ASSET PURCHASE AGREEMENT
Dated as of August 17, 1999
Among
GATEWAY DISTRIBUTORS, LTD.
TEAMUP INTERNATIONAL, INC.
and
SHAREHOLDERS OF TEAMUP INTERNATIONAL, INC.
TABLE OF CONTENTS
PAGE
ARTICLE 1 - PURCHASE AND SALE OF ASSETS........................................1
1.1 Assets to be Purchased..................................................1
1.2 Assumptions of Certain Liabilities......................................2
1.3 Purchase Price..........................................................2
1.3.1 Inventory Stream...................................................2
1.3.2 Revenue Payment....................................................2
1.3.3 Common Stock.......................................................2
1.3.4 Common Stock Options...............................................3
1.4 Payment of Purchase Price...............................................3
1.5 Post Closing Adjustments................................................3
1.6 Closing.................................................................4
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES OF COMPANY AND SHAREHOLDERS.........4
2.1 Disclosure Schedule.....................................................4
2.2 Corporate Organization..................................................5
2.3 Capitalization..........................................................5
2.4 Non-Contravention.......................................................5
2.5 Consents and Approvals..................................................6
2.6 Financial Statements....................................................6
2.7 Loss Contingencies; Other Non-Accrued Liabilities.......................6
2.8 Absence of Certain Changes..............................................7
2.9 Real Properties.........................................................7
2.10 Machinery, Equipment, Vehicles and Personal Property...................8
2.11 Inventories............................................................9
2.12 Receivables and Payables...............................................9
2.13 Intellectual Property Rights...........................................9
2.14 Litigation............................................................10
2.15 Tax Matters...........................................................10
2.16 Insurance.............................................................11
2.17 Benefit Plans.........................................................11
2.18 Bank Accounts; Powers of Attorney.....................................14
2.19 Contracts and Commitments; No Default.................................15
2.20 Orders, Commitments and Returns.......................................16
2.21 Labor Matters.........................................................16
2.23 Dealers and Suppliers.................................................17
2.23 Permits and Other Operating Rights....................................17
2.24 Compliance with Law...................................................17
2.25 Assets of Business....................................................17
2.26 Hazardous Substances and Hazardous Wastes.............................18
2.27 Brokers...............................................................20
2.28 Customers.............................................................20
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2.29 Absence of Certain Business Practices.................................20
2.30 Securities Matters....................................................20
2.31 The Purchaser and Registration under the Securities Exchange Act......21
2.32 Disclosure............................................................21
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF PURCHASER.......................22
3.1 Corporate Organization.................................................22
3.2 Authorization..........................................................22
3.3 Non-Contravention......................................................22
3.4 Consents and Approvals.................................................23
3.5 Brokers................................................................23
3.6 Legal Proceedings......................................................23
3.7 Capitalization.........................................................23
3.8 Financial Statements...................................................23
3.9 Litigation.............................................................24
3.10 Insurance.............................................................24
3.11 Labor Matters.........................................................24
3.12 Compliance with Law...................................................24
3.13 Customers.............................................................25
3.14 Absence of Certain Business Practices.................................25
ARTICLE 4 - COVENANTS.........................................................25
4.1 The Company's Agreements as to Specified Matters.......................25
4.2 Conduct of the Company Business........................................27
4.3 No Company Solicitation of Alternate Transaction.......................27
4.4 Full Access to the Purchaser...........................................28
4.5 Confidentiality........................................................28
4.6 Filings; Consents; Removal of Objections...............................29
4.7 Further Assurances; Cooperation; Notification..........................29
4.8 Supplements to Disclosure Schedule.....................................30
4.9 Public Announcements...................................................30
4.10 Transactional Tax Undertakings........................................30
4.11 Employee Benefits.....................................................31
4.12 Bulk Sales Law Compliance.............................................31
4.13 Securities Restrictions...............................................31
4.14 Restrictive Covenants.................................................32
4.15 Repurchase Rights.....................................................33
4.16. Securities Compliance................................................34
4.17 No Effective Registration Statement; Cash Payment.....................34
ARTICLE 5 - CONDITIONS TO OBLIGATIONS OF PURCHASER............................35
5.1 Representations and Warranties True....................................35
5.2 Performance............................................................35
5.3 Required Approvals and Consents........................................35
5.4 Adverse Changes........................................................36
5.5 No Proceeding or Litigation............................................36
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5.6 Opinion of the Company Counsel.........................................36
5.7 Legislation............................................................36
5.8 Certificates...........................................................36
5.9 Due Diligence..........................................................36
5.10 Documentation for Conveyance of the Company's Assets..................36
ARTICLE 6 - CONDITIONS TO COMPANY'S OBLIGATIONS...............................36
6.1 Representations and Warranties True....................................36
6.2 Performance............................................................37
6.3 Corporate Approvals....................................................37
6.4 No Proceeding or Litigation............................................37
6.5 Certificates...........................................................37
6.6 Opinion of the Purchaser Counsel.......................................37
6.7 Payment of Consideration...............................................37
6.9 Execution and Delivery of Certain Agreements...........................37
ARTICLE 7 - TERMINATION AND ABANDONMENT.......................................37
7.1 Methods of Termination.................................................37
7.2 Procedure Upon Termination.............................................38
ARTICLE 8 - SURVIVAL AND INDEMNIFICATION......................................38
8.1 Survival...............................................................38
8.2 Indemnification by the Purchaser.......................................38
8.3 Indemnification by the Company and the Shareholders --
Untrue Representation or Breach of Warranty............................38
8.4 Indemnification by the Company and the Shareholders -- Other...........39
8.5 Basket Amount..........................................................39
8.6 Claims for Indemnification.............................................39
8.7 Certain Limitations....................................................40
8.8 Subrogation............................................................40
8.9 Tax and Insurance......................................................40
8.10 Undertakings..........................................................40
ARTICLE 9 - MISCELLANEOUS PROVISIONS..........................................41
9.1 Expenses...............................................................41
9.2 Amendment and Modification.............................................41
9.3 Waiver of Compliance; Consents.........................................41
9.4 No Third Party Beneficiaries...........................................41
9.5 Notices................................................................41
9.6 Assignment.............................................................42
9.7 Governing Law..........................................................43
9.8 Counterparts...........................................................43
9.9 Headings...............................................................43
9.10 Entire Agreement......................................................43
9.11 Injunctive Relief.....................................................43
9.12 Arbitration...........................................................43
9.13 List of Defined Terms.................................................44
9.14 Certain Definitions...................................................44
9.15 Shareholders' Agent...................................................45
iii
LIST OF EXHIBITS
Exhibit 1.1(a) - Tradenames
Exhibit 1.1(b) - Xxxx of Sale
Exhibit 1.1(c) - Excluded Assets
Exhibit 1.1(d) - Real Property Liens
Exhibit 1.2(a) - Form of Liability Undertaking
Exhibit 1.2(b) - Excluded Liabilities
Exhibit 2 - Disclosure Schedule
Exhibit 3.10 - Purchaser Insurance
Exhibit 4.1 - Extraordinary Transactions
Exhibit 5.6 - Opinion of the Company Counsel
Exhibit 5.10 - Company Closing Documents
Exhibit 6.6 - Opinion of the Purchaser Counsel
Exhibit 6.9 - Purchaser Closing Documents
Exhibit 9.13 - Defined Terms
iv
EXHIBIT 9.13
------------
LIST OF DEFINED TERMS
---------------------
TERM PAGE
---- ----
1933 ACT......................................................................32
1934 Act......................................................................21
1934 Act Statement............................................................34
1998 Balance Sheet............................................................44
Accounts Receivable............................................................9
Acquisition Proposals.........................................................27
affiliate.....................................................................15
Affiliated Organization.......................................................11
Agreement.....................................................................43
Antitrust Division............................................................29
Assets.........................................................................1
associate.....................................................................15
Assumed Liabilities............................................................2
Authorities....................................................................6
Authority......................................................................6
Bona Fide Unsolicited Offer...................................................28
Claimant......................................................................40
Closing........................................................................4
Closing Balance Sheet.........................................................44
Closing Date...................................................................4
Commissionable Sales...........................................................2
Company........................................................................1
Company Delivered Documents...................................................44
Company Employees.............................................................31
Compensation Plans............................................................13
Consent........................................................................6
Consents.......................................................................6
Disclose......................................................................28
Disclosure....................................................................28
Disclosure Schedule............................................................4
disqualified individual.......................................................15
Environmental and Occupational Safety and Health Law..........................19
Environmental Claim...........................................................19
Environmentally Regulated Materials...........................................19
ERISA.........................................................................11
Exception Amount..............................................................39
excess parachute payment......................................................16
FTC...........................................................................29
GAAP...........................................................................6
Indemnification Cap...........................................................40
Indemnified Party.............................................................39
Indemnifying Party............................................................39
1
Information...............................................................28, 29
Intellectual Property Rights...................................................9
Interim Financial Statements...................................................6
Inventory......................................................................9
Inventory Schedule.............................................................3
Inventory Stream...............................................................2
Latest Balance Sheet...........................................................6
Law............................................................................6
Laws...........................................................................6
Legal Expenses................................................................44
Liabilities Undertaking........................................................2
Loss Contingency...............................................................6
Losses........................................................................38
material......................................................................39
Material Adverse Effect.......................................................44
Material Contract.............................................................16
Material Contracts............................................................16
Option Agreement...............................................................3
Options........................................................................3
PBGC..........................................................................12
Pension Plan..................................................................11
Permitted Liens...............................................................44
Properties....................................................................18
Purchase Price.................................................................2
Purchaser......................................................................1
Purchaser Delivered Documents.................................................44
Purchaser Financial Statements................................................23
Repurchase Rights.............................................................34
Required Majority of Shareholders.............................................44
Restrictive Covenants.........................................................33
Revenue Payment................................................................2
Review Period..................................................................3
S corporation.................................................................11
SEC...........................................................................34
severance pay.................................................................17
Shareholder....................................................................1
Shareholders...................................................................1
Shareholders' Agent...........................................................45
Shares.........................................................................2
Tax Returns...................................................................10
Termination Date...............................................................4
Welfare Plan..................................................................12
Year End Financial Statements..................................................6
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT ("Agreement"), dated as of August 17,
1999, is by and among Gateway Distributors, Ltd., a Nevada corporation (the
"PURCHASER"), TeamUp International, Inc., a Nevada corporation (the "COMPANY"),
and the shareholders of the Company listed on the signature page of this
Agreement (individually, a "SHAREHOLDER" and, collectively, the "SHAREHOLDERS").
R E C I T A L S
- - - - - - - -
A. The Shareholders own all of the issued and outstanding shares of
capital stock of the Company, which is in the business of the network marketing
of nutritional, health and dietary supplements and products (the "Business").
B. The parties hereto wish to provide for the terms and conditions upon
which the Purchaser will acquire substantially all of the assets and assume
specified liabilities of the Company.
C. The parties hereto wish to make certain representations, warranties,
covenants and agreements in connection with the purchase of assets and
assumption of liabilities and also to prescribe various conditions to such
transaction.
A G R E E M E N T
- - - - - - - - -
Accordingly, and in consideration of the representations, warranties,
covenants, agreements and conditions herein contained, the parties hereto agree
as follows:
ARTICLE 1
---------
PURCHASE AND SALE OF ASSETS
---------------------------
1.1 ASSETS TO BE PURCHASED. Upon satisfaction of all conditions to the
obligations of the parties contained herein (other than such conditions as shall
have been waived in accordance with the terms hereof), the Company shall sell,
transfer, convey, assign and deliver to the Purchaser, and the Purchaser shall
purchase from the Company, at the Closing (as hereinafter defined), all of the
Company's right, title and interest in and to the assets, properties, goodwill
and rights of the Company, as a going concern, of every nature, kind and
description, tangible and intangible, wherever located and whether or not
carried or reflected on the books and records of the Company (hereinafter
sometimes collectively called the "ASSETS"), including without limitation: (i)
the right to use the names and all variations thereof listed on Exhibit 1.1(a)
hereto; (ii) the assets referred to in the form of Xxxx of Sale listed on
Exhibit 1.1(b) hereto; and (iii) the assets reflected on the Latest Balance
Sheet (as hereinafter defined), with only such dispositions of such assets
reflected on the Latest Balance Sheet as shall have occurred in the ordinary
course of the Company's business between the date thereof and the Closing and
which are permitted by the terms hereof, and excluding only (x) the minute
books, corporate seal and stock records of the Company and (y) the assets
specifically described on Exhibit 1.1(c) hereto. All real property assets and
1
fixtures included among the Assets shall be conveyed free and clear of any
mortgage, pledge, lien, security interest, encumbrance, claim, easement,
right-of-way, tenancy, covenant, encroachment, restriction or change of any kind
or nature (whether or not of record), except as described on Exhibit 1.1(d)
hereto. All machinery, equipment, vehicles and other personal property,
including without limitation inventories, accounts and notes receivable, trade
notes, trade accounts and Intellectual Property Rights (as hereinafter defined),
shall be conveyed free and clear of any mortgage, pledge, lien or security
interest of any kind or nature (whether or not of record) except as described on
Exhibit 1.1(d) hereto.
1.2 ASSUMPTIONS OF CERTAIN LIABILITIES. Upon satisfaction of all conditions to
the obligations of the parties contained herein (other than such conditions as
shall have been waived in accordance with the terms hereof), the Purchaser,
pursuant to a Liabilities Undertaking in the form of Exhibit 1.2(a) hereto
("LIABILITIES UNDERTAKING"), shall assume those certain liabilities and
obligations of the Company listed on Exhibit 1.2(b) hereto (the "ASSUMED
LIABILITIES"). The Purchaser is not assuming, and will not be obligated or
liable for, any liability of the Company not listed on Exhibit 1.2(b). The
Purchaser will be indemnified, pursuant to Section 8.4, from and against any
claims in respect of any debts, obligations or liabilities of the Company of any
nature whatsoever other than the Assumed Liabilities.
1.3 PURCHASE PRICE. The Purchaser shall pay for the Company's Assets the
following consideration (the "PURCHASE PRICE"):
1.3.1 INVENTORY STREAM. The Purchaser shall make cash payments (the
"INVENTORY STREAM"), calculated and payable as follows:
(a) Commencing on the tenth day of the first full calendar
month following the Closing, and on the tenth day of each month
thereafter, the Purchaser shall pay to the Company cash in an amount
equal to eighty percent (80%) of the original cost to the Company of
the portion of the Inventory (as defined in Section 2.12) which the
Purchaser sold in the preceding month. These payments shall terminate
on the earlier of (i) the Purchaser's sale of all of the Inventory, and
(ii) the tenth day of the eighteenth full month following the Closing.
(b) On the tenth day of the eighteenth full month following
the Closing, in addition to any payment made under Section 1.3.1(a),
the Purchaser shall pay to the Company cash in an amount equal to
eighty percent (80%) of the original cost to the Company of any portion
of the Inventory then unsold.
1.3.2 REVENUE PAYMENT. The Purchaser shall pay to the Company an amount
equal to one percent (1%) of Commissionable Sales (as hereinafter defined) of
the Purchaser for the one-year period commencing on the date of Closing and
ending on the first anniversary thereof (the "REVENUE PAYMENT"). "COMMISSIONABLE
SALES" means the total sales which the Purchaser uses to calculate commissions
to its distributors.
1.3.3 COMMON STOCK. The Purchaser shall issue to the Company six
hundred fifty thousand (650,000) shares of Common Stock (the "SHARES") of the
Purchaser.
2
1.3.4 COMMON STOCK OPTIONS. Pursuant to a Stock Option Agreement in the
form of Exhibit 1.3.4 hereto ("OPTION AGREEMENT"), the Purchaser shall issue to
the Company options ("OPTIONS") to purchase two hundred thousand (200,000)
shares of Common Stock of the Purchaser.
1.4 PAYMENT OF PURCHASE PRICE.
The Purchase Price shall be payable by the Purchaser as follows:
(a) The Purchaser shall pay the Inventory Stream in accordance with
Section 1.3.1.
(b) The Purchaser shall pay the Revenue Payment in accordance with
Section 1.3.2.
(c) The Purchaser shall issue the Shares in accordance with the terms
of this Agreement and deliver them to the Company at the Closing.
(d) The Purchaser shall execute the Option Agreement and deliver it to
the Company at the Closing.
(e) The Purchaser shall execute the Liability Undertaking and deliver
it to the Company at the Closing.
1.5 CLOSING AND POST CLOSING ADJUSTMENTS. The determination of the cost of the
Inventory on the date of Closing shall be accomplished at and after the Closing
in the following manner:
(a) The Purchaser shall promptly prepare a schedule of the Company's
cost of the Inventory (the "INVENTORY SCHEDULE") within thirty (30)
days of the date of Closing. Purchaser shall deliver copies thereof to
the Company and each Shareholder. The Company and the Shareholders and
their respective representatives, agents and advisors shall have full
and complete access to the Company's former offices and premises and to
the work papers and other records for the purpose of observing all
aspects of the Purchaser's preparation of the Inventory Schedule.
(b) The Company and the Shareholders shall have ten (10) business days
after receipt of the Inventory Schedule (the "REVIEW PERIOD") to review
and verify the Inventory Schedule. If no party objects in writing to
the Inventory Schedule within the Review Period, then the Inventory
Schedule shall be final and binding on all parties, and the Purchaser
shall calculate the Inventory Stream amounts using the Inventory
Schedule in accordance with Section 1.3.1. If any party does so object
within the Review Period then the parties shall meet as soon as
practicable to attempt to resolve any such objection of the Company. If
the parties agree in writing on a final Inventory Schedule within ten
(10) days after the expiration of the Review Period, then Purchaser
shall calculate the Inventory Stream amounts using that final Inventory
Schedule in accordance with Section 1.3.1 and shall pay to the Company
the difference, if any, resulting from any adjustments made to the
Inventory Schedule. If the parties cannot agree upon a final Inventory
Schedule within ten (10) days after the Review Period, then the
provisions of Section 9.12 shall become applicable and the Purchaser
3
shall calculate the amounts of the Inventory Stream using the Inventory
Schedule then in dispute until either (i) all parties mutually agree
upon a final Inventory Schedule or (ii) an arbitration award pursuant
to Section 9.12 is entered which establishes a final Inventory
Schedule. The Purchaser shall pay to the Company the difference, if
any, resulting from any adjustments made to the Inventory Schedule.
1.6 CLOSING. Unless this Agreement shall have been terminated and the
transactions contemplated herein shall have been abandoned pursuant to Article 7
hereof, a closing (the "CLOSING") will be held on or before August 18, 1999 (the
"CLOSING DATE"), provided, however, that if any of the conditions provided for
in Articles 5 and 6 hereof shall not have been satisfied or waived by such date,
then the party to this Agreement which is unable to satisfy such condition or
conditions, despite the best efforts of such party, shall be entitled to
postpone the Closing by notice to the other parties until such condition or
conditions shall have been satisfied (which such notifying party will seek to
cause to happen at the earliest practicable date) or waived, but in no event
shall the Closing occur later than the "TERMINATION DATE" which shall be August
31, 1999, unless the parties hereto shall agree in writing to extend the date of
such Closing. The Closing shall be held at the offices of Gateway Distributors,
Ltd., 000 Xxxx Xxxxxxxx Xxxxxx, Xxxxx Xxx Xxxxx, Xxxxxx 00000, or such other
place as the parties may agree, at 9:00 a.m., local time or such other time as
the parties may agree, at which time and place the documents and instruments
necessary or appropriate to effect the transactions contemplated herein will be
exchanged by the parties.
ARTICLE 2
---------
REPRESENTATIONS AND WARRANTIES OF COMPANY AND SHAREHOLDERS
----------------------------------------------------------
The Company and the Shareholders, jointly and severally, hereby
represent and warrant to the Purchaser as of the date hereof as follows:
2.1 DISCLOSURE SCHEDULE. The disclosure schedule to be attached prior to the
Closing as Exhibit 2 hereto (the "DISCLOSURE SCHEDULE") shall be divided into
sections which correspond to the subsections of this Article 2. The Disclosure
Schedule will be true, complete and correct as of the date hereof, and at
Closing, after any supplements pursuant to Section 4.8, shall be true, complete
and correct. Nothing in the Disclosure Schedule will be deemed adequate to
disclose an exception to a representation or warranty made herein, unless the
Disclosure Schedule identifies the exception with reasonable particularity and
describes the relevant facts in reasonable detail. Without limiting the
generality of the foregoing, the mere listing (or inclusion of a copy) of a
document or other item will not be deemed adequate to disclose an exception to a
representation or warranty made herein (unless the representation or warranty
has to do with the existence of the document or other item itself). Each
exception and disclosure noted in the Disclosure Schedule shall be numbered to
correspond to the applicable section or paragraph of this Article 2 to which
such exception or disclosure applies, PROVIDED THAT such exceptions and
disclosures shall be deemed made with respect to any other section or paragraph
to which it is reasonably apparent such exception or disclosure applies.
4
2.2 CORPORATE ORGANIZATION. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the state of Nevada, has full
corporate power and authority to carry on its business as it is now being
conducted and to own, lease and operate its properties and assets, is duly
qualified or licensed to do business as a foreign corporation in good standing
in every other jurisdiction in which the character or location of the properties
and assets owned, leased or operated by it or the conduct of its business
requires such qualification or licensing, except in such jurisdictions in which
the failure to be so qualified or licensed and in good standing would not,
individually or in the aggregate, have a Material Adverse Effect (as hereinafter
defined) on the Company. The Company has heretofore delivered to the Purchaser
complete and correct copies of its articles or certificate of incorporation and
bylaws, as presently in effect. Section 2.2 of the Disclosure Schedule contains
a list of all jurisdictions in which the Company is qualified or licensed to do
business. The Company has no subsidiaries.
2.3 CAPITALIZATION. The authorized capital stock of the Company is set forth in
Section 2.3 of the Disclosure Schedule. The number of shares of capital stock of
the Company outstanding is set forth in Section 2.3 of the Disclosure Schedule.
All issued and outstanding shares of capital stock of the Company are duly
authorized, validly issued, fully paid, nonassessable and are without, and were
not issued in violation of, preemptive rights. Except as set forth in Section
2.3 of the Disclosure Schedule: (i) there are no shares of capital stock or
other equity securities of the Company outstanding or any securities convertible
into or exchangeable for such shares, securities or rights; (ii) there are no
outstanding options, warrants, conversion privileges or other rights to purchase
or acquire any capital stock or other equity securities of the Company or any
securities convertible into or exchangeable for such shares, securities or
rights; and (iii) there are no contracts, commitments, understandings,
arrangements or restrictions by which the Company is bound to issue or acquire
any additional shares of its capital stock or other equity securities or any
options, warrants, conversion privileges or other rights to purchase or acquire
any capital stock or other equity securities of the Company or any securities
convertible into or exchangeable for such shares, securities or rights.
2.4 NON-CONTRAVENTION. Except as set forth in Section 2.4 of the Disclosure
Schedule, neither the execution, delivery and performance of this Agreement nor
the consummation of the transactions contemplated herein will: (i) violate or be
in conflict with any provision of the articles of incorporation or bylaws of the
Company; or (ii) except for such violations, conflicts, defaults, accelerations,
terminations, cancellations, impositions of fees or penalties, mortgages,
pledges, liens, security interests, encumbrances, restrictions, changes or other
events which could not reasonably be expected to, individually or in the
aggregate, have a Material Adverse Effect, (A) be in conflict with, or
constitute a default, however defined (or an event which, with the giving of due
notice or lapse of time, or both, would constitute such a default), under, or
cause or permit the acceleration of the maturity of, or give rise to any right
of termination, cancellation, imposition of fees or penalties under, any debt,
note, bond, lease, mortgage, indenture, license, obligation, contract,
commitment, franchise, permit, instrument or other agreement or obligation to
which the Company or a Shareholder is a party or by which it or a Shareholder or
any of its or a Shareholder's properties or assets is or may be bound (unless
with respect to which defaults or other rights, requisite waivers or consents
shall have been obtained at or prior to the Closing) or (B) result in the
creation or imposition of any mortgage, pledge, lien, security interest,
5
encumbrance, restriction, adverse claim or charge of any kind, upon any property
or assets of the Company or a Shareholder under any debt, obligation, contract,
agreement or commitment to which the Company or a Shareholder is a party or by
which the Company or a Shareholder or any of its or a Shareholder's assets or
properties is or may be bound; or (iii) violate any applicable statute, treaty,
law, judgment, writ, injunction, decision, decree, order, regulation, ordinance
or other similar authoritative matters (sometimes hereinafter separately
referred to as a "LAW" and sometimes collectively as "LAWS") of any applicable
foreign, federal, state or local governmental or quasi-governmental,
administrative, regulatory or judicial court, department, commission, agency,
board, bureau, instrumentality or other authority (hereinafter sometimes
separately referred to as an "AUTHORITY" and sometimes collectively as
"AUTHORITIES").
2.5 CONSENTS AND APPROVALS. Except as set forth in Section 2.5 of the Disclosure
Schedule, with respect to the Company and each Shareholder, no consent,
approval, order or authorization of or from, or registration, notification,
declaration or filing with (hereinafter sometimes separately referred to as a
"CONSENT" and sometimes collectively as "CONSENTS") any individual or entity,
including without limitation any Authority, is required in connection with the
execution, delivery or performance of this Agreement by the Company or any
Shareholder or the consummation by the Company or any Shareholder of the
transactions contemplated herein, except where the failure to obtain such
Consent would not prevent or delay consummation of the transactions contemplated
herein, or otherwise prevent or delay the Company or any Shareholder from
performing its obligations under this Agreement, and would not have a Material
Adverse Effect.
2.6 FINANCIAL STATEMENTS. The balance sheets of the Company as of December 31,
1998 and 1997 and related statements of operations, shareholders' equity and
cash flows for the fiscal years then ended and (the "YEAR-END FINANCIAL
STATEMENTS") and the balance sheet and related statements of operations,
shareholders equity and cash flow of the Company for the six-month period ended
June 30, 1999 (the "INTERIM FINANCIAL STATEMENTS") are set forth in Section 2.6
of the Disclosure Schedule. The most recent balance sheet so described is
referred to herein as the "LATEST BALANCE SHEET." Except as disclosed therein,
the aforesaid financial statements (i) are in accordance with the books and
records of the Company and have been prepared in conformity with generally
accepted accounting principles ("GAAP") consistently applied for all periods,
and (ii) fairly present the financial position of the Company as of the
respective dates thereof, and the results of operations, changes in
shareholders' equity and changes in cash flow for the periods then ended, all in
accordance with GAAP consistently applied for all periods.
2.7 LOSS CONTINGENCIES; OTHER NON-ACCRUED LIABILITIES. Except as described in
Section 2.7 of the Disclosure Schedule or in the notes to the Latest Balance
Sheet, the Company does not have (i) any Loss Contingencies (as hereinafter
defined) which are not required by GAAP to be accrued; (ii) any Loss
Contingencies involving an unasserted claim or assessment which are not required
by GAAP to be disclosed because the potential claimants have not manifested to
the Company an awareness of a possible claim or assessment; or (iii) any
categories of known liabilities or obligations (other than non-pension
post-retirement medical care, dental care, life insurance or other benefits)
which are not required by GAAP to be accrued. For purposes of this Agreement,
"LOSS CONTINGENCY" shall mean an existing condition, situation, or set of
circumstances involving uncertainty as to possible charges against income,
include those charges commonly referred to as "expenses," to an enterprise that
will ultimately be resolved when one or more future events occur or fail to
occur.
6
2.8 ABSENCE OF CERTAIN CHANGES. Except as set forth in Section 2.8 of the
Disclosure Schedule, since the date of the Latest Balance Sheet, the Company has
owned and operated its assets, properties and businesses in the ordinary course
of business and consistent with past practice; without limiting the generality
of the foregoing, the Company has not, subject to the aforesaid exceptions:
(a) suffered any adverse change in its condition (financial or
otherwise), working capital, assets, properties, liabilities,
obligations, reserves, businesses, prospects, goodwill or going concern
value or experienced any event or failed to take any action which
reasonably could be expected to result in such an adverse change;
(b) suffered any loss, damage, destruction or other casualty (whether
or not covered by insurance) or suffered any loss of officers,
employees, dealers, distributors, independent contractors, customers,
or suppliers or other favorable business relationships;
(c) declared, set aside, made or paid any dividend or other
distribution in respect of its capital stock; or purchased or redeemed
any shares of its capital stock;
(d) issued or sold any shares of its capital stock, or any options,
warrants, conversion, exchange or other rights to purchase or acquire
any such shares or any securities convertible into or exchangeable for
such shares;
(e) incurred any indebtedness for borrowed money;
(f) mortgaged, pledged, or subjected to any lien, lease, security
interest or other charge or encumbrance any of its properties or
assets, tangible or intangible;
(g) acquired or disposed of any assets or properties, except in the
ordinary course of business;
(h) forgiven or canceled any debts or claims, or waived any rights;
(i) granted to any officer or salaried employee or any other employee
any increase in compensation in any form or paid any severance or
termination pay;
(j) entered into any commitment for capital expenditures for additions
to plant, property or equipment; or
(k) agreed, whether in writing or otherwise, to take any action
described in this subsection.
2.9 REAL PROPERTIES. Section 2.9 of the Disclosure Schedule lists all real
properties either owned or leased by the Company. With respect to real
properties owned by the Company, Section 2.9 of the Disclosure Schedule includes
7
a common and legal description of each property. With respect to real properties
leased by the Company, Section 2.9 of the Disclosure Schedule includes a brief
description of the operating facilities located thereon, the annual rent payable
thereon, the length of the term, any option to renew with respect thereto and
the notice and other provisions with respect to termination of rights to the use
thereof. Except as set forth in Section 2.9 of the Disclosure Schedule, the
Company has good and marketable fee simple record title in and to, or a
leasehold interest in and to, all of its real property assets and fixtures
reflected in the Latest Balance Sheet and all of its real property assets and
fixtures purchased or otherwise acquired since the date of the Latest Balance
Sheet (except for real property assets and fixtures sold in the ordinary course
of business since the date of the Latest Balance Sheet). Except as set forth in
Section 2.9 of the Disclosure Schedule, such leasehold interests are valid and
in full force and effect and enforceable in accordance with their terms and
there does not exist any violation, breach or default thereof or thereunder.
Except as set forth in Section 2.9 of the Disclosure Schedule, none of the real
property assets or fixtures owned by the Company is subject to any mortgage,
pledge, lien, security interest, encumbrance, claim, easement, right-of-way,
tenancy, covenant, encroachment, restriction or charge of any kind or nature
(whether or not of record), except for any Permitted Liens. Except as set forth
in Section 2.9 of the Disclosure Schedule, to the knowledge of the Company,
after reasonable and diligent inquiry, all real properties owned by and leased
to the Company used in the conduct of its business are free from structural
defects, in good operating condition and repair, with no material maintenance,
repair or replacement having been deferred or neglected, suitable for the
intended use and free from other material defects. Except as set forth in
Section 2.9 of the Disclosure Schedule, each such real property and its present
use conform in all respects to all occupational, safety or health, zoning,
planning, subdivision, platting and similar Laws, and there is, to the knowledge
of the Company, no such Law contemplated that would affect adversely the right
of the Company to own or lease and operate and use such real properties. Except
as set forth in Section 2.9 of the Disclosure Schedule, all public utilities
necessary for the use and operation of any facilities on the aforesaid real
properties are available for use or access at such properties and there is no
legal or physical impairment to free ingress or egress from any of such
facilities or real properties.
2.10 MACHINERY, EQUIPMENT, VEHICLES AND PERSONAL PROPERTY. Section 2.10 of the
Disclosure Schedule lists all machinery, equipment, vehicles, furniture,
fixtures and other personal property owned or leased by the Company, other than
those items set forth on Exhibit 1.1(c). Except as set forth in Section 2.10 of
the Disclosure Schedule, the Company has good and merchantable right, title and
interest in and to, or a leasehold interest in and to, all its machinery,
equipment, vehicles and other personal property reflected in the Latest Balance
Sheet and purchased or otherwise acquired since the date of the Latest Balance
Sheet (except for such items sold or leased in the ordinary course of business
since the date of the Latest Balance Sheet). Except as set forth in Section 2.10
of the Disclosure Schedule, all of such leasehold interests relating to
machinery, equipment, vehicles and other personal property are valid and in full
force and effect and enforceable in accordance with their terms and there does
not exist any violation, breach or default thereof or thereunder. Except as set
forth in Section 2.10 of the Disclosure Schedule, none of such machinery,
equipment, vehicles or other personal property owned by the Company is subject
8
to any mortgage, pledge, lien or security interest of any kind or nature
(whether or not of record) except Permitted Liens. Except as set forth in
Section 2.10 of the Disclosure Schedule, the machinery, equipment, vehicles and
other personal property of the Company which are necessary to the conduct of its
business are in good operating condition and repair and fit for the intended
purposes thereof and no material maintenance, replacement or repair has been
deferred or neglected.
2.11 INVENTORIES. Section 2.11 of the Disclosure Schedule lists all inventory of
the Company (the "INVENTORY"). Except as set forth in Section 2.11 of the
Disclosure Schedule, all inventory of the Company, whether reflected in the
Latest Balance Sheet or otherwise, consists of a quality and quantity usable and
salable in the ordinary course of business, and the present quantities of all
inventory of the Company are reasonable in the present circumstances of the
businesses as currently conducted or as proposed to be conducted. Section 2.11
of the Disclosure Schedule will be updated at or after the Closing, pursuant to
the procedures set forth in Section 1.5, to reflect all inventory as of the date
of Closing.
2.12 RECEIVABLES AND PAYABLES.
(a) Section 2.12 of the Disclosure Schedule lists all accounts
receivable, notes receivable, trade notes and trade accounts
(collectively, "ACCOUNTS RECEIVABLE") of the Company as of the date
hereof, including their aging. Section 2.12 of the Disclosure Schedule
will be updated at or after the Closing, pursuant to the procedures set
forth in Section 1.5, to reflect all Accounts Receivable as of the date
of Closing, including their aging. Except as set forth in Section 2.12
of the Disclosure Schedule, (A) the Company has good right, title and
interest in and to all its Accounts Receivable, including those
reflected in the Latest Balance Sheet and those acquired and generated
since the date of the Latest Balance Sheet (except for those paid since
the date of the Latest Balance Sheet); (B) none of such Accounts
Receivable is subject to any mortgage, pledge, lien or security
interest of any kind or nature (whether or not of record); (C) except
to the extent of applicable reserves shown in the Latest Balance Sheet,
to the knowledge of the Company, all of the Accounts Receivable owing
to the Company constitute valid and enforceable claims arising from
bona fide transactions in the ordinary course of business, and there
are no claims, refusals to pay or other rights of set-off against any
thereof; and (D) the aging schedule of the Accounts Receivable of the
Company set forth in the Disclosure Schedule is complete and accurate.
(b) All accounts payable and notes payable by the Company arose in bona
fide transactions in the ordinary course of business and no such
account payable or note payable is delinquent by more than ninety days
in its payment.
2.13 INTELLECTUAL PROPERTY RIGHTS. The Company owns the industrial and
intellectual property rights, including without limitation the patents, patent
applications, patent rights, trademarks, trademark applications, trade names,
service marks, service xxxx applications, copyrights, computer programs and
other computer software, inventions, know-how, trade secrets, technology,
proprietary processes and formulae (collectively, "INTELLECTUAL PROPERTY
RIGHTS") described in Section 2.13 of the Disclosure Schedule. Except as set
forth in Section 2.13 of the Disclosure Schedule, to the knowledge of the
Company, the use of all Intellectual Property Rights necessary or required for
the conduct of the businesses of the Company as presently conducted and as
proposed to be conducted does not and, to the knowledge of the Company, will not
9
infringe or violate or allegedly infringe or violate the intellectual property
rights of any person or entity. Except as described in Section 2.13 of the
Disclosure Schedule, the Company does not own or use any Intellectual Property
Rights pursuant to any written license agreement and has not granted any person
or entity any rights, pursuant to written license agreement or otherwise, to use
the Intellectual Property Rights.
2.14 LITIGATION. Except as set forth in Section 2.14 of the Disclosure Schedule,
to the knowledge of the Company, there is no legal, administrative, arbitration,
or other proceeding, suit, claim or action of any nature or investigation,
review or audit of any kind (including without limitation a proceeding, suit,
claim or action, or an investigation, review or audit, involving any
environmental Law or matter), judgment, decree, decision, injunction, writ or
order pending, noticed, scheduled or threatened or contemplated by or against or
involving the Company, its assets, properties or businesses or its directors,
officers, agents or employees (but only in their capacity as such), whether at
law or in equity, before or by any person or entity or Authority, or which
questions or challenges the validity of this Agreement or any action taken or to
be taken by the parties hereto pursuant to this Agreement or in connection with
the transactions contemplated herein.
2.15 TAX MATTERS.
(a) TAX RETURNS. The Company has duly and timely filed all tax and
information reports, returns and related documents required to be filed
by it with respect to the income-type, sales/use-type and
employment-related taxes of the United States and the states and other
jurisdictions set forth in Section 2.15 of the Disclosure Schedule (and
the political subdivisions thereof). Except as set forth in Section
2.15 of the Disclosure Schedule, the Company has duly and timely filed
all other tax and information reports, returns and related documents
required to be filed by them with any Authority, including without
limitation all returns and reports of income, franchise, gross
receipts, sales, use, occupation, employment, withholding, excise,
transfer, real and personal property and other taxes, charges and
levies (collectively, the "TAX RETURNS") and, except as set forth in
Section 2.15 of the Disclosure Schedule, has duly paid, or made
adequate provision for the due and timely payment of all such taxes and
other charges, including without limitation interest, penalties,
assessments and deficiencies, due or claimed to be due from them by any
such Authorities; the reserves for all of such taxes and other charges
reflected in the Latest Balance Sheet are adequate; and there are no
liens for such taxes or other charges upon any property or assets of
the Company. There is no material omission, deficiency, error,
misstatement or misrepresentation, whether innocent, intentional or
fraudulent, in any Tax Return filed by the Company for any period. The
federal income tax returns of the Company have been examined by the
Internal Revenue Service for those periods expressly set forth in
Section 2.15 of the Disclosure Schedule, and, except to the extent
shown therein, all deficiencies asserted as a result of such
examinations have been paid or finally settled and no issue has been
raised by the Internal Revenue Service in any such examination which,
by application of similar principles, reasonably could be expected to
result in a proposed deficiency for any other period not so examined.
Except as set forth in Section 2.15 of the Disclosure Schedule, all
deficiencies and assessments resulting from examination of the Tax
10
Returns of the Company have been paid. Except as set forth in Section
2.15 of the Disclosure Schedule, there are no outstanding agreements or
waivers extending the statutory period of limitation applicable to any
Tax Return for any period. If the Company is an "S CORPORATION" the
Company has had in effect a valid election under Code Section 1362 to
be treated as an "S corporation" for each of its taxable years ended
after the date set forth in Section 2.15 of the Disclosure Schedule,
neither the Company nor any of its shareholders have taken any action
to revoke that election, neither the Company nor any of its
shareholders are aware of any basis or the existence of any facts that
would permit the Internal Revenue Service to revoke that election for
any period prior to the date of Closing, and, except as described in
Section 2.15 of the Disclosure Schedule, since the effective date of
its election as an S corporation to and including the date of Closing,
the Company will not have incurred or become liable for the payment of
any corporate-level income tax, or any related penalties or interest.
(b) COOPERATION ON TAX MATTERS. The Purchaser, the Company and the
Shareholders shall cooperate fully, as and to the extent reasonably
requested by the other party, in connection with the filing of Tax
Returns and any audit, litigation or other proceeding with respect to
taxes. Such cooperation shall include the retention and (upon the other
party's request) the provision of records and information which are
reasonably relevant to any such audit, litigation or other proceeding
and making employees available on a mutually convenient basis to
provide additional information and explanation on any material provided
hereunder.
2.16 INSURANCE. Section 2.16 of the Disclosure Schedule contains an accurate and
complete list of all policies of fire and other casualty, general liability,
theft, life, workers' compensation, health, directors and officers, business
interruption and other forms of insurance owned or held by the Company,
specifying the insurer, the policy number, the term of the coverage and, in the
case of any "claims made" coverage, the same information as to predecessor
policies for the previous five years. All present policies are in full force and
effect and all premiums with respect thereto have been paid. The Company has not
been denied any form of insurance and no policy of insurance has been revoked or
rescinded during the past five years, except as described in Section 2.16 of the
Disclosure Schedule.
2.17 BENEFIT PLANS. Except as set forth in Section 2.17 of the Disclosure
Schedule:
(a) Neither the Company nor any other "person" within the meaning of
Section 7701(a)(1) of the Code, that together with the Company is
considered a single employer pursuant to Sections 414(b), (c), (m) or
(o) of the Code or Sections 3(5) or 4001(b)(1) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") (an
"AFFILIATED ORGANIZATION") sponsors, maintains, contributes to, is
required to contribute to or has or could have any liability of any
nature, whether fixed or contingent, with respect to, any "employee
pension benefit plan" as such term is defined in Section 3(2) of ERISA,
including without limitation, any such plan that is excluded from
coverage by Section 4(b)(5) of ERISA or is a "Multi-employer Plan"
within the meaning of Section 3(37) or 4001(a)(3) of ERISA (a "PENSION
Plan"). To the best knowledge of the Company, each such Pension Plan
has been operated in accordance with its terms and in compliance with
11
the applicable provisions of ERISA, the Code and all other applicable
Law. All Pension Plans which the Company operates as plans that are
qualified under the provisions of Section 401(a) of the Code satisfy in
form and operation the requirements of Section 401(a) and all other
sections of the Code incorporated therein, except that such Pension
Plans have not been amended to comply with any changes in the law for
which the Section 401(b) remedial amendment period expires as of the
end of the plan year beginning in 1999 pursuant to IRS Rev. Proc.
98-14.
(b) Neither the Company, nor any Affiliated Organization, has or could
have any liability of any nature, whether fixed or contingent, to any
Pension Plan, the Pension Benefit Guaranty Corporation ("PBGC") or any
other person, arising directly or indirectly under Title IV of ERISA.
No "reportable event," within the meaning of Section 4043(b) of ERISA,
has occurred with respect to any Pension Plan. Neither the Company nor
any Affiliated Organization has been a party to a sale of assets to
which Section 4204 of ERISA applied with respect to which it could
incur any withdrawal liability (including any contingent or secondary
withdrawal liability) to any Multi-employer Plan. Neither the Company
nor any Affiliated Organization has incurred any withdrawal liability
within the meaning of Section 4201 of ERISA or suffered or otherwise
caused a "complete withdrawal" or "partial withdrawal," as such terms
are defined respectively in Sections 4203 and 4205 of ERISA, with
respect to a Multi-employer Plan, and nothing has occurred that is
reasonably likely to result in such a complete or partial withdrawal.
(c) Neither the Company, nor any Affiliated Organization, sponsors,
maintains, contributes to, is required to contribute to or has or could
have any liability of any nature, whether fixed or contingent, with
respect to, any "employee welfare benefit plan" ("WELFARE PLAN") as
such term is defined in Section 3(1) of ERISA, whether insured or
otherwise. To the best knowledge of the Company, each Welfare Plan has
been operated in accordance with its terms and in compliance with the
applicable provisions of ERISA, the Code and all other applicable Law.
Neither the Company nor any Affiliated Organization has established or
contributed to, is required to contribute to or has or could have any
liability of any nature, whether fixed or contingent, with respect to
any "voluntary employees' beneficiary association" within the meaning
of Section 501(c)(9) of the Code, "welfare benefit fund" within the
meaning of Section 419 of the Code, "qualified asset account" within
the meaning of Section 419 of the Code, "qualified asset account"
within the meaning of Section 419A of the Code or "multiple employer
welfare arrangement" within the meaning of Section 3(40) or ERISA.
Neither the Company nor any Affiliated Organization maintains,
contributes to or has or could have any liability of any nature,
whether fixed or contingent, with respect to medical, health, life or
other welfare benefits for present or future terminated employees or
their spouses or dependents other than as required by Part 6 of
Subtitle B of Title I of ERISA or any comparable state law.
(d) Neither the Company nor any Affiliated Organization is a party to,
maintains, contributes to, is required to contribute to or has or could
have any liability of any nature, whether fixed or contingent, with
respect to, any bonus plan, incentive plan, stock plan or any other
current or deferred compensation, separation, retention, severance or
similar agreement, arrangement or policy ("COMPENSATION PLANS").
12
(e) There are no facts or circumstances which could, directly or
indirectly, subject the Company or any Affiliated Organization to any
(1) excise tax or other liability under Chapters 43, 46 or 47 of
Subtitle D of the Code, (2) penalty tax or other liability under
Chapter 68 of Subtitle F of the Code or (3) civil penalty arising under
Section 502 of ERISA. The Company does not and could not have any
liability arising directly or indirectly in connection with any failure
of the Company or any Affiliated Organization to comply with Section
4980B of the Code or Part 6 of Subtitle B of Title I of ERISA.
(f) The Company and each Affiliated Organization has made adequate
provisions for reserves or accruals in accordance with generally
accepted accounting principles to meet contribution benefit or funding
obligations arising under applicable Law or the terms of any Pension
Plan or Welfare Plan or Compensation Plan or related agreement. There
will be no change on or before Closing in the operation of any Pension
Plan, Welfare Plan or Compensation Plan or any documents with respect
thereto which will result in an increase in the benefit liabilities
under such plans, except as may be required by law.
(g) The Company and each Affiliated Organization has timely complied
with all reporting and disclosure obligations with respect to the
Pension Plans, Welfare Plans and Compensation Plans imposed by Title I
of ERISA or other applicable Law.
(h) There are no pending or, to the Company's knowledge, threatened
audits, investigations, claims, suits, grievances or other proceedings,
and there are no facts that could give rise thereto, involving,
directly or indirectly, any Pension Plan, Welfare Plan, or Compensation
Plan, or any rights or benefits thereunder, other than the ordinary and
usual claims for benefits by participants, dependents or beneficiaries.
(i) The transactions contemplated herein will not and do not result in
the acceleration of accrual, vesting, funding or payment of any
contribution or benefit under any Pension Plan, Welfare Plan or
Compensation Plan.
(j) The Company has delivered to Purchaser, true and complete copies
of: (i) all Pension, Welfare and Compensation Plans and related trust
agreements or other agreements or contracts evidencing any funding
vehicle with respect thereto; (ii) the three most recent annual reports
on Treasury Form 5500, including all schedules and attachments thereto,
with respect to any Plan for which such a report is required; (iii) the
three most recent actuarial reports with respect to any Pension Plan
that is a "defined benefit plan" within the meaning of Section 414(j)
of the Code; (iv) the form of summary plan description, including any
summary of material modifications thereto or other modifications
communicated to participants, currently in effect with respect to each
Pension, Welfare or Compensation Plan for which such is required; (v)
the most recent determination letter with respect to each Pension Plan
intended to qualify under Section 401(a) of the Code; (vi) a copy of
the notice required under ERISA Section 204(h) for any Pension Plan for
which benefit accruals have been frozen; (vii) all professional
13
opinions, material internal memoranda, material correspondence with
regulatory authorities and administrative policies, manual,
interpretations and the like with respect to each Pension Plan, Welfare
Plan or Compensation Plan; and (viii) complete and accurate employment
records showing for each Transferred Employee (as defined herein), the
following: name, address, Social Security number, date of birth, date
of hire, rate of pay, marital status, and citizenship or immigration
status.
(k) In connection with the termination of any Pension Plan and without
limiting the applicability of the foregoing representations to such
Pension Plan: (i) nothing done or omitted to be done has or could
subject the Company or any Affiliated Organization to any liability,
loss, cost, charge, expense or expenditure of any nature or result in
the imposition of any Lien in favor of the PBGC or any other person;
(ii) the Company has received a determination letter from the Internal
Revenue Service, based on complete and accurate disclosure by the
Company, that such termination did not adversely affect the qualified
status of such Pension Plan under Section 401(a) of the Code or the tax
exempt status of its related trust under Section 501(a) of the Code;
(iii) all notices and other filings required to be submitted to the
PBGC were submitted in a timely manner and were complete and accurate
and no distributions were made until receipt of PBGC approval in the
form of a notice of sufficiency or by lapse of any applicable time
period without notice of PBGC objection, as the case may be; (iv) all
participants, beneficiaries of deceased participants, alternate payees
and other interested Parties received all notices and disclosures
required by applicable Law in a timely manner and all such notices and
disclosures were complete and accurate and satisfied the requirements
imposed by all applicable Laws; (v) no portion of the assets of the
Plan reverted to the Company or any Affiliated Organization; (vi) the
selection of annuity contracts and the process employed in connection
therewith satisfied all applicable Laws, including without limitation
ERISA, and each and all of the issuers of such contracts have fully
satisfied all of its or their obligations thereunder and (vii) the
termination in all respects satisfied all applicable Laws.
(l) No action or omission of the Company or any director, officer,
employee or agent thereof in any way restricts, impairs or prohibits
the Purchaser or any successor of the Purchaser from amending or
terminating any Pension Plan, Welfare Plan or Compensation Plan in
accordance with the express terms of any such plan and applicable law.
(m) Nothing has occurred or failed to occur with respect to any Pension
Plan, Welfare Plan or Compensation Plan which could result in any
liability to the Purchaser or any successor of the Purchaser other than
a liability expressly assumed pursuant to this Agreement.
2.18 BANK ACCOUNTS; POWERS OF ATTORNEY. Section 2.18 of the Disclosure Schedule
sets forth the following: (i) the names of all financial institutions,
investment banking and brokerage houses, and other similar institutions at which
the Company maintain accounts, deposits, safe deposit boxes of any nature, and
the names of all persons authorized to draw thereon or make withdrawals
therefrom; (ii) the terms and conditions thereof and any limitations or
restrictions as to use, withdrawal or otherwise; and (iii) the names of all
persons or entities holding general or special powers of attorney from the
Company and a summary of the terms thereof.
14
2.19 CONTRACTS AND COMMITMENTS; NO DEFAULT.
(a) Except as set forth in Section 2.19 of the Disclosure Schedule, the
Company:
(i) has no written contract, commitment, agreement or
arrangement with any person or, to the Company's knowledge,
any oral contract, commitment, agreement or arrangement which
(1) requires payments individually in excess of $10,000
annually or in excess of $50,000 over its term (including
without limitation periods covered by any option to extend or
renew by either party) and (2) is not terminable on thirty
(30) days' or less notice without cost or other liability;
(ii) does not pay any person or entity cash remuneration at
the annual rate (including without limitation guaranteed
bonuses) of more than $50,000 for services rendered;
(iii) is not restricted by agreement from carrying on its
businesses or any part thereof anywhere in the world or from
competing in any line of business with any person or entity;
(iv) is not subject to any obligation or requirement to
provide funds to or make any investment (in the form of a
loan, capital contribution or otherwise) in any person or
entity;
(v) is not party to any agreement, contract, commitment or
loan to which any of its directors, officers or shareholders
or any "AFFILIATE" or "ASSOCIATE" (as defined in Rule 405 as
promulgated under the Securities Act of 1933) (or former
affiliate or associate) thereof is a party; (vi) is not
subject to any outstanding sales or purchase contracts,
commitments or proposals which will result in any loss upon
completion or performance thereof;
(vii) is not party to any purchase or sale contract or
agreement that calls for aggregate purchases or sales in
excess over the course of such contract or agreement of
$25,000 or which continues for a period of more than twelve
months (including without limitation periods covered by any
option to renew or extend by either party) which is not
terminable on sixty (60) days' or less notice without cost or
other liability at or any time after the Closing;
(viii) is not subject to any contract, commitment, agreement
or arrangement with any "DISQUALIFIED INDIVIDUAL" (as defined
in Section 280G(c) of the Code) which contains any severance
15
or termination pay liabilities which would result in a
disallowance of the deduction for any "EXCESS PARACHUTE
PAYMENT" (as defined in Section 280G(b)(1) of the Code) under
Section 280G of the Code; and
(ix) has no distributorship, dealer, manufacturer's
representative, franchise or similar sales contract relating
to the payment of a commission.
Notwithstanding the foregoing, with respect to the Company's contracts with its
distributors, Schedule 2.19 discloses only the following: (i) the Company's
standard form of distributor contract; (ii) the number of distributors with whom
the Company has entered into distributor contracts; (iii) the number of the
Company's distributors which the Company classifies as "active"; (iv) the number
of the Company's distributors which the Company classifies as "inactive"; and
(v) with respect to the Company's distributors who participate in the Company's
"autoship program", the dates of the month on which the Company collects its
"autoship fees."
Each contract, agreement, instrument, license, commitment, loan, restriction and
other arrangement set forth on Schedule 2.19 shall be referred to as a "MATERIAL
CONTRACT" and shall be collectively referred to as the "MATERIAL CONTRACTS"
(b) True and complete copies (or summaries, in the case of oral items)
of all Material Contracts have been made available to the Purchaser for
review. Except as set forth in Section 2.19 of the Disclosure Schedule,
all Material Contracts are valid and enforceable by and against the
Company in accordance with their respective terms; the Company is not
in material breach, violation or default, however defined, in the
performance of any of its obligations thereunder, and, to the knowledge
of the Company, no facts and circumstances exist which, whether with
the giving of due notice, lapse of time, or both, would constitute such
a material breach, violation or default thereunder or thereof; and, to
the Company's knowledge, no other parties thereto are in a breach,
violation or default, however defined, thereunder or thereof, and no
facts or circumstances exist which, whether with the giving of due
notice, lapse of time, or both, would constitute such a breach,
violation or default thereunder or thereof.
2.20 ORDERS, COMMITMENTS AND RETURNS. Except as set forth in Section 2.20 of the
Disclosure Schedule, all accepted and unfulfilled orders for the sale of
products and the performance of services entered into by the Company and all
outstanding contracts or commitments for the purchase of supplies, materials and
services were made in bona fide transactions in the ordinary course of business.
Except as set forth in Section 2.20 of the Disclosure Schedule, to the knowledge
of the Company, there are no claims against the Company to return products by
reason of alleged over-shipments, defective products or otherwise, or of
products in the hands of customers, retailers or distributors under an
understanding that such products would be returnable.
2.21 LABOR MATTERS. Except as set forth in Section 2.21 of the Disclosure
Schedule: (i) the Company is and has been in material compliance with all
applicable Laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, including without limitation any
such Laws respecting employment discrimination and occupational safety and
health requirements, and has not and is not engaged in any unfair labor
16
practice; (ii) to the knowledge of the Company, there is no unfair labor
practice complaint against the Company pending or threatened before the National
Labor Relations Board or any other comparable Authority; (iii) there is no labor
strike, dispute, slowdown or stoppage actually pending or, to the Company's
knowledge, threatened against or directly affecting the Company; (iv) to the
knowledge of the Company, no labor representation question exists respecting the
employees of the Company and there is not pending or threatened any activity
intended or likely to result in a labor representation vote respecting the
employees of the Company; (v) no grievance or any arbitration proceeding arising
out of or under collective bargaining agreements is pending and no claims
therefor exist or, to the Company's knowledge, have been threatened; (vi) no
collective bargaining agreement is binding and in force against the Company or
currently being negotiated by the Company; (vii) to the knowledge of the
Company, the Company has not experienced any significant work stoppage or other
significant labor difficulty; (viii) the Company is not delinquent in payments
to any persons for any wages, salaries, commissions, bonuses or other direct or
indirect compensation for any services performed by them or amounts required to
be reimbursed to such persons, including without limitation any amounts due
under any Pension Plan, Welfare Plan or Compensation Plan; (ix) except as upon
termination of the employment of any person, neither the Purchaser nor any
subsidiary of the Purchaser will, by reason of anything done by the Company or
the Shareholders at or prior to or as of the date of Closing, be liable to any
of such persons for so-called "SEVERANCE PAY" or any other payments; and (x)
within the twelve month period prior to the date hereof there has not been any
expression of intention to the Company by any officer or key employee to
terminate such employment.
2.22 DEALERS AND SUPPLIERS. Except as set forth in Section 2.22 of the
Disclosure Schedule, there has not been in the twelve month period prior to the
date hereof any adverse change in the business relationship of the Company with
any dealer or supplier to the Company.
2.23 PERMITS AND OTHER OPERATING RIGHTS. Except as set forth in Section 2.23 of
the Disclosure Schedule, the Company does not require the Consent of any
Authority to permit it to operate in the manner in which it presently is being
operated, and possesses all permits and other authorizations from all
Authorities presently required necessary to permit it to operate it businesses
in the manner in which they presently are conducted.
2.24 COMPLIANCE WITH LAW. Except as set forth in Section 2.24 of the Disclosure
Schedule, and without limiting the scope of any other representations or
warranties contained in this Agreement, but without intending to duplicate the
scope of such other representations and warranties, the assets, properties,
businesses and operations of the Company are and have been in compliance with
all Laws applicable to the ownership and conduct of their assets, properties,
businesses and operations. To the knowledge of the Company, there are no
outstanding and unsatisfied deficiency reports, plans of correction, notices of
noncompliance or work orders relating to any such Authorities, and no such
discussions with any such Authorities are scheduled or pending.
2.25 ASSETS OF BUSINESS. The assets owned or leased by the Company constitute
all of the assets held for use or used primarily in connection with its
businesses and are adequate to carry on such businesses as presently conducted
and as contemplated by the Company to be conducted.
17
2.26 HAZARDOUS SUBSTANCES AND HAZARDOUS WASTES. Except as set forth in
Section 2.26 of the Disclosure Schedule:
(a) To the best knowledge of the Company, neither the Company, any
former subsidiary of the Company, nor any previous owner, tenant,
occupant or user of any property owned or leased by or to the Company
or by or to any former subsidiary as of the date hereof and which
property is included in the Assets (the "PROPERTIES") engaged in or
permitted, direct or indirect operations or activities upon, or any use
or occupancy of the Properties, or any portion thereof, for the purpose
of or in any way involving the handling, manufacture, treatment,
storage, use, generation, emission, release, discharge, refining,
dumping or disposal of any Environmentally Regulated Materials (as
hereinafter defined) (whether accidental or intentional, direct or
indirect) on, under, in or about the Properties in violation of
Environmental Laws, or transported any Environmentally Regulated
Materials to, from or across the Properties in violation of
Environmental Laws, nor are any Environmentally Regulated Materials
presently constructed, deposited, stored, placed or otherwise located
on, under, in or about the Properties in violation of Environmental
Laws, nor have any Environmentally Regulated Materials migrated from
the Properties upon or beneath other properties, nor have any
Environmentally Regulated Materials migrated or threatened to migrate
from other properties upon, about or beneath the Properties. To the
best knowledge of the Company, the Properties do not contain in
violation of Environmental Laws, any: (i) underground or aboveground
storage tanks; (ii) asbestos; (iii) equipment using PCBs; (iv)
underground injection xxxxx; or (v) septic tanks in which process waste
water or any Environmentally Regulated Materials have been disposed.
(b) To the best knowledge of the Company:
(i) no violation or noncompliance with Environmental and
Occupational Safety and Health Laws has occurred with respect
to the Properties or operations conducted thereon; the Company
has obtained all permits, licenses and authorizations required
by, and the Company and the Properties are in compliance, in
all material respects, with all Environmental and Occupational
Safety and Health Laws including, without limitation, all
applicable restrictions, conditions, standards, limitations,
prohibitions, requirements and obligations contained in the
Environmental and Occupational Safety and Health Laws or
contained in any regulation, code, plan, order, decree,
judgment, injunction, notice or demand letter issued, entered,
promulgated or approved thereunder;
(ii) no enforcement, investigation, cleanup, removal,
remediation or response or other governmental or regulatory
actions have been, or could have been at any time in the past,
asserted or threatened with respect to operations conducted on
the Properties or the Properties themselves or against the
Company or any subsidiary or former subsidiary with respect to
or in any way regarding the Properties pursuant to any
Environmental and Occupational Safety and Health Laws; and
18
(iii) no claims or settlements with respect to the Properties
or the operations thereon, or against the Company or any
subsidiary or former subsidiaries with respect to the
Properties or operations conducted thereon, relating to or
arising out of Environmental and Occupational Safety and
Health Laws or Environmentally Regulated Materials, have been
made or been threatened by any third party, including any
Authority, nor to the best knowledge of the Company, does
there exist any reasonable basis for any such claim (any such
enforcement, investigation, cleanup, removal, remediation or
response, other governmental or regulatory action, claim or
settlement is herein referred to as an "ENVIRONMENTAL CLAIM").
(c) To the best knowledge of the Company, with regard to the Company
and the Properties, there are no past or present events, conditions,
circumstances, activities, practices, incidents, actions or plans which
may interfere with or prevent compliance or continued compliance with
Environmental and Occupational Health and Safety Laws, as in effect on
the date of Closing.
(d) The term "ENVIRONMENTAL AND OCCUPATIONAL SAFETY AND HEALTH LAW" as
used in this Agreement means any Law, that (i) regulates, creates
standards for or imposes liability or standards of conduct concerning
any element, compound, pollutant, contaminant, or toxic or hazardous
substance, material or waste, or any mixture thereof, or relates in any
way to emissions or releases into the environment or ambient
environmental conditions, or conduct affecting such matters, or (ii) is
designed to provide safe and healthful working conditions or reduce
occupational safety and health hazards. Such laws shall include, but
not be limited to, the National Environmental Policy Act, 42 U.S.C. ss.
ss. 4321 et seq., the Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. ss. ss. 9601 et seq., the
Resource Conservation and Recovery Act, 42 U.S.C. ss. ss. 6901 et seq.,
the Federal Water Pollution Control Act, 33 U.S.C. ss. ss. 1251 et
seq., the Federal Clean Air Act, 42 U.S.C. ss. ss. 7401 et seq., the
Toxic Substances Control Act, 15 U.S.C. ss. ss. 2601 et seq., the
Emergency Planning and Community Right to Know Act, 42 U.S.C. ss.
11011, the Hazard Communication Act, 29 U.S.C. ss. ss. 651 et seq., the
Occupational Safety and Health Act, 29 U.S.C. ss. ss. 651 et seq., the
Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. ss. 136,
and any caselaw interpretations, amendments or restatements thereof, or
similar enactments thereto, as is now or at any time hereafter may be
in effect, as well as their international, state and local
counterparts.
(e) The term "ENVIRONMENTALLY REGULATED MATERIALS" as used in this
Agreement means any element, compound, pollutant, contaminant,
substance, material or waste, or any mixture thereof, designated,
listed, referenced, regulated or identified pursuant to any
Environmental and Occupational Safety and Health Law.
(f) Notwithstanding any provision in this Agreement to the contrary,
all representations and warranties of the Company pertaining or related
to Environmental Law, Environmentally Regulated Materials,
Environmental Claims, pollution, contamination or other environmental
matters are contained solely and exclusively in this Section 2.26.
19
2.27 BROKERS. Except as set forth in Section 2.27 of the Disclosure Schedule,
neither the Company nor any of its directors, officers or employees has employed
any broker, finder, or financial advisor or incurred any liability for any
brokerage fee or commission, finder's fee or financial advisory fee, in
connection with the transactions contemplated hereby, nor is there any basis
known to the Company for any such fee or commission to be claimed by any person
or entity.
2.28 CUSTOMERS. Except as set forth in Section 2.28 of the Disclosure Schedule,
there has not been in the 12-month period prior to the date hereof any
significant dispute with any customer of the Company nor any set of
circumstances which is reasonably anticipated to have a material adverse effect
on the relationship between the Company and such customer.
2.29 ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither the Company, nor any
officer, director, shareholder, employee or agent of the Company, nor any other
person acting on their behalf, has, directly or indirectly, within the past
three years given or agreed to give any gift or similar benefit to any customer,
supplier, governmental employee or other person who is or may be in a position
to help or hinder the business of the Company (or assist the Company in
connection with any actual or proposed transaction) which (i) might subject the
Company or Purchaser to any damage or penalty in any civil, criminal or
governmental litigation or administrative proceeding, (ii) if not given in the
past, might have had a Material Adverse Effect on the assets, business or
operations of the Company as reflected in the financial statements set forth in
Section 2.5 of the Disclosure Schedule, or (iii) if not continued in the future,
might have a Material Adverse Effect on the Company's assets, business,
operations or prospects or which might subject the Company or Purchaser to suit
or penalty in any private or governmental litigation or proceeding.
2.30 SECURITIES MATTERS.
(a) The Company and the Shareholders understand that (i) the Shares
have not been registered or qualified under the Securities Act of 1933,
as amended (the "1933 Act") or any state securities or "blue sky" laws,
on the ground that the sale provided for in this Agreement and the
issuance of the securities hereunder is exempt from registration and
qualification under Sections 4(2) and 18 of the 1933 Act, and (ii) the
Purchaser's reliance on such exemptions is predicated on the Company's
and the Shareholders' representations set forth herein.
(b) The Company and the Shareholders acknowledge that an investment in
the Purchaser involves an EXTREMELY HIGH DEGREE OF RISK, lack of
liquidity and substantial restrictions on transferability and that the
Company and the Shareholders may lose their entire investment in the
Shares.
(c) The Purchaser has made available to the Company and the
Shareholders or the Company's and the Shareholders' advisors the
opportunity to obtain information to evaluate the merits and risks of
the investment in the Shares, and the Company and the Shareholders have
20
received all information requested from the Purchaser. The Company and
the Shareholders have had an opportunity to ask questions and receive
answers from the Company regarding the terms and conditions of the
offering of the Shares and the business, properties, plans, prospects,
and financial condition of the Purchaser and to obtain additional
information as the Company and the Shareholders have deemed appropriate
for purposes of investing in the Shares pursuant to this Agreement.
(d) The Company and the Shareholders, personally or through advisors,
have expertise in evaluating and investing in private placement
transactions of securities of companies in a similar stage of
development to the Purchaser and have sufficient knowledge and
experience in financial and business matters to assess the relative
merits and risks of an investment in the Purchaser. In connection with
the purchase of the Shares, the Company and the Shareholders have
relied solely upon independent investigations made by the Company and
the Shareholders, and have consulted their own investment advisors,
counsel and accountants. The Company and the Shareholders have adequate
means of providing for current needs and personal contingencies, and
have no need for liquidity and can sustain a complete loss of the
investment in the Shares.
(e) The Shares which the Purchaser is to issue hereunder will be
acquired for the recipient's own account, for investment purposes, not
as a nominee or agent, and not with a view to or for sale in connection
with any distribution of the Shares in violation of applicable
securities laws.
(f) The Company and the Shareholders understand that no federal or
state agency has passed upon the Shares or made any finding or
determination as to the fairness of the investment in the Shares.
(g) The Company and each Shareholder is an "Accredited Investor" as
defined in Rule 501(a) of Regulation D promulgated under the 0000 Xxx.
The Company and the Shareholders acknowledge that the Shares may be
purchased only by persons who come within the definition of an
"Accredited Investor" as that term is defined in Rule 501(a) of
Regulation D promulgated under the 1933 Act.
(h) Neither the Company nor any Shareholder has received any general
solicitation or general advertising concerning the Shares, nor is the
Company nor any Shareholders aware of any such solicitation or
advertising.
2.31 THE PURCHASER AND REGISTRATION UNDER THE SECURITIES EXCHANGE ACT. The
Company and the Shareholders are aware that there can be no assurance that the
Purchaser will register under the Securities Exchange Act of 1934 (the "1934
ACT") and become a reporting company under the 1934 Act. Furthermore, if the
Purchaser does become a reporting company under the 1934 Act, the Company and
the Shareholders acknowledge that there can be no assurance given as to the
ultimate value of the Shares or the liquidity thereof.
21
2.32 DISCLOSURE. No representation or warranty by the Company in this Agreement
and no statement contained in any document (including, without limitation, the
financial statements referred to herein and the Disclosure Schedule),
certificate, exhibit or other writing furnished or to be furnished to Purchaser
pursuant to the provisions of this Agreement, contains or will contain, any
untrue statement of material fact or omits or will omit to state any material
fact necessary in order to make the statements herein or therein, in light of
the circumstances under which they were made, not misleading, and all of the
foregoing completely and correctly present the information required or purported
to be set forth herein or therein. The representations and warranties contained
in this Article 2 or elsewhere in this Agreement or any document delivered
pursuant hereto will not be affected or deemed waived by reason of the fact that
the Purchaser or its representatives knew (other than as a result of the
Disclosure Schedule or other writing delivered to the Purchasers on the date of
Closing) or should have known that any such representation or warranty is or
might be inaccurate in any respect.
ARTICLE 3
---------
REPRESENTATIONS AND WARRANTIES OF PURCHASER
-------------------------------------------
The Purchaser, jointly and severally, represents and warrants to the
Company and the Shareholders as of the date hereof as follows:
3.1. CORPORATE ORGANIZATION. The Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada. The
Purchaser is qualified to do business and is in good standing as a foreign
corporation in each jurisdiction where the nature of the activities conducted by
it or the character of the property owned, leased or operated by it make such
qualification necessary or appropriate, except for those jurisdictions where the
failure to be so qualified has not and could not reasonably be expected to have
a Material Adverse Effect on the ability of the Purchaser to fulfill its
obligations under this Agreement.
3.2. AUTHORIZATION. The Purchaser has full corporate power and authority to
enter into this Agreement and the Purchaser Delivered Documents and to carry out
the transactions contemplated herein and therein. The Boards of Directors of the
Purchaser have taken all action required by law, their respective articles of
incorporation and bylaws or otherwise to authorize the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated herein. This Agreement is the valid and binding legal obligation of
the Purchaser enforceable against it in accordance with its terms.
3.3. NON-CONTRAVENTION. Neither the execution, delivery and performance of this
Agreement nor the consummation of the transactions contemplated herein will: (i)
violate any provision of the articles of incorporation or bylaws of the
Purchaser; or (ii) except for such violations, conflicts, defaults,
accelerations, terminations, cancellations, impositions of fees or penalties,
mortgages, pledges, liens, security interests, encumbrances, restrictions and
charges which would not, individually or in the aggregate, have a Material
Adverse Effect on the Purchaser, (A) violate, be in conflict with, or constitute
a default, however defined (or an event which, with the giving of due notice or
lapse of time, or both, would constitute such a default), under, or cause or
permit the acceleration of the maturity of, or give rise to, any right of
termination, cancellation, imposition of fees or penalties under, any debt,
note, bond, lease, mortgage, indenture, license, obligation, contract,
22
commitment, franchise, permit, instrument or other agreement or obligation to
which the Purchaser is a party or by which they or any of its properties or
assets is or may be bound (unless with respect to which defaults or other
rights, requisite waivers or consents will have been obtained at or prior to the
Closing) or (B) result in the creation or imposition of any mortgage, pledge,
lien, security interest, encumbrance, restriction, adverse claim or charge of
any kind, upon any property or assets of the Purchaser under any debt,
obligation, contract, agreement or commitment to which the Purchaser is a party
or by which the Purchaser or any of its assets or properties is or may be bound;
or (iii) violate any Law.
3.4. CONSENTS AND APPROVALS. No Consent is required by any person or entity,
including without limitation any Authority, in connection with the execution,
delivery and performance by the Purchaser of this Agreement, or the consummation
of the transactions contemplated herein, other than any Consent which, if not
made or obtained, will not, individually or in the aggregate, have a Material
Adverse Effect on the business of the Purchaser.
3.5. BROKERS. Neither the Purchaser nor any of its directors, officers or key
employees have employed any broker, finder or financial advisor, or incurred any
liability for any brokerage fee or commission, finder's fee or financial
advisory fee, in connection with the transactions contemplated hereby, nor is
there any basis known to the Purchaser for any such fee or commission to be
claimed by any person or entity.
3.6. LEGAL PROCEEDINGS. There are no actions, suits or proceedings instituted,
pending or, to the knowledge of the Purchaser, threatened, against the
Purchaser, or against any of its affiliates or against any property, asset,
interest or right of any of them, either individually or in the aggregate, that
would prevent or delay consummation of the transactions contemplated by this
Agreement or otherwise prevent the Purchaser from performing its obligations
under this Agreement. The Purchaser is not subject to any judgment, order, writ,
injunction or decree that would prevent or delay consummation of the
transactions contemplated by this Agreement or otherwise prevent the Purchaser
from performing its obligations under this Agreement.
3.7 CAPITALIZATION. The authorized capital stock of the Purchaser consists of
20,000,000 shares of common stock, par value $0.001 per share (the "Common
Stock") and 1,000,000 shares of undesignated preferred stock. The Shares, when
issued, sold and delivered in accordance with the terms of this Agreement for
the consideration expressed herein, will be duly and validly issued, fully paid,
and nonassessable.
3.8 FINANCIAL STATEMENTS. The Purchaser has retained an independent accounting
firm to prepare audited balance sheets of the Purchaser as of December 31, 1998
and 1997 and related statements of operations, shareholders' equity and cash
flows for the fiscal years then ended (the "PURCHASER FINANCIAL STATEMENTS").
The Purchaser believes that, once completed, the Purchaser Financial Statements
(i) will be in accordance with the books and records of the Purchaser and have
been prepared in conformity with generally accepted accounting principles
("GAAP") consistently applied for all periods, and (ii) will fairly present the
financial position of the Purchaser as of the respective dates thereof, and the
results of operations, changes in shareholders' equity and changes in cash flow
for the periods then ended, all in accordance with GAAP consistently applied for
all periods.
23
3.9 LITIGATION. To the knowledge of the Purchaser, there is no legal,
administrative, arbitration, or other proceeding, suit, claim or action of any
nature or investigation, review or audit of any kind (including without
limitation a proceeding, suit, claim or action, or an investigation, review or
audit, involving any environmental Law or matter), judgment, decree, decision,
injunction, writ or order pending, noticed, scheduled or threatened or
contemplated by or against or involving the Purchaser, its assets, properties or
businesses or its directors, officers, agents or employees (but only in their
capacity as such), whether at law or in equity, before or by any person or
entity or Authority, or which questions or challenges the validity of this
Agreement or any action taken or to be taken by the parties hereto pursuant to
this Agreement or in connection with the transactions contemplated herein.
3.10 INSURANCE. Exhibit 3.10 contains an accurate and complete list of all
policies of fire and other casualty, general liability, theft, life, workers'
compensation, health, directors and officers, business interruption and other
forms of insurance owned or held by the Purchaser, specifying the insurer, the
policy number, the term of the coverage and, in the case of any "claims made"
coverage, the same information as to predecessor policies for the previous five
years. All present policies are in full force and effect and all premiums with
respect thereto have been paid. The Purchaser has not been denied any form of
insurance and no policy of insurance has been revoked or rescinded during the
past five years, except as described in Exhibit 3.10.
3.11 LABOR MATTERS. Except as set forth in Exhibit 3.11: (i) the Purchaser is
and has been in material compliance with all applicable Laws respecting
employment and employment practices, terms and conditions of employment and
wages and hours, including without limitation any such Laws respecting
employment discrimination and occupational safety and health requirements, and
has not and is not engaged in any unfair labor practice; (ii) to the knowledge
of the Purchaser, there is no unfair labor practice complaint against the
Purchaser pending or threatened before the National Labor Relations Board or any
other comparable Authority; (iii) there is no labor strike, dispute, slowdown or
stoppage actually pending or, to the Purchaser's knowledge, threatened against
or directly affecting the Purchaser; (iv) to the knowledge of the Purchaser, no
labor representation question exists respecting the employees of the Purchaser
and there is not pending or threatened any activity intended or likely to result
in a labor representation vote respecting the employees of the Purchaser; (v) no
grievance or any arbitration proceeding arising out of or under collective
bargaining agreements is pending and no claims therefor exist or, to the
Purchaser's knowledge, have been threatened; (vi) no collective bargaining
agreement is binding and in force against the Purchaser or currently being
negotiated by the Purchaser; and (vii) to the knowledge of the Purchaser, the
Purchaser has not experienced any significant work stoppage or other significant
labor difficulty.
3.12 COMPLIANCE WITH LAW. Except as set forth in Exhibit 3.12, and without
limiting the scope of any other representations or warranties contained in this
Agreement, but without intending to duplicate the scope of such other
representations and warranties, the assets, properties, businesses and
operations of the Purchaser are and have been in compliance with all Laws
applicable to the ownership and conduct of their assets, properties, businesses
and operations. To the knowledge of the Purchaser, there are no outstanding and
unsatisfied deficiency reports, plans of correction, notices of noncompliance or
work orders relating to any such Authorities, and no such discussions with any
such Authorities are scheduled or pending.
24
3.13 CUSTOMERS. Except as set forth in Exhibit 3.13, there has not been in the
12-month period prior to the date hereof any significant dispute with any
customer of the Purchaser nor any set of circumstances which is reasonably
anticipated to have a material adverse effect on the relationship between the
Purchaser and such customer.
3.14 ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither the Purchaser, nor any
officer, director, shareholder, employee or agent of the Purchaser, nor any
other person acting on their behalf, has, directly or indirectly, within the
past three years given or agreed to give any gift or similar benefit to any
customer, supplier, governmental employee or other person who is or may be in a
position to help or hinder the business of the Purchaser (or assist the
Purchaser in connection with any actual or proposed transaction) which (i) might
subject the Purchaser or Purchaser to any damage or penalty in any civil,
criminal or governmental litigation or administrative proceeding, (ii) if not
given in the past, might have had a Material Adverse Effect on the assets,
business or operations of the Purchaser, or (iii) if not continued in the
future, might have a Material Adverse Effect on the Purchaser's assets,
business, operations or prospects or which might subject the Purchaser to suit
or penalty in any private or governmental litigation or proceeding.
ARTICLE 4
---------
COVENANTS
---------
4.1 THE COMPANY'S AGREEMENTS AS TO SPECIFIED MATTERS. Except as specifically set
forth in Exhibit 4.1 hereto, except in the ordinary course of business and
consistent with past practice, and except upon the written consent of the
Purchaser (which consent shall not be unreasonably withheld), from the date
hereof until the Closing, the Company shall not do any of the following:
(a) Amend its articles of incorporation or bylaws;
(b) Borrow or agree to borrow any funds;
(c) Incur, assume, suffer or become subject to, whether directly or by
way of guarantee or otherwise, any claims, obligations, liabilities or
loss contingencies which, individually or in the aggregate, are
material to the conduct of the businesses of the Company or have or
would have a material adverse effect on the financial condition of the
Company;
(d) Pay, discharge or satisfy any claims, liabilities or obligations;
(e) Permit or allow any of its properties or assets material to the
operation of its businesses to be subjected to any mortgage, pledge,
lien, security interest, encumbrance, restriction or charge of any
kind, except Permitted Liens;
(f) Write down the value of any inventory or write off as uncollectible
any notes or accounts receivable or any trade accounts or trade notes;
(g) Cancel or amend any debts, waive any claims or rights or sell,
transfer or otherwise dispose of any properties or assets, other than
for such debts, claims, rights, properties or assets which,
individually or in the aggregate, are not material to the conduct of
its businesses;
25
(h) License, sell, transfer, pledge, modify, disclose, dispose of or
permit to lapse any right to the use of any Intellectual Property
Rights other than for such Intellectual Property Rights which,
individually or in the aggregate, are not material to the conduct of
its businesses;
(i) (i) Terminate, enter into, adopt, institute or otherwise become
subject to or amend in any material respect any collective bargaining
agreement or employment or similar agreement or arrangement with any of
its directors, officers or employees; (ii) terminate, enter into,
adopt, institute or otherwise become subject to or amend in any
material respect any Compensation Plan; (iii) contribute, set aside for
contribution or authorize the contribution of any amounts for any such
Compensation Plan except as required (and not discretionary) by the
terms of such Compensation Plan; or (iv) grant or become obligated to
grant any general increase in the compensation of any directors,
officers or employees (including without limitation any such increase
pursuant to any Compensation Plan);
(j) Make or enter into any commitment for capital expenditures for
additions to property, plant or equipment individually in excess of
$25,000, or in excess of $100,000 in the aggregate;
(k) (i) Declare, pay or set aside for payment any dividend or other
distribution in respect of its capital stock or other securities
(including without limitation distributions in redemption or
liquidation) or redeem, purchase or otherwise acquire any shares of its
capital stock or other securities; (ii) issue, grant or sell any shares
of its capital stock or equity securities of any class, or any options,
warrants, conversion or other rights to purchase or acquire any such
shares or equity securities or any securities convertible into or
exchangeable for such shares or equity securities, except issuance of
the Company Common Stock pursuant to the exercise of stock options
outstanding on the date hereof; (iii) become a party to any merger,
exchange, reorganization, recapitalization, liquidation, dissolution or
other similar corporate transaction; or (iv) organize any new
subsidiary, acquire any capital stock or other equity securities or
other ownership interest in, or assets of, any person or entity or
otherwise make any investment by purchase of stock or securities,
contributions to capital, property transfer or purchase of any
properties or assets of any person or entity;
(l) Pay, lend or advance any amounts to, or sell, transfer or lease any
properties or assets to, or enter into any agreement or arrangement
with, any director, officer, employee or shareholder;
(m) Terminate, enter into or amend in any material respect any Material
Contract identified in Section 2.19 of the Disclosure Schedule, or take
any action or omit to take any action which will cause a breach,
violation or default (however defined) under any such Material
Contract;
26
(n) Take any action that can be reasonably anticipated to have a
Material Adverse Effect on Company (PROVIDED that any actions taken in
connection with the Closing or the performances of the Company's
obligations under this Agreement shall not be covered by this
subsection (n)) or cause any representation or warranty set forth in
Section 2 hereof to be untrue or any condition to the Closing not to be
satisfied;
(o) Accelerate xxxxxxxx, shipments to customers, payments from
customers, orders from suppliers or payment of accounts payable or
adjust the level of inventory, except in the ordinary course of
business consistent with past practices;
(p) Acquire any of the business or assets of any other person, firm,
association or corporation;
(q) Do any act or omit to do any act, or permit any act or omission to
act, which could cause a breach or default by Company under any of
Company's contracts, agreements, commitments or obligations;
(r) Enter into or amend any other agreements, commitments or contracts
which, individually or in the aggregate, are material to Company,
except agreements for the purchase and sale of goods or services in the
ordinary course of business, consistent with past practice and not in
excess of current requirements; or
(s) Agree, whether in writing or otherwise, to take any action
described in this subsection.
4.2 CONDUCT OF THE COMPANY BUSINESS. The Company shall maintain its assets and
properties and carry on its businesses and operations only in ordinary course in
substantially the same manner as planned and previously operated; and the
Company shall use its best commercially reasonable efforts to preserve intact
its business organizations, existing business relationships (including without
limitation its relationships with officers, employees, dealers, distributors,
independent contractors, customers and suppliers), good will and going concern
value; PROVIDED THAT in no event shall any of the foregoing prohibit the Company
from taking any action set forth on Exhibit 4.1.
4.3 NO COMPANY SOLICITATION OF ALTERNATE TRANSACTION. The Company shall not, and
will use its best efforts to ensure that its directors, officers and employees,
independent contractors, consultants, counsel, accountants, investment advisors
and other representatives and agents shall not, directly or indirectly, solicit,
initiate or encourage discussions or negotiations with, provide any nonpublic
information to, or enter into any agreement with, any third party concerning (or
concerning the business of the Company in connection with) any tender offer
(including a self tender offer), exchange offer, merger, consolidation, sale of
substantial assets or of a significant amount of assets (except in the ordinary
course of business), sale of securities, acquisition of beneficial ownership of
or the right to vote securities representing more than five percent (5%) of the
total voting power of the Company, liquidation, dissolution or similar
transactions involving the Company or any division of the Company (such
proposals, announcements or transactions being called herein "ACQUISITION
PROPOSALS"). Notwithstanding the foregoing, (a) it is permissible to communicate
27
with (but not solicit, initiate, encourage or negotiate with, other than
pursuant to clause (b) of this sentence) any third party; (b) if any third party
makes a Bona Fide Unsolicited Offer, it is permissible to furnish information
concerning the Company or its businesses to, and negotiate with, such third
party (for the purposes of this subsection, a "BONA FIDE UNSOLICITED OFFER"
shall mean any unsolicited written inquiry, proposal or offer respecting a
potential Acquisition Proposal, other than any such inquiry, proposal or offer
that, after due consideration thereof by the Board of Directors of the Company,
is expressly determined by such Board of Directors not to be reasonably likely
to result in the receipt of a consideration superior to the consideration to be
paid by the Purchaser as described herein); and (c) it is permissible to furnish
information concerning the Company or its businesses to a third party making a
Bona Fide Unsolicited Offer, or from taking any other action, if the Board of
Directors of the Company concludes, after due consideration which shall include
consultation with legal counsel, that there is a fiduciary duty to furnish such
information or take such other action. The Company shall promptly inform the
Purchaser of any Bona Fide Unsolicited Offer, including the terms thereof and
the identity of the person or entity making such offer.
4.4 FULL ACCESS TO THE PURCHASER; AUDIT. The Company shall afford to the
Purchaser and its directors, officers, employees, counsel, accountants,
investment advisors and other authorized representatives and agents full and
complete access to the facilities, properties, books and records of the Company
in order that the Purchaser may have full opportunity to make such
investigations as it shall desire to make of the affairs of the Company,
PROVIDED THAT any such investigation shall be conducted in such a manner as not
to interfere unreasonably with business operations, and PROVIDED FURTHER THAT
neither the Purchaser nor any of its directors, officers, employees, counsel,
accountants, investment advisors or other authorized representatives or agents
shall have access to the facilities, properties, employees, customers or
suppliers except upon the written consent of the Company, which consent shall
not be unreasonably withheld. In addition, the Company shall furnish such
additional financial and operating data and other information as the Purchaser
shall, from time to time, reasonably request, including without limitation
access to the working papers of its independent certified public accountants. No
such investigation shall affect or otherwise diminish or obviate in any respect
any of the representations and warranties of the Company or the Shareholders
herein. The Company shall specifically afford the Purchaser and/or its
accountants to conduct an audit of the Company's financial statements, books and
records, and the Company and the Shareholders shall reasonably cooperate with
the Purchaser in the performance of such audit.
4.5 CONFIDENTIALITY. Each of the parties hereto agrees that it will not use, or
permit the use of, any of the information relating to any other party hereto
furnished to it in connection with the transactions contemplated herein
("INFORMATION") in a manner or for a purpose detrimental to such other party or
otherwise than in connection with the transaction, and that they will not
disclose, divulge, provide or make accessible, or permit the Disclosure of
(collectively, "DISCLOSE" or "DISCLOSURE" as the case may be), any of the
Information to any person or entity, other than their responsible directors,
officers, employees, investment advisors, accountants, counsel and other
authorized representatives and agents, except as may be required by judicial or
administrative process or, in the opinion of such party's regular counsel, by
other requirements of Law; PROVIDED, HOWEVER, that prior to any Disclosure of
any Information permitted hereunder, the disclosing party shall first obtain the
28
recipients' undertaking to comply with the provisions of this subsection with
respect to such information. The term "INFORMATION" as used herein shall not
include any information relating to a party which the party disclosing such
information can show: (i) to have been in its possession prior to its receipt
from another party hereto; (ii) to be now or to later become generally available
to the public through no fault of the disclosing party; (iii) to have been
available to the public at the time of its receipt by the disclosing party; (iv)
to have been received separately by the disclosing party in an unrestricted
manner from a person entitled to disclose such information; or (v) to have been
developed independently by the disclosing party without regard to any
information received in connection with this transaction. Each party hereto also
agrees to promptly return to the party from whom originally received all
original and duplicate copies of written materials containing Information should
the transactions contemplated herein not occur. A party hereto shall be deemed
to have satisfied its obligations to hold the Information confidential if it
exercises the same care as it takes with respect to its own similar information.
4.6 FILINGS; CONSENTS; REMOVAL OF OBJECTIONS. Subject to the terms and
conditions herein provided, the parties hereto shall use their best efforts to
take or cause to be taken all actions and do or cause to be done all things
necessary, proper or advisable under applicable Laws to consummate and make
effective, as soon as reasonably practicable, the transactions contemplated
hereby, including without limitation obtaining all Consents of any person or
entity, whether private or governmental, required in connection with the
consummation of the transactions contemplated herein. In furtherance, and not in
limitation of the foregoing, it is the intent of the parties to consummate the
transactions contemplated herein at the earliest practicable time, and they
respectively agree to exert their best efforts to that end, including without
limitation: (i) if applicable, the filing with the Federal Trade Commission
("FTC") and the Antitrust Division of the Department of Justice (the "ANTITRUST
DIVISION") all requisite documents and notifications in connection with the
transactions contemplated hereby pursuant to the HSR Act as soon as practicable
following the date hereof, and to respond as promptly as practicable to all
inquiries from the FTC or the Antitrust Division in connection therewith; (ii)
the removal or satisfaction, if possible, of any objections to the validity or
legality of the transactions contemplated herein; and (iii) the satisfaction of
the conditions to consummation of the transactions contemplated hereby.
4.7 FURTHER ASSURANCES; COOPERATION; NOTIFICATION.
(a) Each party hereto will, before, at and after the Closing, execute
and deliver such instruments and take such other actions as the other
party or parties, as the case may be, may reasonably require in order
to carry out the express intent of this Agreement. Without limiting the
generality of the foregoing, at any time after the Closing, at the
request of the Purchaser and without further consideration, the Company
will execute and deliver such instruments of sale, transfer,
conveyance, assignment and confirmation and take such action as the
Purchaser may reasonably deem necessary or desirable in order to more
effectively transfer, convey and assign to the Purchaser, and to
confirm the Purchaser's title to, all of the Assets, to put the
Purchaser in actual possession and operating control thereof and to
assist the Purchaser in exercising all rights with respect thereto.
29
(b) Between the date hereof and the Closing, the Company shall
cooperate with the Purchaser to promptly develop plans for the
management of the businesses after the Closing, including without
limitation plans relating to productivity, marketing, operations and
improvements, and the Company shall further cooperate with the
Purchaser to provide for the implementation of such plans as soon as
practicable after the Closing. Between the date hereof and the Closing,
and subject to applicable Law, the Company shall confer on a regular
and reasonable basis with one or more representatives of the Purchaser
to report on material operational matters and the general status of
ongoing operations.
(c) At all times from the date hereof until the Closing, each party
shall promptly notify the other in writing of the occurrence of any
event which it reasonably believes will or may result in a failure by
such party to satisfy the conditions specified in Article 5 and Article
6 hereof.
4.8 SUPPLEMENTS TO DISCLOSURE SCHEDULE. Prior to the Closing, the Company and
the Shareholders will supplement or amend the Disclosure Schedule with respect
to any event or development which, if existing or occurring at or prior to the
date of this Agreement, would have been required to be set forth or described in
the Disclosure Schedule or which is necessary to correct any information in the
Disclosure Schedule or in any representation and warranty of the Company or the
Shareholders which has been rendered inaccurate by reason of such event or
development. For purposes of determining the accuracy as of the date hereof of
the representations and warranties of the Company and the Shareholders contained
in Article 2 hereof in order to determine the fulfillment of the conditions set
forth in Section 5.1, the Disclosure Schedule shall be deemed to exclude any
information contained in any supplement or amendment hereto delivered after the
delivery of the Disclosure Schedule.
4.9 PUBLIC ANNOUNCEMENTS. None of the parties hereto shall make any public
announcement with respect to the transactions contemplated herein without the
prior written consent of the other parties, which consent shall not be
unreasonably withheld or delayed; PROVIDED, HOWEVER, that any of the parties
hereto may at any time make any announcements which are deemed by its counsel to
be required by applicable Law so long as the party so required to make an
announcement promptly upon learning of such requirement notifies the other
parties of such requirement and discusses with the other parties in good faith
the exact proposed wording of any such announcement.
4.10 TRANSACTIONAL TAX UNDERTAKINGS.
(a) The parties hereto shall cooperate to make any necessary filings
with state and local taxing authorities and to furnish any required
supplemental information to any state and local tax liabilities
resulting from the consummation of the transactions contemplated
herein.
(b) In the event that any sales or use tax, or any tax in the nature of
a sales or use tax, or any transactional tax is payable or assessed
relative to the transactions contemplated herein, the Company shall pay
all such taxes and shall not collect any part thereof from the
Purchaser.
30
4.11 EMPLOYEE BENEFITS.
(a) EMPLOYEES. After the date of Closing, the Purchaser may offer to
some or all employees employed by the Company immediately prior to the
date of Closing with respect to the businesses relating to the
Company's Assets (the "COMPANY EMPLOYEES") the opportunity to maintain
such employee's current employment; provided, that the Purchaser may
terminate the employment of any employees who accept such offer at any
time after such date of Closing. During the first six (6) months after
the date of Closing, the compensation and benefits provided by the
Purchaser shall be reasonably comparable on an overall basis (including
without limitation all compensation and benefits accrued by such
employees as of the date of Closing under all Pension Plans, Welfare
Plans and Compensation Plans irrespective of whether such accrued
benefits are actually received by such employees) to those provided to
such employees prior to the date of Closing with credit given for the
length of actual service with the Company prior to the date of Closing.
The Purchaser has not agreed to assume any obligation or liability
under any Pension Plans, Welfare Plans or Compensation Plans unless
specifically required pursuant to Section 1.2.
(b) RETENTION OF EMPLOYEES. The Company shall not, for a period of
three (3) years after the date of Closing, take any action, other than
with the written consent of the Purchaser, to induce any employee who
accepts an offer pursuant to Section 4.11(a) above, while still
employed by the Purchaser or any subsidiary of the Purchaser, to enter
into the employ of the Company or any affiliate of the Company.
4.12 BULK SALES LAW COMPLIANCE. The Purchaser hereby waives compliance by the
parties with the provisions of any applicable bulk sales laws to the
transactions contemplated by this Agreement and the Company and the Shareholders
warrant and agree to pay and discharge when due all claims of creditors which
could be asserted against the Purchaser by reason of such noncompliance to the
extent that such liabilities are not specifically assumed by the Purchaser under
this Agreement. The Company and the Shareholders hereby indemnify and agree to
hold the Purchaser harmless from, against and in respect of (and shall on demand
reimburse the Purchaser for) any loss, liability, cost, or expense, including,
without limitation, attorney's fees incurred by the Purchaser, by reason of any
failure of the Company or the Shareholders to pay or discharge such claims.
4.13 SECURITIES RESTRICTIONS.
(a) NATURE OF RESTRICTIONS. The Shares have not been registered under
the 1933 Act or under the securities laws of any other jurisdiction
and, therefore, the Shares cannot be resold unless they are
subsequently registered under said laws or exemptions from such
registrations are available. The transferability of the Shares is
restricted and that a legend may be placed on any certificate
representing the Shares substantially to the following effect:
31
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "1933 ACT").
THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF A CURRENT AND EFFECTIVE REGISTRATION STATEMENT
UNDER THE 1933 ACT WITH RESPECT TO SUCH SHARES, OR AN OPINION
OF THE ISSUER'S COUNSEL TO THE EFFECT THAT REGISTRATION IS NOT
REQUIRED UNDER THE 1933 ACT.
(b) COVENANTS OF THE COMPANY AND THE SHAREHOLDERS. The Company shall
not offer, sell or otherwise transfer any Shares unless such Shares are
registered and qualified under the 1933 Act and applicable state
securities laws or exemptions from such registration and qualification
requirements are available, or unless such offer, sale or transfer is
exempt from such registration or qualification. The Company may, in its
discretion, transfer the Shares to the Shareholders, provided that (i)
such transfer is exempt from registration under the 1933 Act and
qualification under applicable state securities, and (ii) the
representations and warranties of the Shareholders contained in Section
2.30 shall be true, complete and accurate as of the date when made and
at and as of the date of the transfer as though such representations
and warranties were made at and as of such time. The Shareholders shall
not offer, sell or otherwise transfer any Shares unless such Shares are
registered and qualified under the 1933 Act and applicable state
securities laws or exemptions from such registration and qualification
requirements are available, or unless such offer, sale or transfer is
exempt from such registration or qualification, as reflected in an
opinion of counsel to the Shareholder seeking to transfer Shares in a
form and substance reasonably satisfactory to the Purchaser.
4.14 Restrictive Covenants.
(a) POST-CLOSING CONFIDENTIALITY. The Company and each Shareholder
acknowledge their intent that the Company shall fully and effectively
convey to the Purchaser all proprietary rights, including the
Intellectual Property Rights, to be transferred to the Purchaser
pursuant hereto. Accordingly, the Company and each Shareholder shall at
all times keep confidential and shall not disclose to others any
proprietary rights, including the Intellectual Property Rights, and
shall not use or permit to be used any proprietary rights or any
Intellectual Property Rights for any purpose other than performance of
obligations to the Purchaser.
(b) NON-DIVERSION. Until the fifth anniversary of the date of Closing,
the Company and each of the Shareholders shall not, and shall cause
their affiliates not to, divert or attempt to divert or take advantage
of or attempt to take advantage of any actual or potential business or
opportunities of the Purchaser of which Company or any of the
Shareholders become aware as the result of their affiliation with the
Business or their relationship with the Purchaser and which relate
specifically to the Business, or any part thereof. This Section 4.14(b)
32
is an addition to and not by way of limitation of any other duties the
Shareholders may have to the Purchaser.
(c) NON-RECRUITMENT. Until the fifth anniversary of the date of
Closing, neither the Company nor the Shareholders shall hire away, or
cause any other person to hire away, any employee of or consultant to
the Purchaser (including, without limitation, persons employed or
engaged by the Company before the date of this Agreement, and further
including, without limitation, any current, former or then-existing
"team leader" or distributor of either the Company or the Purchaser),
or directly or indirectly entice or solicit or seek to induce or
influence any of such employees or consultants to leave their
employment or engagement with the Purchaser, without out the prior
written consent of the Purchaser, which may be withheld in the sole
discretion of the Purchaser.
(d) REMEDIES. The covenants contained in this Section 4.14 impose a
reasonable restraint on the Company and the Shareholders in light of
the activities and business of the Company and future plans of the
Purchaser. The Company and each Shareholder acknowledge that if they
violate any of the covenants contained in this Section 4.14
(collectively, the "Restrictive Covenants"), it will be difficult to
determine the resulting damages to the Purchaser and, in addition to
any other remedies the Purchaser may have, the Purchaser shall be
entitled to temporary injunctive relief without being required to post
a bond and permanent injunctive relief without the necessity of proving
actual damages. The Company and the Shareholders shall be liable to pay
all costs, including reasonable attorneys' fees and expenses, that the
Purchaser may incur in enforcing or defending, to any extent, any of
the Restrictive Covenants, whether or not litigation is actually
commenced and including litigation of any appeal defended by the
Purchaser where such party succeeds in enforcing any of the Restrictive
Covenants. The Purchaser may elect to seek one or more remedies at its
discretion on a case by case basis. Failure to seek any or all remedies
in one case shall not restrict the Purchaser from seeking any remedies
in another situation. Such action by the Purchaser shall not constitute
a waiver of any of its rights.
(f) SEVERABILITY AND MODIFICATION OF ANY UNENFORCEABLE COVENANT. Each
of the Restrictive Covenants will be read and interpreted with every
reasonable inference given to its enforceability. However, if any term,
provision or condition of the Restrictive Covenants is held by a court
or arbitrator to be invalid, void or unenforceable, the remainder of
the provisions thereof shall remain in full force and effect and shall
in no way be affected, impaired or invalidated. If a court or
arbitrator should determine any of the Restrictive Covenants are
unenforceable because of over-breadth, then the court or arbitrator
shall modify such covenant so as to make it enforceable to the fullest
extent the court or arbitrator deems reasonable and enforceable under
the prevailing circumstances.
4.15 REPURCHASE RIGHTS. The Company, or if the Company has been dissolved, any
Shareholder, at any time commencing the six-month anniversary of the date of
Closing, and from time to time thereafter, may, in the Company's or such
Shareholder's discretion, as the case may be, resell to the Purchaser at a price
of $1.00 per Share, and the Purchaser shall repurchase from the Company or such
Shareholder, as the case may be, up to 100,000 Shares (or, in the case of a
33
Shareholder, the pro rata proportion of 100,000 Shares to such Shareholders'
percentage ownership of the Company as of the date of Closing) issued pursuant
to Section 1.3.3 (the "REPURCHASE RIGHTS"). The repurchase price for any
repurchase pursuant to this Section 4.15 in cash or by a promissory note bearing
interest at 12% [or the legal maximum in the State of Nevada, if less] and
payable in up to 12 equal monthly amortizing installments of principal and
accrued interest, or any combination of cash and such a promissory note, in the
Purchaser's discretion.
4.16. SECURITIES COMPLIANCE.
(a) EXEMPTION FROM REGISTRATION AND QUALIFICATION. Promptly following
the date of Closing, the Purchaser shall file a Form D with the
Securities & Exchange Commission ("SEC") in connection with the
issuance of the Shares and make all other necessary or advisable
filings under Nevada and other applicable state securities laws, as
necessary or advisable to obtain appropriate exemptions from
registration or qualification under federal and applicable state
securities laws. Except as expressly disclosed on Exhibit 4.16 hereto,
the Purchaser shall understand that the Shareholders are residents of
Nevada.
(b) RULE 144 COMPLIANCE. If the Purchaser files a registration
statement under the 1934 Act for its Common Stock with the SEC (the
"1934 ACT STATEMENT"), and the SEC declares the 1934 Act Statement
effective, the Purchaser shall file reports with the SEC as required
under Rule 144(c)(1) under the 1933 Act, or any successor rule, for a
period of at least twenty-four (24) months immediately following the
date on which the SEC declares the 1934 Act Statement effective, or
such longer period as any Shareholder shall be deemed an affiliate of
the Purchaser on account of being an officer or director of the
Purchaser or its receipt and holding of the Shares, or such shorter
time as any of the Purchaser's Common Stock is outstanding, and the
Purchaser shall take all other actions as may reasonably be required of
the Purchaser in order that Rule 144, or any successor rule, may be
available to the Shareholders who satisfy the provisions of the rule
applicable to the holder or its offer or sale of securities.
4.17 NO EFFECTIVE REGISTRATION STATEMENT; CASH PAYMENT. If the SEC has not
declared the 1934 Act Statement effective on or before the second anniversary of
the date of Closing, then the Purchaser shall pay $250,000 to the Company, or if
the Company has been dissolved, to the Shareholders, pro rated in proportion to
each Shareholders' percentage ownership of the Company as of the date of
Closing.
34
ARTICLE 5
---------
CONDITIONS TO OBLIGATIONS OF PURCHASER
--------------------------------------
Notwithstanding any other provision of this Agreement to the contrary,
the obligation of the Purchaser to effect the transactions contemplated herein
shall be subject to the satisfaction at or prior to the Closing of each of the
following conditions:
5.1 REPRESENTATIONS AND WARRANTIES TRUE. The Disclosure Schedule shall be
delivered to the Purchaser prior to the Closing and shall be fully satisfied
with the disclosures contained therein. The representations and warranties of
the Company and the Shareholders contained in this Agreement, including without
limitation in the Disclosure Schedule delivered to the Purchaser (and not
including any changes or additions delivered to the Purchaser pursuant to
Section 4.8), shall be true, complete and accurate as of the date hereof and at
and as of the Closing as though such representations and warranties were made at
and as of such time, except for changes specifically permitted or contemplated
by this Agreement, and except insofar as the representations and warranties
relate expressly and solely to a particular date or period, in which case they
shall be true and correct at the Closing with respect to such date or period;
PROVIDED THAT a breach of any representation or warranty shall not constitute a
failure of the condition contained in this Section 5.1 if such breach, either
alone, or in conjunction with all other breaches, has not had, or will not have,
a Material Adverse Effect.
5.2 PERFORMANCE. The Company and the Shareholders shall have performed and
complied in all material respects with all agreements, covenants, obligations
and conditions required by this Agreement to be performed or complied with by
the Company and the Shareholders on or prior to the Closing.
5.3 REQUIRED APPROVALS AND CONSENTS.
(a) At and as of the Closing, the Company shall have full corporate
power and authority to enter into this Agreement and the Company
Delivered Documents and to carry out the transactions contemplated
herein and therein. At and as of the Closing, the Shareholders, and
each of them, shall have the legal capacity to enter into this
Agreement and to carry out the transactions contemplated herein,
including without limitation the legal capacity to execute, deliver and
perform the agreements or contracts required by this Article 5 to be
executed and delivered by any of them as a condition to the Closing. At
and as of the Closing, the Board of Directors of the Company shall have
taken all action required by law, its articles of incorporation and
bylaws and otherwise to authorize the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated herein. At and as of the Closing, this Agreement shall
have been duly and validly executed and delivered by the Company and no
other corporate action shall be necessary. At and as of the Closing,
this Agreement shall have been duly and validly executed by the
Shareholders. At and as of the Closing, this Agreement shall be the
valid and binding legal obligation of the Company, and this Agreement
shall be the valid and binding legal obligation of the Shareholders,
enforceable against the Company and the Shareholders in accordance with
its terms.
35
(b) All Consents of or from all Authorities required hereunder to
consummate the transactions contemplated herein, and all Consents of
from all persons and entities other than Authorities that are
identified in the Disclosure Schedule shall have been delivered, made
or obtained, and the Purchaser shall have received copies thereof.
5.4 ADVERSE CHANGES. No change, circumstance or event which constitutes or has
resulted in, or that is reasonably likely to result in, a Material Adverse
Effect relative to the Company since the date of the Latest Balance Sheet.
5.5 NO PROCEEDING OR LITIGATION. No suit, action, investigation, inquiry or
other proceeding by any Authority or other person or entity shall have been
instituted or threatened which questions the validity or legality of the
transactions contemplated hereby or which, if successfully asserted, would
individually or in the aggregate, otherwise have a Material Adverse Effect on
the business, financial condition, prospects, or operations of the Company.
5.6 OPINION OF THE COMPANY COUNSEL. The Purchaser shall have received an opinion
of Company counsel, Xxxxx, Xxxxxx & Xxxxx, LLP, dated the date of Closing,
substantially in the form and substance set forth as Exhibit 5.6 hereto.
5.7 LEGISLATION. No Law shall have been enacted which prohibits, restricts or
materially delays the consummation of the transactions contemplated hereby or
any of the conditions to the consummation of such transaction.
5.8 CERTIFICATES. The Purchaser shall have received such certificates of the
Company's officers and of the Shareholders, in a form and substance reasonably
satisfactory to the Purchaser, dated the date of Closing, to evidence compliance
with the conditions set forth in Sections 5.1, 5.2 and 5.3.
5.9 DUE DILIGENCE. The Purchaser shall have received all information requested
by it pursuant to Section 4.4.
5.10 DOCUMENTATION FOR CONVEYANCE OF THE COMPANY'S ASSETS. The Purchaser shall
have received, in a form and substance reasonably satisfactory to the Purchaser,
dated the date of Closing, all of the Bills of Sale, deeds, assignments and
other conveyance and transfer documentation listed on Exhibit 5.10.
ARTICLE 6
---------
CONDITIONS TO COMPANY'S OBLIGATIONS
-----------------------------------
Notwithstanding anything in this Agreement to the contrary, the
obligation of the Company and the Shareholders to effect the transactions
contemplated herein shall be subject to the satisfaction at or prior to the
Closing of each of the following conditions:
6.1 REPRESENTATIONS AND WARRANTIES TRUE. The representations and warranties of
the Purchaser contained in this Agreement shall be in all material respects
true, complete and accurate as of the date when made and at and as of the
Closing, as though such representations and warranties were made at and as of
36
such time, except for changes permitted or contemplated in this Agreement, and
except insofar as the representations and warranties relate expressly and solely
to a particular date or period, in which case they shall be true and correct in
all material respects at the Closing with respect to such date or period.
6.2 PERFORMANCE. The Purchaser shall have performed and complied in all material
respects with all agreements, covenants, obligations and conditions required by
this Agreement to be performed or complied with by the Purchaser at or prior to
the Closing.
6.3 CORPORATE APPROVALS. All Consents listed on Exhibit 3.5 hereto shall have
been delivered, made or obtained. All action required to be taken by the
Purchaser to authorize the execution, delivery and performance of this Agreement
by the Purchaser and the consummation of the transactions contemplated hereby
shall have been duly and validly taken.
6.4 NO PROCEEDING OR LITIGATION. No suit, action, investigation, inquiry or
other proceeding by any Authority or other person or entity shall have been
instituted or threatened which questions the validity or legality of the
transactions contemplated hereby.
6.5 CERTIFICATES. The Purchaser shall have furnished the Company and the
Shareholders with such certificates of the Purchaser's officers, in a form and
substance reasonably acceptable to the Company and the Shareholders, dated the
date of Closing, to evidence compliance with the conditions set forth in
Sections 6.1 and 6.2.
6.6 OPINION OF THE PURCHASER COUNSEL. The Purchaser shall have delivered to the
Company an opinion from Xxxxxxxxxxx Xxxxx & Xxxxxxxx LLP, counsel to the
Purchaser, dated the date of Closing, in the form and substance set forth as
Exhibit 6.6 hereto.
6.7 PAYMENT OF CONSIDERATION. The Company shall have received (a) the Shares
required by Section 1.4(c) has been completed, and (b) the executed Liabilities
Undertaking required by Section 1.4(d).
6.8 EXECUTION AND DELIVERY OF CERTAIN AGREEMENTS. The Company and the
Shareholders shall have received satisfactory evidence that the agreements
identified in Exhibit 6.8 hereto have been executed and delivered by the parties
thereto.
ARTICLE 7
---------
TERMINATION AND ABANDONMENT
---------------------------
7.1 METHODS OF TERMINATION. This Agreement may be terminated and the
transactions contemplated herein may be abandoned at any time notwithstanding
approval thereof by the shareholders of the Company, but not later than the
Closing:
(a) By mutual written consent of the Purchaser and the Company; or
37
(b) By the Purchaser on or after the Termination Date or such later
date as may be established pursuant to Article 1 hereof, if any of the
conditions provided for in Article 5 of this Agreement shall not have
been satisfied or waived in writing by the Purchaser prior to such
date; or
(c) By the Company on or after the Termination Date or such later date
as may be established pursuant to Article 1 hereof, if any of the
conditions provided for in Article 6 of this Agreement shall not have
been satisfied or waived in writing by the Company prior to such date;
or
(d) By any party if the Closing shall not have occurred on or before
August 31, 1999.
7.2 PROCEDURE UPON TERMINATION. In the event of termination and abandonment
pursuant to Section 7.1, written notice thereof shall forthwith be given to the
other party or parties, and the provisions of this Agreement (except to the
extent provided in Section 9.1) shall terminate, and the transactions
contemplated herein shall be abandoned, without further action by any party
hereto. If this Agreement is terminated as provided herein: (a) each party will,
upon request, redeliver all documents, work papers and other material of any
other party (and all copies thereof) relating to the transactions contemplated
herein, whether so obtained before or after the execution hereof, to the party
furnishing the same; (b) the confidentiality obligations of Section 4.5 shall
continue to be applicable; and (c) except as provided in this subsection, no
party shall have any liability for a breach of any representation, warranty,
agreement, covenant or other provision of this Agreement, unless such breach was
due to a willful or bad faith action or omission of such party or any
representative, agent, employee or independent contractor thereof.
ARTICLE 8
---------
SURVIVAL AND INDEMNIFICATION
----------------------------
8.1 SURVIVAL. The representations and warranties of each of the parties hereto
shall survive the Closing.
8.2 INDEMNIFICATION BY THE PURCHASER. The Purchaser agrees to indemnify the
Company and the Shareholders from and against any and all loss, liability, claim
or damage ("LOSSES") suffered or incurred by it by reason of (a) any untrue
representation of, or breach of warranty by, the Purchaser in any part of this
Agreement, provided, however, that no claim for indemnity may be made pursuant
to this subsection after the third anniversary of the date of Closing; (b) any
Assumed Liabilities; and (c) any nonfulfillment of any covenant, agreement or
undertaking of the Purchaser in any part of this Agreement which by its terms is
to remain in effect after the Closing and has not been specifically waived in
writing at the Closing by the party or parties hereof entitled to the benefits
thereof. The Purchaser shall reimburse the Company and the Shareholders for any
and all fees, costs and expenses of any kind arising out of or relating to
enforcement of the indemnification rights pursuant to this Section 8.2
(including, without limitation, any and all Legal Expenses) and, for purposes
hereof, such fees, costs and expenses shall be deemed to be Losses.
38
8.3 INDEMNIFICATION BY THE COMPANY AND THE SHAREHOLDERS -- UNTRUE REPRESENTATION
OR BREACH OF WARRANTY. The Company and each Shareholder, jointly and severally,
agree to indemnify the Purchaser from and against any and all Losses suffered or
incurred by it by reason of any untrue representation of, or breach of warranty
by the Company or any Shareholder in this Agreement, PROVIDED, HOWEVER, that no
claim for indemnity may be made pursuant to this subsection after the third
anniversary of the date of Closing. Notwithstanding anything to the contrary in
this subsection, no claim may be made under this subsection if it (or the
principal facts with respect to it) were known or reasonably should have been
known and the claim could have been asserted at a time when it would have
resulted in a required adjustment which would be reflected in the Closing
Balance Sheet. The Company and the Shareholders, jointly and severally, shall
reimburse the Purchaser for any and all fees, costs and expenses of any kind
arising out of or relating to enforcement of the indemnification rights pursuant
to this Section 8.3 (including, without limitation, any and all Legal Expenses)
and, for purposes hereof, such fees, costs and expenses shall be deemed to be
Losses.
8.4 INDEMNIFICATION BY THE COMPANY AND THE SHAREHOLDERS -- OTHER. The Company
and each Shareholder, jointly and severally, agree to indemnify the Purchaser
from and against all of the following: (a) any and Losses suffered or incurred
by it by reason of any nonfulfillment of any covenant, agreement or undertaking
of the Company or any Shareholder in this Agreement which by its terms is to
remain in effect after the Closing and has not been specifically waived in
writing at the Closing by the party or parties hereto entitled to the benefits
thereof; and (b) any obligations of the Company not specifically assumed by the
Purchaser in the Liabilities Undertaking. The Company and the Shareholders,
jointly and severally, shall reimburse the Purchaser for any and all fees, costs
and expenses of any kind arising out of or relating to enforcement of the
indemnification rights pursuant to this Section 8.4 (including, without
limitation, any and all Legal Expenses) and, for purposes hereof, such fees,
costs and expenses shall be deemed to be Losses.
8.5 BASKET AMOUNT. Notwithstanding anything in Sections 8.3 and 8.4 to the
contrary, the Purchaser shall not be entitled to any indemnification under such
sections if the aggregate amount of all damages thereunder is less than $25,000
(the "EXCEPTION AMOUNT"), but if the aggregate amount of all claims exceeds the
Exception Amount, then the Purchaser shall be entitled to full indemnification
of for only those damages exceeding the Exception Amount. The parties hereto do
not intend that the Exception Amount be deemed to be a definition of what is
"material" for any purpose in this Agreement.
8.6 CLAIMS FOR INDEMNIFICATION. Whenever any claim shall arise for
indemnification hereunder, the party seeking indemnification (the "INDEMNIFIED
PARTY") shall promptly notify the party from whom indemnification is sought (the
"INDEMNIFYING PARTY") of the claim and, when known, the facts constituting the
basis for such claim. With respect to claims against the Shareholders, such
notice shall be to the Shareholders' Agent identified in Section 9.16 hereof and
such agent shall be treated as the agent for each Shareholder and is hereby
appointed as such by each Shareholder, with full power and authority to take all
action required or permitted by each Shareholder as an Indemnifying Party under
this subparagraph. In the case of any such claim for indemnification hereunder
resulting from or in connection with any claim or legal proceedings of a third
party, the notice to the Indemnifying Party shall specify, if known, the amount
or an estimate of the amount of the liability arising therefrom. The Indemnified
Party shall not settle or compromise any claim by a third party for which it is
39
entitled to indemnification hereunder without the prior written consent of the
Indemnifying Party, which shall not be unreasonably withheld. If the
Indemnifying Party is of the opinion that the Indemnified Party is not entitled
to indemnification, or is not entitled to indemnification in the amount claimed
in such notice, it shall deliver, within twenty (20) days after the receipt of
such notice, a written objection to such claim and written specifications in
reasonable detail of the aspects or details objected to, and the grounds for
such objection. If the Indemnifying Party shall file timely written notice of
objection to any claim for indemnification, the validity and amount of such
claim shall be determined by arbitration pursuant to Section 9.12 hereof. If
timely notice of objection is not delivered or if a claim by an Indemnified
Party is admitted in writing by an Indemnifying Party or if an arbitration award
is made in favor of an Indemnified Party, the Indemnified Party, as a
non-exclusive remedy, shall have the right to set-off the amount of such claim
or award against any amount yet owed, whether due or to become due, by the
Indemnified Party or any subsidiary thereof to any Indemnifying Party by reason
of this Agreement or any agreement or arrangement or contract to be entered into
at the Closing.
8.7 CERTAIN LIMITATIONS. Notwithstanding anything to the contrary in this
Agreement, the aggregate amount of damages recoverable pursuant to the
provisions of this Article 8 by the Purchaser shall be limited to the aggregate
amount equal to one-hundred percent (100%) of the Purchase Price, as finally
adjusted hereunder (the "INDEMNIFICATION CAP").
8.8 SUBROGATION. In the event that the Indemnifying Party shall be obligated to
provide indemnification hereunder to a claimant (the "CLAIMANT"), the
Indemnifying Party shall, upon payment of such indemnity in full, be subrogated
to all rights of the Claimant with respect to the Losses to which such
indemnification relates.
8.9 TAX AND INSURANCE. All indemnification or reimbursement payments required
pursuant to this Agreement shall be made net of all tax and insurance benefits
actually received by the Indemnified Party. In the event that any claim for
indemnification asserted hereunder is, or may be, the subject of any insurance
coverage or other right to indemnification or contribution from any third
person, the Indemnified Party(ies) expressly agree that he (they) shall promptly
notify the applicable insurance carrier of any such claim or loss and tender
defense thereof to such carrier, and shall also promptly notify any potential
third party indemnitor or contributor which may be liable for any portion of
such losses or claims. The Indemnified Party(ies) agree to pursue, at the cost
and expense of the Indemnified Party, such claims diligently and to reasonably
cooperate, at the cost and expense of the Indemnified Party, with each
applicable insurance carrier and third party indemnitor or contributor.
8.10 UNDERTAKINGS. Prior to the assertion of any claims for indemnification
under this Agreement, the Indemnified Party shall utilize all reasonable
efforts, consistent with normal practices and policies and good commercial
practice, to mitigate any losses or damages subject to indemnification
hereunder.
40
ARTICLE 9
---------
MISCELLANEOUS PROVISIONS
------------------------
9.1 EXPENSES. Each of the parties hereto shall bear its own costs, fees and
expenses in connection with the negotiation, preparation, execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby, including without limitation fees, commissions and expenses
payable to brokers, finders, investment bankers, consultants, exchange or
transfer agents, attorneys, accountants and other professionals, whether or not
the transactions contemplated herein is consummated.
9.2 AMENDMENT AND MODIFICATION. Subject to applicable Law, this Agreement may be
amended or modified by the parties hereto at any time prior to the Closing with
respect to any of the terms contained herein; provided, however, that all such
amendments and modifications must be in writing duly executed by all of the
parties hereto.
9.3 WAIVER OF COMPLIANCE; CONSENTS. Any failure of a party to comply with any
obligation, covenant, agreement or condition herein may be expressly waived in
writing by the party entitled hereby to such compliance, but such waiver or
failure to insist upon strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure. No single or partial exercise of a
right or remedy shall preclude any other or further exercise thereof or of any
other right or remedy hereunder. Whenever this Agreement requires or permits the
consent by or on behalf of a party, such consent shall be given in writing in
the same manner as for waivers of compliance.
9.4 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement shall entitle any
person or entity (other than a party hereto and his, her or its respective
successors and assigns permitted hereby) to any claim, cause of action, remedy
or right of any kind.
9.5 NOTICES. All notices, requests, demands and other communications required or
permitted hereunder shall be made in writing and shall be deemed to have been
duly given and effective:
(a) on the date of delivery, if delivered personally;
(b) on the earlier of the fourth (4th) day after mailing or the date of
the return receipt acknowledgment, if mailed, postage prepaid, by
certified or registered mail, return receipt requested;
(c) on the first business day after having been transmitted to a third
party providing delivery services in the ordinary course of business
which guarantees delivery on the next business day after such
transmittal (E.G., via Federal Express); or
(d) on the date of transmission, if sent by facsimile, telecopy,
telegraph, telex, e-mail or other similar telegraphic or electronic
communications equipment, PROVIDED THAT such transmission is confirmed
by prompt mailing (postage prepaid, by certified or registered mail,
return receipt requested) or by guaranteed overnight delivery:
41
If to the Company or the Shareholders:
To: Xxxxxxx X. Xxxxx
0000 Xxxxx Xxxxxxxx, Xxxxx X
Xxx Xxxxx, XX 00000
Fax: (000) 000-0000
With a copy to: Xxxxx, Xxxxxx & Xxxxx, LLP
0000 Xxx Xxx Xxxxx Xxxxx, Xxxxx 0000
Xxx Xxxxx, XX 00000
Attn: Xxx X. Xxxxx, Esq.
Fax: (000) 000-0000
E-mail: XXXxxxx@xxxxxxxxxx.xxx
or to such other person or address as the Company or the Shareholders shall
furnish to the other parties hereto in writing in accordance with this
subsection.
If to the Purchaser:
To: Gateway Distributors, Ltd.
000 Xxxx Xxxxxxxx Xxxxxx
Xxxxx Xxx Xxxxx, XX 00000
Attn: Xxxxxxx X. Xxxxxx
Chief Executive Officer
Fax: (000) 000-0000
With a copy to: Xxxxxxxxxxx Xxxxx & Xxxxxxxx LLP
000 Xxxxxxx Xxxxxx Xxxxx
Xxxxx 000
Xxxxxxx Xxxxx, XX 00000
Attn: Xxxx X. Xxxxxxxx, Esq.
Fax: (000) 000-0000
or to such other person or address as the Purchaser shall furnish to the other
parties hereto in writing in accordance with this subsection.
If to any Shareholder or to the Shareholders' Representative, to the
address set forth for such Shareholder or the Shareholders' Representative on
the signature page hereof or to such other address as such Shareholder or the
Shareholders' Representative shall furnish to the other parties hereto in
writing in accordance with this subsection.
9.6 ASSIGNMENT. This Agreement and all of the provisions hereof shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned (whether
voluntarily, involuntarily, by operation of law or otherwise) by any of the
parties hereto without the prior written consent of the other parties, PROVIDED
THAT the Company may assign this Agreement, and any of its rights and/or
obligations arising hereunder, in whole or in part, and from time to time,
42
either (a) to the Shareholders in proportion with their ownership interest in
the Company, or (b) in connection with any dissolution and/or winding up of its
business and affairs after the Closing.
9.7 GOVERNING LAW. This Agreement and the legal relations among the parties
hereto shall be governed by and construed in accordance with the internal
substantive laws of the State of Nevada (without regard to the laws of conflict
that might otherwise apply) as to all matters, including without limitation
matters of validity, construction, effect, performance and remedies.
9.8 COUNTERPARTS. This Agreement may be executed simultaneously in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.9 HEADINGS. The table of contents and the headings of the sections and
subsections of this Agreement are inserted for convenience only and shall not
constitute a part hereof.
9.10 ENTIRE AGREEMENT. This Agreement, the Disclosure Schedule and the exhibits
and other writings referred to in this Agreement or in the Disclosure Schedule
or any such exhibit or other writing are part of this Agreement, together they
embody the entire agreement and understanding of the parties hereto in respect
of the transactions contemplated by this Agreement and together they are
referred to as "this Agreement" or the "AGREEMENT". There are no restrictions,
promises, warranties, agreements, covenants or undertakings, other than those
expressly set forth or referred to in this Agreement. This Agreement supersedes
all prior agreements and understandings between the parties with respect to the
transaction or transactions contemplated by this Agreement. Provisions of this
Agreement shall be interpreted to be valid and enforceable under applicable Law
to the extent that such interpretation does not materially alter this Agreement;
PROVIDED, HOWEVER, that if any such provision shall become invalid or
unenforceable under applicable Law such provision shall be stricken to the
extent necessary and the remainder of such provisions and the remainder of this
Agreement shall continue in full force and effect.
9.11 INJUNCTIVE RELIEF. It is expressly agreed among the parties hereto that
monetary damages would be inadequate to compensate a party hereto for any breach
by any other party of its covenants and agreements in Sections 4.3 and 4.5
hereof. Accordingly, the parties agree and acknowledge that any such violation
or threatened violation will cause irreparable injury to the other and that, in
addition to any other remedies which may be available, such party shall be
entitled to injunctive relief against the threatened breach of Sections 4.3 and
4.5 hereof or the continuation of any such breach without the necessity or
proving actual damages and may seek to specifically enforce the terms thereof.
9.12 ARBITRATION. With the sole exception of the injunctive relief contemplated
by Section 9.11, any controversy or claim arising out of or relating to this
Agreement, or the making, performance or interpretation thereof, including
without limitation alleged fraudulent inducement thereof, shall be settled by
binding arbitration in Las Vegas, Nevada by a panel of three arbitrators in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association. Judgment upon any arbitration award may be entered in any court
having jurisdiction thereof and the parties consent to the jurisdiction of the
courts of the State of Nevada for this purpose.
43
9.13 LIST OF DEFINED TERMS. Reference is made to Exhibit 9.13 for a listing and
location of terms defined in this Agreement.
9.14 CERTAIN DEFINITIONS. For purposes of this Agreement,
"CLOSING BALANCE SHEET" shall mean the balance sheet of the Company as
of the Closing Date prepared in accordance with GAAP.
"COMPANY DELIVERED DOCUMENTS" shall mean all of the agreements,
certificates, instruments and other documents to be delivered by the
Company or the Shareholders pursuant to or in connection with this
Agreement.
"LEGAL EXPENSES" of a person shall mean any and all fees, costs and
expenses of any kind reasonably incurred by such person and its counsel
in investigating, preparing for, defending against or providing
evidence, producing documents or taking other action with respect to,
any threatened or asserted claim.
"MATERIAL ADVERSE EFFECT" shall mean an event, change or occurrence
which has a material negative impact on the condition (financial or
otherwise), businesses, results of operations or prospects of the
Company or the Purchaser, taken as a whole, as the case may be (and
going concern value, in the case of the Company), or the ability of the
Company or the Purchaser, as the case may be, to consummate the
transactions contemplated hereby, other than any such event, change or
occurrence resulting or arising from (i) general economic conditions;
or (ii) the loss of any customer as a result of the announcement or
consummation of the transactions contemplated hereby.
"PERMITTED LIENS" shall mean: (i) liens securing specified liabilities
or obligations shown on the Latest Balance Sheet with respect to which
no breach, violation or default exists; (ii) mechanics', carriers',
workers' and other similar liens arising in the ordinary course of
business; (iii) minor imperfections of title which do not impair the
existing use of the Assets; and (iv) liens for current taxes not yet
due and payable or being contested in good faith by appropriate
proceedings.
"PURCHASER DELIVERED DOCUMENTS" shall mean all of the agreements,
certificates, instruments and other documents to be delivered by the
Purchaser pursuant to or in connection with this Agreement.
"REQUIRED MAJORITY OF SHAREHOLDERS" shall mean the affirmative vote of
a majority of the Shareholders (regardless of the number of shares held
by any such Shareholder).
"1998 BALANCE SHEET" shall mean the balance sheet of the Company as of
December 31, 1998, a copy of which is attached hereto as part of
Section 2.7 of the Disclosure Schedule.
44
9.15 SHAREHOLDERS' AGENT.
(a) APPOINTMENT AND AUTHORITY. The Shareholders, for themselves and
their personal representatives and other successors, hereby constitute
and appoint Xxxxxxx X. Xxxxx (the "SHAREHOLDERS' AGENT"), with full
power and authority (including power of substitution), except as
otherwise expressly provided in this Agreement, in the name of and for
and on behalf of the Shareholders or in his own name as Shareholders'
Agent to take all actions required or permitted to be taken by the
Shareholders, or any of them, under this Agreement (including the
actions described in Section 8.6 relative to indemnification matters
and the giving and receiving of all reports, notices and consents, but
excluding any modification or amendment of this Agreement). The
authority conferred under this Section 9.15 is an agency coupled with
an interest, and all authority conferred hereby is irrevocable and not
subject to termination by the Shareholders or by any of them, or by
operation of law, whether by the death or incapacity of any
Shareholder, the termination of any trust or estate or the occurrence
of any other event. If any Shareholder should die or become
incapacitated, if any trust or estate should terminate or if any other
such event should occur, any action taken by the Shareholders' Agent
pursuant to this Section 9.15 shall be as valid as if such death or
incapacity, termination or other event had not occurred, regardless of
whether or not the Shareholders' Agent or the Purchaser shall have
received notice of such death, incapacity, termination or other event.
Any notice given to the Shareholders' Agent pursuant to Section 9.5
shall constitute effective notice to all Shareholders and the Purchaser
or any other person may rely on any notice, consent, election or other
communication received from the Shareholders' Agent as if it had been
received from all Shareholders on whose behalf it was given.
(b) SUCCESSORS. The Shareholders' Agent may resign upon 20 days' prior
written notice to the Purchaser and each other Shareholder. Upon the
death, resignation, removal or incapacity of the Shareholders' Agent,
the Shareholders shall appoint a successor Shareholders' Agent, by
written consent of the Required Majority of Shareholders, and any
successor Shareholders' Agent so appointed shall constitute the
Shareholders' Agent to the same effect as if originally named in this
Section 9.15. The Shareholders may remove the Shareholders' Agent at
any time upon the written consent of the Required Majority of
Shareholders. The Shareholders shall give the Purchaser written notice
of the appointment or removal of the Shareholders' Agent pursuant to
this Section 9.15, including a copy of the written consent of the
Required Majority of Shareholders relating thereto, as soon as
practicable after any such appointment or removal, and such appointment
or removal shall not be effective as against the Purchaser until such
notice shall have been given, unless the Purchaser shall have actual
knowledge of such appointment or removal.
45
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
"PURCHASER" "COMPANY"
GATEWAY DISTRIBUTORS, LTD. TEAMUP INTERNATIONAL, INC.
BY: /s/ Xxxxxxx X. Xxxxxx BY: /s/ Xxxxxxx X. Xxxxx
----------------------------- ----------------------------
Xxxxxxx X. Xxxxxx, Xxxxxxx X. Xxxxx
President and President
Chief Executive Officer
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
"SHAREHOLDERS"
/s/ Xxxxxxx X. Xxxxx
-------------------------------
Xxxxxxx X. Xxxxx
/s/ Xxxxxxx X. Xxxxx, Xx.
-------------------------------
Xxxxxxx X. Xxxxx, Xx.
/s/ Xxxxx X. Xxxxxxx
-------------------------------
Xxxxx X. Xxxxxxx
/s/ Xxxx Xxx
-------------------------------
Xxxx Xxx
46
