STOCK PURCHASE AGREEMENT
BETWEEN
XXXXXXX X. XXXXXXXX,
XXXXXX X. XXXXX,
XXXXXX X. XXXXXX
AND
U.S. LABORATORIES INC.
Dated as of October 31, 2001
TABLE OF CONTENTS
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PAGE
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SECTION 1. PURCHASE AND SALE OF SHARES .............................. 1
SECTION 2. PURCHASE PRICE ........................................... 1
2.1. Purchase Price ........................................... 1
2.2. Payment of Purchase Price ................................ 1
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS ....... 3
3.1. Corporate ................................................ 3
3.2. Shareholders ............................................. 4
3.3. No Violation ............................................. 5
3.4. Financial Statements ..................................... 5
3.5. Tax Matters .............................................. 6
3.6. Accounts Receivable ...................................... 7
3.7. Absence of Certain Changes ............................... 7
3.8. Absence of Undisclosed Liabilities ....................... 9
3.9. No Litigation ............................................ 10
3.10. Compliance With Laws and Orders .......................... 10
3.11. Title to and Condition of Properties ..................... 12
3.12. Insurance ................................................ 12
3.13. Contracts and Commitments ................................ 13
3.14. Labor Matters ............................................ 15
3.15. Employee Benefit Plans ................................... 16
3.16. Employee Compensation .................................... 20
3.17. Trade Rights ............................................. 20
3.18. Major Customers and Suppliers; Public Works Contracts .... 21
3.19. Bank Accounts ............................................ 22
3.20. Affiliates' Relationships to Company ..................... 22
3.21. No Brokers or Finders .................................... 23
3.22. Investment Representations ............................... 23
3.23. Corporate Books .......................................... 24
3.24. Improper Payments ........................................ 24
3.25. Xxxx Situation ........................................... 24
3.26. Disclosure ............................................... 25
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER .................. 25
4.1. Organization ............................................. 25
4.2. Corporate Power .......................................... 25
4.3. Enforceability ........................................... 25
4.4. No Brokers or Finders .................................... 26
4.5. Disclosure ............................................... 26
4.6. Investment Matters ....................................... 26
4.7. No Violation ............................................. 26
4.8. Litigation ............................................... 27
SECTION 5. COVENANTS ................................................ 27
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5.1. Key Employee Visits ...................................... 27
5.2. Company Bonus Accrual .................................... 27
5.3. Access to Information and Records ........................ 27
5.4. Conduct of Business Pending the Closing .................. 28
5.5. Consents ................................................. 29
5.6. Delayed Compensation and Bonuses ......................... 29
5.7. Other Action ............................................. 30
5.8. Disclosure Schedule ...................................... 30
SECTION 6. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS .............. 30
6.1. Representations and Warranties True as of
the Closing Date ....................................... 30
6.2. Compliance With Agreement ................................ 30
6.3. Absence of Litigation .................................... 30
6.4. Consents and Approvals ................................... 31
SECTION 7. CONDITIONS PRECEDENT TO THE SHAREHOLDERS' OBLIGATIONS .... 31
7.1. Representations and Warranties True on
the Closing Date ....................................... 31
7.2. Compliance With Agreement ................................ 31
7.3. Consents and Approvals ................................... 31
7.4. Absence of Litigation .................................... 31
SECTION 8. INDEMNIFICATION .......................................... 32
8.1. By Shareholders .......................................... 32
8.2. By Buyer ................................................. 32
8.3. Indemnification of Third-Party Claims .................... 32
8.4. Payment .................................................. 34
8.5. Tax Effect ............................................... 34
8.6. Indemnification for Environmental Matters ................ 35
8.7. Limitations on Indemnification ........................... 35
8.8. Time Limitation .......................................... 35
8.9. Amount Limitation ........................................ 36
8.10. No Waiver ................................................ 36
SECTION 9. CLOSING .................................................. 36
9.1. Documents to be Delivered by the Shareholders ............ 36
9.2. Documents to be Delivered by Buyer ....................... 38
SECTION 10. TERMINATION .............................................. 39
10.1. Right of Termination Without Breach ...................... 39
10.2. Termination for Breach ................................... 39
SECTION 11. RESOLUTION OF DISPUTES ................................... 40
11.1. Arbitration .............................................. 40
11.2. Arbitrators .............................................. 40
11.3. Procedures; No Appeal .................................... 40
11.4. Authority ................................................ 41
11.5. Entry of Judgment ........................................ 41
11.6. Confidentiality .......................................... 41
11.7. Continued Performance .................................... 41
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11.8. Tolling .................................................. 41
SECTION 12. MISCELLANEOUS ............................................ 41
12.1. Disclosure Schedule ...................................... 41
12.2. Further Assurances ....................................... 42
12.3. Disclosures and Announcements ............................ 42
12.4. Assignment; Parties in Interest .......................... 42
12.5. Law Governing Agreement .................................. 42
12.6. Amendment and Modification ............................... 43
12.7. Notice ................................................... 43
12.8. Expenses ................................................. 45
12.9. Entire Agreement ......................................... 45
12.10. Counterparts ............................................. 46
12.11. Headings ................................................. 46
12.12. Glossary of Terms ........................................ 46
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STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is dated as of October
31, 2001 and entered into by and among U. S. Laboratories Inc., a Delaware
corporation ("Buyer"), Xxxxxxx X. Xxxxxxxx ("Xxxxxxxx"), Xxxxxx X. Xxxxx
("Xxxxx") and Xxxxxx X. Xxxxxx ("Xxxxxx"). Each of Xxxxxxxx, Biank and Xxxxxx
may be referred to individually in this Agreement as a "Shareholder" and
collectively in this Agreement as the "Shareholders".
R E C I T A L S:
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A. Xxxxxx X. Xxxx Company, a Delaware corporation ("Company"), is
engaged in the construction engineering services business (the "Business"). The
Shareholders collectively own all of the issued and outstanding shares of
capital stock of Company (the "Shares").
B. Buyer desires to purchase the Shares from the Shareholders and
the Shareholders desire to sell the Shares to Buyer, upon the terms and
conditions herein set forth.
NOW, THEREFORE, in consideration of the foregoing, the mutual promises
herein made, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
A G R E E M E N T :
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SECTION 1. PURCHASE AND SALE OF SHARES
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Subject to the terms and conditions of this Agreement, at the Closing
(as defined in Section 9) the Shareholders will sell to Buyer, and Buyer will
purchase from the Shareholders, all of the Shares.
SECTION 2. PURCHASE PRICE
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2.1. Purchase Price.
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The purchase price (the "Purchase Price") payable for the Shares is
Thirteen Million and no/100 Dollars ($13,000,000) plus the DW Lakeshore
Reimbursement Payment (as described below in Section 2.2.4). The Purchase Price
shall be allocated and is subject to adjustment as provided below in this
Section 2.
2.2. Payment of Purchase Price.
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The Purchase Price will be paid by Buyer in three components as
follows:
2.2.1. Cash at Closing. At the Closing, Buyer will deliver
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to the Shareholders the sum of Nine Million and no/100 Dollars ($9,000,000) in
cash. All payments under this Section 2.2 will be paid to each Shareholder in
accordance with each Shareholder's pro rata ownership of the Shares immediately
prior to the Closing as such ownership is reflected on Schedule 3.1.6 (the
"Shareholder Allocation"). Each payment under this Section 2.2 shall be made by
wire transfer of immediately available funds to an account designated by the
recipient not less than 48 hours prior to the time for payment specified herein.
2.2.2. Deferred and Conditional Payment of Cash at
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Nine-Month Anniversary. At Closing, Buyer will execute and deliver to each of
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the Shareholders a promissory note in the form of Exhibit B attached hereto (the
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"Note") for payment, in the aggregate, of up to Three Million and no/100 Dollars
($3,000,000) on the nine-month anniversary of Closing. As reflected in the Note,
the amount of the Note shall be reduced in the event certain earnings and
stockholders' equity targets for Company are not met. The portion of the Note
amount issued to each Shareholder shall be in accordance with the Shareholder
Allocation, and shall be paid by wire transfer of immediately available funds to
an account designated by the recipient.
2.2.3. Buyer's Stock at Nine-Month Anniversary. On the
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nine-month anniversary of the Closing Date, Buyer will deliver, free and clear
of all Liens (as defined in Section 3.11 below), to each of the Shareholders, in
accordance with each Shareholder's pro rata ownership of the Shares immediately
prior to the Closing as such ownership is reflected on Schedule 3.1.6, the
number of shares of Buyer's common stock, $0.01 par value per share (the
"Buyer's Stock"), equal to the sum of One Million Dollars ($1,000,000) plus
interest thereon from and after the Closing Date through but excluding the
nine-month anniversary of the Closing Date at the per annum interest rate
publicly quoted in The Wall Street Journal from time to time as the "prime" rate
of interest (with adjustment in that varying rate to be made on the same day as
any change in that rate), compounded monthly (the "Prime Rate"), divided by the
average of the closing prices for the Buyer's Stock quoted on the NASDAQ
National Market System on the trading days during the period from and including
the date which is twenty (20) days prior to the nine-month anniversary of the
Closing Date through and including the date which is immediately prior to the
nine-month anniversary of the Closing Date (the "Share Value"). Notwithstanding
anything to the contrary set forth in the preceding sentence, if Buyer, in its
sole discretion without any input from any of the Shareholders, desires to pay
all or a portion of the amount contemplated to be paid under this Section 2.2.3
in cash, then Buyer reserves the right to deliver up to $1,000,000 plus interest
thereon at the Prime Rate in cash to the Shareholders in lieu of such amount of
Buyer's Stock. Buyer shall deliver to the Shareholders, along with the Buyer's
Stock, a certificate, executed by an executive officer of the Buyer, setting
forth in reasonable detail Buyer's calculations used in determining the Share
Value.
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2.2.4. Payment of DW Lakeshore Amount. The Buyer shall cause
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Company to pay any and all amounts received by Company with respect to claims
against Anglo American Insurance Company arising from the settlement of the
matter known as DW Lakeshore Associates Limited Partnership v. X.X. Xxxxxxxx
(collectively, the "DW Lakeshore Reimbursement Payment") promptly upon Company's
receipt of the same by wire transfer of immediately available funds to accounts
designated by each of the Shareholders. The Shareholders currently anticipate
that the total amount of the DW Lakeshore Reimbursement Payment will not exceed
$164,432.43. Notwithstanding the foregoing, Buyer and the Shareholders agree
that the Buyer shall not be obligated to cause Company to remit to the
Shareholders the amount of any DW Lakeshore Reimbursement Payment that Company
receives after December 31, 2004.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
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The Shareholders jointly and severally hereby make the following
representations and warranties to Buyer as of the date hereof and as of the
Closing Date (as defined in Section 8), which representations and warranties
shall survive the Closing of the transactions provided for herein
notwithstanding any investigation made by Buyer. For purposes of this Section 3,
"knowledge" of the Shareholders means the actual knowledge of each Shareholder
after reasonable inquiry and includes, without limitation, any and all facts or
circumstances contained in any written notice or documentation delivered to
Company within the last five years or in its possession and dated within the
last five years.
3.1. Corporate.
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3.1.1. Organization. Company is a corporation duly
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organized, validly existing and in good standing under the laws of the State of
Delaware.
3.1.2. Corporate Power. Company has all requisite corporate
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power and authority to own, operate and lease its properties and to carry on its
business as and where such business is now being conducted.
3.1.3. Qualification. Company is qualified to do business as
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a foreign corporation, and is in good standing, in each jurisdiction wherein a
failure to so qualify would have a material adverse effect on the business or
operations of Company. The states in which Company is qualified to do business
are listed on Schedule 3.1.3.
3.1.4. Subsidiaries. Except as set forth on Schedule 3.1.4,
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Company does not own any equity, membership or partnership interest in any
corporation, limited liability company, partnership or other entity. Schedule
3.1.4 contains a complete list of all corporations, limited liability companies,
partnerships and other entities in which Company has a direct or indirect
equity, membership or partnership interest (collectively, "Subsidiaries"),
together with the jurisdictions of incorporation or formation of each
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Subsidiary, the jurisdictions of qualification to do business of each Subsidiary
and the percentage of capital stock or equity interest of each Subsidiary owned
by Company. All the outstanding shares of capital stock of, or other equity
interests in, each Subsidiary of Company (i) in the case of majority-owned
(whether directly or indirectly) Subsidiaries, have been duly authorized,
validly issued and are fully paid and non-assessable, and (ii) are owned
directly or indirectly by Company, free and clear of all Liens (as defined on
Section 3.11).
3.1.5. Corporate Documents, etc. The copies of the Articles
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of Incorporation and bylaws of Company, including any amendments thereto, that
have been delivered by the Shareholders to Buyer are correct and complete copies
of such instruments as presently in effect. The corporate minute book and stock
records of Company which have been furnished to Buyer for inspection are the
correct and complete set of minute books and stock records used by Company from
and after December 31, 1988. The directors and officers of Company are listed on
Schedule 3.1.5.
3.1.6. Capitalization of Company. The authorized capital
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stock of Company consists entirely of 500 shares of common stock, $1.00 par
value per share. No shares of such capital stock are issued or outstanding
except for 240 shares of common stock of Company owned of record and
beneficially by the Shareholders as set forth on Schedule 3.1.6. All such shares
of capital stock of Company are validly issued, fully paid and nonassessable,
Company has not issued, and other than this Agreement and the Ancillary
Documents none of Company and the Shareholders is party to, (a) securities
convertible into or exchangeable for any of Company's capital stock or other
securities, (b) options, warrants, preemptive rights or other rights to purchase
or subscribe to capital stock or other securities of Company or securities which
are convertible into or exchangeable for capital stock or other securities of
Company, or (c) contracts, commitments, agreements, understandings or
arrangements of any kind relating to the issuance, sale or transfer of any
capital stock or other equity securities of Company, any such convertible or
exchangeable securities or any such options, warrants or other rights, including
any agreements with respect to the ownership, sale or voting of such securities.
3.2. Shareholders.
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3.2.1. Power. Each of the Shareholders has all requisite
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power, legal right and capacity to enter into, execute and deliver this
Agreement and the other agreements, instruments and documents contemplated
hereby (such other documents may be referred to herein as the "Ancillary
Documents"), and to carry out the transactions contemplated hereby.
3.2.2. Validity. This Agreement has been duly and validly
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executed and delivered by each Shareholder and is, and when executed and
delivered each Ancillary Document will be, the legal, valid and binding
obligation of such Shareholder, enforceable in accordance with its terms, except
as such may be limited by bankruptcy,
4
insolvency, reorganization or other laws affecting creditors' rights generally,
and by general equitable principles.
3.2.3. Title. Each Shareholder has, and at Closing Buyer
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will receive, good and marketable title to the Shares to be sold by such
Shareholder hereunder, free and clear of all Liens (other than Permitted Liens
(as defined below)) including, without limitation, voting trusts or agreements,
proxies and marital or community property interests.
3.3. No Violation.
------------
Except as set forth on Schedule 3.3, neither the execution and delivery
of this Agreement or the Ancillary Documents nor the consummation by the
Shareholders of the transactions contemplated hereby and thereby (a) will, to
the best of each Shareholder's knowledge, violate any statute, law, ordinance,
rule or regulation (collectively, "Laws") or any order, writ, injunction,
judgment, plan, decree or demand letter (collectively, "Orders") of any court,
arbitrator, department, commission, board, bureau, agency, authority,
instrumentality or other body, whether federal, state, municipal, foreign or
other, with appropriate jurisdiction (collectively, "Government Entities"), or
(b) will require any authorization, consent, approval, exemption or other action
by or notice to any Government Entity (including, without limitation, under any
"plant-closing" or similar law). Subject to obtaining the consents referred to
on Schedule 3.3, neither the execution and delivery of this Agreement or the
Ancillary Documents nor the consummation by the Shareholders of the transactions
contemplated hereby and thereby will violate or conflict with, or constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, or will result in the termination of, or accelerate
the performance required by, or result in the creation of any Lien (other than a
Permitted Lien) upon any of the assets of Company (or the Shares) under, or
result in the obligation of Company to pay severance under, or result in the
creation of any material obligations of Company under, any term or provision of
the Articles of Incorporation or bylaws of Company or of any material contract,
commitment, understanding, arrangement, agreement or restriction of any kind or
character to which Company or any Shareholder is a party or by which Company or
any Shareholder or any of its or their assets or properties may be bound.
3.4. Financial Statements.
--------------------
Included as Schedule 3.4 are true and complete copies of the financial
statements of Company consisting of (i) balance sheets of Company as of
Company's fiscal year ending December 31, 2000, 1999 and 1998, and the related
statements of income and cash flows for the years then ended (including the
notes contained therein or annexed thereto), which financial statements have
been prepared by Company's internal accounting staff along with independent
accountants for Company for such years, and (ii) a balance sheet of Company as
of October 6, 2001 (the "Recent Balance Sheet"), and the related interim
statements of income for the ten four-week periods then ended, which financial
5
statements have been prepared by Company's internal accounting staff. All of the
financial statements (including all notes and schedules contained therein or
annexed thereto) included as Schedule 3.4 are complete and accurate (within an
aggregate margin for error of $25,000), have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis, have
been prepared in accordance with the books and records of Company, and fairly
present the assets, liabilities and financial position, the results of
operations (from a financial perspective) and cash flows of Company as of the
dates and for the years and periods indicated. Without limitation of the
foregoing, the Recent Balance Sheet and interim income statement reflect the
amount of employee compensation and employee bonus accrued during 2001 as of and
through the date of such statements.
3.5. Tax Matters.
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3.5.1. Provision For Taxes. The provision made for Taxes (as
-------------------
hereinafter defined) on the Recent Balance Sheet is adequate for the payment of
all unpaid Taxes whether or not disputed, at the date of the Recent Balance
Sheet and for all years and periods prior thereto. Since the date of the Recent
Balance Sheet, Company has not incurred any Taxes other than Taxes incurred in
the ordinary course of business consistent in type and amount with past
practices of Company. To the best of each of the Shareholder's knowledge, there
is no basis by which any federal, state, foreign, county, local or other taxing
authority could make a determination or assessment that Taxes are owed by
Company to such authority, whether in respect of understatement of income,
overstatement of deductions or otherwise. For purposes of this Agreement, the
term "Tax" or "Taxes" means all taxes, including any interest, penalties or
other additions to tax that may become payable in respect thereof, imposed by
any federal, territorial, state, local or foreign government or any agency or
political subdivision of any such government, which taxes shall include, but not
be limited to, any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Sec. 59A), customs
duties, capital stock, franchise, profits, withholding (employment, backup,
foreign, or otherwise), social security (or similar), unemployment, disability,
real property, personal property, sales, use, transfer, registration, value
added, alternative or add-on minimum, estimated or other tax of any kind
whatsoever, which are required to be paid, withheld, or collected and whether
disputed or not. Further, the term "Tax Return" means any return, declaration,
report, claim for refund, or information return or statement relating to Taxes,
including any schedule or attachment thereto, and including any amendment
thereof.
3.5.2. Tax Returns Filed. Except as set forth on Schedule
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3.5.2, all Tax Returns required to be filed by or on behalf of Company have been
timely filed and when filed were true, correct and complete in all material
respects, and the Taxes shown as due thereon were paid or adequately accrued.
Complete copies of all federal income Tax Returns filed by Company for each of
its three most recent fiscal years have been delivered to Buyer. Company has
duly withheld and timely paid all Taxes which
6
it is required to withhold and pay relating to salaries and other compensation
heretofore paid to the employees of Company.
3.5.3. Tax Audits. Since December 31, 1995, the federal and
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state income tax returns of Company have been audited by the Internal Revenue
Service (the "IRS") and appropriate state taxing authorities for the periods and
to the extent set forth on Schedule 3.5.3, and the Shareholders have delivered
or caused to be delivered to Buyer copies of all written communications between
Company and applicable tax authorities relating to such audits. The Shareholders
have also delivered to Buyer copies of all other correspondence dated from and
after January 1, 1996 between Company and the IRS or any other taxing authority
relating to any Company Tax matter. Since December 31, 1995, Company has not
received from the Internal Revenue Service or from the Tax authorities of any
state, county, local or other jurisdiction any notice of underpayment of Taxes
by Company or other deficiency which has not been paid by Company nor any
objection to any Tax Return or report filed by Company. There are no outstanding
agreements or waivers dated since December 31, 1995 extending the statutory
period of limitations applicable to any Tax Return of Company. To the best of
each Shareholder's knowledge, any audit of Company by any taxing authority
relating to any period prior to January 1, 1996 is closed.
3.5.4. Other. Except as set forth on Schedule 3.5.4, since
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December 31, 1995, Company has not (i) filed any consent or agreement under
Section 341(f) of the Internal Revenue Code of 1986, as amended (the "Code"),
(ii) applied for any Tax ruling, (iii) entered into a closing agreement with any
Tax authority, (iv) filed an election under Section 338(g) or Section 338(h)(10)
of the Code (nor has a deemed election under Section 338(e) of the Code
occurred), or (v) been a party to any Tax allocation or Tax sharing agreement.
Company is not a "United States real property holding company" within the
meaning of Section 897 of the Code.
3.6. Accounts Receivable.
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Except as set forth on Schedule 3.6 and for accounts receivable
totaling less than $5,000, per customer, and totaling less than $50,000 in the
aggregate, all accounts receivable of Company reflected on the Recent Balance
Sheet, or incurred since the date thereof, represent arm's length sales or
provisions of service actually made in the ordinary course of business; and are
collectible (net of the reserve for doubtful accounts shown on the Recent
Balance Sheet) in the ordinary course of business without the necessity of
commencing legal proceedings, are subject to no counterclaim or setoff and, to
the best of each Shareholder's knowledge, are not in dispute. Schedule 3.6 also
contains an aged schedule of accounts receivable included in the Recent Balance
Sheet.
3.7. Absence of Certain Changes.
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Except (a) for the transactions contemplated hereby and (b) as
and to the extent set forth on Schedule 3.7, since the date of the Recent
Balance Sheet, Company has been operated in the ordinary course of business and
there has not been:
3.7.1. No Operational Change. Any material change in
---------------------
Company's methods of purchase, sale, management or accounting.
3.7.2. No Material Adverse Change. Any material adverse
--------------------------
change in the financial condition, assets, liabilities, business, prospects or
operations of Company, other than any change due to general economic conditions;
3.7.3. No Damage. Any material loss, damage or destruction
---------
(excluding ordinary wear and tear) to assets or properties owned or used by
Company, whether covered by insurance or not;
3.7.4. No Increase in Compensation. Any increase in the
---------------------------
compensation, salaries or wages payable or to become payable to any Key Employee
(as defined in Section 9.1.3), agent, consultant or independent contractor of
Company (including, without limitation, any increase or change pursuant to any
bonus, pension, profit sharing, retirement or other plan or commitment), or any
bonus or other employee benefit granted, made or accrued, other than a one-time
increase in the compensation or bonus payable to any Key Employee not to exceed
the lower of (a) five percent of such person's then-current or, in the case of
bonus, most recent, compensation or bonus, as applicable, or (b) $10,000;
3.7.5. No Commitments. Any commitment or transaction entered
--------------
into or consummated by Company (including, without limitation, any borrowing or
capital expenditure) other than in the ordinary course of business consistent
with past practice;
3.7.6. No Dividends. Any declaration, setting aside, or
------------
payment of any dividend or any other distribution in respect of Company's
capital stock; any redemption, purchase or other acquisition by Company of any
capital stock of Company, or any security relating thereto; or any other payment
to a Shareholder in his capacity as a shareholder;
3.7.7. No Disposition of Property. Any sale, lease or other
--------------------------
transfer or disposition of any properties or assets of Company other than in the
ordinary course of business;
3.7.8. No Indebtedness. Any indebtedness for borrowed money
---------------
incurred, assumed or guaranteed by Company;
3.7.9. No Liens. Any Liens placed or otherwise incurred on
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any of the properties or assets of Company; other than Liens which arise in the
ordinary
8
course of business (including tax, operators', mechanics', materialmen's,
employees', contractors' and similar statutory Liens) securing obligations that
are not more than 90 days past due or being contested in good faith ("Permitted
Liens");
3.7.10. No Amendment of Contracts. Any entering into of any
-------------------------
contract by Company other than in the ordinary course of business; or any
amendment or termination by Company of any contract or agreement, written or
oral, or any waiver of material rights thereunder;
3.7.11. Loans and Advances. Any loan or advance (other than
------------------
(a) advances to employees in the ordinary course of business for travel and
entertainment in accordance with past practice and (b) advances to employees,
directors and officers for travel and other expenses required in connection with
the transactions contemplated hereby and by the Ancillary Documents) to any
person including, but not limited to, any Affiliate (for purposes of this
Agreement, the term "Affiliate" will mean and include all shareholders,
directors and officers of Company; the spouse of any such person; any person who
would be the heir or descendant of any such person if he or she were not living;
and any entity in which any of the foregoing has a direct or indirect interest,
except through ownership of less than 5% of the outstanding shares of any entity
whose securities are listed on a national securities exchange or traded in the
national over-the-counter market); or
3.7.12. Credit. Any grant of credit to any customer or
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distributor on terms or in amounts more favorable than those which have been
extended to such customer or distributor in the past, any other change in the
terms of any credit heretofore extended, or any other change of Company's
policies or practices with respect to the granting of credit.
3.8. Absence of Undisclosed Liabilities.
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Except as and to the extent specifically disclosed in the Recent
Balance Sheet or on Schedule 3.8, to the best of each Shareholder's knowledge,
Company does not have any liabilities, commitments or obligations (secured or
unsecured, and whether accrued, absolute, contingent, direct, indirect or
otherwise), other than commercial liabilities and obligations incurred since the
date of the Recent Balance Sheet in the ordinary course of business and
consistent with past practice that do or may reasonably be expected to have a
material adverse effect on the business, financial condition or results of
operations (from a financial perspective) of Company. Except as and to the
extent described on Schedule 3.8, none of the Shareholders has any knowledge of
any circumstances, conditions, happenings, events or arrangements, contractual
or otherwise, which may reasonably be expected to give rise to liabilities not
shown on the Recent Balance Sheet, except commercial liabilities and obligations
incurred in the ordinary course of Company's business and consistent with past
practice.
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3.9. No Litigation.
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Except as set forth on Schedule 3.9 there is no action, suit,
arbitration, proceeding, investigation or inquiry, whether civil, criminal or
administrative ("Litigation"), pending or, to the best of each Shareholder's
knowledge, threatened against Company, its directors (in such capacity), its
business or any of its assets, nor do any of the Shareholders have any knowledge
of any circumstances, conditions, happenings, events or arrangements,
contractual or otherwise, which may reasonably be expected to give rise to
Litigation against Company or in which Company may potentially bring an action
as a plaintiff. Schedule 3.9 also identifies all Litigation since December 31,
1996, for which Company or any of the Shareholders has been issued a subpoena to
produce documents or information or to which Company or any of its directors (in
such capacity) have been parties (other than collection actions for amounts
under $25,000). Except as set forth on Schedule 3.9, to the best of each
Shareholder' knowledge, neither Company nor its business or assets is subject to
any Order of any Government Entity.
3.10. Compliance With Laws and Orders.
-------------------------------
3.10.1. Compliance. Except as set forth on Schedule 3.10.1,
----------
to the best of each Shareholder's knowledge, Company (including, without
limitation, each and all of its operations, practices, properties and assets) is
in compliance with all applicable Laws and Orders, including, without
limitation, those applicable to discrimination in employment, occupational
safety and health, trade practices, competition and pricing, product warranties,
zoning, building and sanitation, employment, retirement and labor relations,
product advertising and Environmental Laws (as defined in Section 3.10.3).
Except as set forth on Schedule 3.10.1, Company has not received notice of any
violation or alleged violation of any Laws, including, without limitation,
Environmental Laws, or Orders. All reports and returns required to be filed by
Company with any Government Entity have been filed, and were accurate and
complete in all material respects when filed. Without limiting the generality of
the foregoing:
3.10.1.1 Neither the Shareholders nor Company has received any
written notice alleging that the operation of Company's business as it is now
conducted does, or that a condition presently exists at any of Company's
facilities that, in any manner, constitutes a nuisance or other tortious
interference with the rights of any person or persons in such a manner as to
give rise to or constitute the grounds for a suit, action, claim or demand by
any such person or persons seeking compensation or damages or seeking to
restrain, enjoin or otherwise prohibit any aspect of the conduct of such
business or the manner in which it is now conducted.
3.10.1.2 Company has made all required payments to its
unemployment compensation reserve accounts with each appropriate Government
Entity with which it is required to maintain such accounts, and each of such
accounts has a positive balance.
10
3.10.1.3 Company has delivered to Buyer copies of all reports
of Company for the past five years required under the federal Occupational
Safety and Health Act of 1970, as amended, and under all other applicable health
and safety laws and regulations. The deficiencies, if any, noted on such reports
have been corrected.
3.10.2. Licenses and Permits. Company and each of its
--------------------
professional employees who perform engineering or other regulated professional
services for Company have all licenses, permits, approvals, authorizations and
consents of all Government Entities and all other certification organizations
(i.e., professional governing bodies) required for such employees to perform
such services. To the best of each Shareholder's knowledge, Company and each of
its employees have all licenses, permits, approvals, authorizations and consents
of all Government Entities and all other certification organizations required
for the conduct of Company's business as presently conducted. All such licenses,
permits, approvals, authorizations and consents are described on Schedule
3.10.2, are in full force and effect and will not be affected or made subject to
loss, limitation or any obligation to reapply as a result of the transactions
contemplated hereby. Except as set forth on Schedule 3.10.2, Company (including
its operations, properties and assets) is and has been in compliance in all
material respects with all such licenses, permits, approvals, authorizations and
consents.
3.10.3. Environmental Matters. The applicable Laws relating
---------------------
to pollution or protection of the environment, including Laws relating to
emissions, discharges, generation, storage, releases or threatened releases of
pollutants, contaminants, chemicals or industrial, toxic, hazardous or petroleum
or petroleum-based substances or wastes ("Waste") into the environment
(including, without limitation, ambient air, surface water, ground water, land
surface or subsurface strata) or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Waste including, without limitation, the Clean Water Act, the Clean
Air Act, the Resource Conservation and Recovery Act, the Toxic Substances
Control Act and the Comprehensive Environmental Response Compensation Liability
Act ("CERCLA"), as amended, and their state and local counterparts are herein
collectively referred to as the "Environmental Laws". Without limiting the
generality of the foregoing provisions of this Section 3.10, to the best of each
Shareholder's knowledge, Company is in compliance with all Environmental Laws
and any Order issued under any Environmental Law. Except as set forth on
Schedule 3.10.3, there is neither Litigation nor any demand, claim, hearing or
notice of violation pending or, to the best of each Shareholder's knowledge,
threatened against Company under any Environmental Law or any Order under any
Environmental Law. Except as set forth on Schedule 3.10.3, there are no past or
present (or, to the best of the Shareholders' knowledge, future) events,
conditions, circumstances, activities, practices, incidents, actions, omissions
or plans which may interfere with or prevent compliance or continued compliance
with the Environmental Laws or with any Order under any Environmental Law, or
which may reasonably be expected to give rise to any liability, including,
without limitation, liability under CERCLA or similar state or local Laws, or
11
which may reasonably be expected to otherwise form the basis of any Litigation,
hearing, notice of violation, study or investigation by a Government Entity,
based on or related to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling, or the emission, discharge,
release or threatened release into the environment, of any Waste.
3.11. Title to and Condition of Properties.
------------------------------------
3.11.1. Marketable Title. Company has good and marketable
----------------
title to all of Company's assets, including, without limitation, all such assets
(tangible and intangible) and all leases, licenses and other agreements
necessary for Company to carry on the business of Company following the Closing
in the manner presently conducted. To the best of each Shareholder's knowledge,
all such assets are free and clear of all mortgages, liens (statutory or
otherwise), security interests, claims, pledges, licenses, equities, options,
conditional sales contracts, assessments, levies, easements, covenants,
reservations, restrictions, rights-of-way, exceptions, limitations, charges or
encumbrances of any nature whatsoever (collectively, "Liens"), except (a)
Permitted Liens and (b) those described on Schedule 3.11. Notwithstanding
anything to the contrary in the preceding sentence, Company has not granted any
Liens (other than Permitted Liens) on any of such assets. Other than as
specified on Schedule 3.11, to the best of each Shareholder's knowledge, none of
Company's assets are subject to any restrictions with respect to the
transferability thereof, and Company's title thereto will not be affected in any
way by the transactions contemplated hereby.
3.11.2. Condition. Except for reasonable wear and tear, all
---------
personal property and assets owned or used by Company (other than individual
assets and items of property having an aggregate fair market value of less than
$10,000) are in good operating condition and repair, free from any defects
(except for (a) such minor defects as do not interfere with the use thereof in
the conduct of the normal operations of Company and (b) certain obsolete or
broken equipment which have not yet been discarded or which have been retained
for spare parts), have been appropriately maintained in light of industry
standards and are sufficient to carry on the business of Company as conducted
during the preceding 12 months. All buildings, plants and other structures owned
or otherwise utilized by Company are in good condition and repair and have no
material structural defects or defects affecting the plumbing, electrical,
sewerage, heating, ventilating or air conditioning systems.
3.12. Insurance.
---------
Set forth on Schedule 3.12 is a complete and accurate list and
description of all policies of fire, liability, professional liability, workers
compensation, health and other forms of insurance (including any insurance
policy with respect to Claims under Section 8) presently in effect with respect
to the business and properties of Company, true and correct copies of which have
heretofore been delivered to Buyer. Schedule 3.12 includes, without
12
limitation, the carrier, the description of coverage, the limits of coverage,
retention or deductible amounts (if any), amount of annual premiums, date of
expiration, the date through which premiums have been paid with respect to each
such policy and a list of any pending claims in excess of $50,000. The
Shareholders shall deliver to Buyer a detailed claims history (since January 1,
1996) listing claims against Company's professional liability policies. All
policies listed on Schedule 3.12 are valid, outstanding and enforceable policies
and provide insurance coverage for the properties, assets and operations of
Company, of the kinds, in the amounts and against the risks customarily
maintained by Company; and no such policy (nor any previous policy) provides for
or is subject to any currently enforceable retroactive rate or premium
adjustment, loss sharing arrangement (other than deductibles) or other actual or
contingent liability arising wholly or partially out of events arising prior to
the date hereof. Schedule 3.12 indicates each policy as to which (a) the
coverage limit has been reached or (b) the total incurred losses to date equal
75% or more of the coverage limit. No notice of cancellation or termination has
been received with respect to any such policy, and none of the Shareholders has
any knowledge of any act or omission of Company which could result in
cancellation of any such policy prior to its scheduled expiration date. Company
has not been refused any insurance with respect to any aspect of the operations
of the business nor has its coverage been limited by any insurance carrier to
which it has applied for insurance or with which it has carried insurance during
the last three years. Company has duly and timely made all claims it has been
entitled to make under each policy of insurance. Since 1975 all general
liability policies maintained by or for the benefit of Company have been
"occurrence" policies and not "claims made" policies. There is no claim by
Company pending under any such policies as to which coverage has been
questioned, denied or disputed by the underwriters of such policies, and the
Shareholders have no knowledge of any basis for denial of any pending claim
under any such policy. Company has not received any written notice from or on
behalf of any insurance carrier issuing any such policy that insurance rates
therefor will hereafter be substantially increased (except to the extent that
insurance rates may be increased for all similarly situated risks) or that there
will hereafter be a cancellation or an increase in a deductible (or an increase
in premiums in order to maintain an existing deductible) or nonrenewal of any
such policy. Such policies are sufficient in all material respects for
compliance by Company with all material contracts to which Company is a party
and, to the best of each Shareholder's knowledge, all requirements of Law. Such
policies will not be cancelled or cancellable solely as a result of, and no
consent of any insurer is required in advance of, the consummation of the
transactions described in this Agreement.
3.13. Contracts and Commitments.
-------------------------
3.13.1. Real Property Leases. Except as set forth on Schedule
--------------------
3.13.1, Company has no leases of real property.
3.13.2. Personal Property Leases. Except as set forth on
------------------------
Schedule 3.13.2, Company has no leases of personal property involving
consideration or
13
other expenditure in excess of ten thousand dollars ($10,000) or involving
performance over a period of more than six (6) months.
3.13.3. Purchase Commitments. Company has no purchase
--------------------
commitments for supplies worth in excess of $25,000 that, together with amounts
on hand, constitute in excess of three months normal usage, or which are at a
price materially greater than prior purchases of similar supplies. Schedule
3.13.3 lists all of Company's purchase commitments worth in excess of $25,000,
including customer, nature of product and price.
3.13.4. Sales Commitments. Company has no service contracts
-----------------
or commitments except those made in the ordinary course of business, at arm's
length, and to the best of the Shareholders' knowledge, no such contracts or
commitments are for a sales price which would result in a loss to Company.
Schedule 3.13.4 lists all of Company's sales commitments and services contracts
with a "not to exceed" value in excess of $150,000, including customer, contract
limit and contract period.
3.13.5. Contracts. Except as set forth on Schedule 3.13.5,
---------
Company has no agreement, understanding, contract or commitment (written or
oral) with any employee, agent, consultant, distributor, dealer, subcontractor
or franchisee (in an aggregate amount greater than $50,000) that is not
cancelable by Company on notice of not longer than 30 days without liability,
penalty or premium of any nature or kind whatsoever.
3.13.6. Powers of Attorney. Except as set forth on Schedule
------------------
3.13.6, Company has not given a power of attorney, which is currently in effect,
to any person, firm or corporation for any purpose whatsoever.
3.13.7. Collective Bargaining Agreements. Except as set forth
--------------------------------
on Schedule 3.13.7, Company is not a party to any collective bargaining
agreements with any unions, guilds, shop committees or other collective
bargaining groups. Copies of all such agreements have heretofore been delivered
to Buyer.
3.13.8. Loan Agreements. Except as set forth on Schedule
---------------
3.13.8, Company is not obligated under any loan agreement, promissory note,
letter of credit, or other evidence of indebtedness as a signatory, guarantor or
otherwise.
3.13.9. Guaranties. Except as disclosed on Schedule 3.13.9,
----------
Company has not guaranteed the payment or performance of any person, firm or
corporation, agreed to indemnify any person or act as a surety, or otherwise
agreed to be contingently or secondarily liable for the obligations of any
person.
3.13.10. Contracts Subject to Renegotiation. Except as
----------------------------------
disclosed on Schedule 3.13.10, Company is not a party to any contract with a
"not to exceed" value in excess of $150,000 with any Government Entity that is
subject by its terms (and without regard to any Laws that may be incorporated
into the contract or otherwise
14
applicable to it) to unilateral renegotiation by such Government Entity other
than for cause (as defined in the applicable contract).
3.13.11. Burdensome or Restrictive Agreements. Company is not
------------------------------------
a party to any agreement requiring Company to assign any interest in any Trade
Right (as defined in Section 3.17), or prohibiting or restricting Company from
competing in any business or geographical area or soliciting customers or
otherwise restricting it from carrying on its business anywhere in the world.
3.13.12. Fixed Rate Engagements. Except as set forth on
----------------------
Schedule 3.13.12, Company is not a party to any open contract with a "not to
exceed" value of more than $150,000 that would require Company to continue to
perform under such contract for no additional fee once the "not to exceed"
amount is met.
3.13.13. Outstanding Bids/Proposals. Except as set forth on
--------------------------
Schedule 3.13.13, Company has no outstanding bids or proposals for a contract
that may reasonably be expected to (a) have a "not to exceed" value of more than
$150,000 and (b) require Company to continue to perform under such contract for
no additional fee once the "not to exceed" amount is met.
3.13.14. Other Material Contracts. Company has no lease,
------------------------
contract or commitment of any nature involving consideration or other
expenditure in excess of fifty thousand dollars ($50,000), or involving
performance over a period of more than three (3) months, or which is otherwise
individually material to the operations of Company, except as listed on Schedule
3.13.14 or in any other Schedule.
3.13.15. No Default. To the best of each Shareholder's
----------
knowledge, Company is not in default under any lease, contract or commitment,
nor has any event or omission occurred which through the passage of time or the
giving of notice, or both, would constitute a default thereunder or cause the
acceleration of any of Company's obligations or result in the creation of any
Lien (other than a Permitted Liens) on any of the assets owned, used or occupied
by Company. Company has not provided notice to any third party that such party
is in default under any lease, contract or commitment to which Company is a
party, nor, to the best of each Shareholder's knowledge, is any third party in
default under any such lease, contract or commitment or has any event or
omission occurred which, through the passage of time or the giving of notice, or
both, would constitute a default thereunder or give rise to an automatic
termination, or the right of discretionary termination, thereof.
3.14. Labor Matters.
-------------
Except as set forth on Schedule 3.14, within the last five
years Company has not experienced in connection with its business, union
organization attempts, any work stoppage due to labor disagreements or, to the
best of each Shareholder's knowledge, any
15
other labor disputes. Except to the extent set forth on Schedule 3.14, (a) to
the best of each Shareholder's knowledge, Company is in material compliance with
all applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, and is not engaged in any unfair
labor practice; (b) to the best of each Shareholder's knowledge, Company has
received no written notice alleging or threatening to allege any unfair labor
practice charges or complaints against Company; (c) there is no labor strike,
dispute, request for representation, slowdown or stoppage actually pending or
threatened in writing against or affecting Company nor any secondary boycott
with respect to products or services of Company; (d) no question concerning
union representation has been raised or threatened in writing respecting the
employees of Company; (e) no grievance which might have a material adverse
effect on Company, nor any arbitration proceeding arising out of or under
collective bargaining agreements, is pending and no such claim in writing
therefor exists; and (f) there are no administrative charges or court complaints
against Company concerning alleged employment discrimination or other employment
related matters pending or threatened in writing before the U.S. Equal
Employment Opportunity Commission or any other Government Entity.
3.15. Employee Benefit Plans.
----------------------
3.15.1. Disclosure. Schedule 3.15.1 sets forth all pension,
----------
thrift, savings, profit sharing, retirement, incentive bonus or other bonus,
medical, dental, life, accident insurance, benefit, employee welfare,
disability, group insurance, stock purchase, stock option, stock appreciation,
stock bonus, executive or deferred compensation, hospitalization and other
similar fringe or employee benefit plans, programs and arrangements, and any
employment or consulting contracts, "golden parachutes," collective bargaining
agreements, severance agreements or plans, vacation and sick leave plans,
programs, arrangements and policies, including, without limitation, all
"employee benefit plans" (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), all employee manuals, and
all written or binding oral statements of policies, practices or understandings
relating to employment, which are provided to, for the benefit of, or relate to,
any persons employed by Company ("Company Employees"). The items described in
the foregoing sentence are sometimes referred to hereafter collectively as
"Employee Plans/Agreements," and each individually as an "Employee
Plan/Agreement." True and correct copies of all the Employee Plans/Agreements,
including all amendments thereto, have heretofore been provided to Buyer. Each
of the Employee Plans/Agreements is identified on Schedule 3.15.1, to the extent
applicable, as one or more of the following: an "employee pension benefit plan"
(as defined in Section 3(2) of ERISA), a "defined benefit plan" (as defined in
Section 414 of the Code), an "employee welfare benefit plan" (as defined in
Section 3(1) of ERISA), and/or as a plan intended to be qualified under Section
401 of the Code. No Employee Plan/Agreement is a "multiemployer plan" (as
defined in Section 4001 of ERISA), and Company has never contributed nor been
obligated to contribute to any such multiemployer plan.
16
3.15.2. Terminations, Proceedings, Penalties, etc. With
-----------------------------------------
respect to each employee benefit plan (including, without limitation, the
Employee Plans/Agreements) that is subject to the provisions of Title IV of
ERISA and with respect to which Company or any of its assets may, directly or
indirectly, be subject to any liability, contingent or otherwise, or the
imposition of any Lien (whether by reason of the complete or partial termination
of any such plan, the funded status of any such plan, any "complete withdrawal"
(as defined in Section 4203 of ERISA) or "partial withdrawal" (as defined in
Section 4205 of ERISA) by any person from any such plan, or otherwise):
3.15.2.1 No such plan has been terminated so as to
subject, directly or indirectly, any assets of Company to any liability,
contingent or otherwise, or the imposition of any lien under Title IV of ERISA;
3.15.2.2 No proceeding has been initiated or, to the
best of each Shareholder's knowledge, threatened by any person (including the
Pension Benefit Guaranty Corporation ("PBGC")) to terminate any such plan;
3.15.2.3 To the best of each Shareholder's knowledge,
no condition or event currently exists or currently is expected to occur that
could subject, directly or indirectly, any assets of Company to any liability,
contingent or otherwise, or the imposition of any lien under Title IV of ERISA,
whether to the PBGC or to any other person or otherwise on account of the
termination of any such plan;
3.15.2.4 If any such plan were to be terminated as of
the Closing Date, no assets of Company would be subject, directly or indirectly,
to any liability, contingent or otherwise, or the imposition of any lien under
Title IV of ERISA;
3.15.2.5 To the best of each Shareholder's knowledge,
no "reportable event" (as defined in Section 4043 of ERISA) has occurred with
respect to any such plan;
3.15.2.6 To the best of each Shareholder's knowledge,
no such plan which is subject to Section 302 of ERISA or Section 412 of the Code
has incurred any "accumulated funding deficiency" (as defined in Section 302 of
ERISA and Section 412 of the Code, respectively), whether or not waived; and
3.15.2.7 No such plan is a multiemployer plan or a
plan described in Section 4064 of ERISA.
3.15.3. Prohibited Transactions, etc. To the best of each
----------------------------
Shareholder's knowledge, there have not been any "prohibited transactions"
within the meaning of Section 406 or 407 of ERISA or Section 4975 of the Code
for which a statutory or administrative exemption does not exist with respect to
any Employee Plan/Agreement. To the best of each Shareholder's knowledge, no
event or omission has occurred in
17
connection with which Company or any of its assets or any Employee
Plan/Agreement, directly or indirectly, could be subject to any liability under
ERISA, the Code or any other Law or Order applicable to any Employee
Plan/Agreement, or any liability under any agreement, instrument, Law or Order
pursuant to or under which Company has agreed to indemnify or is required to
indemnify any person against liability incurred under any such Law or Order.
3.15.4. Full Funding. The funds available under each Employee
------------
Plan/Agreement that is intended to be a funded plan exceed the amounts required
to be paid, or that would be required to be paid if such Employee Plan/Agreement
were terminated, on account of rights vested or accrued as of the Closing Date
(using the actuarial methods and assumptions then used by Company's actuaries in
connection with the funding of such Employee Plan/Agreement).
3.15.5. Controlled Group; Affiliated Service Group; Leased
--------------------------------------------------
Employees. Company is not and never has been a member of a controlled group of
---------
corporations as defined in Section 414(b) of the Code or in common control with
any unincorporated trade or business as determined under Section 414(c) of the
Code. Company is not and never has been a member of an "affiliated service
group" within the meaning of Section 414(m) of the Code. There are not now and
never have been any leased employees within the meaning of Section 414(n) of the
Code who perform services for Company, and no individuals are expected to become
leased employees with the passage of time.
3.15.6. Payments and Compliance. With respect to each
-----------------------
Employee Plan/Agreement, (a) all payments due from Company to date have been
made and all amounts properly accrued to date as liabilities of Company which
have not been paid have been properly recorded on the books of Company and are
reflected in the Recent Balance Sheet; (b) Company has complied with, and each
such Employee Plan/Agreement conforms in form and operation to, all applicable
laws and regulations, including but not limited to ERISA and the Code, in all
material respects and all reports and information relating to such Employee
Plan/Agreement required to be filed with any governmental entity have been
timely filed; (c) all reports and information relating to each such Employee
Plan/Agreement required to be disclosed or provided to participants or their
beneficiaries have been timely disclosed or provided; (d) each such Employee
Plan/Agreement which is intended to qualify under Section 401 of the Code has
received a favorable determination letter from the Internal Revenue Service with
respect to such qualification, its related trust has been determined to be
exempt from taxation under Section 501(a) of the Code, and nothing has occurred
since the date of such letter that has or is likely to adversely affect such
qualification or exemption; (e) there are no actions, suits or claims pending
(other than routine claims for benefits) or, to the best of each Shareholder's
knowledge, threatened with respect to such Employee Plan/Agreement or against
the assets of such Employee Plan/Agreement; and (f) no Employee Plan/Agreement
is a plan which is established and
18
maintained outside the United States primarily for the benefit of individuals
substantially all of whom are nonresident aliens.
3.15.7. Post-Retirement Benefits. No Employee Plan/Agreement
------------------------
provides benefits, including, without limitation, death or medical benefits
(whether or not insured) with respect to current or former Company employees
beyond their retirement or other termination of service other than (a) coverage
mandated by applicable law, (b) death or retirement benefits under any Employee
Plan/Agreement that is an employee pension benefit plan, (c) deferred
compensation benefits accrued as liabilities on the books of Company (including
the Recent Balance Sheet), (d) disability benefits under any Employee Plan/
Agreement that is an employee welfare benefit plan and which have been fully
provided for by insurance or otherwise or (e) benefits in the nature of
severance pay.
3.15.8. No Triggering of Obligations. The consummation of the
----------------------------
transactions contemplated by this Agreement will not (a) entitle any current or
former employee of Company to severance pay, unemployment compensation or any
other payment, except as expressly provided in this Agreement, (b) accelerate
the time of payment or vesting, or increase the amount of compensation due to
any such employee or former employee, except as expressly provided in this
Agreement, or (c) result in any prohibited transaction described in Section 406
of ERISA or Section 4975 of the Code for which an exemption is not available.
3.15.9. Delivery of Documents. There has been delivered to
---------------------
Buyer, with respect to each Employee Plan/Agreement:
3.15.9.1 a copy of the annual report, if required
under ERISA, with respect to each such Employee Plan/Agreement for the last two
years;
3.15.9.2 a copy of the summary plan description,
together with each summary of material modifications, required under ERISA with
respect to such Employee Plan/Agreement, all material employee communications
relating to such Employee Plan/Agreement, and, unless the Employee
Plan/Agreement is embodied entirely in an insurance policy to which Company is a
party, a true and complete copy of such Employee Plan/Agreement;
3.15.9.3 if the Employee Plan/Agreement is funded
through a trust or any third party funding vehicle (other than an insurance
policy), a copy of the trust or other funding agreement and the latest financial
statements thereof; and
3.15.9.4 the most recent determination letter
received from the Internal Revenue Service with respect to each Employee
Plan/Agreement that is intended to be a "qualified plan" under Section 401 of
the Code.
19
3.15.10. No Material Adverse Change. With respect to each
--------------------------
Employee Plan/Agreement for which an annual report has been filed and delivered
to Buyer pursuant to Section 3.15.9(i), no material adverse change has occurred
with respect to the matters covered by the latest such annual report since the
date thereof.
3.15.11. Future Commitments. Other than as set forth on
------------------
Schedule 3.15.11, Company has not announced any plan or made any legally binding
commitment to create any additional Employee Plans/Agreements or to amend or
modify any existing Employee Plan/Agreement.
3.16. Employee Compensation.
---------------------
Schedule 3.16 contains a true and correct list of all
employees to whom Company is paying compensation as of October 6, 2001. In the
case of salaried employees, such list identifies the current annual rate of
compensation for each employee, and in the case of hourly rate employees or
employees paid on commission, such list identifies the hourly rates or
commission rates for each employee. Schedule 3.16 also lists which employees are
employed pursuant to written employment contracts. Schedule 3.16 also lists any
bonus paid to each current employee for 2000 and sets forth the amounts of
compensation and bonus paid to each Shareholder through the date hereof for
2001. There has been no bonus paid to any non-Shareholder employee during and
for the year 2001. The amount derived by subtracting the Bonus Determination
from the total amount of bonus accrual set forth in the Recent Balance Sheet has
been accrued on the Recent Balance Sheet for 2001 non-Shareholder employee
bonuses. Except with respect to the Shareholders (whose bonus amounts are
treated hereunder in Sections 5.2 and 5.6 below), and notwithstanding the
accrual described in the immediately preceding sentence, Company is not
obligated under any written or (other than as may be made by Buyer, either
directly to an employee or indirectly pursuant to written direction from Buyer
to a Shareholder) oral contract to pay any of its employees any bonus amounts in
connection with their compensation. The Shareholders acknowledge that, following
Closing, non-Shareholder employee bonuses for 2001 and Shareholder bonuses not
contemplated by Sections 5.2 and 5.6, if any, may be paid by the Company as
determined by the board of directors of Company following the Closing.
3.17. Trade Rights.
------------
Schedule 3.17 lists all Trade Rights (as defined below) in
which Company now has any interest, specifying whether such Trade Rights are
owned, controlled, used or held (under license or otherwise) by Company, and
also indicating which of such Trade Rights are registered. All Trade Rights of
Company shown as registered on Schedule 3.17 have been properly registered.
Pending registrations and applications for registration with respect to Trade
Rights have been properly made and filed. All annuity, maintenance, renewal and
other fees relating to registrations or applications for registration with
respect to Trade Rights are current. In order to conduct the business of
Company, as such is
20
currently being conducted, Company does not require any Trade Rights that it
does not already have. To the best of each Shareholder's knowledge, Company is
not infringing nor has it infringed any Trade Rights of another in the operation
of the business of Company, nor does any Shareholder have any knowledge that any
other person is infringing the Trade Rights of Company or Company is infringing
the Trade Rights of any other person. Company has not granted any license or
made any assignment of any of its Trade Rights, nor does Company pay any
royalties or other consideration for the right to use any Trade Rights of
others. There is no Litigation pending or, to the best of each Shareholder's
knowledge, threatened to challenge Company's right, title and interest with
respect to its continued use and right to preclude others from using any Trade
Rights of Company. All Trade Rights of Company that are material to the business
of Company as presently conducted are valid, enforceable, in good standing and
free and clear of all Liens (other than Permitted Liens), and, to the best of
each Shareholder's knowledge, there are no equitable defenses to enforcement
based on any act or omission of Company that are material to the business of
Company as presently conducted. The consummation of the transactions
contemplated hereby will not alter or impair any Trade Rights owned or used by
Company that are material to the business of Company as presently conducted. As
used herein, the term "Trade Rights" will mean and include: (a) all trademark
rights, business identifiers, trade dress, service marks, trade names and brand
names, all registrations thereof and applications therefor and all goodwill
associated with the foregoing; (b) all copyrights, copyright registrations and
copyright applications, and all other rights associated with the foregoing and
the underlying works of authorship; (c) all patents and patent applications, and
all international proprietary rights associated therewith; (d) all contracts or
agreements granting any right, title, license or privilege under the
intellectual property rights of any third party; (e) all inventions, mask works
and mask work registrations, know-how, discoveries, improvements, designs, trade
secrets, shop and royalty rights, employee covenants and agreements respecting
intellectual property and non-competition and all other types of intellectual
property; and (f) all claims for infringement or breach of any of the foregoing.
Any Trade Right that has been formally registered, or for which an application
for registration has been filed, with the appropriate federal Government Entity
shall be deemed to be material to the business of Company.
3.18. Major Customers and Suppliers; Public Works Contracts.
-----------------------------------------------------
3.18.1. Major Customers. Schedule 3.18.1 contains a list of
---------------
the customers who, as of May 19, 2001, had contracts with Company with a "not to
exceed" value in excess of $150,000, showing the total dollar amount of xxxxxxxx
to each such customer (on a per contract basis) during the contract period for
each such contract. None of the Shareholders has any knowledge of any facts
indicating that any of the customers listed on Schedule 3.18.1 will not continue
to be customers of Company after the Closing at substantially the same level of
purchases as heretofore. Company has no intention of, and has taken no steps
toward, canceling, terminating or otherwise materially
21
modifying any of its contracts or agreements with any of the customers specified
on Schedule 3.18.1.
3.18.2. Major Suppliers. Schedule 3.18.2 contains a list of
---------------
the ten (10) largest suppliers to Company and each other supplier to Company
accounting for at least five percent (5%) of its outside purchases for each of
the two most recent fiscal years (determined on the basis of the total dollar
amount of purchases), showing the total dollar amount of purchases from each
such supplier during each such year. None of the Shareholders has any knowledge
or information of any facts indicating that any of the suppliers listed on
Schedule 3.18.2 will not continue to be suppliers to the business of Company
after the Closing and will not continue to supply the business with
substantially the same quantity and quality of goods at competitive prices.
Company has no intention of, and has taken no steps toward, canceling,
terminating, or otherwise materially modifying any of its contracts or
agreements with any of the suppliers specified on Schedule 3.18.2.
3.18.3. Public Works Contracting Matters. Schedule 3.18.3
--------------------------------
sets forth a list of contracts to which Company is a party that were awarded to
Company (by virtue of its ownership by Shareholder or otherwise), in whole or in
part, due to an affirmative action, minority set-aside or similar program
("Set-Aside Programs"), and includes a cite to the relevant Law governing such
program. None of the contracts set forth on Schedule 3.18.3 will be in breach,
terminable or otherwise adversely affected by virtue of the consummation of the
transaction described in this Agreement.
3.19. Bank Accounts.
-------------
Schedule 3.19 sets forth the names and locations of all banks,
trust companies, savings and loan associations and other financial institutions
at which Company maintains a safe deposit box, lock box or checking, savings,
custodial or other account of any nature, the type and number of each such
account and the signatories therefor, a description of any compensating balance
arrangements, and the names of all persons authorized to draw thereon, make
withdrawals therefrom or have access thereto. Company is under no obligation
under any loan agreement or otherwise to maintain any such account with its
current institution.
3.20. Affiliates' Relationships to Company.
------------------------------------
3.20.1. Contracts With Affiliates. All leases, contracts,
-------------------------
agreements and other arrangements between Company and any Affiliate currently
existing or existing at any time during the past three (3) years are described
on Schedule 3.20.1, including the number and monetary amount of any such
transactions.
3.20.2. No Adverse Interests. No Affiliate has any direct or
--------------------
indirect interest in (a) any entity that does business with Company (including,
without limitation, Company's customers and suppliers) or is competitive with
Company's business,
22
except through ownership of less than 5% of the outstanding shares of any entity
whose securities are listed on a national securities exchange or traded in a
national over-the-counter market, or (b) any material property, asset or right
that is used by Company in the conduct of its business.
3.20.3. Obligations. All current or proposed obligations of
-----------
any Affiliate to Company, and all current or proposed obligations of Company to
any Affiliate, are listed on Schedule 3.20.3
3.21. No Brokers or Finders.
---------------------
Except for Vine Street Partners, Inc., who has been retained
by the Shareholders, neither Company or any of its directors, officers,
employees or agents, nor any Shareholder has retained, employed or used any
broker or finder in connection with the transactions provided for in this
Agreement or in connection with the negotiation thereof.
3.22. Investment Representations.
--------------------------
3.22.1. Common Stock Not Registered. Each Shareholder is
---------------------------
acquiring the Buyer's Stock for his own account and not with a view towards
reselling or distributing all or any part thereof in any transaction that would
be in violation of the registration requirements of the Securities Act of 1933,
as amended (the "Securities Act"). Each Shareholder acknowledges that the
issuance of the Buyer's Stock to such Shareholder will not have been registered
under the Securities Act. Each Shareholder further represents that he
understands and agrees that, until registered under the Securities Act or
transferred pursuant to the provisions of Rule 144 promulgated under the
Securities Act, all certificates evidencing any of the Buyer's Stock, whether
upon initial issuance or upon any transfer thereof, shall bear legends,
prominently stamped or printed thereon, reading substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE
STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD,
MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH
SECURITIES UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE
STATE SECURITIES LAWS, OR THE AVAILABILITY OF AN EXEMPTION
FROM THE REGISTRATION PROVISIONS OF THE SECURITIES ACT OF 1933
AND APPLICABLE STATE SECURITIES LAWS."
23
3.22.2. Investor Qualifications. Each Shareholder is an
-----------------------
"accredited investor" within the meaning of Rule 501(a) promulgated under the
Securities Act. Each Shareholder (i) has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of its investment in the Buyer's Stock; (ii) is able to bear the complete
loss of its investment in the Buyer's Stock; and (iii) has had the opportunity
to ask questions of, and receive answers from, the Buyer and its management
concerning the terms and conditions of the offering of the Buyer's Stock, and to
obtain additional information. Shareholder has reviewed: (i) the Annual Report
on Form 10-KSB of Buyer for the year ended December 31, 2000; (ii) the Quarterly
Reports on Form 10-QSB of Buyer for the quarters ended March 31, 2001 and June
30, 2001, and (iii) the Form 8-K of Buyer filed with the Securities and Exchange
Commission ("SEC") on May 17, 2001. Each Shareholder acknowledges that he is not
relying upon any statements made by any individual, partnership, corporation,
association, joint stock company, trust, joint venture, unincorporated
organization or governmental entity (or any department, agency or political
subdivision thereof) other than Buyer and its officers in making its decision to
acquire the Buyer's Stock. Each Shareholder resides in the State of Illinois.
3.23. Corporate Books.
---------------
The minute books of Company, contain complete and accurate
records of all meetings and accurately reflect or evidence all other corporate
action of the shareholders and board of directors, including all committees of
the board of directors, of Company. The stock certificate books and stock
transfer ledgers of Company are true, complete and correct. All stock transfer
taxes levied on or payable with respect to all transfers of shares of common
stock of Company prior to the date hereof have been paid and any applicable
transfer tax stamps are affixed. As of the Closing Date only, the Shareholders
represent that (a) the resolutions detailing the Bonus Determination (as defined
in Section 5.6 below) remain in full force and effect and have not been
modified, supplemented, amended or replaced, and (b) Company has complied with
the provisions of such resolutions, if any, required to have been performed
prior to the Closing Date.
3.24. Improper Payments.
-----------------
To the best of each Shareholder's knowledge, Company and its
officers and agents have not made any illegal or improper payments to, or
provided any illegal or improper benefit or inducement for, any American or
foreign governmental official, supplier, customer or other person or entity, in
an attempt to influence any such person or entity to take or refrain from taking
any action relating to Company.
3.25. Xxxx Situation.
--------------
The Shareholders have recently paid to Xx. X.X. Xxxx, a
former shareholder of Company, all amounts owing to him that arose from the
Shareholders' purchase of Xx. Xxxx'x ownership interest in Company, as evidenced
by the promissory note being delivered
24
pursuant to Section 9.1.9 below (the "Xxxx Purchase"). Following such payment to
Xx. Xxxx by the Shareholders of the amount referenced in the immediately
preceding sentence, the Shareholders will have performed all duties and
satisfied all obligations owing to Xx. Xxxx by them arising from or related to
the Xxxx Purchase and, to the best of each Shareholders' knowledge, there are no
grounds for any potential claims by Xx. Xxxx against Company arising from or
related to the Xxxx Purchase.
3.26. Disclosure.
----------
To the best of each Shareholder's knowledge, neither any
representation or warranty by the Shareholders in this Agreement, nor any
statement, certificate, schedule, document or exhibit hereto furnished by or on
behalf of Company or the Shareholders pursuant to this Agreement or in
connection with the transactions contemplated hereby, contains any untrue
statement of material fact or omits to state a material fact necessary to make
the statements contained herein or therein not misleading in light of the
circumstances in which they were made.
SECTION 4. REPRESENTATION AND WARRANTIES OF BUYER
--------------------------------------
Buyer hereby makes the following representations and warranties to the
Shareholders as of the date hereof and as of the Closing Date, which
representations and warranties shall survive the Closing of the transactions
provided for herein notwithstanding any investigation made by any Shareholder.
For purposes of this Section 4, "knowledge" of Buyer means the actual knowledge
of Buyer after reasonable inquiry and includes, without limitation, any and all
facts or circumstances contained in any written notice or documentation
delivered to Buyer or in its possession.
4.1. Organization.
------------
Buyer is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
4.2. Corporate Power.
---------------
Buyer has all requisite corporate power to enter into this
Agreement and the other documents and instruments to be executed and delivered
by Buyer in connection herewith and to carry out the transactions contemplated
hereby and thereby.
4.3. Enforceability.
--------------
The execution and delivery of this Agreement and the other
documents and instruments to be executed and delivered by Buyer pursuant hereto
and the consummation of the transactions contemplated hereby and thereby have
been duly authorized by the Board of Directors of Buyer. No other corporate act
or proceeding on the part of Buyer or its shareholders is necessary to authorize
this Agreement or the other documents and
25
instruments to be executed and delivered by Buyer pursuant hereto or the
consummation of the transactions contemplated hereby and thereby. This Agreement
has been duly and validly executed and delivered by the Buyer and constitutes,
and when executed and delivered, the other documents and instruments to be
executed and delivered by Buyer pursuant hereto will constitute, valid and
binding agreements of Buyer, enforceable in accordance with their respective
terms, except as such may be limited by bankruptcy, insolvency, reorganization
or other laws affecting creditors' rights generally, and by general equitable
principles.
4.4. No Brokers or Finders.
---------------------
Neither Buyer nor any of its directors, officers, employees or
agents have retained, employed or used any broker or finder in connection with
the transactions provided for in this Agreement or in connection with the
negotiation thereof.
4.5. Disclosure.
----------
To the best of Buyer's knowledge, no representation or
warranty by Buyer in this Agreement, nor any statement, certificate, schedule,
document or exhibit hereto furnished or to be furnished by or on behalf of Buyer
pursuant to this Agreement or in connection with transactions contemplated
hereby, contains any untrue statement of material fact or omits to state a
material fact necessary to make the statements contained therein not misleading
in light of the circumstances in which they were made.
4.6. Investment Matters.
------------------
Buyer is acquiring the Shares for its own investment and not
with a view towards reselling or distributing all or any part thereof in any
transaction which would constitute a "distribution" within the meaning of the
Securities Act. Buyer is an "accredited investor" within the meaning of Rule
501(a) promulgated under the Securities Act. Buyer acknowledges that the Shares
it receives will not have been registered under the Securities Act. Buyer
acknowledges that it is not relying upon any statements made by any individual,
partnership, corporation, association, joint stock company, trust, joint
venture, unincorporated organization or governmental entity (or any department,
agency or political subdivision thereof) other than the Shareholders, Company
and its officers in making its decision to acquire the Shares.
4.7. No Violation.
------------
Except as set forth on Schedule 4.7, neither the execution and
delivery of this Agreement or any other agreement, instrument or other document
in connection with the transactions contemplated hereby nor the consummation by
the Buyer of the transactions contemplated hereby and thereby, (a) will, to the
best of Buyer's knowledge, violate any Law or any Order of any Government Entity
or (b) will, to the best of Buyer's knowledge,
26
require any authorization, consent, approval, exemption, or other action by or
notice to any Government Entity. Subject to obtaining the consents referred to
on Schedule 4.7, neither the execution nor the delivery of this Agreement or any
other agreement, instrument or other document in connection with the
transactions contemplated hereby nor the consummation by the Buyer of the
transactions contemplated hereby and thereby will violate or conflict with, or
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, or will result in the termination of, or
accelerate the performance required by, or result in the creation of any Lien
(other than a Permitted Lien) upon any of the assets of the Buyer (or the
Buyer's Stock) under, or result in the creation of any material obligations of
the Buyer under, any term or provision of the Articles of Incorporation or
bylaws of the Buyer or of any material contract, commitment, understanding,
arrangement, agreement or restriction of any kind or character to which the
Buyer is a party or by which Company or any of its assets or properties may be
bound.
4.8. Litigation.
----------
Except as set forth on Schedule 4.8, there is no material
Litigation pending or, to the best of Buyer's knowledge, threatened against
Buyer, its directors (in such capacity), its business or any of its assets (i)
concerning this Agreement or the transactions contemplated hereby or (ii) which
would impact Buyer's ability to consummate the transactions contemplated by this
Agreement.
SECTION 5. COVENANTS
---------
5.1. Key Employee Visits.
-------------------
At a time of mutual convenience prior to the Closing Date, a
senior officer of the Buyer shall accompany a Shareholder to meet with the Key
Employees to interview them and discuss with them their future employment with
the Company.
5.2. Company Bonus Accrual.
---------------------
If the Closing Date is not the last day of any Company
four-week financial accounting period, Company shall make an additional bonus
accrual with respect to the period prior to the Closing Date for annual bonuses
determined as follows: multiply the total amount provided for bonuses in the
most recently completed four-week period included within the Recent Balance
Sheet times the number of days from (but not including) the date of such Recent
Balance Sheet through and including the Closing Date divided by 28. Any Company
accrual for annual bonuses after the date hereof but before the Closing Date
shall be consistent in amount and timing with past practices of Company with
respect to such accruals.
5.3. Access to Information and Records.
---------------------------------
27
During the period prior to the Closing, the Shareholders will
cause Company to give Buyer, its counsel, accountants and other representatives
(i) reasonable access during normal business hours to all of the properties,
books, records, contracts and documents of Company for the purpose of such
inspection, investigation and testing as Buyer deems appropriate (and Company
will furnish or cause to be furnished to Buyer and its representatives all
information with respect to the business and affairs of Company as Buyer may
reasonably request); (ii) reasonable access to employees, agents and
representatives for the purposes of such meetings and communications as Buyer
reasonably requests; and (iii) with the prior consent of Company in each
instance (which consent will not be unreasonably withheld), and to the extent
Company can reasonably provide it, access to vendors, customers, manufacturers
of its machinery and equipment, and others having business dealings with
Company.
5.4. Conduct of Business Pending the Closing.
----------------------------------------
From the date hereof until the Closing, except as otherwise
approved in writing by the Buyer, the Shareholders will cause (to the extent
consistent with their rights, duties, capacities and obligations as directors
and officers of Company) each of the items in this Section 5.4 to occur.
5.4.1. No Changes. The Shareholders will cause Company to
----------
carry on its business in the same manner as heretofore and will not make or
institute any changes in its methods of purchase, sale, management, accounting
or operation.
5.4.2. Maintain Organization. The Shareholders will cause
---------------------
Company to take such action as may be necessary to maintain, preserve, renew and
keep in favor and effect the existence, rights and franchises of Company, and
will use reasonable efforts to preserve the business organization of Company
intact, to keep available to Company the present officers and employees, and to
preserve for Company its present relationships with suppliers and customers and
others having business relationships with Company.
5.4.3. No Breach. The Shareholders will not knowingly, and
---------
will cause Company to not knowingly do or omit any act, or permit any omission
or act, which may cause a breach of any material contract, commitment or
obligation, or which, with the giving of notice, passage of time or both would
cause such a breach.
5.4.4. No Material Contracts. The Shareholders will not
---------------------
cause or permit Company to enter into any contract or commitment, or to purchase
raw materials or supplies, or to sell goods or services (real, personal, or
mixed, tangible or intangible), except contracts, commitments, purchases or
sales which are: (a) approved in writing by Buyer; or (b) in the ordinary course
of business and consistent with past practice and would not have been required
to be disclosed in the Disclosure Schedule had they been in existence on the
date of this Agreement.
28
5.4.5. No Corporate Changes. The Shareholders will not and
--------------------
will cause Company to not amend its Articles of Incorporation or bylaws or to
make any changes in authorized or issued capital stock or to enter into any
agreements that may obligate company to issue capital stock.
5.4.6. Maintenance of Insurance. The Shareholders will cause
------------------------
Company to maintain all of the insurance in effect as of the date hereof.
5.4.7. Maintenance of Property. The Shareholders will cause
-----------------------
Company to use, operate, maintain and repair all property of Company in a manner
consistent with its past practices.
5.4.8. Interim Financials. The Shareholders will provide
------------------
Buyer with interim period financial statements for Company on or before the 20th
day of the immediately following period and other management reports routinely
prepared by Company as and when they are available.
5.4.9. No Negotiations. No Shareholder will directly or
---------------
indirectly (through Company, a representative or otherwise) (a) solicit or
furnish any information to any prospective buyer, (b) commence or conduct
presently ongoing negotiations with any other party, or (c) enter into any
agreement with any other party, in each such case, concerning the sale of
Company's business or any part thereof, all or substantially all of Company's
assets or any equity securities of Company (an "acquisition proposal"), and
Company and Shareholder will immediately advise Buyer of the receipt of any
acquisition proposal.
5.4.10. No Transfer of Shares. The Shareholders will not
---------------------
transfer or attempt to transfer any of the Shares except to Buyer pursuant
hereto; and the Shareholders shall not cause Company to refuse to accept any
certificates for Shares to be transferred or otherwise to allow such transfers
to occur upon its books.
5.5. Consents.
--------
The Shareholders will use commercially reasonable efforts
prior to Closing to obtain all consents necessary for the consummation of the
transactions contemplated hereby.
5.6. Delayed Compensation and Bonuses.
--------------------------------
Without limitation of the foregoing, the minute book will
contain on or before the Closing Date resolutions of Company's Board of
Directors establishing (a) the amount and timing of future payment(s) of accrued
bonus for the year 2001 through the Closing Date for the Shareholders (in their
capacity as officers and employees of Company) and (b) the timing of payment of
deferred compensation to the Shareholders (in their capacity as officers and
employees of Company) (the "Bonus Determination"). The Shareholders covenant and
agree to deliver a copy of such resolutions certified by the
29
Secretary of Company to Buyer prior to the Closing Date. Buyer agrees to cause
Company to (i) pay any current or delayed base compensation owed with respect to
the period through the Closing Date and (ii) make bonus payments to the
Shareholders, in the amounts and at the time set forth in the Bonus
Determination.
5.7. Other Action.
-------------
The Shareholders will use their commercially reasonable
efforts to cause the fulfillment at the earliest practicable date of all of the
conditions to the parties' obligations to consummate the transactions
contemplated in this Agreement.
5.8. Disclosure Schedule.
------------------
Through the Closing Date, the Shareholders have a continuing
obligation to promptly notify, or cause Company to promptly notify, Buyer in
writing with respect to any matter hereafter arising or discovered which, if
existing or known at the date of this Agreement, would have been required to be
set forth or described in the Disclosure Schedule, but no such disclosure will
cure any breach of any representation or warranty which is inaccurate.
SECTION 6. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
-------------------------------------------
Each and every obligation of Buyer to be performed on the
Closing Date will be subject to the satisfaction prior to or at the Closing of
each of the following conditions set forth in Sections 6.1 through 6.4 below:
6.1. Representations and Warranties True as of the Closing Date.
----------------------------------------------------------
Each of the representations and warranties made by the
Shareholders in this Agreement will be true and correct at and as of the Closing
Date as though such representations and warranties were made or given on and as
of the Closing Date, except for any changes permitted by the terms of this
Agreement or consented to in writing by Buyer.
6.2. Compliance With Agreement.
-------------------------
Each Shareholder will have performed and complied in all
material respects with all of his agreements and obligations under this
Agreement which are to be performed or complied with by them prior to or on the
Closing Date, including the delivery of the closing documents specified in
Section 9.1.
6.3. Absence of Litigation.
---------------------
No material Litigation will have been commenced or threatened
in writing, and no investigation by any Government Entity will have been
commenced, against
30
Company or any of the affiliates, officers or directors of Company, with respect
to the transactions contemplated hereby or otherwise.
6.4. Consents and Approvals.
----------------------
All approvals, consents and waivers that are required of
Company or the Shareholders to effect the transactions contemplated hereby
(including, without limitation, from the landlords with respect to the leases
for the premises located at Lombard, Illinois, Pittsburgh, Pennsylvania and
Cypress, California), will have been received, and copies thereof will have been
delivered to Buyer.
SECTION 7. CONDITIONS PRECEDENT TO THE SHAREHOLDERS' OBLIGATIONS
-----------------------------------------------------
Each and every obligation of the Shareholders to be performed
on the Closing Date will be subject to the satisfaction prior to or at the
Closing of the following conditions:
7.1. Representations and Warranties True on the Closing Date.
-------------------------------------------------------
Each of the representations and warranties made by Buyer in
this Agreement will be true and correct when made and will be true and correct
at and as of the Closing Date as though such representations and warranties were
made or given on and as of the Closing Date.
7.2. Compliance With Agreement.
-------------------------
Buyer will have in all material respects performed and
complied with all of Buyer's agreements and obligations under this Agreement
which are to be performed or complied with by Buyer prior to or on the Closing
Date, including the delivery of the closing documents specified in Section 9.2.
7.3. Consents and Approvals.
----------------------
All approvals, consents and waivers that are required of Buyer
to effect the transactions contemplated hereby will have been received, and
copies thereof will have been delivered to Company or the Shareholders.
7.4. Absence of Litigation.
---------------------
No material Litigation will have been commenced or threatened
in writing, and no investigation by any Government Entity will have been
commenced, against Buyer or any of the affiliates, officers or directors of
Buyer, with respect to the transactions contemplated hereby or otherwise.
31
SECTION 8. INDEMNIFICATION
---------------
8.1. By Shareholders.
---------------
Subject to the terms and conditions of this Section 8, the
Shareholders shall jointly and severally indemnify, defend and hold harmless
Buyer, its shareholders, directors, officers, employees, agents and
representatives (collectively, the "Buyer's Indemnified Parties") and Company
from and against all Claims asserted against, resulting to, imposed upon, or
incurred by Buyer, Buyer's Indemnified Parties or Company, directly or
indirectly, by reason of, arising out of or resulting from (a) the inaccuracy or
breach of any representation or warranty of any Shareholder contained in or made
pursuant to this Agreement, or (b) the breach of any covenant of any Shareholder
contained in this Agreement, other than any covenant or agreement not to cause
or permit any representation or warranty herein or in any Ancillary Document to
be inaccurate, incomplete or untrue (with respect to any such covenant, clause
(a) above shall be operative). As used in this Section 8, the term "Claim"
includes (i) all debts, liabilities and obligations; (ii) all losses, damages
(including, without limitation, consequential damages), judgments, awards,
settlements, costs and expenses (including, without limitation, interest
(including prejudgment interest in any litigated matter), penalties, court costs
and attorneys fees and expenses); and (iii) all demands, claims, suits, actions,
costs of investigation, causes of action, proceedings and assessments, whether
or not ultimately determined to be valid.
8.2. By Buyer.
--------
Subject to the terms and conditions of this Section 8, Buyer
will indemnify, defend and hold harmless the Shareholders and their agents and
representatives (collectively, the "Shareholders' Indemnified Parties") from and
against all Claims asserted against, resulting to, imposed upon or incurred by
the Shareholders' Indemnified Parties, directly or indirectly, by reason of or
resulting from (a) the inaccuracy or breach of any representation or warranty of
Buyer contained in or made pursuant to this Agreement, or (b) the breach of any
covenant of Buyer contained in this Agreement, other than any covenant or
agreement not to cause or permit any representation or warranty herein or in any
Ancillary Document to be inaccurate, incomplete or untrue (with respect to any
such covenant, clause (a) above shall be operative).
8.3. Indemnification of Third-Party Claims.
-------------------------------------
If any third party shall notify any Shareholders' Indemnified
Party Shareholder or Buyer's Indemnified Party (the "Indemnified Party") of a
Claim with respect to any matter which may give rise to a claim for
indemnification against any other party (the "Indemnifying Party"), then the
following terms and conditions shall apply:
8.3.1. Notice and Defense. The Indemnified Party will
------------------
promptly give the Indemnifying
32
Party written notice of any Claim, and the Indemnifying Party will undertake, or
cause to be undertaken, the defense thereof by representatives chosen by it and
consented to by the Indemnified Party, which consent shall not be unreasonably
withheld, conditioned or delayed. Any such notice shall specify the nature of
the Claims and shall describe such Claim in reasonable detail sufficient to
allow the Indemnifying Party to make a claim against any insurance policy
obtained by the Indemnifying Party with respect to such Claim. Failure to give
this notice will not affect the Indemnifying Party's duty or obligations under
this Section 8, unless and to the extent the Indemnifying Party is prejudiced by
this failure. Notwithstanding the above, the Indemnified Party may retain
separate co-counsel at its sole cost and expense. While the Indemnifying Party
is defending, or causing to be defended, any Claim actively and in good faith,
the Indemnified Party will not settle the Claim. The Indemnified Party will, in
good faith, take commercially reasonable steps to assist the Indemnifying Party
in making a claim or claims against any insurance policy obtained by the
Indemnifying Party with respect to such Claim and to collect thereunder with
respect to any such Claim. The Indemnified Party will make available to the
Indemnifying Party or its representatives all records and other materials
required by them and in the possession or under the control of the Indemnified
Party, for the use of the Indemnifying Party and its representatives in
defending any Claim, and will in other respects cooperate in a commercially
reasonable fashion in the defense; provided, that the Indemnifying Party shall
have no liability for any claim or loss resulting from the failure of the
Indemnified Party to cooperate in a commercially reasonable fashion with the
Indemnifying Party's defense of any Claim hereunder and, only with respect to
Claims submitted to an insurer under any insurance policy obtained by the
Shareholders pursuant to this Section 8, such failure to cooperate results in a
denial or reduction of coverage under such insurance policy. The Indemnifying
Party shall reimburse the Indemnified Party for all reasonable out-of-pocket
expenses incurred by the Indemnified Party in its cooperation and assistance of
the Indemnifying Party under the terms of this Section 8.3.
8.3.2. Failure to Defend. If the Indemnifying Party, within
-----------------
a reasonable time after notice of any Claim, fails to defend or cause to be
defended the Claim actively and in good faith, the Indemnified Party will (upon
further notice) have the right to undertake the defense, compromise or
settlement of the Claim or consent to the entry of a judgment with respect to
the Claim, on behalf of and for the account and risk of the Indemnifying Party,
and the Indemnifying Party will thereafter have no right to challenge the
Indemnified Party's defense, compromise, settlement or consent to judgment.
8.3.3. Indemnified Party's Rights. Notwithstanding anything
--------------------------
in this Section 8.3, (i) if there is a reasonable probability that a Claim may
materially and adversely affect the Indemnified Party other than as a result of
money damages or other money payments, the Indemnified Party will have the right
to defend, compromise or settle the Claim, and (ii) the Indemnifying Party will
not, without the written consent of the Indemnified Party, settle or compromise,
or allow to be settled or compromised, any Claim or consent to the entry of any
judgment which does not include as an unconditional term
33
thereof the giving by the claimant or the plaintiff to the Indemnified Party of
a release, reasonably satisfactory as to form and substance to the Indemnified
Party, from all liability in respect of such Claim.
8.4. Payment.
-------
The Indemnifying Party will pay the Indemnified Party any
amount due under this Section 8, which payment may be accomplished in whole or
in part, at the option of the Indemnified Party, by the Indemnified Party
setting off any amount (other than deferred compensation and or bonus amounts
previously earned by the Shareholders) owed to the Indemnifying Party by the
Indemnified Party. The Indemnifying Party will pay the Indemnified Party (a)
with respect to any Claim covered by insurance obtained by the Indemnifying
Party, no later than the earlier of (i) three business days after payment is
received under such insurance policy or (ii) one-hundred and twenty (120) days
following the Indemnified Party's delivery of notice of the Claim pursuant to
Section 8.3.1 or (b) with respect to other Claims, no later than ninety (90)
days following the Indemnified Party's delivery of notice of the Claim pursuant
to Section 8.3.1. If set-off is made by an Indemnified Party in satisfaction or
partial satisfaction of an indemnity obligation under this Section 8 that is
disputed by the Indemnifying Party, upon a subsequent determination pursuant to
Section 11 that all or a portion of such indemnity obligation was not owed to
the Indemnified Party, the Indemnified Party will pay the Indemnifying Party the
amount that was improperly set off together with interest from the date of
set-off until the date of the payment at an annual rate equal to the Prime Rate.
Upon judgment, determination, settlement or compromise of any third party Claim,
the Indemnifying Party will pay promptly on behalf of the Indemnified Party,
and/or to the Indemnified Party in reimbursement of any amount theretofore
required to be paid by it, the amount so determined by judgment, determination,
settlement or compromise and all other Claims of the Indemnified Party with
respect thereto, unless in the case of a judgment an appeal is made from the
judgment. If the Indemnifying Party desires to appeal from an adverse judgment,
then the Indemnifying Party will post and pay the cost of the security or bond
to stay execution of the judgment pending appeal. Upon the payment in full by
the Indemnifying Party of such amounts, the Indemnifying Party will succeed to
the rights of such Indemnified Party, to the extent not waived in settlement,
against the third party who made such third party Claim.
8.5. Tax Effect.
----------
The indemnification obligation of an Indemnifying Party will
be adjusted so as to give effect to any net reduction in Tax liability actually
realized at any time by the Indemnified Party in connection with the
satisfaction by the Indemnifying Party of the Claims with respect to which
indemnification is sought hereunder. With respect to any Claims for which the
Indemnified Party (but for the operation of this sentence) is entitled to
indemnification hereunder, there will be disregarded any Tax liabilities arising
by reason of (i) any reduction or disallowance of deductions from taxable income
in one taxable year, to
34
the extent such reduction or disallowance would result in a corresponding
increase in allowable deductions from income in another taxable year, (ii) the
shifting of items of income from one taxable year to another, or (iii) the
capitalization of amounts which were expensed, but only if such capitalized
amounts are subject, for Tax purposes, to amortization or depreciation or
recovery in costs of goods sold, inventory or materials, except insofar as such
reduction, disallowance, shifting or capitalization would only result in the
increase of any unutilized net operating loss, capital loss or credit carryover.
8.6. Indemnification for Environmental Matters.
-----------------------------------------
Without limiting the generality of the foregoing but without
duplication, the Shareholders agree to jointly and severally indemnify,
reimburse, hold harmless and defend the Buyer's Indemnified Parties and Company
for, from, and against all Claims asserted against, imposed on, or incurred by
any person, directly or indirectly, in connection with any pollution, threat to
the environment, or exposure to, or manufacture, processing, distribution, use,
treatment, generation, transport or handling, disposal, emission, discharge,
storage or release of Waste that (i) is related to Company's or any previous
owner's or operator's ownership, operation or occupancy of the business,
properties and assets owned or used by Company, and (ii) in whole or in part
occurred, existed, arose out of conditions or circumstances that existed, or was
caused on or before the Closing Date; provided, however, that in no event shall
the Shareholders be required to indemnify, reimburse, hold harmless or defend
any Buyer's Indemnified Parties or Company to the extent of the amount by which
any such Claims were exacerbated or increased by any acts, conditions or
circumstances arising or occurring after the Closing Date.
8.7. Limitations on Indemnification.
------------------------------
Except for any fraudulent, intentional or willful breaches of
this Agreement or any of the covenants, agreements, representations or
warranties contained herein by any of the Shareholders, as to which Claims may
be brought by any of Buyer's Indemnified Parties without limitation as to time
or amount, the Shareholders' indemnification obligations under this Agreement
are subject to the limitations set forth in Section 8.8 and Section 8.9 below.
8.8. Time Limitation.
---------------
Except as stated below in this Section 8.8 and subject to
Section 8.7, no claim or action will be brought under this Section 8 for breach
of a representation or warranty after the lapse of two (2) years following the
Closing.
8.8.1. There will be no time limitation on claims on actions
brought for breach of any representation or warranty made by a Shareholder in or
pursuant to Sections 3.1, 3.2, and 3.22 and each Shareholder hereby waives all
applicable statutory limitation periods with respect thereto.
35
8.8.2. Any claim or action brought for breach of any
representation or warranty made by a Shareholder in or pursuant to Section 3.5
and 3.15 may be brought at any time until the earlier of (a) such time as the
underlying tax obligation is barred by the applicable period of limitation under
federal and state laws relating thereto (as such period may be extended by
waiver), or (b) seven (7) years following Closing.
8.8.3. Any claim made by a party hereunder by a demand for
arbitration in accordance with Section 11 hereof for breach of a representation
or warranty prior to the termination of the survival period for such claim will
be preserved despite the subsequent termination of such survival period.
8.8.4. If any act, omission, disclosure or failure to
disclose forms the basis for a claim for breach of more than one representation
or warranty hereunder, and such claims have different periods of survival
hereunder, the termination of the survival period of one claim will not affect a
party's right to make a claim based on the breach of representation or warranty
still surviving.
8.9. Amount Limitation.
-----------------
Subject to Section 8.7, the Indemnified Party will be entitled
to indemnification in full for all Claims for all breaches of representations,
warranties and/or covenants, including without limitation breaches of
representations and warranties relating to environmental matters, but only (a)
to the extent Claims exceed $100,000, in the aggregate over the course of this
Agreement, and (b) to a maximum aggregate amount during the term of this
Agreement equal to Four Million Five Hundred Thousand and No/100 Dollars
($4,500,000).
8.10. No Waiver.
---------
The closing of the transactions contemplated by this Agreement
will not constitute a waiver by any party of its rights to indemnification,
regardless of whether the party seeking indemnification has knowledge of the
breach, violation or failure of condition constituting the basis of the Claim at
or before the Closing.
SECTION 9. CLOSING
-------
The closing of this transaction (the "Closing") will take
place at such time as mutually agreed by the parties if the conditions precedent
set forth in Sections 6 and 7 are fulfilled (or waived) on such date, or
otherwise at such other time and place as the parties hereto will agree upon.
Such date is referred to in this Agreement as the "Closing Date".
9.1. Documents to be Delivered by the Shareholders.
---------------------------------------------
At the Closing, the Shareholders will deliver or cause to be
delivered to Buyer the following documents, in each case duly executed or
otherwise in proper form:
36
9.1.1. Stock Certificate(s). Stock certificates representing
--------------------
the Shares, duly endorsed for transfer or with duly executed stock powers
attached.
9.1.2. Compliance Certificates. A certificate signed by each
-----------------------
Shareholder that each of the representations and warranties made by such
Shareholder in this Agreement is true and correct on and as of the Closing Date
with the same effect as though such representations and warranties had been made
or given on and as of the Closing Date (except for any changes permitted by the
terms of this Agreement or consented to in writing by Buyer), and that Company
and such Shareholder have performed and complied with all of Company's and such
Shareholder's obligations under this Agreement which are to be performed or
complied with on or prior to the Closing Date.
9.1.3. Employment Agreements. Employment Agreements (a) with
---------------------
respect to each of the Shareholders, substantially in the form of Exhibit C
hereto and duly executed by the Company and such Shareholder, and (b) with
respect to each of Xxxxxxx Xxxxxx, Xxxxxx Xxxxxxx, Xxxxxx Xxxxxxxx, Xx., Xxxxxx
Xxxxxxxxxxxx, Xxxxx XxXxxxx, Xxxxxx Xxxxx, Xx. and Xxxx Xxxxxxx (collectively,
the "Key Employees"), substantially in the form of Exhibit D hereto and duly
executed by the Company and such Key Employee.
9.1.4. Articles; Bylaws. A copy of the Articles of
----------------
Incorporation and bylaws of Company, certified by the secretary of Company,
together with a copy of the Articles of Incorporation and Good Standing
Certificates of Company, each certified by the Secretary of State of the State
of Delaware, and, with respect to the Good Standing Certificates, any other
state in which Company is doing business.
9.1.5. Resignations. The resignations, effective as of the
------------
Closing Date, of each of the three (3) directors of Company.
9.1.6. Accredited Investor Questionnaire. Each Shareholder
---------------------------------
shall deliver an accredited investor questionnaire substantially in the form
attached hereto as Exhibit G in substance (as completed and executed)
satisfactory to Buyer and its counsel.
9.1.7. Legal Opinion. A legal opinion of Winston & Xxxxxx,
-------------
Company's legal counsel, substantially in the form attached as Exhibit E hereto.
9.1.8. Landlord Consents. Written documentation evidencing
-----------------
the consent to the transactions contemplated hereby from Company's landlords
under each of its Lombard, Illinois, Pittsburgh, Pennsylvania and Cypress,
California leases.
37
9.1.9. Satisfaction of Xxxx Obligations. A copy of the
--------------------------------
cancelled promissory note representing the amounts owed to Xx. X.X. Xxxx with
regard to the sale of his shares in Company to the Shareholders.
9.1.10. Waiver. A waiver from Company of its preemptive
------
rights under that certain Shareholders Agreement dated as of November 11, 1991
by and among the Shareholders and Company with respect to the purchase of the
Shares by Buyer contemplated hereby.
9.1.11. Registration Rights Agreement. A Registration Rights
-----------------------------
Agreement substantially in the form of Exhibit F hereto ("Registration Rights
Agreement") duly executed by the Shareholders.
9.1.12. Other Documents. All other documents, instruments or
---------------
writings required to be delivered to Buyer at or prior to the Closing pursuant
to this Agreement and such other certificates of authority and documents as
Buyer may reasonably request.
9.2. Documents to be Delivered by Buyer.
----------------------------------
At the Closing, Buyer will deliver to Shareholders the
following documents, in each case duly executed or otherwise in proper form:
9.2.1. Cash Purchase Price. Payment to the Shareholders as
-------------------
required by Section 2.1 hereof.
9.2.2. Compliance Certificate. A certificate signed by the
----------------------
chief executive officer of Buyer that each of the representations and warranties
made by Buyer in this Agreement is true and correct on and as of the Closing
Date with the same effect as though such representations and warranties had been
made or given on and as of the Closing Date (except for any changes permitted by
the terms of this Agreement or consented to in writing by the Shareholders), and
that Buyer has performed and complied with all of Buyer's obligations under this
Agreement which are to be performed or complied with on or prior to the Closing
Date.
9.2.3. Certified Resolutions. A certified copy of the
---------------------
resolutions of the Board of Directors of Buyer, dated no later than October 25,
2001, authorizing and approving this Agreement and the consummation of the
transactions contemplated by this Agreement.
9.2.4. Promissory Note. A Note payable to each of the
---------------
Shareholders.
9.2.5. Registration Rights Agreement. A Registration Rights
-----------------------------
Agreement duly executed by the Buyer.
38
9.2.6. Other Documents. All other documents, instruments or
---------------
writings required to be delivered to Company at or prior to the Closing pursuant
to this Agreement and such other certificates of authority and documents as
Company may reasonably request.
SECTION 10. TERMINATION
-----------
10.1. Right of Termination Without Breach.
-----------------------------------
This Agreement may be terminated without further liability of
any party at any time prior to the Closing:
10.1.1. by mutual written agreement of Buyer and the
Shareholders, or
10.1.2. by either Buyer or the Shareholders if the Closing
has not occurred on or before November 30, 2001, provided the terminating party
has not, through breach of a representation, warranty or covenant, prevented the
Closing from occurring on or before such date.
10.2. Termination for Breach.
----------------------
10.2.1. Termination by Buyer. If there has been a failure of
--------------------
satisfaction of a condition (at the time contemplated herein for such condition
to be satisfied) to the obligations of Buyer which has not been waived in
writing by Buyer, then Buyer may, by written notice to the Shareholders at any
time prior to the Closing notifying the Shareholders that such failure is
continuing, terminate this Agreement with the effect set forth in Section 10.2.3
hereof.
10.2.2. Termination by Shareholders. If there has been a
---------------------------
failure of satisfaction of a condition (at the time contemplated herein for such
condition to be satisfied) to the obligations of the Shareholders that has not
been waived in writing by the Shareholders, then any Shareholder may, by written
notice to Buyer at any time prior to the Closing notifying Buyer that such
failure is continuing, terminate this Agreement with the effect set forth in
Section 10.2.3 hereof.
10.2.3. Effect of Termination. Termination of this Agreement
---------------------
under this Section 10 will not in any way terminate, limit or restrict the
rights and remedies of any party against any other party that has violated,
breached or failed to satisfy any of the representations, warranties, covenants,
agreements, conditions or other provisions of this Agreement prior to
termination. In addition to the right of any party under this Agreement to
redress for any breach or violation, the indemnities set forth in Section 8
shall survive. Without limitation of the foregoing, the parties' obligations
under Section 12.8 of this Agreement will survive termination.
39
SECTION 11. RESOLUTION OF DISPUTES
----------------------
11.1. Arbitration.
-----------
Any dispute, controversy or claim arising out of or relating
to this Agreement or any contract or agreement entered into pursuant hereto or
the performance by the parties of its or their terms will be settled by binding
arbitration held in Chicago, Illinois in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then in effect, except
as specifically otherwise provided in this Section 11. Notwithstanding the
foregoing, Buyer may, in its discretion, apply to a court of competent
jurisdiction for equitable relief from any violation or threatened violation of
the covenants of any Shareholder under Section 5.1 of this Agreement, or any
covenants not to compete contained in any Employment Agreement delivered
pursuant to Section 9.1.3 hereof and (b) any Shareholder may, in its discretion,
apply to a court of competent jurisdiction for equitable relief from any
violation or threatened violation of the Buyer's obligations under the Note, the
Registration Rights Agreement or Section 2.2.3 hereof.
11.2. Arbitrators.
-----------
If the matter in controversy (exclusive of attorney's fees and
expenses) will appear, as at the time of the demand for arbitration, not to
exceed Two-hundred and fifty thousand dollars ($250,000), then the panel to be
appointed will consist of one neutral arbitrator, as mutually agreed by Buyer
and the Shareholders. If Buyer and the Shareholders cannot agree on the
selection of an arbitrator, for such a matter, or if the matter in controversy
(exclusive of attorney's fees and expenses) will appear, as at the time of the
demand for arbitration, to exceed Two-hundred and fifty thousand dollars
($250,000), then Buyer and the Shareholders shall each select a duly qualified
arbitrator, which two arbitrators shall jointly select a third neutral
arbitrator. In the event the arbitration panel consists of three arbitrators,
the decision of a majority of the arbitrators shall control.
11.3. Procedures; No Appeal.
---------------------
The arbitrator(s) will allow such discovery as the
arbitrator(s) determine appropriate under the circumstances and will resolve the
dispute as expeditiously as practicable, and if reasonably practicable, within
120 days after the selection of the arbitrator(s). The arbitrator(s) will give
the parties written notice of the decision, with the reasons therefor set out,
and will have 30 days thereafter to reconsider and modify such decision if any
party so requests within 10 days after the decision. Thereafter, the decision of
the arbitrator(s) will be final, binding, and nonappealable with respect to all
persons, including (without limitation) persons who have failed or refused to
participate in the arbitration process.
40
11.4. Authority.
---------
The arbitrator(s) will have authority to award relief under
legal or equitable principles, including interim or preliminary relief, and to
allocate responsibility for the costs of the arbitration and to award recovery
of attorneys fees and expenses in such manner as is determined to be appropriate
by the arbitrator(s).
11.5. Entry of Judgment.
-----------------
Judgment upon the award rendered by the arbitrator(s) may be
entered in any court having in personam and subject matter jurisdiction. Buyer
and each Shareholder hereby submit to the in personam jurisdiction of the
Federal and State courts in Illinois and California for the purpose of
confirming any such award and entering judgment thereon.
11.6. Confidentiality.
---------------
All proceedings under this Section 11, and all evidence given
or discovered pursuant hereto, will be maintained in confidence by all parties
unless and to the extent any such material is required by Law or court order to
be disclosed or becomes generally available to the public other than as a result
of unauthorized disclosure by any Shareholder or the Buyer, as the case may be.
11.7. Continued Performance.
---------------------
The fact that the dispute resolution procedures specified in
this Section 11 will have been or may be invoked will not excuse any party from
performing its obligations under this Agreement and during the pendency of any
such procedure all parties will continue to perform their respective obligations
in good faith, subject to any rights to terminate this Agreement that may be
available to any party and to the right of setoff provided in Section 8.4
hereof.
11.8. Tolling.
-------
All applicable statutes of limitation will be tolled while the
procedures specified in this Section 11 are pending. The parties will take such
action, if any, required to effectuate such tolling.
SECTION 12. MISCELLANEOUS
-------------
12.1. Disclosure Schedule.
-------------------
The Schedules have been compiled in a bound volume (the
"Disclosure Schedule"), executed by the Shareholders and dated and delivered to
Buyer on the date of this Agreement. Information set forth in the Disclosure
Schedule specifically refers to the section of this Agreement to which such
information is responsive and such information will
41
not be deemed to have been disclosed with respect to any other section of this
Agreement or for any other purpose. The Disclosure Schedule includes a table of
contents and/or index to all of the information and documents contained therein.
12.2. Further Assurances.
------------------
From time to time (a) the Shareholders will, and (until the
Closing Date) will cause Company to, execute and deliver to Buyer such documents
and take such other actions as Buyer may reasonably request as being necessary
or appropriate in connection with the consummation of the transactions
contemplated hereby, and the Buyer shall reimburse the Shareholders and Company
for any out-of-pocket expenses reasonably incurred in connection with any such
request, and (b) the Buyer will execute and deliver to any of the Shareholders
such documents and take such other actions as any of the Shareholders may
reasonably request as being necessary or appropriate in connection with the
consummation of the transactions contemplated hereby, and the Shareholder making
such request shall reimburse the Buyer for any out-of-pocket expenses reasonably
incurred in connection with any such request.
12.3. Disclosures and Announcements.
-----------------------------
Public announcements concerning the transactions provided for
in this Agreement by Buyer, on the one hand, or Company or a Shareholder, on the
other hand, will be subject to the approval of the Shareholders or Buyer,
respectively, in all essential respects, except that approval of the
Shareholders will not be required as to any statements and other information
which Buyer may be required, or deems it advisable, to make under any rule or
regulation of the SEC, the Nasdaq Stock Market, Inc. or under any other law.
12.4. Assignment; Parties in Interest.
-------------------------------
12.4.1. Assignment. Except as expressly provided herein, the
----------
rights and obligations of a party hereunder may not be assigned, transferred or
encumbered without the prior written consent of the other parties.
Notwithstanding the foregoing, Buyer may, without consent of any other party,
cause one or more subsidiaries of Buyer to carry out all or part of the
transactions contemplated hereby; provided, however, that Buyer will,
nevertheless, remain liable for all of its obligations, and those of any such
subsidiary, to the Shareholders hereunder.
12.4.2. Parties in Interest. This Agreement will be binding
-------------------
upon, inure to the benefit of, and be enforceable by the respective successors
and permitted assigns of the parties hereto. Nothing contained herein will be
deemed to confer upon any other person any right or remedy under or by reason of
this Agreement.
12.5. Law Governing Agreement.
-----------------------
42
This Agreement may not be modified or terminated orally, and
will be construed and interpreted according to the internal laws of the State of
Illinois, excluding any choice of law rules that may direct the application of
the laws of another jurisdiction.
12.6. Amendment and Modification.
--------------------------
The Buyer and the Shareholders may amend, modify and
supplement this Agreement in such manner as may be agreed upon in writing among
the Buyer and the Shareholders.
12.7. Notice.
------
All notices, requests, demands and other communications
hereunder will be given in writing and will be: (a) personally delivered; (b)
sent by telecopier, facsimile transmission or other electronic means of
transmitting written documents; or (c) sent to the parties at their respective
addresses indicated herein by registered or certified U.S. mail, return receipt
requested and postage prepaid, or by private overnight mail courier service. The
respective addresses to be used for all such notices, demands or requests are as
follows:
If to Buyer, to:
U. S. Laboratories Inc.
0000 Xxxxxx Xxxxx, Xxxxx 00
Xxx Xxxxx, XX 00000
Attention: President
Facsimile: 000-000-0000
(with a copy to)
Barack Xxxxxxxxxx Xxxxxxxxxx Xxxxxxx & Xxxxxxxxx
000 Xxxx Xxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxx, Esq.
Facsimile: 000-000-0000
or to such other person or address as Buyer will furnish to the Shareholders
in writing.
If to Robinson:
Xxxxxxx X. Xxxxxxxx
Willowgate
000 Xxxxxxxxx Xxxx
Xxxxxxxxxx Xxxxx, Xxxxxxxx 00000
43
(with a copy to)
Winston & Xxxxxx
00 Xxxx Xxxxxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxxx Xxxxx, Esq.
Facsimile: 000-000-0000
If to Biank:
Xxxxxx X. Xxxxx, P.E.
0000 Xxxxx Xxxx
Xxxxxxxxx, Xxxxxxxx 00000
Facsimile: 000-000-0000
(with a copy to)
Winston & Xxxxxx
00 Xxxx Xxxxxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxxx Xxxxx, Esq.
Facsimile: 000-000-0000
If to Xxxxxx:
Xxxxxx X. Xxxxxx
00000 Xxx Xxxxx
Xxxxx Xxxxxxx, Xxxxxxxx 00000
(with a copy to)
Winston & Xxxxxx
00 Xxxx Xxxxxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxxx Xxxxx, Esq.
Facsimile: 000-000-0000
If personally delivered, such communication will be deemed
delivered upon actual receipt; if electronically transmitted pursuant to this
paragraph, such communication will be deemed delivered upon mechanical
confirmation of such transmission generated by the sending telecopy machine (and
sender will bear the burden of proof of delivery); if sent by overnight courier
pursuant to this paragraph, such communication will be deemed delivered upon
receipt; and if sent by U.S. mail pursuant to this paragraph, such
44
communication will be deemed delivered as of the date of delivery indicated on
the receipt issued by the relevant postal service, or, if the addressee fails or
refuses to accept delivery, as of the date of such failure or refusal. Any party
to this Agreement may change its address for the purposes of this Agreement by
giving notice thereof in accordance with this Section.
12.8. Expenses.
--------
Regardless of whether or not the transactions contemplated
hereby are consummated:
12.8.1. Brokerage. The Shareholders shall be responsible for
---------
paying the fees and expenses of its broker, Vine Street Partners, Inc.
12.8.2. Expenses to be Paid by the Shareholders. The
---------------------------------------
Shareholders will pay, and will indemnify, defend and hold Buyer and Company
harmless from and against all fees and expenses of their own and Company's
legal, accounting, investment banking and other professional counsel in
connection with the transactions contemplated hereby.
12.8.3. Taxes. The Buyer shall pay half and the Shareholders,
-----
collectively, shall pay half of any sales, use, excise, transfer or other
similar tax imposed with respect to the transactions provided for in this
Agreement, and any interest related thereto.
12.8.4. Other. Except as otherwise provided herein, each of
-----
the parties will bear its own expenses and the expenses of its counsel and other
agents in connection with the transactions contemplated hereby.
12.8.5. Costs of Litigation or Arbitration. The parties agree
----------------------------------
that (subject to the discretion, in an arbitration proceeding, of the arbitrator
as set forth in Section 11) the prevailing party in any action brought with
respect to or to enforce any right or remedy under this Agreement will be
entitled to recover from the other party or parties all reasonable costs and
expenses of any nature whatsoever incurred by the prevailing party in connection
with such action, including without limitation attorneys' fees and prejudgment
interest.
12.9. Entire Agreement.
----------------
This Agreement embodies the entire agreement between the
parties hereto with respect to the transactions contemplated herein, and there
have been and are no agreements, representations or warranties between the
parties other than those set forth or provided for herein. Without limitation of
the foregoing, that certain Letter of Intent dated May 30, 2001, as supplemented
by that letter dated July 31, 2001, between Buyer and the Shareholders is hereby
terminated and that certain Confidentiality Agreement dated as of
45
June 5, 2001 between Buyer and Vine Street Partners, Inc. for itself and as
representative of Company is hereby terminated, effective as of the Closing.
12.10. Counterparts.
------------
This Agreement may be executed in one or more counterparts,
each of which will be deemed an original, but all of which together will
constitute one and the same instrument.
12.11. Headings.
--------
The headings in this Agreement are inserted for convenience
only and will not constitute a part hereof.
12.12. Glossary of Terms.
-----------------
The following sets forth the location of definitions of
capitalized terms defined in the body of this Agreement:
Affiliate - Section 3.7
Ancillary Documents - Section 3.2.1
Bonus Determination - Section 5.6
Buyer's Indemnified Parties - Section 8.1
Buyer's Stock - Section 2.2.3
CERCLA - Section 3.10.3
Claim - Section 8.1
Closing - Section 9
Closing Date - Section 9
Code - Section 3.5.4
Company Employees - Section 3.15.1
Disclosure Schedule - Section 12.1
DW Lakeshore Reimbursement Payment - Section 2.2.4
Employee Plans/Agreement(s) - Section 3.15.1
Environmental Laws - Section 3.10.3
ERISA - Section 3.15.1
Government Entities - Section 3.3
Indemnified Party - Section 8.3
Indemnifying Party - Section 8.3
IRS - Section 3.5.3
Key Employees - Section 9.1.3
Laws - Section 3.3
Lien - Section 3.11.1
Litigation - Section 3.9
Note - Section 2.2.2
46
Orders - Section 3.3
PBGC - Section 3.15.2.2
Permitted Liens - Section 3.7.9
Prime Rate - Section 2.2.3
Purchase Price - Section 2.1
Recent Balance Sheet - Section 3.4
Registration Rights Agreement - Section 9.1.11
SEC - Section 3.22.2
Securities Act - Section 3.22.1
Set-Aside Programs - Section 3.18.3
Share Value - Section 2.2.3
Shareholder Allocation - Section 2.2.1
Shareholders' Indemnified Parties - Section 8.2
Subsidiaries - Section 3.1.4
Trade Rights - Section 3.17
Waste - Section 3.10.3
Where any group or category of items or matters is defined collectively in the
plural number, any item or matter within such definition may be referred to
using such defined term in the singular number.
[Remainder of Page Intentionally Left Blank]
47
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
BUYER:
-----
U. S. LABORATORIES, INC.,
a Delaware corporation
By: /s/ XXXXXXXXX XXXXXX
Title: President
THE SHAREHOLDERS:
----------------
/s/ XXXXXXX X XXXXXXXX
/s/ XXXXXX X. XXXXX
/s/ XXXXXX X. XXXXXX
X-0
