed
on March 20, 1997 and has conducted only limited operations since that time.
Neither Pentacon nor Newco has conducted any material business since the date of
its inception, except in connection with this Agreement, the Other Agreements
and the IPO. Except as described in the Draft Registration Statement, neither
Pentacon nor Newco owns or has at any time owned any real property or any
material personal property or is a party to any other material agreement other
than the Other Agreements, the agreements contemplated thereby and such
agreements as will be filed as Exhibits to the Registration Statement.
6.14 DISCLOSURE. The Draft Registration Statement delivered to the
Company and the Stockholders, together with this Agreement and the information
furnished to the Company and the Stockholders in connection herewith, does not
contain an untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, however, that the foregoing does
not apply to statements contained in or omitted from any of such documents made
or omitted in reliance upon information furnished in writing by the Company or
the Stockholders or information pertaining to the Company or a Stockholder which
is confirmed in writing by the Company or such Stockholder.
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7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE.
(a) Between the date of this Agreement and the Consummation Date, the
Company will afford to the officers and authorized representatives of Pentacon
and the Other Founding Companies access to all of the Company's sites,
properties, books and records and will furnish Pentacon with such additional
financial and operating data and other information as to the business and
properties of the Company as Pentacon or the Other Founding Companies may from
time to time reasonably request; provided, however, that the Company shall not
prior to the Closing Date be required to disclose to the Other Founding
Companies, and Pentacon shall not without first obtaining the written approval
of the Company disclose to the Other Founding Companies, information relating to
pricing or profitability on an account-by-account basis or any pricing
information relating to the Company's suppliers on a supplier-by-supplier basis.
The Company will cooperate with Pentacon, its representatives, auditors and
counsel and the Other Founding Companies in the preparation of any documents or
other material which may be required in connection with any documents or
materials required by this Agreement. Pentacon, Newco, the Stockholders and the
Company will treat all information obtained in connection with the negotiation
and performance of this Agreement or the due diligence investigations conducted
with respect to the Other Founding Companies as confidential in accordance with
the provisions of Section 14 hereof. In addition, Pentacon will cause each of
the Other Founding Companies to enter into a provision similar to this Section
7.1(a) requiring each such Other Founding Company, its stockholders, directors,
officers, representatives, employees and agents to keep confidential any
information obtained by such Other Founding Company.
(b) Between the date of this Agreement and the Consummation Date,
Pentacon will afford to the officers and authorized representatives of the
Company and the Stockholders access to all of Pentacon's and Newco's sites,
properties, books and records and will furnish the Company with such additional
financial and operating data and other information as to the business and
properties of Pentacon and Newco as the Company may from time to time reasonably
request. Pentacon and Newco will cooperate with the Company, its
representatives, auditors and counsel in the preparation of any documents or
other material which may be required in connection with any documents or
materials required by this Agreement. The Company will cause all information
obtained in connection with the negotiation and performance of this Agreement to
be treated as confidential in accordance with the provisions of Section 14
hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Consummation Date, the Company will, except as set forth on
Schedule 7.2 or as otherwise expressly contemplated by this Agreement:
(i) carry on its respective businesses in substantially the
same manner as it has heretofore and not introduce any material new
method of management, operation or accounting;
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(ii) use commercially reasonable efforts to maintain its
respective properties and facilities, including those held under
leases, in as good working order and condition as at present, ordinary
wear and tear excepted;
(iii) perform in all material respects all of its respective
obligations under agreements relating to or affecting its respective
assets, properties or rights;
(iv) use commercially reasonable efforts to keep in full force
and effect present insurance policies or other comparable insurance
coverage;
(v) use commercially reasonable efforts to maintain and
preserve its business organization intact, retain its respective
present key employees and maintain its respective relationships with
material suppliers, customers and others having business relations with
the Company;
(vi) use commercially reasonable efforts to maintain
compliance with all material permits, laws, rules and regulations,
consent orders, and all other orders of applicable courts, regulatory
agencies and similar governmental authorities;
(vii) maintain present debt and lease instruments and not
enter into new or amended debt or lease instruments without the
knowledge and consent of Pentacon (which consent shall not be
unreasonably withheld, delayed or conditioned), provided that debt
and/or lease instruments may be replaced without the consent of
Pentacon if such replacement instruments are on terms at least as
favorable to the Company as the instruments being replaced; and
(viii) maintain or reduce present salaries and commission
levels for all officers, directors, employees and agents except for
ordinary and customary bonus and salary increases for employees in
accordance with the Company's past practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3 or as
otherwise expressly contemplated by this Agreement, between the date hereof and
the Consummation Date, the Company will not, without prior written consent of
Pentacon:
(i) make any change in its Articles of Incorporation or
By-laws;
(ii) issue any securities, options, warrants, calls,
conversion rights or commitments relating to its securities of any kind
other than in connection with the exercise of options or warrants
listed in Schedule 5.4;
(iii) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or purchase,
redeem or otherwise acquire or retire for
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value any shares of its stock except for (1) dividends paid in respect
of the Company's Accumulated Adjustment Accounts provided that any such
dividends shall reduce, dollar-for-dollar, the amount of cash
consideration to be received by the Stockholder on the Consummation
Date and (2) dividends paid to cover tax payments required to be made
by the Stockholders for fiscal 1997 and subsequent periods ending on or
prior to the Consummation Date;
(iv) enter into any contract or commitment or incur or agree
to incur any liability or make any capital expenditures, except if it
is in the normal course of business (consistent with past practice) or
involves an amount not in excess of $25,000;
(v) create, assume or permit to exist any mortgage, pledge or
other lien or encumbrance upon any assets or properties whether now
owned or hereafter acquired, except (1) with respect to purchase money
liens incurred in connection with the acquisition of equipment with an
aggregate cost not in excess of $25,000 necessary or desirable for the
conduct of the businesses of the Company, (2) (A) liens for Taxes
either not yet due or being contested in good faith and by appropriate
proceedings (and for which contested Taxes adequate reserves have been
established and are being maintained) or (B) materialmen's, mechanics',
workers', repairmen's, employees' or other like liens arising in the
ordinary course of business (the liens set forth in clause (2) being
referred to herein as "Statutory Liens"), or (3) liens set forth on
Schedules 5.10, 5.15 and/or 5.16 hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of
any property or equipment except in the normal course of business and
other than distributions of real estate and other assets as permitted
in this Agreement (including the Schedules hereto);
(vii) negotiate for the acquisition of any business or the
start-up of any new business;
(viii) merge or consolidate or agree to merge or consolidate
with or into any other corporation;
(ix) waive any material rights or claims of the Company,
provided that the Company may negotiate and adjust bills and accounts
in the course of good faith disputes with customers in a manner
consistent with past practice, provided, further, that such adjustments
shall not be deemed to be included in Schedule 5.11 to the extent they
exceed the reserves, if any, established therefor, or unless
specifically listed thereon;
(x) amend or terminate any material agreement, permit, license
or other right of the Company provided that the Company may continue to
administer vendor and supplier contracts in the ordinary course of
business provided written notice of any such material amendments or
terminations is provided to Pentacon as soon as possible following such
action and in any event prior to the Closing; or
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(xi) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
7.4 NO SHOP. Except as contemplated hereby, none of the Stockholders,
the Company, nor any agent, officer, director, trustee or any representative of
any of the foregoing will, during the period commencing on the date of this
Agreement and ending with the earlier to occur of the Consummation Date or the
termination of this Agreement in accordance with its terms, directly or
indirectly:
(i) solicit or initiate the submission of proposals or offers
from any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than
Pentacon, Newco or their authorized agents relating to, any acquisition
or purchase of all or a material amount of the assets of, or any equity
interest in, the Company or a merger, consolidation or business
combination of the Company.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide Pentacon on Schedule 7.5 with proof that any required notice has been
sent.
7.6 AGREEMENTS. The Stockholders and the Company shall terminate (i)
any stockholders agreements, voting agreements, voting trusts, options, warrants
and employment agreements between the Company and any employee listed on
Schedule 9.12 hereto and (ii) any existing agreement between the Company and any
Stockholder, on or prior to the Consummation Date provided that nothing herein
shall prohibit or prevent the Company from paying (either prior to or on the
Closing Date) notes or other obligations from the Company to the Stockholders in
accordance with the terms thereof, which terms have been disclosed to Pentacon.
Such termination agreements are listed on Schedule 7.6 and copies thereof shall
be attached thereto.
7.7 NOTIFICATION OF CERTAIN MATTERS BY THE STOCKHOLDERS AND THE
COMPANY. The Stockholders and the Company shall give prompt notice to Pentacon
of (i) the occurrence or non-occurrence of any event the occurrence or
nonoccurrence of which would be likely to cause any representation or warranty
of the Company or the Stockholders contained herein to be untrue or inaccurate
in any material respect at or prior to the Closing and (ii) any material failure
of any Stockholder or the Company to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by such person
hereunder. Pentacon and Newco shall give prompt notice to the Company of (i) the
occurrence or non-occurrence of any event the occurrence or non-occurrence of
which would be likely to cause any representation or warranty of Pentacon or
Newco contained herein to be untrue or inaccurate in any material respect at or
prior to the Closing and (ii)
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any material failure of Pentacon or Newco to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder. The delivery or deemed delivery of any notice pursuant to this
Section 7.7 shall not be deemed to (i) modify the representations or warranties
hereunder of the party delivering such notice, which modification may only be
made pursuant to Section 7.8, (ii) modify the conditions set forth in Sections 8
and 9, or (iii) limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
If, prior to the Closing Date, the Chief Executive Officer, the Chief
Financial Officer or the General Counsel of Pentacon shall determine that any of
Pentacon, Newco, the Surviving Corporation or the Company has a claim hereunder
for indemnification against any Stockholder(s) (whether or not such claim might
exceed the Indemnification Threshold), then Pentacon shall promptly advise the
affected Stockholder(s), in writing, of such potential claim and provide
information supporting the basis and potential amount of such claim (a
"Potential Claim Notice"). This procedure with respect to Potential Claim
Notices is intended to afford the affected Stockholder(s) notice so that it may
attempt to cure or otherwise address the claim prior to Closing; provided,
however, that (i) this procedure shall not affect or delay Closing and (ii)
neither the failure or delay by Pentacon to give a Potential Claim Notice nor
the information included or omitted from a Potential Claim Notice shall
constitute a waiver of, or shall otherwise adversely affect the right to receive
indemnification for, any such claim paid by Pentacon, Newco, the Surviving
Corporation or the Company hereunder after the Closing Date.
7.8 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect
to the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until 24 hours prior to the
anticipated effectiveness of the Registration Statement to supplement or amend
promptly the Schedules hereto with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in the Schedules, provided however,
that supplements and amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall
only have to be delivered at the Closing Date, unless such Schedule is to be
amended to reflect an event occurring other than in the ordinary course of
business. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the Company that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect with respect to the Company
may be made unless Pentacon and a majority of the Founding Companies other than
the Company consent to such amendment or supplement; and provided further, that
no amendment or supplement to a Schedule prepared by Pentacon or Newco that
constitutes or reflects an event or occurrence that would have a Material
Adverse Effect with respect to Pentacon or Newco may be made unless a majority
of the Founding Companies consent to such amendment or supplement. For all
purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 8.1 and 9.1 have been
fulfilled, the Schedules hereto shall be deemed to be the Schedules as amended
or supplemented pursuant to this Section 7.8. In the event that one of the Other
Founding Companies seeks to amend or supplement a Schedule pursuant to Section
7.8 of one of the Other Agreements, and such amendment or supplement constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
such Other Founding Company, Pentacon shall give the
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Company written notice promptly after it has knowledge thereof. If Pentacon and
a majority of the Founding Companies consent to such amendment or supplement,
which consent shall have been deemed given by Pentacon or any Founding Company
if no response is received within 24 hours following receipt of written notice
of such amendment or supplement (or sooner if reasonable and if required by the
circumstances under which such consent is requested), but the Company does not
give its consent, the Company may terminate this Agreement pursuant to Section
12.1(iv) hereof. In the event that the Company seeks to amend or supplement a
Schedule pursuant to this Section 7.8, and Pentacon and a majority of the Other
Founding Companies do not consent to such amendment or supplement, this
Agreement shall be deemed terminated by mutual consent as set forth in Section
12.1(i) hereof. In the event that Pentacon or Newco seeks to amend or supplement
a Schedule pursuant to this Section 7.8 and a majority of the Founding Companies
do not consent to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(i) hereof. No party to
this Agreement shall be liable to any other party if this Agreement shall be
terminated pursuant to the provisions of this Section 7.8. No amendment of or
supplement to a Schedule shall be made later than 24 hours prior to the
anticipated effectiveness of the Registration Statement.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The Company
and Stockholders shall furnish or cause to be furnished to Pentacon and the
Underwriters all of the information concerning the Company and the Stockholders
reasonably required for inclusion in, and will cooperate with Pentacon and the
Underwriters in the preparation of, the Registration Statement and the
prospectus included therein (including audited and unaudited financial
statements, prepared in accordance with generally accepted accounting
principles, in form suitable for inclusion in the Registration Statement, except
that the cost of the preparation of any such audited and unaudited Financial
Statements shall be borne by Pentacon). The Company and the Stockholders agree
promptly to advise Pentacon if at any time during the period in which a
prospectus relating to the IPO is required to be delivered under the Securities
Act, any information contained in the prospectus concerning the Company or the
Stockholders becomes incorrect or incomplete in any material respect, and to
provide the information needed to correct such inaccuracy. Insofar as the
information relates solely to the Company or the Stockholders, the Company
represents and warrants as to such information with respect to itself, and each
Stockholder represents and warrants, as to such information with respect to the
Company and himself or herself, severally, but not jointly, that the information
expressly provided for inclusion in the Registration Statement or otherwise
confirmed in writing by such Stockholder will not include an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
7.10 FINAL FINANCIAL STATEMENTS. The Company shall provide prior to the
Consummation Date, and Pentacon shall have had sufficient time to review the
unaudited consolidated balance sheets of the Company as of the end of all fiscal
quarters following the Balance Sheet Date, and the unaudited consolidated
statement of income, cash flows and retained earnings of the Company for all
fiscal quarters ended after the Balance Sheet Date. Such financial statements
shall have been prepared in accordance with generally accepted accounting
principles applied on a
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consistent basis throughout the periods indicated (except as noted therein).
Except as noted in such financial statements, all of such financial statements
will present fairly the results of operations of the Company for the periods
indicated therein.
7.11 FURTHER ASSURANCES. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or convenient
to carry out the transactions contemplated hereby.
7.12 AUTHORIZED CAPITAL. Prior to the Consummation Date, Pentacon shall
maintain its authorized capital stock as set forth in the Registration Statement
filed with the SEC except for such changes in authorized capital stock as are
made to respond to comments made by the SEC or requirements of any exchange or
automated trading system for which application is made to register the Pentacon
Stock and any changes necessary or advisable in order to permit the delivery of
the opinion contemplated by Section 8.12 hereof.
7.13 COMPLIANCE WITH THE XXXX-XXXXX-XXXXXX-XXXXXX ANTITRUST
IMPROVEMENTS ACT OF 1976 (THE "XXXX-XXXXX-XXXXXX ACT"). All parties to this
Agreement hereby recognize that one or more filings under the Xxxx-Xxxxx-Xxxxxx
Act may be required in connection with the transactions contemplated herein. If
it is determined by the parties to this Agreement that filings under the
Xxxx-Xxxxx-Xxxxxx Act are required, then: (i) each of the parties hereto agrees
to cooperate and use its best efforts to comply with the Xxxx-Xxxxx-Xxxxxx Act,
(ii) such compliance by the Stockholders and the Company shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
8 of this Agreement, and such compliance by Pentacon and Newco shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
9 of this Agreement, and (iii) the parties agree to cooperate and use their best
efforts to cause all filings required under the Xxxx-Xxxxx-Xxxxxx Act to be
made. If filings under the Xxxx-Xxxxx-Xxxxxx Act are required, the costs and
expenses thereof (including filing fees) shall be borne by Pentacon. The
obligation of each party to consummate the transactions contemplated by this
Agreement is subject to the expiration or termination of the waiting period
under the Xxxx-Xxxxx-Xxxxxx Act, if applicable.
7.14 PRE-CLOSING NOTIFICATIONS. If, prior to the 25th day after the
date of the final prospectus of Pentacon utilized in connection with the IPO,
the Company or the Stockholders become aware of any fact or circumstance which
would materially affect the accuracy of a representation or warranty of Company
or Stockholders in this Agreement, the Company and the Stockholders shall
promptly give notice of such fact or circumstance to Pentacon. However, subject
to the provisions of Section 7.8, such notification shall not relieve either the
Company or the Stockholders of their respective obligations under this
Agreement, and, subject to the provisions of Section 7.8, at the sole option of
Pentacon, the truth and accuracy of any and all warranties and representations
of the Company, or on behalf of the Company and of Stockholders at the date of
this Agreement and on the Closing Date and on the Consummation Date, shall be a
precondition to the consummation of this transaction.
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7.15 PAYMENT OF INDEBTEDNESS. On the Consummation Date, immediately
following the Effective Time of the Merger, Pentacon will pay, or cause to be
paid, all of the outstanding liabilities, obligations and indebtedness of
Company to the lenders identified on Schedule 7.15 hereto. In connection with
such repayment of indebtedness, all associated guaranties of Founder
Stockholders shall be terminated and cancelled.
7.16 MINIMUM VALUE. All of the parties to this Agreement recognize that
one of the conditions to the Stockholders consummating the transactions
contemplated herein is that the IPO shall be closed and the Stockholders (as a
group) shall be entitled to receive consideration not less than the Minimum
Value set forth on Annex I attached hereto.
7.17 DIRECTORS. Pentacon agrees that the number of directors of
Pentacon shall not exceed nine members immediately following the IPO unless the
Founding Stockholder representatives to serve on such board agree in writing to
a larger number of directors.
7.18 TRANSACTION REPORTING. Pentacon agrees that, except as otherwise
required by applicable law, Pentacon will describe or report the transaction in
any required tax reports of Pentacon as a tax-free transaction (insofar as its
relates to the delivery of Pentacon Stock for Company Stock) in a manner
consistent with the tax opinion referenced in Section 8.12.
7.19 PERMITS. Pentacon agrees, prior to the Consummation Date, to
obtain all material Licenses necessary for Pentacon to commence the conduct of
business on the Consummation Date.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of Stockholders and the Company with respect to actions
to be taken on the Closing Date are subject to the satisfaction or waiver on or
prior to the Closing Date of all of the following conditions. The obligations of
the Stockholders and the Company with respect to actions to be taken on the
Consummation Date are subject to the satisfaction or waiver on or prior to the
Consummation Date of the conditions set forth in Sections 8.1, 8.5, 8.8, 8.9 and
8.12. As of the Closing Date or, with respect to the conditions set forth in
Sections 8.1, 8.5, 8.8, 8.9 and 8.12, as of the Consummation Date, if any such
conditions have not been satisfied, the Stockholders (acting in unison) shall
have the right to terminate this Agreement, or in the alternative, waive any
condition not so satisfied. The delivery of certificates representing Company
Stock to Pentacon as of the Consummation Date shall constitute a waiver of any
conditions not so satisfied. However, no such waiver shall be deemed to affect
the survival of the representations and warranties of Pentacon and Newco
contained in Section 6 hereof or the rights of the Stockholders pursuant to
Section 11 hereof.
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8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of Pentacon and Newco contained in Section 6
shall be true and correct in all material respects as of the Closing Date and
the Consummation Date as though such representations and warranties had been
made as of that time; all of the terms, covenants and conditions of this
Agreement to be complied with and performed by Pentacon and Newco on or before
the Closing Date and the Consummation Date shall have been duly complied with
and performed in all material respects; and certificates to the foregoing effect
dated the Closing Date and the Consummation Date, respectively, and signed by
the President or any Vice President of Pentacon shall have been delivered to the
Stockholders.
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to the Company and its counsel.
The Stockholders and the Company shall be satisfied that the Registration
Statement and the prospectus forming a part thereof, including any amendments
thereof or supplements thereto, shall not contain any untrue statement of a
material fact, or omit to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, provided
that, subject to the provisions set forth in the introductory paragraph of this
Section 8, the condition contained in this sentence shall be deemed waived if
the Company or Stockholders shall have failed to inform Pentacon in writing
prior to the effectiveness of the Registration Statement of the existence of an
untrue statement of a material fact or the omission of such a statement of a
material fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of the Company as a result of which
the management of the Company deems it inadvisable to proceed with the
transactions hereunder.
8.4 OPINION OF COUNSEL. The Stockholders shall have received an opinion
from counsel for Pentacon and Newco, dated the Closing Date, in the form annexed
hereto as Annex IV.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, on terms such that the aggregate value of
the cash and the number of shares of Pentacon Stock to be received by the
Stockholders is not less than the Minimum Value set forth on Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with
any governmental authority or agency or any third party relating to the
consummation of the transactions contemplated herein or set forth in Schedule
5.23 hereto shall have been obtained and made and no action or proceeding shall
have been instituted or threatened to restrain or prohibit the Merger and no
governmental agency or body shall have taken any other action or made any
request of Company as a result of which Company deems it inadvisable to proceed
with the transactions hereunder.
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8.7 GOOD STANDING CERTIFICATES. Pentacon and Newco each shall have
delivered to the Company a certificate, dated as of a date no later than ten
days prior to the Closing Date, duly issued by the Delaware Secretary of State
and in each state in which Pentacon or Newco is authorized to do business,
showing that each of Pentacon and Newco is in good standing and authorized to do
business and that all state franchise and/or income tax returns and taxes for
Pentacon and Newco, respectively, for all periods prior to the Closing have been
filed and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to Pentacon or Newco which would constitute a Material
Adverse Effect.
8.9 CLOSING OF IPO. The closing of the sale of the Pentacon Stock to
the Underwriters in the IPO shall have occurred simultaneously with the
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Stockholders shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of Pentacon and of Newco, certifying the truth and correctness of attached
copies of the Pentacon's and Newco's respective Certificates of Incorporation
(including amendments thereto), By-Laws (including amendments thereto), and
resolutions of the boards of directors and, if required, the Stockholders of
Pentacon and Newco approving Pentacon's and Newco's entering into this Agreement
and the consummation of the transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VI hereto.
8.12 TAX MATTERS. The Stockholders shall have received an opinion of
Ernst & Young LLP or other tax advisor of national recognition reasonably
acceptable to the Stockholders that the Pentacon Plan of Organization will
qualify as a tax-free transfer of property under Section 351 of the Code and
that the Stockholders will not recognize gain to the extent the Stockholders
exchange stock of the Company for Pentacon stock (but not cash or other
property) pursuant to the Pentacon Plan of Organization.
8.13 EXCHANGE LISTING. The Pentacon Stock shall have been accepted for
listing on the New York Stock Exchange, NASDAQ National Market System or the
American Stock Exchange.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PENTACON AND NEWCO
The obligations of Pentacon and Newco with respect to actions to be
taken on the Closing Date are subject to the satisfaction or waiver on or prior
to the Closing Date of all of the following conditions. The obligations of
Pentacon and Newco with respect to actions to be taken on the Consummation Date
are subject to the satisfaction or waiver on or prior to the Consummation Date
of the conditions set forth in Sections 9.1, 9.4 and 9.13. As of the Closing
Date or, with respect to the conditions set forth in Sections 9.1, 9.4 and 9.13,
as of the Consummation Date, if any such
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conditions have not been satisfied, Pentacon and Newco shall have the right to
terminate this Agreement, or waive any such condition, but no such waiver shall
be deemed to affect the survival of the representations and warranties contained
in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE AND OBLIGATIONS. All
the representations and warranties of the Stockholders and the Company contained
in this Agreement shall be true and correct in all material respects as of the
Closing Date and the Consummation Date with the same effect as though such
representations and warranties had been made on and as of such date; all of the
terms, covenants and conditions of this Agreement to be complied with or
performed by the Stockholders and the Company on or before the Closing Date or
the Consummation Date, as the case may be, shall have been duly performed or
complied with in all material respects; and the Stockholders shall have
delivered to Pentacon certificates dated the Closing Date and the Consummation
Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of Pentacon as a result of which the
management of Pentacon deems it inadvisable to proceed with the transactions
hereunder.
9.3 SECRETARY'S CERTIFICATE. Pentacon shall have received a
certificate, dated the Closing Date and signed by the secretary of the Company,
certifying the truth and correctness of attached copies of the Company's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors and the
Stockholders approving the Company's entering into this Agreement and the
consummation of the transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the Company which would constitute a Material Adverse
Effect, and the Company shall not have suffered any material loss or damages to
any of its properties or assets, whether or not covered by insurance, which
change, loss or damage materially affects or impairs the ability of the Company
to conduct its business.
9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered to
Pentacon an instrument dated the Closing Date, which shall be effective only
upon the occurrence of the Consummation Date and shall relate only to matters
accruing on or prior to the Consummation Date, releasing the Company and
Pentacon from (i) any and all claims of the Stockholders against the Company and
Pentacon and (ii) obligations of the Company and Pentacon to the Stockholders,
except for (w) items specifically identified on Schedules 5.10 and 5.15 as being
claims of or obligations to the Stockholders, (x) continuing obligations to
Stockholders relating to their employment by the Company or Pentacon, (y) any
obligations or liabilities arising under this Agreement or the transactions
contemplated hereby and (z) real estate lease agreements between the Company and
Stockholders, as amended which have been accepted or approved by Pentacon. In
the
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event that the Consummation Date does not occur, then the release instrument
referenced herein shall be void and of no further force or effect.
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been approved
by counsel to Pentacon.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 9.7, all existing agreements between the Company and the Stockholders
(and entities controlled by the Stockholders) shall have been canceled effective
prior to or as of the Consummation Date.
9.8 OPINION OF COUNSEL. Pentacon shall have received an opinion from
Counsel to the Company and the Stockholders, dated the Closing Date,
substantially in the form annexed hereto as Annex V.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all consents
and approvals of third parties listed on Schedule 5.23 shall have been obtained;
and no action or proceeding shall have been instituted or threatened to restrain
or prohibit the Merger and no governmental agency or body shall have taken any
other action or made any request of Pentacon as a result of which Pentacon deems
it inadvisable to proceed with the transactions hereunder.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to
Pentacon a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
Company's state of incorporation and, unless waived by Pentacon, in each state
in which the Company is authorized to do business, showing the Company is in
good standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the Company for all periods prior to the
Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall enter into an employment agreement substantially in the form of Annex VI
hereto.
9.13 CLOSING OF IPO. The closing of the sale of the Pentacon Stock to
the Underwriters in the IPO shall have occurred simultaneously with the
Consummation Date hereunder.
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9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to
Pentacon a certificate to the effect that he is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
10. COVENANTS OF PENTACON AND THE STOCKHOLDERS AFTER CLOSING
10.1 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as
contemplated by this Agreement or the Registration Statement, after the
Consummation Date, Pentacon shall not and shall not permit any of its
subsidiaries to undertake any act that would jeopardize the tax-free status of
the organization, including without limitation:
(a) the retirement or reacquisition, directly or indirectly,
of all or part of the Pentacon Stock issued in connection with the transactions
contemplated hereby; or
(b) the entering into of financial arrangements for the
benefit of the Stockholders.
10.2 PREPARATION AND FILING OF TAX RETURNS.
(i) Subsequent to the approval of Xxxx Xxxxxx on behalf of the
Stockholders, the Company, if possible, or otherwise the Stockholders
shall file or cause to be filed all Tax Returns (federal, state, local
or otherwise) of any Acquired Party for all taxable periods that end on
or before the Consummation Date. Pentacon shall be given the
opportunity to review all such Returns prior to such filings. Unless
the Company is a C corporation, the Stockholders shall pay or cause to
be paid all Tax liabilities (in excess of all amounts already paid with
respect thereto or properly accrued or reserved with respect thereto on
the Financial Statements) shown by such Returns to be due, subject to
the provisions of 7.3(iii).
(ii) Pentacon shall file or cause to be filed all separate
Returns of, or that include, any Acquired Party for all taxable periods
ending after the Consummation Date.
(iii) Each party hereto shall, and shall cause its
Subsidiaries and Affiliates to, provide to each of the other parties
hereto such cooperation and information as any of them reasonably may
request in filing any Return, amended Return or claim for refund,
determining a liability for Taxes or a right to refund of Taxes or in
conducting any audit or other proceeding in respect of Taxes. Such
cooperation and information shall include providing copies, at the
expense of the requesting party, of all relevant portions of relevant
Returns, together with relevant accompanying schedules and relevant
work papers, relevant documents relating to rulings or other
determinations by Taxing Authorities and relevant records concerning
the ownership and Tax basis of property, which such party may possess.
Each party shall make its employees reasonably available on a mutually
convenient basis at its cost to provide explanation of any documents or
information so provided. Subject to the preceding sentence, each party
required to file Returns pursuant to this Agreement shall bear all
costs of filing such Returns.
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(iv) Each of the Company, Newco, Pentacon and each Stockholder
shall comply with the tax reporting requirements of Section 1.351-3 of
the Treasury Regulations promulgated under the Code, and treat the
transaction as a tax-free contribution under Section 351(a) of the Code
subject to gain, if any, recognized on the receipt of cash or other
property under Section 351(b) of the Code subject to gain, if any,
recognized on the receipt of cash or other property under Section
351(b) of the Code.
10.3 DIRECTORS. The persons named in the Draft Registration Statement
shall be appointed as directors and elected as officers of Pentacon, as and to
the extent set forth in the Draft Registration Statement, promptly following the
Consummation Date.
11. INDEMNIFICATION
The Stockholders, Pentacon and Newco each make the following covenants
that are applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The Stockholders
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless Pentacon, Newco, the Company and the Surviving
Corporation at all times, from and after the date of this Agreement until the
Expiration Date (provided that for purposes of Section 11.1(iii) below, the
Expiration Date shall be the date on which the applicable statute of limitations
expires), from and against all claims, damages, actions, suits, proceedings,
demands, assessments, adjustments, costs and expenses (including specifically,
but without limitation, reasonable attorneys' fees and expenses of
investigation) incurred by Pentacon, Newco, the Company or the Surviving
Corporation as a result of or arising from (i) any breach of the representations
and warranties of the Stockholders or the Company set forth herein or on the
definitive, final schedules or certificates delivered by them in connection
herewith, (ii) any breach of any agreement on the part of the Stockholders or,
prior to Closing, the Company under this Agreement, or (iii) any liability under
the 1933 Act, the 1934 Act or other Federal or state law or regulation, at
common law or otherwise, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact relating to the Company or the
Stockholders, and provided in writing to Pentacon or its counsel by the Company
or the Stockholders for inclusion in the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to the Company or the Stockholders
required to be stated therein or necessary to make the statements therein not
misleading, provided, however, that such indemnity shall not inure to the
benefit of Pentacon, Newco, the Company or the Surviving Corporation to the
extent that such untrue statement (or alleged untrue statement) was made in, or
omission (or alleged omission) occurred in, any preliminary prospectus and the
Stockholders provided, in writing, corrected information to Pentacon counsel and
to Pentacon for inclusion in the final prospectus, and such information was not
so included or properly delivered, and provided further, that no Stockholder
shall be liable for any indemnification obligation pursuant to this
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Section 11.1(iii) to the extent attributable to a breach of any representation,
warranty or agreement made herein individually by any other Stockholder.
Pentacon and Newco acknowledge and agree that other than the
representations and warranties of Company or Stockholders specifically contained
in this Agreement, there are no representations or warranties of Company or
Stockholders, either express or implied, with respect to the transactions
contemplated by this Agreement, the Company or its assets, liabilities and
business.
Pentacon, Newco and the Company further acknowledge and agree that,
should the Closing occur, their sole and exclusive remedy with respect to any
and all claims relating to this Agreement and the transactions contemplated in
this Agreement, shall be pursuant to the indemnification provisions set forth in
this Section 11.1. Pentacon, Newco and the Company hereby waive, from and after
the Closing, to the fullest extent permitted under applicable law, any and all
rights, claims and causes of action they or any indemnified person may have
against the Company or any Stockholder relating to this Agreement or the
transactions contemplated hereby arising under or based upon any federal, state,
local or foreign statute, law, rule, regulation or otherwise (and other than
pursuant to the terms of this Agreement).
11.2 INDEMNIFICATION BY PENTACON. Pentacon covenants and agrees that it
will indemnify, defend, protect and hold harmless the Stockholders at all times
from and after the date of this Agreement until the Expiration Date, from and
against all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without limitation,
reasonable attorneys' fees and expenses of investigation) incurred by the
Stockholders as a result of or arising from (i) any breach by Pentacon or Newco
of their representations and warranties set forth herein or on the definitive,
final schedules or certificates attached delivered by them pursuant hereto, (ii)
any breach of any agreement on the part of Pentacon or Newco under this
Agreement or any other agreement delivered pursuant hereto, (iii) any
liabilities which the Stockholders may incur due to Pentacon's or Newco's or the
Surviving Corporation's failure to pay, perform or discharge when due any of the
liabilities and obligations of the Company for which Pentacon, Newco or the
Surviving Corporation is responsible pursuant to this Agreement (except to the
extent that Pentacon or Newco has bona fide claims hereunder against the
Stockholders by reason of such liabilities); or (iv) any liability under the
1933 Act, the 1934 Act or other Federal or state law or regulation, at common
law or otherwise, arising out of or based upon any untrue statement or alleged
untrue statement of a material fact relating to Pentacon, Newco or any of the
Other Founding Companies contained in any preliminary prospectus, the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact relating to
Pentacon or Newco or any of the Other Founding Companies required to be stated
therein or necessary to make the statements therein not misleading.
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11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter
the "Indemnified Party") has received notice of or has actual knowledge of any
claim by a Person (including any governmental agency) not a party to this
Agreement ("Third Person"), or the commencement of any action or proceeding by a
Third Person, with respect to which the Indemnified Person would be entitled to
receive indemnification pursuant to Section 11, the Indemnified Party shall, as
a condition precedent to a claim with respect thereto being made against any
party obligated to provide indemnification pursuant to Section 11.1 or 11.2
hereof (hereinafter the "Indemnifying Party"), give the Indemnifying Party
written notice of such claim or the commencement of such action or proceeding.
Such notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle, at its own expense and by its own counsel, any such matter so
long as the Indemnifying Party pursues the same in good faith and diligently,
provided that the Indemnifying Party shall not settle any criminal proceeding
without the written consent of the Indemnified Party. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate with the
Indemnifying Party and its counsel in the defense thereof and in any settlement
thereof. Such cooperation shall include, but shall not be limited to, furnishing
the Indemnifying Party with any books, records or information reasonably
requested by the Indemnifying Party that are in the Indemnified Party's
possession or control. All Indemnified Parties shall use the same counsel, which
shall be the counsel selected by Indemnifying Party, provided that if counsel to
the Indemnifying Party shall have a conflict of interest that prevents counsel
for the Indemnifying Party from representing Indemnified Party, Indemnified
Party shall have the right to participate in such matter through counsel of its
own choosing and Indemnifying Party will reimburse the Indemnified Party for the
reasonable expenses of its counsel. After the Indemnifying Party has notified
the Indemnified Party of its intention to undertake to defend or settle any such
asserted liability, and for so long as the Indemnifying Party diligently pursues
such defense through appropriate proceedings, the Indemnifying Party shall not
be liable for any additional legal expenses incurred by the Indemnified Party in
connection with any defense or settlement of such asserted liability, except (i)
as set forth in the preceding sentence and (ii) to the extent such participation
is requested by the Indemnifying Party, in which event the Indemnified Party
shall be reimbursed by the Indemnifying Party for reasonable additional legal
expenses and out-of-pocket expenses. If the Indemnifying Party desires to accept
a final and complete settlement of any such Third Person claim and the
Indemnified Party refuses to consent to such settlement, then the Indemnifying
Party's liability under this Section with respect to such Third Person claim
shall be limited to the amount so offered in settlement by said Third Person.
Upon agreement as to such settlement between said Third Person and the
Indemnifying Party, the Indemnifying Party shall, in exchange for a complete
release from the Indemnified Party, promptly pay to the Indemnified Party the
amount agreed to in such settlement and the Indemnified Party shall, from that
moment on, bear full responsibility for any additional costs of defense which it
subsequently incurs with respect to such claim and all additional costs of
settlement or judgment. If the Indemnifying Party does not undertake to defend
such matter to which the Indemnified Party is entitled to indemnification
hereunder, or fails diligently to pursue such defense, the Indemnified Party may
undertake such defense through counsel of its choice, at the cost and expense of
the Indemnifying Party, and the Indemnified Party may settle such matter, and
the Indemnifying Party shall reimburse the
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Indemnified Party for the amount paid in such settlement and any other
liabilities or expenses incurred by the Indemnified Party in connection
therewith, provided, however, that under no circumstances shall the Indemnified
Party settle any Third Person claim without the written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or delayed.
All settlements hereunder shall effect a complete release of the Indemnified
Party, unless the Indemnified Party otherwise agrees in writing. The parties
hereto will make appropriate adjustments for insurance proceeds in determining
the amount of any indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. (a) The indemnification provided for in this
Section 11 shall (except as prohibited by ERISA) be the exclusive remedy in any
action seeking damages or any other form of monetary relief brought by any party
to this Agreement against another party, provided that, nothing herein shall be
construed to limit the right of a party, in a proper case pursuant to Section
14.3 or otherwise, to seek injunctive or other equitable relief (except for
rescission which shall not be available) for a breach or threatened breach of
this Agreement. Any indemnity payment under this Section 11 shall be treated as
an adjustment to the exchange consideration for tax purposes unless a final
determination (which shall include the execution of a Form 870-AD or successor
form) with respect to the indemnified party or any of its affiliate causes any
such payment not to be treated as an adjustment to the exchange consideration
for U.S. Federal Income Tax purposes.
(b) Nothing in this Article 11 shall restrict the Stockholders
from subrogation or seeking reimbursement from third parties other than the
Company.
11.5 LIMITATIONS ON INDEMNIFICATION. Pentacon, Newco, the Surviving
Corporation and the other persons or entities indemnified pursuant to Section
11.1 or 11.2 shall not assert any claim for indemnification hereunder against
the Stockholders after the applicable Expiration Date and in no event until such
time as, and solely to the extent that, the aggregate of all claims which such
persons may have against the Stockholders shall exceed the greater of 1% of the
value of the total consideration (including stock and cash) received by the
Stockholders from the Merger or $100,000 (the "Indemnification Threshold"), and
then only to the extent of the excess over the Indemnification Threshold.
Stockholders shall not assert any claim for indemnification hereunder against
Pentacon or Newco after the applicable Expiration Date and in no event until
such time as, and solely to the extent that, the aggregate of all claims which
Stockholders may have against Pentacon or Newco shall exceed the Indemnification
Threshold, and then only to the extent of the excess over the Indemnification
Threshold.
The Indemnification Threshold shall not be applicable to any breach of
covenants made by the Stockholders in this Agreement which require an action or
inaction by such Stockholders from and after the Closing Date (I.E., Article 10,
Article 11, Article 13, Article 14, Article 17 and Section 18.1). No person
shall be entitled to indemnification under this Section 11 if, and only to the
extent that such person's claim for indemnification is directly related to a
breach by such person of any representation, warranty, covenant or other
agreement set forth in this Agreement.
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The pursuit by Pentacon, the Surviving Corporation, Newco or the
Company, of any claim for indemnification hereunder against a Stockholder shall
require a majority vote of the board of directors of Pentacon, excluding for the
purposes of such vote any director who was previously a stockholder of the
Company or is a representative of the stockholders of the Company as existing
prior to the closing of the transaction contemplated in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall
be liable (in the aggregate from time to time taking into account all
indemnification payments made hereunder) under this Section 11 (a) for any
amount which is less than or equal to the Indemnification Threshold (and then
only to the extent of the excess over the Indemnification Threshold) or (b) for
any amount which exceeds the amount of proceeds (including cash and stock)
received by such Stockholder in connection with the Merger. Each Stockholder
shall have the option of satisfying his or her indemnity obligation in cash
and/or by returning or transferring shares of Pentacon Stock to Pentacon or any
other Indemnified Party. For purposes of calculating the value of the Pentacon
Stock received by a Stockholder and satisfying any indemnity claim by returning
or transferring Pentacon Stock, Pentacon Stock shall be valued at its initial
public offering price as set forth in the Registration Statement.
Notwithstanding any of the foregoing provisions of this Section 11 that
might be read to the contrary, it is the agreement of the parties that the
Indemnification Threshold be given full effect under all circumstances.
Accordingly, insofar as any of the foregoing provisions of this Section 11 may
hold harmless an Indemnified Party before the Indemnification Threshold has been
met, then Pentacon and the Stockholders shall cooperate in good faith to
establish an equitable procedure pursuant to which Pentacon reimburses or causes
the reimbursement to the affected Stockholder(s) of all expenditures and
payments by Stockholders that are intended to be absorbed and borne by any
Indemnified Parties as a result of the prior application of the Indemnification
Threshold or otherwise takes such action as may be reasonably necessary to give
effect to the Indemnification Threshold.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated at any time prior to
the Consummation Date solely:
(i) by mutual consent of the boards of directors of Pentacon
and the Company;
(ii) by the Stockholders or the Company (acting through its
board of directors), on the one hand, or by Pentacon (acting through
its board of directors), on the other hand, if the transactions
contemplated by this Agreement to take place at the Closing shall not
have been consummated by February 28, 1998, unless the failure of such
transactions to be consummated is due to the willful failure of the
party seeking to terminate this Agreement to perform any of its
obligations under this Agreement to the extent required to be performed
by it prior to or on the Consummation Date;
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(iii) by the Stockholders or Company, on the one hand, or by
Pentacon, on the other hand, if a material breach or default shall be
made by the other party in the observance or in the due and timely
performance of any of the covenants or agreements contained herein, and
the curing of such default shall not have been made on or before the
Consummation Date or by the Stockholders or the Company, if the
conditions set forth in Section 8 hereof have not been satisfied or
waived as of the Closing Date or the Consummation Date, as applicable,
or by Pentacon, if the conditions set forth in Section 9 hereof have
not been satisfied or waived as of the Closing Date or the Consummation
Date, as applicable;
(iv) pursuant to Section 7.8 hereof;
(v) pursuant to the termination provisions contained in
Section 4 hereof; or
(vi) pursuant to the other express terms of this Agreement.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The Stockholders will not, for a period of
five (5) years following the Consummation Date, for any reason whatsoever,
directly or indirectly, for themselves or on behalf of or in conjunction with
any other person, persons, company, partnership, corporation or business of
whatever nature:
(i) except as disclosed in Schedule 13.1, engage, as an
officer, director, shareholder, owner, partner, joint venturer, or in a
managerial capacity, whether as an employee, independent contractor,
consultant or advisor, or as a sales representative, in any fastener
business or operation or related services business in direct
competition with Pentacon or any of the subsidiaries thereof, within
100 miles of where the Company or any of its subsidiaries conducted
business prior to the effectiveness of the Merger (the "Territory");
(ii) except with the prior written consent of Pentacon, call
upon any person who is, at that time, within the Territory, an employee
of Pentacon or any subsidiary thereof for the purpose or with the
intent of enticing such employee away from or out of the employ of
Pentacon or any subsidiary thereof;
(iii) call upon any person or entity which is, at that time,
or which has been, within one (1) year prior to the Consummation Date,
a customer of Pentacon or any subsidiary
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thereof, of the Company or of any of the Other Founding Companies
within the Territory for the purpose of soliciting or selling products
or services that are in direct competition with Pentacon within the
Territory;
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor in the fastener
business, which candidate, to the actual knowledge of such Stockholder
after due inquiry, was called upon by Pentacon or any subsidiary
thereof or for which, to the actual knowledge of such Stockholder after
due inquiry, Pentacon or any subsidiary thereof made an acquisition
analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of
the Company to any person, firm, partnership, corporation or business
for any reason or purpose relating to the fastener business except to
the extent that the Company has in the past disclosed such information
to the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit any Stockholder from acquiring as a passive investment not more than
one percent (1%) of the capital stock of a competing business whose stock is
traded on a national securities exchange or over-the counter.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
Pentacon as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to Pentacon for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by Pentacon in the event of breach by such Stockholder,
by injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of Pentacon and the
subsidiaries thereof on the date of the execution of this Agreement and the
current plans of Pentacon; but it is also the intent of Pentacon and the
Stockholders that such covenants be construed and enforced in accordance with
the changing activities; business and locations of Pentacon and its subsidiaries
throughout the term of this covenant. During the term of this covenant, if
Pentacon or one of its subsidiaries engages in new and different activities,
enters a new business or establishes new locations for its current activities or
business in addition to or other than the activities or business it is currently
conducting in the locations currently established therefor, then the
Stockholders will be precluded from soliciting the customers or employees of
such new activities or business or from such new location and from directly
competing with such new activities or business within 100 miles of its
then-established operating location(s) through the term of this covenant.
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13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13
shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against Pentacon or any subsidiary thereof, whether predicated on this Agreement
or otherwise (except for a claim or cause of action based upon Pentacon's
failure to pay or otherwise tender any of the consideration due to the
Stockholders hereunder), shall not constitute a defense to the enforcement by
Pentacon of such covenants. It is specifically agreed that the period of five
(5) years stated at the beginning of this Section 13, during which the
agreements and covenants of each Stockholder made in this Section 13 shall be
effective, shall be computed by excluding from such computation any time during
which such Stockholder is in violation of any provision of this Section 13. The
covenants contained in Section 13 shall not be affected by any breach of any
other provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree that
this covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that they
had in the past, currently have, and in the future may possibly have, access to
certain confidential information of the Company, the Other Founding Companies,
and/or Pentacon, such as operational policies, and pricing and cost policies
that are valuable, special and unique assets of the Company's, the Other
Founding Companies' and/or Pentacon's respective businesses. The Stockholders
agree that they will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of Pentacon, (b) following
the Closing, such information may be disclosed by the Stockholders as is
required in the course of performing their duties for Pentacon or the Surviving
Corporation and (c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.1, unless (i) such information becomes known to the public generally through
no fault of the Stockholders, (ii) disclosure is required by law or the order of
any governmental authority under color of law, provided, that prior to
disclosing any information pursuant to this clause (ii), the Stockholders shall,
if possible, give prior written notice thereof to Pentacon and provide Pentacon
with the opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. In the event of a breach or
threatened breach by any of the Stockholders of the provisions of this Section,
Pentacon shall be entitled to an injunction restraining such
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Stockholders from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting Pentacon from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages. In the event the transactions contemplated by
this Agreement are not consummated, Stockholders shall have none of the
above-mentioned restrictions on their ability to disseminate confidential
information with respect to the Company.
14.2 PENTACON AND NEWCO. Pentacon and Newco recognize and acknowledge
that they had in the past and currently have access to certain confidential
information of the Company, including, but not limited to, customer and prospect
lists, financial information, operational policies, and pricing and cost
policies that are valuable, special and unique assets of the Company's business.
Pentacon and Newco agree that, prior to the Consummation Date, or if the
transactions contemplated by this Agreement are not consummated, they will not,
appropriate or make use of any such information, whether for its own benefit or
the benefit of any other person or entity, for any purpose whatsoever (except
pending the Consummation Date, effecting the transactions contemplated hereby)
disclose such confidential information to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except (a) to
authorized representatives of the Company, (b) to counsel and other advisers,
provided that such advisers (other than counsel) agree to the confidentiality
provisions of this Section 14.2, (c) to the Other Founding Companies and their
representatives pursuant to Section 7.1(a), unless (i) such information becomes
known to the public generally through no fault of Pentacon or Newco, (ii)
disclosure is required by law or the order of any governmental authority under
color of law, provided, that prior to disclosing any information pursuant to
this clause (ii), Pentacon and Newco shall, if possible, give prior written
notice thereof to the Company and the Stockholders and provide the Company and
the Stockholders with the opportunity to contest such disclosure, or (iii) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party, and (d)
to the public to the extent necessary or advisable in connection with the filing
of the Registration Statement and the IPO and the securities laws applicable
thereto and to the operation of Pentacon as a publicly held entity after the
IPO. In the event of a breach or threatened breach by Pentacon or Newco of the
provisions of this Section, the Company and the Stockholders shall be entitled
to an injunction restraining Pentacon and Newco from disclosing, in whole or in
part, such confidential information. Nothing herein shall be construed as
prohibiting the Company and the Stockholders from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as
a result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach or threatened breach by any of them of the foregoing
covenants, the covenant may be enforced against the other parties by injunctions
and restraining orders or other appropriate equitable relief, without posting
any bond or other security or having to prove irreparable harm or injury.
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14.4 SURVIVAL. The obligations of the parties under this Article 14
shall survive the termination of this Agreement for a period of five years from
the Consummation Date, or without limitation if the transactions contemplated
hereby are not consummated.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by Pentacon, except
for transfers to immediate family members who agree to be bound by the
restrictions set forth in this Section 15.1 (or trusts or partnerships for the
benefit of charities, the Stockholders, family members, the trustees or partners
of which so agree), for a period of one year from the Closing, except pursuant
to Section 17 hereof, none of the Stockholders shall sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint, or otherwise dispose of any
shares of Pentacon Stock received by the Stockholders in the Merger. The
certificates evidencing the Pentacon Stock delivered to the Stockholders
pursuant to Section 3 of this Agreement will bear a legend substantially in the
form set forth below and containing such other information as Pentacon may deem
necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT
OR OTHER DISPOSITION PRIOR TO FIRST ANNIVERSARY OF CLOSING DATE. UPON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE
THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT)
AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the shares
of Pentacon Stock to be delivered to the Stockholders pursuant to this Agreement
have not been and will not be registered under the 1933 Act (except as provided
in Section 17 hereof) and therefore may not be resold without compliance with
the 1933 Act. The Pentacon Stock to be acquired by such Stockholders pursuant to
this Agreement is being acquired solely for their own respective accounts, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of it in connection with a distribution. The Stockholders
covenant, warrant and represent that none of the shares of Pentacon Stock issued
to such Stockholders will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all of
the applicable provisions of the 1933 Act and the rules and regulations of the
SEC. All the Pentacon Stock shall bear the following legend in addition to the
legend required under Section 15 of this Agreement:
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THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to bear
the economic risk of an investment in the Pentacon Stock to be acquired pursuant
to this Agreement and can afford to sustain a total loss of such investment and
have such knowledge and experience in financial and business matters that they
are capable of evaluating the merits and risks of the proposed investment in the
Pentacon Stock. The Stockholders party hereto have had an adequate opportunity
to ask questions and receive answers from the officers of Pentacon concerning
any and all matters relating to the transactions described herein including,
without limitation, the background and experience of the current and proposed
officers and directors of Pentacon, the plans for the operations of the business
of Pentacon, the business, operations and financial condition of the Founding
Companies other than the Company, and any plans for additional acquisitions and
the like. The Stockholders have asked any and all questions in the nature
described in the preceding sentence and all questions have been answered to
their satisfaction.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Closing,
whenever Pentacon proposes to register any Pentacon Stock for its own or others
account under the 1933 Act for a public offering, other than (i) any shelf or
other registration of shares to be used as consideration for acquisitions of
additional businesses by Pentacon and (ii) registrations relating to employee
benefit plans, Pentacon shall give each of the Stockholders prompt written
notice of its intent to do so. Upon the written request of any of the
Stockholders given within 30 days after receipt of such notice, Pentacon shall
cause to be included in such registration all of the Pentacon Stock issued to
the Stockholders pursuant to this Agreement (including any stock issued as (or
issuable upon the conversion or exchange of any convertible security, warrant,
right or other security which is issued by Pentacon as) a dividend or other
distribution with respect to, or in exchange for, or in replacement of such
Pentacon Stock) which any such Stockholder requests, provided that Pentacon
shall have the right to reduce the number of shares included in such
registration to the extent that inclusion of such shares would, in the written
opinion of tax counsel to Pentacon or its independent auditors, reasonably be
likely to jeopardize the status of the transactions contemplated hereby and by
the Registration Statement as a tax-free organization under Section 351 of the
Code. In addition, if Pentacon is advised in writing in good faith by any
managing underwriter of an underwritten offering of the securities being offered
pursuant to any registration statement under this Section 17.1 that the number
of shares to be sold by persons other than Pentacon is greater than the number
of such shares which can be offered without adversely affecting the offering,
Pentacon may reduce pro rata the number of shares offered for the accounts of
such persons (based upon the number of shares held by such person) to a number
deemed satisfactory by such managing underwriter, provided, that, for each such
offering made by Pentacon after the IPO, such reduction shall be made first by
reducing the number of shares to be sold by persons other than Pentacon, the
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Stockholders and the Stockholders of the Other Founding Companies (collectively,
the Stockholders and the Stockholders of the other Founding Companies being
referred to herein as the "Founding Stockholders"), and thereafter, if a further
reduction is required, by reducing the number of shares to be sold by the
Founding Stockholders.
17.2 REGISTRATION PROCEDURES. Whenever Pentacon is required to register
shares of Pentacon Stock pursuant to Section 17.1, Pentacon will, as
expeditiously as possible:
(i) Prepare and file with the SEC a registration statement
with respect to such shares and use its best efforts to cause such
registration statement to become effective (provided that before filing
a registration statement or prospectus or any amendments or supplements
or term sheets thereto, Pentacon will furnish a representative of the
Stockholders with copies of all such documents proposed to be filed) as
promptly as practical;
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for a period of not less than 120 days;
(iii) Furnish to each Stockholder who so requests such number
of copies of such registration statement, each amendment and supplement
thereto and the prospectus included in such registration statement
(including each preliminary prospectus and any term sheet associated
therewith), and such other documents as such Stockholder may reasonably
request in order to facilitate the disposition of the relevant shares;
(iv) Use its best efforts to register or qualify the
securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be
reasonably requested by the Stockholders, and to keep such registration
or qualification effective during the period such registration
statement is to be kept effective, provided that Pentacon shall not be
required to become subject to taxation, to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions;
(v) Cause all such shares of Pentacon Stock to be listed or
included on any securities exchanges or trading systems on which
similar securities issued by Pentacon are then listed or included;
(vi) Notify each Stockholder at any time when a prospectus
relating thereto is required to be delivered under the 1933 Act within
the period that Pentacon is required to keep the registration statement
effective of the happening of any event as a result of which the
prospectus included in such registration statement, together with any
associated term sheet, contains an untrue statement of a material fact
or omits any fact necessary to make the statement therein not
misleading, and, at the request of such Stockholder, Pentacon will
prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to the
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purchasers of the covered shares, such prospectus will not contain an
untrue statement of material fact or omit to state any fact necessary
to make the statements therein not misleading.
All expenses incurred in connection with the registration under this
Article 17 (including all registration, filing, qualification, legal, printer
and accounting fees, but excluding underwriting commissions and discounts),
shall be borne by Pentacon.
17.3 INDEMNIFICATION.
(a) In connection with any registration hereunder, Pentacon
shall indemnify, to the extent permitted by law, each Stockholder against all
losses, claims, damages, liabilities and expenses arising out of or resulting
from any untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or associated term
sheet or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading except insofar as the same are caused by or contained in or omitted
from any information furnished in writing to Pentacon by such indemnified party
expressly for use therein or by any indemnified parties' failure to deliver a
copy of the registration statement or prospectus or any amendment or supplements
thereto after Pentacon has furnished such Indemnified Party with a sufficient
number of copies of the same.
(b) In connection with any registration hereunder, each
Stockholder shall furnish to Pentacon in writing such information as is
reasonably requested by Pentacon for use in any such registration statement or
prospectus and will indemnify, to the extent permitted by law, Pentacon, its
directors and officers and each person who controls Pentacon (within the meaning
of the 0000 Xxx) against any losses, claims, damages, liabilities and expenses
resulting from any untrue or alleged untrue statement or material fact or any
omission or alleged omission of a material fact required to be stated in the
registration statement or prospectus or any amendment thereof or supplement
thereto necessary to make the statements therein not misleading, but only to the
extent that such untrue statement or omission is contained in information so
furnished in writing by such Stockholder specifically for use in preparing the
registration statement. Notwithstanding the foregoing, the liability of a
Stockholder under this Section 17.3 shall be limited to an amount equal to the
net proceeds actually received by such Stockholder from the sale of the relevant
shares covered by the registration statement.
(c) Any person entitled to indemnification under this Section
will (i) give prompt notice to the indemnifying party of any claim with respect
to which it seeks indemnification and (ii) unless in such indemnified parties'
reasonable judgment, a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. Any failure to give prompt notice shall
deprive a party of its right to indemnification hereunder only to the extent
that such failure shall have adversely affected the indemnifying party. If the
defense of any claim is assumed, the indemnifying party will not be
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subject to any liability for any settlement made without its consent (but such
consent shall not be unreasonably withheld). An indemnifying party who is not
entitled or elects not to assume the defense of a claim, will not be obligated
to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless in the
reasonable judgment of any indemnified party, a conflict of interest may exist
between such indemnified party and any other of such indemnified parties with
respect to such claim.
17.4 UNDERWRITING AGREEMENT. In connection with each registration
pursuant to Section 17.1 covering an underwritten registered offering, Pentacon
and each participating holder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
managing underwriters and companies of Pentacon's size and investment stature,
including indemnification.
17.5 RULE 144 REPORTING. With a view to making available the benefits
of certain rules and regulations of the SEC that may permit the sale of Pentacon
stock to the public without registration, Pentacon agrees to use its
commercially reasonable efforts to:
(i) make and keep public information regarding Pentacon
available as those terms are understood and defined in Rule 144 under
the 1933 Act for a period of four years beginning 90 days following the
effective date of the Registration Statement;
(ii) file with the SEC in a timely manner all reports and
other documents required of Pentacon under the 1933 Act and the 1934
Act at any time after it has become subject to such reporting
requirements; and
(iii) so long as a Stockholder owns any restricted Pentacon
Common Stock, furnish to each Stockholder forthwith upon written
request a written statement by Pentacon as to its compliance with the
reporting requirements of Rule 144 (at any time from and after 90 days
following the effective date of the Registration Statement, and of the
1933 Act and the 1934 Act (any time after it has become subject to such
reporting requirements), a copy of the most recent annual or quarterly
report of Pentacon, and such other reports and documents so filed as a
Stockholder may reasonably request in availing itself of any rule or
regulation of the SEC allowing a Stockholder to sell any such shares
without registration.
18. GENERAL
18.1 COOPERATION. The Company, Stockholders, Pentacon and Newco shall
each deliver or cause to be delivered to the other on the Consummation Date, and
at such other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The Company will cooperate and use its reasonable efforts to
have the present officers, directors and employees of the Company cooperate with
Pentacon on and after the Consummation Date in furnishing information, evidence,
testimony and
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other assistance in connection with any tax return filing obligations, actions,
proceedings, arrangements or disputes of any nature with respect to matters
pertaining to all periods prior to the Consummation Date.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of Pentacon, and the heirs and legal representatives of the
Stockholders.
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules,
exhibits and annexes attached hereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among the Stockholders,
the Company, Newco and Pentacon and supersede any prior agreement and
understanding relating to the subject matter of this Agreement. This Agreement,
upon execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only (i)
pursuant to Section 7.8 with respect to the amendment of Schedules or (ii) by a
written instrument executed by the Stockholders, the Company, Newco and
Pentacon, acting through their respective officers or trustees, duly authorized
by their respective Boards of Directors. Any disclosure made on any Schedule
delivered pursuant hereto shall be deemed to have been disclosed for purposes of
any other Schedule required hereby, provided that the Company shall make a good
faith effort to cross reference disclosure, as necessary or advisable, between
related Schedules, and provided further that the failure to do so will not
affect the validity of such disclosure.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each
party represents and warrants that it employed no broker or agent in connection
with this transaction and agrees to indemnify the other parties hereto against
all loss, cost, damages or expense arising out of claims for fees or commission
of brokers employed or alleged to have been employed by such indemnifying party.
18.6 EXPENSES. Whether or not the transactions herein contemplated
shall be consummated, Pentacon will pay the fees, expenses and disbursements of
Pentacon and its agents, representatives, accountants and counsel incurred in
connection with the subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance and compliance with
all conditions to be performed by Pentacon under this Agreement, including the
fees and expenses of Ernst & Young LLP, Xxxxxxx & Xxxxx L.L.P., and any other
person or entity retained by Pentacon or by XxXxxxxxx, Xxxxxxxx Capital Ventures
II, L.C., and the costs of preparing the Registration Statement. Except as
otherwise agreed in writing by Pentacon, each Stockholder shall pay their
respective fees, expenses and disbursements of counsel and other professionals
in connection with this transaction and shall pay all sales, use, transfer, real
property
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transfer, recording, gains, stock transfer and other similar taxes and fees
("Transfer Taxes") imposed in connection with the Merger, other than Transfer
Taxes, if any, imposed by the State of Delaware. Each Stockholder shall file all
necessary documentation and Returns with respect to such Transfer Taxes. In
addition, each Stockholder acknowledges that he, and not the Company or
Pentacon, will pay all taxes due upon receipt of the consideration payable
pursuant to Section 2 hereof. The Stockholders acknowledge that the risks of the
transactions contemplated hereby include tax risks, with respect to which the
Stockholders are relying solely on the opinion contemplated by Section 8.12
hereof.
18.7 NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the same
in person to an officer or agent of such party.
(a) If to Pentacon, or Newco, addressed to them at:
Pentacon, Inc.
0000 Xxx Xxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
with copies to:
Xxxxx Xxxxx, Esquire
Pentacon, Inc.
0000 Xxx Xxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
and
Xxxxxxxxxxx X. Xxxxxxx, Esquire
Xxxxxxx & Xxxxx, L.L.P.
0000 Xxxxx Xxxxxxxx Xxxxx
Xxxxxxx, Xxxxx 00000
(b) If to the Stockholders, addressed to them at their addresses set
forth on Annex II, with copies to:
Xxxxxxx X. Xxxxx
Katten, Muchin & Zavis
000 Xxxx Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
(c) If to the Company, addressed to it at:
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Xxxx X. Xxxxxx
AXS Solutions, Inc.
0000 Xxxxx Xxxxxx
Xxxx, Xxxxxxxxxxxx 00000
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of Delaware.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the applicable Expiration
Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
18.13 REMEDIES CUMULATIVE. Except as otherwise provided in Section
11.4, no right, remedy or election given by any term of this Agreement shall be
deemed exclusive but each shall be cumulative with all other rights, remedies
and elections available at law or in equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
PENTACON, INC.
By:_______________________
Xxxx X. Xxxxxxx
Chief Executive Officer
AXS SOLUTIONS ACQUISITION
COMPANY
By:_______________________
Name: Xxxx X. Xxxxxxx
Title: President
AXS SOLUTIONS, INC.
By:_______________________
Name: Xxxx X. Xxxxxx
Title: Chief Executive
Officer
STOCKHOLDERS:
__________________________
XXXX X. XXXXXX
__________________________
XXXXXXX X. XXXXXX
__________________________
XXXXXX XXXX
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__________________________
XXXXXXX X. XXXXX
XXXX X. XXXXXX TRUST
By:_______________________
Name:_____________________
Title:____________________
XXXXXX X. XXXXXX TRUST
By:_______________________
Name:_____________________
Title:____________________
XXXX X. XXXXXX TRUST
By:_______________________
Name:_____________________
Title:____________________
OAK RIDGE TRUST
By:_______________________
Name:_____________________
Title:____________________
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XXXXX X. XXXXXX TRUST
By:_______________________
Name:_____________________
Title:____________________
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ANNEX I (AXS)
CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
STOCKHOLDER SHARES OF COMMON STOCK
OF PENTACON, INC. MERGER CASH
----------- -------------
Xxxxxxx X. Xxxxx ....................... 92,782 $ 395,737.61
Xxxx X. Xxxxxx Trust ................... 54,578 $ 232,786.83
Xxxxxx X. Xxxxxx Trust ................. 38,205 $ 162,950.78
Xxxxx X. Xxxxxx Trust .................. 92,782 $ 395,737.61
Xxxx X. Xxxxxx Trust ................... 92,782 $ 395,737.61
Oak Ridge Trust ........................ 327,466 $1,396,720.98
Xxxxxxx X. Xxxxxx ...................... 281,621 $1,201,180.05
Xxxx X. Xxxxxx ......................... 802,656 $3,423,518.31
Xxxxxx Xxxx ............................ 36,385 $ 155,191.22
----------- -------------
1,819,257 $7,759,561.00
=========== =============
MINIMUM VALUE: ......................... $26,370,560
ANNEX II
AXS SOLUTIONS, INC. STOCK OWNERSHIP
Xxxxxxx X. Xxxxx 500 Shares
Xxxx X. Xxxxxx Trust 300 Shares
Xxxxxx X. Xxxxxx Trust 220 Shares
Xxxxx X. Xxxxxx Trust 510 Shares
Xxxx X. Xxxxxx Trust 000 Xxxxxx
Xxx Xxxxx Trust 1800 Shares
Xxxxxxx X. Xxxxxx 1548 Shares
Xxxx X. Xxxxxx 4412 Shares
Xxxxxx Xxxx 200 Shares
See attachment for stockholder addresses.
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