EXHIBIT 2
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (this "Agreement") is made as of April 3, 2001
between COMPUTER NETWORK TECHNOLOGY CORPORATION, a Minnesota corporation or its
designee ("Buyer"), and XXXXXX X. XXXXXXX, a resident of the Commonwealth of
Massachusetts ("Seller").
RECITALS:
WHEREAS, Articulent Inc., a Delaware corporation (together with (i)
any predecessor, by merger or otherwise, including Berkshire Computer
Products, Inc., a Massachusetts corporation, and (ii) any past or present
subsidiary, the "Company") is engaged in the Business;
WHEREAS, Buyer desires to acquire all of the issued and outstanding equity
capital of the Company so that the Company will become wholly owned by Buyer;
WHEREAS, Buyer desires Seller to cause the Company to undertake the
transactions set forth herein and to purchase from Seller the Purchased Shares
so that Buyer owns all of the equity capital of the Company, subject to the
terms and conditions set forth herein, and upon reliance of each and every
representation made by Seller; and
WHEREAS, Seller desires to sell to Buyer all stockholder-owned intangible
assets related to the Business (the "Seller Intangible Assets") so that the
Company has all the rights and privileges related to the Business available to
the Company.
NOW, THEREFORE, in consideration of the premises and mutual agreements
hereinafter set forth, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms. As used herein, the terms defined below shall have the
following meanings. Any of these terms, unless the context otherwise requires,
may be used in the singular or plural depending on the reference.
"Adjusted Net Worth" means the excess (or deficit) of the book value
of the Company's assets, over the book value of the Company's liabilities, after
giving effect to the full payment and satisfaction of the Retired Debt by Seller
as required by this Agreement (but only to the extent such Retired Debt is in
fact so satisfied), in each case computed in accordance with GAAP and calculated
as of the close of business on March 31, 2001.
"Affiliate" means, as to any party, any Person which directly or
indirectly, is in control of, is controlled by, or is under common
control with, such party, including any Person who would be treated
as a member of a controlled group under Section 414 of the Code,
and any officer or director of such party and, as to a party who is
a natural Person, such Person's spouse, parents, siblings and lineal
descendants and any relative having the same home as such Person.
For purposes of this definition, an entity shall be deemed to be
"controlled by" a Person if the Person possesses, directly or
indirectly, power either to (i) vote ten percent (10%) or more of
the securities (including convertible securities) having ordinary
voting power or (ii) direct or cause the direction of the management
or policies of such Person, whether by contract or otherwise.
"Assets" means (i) all assets related to the Business, (ii) all
strategic data, such as marketing development plans, forecasts, and forecast
assumptions and volumes, and future plans and potential strategies of the
Company which are being discussed, and all financial data, such as price and
price objectives, price lists, pricing and quoting policies, and procedures,
(iii) all accounts receivable, notes receivable and installment receivables
existing as of the Closing Date (the "Accounts Receivable"), (iv) all inventory,
work in progress, raw materials, returned goods inventory, evaluation systems
inventory, warranty returns inventory, service inventory, finished products,
supplies, packaging and shipping containers and materials (on-site, off-site and
consigned) as of the Closing Date (the "Inventory"), (v) all machinery,
equipment, furniture and fixtures, including without limitation, the items set
forth in Schedule 4.13 (the "Fixed Assets"), (vi) all database information and
software, (vii) all information necessary to xxxx customers for license usage,
service contracts and all other revenue items, (viii) all of the Company's
rights under any personal property leases and other agreements, supply
agreements, licenses, end user agreements, contracts (including customer
contracts, OEM contracts, lease contracts, commitment contracts, and all
agreements for the testing, modification, development, trial, license, lease,
rental or sale or other use of the product), insurance policies and commitments,
including without limitation, the leases, agreements, contracts and commitments
relating to or necessary to the conduct and operation of the Business set forth
on Schedule 4.12 (the "Contracts"), (ix) all backlog and orders, (x) all
permits, approvals, qualifications, and the like issued by any government or
governmental unit, agency, board, body, or instrumentality, whether, federal,
state, local or otherwise relating to or necessary to the conduct and operation
of the Business, (xi) all of the Company's Intellectual Property, and (xii) all
other tangible or intangible personal or mixed property of the Company, if any,
of every kind and description, wherever located together with any customer
relationships, employee relationships and any other intangible assets related to
the Business owned by Seller.
"Business" means all of the business products, support and services
of the Company related to the Company's system integration, consulting,
implementation, and managed services business, including network operating
centers, SSP, MSP, ERSM storage architecture and business continuance
businesses.
"Environmental Lien" means any encumbrance, whether recorded or
unrecorded, in favor of any governmental or regulatory authority, relating to
any Liability of the Company or Seller under any Environmental and Safety
Requirements.
"Environmental and Safety Requirements" means all federal, state and
local statutes, regulations, ordinances and other provisions having the force or
effect of law, all judicial and administrative orders and determinations, all
contractual obligations and all common law, in each case concerning public
health and safety, worker health and safety and pollution or protection of the
environment (including, without limitation, all those relating to the presence,
use, production, generation, handling, transport, treatment, storage, disposal,
distribution,
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labeling, testing, processing, discharge, Release, threatened Release, control
or cleanup of any hazardous or otherwise regulated materials, substances or
wastes, chemical substances or mixtures, pesticides, pollutants, contaminants,
toxic chemicals, petroleum products or byproducts, asbestos, polychlorinated
biphenyls, noise or radiation).
"GAAP" means United States generally accepted accounting principles.
"Intellectual Property" means on a world-wide basis, any and all:
(i) patents, patent disclosures, designs, algorithms and other
industrial property rights, (ii) trademarks, service marks, trade
dress, trade names, logos and corporate names, together with all of
the goodwill associated therewith, (iii) copyrights (registered or
unregistered), together with all authors' and moral rights (whether
xxxxxx or inchoate, published or unpublished), (iv) mask works, (v)
computer software (including, without limitation, source code (with
all comments and remarks, if any), object code, macros, scripts,
objects, routines, modules and other components), data, data bases
and documentation thereof, (vi) trade secrets and other confidential
or proprietary information (including, without limitation, ideas,
formulas, compositions, inventions (whether patentable or
unpatentable and whether or not reduced to practice), know-how,
products, processes, techniques, methods, research and development
information and results, drawings, specifications, designs,
technical and development plans and proposals, technical data and
customer, prospect and supplier lists and information), (vii) all
other intellectual and industrial property rights of every kind and
nature and however designated, whether arising by operation of law,
contract, license or otherwise, (viii) "technical data" as defined
in 48 CFR Section 27.401, (ix) copies and tangible embodiments
thereof (in whatever form or medium), and (x) all registrations,
applications (pending and in-process), renewals, extensions,
continuations, divisions or reissues of any of the foregoing rights,
now or hereafter in force (including all rights therein).
As used herein, "knowledge of the Company," "known by the Company"
and the like means the knowledge of Xxxxxx X. Xxxxxxx, Founder and Chairman;
Xxxxxxx Xxxxxxx, President and General Manager; Xxxxxxx X. Xxxxx, Chief
Financial Officer; Xxxxxx X. Xxxxxx, Vice President and General Counsel; and Xx
Xxxxx, Regional Vice President, after due inquiry.
"Liability" shall mean, without limitation, any direct or indirect
liability, indebtedness, guaranty, endorsement, claim, loss, damage,
deficiency, cost, expense, obligation or responsibility, whether
accrued, absolute, contingent, mature, unmature or otherwise and
whether known or unknown, fixed or unfixed, xxxxxx or inchoate,
liquidated or unliquidated, secured or unsecured.
"Lien" shall mean any claim, lien, pledge, option, charge, easement,
security interest, right-of-way, mortgage or other right or
encumbrance of any kind.
"Permitted Legal Fees" means Ten Thousand Dollars ($10,000) of legal
fees and expenses related to employees entering into employment
agreements referred to in Section 7.2(d) and Fifteen Thousand
Dollars ($15,000) in the aggregate related to legal fees and
expenses for settlements with respect to leases in default, employee
option transactions required for the closing and termination of the
401(k) and profit sharing plans.
"Permitted Liens" means (i) mechanics, materialmens, and purchase
money security interests in amounts less than Fifteen Thousand Dollars ($15,000)
individually and Fifty
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Thousand Dollars ($50,000) in the aggregate (but only to the extent such Liens
secure Permitted Liabilities), (ii) Liens for property Taxes not yet due and
payable, and (iii) only those Liens specifically set forth on Schedule 1.1(a)
hereto.
"Person" shall mean any person, limited liability company,
partnership, trust, unincorporated organization, corporation, association, joint
stock company, business, group, governmental authority or other entity.
"Release" shall have the meaning set forth in CERCLA.
"Retired Debt" shall mean any debt or Liability of the Company on
the Closing Date, all or part of which would be classified as a noncurrent
liability of the Company on any financial statements prepared as of the Closing
Date in accordance with GAAP, and also includes all amounts due to Sovereign
Bank (f/k/a Fleet National Bank), regardless of the balance sheet classification
of such debt.
"Xxxxxxx Case" means Xxxxxx X. Xxxxxxx v. Berkshire Computer
Products, Inc., presently pending in Massachusetts Middlesex Superior
Court and any similar case commenced by Xx. Xxxxxxx in a different court
arising out of the same facts and circumstances.
"Seller Costs" shall mean all costs, expenses and funding necessary
(i) to discharge the Retired Debt in full (except to the extent satisfied by
Buyer pursuant to Section 6.12), (ii) to discharge any Lien on the Assets other
than the Permitted Liens (except to the extent satisfied by Buyer pursuant to
Section 6.12), (iii) to provide for full payment of all of Seller's and the
Company's investment banking, legal (other than Permitted Legal Fees),
accounting (expressly excluding any costs directly related to the audit and
preparation of the Company's Tax returns) and other costs and expenses of the
Company and Seller with respect to the transactions contemplated hereby (or any
similar transaction with another party), (iv) to pay in full all sale and
discretionary bonuses earned by employees of the Company prior to the Closing
Date or granted in connection with the Closing (other than bonuses previously
accrued in the ordinary course of business which do not breach any
representation and warranty), (v) to pay in full any payment required by any
change in control provision (other than any usual and ordinary consent fees)
resulting from the transaction, (vi) to pay in full all remaining costs under
the Company's "Shared Harvest" and deferred compensation plans, (vii) to pay
one-half of cash severance payments due to Xxxxxxx Xxxxxxx, Xxxxxxx X. Xxxxx and
Xxxxxx X. Xxxxxx after giving effect to the amendment to be made pursuant to
Section 7.2.(m)(ix), (viii) to discharge and pay off or extinguish any other
equity interest in the Company other than the Purchased Shares, including all
costs associated with Company options outstanding (except to the extent
satisfied by Buyer pursuant to Section 6.12), (ix) to settle all past due
obligations for any lease of the Company set forth on Schedule 4.12, except to
the extent such costs have previously been accrued on the Company's books, (x)
to pay any vacation and severance pay due employees of the Company which were
previously terminated that was not paid when due, and (xi) to pay retention
bonuses to key employees pursuant to the employment contracts entered into
pursuant to Section 7.2(d) (other than Xxxxxx X. Xxxxxxx and Xx Xxxxx) and all
payroll Taxes associated therewith (except to the extent satisfied by Buyer
pursuant to Section 6.12).
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"Software" means any and all (i) computer programs, including any
and all software implementations of algorithms, models and methodologies,
whether in source code or object code, (ii) databases and compilations,
including any and all data and collections of data, whether machine readable or
otherwise, (iii) descriptions, flow-charts and other work product used to
design, plan, organize and develop any of the foregoing, (iv) the technology
(other than hardware) supporting any Internet site(s) operated by or on behalf
of the Company, and (v) all documentation, including user manuals and training
materials, relating to any of the foregoing.
"Tax" means any tax imposed by any federal, state, local or foreign
governmental authority relating to income, sales, payroll, property, duty,
excise, gross receipts, severance, stamp, occupation, franchise, withholding,
unemployment, use, transfer, registration or like tax or other governmental
charge of any kind, including any interest, penalty, or addition thereto.
"Transaction Documents" means this Agreement, the Escrow Agreement,
the Employment Agreement entered into by Seller and any document or agreement
executed in connection therewith.
1.2 Index of Other Defined Terms. In addition to the terms defined above,
the following terms shall have the respective meanings given to them in the
Sections set forth below:
Defined Term Section
------------ -------
Accounts Receivable 1.1
Additional Purchase Price 3.3
Bonus Payout Date 8.4
Bonus Plan 6.11
Bonus Pool 6.11
CERCLA 4.14
Claims 8.1
Claim Notice 8.3
Closing 7.1
Closing Date 7.1
Closing Date Statement 3.2
Company Recitals
Contracts 1.1
Code 4.21
Company Material Adverse Effect 4.1
Contingent Workers 4.20
Customers 4.18
Disclosure Schedule Article 4
ERISA 4.21
Escrow Agent 3.1
Escrow Agreement 3.1
Escrow Amount 3.1
Financial Statements 4.7
Fixed Assets 1.1
Indemnified Party 8.3
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Indemnifying Party 8.3
Initial Purchase Price 3.1
Inventory 1.1
IRS 4.21(c)
Material Contracts 4.12
Minimum Adjusted Net Worth 3.2
Notice of Dispute 10.1
Notice Period 8.3
Pension Plans 4.21
Permitted Liabilities 4.8
Plans 4.21
Purchased Shares 2.1
SEC 4.7
Seller Intangible Assets Recitals
Statement of Objections 3.2
Third Party Claim 8.3
Vendors 4.18
WARN Act 4.20
ARTICLE 2
TRANSFER OF STOCK AND PROPERTIES
2.1 Purchase of Shares. On the terms and subject to conditions hereof,
Seller covenants and agrees to sell, assign and transfer to Buyer all of his
right, title and interest in, and Buyer covenants and agrees to purchase from
Seller effective the Closing Date all of the issued and outstanding shares of
capital stock of the Company, which consists of Seven Million Five Hundred One
Thousand (7,501,000) shares of Common Stock (the "Purchased Shares") free and
clear of any and all Liens.
2.2 Purchase of Seller Intangible Assets. On the terms and subject to the
conditions hereof, Seller covenants and agrees to sell, assign and transfer to
Buyer all of his right, title and interest in, and Buyer covenants and agrees to
purchase from Seller effective as of the Closing Date, all of the Seller
Intangible Assets.
2.3 Instruments of Transfer. On the Closing Date Seller shall deliver or
cause to be delivered to Buyer (i) duly executed stock powers, accompanied by
certificates representing the Purchased Shares and such other instruments of
transfer and assignment as may be reasonably necessary to vest in Buyer good and
valid title to, and all of Seller's right title and interest in, the Purchased
Shares, free and clear of all Liens, and (ii) to execute instruments assigning
to Buyer all Seller Intangible Assets. Seller also agrees to take all such other
action as Buyer may reasonably request to put Buyer in possession and operating
control of the Assets and Business of the Company. All such stock powers and
other instruments shall be in form and substance reasonably satisfactory to
Buyer.
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ARTICLE 3
PURCHASE PRICE
3.1 Initial Purchase Price. Subject to adjustment pursuant to Section 3.2,
and subject to increase for the Additional Purchase Price set forth in Section
3.3 below, the aggregate consideration to be paid by Buyer to Seller for the
Purchased Shares, all of the issued and outstanding equity capitalization
(including cancellation of vested and unvested options and any other equity
interest in the Company of whatever kind, which, except as set forth in Section
6.12, shall be at Seller's expense) of the Company and the Seller Intangible
Assets shall be Six Million Five Hundred Eighty-Three Thousand Three Hundred
Eighty-Seven Dollars ($6,583,387) (the "Initial Purchase Price"). Except as set
forth in Section 6.12, it is also agreed that Seller is solely responsible for
the Seller Costs and such amounts shall either be funded by Seller from the
Initial Purchase Price, or if paid by the Company with the consent of Buyer, the
Initial Purchase Price shall be reduced by the amount of such payment. The
Initial Purchase Price shall be payable as follows:
(a) On the Closing Date Buyer shall, by wire transfer or bank check
of immediately available funds, pay to Seller Four Million Five Hundred
Seventy-Three Thousand Five Hundred Eighty-Eight Dollars ($4,573,588) (it being
understood that Buyer shall direct payment of such funds in a manner
satisfactory to Buyer, so that the Seller Costs are discharged in full except as
set forth in Section 6.12); and
(b) On the Closing Date Seller shall deposit with U.S. Bank Trust
National Association, a national banking association, ("Escrow Agent") Two
Million Nine Thousand Seven Hundred Ninety-Nine Dollars ($2,009,799) (the
"Escrow Amount") to be disbursed pursuant to the terms of the escrow agreement
(the "Escrow Agreement") attached hereto as Exhibit A.
(c) Subsequent to the Closing, the Initial Purchase Price shall be
allocated among the Purchased Shares, the Seller Intangible Assets and the
covenant not to compete entered into by Seller pursuant to the employment
agreement referred to in Section 7.2(d). The foregoing allocation shall be
agreed between Buyer and Seller based upon an independent appraisal by Xxxxx
Xxxxxxxx LLP. Each party agrees not to assert, in connection with any Tax
return, audit or similar proceeding, any allocation to the Initial Purchase
Price which differs from the allocation described above. Any subsequent
adjustment to the Initial Purchase Price pursuant to Section 3.2 shall be
allocated to the Purchased Shares and the Seller Intangible Assets.
3.2 Adjustment.
(a) As promptly as practicable following the Closing Date, Buyer
shall prepare a statement (the "Closing Date Statement") calculating Adjusted
Net Worth in accordance with the assumptions and methodology set forth on
Schedule 3.2. The Closing Date Statement shall be delivered to Seller upon the
later of (i) sixty (60) days after the Closing and (ii) twenty (20) days after
completion of the audit of the Company for the fiscal year ended February 28,
2001. When calculating Adjusted Net Worth, Buyer shall take into account any
adjustments made in the audit for the year ended February 28, 2001, but Buyer
shall not increase allowances for doubtful accounts or reserves for obsolete
inventory in excess of those shown on the February 28, 2001 balance sheet of the
Company; provided that the foregoing sentence shall not in any way limit
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any other representation, warranty or covenant in this Agreement, including the
representations and warranties in Sections 4.10 or 4.29.
(b) Upon receipt of the Closing Date Statement, Seller (and at
Seller's expense, its independent certified public accountants) shall be
permitted during the succeeding fifteen (15) day period to examine, and Buyer
shall make available, the books and records relied upon by Buyer in preparing
the Closing Date Statement. As promptly as practicable, and in no event later
than the last day of such fifteen (15) day period, Seller shall either inform
Buyer in writing that the Closing Date Statement is acceptable or object to the
Closing Date Statement by delivering to Buyer a written statement setting forth
a specific description of Seller's objection to the Closing Date Statement (the
"Statement of Objections") and Seller's calculation of any disputed amounts.
If Seller shall fail to deliver a Statement of Objections
within such fifteen (15) day period, the Closing Date Statement shall be deemed
to have been accepted by Seller. If a Statement of Objections is delivered,
Buyer and Seller shall attempt in good faith to resolve any dispute within
fifteen (15) days after delivery. If Seller and Buyer are unable to resolve the
dispute within such fifteen (15) days, Buyer and Seller shall engage a "Big 5"
accounting firm reasonably acceptable to Buyer and Seller to resolve any
unresolved objections. The fees of such firm shall be paid by Seller if Buyer's
calculation of disputed amounts as set forth in the Statement of Objections is
closer to such accountant's final determination than the Seller's determination,
and otherwise such fees shall be paid by Buyer. Such firm's resolution of the
dispute shall be conclusive and binding upon the parties and nonappealable and
shall not be subject to further review under the dispute resolution provisions
of Article 10 (in the event no "Big 5" accounting firm acceptable to Seller and
Buyer is willing to undertake such engagement, or Buyer and Seller cannot agree
on a "Big 5" accounting firm, the dispute resolutions provisions in Article 10
shall be used (provided that if Buyer and Seller cannot agree on a Big 5
accounting firm, the arbitrators appointed pursuant to Article 10 may make such
appointment)).
(c) Except as otherwise provided in this Paragraph (c), "Minimum
Adjusted Net Worth" shall equal a deficit of Nine Hundred Thirty-Five Thousand
Dollars ($935,000). However, Schedule 3.2 sets forth certain orders the Company
anticipates will be received within five business days of the Closing Date and
the anticipated gross profit (revenue less cost of goods sold) from each such
order. If such orders are not received within such five (5) business days from
the Closing so that the gross profit in the aggregate from such orders is less
than Two Hundred Fifty Thousand Dollars ($250,000), the Minimum Adjusted Net
Worth deficit shall be reduced dollar for dollar to the extent such gross profit
is less than Two Hundred Fifty Thousand Dollars ($250,000). In no event shall
Minimum Adjusted Net Worth be less than a deficit of Seven Hundred Thirty-Five
Thousand Dollars ($735,000) after giving effect to such adjustment, and if no
such orders are received within such five (5) business days, Minimum Adjusted
Net Worth shall be equal to a deficit of Seven Hundred Thirty-Five Thousand
Dollars ($735,000).
(d) If Adjusted Net Worth on the Closing Date Statement is less than
Minimum Adjusted Net Worth (i.e., the actual deficit is greater than the deficit
anticipated by Minimum Adjusted Net Worth) by more than Fifty Thousand Dollars
($50,000), the Initial Purchase Price shall be decreased by the amount by which
the actual deficit reflected in Adjusted Net Worth
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exceeds the deficit anticipated by Minimum Adjusted Net Worth plus Fifty
Thousand Dollars ($50,000).
(e) Any reduction in purchase price required pursuant to Section
3.2(d) shall be effected as set forth herein. If the adjustment is less than Two
Hundred Thousand Dollars ($200,000), Buyer shall be entitled to withdraw such
amounts from the Escrow Amount pursuant to the terms of the Escrow Agreement. If
the reduction in purchase price is greater than Two Hundred Thousand Dollars
($200,000), Seller shall remit such funds to Buyer as set forth in Section
3.2(f), or Buyer at its option may withdraw all or portion of such funds from
the Escrow Amount pursuant to the terms of the Escrow Agreement.
(f) Seller shall make any payment required by Section 3.2(e) within
five (5) business days of the date of determination in accordance with Section
3.2, and if no Statement of Objections is delivered, the amount shall be
delivered on the 15th day following delivery of the Closing Date Statement. In
the event Seller delivers a Statement of Objections, Buyer shall be entitled to
withdraw the undisputed portion from the Escrow Amount, if such amounts are to
be remitted from the Escrow Amount pursuant to Section 3.2(e), or, if
applicable, Seller shall pay the undisputed portion to Buyer if Seller is
required to pay such amount pursuant to Section 3.2(e).
3.3 Additional Purchase Price.
(a) Buyer shall pay Seller an additional purchase price calculated
as set forth in Exhibit B hereto (the "Additional Purchase Price"), but not in
excess of Three Million Five Hundred Thousand Dollars ($3,500,000), paid as set
forth therein. Such payment shall be made no later than June 30, 2002. In the
event of a dispute regarding the amount of the Additional Purchase Price, Buyer
shall pay the undisputed amount not later than such date, and the balance shall
be payable when the amount is finally determined, whether by agreement of Buyer
and Seller, or pursuant to a determination by the arbitration panel pursuant to
Article 10.
(b) In the event Buyer has made a claim for indemnification pursuant
to Article 8 prior to payment of the Additional Purchase Price, the payment of
the Additional Purchase Price shall be deposited into escrow pursuant to the
Escrow Agreement to the extent the Escrow Amount may not, in the reasonable
judgment of Buyer, be satisfactory to satisfy the indemnification claim.
ARTICLE 4
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF SELLER
Seller hereby represents and warrants to Buyer that the statements
contained in this Article 4 are true and correct, except as set forth in the
disclosure schedule provided by Seller on the date hereof (the "Disclosure
Schedule"), and Seller also represents and warrants the statements in the
Disclosure Schedule are true and correct. The Disclosure Schedule shall be
arranged in sections and paragraphs corresponding to the numbered and lettered
sections and paragraphs contained in this Article 4. The disclosures in any
section or paragraph of the Disclosure Schedule (including any specific cross
reference referred to therein) shall qualify as disclosures with respect to the
numbered and lettered paragraphs in that section to which the
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disclosures specifically relate. Any reference in this Article 4 to an agreement
being "enforceable" shall be deemed to be qualified to the extent such
enforceability is subject to (i) laws of general application relating to
bankruptcy, insolvency, moratorium and the relief of debtors, and (ii) the
availability of specific performance, injunctive relief and other equitable
remedies.
4.1 Organization, Good Standing, Power, Etc. The Company is a corporation
duly organized and validly existing under the laws of the jurisdiction of its
incorporation. The Company is qualified to do Business and is in corporate good
standing in each jurisdiction in which the character and location of the assets
or the nature of the business transacted by the Company makes such qualification
necessary, except where the failure to qualify would not have a material adverse
effect on the business, operations or financial condition of the Company (a
"Company Material Adverse Effect"). Schedule 4.1 lists each state in which the
Company is currently qualified to do Business and the Company is in corporate
good standing in each such state. The Company has all the requisite corporate
power and authority to own or lease and operate the Assets and its Business and
to carry on its Business and to consummate the transactions contemplated hereby.
4.2 Certificate of Incorporation and Bylaws; Capitalization.
(a) The Company and Seller have furnished Buyer with (i) the
Certificate of Incorporation of the Company, as amended to date, and (ii) the
Bylaws of the Company, as amended to date. Such Certificate of Incorporation and
Bylaws are in full force and effect.
(b) With respect to the capitalization of the Company:
(i) The authorized capital stock of the Company consists of
(x) 15,000,000 shares of common stock, par value $0.01 per share, of which only
the Purchased Shares are issued and are outstanding, (y) 1,000,000 shares of
preferred stock, par value $0.01 per share, of which no shares are issued and
outstanding, and (z) 476,000 shares of common stock held in the Company's
treasury;
(ii) The Purchased Shares have been issued as fully paid and
non-assessable shares, and not in violation of any pre-emptive rights, to
Seller;
(iii) All of the Purchased Shares are owned by Seller as the
legal and beneficial owner of record, with a good and valid title thereto, free
and clear of all Liens;
(iv) Other than as contemplated by this Agreement, no Person
has any agreement or option or warrant or any right or privilege, whether by
law, pre-emptive or contractual, for the purchase from Seller of any of the
Purchased Shares;
(v) Except as set forth on Schedule 4.2 (all of which rights
shall be cancelled prior to Closing at Seller's expense), no Person has any
agreement or option or warrant or any right or privilege to subscribe for or
otherwise acquire any shares of the capital stock or any other securities of the
Company, whether by law, pre-emptive or contractual or conversion right; and
(vi) The documents to be delivered pursuant to Section
7.2(a)(iii) are sufficient to extinguish all outstanding equity securities of
the Company, and from and after the
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Closing, Buyer will own all of the Purchased Shares and equity of the Company
and there will be no options, warrants, convertible securities or other equity
securities of the Company outstanding.
(c) Except as set forth on Schedule 4.2, Seller has at all times
owned all of the issued and outstanding capital stock of the Company. Any such
shares not owned by Seller were either acquired by Seller free and clear of all
Liens or were acquired by the Company free and clear of all Liens.
(d) Schedule 4.2 includes a true and accurate list of all
outstanding options for capital stock of the Company, the number of vested and
unvested shares immediately prior to the Closing, the exercise price, and
vesting schedule (including a description of any accelerated vesting which will
occur as a result of this Agreement) with respect to each such option. All
options granted by the Company and any deferred compensation plan maintained by
the Company were granted or maintained in full compliance with federal and state
securities laws.
4.3 Other Information. None of the documents which have been or may be
furnished by the Company or Seller or any representatives of the Company or
Seller to Buyer, or any of their representatives in connection with the
transactions contemplated hereby, or in or pursuant to this Agreement or any
Transaction Document, or in connection with Buyer's and its representative's
review of the Business of the Company, is or will be materially false or
misleading or contains or will contain any material misstatement of fact or omit
to state any fact necessary to make the same not misleading in light of the
circumstances and the purposes for which the documents were furnished.
4.4 Execution and Validity of Agreement; Spousal Consent, Etc.
(a) This Agreement has been, and the Transaction Documents will be,
duly executed and delivered by Seller. This Agreement is, and the Transaction
Documents when executed and delivered will be, the valid and binding obligation
of Seller enforceable in accordance with its terms, except that such enforcement
may be limited by (i) bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally, and (ii) general principles of
equity, regardless of whether enforcement is sought in a proceeding in equity or
at law.
(b) Seller has the sole and exclusive right to take all actions with
respect to the Purchased Shares (including actions with respect to execution of
the Agreement), free from any community property laws, spousal consent, divorce
proceeding, property settlement made or pending in connection with a divorce,
judgments, decrees, shareholders agreement, Liens, equitable liens, bank or
contractual covenants and the like.
4.5 Effect of Agreement, Etc. The execution, delivery and performance of
this Agreement and the Transaction Documents by Seller and consummation by
Seller and the Company of the transactions contemplated hereby and thereby will
not, with or without the giving of notice and the lapse of time, or both, (a)
violate any provision of law, statute, rule or regulation which is material to
the Business of the Company or any material law to which the Seller is subject,
(b) violate any judgment, order, writ or decree of any court specifically naming
the Company or Seller, (c) violate any material permits, licenses, orders or
approvals of the Company or Seller or the
11
ability of Buyer to make use of such permits, licenses, orders or approvals, (d)
result in a breach of or conflict with any term or provision of, or result in
the creation or imposition of any Lien pursuant to, the Company's Certificate of
Incorporation or Bylaws, or (e) result in a material breach of, or material
conflict with, any term, covenant, condition or provision of, result in a
material modification or termination of, constitute a material default under, or
result in the creation or imposition of any Lien, security interest,
restriction, charge or encumbrance upon any of the Assets (other than Permitted
Liens) or the Purchased Shares pursuant to any material contract or other
agreement or instrument to which the Company or Seller is a party or by which
any of the Assets is or may be bound or affected or from which the Company or
Seller derives benefit.
4.6 Consents and Approvals. No permit, application, notice, transfer,
consent, approval, order, qualification, waiver from, or authorization of, or
declaration, filing or registration with, any governmental authority is
necessary in connection with the execution and delivery by Seller of this
Agreement or the consummation by Seller and the Company of the transactions
contemplated hereby, and no consent of any third party is required to consummate
any of the transactions contemplated hereby.
4.7 Financial Statements.
(a) Seller has delivered to Buyer copies of the Company's audited
balance sheets and related statements of operations as of February 29, 2000, and
February 28, 1999 and 1998 and for each of the years then ended and the
unaudited financial statements as of and for the year ended February 28, 2001
(together, all such balance sheets and related statements of operations shall be
hereinafter referred to as the "Financial Statements"). The Financial Statements
(i) are in accordance with the books and records of the Company, (ii) reflect
fairly and accurately in all material respects the operations and financial
condition of the Company for the periods or as of the dates indicated, and were
prepared in accordance with GAAP, uniformly applied on a basis consistent with
that of prior years or periods, (iii) contain and reflect all necessary
adjustments and reserves for a fair and accurate presentation in all material
respects of the results of operations for the periods covered by such Financial
Statements, and (iv) reflect fairly and accurately in all material respects all
of the Liabilities and obligations of the Company (whether direct or indirect,
accrued, absolute, contingent or otherwise).
(b) The books and records of the Company are auditable, have been
kept in conformity with GAAP and are sufficient to permit the preparation of pro
forma information and audited financial statements with an unqualified opinion
that comply with applicable Securities and Exchange Commission ("SEC")
requirements within seventy (70) days of the Closing Date. To the knowledge of
Seller and the Company, there exist no material weaknesses in the internal
controls of the Company.
4.8 No Undisclosed Liabilities, Claims, Etc. The Company does not have any
outstanding Liabilities or obligations, except (a) as set forth on Schedule 4.8,
(b) to the extent recorded in the most recent Financial Statements (other than
general references to commitments and contingent liabilities) and (c) incurred
in the ordinary course of business since the date of the most recent Financial
Statements. As of the Closing Date the Company does not have any Liabilities
except those set forth in the previous sentence, those incurred in the ordinary
course of business in accordance with this Agreement and those described on the
Schedule delivered
12
pursuant to Section 7.2(m)(ii) (such Liabilities, to the extent included in
calculating Adjusted Net Worth, but excluding any Liability which would be a
breach of any representation or warranty of this Agreement, or which relate to
Seller Costs, or any litigation against the Company, are referred to as
"Permitted Liabilities").
4.9 Taxes.
(a) The Company has timely prepared and filed, with the appropriate
foreign, federal, state and local tax authorities, all Tax returns required to
be filed by the Company or Seller. All such Tax returns are correct and complete
and have been prepared in accordance with applicable law. All Taxes required to
have been paid by the Company and Seller have been paid on a timely basis. No
claim has ever been made by a governmental authority in a jurisdiction where the
Company or Seller do not file Tax returns that Company or Seller are or may be
subject to taxation by that jurisdiction.
(b) There are no claims pending or, to the knowledge of Seller or
the Company, threatened for Taxes against the Company or attributable to the
Company in excess of the amounts reflected on the Financial Statements for such
Taxes and no basis for any such claim exists.
(c) The Company has not agreed to any waiver or extension of
statutes of limitations related to Taxes.
(d) The Company has paid or provided adequate reserves for all Taxes
attributable to the Company.
(e) No deficiencies on any of the Company's Tax returns or reports
attributable to or otherwise allocable to the Company have been threatened as of
the date hereof. The Company made a valid "Subchapter S" Tax election on March
1, 1995, which election remained in full force and effect until September 1,
2000.
(f) The Company (i) is not a party to any Tax allocation or Tax
sharing arrangement, (ii) has not been a member of any consolidated group for
Tax reporting purposes, and (iii) has no liability for Taxes owing by any other
Person.
(g) The Company has not taken any action that would have the effect
of deferring a measure of Tax or income from a period prior to the Closing Date
to a period after the Closing Date.
(h) The Company has delivered complete and accurate copies of (i)
all of the Company's federal Tax returns for each of the last three years, (ii)
all examination reports issued regarding, and statements of deficiencies related
to, such federal income Tax returns assessed or agreed to during such five-year
period and (iii) any agreement with a governmental authority relating to any Tax
that could be payable by the Company. The Company has made available copies of
all state Tax returns of the Company during the preceding three (3) years and
any examination reports with respect thereto. Schedule 4.9 identifies all
foreign, federal, state and local Tax returns with respect to income, sales,
payroll, excise and other taxes required to be filed by the Company or Seller in
each of the last three years and the periods covered by such returns.
13
(i) The Company is not a party to any agreement, plan, contract or
arrangement that could result, separately or in the aggregate, in any "excess
parachute payments" within the meaning of Section 280G of the Code.
4.10 Inventory and Backlog. The Inventory is (a) except to the extent of
reserves therefor in the Financial Statements, salable or usable in the normal
course of the Business, (b) at levels consistent with past practices of the
Business, and (c) carried on the books of the Company at the lower of cost or
market and pursuant to the normal inventory valuation policies of the Company,
as reflected in the Financial Statements. All of the Inventory is located at 00
Xxxxx Xxxxxx, Xxxxxxxxx, Xxxxxxxxxxxxx 00000, except as set forth on Schedule
4.10. At March 31, 2001, the backlog of firm orders for the Company was Five
Million Seven Hundred Fifty Two Thousand One Hundred Seventy Dollars
($5,752,170).
4.11 Absence of Certain Changes or Events. Except as set forth on Schedule
4.11 or as contemplated by this Agreement, since January 31, 2001, the Company
and Seller have conducted the Business only in the ordinary course and
consistent with past practices and neither the Company nor Seller has, with
respect to the Company:
(a) Suffered any damage, destruction or loss of any of the Assets,
whether or not covered by insurance, in excess of Twenty-Five Thousand Dollars
($25,000);
(b) Suffered any change in its financial condition, assets,
Liabilities or business or suffer any other event or condition of any character
which individually or in the aggregate had any Company Material Adverse Effect
or is reasonably likely to result in a Company Material Adverse Effect;
(c) Paid, discharged or satisfied any claims, Liabilities or
obligations (absolute, accrued, contingent or otherwise) of the Company except
in each case in the ordinary course of business;
(d) Waived any claims or rights with a value greater than
Twenty-Five Thousand Dollars ($25,000) individually;
(e) Pledged or permitted the imposition of any Lien (other than
Permitted Liens) on or sell, assign, transfer or otherwise dispose of any of the
Assets used in or relating to the Business, except the sale or disposition of
inventory and Assets in the ordinary course of business;
(f) Sold, assigned, encumbered, licensed, pledged, abandoned or
otherwise transferred any patents, applications for patent, trademarks, trade
names, copyrights, licenses, or other intangible assets;
(g) Made any material change in any method of accounting or
accounting principle or practice;
(h) Except for de minimus adjustments, written up or down the value
of the inventory or determined as collectible any notes or accounts receivable
that were previously considered to be uncollectible, except for write-ups or
write-downs and other determinations in the ordinary course of business;
14
(i) Granted any general increase in the compensation payable or to
become payable to its officers or employees or any special increase in the
compensation payable or to become payable to any such officer or employee, or
make any bonus payments to any such officer or employee, except for normal merit
and cost of living increases in the ordinary course of business and in
accordance with past practice (which details of such ordinary course actions
have been disclosed to Buyer);
(j) Lost or learned of the prospective loss of any Customer or
Vendor listed on Schedule 4.18;
(k) Made capital expenditures on behalf of or relating to the
Business in excess of Twenty-Five Thousand Dollars ($25,000) in the aggregate;
(l) Failed in any material respect to maintain records for accounts
receivable, inventory, accounts payable and other accounts;
(m) Issued any capital stock or any options, warrants for, or
securities convertible into, the equity capital of the Company;
(n) Paid any Seller Costs from funds of the Company without the
consent of Buyer;
(o) Agreed, whether in writing or otherwise, to take any action
described in this Section 4.11.
4.12 Contracts and Commitments.
(a) Schedule 4.12 sets forth an accurate and complete list of each
Contract of the Company in effect as of the date of this Agreement to which the
Company is a party or which affects the Company or its assets, (i) with a
dealer, broker, sales agency, advertising agency or other Person engaged in
sales or promotional activities, (ii) which requires aggregate payments by or to
the Company, or involves an unperformed commitment or service, having a value in
excess of Twenty-Five Thousand Dollars ($25,000), (iii) pursuant to which the
Company has made or will make loans or advances, or has or will incur debts or
become a guarantor or surety or pledged its credit on or otherwise become
responsible with respect to any undertaking of another, (iv) which is an
indenture, credit agreement, loan agreement, note, mortgage, security agreement,
lease of real property or personal property or agreement for financing, (v)
involving a partnership, joint venture or other cooperative undertaking, (vi)
involving material restrictions relating to any business conducted or proposed
to be conducted by the Company, (vii) which is a power of attorney or agency
agreement or written arrangement with any Person pursuant to which such Person
is granted the authority to act for or on behalf of the Company, (viii) with
respect to which the requirements for performance extend beyond one (1) year
from the date of this Agreement, (ix) which contains warranties with respect to
products manufactured and/or sold or services rendered by the Company other than
those warranties expressly made in the literature accompanying such products,
(x) which is a consulting or professional advisor agreement, (xi) which cannot
be terminated without penalty or payment or on at least ninety (90) days'
notice, (xii) with any of the Company's Affiliates, or (xiii) which is not made
in the
15
ordinary course of business and which is to be performed at or after the date of
this Agreement (the "Material Contracts").
(b) Except as set forth on Schedule 4.12, to the knowledge of the
Company or Seller, no Material Contract has been materially breached or
cancelled by the other party, and neither the Company nor Seller has knowledge
of any anticipated material breach by any other party to any Material Contract.
The Company and Seller have performed all the material obligations required to
be performed by them in connection with each Material Contract and are not in
material default under or in breach of any Material Contract, and no event has
occurred which with the passage of time or the giving of notice or both would
result in a material default or breach thereunder. Neither the Company nor
Seller has a present expectation or intention of not fully performing any
material obligation pursuant to any Material Contract. Each Material Contract is
legal, valid, binding, enforceable and in full force and effect. Except as set
forth on Schedule 4.12, to the knowledge of Seller and the Company, no Material
Contract obligates the Company to process, manufacture or deliver products or
perform services that shall result in a loss upon completion of performance.
(c) Seller has made available all Material Contracts disclosed
pursuant to Section 4.12(a)(ii), which have a value of less than One Hundred
Thousand Dollars ($100,000) and has provided Buyer with a true and correct copy
of all other written Material Contracts that are required to be disclosed on
Schedule 4.12, and has furnished to Buyer all amendments, waivers or any
material changes thereto (all of which are disclosed on Schedule 4.12). Schedule
4.12 contains an accurate and correct description of all material terms of all
oral Material Contracts. Except as set forth on Schedule 4.12, no consent is
required, and no change of control provisions are triggered, with respect to any
of the Material Contracts in connection with the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby.
(d) Schedule 4.12 sets forth a list of each location where the
Company leases real property, the applicable lease agreement, whether the
Company still occupies the property, the status of past due obligations under
the lease and a summary of any litigation threatened or commenced by the
landlord. Schedule 4.12 lists each lease for real property terminated by the
landlord in the last twelve months and the status of any past due obligations
under such leases and a summary of any related litigation.
4.13 FIXED ASSETS; ABSENCE OF LIENS AND ENCUMBRANCES, ETC. SCHEDULE 4.13
CONTAINS A COMPLETE AND ACCURATE LIST OF ALL OF THE COMPANY'S FIXED ASSETS AS OF
FEBRUARY 28, 2001. AS OF THE CLOSING DATE, THE COMPANY WILL OWN ALL RIGHT, TITLE
AND INTEREST IN AND TO THE ASSETS, FREE AND CLEAR OF ALL LIENS, ENCUMBRANCES,
SECURITY INTERESTS, OPTIONS, PLEDGES, RESTRICTIONS ON TRANSFER AND OTHER CLAIMS
OF ANY KIND, OTHER THAN PERMITTED LIENS. ALL OF THE COMPANY'S PERSONAL PROPERTY
IS IN GOOD WORKING CONDITION, NORMAL WEAR AND TEAR EXCEPTED. THE LIST OF FIXED
ASSETS TO BE DELIVERED AT THE CLOSING DATE PURSUANT TO SECTION 7.2(M)(II) WILL
BE COMPLETE AND ACCURATE AT THE CLOSING.
4.14 ENVIRONMENTAL AND SAFETY MATTERS. EXCEPT AS DISCLOSED ON SCHEDULE
4.14, (A) THE COMPANY HAS MATERIALLY COMPLIED AND IS IN MATERIAL COMPLIANCE WITH
ALL ENVIRONMENTAL AND SAFETY REQUIREMENTS (INCLUDING WITHOUT LIMITATION ALL
PERMITS AND LICENSES REQUIRED THERE UNDER), (B) NEITHER THE COMPANY NOR SELLER
HAS RECEIVED ANY ORAL OR WRITTEN NOTICE OF ANY MATERIAL VIOLATION OF, OR ANY
LIABILITIES (OTHER THAN PERMITTED LIABILITIES), INVESTIGATORY, CORRECTIVE OR
REMEDIAL OBLIGATION UNDER, ANY ENVIRONMENTAL AND SAFETY REQUIREMENTS, (C)
NEITHER THIS AGREEMENT NOR THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED
HEREBY WILL RESULT IN ANY OBLIGATIONS FOR SITE INVESTIGATION OR CLEANUP, OR
NOTIFICATION TO OR CONSENT OF GOVERNMENTAL OR REGULATORY AUTHORITY OR THIRD
PARTIES, PURSUANT TO ANY SO-CALLED "TRANSACTION-TRIGGERED" OR "RESPONSIBLE
PROPERTY TRANSFER" ENVIRONMENTAL AND SAFETY REQUIREMENTS, (D) NEITHER THE
COMPANY, NOR SELLER WITH RESPECT TO THE BUSINESS, HAS RELEASED, DISPOSED OF OR
TRANSPORTED OR ARRANGED FOR THE DISPOSAL OF ANY HAZARDOUS SUBSTANCE OR TO
SELLER'S AND THE COMPANY'S KNOWLEDGE OWNED OR OPERATED ANY PROPERTY OR FACILITY
(AND TO THE KNOWLEDGE OF SELLER AND THE COMPANY NO SUCH PROPERTY OR FACILITY IS
CONTAMINATED BY ANY SUCH SUBSTANCE) IN A MANNER THAT HAS GIVEN OR WOULD GIVE
RISE TO MATERIAL LIABILITIES (OTHER THAN PERMITTED LIABILITIES) UNDER THE
COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT OF 1980, AS
AMENDED ("CERCLA"), THE RESOURCE CONSERVATION AND RECOVERY ACT, AS AMENDED OR
ANY OTHER
16
ENVIRONMENTAL AND SAFETY REQUIREMENTS, (E) TO THE KNOWLEDGE OF THE COMPANY AND
SELLER, THERE ARE NO UNDERGROUND STORAGE TANKS, ASBESTOS-CONTAINING MATERIAL IN
ANY FORM AND CONDITION, POLYCHLORINATED BIPHENYLS OR LANDFILLS, SURFACE
IMPOUNDMENTS OR DISPOSAL AREAS AT ANY PROPERTY OR FACILITY OWNED OR OPERATED BY
THE COMPANY, OR SELLER WITH RESPECT TO THE BUSINESS, AND (F) NO ENVIRONMENTAL
LIEN (OTHER THAN PERMITTED LIENS) HAS ATTACHED TO ANY PROPERTY OWNED, LEASED OR
OPERATED BY THE COMPANY, OR SELLER WITH RESPECT TO THE BUSINESS. NO FACTS OR
CIRCUMSTANCES WITH RESPECT TO THE PAST OR CURRENT OPERATION OR FACILITIES OF THE
COMPANY, OR SELLER WITH RESPECT TO THE BUSINESS, OR ANY PREDECESSOR OR AFFILIATE
THEREOF (INCLUDING, WITHOUT LIMITATION ANY ONSITE OR OFFSITE DISPOSAL OR RELEASE
OF HAZARDOUS MATERIALS, SUBSTANCES OR WASTES) WOULD GIVE RISE TO ANY MATERIAL
LIABILITY (OTHER THAN A PERMITTED LIABILITY) OR CORRECTIVE OR REMEDIAL
OBLIGATION UNDER ANY ENVIRONMENTAL AND SAFETY REQUIREMENTS. NEITHER THE COMPANY,
NOR SELLER WITH RESPECT TO THE BUSINESS, HAS, EITHER EXPRESSLY OR BY OPERATION
OF LAW, ASSUMED OR UNDERTAKEN ANY MATERIAL LIABILITY OR MATERIAL OBLIGATION
(OTHER THAN A PERMITTED LIABILITY) OF ANY OTHER PERSON RELATING TO ENVIRONMENTAL
AND SAFETY REQUIREMENTS.
4.15 Intellectual Property.
(a) The Company (i) is the owner of, with all right, title and
interest in and to (free and clear of any Liens other than Permitted Liens), or
otherwise possesses the right to use the Intellectual Property used in its
Business as conducted or proposed to be conducted by Seller.
(b) Schedule 4.15(b) sets forth a list of all of the Company's
material Intellectual Property and federal, state and foreign patents,
registered copyrights, registered trademarks, domain registrations, and any
applications therefore included in the Intellectual Property, and specifies,
where applicable, the jurisdictions in which each such item of Intellectual
Property has been issued or registered or in which an application for such
issuance or registration has been filed, including the respective registration
or application numbers and the names of all registered owners. Schedule 4.15(b)
sets forth a list of all licenses, sublicenses and other agreements having a
value of at least Twenty-Five Thousand Dollars ($25,000), to which the Company
is a party and pursuant to which the Company or any other Person is authorized
to use or license the use of any (i) Intellectual Property or trade secret of
the Company and (ii) third- party patents, copyrights, trademarks, and
applications for registration thereof, schematics, technology, know-how,
computer software programs or applications (in both source code and object code
form), and tangible or intangible proprietary information or material that are,
are incorporated in, or form a part of the Intellectual Property. The execution
and delivery of this Agreement by Seller, and the consummation of the
transactions contemplated hereby, will not cause the Company to be in violation
or default under any such license, sublicense or agreement, nor entitle any
other party to any such license, sublicense or agreement to terminate or modify
such license, sublicense or agreement.
(c) No claims with respect to the Intellectual Property have been
asserted in writing or are, to the Company's or Seller's knowledge, threatened
by any Person (i) to the effect that the Business of the Company infringes on
any copyright, patent, trademark, service xxxx, trade secret or other
proprietary right of any third party, (ii) against the use by the Company of any
trademarks, service marks, trade names, trade secrets, copyrights, patents,
technology, know-how or computer software programs and applications used in the
Business as currently conducted or under development for use in such business or
(iii) challenging the ownership by the Company, or the validity or
effectiveness, of any of the Intellectual Property. The Company has not
infringed, and the Business of the Company does not infringe, any copyright or
patent or, to the knowledge of Seller and the Company, any trade secret or other
proprietary right of any
17
third party. To the knowledge of the Company and Seller, there is no material
unauthorized use, infringement or misappropriation of any of the Intellectual
Property by any third party, including any employee or former employee of the
Company. No Intellectual Property or product of the Company is subject to any
outstanding decree, order, judgment or stipulation restricting in any manner the
licensing thereof by the Company.
(d) Schedule 4.15(d) lists all Software (other than Software
acquired in the ordinary course of business or having an acquisition price of
less than Fifteen Thousand Dollars ($15,000)) owned, licensed, leased, or
otherwise used by the Company, and identifies which Software is owned, licensed,
leased, or otherwise used, as the case may be. Schedule 4.15(d) lists all
Software sold, licensed, leased or otherwise distributed by the Company to any
third party, and identifies which Software is sold, licensed, leased, or
otherwise distributed as the case may be. With respect to the Software set forth
in Schedule 4.15(d), which the Company purports to own, such Software was either
developed (i) by employees of the Company within the scope of their employment,
or (ii) by independent contractors who have assigned their rights to the Company
pursuant to written agreements. In each agreement pursuant to which the Company
has licensed its Software to third parties, the Company has not (x) failed to
limit its Liability to the amount of the fees paid pursuant to the agreements or
(y) warranted as to the performance or functionality of the Software other than
to state that the Software would perform in accordance with its documentation
and/or specifications
4.16 Warranties; Service Commitments. True and correct copies of the form
of all written warranties and guaranties and written service warranties and
commitments applicable to products sold and services rendered are attached
hereto as Schedule 4.16. The amounts reflected as warranty reserves and
Liabilities related to the service commitments reflected in the Financial
Statements and to be reflected in the Closing Statement are not less than the
amount required by GAAP. Any products sold or services rendered by the Company
meet, in all material respects, the specifications and the standards set forth
in the Company's written descriptions of the products and services in its
representations and warranties to customers and distributors of the products,
including those set forth on Schedule 4.16.
4.17 Litigation. Except as set forth in Schedule 4.17, there is no claim,
action, suit, proceeding, arbitration, investigation or hearing or notice of
hearing pending against the Company or Seller affecting the Company or any of
the Assets, the Purchased Shares, or, with respect to any employment matter, an
employee, or the transactions contemplated by this Agreement and, to the
knowledge of the Company and Seller no such action is threatened; nor are any
facts known to the Company or Seller, which may give rise to any such claim,
action, suit, proceeding, arbitration, investigation or hearing. No such claim,
action, suit, proceeding, arbitration, investigation or hearing will prevent the
closing of this Agreement or the consummation of the transaction contemplated
hereby.
4.18 Customers and Vendors. Schedule 4.18 sets forth correct and complete
lists of the customers ("Customers") and vendors ("Vendors") of the Company
during the most recently completed fiscal year, indicating the existing
contractual arrangements, if any, with each such Customer or Vendor. Except as
set forth in Schedule 4.18, there are no outstanding disputes with any Customer
or Vendor listed thereon and no Customer or Vendor listed thereon has refused to
continue to do business with the Company or has stated its intention not to
continue to do business
18
with the Company. Since January 1, 1998, there has not been any material
shortage or unavailability of the raw materials necessary to manufacture the
products sold by the Business, and, to the knowledge of Seller and the Company,
there is no current shortage or unavailability which leads it to believe that
any such shortages will occur.
4.19 Books and Records. The books of account and other financial and
corporate records of the Company related to the Accounts Receivable, Inventory
and Fixed Assets and operations of the Company are in all material respects
substantially complete and correct and are maintained in accordance with good
business practices. All of the minutes of all the Company's Board of Directors
and Stockholder meetings have been provided to Buyer.
4.20 Employment Matters.
(a) Except as provided in Schedule 4.20, the Company is in material
compliance with all laws, rules and regulations respecting employment and
employment practices, terms and conditions of employment and wages and hours
with respect to employees of the Business. The Company has withheld all amounts
required by law or agreement to be withheld from the wages or salaries of, and
other payments to, its employees and any former employees and is not liable for
any arrearage of wages, salaries or other payments to such employees and any
former employees (excluding wages and bonuses accrued in the ordinary course of
business and not yet due) or any Taxes or penalties for failure to comply with
any of the foregoing. Except as provided on Schedule 4.20, to the knowledge of
the Company and Seller, no executive or key employee or group of employees has
any plans to terminate his, her or their employment with the Company.
(b) There (i) is no material labor strike, picketing of any nature,
stoppage or lockout pending or material labor dispute, slowdown or other
concerted interference with normal operations or, to the knowledge of the
Company or Seller, threatened against or affecting the Business, (ii) are no
union claims or demands to represent the employees of the Business, (iii) to the
knowledge of the Company and Seller, are no current union organizing activities
among the employees of the Company, and (iv) are no labor or collective
bargaining agreements that pertain to or cover employees of the Company or to
which the Company is a party or by which the Company is bound.
(c) None of the Company's employment policies or practices is
currently being audited or investigated, or, to the knowledge of the Company or
Seller, subject to imminent audit or investigation, by any governmental body.
The Company is not subject to any consent decree, court order or settlement in
respect of any labor or employment matters. No claim, arbitration or similar
proceeding with respect to employment matters is pending or, to the knowledge of
the Company or Seller, threatened. The Company is, and at all times since
November 6, 1986 has been, in material compliance with the requirements of the
Immigration Reform Control Act of 1986. The transaction contemplated by this
Agreement will not adversely effect the authority of any employee to work in the
United States.
(d) Except as set forth on Schedule 4.20, the Company does not
employ or use any independent contractors, temporary employees, leased employees
or any other servants or agents compensated other than through reportable wages
paid by the Company (collectively, "Contingent Workers"). To the extent that
Company employs or uses Contingent Workers, it has
19
properly classified and treated them in accordance with applicable law and for
purposes of all benefit plans and perquisites.
(e) The Company has not taken any action that would require any
notice to be given pursuant to the Worker Adjustment Retraining and Notification
Act ("WARN Act") or any similar state law. Schedule 4.20 sets forth a list of
all dismissals of employees by location during the last sixty (60) days (and
with respect to Massachusetts state law, six (6) months), which when aggregated,
could cause a WARN Act notice (or notice or Liability under any similar state
law) to be given, if further dismissals were made with respect to such site.
4.21 Employee Benefit Plans.
(a) Schedule 4.21 is a true and complete list of all written and
oral, formal and, to the knowledge of the Company and Seller, informal annuity,
bonus, cafeteria, stock option, stock purchase, profit sharing, savings,
pension, retirement, incentive, group insurance, disability, employee welfare,
prepaid legal, non-qualified deferred compensation including, without
limitation, excess benefit plans, top-hat plans, deferred bonuses, rabbi trusts,
secular trusts, non-qualified annuity contracts, insurance arrangements,
non-qualified stock options, phantom stock plans, or golden parachute payments,
or other similar fringe benefit plans, and all other employee benefit plans,
funds, arrangements or programs (whether or not within the meaning of Section
3(3) of Employee Retirement Income Security Act of 1974 and of the regulations
adopted pursuant thereto (collectively "ERISA"), covering employees or former
employees of the Company (the "Plans"). Except as set forth on Schedule 4.21,
the Company is not a party to any employee agreement, understanding, plan,
policy, procedure or arrangement, whether written or oral, which provides
compensation or fringe benefits to employees of the Company engaged or formerly
engaged in the operation of the Business or which applies to former employees of
the Company who were engaged in the Business, and the Company is in compliance
in all material respects with its obligations under all such Plans. Except for
changes required by applicable law, there are no negotiations, demands,
commitments or proposals that are pending or that have been made that concern
matters now covered or that would be covered by the type of agreements described
on Schedule 4.21 or this Section 4.21(a). The Company has no any direct or
indirect, actual or contingent liability for any Plan, other than to make
payments for contributions, premiums or benefits when due, all of which payments
have been timely made. None of the Assets are subject to any existing lien or
security interest under Section 302(f), 306(a), 307(a) or 4068 of ERISA or
Section 401(a)(29), 412(n) or 6321 of the Internal Revenue Code of 1986 and the
regulations adopted pursuant thereto (collectively the "Code").
(b) With respect to each employee benefit plan listed on Schedule
4.21, true and complete copies of (i) all Plan documents (including all
amendments and modifications thereof), and related agreements, including,
without limitation, the trust agreement and amendments thereto, insurance
contracts, third party administration contracts and investment management
agreements, (ii) the last three (3) filed Form 5500 series and applicable
schedules, SSA, and Forms PBGC-l, if any, (iii) summary plan descriptions, (iv)
summary of material modifications, if any, (v) the most recent auditor's report,
(vi) copies of any and all Tax qualification correspondence, including, without
limitation, private letter rulings, applications for determination and
determination letters issued with respect to
20
the Plans, and applications, correspondence, and internal documentation, in
whatever form held, relating to operational, documentation or other errors or
failures with respect to the Plans, and (vii) the most recent annual and
periodic accounting of related Plan assets, have also been delivered to Buyer.
(c) With respect to the Plans listed on Schedule 4.21 which are
subject to ERISA:
(i) The Plans are in compliance in all material respects with
the applicable provisions of ERISA and each of the employee pension benefit
plans, within the meaning of Section 3(2) of ERISA (the "Pension Plans"), which
are intended to be qualified under Section 401(a) of the Code have been
determined by the Internal Revenue Service ("IRS") to be so qualified or a
request for such determination has been timely filed with the IRS (and to the
knowledge of the Company and Seller, nothing has occurred to cause the IRS to
revoke such determination and the IRS has not indicated any disapproval of any
request for such a determination) or there is time remaining within which to
file such a request;
(ii) Each Plan has been operated in accordance with its terms
and all required filings that are due prior to the date hereof, including,
without limitation, the Forms 5500 for all Plans have been made;
(iii) No prohibited transactions as defined by Section 406 of
ERISA or Section 4975 of the Code, for which exemptions are not available, have
occurred with respect to any of the Plans which would result in a material
liability to the Company;
(iv) The Company has not engaged in any transaction in
connection with which the Company could be subjected to a criminal or material
civil penalty under ERISA;
(v) None of the Plans, nor any trust which serves as a funding
medium for any of such Plans, nor any issue relating thereto is currently under
examination by or pending before the IRS, the Department of Labor, the PBGC or
any court, other than applications for determinations pending before the IRS;
(vi) None of the Pension Plans is a defined benefit plan
within the meaning of Section 414(j) of the Code; or an employee stock ownership
plan within the meaning of Section 4975(e)(7) of the Code which has not been
satisfied;
(vii) None of the Plans is a "multiemployer plan" as that term
is defined in Section 3(37) of ERISA and Section 411(f) of the Code, nor a plan
maintained by more than one employer (hereinafter referred to as a "multiple
employer plan"), nor a single employer plan under a multiple controlled group
within the meaning of Section 4063 of ERISA, and neither Seller nor any entity
required to be aggregated with Seller under Section 414(b), (c), (m), or (o) of
the Code has incurred any withdrawal liability with respect to any single plan,
multiemployer or multiple employer plan which have not been satisfied;
(viii) No benefit claims (except those submitted in the
ordinary course of administration of such Plan) are currently pending against
any Plan;
(ix) No Plan provides for retiree medical or retiree life
insurance benefits for former employees of the Company except as may be required
under the continuation coverage
21
provisions of Sections 601-608 of ERISA and Section 4980B of the Code or
comparable provision of state law to the extent applicable, and there is no
liability for Taxes with respect to disqualified benefits under Section 4976 of
the Code; and
(x) Except as set forth on Schedule 4.21, no Pension Plan
covering, or formerly covering, employees of Seller has been terminated and
there is no liability for Taxes with respect to a reversion of qualified plan
assets under Section 4980 of the Code.
(d) There have been no material failures to comply with the
continuation coverage provisions required by Sections 601-608 of ERISA and
Section 4980B of the Code or comparable provision of state law to the extent
applicable. There is no liability for Taxes under Section 4980B of the Code with
respect to any Plan.
(e) There have been no material failures to comply with the
portability, access and renewability provisions required by Sections 701-734 of
ERISA and chapter 100 of the Code, as amended, or comparable provision of state
law to the extent applicable. There is no liability for Taxes under Section
4980D of the Code with respect to any Plan.
(f) There are no employee benefit plans which cover employees of
Seller which are required to comply with the provisions of any foreign law.
(g) All excess contributions (as defined in Section 4979(c) of the
Code), if any (together with any income allocable thereto), have been
distributed (or, if forfeitable, forfeited) before the close of the first two
and one half (2-1/2) months of the following Plan year; and there is no
liability for excise Taxes under Section 4979 of the Code with respect to such
excess contributions, if any, for any Plan.
(h) There is no liability for Taxes with respect to: (i) an
accumulated funding deficiency under Section 4971 of the Code; and/or (ii)
nondeductible contributions under Section 4972 of the Code.
(i) The Company's deferred compensation plan (Shared Harvest) has
been irrevocably terminated by the Company and no former participant in such
plan has any further rights under such plan except as set forth on Schedule
4.21.
(j) Except as set forth on Schedule 4.21, each employee which has
been terminated by the Company has been paid in full for all accrued vacation
and severance pay.
4.22 No Subsidiaries; Prior Names, Addresses and Businesses. Except as set
forth on Schedule 4.22, the Company does not now have, nor has it ever had, any
subsidiaries. The Company has not (i) merged or consolidated with, (ii) acquired
the stock or assets of or (iii) assumed the Liabilities of any other Person in
connection with a business combination transaction except as set forth on
Schedule 4.22. The Company has not conducted business under any other name
except as set forth on Schedule 4.22 and the principal office of the Company has
always been located at the address set forth on Schedule 4.22. The Company has
not conducted any business other than the Business conducted as it substantially
exists on the date hereof.
22
4.23 Finder. There is no Person or entity that is entitled to a finder's
fee or any type of commission in relation to or in connection with the
transactions contemplated by this Agreement as a result of any agreement or
understanding with the Company or Seller (other than Xxxxxxx & Company, Inc.,
which fees and expenses shall be paid by Seller) and Seller agrees to indemnify
Buyer and to hold it harmless against all claims, damages, costs or expenses of
or for any other such fees or commissions resulting from Seller's actions or
agreements regarding the execution or performance of this Agreement, and will
pay all costs of defending any action or lawsuit brought to recover any such
fees or commissions incurred by Buyer, including reasonable attorneys' fees.
4.24 Sufficiency of Assets. Except as set forth in Schedule 4.24, the
Assets of the Company at the Closing Date will include all of the Company's and
Seller's Assets used in the ordinary course of Business as presently conducted.
4.25 Employees.
(a) Schedule 4.25 sets forth a complete and accurate list of all
employees (including leased employees) of the Company, showing for each: name,
hire date, current job title or description, current salary level (including any
bonus or deferred compensation arrangements) and any bonus, commission or other
remuneration paid during the most recently completed fiscal year, and describing
any existing contractual arrangement (including any severance arrangement).
Except as specifically contemplated by this Agreement or as set forth on
Schedule 4.25, no employee (including leased employees) shall receive any
compensation as a result of the consummation of the transactions contemplated by
this Agreement (all of which shall be considered Seller Costs). Except as set
forth on Schedule 4.25, none of the employees (including leased employees) is
currently on short-term or long-term disability, absence, sabbatical, maternity,
parenting, Family and Medical Act (FMLA) leave or other leave of absence. Except
as set forth on Schedule 4.25, since November 1, 2000, no salaried employee
(including leased employees) of the Business who has been compensated at an
annual rate in excess of One Hundred Thousand Dollars ($100,000) has terminated
his or her employment or had such employment terminated for any reason or for no
reason; no such employee has given written notice (or to the knowledge of the
Seller and the Company, oral notice) of his or her intent to terminate such
employment; and no notice of termination has been given to any such employee by
the Company. No employee is a party to any contract which provides for change of
control benefits or, except as set forth on Schedule 4.25 severance benefits or
which would provide for increased compensation or permit termination as a result
of the transactions to be consummated hereby.
(b) Schedule 4.25 sets forth the name of each employee who requires
an immigration visa and the type of visa.
4.26 Condition of Assets. The Assets (a) are in good condition and repair,
normal wear and tear excepted, and (b) are in substantial compliance with all
applicable laws, ordinances, regulations, orders and other requirements relating
thereto.
4.27 Governmental Authorizations. The Company has all material licenses,
permits or other authorizations from governmental, regulatory or administrative
agencies or authorities required for the operation of its business in the manner
presently conducted and proposed to be conducted, each of which will be in full
force and effect on the Closing Date and all such material
23
authorizations will be in full force and effect on the Closing Date. A list of
all such material governmental authorizations is set forth on Schedule 4.27 and
all such authorizations will remain in full force and effect following the
Closing Date. No registrations, filings, applications, notices, transfers,
consents, approvals, orders, qualifications, waivers or other actions of any
kind are required by virtue of the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby to enable Buyer and the
Company to continue the operation of the Business as presently conducted in all
material respects following the Closing.
4.28 Compliance with Applicable Laws. The Company has been, is, and on the
Closing Date will continue to be, in compliance in all material respects with
all applicable laws (including duties imposed by common law), rules,
regulations, orders, ordinances, judgments and decrees of all governmental
authorities (federal, state, local and foreign) applicable to the Business,
Assets, products, services and employees of the Company.
4.29 Accounts Receivable, Installment Receivables, and Accounts Payable.
All accounts receivable, notes receivable and installment receivables of the
Company, whether reflected on the Financial Statements, or to be reflected of
the Closing Statement, represent sales actually made or leases entered into in
the ordinary course of business or valid claims as to which full performance has
been rendered. Except to the extent reserved against, the accounts receivable,
notes receivable and installment receivables, are fully collectible within the
later of (i) ninety (90) days of the related invoice date and (ii) forty-five
(45) days from the Closing Date. Except to the extent reserved against, and as
set forth on Schedule 4.29, no counterclaims or offsetting claims with respect
to the accounts receivable, notes receivable and installment receivables are
pending or, to the knowledge of the Seller, threatened. The listing of accounts
receivable, notes receivable and installment receivables provided by the Company
dated January 31, 2001 was true and correct (including the aging thereon) as of
such date and no material change has occurred since that date. Schedule 4.29
sets forth the amounts the Company owes to or is owed by Seller or any of his
Affiliates as of the date hereof. The accounts payable of the Company reflected
on the Financial Statements and to be reflected on the Closing Statement arose,
or will arise, from bona fide transactions in the ordinary course of business,
and all such accounts payable have been paid, are not yet due and payable under
the Company's payment policies and procedures or are being contested by the
Company in good faith. Any debit balance in accounts payable are valid offsets
to amounts due vendors. The listing of Accounts Payable provided by the Company
dated January 31, 2001 was true and correct as of such date and no material
change has occurred since that date.
4.30 Insurance.
(a) Schedule 4.30 lists each insurance policy currently maintained
by or on behalf of the Company and each general liability policy and workers'
compensation policy maintained in the last three years. The Company has
delivered copies to Buyer of all such insurance policies. All of such current
insurance policies are in full force and effect, and the Company is not in
default with respect to its obligations under any such insurance policies. The
Company is current in all of its premiums for its current insurance policies.
Neither the Company nor Seller knows of any threatened termination of, or
material premium increase with respect to, any of such policies.
24
(b) Schedule 4.30 lists (i) each claim which has been made against
the Company's insurance policies during the last two (2) years, (ii) any other
currently pending claim, and (iii) the status of such claim.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents, warrants and covenants to and agrees with Seller
as follows, all of which representations, warranties and agreements are made as
of the date of this Agreement and as of the Closing Date:
5.1 Organization, Etc. Buyer is a corporation duly organized, validly
existing and in good corporate standing under the laws of the state of
Minnesota. Buyer has all the requisite corporate power and authority to execute,
deliver and perform this Agreement and consummate the transactions contemplated
hereby.
5.2 Authorization of Agreement. This Agreement has been, and the
Transaction Documents will be, duly executed and delivered by Buyer. The
execution, delivery and performance of this Agreement and the Transaction
Documents has been duly authorized and approved by all requisite corporate
action. This Agreement is, and the Transaction Documents when executed and
delivered will be, valid and binding obligations of Buyer enforceable in
accordance with their respective terms, except that such enforcement may be
limited by (a) bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally, and (b) general principles of
equity, regardless of whether enforcement is sought in a proceeding in equity or
at law.
5.3 Approvals. No consent or approval is required of any Person or entity,
private or governmental, for the execution, delivery and performance of this
Agreement and the Transaction Documents by Buyer, and neither will such
execution, delivery or performance, nor the consummation of the transactions
contemplated herein, breach any provision of Buyer's Articles of Incorporation
or Bylaws or any law, rule, regulation, judgment, order, decree, agreement,
instrument or arrangement that would have a material adverse effect on Buyer's
ability to perform its obligations hereunder.
5.4 Finder. There is no Person or entity that is entitled to a finder's
fee or any type of commission in relation to or in connection with the
transactions contemplated by this Agreement as a result of any agreement or
understanding with Buyer; and Buyer agrees to indemnify Seller and to hold it
harmless against all claims, damages, costs or expenses of or for any other such
fees or commissions resulting from Buyer's actions or agreements regarding the
execution or performance of this Agreement, and will pay all costs of defending
any action or lawsuit brought to recover any such fees or commissions incurred
by the Company, including reasonable attorneys' fees.
5.5 Effect of Agreement, Etc. The execution, delivery and performance of
this Agreement and the Transaction Documents by Buyer and consummation by Buyer
of the transactions contemplated hereby and thereby will not, with or without
the giving of notice and the lapse of time, or both, (a) violate any material
provision of law, statute, rule or regulation to which Buyer is subject, (b)
violate any judgment, order, writ or decree of any court applicable to Buyer, or
25
(c) result in the material breach of or material conflict with any material
term, covenant, condition or provision of, result in the material modification
or termination of, constitute a material default under, or result in the
creation or imposition of any material Lien, security interest, restriction,
charge or encumbrance upon any of the material assets of Buyer pursuant to the
Articles of Incorporation or Bylaws of Buyer, or any commitment, contract or
other agreement or instrument to which Buyer is a party.
ARTICLE 6
COVENANTS OF SELLER AND BUYER
Seller covenants and agrees with Buyer as follows:
6.1 [Intentionally Omitted.]
6.2 Approvals, Consents, Etc. Seller shall, or shall cause the Company to,
use its reasonable efforts to obtain in writing prior to the Closing Date all
approvals, consents and waivers required to be obtained by the Company or Seller
(and Seller shall use its reasonable efforts to obtain any such approvals,
consents and waivers after the Closing Date, it being understood that no waiver
of such items is intended by the parties hereto) in order to effectuate the
transactions contemplated hereby and shall deliver to Buyer copies of such
approvals and consents in form and substance reasonably satisfactory to Buyer
and counsel for Buyer. In the event Buyer elects to close prior to the time all
option holders execute the forms to be delivered pursuant to Section
7.2(a)(iii), Buyer is not waiving delivery of such forms and Seller shall use
its best efforts to obtain the rest of such forms after the Closing.
6.3 Further Assurances. After the Closing Date, the Company and Seller
shall, at the request of Buyer, execute, acknowledge and deliver to Buyer
without further consideration, all such further assignments, conveyances,
endorsements, consents and other documents and take such other action as Buyer
may reasonably request to (a) transfer to and vest in Buyer and protect its
right, title and interest in, all of the Assets and Purchased Shares and (b)
otherwise to consummate the transactions contemplated by this Agreement.
6.4 Seller's Employment Agreement. Seller acknowledges the noncompetition,
nondisclosure and other covenants in his employment agreement entered into in
connection with this transaction were given to induce Buyer to acquire the
Purchased Shares and such covenants are enforceable as if set forth in this
Agreement in full, and any breach thereof shall be deemed a breach of this
Agreement.
6.5 Financial Statements. Seller shall cause the Company to immediately
engage PricewaterhouseCoopers LLP to perform an audit of its financial
statements for the most recently completed fiscal year on terms acceptable to
Buyer. Seller shall cause the Company to expeditiously complete such audit
within sixty (60) days of the date hereof, and Seller shall, and shall cause the
Company to, render all needed assistance to cause such audit to be completed.
6.6. [Intentionally Omitted.]
26
6.7 Tax Returns; Tax Audits.
(a) Seller shall provide Buyer with the Company's 2000 federal and
state income Tax returns prior to filing thereof (if such tax returns are filed
prior to the Closing Date) and such Tax returns shall be satisfactory to Buyer
(including any allocation of income and expenses between the periods covered by
the "Subchapter S" and "C corporation" returns). If such Tax returns are filed
after the Closing Date, such Tax returns shall be prepared by Buyer and
furnished to Seller for his approval, which shall not be unreasonably withheld
or delayed.
(b) Any party who receives any written notice of a pending or
threatened Tax audit, assessment or adjustment with respect to the Company or
Seller which affects any period prior to the Closing Date shall promptly notify
the other parties hereto. Failure to provide timely notice of such pending or
threatened action shall not release any party who failed to receive such notice
from liability to the party failing to give timely notice unless such failure
precluded the defense of such pending or threatened action. Each party shall
allow the other party an opportunity of it and its counsel to participate (at
its own expense) in any audits of the Company or any audit of Seller which could
affect the Company. Seller will not settle any such audit in a manner which
would impose any Tax liability on the Company or Buyer.
6.8 Litigation. Seller shall assist the Company and Buyer with respect to
any litigation involving the Company relating in any way to periods prior to the
Closing Date; provided that Buyer shall reimburse Seller for its reasonable
out-of-pocket expenses related thereto.
6.9 Authorization and Grant of Stock Options. No later than thirty (30)
days after the Closing Date, the Buyer agrees to grant non-qualified options to
purchase at least Three Hundred Twenty Thousand (320,000) and not more than
Three Hundred Fifty Thousand (350,000) shares of its common stock to the
employees of the Company recommended by Seller and approved by Buyer, at a per
share exercise price equal to the fair market value of the Buyer's common stock
on the grant date and pursuant to an established stock option plan of the Buyer,
the shares of which will be registered with the SEC on Form S-8. Such options
shall have such terms consistent with stock options granted to Buyer's employees
generally.
6.10 401(k) Plan. As soon as practicable following the Closing Date, Buyer
will cause its 401(k) plan to accept contributions from those employees of the
Company otherwise eligible to participate in Buyer's 401(k) plan, taking into
account as service with Buyer, service with the Company completed on or before
the Closing Date by employees employed by the Company on the Closing Date. As
soon as practicable following the Closing Date (which may be later than the date
for acceptance of plan contributions and which may occur after receipt of a
favorable determination letter on the termination of the Company's 401(k) plan),
Buyer will cause its 401(k) plan to accept a direct rollover from the Company's
401(k) plan of account balances, including outstanding loans, of electing plan
participants who are employed by Buyer at the time of the rollover.
6.11 Bonus Plan. As of the Closing Date, the Company shall adopt a bonus
pool in the aggregate amount of Six Million Five Hundred Thousand Dollars
($6,500,000) (the "Bonus Pool"), which amount includes One Hundred One Thousand
Nine Hundred Seven Dollars ($101,907) of employer payroll taxes which will not
be distributed to participants. The Bonus Pool shall be administered by the
Company in accordance with and pursuant to the terms of the bonus plan (the
"Bonus Plan") set forth on Exhibit C. Buyer hereby unconditionally and
irrevocably guarantees the payment and performance of the Company under the
Bonus Plan,
27
provided that Buyer's maximum liability is limited to Six Million Five Hundred
Thousand Dollars ($6,500,000). Buyer covenants and agrees to cause the Company
to administer the Bonus Plan in accordance with its terms and further covenants
and agrees that the Bonus Plan shall remain in effect and shall not be
terminated by Buyer or the Company, for any reason, except in accordance with
the terms thereof.
6.12 Payments by Buyer's Undisbursed Funds.
(a) Sovereign Bank. Concurrently with the Closing, Buyer shall
advance to Sovereign Bank, as a contribution to capital to the Company, the
amount set forth on Schedule 6.12.
(b) Option Holder Termination and Release Agreement. Buyer shall
advance on behalf of the Company, the amount set forth on Schedule 6.12, which
shall be used to fund payments for executed Option Holder Termination and
Release Forms delivered pursuant to Section 7.2(a)(iii). Such amounts shall be
advanced prior to the time payment under such agreements are due and shall be
increased with respect to which any executed Option Holder Termination and
Release Forms are received after the Closing but prior to the time payment is
due.
(c) Retention Bonuses. Buyer shall advance, on behalf of the
Company, the amounts set forth on Schedule 6.12 to pay retention bonuses to Xx
Xxxxxxx and Xxxxxx Xxxxxxx. If such amounts are in excess of those necessary to
satisfy such payments, or if such payments are not made, such excess amounts
shall be paid to Seller when it can reasonably be determined such payments will
not be made.
(d) Options. Seller is withholding Twenty-Five Thousand Nine Hundred
Dollars ($25,900) to reserve against option holders which have not signed Option
Holder Termination and Release Agreements as set forth on Schedule 7.2(a)(iii).
Buyer shall disburse such funds when such persons execute documents reasonably
satisfactory to Buyer, and upon such execution, by all such persons, Buyer shall
remit excess funds to Seller. Seller remains fully liable for all claims to
equity interests.
(e) Undisbursed Funds. Undisbursed funds and other Seller costs
shall be directed by Seller as set forth on Schedule 6.12(e). No funds shall be
paid to Messrs. Cutter and Xxxxxxx until statutory waiting periods necessary to
effect the release of employment claims have expired. Seller shall reimburse
Buyer for any employer related taxes as a result of such disbursements.
ARTICLE 7
CLOSING
7.1 Closing. The Closing of the transactions contemplated hereby shall
occur on April 3, 2001 (the "Closing") or as soon as practicable following such
date as all of the conditions to Closing as set forth herein have been satisfied
or waived. The Closing will be held at the offices of Xxxxxxx, Street and
Deinard Professional Association, Suite 2300, 000 Xxxxx Xxxxx Xxxxxx,
Xxxxxxxxxxx, XX 00000 at 10:00 a.m. or at such other time and place as the
parties mutually agree. The date upon which the Closing occurs is referred to
herein as the "Closing Date."
28
7.2 Buyer's Conditions to Closing. The obligations of Buyer under this
Agreement are subject to the satisfaction of the following conditions as of the
Closing Date, any or all of which conditions may be waived by Buyer in writing
in its sole discretion:
(a) Changes in Benefit Plans.
(i) Except as set forth herein (including clause (ii) and
(iii) hereof and Section 7.3(f)), the Company shall not enter into, adopt or
amend in any material respect or terminate any Plan or any other agreement,
arrangement, plan or policy involving any employee to be employed by Buyer or
increase the compensation of any such employee or pay any benefit or amount not
required by a plan or arrangement as in effect on the date of this Agreement, or
enter into any arrangement or commitment to do any of the foregoing.
(ii) The Company shall have terminated its 401(k) and profit
sharing plans prior to the Closing in a manner satisfactory to Buyer.
(iii) Except as set forth on Schedule 7.2(a)(iii), all past
and present employees and other persons who have vested or unvested options
(which have not expired by their terms) shall have executed the Option Holder
Termination and Release Agreement in the form set forth in the form set forth in
Exhibit D. All amounts required to be withheld by law from any payment to option
holders shall have been withheld.
(b) [Intentionally omitted.]
(c) Consents and Approvals. Buyer shall have received (i) from
governmental and administrative authorities all permits and licenses required
for it to carry on the business of the Company, and (ii) all consents or
approvals required on the part of Seller, the Company or Buyer for the transfer
of the Purchased Shares (including the consent of all landlords) all in form and
substance reasonably satisfactory to Buyer.
(d) Employment Agreements. The Company and Seller and each of the
employees of the Company listed on Schedule 7.2(d) shall have entered into
employment agreements in the form set forth in Exhibit E attached hereto.
(e) Good Standing Certificates, Etc. Buyer shall have received a
certificate dated within two (2) business days before the Closing Date from the
office of the Secretary of State of Delaware certifying that the Company is
validly existing and in good standing under the laws of its state of
incorporation.
(f) Lien Search. Seller, at its expense, shall have arranged for and
Buyer shall have received the report or reports, reasonably satisfactory to
Buyer and its counsel, of a reputable search company indicating that there are
no Liens, mortgages, encumbrances, charges or other rights of third parties of
record (other than Permitted Liens) as of a date not more than ten (10) days
before the Closing Date in each jurisdiction where Assets are located, other
than any Lien for which a Lien release, satisfactory to Buyer, is delivered
pursuant to Section 7.2(m).
29
(g) Opinion of Counsel to the Company. Buyer shall have received the
opinion of Xxxx and Xxxx LLP, counsel to Seller and the Company, addressed to
Buyer, dated the Closing Date, in the form set forth in Exhibit F attached
hereto.
(h) [Intentionally Omitted.]
(i) Adverse Change; Litigation. There shall not have occurred (x)
any material adverse change in the financial condition, results of operation or
business of the Company since the date of this Agreement or any event reasonably
likely to result in a Company Material Adverse Effect, (y) commencement of
litigation or any threat of litigation not set forth on Schedule 4.17, or (z)
any adverse change in the status of the Xxxxxxx Case, including any ruling on
appeal contrary to the trial court ruling or any amendment or threatened
amendment by Xxxxxxx of the related complaint alleging new causes of action.
(j) Audit. Seller shall have delivered an engagement letter of
PricewaterhouseCoopers LLP to perform the audit referred to in Section 6.5.
Seller shall deliver the consent of its independent certified public accountant
wherein such firm's opinion on the financial statements may be included in
Buyer's SEC filings and such firm may be named as an expert in such filings and
that such firm will use reasonable efforts to prepare any comfort letters
requested by Buyer (with such comfort letters to be at Buyer's expense).
(k) Retired Debt; Costs and Expenses. Except to the extent to be
discharged by Buyer pursuant to Section 6.12, the Retired Debt shall be repaid
in full in full concurrently with the Closing and all Seller Costs shall be
discharged, either by Seller from the Initial Purchase Price, or if paid by the
Company with the consent of Buyer, the Initial Purchase Price shall be reduced
by the amount of such payment.
(l) Leases. The Company shall have reached a settlement with respect
to all leases in default set forth on Schedule 4.12 and such settlement shall be
satisfactory to Buyer in its sole discretion.
(m) Other. The Company and Seller shall execute and/or deliver to
Buyer the following:
(i) An assignment conveying to Buyer the Seller Intangible
Assets in form reasonably satisfactory to Buyer and its counsel, free and clear
of all Liens and encumbrances;
(ii) A list of the Inventory, Accounts Receivable, Fixed
Assets, deposits and payables as of a date not more than three (3) days prior to
the Closing Date, which lists shall be satisfactory to Buyer, in its sole
discretion;
(iii) The Escrow Agreement;
(iv) Lien releases (including UCC termination statements) in
form satisfactory for recording or filing, with respect to any Lien on any Asset
(other than Permitted Liens), including Sovereign Bank and IBM Credit
Corporation;
30
(v) Resignations from each member of the Company's Board of
Directors and any officers requested by Buyer;
(vi) Seller shall provide a release in a form satisfactory to
Buyer signed by each person who is owed funds under the "Shared Harvest" or
"Deferred Compensation" plan as of January 31, 2001 that such amounts have been
paid in full;
(vii) Xxxxxxx & Company, Inc. shall have released the
Company from all obligations under the letter agreement dated July 7, 1999;
(viii) [Intentionally omitted];
(ix) The employment agreements with each of Messrs. Xxxxxxx,
Xxxxx and Cutter shall have been amended to reduce cash severance payments
obligations by one-third (1/3) and that upon payment of such severance all
claims (other than salary, benefit plans and the like) against the Company are
released;
(x) Seller and his Affiliates shall have repaid all amounts
owed to the Company and released all claims against the Company;
(xi) The minute book of the Company; and
(xii) Such other and further documents and certificates of
Seller, the Company's officers and others as Buyer shall reasonably request to
evidence compliance with the conditions set forth in this Agreement.
7.3 Seller's Conditions to Closing. The obligations of Seller under this
Agreement are subject to the satisfaction of the following conditions as of the
Closing Date, any or all of which may be waived by Seller in its sole
discretion:
(a) [Intentionally Omitted.]
(b) Consents and Approvals. Seller shall have received all consents
or approvals required on the part of Seller, the Company or Buyer for the
transfer of the Purchased Shares (including the consent of all landlords), all
in form and substance reasonably satisfactory to Seller.
(c) Secretary's Certificate. Seller shall have received a
certificate of the Secretary of Buyer with respect to the resolutions adopted by
the Board of Directors of Buyer approving this Agreement and the transactions
contemplated hereby.
(d) Good Standing Certificates, Etc. Seller shall have received a
certificate dated within two days before the Closing Date from the office of the
Secretary of State of Minnesota certifying that Buyer is validly existing and in
good standing under the laws of its state of incorporation.
(e) Opinion of Counsel to Buyer. Seller shall have received the
opinion of Xxxxxxx, Street and Deinard Professional Association, counsel to
Buyer, addressed to Seller, dated at the Closing Date, in the form set forth in
Exhibit G attached hereto.
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(f) Bonus Plan. The Company shall have adopted the bonus plan in the
form attached hereto as Exhibit C.
(g) Employment Agreements. The Company and Seller and each of the
employees of the Company listed on Schedule 7.2(d) shall have entered into
employment agreements in the form set forth in Exhibit E attached hereto.
(h) Other. Buyer shall execute and/or deliver to Seller the
following:
(i) The Purchase Price, by wire transfer, or in certified
funds in accordance with Article 3 of this Agreement (including depositing
relevant amounts pursuant to the Escrow Agreement) (it being understood that
Seller shall direct payment of such funds, in a manner satisfactory to Buyer, so
that Seller Costs are discharged in full, it being understood Buyer shall
deposit a portion of the Purchase Price in escrow pursuant to Section 3.1(b));
(ii) An Escrow Agreement; and
(iii) Such other documents and certificates to evidence
compliance with the conditions set forth in this Article as may be reasonably
requested by Seller.
ARTICLE 8
INDEMNIFICATION
8.1 Indemnification by Seller. Seller covenants and agrees with Buyer that
it shall indemnify Buyer and its directors, officers, employees, agents and
stockholders, and their successors and assigns, heirs and legal representatives,
and the owners, directors, and officers, employees, agents and stockholders of
any such successors and assigns or any other Person indemnified hereunder, and
hold them harmless from, against and in respect of any and all judgments,
awards, costs, losses, claims, Liabilities, fines, payments (including payments
to discharge the Retired Debt, Seller Costs and any Lien on any Asset, and any
Liability which is not a Permitted Liability), penalties, damages and expenses
of any kind, whether actual, threatened or alleged, contingent or liquidated
(including interest which may be imposed in connection therewith and court costs
and fees and disbursements of counsel) (hereinafter referred to as "Claims")
arising out of or with respect to:
(a) Any Liabilities or obligations of the Company as of the Closing
Date which are not Permitted Liabilities;
(b) The Retired Debt, the Seller Costs and any Lien on any Asset
(other than Permitted Liens) or the Purchased Shares to the extent such items
are not satisfied in full at Closing or by Buyer pursuant to Section 6.12;
(c) Any claim to any equity interest in the Company other than the
Purchased Shares;
(d) Any breach of any of the representations, warranties or
covenants in this Agreement or in any other agreement or certificate executed
and delivered by the Company or Seller pursuant hereto;
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(e) Any litigation or threatened litigation commenced by any Person
relating to the period prior to the Closing Date, including the Company's
employees and any litigation to which the Company or Seller is a party or
threatened to be made a party on the Closing Date, including the litigation set
forth on Schedule 4.17 (including all costs of further defense and settlement of
any such litigation) except to the extent reserved in the most recent Financial
Statements and other than any litigation commenced by any vendor which was
commenced solely to collect a past due accounts payable owed to such vendor
which is a Permitted Liability;
(f) Any income, sales, payroll, excise or other Tax imposed on the
Company by any federal, state, local or foreign authority with respect to a
period prior to the Closing Date, except to the extent any such Tax is accrued
on the books and records of the Company and reflected on the most recent
Financial Statements; and
(g) Any excise Tax under Section 4979 of the Code for failure to
complete discrimination testing on any benefit plan.
Seller waives any right Seller may have for contribution or reimbursement or the
like from the Company with respect to any matters indemnified hereunder. If any
representation, warranty or covenant which is qualified by materiality or
Company Material Adverse Effect is breached, the amount indemnified hereunder
shall include all damages related to such breach, and not just damages in excess
of material amounts.
8.2 Indemnification by Buyer. Buyer hereby covenants and agrees with
Seller that it shall indemnify Seller and his heirs and legal representatives,
and hold them harmless from, against and in respect of any and all Claims,
arising out of or with respect to:
(a) The operation of the Company on and following the Closing Date;
and
(b) Any breach of any of the representations, warranties, covenants
or agreements made by Buyer in this Agreement or in any ancillary documents
delivered pursuant hereto.
8.3 INDEMNIFICATION PROCEDURES. ALL CLAIMS OR DEMANDS FOR INDEMNIFICATION
UNDER THIS ARTICLE 8 SHALL BE ASSERTED AND RESOLVED AS FOLLOWS:
(a) In the event that Buyer (on the one hand) or Seller (on the
other hand) (each an "Indemnified Party") has a claim against Seller (on the one
hand) or Buyer (on the other hand) (each an "Indemnifying Party") hereunder,
which does not involve a Claim being asserted against or sought to be collected
by a third party, the Indemnified Party shall with reasonable promptness send a
notice (a "Claim Notice") with respect to such claim to the Indemnifying Party.
If the Indemnifying Party does not notify the Indemnified Party within ten (10)
days whether the Indemnifying Party disputes such claim, the Indemnified Party
may arbitrate such claim in accordance with the terms of Section 10.3 hereof. In
case the Indemnifying Party shall deliver a Notice of Dispute, then the
procedures set forth in Section 10.1 and 10.2 shall apply.
(b) In the event that any Claim, which may give rise to damages for
which an Indemnifying Party would be liable to an Indemnified Party hereunder is
asserted against an Indemnified Party by a third party (a "Third Party Claim"),
the Indemnified Party shall with reasonable promptness send a Claim Notice to
the Indemnifying Party, specifying the nature of such claim and the amount or
the estimated amount thereof to the extent then feasible (which estimate shall
not be conclusive of the final amount of any such Claim arising from such Third
Party Claim). The Indemnifying Party shall have fifteen (15) days from the
receipt of the Claim Notice (the
33
"Notice Period") to notify the Indemnified Party (i) whether or not the
Indemnifying Party disputes the Indemnifying Party's liability to the
Indemnified Party hereunder with respect to damages arising from such Claim and
(ii) if the Indemnifying Party does not dispute such liability, whether or not
the Indemnifying Party desires, at the sole cost and expense of the Indemnifying
Party, to defend against such Third Party Claim. In the event that the
Indemnifying Party notifies the Indemnified Party within the Notice Period that
the Indemnifying Party does not dispute the Indemnifying Party's obligation to
indemnify hereunder and desires to defend the Indemnified Party against such
Third Party Claim, then the Indemnifying Party shall have the right to defend
such Third Party Claim by appropriate proceedings, which proceedings shall be
promptly settled or prosecuted by the Indemnifying Party to a final conclusion;
provided that, unless the Indemnified Party otherwise agrees in writing, the
Indemnifying Party may not settle any matter (in whole or in part), unless such
settlement includes a complete and unconditional release of the Indemnified
Party. If the Indemnified Party desires to participate in, but not control, any
such defense or settlement, the Indemnified Party may do so at the Indemnified
Party's sole cost and expense. If the Indemnifying Party elects not to defend
the Indemnified Party against such Claim, whether by failure of the Indemnifying
Party to give the Indemnified Party timely notice as provided above or
otherwise, then the Indemnified Party, without waiving any rights against the
Indemnifying Party, may settle or defend against any such Claim in the
Indemnified Party's sole discretion, after giving ten days prior written notice
to the Indemnifying Party. The Indemnifying Party shall be entitled to
participate in (but not control) the defense of such action, with its counsel
and at its own expense.
8.4 Limitations on Indemnification.
(a) Seller shall not be obligated to make any payment for
indemnification under Article 8 hereof in excess of the sum of (i) Five Million
Five Hundred Thousand Dollars ($5,500,000) plus (ii) an amount equal to the
Additional Purchase Price paid pursuant to Section 3.3, in the aggregate, except
with respect to any claim for indemnification arising from or related to fraud
or breach of the representations, warranties and covenants contained in Sections
4.2 (Certificate of Incorporation and Bylaws; Capitalization), 4.9 (Taxes) and
4.21 (Employee Benefit Plans) and indemnification under Section 8.1(e)
(Litigation) related to the Xxxxxxx Case, for which there is no limit. Except
with regard to any claim for indemnification arising out of or relating to fraud
or intentional breach of an obligation, breach of the representations,
warranties and covenants in Sections 3.2 (Adjustments), 4.2 (Certificate of
Incorporation and Bylaws; Capitalization), 4.9 (Taxes), and indemnification
under Sections 8.1(b) (Retired Debt) and 8.1(e) (Litigation), Seller shall not
be obligated to pay any amounts for indemnification under Article 8 until
Seller's aggregate indemnification obligations under Article 8 equal or exceed
One Hundred Fifty Thousand Dollars ($150,000), whereupon Seller shall be
obligated to pay all such indemnification including the One Hundred Fifty
Thousand Dollars ($150,000).
(b) Buyer shall not be obligated to make any payment for
indemnification under Article 8 hereof in excess of Five Million Five Hundred
Thousand Dollars ($5,500,000) in the aggregate, except with respect to any claim
for fraud or indemnification arising from or related to breach of the
representations, warranties and covenants contained in Sections 5.1
(Organization, Etc.) and 5.2 (Authorization of Agreement) for which there is no
limit. Except with respect to any claim for indemnification arising out of or
relating to fraud or intentional breach of an obligation, Buyer shall not be
obligated to pay any amounts for indemnification under Article 8 until the
Buyer's aggregate indemnification obligations under Article 8 equal or exceed
One Hundred Fifty Thousand Dollars ($150,000), whereupon Buyer shall be
obligated to pay all such indemnification including the One Hundred Fifty
Thousand Dollars ($150,000).
(c) Except as set forth in Section 3.2, Buyer shall seek to satisfy
any claim for indemnification from the Escrow Amount before proceeding against
Seller's other assets; provided that nothing herein shall prevent Buyer from
proceeding against Seller (including any injunction to prevent dissipation of
assets) for indemnification for Claim amounts in excess of the Escrow Amount in
the event it reasonably believes the Escrow Amount is inadequate.
(d) With respect to any claim for indemnification:
(i) If made prior to October 3, 2001, Buyer may proceed
against Seller and the Escrow Amount, in accordance with Section 8.4(c), and at
Buyer's option Buyer may seek to satisfy sixty-five percent (65%) of such
amounts by reduction of payments under the Bonus Plan;
34
(ii) If made on or after October 3, 2001, but prior to the
earlier of (x) the date of distribution of bonuses under the Bonus Plan or (y)
expiration or termination of the Bonus Plan in accordance with its terms (the
"Bonus Payout Date"), except as set forth herein, Buyer shall seek to satisfy
thirty-five percent (35%) of such claim from Seller and the Escrow Amount and
sixty-five percent (65%) of such claim by reduction of the payments to be made
pursuant to the Bonus Plan. Notwithstanding the foregoing, Buyer shall not be
required to seek compensation for such indemnification from the Bonus Plan: (A)
with respect to the Xxxxxxx Case, (B) with respect to any breach of the
representations and warranties in Section 4.2 (Certificate of Incorporation and
Bylaws; Capitalization) or (C) in the event that the payout under the Bonus Plan
is inadequate to satisfy the allocated portion of the claim, or if Buyer
reasonably believes that based on current operating results, there will be no
distribution under the Bonus Plan or the distribution will be inadequate to
cover the payment. Seller remains fully liable for all amounts for which the
Bonus Plan is sought to satisfy indemnification to the extent the amounts to be
distributed under the Bonus Plan are inadequate;
(iii) If made after the Bonus Payout Date, Buyer may proceed
against Seller and the Escrow Amount, in accordance with Section 8.4(c).
8.5. Sole and Exclusive Remedy. The rights set forth in this Article 8 and
Section 4.23 shall be Buyer's sole and exclusive remedy against the Seller for
misrepresentations or breaches of covenants contained in this Agreement and the
Transaction Documents. Notwithstanding the foregoing, nothing herein shall
prevent Buyer from bringing an action based upon allegations of fraud or other
intentional misrepresentation or breach of any representation or obligation of
or with respect to the Company or Seller in connection with this Agreement and
the Transaction Documents.
ARTICLE 9
[Intentionally Omitted.]
ARTICLE 10
DISPUTE RESOLUTION
10.1 Initial Meeting. In the event that there is a dispute arising out of
or relating to this Agreement or the documents and instruments executed in
connection therewith, the parties shall attempt in good faith to resolve such
disputes promptly by negotiation between the parties. Any party may give the
other parties written notice that a dispute exists (a "Notice of Dispute"). The
Notice of Dispute shall include a statement of such party's position. Within ten
(10) days of the delivery of the Notice of Dispute, the parties shall meet at a
mutually acceptable time and place, and thereafter as long as they reasonably
deem necessary, to attempt to resolve the dispute. All documents and other
information or data on which each party relies concerning the dispute shall be
furnished or made available on reasonable terms to the other party at or before
the first meeting of the parties as provided by this Section 10.1.
10.2 Mediation. If the dispute has not been resolved by negotiation within
thirty (30) days of the delivery of a Notice of Dispute, or if the parties have
failed to meet within ten (10) days of the Notice of Dispute, the parties shall
endeavor to settle the dispute by mediation under the then current CPR Model
Mediation Procedure for Business Disputes. Unless otherwise agreed, the parties
shall select a mediator from the CPR Panels of Neutrals and shall notify CPR to
initiate the selection process.
10.3 Binding Arbitration. Unless a different venue is required by the
Escrow Agreement, any controversy or claim arising out of or relating to this
Agreement or any
35
agreement or document in connection therewith, the breach, termination or
validity thereof, or the transactions contemplated herein (including any
question arising as to whether or not any dispute falls within the terms of this
Section or the selection of arbitrators) if not settled by negotiation or
mediation as provided in Section 10.1 and Section 10.2, shall be settled by
arbitration if commenced by Buyer, in Boston, Massachusetts, and if commenced by
Seller, in Minneapolis, Minnesota, in accordance with the CPR Rules for
Non-Administrative Arbitration of Business Disputes by three arbitrators. Any
party may initiate arbitration from and after sixty (60) days following the
delivery of a Notice of Dispute if the dispute has not then been settled by
negotiation or mediation. The arbitrators shall be appointed by the parties as
provided by CPR Rule 5, Selection of Arbitrators. The arbitration procedure
shall be governed by the United States Arbitration Act, 9 U.S.C. Sections
1-16, and the award rendered BY the arbitrators shall be final and binding on
the parties and may be entered in any court having jurisdiction thereof.
10.4 Discovery. Each party shall have discovery rights as provided by the
Federal Rules of Civil Procedure; provided, however, that all such discovery
shall be commenced and concluded within ninety (90) days of the initiation of
arbitration.
10.5 Expeditious Proceedings. It is the intent of the parties that any
arbitration shall be concluded as quickly as reasonably practicable. Unless the
parties otherwise agree, once commenced, the hearing on the disputed matters
shall be held four (4) days a week until concluded, with each hearing date to
begin at 9:00 a.m. and to conclude at 5:00 p.m. The arbitrators shall use all
reasonable efforts to issue the final award or awards within a period of five
(5) business days after closure of the proceedings. Failure of the arbitrators
to meet the time limits of this Section 10.5 shall not be a basis for
challenging the award.
10.6 Arbitration Costs. Each party shall bear its own costs in connection
with the arbitration and shall share equally the fees and expenses of the
arbitrators.
10.7 Enforcement of Awards. Each party agrees that any legal proceeding
instituted to enforce an arbitration award hereunder will be brought in a court
of competent jurisdiction (either state or federal) in the venue of the
arbitration set forth in Section 10.3 and hereby submits to personal
jurisdiction therein and irrevocably waives any objection as to venue therein,
and further agrees not to plead or claim in any such court that any such
proceeding has been brought in an inconvenient forum.
10.8 Equitable Relief. Nothing herein shall be construed to prevent any
party from seeking equitable relief in any court of competent jurisdiction to
restrain or prohibit any breach or threatened breach of any covenant of the
parties set forth in this Agreement or any document executed in connection
herewith, whether or not the parties have first sought to resolve the dispute
through negotiation, mediation or arbitration pursuant to this Article 10.
ARTICLE 11
GENERAL
11.1 Expenses, Taxes. Buyer and Seller shall pay their own respective
expenses and the fees and expenses of their respective counsel and accountants
and other experts, and Seller shall pay the fees and expenses of the Company
(other than Permitted Legal Fees which will be paid by
36
Buyer). Seller shall bear all transfer Taxes, gains Taxes, recording Taxes and
similar Taxes payable or determined to be payable in connection with the
execution, delivery and performance of this Agreement and the transfer of the
Purchased Shares contemplated hereby.
11.2 Survival of Representations and Warranties. Each covenant and
agreement contained in this Agreement or in any agreement or other document
delivered pursuant hereto shall survive the Closing and be enforceable until
such covenant or agreement has been fully performed. All representations and
warranties contained in this Agreement shall survive for a period of eighteen
(18) months after the Closing and shall thereafter expire, except that (a) any
representation or warranty with respect to which a claim has been made for a
breach thereon prior to the expiration of such eighteen (18) month period shall
survive until such claim is resolved; (b) any breach of the representations and
warranties set forth in Sections 4.9 (Taxes) and 4.21 (Employee Benefit Plans)
shall survive for the applicable statute of limitations), and (c) any claim
related to fraud, intentional misrepresentation, intentional breach of an
obligation, and breach of the representations and warranties set forth in
Sections 4.2 (Certificate of Incorporation and Bylaws; Capitalization), 4.4
(Execution and Validity of Agreement; Spousal Consent etc.) and any claim
related to the litigation set forth on Schedule 4.17 shall survive without
limitation. The representations and warranties in this Agreement shall not be
affected by any knowledge of Buyer with respect to any breach thereof or any
investigation performed by Buyer.
11.3 Waivers. No action taken pursuant to this Agreement, including any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action, or compliance with any representation,
warranty, covenant or agreement contained herein. The waiver by any party hereto
of a breach of any provision of this Agreement shall not operate or be construed
as a waiver of any subsequent breach.
11.4 Binding Effect; Benefits; Assignment. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns, heirs and legal representatives. Nothing in
this Agreement, express or implied, is intended to confer on any Person other
than the parties hereto or their respective successors and permitted assigns any
rights, remedies, obligations, or Liabilities under or by reason of this
Agreement. Seller may not assign his rights hereunder or in any agreement or
instrument executed in connection herewith, whether by operation of law or
otherwise. Buyer may assign this Agreement and any agreement or instrument
executed in connection herewith to any of its Affiliates, or pursuant to a
merger, consolidation of sale of substantially all of its assets or to any
Person which acquires an interest in the Business as conducted by Buyer.
Signatures delivered by facsimile on this Agreement or any document executed in
connection herewith shall be binding to the same extent as an original.
11.5 Notices. All notices, requests, demands and other communications
which are required to be or may be given under this Agreement shall be in
writing and shall be deemed to have been duly given when delivered in Person or
three (3) days after deposit by certified or registered first class mail,
postage prepaid, return receipt requested, to the party to whom the same is so
given or made:
37
(a) If to Buyer, to: Computer Network Technology Corporation
0000 Xxxxxx Xxxx Xxxxx
Xxxxxxxxxxx, XX 00000
Attention: President
Fax: (000) 000-0000
With a copy to: Xxxxxxx, Street and Deinard
Professional Association
000 Xxxxx Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxx, Esq.
Fax: (000) 000-0000
(b) If to Seller to: Xxxxxx X. Xxxxxxx
00 Xxxx Xxxxxxx Xxxx
Xxxxxxxxx, XX 00000
With a copy to: Xxxx and Xxxx LLP
00 Xxxxx Xxxxxx
Xxxxxx, XX 00000
Attention: Xxxxx X. Xxxx, Esq.
Fax: (000) 000-0000
With a copy to: Xxxx Xxxxxxxx
Xxxxxxx X. Xxxx & Co.
000 Xxxxxxxx Xxxxxx
Xxxxxxx, XX 00000
Facsimile: (000) 000-0000
or to such other address as such party shall have specified by notice to the
other party hereto.
11.6 Entire Agreement. This Agreement (including the Schedules and
Exhibits hereto) constitutes the entire agreement and supersedes all prior
agreements and understandings, oral and written, between the parties hereto with
respect to the subject matter hereof and cannot be changed or terminated orally.
11.7 Headings. The Section and other headings contained in this Agreement
are for reference purposes only and shall not be deemed to be a part of this
Agreement or to affect the meaning or interpretation of this Agreement.
11.8 Governing Law. This Agreement shall be construed as to both validity
and performance and enforced in accordance with and governed by the laws of the
State of Minnesota, without giving effect to the choice of law principles
thereof.
11.9 Amendments. This Agreement may not be modified or changed except by
an instrument or instruments in writing signed by the party against whom
enforcement of any such modification or amendment is sought.
38
11.10 Severability. The invalidity of all or any part of any
representation, warranty, covenant or indemnification section of this Agreement
shall not render invalid the remainder of this Agreement or the remainder of
such section. If any representation, warranty, covenant or indemnification
section of this Agreement or portion thereof is so broad as to be unenforceable,
it shall be interpreted to be only so broad as is enforceable.
[REMAINDER OF PAGE IS BLANK.]
39
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed in their respective names by an officer thereunto duly authorized on the
date first above written.
SELLER: BUYER:
COMPUTER NETWORK TECHNOLOGY
CORPORATION
By: /s/ Xxxxxxx X. Xxxxxx
------------------------
/s/ Xxxxxx X. Xxxxxxx Its: CFO
40
