================================================================================
STOCK PURCHASE AGREEMENT
AMONG
INTERIORS, INC.,
XXXXX XXXXXX,
XXXXXX XXXXXXXXXX,
AND
THE XXXXX FAMILY TRUST DATED OCTOBER 1, 1997
OCTOBER 27, 1999
===============================================================================
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS....................................................1
ARTICLE II PURCHASE AND SALE OF SHARES....................................7
SECTION 2.01 PURCHASE AND SALE OF SHARES..............................7
SECTION 2.02 PURCHASE PRICE...........................................7
SECTION 2.03 PURCHASE PRICE ADJUSTMENTS...............................8
SECTION 2.04 ADJUSTMENT FOR FUTURE PERFORMANCE.......................10
SECTION 2.05 CLOSING.................................................11
SECTION 2.06. ESCROW.................................................11
SECTION 2.07 ACTIONS PRIOR TO AND AT THE CLOSING.....................11
ARTICLE III REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY..........12
SECTION 3.01 ORGANIZATION AND GOOD STANDING; AUTHORIZATION...........12
SECTION 3.02 NO CONFLICTS............................................12
SECTION 3.03 CAPITALIZATION..........................................13
SECTION 3.04 FINANCIAL STATEMENTS; COMPLETION SCHEDULE...............13
SECTION 3.05 TITLE TO PROPERTY; ENCUMBRANCES.........................14
SECTION 3.06 INVENTORY AND ACCOUNTS RECEIVABLE.......................15
SECTION 3.07 COMPLIANCE WITH LAW.....................................15
SECTION 3.08 TRADEMARKS, PATENTS, ETC................................16
SECTION 3.09 BANKING AND INSURANCE...................................16
SECTION 3.10 INDEBTEDNESS............................................17
SECTION 3.11 JUDGMENTS; LITIGATION...................................17
SECTION 3.12 INCOME AND OTHER TAXES..................................18
SECTION 3.13 CORPORATE RECORDS.......................................19
SECTION 3.14 EMPLOYEE BENEFIT MATTERS................................19
SECTION 3.15 NO UNDISCLOSED LIABILITIES..............................19
SECTION 3.16 PERMITS, LICENSES, ETC..................................19
SECTION 3.17 REGULATORY FILINGS......................................19
SECTION 3.18 CONSENTS................................................20
SECTION 3.19 MATERIAL CONTRACTS; NO DEFAULTS.........................20
SECTION 3.20 ABSENCE OF CERTAIN CHANGES..............................22
SECTION 3.21 EMPLOYEES AND LABOR MATTERS.............................22
SECTION 3.22 AFFILIATIONS............................................23
SECTION 3.23 PRINCIPAL CUSTOMERS AND SUPPLIERS.......................23
SECTION 3.24 WARRANTY LIABILITY......................................24
SECTION 3.25 HAZARDOUS MATERIALS.....................................24
SECTION 3.26 BROKERS' FEES...........................................25
SECTION 3.27 DISCLOSURE..............................................25
i
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER.......................25
SECTION 4.01 ORGANIZATION, POWER AND AUTHORITY OF BUYER..............25
SECTION 4.02 AUTHORIZATION...........................................25
SECTION 4.03 NO CONFLICT OR VIOLATION................................25
SECTION 4.04 CAPITALIZATION..........................................26
SECTION 4.05 CONSENTS AND APPROVALS..................................26
SECTION 4.06 REPORTS AND FINANCIAL STATEMENTS........................26
SECTION 4.07 BROKERS' FEES...........................................27
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS............27
SECTION 5.01 OWNERSHIP OF SHARES.....................................27
SECTION 5.02 DELIVERY OF GOOD TITLE..................................27
SECTION 5.03 EXECUTION AND DELIVERY..................................27
SECTION 5.04 NO CONFLICTS............................................27
SECTION 5.05 RESTRICTIONS ON TRANSFER OF BUYER COMMON STOCK AND
BUYER PREFERRED STOCK...........................................28
ARTICLE VI CONDITIONS TO CONSUMMATION OF SALE OF SHARES..................29
SECTION 6.01 CONDITIONS TO OBLIGATIONS OF BUYER......................29
SECTION 6.02 CONDITIONS TO OBLIGATIONS OF THE SHAREHOLDERS...........31
ARTICLE VII CONDUCT OF BUSINESS PENDING CLOSING...........................31
SECTION 7.01 QUALIFICATION...........................................31
SECTION 7.02 ORDINARY COURSE.........................................32
SECTION 7.03 ORGANIC CHANGES.........................................32
SECTION 7.04 INDEBTEDNESS............................................32
SECTION 7.05 ACCOUNTING..............................................32
SECTION 7.06 COMPLIANCE WITH LEGAL REQUIREMENTS......................32
SECTION 7.07 DISPOSITION OF ASSETS...................................32
SECTION 7.08 COMPENSATION............................................32
SECTION 7.09 MODIFICATION OR BREACH OF AGREEMENTS; NEW AGREEMENTS....32
SECTION 7.10 CAPITAL EXPENDITURES....................................33
SECTION 7.11 MAINTAIN INSURANCE......................................33
SECTION 7.12 DISCHARGE...............................................33
SECTION 7.13 ACTIONS.................................................33
SECTION 7.14 PERMITS.................................................33
SECTION 7.15 TAX ASSESSMENTS AND AUDITS..............................33
ARTICLE VIII ADDITIONAL COVENANTS..........................................33
SECTION 8.01 COVENANTS OF THE SHAREHOLDERS...........................33
SECTION 8.02 ADDITIONAL COVENANTS OF THE SHAREHOLDERS................34
SECTION 8.03 COVENANTS OF BUYER......................................35
SECTION 8.04 ACCESS AND INFORMATION..................................35
ii
SECTION 8.05 EXPENSES................................................36
SECTION 8.06 CERTAIN NOTIFICATIONS...................................36
SECTION 8.07 PUBLICITY; EMPLOYEE COMMUNICATIONS......................36
SECTION 8.08 FURTHER ASSURANCES......................................36
SECTION 8.09 COMPETING OFFERS; MERGER OR LIQUIDATION.................37
SECTION 8.10 INCONSISTENT ACTION......................................37
SECTION 8.11 POST-TERMINATION EMPLOYMENT.............................37
SECTION 8.12 BUYER'S POST-CLOSING COVENANT...........................37
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER.............................37
SECTION 9.01 TERMINATION.............................................37
SECTION 9.02 EFFECT OF TERMINATION...................................38
SECTION 9.03 AMENDMENT...............................................38
SECTION 9.04 WAIVER..................................................38
ARTICLE X INDEMNIFICATION...............................................39
SECTION 10.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND
COVENANTS...................................................... 39
SECTION 10.02 INDEMNIFICATION........................................39
SECTION 10.03 THIRD PARTY CLAIMS.....................................40
SECTION 10.04 INDEMNIFICATION NON-EXCLUSIVE..........................41
ARTICLE XI GENERAL PROVISIONS............................................41
SECTION 11.01 NOTICES................................................41
SECTION 11.02 SEVERABILITY...........................................42
SECTION 11.03 ENTIRE AGREEMENT.......................................42
SECTION 11.04 SUCCESSORS AND ASSIGNS.................................43
SECTION 11.05 COUNTERPARTS...........................................43
SECTION 11.06 SCHEDULES AND ANNEXES..................................43
SECTION 11.07 CONSTRUCTION...........................................43
SECTION 11.08 GOVERNING LAW...........................................43
SECTION 11.09 ARBITRATION CONCERNING DISPUTES REGARDING EBIT.........43
iii
List of Annexes
---------------
Annex A - Escrow Agreement
Annex B - Form of Shareholder Certificate
Annex C - Certificate of the Company's Officers
Annex D - Certificate of the Company's Secretary
Annex E - Xxxxx Xxxxxx Employment Agreement
Annex F - Xxxxxx Xxxxxxxxxx Employment Agreement
Annex G - Xxxx Xxxxx Employment Agreement
Annex H - Xxxxxxx Xxxxxxxx Employment Agreement
Annex I - Xxxxx Xxxxxx Employment Agreement
Annex J - Xxxx Xxxx Employment Agreement
Annex K - Certificate of Buyer's Secretary
Annex L - Certificate of the Buyer's President
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as
of October 27, 1999 by and among Interiors, Inc., a Delaware corporation
("Buyer"), Xxxxx Xxxxxx ("Xxxxxx"), Xxxxxx Xxxxxxxxxx ("Darlington") and the
Xxxxx Family Trust dated October 1, 1997 (the "Xxxxx Trust") (Xxxxxx, Darlington
and the Xxxxx Trust collectively, the "Shareholders").
R E C I T A L S
A. The Shareholders own in the aggregate 100 shares of common stock
(the "Shares") of Concepts 4, Inc., a California corporation (the "Company").
The Shareholders are the owners of all the issued and outstanding common stock
of the Company.
B. The Shareholders desire to sell to Buyer, and Buyer desires to
purchase from the Shareholders, the Shares in accordance with the terms of this
Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants,
agreements, representations and warranties herein contained, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
Unless the context otherwise requires, the terms defined in this
Article I shall have the meanings herein specified for all purposes of this
Agreement, applicable to both the singular and plural forms of any of the terms
herein defined. All accounting terms defined in this Article I and those
accounting terms used in this Agreement and not defined in this Article I shall,
except as otherwise provided for herein, be construed in accordance with GAAP.
"Action" shall mean any actual or threatened claim, action, suit,
arbitration, hearing, inquiry, proceeding, complaint, charge or investigation by
or before any Governmental Entity or arbitrator and any appeal from any of the
foregoing.
"Affiliate" shall mean any Person which directly or indirectly
controls, is controlled by, or is under common control with, the indicated
Person.
"Agreement" shall have the meaning assigned to such term in the
introductory paragraph of this Agreement.
1
"Association" shall have the meaning assigned to such term in
Section 2.03(f) hereof.
"Balance Sheet Date" shall have the meaning assigned to such term in
Section 3.04(a) hereof.
"Business Day" shall mean any day excluding Saturday, Sunday or any
day which shall be in the State of New York or the State of California a legal
holiday or a day on which banking institutions are authorized by law to close.
"Buyer" shall have the meaning assigned to such term in the
introductory paragraph of this Agreement.
"Claim Notice" shall have the meaning assigned to such term in
Section 10.03 hereof.
"Closing" and "Closing Date" shall have the respective meanings
assigned to such terms in Section 2.05 hereof.
"Closing Balance Sheet" shall have the meaning assigned to such term
in Section 2.03(b) hereof.
"Closing Completion Schedule" shall have the meaning assigned to
such term in Section 2.07 hereof.
"Closing Financial Statements" shall have the meaning assigned to
such term in Section 8.02(a) hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Common Stock" shall mean the common stock of the Company.
"Company" shall have the meaning assigned to such term in Recital A
hereof.
"Completion Schedule" shall have the meaning assigned to such term
in Section 2.03(a) hereof.
"Confidential Information" shall have the meaning assigned to such
term in Section 8.04 hereof.
"Darlington" shall have the meaning assigned to it in the
introductory paragraph of this Agreement.
"Damages" shall mean any and all losses, liabilities, obligations,
costs, expenses, damages or judgments of any kind or nature whatsoever
(including without limitation reasonable attorneys', accountants' and experts'
fees, disbursements of counsel, and other costs and expenses incurred pursuing
indemnification claims under Article X hereof).
2
"Debt Balance Sheet" shall have the meaning assigned to such term in
Section 2.03(d) hereof.
"Debt Decrease Amount" shall have the meaning assigned to such term
in Section 2.03(d).
"Debt Increase Amount" shall have the meaning assigned to such term
in Section 2.03(d).
"Earnout Shares" shall have the meaning assigned to such term in
Section 2.04(a) hereof.
"EBIT" shall mean Net Income plus the Company's provision and other
expenses for federal income taxes and Interest Expense, less any Interest
Income, attributable solely to the business of the Company for a particular
fiscal year. For the purpose of calculating EBIT in connection with Section 2.04
only, any increase in the operating expenses of the Company (which increase, for
the purposes of calculating EBIT, shall be calculated by comparing the current
operating expenses against the operating expenses for the preceding twelve (12)
month period), which operating expenses are incurred as a result of the actions
of Buyer, shall be excluded from EBIT upon Shareholders' written notice to Buyer
if the increase in operating expenses is (i) not in the Ordinary Course; or (ii)
incurred to increase the revenue or profits of the Company during periods which
do not include the First Earnout Period, the Second Earnout Period or the Third
Earnout Period. Any increase in operating expenses of the Company incurred as a
result of the actions of Buyer shall be included in EBIT if the increase in
operating expenses is (x) incurred to preserve the assets of the Company; (y)
incurred to maintain Buyer's financial control of the Company; or (z) incurred
to meet Buyer's reporting obligations under the Exchange Act.
"Employment Agreement" shall mean an employment agreement
substantially in the form of Annex E, Annex F and Annex G attached hereto.
"Environmental Laws" shall mean all Legal Requirements pertaining to
the protection of the environment, the treatment, emission and discharge of
gaseous, particulate and effluent pollutants and the use, handling, storage,
treatment, removal, transport, transloading, cleanup, decontamination, discharge
and disposal of Hazardous Material.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
"Escrow Account" shall mean the account established by the Escrow
Agent pursuant to the Escrow Agreement.
"Escrow Agent" shall mean U.S. Bank Trust, a national association.
"Escrow Agreement" shall have the meaning assigned to such term in
Section 2.06 hereof.
"Escrow Amount") shall have the meaning assigned to such term in
Section 2.06 hereof.
3
"Estimated Indebtedness Schedule" shall have the meaning assigned to
such term in Section 2.03(d).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Final Indebtedness Schedule" shall have the meaning assigned to
such term in Section 2.03(d) hereof.
"Financial Statements" shall have the meaning assigned to such term
in Section 3.04(a) hereof.
"First Earnout Period" shall mean the period of time beginning on
the Closing Date and ending on the first anniversary of the Closing Date.
"First Earnout Period Shares" shall have the meaning assigned to
such term in Section 2.04(a) hereof.
"GAAP" means United States generally accepted accounting principles,
consistently applied.
"Governmental Entity" shall mean any local, state, federal or
foreign (i) court, (ii) government or (iii) governmental department, commission,
instrumentality, board, agency or authority, including the IRS and other taxing
authorities.
"Guaranties" shall have the meaning assigned to such term in Section
3.10(b) hereof.
"Hazardous Material" shall mean any flammable, ignitable, corrosive,
reactive, radioactive or explosive substance or material, hazardous waste, toxic
substance or related material and any other substance or material defined or
designated as a hazardous or toxic substance, material or waste by any
Environmental Law currently in effect or as amended or promulgated in the
future.
"Xxxxxx" shall have the meaning assigned to it in the introductory
paragraph of this Agreement.
"Indebtedness" shall mean, when used with reference to any Person,
without duplication, (i) any liability of such Person created or assumed by such
Person, or any Subsidiary thereof, (A) for borrowed money, (B) evidenced by a
bond, note, debenture or similar instrument (including a purchase money
obligation, deed of trust or mortgage) given in connection with the acquisition
of, or exchange for, any property or assets (other than inventory or similar
property acquired and consumed in the Ordinary Course), including securities and
other Indebtedness, (C) in respect of letters of credit issued for such Person's
account and "swaps" of interest and currency exchange rates (and other interest
and currency exchange rate hedging agreements) to which such Person is a party
or (D) for the payment of money as lessee under leases that should be, in
accordance with GAAP, recorded as capital leases for financial reporting
purposes; (ii) any liability of others described in the preceding clause (i)
guaranteed as to payment of principal or interest by such Person or in effect
guaranteed by such Person through an agreement, contingent or otherwise, to
purchase, repurchase or pay the related Indebtedness or to acquire the security
therefor; (iii) all liabilities or obligations secured by a Lien upon property
owned by such Person
4
and upon which liabilities or obligations such Person customarily pays interest
or principal, whether or not such Person has not assumed or become liable for
the payment of such liabilities or obligations; and (iv) any amendment, renewal,
extension, revision or refunding of any such liability or obligation.
"Indemnifiable Claim" shall have the meaning assigned to such term
in Section 10.03 hereof.
"Indemnified Party" shall have the meaning assigned to such term in
Section 10.02 hereof.
"Indemnifying Party" shall have the meaning assigned to such term in
Section 10.03 hereof.
"Interest Expense" and "Interest Income" for a fiscal year shall
mean, respectively, the Company's interest expense and interest income for such
fiscal year used in determining Net Income for that fiscal year.
"IRS" shall mean the United States Internal Revenue Service.
"June Balance Sheet" shall have the meaning assigned to such term in
Section 3.04 hereof.
"Key Employees" shall mean Xxxx Xxxx, Xxxxxxx Xxxxxxxx and Xxxxx
Xxxxxx.
"Leased Real Property" shall mean all real property, including
Structures, leased by the Company.
"Legal Requirement" shall mean any statute, law, ordinance, rule,
regulation, permit, order, writ, judgment, injunction, decree or award issued,
enacted or promulgated by any Governmental Entity or any arbitrator.
"Lien" shall mean all liens (including judgment and mechanics'
liens, regardless of whether liquidated), mortgages, assessments, security
interests, easements, claims, pledges, trusts (constructive or other), deeds of
trust, options or other charges, encumbrances or restrictions.
"Xxxxx" shall have the meaning assigned to such term in Section
6.01(f) hereof.
"Xxxxx Trust" shall have the meaning assigned to it in the
introductory paragraph of this Agreement.
"Material Adverse Effect" shall mean a material adverse effect on
the business, financial condition, properties, profitability, prospects or
operations of the Company.
"Net Income" shall mean the net income of the Company for such
period, determined in accordance with GAAP, applied in a manner consistent with
the prior accounting practices of the Company, attributable solely to the
business of the Company for a particular fiscal year.
5
"Objection Notice" shall have the meaning assigned to such term in
Section 2.03(e) hereof.
"Opening Completion Schedule" shall have the meaning assigned to
such term in Section 3.04(c) hereof.
"Options" shall mean all outstanding options, warrants and other
rights to acquire Common Stock.
"Ordinary Course" shall mean, when used with reference to the
Company, the ordinary course of the Company's business consistent with past
practices.
"Permits" shall have the meaning assigned to such term in Section
3.16 hereof.
"Permitted Liens" shall mean (a) Liens for ad valorem real or
personal property taxes or assessments not at the time due and (b) Liens in
respect of pledges or deposits under workers' compensation laws or similar
legislation, carriers', warehousemen's, mechanics', laborers' and materialmen's
and similar liens, if the obligations secured by such Liens are not then
delinquent.
"Person" shall mean all natural persons, corporations, business
trusts, associations, companies, partnerships, limited liability companies,
joint ventures, Governmental Entities and any other entities.
"Policies" shall have the meaning assigned to such term in Section
3.09(b) hereof.
"Pre-Closing Balance Sheet" shall have the meaning assigned to such
term in Section 2.03(a) hereof.
"Pre-Closing Date" shall have the meaning assigned to such term in
Section 2.03(a) hereof.
"Proprietary Information" shall have the meaning assigned to such
term in Section 3.08(b) hereof.
"Purchase Price" shall have the meaning assigned to such term in
Section 2.02(a) hereof.
"Purchase Price Adjustment Estimate" shall have the meaning assigned
to such term in Section 2.03(b) hereof.
"Second Earnout Period" shall mean the period of time beginning on
the Closing Date and ending on the second anniversary of the Closing Date.
"Second Earnout Period Shares" shall have the meaning assigned to
such term in Section 2.04(a) hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended.
6
"Shareholders" shall have the meaning assigned to such term in the
introductory paragraph of this Agreement.
"Shares" shall have the meaning assigned to such term in Recital A
hereof.
"Structure" shall mean any facility, building, plant, factory,
office, warehouse structure or other improvement owned or leased by the Company.
"Subsidiary" of a Person shall mean any corporation, partnership,
association or other business entity at least 50% of the outstanding voting
power of which is at the time owned or controlled directly or indirectly by such
Person or by one or more of such subsidiary entities, or both.
"Tax" shall mean any federal, state, local or foreign income, gross
receipts, license, payroll, unemployment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including, without limitation, taxes
under Code Section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), employment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated tax or other tax, assessment or charge
of any kind whatsoever, including, without limitation, any interest, fine
penalty or addition thereto, whether disputed or not.
"Tax Return" shall mean any return, declaration, report, claim for
refund or information, or statement relating to Taxes, and any exhibit,
schedule, attachment or amendment thereto.
"Third Earnout Period" shall mean the period of time beginning on
the Closing Date and ending on the third anniversary of the Closing Date.
"Third Earnout Period Shares" shall have the meaning assigned to
such term in Section 2.04(a) hereof.
ARTICLE II
PURCHASE AND SALE OF SHARES
SECTION 2.01 Purchase and Sale of Shares. Subject to the terms and
conditions set forth herein, the Shareholders agree to sell and deliver the
Shares to Buyer, and Buyer agrees to purchase and accept the Shares from the
Shareholders free and clear of all Liens, for the purchase price described in
Section 2.02 hereof.
SECTION 2.02 Purchase Price.
(a) Subject to adjustment as provided in Sections 2.03 and
2.04, Buyer shall pay an aggregate purchase price (the "Purchase Price") for the
Shares equal to the sum of:
(i) Eight Million One Hundred Seventy Thousand Dollars
($8,170,000) in cash, less the Escrow Amount (as defined below) and subject to
adjustment as
7
provided herein (the "Cash Payment") payable at the Closing in accordance with
Schedule 2.02(a)(i);
(ii) Seven Hundred Seventy Thousand Dollars ($770,000)
payable upon the first anniversary of the Closing Date in accordance with
Schedule 2.02(a)(ii);
(iii) One Million Two Hundred Eighteen Thousand Dollars
($1,218,000) payable upon the second anniversary of the Closing Date in
accordance with Schedule 2.02(a)(iii); and
(iv) One Million Two Hundred Eighteen Thousand Dollars
($1,218,000) payable upon the third anniversary of the Closing Date in
accordance with Schedule 2.02(a)(iv).
(b) In the event that Buyer fails to pay the amounts due
pursuant to Section 2.02(a)(ii), (iii) or (iv), within fifteen (15) Business
Days of the date such cash payments were due Buyer shall deliver to the
Shareholders Buyer Common Stock the fair market value of which is equal to the
amount of cash Shareholders would have received pursuant to Section 2.02(a)(ii),
(iii) or (iv). The fair market value of Buyer Common Stock shall be computed
using the average closing bid price per share of Buyer Common Stock for the ten
(10) trading days immediately preceding the date the applicable cash payment was
to be paid pursuant to Section 2.02.
SECTION 2.03 Purchase Price Adjustments.
(a) Pre-Closing Calculation of Purchase Price. No less
than twenty (20) days prior to the Closing Date Shareholders shall deliver to
Buyer (i) the unaudited balance sheet of the Company (the "Pre-Closing Balance
Sheet") as of a fiscal month-end which is no later than sixty-five (65) days
prior to the Closing Date (the "Pre-Closing Date") and the related unaudited
statements of income, shareholders' equity and cash flows for the fiscal period
then ended, prepared in accordance with GAAP, and (ii) the Company's Job
Analysis and Percentage of Completion Schedule ("Completion Schedule") for the
period ended on the Pre-Closing Date. Shareholders shall make available to Buyer
any of the work papers, financial data and other information used in preparing
the Pre-Closing Balance Sheet. The Cash Payment shall be reduced (but not
increased) on a dollar-for-dollar basis to the extent that the stockholders'
equity set forth in the Pre-Closing Balance Sheet is less than the stockholders'
equity set forth in the June Balance Sheet. In the event that (i) the
stockholders' equity set forth in the June Balance Sheet exceeds the
stockholders' equity set forth in the Pre-Closing Balance Sheet by more than
Five Hundred Thousand Dollars ($500,000), and (ii) Buyer does not elect to limit
the total adjustment to the Purchase Price to Five Hundred Thousand Dollars
($500,000), then the Shareholders shall have the right, in their sole
discretion, to terminate this Agreement without liability or penalty.
(b) Purchase Price Adjustment Estimate. Within thirty (30)
days after the Closing Date Shareholders shall deliver to Buyer (i) the
Shareholders' calculation of the adjustment to the Purchase Price pursuant to
Section 2.03(c) hereof (the "Purchase Price Adjustment Estimate"), together with
a statement, in reasonable detail, of the manner by which such calculation was
determined and (ii) the unaudited balance sheet of the Company as of the Closing
Date (the "Closing Balance Sheet") and the related unaudited statements of
income, shareholders' equity and cash flows for the fiscal period then ended,
prepared in accordance with
8
GAAP. Shareholders shall make available to Buyer any of the work papers,
financial data and other information used in calculating the Purchase Price
Adjustment Estimate.
(c) Purchase Price Adjustment. The Purchase Price shall be
reduced (but not increased) to the extent that the stockholders' equity set
forth in the Closing Balance Sheet is less than the stockholders' equity set
forth in the Pre-Closing Balance Sheet; provided however, that the Purchase
Price shall be reduced pursuant to this Section 2.03(c) no more than the amount
equal to (i) Five Hundred Thousand Dollars ($500,000) less (ii) any reduction in
the Cash Payment pursuant to Section 2.03(a) hereof.
(d) Indebtedness Adjustment. No less than three (3) Business
Days prior to the Closing Date, Shareholders shall deliver to Buyer a schedule
setting forth an estimate of the Company's Indebtedness as of the Closing Date
prepared in accordance with GAAP (the "Estimated Indebtedness Schedule"). If the
aggregate amount of Indebtedness of the Company as of the Closing Date is
greater than Three Hundred Thirty Thousand Dollars ($330,000), the Purchase
Price shall be reduced by the amount of such difference (the "Debt Increase
Amount"). If the aggregate amount of Indebtedness of the Company as of the
Closing Date is less than Three Hundred Thirty Thousand Dollars ($330,000), the
Purchase Price shall be increased by the amount of such difference (the "Debt
Decrease Amount"). Any such adjustment to the Purchase Price, as determined
pursuant to the Estimated Indebtedness Schedule, shall increase or decrease the
Cash Payment. Within thirty (30) days after the Closing Date, Shareholders shall
deliver to Buyer a schedule which sets forth the Company's actual Indebtedness
as of the Closing Date, prepared in accordance with GAAP (the "Final
Indebtedness Schedule"). To the extent the aggregate Indebtedness disclosed in
the Final Indebtedness Schedule is greater than Three Hundred Thirty Thousand
($330,000), the Shareholders shall pay Buyer the amount of such difference less
the Debt Increase Amount, if any, within five (5) Business Days of the delivery
of the Final Indebtedness Schedule. To the extent the aggregate Indebtedness
disclosed in the Final Indebtedness Schedule is less than Three Hundred Thirty
Thousand ($330,000), Buyer shall pay the Shareholders the amount of such
difference less the Debt Decrease Amount, if any, within five (5) Business Days
of the delivery of the Final Indebtedness Schedule.
(e) Objection Notice. Within thirty (30) days after receipt of
the Closing Balance Sheet, the Purchase Price Adjustment Estimate and the Final
Indebtedness Schedule, Buyer shall notify Shareholders in writing (an "Objection
Notice") of any objection to (i) the Purchase Price Adjustment Estimate or (ii)
the Final Indebtedness Schedule. If no Objection Notice is given within such
thirty-day period, then (i) the Purchase Price Adjustment Estimate and the Final
Indebtedness Schedule shall be final and binding on all parties and the Purchase
Price calculated in the Purchase Price Adjustment Estimate shall be deemed for
all purposes to be the Purchase Price. If an Objection Notice is delivered,
Shareholders shall be permitted to take positions which are different from
positions taken in the Purchase Price Adjustment Estimate and the Final
Indebtedness Schedule as submitted to Buyer, and Buyer agrees that Shareholders
shall not be prejudiced by reason of such differences.
(f) Dispute Resolution. In the event Buyer provides a timely
Objection Notice, Buyer and Shareholders shall, for a period of five (5) days,
use their best efforts to resolve any differences between the parties as to the
determination of the Purchase Price. In the event Shareholders and Buyer are
not, within the periods described above, able to resolve such differences, the
determination of the Purchase Price shall be decided by binding arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association (the "Association"). If all of the parties to this Agreement are
unable to agree on a
9
single arbitrator, the arbitrator shall be a single arbitrator selected by the
American Arbitration Association. Any arbitration proceedings hereunder shall be
held in Los Angeles, California. Such arbitrator shall as promptly as
practicable, but in no event later than ninety (90) days after receipt by
Shareholders of the Objection Notice, make a determination of the Purchase
Price. Such determination shall be final and binding on Buyer and Shareholders.
The fees and expenses of the arbitrator shall be paid fifty percent (50%) by the
Shareholders and fifty percent (50%) by the Buyer.
SECTION 2.04 Adjustment for Future Performance.
(a) Buyer shall make the following additional payments to
Shareholders for the Shares, at the times and in the amounts specified below in
shares of Buyer Common Stock (in the aggregate, the "Earnout Shares"). The
Earnout Shares allocable to each Shareholder shall be in the amounts set forth
opposite each Shareholder's name on Schedule 2.04(a):
(i) In the event the Company's EBIT during the First
Earnout Period exceeds Three Million Dollars ($3,000,000), within seventy-five
(75) days following the First Earnout Period, Buyer shall pay to Shareholders
Three Hundred Twenty-Four Thousand Dollars ($324,000) and shall deliver to
Shareholders a number of shares of Buyer Common Stock (the "First Earnout Period
Shares") having a fair market value equal to One Dollar ($1) for each One Dollar
($1) that the Company's EBIT during the First Earnout Period exceeds Three
Million Dollars ($3,000,000); provided, however, that the fair market value of
the First Earnout Period Shares shall not exceed One Million Five Hundred
Thousand Dollars($1,500,000). The Company shall not be obligated to deliver any
First Earnout Period Shares to Shareholders in the event that the Company's EBIT
during the First Earnout Period is less than Three Million Dollars ($3,000,000).
(ii) In the event the Company's EBIT during the Second
Earnout Period exceeds Six Million Dollars ($6,000,000) and the Company's EBIT
during the second twelve month period following the Closing Date exceeds Three
Million Dollars ($3,000,000), within seventy-five (75) days following the Second
Earnout Period, Buyer shall deliver to Shareholders a number of shares of Buyer
Common Stock (the "Second Earnout Period Shares") having a fair market value
equal to One Dollar ($1) for each One Dollar ($1) that the Company's EBIT during
the Second Earnout Period exceeds Six Million Dollars ($6,000,000), minus (c)
the value of any First Earnout Period Shares (valued as of the end of the First
Earnout Period); provided, however, that the aggregate value of the Second
Earnout Period Shares (valued as of the end of the Second Earnout Period) and
First Earnout Period Shares (valued as of the end of the First Earnout Period)
shall not exceed Three Million Dollars ($3,000,000). The Company shall not be
obligated to deliver any Second Period Earnout Shares in the event that the
Company's EBIT during the Second Earnout Period is less than Six Million Dollars
($6,000,000) or the Company's EBIT during the second twelve month period
following the Closing Date equals or is less than Three Million Dollars
($3,000,000).
(iii) In the event that the Company's EBIT during the
Third Earnout Period equals Nine Million Dollars ($9,000,000) and the Company's
EBIT during the third twelve month period following the Closing Date exceeds
Three Million Dollars ($3,000,000), within seventy-five (75) days following the
Third Earnout Period, Buyer shall deliver to Shareholders a number of shares of
Buyer Common Stock (the "Third Earnout Period Shares") having a fair market
value equal to One Dollar ($1) for each One Dollar ($1) that the
10
Company's EBIT during the Third Earnout Period exceeds Nine Million Dollars
($9,000,000), minus (c) the value of any First Earnout Period Shares (valued as
of the end of the First Earnout Period) and Second Earnout Period Shares (valued
as of the end of the Second Earnout Period); provided, however, that the
aggregate value of the Third Earnout Period Shares (valued as of the end of the
Third Earnout Period), the First Earnout Period Shares (valued as of the end of
the First Earnout Period) and the Second Earnout Period Shares (valued as of the
end of the Second Earnout Period) shall not exceed Four Million Five Hundred
Thousand Dollars ($4,500,000). The Company shall not be obligated to deliver any
Third Earnout Period Shares to Shareholders in the event that the Company's EBIT
during the Third Earnout Period is less than Nine Million Dollars ($9,000,000)
or the Company's EBIT during the third twelve month period following the Closing
Date equals or is less than Three Million Dollars ($3,000,000).
(b) For purposes of this Section 2.04, the fair market value
of Buyer Common Stock shall be computed using the average closing bid price per
share of Buyer Common Stock for the ten (10) trading days immediately preceding
the last day of any determination period.
SECTION 2.05 Closing. Unless this Agreement shall have been
terminated pursuant to Section 9.01 hereof, the closing of the purchase and sale
of the Shares contemplated hereby (the "Closing") shall take place at the
offices of Paul, Hastings, Xxxxxxxx & Xxxxxx LLP, Twenty-Third Floor, 000 Xxxxx
Xxxxxx Xxxxxx, Xxx Xxxxxxx, Xxxxxxxxxx 00000, at 10:00 A.M. local time on or
prior to November 29, 1999 as promptly as practicable upon satisfaction of the
conditions appearing in Article VI hereof or at such other time and place as
Buyer and Shareholders may mutually establish (such time and date being referred
to herein as the "Closing Date").
SECTION 2.06. Escrow. On the Closing Date, Buyer, each of the
Shareholders and the Escrow Agent shall execute and deliver an escrow Agreement
(the "Escrow Agreement") substantially in the form of Annex A attached hereto in
order to secure the indemnification obligations of Shareholders and the Company
and to secure payment, if any, to Buyer of any funds pursuant to an adjustment
to the Purchase Price under Sections 2.03(c) and 2.03(d) hereof. On the Closing
Date, Buyer shall pay, by wire transfer in immediately available funds to an
account established by the Escrow Agent pursuant to the Escrow Agreement, Eight
Hundred Thousand Dollars ($800,000) less the amount of any reduction in the Cash
Payment made pursuant to Section 2.03(a) hereof (the "Escrow Amount").
SECTION 2.07 Actions Prior to and at the Closing.
(a) The Company and the Shareholders shall deliver or cause to
be delivered to Buyer the Company's Job Analysis and Percentage of Completion
Schedule for the period ending no later than ten (10) days prior to the Closing
Date (the "Closing Completion Schedule").
(b) At the Closing the Company and Shareholders shall deliver
or cause to be delivered to Buyer:
(i) a certificate or certificates representing the
Shares registered in the name of the Buyer; and
11
(ii) all of the documents, certificates and instruments
required to be delivered to Buyer pursuant to Section 6.01.
(c) At the Closing Buyer shall deliver or cause to be
delivered to Shareholders:
(i) the Cash Payment less the Escrow Amount (as
required by Section 2.06 hereof); and
(ii) all of the documents, certificates and instruments
required to be delivered to Shareholders pursuant to Section 6.02.
(d) At the Closing Buyer shall cause to be delivered the
Escrow Amount to the Escrow Agent (as required by Section 2.06 hereof), which
amount shall released pursuant to the terms of the Escrow Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY
Shareholders hereby jointly and severally represent and warrant to,
and covenant and agree with, Buyer that:
SECTION 3.01 Organization and Good Standing; Authorization.
(a) The Company has been duly organized and is existing as a
corporation in good standing under the laws of the State of California with full
power and authority (corporate and other) to own and lease its properties and to
conduct its business as currently conducted. The Company has been duly qualified
as a foreign corporation for the transaction of business and is in good standing
under the laws of each jurisdiction set forth on Schedule 3.01(a), such
jurisdictions comprising all jurisdictions in which the Company owns or leases
any property, or conducts any business, so as to require such qualification.
(b) Except as set forth in Schedule 3.01(b), the Company has
no Subsidiaries nor owns or controls, or has any other equity investment or
other interest in, directly or indirectly, any corporation, joint venture,
partnership, association or other Person.
SECTION 3.02 No Conflicts. Subject to compliance with the applicable
requirements of the Securities Act and any applicable state securities laws, the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby will not (a) conflict with or result in a
breach or violation of any term or provision of, or constitute a default under
(with or without notice or passage of time, or both), or otherwise give any
Person a basis for accelerated or increased rights or termination or
nonperformance under, any indenture, mortgage, deed of trust, loan or credit
agreement, lease, license or other agreement or instrument to which the Company
is a party or by which the Company is bound or affected or to which any of the
property or assets of the Company is bound or affected including, without
limitation, all arrangements in Section 3.19 hereof, (b) result in the violation
of the provisions of the Articles of Incorporation or Bylaws of the Company or
any Legal Requirement applicable to or binding upon it, (c) result in the
creation or imposition of any
12
Lien upon any property or asset of the Company or (d) otherwise adversely affect
the contractual or other legal rights or privileges of the Company. Schedule
3.02 sets forth a list of all agreements requiring the consent of any party
thereto to any of the transactions contemplated hereby.
SECTION 3.03 Capitalization. The authorized capital stock of the
Company consists solely of 10,000 shares of Common Stock, of which 100 are, and
on the Closing Date will be, issued and outstanding. Schedule 3.03 sets forth a
complete and accurate list of the holders of shares of Common Stock, indicating
the number of Shares held by each holder and their respective addresses. All of
the issued and outstanding shares of Common Stock are duly authorized, validly
issued, fully paid, nonassessable and free of all preemptive rights. Other than
as set forth on Schedule 3.03, (i) there are no existing Options, warrants,
right, calls or commitments of any character relating to shares of Common Stock,
(ii) there are no outstanding securities or other instruments convertible into
or exchangeable for shares of Common Stock and no commitments to issue such
securities or instruments and (iii) no Person has any right of first refusal,
preemptive right, subscription right or similar right with respect to any shares
of Common Stock. The offer, issuance and sale of the Shares were (i) exempt from
the registration and prospectus delivery requirements of the Securities Act,
(ii) registered or qualified (or exempt from registration or qualification)
under the registration or qualification requirements of all applicable state
securities laws and (iii) accomplished in conformity with all other Legal
Requirements.
SECTION 3.04 Financial Statements; Completion Schedule.
(a) Schedule 3.04(a) contains true and complete copies of (i)
the unaudited balance sheet of the Company at December 31, 1998 and the related
unaudited statements of income, shareholders' equity and cash flows for the year
then ended, together with the opinion thereon of Xxxxxxx Xxxxxx, the Company's
independent accountant, (ii) the unaudited balance sheet of the Company (the
"June Balance Sheet") at June 30, 1999 (the "Balance Sheet Date") and the
related unaudited statements of income, shareholders' equity and cash flows for
the six-month period ended on the Balance Sheet Date, and (iii) the Pre-Closing
Balance Sheet at the Pre-Closing Date and the related unaudited statements of
income, shareholders' equity and cash flows for the six-month period ended on
the Pre-Closing Date (such unaudited financial statements are collectively
referred to as the "Financial Statements").
(b) The Financial Statements present fairly the financial
condition of the Company as of the dates indicated therein and the results of
operations and changes in financial position of the Company for the periods
specified therein, have been prepared in conformity with GAAP during the periods
covered thereby and prior periods (except that the Balance Sheet, the
Pre-Closing Balance Sheet and the related unaudited statements of income,
shareholders' equity and cash flows for the periods ended on the Balance Sheet
Date and on the Pre-Closing Date, respectively, do not contain footnotes and are
subject to year end adjustments which would not, either individually or in the
aggregate, be material), have been derived from the accounting records of the
Company and represent only actual, bona fide transactions. The Financial
Statements are true and correct in all material respects.
(c) Schedule 3.04(c) contains true and complete copies of the
Completion Schedule for each of the periods ending December 31, 1998, June 30,
1999, the Pre-Closing Date and the date hereof (the "Opening Completion
Schedule"). Each Completion Schedule attached hereto and the Closing Completion
Schedule is true, complete and correct in
13
all respects and has been derived from the accounting records of the Company and
represent only actual, bona fide transactions.
(d) As of the date of each of the Financial Statements the
Company had no liabilities other than those liabilities recorded in the
Financial Statements. The method use to recognize profit of the Company in each
of the Financial Statements is consistent. No customer deposits, whether
collected or billed and receivable have been recorded as income in any of the
Financial Statements. Income recognized on work in progress as of the dates of
each of the Financial Statements is calculated using the percentage of
completion method which utilizes estimates in determining costs to complete
jobs. The use of estimates by its nature results in variances between the
estimated and actual results. The estimated costs to complete each job as
indicated on the percentage of completion schedules reflect the Company's best
estimate of the cost to complete all incomplete work of the Company on a job by
job basis and, the Financial Statements, as of each of their respective dates,
do not, in the aggregate, overstate the percentage of completion of incomplete
jobs or income earned. Income on "fee based jobs" is recognized in a consistent
manner in all periods of each of the Financial Statements. Fees received by the
Company but not yet earned are not reflected as earnings and are appropriately
reflected as liabilities for unearned income in each of the Financial
Statements. All deposits of the Company to vendors are appropriately accounted
for as current assets.
SECTION 3.05 Title to Property; Encumbrances.
(a) The Company does not own any real property or any
Structures.
(b) The Company has, and immediately prior to the Closing will
have, good, valid and marketable title in fee simple to all personal property
reflected on the Balance Sheet as owned by the Company and all personal property
acquired by the Company since the Balance Sheet Date, in each case free and
clear of all Liens except (i) as set forth on Schedule 3.05(a) and (ii)
Permitted Liens.
(c) Schedule 3.05(c) contains a list of all tangible personal
property having a cost or fair market value in excess of $5,000 owned by the
Company (other than personal property held by the Company as lessee under a
personal property lease).
(d) Schedule 3.05(d) contains a list of all real property
leases, licenses and personal property leases under which the Company is the
lessee or licensee, together with (i) the location and nature of each of the
leased or licensed properties, (ii) the termination date of each such lease or
license, (iii) the name of the lessor or licensor, (iv) all rental and other
payments made or required to be made for the calendar years ending December 31,
1999 and December 31, 2000 and (v) the date and amount of the next permitted
cost-of-living increase in each such lease or license. All leases and licenses
pursuant to which the Company leases or licenses from others real or personal
property are valid, subsisting in full force and effect in accordance with their
respective terms, and there is not, under any real property lease, personal
property lease or license, any existing default or event of default (or event
that, with notice or passage of time, or both, would constitute a default, or
would constitute a basis of force majeure or other claim of excusable delay or
nonperformance). True and complete copies of all real property leases, licenses
and personal property leases listed on Schedule 3.05(d) have been delivered to
Buyer heretofore. Except as set forth in Schedule 3.05(d), no such lease or
license will require the consent of the lessor or licensor to or as a result of
the consummation of the
14
transactions contemplated by this Agreement. For purposes of this Agreement, a
"lease" shall include a sublease.
(e) All personal property owned by the Company and all
personal property held by the Company pursuant to personal property leases is in
good operating condition and repair, subject only to ordinary wear and tear, has
been operated, serviced and maintained properly within the recommendations and
requirements of the manufacturers thereof (if any) and is suitable and
appropriate for the use thereof made and proposed to be made by the Company in
its business and operations. The Leased Real Property and personal property
described in Sections 3.05(c) and 3.05(d) and the personal property held by the
Company pursuant to the leases and licenses described in Schedule 3.05(d)
comprise all of the Leased Real Property and personal property used in the
conduct of business of the Company. Schedule 3.05(e) sets forth a listing of all
personal property (other than inventory) the fair market value of which exceeds
one hundred dollars ($100) owned by the Company, together with such date the
personal property was acquired, the original cost of such personal property and
the date(s) on which such personal property was written down from its original
cost.
SECTION 3.06 Inventory and Accounts Receivable.
(a) All inventory set forth or reflected in the Balance Sheet,
or acquired by the Company since the Balance Sheet Date, consists of a quality
and quantity usable and saleable by the Company in the ordinary course of its
business. The value at which inventories are carried on the Balance Sheet
reflects the normal inventory valuation policy of the Company, on a basis
consistent with that of preceding period, of stating inventory at its lower of
cost or market value, and, consistent therewith, all non-current or obsolete
inventory held by the Company on the Balance Sheet Date has been valued at its
current market value on the Balance Sheet. Schedule 3.06(a) sets forth a true
and complete listing of all inventory owned by the Company the fair market value
of which exceeds one hundred dollars ($100), together with the date such
inventory was acquired, the original cost of such inventory, the date(s) on
which such inventory was written down from its original cost and the current
quantity of such inventory on hand.
(b) All accounts receivable of the Company reflected in the
Balance Sheet and all accounts receivable of the Company that have arisen since
the Balance Sheet Date (except such accounts receivable as have been collected
since such dates) are valid and enforceable claims against the account debtor,
and the goods and services sold and delivered that gave rise to such accounts
were sold and delivered in conformity with all applicable express and implied
warranties, purchase orders, agreements and specifications. Such accounts
receivable of the Company are subject to no valid defense, offset or
counterclaim and are fully collectible within ninety (90) days after the Closing
Date, except to the extent of the allowance for doubtful accounts reflected on
the Balance Sheet. Schedule 3.06(b)(1) contains a true and complete aging of the
Company's accounts receivable as of the Balance Sheet Date. Schedule 3.06(b)(2)
contains a true and complete list of all customers of the Company who enjoy
non-standard discounts or non-standard payment terms, together with a summary of
any such non-standard discounts or non-standard payment terms.
SECTION 3.07 Compliance with Law. Except where it has not had a
Material Adverse Effect, through and including the Closing Date, the Company (i)
has not violated, has not conducted its business or operations in violation of,
and has not used or occupied its properties or assets in violation of, any Legal
Requirement, (ii) has not been alleged to be in
15
violation of any Legal Requirement, and (iii) has not received any notice of any
alleged violation of, nor any citation for noncompliance with, any Legal
Requirement.
SECTION 3.08 Trademarks, Patents, Etc.
(a) Schedule 3.08(a) contains a true and complete list of all
letters patent, patent applications, trade names, logos, trademarks, service
marks, trademark and service xxxx registrations and applications, copyrights,
copyright registrations and applications, Internet domain names, 1-800 and 1-888
telephone numbers, grants of a license or right to the Company with respect to
any of the foregoing, both domestic and foreign, owned or claimed by the Company
or used or proposed to be used by the Company in the conduct of its business,
whether registered or not (collectively herein, "Registered Rights"). No other
patent, trademark, service xxxx, trade name or copyright, or license with
respect to any of the foregoing, is necessary to permit the Company's business
to be conducted as now conducted or as heretofore or proposed to be conducted.
True and complete copies of all documentation related to the Registered Rights
have been delivered to Buyer heretofore.
(b) Except as described in Schedule 3.08(b), the Company owns
exclusively and has the exclusive and unrestricted right to use the Registered
Rights, and all renewals therefor and claims for infringement thereof, and every
trade secret, know-how, process, discovery, development, design, technique,
customer and supplier list, promotional idea, marketing and purchasing strategy,
computer program (including source code), technical data, invention, process,
confidential data and other information (collectively herein, "Proprietary
Information") required for or incident to the design, development, manufacture,
operation, sale and use of all products and services sold or rendered or
proposed to be sold or rendered by the Company, free and clear of any right,
equity or claim of others and without infringing upon or otherwise acting
adversely to the right or claimed right of any third party under or with respect
to any of the Proprietary Information. The Company has taken reasonable security
measures to protect the secrecy, confidentiality and value of all Proprietary
Information.
(c) Schedule 3.08(c) contains a true and complete list and
non-confidential description of all licenses of, or rights to, Proprietary
Information granted to the Company by others or to others by the Company. Except
as described in Schedule 3.08(c), (i) the Company has not sold, transferred,
assigned, licensed, restricted, encumbered or subjected to any Lien, any
Registered Rights or Proprietary Information or any interest therein, and (ii)
the Company is not obligated or under any liability whatever to make any
payments by way of royalties, fees or otherwise to any owner or licensor of, or
other claimant to, any Registered Rights or Proprietary Information.
(d) There are no claims or demands of any Person pertaining
to, or any Actions that are pending or threatened, which challenge the rights of
the Company in respect of any Registered Rights or any Proprietary Information.
SECTION 3.09 Banking and Insurance.
(a) Schedule 3.09(a) contains a true and complete list of the
names and locations of all financial institutions at which the Company maintains
a checking account, deposit account, securities account, safety deposit box or
other deposit or safekeeping arrangement, the numbers or other identification of
all such accounts and arrangements and the names of all persons authorized to
draw against any funds therein.
16
(b) Schedule 3.09(b) contains a true and complete list of all
insurance policies and bonds and self insurance arrangements currently in force
that cover or purport to cover risks or losses to, or associated with, the
Company's business, operations, premises, properties, assets, employees, agents
and directors and sets forth, with respect to each such policy, bond and self
insurance arrangement, a description of the insured loss coverage, the
expiration date and time of coverage, the dollar limitations of coverage, a
general description of each deductible feature and principal exclusion and the
premiums paid and to be paid prior to expiration. The insurance policies, bonds
and arrangements described on Schedule 3.09(b) (the "Policies") provide such
coverage against such risk of loss and in such amounts as are customary for
corporations of established reputation engaged in the same or similar business
and similarly situated. The Company has no obligation, liability or other
commitment relating to any contract of insurance containing a provision for
retrospective rating or adjustment of the Company's premium obligation. No facts
or circumstances exist that would cause the Company to be unable to renew its
existing insurance coverage as and when the same shall expire upon terms at
least as favorable as those currently in effect, other than possible increases
in premiums that do not result from any act or omission of the Company or
Shareholders.
SECTION 3.10 Indebtedness.
(a) The Company has no liability or obligation for
Indebtedness other than as set forth on Schedule 3.10(a), and true and complete
copies of all instruments and documents evidencing, creating, securing or
otherwise relating to such Indebtedness have been delivered to Buyer heretofore.
Except as described in Schedule 3.10(a), no event has occurred and no condition
has become known to Shareholders (including the transactions contemplated
hereby) that constitutes or, with notice or passage of time, or both, would
constitute a default or a basis of force majeure or other claim of accelerated
or increased rights, termination, excusable delay or nonperformance by the
Company or any other Person under any instrument or document relating to or
evidencing Indebtedness that would entitle any Person to require the Company to
pay any portion of the principal amount of such Indebtedness prior to the
scheduled maturity thereof. Except as set forth in Schedule 3.10(a), no
instrument or document evidencing, creating, securing or otherwise relating to
Indebtedness will require the consent of any Person to or as a result of the
consummation of the transactions contemplated by this Agreement.
(b) Schedule 3.10(b) contains a list and brief description of
all agreements or instruments pursuant to which any of the Company's directors,
employees or shareholders have guaranteed any Indebtedness of the Company (the
"Guaranties"). True and complete copies of all Guaranties have been delivered to
Buyer heretofore.
SECTION 3.11 Judgments; Litigation. Except as set forth on Schedule
3.11:
(a) There is no (i) outstanding judgment, order, decree,
award, stipulation, injunction of any Governmental Entity or arbitrator against
or affecting the Company or its properties, assets or business or (ii) Action
pending against or affecting the Company or its properties, assets or business.
(b) There is no (i) outstanding judgment, order, decree,
award, stipulation, injunction of any Governmental Entity or arbitrator against
or affecting any officer, director or employee of the Company relating to the
Company or its business, (ii) Action threatened against the Company or its
properties, assets or business, (iii) Action pending or
17
threatened against the Company's officers, directors or employees relating to
the Company or its business or (iv) basis for the institution of any Action
against the Company or any of its officers, directors, employees, properties or
assets which, if decided adversely, would have a Material Adverse Effect.
SECTION 3.12 Income and Other Taxes. Except as set forth on Schedule
3.12:
(a) All Tax Returns required to be filed through and including
the date hereof in connection with the operations of the Company are true,
complete and correct in all respects and have been properly and timely filed.
The Company has not requested any extension of time within which to file any Tax
Return, which Tax Return has not since been filed. Buyer has heretofore been
furnished by the Company with true, correct and complete copies of each Tax
Return of the Company with respect to the past five (5) taxable years, and of
all reports of, and communications from, any Governmental Entities relating to
such period.
(b) All Taxes required to be paid or withheld and deposited
through and including the date hereof in connection with the operations of the
Company have been duly and timely paid or deposited by the Company. The Company
has properly withheld or collected all amounts required by law for income Taxes
and employment Taxes relating to its employees, creditors, independent
contractors and other third parties, and for Taxes on sales, and has properly
and timely remitted such withheld or collected amounts to the appropriate
Governmental Entity. The Company has no liabilities for any Taxes for any
taxable period ending prior to or coincident with the Closing Date.
(c) The Company has made adequate provision on its books of
account for all Taxes with respect to its business, properties and operations
through the Balance Sheet Date, and the accruals for Taxes in the Balance Sheet
are adequate to cover all liabilities for Taxes of the Company for all periods
ending on or before the Closing Date.
(d) The Company has not heretofore (i) had a tax deficiency
proposed, asserted or assessed against it, (ii) executed any waiver of any
statute of limitations on the assessment or collection of any Taxes, or (iii)
been delinquent in the payment of any Taxes.
(e) No Tax Return of the Company has been audited or the
subject of other Action by any Governmental Entity. The Company has not received
any notice from any Governmental Entity of any pending examination or any
proposed deficiency, addition, assessment, demand for payment or adjustment
relating to or affecting the Company or its assets or properties and the
Shareholders have no reason to believe that any Governmental Entity may assess
(or threaten to assess) any Taxes for any periods ending on or prior to the
Closing Date.
(f) The Company (i) has not filed any consent or agreement
pursuant to Code Section 341(f), and no such consent or agreement will be filed
at any time on or before the Closing Date; (ii) has not made any payments, is
not obligated to make any payments and is not a party to any agreement that
under certain circumstances could obligate the Company to make any payments that
will not be deductible under Code Section 280G; (iii) is not a United States
real property holding corporation within the meaning of Code Section 897(c)(2);
(iv) is not a party to a tax allocation or sharing agreement; (v) has never been
(or does not have any liability for unpaid Taxes because it was) a member of an
affiliated group with the meaning of Code Section 1504(a); (vi) has never
applied for a tax ruling from a Governmental Entity; and
18
(vii) has never filed or been the subject of an election under Code Section
338(g) or Code Section 338(h)(10) or caused or been the subject of a deemed
election under Code Section 338(e).
(g) Set forth on Schedule 3.12(g) is the amount, as of the
most recent practicable date, of any net operating loss, net capital loss,
unused investment or other credit, unused foreign tax or excess charitable
contribution.
SECTION 3.13 Corporate Records. The copies or originals of the
Articles of Incorporation, Bylaws, minute books and stock records of the Company
previously delivered to, or made available for inspection by, Buyer are true,
complete and correct.
SECTION 3.14 Employee Benefit Matters. Except as set forth in
Schedule 3.14, the Company maintains no pension, retirement, profit-sharing,
employee stock ownership plan, deferred compensation, stock bonus or other
similar plan; medical, vision, dental or other health plan; life insurance plan;
vacation, severance, golden parachute or other similar plan or arrangement;
stock option, stock appreciation or other similar plan or arrangement; and any
other employee benefit plan, including, without limitation, any "employee
benefit plan" as defined in Section 3(3) of ERISA, which, in any case, relates
to the Company.
SECTION 3.15 No Undisclosed Liabilities. Except (i) to the extent
set forth or provided for in the Financial Statements or the notes thereto, (ii)
as set forth on Schedule 3.15 or (iii) for non-material current liabilities
incurred since the Balance Sheet Date in the Ordinary Course, as of the date
hereof the Company has no liabilities, whether accrued, absolute, contingent or
otherwise, whether due or to become due and whether the amounts thereof are
readily ascertainable or not, or any unrealized or anticipated losses from any
commitments of a contractual nature, including Taxes with respect to or based
upon the transactions or events occurring at or prior to the Closing.
SECTION 3.16 Permits, Licenses, Etc. The Company possesses, and is
operating in compliance with, all franchises, licenses, permits, certificates,
authorizations, rights and other approvals of Governmental Entities necessary to
(i) occupy, maintain, operate and use the Leased Real Property as it is
currently used and proposed to be used (including, if applicable, with respect
to storm water runoff and treatment of any of the Leased Real Property as a
hazardous waste facility), (ii) conduct its business as currently conducted and
as proposed to be conducted, and (iii) maintain and operate its employee benefit
plans (the "Permits"). Schedule 3.16 contains a true and complete list of all
Permits and each expiration date and scheduled renewal date related to each
Permit. Each Permit has been lawfully and validly issued, and no proceeding is
pending or threatened looking toward the revocation, suspension or limitation of
any Permit. The consummation of the transactions contemplated by this Agreement
will not result in the revocation, suspension or limitation of any Permit and,
except as set forth in Schedule 3.16, no Permit will require the consent of its
issuing authority to or as a result of the consummation of the transactions
contemplated hereby.
SECTION 3.17 Regulatory Filings. The Company has made all required
registrations and filings with and submissions to all applicable Governmental
Entities relating to the operations of the Company as currently conducted and as
proposed to be conducted, including, without limitation, all such applicable
Governmental Entities having jurisdiction over any matters pertaining to
conservation or protection of the environment, and the treatment, discharge,
use, handling, storage or production, or disposal of Hazardous Materials. All
such
19
registrations, filings and submissions were in compliance with all Legal
Requirements (including all Environmental Laws) and other requirements when
filed, no material deficiencies have been asserted by any such applicable
Governmental Entities with respect to such registrations, filings or submissions
and no facts or circumstances exist which would indicate that a material
deficiency may be asserted by any such authority with respect to any such
registration, filing or submission.
SECTION 3.18 Consents. All consents, authorizations and approvals of
any Person to, or as a result of the consummation of, the transactions
contemplated hereby that are necessary or advisable in connection with the
operations and business of the Company as currently conducted and as proposed to
be conducted, or for which the failure to obtain the same might have,
individually or in the aggregate, a Material Adverse Effect, have been lawfully
and validly obtained by the Company, except as described in Schedules 3.02,
3.05(d), 3.10(a) and 3.16 hereto. All consents, authorizations and approvals
described in Schedules 3.02, 3.05(d), 3.10(a) and 3.16 will have been lawfully
and validly obtained prior to the Closing.
SECTION 3.19 Material Contracts; No Defaults.
(a) Schedule 3.19(a) contains a true and complete list and
description of each individual outstanding sales order and sales contract of the
Company having an indicated gross value in excess of $25,000 or having a term or
duration in excess of six months. All outstanding sales orders and sales
contracts of the Company have been entered into in the Ordinary Course, and true
and complete copies of all outstanding sales orders and sales contracts of the
Company have been delivered to Buyer heretofore. Except as described in Schedule
3.19(a), the Company has not received any advance, progress payment or deposit
in respect of any sales order or sales contract, and the Company has no sales
order or sales contract that will result, upon completion or performance
thereof, in gross margins materially lower than those normally experienced by
the Company for the services or products covered by such sales order or sales
contract.
(b) Schedule 3.19(b) contains a true and complete list and
description of all outstanding purchase orders and purchase commitments of the
Company having a gross indicated value in excess of $25,000 in the aggregate
from any single supplier or other vendor. All outstanding purchase orders and
purchase commitments of the Company have been incurred in the Ordinary Course,
and no purchase order or purchase commitment of the Company is in excess of the
normal, ordinary and usual requirements of the business of the Company or at an
excessive price.
(c) Schedule 3.19(c) contains a true and complete list of all
sales agency, sales representative and similar contracts or agreements of the
Company and a description of the territory or market and the expiration or
renewal date of each such contract or agreement. True and complete copies of
each such contract or agreement have been delivered to Buyer heretofore. Except
as described in Schedule 3.19(c), all of such contracts and agreements are
terminable at any time by the Company without penalty upon not more than thirty
(30) days' notice.
(d) Schedule 3.19(d) contains a true and complete list and
description of all noncompetition agreements and covenants under which the
Company or any Shareholder or any of the Company's officers, directors or key
employees is obligated, and true and complete copies of the same have been
delivered to Buyer heretofore. Except as described
20
in Schedule 3.19(d), the Company is not restricted by any agreement from
carrying on its business or engaging in any other activity anywhere in the world
(including relocating, closing, or terminating any of its operations or
facilities), and no such officer, director or key employee is a party to or
otherwise bound or affected by any agreement, covenant or other arrangement or
understanding that would restrict or impair his ability to perform diligently
his other duties to the Company. Schedule 3.19(d) also contains a true and
complete list and description of all noncompetition agreements or covenants in
favor of the Company, and true and complete copies of the same have been
delivered to Buyer heretofore.
(e) Schedule 3.19(e) contains a true and complete list and
description of all contracts, agreements, understandings, arrangements and
commitments, written or oral, of the Company with any officer, director,
consultant, employee or Affiliate of the Company or with any associate,
Affiliate or employee of any Affiliate of the Company, other than those
disclosed in Schedule 3.21(a) hereto; in each case a true and complete copy of
such written contract, agreement, understanding, arrangement or commitment or a
true and complete summary of such oral contract, agreement, understanding,
arrangement or commitment has been delivered to Buyer heretofore.
(f) Schedule 3.19(f) contains a true and complete list and
description of all other material contracts, agreements, understandings,
arrangements and commitments, written or oral, of the Company by which it or its
properties, rights or assets are bound that are not otherwise disclosed in this
Agreement or the Schedules hereto. True and complete copies of such written
contracts, agreements, understandings, arrangements and commitments and true and
complete summaries of such oral contracts, agreements, understandings,
arrangements and commitments have been delivered to Buyer heretofore. For the
purposes of this subsection (f), "material" means any contract, agreement,
understanding, arrangement or commitment that (i) involves performance by any
party more than ninety (90) days from the date hereof, (ii) involves payments or
receipts by the Company in excess of $5,000, (iii) involves capital expenditures
in excess of $25,000 or (iv) otherwise materially affects the Company.
(g) Except as described in Schedule 3.19(g):
(i) each agreement, contract, arrangement or commitment
described above in this Section 3.19 is, and after the Closing on identical
terms will be, legal, valid, binding, enforceable and in full force and effect;
(ii) no event or condition has occurred or become known
to the Shareholders or is alleged to have occurred that constitutes or, with
notice or the passage of time, or both, would constitute a default or a basis of
force majeure or other claim of excusable delay, termination, nonperformance or
accelerated or increased rights by the Company or any other Person under any
contract, agreement, arrangement, commitment or other understanding, written or
oral, described above in this Section 3.19, or described or otherwise disclosed
pursuant to this Agreement; and
(iii) no Person with whom the Company has such a
contract, agreement, arrangement, commitment or other understanding is in
default thereunder or has failed to perform fully thereunder by reason of force
majeure or other claim of excusable delay, termination or nonperformance
thereunder, the delay, termination or nonperformance of which, or a default
under which, has had or may have a Material Adverse Effect.
21
SECTION 3.20 Absence of Certain Changes. Since the Balance Sheet
Date, except as disclosed in Schedule 3.20, the Company has not: (i) incurred
any debts, obligations or liabilities (absolute, accrued, contingent or
otherwise), other than current liabilities incurred in the Ordinary Course
which, individually or in the aggregate, are not material; (ii) subjected to or
permitted a Lien (other than a Permitted Lien) upon or otherwise encumbered any
of its assets, tangible or intangible; (iii) sold, transferred, licensed or
leased any of its assets or properties except in the Ordinary Course; (iv)
discharged or satisfied any Lien other than a Lien securing, or paid any
obligation or liability other than, current liabilities shown on the Balance
Sheet and current liabilities incurred since the Balance Sheet Date, in each
case in the Ordinary Course; (v) canceled or compromised any debt owed to or by
or claim of or against it, or waived or released any right of material value
other than in the Ordinary Course; (vi) suffered any physical damage,
destruction or loss (whether or not covered by insurance) causing a Material
Adverse Effect; (vii) entered into any material transaction or otherwise
committed or obligated itself to any capital expenditure other than in the
Ordinary Course; (viii) made or suffered any change in, or condition affecting,
its condition (financial or otherwise), properties, profitability, prospects or
operations other than changes, events or conditions in the Ordinary Course, none
of which (individually or in the aggregate) has had or may have a Material
Adverse Effect; (ix) made any change in the accounting principles, methods,
records or practices followed by it or depreciation or amortization policies or
rates theretofore adopted; (x) other than in the Ordinary Course, made or
suffered any amendment or termination of any material contract, agreement, lease
or license to which it is a party; (xi) paid, or made any accrual or arrangement
for payment of, any severance or termination pay to, or entered into any
employment or loan or loan guarantee agreement with, any current or former
officer, director or employee or consultant; (xii) paid, or made any accrual or
arrangement for payment of, any increase in compensation, bonuses or special
compensation of any kind to any employee other than pursuant to an agreement
disclosed on Schedule 3.21(a) or Schedule 3.21(b) or other than in the Ordinary
Course, or paid, or made any accrual or arrangement for payment of, any increase
in compensation, bonuses or special compensation of any kind to any officer or
director of the Company or any consultant to the Company; (xiii) made any
distribution or paid any dividend to the Shareholders, any relative of the
Shareholders or any Affiliate of the Shareholders of cash, property, stock,
securities or any item of value; (xiv) made or agreed to make any charitable
contributions or incurred any nonbusiness expenses; (xv) changed or suffered
change in any Plan or labor agreement affecting any employee of the Company
otherwise than to conform to Legal Requirements; or (xvi) entered into any
agreement or otherwise obligated itself to do any of the foregoing.
SECTION 3.21 Employees and Labor Matters.
(a) Schedule 3.21(a) contains a true and complete list of all
contracts, agreements, plans, arrangements, commitments and understandings
(formal and informal) pertaining to terms of employment, compensation, bonuses,
profit sharing, stock purchases, stock repurchases, stock options, commissions,
incentives, loans or loan guarantees, severance pay or benefits, use of the
Company's property and related matters of the Company with any current or former
officer, director, employee or consultant, and true and complete copies of all
such contracts, agreements, plans, arrangements and understandings have been
delivered to Buyer heretofore. A true and complete copy of the Company's
employee manual has been delivered to Buyer heretofore.
(b) Schedule 3.21(b) contains a true and complete list of all
labor, collective bargaining, union and similar agreements under or by which the
Company is
22
obligated, and true and complete copies of all such agreements have been
delivered to Buyer heretofore.
(c) Except for the employment and labor agreements listed on
Schedules 3.21(a) and 3.21(b), neither Buyer nor the Company will have any
responsibility for continuing any person in the employ (or retaining any person
as a consultant) of the Company from and after the Closing or have any liability
for any severance payments to or similar arrangements with any such Person who
shall cease to be an employee of the Company at or prior to the Closing. There
is no agreement, arrangement, commitment or understanding between the Company
and any of its employees which could prohibit the Company from modifying the
work schedule of its employees.
(d) There is not occurring or threatened, any strike, slow
down, picket, work stoppage or other concerted action by any union or other
group of employees or other persons against the Company or its premises or
products. Except for activities by the unions that are parties to any of the
agreements listed on Schedule 3.21(b) with respect to the existing members of
such unions, to the Shareholders' knowledge, no union or other labor
organization has attempted to organize any of the employees of the Company.
(e) The Company has complied with all Legal Requirements
relating to employment and labor, except where the failure to so comply would
not have a Material Adverse Effect, and no facts or circumstances exist that
could provide a reasonable basis for a claim of wrongful termination by any
current or former employee of the Company against the Company.
SECTION 3.22 Affiliations. Except as disclosed on Schedule 3.22, no
Shareholder, officer, director or key employee of the Company or any associate
or Affiliate of the Company or any of such Persons has, directly or indirectly,
(i) an interest in any Person that (A) furnishes or sells, or proposes to
furnish or sell, services or products that are furnished or sold by the Company
or (B) purchases from or sells or furnishes to, or proposes to purchase from or
sell or furnish to, the Company any goods or services or (ii) a beneficial
interest in any contract or agreement to which the Company is a party or by
which the Company or any of the assets of the Company are bound or affected.
SECTION 3.23 Principal Customers and Suppliers.
(a) Schedule 3.23(a) contains a true and complete list of the
name and address of each customer that purchased in excess of 5% of the
Company's sales of goods or services during the twelve months ended on the
Balance Sheet Date, and since that date no such customer has terminated its
relationship with or adversely curtailed its purchases from the Company or
indicated (for any reason) its intention so to terminate its relationship or
curtail its purchases.
(b) Schedule 3.23(b) contains a true and complete list of each
supplier from whom the Company purchased in excess of 5% of the Company's
purchases of goods or services during the twelve months ended on the Balance
Sheet Date, and since that date no such supplier has terminated its relationship
with or adversely curtailed its accommodations, sales or services to the Company
or indicated (for any reason) its intention to terminate such relationship or
curtail its accommodations, sales or services.
23
SECTION 3.24 Warranty Liability. Schedule 3.24 contains a true and
complete description of (i) all written warranties granted or made with respect
to services rendered or products sold by the Company, and (ii) the Company's
aggregate liability related to such written warranties for each of the last
three years.
SECTION 3.25 Hazardous Materials. Except as set forth on Schedule
3.25:
(a) No Hazardous Material (i) has been released, placed,
stored, generated, used, manufactured, treated, deposited, spilled, discharged,
released or disposed of on or under any real property currently or previously
owned or leased by the Company or is presently located on or under any Leased
Real Property (or any property adjoining any Leased Real Property), (ii) is
presently maintained, used, generated, or permitted to remain in place by the
Company in violation of any Environmental Law, (iii) is required by any
Environmental Law to be eliminated, removed, treated or mitigated by the
Company, given the nature of its present condition, location, nature, material
or maintenance, or (iv) is of a type, location, material, nature or condition
which requires special notification to third parties by the Company under
Environmental Law or common law.
(b) No notice, citation, summons or order has been received by
the Company or any Shareholder, no notice has been given by the Company and no
complaint has been filed, no penalty has been assessed and no investigation or
review is pending or threatened by any Governmental Entity, with respect to (i)
any alleged violation by the Company of any Environmental Law or (ii) any
alleged failure by the Company to have any environmental permit, certificate,
license, approval, registration or authorization required in connection with its
business or properties, or (iii) any use, possession, generation, treatment,
storage, recycling, transportation, release or disposal by or on behalf of the
Company of any Hazardous Material.
(c) The Company has not received any request for information,
notice of claim, demand or notification that it is or that indicates that it may
be a "potentially responsible party" with respect to any investigation or
remediation of any threatened or actual release of any Hazardous Material.
Schedule 3.25(c) contains a true and complete list of all Material Safety Data
Sheets applicable to the Company's operations received by the Company relating
to the Leased Real Property.
(d) No above-ground or underground storage tanks, whether or
not in use, are or have ever been located at any property currently owned or
leased by the Company.
(e) No notice has been received by the Company with respect to
the listing or proposed listing of any property currently or previously owned,
operated or leased by the Company on the National Priorities List promulgated
pursuant to CERCLA, CERCLIS or any similar state list of sites requiring
investigation or cleanup.
(f) There have been no environmental inspections,
investigations, studies, tests, reviews or other analyses conducted in relation
to any Leased Real Property.
(g) The Company has not released, transported, or arranged for
the transportation of any Hazardous Material from any property currently or
previously owned, operated or leased by the Company.
24
SECTION 3.26 Brokers' Fees. No broker, finder or similar agent has
been employed by or on behalf of the Company or Shareholders in connection with
this Agreement or the transactions contemplated hereby, and neither the Company
nor any of the Shareholders has entered into any agreement or understanding of
any kind with any person or entity for the payment of any brokerage commission,
finder's fee or any similar compensation in connection with this Agreement or
the transactions contemplated hereby.
SECTION 3.27 Disclosure. Except as set forth on Schedule 3.27, no
representation or warranty of the Company or Shareholders in this Agreement and
no information contained in any Schedule or other writing delivered by the
Company or Shareholders pursuant to this Agreement or at the Closing contains or
will contain any untrue statement of a material fact or omits or will omit to
state a material fact required to make the statements herein or therein not
misleading. There is no fact that the Company or the Shareholders has not
disclosed to Buyer in writing that has had or, insofar as the Company or
Shareholders can now foresee, may have a material adverse effect on the ability
of the Company or Shareholders to perform fully this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to, and covenants and agrees
with, the Shareholders that:
SECTION 4.01 Organization, Power and Authority of Buyer. Buyer has
been duly organized and is existing as a corporation in good standing under the
laws of the State of Delaware with full power and authority (corporate and
other) to own and lease its properties and to conduct its business as currently
conducted.
SECTION 4.02 Authorization. Buyer has the corporate power and
authority to execute and deliver this Agreement, to consummate the transactions
contemplated hereby and to perform its obligations under this Agreement. The
execution and delivery by Buyer of this Agreement, and the consummation of the
transactions contemplated hereby, have been duly authorized by all necessary
corporate action by Buyer. This Agreement, upon its execution and delivery by
Buyer (assuming the due authorization, execution and delivery hereof by the
other parties hereto), will constitute the legal, valid and binding obligation
of Buyer, enforceable against Buyer in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency and similar
laws relating to creditors' rights generally and by general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
SECTION 4.03 No Conflict or Violation. Subject to compliance with
the applicable requirements of the Securities Act and any applicable state
securities laws, the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby will not (a) conflict
with or result in a breach or violation of any term or provision of, or
constitute a default under (with or without notice or passage of time, or both),
or otherwise give any Person a basis for accelerated or increased rights or
termination or nonperformance under, any indenture, mortgage, deed of trust,
loan or credit agreement, lease,
25
license or other agreement or instrument to which Buyer is a party or by which
Buyer is bound or affected or to which any of the property or assets of Buyer is
bound or affected, (b) result in the violation of the provisions of the
Certificate of Incorporation or Bylaws of Buyer or any Legal Requirement
applicable to or binding upon it, (c) result in the creation or imposition of
any Lien upon any property or asset of Buyer or (d) otherwise adversely affect
the contractual or other legal rights or privileges of Buyer. Schedule 4.03 sets
forth a list of all agreements to which Buyer is a party requiring the consent
of any party thereto to any of the transactions contemplated hereby.
SECTION 4.04 Capitalization. The authorized capital stock of Buyer
consists of (i) 60,000,000 shares of Buyer Common Stock, of which 31,378,067
were issued and outstanding on October 8, 1999, (ii) 2,500,000 shares of Class B
Common Stock, par value $.001 per share, of which 2,455,000 were issued and
outstanding on October 8, 1999, and (iii) 5,300,000 shares of preferred stock,
par value $.01 per share, of which 1,272,577 were issued and outstanding on June
30, 1999, (a) 2,870,000 shares of which have been designated as Series A
Convertible Redeemable Preferred Stock, par value $.01, of which 1,066,050 are
issued and outstanding on June 30, 1999; (b) 200,000 shares of which have been
designated as Series B Convertible Redeemable Preferred Stock, par value $.01,
of which 200,000 were issued and outstanding on March 31, 1999; and (c) 6,527
shares of which have been designated as Series B Redeemable Preferred Stock, par
value $.01, of which 6,527 were issued and outstanding on June 30, 1999. All of
the issued and outstanding shares of capital stock of Buyer are duly authorized,
validly issued, fully paid, nonassessable and free of all preemptive rights. All
of the Shares of Buyer Common Stock to be issued pursuant to this Agreement,
when issued in accordance with this Agreement, will be duly authorized, validly
issued, fully paid, nonassessable and free of all preemptive rights.
SECTION 4.05 Consents and Approvals. No consent, approval,
authorization, license, permit or other action by, or filing with, any
governmental or regulatory authority is required in connection with the
execution and delivery of this Agreement by Buyer or the consummation by Buyer
of the transactions contemplated hereby, except for such consents, approvals,
authorizations, licenses, permits, actions or filings as will have been
obtained, taken or filed at or prior to the Closing.
SECTION 4.06 Reports and Financial Statements. The Buyer has
previously furnished to the Company complete and accurate copies, as amended or
supplemented, of its (i) Quarterly Report on Form 10-Q for the fiscal quarters
ended September 30, 1998, December 31, 1998 and Xxxxx 00, 0000, (xx) Annual
Report on Form 10-K for the fiscal year ended June 30, 1998, each as filed with
the Securities and Exchange Commission (the "SEC"), and (iii) all other reports
filed by the Buyer under Section 13 of the Exchange Act with the SEC since June
30, 1998 (such reports are collectively referred to herein as the "Buyer
Reports"). The Buyer Reports include all of the documents required to be filed
by the Buyer under the Exchange Act with the SEC since September 30, 1998. As of
their respective dates, the Buyer Reports did not contain any 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. The audited financial
statements and unaudited interim financial statements of the Buyer included in
the Buyer Reports (i) comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, (ii) have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby (except as may be
indicated therein or in the notes thereto, and in the case of quarterly
financial statements, as permitted by
26
Form 10-Q under the Exchange Act), (iii) fairly present the consolidated
financial condition, results of operations and cash flows of the Buyer as of the
respective dates thereof and for the periods referred to therein, and (iv) are
consistent with the books and records of the Buyer.
SECTION 4.07 Brokers' Fees. No broker, finder or similar agent has
been employed by or on behalf of Buyer in connection with this Agreement or the
transactions contemplated hereby, and Buyer has not entered into any agreement
or understanding of any kind with any person or entity for the payment of any
brokerage commission, finder's fee or any similar compensation in connection
with this Agreement or the transactions contemplated hereby.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDERS
Each Shareholder hereby represents and warrants to, and covenants
and agrees with, Buyer that:
SECTION 5.01 Ownership of Shares. Each Shareholder owns of record
and beneficially the number of Shares set forth opposite its name on Schedule
3.03 hereto, and has, and at all times prior to and as of the Closing each
Shareholder will have, good and marketable title to such Shares free and clear
of all Liens.
SECTION 5.02 Delivery of Good Title. All consents, approvals,
authorizations and orders necessary for the sale and delivery of the Shares to
be sold by each Shareholder hereunder have been obtained, and each Shareholder
has, and immediately prior to the Closing each Shareholder will have, full
right, power, authority and capacity to sell, assign, transfer and deliver such
Shares pursuant to this Agreement.
SECTION 5.03 Execution and Delivery. Each Shareholder has the power
and authority to execute and deliver this Agreement, to consummate the
transactions contemplated hereby and to perform its obligations under this
Agreement. This Agreement, upon its execution and delivery by each Shareholder
(assuming the due authorization, execution and delivery hereof by the other
parties hereto), will constitute the legal, valid and binding obligation of each
Shareholder, enforceable against each Shareholder in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency and similar laws relating to creditors' rights generally and by
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law). For any Shareholder that is a
trust, all the trustees of such Shareholder have executed this Agreement.
SECTION 5.04 No Conflicts. The execution, delivery and performance
of this Agreement by each Shareholder and the consummation by each Shareholder
of the transactions contemplated hereby will not (a) conflict with or result in
a breach or violation of any term or provision of, or constitute a default (with
or without notice or passage of time, or both) under, or otherwise give any
Person a basis for accelerated or increased rights or termination or
nonperformance under any indenture, mortgage, deed of trust, trust (constructive
and other), loan or credit agreement or other agreement or instrument to which
any Shareholder is a party or by which any Shareholder or the Shareholder's
Shares are bound, (b) result in the violation of any Legal Requirement
applicable to or binding upon any Shareholder, (c) result in the creation or
27
imposition of any Lien upon any property or asset of any Shareholder, or (d)
otherwise adversely affect the contractual or other legal rights or privileges
of any Shareholder.
SECTION 5.05 Restrictions on Transfer of Buyer Common Stock and
Buyer Preferred Stock.
(a) Each Shareholder understands and agrees that the shares of
Buyer Common Stock it will acquire pursuant to this Agreement have not been
registered under the Securities Act and that, accordingly, such shares will not
be fully transferable except as permitted under various exemptions contained in
the Securities Act or upon satisfaction of the registration and prospectus
delivery requirements of the Securities Act. Each Shareholder acknowledges that
it must bear the economic risk of its investment in such shares of Buyer Common
Stock for an indefinite period of time since such shares have not been
registered under the Securities Act and therefore cannot be sold unless they are
subsequently registered or an exemption from registration is available.
(b) Each Shareholder hereby represents and warrants that it is
acquiring the shares of Buyer Common Stock under this Agreement for investment
purposes only, for its own account, and not as nominee or agent for any other
Person, and not with the view to, or for resale in connection with, any
distribution thereof within the meaning of the Securities Act; provided however,
that each Shareholder may transfer its right to acquire Buyer Common Stock under
this Agreement to a limited liability company all the members of which are
Shareholders or Key Employees.
(c) Each Shareholder hereby agrees with Buyer as follows:
(i) The certificates evidencing the shares of Buyer
Common Stock it will acquire under this Agreement, and each instrument or
certificate issued in transfer thereof, will each bear substantially the
following legends:
"The securities evidenced by this certificate have not been
registered under the Securities Act of 1933 and have been taken for
investment purposes only and not with a view to the distribution
thereof, and such securities may not be sold or transferred unless
there is an effective registration statement under such Act covering
such securities or the issuer corporation receives an opinion of
counsel (which may be counsel for the issuer corporation) stating
that such sale or transfer is exempt from the registration and
prospectus delivery requirements of such Act."
"The securities evidenced by this certificate are subject to, and
transferable only in accordance with, the provisions of a Stock
Purchase Agreement among Interiors, Inc. (the "Company") and others.
A copy of this agreement is on file in the office of the Secretary
of the Company."
(ii) The certificates representing such shares of Buyer
Common Stock and each instrument or certificate issued in transfer thereof, will
also each bear any legend required under any applicable state securities law.
28
(iii) Absent an effective registration statement under
the Securities Act covering the disposition of the shares of Buyer Common Stock
which each Shareholder acquires under this Agreement, no Shareholder will sell,
transfer, assign, pledge, hypothecate or otherwise dispose of any or all of such
shares of Buyer Common Stock without first providing Buyer with an opinion of
counsel (which may be counsel for Buyer) to the effect that such sale, transfer,
assignment, pledge, hypothecation or other disposition will be exempt from the
registration and the prospectus delivery requirements of the Securities Act and
the registration or qualification requirements of any applicable state
securities laws.
(iv) Each Shareholder consents to Buyer's making a
notation on its records or giving instructions to any transfer agent of the
Buyer Common Stock in order to implement the restrictions on transfer set forth
in this subsection (c).
ARTICLE VI
CONDITIONS TO CONSUMMATION OF SALE OF SHARES
SECTION 6.01 Conditions to Obligations of Buyer. Notwithstanding any
other provision of this Agreement, the obligations of Buyer to consummate the
Agreement and the other transactions contemplated hereby shall be subject to the
satisfaction, at or prior to the Closing Date, of the following conditions:
(a) There shall not be instituted and pending or threatened
any Action (i) challenging the Agreement or otherwise seeking to restrain or
prohibit the consummation of the transactions contemplated hereby, or (ii)
seeking to prohibit the direct or indirect ownership or operation by Buyer of
all or a material portion of the business or assets of the Company, or to compel
Buyer or the Company to dispose of or hold separate all or a material portion of
the business or assets of the Company or Buyer.
(b) The representations and warranties of each Shareholder in
this Agreement shall be true and correct in all material respects on and as of
the Closing Date with the same effect as if made on the Closing Date, and the
Company and each Shareholder shall have complied with all covenants and
agreements and satisfied all conditions on the Company's or his or her part, as
applicable, to be performed or satisfied on or prior to the Closing Date.
(c) Buyer shall have received from each Shareholder a
certificate dated the Closing Date in substantially the form attached as Annex B
hereto.
(d) Buyer shall have received a certificate of the Officers of
the Company in substantially the form attached as Annex C hereto certifying that
the Closing Completion Schedule is true and correct as of the Closing Date.
(e) Buyer shall have received a certificate of the Secretary
of the Company dated the Closing Date in substantially the form attached as
Annex D hereto.
(f) Xxxxxx, Darlington and Xxxx Xxxxx ("Xxxxx") shall each
have entered into an Employment Agreement with the Company substantially in the
form attached hereto as Annex E, Annex F and Annex G, respectively.
29
(g) Buyer shall be satisfied, in its sole discretion, that the
issuance of Buyer Common Stock to the Shareholders in connection with the
Agreement shall be exempt from the registration and prospectus delivery
requirements of the Securities Act.
(h) Buyer shall have received reasonable assurances from those
employees, if any, of the Company that may be identified by Buyer in its
discretion that they will remain in the employ of the Company for a reasonable
period of time after the consummation of the transactions contemplated hereby.
(i) All authorizations, consents, waivers and approvals by or
from third parties required for the consummation of the transactions
contemplated hereby shall have been obtained and all Liens on the assets and
properties of the Company set forth on Schedule 6.01(j) shall have been released
or terminated.
(j) No act, event or condition shall have occurred after the
date hereof which Buyer determines has had or could reasonably be expected to
have a Material Adverse Effect.
(k) Buyer shall have concluded (through its representatives,
agents, accountants, legal counsel and other experts) satisfactorily an
investigation, including without limitation a legal and financial review, of the
Company and shall be satisfied in its sole discretion with the results thereof.
(l) The amount of the "Balance of Profit to Be Recognized" as
set forth in the Closing Completion Schedule shall equal or exceed the amount of
the "Balance of Profit to Be Recognized" as set forth in the Opening Completion
Schedule.
(m) Each of the Key Employees shall each have entered into an
Employment Agreement in substantially the form attached hereto as Annex H, Annex
I and Annex J hereto.
(n) All corporate and other proceedings and actions taken in
connection with the transactions contemplated hereby and all certificates,
opinions, agreements, instruments, releases and documents referenced herein or
incident to the transactions contemplated hereby shall be in form and substance
reasonably satisfactory to Buyer and its counsel.
(o) Buyer shall have entered into financing arrangements upon
terms and conditions satisfactory to it, in its discretion, and obtained all
necessary consents from its lenders to enable Buyer to enter into the
transactions contemplated herein.
(p) The Company shall have delivered to Buyer the unaudited
June Balance Sheet, and the related unaudited statements of income,
shareholders' equity and cash flows for the period then ended.
(q) Buyer shall have received a Completion Schedule dated as
of the Closing Date in form and substance reasonably satisfactory to Buyer and
its counsel.
(r) Xxxxxx and Xxxxx shall each have repaid all Indebtedness
owed to the Company by Xxxxxx and Xxxxx.
30
(s) Buyer, the Escrow Agent and each of the Shareholders shall
have entered into the Escrow Agreement in substantially the form attached hereto
as Annex A hereto.
SECTION 6.02 Conditions to Obligations of the Shareholders.
Notwithstanding any other provision of this Agreement, the obligations of the
Shareholders to consummate the Agreement and the other transactions contemplated
hereby shall be subject to the satisfaction, at or prior to the Closing Date, of
the following conditions:
(a) The representations and warranties of Buyer in this
Agreement shall be true and correct in all material respects on and as of the
Closing Date with the same effect as if made on the Closing Date, and Buyer
shall have complied with all covenants and agreements and satisfied all
conditions on its part to be performed or satisfied on or prior to the Closing
Date.
(b) The Shareholders shall have received a certificate of the
Secretary of Buyer dated the Closing Date in substantially the form attached as
Annex K hereto.
(c) The Shareholders shall have received a certificate of the
President of Buyer in substantially the form attached as Annex L hereto.
(d) No act, event or condition shall have occurred after the
date hereof which Shareholders determine has had or could reasonably be expected
to have a material adverse effect on the business, financial condition,
properties, profitability, prospects or operations of Buyer.
(e) All corporate and other proceedings and actions taken in
connection with the transactions contemplated hereby and all certificates,
opinions, agreements, instruments, releases and documents referenced herein or
incident to the transactions contemplated hereby shall be in form and substance
reasonably satisfactory to Shareholders and their counsel.
ARTICLE VII
CONDUCT OF BUSINESS PENDING CLOSING
During the period commencing on the date hereof and continuing
through the Closing Date, Shareholders covenant and agree (except as expressly
otherwise provided by this Agreement or to the extent that Buyer shall otherwise
expressly consent in writing) that:
SECTION 7.01 Qualification. Shareholders shall cause the Company to
maintain all qualifications to transact business and remain in good standing in
the foreign jurisdictions set forth on Schedule 3.01(a).
SECTION 7.02 Ordinary Course. Shareholders shall cause the Company
to conduct its business in, and only in, the Ordinary Course and shall preserve
intact its current business organizations, keep available the services of its
current officers and employees and preserve its relationships with customers,
suppliers and others having business dealings with it to
31
the end that its goodwill and going business value shall be unimpaired at the
Closing Date. Shareholders shall cause the Company to maintain its properties
and assets in good condition and repair.
SECTION 7.03 Organic Changes. Shareholders shall not permit the
Company to (a) amend its Articles of Incorporation or Bylaws (or equivalent
documents), (b) acquire by merging or consolidating with, or agreeing to merge
or consolidate with, or purchase substantially all of the stock or assets of, or
otherwise acquire any business or any corporation, partnership, association or
other business organization or division thereof, (c) enter into any partnership
or joint venture, (d) declare, set aside, make or pay any dividend or other
distribution in respect of its capital stock or purchase or redeem, directly or
indirectly, any shares of its capital stock, (e) issue or sell any shares of its
capital stock of any class or any options, warrants, conversion or other rights
to purchase any such shares or any securities convertible into or exchangeable
for such shares, or (f) liquidate or dissolve or obligate itself to do.
SECTION 7.04 Indebtedness. Shareholders shall not permit the Company
to incur any Indebtedness, sell any debt securities or lend money to or
guarantee the Indebtedness of any Person. The Company shall not restructure or
refinance its existing Indebtedness.
SECTION 7.05 Accounting. Shareholders shall not permit the Company
to make any change in the accounting principles, methods, records or practices
followed by it or depreciation or amortization policies or rates theretofore
adopted by it.
SECTION 7.06 Compliance with Legal Requirements. Shareholders shall
cause the Company to comply promptly with all requirements that applicable law
may impose upon it and its operations and with respect to the transactions
contemplated by this Agreement, and shall cooperate promptly with, and furnish
information to, Buyer in connection with any such requirements imposed upon
Buyer, or upon any of its Affiliates, in connection therewith or herewith.
SECTION 7.07 Disposition of Assets. Shareholders shall not permit
the Company to sell, transfer, license, lease or otherwise dispose of, or suffer
or cause the encumbrance by any Lien upon any of, its properties or assets,
tangible or intangible, or any interest therein.
SECTION 7.08 Compensation. Shareholders shall not permit the Company
to (a) adopt or amend in any material respect any collective bargaining, bonus,
profit-sharing, compensation, stock option, pension, retirement, deferred
compensation, employment or other plan, agreement, trust, fund or arrangement
for the benefit of employees (whether or not legally binding) other than to
comply with any Legal Requirement or (b) pay, or make any accrual or arrangement
for payment of, any increase in compensation, bonuses or special compensation of
any kind, or any severance or termination pay to, or enter into any employment
or loan or loan guarantee agreement with, any current or former officer,
director, employee or consultant of the Company.
SECTION 7.09 Modification or Breach of Agreements; New Agreements.
Shareholders shall not permit the Company to terminate or modify, or commit or
cause or suffer to be committed any act that will result in breach or violation
of any term of, or (with or without notice or passage of time, or both)
constitute a default under or otherwise give any person a basis for
nonperformance under, any indenture, mortgage, deed of trust, loan or credit
agreement,
32
lease, license or other agreement, instrument, arrangement or understanding,
written or oral, disclosed in this Agreement or the Schedules hereto.
Shareholders shall not permit the Company to become a party to any contract or
commitment other than in the Ordinary Course. Shareholders shall cause the
Company to meet all of its contractual obligations in accordance with their
respective terms.
SECTION 7.10 Capital Expenditures. Except for capital expenditures
or commitments necessary to maintain its properties and assets in good condition
and repair (the amount of which shall not exceed $20,000 in the aggregate),
Shareholders shall not permit the Company to purchase or enter into any contract
to purchase any capital assets.
SECTION 7.11 Maintain Insurance. Shareholders shall cause the
Company to maintain its Policies in full force and effect and shall not do,
permit or willingly allow to be done any act by which any of the Policies may be
suspended, impaired or canceled.
SECTION 7.12 Discharge. Except as set forth in Schedule 7.12,
Shareholders shall not permit the Company to cancel, compromise, release or
discharge any claim of the Company upon or against any person or waive any right
of the Company of material value, and not discharge any Lien (other than
Permitted Liens) upon any asset of the Company or compromise any debt or other
obligation of the Company to any person other than Liens, debts or obligations
with respect to current liabilities of the Company.
SECTION 7.13 Actions. Shareholders shall not permit the Company to
institute, settle or agree to settle any Action before any Governmental Entity.
SECTION 7.14 Permits. Shareholders shall cause the Company to
maintain in full force and effect, and comply with, all Permits.
SECTION 7.15 Tax Assessments and Audits. Shareholders shall cause
the Company to furnish promptly to Buyer a copy of all notices of proposed
assessment or similar notices or reports that are received from any taxing
authority and which relate to the Company's operations for periods ending on or
prior to the Closing Date. Shareholders shall cause the Company to promptly
inform Buyer, and permit the participation in and control by Buyer, of any
investigation, audit or other proceeding by a Governmental Entity in connection
with any Taxes, assessment, governmental charge or duty and shall not consent
and shall not permit the Company to consent to any settlement or final
determination in any proceeding without the prior written consent of Buyer.
ARTICLE VIII
ADDITIONAL COVENANTS
SECTION 8.01 Covenants of the Shareholders. During the period
commencing on the date hereof and continuing through the Closing Date, each
Shareholder agrees to:
(a) comply promptly with all requirements that applicable
Legal Requirements may impose upon it with respect to the transactions
contemplated by this Agreement, and shall cooperate promptly with, and furnish
information to, Buyer in
33
connection with any such requirements imposed upon Buyer or upon any of its
Affiliates in connection therewith or herewith;
(b) use his reasonable best efforts to obtain (and to
cooperate with Buyer in obtaining) any consent, authorization or approval of, or
exemption by, any Person required to be obtained or made by the Company or the
Shareholder, as applicable, in connection with the transactions contemplated by
this Agreement;
(c) use his reasonable best efforts to bring about the
satisfaction of the conditions precedent to Closing set forth in Section 6.01 of
this Agreement;
(d) promptly advise Buyer orally and, within three (3)
Business Days thereafter, in writing of any change in the Company's business or
condition that has had or may have a Material Adverse Effect; and
(e) deliver to Buyer prior to the Closing a written statement
disclosing any untrue statement in this Agreement or any Schedule hereto (or
supplement thereto) or document furnished pursuant hereto, or any omission to
state any material fact required to make the statements herein or therein
contained complete and not misleading, promptly upon the discovery of such
untrue statement or omission, accompanied by a written supplement to any
Schedule to this Agreement that may be affected thereby; provided, however, that
the disclosure of such untrue statement or omission shall not prevent Buyer from
terminating this Agreement pursuant to Section 9.01(c) hereof at any time at or
prior to the Closing in respect of any original untrue or misleading statement.
SECTION 8.02 Additional Covenants of the Shareholders. Each
Shareholder agrees to deliver to Buyer within thirty (30) days after the Closing
Date:
(a) the Closing Balance Sheet and the related unaudited
statements of income, shareholders' equity and cash flows for the period then
ended prepared in accordance with GAAP (the "Closing Financial Statements");
(b) a certificate executed by each Shareholder certifying that
the Closing Financial Statements (i) present fairly the financial condition of
the Company as of the Closing Date and the results of operations and changes in
financial position of the Company for the periods specified therein, (ii) have
been prepared in conformity with GAAP during the period covered thereby and
prior periods (except that the Closing Financial Statements do not contain
footnotes and are subject to year end adjustments which would not, either
individually or in the aggregate, be material), (iii) have been derived from the
accounting records of the Company, (iv) represent only actual, bona fide
transactions, and (v) are true and correct in all material respects.
34
(c) a certificate executed by each Shareholder certifying that
(i) the Company has no liabilities as of the Closing Date other than those
liabilities recorded in the Closing Financial Statements; (ii) the method use to
recognize profit of the Company in each of the Financial Statements and Closing
Financial Statements is consistent; (iii) no customer deposits, whether
collected or billed and receivable have been recorded as income in the Financial
Statements or the Closing Financial Statements; (iii) income recognized on work
in progress as of the dates of each of the Financial Statements and the Closing
Financial Statements is not overstated as to the percentage of completion or
income earned; (iv) income on "fee based jobs" is recognized in a consistent
manner in all periods of each of the Financial Statements and the Closing
Financial Statements and fees received but not yet earned are not reflected as
earnings and are appropriately reflected as liabilities for unearned income in
each of the Financial Statements and the Closing Financial Statements; (v) the
estimated costs to complete all jobs of the Company in process are not
understated and reflect the Company's best estimate of the total costs to
complete all incomplete work of the Company; and (vi) all deposits of the
Company to vendors are appropriately accounted for as current assets.
SECTION 8.03 Covenants of Buyer. During the period commencing on the
date hereof and continuing through the Closing Date, Buyer agrees to:
(a) comply promptly with all requirements that applicable
Legal Requirements may impose upon it with respect to the transactions
contemplated by this Agreement, and shall cooperate promptly with, and furnish
information to, Shareholders in connection with any such requirements imposed
upon Shareholders in connection therewith or herewith;
(b) use its reasonable best efforts to obtain any consent,
authorization or approval of, or exemption by, any Person required to be
obtained or made by Buyer in connection with the transactions contemplated by
this Agreement;
(c) use its reasonable best efforts to preserve intact its
business organization, employees and other business relationships, to operate
its business in the Ordinary Course and to maintain its books, records and
accounts in accordance with GAAP; and
(d) use its reasonable best efforts to bring about the
satisfaction of the conditions precedent to Closing set forth in Section 6.03 of
this Agreement.
SECTION 8.04 Access and Information.
(a) Between the date hereof and the Closing Date, (i)
Shareholders will cause the Company's officers, directors, key employees and
advisors to permit, Buyer and its representatives and agents reasonable access
to the Company's books and records, facilities, key personnel, customers,
suppliers, independent accountants and attorneys, as requested by Buyer and (ii)
Buyer will permit Shareholders and their representatives and agents access to
Buyer's books and records, facilities, key personnel, customers, suppliers,
independent accountants and attorneys, as requested by Shareholders.
(b) Each of the parties hereto acknowledges that all
information, documents, customer lists, patents, trademarks, copyrights,
materials, specifications, business strategies, information or any other ideas
which directly relate to the business of the other party or of the Company
(collectively, "Confidential Information") shall be the exclusive, confidential
35
property of such other party or of the Company, except to the extent expressly
authorized in writing for dissemination. From the date of this Agreement through
and including the twenty-fourth (24th) month following the Closing Date, each
party shall not disclose any of such Confidential Information of the other party
to any third party without the prior written consent of the other party and
shall take all reasonable steps and actions necessary to maintain the
confidentiality of such Confidential Information. The foregoing restrictions
shall not apply to any information which (i) becomes generally available to the
public other than as a result of disclosures by the non-disclosing party, (ii)
was available to the non-disclosing party on a non-confidential basis prior to
disclosure to it by the other party, (iii) becomes available to the
non-disclosing party on a non-confidential basis from any source other than the
disclosing party, provided such source is not bound by a confidentiality
agreement with one of the parties hereto, or (iv) is required to be disclosed by
any Governmental Entity. In addition, the obligations set forth in this Section
8.04(b) shall not apply to Buyer with respect to Confidential Information which
is acquired by Buyer as a result of the consummation of the transactions
contemplated herein.
SECTION 8.05 Expenses. Except as otherwise specifically provided
herein, each party to this Agreement shall bear its own direct and indirect
expenses incurred in connection with the negotiation and preparation of this
Agreement and the consummation and performance of the transactions contemplated
hereby, including, without limitation, all legal fees and fees of any brokers,
finders or similar agents.
SECTION 8.06 Certain Notifications. At all times from the date
hereof to the Closing Date, each party shall promptly notify the others in
writing of the occurrence of any event that will or may (a) render any
statement, representation or warranty of such party in this Agreement (including
the Schedules hereto) inaccurate or incomplete in any material respect or (b)
constitute or result in the breach by such party of, or a failure to comply
with, any agreement or covenant in this Agreement applicable to such party or
(c) result in the failure by such party to satisfy any of the conditions
specified in Article VI hereof.
SECTION 8.07 Publicity; Employee Communications. At all times prior
to the Closing Date, Shareholders shall obtain the written consent of Buyer
prior to issuing, or permitting any of the directors, officers, employees or
agents of the Company to issue, any press release or other information to the
press, employees of the Company or any third party with respect to this
Agreement or the transactions contemplated hereby; provided, however, that no
party shall be prohibited from supplying any information to any of is
representatives, agents, attorneys, advisors, financing sources and others to
the extent necessary to complete the transactions contemplated hereby so long as
such representatives, agents, attorneys, advisors, financing sources and others
are made aware of and agree to be bound by the terms of this Section 8.07.
Nothing contained in this Agreement shall prevent any party to this Agreement at
any time from furnishing any required information to any Governmental Entity or
authority pursuant to a Legal Requirement or from complying with its legal or
contractual obligations.
SECTION 8.08 Further Assurances.
(a) Subject to the terms and conditions of this Agreement,
each of the parties hereto agrees to use all reasonable efforts to take, or
cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable Legal Requirements, to
consummate and make effective the transactions contemplated by this Agreement.
36
(b) If at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, the
Shareholders or the proper officers or directors of the Company or Buyer as the
case may be, shall take or cause to be taken all such necessary or convenient
action and execute, and deliver and file, or cause to be executed, delivered and
filed, all necessary or convenient documentation.
SECTION 8.09 Competing Offers; Merger or Liquidation. Shareholders
agree that they will not, and the Shareholders will cause the Company not to,
directly or indirectly, through any officer, director, agent or otherwise,
solicit, initiate or encourage discussions with, or the submissions of bids,
offers or proposals by, any Person with respect to an acquisition of the Company
or its assets or capital stock or a merger or similar transaction, and
Shareholders will not, and the Shareholders will not permit the Company to,
engage any broker, financial adviser or consultant with an incentive to initiate
or encourage proposals or offers from other parties. Furthermore, Shareholders
shall not, and the Shareholders shall not permit the Company to, directly or
indirectly, through any officer, director, agent or otherwise, engage in
negotiations concerning any such transaction with, or provide information to,
any Person other than Buyer and its representatives, with a view to engaging, or
preparing to engage, that Person with respect to any matters referenced in this
Section. Shareholders shall ensure that the Company shall not commence any
proceeding to merge, consolidate or liquidate or dissolve or obligate itself to
do so.
SECTION 8.10 Inconsistent Action. Shareholders shall not take or
suffer to be taken, and shall not permit the Company to take or cause or suffer
to be taken, any action that would cause any of the representations or
warranties of the Shareholders in this Agreement to be untrue, incorrect,
incomplete or misleading.
SECTION 8.11 Post-Termination Employment. Shareholders acknowledge
and agree that, subject to any written contracts of employment, if any, after
the Closing (a) Buyer shall not be required to employ or retain any employee of
the Company or any other Person, and (b) Buyer, in its sole and absolute
discretion, may cause the Surviving Corporation to retain all, some, or none of
such employees.
SECTION 8.12 Buyer's Post-Closing Covenant. After the Closing Date
Buyer shall obtain the release of Shareholders as guarantors under that certain
Guaranty in favor of Xxxxxxx Xxxxx & Co., Inc. ("Xxxxxxx Xxxxx") or will pay all
such Indebtedness of Shareholders to Xxxxxxx Xxxxx.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.01 Termination. This Agreement may be terminated at any
time prior to the Closing:
(a) by mutual consent of all of the parties hereto;
(b) by Shareholders, on the one hand, or by Buyer, on the
other hand, by written notice to the other party or parties hereto if the
Agreement shall not have been
37
consummated on or before November 29, 1999 (or such later date as Buyer and
Shareholders may agree), provided that in the case of a termination under this
clause (b), the party or parties terminating this Agreement shall not then be in
material breach of any of its or their obligations under this Agreement;
(c) by Buyer if (i) there has been a material
misrepresentation, breach of warranty or breach of covenant by Shareholders
under this Agreement or (ii) any of the conditions precedent to Closing set
forth in Section 6.01 have not been met on the Closing Date, and, in each case,
Buyer is not then in material default of its obligations hereunder; or
(d) by Shareholders if (i) there has been a material
misrepresentation, breach of warranty or breach of covenant by Buyer under this
Agreement or (ii) any of the conditions precedent to Closing set forth in
Section 6.02 have not been met on the Closing Date, and, in each case,
Shareholders are not then in material default of their obligations hereunder.
SECTION 9.02 Effect of Termination.
(a) In the case of any termination of this Agreement, the
provisions of Sections 8.03(b) and 8.04 shall remain in full force and effect.
(b) Upon termination of this Agreement as provided in Section
9.01(a), this Agreement shall forthwith become void and there shall be no
liability or obligation on the part of any party hereto or their respective
directors, officers, employees, agents or other representatives.
(c) In the event of termination of this Agreement as provided
in Section 9.01(b), (c) or (d) hereof, such termination shall be without
prejudice to any rights that the terminating party or parties may have against
the breaching party or parties or any other Person under the terms of this
Agreement or otherwise.
SECTION 9.03 Amendment. This Agreement may be amended only by a
written instrument executed by each of the parties hereto. Any amendment
effected pursuant to this Section 9.03 shall be binding upon all parties hereto.
SECTION 9.04 Waiver. Any term or provision of this Agreement may be
waived in writing at any time by the party or parties entitled to the benefits
thereof. Any waiver effected pursuant to this Section 9.04 shall be binding upon
all parties hereto. No failure to exercise and no delay in exercising any right,
power or privilege shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege preclude the exercise of any
other right, power or privilege. No waiver of any breach of any covenant or
agreement hereunder shall be deemed a waiver of any preceding or subsequent
breach of the same or any other covenant or agreement. The rights and remedies
of each party under this Agreement are in addition to all other rights and
remedies, at law or in equity, that such party may have against the other
parties.
38
ARTICLE X
INDEMNIFICATION
SECTION 10.01 Survival of Representations and Warranties and
Covenants.
(a) The representations and warranties of the parties hereto
contained in this Agreement or in any writing delivered pursuant hereto or at
the Closing shall survive the execution and delivery of this Agreement and the
Closing and the consummation of the transactions contemplated hereby (and any
examination or investigation by or on behalf of any party hereto) until the
third anniversary of the Closing Date (except for claims in respect thereof
pending at such time, which shall survive until finally resolved or settled);
provided, however, that the representations and warranties contained in Sections
3.01, 3.02, 3.03, 3.12, 3.14, 3.17 and 3.25 shall survive until the expiration
of the applicable statute of limitations with respect to such matters.
(b) No Action may be commenced with respect to any
representation, warranty, covenant or agreement in this Agreement, or in any
writing delivered pursuant hereto, unless written notice, setting forth in
reasonable detail the claimed breach thereof, shall be delivered pursuant to
Section 11.01 to the party or parties against whom liability for the claimed
breach is charged on or before the termination of the survival period specified
in Section 10.01(a) for such representation, warranty, covenant or agreement.
SECTION 10.02 Indemnification.
(a) Subject to the limitation set forth in Section 10.02(c)
and Section 10.02(g) Shareholders jointly and severally covenant and agree to
defend, indemnify and hold harmless Buyer and each Person who controls Buyer
within the meaning of the Securities Act, and after the Closing, the Company,
from and against any Damages arising out of or resulting from: (i) any
inaccuracy in or breach of any representation, warranty, covenant or agreement
made by Shareholders in this Agreement or in any writing delivered pursuant to
this Agreement or at the Closing; (ii) the failure of Shareholders or the
Company to perform or observe fully any covenant, agreement or provision to be
performed or observed by Shareholders or the Company pursuant to this Agreement;
or (iii) any Action arising out of or resulting from the conduct by the Company
of its business or operations, or the Company's occupancy or use of its
properties or assets, on or prior to the Closing Date.
(b) Buyer covenants and agrees to defend, indemnify and hold
harmless Shareholders from and against any Damages arising out of or resulting
from: (i) any inaccuracy in or breach of any representation, warranty, covenant
or agreement made by Buyer in this Agreement or in any writing delivered
pursuant to this Agreement or at the Closing; or (ii) the failure by Buyer to
perform or observe any covenant, agreement or condition to be performed or
observed by it pursuant to this Agreement.
(c) Buyer shall not be liable to Shareholders, and the
Shareholders shall not be liable to Purchaser, under this Section 10.02 for any
Damages indemnifiable hereunder except and to the extent that the amount of such
Damages exceeds an accumulated total of $100,000 in the aggregate (and then only
for such Damages in excess of such amount).
39
(d) If Buyer is the party entitled to be indemnified pursuant
to Section 10.02 (the "Indemnified Party") and subject to the limitations in
Section 10.02(c) hereof, Buyer must recover any amounts due it arising from
Damages under this Article X as follows:
(i) First, from the Escrow Account, or so much thereof
as remains in escrow at the time the Indemnifiable Claim is made, in accordance
with the terms of the Escrow Agreement, until the Escrow Account is exhausted;
(ii) Second, from a reduction in the amounts of payments
due and owing the Shareholders pursuant to Sections 2.03(a)(ii), 2.03(a)(iii)
and 2.03(a)(iv) of up to Two Hundred Fifty Thousand Dollars ($250,000) per year;
and
(iii) Third, upon the exhaustion of the Escrow Account
and after reducing the remaining payments due pursuant to Sections 2.03(a)(ii),
2.03(a)(iii) and 2.03(a)(iv) up to Two Hundred Fifty Thousand Dollars ($250,000)
per year, any remaining Indemnifiable Claims under this Article X shall be
recovered from the Shareholders directly.
(e) Shareholders' liability under this Section 10.02 shall be
allocated among them pro rata in accordance with the number of Shares owned by
each of them as set forth on Schedule 3.03 hereto. No Shareholder shall have any
right of contribution or equitable indemnification against the Company for the
Shareholders' obligations under Section 10.02(a).
(f) The right to indemnification, payment of damages or other
remedy based on the representations, warranties and covenants, and obligations
set forth herein will not be affected by any investigation conducted, whether
before or after the Closing Date, or the parties' agreement as to any purchase
price adjustments pursuant hereto, with respect to the accuracy or inaccuracy of
or compliance with, any such representation, warranty, covenant or obligation.
Notwithstanding anything in this Article X to the contrary, each party hereto
shall retain all other rights and remedies to which it may be entitled under
applicable law.
(g) The Shareholders' Indemnification does not cover any
Damages (except for payments of interest and penalties related to Taxes) arising
from a disagreement with any taxing authority regarding the year in which
Company profits should have been reported.
SECTION 10.03 Third Party Claims.
(a) If an Indemnified Party receives notice of the assertion
by any third party of any claim or of the commencement by any such third person
of any Action (any such claim or Action being referred to herein as an
"Indemnifiable Claim") with respect to which another party hereto (an
"Indemnifying Party") is or may be obligated to provide indemnification, the
Indemnified Party shall promptly notify the Indemnifying Party in writing (the
"Claim Notice") of the Indemnifiable Claim; provided, however, that the failure
to provide such notice shall not relieve or otherwise affect the obligation of
the Indemnifying Party to provide indemnification hereunder, except to the
extent that the Indemnifying Party was materially prejudiced by such failure.
(b) The Indemnifying Party shall have thirty (30) days after
receipt of the Claim Notice to undertake, conduct and control, through counsel
of its own choosing, and at its expense, the settlement or defense thereof, and
the Indemnified Party shall cooperate with
40
the Indemnifying Party in connection therewith; provided, however, that (i) the
Indemnifying Party shall permit the Indemnified Party to participate in such
settlement or defense through counsel chosen by the Indemnified Party (subject
to the consent of the Indemnifying Party, which consent shall not be
unreasonably withheld), provided that the fees and expenses of such counsel
shall not be borne by the Indemnifying Party, and (ii) the Indemnifying Party
shall not settle any Indemnifiable Claim without the Indemnified Party's
consent. So long as the Indemnifying Party is vigorously contesting any such
Indemnifiable Claim in good faith, the Indemnified Party shall not pay or settle
such claim without the Indemnifying Party's consent, which consent shall not be
unreasonably withheld.
(c) If the Indemnifying Party does not notify the Indemnified
Party within thirty (30) days after receipt of the Claim Notice that it elects
to undertake the defense of the Indemnifiable Claim described therein, the
Indemnified Party shall have the right to contest, settle or compromise the
Indemnifiable Claim in the exercise of its reasonable discretion; provided,
however, that the Indemnified Party shall notify the Indemnifying Party of any
compromise or settlement of any such Indemnifiable Claim.
(d) Anything contained in this Section 10.03 to the contrary
notwithstanding, Shareholders shall not be entitled to assume the defense for
any Indemnifiable Claim (and shall be liable for the reasonable fees and
expenses incurred by the Indemnified Party in defending such claim) if the
Indemnifiable Claim seeks an order, injunction or other equitable relief or
relief for other than money damages against Buyer or the Company which Buyer
determines, after conferring with its counsel, cannot be separated from any
related claim for money damages and which, if successful, would adversely affect
the business, properties or prospects of Buyer or the Company; provided,
however, if such equitable relief portion of the Indemnifiable Claim can be so
separated from that for money damages, Shareholders shall be entitled to assume
the defense of the portion relating to money damages.
SECTION 10.04 Indemnification Non-Exclusive. The foregoing
indemnification provisions are in addition to, and not in derogation of, any
statutory, equitable or common-law remedy any party may have for breach of
representation, warranty, covenant or agreement.
ARTICLE XI
GENERAL PROVISIONS
SECTION 11.01 Notices. All notices and other communications under or
in connection with this Agreement shall be in writing and shall be deemed given
(a) if delivered personally, upon delivery, (b) if delivered by registered or
certified mail (return receipt requested), upon the earlier of actual delivery
or three (3) days after being mailed, or (c) if given by facsimile, upon
confirmation of transmission by facsimile, in each case to the parties at the
following addresses:
41
(a) If to Buyer addressed to:
Interiors, Inc.
000 Xxxxxxxxxx Xxxxxx
Xx. Xxxxxx, Xxx Xxxx 00000-0000
Facsimile: (000) 000-0000
Attention: Xx. Xxx Xxxx
With copies to:
Paul, Hastings, Xxxxxxxx & Xxxxxx LLP
Twenty-Third Floor
000 Xxxxx Xxxxxx Xxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: Xxxxxxxxxxx X. Xxxxxx, Esq.
and
Xxxxx Xxxxxxxx, Esq.
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
(b) If to the Shareholders, addressed to:
Concepts 4, Inc.
0000 Xxxx Xxxxxx Xxxxxx, Xxxxx 000
Xxxx Xxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: Mr. Xxxxx Xxxxxx, President
With a copy to:
Xxxxxxxx X. Xxxxx, Esq.
000 Xxxx Xxxxx Xxxxxx, Xxxxxx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
SECTION 11.02 Severability. If any term or provision of this
Agreement or the application thereof to any circumstance shall, in any
jurisdiction and to any extent, be invalid or unenforceable, such term or
provision shall be ineffective as to such jurisdiction to the extent of such
invalidity or unenforceability without invalidating or rendering unenforceable
such term or provision in any other jurisdiction, the remaining terms and
provisions of this Agreement or the application of such terms and provisions to
circumstances other than those as to which it is held invalid or enforceable.
SECTION 11.03 Entire Agreement. Except as specifically set forth
herein, this Agreement, including the annexes and schedules attached hereto and
other documents referred to herein, contain the entire understanding of the
parties hereto in respect of their subject
42
matter and supersede all prior and contemporaneous agreements and
understandings, oral and written, among the parties with respect to such subject
matter.
SECTION 11.04 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of each of the parties hereto and their
respective successors, heirs and assigns; provided, however, that no party may
assign either this Agreement or any of its rights, interests or obligations
hereunder in whole or in part without the prior written consent of the other
parties hereto, and any such transfer or assignment without said consent shall
be void, ab initio. Subject to the immediately preceding sentence, this
Agreement is not intended to benefit, and shall not run to the benefit of or be
enforceable by, any other person or entity other than the parties hereto and
their permitted successors and assigns.
SECTION 11.05 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same Agreement.
SECTION 11.06 Schedules and Annexes. The schedules and annexes to
this Agreement are incorporated herein and, by this reference, made a part
hereof as if fully set forth at length herein.
SECTION 11.07 Construction.
(a) The article, section and subsection headings used herein
are inserted for reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement.
(b) As used in this Agreement, the masculine, feminine or
neuter gender, and the singular or plural, shall be deemed to include the others
whenever and wherever the context so requires.
(c) For the purposes of this Agreement, unless the context
clearly requires, "or" is not exclusive.
SECTION 11.08 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws (and not the law of conflicts) of
the State of Delaware.
SECTION 11.09 Arbitration Concerning Disputes Regarding EBIT.
(a) At the option of any party hereto, any and all disputes,
whether of law or fact and of any nature whatsoever, concerning EBIT or the
calculation of EBIT shall be decided by binding arbitration in accordance with
the Commercial Arbitration Rules of Association. If the parties are unable to
agree upon a single arbitrator, the arbitrator shall be a single, independent
arbitrator selected by the Association.
(b) Any arbitration proceedings hereunder shall be held in Los
Angeles, California.
43
(c) The decision of the arbitrator shall be final and binding
upon all parties hereto and all Persons claiming under and through them. The
fees and expenses of the arbitrator shall be paid 50% by the Shareholders which
are parties to the arbitration and 50% by the Buyer.
44
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed as of the day and year first above written.
INTERIORS, INC.
By:
---------------------------------
Xxx Xxxx
President
---------------------------------
Xxxxx Xxxxxx
---------------------------------
Xxxxxx Xxxxxxxxxx
THE XXXXX FAMILY TRUST DATED
OCTOBER 1, 1997
By:
---------------------------------
Xxxx Xxxxx
Trustee
45
