Exhibit 10.28
STOCK PURCHASE AGREEMENT
by and among
THE READER'S DIGEST ASSOCIATION, INC.,
BOOKS ARE FUN, LTD.
and
THE OTHER PARTIES LISTED HEREIN
AUGUST 25, 1999
TABLE OF CONTENTS
Page
ARTICLE I PURCHASE AND SALE 2
1.1 Definitions 2
1.2 Purchase and Sale 9
1.3 Purchase Price 10
1.4 Closing 10
1.5 Delivery of Securities; Payment 11
1.6 Payment of Indebtedness; Closing Working
Capital 12
1.7 Adjustment 13
1.8 Current Taxes Payable Adjustment 14
1.9 Withholding Calculation Procedures 15
1.10 Payments to Occur Immediately Prior to
Closing 15
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE
SELLERS 16
2.1 Ownership of Stock 16
2.2 Authority of Seller 16
2.3 No Violation 16
2.4 Consents and Approvals 16
2.5 Equityholders' Agreement 17
2.6 Amounts Payable 17
2.7 Brokers', Finders' Fees, etc. 17
2.8 Affiliate Contracts 18
ARTICLE IIIREPRESENTATIONS AND WARRANTIES OF THE
COMPANY 18
3.1 Corporate Organization 18
3.2 Authorization 18
3.3 Capitalization 19
3.4 Subsidiaries 20
3.5 No Violation 20
3.6 Consents and Approvals of Governmental
Authorities 20
3.7 Financial Statements and Statistics of the
Company 20
3.8 Absence of Undisclosed Liabilities 21
3.9 Absence of Certain Changes 21
3.10 Title to Properties; Encumbrances 23
3.11 Patents, Trademarks, Trade Names 24
3.12 Material Contracts 24
3.13 Litigation 25
3.14 Compliance with Laws 26
3.15 Taxes 26
3.16 Benefit Plans 27
3.17 Labor Disagreements 29
3.18 Environmental Matters 29
3.19 Brokers', Finders' Fees, etc. 30
3.20 Affiliate Transactions 31
3.21 Indebtedness 31
3.22 Insurance 31
3.23 Vendors; Warehouses 31
3.24 Year 2000 Compliance 32
3.25 Certain Other Matters 32
3.26 Fractional Interests 32
3.27 Schedules 33
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE BUYER 33
4.1 Corporate Organization 33
4.2 Authorization 33
4.3 No Violation 33
4.4 Consents and Approvals of Governmental
Authorities 34
4.5 Sophisticated Investor 34
4.6 Other Investment Representations 34
4.7 Brokers', Finders' Fees, etc. 34
4.8 Ability to Pay 35
ARTICLE V CONDUCT OF BUSINESS PENDING CLOSING 35
5.1 Regular Course of Business 35
5.2 Amendments 35
5.3 Capital Changes 35
5.4 Organization 36
5.5 Contracts 36
5.6 Compensation 36
5.7 Representations 36
5.8 Taxes 36
ARTICLE VI ADDITIONAL AGREEMENTS 37
6.1 Additional Covenants 37
6.2 Reasonable Access 37
6.3 Confidentiality 38
6.4 Amendment of Charter Documents; Insurance 38
6.5 Employee Matters 38
6.6 Operating Facilities 39
6.7 No Solicitation 39
6.8 Termination of Discussions 39
6.9 Notice of Certain Matters 39
6.10 Unaudited Financial Statements 40
6.11 Stock Options and Warrants 40
6.12 Equityholders' Agreement 40
ARTICLE VIICONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS 41
7.1 Representations and Warranties 41
7.2 Performance 41
7.3 Approvals and Filings 41
7.4 Third Party Consents 41
7.5 Material Adverse Effect 42
7.6 No Injunction 42
7.7 Opinion of Counsel 42
7.8 Indebtedness 42
7.9 [INTENTIONALLY DELETED] 42
7.10 Non-Competition/Non-Solicitation Agreements 42
7.11 Guarantee of Obligations 42
7.12 Assumption of Professional Fees Agreements 42
ARTICLE VIII CONDITIONS PRECEDENT TO THE SELLERS'OBLIGATIONS 43
8.1 Representations and Warranties 43
8.2 Performance 43
8.3 Approvals and Filings 43
8.4 No Injunction 43
8.5 Opinion of Counsel 43
ARTICLE IX TERMINATION AND ABANDONMENT 44
9.1 Methods of Termination 44
9.2 Procedure upon Termination 44
ARTICLE X INDEMNIFICATION 45
10.1 Survival 45
10.2 Indemnification by the Buyer Indemnitors
and the Sellers 46
10.3 Indemnification by Buyer 47
10.4 Indemnification Procedures 47
10.5 Nature of Other Liabilities 49
10.6 Certain Limitations on Remedies 49
10.7 Amount of Losses 50
10.8 Subrogation 50
ARTICLE XI SELLERS' REPRESENTATIVES; RELEASE 51
11.1 Acknowledgment of Appointment of Sellers'
Representatives 51
11.2 Release 51
ARTICLE XIICERTAIN TAX MATTERS 52
12.1 Tax Indemnity by Buyer Indemnitors 52
12.2 Tax Indemnity by the Buyer 53
12.3 Straddle Periods; Apportionment of Taxes 53
12.4 Filing and Payment Responsibility 54
12.5 Cooperation; Exchange of Information; Tax
Proceedings 56
12.6 Tax Returns Available 58
12.7 Refunds 58
12.8 Adjustments 59
12.9 Survival 59
12.10 Setoff 59
12.11 General Tax Amount 59
ARTICLE XIII MISCELLANEOUS PROVISIONS 60
13.1 Amendment and Modification 60
13.2 Waiver of Compliance 60
13.3 Notices 60
13.4 Binding Nature; Assignment 60
13.5 Entire Agreement 61
13.6 Disclaimer of Implied Warranties 61
13.7 Severability 61
13.8 Expenses 61
13.9 Press Releases and Announcements 61
13.10 Governing Law 62
13.11 Counterparts 62
13.12 Headings 62
13.13 Interpretation; Absence of Presumption 62
Exhibit A - Stockholders
Exhibit B - Warrantholders
Exhibit C - Other Parties
Exhibit D - Optionholders
Exhibit E - Form of Opinion of Sellers' Counsel
Exhibit F - Form of Non-Competition/Non-Solicitation Agreement
Exhibit G - Form of Joinder
Exhibit H - Term Sheet for Incentive Plan
Exhibit I - Form of Guarantee
Exhibit J - Form of Assumption Agreement
Exhibit K - Allocation of Purchase Price
Exhibit L - Form of Opinion of Buyer's Counsel
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (together with the schedules,
exhibits and annexes hereto, the "Agreement") is made and entered
into as of the 25th day of August 1999, by and among the persons
listed on Exhibit A hereto (collectively, the "Stockholders";
each individually, a "Stockholder"), the persons listed on
Exhibit B hereto (collectively, the "Warrantholders"; each
individually, a "Warrantholder"), the persons listed on Exhibit C
hereto (collectively, the "Other Parties"; each individually, an
"Other Party"; and the Stockholders, Warrantholders and Other
Parties, collectively, the "Sellers"), Books Are Fun, Ltd., an
Iowa corporation (the "Company"), and The Reader's Digest
Association, Inc., a Delaware corporation (the "Buyer").
RECITALS
A. The Stockholders are the owners of all of the issued and
outstanding shares of the common stock, par value $.0l per share,
of the Company (the "Common Stock") and all of the issued and
outstanding shares of the Participating Preferred Stock, par
value $0.01 per share, of the Company (the "Preferred Stock");
and
B. The Warrantholders are the owners of all issued and
outstanding Warrants, and the Other Parties and the other
Optionholders (as defined below) are the owners of all of the
issued and outstanding Stock Options; and
C. On the terms and subject to the conditions contained herein,
the Stockholders desire to sell and the Buyer desires to purchase
all of the Stockholders' rights, title and interests in and to
the number of shares of Common Stock and Preferred Stock set
forth opposite their respective names on Exhibit A hereto (the
"Stock"); and
D. On the terms and subject to the conditions contained herein,
the Warrantholders desire to sell and the Buyer desires to
purchase all of the Warrantholders' rights, title and interests
in and to the Warrants set forth opposite their respective names
on Exhibit B hereto, to the extent that such Warrants are
outstanding and unexercised as of the Closing; and
E. On the terms and subject to the conditions contained herein,
the Other Parties desire that the Stock Options set forth
opposite their respective names on Exhibit C hereto shall be
cancelled immediately prior to the Closing in exchange for the
payments provided hereunder, to the extent that such Stock
Options are outstanding and unexercised as of such time; and
F. On the terms and subject to the conditions contained herein,
the Stock Options set forth opposite the names of individuals
holding Options on Exhibit D hereto (each such individual, other
than any Other Party, an "Optionholder" and collectively, the
"Optionholders") shall be cancelled immediately prior to the
Closing in exchange for the payments provided hereunder (which is
inclusive of the payments made in accordance with Exhibit C, and
the Other Parties listed on both such Exhibits shall be entitled
to payment in accordance with Exhibit C), to the extent that such
Stock Options are outstanding and unexercised as of such time.
NOW THEREFORE, in consideration of the premises and of the
mutual representations, warranties and covenants which are to be
made and performed by the respective parties, it is agreed as
follows:
ARTICLE I
PURCHASE AND SALE
1.
1.1. Definitions. The following terms when used in this
Agreement have the meanings set forth below:
(a) "Accounting Firm" has the meaning set forth in Section
1.7(a).
(b) "Acquisition Proposal" has the meaning set forth in
Section 6.7.
(c) "Affiliate" means any Person controlling, controlled by
or under common control with another Person and, if such a Person
is an individual, any member of the immediate family (including
parents, spouse and children) of such individual and any trust
whose principal beneficiary is such individual or one or more
members of such immediate family and any person who is controlled
by any such member or trust; provided that, with respect to EGI-
BAF Investors, L.L.C. and EGI-BAF Investors II, L.L.C.,
"Affiliate" means any Person of which ▇▇▇ ▇▇▇▇ and/or members of
his family and/or trusts for his or their benefit hold at least
50.1% of the equity interests. As used in this definition,
"control" (including, with correlative meanings, "controlling,"
"controlled by" and "under common control with") shall mean
possession, directly or indirectly, of power to direct or cause
the direction of management or policies (whether through
ownership of securities or partnership or other ownership
interests, by contract or otherwise).
(d) "Affiliated Group" means an affiliated group as defined
in Section 1504 of the Code (or any analogous combined,
consolidated or unitary group defined under state, local or
foreign income Tax law) of which the Company is or has been a
member.
(e) "Agreement" has the meaning set forth in the Preamble.
(f) "Approved Sale" has the meaning set forth in Section
2.5(a).
(g) "Benefit Plans" has the meaning set forth in Section
3.16(a).
(h) "Buyer" has the meaning set forth in the Preamble.
(i) "Buyer Indemnified Parties" has the meaning set forth
in Section 10.2(a).
(j) "Buyer Indemnitors" means each of ▇▇▇▇ ▇▇▇▇▇▇, EGI-BAF
Investors, L.L.C. and EGI-BAF Investors II, L.L.C.
(k) "Buyer Representatives" has the meaning set forth in
Section 6.3.
(l) "CERCLA" has the meaning set forth in Section 3.18.
(m) "Claim Notice" has the meaning set forth in Section
10.4(a).
(n) "Closing" has the meaning set forth in Section 1.4.
(o) "Closing Date" has the meaning set forth in Section
1.4.
(p) "Closing Indebtedness" means the total amount of all
Indebtedness of the Company outstanding as of the close of
business on the Closing Date (without giving effect to repayments
of Indebtedness made by or on behalf of Buyer and after giving
effect to any payments to be made by the Company prior to or at
the Closing) MINUS the amount of Cash of the Company as of the
close of business on the Closing Date (without giving effect to
any contribution of Cash or payments to be made by or on behalf
of the Buyer at or after the Closing and after giving effect to
any payments to be made by the Company prior to or at the
Closing), such Cash to be calculated in accordance with GAAP and
on the same basis of calculation as employed for Cash on the
December 31, 1998 balance sheet included in the Financial
Statements (provided that such Cash shall be reduced by
(including to a negative amount, if necessary) an amount equal to
the sum of the Current Taxes Payable and the General Tax Amount
in the amount set forth in the Schedule delivered pursuant to
Section 1.8).
(q) "Closing Working Capital" means the amount of Working
Capital of the Company as of the close of business on the Closing
Date (without giving effect to the Closing and after giving
effect to any payments to be made by the Company prior to or at
the Closing).
(r) "Code" means the Internal Revenue Code of 1986, as
amended.
(s) "Common Stock" has the meaning set forth in the
Recitals.
(t) "Company" has the meaning set forth in the Preamble.
(u) "Company Equity Securities" has the meaning set forth
in Section 3.3(d).
(v) "Confidentiality Agreement" means the Confidentiality
Agreement, dated May 19, 1999, by and between the Company and the
Buyer.
(w) "Contracts" has the meaning set forth in Section
3.12(a).
(x) "Contribution Agreement" means the Contribution
Agreement dated August 25, 1999, among EGI-BAF Investors L.L.C.,
EGI-BAF Investors II, L.L.C. and the other parties thereto.
(y) "Controlled Group Liability" has the meaning set forth
in Section 3.16(g).
(z) "Controlling Party" has the meaning set forth in
Section 12.5(c).
(aa) "Credit Agreement" means the Credit Agreement, dated
May 1, 1997, as amended, between the Company, Paribas, Chicago
Branch (f/k/a Banque Paribas Chicago Branch) and certain lenders.
(bb) "Current Taxes Payable" has the meaning set forth in
Section 1.8.
(cc) "date hereof" means the date of this Agreement.
(dd) "Defense Notice" has the meaning set forth in Section
10.4(c).
(ee) "EGI Group" has the meaning set forth in Section
2.5(a).
(ff) "Election Period" has the meaning set forth in Section
10.4(b).
(gg) "Encumbrance" means any mortgage, pledge, lien,
assessment, charge, security interest, conditional or other sale
agreement, claim, right-of-way, easement, encroachment, option,
right of first offer, right of first refusal, voting or use
restriction or other equitable charge or encumbrance of any kind
(and the term "Encumber" shall have the correlative meaning).
(hh) "Environmental Laws" has the meaning set forth in
Section 3.18.
(ii) "Equityholder" shall mean any holder of Stock, Stock
Options or Warrants.
(jj) "Equityholders' Agreement" means the Equityholders'
Agreement dated May 1, 1997 among the Company, certain Sellers
and the other parties thereto, as amended as set forth on
Schedule 3.3(b).
(kk) "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
(ll) "Estimated Closing Indebtedness" has the meaning set
forth in Section 1.6.
(mm) "Estimated Working Capital Differential" has the
meaning set forth in Section 1.6.
(nn) "Final Statement" has the meaning set forth in Section
1.7(a).
(oo) "Financial Statements" has the meaning set forth in
Section 3.7(a).
(pp) "Fractional Interest" shall mean, with respect to each
Equityholder, the fraction set forth next to such Equityholder's
name on Exhibit K, Part II hereto, as revised pursuant to Section
6.11.
(qq) "GAAP" means generally accepted accounting principles
of the United States applied in a manner consistent with past
practices of the Company.
(rr) "General Tax Amount" has the meaning set forth in
Section 1.8.
(ss) "hereof," "herein" and "herewith" have the meaning set
forth in Section 13.13(ii).
(tt) "HSR Act" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust
Improvements Act of 1976, as amended.
(uu) "including" has the meaning set forth in Section
13.13(iii).
(vv) "Indebtedness" means, without duplication, (1) any
obligations of the Company for borrowed money, including
obligations under the Credit Agreement and the revolving facility
thereunder, (2) obligations evidenced by mortgages, notes, bonds,
debentures or similar instruments, obligations for the deferred
purchase price of goods or services (other than trade payables or
accruals incurred in the ordinary course of business), and
obligations under capital leases and obligations with respect to
letters of credit or swaps, (3) all prepayment premiums or
penalties and other amounts becoming due as a result of this
transaction or otherwise, (4) any unpaid interest owing on any
such obligations, and (5) any guarantees, assumptions or similar
obligations with respect to any of the foregoing.
(ww) "Indebtedness Certificate" has the meaning set forth in
Section 1.6.
(xx) "Indemnified Party" has the meaning set forth in
Section 10.4(a).
(yy) "Indemnifying Party" has the meaning set forth in
Section 10.4(a).
(zz) "Indemnity Notice" has the meaning set forth in Section
10.5.
(aaa) "Initial Statement" has the meaning set forth in
Section 1.7(a).
(bbb) "Intellectual Property Rights" has the meaning set
forth in Section 3.11.
(ccc) "Interim Financial Statements" has the meaning set
forth in Section 3.7(b).
(ddd) "IRS" means the United States Internal Revenue
Service.
(eee) "▇▇▇▇▇▇ Group" has the meaning set forth in
Section 2.5(a).
(fff) "Knowledge" shall mean: (i) in the case of the
Company, the actual knowledge of the president or chief executive
officer or the chief financial officer of the Company after due
inquiry of the persons listed in Schedule 1.1(ddd); (ii) in the
case of each individual Seller, the actual knowledge of such
individual Seller after due inquiry of the other
representative(s), agent(s) or employee(s) of such individual, if
any, responsible for the relevant matters; and (iii) in the case
of each Seller which is not an individual, the actual knowledge
of the representative(s), agent(s) or employee(s) of such Seller
having responsibility for such Seller's relationship with the
Company after due inquiry of the representative(s), agent(s) or
employee(s) of such Seller, if any, responsible for the relevant
matters.
(ggg) "Liquidation and Dividend Percentage" has the
meaning set forth in Section 1.3(b)(i).
(hhh) "Losses" has the meaning set forth in Section
10.2(a).
(iii) "Material Adverse Effect" shall mean any change,
effect, event or occurrence that (x) has a material adverse
effect on the financial condition, properties, business or
results of operations of the Company or (y) that prevents or
materially delays or impairs the ability of any of the parties
hereto to consummate the transactions contemplated hereby;
provided, however, that a Material Adverse Effect shall not
include any effect to the extent caused by or arising from any of
the following: (i) changes which adversely impact the domestic
or international publishing or book distribution or retail
bookselling, video or audio tape retailing or display marketing
industries generally and do not disproportionately impact the
Company; or (ii) any material change in the financial markets of
the United States, including any suspension of trading or the
establishment of minimum or maximum prices on any exchange or
over-the-counter market of the United States.
(jjj) "Maximum Liability" has the meaning set forth in
Section 10.6(c).
(kkk) "Mirror Option Agreement" has the meaning set
forth in Section 1.5(f).
(lll) "Noncontrolling Party" has the meaning set forth
in Section 12.5(c).
(mmm) "Notice of Disagreement" has the meaning set forth
in Section 1.7(a).
(nnn) "OPA" has the meaning set forth in Section 3.18.
(ooo) "Option Calculator" has the meaning set forth in
Section 1.9.
(ppp) "Option Reviewer" has the meaning set forth in
Section 1.9.
(qqq) "Optionholder" or "Optionholders" has the meaning
set forth in the Recitals.
(rrr) "or" has the meaning set forth in Section
13.13(iv).
(sss) "Other Party" or "Other Parties" has the meaning
set forth in the Preamble.
(ttt) "Particular Current Taxes Payable" has the meaning
set forth in Section 1.8.
(uuu) "Permitted Encumbrances" means (i) liens for
current property taxes not yet due and payable, (ii) liens
imposed by law and incurred in the ordinary course of business
for obligations not yet due to carriers, warehousemen, laborers,
materialmen and the like, (iii) liens in respect of pledges or
deposits under workers' compensation laws and (iv) liens created
in the ordinary course of business which, in the case of all of
the foregoing (i)-(iv), could not reasonably be expected to,
individually or in the aggregate, materially interfere with the
present use of or materially impair the value of the affected
assets or properties or otherwise have a Material Adverse Effect.
(vvv) "Person" means an individual, a partnership, a
company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization or a governmental entity
or any department, agency or political subdivision thereof.
(www) "Post-Closing Period" means each taxable period
that begins, as to the Company or any of its Subsidiaries, after
the Closing Date and the portion, beginning after the Closing
Date, of each Straddle Period.
(xxx) "Pre-Closing Period" means each taxable period
that ends, as to the Company or any of its Subsidiaries, on or
before the Closing Date and the portion, ending on the Closing
Date, of each Straddle Period.
(yyy) "Preferred Stock" has the meaning set forth in the
Recitals.
(zzz) "Purchase Price" has the meaning set forth in
Section 1.3(a).
(aaaa) "QSSSub" means a "qualified Subchapter S
subsidiary" within the meaning of Section 1361(b) of the Code and
comparable provisions of state and local law.
(bbbb) "RCRA" has the meaning set forth in Section 3.18.
(cccc) "Released Persons" has the meaning set forth in
Section 11.2.
(dddd) "Remaining Purchase Price" has the meaning set
forth in Section 1.3(b)(ii).
(eeee) "S Corp" means an "S corporation" within the
meaning of Section 1361(a) of the Code and comparable provisions
of state and local law.
(ffff) "Seller Indemnified Parties" has the meaning set
forth in Section 10.3.
(gggg) "Sellers" has the meaning set forth in the
Preamble.
(hhhh) "Sellers' Representatives" has the meaning set
forth in Section 11.1.
(iiii) "Severance Payment Options" has the meaning set
forth in Section 6.5(a).
(jjjj) "Stock" has the meaning set forth in the Recitals.
(kkkk) "Stock Option" or "Stock Options" has the meaning
set forth in Section 6.11(a).
(llll) "Stockholder" and "Stockholders" have the meaning
set forth in the Preamble.
(mmmm) "Straddle Period" means any taxable period
commencing, as to the Company or any of its Subsidiaries, on or
before and ending, as to the Company or any of its Subsidiaries,
after the Closing Date.
(nnnn) "Subsidiary" means any corporation, limited
liability company, partnership or other entity as to which the
Company owns or has owned at least 50% of the stock, membership
interests, partnership interests or other equity interests.
(oooo) "Tax" means, with respect to any Person, any (i)
federal, state, local or foreign income, gross receipts,
franchise, estimated, alternative minimum, add-on minimum, sales,
use, transfer, registration, value added, excise, natural
resources, severance, stamp, occupation, premium, windfall
profit, environmental, customs, duties, real property, personal
property, capital stock, social security, unemployment,
disability, payroll, license, employee or other withholding, or
other tax, of any kind whatsoever, including any interest,
penalties or additions to Tax or additional amounts in respect of
the foregoing; (ii) liability of such Person, for the payment of
any amounts of the type described in clause (i) arising as a
result of being (or ceasing to be) a member of any Affiliated
Group (or being included (or required to be included) in any Tax
Return relating thereto); and (iii) liability of such Person for
the payment of any amounts of the type described in clause (i) as
a result of any express or implied obligation to indemnify or
otherwise assume or succeed to the liability of any other person.
(pppp) "Tax Proceeding" means any Tax audit, examination,
contest, litigation or other proceeding.
(qqqq) "Tax Returns" or "Returns" means returns,
declarations, reports, claims for refund, information returns or
other documents (including any related or supporting schedules,
statements or information and including any Forms 1099) filed or
required to be filed in connection with the determination,
assessment or collection of Taxes of any party or the
administration of any laws, regulations or administrative
requirements relating to any Taxes.
(rrrr) "Third Party Claim" has the meaning set forth in
Section 10.4(a).
(ssss) "Threshold" has the meaning set forth in Section
10.6(a).
(tttt) "Top 10 Suppliers" has the meaning set forth in
Section 3.23(a).
(uuuu) "Total Liquidation and Dividend Amount" has the
meaning set forth in Section 1.3(b)(i).
(vvvv) "Transaction Bonuses" shall mean the payments set
forth on Schedule 5.6.
(wwww) "Triggering Equityholders" has the meaning set
forth in Section 2.5(a).
(xxxx) "Warrant" or "Warrants" has the meaning set forth
in Section 6.11(a).
(yyyy) "Warrantholder" or "Warrantholders" has the
meaning set forth in the Preamble.
(zzzz) "Working Capital", with respect to the Company, as
of any date, means (i) the sum of Inventory, Accounts Receivable
(other than any such Accounts Receivable in respect of Taxes) and
Prepaid Expenses (other than Prepaid Expenses in respect of Taxes
and only to the extent that the increase in remaining Prepaid
Expenses as of the Closing Date from remaining Prepaid Expenses
on December 31, 1998 does not exceed $500,000) of the Company,
MINUS (ii) the sum of all current liabilities (other than any
current liability in respect of Taxes and the Current Portion of
Long-Term Debt (which the Company represents included interest as
of December 31, 1998)), each such item to be calculated as of the
close of business on such day in accordance with GAAP and on the
same basis of calculation as employed for such item on the
December 31, 1998 balance sheet included in the Financial
Statements.
(aaaaa) "Working Capital Differential" means the amount of
Closing Working Capital MINUS $ 23,883,600 (and shall be,
therefore, a positive number if Closing Working Capital is
greater than $23,883,600 and a negative number if Closing Working
Capital is less than $23,883,600).
(bbbbb) "Working Capital Differential Certificate" has the
meaning set forth in Section 1.6.
1.2. Purchase and Sale. Subject to the terms and conditions set
forth herein, at the Closing, (i) the Stockholders will sell and
the Buyer will purchase all of the Sellers' rights, title and
interests in and to the Stock, (ii) the Warrantholders will sell
and the Buyer will purchase all of the Warrantholders' rights,
title and interests in and to the Warrants and (iii) all Stock
Options will be cancelled.
1.3. Purchase Price.
(a) The total purchase price to be paid by the Buyer, in the
manner hereinafter set forth (the "Purchase Price"), shall be
$380,000,000 PLUS the Working Capital Differential MINUS the
aggregate amount of Closing Indebtedness. The amount of Purchase
Price to be paid by the Buyer at or (as provided herein and
subject to Section 1.10) immediately prior to the Closing shall
be $380,000,000 PLUS 75% of the Estimated Working Capital
Differential (if positive, or 100% if negative) MINUS the amount
of the Estimated Closing Indebtedness. Such amount shall be
subject to adjustment, following calculation of the Working
Capital Differential and actual Closing Indebtedness, as provided
in Section 1.7.
(b) The Purchase Price shall be paid as follows and as more
fully set forth on Exhibit K:
(i) First, an amount equal to the sum of the liquidation value
of, PLUS all accumulated, unpaid and undeclared preferential
dividends on, the Preferred Stock as of the Closing Date shall be
paid to the Equityholders listed on Exhibit K, Part I in
accordance with the percentages set forth therein (as to each
Equityholder, such party's "Liquidation and Dividend Percentage,"
the aggregate of such amounts, in dollars, the "Total Liquidation
and Dividend Amount") (Exhibit K, Part I includes a calculation
of the Total Liquidation and Dividend Amount as of October 1,
1999); and
(ii) Second, the amount of the Purchase Price remaining after the
payment of the Total Liquidation and Dividend Amount (the
"Remaining Purchase Price") shall be paid to the Equityholders
listed on Exhibit K, Part II in accordance with the Fractional
Interests set forth therein.
(c) All payments in respect of the cancellation of Stock
Options, whether payable at or immediately prior to Closing, in
connection with the Working Capital Adjustment or otherwise,
shall be net of applicable withholding Taxes as determined
pursuant to the procedures set forth in Section 1.9. In addition
to the reductions to Purchase Price contemplated hereby, an
amount of Cash equal to the sum of the Current Taxes Payable and
the General Tax Amount set forth on the schedule delivered
pursuant to Section 1.8 shall be retained by the Company, but
shall not be considered in the amount of Cash used to calculate
Closing Indebtedness or Estimated Closing Indebtedness.
1.4. Closing. The closing of the purchase and sale of the Stock
(the "Closing") shall take place at the offices of Wachtell,
Lipton, ▇▇▇▇▇ & ▇▇▇▇, New York, NY on October 1, 1999, subject to
the satisfaction or waiver (by the applicable party) of the
conditions set forth in Articles VII and VIII by such date, or,
if not so satisfied or waived by such date, the third business
day following the satisfaction or waiver (by the applicable
party) of the conditions set forth in Articles VII and VIII, or
at such other place or on such other date as the Buyer and the
Company shall agree. The date on which the Closing occurs shall
be the "Closing Date".
1.5. Delivery of Securities; Payment. At the Closing (except as
otherwise provided below):
(a) each Stockholder shall deliver or cause to be delivered to
the Buyer one or more stock certificates representing in the
aggregate the number of shares of Stock set forth opposite the
name of such Stockholder on Exhibit A, duly endorsed in blank for
transfer or accompanied by duly executed stock powers and all
applicable stock transfer stamps (the cost of which, if any,
shall be borne 50% by Buyer and 50% by the Company paid prior to
the Closing, except to the extent refundable in which case it
will be borne to such extent by the Company) and other
instruments requisite to proper transfer, all in proper form;
(b) each Warrantholder shall deliver to the Buyer one or more
certificates representing in the aggregate the Warrants set forth
opposite the name of such Warrantholder on Exhibit B (less any
Warrants which have been exercised for cash or for shares of
Stock and as to which such Warrantholder has become a Stockholder
hereunder), duly endorsed in blank for transfer or accompanied by
any other instruments requisite to proper transfer, including any
transfer stamps, all duly executed and in proper form;
(c) each Other Party and Optionholder shall deliver to the Buyer
immediately prior to the Closing one or more certificates and/or
option agreements representing in the aggregate the Stock Options
set forth opposite the name of such Other Party or Optionholder
on Exhibits C and D, respectively (or other evidence reasonably
satisfactory that such Stock Options have been cancelled and
satisfied) (less any Stock Options which have been validly
exercised for shares of Stock and as to which such Other Party or
Optionholder has become a Stockholder hereunder and less any
Stock Options which have been forfeited in accordance with their
terms), for cancellation by the Company immediately prior to the
Closing;
(d) the Buyer shall pay to the Equityholders listed on Exhibit
K, Part I, (which payment shall be made in the case of the Other
Parties, immediately prior to the Closing) by wire transfer of
immediately available funds (to the account(s) designated by such
Persons in writing not less than three business days prior to
Closing), the Total Liquidation and Dividend Amount payable at
Closing (net of applicable withholding taxes, if any) in
accordance with the Liquidation and Dividend Percentage set forth
next to each Equityholder's name on Exhibit K, Part I;
(e) the Buyer shall pay to the Equityholders listed on Exhibit
K, Part II by (i) wire transfer of immediately available funds
to the account(s) designated by such Equityholder in writing not
less than three business days prior to Closing or (ii) bank check
posted to the address at which such Equityholder's pay check from
the Company is regularly delivered or such address otherwise
provided to Buyer by such Equityholder not less than three
business days prior to Closing, such Equityholder's Fractional
Interest of the Remaining Purchase Price payable at Closing in
accordance with Section 1.3 (provided that any payment in respect
of Stock Options (which shall be made effective as of immediately
prior to Closing) or Warrants shall be made net of the exercise
price thereof (and net of any Tax withholding), the amount of
which exercise price which otherwise would have been paid shall
then be distributed to all Equityholders in accordance with each
Equityholder's Fractional Interest); and
(f) ▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇, Stockholders, shall deliver
to the Company for cancellation stock certificates representing
(in the aggregate) 64,114 shares of Common Stock and 3,280.376
shares of Preferred Stock which are all of the shares of stock
(other than .001 share which is being sold by ▇▇▇▇ ▇. ▇▇▇▇▇▇
hereunder) subject to that certain Common and Preferred Stock
Option Agreement (the "Mirror Option Agreement"), dated as of May
1, 1997, by and among ▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇ and the
Company, and are excluded from the calculations of interests
contained in Exhibit K; the Company shall cancel the stock
certificates so delivered; the Company shall pay, in full
satisfaction of the Company's obligations under the Mirror Option
Agreement, immediately prior to Closing $673.95, the nominal
aggregate purchase price for all such shares as provided in the
Mirror Option Agreement, such payment to be made (net of
applicable withholding Taxes); and the Mirror Option Agreement
shall thereafter be deemed fully exercised and terminated, and
each party to the Mirror Option Agreement hereby agrees to such
treatment; it being understood and agreed that the balance of the
purchase price for the Preferred Stock that otherwise would have
been payable under the Mirror Option Agreement has been allocated
pursuant to Exhibit K, Part I as provided therein, to the Other
Parties as part of their Total Liquidation and Dividend Amount.
1.6. Payment of Indebtedness; Closing Working Capital. Not less
than three business days prior to the Closing, the Chief
Financial Officer of the Company shall deliver to the Buyer (i) a
certificate (the "Working Capital Differential Certificate")
which shall (in a form of reasonable detail illustrating the
calculation thereof) set forth a good faith estimate of the
amount of the Working Capital Differential (the "Estimated
Working Capital Differential"), and (ii) a certificate (the
"Indebtedness Certificate") which shall (in a form of reasonable
detail illustrating the calculation thereof) (a) set forth a good
faith estimate of the total amount of Indebtedness anticipated to
be outstanding on the Closing Date and a good faith estimate of
the anticipated Closing Indebtedness (the "Estimated Closing
Indebtedness"), and (b) identify each of the Company's creditors
with respect to whom Indebtedness is owed and the respective
amounts of Indebtedness anticipated to be owed to such creditors
as of the close of business on the Closing Date. Buyer shall be
given access to the books and records of the Company and
permitted to review the working papers of the Company relating to
the Working Capital Differential Certificate and the Indebtedness
Certificate a reasonable period prior to the third business day
prior to the Closing. The Company shall use reasonable efforts
to revise the certificates referred to above to the extent Buyer
advises the Company of errors therein. The Buyer shall, at the
Closing, pay to each of the Company's creditors its respective
amount of the Indebtedness as set forth on the Indebtedness
Certificate and shall receive documentation from each such
creditor as is reasonably necessary to evidence the payment and
the release by such creditor of any and all Encumbrances securing
such Indebtedness and relating to the Company Equity Securities
or any assets or properties of the Company.
1.7. Adjustment. (a) Within 30 days after the Closing Date, the
Buyer shall prepare and deliver to the Sellers' Representatives a
statement setting forth a calculation of the amount of Closing
Indebtedness and the Working Capital Differential (each, an
"Initial Statement"). During the 30 days immediately following
receipt of each Initial Statement, the Sellers' Representatives
and their representatives shall be granted access to the books
and records of the Company relating to the Initial Statements and
permitted to review the working papers of the Buyer relating to
the Initial Statements. An Initial Statement shall become final
and binding upon the parties hereto (and shall thereupon become a
"Final Statement") on the 30th day following receipt thereof by
the Sellers' Representatives unless the Sellers' Representatives
deliver to the Buyer a notice of disagreement with the
calculations on the Initial Statement (a "Notice of
Disagreement") prior to such 30th day. Any Notice of
Disagreement shall specify in reasonable detail by line item the
nature of any disagreement so asserted and the change in the
calculation of the amount of Closing Indebtedness and/or the
Working Capital Differential implied thereby. If a timely Notice
of Disagreement is received by the Buyer, then the Initial
Statement (as resolved either by the agreement of the Buyer and
the Sellers' Representatives or by the Accounting Firm in
accordance with this Section 1.7) relating thereto shall become
final and binding upon the parties hereto (and shall thereupon
become a "Final Statement") on the earlier of (x) the date on
which the Buyer and the Sellers' Representatives resolve in
writing any differences they may have with respect to any matter
specified in the Notice of Disagreement with respect to such
Initial Statement and agree upon a Final Statement and (y) the
date on which the Accounting Firm, after performing appropriate
procedures, finally resolves in writing any matters with respect
to such Initial Statement that are in dispute by providing the
Buyer and the Sellers' Representatives with a Final Statement.
During the 30 days immediately following the delivery of a Notice
of Disagreement, the Buyer and the Sellers' Representatives shall
seek in good faith to resolve in writing (and thereby agree upon
a Final Statement) any differences which they may have with
respect to any matter specified in such Notice of Disagreement.
At the end of such 30-day period, the Buyer and the Sellers'
Representatives shall submit to the Accounting Firm for review
and resolution any and all matters which remain in dispute and
which were included in such Notice of Disagreement, and, within
30 days of such submission, the Accounting Firm shall make a
final written determination (which shall thereupon become a
"Final Statement"), binding on the parties hereto, of the amount
of Closing Indebtedness and/or the Working Capital Differential,
as applicable, which determination shall be, by line item, at or
between the amount of such line item on the applicable Initial
Statement and the amount of such line item on the applicable
Notice of Disagreement. The fees of the Accounting Firm incurred
pursuant to this Section shall be borne by the party against whom
more (by dollar amount) of the differences specified in the
Notice of Disagreement are resolved. For purposes of the
foregoing, "Accounting Firm" shall mean ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP
(using a U.S. office with expertise in such matters), or, if such
firm is unable or unwilling to undertake the responsibilities
required of the Accounting Firm hereunder, such other nationally
recognized independent public accounting firm (using a U.S.
office with expertise in such matters) as shall be agreed upon by
the Buyer and the Sellers' Representatives in writing, provided
that in any case neither the Accounting Firm nor the senior
persons performing services as the Accounting Firm hereunder
shall have any significant relationship with any party hereto.
(a) [Hidden text]
(b) If the amount of Closing Indebtedness reflected on the Final
Statement exceeds the amount of Estimated Closing Indebtedness,
then within 10 business days after the Final Statement becomes
final and binding on the parties hereto, the Sellers'
Representatives shall make payment to the Buyer by wire transfer
in immediately available funds of the amount of such excess. If
the amount of Estimated Closing Indebtedness exceeds the amount
of Closing Indebtedness reflected on the Final Statement, then,
within 10 business days after the Final Statement becomes final
and binding on the parties hereto, the Company shall make payment
(net of any required Tax withholding) by wire transfer in
immediately available funds to an account or accounts designated
by the Sellers' Representatives (who shall distribute the same to
the Equityholders in accordance with each Equityholder's
Fractional Interest, subject to the Total Liquidation and
Dividend Amount having been paid pursuant to Section 1.5(d)) the
amount of such excess payment; provided, however, that to the
extent any such excess is attributable to an overpayment to the
Company's creditors, then such portion of the excess shall be
included in the payment to the account designated by Sellers'
Representatives only to the extent such portion of the excess is
returned to the Company.
(c) If the amount of the Working Capital Differential reflected
on the Final Statement exceeds 75% of the amount of the Estimated
Working Capital Differential (if positive, or 100% if such
estimate was negative), within 10 business days after the Final
Statement becomes final and binding on the parties hereto, the
Buyer shall make payment of the amount (net of any required Tax
withholding) of such excess to an account or accounts designated
by the Sellers' Representatives (who shall distribute the same to
the Equityholders in accordance each Equityholder's Fractional
Interest, subject to the Total Liquidation and Dividend Amount
having been paid pursuant to Section 1.5(d)) by wire transfer in
immediately available funds. If 75% of the amount of the
Estimated Working Capital Differential (if positive, or 100% if
such estimate was negative) exceeds the amount of the Working
Capital Differential reflected on the Final Statement, within 10
business days after the Final Statement becomes final and binding
on the parties hereto, the Sellers' Representatives shall make
payment to the Buyer by wire transfer in immediately available
funds of the amount of such excess.
(d) The amount of any payment to be made pursuant to this
Section 1.7 shall bear interest from and including the date of
Closing to but excluding the date of payment at a rate per annum
equal to 5.5%; provided, however, that interest shall be included
in payments made pursuant to the proviso to the second sentence
of Section 1.7(b) only to the extent that the creditors returning
excess to the Company return interest thereon.
(e) The payment of any amount by the Buyer pursuant to
paragraphs (b), (c) or (d) above shall be made without any offset
other than applicable Tax withholding and shall satisfy in full
the Buyer's obligations to deliver such amounts to the
Equityholders under Section 1.3, Section 1.5 and this Section
1.7.
1.8. Current Taxes Payable Adjustment. In the event that
Sellers' Representatives so elect, the Sellers' Representatives
shall deliver to the Buyer not less than three business days
prior to the Closing a schedule stating, by jurisdiction, type of
Tax and taxable period, Sellers' Representatives' good faith and
reasonable estimate of any accruals as of the Closing Date for
current Taxes payable in the ordinary course of the Company (for
each jurisdiction, type of Tax, and taxable period, the
"Particular Current Taxes Payable"), the aggregate amount of such
accruals (the "Current Taxes Payable") and an additional amount,
if any, not less than zero and not in excess of $150,000 (the
General Tax Amount"). Each of the Particular Current Taxes
Payable and the Current Taxes Payable shall be a credit balance
as a liability or zero in amount. In addition to the reductions
to Purchase Price contemplated by Section 1.3, an amount of Cash
equal to the sum of the Current Taxes Payable and the General Tax
Amount set forth on the schedule delivered pursuant to this
Section 1.8 shall be retained by the Company, but shall not be
considered in the amount of Cash used to calculate Closing
Indebtedness or Estimated Closing Indebtedness. Buyer shall not
be obligated for any additional costs (other than reasonable time
of personnel) as a result of Sellers' Representatives' decision
to make the election referred to in this Section 1.8; provided,
however, that the parties shall work together to make alternative
arrangements in light thereof.
1.9. Withholding Calculation Procedures. In the case of any
payment hereunder in respect of the cancellation of Stock Options
and any payment of Transaction Bonuses: (i) the Option
Calculator shall provide the Option Reviewer the Option
Calculator's proposed good faith and reasonable calculation of
the amount of Tax withholding required in connection with such
payment at least five days prior to the date such payment is to
be made for the Option Reviewer's review and comment, (ii) the
Option Reviewer shall provide its good faith and reasonable
comments on the correctness of such calculation to the Option
Calculator within three days of receipt of such calculation,
(iii) withholding shall be made in respect of such payment as so
calculated taking into account such comments of the Option
Reviewer, except to the extent the Option Calculator disagrees
with the Option Reviewer's comments in which case the Option
Calculator and the Option Reviewer shall endeavor in good faith
to resolve such disagreement over such comments and, failing
that, such disagreement shall be resolved expeditiously by the
Accounting Firm prior to the date such payment is required to be
made. In the case of any payment hereunder in respect of the
cancellation of Stock Options and any payment of Transaction
Bonuses: (x) "Option Calculator" shall mean the Company in the
case of any such payment to be made on or prior to the Closing
Date and shall mean the Buyer in the case of any other payment
and (y) "Option Reviewer" shall mean the Buyer in the case of any
payment to be made on or prior to the Closing Date and shall mean
the Sellers' Representatives in the case of any other payment.
1.10. Payments to Occur Immediately Prior to Closing. Any
payments by Buyer described herein and contemplated to occur
immediately prior to Closing shall be subject to and contingent
upon the Closing occurring immediately after the payment of any
such amounts.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Each Seller, severally and not jointly, hereby represents
and warrants, as to such Seller, to the Buyer as follows:
2.
2.1. Ownership of Stock. Such Seller is the owner, beneficially
and of record, of the shares of Stock, Warrants and Stock Options
set forth opposite such Seller's name on Exhibit A, Exhibit B and
Exhibit D hereto, respectively, free and clear of any Encumbrance
except as set forth on Schedule 2.l. At Closing such Seller will
transfer good and marketable title to such shares of Stock,
Warrants and Stock Options free and clear of any Encumbrance.
Except as set forth on such Exhibits and except for such Seller's
interest as an employee of the Company, if any, such Seller has
no beneficial interest in the Company.
2.2. Authority of Seller. Such Seller has the requisite right,
capacity and power to enter into this Agreement and to consummate
the transactions contemplated herein. The execution and delivery
of this Agreement has been duly authorized by such Seller by all
necessary action. This Agreement has been duly executed and
delivered by such Seller and constitutes a valid and binding
obligation, enforceable against such Seller in accordance with
its terms, except as the same may be limited by (a) bankruptcy,
insolvency, reorganization, moratorium or similar laws now or
hereafter in effect relating to creditors' rights generally and
(b) the application of equitable principles, whether applied by a
court of equity or law.
2.3. No Violation. Except as set forth on Schedule 2.3 hereto,
neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will, with
or without the giving of notice or the passage of time, or both,
(a) with respect to any Seller that is not an individual,
violate, or be in conflict with, or constitute a breach or
default under, or give rise to any right under, any provisions of
the organizational documents of such Seller or, whether or not
such Seller is an individual, any Contract to which such Seller
is a party or by which it or its assets or properties is bound,
(b) require the consent or waiver of, or notice to, any party to
any Contract to which such Seller is a party or by which it or
its assets or properties is bound, or (c) violate any statute or
law or any judgment, decree, order, regulation or rule of any
court or governmental authority to which such Seller or its
assets or properties is subject.
2.4. Consents and Approvals. Except for compliance with the HSR
Act, no consent, approval or authorization of, or declaration,
filing or registration with, any governmental or regulatory
authority or third party is necessary or advisable to be made or
obtained by such Seller in connection with the execution,
delivery and performance of this Agreement or the consummation of
the transactions contemplated hereby.
2.5. Equityholders' Agreement.
(a) Except as set forth on Schedule 2.5, such Seller is a party
to the Equityholders' Agreement, which is a valid and binding
agreement with respect to such Seller, enforceable against such
Seller in accordance with its terms; and such Seller is not (and
to the Knowledge of such Seller, no other Person is) in breach in
any material respect of the Equityholders' Agreement. Such
Seller is not party to any amendment, supplement or binding
interpretation of the Equityholders' Agreement except as set
forth in Schedule 3.3(b). Each Seller hereby agrees that the
transactions contemplated by this Agreement shall be deemed to
constitute an "Approved Sale" (as defined in the Equityholders'
Agreement) for all purposes of the Equityholders' Agreement as to
which both the "▇▇▇▇▇▇ Group" (as defined in the Equityholders'
Agreement) and the "EGI Group" (as defined in the Equityholders'
Agreement) constitute the "Triggering Equityholders" (as defined
in the Equityholders' Agreement) and as to which such Triggering
Equityholders have validly exercised the "drag-along rights"
provided in Section 4.4(a) of the Equityholders' Agreement for
all purposes of the Equityholders' Agreement, including for all
purposes of Section 4.4(c) of the Equityholders' Agreement,
without regard to any variation between the terms hereof and the
provisions of the Equityholders' Agreement (any such variations
are hereby waived). Such Seller (i) has consented to and shall
raise no objections against the transactions contemplated by this
Agreement and (ii) shall execute and deliver such instruments of
conveyance and transfer and take all other necessary or desirable
actions in connection with the consummation of the transactions
contemplated hereby reasonably requested by the Buyer. Such
Seller agrees that, upon the consummation of the transactions
contemplated by this Agreement, the conditions set forth in
Section 4.4(b) of the Equityholders' Agreement shall have been
fully satisfied.
(b) Except for the Equityholders' Agreement or as set forth in
Schedule 3.3(b): such Seller is not a party to any (i) voting
trusts, proxies or other Contracts with respect to the voting of
any Company Equity Securities, (ii) Contracts restricting the
transfer of any Company Equity Securities, (iii) preemptive or
anti-dilutive rights or rights of first offer or first refusal or
"tag-along", "drag-along" or similar rights with respect to any
Company Equity Securities or (iv) rights with respect to
registration under securities laws with respect to any Company
Equity Securities.
2.6. Amounts Payable. No amount is or will be owed or otherwise
payable to such Seller by the Buyer or the Company as a result of
the transactions contemplated hereby, except with respect to the
payments to such Seller provided in Article I, Article X, Article
XII and Section 6.5.
2.7. Brokers', Finders' Fees, etc. Neither the Company (upon the
Closing) nor the Buyer shall have any liability or obligation to
pay any brokerage commission, finders' fees, or similar
compensation or any legal or professional fees incurred in
connection with the transactions contemplated by this Agreement
based on any arrangement or agreement made by or authorized (with
respect to Paribas North America, Inc., BankAmerica Investment
Corporation, MIG Partners, IV, Chase Equity Associates, L.P. and
Bank of America, National Association, other than such
authorization granted to (i) EGI-BAF Investors, L.L.C. or EGI-BAF
Investors II, L.L.C. pursuant to the authority granted in Section
11.1 of this Agreement, (ii) EGI-BAF Investors, L.L.C. or EGI-BAF
Investors II, L.L.C. pursuant to the authority granted in the
Contribution Agreement, or (iii) Equity Group Investments, Inc.
pursuant to the authority granted in the Equityholders'
Agreement) by such Seller or any of its Affiliates. Schedule
3.19 lists all persons who may be entitled to any brokerage
commission, finders' fees, or similar compensation or any legal
or professional fees incurred in connection with the transactions
contemplated by this Agreement based on any arrangement or
agreement made by or authorized (with respect to Paribas North
America, Inc., BankAmerica Investment Corporation, MIG Partners,
IV, Chase Equity Associates, L.P. and Bank of America, National
Association, other than such authorization granted to (i) EGI-BAF
Investors, L.L.C. or EGI-BAF Investors II, L.L.C. pursuant to the
authority granted in Section 11.1 of this Agreement, (ii) EGI-BAF
Investors, L.L.C. or EGI-BAF Investors II, L.L.C. pursuant to the
authority granted in the Contribution Agreement, or (iii) Equity
Group Investments, Inc. pursuant to the authority granted in the
Equityholders' Agreement) by such Seller or any of its
Affiliates.
2.8. Affiliate Contracts. Schedule 3.12 lists all Contracts to
which the Company is a party or by which its assets or properties
are bound and to which any Affiliate of such Seller is a party.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Buyer as
follows:
3.
3.1. Corporate Organization. The Company is duly organized,
validly existing and in good standing under the laws of the State
of Iowa and has all requisite corporate power and authority to
carry on its business as now conducted and to own or lease its
properties and assets. The Company is duly qualified or licensed
to do business as a foreign corporation in good standing in each
state of the United States and in each foreign jurisdiction in
which the conduct of its business or the ownership or leasing of
its properties requires such qualification, other than
jurisdictions in which the failure to so qualify would not have a
Material Adverse Effect.
3.2. Authorization. The Company has the requisite power and
authority to enter into this Agreement and to carry out the
transactions contemplated hereby. The board of directors of the
Company has taken all action required to authorize the execution
and delivery of this Agreement, the performance of the Company's
obligations hereunder and the consummation of the transactions
contemplated hereby. No other proceedings on the part of the
Company, its board of directors or holders of any Company Equity
Securities are necessary to authorize the execution, delivery and
performance by the Company of this Agreement. This Agreement is
a valid and binding agreement of the Company, enforceable against
it in accordance with its terms except as the same may be limited
by (a) bankruptcy, insolvency, reorganization, moratorium or
similar laws now or hereafter in effect relating to creditors'
rights generally and (b) the application of equitable principles,
whether applied by a court of equity or law.
3.3. Capitalization. Schedule 3.3(a) hereto sets forth as of the
date hereof: (a) all authorized, issued and outstanding shares
of capital stock of the Company (all of which are listed on
Exhibit A); (b) all outstanding securities issued by the Company
(or, to the Knowledge of the Company, any other Person)
convertible into or exchangeable or exercisable for shares of
capital stock of the Company; (c) all outstanding options (all of
which are listed on Exhibit D), warrants (all of which are listed
on Exhibit B), rights, contracts, commitments, understandings or
arrangements by which the Company is bound to issue or sell or to
purchase or otherwise acquire or retire any additional shares of
capital stock or other securities of or equity interest in the
Company or securities convertible into or exchangeable for such
capital stock or other securities or equity interests in the
Company and (d) all stock appreciation, phantom stock, or similar
rights or rights to participate in revenues or profits or other
derivatives or equity-like interests with respect to the Company
(the foregoing (a)-(d), collectively, "Company Equity
Securities"). The Stock and Warrants to be purchased by the
Buyer and the Stock Options to be cancelled, pursuant to the
terms of this Agreement, constitute all of the Company Equity
Securities. All issued and outstanding shares of capital stock
of the Company are duly authorized, validly issued, fully paid
and nonassessable, and all other Company Equity Securities are
duly issued and valid and binding. Except for the Equityholders'
Agreement or as set forth on Schedule 3.3(b), the Company is not
a party to and, to the Knowledge of the Company, there are no (i)
voting trusts, proxies or other Contracts with respect to the
voting of any Company Equity Securities, (ii) Contracts
restricting the transfer of any Company Equity Securities, (iii)
preemptive or anti-dilutive rights or rights of first offer or
first refusal or "tag-along", "drag-along" or similar rights with
respect to any Company Equity Securities or (iv) rights with
respect to registration under securities laws with respect to any
Company Equity Securities. True and complete copies of the
restated articles of incorporation and bylaws of the Company and
all Contracts respecting Company Equity Securities (including all
Contracts listed on Schedule 3.3(a) or 3.3(b) and all Warrant
Contracts and Stock Option Contracts) have been provided to the
Buyer prior to the date hereof. Schedule 3.3(b) includes a true
and complete copy of the Equityholders' Agreement and all
amendments, supplements and binding interpretations thereof. No
holder of Stock Options has or will have the right to tender to
the Company, pursuant to an exercise of any "put" right or other
right to exercise for a cash payment (in lieu of acquiring
stock), any Stock Options, it being understood that the payments
to be made at or immediately prior to Closing by Buyer pursuant
to Section 1.5 of this Agreement shall not be deemed a violation
of this representation. There are no dividends on Company Equity
Securities that have been declared but remain unpaid.
3.4. Subsidiaries. Schedule 3.4 contains a list of each
corporation, partnership, joint venture or other business
organization or entity in which the Company directly or
indirectly owns or has owned any capital stock or other equity
securities or other interests. The Company is not subject to any
obligation or requirement to provide funds or assets for or to,
to keep well or otherwise support, or to make any investment (in
the form of a loan or capital contribution or otherwise) in, any
Person.
3.5. No Violation. Except as set forth on Schedule 3.5, neither
the execution and delivery of this Agreement nor the consummation
of the transactions contemplated hereby will, with or without the
giving of notice or the passage of time, or both, (a) violate, or
be in conflict with, or constitute a breach or default under, or
give rise to any right under, any provisions of the Articles of
Incorporation or By-laws of the Company or the Equityholders'
Agreement, (b) violate, or be in conflict with, or constitute a
breach or default under, or give rise to a right of sale,
purchase, termination, cancellation, alteration of rights or
acceleration of any Contract to which the Company is a party, or
by which the Company or its assets or properties is bound, (c)
require the consent or waiver of, or notice to any party to any
Contract to which the Company is a party, or by which the Company
or its assets or properties is bound, (d) result in the creation
or imposition of any Encumbrance upon any property or assets of
the Company, or (e) violate any statute or law or any judgment,
decree, order, regulation or rule of any court or governmental
authority to which the Company or its assets or properties is
subject.
3.6. Consents and Approvals of Governmental Authorities. Except
for compliance with the HSR Act, no consent, approval or
authorization of, or declaration, filing or registration with,
any governmental or regulatory authority is necessary or
advisable to be made or obtained by the Company in connection
with the execution, delivery and performance of this Agreement or
the consummation of the transactions contemplated hereby.
3.7. Financial Statements and Statistics of the Company.
(a) Schedule 3.7(a) includes accurate and complete copies of the
balance sheets of the Company at December 31, 1998 and December
31, 1997 and the related statements of income, stockholders'
equity and cash flows for the fiscal years then ended (the
"Financial Statements"), in each case accompanied by the audit
report thereon of Ernst & Young, independent certified public
accountants. All such Financial Statements present fairly the
financial position of the Company at the respective dates
thereof, and the results of operations, changes in stockholders'
equity and cash flows of the Company for the periods indicated,
in conformity with GAAP.
(b) The Company has delivered to the Buyer the interim unaudited
balance sheet of the Company at June 26, 1999, and the related
statements of income, stockholders' equity and cash flows for the
six months then ended (the "Interim Financial Statements"). The
Interim Financial Statements present fairly in all material
respects, and the financial statements to be delivered pursuant
to Section 6.10 will present fairly in all material respects, the
financial position of the Company at the date thereof, and the
results of operations, changes in stockholders' equity and cash
flows for the period indicated, subject to changes resulting from
normal year-end adjustments which are not material, individually
or in the aggregate, and subject to the absence of footnote
disclosure, and have been, or will be in the case of the
financial statements to be delivered pursuant to Section 6.10,
prepared in a manner consistent with past practices of the
Company and in conformity with GAAP. The Interim Financial
Statements are attached hereto in Schedule 3.7(b).
(c) Schedule 3.7(c) includes, to the Company's Knowledge, a good
faith estimate of the number of drops, the average revenue per
drop, the number of schools, corporations or day care centers,
and the number of sales representatives by segment, in each case
for the 1998 fiscal year and the six-month period ended June 26,
1999.
3.8. Absence of Undisclosed Liabilities. The Company has no
debts, obligations or liabilities of any nature, whether
absolute, accrued, contingent, liquidated or otherwise, and
whether due or to become due, asserted or unasserted, except (i)
as reflected in the Financial Statements or in the Interim
Financial Statements or not required to be so reflected in
accordance with GAAP and (ii) debts, obligations or liabilities
incurred in the ordinary course of business since the date of the
Interim Financial Statements which could not reasonably be
expected to, individually or in the aggregate, have a Material
Adverse Effect.
3.9. Absence of Certain Changes. Except as set forth in Schedule
3.9, since December 31, 1998, and through the date hereof, the
Company has conducted its business only in the ordinary course
and there has not been:
(a) any adverse change which has or is reasonably likely to have
a Material Adverse Effect (without giving effect to clause (y) of
the definition thereof);
(b) any material theft, damage, destruction, casualty loss,
condemnation or eminent domain proceeding affecting any of the
assets of the Company, whether or not covered by insurance;
(c) any waiver by the Company of any material rights related to
the Company's business, operations or assets;
(d) except for increases in the ordinary course of business and
in accordance with past practice to any employee who is not an
officer, any general or special increase in the compensation of
employees of the Company (including any such increase pursuant to
any bonus, pension, profit-sharing or other plan or commitment);
(e) any sale, assignment, transfer or other disposition of any
material tangible assets or rights of the Company, except in the
ordinary course of business;
(f) any sale, assignment, transfer or other disposition of any
of the Company's material patents, trademarks, trade names,
copyrights, licenses or other intangible assets;
(g) any Encumbrance granted or imposed on any of the assets or
properties of the Company with a fair market value in excess of
$250,000, except Permitted Encumbrances;
(h) any declaration or payment of any dividends or other
distributions with respect to any Company Equity Securities or
redemption or purchase or cancellation, directly or indirectly,
of any Company Equity Securities;
(i) any amendment to any existing employee Benefit Plan that
would increase or decrease the Company's costs or benefits to
participants (other than by a de minimis amount) or termination
of any existing employee Benefit Plan required to be listed on
Schedule 3.16, or the adoption of any new employee Benefit Plan;
(j) any single or group of related capital expenditures or
commitments therefor made in excess of $250,000;
(k) any incurrence of any Indebtedness or other liabilities
(whether absolute, accrued, contingent or otherwise) or any
guarantee of any such Indebtedness, except in the ordinary course
of business consistent with past practice;
(l) any payment, discharge or satisfaction of (i) any material
claims, liabilities or obligations (absolute, accrued, contingent
or otherwise) except in each case in the ordinary course of
business or (ii) any Indebtedness other than in the ordinary
course of business;
(m) any amendment or modification to any provision of the
Articles of Incorporation or the By-laws of the Company;
(n) any material discount or acceptance of less than full
payment with regard to accounts receivable and other amounts due
or any sale of any inventory at less than fair market value or
any bulk sale of such inventory except in the ordinary course of
business;
(o) any change in any method of Tax or financial accounting or
accounting principle or practice except for any such change
required by law or GAAP;
(p) any split, combination or reclassification of any of the
capital stock of the Company or any Company Equity Security or
issuance or authorization of any other securities in respect of,
in lieu of or in substitution for shares of the capital stock of
the Company or any Company Equity Security or repurchase,
cancellation or other acquisition or retirement of any shares of
the capital stock of the Company or any Company Equity Security;
(q) any other material action taken or any other material
transaction entered into other than in the ordinary course of
business and in accordance with past custom and practice, other
than the transactions contemplated by this Agreement;
(r) any action which, if taken after the date hereof, would
require the consent of the Buyer under Article V; and
(s) any agreement or Contract, whether in writing or otherwise,
to take any action described in this Section 3.9.
3.10. Title to Properties; Encumbrances. The Company has
good and marketable title to, or valid rights to use, all
properties and assets (tangible and intangible) necessary to
conduct the Company's business as presently conducted by the
Company in all material respects. Schedule 3.10(a) hereto lists
all real properties and interests therein owned or leased by the
Company as of the date hereof. Except as set forth in Schedule
3.10(b):
(a) the Company has good and marketable title to each of the
real properties required to be listed in Schedule 3.10(a) and has
good title to all tangible personal properties and other assets
shown as owned by the Company on its books and records (except
for properties and assets acquired under installment purchase
contracts or held pursuant to capitalized leases), except for
such defects of title, if any, as could not reasonably be
expected to, individually or in the aggregate, materially
interfere with the present use of or materially impair the value
of such properties or assets or otherwise have a Material Adverse
Effect (without giving effect to clause (y) of the definition
thereof);
(b) none of the properties or assets of the Company is subject
to any Encumbrance except (i) Encumbrances securing Indebtedness
(a complete and correct list of which is set forth in Schedule
3.10(b) hereto), all of which shall be terminated and released at
or prior to the Closing upon Buyer's payment pursuant to Section
1.6, or (ii) Permitted Encumbrances;
(c) with respect to each parcel of real property owned by the
Company: (i) there are no leases, subleases, licenses, or other
agreements granting to any party or parties the right of use or
occupancy of any portion of the parcel of real property; (ii)
there are no pending and, to the Knowledge of the Company,
threatened, condemnation proceedings affecting such parcel; (iii)
there are no outstanding options or rights of first refusal to
purchase the parcel of real property, or any portion thereof or
interest therein; and (iv) there are no parties (other than the
Company) in possession of any parcel of real property; and
(d) with respect to real property leased or subleased by the
Company: (i) each lease or sublease is in full force and effect
as of the date hereof; and (ii) the Company is not, and to the
Knowledge of the Company no other party to such leases or
subleases is, in material breach or default or has repudiated any
material provision thereof.
3.11. Patents, Trademarks, Trade Names. Except as noted
thereon, Schedule 3.11 lists all material patents, trademarks,
service marks and trade names and all registrations and
applications for registration for any of the foregoing
(collectively, the "Intellectual Property Rights") owned or used
(pursuant to license agreements or otherwise) in the conduct of
the businesses of the Company as of the date hereof. To the
Knowledge of the Company as of the date hereof and except as set
forth in Schedule 3.11 hereto, the Company's use of Intellectual
Property Rights does not conflict with or infringe on the rights
of any third person, except for such conflicts or infringements
which could not reasonably be expected to, individually or in the
aggregate, have a Material Adverse Effect (without giving effect
to clause (y) of the definition thereof). Except as set forth in
Schedule 3.11, the Company owns or possesses a valid license to
use all Intellectual Property Rights as necessary for the present
operation of its business, and the Company has no Knowledge, as
of the date hereof, of (a) any infringement by third parties of
the Company's rights in such Intellectual Property Rights; or (b)
any claim contesting the validity or enforceability of such
Intellectual Property Rights, except where the loss or expiration
of the Intellectual Property Rights could not reasonably be
expected to, individually or in the aggregate, have a Material
Adverse Effect (without giving effect to clause (y) of the
definition thereof).
3.12. Material Contracts.
(a) Schedule 3.12 lists all written or oral agreements,
contracts and commitments (or groups of related agreements,
contracts and commitments with the same or related parties)
("Contracts") to which the Company is a party or by which its
assets are bound comprising the following:
(i) Contracts (other than purchase orders) which have a term of
one year or more or involve commitments in excess of $250,000;
(ii) purchase orders (or group of related purchase orders) to buy
inventory for amounts in excess of $650,000;
(iii) Contracts to which any Affiliate of the Company or, to
the Company's Knowledge, of any Seller, officer or director of
the Company or any entity in which such person holds an interest
(other than a de minimis interest) is a party;
(iv) Contracts pursuant to which the Company is entitled or
obligated to acquire or sell any assets from or to a third party
for a purchase price in excess of $250,000 (other than Contracts
between the Company and its independent contractors on a form
consistent in all material respects with the forms of agreement
included in Schedule 3.25);
(v) Contracts which are collective bargaining agreements, union
or labor agreements;
(vi) Contracts creating any Encumbrance, other than Permitted
Encumbrances, and Contracts which evidence, secure or otherwise
relate to or create any Encumbrance relating to any Indebtedness
for which the Company has or could have any liability in excess
of $250,000;
(vii) Contracts which limit the ability of the Company to
engage in any business or conduct its business in any geographic
or product market or to buy or sell any goods or services from or
to any Person (other than restrictions contained in purchase
orders which limit sales by the Company to the direct selling
channel);
(viii) Contracts to which the United States government or any
department, agency or instrumentality thereof or any state or
local governmental agency or authority is a party involving
amounts in excess of $100,000;
(ix) Contracts which relate to the purchase, redemption, transfer
or voting of Company Equity Securities;
(x) Contracts which are employment agreements with any employee
of the Company;
(xi) Contracts which provide for a joint venture, partnership or
similar arrangement between the Company and any other Person; and
(xii) any other Contract of the Company the loss of which
could reasonably be expected to have, directly or indirectly,
individually or in the aggregate, a Material Adverse Effect
(without giving effect to clause (y) of the definition thereof).
True and complete copies of all Contracts required to be listed
on Schedule 3.12 have been provided to the Buyer prior to the
date hereof.
(b) Except as set forth in Schedule 3.12, (x) each Contract of
the Company required to be disclosed in Schedule 3.12 is a valid
and binding obligation, enforceable in accordance with its terms
in all material respects, (y) the Company has performed all the
material obligations required to be performed by it in connection
with the Contracts required to be disclosed in Schedule 3.12, has
not given notice of the cancellation thereof, is not in material
breach thereof and is not in receipt of any written claim of
default under any such Contract and (z) to the Knowledge of the
Company as of the date hereof, no such Contract has been breached
in any material respect or cancelled by any other party thereto
and the Company has not received any written notice of any
default by it thereunder.
3.13. Litigation. Except as set forth in Schedule 3.13,
there is no action, proceeding, claim or investigation pending
or, to the Knowledge of the Company, threatened against the
Company, which could reasonably be expected to result, directly
or indirectly, individually or in the aggregate, in a Material
Adverse Effect. The Company is not in violation of any judgment,
order or decree entered against it or to or by which its assets
or properties are subject or bound.
3.14. Compliance with Laws. The Company has conducted its
business in compliance with all laws, rules, regulations,
ordinances, orders, judgments and decrees applicable to its
business, properties or operations, except for violations which
could not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect.
3.15. Taxes.
(a) The Company has filed all Tax Returns that it was required
to file, all such Tax Returns are true, correct and complete and
the Company has paid all Taxes shown on such Tax Returns as
owing, except, in each case, for failures, that could not
reasonably be expected, individually or in the aggregate, to have
a Material Adverse Effect (without giving effect to clause (y) of
the definition thereof).
(b) Schedule 3.15 lists all federal income Tax Returns
filed by the Company for any taxable year ending on or after
December 31, 1990, and lists all federal, state, local or foreign
income Tax Returns that have been audited or currently are the
subject of audit. The Company has made available to the Buyer
correct and complete copies of all income Tax Returns filed by it
for all open taxable years and all examination reports and
statements of deficiencies received with respect to such returns.
The Company has made available to Buyer a good faith draft of the
Company's 1998 federal income Tax Return.
(c) The Company has never been a member of an Affiliated Group
filing a consolidated federal income Tax Return.
(d) Except as set forth in Schedule 3.15 attached hereto:
(i) the Company has not consented to extend to a date later than
the date hereof the time in which any Tax may be assessed or
collected by any taxing authority;
(ii) no deficiency or proposed adjustment which has not been
settled or otherwise resolved for any amount of Tax has been
proposed, asserted or assessed by any taxing authority against
the Company;
(iii) there is no action, suit, taxing authority proceeding
or audit now pending against the Company with respect to any
Taxes; and
(iv) no written claim has been made within the past three years
(and no written claim has, to the Knowledge of the Company, been
made at any time prior to such three-year period) by a taxing
authority in a jurisdiction where the Company does not currently
file Tax Returns that the Company is or may be subject to Taxes
assessed by such jurisdiction.
(e) The Company has timely withheld and paid all Taxes required
to have been withheld and paid in connection with amounts paid or
owing to any employee, creditor, independent contractor, or other
third party (other than any such Taxes arising from a
misclassification of an employee as an independent contractor),
and the Company has timely collected and paid all Taxes required
to have been collected and paid in connection with any amounts
received from any customer or other third party.
(f) For all taxable periods (and any portion of a taxable
period) ending prior to March 31, 1997, the Company was an S
Corp. The Company has never been liable for any Taxes imposed
under Section 1374(a) or 1375(a) of the Code.
(g) The Tax Returns of the Company with respect to federal
income Taxes have been examined by the IRS and the examination
has been closed, or the statute of limitations with respect to
such Tax Returns has expired, for all Tax periods through and
including the taxable year ending December 31, 1996.
(h) No election has been made to have the provisions of Section
341(f) of the Code apply to the Company.
(i) The Company is not a party to or bound by any Tax sharing or
similar agreement or arrangement.
(j) Except as set forth on Schedule 3.15(j), no deficiency or
proposed adjustment that has not been settled or otherwise
resolved relating to the classification of any individual as an
independent contractor or employee has been proposed, asserted or
assessed by any taxing authority against the Company nor has any
such individual proposed or asserted any challenge formally in
writing that has not been settled or otherwise resolved (which
challenge actually involves the Company or of which challenge the
Company has Knowledge) to the Company's classification of such
individual.
(k) The Company has not agreed, and is not required, to make any
adjustment under Section 481 of the Code (or any comparable
provision of state, local or foreign law) by reason of a change
in accounting methods or otherwise (except for a possible
adjustment resulting from the Form 3115 relating to the
calculation of uniform capitalization submitted by the Company to
the IRS dated December 31, 1998).
(l) The Company has not misclassified any employee as an
independent contractor or failed to timely withhold and pay any
Taxes required to have been withheld and paid in connection with
amounts paid or owing to any such employee so misclassified.
3.16. Benefit Plans.
(a) Schedule 3.16 contains an accurate and complete list of all
Benefit Plans (i) maintained or sponsored by the Company, (ii)
contributed to by the Company or to which the Company has an
obligation to contribute, or (iii) covering any current or former
employees, officers, directors or independent contractors of the
Company, or with respect to which the Company has any material
liability. For purposes of the Agreement, the term "Benefit
Plans" shall mean: (i) employee benefit plans as defined in
Section 3(3) of ERISA, (ii) employment agreements, and (iii) any
other employee benefit plan, program, policy, practice, or other
arrangement, whether or not written, including any bonus,
incentive, deferred compensation, vacation, stock purchase, stock
option, severance, change of control or fringe benefit plan,
program or agreement, whether or not subject to ERISA, and
whether or not funded. The Company has not had, at any time
during the last six years, any obligation to contribute to any
"multiple employer welfare arrangement" as such term is defined
in Section 3(40) of ERISA, any "multiemployer pension plan" as
such term is defined in Section 3(37) of ERISA, or with respect
to any employee benefit plan of the type described in Sections
4063 and 4064 of ERISA or in Section 413(c) of the Code (and
regulations promulgated thereunder). Each Employee Benefit Plan
that is an employee welfare benefit plan under Section 3(1) of
ERISA is either (i) funded through an insurance company contract
and is not a "welfare benefit fund" within the meaning of Section
419 of the Code or (ii) unfunded.
(b) The Company does not contribute to or have any liability
with respect to any Benefit Plan which provides health, life
insurance, accident or other "welfare-type" benefits to current
or future retirees or current or future former employees, their
spouses or dependents, other than in accordance with Section
4980B of the Code or applicable state continuation coverage law.
(c) The Company does not sponsor or contribute to or have any
liability with respect to any Benefit Plan that is a "defined
benefit plan" as defined in Section 3(35) of ERISA or that is
intended to be qualified under Section 401(a) of the Code.
(d) Through the date hereof, each Benefit Plan and all related
trusts, insurance contracts and funds have been maintained,
funded and administered in compliance with its terms, all
reporting and disclosure requirements and applicable laws and
regulations, including ERISA and the Code. As of the date
hereof, no actions, suits, claims (other than routine claims for
benefits), Taxes, penalties or Encumbrances with respect or
relating to the Benefit Plans are pending or, to the Knowledge of
the Company, threatened, or have been assessed or incurred.
(e) With respect to each Benefit Plan, the Company has provided
Buyer with true, complete and correct copies, to the extent
applicable, of (i) all documents pursuant to which the Benefit
Plans are maintained, funded and administered, including all
amendments thereto, (ii) the most recent annual report (Form 5500
series) filed with the IRS (with attachments), (iii) the most
recent actuarial report, (iv) the most recent financial
statements, and (v) all governmental rulings and determinations
and opinions (and pending requests for governmental rulings,
determinations and opinions).
(f) Except as set forth in Schedule 3.16(f) or as specifically
contemplated by Section 1.5, Section 6.5 and Section 6.11 of this
Agreement, neither the execution and delivery of the Agreement
nor the consummation of the transactions contemplated hereby will
(either alone or in conjunction with any other event such as
termination of employment) result in, cause the accelerated
vesting or delivery of, or increase the amount or value of, any
payment or benefit to any employee, officer or director of the
Company. No amount paid or payable by the Company in connection
with the transactions contemplated hereby (either solely as a
result thereof or as a result of such transactions in conjunction
with any other event such as termination of employment) will be
an "excess parachute payment" within the meaning of Section 280G
of the Code; provided, that the foregoing representation is not
made with respect to any amounts payable pursuant to the plan
provided for in Section 6.5(b) or the agreements provided for in
Section 7.10.
(g) There does not now exist, nor do any circumstances exist
that could result in, any Controlled Group Liability that would
be a liability of the Company following the Closing. For the
purposes of the foregoing, "Controlled Group Liability" means any
and all liabilities (i) under Title IV of ERISA, (ii) under
Section 302 of ERISA, (iii) under Sections 412 and 4971 of the
Code and (iv) as a result of a failure to comply with the
continuation coverage requirements of Section 601 et seq. of
ERISA and Section 4980B of the Code.
(h) All individuals who are or were in the past entitled to
coverage under any Benefit Plan under the terms thereof or under
applicable law or regulation are receiving and have received (as
applicable) such coverage.
3.17. Labor Disagreements. Except as set forth in Schedule
3.17, since December 31, 1998, the Company has not experienced
any material labor disputes or any material work stoppages, and,
to the Knowledge of the Company, as of the date hereof there is
no such dispute or work stoppage threatened against the Company.
3.18. Environmental Matters. Except for matters disclosed in
Schedule 3.18, and except for matters that could not reasonably
be expected to result, individually or in the aggregate with all
such other matters, in a Material Adverse Effect: (i) the
properties, operations and activities of the Company are in
compliance with all applicable Environmental Laws; (ii) the
Company and the properties and operations of the Company are not
subject to any existing, pending or, to the Knowledge of Company,
threatened action, suit, claim, investigation, inquiry or
proceeding by or before any governmental authority under any
Environmental Law; (iii) all notices, permits, licenses, or
similar authorizations, if any, required to be obtained or filed
by the Company under any Environmental Law in connection with any
aspect of the business of the Company, including those relating
to the treatment, storage, disposal or release of a hazardous or
otherwise regulated substance, have been duly obtained or filed
and will remain valid and in effect after the Closing, and the
Company is in compliance with the terms and conditions of all
such notices, permits, licenses and similar authorizations; (iv)
the Company has satisfied and is currently in compliance with all
financial responsibility requirements applicable to its
operations and imposed by any governmental authority under any
Environmental Law, and the Company has not received any notice of
noncompliance with any such financial responsibility
requirements; (v) there are no physical or environmental
conditions existing on any property of the Company or resulting
from the Company's operations or activities, past or present, at
any location, that would give rise to any on-site or off-site
remedial obligations imposed on the Company under any
Environmental Laws or that would impact the soil, groundwater,
surface water or human health; (vi) since the effective date of
the relevant requirements of applicable Environmental Laws and to
the extent required by such applicable Environmental Laws, all
hazardous or otherwise regulated substances generated by the
Company have been transported, to the Company's Knowledge, only
by carriers authorized under Environmental Laws to transport such
substances and wastes, and disposed of only at treatment,
storage, and disposal facilities authorized under Environmental
Laws to treat, store or dispose of such substances and wastes;
(vii) there has been no exposure of any person or property to
hazardous substances or any pollutant or contaminant, nor has
there been any release of hazardous substances, or any pollutant
or contaminant into the environment by the Company or in
connection with its properties or operations that could
reasonably be expected, individually or in the aggregate, to give
rise to any claim against the Company for damages or
compensation; and (viii) the Company has made available to Buyer
all internal and external environmental audits and studies and
all correspondence on substantial environmental matters in the
possession of the Company relating to any of the current or
former properties or operations of the Company.
For purposes of this Agreement, the term "Environmental
Laws" shall mean any and all laws, statutes, ordinances, rules,
regulations, or orders of any Governmental Entity pertaining to
health or the environment currently in effect in any and all
jurisdictions in which the Company owns property, including the
Clean Air Act, as amended, the Comprehensive Environmental,
Response, Compensation, and Liability Act of 1980 ("CERCLA"), as
amended, the Federal Water Pollution Control Act, as amended, the
Occupational Safety and Health Act of 1970, as amended, the
Resource Conservation and Recovery Act of 1976 ("RCRA"), as
amended, the Safe Drinking Water Act, as amended, the Toxic
Substances Control Act, as amended, the Hazardous & Solid Waste
Amendments Act of 1984, as amended, the Superfund Amendments and
Reauthorization Act of 1986, as amended, the Hazardous Materials
Transportation Act, as amended, the Oil Pollution Act of 1990
("OPA"), any state laws implementing, the foregoing federal laws,
and all other environmental conservation or protection laws. For
purposes of this Agreement, the terms "hazardous substance" and
"release" have the meanings specified in CERCLA and RCRA and
shall include petroleum and petroleum products, radon and PCB's,
and the term "disposal" has the meaning specified in RCRA;
provided, however, that to the extent the laws of the state in
which the property is located establish a meaning for "hazardous
substance," "release," or "disposal" that is broader than that
specified in either CERCLA or RCRA, such broader meaning shall
apply.
3.19. Brokers', Finders' Fees, etc. Neither the Company (as
of the Closing) nor the Buyer shall have any liability or
obligation to pay any brokerage commission, finders' fees, or
similar compensation or any legal or professional fees incurred
in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement made by or on
behalf of the Company or any Seller. Schedule 3.19 lists all
persons who may be entitled to any brokerage commission, finders'
fees, or similar compensation or any legal or professional fees
incurred in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement made by or on
behalf of the Company or, to the Knowledge of the Company, any
Seller.
3.20. Affiliate Transactions.
(a) Except as disclosed in Schedule 3.20(a), to the Knowledge of
the Company, no Seller or any officer or director or Affiliate of
the Company or of any Seller or any entity in which any such
Person owns any beneficial interest (other than a de minimis
interest), is or has been since January 1, 1998 a party to any
material Contract or transaction with the Company or has any
interest (other than a de minimis interest) in any material
property, real or personal or mixed, tangible or intangible, used
in the business of the Company; and no Affiliate of EGI-BAF
Investors, L.L.C. or EGI-BAF Investors II, L.L.C. (ignoring the
proviso to the first sentence of the definition of "Affiliate")
or any entity in which any such Person owns any beneficial
interest (other than a de minimis interest), to the Knowledge of
such entities, is a party to any such Contract or transaction or
has any such interest other than on an arm's-length basis.
(b) Except as set forth in Schedule 3.20(b), no amount is or
will be owed or otherwise payable to any party hereto, any
current or former holder of any Company Equity Securities or any
current or former employees or independent contractors of the
Company by the Buyer or the Company as a result of the
transactions contemplated hereby except with respect to the
payments provided in Article I, Article X, Article XII and
Section 6.5.
(c) Except as set forth in Schedule 3.20(c), no current or
former holder of any Company Equity Securities and no current or
former employee or independent contractor of the Company owes any
monies or is otherwise obligated to make payments to the Company
(other than the repayment of customary employee advances in de
minimis amounts made in the ordinary course of business and
obligations of independent contractors with respect to inventory
or sales materials purchased in the ordinary course of business
pursuant to agreements described in Section 3.25(a)).
3.21. Indebtedness. Schedule 3.21 sets forth a true and
complete list of all Indebtedness of the Company, in each case
showing, as of the date set forth thereon, the aggregate
principal amount thereof and the name of any Person which
directly or indirectly guaranteed such debt. None of such
Indebtedness was incurred in connection with, or in contemplation
of, the transactions contemplated by this Agreement.
3.22. Insurance. Schedule 3.22 lists and describes all
policies of insurance currently maintained by the Company or
covering its assets or operations. Except as set forth on
Schedule 3.22, all such insurance policies are in full force and
effect, the Company has not defaulted under and is not in default
with respect to its obligations under any insurance policies, the
Company has not been refused any insurance, nor has coverage been
limited by any insurance carrier to which the Company has applied
for insurance or with which the Company has carried insurance,
during the last two years.
3.23. Vendors; Warehouses.
(a) In each of the two most recently completed fiscal years, no
vendor or supplier of goods or services to the Company has
accounted for over 10% of the aggregate purchases by the Company
from all of its vendors or suppliers in such fiscal year.
Schedule 3.23(a) contains a true and complete list of the 10 most
significant (by amounts paid by the Company) suppliers (the "Top
10 Suppliers") of the Company for each of the two most recently
completed fiscal years, including the amount paid in each such
period to each Top 10 Supplier.
(b) There is no material disagreement between the Company and
any Top 10 Supplier or any warehouse with which the Company does
business and, to the Knowledge of the Company, there has been no
material disruption thereof and there exists no basis for any
such material disruption. Since December 31, 1998, to the
Knowledge of the Company, as of the date hereof, no Top 10
Supplier has refused the sale of books to the Company or
substantially increased the price at which it sells books to the
Company or otherwise materially and adversely altered the terms
on which it supplies books to the Company.
3.24. Year 2000 Compliance. The Company has taken steps
(summarized in Schedule 3.24) that are reasonable to ensure that
the occurrence of the year 2000 will not materially and adversely
affect the information and business systems of the Company, and
no expenditures in excess of currently budgeted items will be
required in order to cause such systems to operate properly
following the change of the year 1999 to 2000. The Company has
taken the actions described in such Schedule (to the extent
described therein), has resolved (or is in the process of
resolving) any issues arising as a result of tests taken or
otherwise to the Knowledge of the Company, and is not aware of
any fact that would lead one to reasonably conclude that the
Company will be unable to resolve any of such issues on the
timetable set forth in Schedule 3.24 (and in any event on a
timely basis in order to be resolved before the year 2000).
Neither the Company nor any Affiliate of the Company on behalf of
the Company has guaranteed to or agreed with any customer or
third Person that goods or services sold or performed by the
Company will not be affected by any "Year 2000 Problem."
3.25. Certain Other Matters.
(a) Included in Schedule 3.25 are forms of each type of
agreement used by the Company with respect to the engagement of
independent contractors and other sales representatives at any
time since January 1, 1998. The Company is not party to any
arrangements with independent contractors or other sales
representatives that differ from, supplement or are inconsistent
with, in any material respect, the relevant form of agreement
contained in Schedule 3.25.
(b) Since December 31, 1998, the Company has not experienced (or
received notice of) the loss, termination or other departure of
independent contractors or other sales representatives
collectively accounting for 10% or more of sales during any six-
month period since January 1, 1998 that have not been replaced or
planned to be replaced.
3.26. Fractional Interests. Exhibit K, Part I hereto
contains a true and complete list of the Equityholders entitled
to the Total Liquidation and Dividend Amount (with respect to
dividends, assuming an October 1, 1999 Closing Date) and each
such Equityholder's Liquidation and Dividend Percentage (which
represents such Equityholder's proportionate right to the Total
Liquidation and Dividend Amount hereunder based on such
Equityholder's fully diluted equity interest in the Company after
giving effect to Section 1.5(f)). Exhibit K, Part II hereto
contains a true and complete list of each Equityholder and such
Equityholder's Fractional Interest (which represents such
Equityholder's proportionate right to the Remaining Purchase
Price hereunder based on such Equityholder's fully diluted equity
interest in the Company). Payment to (a) the applicable
Equityholders set forth on Exhibit K, Part I of the Total
Liquidation and Dividend Amount in accordance with each such
Equityholder's Liquidation and Dividend Percentage and (b) all
Equityholders of each such Equityholder's Fractional Interest of
the Remaining Purchase Price shall satisfy in full all
obligations to such Equityholder under, and is consistent with,
all rights of each such Equityholder under the relevant
instruments, agreements and documents creating rights for such
Equityholder in such capacity.
3.27. Schedules. For purposes of this Agreement, any matter
that is disclosed in a Schedule to this Agreement in such a way
as to make its relevance to the information called for by another
Schedule to this Agreement readily apparent shall be deemed to
have been included in such other Schedule, notwithstanding the
omission of an appropriate cross-reference thereto. Disclosure
of any fact or item in any Schedule shall not necessarily mean
that such item or fact is material to the Company.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer hereby represents and warrants to the Company and
each of the Sellers as follows:
4.
4.1. Corporate Organization. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws
of the State of Delaware.
4.2. Authorization. The Buyer has the requisite power and
authority to enter into this Agreement and to carry out the
transactions contemplated hereby. The board of directors of the
Buyer has taken all action required to authorize the execution
and delivery of this Agreement, the performance of the Buyer's
obligations hereunder and the consummation of the transactions
contemplated hereby. No other corporate proceedings on the part
of the Buyer are necessary to authorize the execution, delivery
and performance by the Buyer of this Agreement. This Agreement
is a valid and binding Agreement of the Buyer, enforceable
against it in accordance with its terms except as the same may be
limited by (a) bankruptcy, insolvency, reorganization, moratorium
or similar laws now or hereafter in effect relating to creditors'
rights generally and (b) the application of equitable
principles, whether applied by a court of equity or law.
4.3. No Violation. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated
hereby will violate any provisions of the certificate of
incorporation or by-laws of the Buyer, or violate, or be in
conflict with, or allow the termination of, or constitute a
default under, or cause the acceleration of the maturity of, any
material debt or obligation pursuant to any material agreement or
commitment to which the Buyer is a party or by which the Buyer is
bound, or, to the best knowledge of the Buyer, violate any
statute or law or any judgment, decree, order, regulation or rule
of any court or governmental authority to which the Buyer is
subject.
4.4. Consents and Approvals of Governmental Authorities. Except
for compliance with the HSR Act and for consents, approvals or
authorizations which have been obtained, no consent, approval or
authorization of, or declaration, filing or registration with,
any governmental or regulatory authority is necessary or
advisable to be made or obtained by the Buyer in connection with
the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby.
4.5. Sophisticated Investor. The Buyer is a sophisticated
investor, represented by independent legal and investment counsel
with experience in the acquisition and valuation of ongoing
businesses and acknowledges that it has received, or has had
access to, all information which it considers necessary or
advisable to enable it to make an informed investment decision
concerning its purchase of the Stock. The Buyer is acquiring the
Stock for investment purposes only, and not with a view to, or
for, any public resale or other distribution thereof. The Buyer
is an "accredited investor" as such term is defined in the
regulations promulgated under the Securities Act of 1933, as
amended.
4.6. Other Investment Representations. (a) The Buyer and its
employees, agents and accounting and legal representatives have
been afforded reasonable access to the books, records, key
personnel, facilities and other information reasonably related to
the Stock and the business and affairs of the Company; (b) the
Buyer and its employees, agents and accounting and legal
representatives have been given a reasonable opportunity to ask
questions relating to the Stock and the business and affairs of
the Company and to receive answers thereto; (c) the Buyer has
performed such due diligence as the Buyer has deemed necessary in
order to review the business and affairs of the Company in
connection with its acquisition of the Stock; (d) in completing
the transactions contemplated in accordance with this Agreement,
the Buyer has not and is not relying on any representation or
warranty, whether by Seller, the Company or any other Person,
which is not expressly stated in this Agreement and (e) the Buyer
understands that no party hereto nor any Affiliates,
representatives or agents of any party is making any
representation or warranty whatsoever, oral or written, express
or implied, other than as set forth in this Agreement, and the
Buyer is not relying on any statement, representation or
warranty, oral or written, express or implied, made by another
party hereto, such other party's Affiliates, representatives or
agents, or any other Person, except as set forth in this
Agreement.
4.7. Brokers', Finders' Fees, etc. Neither the Company nor any
Seller shall have any liability or obligation to pay any
brokerage commission, finder's fees, or similar compensation in
connection with the transactions contemplated by this Agreement
based on any arrangement or agreement made by or on behalf of the
Buyer.
4.8. Ability to Pay. The Buyer has available to it sufficient
funds or credit capacity to enable it to consummate the
transactions contemplated by this Agreement.
ARTICLE V
CONDUCT OF BUSINESS PENDING CLOSING
From the date hereof to the Closing, (i) no Stockholder,
Warrantholder or Other Party shall transfer or Encumber their
respective Stock, Warrants or Stock Options and (ii) except as
set forth in Schedule 5.1 or consented to or approved by the
Buyer in writing, the Company shall conform to the following (and
shall not enter into any Contract for any transaction that would
violate the following if consummated at any time from the date
hereof through the Closing):
5.
5.1. Regular Course of Business. The Company shall carry on its
business substantially in the same manner as heretofore conducted
and shall not engage in any transaction or activity, enter into
any agreement or make any commitment except in the ordinary
course of business consistent with past practice or as required
by the terms of this Agreement.
5.2. Amendments. No change or amendment shall be made in the
Articles of Incorporation, By-laws or other governing instruments
of the Company.
5.3. Capital Changes. The Company will not do any of the
following:
(a) declare or pay any dividend on, or make any other
distribution in respect of, outstanding shares of capital stock,
other than pursuant to Section 1.5(d) or (f);
(b) (i) redeem, purchase or otherwise acquire any shares of its
capital stock or any securities or obligations convertible into
or exchangeable for any shares of its capital stock, or any
options, warrants or conversion or other rights to acquire any
shares of its capital stock or any such securities or obligations
or any other Company Equity Securities (including any
cancellation of Stock Options or Warrants through any exercise or
put for a cash payment), other than pursuant to Section 1.5(d) or
(f); (ii) effect any reorganization or recapitalization; or (iii)
split, combine or reclassify any of its capital stock or other
Company Equity Securities or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in
substitution for, shares of its capital stock or other Company
Equity Securities; and
(c) except for the issuance of Stock to Optionholders other than
the Sellers in accordance with the terms of Stock Options listed
on Schedule 3.3(a), (i) issue, deliver, award, grant or sell, or
authorize or propose the issuance, delivery, award, grant or sale
(including the grant of any Encumbrance) of, any shares of any
class of its capital stock (including shares held in treasury),
any securities convertible into or exercisable or exchangeable
for any such shares, or any rights, warrants or options to
acquire any such shares, or any Company Equity Security; or (ii)
amend or otherwise modify the terms of any Company Equity
Securities the effect of which shall be to make such terms more
favorable to the holders thereof.
5.4. Organization. The Company shall use reasonable efforts to
preserve its corporate existence and business organization intact
and to preserve its properties, tangible and intangible assets,
books and records, goodwill and relationships with its employees,
independent contractors, suppliers, customers and others with
whom it has business relations. The Company shall continue
construction with respect to the Fairfield, Iowa headquarters
building in accordance with the plan therefor (a true and
complete copy of which has been provided to the Buyer) in all
material respects.
5.5. Contracts. No contracts or commitments (or groups of
related contracts or commitments) shall be entered into, renewed
or amended by or on behalf of the Company involving the
expenditure of more than $250,000 or otherwise of a type that
would be required to be disclosed under Section 3.12(a)(i)-(xii),
provided, however, that the Company (i) may continue to make
payments with respect to the construction of the Fairfield, Iowa
headquarters building to the extent of the Company's 1999 capital
budget (a true and complete copy is included in Schedule 5.5
hereto) and (ii) may purchase inventory up to but not exceeding
$650,000 per order in the ordinary course of business.
5.6. Compensation. Except as set forth in Schedule 5.6 hereto,
the Company will not (a) grant any increase in compensation other
than normal merit and cost-of-living increases in the ordinary
course of business and in accordance with past practice to an
employee who is not an officer or (b) enter into or, except as
required by law, amend (except for amendments that do not
increase or decrease the costs of or benefits to participants
under any Benefit Plan by more than a de minimis amount) any
Benefit Plan, employment contract or consulting agreements.
5.7. Representations. The Company shall not take any action
which the Company reasonably expects would cause any of the
representations and warranties set forth herein to become untrue
in any material respect. In addition, the Company shall not
undertake any transaction of the type specified in (c) through
(s) of Section 3.9.
5.8. Taxes. The Company will not, except as required by law,
change any method of Tax accounting or practice used by the
Company (except for such changes resulting from the Form 3115
relating to the calculation of uniform capitalization submitted
by the Company to the IRS dated December 31, 1998) or make any
Tax election or settle or compromise any Tax dispute.
ARTICLE VI
ADDITIONAL AGREEMENTS
The parties hereto hereby covenant and agree as follows:
6.
6.1. Additional Covenants.
(a) Sellers, the Company and the Buyer shall each use their
reasonable best efforts to (i) take, or cause to be taken, all
appropriate action, and do, or cause to be done, all things
necessary, proper or advisable under applicable law or otherwise
to consummate and make effective the transactions contemplated by
this Agreement, (ii) obtain from any governmental or regulatory
authority or other third party any consents, licenses, permits,
waivers, approvals, authorizations or orders (and provide any
notices or filings) necessary or advisable to be obtained or made
(or provided) by Sellers, the Buyer or the Company in connection
with the authorization, execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby,
(iii) make all necessary filings with respect to this Agreement
required under the HSR Act as promptly as practicable after the
date hereof, and thereafter make any other required submissions
pursuant to the filings under the HSR Act, and (iv) make all
necessary filings, and thereafter make any other required
submissions, with respect to this Agreement required under any
other applicable law; provided that the Sellers, Buyer and the
Company shall cooperate with each other in connection with the
making of all such filings. Neither Sellers, nor the Buyer nor
the Company shall take any action, the intent or effect of which
is to frustrate, hinder or delay the consummation of the
transactions contemplated by this Agreement.
(b) Each party hereto shall promptly inform the other of any
communication from the Federal Trade Commission, the United
States Department of Justice or any other governmental or
regulatory authority regarding any of the transactions
contemplated hereby. If any party hereto or any Affiliate
thereof receives a request for additional information or
documentary material from any governmental or regulatory
authority with respect to the transactions contemplated hereby,
then such party will endeavor in good faith to make or cause to
be made, as soon as reasonably practicable and after consultation
with the Buyer and the Company, an appropriate and satisfactory
response in compliance with such request.
6.2. Reasonable Access. The Company shall afford to the Buyer
and to its authorized representatives, during reasonable business
hours, full access to the facilities, properties, personnel,
books and records of the Company in order that the Buyer may have
full opportunity to make such additional investigation as it
shall reasonably desire to make of the affairs of the Company.
For the purpose of facilitating such investigation, the Company
shall promptly designate individuals, each of whom shall be
empowered to receive and act upon such requests, and the Buyer
shall use its reasonable best efforts so that no communication
shall be made by the Buyer or its authorized representatives with
any employee, officer or agent of the Company who has not been so
designated in writing without the prior written consent of the
designee. Notwithstanding the foregoing, the Buyer, directly or
indirectly, shall not contact any customer, independent
contractor, distributor or supplier of the Company without the
consent of the Company (it being understood and agreed that the
Company and the Buyer shall develop a joint plan pursuant to
which the Company shall, promptly following the date hereof,
introduce the Buyer to and provide the Buyer access to such
customers, independent contractors, distributors and suppliers as
Buyer may request to facilitate transition).
6.3. Confidentiality. The Buyer and the Buyer Representatives,
through access granted by the Buyer, will be provided certain
information relating to the Company which is non-public,
confidential or proprietary in nature. The Buyer shall, and
shall cause its directors, officers, employees, partners,
affiliates, agents, advisors and representatives (the "Buyer
Representatives") to, and the Company shall, comply fully with
and be bound by all terms and conditions of the Confidentiality
Agreement.
6.4. Amendment of Charter Documents; Insurance. For a period of
six (6) years after the Closing Date, the Buyer shall not amend
the corporate charter or by-laws of the Company, if the effect of
doing so would be to reduce or narrow the scope of the Company's
obligations to indemnify its officers and directors who served in
such capacities prior to the Closing Date or to reduce or narrow
the scope of any exculpatory provision in favor of any such
person. The Buyer acknowledges that the intent of this provision
is to give such Persons the benefits of indemnity and exculpation
to the full extent contained in the corporate charter and by-laws
of the Company as of the date hereof. This Section 6.4 is
intended to be for the benefit of, and shall be enforceable by,
the persons referred to above, their heirs and personal
representatives, and shall be binding on the Company, the Buyer,
and their respective successors and assigns.
6.5. Employee Matters.
(a) The Buyer agrees that the Company will continue to employ
for a period of at least three (3) months from the Closing Date
all of the Company's employees on substantially the same terms in
the aggregate for each employee as he or she was employed
(excluding equity-based compensation) by the Company prior to the
Closing Date, provided that the Company may terminate any
employee at any time for cause. The Buyer further agrees that it
will continue to employ for a period of at least six (6) months
from the Closing Date all of the employees listed on Schedule
6.5, provided that the Company may terminate any employee at any
time for cause. Notwithstanding the foregoing, the Buyer agrees
that in the event that it terminates the employment of any of the
employees set forth on Schedule 6.5 who has entered into an
agreement pursuant to Section 7.10 hereof without cause on or
before the one-year anniversary of the Closing Date, it will
provide to such employee, as a severance payment, at such
employee's election: (a) the severance compensation otherwise
payable, if any, pursuant to his or her employment contract with
the Company (which contract, if any, is identified on Schedule
6.5), or (b) one year's salary and welfare benefits for a period
of one year after the date of his or her termination (the
"Severance Payment Options"). In addition, the Buyer agrees that
it will notify, in writing, such terminated employees of their
Severance Payment Options hereunder not later than five (5) days
after the termination of their employment.
(b) Immediately following the Closing, the Buyer shall cause the
Company to adopt an incentive plan in accordance with the term
sheet set forth in Exhibit H hereto; provided that the
Stockholders have previously approved such plan in a manner
intended to satisfy the requirements of Section 280G(b)(5)(A)(ii)
of the Code and the proposed Treasury Regulations thereunder, and
provided, further, that such approval has taken place in
accordance with the procedures and documentation that have been
previously provided to the Buyer, and provided, finally, that the
percentage and identity of the Stockholders that approved such
plan satisfy the requirements of such Code section and Treasury
Regulations.
6.6. Operating Facilities. The Buyer agrees that it will
maintain for a period of at least two (2) years from the Closing
Date the principal operating facilities of the Company in
Fairfield, Iowa and will not change the location of the principal
operating facilities of the Company during such period.
6.7. No Solicitation. From the date hereof until the earlier to
occur of (i) the termination of this Agreement pursuant to the
terms and conditions hereof and (ii) the Closing, the Company
shall not, and shall instruct its representatives, directors,
officers, agents and Affiliates not to, initiate, solicit,
negotiate, accept, discuss or furnish any information toward any
proposal or with respect to any proposal to acquire (whether by
merger, purchase of stock, purchase of assets or otherwise) all
or substantially all or any significant part of the business,
properties, capital stock or capital stock equivalents of the
Company (an "Acquisition Proposal").
6.8. Termination of Discussions. The Company represents and
warrants to the Buyer that the Company and its representatives,
directors, officers, agents and Affiliates have terminated all
discussions and negotiations with third parties respecting any
Acquisition Proposal, and the Company is not a party to or bound
by any agreement for an Acquisition Proposal (other than a
confidentiality agreement) other than pursuant to the terms and
conditions of this Agreement. Since June 1, 1999 the Company has
not waived or amended, and following the date hereof the Company
shall not waive or amend, any provision of any agreement
respecting the confidentiality of information furnished by or on
behalf of the Company.
6.9. Notice of Certain Matters. Each party hereto covenants and
agrees to give prompt notice in writing to the Buyer and the
Company of the occurrence of any event that would reasonably be
expected to result in the failure to satisfy a condition
specified herein and of any notice or other communication from
any third Person alleging that the consent of such third Person
is or may be required in connection with the transactions
contemplated by this Agreement.
6.10. Unaudited Financial Statements. The Company shall
prepare and deliver to the Buyer unaudited consolidated balance
sheets and statements of earnings prepared in accordance with
GAAP (subject to changes resulting from normal year-end
adjustments which are not material, individually or in the
aggregate, and subject to the absence of footnote disclosure) and
in a manner consistent with the Interim Financial Statements for
each full fiscal month beginning with July 1999 and ending prior
to the Closing Date of the type customarily generated by the
Company as soon as available, but no later than 30 days after the
end of the relevant fiscal month.
6.11. Stock Options and Warrants.
(a) Prior to the Closing Date, the terms of each option to
purchase shares of Common Stock or Preferred Stock (individually,
a "Stock Option" and collectively, the "Stock Options") which are
then outstanding and exercisable, and the terms of each
outstanding warrant to purchase Common Stock or Preferred Stock
(individually, a "Warrant" and collectively, the "Warrants")
shall be complied with by the Company, subject to the terms of
this Agreement. To the extent any such Stock Options shall have
been exercised in whole or in part, (i) the holder thereof shall
have executed a joinder to this Agreement, in the form of Exhibit
G, to become a Stockholder hereunder with respect to all of the
shares of Common Stock and Preferred Stock issuable with respect
to such Stock Option (with appropriate modifications to Exhibits
A, B, C, D and K, as applicable) and (ii) the holder thereof
shall cease to be an Optionholder hereunder with respect to such
exercised Stock Options. In the event that any Stock Options are
terminated or expire without exercise prior to Closing, Exhibits
A, B, D and K, as applicable, shall be revised accordingly.
(b) Each Other Party and Warrantholder agrees not to tender to
the Company, pursuant to an exercise of any "put" right or other
right to exercise for payment of cash, or otherwise exercise or
convert in any manner, any Stock Options or Warrants, as
applicable, prior to the Closing.
(c) Immediately prior to the Closing, each Stock Option then
outstanding and unexercised shall be cancelled and terminated in
exchange for the cash payment to the applicable Other Party or
Optionholder as provided in Section 1.5, and upon the Closing any
Warrants then outstanding and unexercised shall be sold to the
Buyer hereunder as provided in Section 1.5.
6.12. Equityholders' Agreement.
(a) The Company and Sellers shall comply with the Equityholders'
Agreement in all respects and shall enter into such amendments,
supplements or modifications thereto or waivers thereunder as may
be required to fully effect the terms of this Agreement.
(b) Sellers hereby covenant that, as to the Company, the
Equityholders' Agreement shall terminate upon the Closing.
ARTICLE VII
CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
The obligations of the Buyer under this Agreement shall be
subject to the satisfaction, on or before the Closing, of each of
the following conditions:
7.
7.1. Representations and Warranties. The representations and
warranties of the Sellers and the Company contained herein (i)
which are qualified as to materiality, shall be true and accurate
in all respects and (ii) which are not so qualified, shall be
true and accurate in all material respects, in each case as of
the date made and as of the Closing as though such
representations and warranties were made at and as of the Closing
(other than representations and warranties which speak only as of
a specific date, which need only be true and accurate as of such
date), and the Buyer shall have received at the Closing a
certificate, dated the Closing Date, signed by the Sellers and
the president or a vice president of the Company to such effect.
7.2. Performance. The Sellers and the Company shall have
performed and complied, in all material respects, with all
agreements, obligations and conditions required to be performed
or complied with by them on or prior to the Closing; and the
Buyer shall have received at the Closing a certificate, dated the
Closing Date, signed by the Sellers and the president or a vice
president of the Company to such effect.
7.3. Approvals and Filings. The waiting period under the HSR Act
shall have expired or been terminated and all other consents,
authorizations and approvals from, and all declarations, filings
and registrations with, government or regulatory authorities
other than as could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect (without
giving effect to clause (y) of the definition thereof) (provided
that those listed on Schedule 7.3 shall have been obtained or
made in any case without qualification as to materiality),
required to consummate the transactions contemplated hereby and
permit the Company to continue its business consistent with its
past practice shall have been obtained or made, in any case,
without the imposition of any condition on or the payment of any
fees (other than ordinary filing fees) by the Company or the
Buyer.
7.4. Third Party Consents. The Buyer shall have received copies
or other evidence acceptable to the Buyer of all third party
consents, waivers, approvals, authorizations or actions other
than as could not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect (without giving
effect to clause (y) of the definition thereof) (provided that
those listed on Schedule 7.4 shall have been obtained or made in
any case without qualification as to materiality), required to
consummate the transactions contemplated by this Agreement, in
any case, without the imposition of any conditions on the Company
or the Buyer or the payment (x) prior to the Closing of (i) any
fees (other than non-significant fees) by the Company or (ii) any
fees by the Buyer or (y) after the Closing of any fees by the
Buyer or the Company.
7.5. Material Adverse Effect. There shall not have occurred any
Material Adverse Effect (without giving effect to clause (y) of
the definition thereof) since December 31, 1998.
7.6. No Injunction. There shall not be in effect any preliminary
or permanent injunction or other order issued by any state or
federal court which prevents the consummation of the transactions
contemplated hereby.
7.7. Opinion of Counsel. The Buyer shall have received written
opinions dated as of the Closing Date from counsel to the Company
and the Buyer Indemnitors in the forms attached hereto as Exhibit
E.
7.8. Indebtedness. Upon the payment of Indebtedness by the Buyer
pursuant to Section 1.6 in accordance with the Indebtedness
Certificate, all Indebtedness of the Company shall have been
repaid and discharged and any related Encumbrance released, and
all obligations under Contracts with respect thereto shall have
been released; and the Buyer shall have received a payoff,
release and termination letter executed by all other parties to
such Indebtedness and documentation for the release of all
Encumbrances, confirming the foregoing in form and substance
reasonably satisfactory to the Buyer.
7.9. [INTENTIONALLY DELETED]
7.10. Non-Competition/Non-Solicitation Agreements. Each of
the individuals listed in Exhibit F shall have entered into a Non-
Compete/Non-Solicitation Agreement substantially in the form
attached as Exhibit F hereto and the Stockholders of the Company
shall have previously or simultaneously approved such agreement
in a manner intended to satisfy the requirements of Section
280(G)(b)(5)(A)(ii) of the Code and the Treasury Regulation
thereunder and in accordance with the procedures and
documentation that have been previously provided to the Buyer,
and the percentage and identity of Stockholders that approved
such agreement shall have satisfied the requirements of such Code
section and Treasury Regulations.
7.11. Guarantee of Obligations. The Person listed as the
Guarantor in Exhibit I shall have executed a guarantee
substantially in the form attached as Exhibit I hereto.
7.12. Assumption of Professional Fees Agreements. The
Company, the Buyer Indemnitors and the parties listed in Schedule
3.19 shall have delivered an agreement in the form attached as
Exhibit J hereto by which the Buyer Indemnitors shall have
assumed, and the Company shall have been released from, all
obligations in respect of the agreements and arrangements
required to be listed on Schedule 3.19.
ARTICLE VIII
CONDITIONS PRECEDENT TO THE SELLERS' OBLIGATIONS
The obligations of the Sellers under this Agreement shall be
subject to the satisfaction, on or before the Closing, of each of
the following conditions:
8.
8.1. Representations and Warranties. The representations and
warranties of the Buyer contained herein shall be true and
accurate in all material respects as of the date when made and as
of the Closing as though such representations and warranties were
made at and as of the Closing, and the Sellers shall have
received at the Closing a certificate, dated the Closing Date,
signed by the president or a vice president of the Buyer to such
effect.
8.2. Performance. The Buyer shall have performed and complied
with, in all material respects, all agreements, obligations and
conditions required by this Agreement to be performed or complied
with by it on or prior to the Closing; and the Sellers shall have
received at the Closing a certificate, dated the Closing Date,
signed by the president or a vice president of the Buyer to such
effect.
8.3. Approvals and Filings. The waiting period under the HSR Act
shall have expired or been terminated and all other material
consents, authorizations and approvals from, and all material
declarations, filings and registrations with, government agencies
or third parties required to consummate the transactions
contemplated hereby without a violation of law shall have been
obtained or made.
8.4. No Injunction. There shall not be in effect any preliminary
or permanent injunction or other order issued by any state or
federal court which prevents the consummation of the transactions
contemplated hereby.
8.5. Opinion of Counsel. The Sellers shall have received a
written opinion or opinions dated as of the Closing Date from
Buyer in the form or forms attached hereto as Exhibit L.
ARTICLE IX
TERMINATION AND ABANDONMENT
9.
9.1. Methods of Termination. This Agreement may be terminated
and the transactions herein contemplated may be abandoned at any
time but not later than the Closing:
(a) by mutual consent of the Company and the Buyer; or
(b) by either the Company or the Buyer at any time after October
30, 1999 (provided that if the only cause for the Closing not
having occurred is the lack of expiration or termination of the
waiting period under the HSR Act such date shall be extended
until 5 business days after such expiration or termination, but
in no case beyond December 31, 1999); provided that the party
seeking termination is not in material violation or breach of its
agreements, representations or warranties contained in this
Agreement; or
(c) by the Company if there has been a material violation or
breach by the Buyer of its agreements, representations or
warranties contained in this Agreement and if the Company and the
Sellers are not then in material violation or breach of its
agreements, representations or warranties contained in this
Agreement; or
(d) by the Buyer if there has been a material violation or
breach by any of the other parties hereto of its agreements,
representations or warranties contained in this Agreement and if
the Buyer is not then in material violation or breach of its
agreements, representations or warranties contained in this
Agreement.
9.2. Procedure upon Termination. In the event of termination and
abandonment by the Company, or the Buyer, or both, pursuant to
this Article IX, written notice thereof shall forthwith be given
to the other parties and this Agreement shall terminate and be
abandoned without further action by the Buyer, the Company or the
Sellers. If this Agreement is terminated as provided herein:
(a) each party will redeliver or destroy all documents, work
papers and other confidential material of any other party
relating to the transactions contemplated hereby, whether
obtained before or after the execution hereof, to the parties
furnishing the same promptly upon request to do so; and
(b) no party hereto shall have any liability or further
obligation to any other party to this Agreement, except as
provided in Section 6.3 with respect to the Confidentiality
Agreement (which shall survive the termination of this
Agreement), and except for such legal and equitable rights and
remedies which any party may have by reason of any material
breach or violation of this Agreement by any other party.
ARTICLE X
INDEMNIFICATION
10.
10.1. Survival. All representations, warranties, covenants
and agreements made by any party in this Agreement or pursuant
hereto shall survive until December 31, 2000; provided that
Section 3.10 (Title to Properties) and Section 3.15 (Taxes) and
Article XII (and in each such case Article X with respect
thereto) shall survive the Closing and continue in full force and
effect until 30 days following the expiration of all applicable
statute of limitations periods (as extended) with respect
thereto; provided further that Article I, Article II (other than
Sections 2.3 and 2.4 with respect to which the December 31, 2000
date shall apply), Section 3.2 (Authorization), Section 3.3
(Capitalization), Section 4.2 (Authorization), Section
10.2(a)(iii) and Section 11.1 (and in each such case Article X
with respect thereto) shall survive the Closing and continue in
full force and effect for 10 years thereafter (provided further
that the foregoing 10-year limitation shall not apply to Third
Party Claims with respect to such matters covered by such 10-year
limitation, as to which no time limitation shall apply); provided
further that any representation, warranty, covenant or agreement
as to which a Claim Notice or Indemnity Notice or notice pursuant
to Section 12.5(e) has been duly given shall survive with respect
to the matters covered by such notice until resolution of the
matters covered by such Claim Notice or Indemnity Notice; and
provided further that all claims for damages made by virtue of
any representations, warranties, covenants and agreements of any
party in this Agreement or pursuant hereto shall be made under,
and subject to the applicable limitations set forth in, this
Article X or Article XII. The sole recourse and exclusive remedy
of the Buyer on the one hand and the Sellers on the other hand
(as well as the Sellers' Representatives and the Buyer
Indemnitors) against each other after the Closing arising out of
this Agreement (including the purchase and sale or cancellation
of Company Equity Securities) or any certificate delivered in
connection with this Agreement, other than with respect to a
claim of actual fraud and except for claims relating to Taxes
(with respect to which Tax matters the exclusive remedies shall
be as provided in this Article X and Article XII), shall be to
assert a claim for indemnification under the indemnification
provisions of this Article X or the Guarantee to be delivered
pursuant to Section 7.11, provided that the foregoing shall not
restrict any rights to injunctive relief or specific performance
to the extent available and provided further that, for the
avoidance of doubt, the limitations of remedies to the provisions
of this Article X and Article XII as exclusive remedies shall not
apply to the non-competition/non-solicitation agreements to be
delivered pursuant to Section 7.10, the guarantee to be delivered
pursuant to Section 7.11, the assumption agreement(s) to be
delivered pursuant to Section 7.12 or the release contained in
Section 11.2, which shall be enforceable in the courts generally
in accordance with their terms. Without limiting the foregoing
and other than with respect to a claim of actual fraud and except
as otherwise provided in this Agreement, each of the Buyer and
each Seller (as well as the Sellers' Representatives and the
Buyer Indemnitors) hereby expressly waives, releases, disavows
and repudiates, to the fullest extent permitted by law, any right
or remedy of recission, or similar right or remedy granted under
any state or federal law, rule, regulation or interpretation
thereof, whether now in force or hereafter enacted, applicable
with respect to any of the transactions contemplated by this
Agreement or otherwise with respect to the Buyer's acquisition of
and such Seller's sale of Company Equity Securities hereunder.
10.2. Indemnification by the Buyer Indemnitors and the
Sellers.
(a) Indemnification by the Buyer Indemnitors. Subject to
Section 10.1 and Section 10.6, the Buyer Indemnitors shall
severally (which, for the avoidance of doubt, shall mean that
▇▇▇▇ ▇▇▇▇▇▇, on the one hand, shall be responsible for 50%, and
EGI-BAF Investors, L.L.C. and EGI-BAF Investors II, L.L.C.
individually and collectively, on the other hand, shall be
responsible for 50%) indemnify the Buyer, its Affiliates, its
respective directors, officers, employees and agents, and their
respective successors and assigns (collectively, the "Buyer
Indemnified Parties") from and against and in respect of any and
all losses (including actual diminution in value), costs, fines,
liabilities, claims, penalties, interest, damages and expenses
(including reasonable legal fees and expenses incurred in the
investigation, defense and settlement of claims and actions or
the enforcement of this Article X) (collectively "Losses") that
may be suffered or incurred by any of them resulting from, in
connection with or arising out of:
(i) any breach of any representation, warranty, covenant or
agreement made by the Company, the Sellers' Representatives, the
Buyer Indemnitors or any Sellers (other than Paribas North
America, Inc., Bank America Investment Corporation, Bank of
America Illinois, Chase Equity Associates, L.P. and MIG Partners
IV, if the Closing does not occur) in this Agreement or contained
in any closing certificate executed and delivered by, or on
behalf of, the Company or any Sellers in connection with this
Agreement;
(ii) any action, suit or proceeding relating to the foregoing;
and
(iii) any action, suit or proceeding by or on behalf of any
Equityholder relating to such Equityholder's Company Equity
Securities including claims relating to the calculation of such
Equityholder's Fractional Interest or the consideration received
therefor or the treatment of such Equityholder's Company Equity
Securities in connection with the transactions contemplated by
this Agreement and claims relating to the execution, delivery and
performance of this Agreement or relating to the Equityholder's
Agreement.
(b) Indemnification by Each Seller. Subject to Section 10.1
and Section 10.6, each Seller shall severally, but not jointly
with any other Seller (which, for the avoidance of doubt, as used
in this paragraph, shall mean that each Seller shall be
responsible for 100% with respect to the representation,
warranty, covenant and agreement of such Seller but not for those
of any other Seller), indemnify the Buyer Indemnified Parties
from and against and in respect of any and all Losses that may be
suffered or incurred by any of them resulting from, in connection
with or arising out of any breach of any representation,
warranty, covenant or agreement made by such Seller in this
Agreement or contained in any closing certificate executed and
delivered by, or (with its authorization) (with respect to
Paribas North America, Inc., BankAmerica Investment Corporation,
MIG Partners, IV, Chase Equity Associates, L.P. and Bank of
America, National Association, other than such authorization
granted to (i) EGI-BAF Investors, L.L.C. or EGI-BAF Investors II,
L.L.C. pursuant to the authority granted in Section 11.1 of this
Agreement, (ii) EGI-BAF Investors, L.L.C. or EGI-BAF Investors
II, L.L.C. pursuant to the authority granted in the Contribution
Agreement, or (iii) Equity Group Investments, Inc. pursuant to
the authority granted in the Equityholders' Agreement) on behalf
of, such Seller in connection with this Agreement.
10.3. Indemnification by Buyer. Subject to Section 10.1 and
Section 10.6, Buyer shall indemnify and hold the Sellers, their
Affiliates and their respective directors, officers, employees
and agents, and their respective successors and assigns (the
"Seller Indemnified Parties") harmless from and against and in
respect of any and all Losses that may be suffered or incurred by
any of them resulting from, in connection with or arising out of:
(i) any breach of any representation, warranty, covenant or
agreement made by the Buyer in this Agreement or contained in any
closing certificate executed and delivered by, or on behalf of,
the Buyer in connection with this Agreement; or
(ii) any action, suit or proceeding relating to the foregoing.
10.4. Indemnification Procedures. All claims for
indemnification with respect to Third Party Claims (other than
claims relating to Taxes) under this Agreement shall be asserted
and resolved as follows:
(a) A party claiming indemnification under this Agreement (an
"Indemnified Party") shall promptly (1) notify the party from
whom indemnification is sought (the "Indemnifying Party") of any
third party claim or claims ("Third Party Claim") asserted
against the Indemnified Party which could give rise to a right of
indemnification under this Agreement and (2) transmit to the
Indemnifying Party a written notice ("Claim Notice") describing
in reasonable detail the nature of the Third Party Claim, a copy
of all papers served with respect to such claim (if any), a non-
binding estimate of the amount of damages attributable to the
Third Party Claim, if reasonably possible, and the basis of the
Indemnified Party's request for indemnification under this
Agreement.
(b) Within fifteen (15) days after receipt of any Claim Notice
(the "Election Period"), the Indemnifying Party shall notify the
Indemnified Party (1) whether the Indemnifying Party disputes its
liability to the Indemnified Party with respect to such Third
Party Claim or alternatively (2) whether the Indemnifying Party
admits to its liability to the Indemnified Party with respect to
such Third Party Claim (which shall be without (and thereby
waive) reservation or limitation as to scope or amount or
survival) and shall, at the sole cost and expense of the
Indemnifying Party, defend the Indemnified Party against such
Third Party Claim.
(c) If the Indemnifying Party notifies (a "Defense Notice") the
Indemnified Party within the Election Period that the
Indemnifying Party admits to its liability to the Indemnified
Party under this Agreement and that the Indemnifying Party elects
to assume the defense of the Third Party Claim, then the
Indemnifying Party shall have the right to defend, at its sole
cost and expense, such Third Party Claim by all appropriate
proceedings, which proceedings shall be prosecuted diligently by
the Indemnifying Party to a final conclusion or settled at the
discretion of the Indemnifying Party in accordance with this
Section 10.4. The Indemnifying Party shall have full control of
such defense and proceedings including any compromise or
settlement thereof; provided that, without the prior written
consent of the Indemnified Party, the Indemnifying Party shall
not enter into any settlement of any Third Party Claim which is
non-monetary in nature or which includes any monetary term as to
which the Indemnifying Party has not admitted its liability. The
Indemnified Party is hereby authorized, at the sole cost and
expense of the Indemnifying Party (but only if the Indemnified
Party is actually entitled to indemnification hereunder or if the
Indemnifying Party assumes the defense with respect to the Third
Party Claim), to file, during the Election Period, any motion,
answer or other pleadings which the Indemnified Party shall deem
necessary or appropriate to protect its interests or those of the
Indemnifying Party; provided that prior notice of such filing is
given to the Indemnifying Party. If requested by the
Indemnifying Party, the Indemnified Party shall, at the sole cost
and expense of the Indemnifying Party, cooperate with the
Indemnifying Party and its counsel in contesting any Third Party
Claim which the Indemnifying Party elects to contest. The
Indemnified Party may participate in, but not control, any
defense or settlement of any Third Party Claim controlled by the
Indemnifying Party pursuant to this Section 10.4 and, except as
permitted above, shall bear its own costs and expenses with
respect to such participation.
(d) If the Indemnifying Party fails to notify the Indemnified
Party within the Election Period that the Indemnifying Party
elects to defend the Indemnified Party pursuant to this Section
10.4, then the Indemnified Party shall have the right to defend,
at the sole cost and expense of the Indemnifying Party, the Third
Party Claim by all appropriate proceedings. The Indemnified
Party shall have full control of such defense and proceedings;
provided, however, that the Indemnified Party may not enter into,
without the Indemnifying Party's consent, which shall not be
unreasonably withheld or delayed, any compromise or settlement of
such Third Party Claim unless prior to so entering such
compromise or settlement the Indemnified Party provides the
Indemnifying Party with notice of the material terms of such
compromise or settlement and offers the Indemnifying Party the
opportunity (such opportunity to remain open for one week or such
lesser period of time as may be reasonably practicable under the
circumstances) to assume control of the defense thereof and
thereby admit to its liability to the Indemnified Party with
respect to such Third Party Claim (which shall be without (and
thereby waive) reservation or limitation as to scope or amount or
survival). The Indemnifying Party will have the right to be kept
reasonably informed with respect to, and to reasonably
participate in (but not control) at its own expense, any defense
or settlement controlled by the Indemnified Party pursuant to
this Section 10.4, including the right to receive copies of all
pleadings and motion papers and the right to attend all hearings,
subject to any applicable confidentiality restrictions and non-
waiver of any such provisions.
(e) Any judgment entered or settlement agreed upon in the manner
provided herein shall be binding upon the Indemnifying Party and
shall be conclusively deemed to be an obligation with respect to
which the Indemnified Party is entitled to prompt indemnification
hereunder, subject to the Indemnifying Party's right to appeal an
appealable judgment or order.
(f) The failure to provide notice as provided in this Article X
shall not excuse any party from its continuing obligations
hereunder; provided, however, that any claim shall be reduced by
the Losses to the extent resulting from such party's delay or
failure to provide notice as provided in this Article X.
10.5. Nature of Other Liabilities. In the event any
Indemnified Party should have a claim against any Indemnifying
Party hereunder which does not involve a Third Party Claim, the
Indemnified Party shall promptly transmit a written notice (the
"Indemnity Notice") to the Indemnifying Party, describing in
reasonable detail the nature of the claim and the basis of the
Indemnified Party's request for indemnification under this
Agreement.
10.6. Certain Limitations on Remedies. Notwithstanding any
provision herein or in this Agreement to the contrary:
(a) Subject to (e) below, the Buyer Indemnified Parties shall
not be entitled to assert any claim or claims for indemnification
or reimbursement pursuant to Section 10.2 (other than in respect
of Article I, Article II (other than Sections 2.3 and 2.4 with
respect to which the Threshold shall apply), Section 3.2
(Authorization), Section 3.3 (Capitalization), Section 3.15
(Taxes) (other than Section 3.15(l) with respect to which the
Threshold shall apply), Section 3.19 (Brokers', Finders' Fees,
etc.), Section 11.1 and Article XII (other than Section 12.1(f)
with respect to which the Threshold shall apply)) until, and only
to the extent that, such claim or claims in the aggregate exceed
$3 million (the "Threshold"); provided, that the Threshold shall
also not apply to Section 10.2(a)(iii).
(b) Subject to (e) below, the Seller Indemnified Parties shall
not be entitled to assert any claim or claims for indemnification
or reimbursement pursuant to Section 10.3 (other than in respect
of Article I, Section 4.2 (Authorization), Section 4.7 (Brokers',
Finders' Fees, etc.) and Article XII) until, and only to the
extent that, such claim or claims in the aggregate exceed the
Threshold.
(c) Subject to (e) below, the aggregate liability of all of the
Sellers and the Buyer Indemnitors for Losses under Section 10.2
(other than in respect of Article I, Article II (other than
Sections 2.3 and 2.4 with respect to which the Maximum Liability
shall apply), Section 3.2 (Authorization), Section 3.3
(Capitalization), Section 3.15 (Taxes) (other than Section
3.15(l) with respect to which the Maximum Liability shall apply),
Section 3.19 (Brokers', Finders' Fees, etc.), Section 11.1 and
Article XII (other than Section 12.1(f) with respect to which the
Maximum Liability shall apply)) shall be limited to $30 million
(the "Maximum Liability"); provided that the Maximum Liability
shall also not apply to Section 10.2(a)(iii).
(d) Subject to (e) below, the aggregate liability of the Buyer
for Losses arising under Section 10.3 (other than in respect of
Article I, Section 4.2 (Authorization), Section 4.7 (Brokers',
Finders' Fees, etc.) and Article XII) shall be limited to the
Maximum Liability.
(e) For the avoidance of doubt, other than as provided in
Section 10.1, there shall be no limitations on any liability for
(and the Threshold and Maximum Liability shall not apply to)
Losses with respect to which indemnification or payment is sought
in respect of Article I, Article II (other than the application
of the Threshold and Maximum Liability to Sections 2.3 and 2.4),
Section 3.2 (Authorization), Section 3.3 (Capitalization),
Section 3.15 (Taxes) (other than application of the Threshold and
Maximum Liability to clause (l) thereof), Section 3.19 (Brokers',
Finders' Fees, etc.), Section 4.2 (Authorization), Section 4.7
(Brokers', Finders' Fees, etc.), Section 10.2(a)(iii), Section
11.1 and Article XII (other than the application of the Threshold
and Maximum Liability to Section 12.1(f)) and the enforcement
thereof.
10.7. Amount of Losses. The amount of any Loss payable
hereunder (i) shall be reduced by any insurance proceeds which
the Indemnified Party may actually collect with respect to the
event or occurrence giving rise to such Losses, (ii) shall be
reduced by any amounts which the Indemnified Party may actually
collect from third parties in connection with Losses for which
indemnification is sought under this Agreement, (iii) shall be
increased by any Tax (or increased by any reduction in any Tax
benefit) actually borne by the Indemnified Party in cash that
would not have been borne but for such Losses or the payment of
any indemnity in respect thereof and (iv) shall be decreased by
any Tax benefit (or decreased by any reduction in any Tax)
actually realized by the Indemnified Party in cash with respect
to the taxable year in which the indemnification payment is made
or any prior taxable year that would not have been realized but
for such Losses or the payment of any indemnity in respect
thereof (it being understood and agreed that any Tax or Tax
benefit realized by the Company with respect to the Pre-Closing
Period shall not be considered a Tax or Tax benefit borne or
realized by the Buyer Indemnified Parties for purposes of clauses
(iii) and (iv)). The Indemnified Party shall use commercially
reasonable efforts to pursue insurance claims that may reduce or
eliminate Losses. If the Indemnified Party both collects
proceeds from any insurance company or third party and receives a
payment from the Indemnifying Party hereunder in respect of the
same Loss, and the sum of such proceeds and payment is in excess
of the Loss with respect to the matter that is the subject of the
indemnity, then the Indemnified Party shall promptly refund to
the Indemnifying Party the amount of such excess to the extent
that such Indemnified Party is not obligated to refund such
amount to another party.
10.8. Subrogation. After any indemnification payment is made
to any Buyer Indemnified Party pursuant to this Agreement, the
Sellers' Representatives, on behalf of all of the Sellers, shall,
to the extent of such payment, be subrogated to all rights (if
any) of such Buyer Indemnified Party against any third party
insurer under any insurance policy in connection with the Losses
to which such payment relates. Any Buyer Indemnified Party
receiving an indemnification payment pursuant to this Agreement
shall execute, upon the written request of the Indemnifying
Party, an instrument reasonably necessary to evidence such
subrogation rights.
ARTICLE XI
SELLERS' REPRESENTATIVES; RELEASE
11.
11.1. Acknowledgment of Appointment of Sellers'
Representatives. The Sellers represent and warrant that they
have irrevocably and unconditionally appointed ▇▇▇▇ ▇. ▇▇▇▇▇▇,
EGI-BAF Investors, L.L.C. and EGI-BAF Investors II, L.L.C.,
acting jointly as their agent and attorney-in-fact (collectively,
the "Sellers' Representatives"), to take any and all action on
the Sellers' behalf in connection with this Agreement (including
as contemplated by Section 4.4(d) of the Equityholders'
Agreement). With respect to the Sellers, the Buyer shall be
required only to deal with the Sellers' Representatives, acting
jointly, whose actions and omissions shall be conclusive, final
and binding as between the Buyer, on the one hand, and the other
parties hereto, on the other hand.
11.2. Release. Effective upon the Closing, each Seller, on
behalf of himself or herself, on behalf of any beneficial owner
of Company Equity Securities owned by such Seller or in which
such Seller has a beneficial interest, and on behalf of all
spouses, heirs, predecessors, successors, assigns,
representatives or agents of such Seller (including any trust of
which the undersigned is the trustee or which is for the benefit
of the undersigned or a member of his or her family), to the
greatest extent permitted by law, hereby waives, releases and
discharges any and all claims or causes of action that any such
Seller has, had or may have against the Released Persons (as
defined below) arising out of, or related to, or otherwise in
connection with any and all aspects of the transactions
contemplated hereby and its purchase, sale and ownership of such
Company Equity Securities and any relationships with the Company
in connection therewith and hereby acknowledges that the purchase
or cancellation for cash at the Closing of the Company Equity
Securities held by the undersigned, as contemplated hereby, is in
full satisfaction of any and all rights that such Seller may have
had with respect to any Company Equity Securities owned by such
Seller or in which such Seller has an interest and any other
rights hereby released (other than any claim or obligation under
Article X); provided that such release pursuant to this sentence,
in the case of the lenders under the Credit Agreement, who are
parties hereto, with respect to the Indebtedness thereunder,
being subject to the repayment thereof as contemplated by Section
1.6 hereof and as set forth in such lenders' payoff letter to be
delivered in connection with the Closing. For purposes of the
foregoing, the term "Released Persons" shall mean each of the
Company, the Buyer, and all of their respective Subsidiaries and
affiliates, and the directors, officers, employees, partners,
principals, agents, attorneys-in-fact, proxies, insurers or co-
insurers, controlling shareholders, attorneys, advisors, legal
representatives, and assigns of each of them. In addition, each
Seller, to the maximum extent permitted by applicable law, hereby
makes a general release of all claims and obligations that such
Seller may have against the Company or the Buyer or their
respective subsidiaries and Affiliates as of the Closing Date
based on or arising out of any acts, events or omissions
occurring on or prior to the Closing Date, including any claims
or obligations in respect of the transactions contemplated hereby
(other than any claim or obligation under Article X); provided
that (x) such release pursuant to this sentence, in the case of
the lenders under the Credit Agreement, who are parties hereto,
with respect to the Indebtedness thereunder, being subject to the
repayment thereof as contemplated by Section 1.6 hereof and as
set forth in such lenders' payoff letter to be delivered in
connection with the Closing; and (y) such release pursuant to
this sentence, shall not apply to claims of, or obligations to,
the Sellers: (a) pursuant to indemnification rights under the
Restated Articles of Incorporation or bylaws of the Company; (b)
for any salary, bonus or other compensation benefits payable in
the ordinary course of the Company's business consistent with
past practice and outstanding as of Closing; (c) for vested
rights under the Benefit Plans disclosed on Schedule 3.16; and
(d) outstanding accounts payable as of Closing under Contracts
disclosed as items (ii) and (iii) on Schedule 3.20(a).
ARTICLE XII
CERTAIN TAX MATTERS
12.
12.1. Tax Indemnity by Buyer Indemnitors . Each Buyer
Indemnitor shall severally (which, for the avoidance of doubt,
shall mean that ▇▇▇▇ ▇▇▇▇▇▇, on the one hand, shall be
responsible for 50% and EGI-BAF Investors, L.L.C. and EGI-BAF
Investors II, L.L.C., individually and collectively on the other
hand, shall be responsible for 50%) indemnify the Buyer
Indemnified Parties and the Company from and against any Losses
arising in respect of:
(a) any Tax imposed on the Company or any of its present or
former Subsidiaries (or for which the Company or any Subsidiary
is liable under applicable Tax law) for the Pre-Closing Period
(other than (i) any such Taxes that would not have arisen but for
an election under Code Section 338 or comparable provision of
state, local or foreign law made by the Buyer with respect to the
purchase of the Company pursuant to this Agreement, (ii) any such
Taxes that would not have arisen but for a transaction undertaken
by the Company on the Closing Date after the Closing outside the
ordinary course of business at the direction of the Buyer or with
the specific prior written consent of the Buyer in a separate
document specifically referring to this provision (it being
agreed and understood that any payment for and in cancellation of
the Stock Options and any payment of the Transaction Bonuses on
the Closing Date shall not occur after the Closing), (iii) Taxes
payable in the ordinary course in the amount of the Particular
Current Taxes Payable applicable to such type of Taxes in such
jurisdiction for such taxable period to the extent that such
amount of Particular Current Taxes Payable has not previously
been applied to reduce the indemnification or payment obligations
of the Buyer Indemnitors under this Article XII or increase the
Company's or the Buyer's indemnification or payment obligations
under this Article XII for such type of Taxes in such
jurisdiction for such taxable period and (iv) any Tax described
in Section 12.1(f));
(b) any Tax resulting from the failure, if any, of the Company
to be an S Corp (or any of its corporate Subsidiaries to be a
QSSSub) for any taxable period (or portion thereof) ending prior
to March 31, 1997, and any Tax imposed under Section 1374(a) or
1375(a) of the Code on the Company or any of its present or
former Subsidiaries during any such taxable period (or portion
thereof);
(c) any Tax for the Pre-Closing Period resulting from the
failure by the Company or any of its present or former
Subsidiaries to withhold and pay timely any Taxes required to
have been withheld and paid in connection with amounts paid or
owing to any employee, creditor, independent contractor, or other
third party (other than any such Taxes arising from a
misclassification of an employee as an independent contractor),
or the failure by the Company or any of its present or former
Subsidiaries to collect and pay timely any Taxes required to have
been collected and paid in connection with any amounts received
from any customer or other third party;
(d) any Tax imposed on any of the Equityholders or on any former
shareholder of the Company (or for which any of them is liable
under applicable Tax law) for any taxable period;
(e) any Tax arising by reason of any inclusion of any income or
gain in the Post-Closing Period from (A) any Section 481
adjustment (except for such an adjustment resulting from the Form
3115 relating to the calculation of uniform capitalization
submitted by the Company to the IRS dated December 31, 1998) with
respect to the Company or any of its present or former
Subsidiaries made in the Pre-Closing Period, (B) any installment
sale made by the Company or any of its Subsidiaries prior to the
Closing or (C) any payment after the Closing Date, or any
adjustment after the Closing Date to any payment, for or in
cancellation of the Stock Options or of the Transaction Bonus;
and
(f) any Tax for the Pre-Closing Period resulting from the
misclassification by the Company or any of its present or former
Subsidiaries of any employee as an independent contractor or the
failure to timely withhold and pay any Taxes required to have
been withheld and paid in connection with amounts paid or owing
to any such employee so misclassified.
12.2. Tax Indemnity by the Buyer. The Buyer shall indemnify
and hold the Equityholders harmless from and against any Losses
arising in respect of any Tax imposed on the Company or any of
its Subsidiaries (or for which the Company or any of its
Subsidiaries is liable under applicable Tax law) other than any
such Taxes for which the Buyer Indemnitors are liable under this
Article XII or Article X.
12.3. Straddle Periods; Apportionment of Taxes.
(a) For federal income Tax purposes, for the taxable period that
includes the day following the Closing Date, the Buyer shall
report the Company as a member for the Post-Closing Period of the
affiliated group filing consolidated federal income Tax Returns
of which the Buyer is the common parent. If the Company is
permitted but not required under applicable Tax law to treat the
Closing Date as the last day of a taxable period, the Buyer, the
Equityholders and the Company shall treat such date as the last
day of a taxable period. Where it is necessary to apportion the
liability for a Straddle Period between the Pre-Closing Period
and the Post-Closing Period, such liability shall be apportioned
between the period deemed to end at the close of the Closing Date
and the period deemed to begin at the beginning of the day
following the Closing Date on the basis of an interim closing of
the books, except that real property Taxes, personal property
Taxes and similar Taxes shall be apportioned on a daily basis.
(b) In the event that, after the Closing Date, the Buyer, the
Company or any member of the Affiliated Group of which the Buyer
or the Company is a member actually realizes in cash (which shall
include any reduction in, or refund of (including actual
utilization of a Tax credit), Taxes actually paid) a Tax benefit
(whether for a Pre-Closing Period or a Post-Closing Period) that
it would not have actually realized but for the payment (whether
at or immediately prior to Closing, in connection with the
Working Capital Adjustment or otherwise) for and in cancellation
of Stock Options pursuant to this Agreement or the payment of
Transaction Bonuses, the Buyer shall pay the Sellers'
Representatives (who shall receive such amount on behalf of all
the Equityholders as if part of the Purchase Price), or the
amount that the Buyer Indemnitors are obligated to pay the Buyer
Indemnified Parties and the Company shall be reduced by, the
amount of such Tax benefit promptly after such actual realization
(but not in duplication of any Tax benefit paid or to be paid to
the Sellers' Representatives (on behalf of the Equityholders) or
that reduced or will reduce the Buyer Indemnitors' obligations);
provided, however, that the Buyer Indemnitors shall pay the Buyer
the amount of any reduction in any such Tax benefit (including
any related interest and penalties) resulting from any Tax
Proceeding promptly after such reduction is actually realized by
the Buyer, the Company or any member of the Affiliated Group of
which the Buyer or the Company is a member in cash. The Buyer
shall not, and shall cause the Company not to, report in the Post-
Closing Period any loss, deduction or credit arising from the
payment on or prior to the Closing Date for and in cancellation
of Stock Options pursuant to this Agreement or the payment on or
prior to the Closing Date of Transaction Bonuses, unless
otherwise required by a "determination" within the meaning of
Section 1313(a) of the Code.
12.4. Filing and Payment Responsibility.
(a) Sellers' Representatives shall (at their sole expense)
prepare and file or cause the Company to prepare and file, with
respect to the Company and each of its Subsidiaries, any Tax
Return (other than any amended Tax Return that includes only a
claim for a refund to which the Buyer, the Company and its
Subsidiaries are entitled pursuant to Section 12.7) for any
taxable period ending on or before the Closing Date, and, except
as provided in the last sentence of this Section 12.4(a), the
Buyer Indemnitors shall pay all Taxes due with respect thereto
(which Taxes shall, in the case of such Taxes due after the
Closing Date, be paid to the Company at least five days prior to
the date on which such Taxes are required to be paid to the
applicable Taxing authority); provided, however, that (i)
Sellers' Representatives shall provide the Buyer copies of such
proposed Tax Returns at least 30 days prior to the due date of
any such Tax Returns for the Buyer's review and comment, (ii)
such Tax Returns shall be prepared consistently with past
practice, past elections and past methods of accounting of the
Company, except as otherwise required by law, and (iii) when
filed, such Tax Returns shall reflect any reasonable and good
faith comments of the Buyer regarding the correctness of such Tax
Return under applicable Tax law and such Tax Returns' compliance
with Section 12.4(a)(ii), except to the extent that Sellers'
Representatives disagree reasonably and in good faith with such
comments, in which case the Buyer and Sellers' Representatives
shall endeavor reasonably and in good faith to resolve such
disagreement over such comments and, failing that, such
disagreement shall be resolved expeditiously by the Accounting
Firm prior to the date such Tax Return is due. In the case of
any Tax Return for which Sellers' Representatives and the Buyer
Indemnitors are responsible pursuant to this Section 12.4(a),
provided that Sellers' Representatives and the Buyer Indemnitors
have complied with their obligations with respect to such Tax
Return pursuant to this Section 12.4(a), the Buyer shall, at its
election, either sign or cause to be signed such Tax Return or
provide Sellers' Representatives with such reasonably requested
powers of attorney required to enable Sellers' Representatives to
file or cause to be filed such Tax Return. In connection with
the filing after the Closing Date of a Tax Return that is the
responsibility of the Sellers' Representatives and the Buyer
Indemnitors under this Section 12.4(a), (x) the Company shall
pay, and the Buyer Indemnitors shall not be required to pay, any
Taxes due in the ordinary course in connection with such filing
up to the amount of the Particular Current Taxes Payable
applicable to such type of Taxes in such jurisdiction for such
taxable period to the extent that such amount of Particular
Current Taxes Payable has not previously been applied to reduce
the indemnification or payment obligations of the Buyer
Indemnitors under this Article XII or increase the Company's or
the Buyer's indemnification or payment obligations under this
Article XII for such type of Taxes in such jurisdiction for such
taxable period and (y) the Buyer shall pay the Sellers'
Representatives (who shall receive such amount on behalf of all
the Equityholders as if part of the Purchase Price) the excess,
if any, of the amount of the Particular Current Taxes Payable
applicable to such type of Taxes in such jurisdiction for such
taxable period over the Taxes due in the ordinary course in
connection with such filing, to the extent that such amount of
Particular Current Taxes Payable has not previously been applied
to reduce the indemnification or payment obligations of the Buyer
Indemnitors under this Article XII or increase the Company's or
the Buyer's indemnification or payment obligations under this
Article XII for such type of Taxes in such jurisdiction for such
taxable period.
(b) The Buyer (at its sole expense) shall file and prepare any
Tax Return with respect to the Company or any of its Subsidiaries
(other than Tax Returns that are the responsibility of the
Sellers' Representatives and the Buyer Indemnitors under Section
12.4(a)); provided, however, that (i) the Buyer Indemnitors shall
pay the Company at least five days prior to the due date of any
such Tax Return the amount of any Taxes payable in connection
with such Tax Return for which the Buyer Indemnitors are liable
under Section 12.1 and (ii) in the case of any Straddle Period
Tax Return and in the case of any amended Tax Return for the Pre-
Closing Period that includes only a claim for a refund to which
the Buyer or the Company and its Subsidiaries are entitled
pursuant to Section 12.7, (A) the Buyer shall provide the
Sellers' Representatives copies of such proposed Tax Returns at
least 30 days prior to the due date of any such Tax Returns for
Sellers' Representatives' review and comment, (B) such Tax
Returns shall be prepared consistently with past practice, past
elections and past methods of accounting of the Company, except
as otherwise required by law, and (C) when filed, such Tax
Returns shall reflect any reasonable and good faith comments of
Sellers' Representatives regarding the correctness of such Tax
Return under applicable Tax law and such Tax Returns' compliance
with Section 12.4(b)(ii)(B), except to the extent that the Buyer
disagrees reasonably and in good faith with such comments, in
which case the Buyer and Sellers' Representatives shall endeavor
reasonably and in good faith to resolve such disagreement over
such comments and, failing that, such disagreement shall be
resolved expeditiously by the Accounting Firm prior to the date
such Tax Return is due. The Buyer, the Company and its
Subsidiaries shall not, without the prior written consent of the
Sellers' Representatives (which consent shall not be unreasonably
withheld), file any amended Tax Return with respect to the
Company or any of its present or former Subsidiaries (other than
any Tax Return that includes only a claim for a refund to which
the Buyer, the Company and its Subsidiaries are entitled pursuant
to Section 12.7) for any taxable period ending on or before the
Closing Date. In connection with the filing after the Closing
Date of a Straddle Period Tax Return, (x) the Company shall pay,
and the Buyer Indemnitors shall not be required to pay, any Taxes
allocable to the Pre-Closing Period due in the ordinary course in
connection with such filing up to the amount of the Particular
Current Taxes Payable applicable to such type of Taxes in such
jurisdiction for such taxable period to the extent that such
amount of Particular Current Taxes Payable has not previously
been applied to reduce the indemnification or payment obligations
of the Buyer Indemnitors under this Article XII or increase the
Company's or the Buyer's indemnification or payment obligations
under this Article XII for such type of Taxes in such
jurisdiction for such taxable period and (y) the Buyer shall pay
the Sellers' Representatives (who shall receive such amount on
behalf of all the Equityholders as if part of the Purchase Price)
the excess, if any, of the amount of the Particular Current Taxes
Payable applicable to such type of Taxes in such jurisdiction for
such taxable period over the Taxes allocable to the Pre-Closing
Period due in the ordinary course in connection with such filing
to the extent that such amount of Particular Current Taxes
Payable has not previously been applied to reduce the
indemnification or payment obligations of the Buyer Indemnitors
under this Article XII or increase the Company's or the Buyer's
indemnification or payment obligations under this Article XII for
such type of Taxes in such jurisdiction for such taxable period.
(c) In no event shall the submission of a disagreement with
respect to a Tax Return to the Accounting Firm pursuant to this
Section 12.4 cause such Tax Return to fail to be timely filed.
12.5. Cooperation; Exchange of Information; Tax Proceedings.
(a) Each party hereto shall, and shall cause its Subsidiaries
and Affiliates to, provide to each of the other parties hereto
such cooperation, documentation and information as any of them
reasonably may request in connection with filing any Return,
amended Return or claim for refund, determining a liability for
Taxes or indemnity obligation under this Article XII or a right
to refund of Taxes or apportionment of Taxes between a Pre-
Closing Period and Post-Closing Period or in conducting any Tax
Proceeding; provided, however, that, notwithstanding any other
provision, the Buyer shall not be required to provide any Person
with any consolidated, combined or unitary Tax Return (or copy
thereof) filed or to be filed by the Buyer or any of its
Affiliates and the Buyer shall not be required to provide any
such cooperation and information to the extent that such
cooperation and information would not relate principally to the
Company and its Subsidiaries; provided further, however, that in
the event that the Buyer withholds from any party hereto any Tax
Return, cooperation or information pursuant to the immediately
preceding proviso, the Buyer shall be required to provide pro
forma information or an extract or summary or other reasonable
substitute, in each case relating solely to the Company and its
Subsidiaries, of the cooperation or information reasonably
requested by Sellers' Representatives pursuant to this sentence.
The cooperation and information required to be provided by the
parties pursuant to this Section 12.5 shall include providing
copies of all relevant portions of relevant Returns, together
with all relevant portions of relevant accompanying schedules and
relevant work papers, relevant documents relating to rulings or
other determinations by taxing authorities and relevant records
concerning the ownership and Tax basis of property and other
information, which any such party may possess. Each party will
retain all Returns, schedules and work papers, and all material
records and other documents relating to Tax matters, in such
party's possession, of the Company or any of its Subsidiaries for
all Pre-Closing Periods until the later of (i) the expiration of
the statute of limitations for the taxable periods to which the
Returns and other documents relate or (ii) eight years following
the due date (without extension) for such Returns. Thereafter,
the party holding such Returns or other documents may dispose of
them; provided, however, that such party shall give each other
party 60 days written notice and the opportunity to be provided
such Returns prior to doing so.
(b) With respect to any Tax Proceeding of or with respect to the
Company or any of its Subsidiaries for a taxable period that ends
on or prior to the Closing Date or a Straddle Period: (i) the
Controlling Party (as defined below) shall be entitled to control
(at its sole expense) the Tax Proceeding, (ii) the Controlling
Party shall consult with the Noncontrolling Party (as defined
below) and keep the Noncontrolling Party updated as to such Tax
Proceeding, (iii) the Noncontrolling Party shall be entitled to
participate in any such Tax Proceeding, (iv) the Controlling
Party shall defend such Tax Proceeding vigorously and diligently
as if the Controlling Party were the only party in interest with
respect to the Tax Proceeding and all other taxable periods of
the Company and its Subsidiaries (provided that if the
Controlling Party fails to defend such Tax Proceeding vigorously
and diligently, then the Noncontrolling Party shall be entitled
to assume the defense of such Tax Proceeding), (v) the
Noncontrolling Party shall bear its own expenses in connection
with any such Tax Proceeding and (vi) the Controlling Party shall
not compromise, settle or abandon any such Tax Proceeding without
the prior written consent (which consent shall not be
unreasonably withheld) of the Noncontrolling Party if such
compromise, settlement or abandonment of such Tax Proceeding
could reasonably be expected to adversely affect the
Noncontrolling Party (provided that if the Noncontrolling Party
reasonably withholds consent, then the Noncontrolling Party shall
be entitled to assume the defense of such Tax Proceeding and the
Controlling Party's liability with respect to such Tax Proceeding
shall not exceed the amount that such liability would have been
under the proposed settlement).
(c) In the case of any Tax Proceeding of or with respect to the
Company or any of its Subsidiaries for a taxable period that ends
on or prior to the Closing Date or a Straddle Period: (A)
"Controlling Party" shall mean (x) the Sellers' Representatives
in the case of any Tax Proceeding for any taxable period that
ends on or prior to the Closing Date, (y) the Sellers'
Representatives in the case of any Tax Proceeding for any
Straddle Period if the claim of the applicable Tax authority in
connection with such Tax Proceeding for which the Buyer
Indemnitors would be liable hereunder exceeds the claim of the
applicable Tax authority in connection with such Tax Proceeding
for which the Buyer would be liable hereunder and (z) the Buyer
in the case of any Tax Proceeding for a Straddle Period if the
Sellers' Representatives are not the Controlling Party pursuant
to clause (y) above and (B) "Noncontrolling Party" shall mean the
Buyer if the Sellers' Representatives are the Controlling Party,
and the Sellers' Representatives if the Buyer is the Controlling
Party.
(d) Except as otherwise provided in Section 12.5(b), the Buyer
shall be entitled to control in all respects (at its sole
expense) any Tax Proceeding of or with respect to the Company or
any of its Subsidiaries for any taxable period.
(e) A party claiming indemnification under this Article XII in
connection with any Tax Proceeding shall promptly (i) notify the
party or parties from whom indemnification is sought upon receipt
by the party claiming indemnification of any notice of any Tax
Proceeding asserted against the indemnified party which would
reasonably be expected to give rise to a right of indemnification
under this Article XII and (ii) transmit to the indemnifying
party or parties a written notice describing in reasonable detail
the nature of the Tax Proceeding, a copy of all papers served
with respect to such Tax Proceeding (if any), a non-binding
estimate of the amount of damages attributable to the Tax
Proceeding, if reasonably possible, and the basis of the
indemnified party's request for indemnification under this
Article XII. The failure to provide notice as provided in this
Section 12.5(e) shall not excuse any party from its continuing
obligations hereunder; provided, however, any claim shall be
reduced by the Losses to the extent resulting from such party's
delay or failure to provide notice as provided in this Section
12.5(e).
(f) The Buyer Indemnitors shall pay the Company the amount of
Tax for which the Buyer Indemnitors are liable under Section 12.1
in connection with any Tax Proceeding at least five days prior to
the date such Taxes are required to be paid to the applicable
taxing authority.
12.6. Tax Returns Available. Sellers' Representatives and
the Company shall make available to the Buyer as promptly as
practicable after the date hereof through the Closing Date
complete and correct copies of all Tax Returns reasonably
requested by Buyer filed by or on behalf of, and all material Tax
examination reports and statements of deficiencies assessed
against or agreed to by or on behalf of, the Company or any of
its Subsidiaries.
12.7. Refunds. The Equityholders shall be entitled to any
refunds of Pre-Closing Period Taxes of the Company or any of its
Subsidiaries actually received after the Closing Date by or on
behalf of the Buyer, the Company or any member of the Affiliated
Group of which the Company or the Buyer is a member, whether by
payment, credit, offset or otherwise (other than any such refunds
resulting from a carry back to the Pre-Closing Period from the
Post-Closing Period of any loss, credit or deduction or with
respect to any Taxes for which Buyer is responsible for Pre-
Closing Periods pursuant to Article X or Section 12.2), and
Buyer, the Company and its Subsidiaries shall be entitled to any
other refunds of Taxes of the Company or any of its Subsidiaries
(other than (i) with respect to any Taxes for which the Buyer
Indemnitors are responsible for Post-Closing Periods pursuant to
Article X or this Article XII and (ii) as provided in Section
12.3(b)). The Buyer shall pay, or cause to be paid, to the
Sellers' Representatives (who shall receive such amount on behalf
of all the Equityholders as if part of the Purchase Price) any
refunds to which the Equityholders are entitled under this
Section 12.7 reasonably promptly after such refunds are received
by the Buyer, the Company or any member of the Affiliated Group
of which the Company or the Buyer is a member, but no later than
30 days after such receipt. The Buyer Indemnitors shall pay to
the Buyer any refunds to which the Buyer, the Company and its
Subsidiaries are entitled under this Section 12.7 reasonably
promptly after such refunds are received by any of the
Equityholders, but no later than 30 days after such receipt.
12.8. Adjustments. All amounts paid pursuant to Section 1.7,
Article X or this Article XII will be treated by the parties
hereto as an adjustment to the Purchase Price for all Tax
purposes, unless otherwise required pursuant to a "determination"
within the meaning of Section 1313(a) of the Code.
12.9. Survival. Notwithstanding any other provision hereof,
the provisions of this Article XII shall survive until 30 days
following the expiration of all applicable statutes of
limitations (as extended) and, in the event of any dispute
between the parties relating to such provisions as to which
notice has been given pursuant to Section 12.5(e), which dispute
has not been resolved at the time of such expiration, such
provisions shall survive with respect to the disputed matters
until such dispute has been resolved.
12.10. Setoff. Any rights of setoff with respect to this
Article XII or, to the extent relating to Taxes, Article X shall
not have the effect of avoiding the application of the
limitations set forth in Section 10.6.
12.11. General Tax Amount. At the election of the Sellers'
Representatives, the Buyer Indemnitors shall be entitled to apply
towards any payment obligation of the Buyer Indemnitors under
this Article XII (including the cost of Tax Return preparation)
all or any portion of the General Tax Amount to the extent that
the General Tax Amount has not either previously been used to
reduce a payment obligation of the Buyer Indemnitors under this
Article XII or been paid to the Sellers' Representatives (on
behalf of the Equityholders) pursuant to the immediately
following sentence. At the election of the Sellers'
Representatives, upon 30 days' prior written notice to the Buyer,
the Buyer shall pay to the Sellers' Representatives (who shall
receive such amount on behalf of the Equityholders as if part of
the Purchase Price) the General Tax Amount (without interest)
reduced by any portion thereof previously used to reduce a
payment obligation of the Buyer under this Article XII pursuant
to the immediately preceding sentence.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
13.
13.1. Amendment and Modification. This Agreement (and any
provision hereof) may be waived, amended, modified and
supplemented only by written agreement of the Buyer and Sellers'
Representatives (whose signatures shall bind all parties hereto
(other than the Buyer) and on whose consent on behalf of all
parties hereto (other than the Buyer) the Buyer may rely),
provided that any waiver, amendment, modification or supplement
hereto shall be binding with respect to any party executing the
same (even if not executed by each of the parties hereto) unless
such waiver, amendment, modification or supplement requires by
its terms the execution by additional parties in order to be so
binding. The execution of any waiver, amendment, modification,
supplement or consent provided by the Sellers' Representatives on
behalf of any or all Sellers shall be deemed the execution of
such Sellers and the Buyer may so rely on such execution.
13.2. Waiver of Compliance. Any failure of any party to
comply with any obligation, covenant, agreement or condition
contained herein may be expressly waived in writing by the party
to whom such obligation is owed (including the Sellers'
Representatives on behalf of any or all Sellers), but such waiver
or failure to insist upon strict compliance shall not operate as
a waiver of, or estoppel with respect to, any subsequent or other
failure.
13.3. Notices. All notices, demands and other communications
required or permitted hereunder shall be in writing and shall be
deemed to have been duly given if delivered by hand, sent by
reputable overnight courier, or mailed, certified or registered
mail, return receipt requested, with postage prepaid to the
addresses indicated on the Schedule of Notice Addresses (unless
another address has been designated in writing).
13.4. Binding Nature; Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but neither
this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto without
prior written consent of the other parties (including the
Sellers' Representatives on behalf of any or all Sellers) except
that the Buyer may assign this Agreement to its Affiliate in its
discretion (so long as the Buyer remains obligated with respect
thereto). Except as set forth in Section 6.4, nothing contained
herein, express or implied, is intended to confer on any Person
other than the parties hereto or their successors and permitted
assigns any rights, remedies, obligations or liabilities under or
by reason of this Agreement. Except as otherwise expressly
provided herein, nothing contained herein shall be deemed to give
rise to any personal obligation of any of the directors,
officers, stockholders or principals of any of the parties
hereto, by reason of any breach or violation of any of the
provisions hereof or otherwise, and no party hereto shall have
any rights against, or be entitled to ▇▇▇ or seek any recovery
from, any such Persons.
13.5. Entire Agreement. This Agreement, including the
Schedules and Exhibits hereto, embodies the entire agreement and
understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises,
representations, warranties, covenants or undertakings, other
than those expressly set forth or referred to herein. Except for
the Confidentiality Agreement, this Agreement supersedes all
prior agreements and understandings between the parties with
respect to such subject matter.
13.6. Disclaimer of Implied Warranties. It is the explicit
understanding of each of the parties hereto that no party hereto
nor any Affiliates, representatives or agents of any party is
making any representations or warranty whatsoever, oral or
written, express or implied, other than those set forth in this
Agreement, and no party hereto is relying on any statement,
representation or warranty, oral or written, express or implied,
made by another party hereto or such other party's Affiliates,
representatives or agents, except as set forth in this Agreement.
13.7. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by
any rule of law or public policy, all other conditions and
provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any
manner materially adverse to any party. Upon such determination
that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto shall negotiate in good
faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable
manner to the end that transactions contemplated hereby are
fulfilled to the extent possible.
13.8. Expenses. Except as otherwise expressly provided
herein, each party to this Agreement will pay its own expenses in
connection with the negotiation of this Agreement, the
performance of its obligations hereunder, and the consummation of
the transactions contemplated herein; provided that all expenses
of the Company or any Seller shall be paid by the Sellers and
shall not be paid by the Company (unless the Closing does not
occur or unless such expenses are paid prior to the Closing) or
the Buyer.
13.9. Press Releases and Announcements. No press release
related to this Agreement or the transactions contemplated
herein, or other announcement to the employees, independent
contractors, distributors, customers or suppliers of the Company,
will be issued without the joint approval of the Buyer and the
Company, except as otherwise required by law (including the
securities laws and any requirement of any stock exchange or
listing agreement). With respect to any proposed oral
presentations, the Buyer and the Company shall agree in advance
of any such presentation to a set of permitted "talking points",
and such oral presentations shall be consistent with and not
beyond the parameters of such "talking points".
13.10. Governing Law. This Agreement and the legal relations
between the parties hereto shall be governed by and construed in
accordance with the laws of the State of New York without giving
effect to any conflicts or choice of law provisions of such
State, provided that the internal corporate affairs of any
corporation will be governed by the laws of the state or
organization of such corporation.
13.11. Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute
one and the same instrument.
13.12. Headings. The headings contained in this Agreement are
inserted for convenience only and shall not constitute a part
hereof.
13.13. Interpretation; Absence of Presumption. For purposes
of this Agreement, (i) words in the singular shall be held to
include the plural and vice versa and words of one gender shall
be held to include the other gender as the context requires, (ii)
the terms "hereof," "herein," and "herewith" and words of similar
import shall, unless otherwise stated, be construed to refer to
this Agreement as a whole (including all of the Schedules and
Exhibits hereto) and not to any particular provision of this
Agreement, and Article, Section, paragraph, Schedule and Exhibit
references are to the Articles, Sections, paragraphs, Schedules
and Exhibits to this Agreement unless otherwise specified, (iii)
the word "including" and words of similar import when used in
this Agreement shall mean "including, without limitation," unless
otherwise specified, (iv) the word "or" shall not be exclusive
and (v) provisions shall apply, when appropriate, to successive
events and transactions.
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