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EXHIBIT 2
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ERGOBILT, INC.
EB SUBSIDIARY, INC.
BODYBILT SEATING, INC.
▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
AND
▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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AGREEMENT AND PLAN OF MERGER
TABLE OF CONTENTS
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I. The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Consideration for Merger . . . . . . . . . . . . . . . . . . 1
1.3 Escrow Pending Closing . . . . . . . . . . . . . . . . . . . 3
1.4 The Closing . . . . . . . . . . . . . . . . . . . . . . . . 4
1.5 Actions at the Closing . . . . . . . . . . . . . . . . . . . 4
1.6 Fractional Shares . . . . . . . . . . . . . . . . . . . . . 4
1.7 No Further Rights . . . . . . . . . . . . . . . . . . . . . 4
1.8 Closing of Transfer Books . . . . . . . . . . . . . . . . . 4
1.9 Buyer Preferred Stock . . . . . . . . . . . . . . . . . . . 4
1.10 Registration . . . . . . . . . . . . . . . . . . . . . . . . 5
1.11 Additional Action . . . . . . . . . . . . . . . . . . . . . 9
1.12 Termination of Company Agreements . . . . . . . . . . . . . 9
1.13 Releases . . . . . . . . . . . . . . . . . . . . . . . . . . 9
II. Representations of the Shareholders . . . . . . . . . . . . . . . . 9
2.1 Representations Regarding Shares of Company . . . . . . . . 9
2.2 Investment Representations . . . . . . . . . . . . . . . . . 10
2.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . 11
2.4 Investment Intent . . . . . . . . . . . . . . . . . . . . . 11
2.5 Confidentiality/Non-Disclosure Letter Agreement . . . . . . 12
III. Representations and Warranties of Company . . . . . . . . . . . . . 12
3.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . 12
3.2 Capitalization of Company . . . . . . . . . . . . . . . . . 12
3.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . 12
3.4 Material Claims/Permitted Encumbrances . . . . . . . . . . . 13
3.5 Financial Statements . . . . . . . . . . . . . . . . . . . . 13
3.6 Absence of Undisclosed Liabilities . . . . . . . . . . . . . 14
3.7 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.8 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.9 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.10 Fixed Assets . . . . . . . . . . . . . . . . . . . . . . . . 14
3.11 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.12 Change in Financial Condition and Assets . . . . . . . . . . 15
3.13 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . 15
3.14 Accounts Receivable . . . . . . . . . . . . . . . . . . . . 16
3.15 Books and Records . . . . . . . . . . . . . . . . . . . . . 16
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3.16 Contracts and Commitments . . . . . . . . . . . . . . . . . 16
3.17 Compliance with Agreements and Laws . . . . . . . . . . . . 18
3.18 Employee Relations . . . . . . . . . . . . . . . . . . . . . 19
3.19 Absence of Certain Changes or Events . . . . . . . . . . . . 20
3.20 Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.21 Trade Names and Other Intellectual Property . . . . . . . . 21
3.22 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . 21
3.23 Regulatory Approvals . . . . . . . . . . . . . . . . . . . . 22
3.24 Indebtedness To and From Officers, Directors
and Shareholders . . . . . . . . . . . . . . . . . . 22
3.25 Powers of Attorney and Suretyships . . . . . . . . . . . . . 22
3.26 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . 23
IV. Representations of Buyer and Surviving Subsidiary . . . . . . . . . 23
4.1 Organization and Authority . . . . . . . . . . . . . . . . . 23
4.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . 23
4.3 Regulatory Approvals . . . . . . . . . . . . . . . . . . . . 23
4.4 Issuance of Shares . . . . . . . . . . . . . . . . . . . . . 23
4.5 Surviving Subsidiary as New Corporation . . . . . . . . . . 24
4.6 Buyer as Recently Operating Corporation . . . . . . . . . . 24
4.7 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.8 Indebtedness To and From Officers, Directors
and Shareholders . . . . . . . . . . . . . . . . . . 24
4.9 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . 24
V. Access to Information; Public Announcements . . . . . . . . . . . . 25
5.1 Access to Management, Properties and Records . . . . . . . . 25
5.2 Confidentiality . . . . . . . . . . . . . . . . . . . . . . 25
5.3 Public Announcements . . . . . . . . . . . . . . . . . . . . 26
VI. Pre-Closing Covenants of Company . . . . . . . . . . . . . . . . . 26
6.1 Conduct of Business . . . . . . . . . . . . . . . . . . . . 26
6.2 Absence of Material Changes . . . . . . . . . . . . . . . . 26
6.3 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.4 Delivery of Interim Financial Statements . . . . . . . . . . 28
6.5 Compliance with Laws . . . . . . . . . . . . . . . . . . . . 28
6.6 Continued Truth of Representations and Warranties of the
Shareholders and Company . . . . . . . . . . . . . . 28
6.7 Continuing Obligation to Inform . . . . . . . . . . . . . . 28
6.8 Exclusive Dealing . . . . . . . . . . . . . . . . . . . . . 29
6.9 No Publicity . . . . . . . . . . . . . . . . . . . . . . . . 29
6.10 Revised Schedules . . . . . . . . . . . . . . . . . . . . . 29
(ii)
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VII. Conditions to Obligations of Buyer . . . . . . . . . . . . . . . . 30
7.1 Continued Truth of Representations and Warranties of Company;
Compliance with Covenants and Obligations . . . . . . 30
7.2 Corporate Proceedings . . . . . . . . . . . . . . . . . . . 30
7.3 Governmental Approvals . . . . . . . . . . . . . . . . . . . 30
7.4 Consents of Lenders, Lessors and Other Third Parties . . . . 30
7.5 Adverse Proceedings . . . . . . . . . . . . . . . . . . . . 31
7.6 Review of Company Financial Statements . . . . . . . . . . . 31
7.7 Adaptability of Company's Financial Statements . . . . . . . 31
7.8 Review of Company's Compliance . . . . . . . . . . . . . . . 31
7.9 Update . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.10 Payables . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.11 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . 31
VIII. Conditions to Obligations of Company and the Shareholders . . . . . 32
8.1 Continued Truth of Representations and Warranties of Buyer;
Compliance with Covenants and Obligations . . . . . . 32
8.2 Corporate Proceedings . . . . . . . . . . . . . . . . . . . 32
8.3 Governmental Approvals . . . . . . . . . . . . . . . . . . . 32
8.4 Consents of Third Parties . . . . . . . . . . . . . . . . . 32
8.5 Adverse Proceedings . . . . . . . . . . . . . . . . . . . . 33
8.6 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . 33
8.7 Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . 33
8.8 Release of Personal Guaranties . . . . . . . . . . . . . . . 33
8.9 Election of Directors . . . . . . . . . . . . . . . . . . . 34
8.10 Delivery of Registration Statements to the Shareholders . . 34
IX. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.1 By Buyer, Surviving Subsidiary, Company,
Congleton and ▇▇▇▇▇▇▇▇ . . . . . . . . . . . . . . . 34
9.2 Claims for Indemnification . . . . . . . . . . . . . . . . . 35
9.3 Defense by Indemnifying Party . . . . . . . . . . . . . . . 35
9.4 Payment of Indemnification Obligation . . . . . . . . . . . 36
9.5 Survival of Representations, Claims for Indemnification . . 36
X. Post-Closing Agreements . . . . . . . . . . . . . . . . . . . . . . 36
10.1 Proprietary Information . . . . . . . . . . . . . . . . . . 36
10.2 No Solicitation or Hiring of Former Employees . . . . . . . 36
10.3 Non-Competition Agreement . . . . . . . . . . . . . . . . . 37
10.4 Use of Name . . . . . . . . . . . . . . . . . . . . . . . . 37
10.5 Cooperation in Litigation . . . . . . . . . . . . . . . . . 37
10.6 Payment of Obligations to Shareholders and Company . . . . . 38
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XI. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.1 Termination by Agreement of the Parties . . . . . . . . . . 38
11.2 Termination by Reason of Breach . . . . . . . . . . . . . . 38
11.3 Termination Upon Failure of IPO Funding . . . . . . . . . . 38
XII. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
12.1 For Company and the Shareholders . . . . . . . . . . . . . . 38
12.2 For Buyer . . . . . . . . . . . . . . . . . . . . . . . . . 38
XIII. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
XIV. Arbitration, Venue, and Binding Effect . . . . . . . . . . . . . . 40
14.1 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . 40
14.2 Venue/Binding Effect . . . . . . . . . . . . . . . . . . . . 40
XV. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . 40
XVI. Entire Agreement; Amendments; Attachments . . . . . . . . . . . . . 40
XVII. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
XVIII. Legal Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
XIX. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
XX. Section Headings . . . . . . . . . . . . . . . . . . . . . . . . . 41
XXI. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
XXII. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(iv)
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SCHEDULES AND EXHIBITS
Schedules
Schedule 1.2(a) - Allocation of Merger Consideration
Schedule 1.12 - Agreements Between Company and Shareholders
Schedule 1.13 - Claims
Schedule 2.1 - Shareholders of BodyBilt Seating, Inc. Common Stock
Schedule 3.4 - Permitted Encumbrances
Schedule 3.6 - Company's Liabilities and Obligations
Schedule 3.7 - Company Litigation
Schedule 3.11 - Leases
Schedule 3.13 - Tax Liens
Schedule 3.16 - Contracts
Schedule 3.17 - Permits
Schedule 3.18 - Employee Contracts
Schedule 3.19 - Material Changes in Company's Business Since June 30,
1996
Schedule 3.20 - Ten Largest Suppliers
Schedule 3.21 - Intellectual Property
Schedule 3.22 - Employee Benefit Plans
Schedule 3.23 - Regulatory Approvals
Schedule 3.24 - Indebtedness From or To Officers, Directors and
Shareholders
Schedule 4.6 - Outstanding Stock of Buyer
Schedule 4.8 - Indebtedness To and From Officers, Directors and
Shareholders of ErgoBilt, Inc.
Schedule 8.4 - Third-Party Consents
Schedule 8.8 - Personal Guaranties
Schedule 8.11 - Shareholders' Guaranties
Exhibits
Exhibit 2.3 - Spousal Consents
Exhibit 1.9 - Certificate of Designation
Exhibit 8.6(e) - Congleton Employment Agreement/▇▇▇▇▇▇▇▇ Consulting
Agreement
(v)
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger ("Agreement") is entered into as of
August 19, 1996, by and among ERGOBILT, INC., a Texas corporation ("Buyer"), EB
SUBSIDIARY, INC., a Texas corporation and wholly-owned subsidiary of Buyer
("Surviving Subsidiary"), BODYBILT SEATING, INC., a Texas corporation
("Company"), ▇▇▇▇ ▇▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇▇"), ▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇▇") and
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇▇▇"), all individuals and shareholders of Company
(individually, "Shareholder" and collectively, "Shareholders"). Buyer,
Surviving Subsidiary, Company and the Shareholders are referred to individually
as a "Party" and collectively as the "Parties."
Now, therefore, in consideration of the representations, warranties and
covenants herein contained, the Parties agree as follows.
I.
THE MERGER
1.1 The Merger. Upon and subject to the terms and conditions of this
Agreement, Company shall merge with and into Surviving Subsidiary (the
"Merger") at the "Effective Time" (as defined below). From and after the
Effective Time, the separate corporate existence of Company shall cease, and
Surviving Subsidiary shall continue as the surviving corporation in the Merger
under the name "BodyBilt Seating, Inc." The "Effective Time" shall occur upon
the delivery to the Shareholders of the Merger Consideration, as defined in
Section 1.2 below, and shall be the time at which Company and Surviving
Subsidiary file Articles of Merger executed in accordance with the relevant
provisions of the Texas Business Corporation Act (the "Articles of Merger")
with the Secretary of State of the State of Texas and upon the issuance of a
certificate of merger by said Secretary of State, as provided by law. For
federal income tax purposes, it is intended that the Merger will qualify as a
reorganization within the meaning of the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "IRC").
1.2 Consideration for Merger. The total consideration payable to the
Shareholders in respect of the Merger (the "Merger Consideration") shall be
equal to Seventeen Million Six Hundred Thousand Dollars ($17,600,000.00) less
the amount of any cash dividend (the "Cash Dividend") paid by Company to the
Shareholders prior to the Merger in accordance with Section 6.2(b), and shall
be paid or delivered to the Shareholders at the Closing (as defined below) as
follows:
(a) Buyer shall issue and deliver to the Shareholders
certificates, registered in such names as the Shareholders may request,
representing the number of shares of Buyer Common Stock, $0.01 par value
("Buyer Common Stock"), equal to the amount set forth opposite such
Shareholder's name on Schedule 1.2(a), divided by the "IPOP"(as defined
below (the "Common Stock Portion"), subject to possible adjustment as
provided below. The total value of the Common Stock Portion shall equal
initially an aggregate total of Four Million Six Hundred Fifty Thousand
Dollars ($4,650,000.00);
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(b) Buyer shall issue and deliver to the Shareholders
certificates, registered in such names as the Shareholders may request,
representing the number of shares of Buyer's convertible preferred
stock, $0.01 par value ("Buyer Preferred Stock"), equal to the amount
set forth opposite such Shareholder's name on Schedule 1.2(a), divided
by the IPOP (the "Preferred Stock Portion"), subject to possible
adjustment as provided below. The total value of the Preferred Stock
Portion shall equal initially an aggregate total of Four Million Two
Hundred Thousand Dollars ($4,200,000.00); and
(c) Buyer shall deliver to the Shareholders by wire transfer
to one or more accounts designated in writing by the Shareholders to
Buyer prior to the Closing cash in an amount equal to Eight Million
Seven Hundred Fifty Thousand Dollars ($8,750,000.00) (the "Maximum
Amount"), less the Cash Dividend paid to the Shareholders under Section
6.2(b) (the "Cash Portion"), subject to possible adjustment as provided
below. The Cash Portion shall be allocated among the Shareholders as
specified in Schedule 1.2(a). The Cash Portion shall be paid from the
proceeds of an underwritten initial public offering on a firm commitment
basis (the "IPO," as defined more fully below) of Buyer Common Stock.
If the gross proceeds to Buyer at IPO Funding (the "Gross
Proceeds") are less than Fifteen Million Dollars ($15,000,000.00), then
the Maximum Amount shall, except as provided below, be reduced by an
amount equal to fifty percent (50%) of the difference between Fifteen
Million Dollars ($15,000,000.00) and the Gross Proceeds. By way of
example, if the Gross Proceeds equal Twelve Million Dollars
($12,000,000.00), then the Maximum Amount would be reduced by One
Million Five Hundred Thousand Dollars ($1,500,000.00) for a total of
Seven Million Two Hundred Fifty Thousand Dollars ($7,250,000.00)
calculated by taking Fifteen Million Dollars ($15,000,000.00) less the
Gross Proceeds of Twelve Million Dollars ($12,000,000.00), which
difference equals Three Million Dollars ($3,000,000.00), then taking
Three Million Dollars ($3,000,000.00) and dividing such sum by two (2),
which equals One Million Five Hundred Thousand Dollars ($1,500,000.00).
In no event shall the Cash Portion be less than Six Million Dollars
($6,000,000.00) less the Cash Dividend. Any reduction in the Cash
Portion shall be allocated amongst the Shareholders pro rata based on
the amounts set forth in Schedule 1.2(a). In the event that the Cash
Portion is reduced as provided herein, Buyer shall proportionately
increase the number of shares of Buyer Common Stock and Buyer Preferred
Stock issued to the Shareholders pursuant to Sections 1.2(a) and (b)
above, based on the amount of any such reduction divided by the IPOP.
(d) The term "IPO" shall mean the consummation of an
underwritten initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"1933 Act"), covering the sale of Buyer Common Stock. The term "IPOP"
shall mean the price to public of one share of Buyer Common Stock as set
forth on the cover page of the final prospectus of the IPO. The term
"IPO Funding" shall mean the date on which the IPO is closed.
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(e) In the event the delivery of the Merger Consideration to
the Shareholders has not occurred by 5:00 p.m., Dallas time, on March
20, 1997, this Agreement shall terminate immediately.
(f) Each share of Company's Common Stock held in Company's
treasury immediately prior to the Effective Time shall be canceled and
retired without payment of any consideration therefor.
(g) Schedule 1.2(a) may be amended unilaterally by the
Shareholders any time prior to the Closing so as to change the
allocation of the total Merger Consideration among the Shareholders.
Such amended Schedule must be signed by all Shareholders to be effective
and shall be delivered to Buyer and to the Escrow Agent (as defined
below) no less than two (2) business days before the Closing.
1.3 Escrow Pending Closing. Within seven (7) days of the date
hereof, Company and the Shareholders shall deliver to Bank One-Texas, N.A.,
Dallas, Texas ("Escrow Agent") the following documents and instruments
("Escrowed Documents") to hold in escrow (the "Escrow") pending the Closing:
(a) Each Shareholder's certificate evidencing his ownership of
shares of Company's Common Stock, par value $0.01 per share ("Company
Common Stock"), accompanied by stock transfer powers, duly executed in
blank, with signatures guaranteed by a national bank or member firm of
the New York Stock Exchange; and
(b) Articles of Merger executed by Company; and
(c) Spousal Consents.
Contemporaneous with the execution of this Agreement, the Parties have
entered into that certain Escrow Agreement also dated August 19, 1996,
providing for the deposit of the Escrowed Documents with the Escrow Agent and
the delivery of the Escrowed Documents to Buyer upon the Shareholders' receipt
of the Merger Consideration and certain other documents deliveryof which are a
condition to Closing and the return of the Escrowed Documents to the
Shareholders in the event of the termination of this Agreement in accordance
with Section 1.2(e) above. All costs and expenses of Escrow, including Escrow
Agent's attorneys' fees, if any, shall be paid one-half ( 1/2) by the
Shareholders and one-half ( 1/2) by Buyer. The terms and conditions of the
Escrow Agreement are incorporated by reference herein as though fully set
forth.
Buyer shall give Escrow Agent and the Shareholders written notice of the
Closing Date and shall deliver to Escrow Agent all portions of the Merger
Consideration. At the Closing, Escrow Agent shall deliver to Buyer the
Escrowed Documents and shall deliver the Merger Consideration to the
Shareholders. In the event that the Merger Consideration is not received by
the Shareholders by 5:00 p.m., Dallas time, on March 20, 1997, this Agreement
shall terminate and Escrow Agent shall automatically deliver to the
Shareholders all Escrowed Documents.
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Notwithstanding anything to the contrary contained herein, pending the
Closing, legal and beneficial title to the Shareholders' shares of Company
Common Stock shall remain in the Shareholders and shall not be transferred or
otherwise affected by this Agreement or the Escrow Agreement until the delivery
of the Merger Consideration to the Shareholders
1.4 The Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Wolin,
Fuller, ▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP, 3100 Bank One Center, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇, contemporaneous with the closing of the IPO or on such other date
and at such other location as may be acceptable to all Parties. For the
purposes of this Agreement, the term "Closing Date" shall mean the date on
which all of the terms and conditions to the Closing have been satisfied or
waived in accordance with the terms of this Agreement.
1.5 Actions at the Closing. At the Closing: (a) Company shall
deliver to Buyer and Surviving Subsidiary the various certificates, instruments
and documents referred to in Article VII; (b) Buyer and Surviving Subsidiary
shall deliver to Company and the Shareholders the various certificates,
instruments and documents referred to in Article VIII; (c) Escrow Agent shall
deliver the Escrow Documents to Buyer and the Merger Consideration to the
Shareholders; and (d) Buyer and Surviving Subsidiary shall have filed the
Articles of Merger with the Secretary of State of the State of Texas.
1.6 Fractional Shares. No fractional shares shall be issued by
Company and no payment therefor shall be made.
1.7 No Further Rights. From and after the Effective Time, no shares
of Company Common Stock shall be deemed to be outstanding, and holders of
certificates thereof shall cease to have any rights with respect thereto,
except as provided herein or by law.
1.8 Closing of Transfer Books. At the Effective Time, the stock
transfer books of Company shall be closed and no transfer of shares of Company
Common Stock shall thereafter be made.
1.9 Buyer Preferred Stock.
(a) Buyer Preferred Stock shall be convertible into shares of
Buyer Common Stock during the four (4) year period beginning on the
Closing Date as specified in the Certificate of Designation attached
hereto as Exhibit 1.9 (the "Certificate of Designation").
(b) The Buyer Common Stock received by the Shareholders upon
conversion will be subject to applicable provisions of the 1933 Act and
the rules and regulations thereunder, and will have the registration
rights described in Section 1.10 below.
(c) If the Shareholders exercise their rights to convert, any
such conversion must cover at least thirty-three percent (33%) of Buyer
Preferred Stock held by such Shareholder.
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(d) Any shares of Buyer Preferred Stock not converted by the
fourth anniversary of the Closing Date shall automatically convert into
shares of Buyer Common Stock in accordance with the Certificate of
Designation.
(e) Each shareholder of Buyer Preferred Stock shall be
entitled to one (1) vote for each share of Buyer Preferred Stock held by
such shareholder on all matters submitted to a vote of the shareholders
of the Company and such other voting rights as may be required by
applicable law.
1.10 Registration. Shareholders shall have the following registration
rights with respect to the shares of Buyer Common Stock issued pursuant to
Section 1.2(a) and the shares of Buyer Common Stock issuable upon the
conversion of shares of Buyer Preferred Stock issued pursuant to Section 1.2(b)
(the "Registrable Shares"):
(a) Piggy-Back Rights. Subject to any restrictions imposed by
"lock-up agreements" and other arrangements, subsequent to the IPO,
whenever Buyer proposes to file a Registration Statement (other than on
Form S-4 or S-8), it will, prior to such filing, give written notice to
all Shareholders of its intention to do so and, upon the written request
of a Shareholder or Shareholders given within twenty (20) days after
Buyer provides such notice (which request shall state the intended
method of disposition of such shares), Buyer shall use its best efforts
to cause all shares which Buyer has been requested by such Shareholder
or Shareholders to register to be registered under the 1933 Act to the
extent necessary to permit their sale or other disposition in accordance
with the intended methods of distribution specified in the request of
such Shareholder or Shareholders; provided that Company shall have the
right to postpone or withdraw any registration effected pursuant to this
Article without obligation to any Shareholder or Shareholders.
(b) Demand Registration. Subject to the limitations set forth
herein, Buyer agrees that it shall, at any time after the second
anniversary of the IPO, upon the written request of any two of the
Shareholders holding Registrable Shares undertake to register said
shares and to cause such registration statement to remain effective for
a period of not less than one hundred twenty (120) days, unless all of
the shares covered thereby are sold prior thereto. Buyer shall have no
obligation to undertake more than two (2) demand registrations for the
benefit of all Shareholders. Upon receipt of any demand to register
shares pursuant to this Section, Buyer shall give notice by registered
or certified mail to the other Shareholder(s), who shall have a period
of ten (10) business days from the receipt of such notice to deliver
written notice to Buyer of such Shareholder's desire to have all or any
portion of his shares of Registrable Shares included in any such
registration statement and the number of shares thereof to be so
included. Buyer shall use its best efforts to cause any shares covered
by a registration statement filed pursuant to this Section to be
qualified for offer and sale under the Texas Securities Act, as amended,
or other applicable state securities law, during the time such
registration statements are effective.
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(c) Shelf Registration. Buyer shall use its best efforts to
have a "shelf" registration statement on an appropriate form under the
1933 Act (the "Shelf Registration") covering all of the Registrable
Shares declared effective on or as soon as possible after the fourth
(4th) anniversary of the IPO Funding and to keep the Shelf Registration
continuously effective for a period of two (2) years following the date
on which the Shelf Registration is declared effective; provided,
however, that if for any reason the effectiveness of the Shelf
Registration is suspended, such period shall be extended by the
aggregate number of days of each such suspension period; and provided,
further, that the effectiveness of the Shelf Registration may be
terminated earlier if and to the extent that all of the Registrable
Shares registered therein cease to be Registrable Shares. The
securities shall cease to be Registrable Shares when (a) the Shelf
Registration shall have become effective under the 1933 Act and such
securities shall have been disposed of pursuant to the Shelf
Registration, (b) such securities shall have been sold as permitted by
Rule 144 under the 1933 Act, or (c) such securities shall have ceased to
be outstanding. Buyer agrees, if necessary, to supplement or amend the
Shelf Registration, as required by the registration form utilized by
Buyer or by the instructions applicable to such registration form or by
the 1933 Act, and Buyer agrees to furnish to the holders of the
Registrable Shares copies of any such supplement or amendment prior to
its being used. The Shareholders agree to execute such lock-up
agreements containing substantially the same terms and conditions
applicable to the executive officers and principal shareholders of
Company as the managing underwriters may require in connection with any
underwritten public offering during the time in which the Shelf
Registration is effective, and the duration of the Shelf Registration
shall be extended for the same period.
(d) Acceptance of Terms. In connection with any registration
under paragraph (a) of this Section, the Company shall not be required
to include a Shareholder's Registrable Shares in such registration,
unless the Shareholder accepts the terms of the underwriting as agreed
upon between Buyer and the underwriters selected by Buyer. If, in the
opinion of the managing underwriter, it is appropriate because of
marketing factors to limit or exclude the number of Registrable Shares
to be included in the offering, then Buyer shall be required to include
in the registration only that number of Registrable Shares which the
managing underwriter believes should be included therein. If the number
of Registrable Shares to be included in the offering in accordance with
the foregoing is less than the total number of Registrable Shares which
the Shareholders have requested to be included, then the Shareholders
who have requested registration shall participate in the registration
pro rata based upon the total number of Registrable Shares for which
registration was requested. If any Shareholders would thus be entitled
to include more Registrable Shares than such holder requested to be
registered, the excess shall be allocated among other requesting holders
pro rata in the manner described in the preceding sentence.
(e) Registration Procedures. In connection with Buyer's
obligation to effect the registration of Registrable Shares, Buyer will
(i) furnish to each Shareholder such number of copies of a prospectus as
such Shareholder may reasonably request in order to facilitate the
public sale or other disposition of the shares owned by such
Shareholder, (ii) use its best
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efforts to cause all such Registrable Shares to be listed on each
securities exchange on which similar securities issued by Buyer are then
listed or quoted and on any inter-dealer quotation system on which
similar securities issued by Buyer are then quoted, and (iii) cooperate
in any filings to be made with the National Association of Securities
Dealers, Inc.
(f) Expenses of Registration. All expenses incurred in
effecting any registration pursuant to this Agreement, including,
without limitation, registration and filing fees, printing expenses,
expenses of compliance with blue sky laws, fees and disbursements of
counsel for Buyer and expenses of any audits incidental to or required
by any such registration, shall be borne by Buyer, except that all SEC,
NASD and state securities registration or filing fees shall be split by
Buyer and the Shareholders and all underwriting discounts and
commissions attributable to Registrable Shares being sold by the
Shareholders shall be borne by those Shareholders, pro rata, according
to the number of Registrable Shares so registered. Buyer shall pay the
reasonable fees of not more than one legal counsel for all Shareholders
for such registration.
(g) Indemnification by Buyer. To the extent permitted by law,
Buyer will indemnify each Shareholder requesting or joining in a
registration and each underwriter and selling broker of the securities
so registered (collectively, "Indemnitees") against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus, offering circular or other
document incident to any registration, qualification or compliance (or
in any related registration statement, notification or the like) or any
omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made, or any
violation by Buyer of any rule or regulation promulgated under the 1933
Act and/or the Securities Exchange Act of 1934, as amended (the "1934
Act"), applicable to Buyer and relating to action or inaction required
of Buyer in connection with any such registration, qualification or
compliance. Buyer will reimburse each such Indemnitee for any legal and
any other expenses reasonably incurred in connection with investigating
or defending any such claim, loss, damage, liability or action;
provided, however, that Buyer will not be liable in any such case to the
extent that any such claim, loss, damage or liability is caused by any
untrue statement (or alleged untrue statement) or omission (or alleged
omission) so made in conformity with written information furnished to
Buyer by an instrument duly executed by such Indemnitees and stated to
be specifically for use in such prospectus, offering circular or other
document, and except that the foregoing indemnity agreement is subject
to the condition that, insofar as it relates to any such untrue
statement (or alleged untrue statement) or omission (or alleged
omission) made in the preliminary prospectus but eliminated or remedied
in the amended prospectus on file with the SEC at the time the
registration statement becomes effective or in the amended prospectus
filed with the SEC at the time the registration statement becomes
effective or in the amended prospectus filed with the SEC pursuant to
Rule 424(b) (the "Final Prospectus"). Such indemnity agreement shall
not inure to the benefit of any underwriter, or any Indemnitee if there
is no underwriter, if a copy of the Final Prospectus was not furnished
to the person or entity asserting the loss, liability,
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claim or damage at or prior to the time such furnishing is required by
the 1933 Act. The obligation of Buyer under this paragraph shall
survive the completion of any offering of Registrable Stock in a
registration statement under this Agreement, or otherwise.
(h) Indemnification by Seller. To the extent permitted by
law, each Shareholder shall, severally and jointly, indemnify and hold
Buyer and Surviving Subsidiary, and their respective directors and
officers, who participated in preparation of the Final Prospectus, and
each Underwriter and selling broker so registered (collectively, "Buyer
Indemnitees") against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in
any prospectus, offering circular or other document incident to any
registration, qualification or compliance (or in any related
registration statement, notification or the like) or any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading in
light of the circumstances in which they were made, or any violation by
Buyer of any rule or regulation promulgated under the 1933 Act and the
1934 Act, applicable to Buyer resulting from any information, written or
oral, provided to Buyer by Company and/or the Shareholders in connection
with the Merger and the transactions contemplated by this Agreement.
Shareholders will reimburse each such Buyer Indemnitee in the same
manner that Buyer is required to indemnify Shareholders under subsection
(f) above.
(i) Indemnification Proceedings. In any proceedings
(including any governmental investigation) instituted against any person
in respect of which indemnity may be brought pursuant to subsections (g)
and (h) above, such person (the "Indemnified Party") shall promptly
notify the person or entity against whom such indemnity may be sought
(the "Indemnifying Party") in writing. No indemnification provided for
in subsections (g) or (h) shall be available to any Indemnified Party
who fails to give notice if the Indemnifying Party was not aware of the
proceedings to which such notice would have related and was materially
prejudiced by the failure to receive notice. Such failure to give
notice shall not relieve the Indemnifying Party from any liability which
such party may have for contribution or otherwise than on account of the
provisions of subsections (g) or (h). If such proceedings are brought
against any Indemnified Party who has notified the Indemnifying Party of
the commencement hereof, the Indemnifying Party shall be entitled to
participate in such proceedings and, in its discretion, jointly with any
other Indemnifying Party similarly notified, to assume the defense
thereof, with legal counsel satisfactory to the Indemnified Party. The
Indemnifying Party shall pay as incurred the fees and disbursements of
such counsel. In any such proceedings, an Indemnified Party shall have
the right to retain its own counsel at its own expense. Notwithstanding
the foregoing, the Indemnifying Party shall pay as incurred, or within
thirty (30) days of presentation, the fees and expenses of legal counsel
retained by Indemnifying Party in the event (i) the Indemnified Parties
have mutually agreed to the retention of such counsel or (ii) the named
parties to any such proceedings (including any impleaded parties)
include both the Indemnifying and Indemnified Parties and representation
of both parties by the same counsel would be inappropriate due to actual
or potential differing interests among them. It is agreed that the
Indemnifying Party shall not,
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in connection with any proceedings in the same jurisdiction, be liable
for the reasonable fees and expenses of more than one separate firm for
all Indemnified Parties. Such firm shall be designated in writing by
the Indemnified Parties. The Indemnifying Party shall not be liable for
any settlement of any proceeding effected without its written consent,
but if settled with such consent or if there is a final judgment for the
plaintiff, the Indemnifying Party agrees to indemnify the Indemnified
Party from and against any loss or liability by reason of such
settlement or judgment. In addition, the Indemnifying Party will not,
without the prior written consent of the Indemnified Party, settle or
compromise or consent to the entry of any judgment in any pending or
threatened claim, action or proceeding for which indemnification may be
sought hereunder (whether or not any Indemnified Party is an actual or
potential party to such claim, action or proceeding) unless such
settlement, compromise or consent includes an unconditional release of
each Indemnified Party from all liability arising out of such claim,
action or proceeding.
1.11 Additional Action. The Surviving Corporation may, at any time
after the Effective Time, take any action, including executing and delivering
any document, in the name and on behalf of either Company or Surviving
Subsidiary, to consummate the transactions contemplated by this Agreement.
1.12 Termination of Company Agreements. As of the Effective Time, and
except as set forth on Schedule 1.12 hereto or as otherwise provided herein,
any and all agreements between Company and Shareholders shall terminate
automatically and shall be of no further force and effect.
1.13 Releases. As of the Effective Time, and except as set forth on
Schedule 1.13 hereto, Company and Surviving Subsidiary shall be released and
discharged from any and all Shareholders' claims, liabilities, demands, causes
of action, costs, attorneys' fees, expenses and damages, of any kind or nature,
known or unknown, suspected or unsuspected, claimed or unclaimed, fixed or
contingent, or apparent or concealed (collectively, "Claims"), that exist at
the time of the Closing. Nothing herein shall constitute a release of any
Claims which may arise out of or are connected with the Merger, this Agreement
or any other document, instrument, or transaction connected with the Merger.
II.
REPRESENTATIONS OF THE SHAREHOLDERS
Each Shareholder severally represents and warrants to Buyer as follows:
2.1 Representations Regarding Shares of Company.
(a) Such Shareholder is the record and beneficial owner of and
has good title to the shares of Company Common Stock set forth opposite
his name on Schedule 2.1 attached hereto, free and clear of any and all
restrictions, voting trusts or agreements, liens, charges, encumbrances,
options and adverse claims or rights whatsoever. Schedule 2.1 attached
hereto sets forth the number of all shares of capital stock of Company
owned by each of the
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Shareholders, and all such shares collectively represent all the issued
and outstanding shares of Company.
(b) Such Shareholder has the full right, power and authority
to enter into this Agreement.
(c) Such Shareholder is not a party to, subject to or bound by
any agreement or any judgment, order, writ, prohibition, injunction or
decree of any court or other governmental body which would prevent the
execution or delivery of this Agreement by such Shareholder.
(d) No broker or finder has acted for such Shareholder in
connection with this agreement or the transactions contemplated hereby,
and no broker or finder is entitled to any brokerage or finder's fee or
other commissions in respect of such transactions based upon agreements,
arrangements or understandings made by or on behalf of such Shareholder.
2.2 Investment Representations. All Shareholders hereby individually
represent and warrant to Buyer as follows:
(a) Such Shareholder is acquiring Buyer Common Stock and Buyer
Preferred Stock in the Merger for his own account for investment and not
with a view to, or for sale in connection with, any distribution
thereof, nor with any present intent of distributing or selling his
shares.
(b) Such Shareholder has reviewed the representations
concerning Buyer contained in this Agreement and has made or has had the
opportunity to make inquiry concerning Buyer. Shareholder has
sufficient knowledge and experience so as to be able to evaluate the
risks and merits of his investment in Buyer, and he is able financially
to bear the risks thereof. Shareholder is entering into the
transactions contemplated herein based on his own assessments of the
merits and risks, upon his own experience as an officer, director and/or
shareholder of Company and is not relying on any business plan,
projections, valuations or other financial information provided to
Shareholder by Buyer. Shareholder further acknowledges and agrees that
Buyer and Surviving Subsidiary have made no assurances of any nature
whatsoever regarding the future operations of Buyer and Surviving
Subsidiary and have made no guarantees as to the profitability of an
investment therein. Shareholder further acknowledges that he is an
accredited investor as defined in Rule 501(a) of Regulation D of the
1933 Act.
(c) Such Shareholder acknowledges that Surviving Subsidiary is
a newly-formed entity with no history of operations.
(d) Such Shareholder understands that the certificates of
Buyer Common Stock and Buyer Preferred Stock to be issued to him
pursuant to this Agreement will bear a restrictive legend in
substantially the following form:
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"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended,
and may not be offered, sold or otherwise transferred,
pledged or hypothecated unless and until such shares are
registered under such Act or an opinion of counsel
satisfactory to Company is obtained to the effect that
such registration is not required."
The foregoing legend shall be removed from the certificates, at
the request of the holder thereof, at such time as they become
registered for resale or eligible for resale pursuant to Rule 144(k)
under the ▇▇▇▇ ▇▇▇.
2.3 Authorization. The execution and delivery of this Agreement by
each of the Shareholders and the agreements provided for herein, and the
consummation by each of the Shareholders of all transactions contemplated
hereby, have been duly authorized by all requisite shareholder action. This
Agreement and all such other agreements and obligations entered into and
undertaken in connection with the transactions contemplated hereby to which
each of the Shareholders is a party constitute the valid and legally binding
obligations of such Shareholder, enforceable against such Shareholder in
accordance with their respective terms, except as enforceability may be limited
or affected by applicable bankruptcy, insolvency, moratorium, reorganization or
other laws of general application relating to or affecting creditors' rights
generally. Each Shareholder's spouse has consented to the terms of this
Agreement in all respects and has agreed to execute and deliver to Buyer the
form of Spousal Consent attached hereto as Exhibit 2.3 on or before August 30,
1996.
The execution, delivery and performance by each of the Shareholders of
this Agreement and the agreements provided for herein, and the consummation by
each of the Shareholders of the transactions contemplated hereby and thereby,
will not, with or without the giving of notice or the passage of time or both,
(a) violate the provisions of any law, rule or regulation applicable to each of
the Shareholders; (b) violate any judgment, decree, order or award of any
court, governmental body or arbitrator; or (c) conflict with or result in the
breach or termination of any term or provision of, or constitute a default
under, or cause any acceleration under, or cause the creation of any lien,
charge or encumbrance upon the properties or assets of such Shareholder
pursuant to, any indenture, mortgage, deed of trust or other instrument or
agreement to which such Shareholder is a party or by which such Shareholder or
any of his properties is or, to the knowledge of such Shareholder, may be
bound, except for violations or conflicts which individually or in the
aggregate would not have a material adverse effect on Company's financial
condition or results of operation.
For the purposes of this Section 2.3 only, the representations made by
each Shareholder herein shall be deemed to have been made for his own account
and not with respect to any of the other Shareholders.
2.4 Investment Intent. The total value of all of the Common Stock
Portion and Preferred Stock Portion paid to the Shareholders collectively
represents not less than fifty percent (50%) of the total Merger Consideration.
Shareholders further represent and warrant that they have no
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preconceived plan or intention to dispose of an aggregate number of shares of
Buyer Common Stock and Buyer Preferred Stock having a value, as of the
Effective Time, of more than fifty percent (50%) of the value of all the issued
and outstanding capital stock of Company immediately prior to the Effective
Time.
2.5 Confidentiality/Non-Disclosure Letter Agreement. Buyer has
delivered to each Shareholder disclosure regarding Buyer's business plan,
financial projections, ownership upon completion of the IPO and other matters
concerning the IPO and each Shareholder has executed and delivered to Buyer a
confidentiality/non-disclosure letter agreement maintining the
confidentialityof such disclosure.
III.
REPRESENTATIONS AND WARRANTIES OF COMPANY
Company represents and warrants to Buyer as follows:
3.1 Organization. Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas and has all
requisite power and authority (corporate and other) to own its properties, to
carry on its business as now being conducted, to execute and deliver this
Agreement and the agreements contemplated herein, and to consummate the
transactions contemplated hereby. Company owns no interests in any
corporations, partnerships, joint ventures and other entities. Company is duly
qualified to do business and is in good standing in all jurisdictions in which
its ownership of property or the character of its business requires such
qualification except for those jurisdictions where the failure to qualify would
not have a material adverse effect on Company. Copies of the charter and
bylaws and all amendments thereto, the organizational minutes, and the minute
book of Company, as amended to date, which have been previously delivered or
made available to Buyer, are complete and correct, and no amendments have been
made thereto or have been authorized since the date thereof.
3.2 Capitalization of Company. Company's authorized capital stock
consists of Five Hundred (500) shares of Company Common Stock, of which Two
Hundred (200) shares are issued and outstanding. All of the issued and
outstanding shares of Company Common Stock are held of record and beneficially
by the Shareholders, as set forth on Schedule 2.1 attached hereto. All of such
shares have been duly and validly issued and are fully paid and nonassessable.
There are no outstanding or authorized options, warrants, agreements, or
commitments to which Company is a party or which are binding upon Company,
providing for the issuance, disposition or acquisition of any shares of its
capital stock. All of the issued and outstanding capital stock of Company as
set forth on Schedule 2.1 was issued in compliance with applicable federal and
state securities laws. The Company does not own any capital stock or equity
interest in any other corporation, partnership or other entity.
3.3 Authorization. The execution and delivery of this Agreement by
Company and the agreements provided for herein, and the consummation by Company
of all transactions contemplated hereby, have been duly authorized by all
requisite corporate and shareholder action. This Agreement
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and all such other agreements and obligations entered into and undertaken in
connection with the transactions contemplated hereby to which Company is a
party constitute the valid and legally binding obligations of Company,
enforceable against Company in accordance with their respective terms, except
as enforceability may be limited or affected by applicable bankruptcy,
insolvency, moratorium, reorganization or other laws of general application
relating to or affecting creditors' rights generally.
The execution, delivery and performance by Company of this Agreement and
the agreements provided for herein, and the consummation by Company of the
transactions contemplated hereby and thereby, will not, with or without the
giving of notice or the passage of time or both, (a) violate the provisions of
any law, rule or regulation applicable to Company; (b) violate the provisions
of the Articles of Incorporation or Bylaws of Company; (c) violate any
judgment, decree, order or award of any court, governmental body or arbitrator;
or (d) conflict with or result in the breach or termination of any term or
provision of, or constitute a default under, or cause any acceleration under,
or cause the creation of any lien, charge or encumbrance upon the properties or
assets of Company pursuant to, any indenture, mortgage, deed of trust or other
instrument or agreement to which Company is a party or by which Company or any
of its properties is or, to the knowledge of Company, may be bound, except for
violations or conflicts which individually or in the aggregate would not have a
material adverse effect on Company's financial condition or results of
operation.
3.4 Material Claims/Permitted Encumbrances. Company is, and at the
Closing will be, the true and lawful owner of its assets, and at the Closing
will have, good and valid, clear and record title to its assets, free and clear
of all material claims, liens, pledges, and encumbrances of any kind, except
as set forth on Schedule 3.4 attached hereto (the "Permitted Encumbrances").
For purposes of this Section 3.4, "material" shall mean any claims, liens,
pledges, and encumbrances in excess of Twenty-Five Thousand Dollars
($25,000.00) or any such claims, liens, pledges and encumbrances, regardless of
individual amount, which total One Hundred Thousand Dollars ($100,000.00) in
the aggregate.
3.5 Financial Statements.
(a) Company has previously delivered to Buyer its audited
balance sheets as of December 31, 1993, 1994 and 1995 (the "Audited
Balance Sheets") and the related statements of income, shareholders'
equity, retained earnings and changes in financial condition of Company
for the fiscal years then ended (collectively, including the Audited
Balance Sheets, the "Audited Financial Statements"). Company has also
previously delivered to Buyer its unaudited balance sheet of Company as
of June 30, 1996 (the "Current Balance Sheet") and the related
statements of income and schedule of operating expenses, for the
three-month period then ended (collectively, the "Current Financial
Statements"). The Audited Financial Statements, the Current Financial
Statements and the interim financial statements (the "Interim Financial
Statements") to be delivered pursuant to Article VI hereof
(collectively, the "Financial Statements") have been (or will be)
prepared on the accrual basis of accounting in accordance with generally
accepted accounting principles, applied
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consistently with past practice, and have been (or will be) certified by
Company's chief financial officer.
(b) The Financial Statements fairly present, as of their
respective dates, the financial condition and assets and liabilities of
Company and the results of operations of Company's business for the
periods indicated in accordance with the presentation method.
3.6 Absence of Undisclosed Liabilities. Except as and to the extent
(i) set forth in Schedule 3.6, (ii) reflected, reserved against or otherwise
disclosed in the Financial Statements, or (iii) incurred in the ordinary course
of business after June 30, 1996, and not material in amount, either
individually or in the aggregate, Company does not have any material liability
or obligation, secured or unsecured, whether accrued, absolute, contingent,
unasserted or otherwise. For purposes of this Section 3.6, "material" means
any amount in excess of Twenty-Five Thousand Dollars ($25,000.00).
3.7 Litigation. Except as set forth on Schedule 3.7 attached hereto,
Company is not a party to, or threatened with, any litigation, suit, action,
investigation, proceeding or controversy before any court, administrative
agency or other governmental authority relating to or affecting Company or the
business or condition (financial or otherwise) of Company. Company is not in
violation of or in default with respect to any judgment, order, writ,
injunction, decree or rule of any court, administrative agency or governmental
authority or any regulation of any administrative agency or governmental
authority.
3.8 Insurance. True, correct and complete copies of all fire, theft,
casualty, general liability, workers compensation, business interruption,
environmental impairment, product liability, automobile and other insurance
policies insuring the business of Company and of all life insurance policies
maintained for any of its employees, specifying the type of coverage, the
amount of coverage, the premium, the insurer and the expiration date of each
such policy (collectively, the "Insurance Policies") and all claims made under
such Insurance Policies since January 1, 1991, have been delivered or made
available to Buyer. The Insurance Policies are in full force and effect. All
premiums due on the Insurance Policies or renewals thereof have been paid and
there is no default by Company under any of the Insurance Policies.
3.9 Inventory. True, correct and complete general list of inventory
as of June 30, 1996, including a description and Company's cost thereof, has
been delivered or was made available to Buyer. Such inventory consists of
items of a quality and quantity which are usable or saleable without discount
in the ordinary course of the business conducted by Company. The value of all
items of obsolete materials and of materials of below-standard quality has been
written down to realizable market value, and the values at which such inventory
is carried reflect the normal inventory valuation policy of Company of stating
the inventory at the lower of cost or market value in accordance with generally
accepted accounting principles.
3.10 Fixed Assets. The Current Financial Statements reflect the fixed
assets as of June 30, 1996. Company has heretofore delivered or made available
to Buyer true, correct and complete lists
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of all fixed assets as of June 30, 1996, including a description and the book
value thereof. All of the fixed assets are in good operating condition and
repair, normal wear and tear excepted, are currently used by Company in the
ordinary course of business and normal maintenance has been consistently
performed with respect to such fixed assets.
3.11 Leases. A true, correct and complete list of all leases of real
property, identifying separately each ground lease, to which Company is a party
(the "Leases"), has been delivered or was made available to Buyer. True,
correct and complete copies of the Leases, and all amendments, modifications
and supplemental agreements thereto, have previously been delivered by Company
to Buyer. The Leases are in full force and effect, are binding and enforceable
against Company, and to the best knowledge of Company, against each of the
parties thereto in accordance with their respective terms and, except as set
forth on Schedule 3.11, have not been modified or amended since the date of
delivery to Buyer. No party to any Lease has sent written notice to the other
claiming that such party is in default thereunder, which remains uncured.
Except as set forth on Schedule 3.11, there has not occurred, with respect to
Company, and to the knowledge of Company with respect to the other parties
thereto, any event which would constitute a breach of or default in the
performance of any material covenant, agreement or condition contained in any
Lease, nor to the knowledge of Company has there occurred any event which with
the passage of time or the giving of notice or both would constitute such a
breach or material default. Company is not obligated to pay any leasing or
brokerage commission relating to any Lease and, except as set forth on Schedule
3.11, will not have any enforceable obligation to pay any leasing or brokerage
commission upon the renewal of any Lease. No material construction, alteration
or other leasehold improvement work with respect to any of the Leases remains
to be paid for or to be performed by Company. Schedule 3.11 contains a
description of the amount required, if any, to provide for the restoration of
the properties subject to the Leases at the end of the respective Lease terms,
to the extent required by the Leases.
3.12 Change in Financial Condition and Assets. Since June 30, 1996,
there has been no change which materially and adversely affects the business,
properties, assets, condition (financial or otherwise) or prospects of Company
as reflected in the Current Financial Statements.
3.13 Tax Matters.
(a) For purposes of this Agreement: "Return" means any
return, declaration, report, statement or other document required to be
filed in respect of any Tax. "Tax" or "Taxes" means any federal, state,
local, foreign and other net income, gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, profits, license, lease,
service, service use, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property, windfall profits,
customs duty or other tax, fee, assessment or charge of any kind
whatever, together with interest and any penalty, addition to tax or
additional amount with respect thereto. "Taxing Authority" means any
governmental authority responsible for the imposition of Taxes.
"Knowledge" means the knowledge of the Shareholders in their capacity as
officers, directors, and shareholders of Company.
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(b) Except as set forth on Schedule 3.13, to Company's
knowledge:
(i) Within the times and in the manner prescribed by
law (including any extensions duly granted by the appropriate
Taxing Authority), Company has, since January 1, 1991, filed all
Returns which are required to be filed;
(ii) With respect to all amounts in respect of Taxes
imposed upon Company for which it is liable to Taxing Authorities
or to other persons or entities (as, for example, under Tax
allocation agreements) with respect to all taxable periods or
portions of taxable periods ending on or before the Closing Date,
all applicable Tax laws and agreements have been fully complied
with, and all such amounts required to be paid by Company to
Taxing Authorities or others on or before the date hereof have
been paid;
(iii) No examination of the Returns of Company is
currently in progress nor threatened and no unresolved
deficiencies have been asserted or assessed against Company as a
result of any audit by any Taxing Authority and no such
deficiency has been proposed or threatened;
(iv) There are no liens for Taxes (other than statutory
liens for Taxes not yet delinquent) upon the assets of Company;
and
(v) Company is not a person other than a United States
person within the meaning of the IRC.
3.14 Accounts Receivable. Company has delivered or made available to
Buyer a true, correct and complete list of all accounts receivable, including
an aging thereof as of June 30, 1996. All accounts receivable arose out of the
sales of inventory or services in the ordinary course of business and are
collectible in the face value thereof within ninety (90) days of the date of
invoice, using normal collection procedures, net of the reserve for doubtful
accounts as set forth thereon, which reserve is adequate and was calculated in
accordance with generally accepted accounting principles consistently applied.
3.15 Books and Records. The general ledgers and books of account of
Company, all federal, state and local income, franchise, property and other tax
returns filed by Company, with respect to the assets, and all other books and
records of Company are in all material respects complete and correct and have
been maintained in accordance with good business practice and in accordance
with all applicable procedures required by laws and regulations.
3.16 Contracts and Commitments.
(a) Schedule 3.16 contains a true, complete and correct list
and description of the following contracts and agreements, whether
written or oral (collectively, the "Contracts"):
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(i) all loan agreements, indentures, mortgages and
guaranties to which Company is a party or by which Company or any
of its property is bound involving a commitment or obligation of
more than Ten Thousand Dollars ($10,000.00);
(ii) all pledges, conditional sale or title retention
agreements, security agreements, equipment obligations, personal
property leases and lease purchase agreements relating to any of
the assets to which Company is a party or by which Company or any
of its property is bound which involve payment or receipts or a
commitment of more than Ten Thousand Dollars ($10,000.00);
(iii) all contracts, agreements, commitments purchase
orders or other understandings or arrangements to which Company
is a party or by which Company or any of its property is bound
which (A) involve payments or receipts by Company of more than
Ten Thousand Dollars ($10,000.00) during any twelve (12) month
period in the case of any single contract, agreement, commitment,
understanding or arrangement under which full performance
(including payment) has not been rendered by all parties thereto
or (B) which may materially adversely affect the condition
(financial or otherwise) or the properties, assets, business or
prospects of Company;
(iv) all collective bargaining agreements, employment
and consulting agreements, executive compensation plans, bonus
plans, deferred compensation agreements, pension plans,
retirement plans, employee stock option or stock purchase plans
and group life, health and accident insurance and other employee
benefit plans, agreements, arrangements or commitments to which
Company is a party or by which Company or any of its property is
bound, if any;
(v) all agency, distributor, sales representative and
similar agreements to which Company is a party, if any;
(vi) all material contracts, agreements or other
understandings or arrangements among Company, any of its
shareholders or any affiliate of Company;
(vii) all material leases, whether operating, capital or
otherwise, under which Company is lessor or lessee; and
(viii) any other material agreement or contract entered
into by Company.
Except as otherwise expressly stated to the contrary, for the
purposes of this Section 3.16, the term "material" shall mean
obligations in excess of Twenty-Five Thousand Dollars ($25,000.00).
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(b) Except as set forth on Schedule 3.16:
(i) each Contract is a valid and binding agreement of
Company, enforceable against Company in accordance with its
terms, and Company does not have any knowledge that any Contract
is not a valid and binding agreement of the other parties
thereto, except as may be limited or affected by applicable
bankruptcy, insolvency, moratorium, reorganization or other laws
of general application relating to or affecting creditors' rights
generally;
(ii) Company has fulfilled all material obligations
required pursuant to the Contracts to have been performed by
Company on its part prior to the date hereof, and Company has no
reason to believe that Company will not be able to fulfill, when
due, all of its obligations under the Contracts which remain to
be performed after the date hereof;
(iii) Company is not in breach of or in default under any
Contract, and no event has occurred which with the passage of
time or giving of notice or both would constitute such a default,
result in a loss of rights or result in the creation of any lien,
charge or encumbrance, thereunder or pursuant thereto;
(iv) there is no existing breach or default by any other
party to any Contract, and no event has occurred which with the
passage of time or giving of notice or both would constitute a
default by such other party, result in a loss of rights or result
in the creation of any lien, charge or encumbrance thereunder or
pursuant thereto;
(v) Company is not restricted by any Contract from
carrying on its business anywhere in the world; and
(vi) Company has no written or oral Contracts to sell
products or perform services which are expected to be performed
at, or to result in, a loss.
(c) Except as set forth on Schedule 3.16, the continuation,
validity and effectiveness of each Contract will not be affected by the
transactions contemplated by this Agreement and all such Contracts are
assignable to Buyer without a consent, or with consent which shall be
obtained prior to the Closing Date.
(d) True, correct and complete copies of all Contracts have
previously been delivered or made available by Company to Buyer.
3.17 Compliance with Agreements and Laws. Company has all requisite
licenses, permits and certificates, including environmental, health and safety
permits, from federal, state and local authorities necessary to conduct its
business and own and operate its assets (collectively, the "Permits"), except
where the failure to have such licenses, permits and certificates would not
have
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a material adverse effect on the business or financial condition of Company.
Except as set forth on Schedule 3.17, Company is not in violation of any law,
regulation or ordinance (including, without limitation, laws, regulations or
ordinances relating to building, zoning, environmental, disposal of hazardous
substances, land use or similar matters) relating to its properties, the
violation of which would have a material adverse effect on Company or its
properties; and the business of Company does not violate, in any material
respect, any federal, state, local or foreign laws, regulations or orders
(including, but not limited to, any of the foregoing relating to employment
discrimination, occupational safety, environmental protection, hazardous waste
(as defined in the Resource Conservation and Recovery Act, as amended, and the
regulations adopted pursuant thereto), conservation, or corrupt practices), the
enforcement of which would have a material and adverse effect on the results of
the operations, condition (financial or otherwise), assets, properties,
business or prospects of Company. Except as set forth on Schedule 3.17,
Company has not received any notice or communication from any federal, state or
local governmental or regulatory authority or otherwise of any such violation
or noncompliance.
3.18 Employee Relations.
(a) Company is in compliance with all federal, state and
municipal laws respecting employment and employment practices, terms and
conditions of employment, and wages and hours, and is not engaged in any
unfair labor practice, and there are no arrears in the payment of wages
or social security taxes;
(b) none of the employees of Company is represented by any
labor union;
(c) there is no unfair labor practice complaint against
Company pending before the National Labor Relations Board or any state
or local agency;
(d) there is no pending labor strike or other material labor
trouble affecting Company (including, without limitation, any
organizational drive);
(e) there is no material labor grievance pending against
Company;
(f) there is no pending representation question respecting the
employees of Company before any local, state or federal agency; and
(g) there are no pending arbitration proceedings arising out
of or under any collective bargaining agreement to which Company is a
party, or to the best knowledge of Company, any basis for which a claim
may be made under any collective bargaining agreement to which Company
is a party.
(h) Schedule 3.18 sets forth a true, correct and complete
description of all contracts or agreements between Company and its
employees, including the job descriptions and salary or wage rates of
each of its employees, showing separately for each such person who
received an annual salary in excess of Twenty Thousand Dollars
($20,000.00) the
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amounts paid or payable as salary and bonus payments for the twelve (12)
month period ended June 30, 1996.
(i) For purposes of this Section 3.18, the term "employee"
shall be construed to include sales agents and other independent
contractors who spend a majority of their working time on Company's
business and who earn at least Twenty Thousand Dollars ($20,000.00)
annually.
3.19 Absence of Certain Changes or Events. Except as set forth on
Schedule 3.19, since June 30, 1996, Company has not entered into any
transaction which is not in the usual and ordinary course of business, and,
without limiting the generality of the foregoing, Company has not:
(a) Incurred any material obligation or liability for borrowed
money;
(b) Discharged or satisfied any lien or encumbrance or paid
any obligation or liability, other than in the ordinary course of
business consistent with Company's prior business practice, other than
current liabilities reflected in the Current Balance Sheet;
(c) Mortgaged, pledged or subjected to lien, charge or other
encumbrance any of the assets other than in the ordinary course of
business consistent with Company's prior business practice;
(d) Sold or purchased, assigned or transferred any of its
tangible assets or canceled any debts or claims, except for inventory
sold and assets purchased in the ordinary course of business;
(e) Made any material amendment to or termination of any
Contract or done any act or omitted to do any act which would cause the
breach of any Contract;
(f) Suffered any losses, whether insured or uninsured, and
whether or not in the control of Company, in excess of Five Thousand
Dollars ($5,000.00) in the aggregate, or waived any rights of any value;
(g) Made any changes in compensation of its officers,
directors or employees inconsistent with past practice;
(h) Received notice of any litigation, warranty claim or
products liability claims; or
(i) Made any material change in the terms, status or funding
condition of any "employee plan," as defined in Section 3.22 hereof.
3.20 Suppliers. To Company's best knowledge, Schedule 3.20 sets forth
a true, correct and complete list of the names and addresses of the ten
suppliers of Company which accounted for the
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largest dollar volume of purchases by Company for the fiscal year ending
December 31, 1995, and for the subsequent period ended June 30, 1996. None of
such suppliers has notified Company that it intends to discontinue its
relationship with Company.
3.21 Trade Names and Other Intellectual Property.
(a) To the best knowledge of Company, Schedule 3.21 sets forth
a true, correct and complete list and, where appropriate, a description
of, all patents, patent applications, trade names, trademarks, trademark
applications for registration and registrations, copyright registrations
("Intellectual Property") used in the operation of the business of
Company. To the best knowledge of Company, true, correct and complete
copies of all such Intellectual Property have been previously delivered
or made available by Company to Buyer.
(b) Except as disclosed in Schedule 3.21, to the best
knowledge of Company, Company is the sole and exclusive owner of all
Intellectual Property and all designs, permits, labels and packages used
on or in connection therewith. Except as disclosed in Schedule 3.21,
Company has received no notice of, and Company has no knowledge of any
basis for, a claim against it that any of its operations, activities,
products or publications infringes on any patent, trademark, trade name,
copyright or other property right of a third party, or that, to the
Shareholders' knowledge, it is illegally or otherwise using the trade
secrets, formulae or any property rights of others. Except as disclosed
in Schedule 3.21, Company has no disputes with or claims against any
third party for infringement by such third party of any trade name or
other Intellectual Property of Company.
3.22 Employee Benefit Plans. Except as set forth on Schedule 3.22,
Company is not a party to, does not contribute to or maintain, and does not
have any current or future obligation or liability with respect to, any
pension, profit sharing, or other "employee pension benefit plan" (within the
meaning of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")); any life, health, accident, disability, severance or other
"employee welfare benefit plan" (within the meaning of ERISA); or any other
"employee benefit plan" which is subject to ERISA (hereinafter collectively
referred to as "Benefit Plans"). With respect to those Benefit Plans set forth
on Schedule 3.22:
(a) Each such Benefit Plan (and each related trust, insurance
contract or fund) is in compliance in form and in operation with all
applicable requirements of ERISA, the IRC, and any applicable state law
or regulation; each such Benefit Plan has been administered in
accordance with its governing documents and all applicable laws and
regulations; and there has been no breach of fiduciary duty, prohibited
transaction, or other event with respect to any such Benefit Plan which
could result in an excise tax or other claim or liability against
Company, any Benefit Plan or any fiduciary of such Benefit Plan. The
requirements of IRC Section 4980B and Part 6 of Subtitle B of Title I of
ERISA relating to continuation of health coverage have been satisfied
with respect to each such Benefit Plan that is subject to such
requirements.
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(b) Each such Benefit Plan which is intended to be a
"qualified plan" for purposes of IRC Section 401(a) has received a
favorable determination letter from the Internal Revenue Service, and
each related trust which is intended to be exempt from taxation under
IRC Section 501(a) has been determined by the Internal Revenue Service
to be so exempt.
(c) Each such Benefit Plan is in compliance with the
applicable requirements for reporting and disclosure to participants
under ERISA with respect to that Benefit Plan, and all required annual
returns and other reports for each such Benefit Plan have been filed on
a timely basis with the Internal Revenue Service and the U.S. Department
of Labor.
(d) At no time during the five (5) calendar years preceding
the calendar year in which the Closing Date occurs has Company, or any
entity which is or was required to be aggregated with Company under IRC
Section 414, maintained or made any contributions to any defined benefit
pension plan or any multi-employer pension plan which is subject to
Title IV of ERISA.
(e) Upon request, Company will furnish to Buyer, with respect
to each such Benefit Plan, correct and complete copies of all plan
documents, all amendments, any related trust agreements, insurance
contracts or other funding arrangements, all current summary plan
descriptions and summaries of material modifications, the most recent
annual report (Form 5500 series), and the most recent Internal Revenue
Service determination letter, where applicable.
3.23 Regulatory Approvals. Except as set forth on Schedule 3.23, all
consents, approvals, authorizations and other requirements prescribed by any
law, rule or regulation which must be obtained or satisfied by Company and
which are necessary for the execution and delivery by Company of this Agreement
and the documents to be executed and delivered by Company in connection
herewith have been, or will be prior to the Closing Date, obtained and
satisfied.
3.24 Indebtedness To and From Officers, Directors and Shareholders.
Except as set forth on Schedule 3.24, Company is not indebted, directly or
indirectly, to any person who is an officer, director or shareholder of Company
or any affiliate of any such person in any amount whatsoever other than for
salaries for services rendered or reimbursable business expenses, and no such
officer, director, shareholder or affiliate is indebted to Company, except for
advances made to employees of Company in the ordinary course of business to
meet reimbursable business expenses anticipated to be incurred by such obligor.
Any amounts owed to a Shareholder by Company shall be paid to such Shareholder
by Company prior to the Closing. Any amounts owed by a Shareholder to Company
shall be paid by such Shareholder prior to the Closing.
3.25 Powers of Attorney and Suretyships. Company has no general or
special powers of attorney outstanding (whether as grantor or grantee thereof)
and has no obligation or liability (whether actual, accrued, accruing,
contingent or otherwise) as guarantor, surety, co-▇▇▇▇▇▇, endorser, co-maker,
indemnitor or otherwise in respect of the obligation of any person,
corporation,
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partnership, joint venture, association, organization or other entity, except
as endorser or maker of checks or letters of credit, respectively, endorsed or
made in the ordinary course of business.
3.26 Disclosure. To the best knowledge of Company, no representation
or warranty by Company or any Shareholder in this Agreement or in any Schedule
or Exhibit hereto, or in any list, statement, document or information set forth
in or attached to any Schedule delivered or to be delivered pursuant to this
Agreement, contains or will contain any untrue statement of a material fact.
IV.
REPRESENTATIONS OF BUYER AND SURVIVING SUBSIDIARY
Each of Buyer and Surviving Subsidiary represents and warrants to
Company and the Shareholders as follows:
4.1 Organization and Authority. Each of Buyer and Surviving
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the State of Texas and has requisite power and
authority (corporate and other) to own its properties and to carry on its
business as now being conducted. Each of Buyer and Surviving Subsidiary has
full power to execute and deliver this Agreement and to consummate the
transactions contemplated hereby and thereby. Certified copies of the Articles
of Incorporation, the Bylaws of each of Buyer and Surviving Subsidiary as
amended to date, and the Certificate of Designation with respect to shares of
Buyer Preferred Stock have been previously or will be prior to the Closing
delivered to Company, are complete and correct, and no amendments have been
made thereto or have been authorized since the date thereof.
4.2 Authorization. The execution and delivery of this Agreement by
each of Buyer and Surviving Subsidiary, and the agreements provided for herein,
and the consummation by each of Buyer and Surviving Subsidiary of all
transactions contemplated hereby, have been duly authorized by all requisite
corporate action. This Agreement and all such other agreements and written
obligations entered into and undertaken in connection with the transactions
contemplated hereby constitute the valid and legally binding obligations of
each of Buyer and Surviving Subsidiary, enforceable against each of Buyer and
Surviving Subsidiary in accordance with their respective terms.
4.3 Regulatory Approvals. All consents, approvals, authorizations
and other requirements prescribed by any law, rule or regulation which must be
obtained or satisfied by Buyer or Surviving Subsidiary and which are necessary
for the consummation of the transactions contemplated by this Agreement have
been, or will be prior to the Closing Date, obtained and satisfied.
4.4 Issuance of Shares. The issuance and delivery of the shares of
Buyer Common Stock and Buyer Preferred Stock by Buyer in accordance with this
Agreement have been, or prior to the Closing, will be, duly authorized by all
necessary corporate action on the part of Buyer, and all the
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shares of Buyer Common Stock and Buyer Preferred Stock have been duly reserved
for issuance. The shares of Buyer Common Stock and Buyer Preferred Stock, when
issued and delivered in accordance with the provisions of this Agreement will
be duly and validly issued, fully paid and nonassessable.
4.5 Surviving Subsidiary as New Corporation. Surviving Subsidiary is
a newly-formed corporation with no history of operations. Surviving
Subsidiary's authorized capital stock consists of One Thousand (1,000) shares
of common stock, $.01 par value, of which no shares are issued and outstanding.
There are no outstanding options to purchase any of said stock.
4.6 Buyer as Recently Operating Corporation. As of the date of this
Agreement, Buyer has had limited operations. Its authorized capital consists
of Twenty Million (20,000,000) shares of Buyer Common Stock and Ten Million
(10,000,000) shares of preferred stock, of which Two Million (2,000,000) shares
shall be designated as Series A Convertible Preferred Stock (i.e., Buyer
Preferred Stock) pursuant to the Certificate of Designation attached hereto as
Exhibit 1.9. Except as set forth in Schedule 4.6 hereto, there are no shares
of Buyer Common Stock or Preferred Stock issued and outstanding and no
outstanding options to purchase any stock of Buyer.
4.7 Litigation. Neither Buyer nor Surviving Subsidiary is the
subject of any claims, actions, proceedings, pending or threatened against
either of them, which if decided adversely, would materially and adversely
affect their respective businesses, assets or operations. As of the date
hereof, neither Buyer nor Surviving Subsidiary is subject to any order,
judgment, injunction or decree which will materially and adversely affects
their respective businesses, assets or operations.
4.8 Indebtedness To and From Officers, Directors and Shareholders.
Except as set forth on Schedule 4.8, Buyer and Surviving Subsidiary are not
indebted, directly or indirectly, to any person who is an officer, director or
shareholder of Buyer and/or Surviving Subsidiary or any affiliate of any such
entity in any amount whatsoever other than for salaries, and no such officer,
director, shareholder or affiliate is indebted to Buyer and/or Surviving
Subsidiary.
4.9 Disclosure. To the best knowledge of Buyer, no representation or
warranty by Buyer and Surviving Subsidiary in this Agreement or in any Schedule
or Exhibit hereto, or in any list, statement, document or information set forth
in or attached to any Schedule delivered or to be delivered pursuant to this
Agreement, contains or will contain any untrue statement of a material fact.
This representation and warranty shall not apply to any financial valuation,
financial projection or other financial information concerning Buyer and
Surviving Subsidiary provided to the Shareholders or Company pursuant to
Section 2.5 hereof.
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V.
ACCESS TO INFORMATION; PUBLIC ANNOUNCEMENTS
5.1 Access to Management, Properties and Records.
(a) From the date of this Agreement until the Closing Date,
Company shall afford the officers, attorneys, accountants and other
authorized representatives of Buyer access upon reasonable notice and
during normal business hours to all management personnel, offices,
properties, books and records of Company, so that Buyer may have a
reasonable opportunity to make such investigation as it shall desire to
make of the management, business, properties and affairs of Company, and
Buyer shall be permitted to make abstracts from, or copies of, all such
books and records. Company shall furnish to Buyer such financial and
operating data and other information as to the business of Company as
Buyer shall reasonably request.
(b) If Buyer, at its option and expense, prior to the Closing
Date, elects to have a report or reports prepared by an engineer or
other professional selected by Buyer, certifying that the real property
associated with the business of Company (i) complies with all applicable
federal, state and local environmental and wetlands laws, rules and
regulations and that there is not now, and never has been, manufacture,
storage, or disposal of hazardous wastes at the real estate in violation
of said laws, rules and regulations, and (ii) complies with all
applicable building, health and fire codes, and subdivision control
laws, rules and regulations, Company shall cooperate with such engineer
or professional to the extent necessary to prepare such reports,
including, without limitation, providing such engineer or professional
access to such real property and necessary records, and arranging
interviews with employees of Company.
(c) Company shall authorize the release to Buyer of all files
pertaining to Company, or the business or operations of Company held by
any federal, state, county or local authorities, agencies or
instrumentalities.
(d) After the Closing Date, Buyer shall afford the
Shareholders and their attorneys, accountants and other authorized
representatives access, on reasonable notice during regular business
hours, to all books and records of Company, and Buyer shall permit the
making of abstracts from or copies of all such books and records.
5.2 Confidentiality. All information not previously disclosed to the
public or generally known to persons engaged in the respective businesses of
Company or Buyer which shall have been furnished by Buyer or Company to the
other party in connection with the transactions contemplated hereby or as
provided pursuant to this Article V shall not be disclosed to any person other
than their respective employees, directors, attorneys, accountants or financial
advisors, other than as contemplated herein or other than as required by
applicable law. In the event that the transactions contemplated by this
Agreement shall not be consummated, all such information which shall be in
writing shall be returned to the party furnishing the same, including, to the
extent reasonably practicable, all copies or reproductions thereof which may
have been prepared, and neither party
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shall at any time thereafter disclose to third parties, or use, directly or
indirectly, for its own benefit, any such information, written or oral, about
the business of the other party hereto. Notwithstanding the above, Buyer shall
include in its registration statement for the IPO and in the prospectus
included therewith information regarding Company, the business of Company, the
financial condition of Company and the terms of this Agreement. The duties of
confidentiality imposed under this Section 5.2 shall be in effect for a period
of three (3) years from the date of this Agreement.
5.3 Public Announcements. The Parties agree that prior to the
Closing Date, except as otherwise required by law, any and all public
announcements or other public communications concerning this Agreement and the
Merger shall be subject to the approval of all Parties.
VI.
PRE-CLOSING COVENANTS OF COMPANY
From and after the date hereof and until the Closing Date and completion
of the Merger, Company consents and agrees as follows:
6.1 Conduct of Business. Company shall carry on its business
diligently and substantially in the same manner as heretofore and shall not
make or institute any unusual or new methods of purchase, sale, shipment or
delivery, lease, management, accounting or operation, except as agreed to in
writing by Buyer which agreement shall not be unreasonably withheld. All of
the property of Company shall be used, operated, repaired and maintained in a
normal business manner consistent with past practice. ▇▇▇▇▇▇▇▇ shall continue
to serve as President and Congleton shall continue in his present capacity with
Company pending the Closing.
6.2 Absence of Material Changes. Without the prior written consent
of Buyer, which consent shall not be unreasonably withheld, Company shall not:
(a) (i) Take any action to amend its Articles of
Incorporation or Bylaws;
(ii) Issue any stock, bonds or other corporate
securities or grant any option or issue any warrant to purchase or
subscribe to any of such securities or issue any securities convertible
into such securities;
(iii) Incur any obligation or liability (absolute or
contingent), except current liabilities incurred and obligations under
contracts entered into in the ordinary course of business;
(iv) Declare or make any payment or distribution to its
shareholders with respect to their stock or purchase or redeem any
shares of its capital stock without first notifying Buyer in writing and
providing Buyer information regarding the nature and amount of such
payment or distribution;
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(v) Mortgage, pledge, or subject to any lien, charge or
any other encumbrance any of its assets except in the ordinary course of
business consistent with Company's prior business practices;
(vi) Sell, assign, or transfer any of its assets, except
for inventory sold in the ordinary course of business, at a normal
profit margin;
(vii) Cancel any debts or claims, except in the ordinary
course of business;
(viii) Merge or consolidate with or into any corporation
or other entity;
(ix) Make, accrue or become liable for any bonus, profit
sharing or incentive payment, except for accruals under existing plans,
if any, or increase the rate of compensation payable or to become
payable by it to any of its officers, directors or employees, other than
increases in the ordinary course of business consistent with past
practice;
(x) Make any election or give any consent under the IRC
or the tax statutes of any state or other jurisdiction or make any
termination, revocation or cancellation of any such election or any
consent or compromise or settle any claim for past or present tax due;
(xi) Modify, amend, alter or terminate any of its
executory contracts of a material value or which are material in amount;
(xii) Take or permit any act or constituting a breach or
default under any contract, indenture or agreement by which it or its
properties are bound;
(xiii) Fail to (A) preserve the possession and control of
its assets and business, (B) keep in faithful service its present
officers and key employees, (C) preserve the goodwill of its customers,
suppliers, agents, brokers and others having business relations with it,
and (D) keep and preserve its business existing on the date hereof until
after the Closing Date;
(xiv) Fail to operate its business and maintain its
books, accounts and records in the customary manner and in the ordinary
or regular course of business and maintain in good repair its business
premises, fixtures, inventory, furniture and equipment;
(xv) Enter into any leases, contracts, agreements or
understandings other than those entered into in the ordinary course of
business calling for payments which in the aggregate do not exceed Ten
Thousand Dollars ($10,000.00) for each such lease, contract, agreement
or understanding;
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(xvi) Create any new employment positions with a salary
in excess of Twenty Thousand Dollars ($20,000.00) per annum or replace
any existing employee with a salary not substantially similar to the
salary existing for such employee's position as of the date hereof,
provided that Buyer will not unreasonably withhold or delay its approval
of the creation of any such position or the hiring of any such person;
(xvii) Adopt any employee plan;
(xviii) Make any loans to any person or entity; or
(xix) Commit or agree to do any of the foregoing in the
future.
(b) Notwithstanding anything set forth above to the contrary,
Company shall have the right to distribute to the Shareholders as a
dividend prior to the Merger an amount in cash not to exceed Two Million
Eight Hundred Thousand Dollars ($2,800,000.00); provided, however, that
all of the operating assets of the Company shall be transferred to
Buyer.
6.3 Taxes. Company will, on a timely basis, file all tax returns for
and pay any and all taxes which shall become due on account of the operation of
the business of Company or the ownership of its assets on or prior to the
Closing Date except for those taxes which are being contested by Company in
good faith and of which Buyer has been notified in writing.
6.4 Delivery of Interim Financial Statements. As promptly as
possible following the last day of each month after the date hereof and prior
to the Closing Date, and in any event within fifteen (15) days after the end of
each such month, Company shall deliver to Buyer its balance sheet and related
statements of income, shareholders equity, retained earnings and changes in
financial condition for the one month period then ended, all certified by the
chief financial officer (collectively, the "Interim Financial Statements").
6.5 Compliance with Laws. Company will comply with all laws and
regulations which are applicable to it, its ownership of the assets or to the
conduct of its business and will perform and comply with all contracts,
commitments and obligations by which it is bound, except where the failure to
so comply would not have a material adverse effect on the assets, operations,
business or financial condition of Company.
6.6 Continued Truth of Representations and Warranties of the
Shareholders and Company. Neither the Shareholders nor Company will take any
actions which would result in any of the representations or warranties set
forth in Articles II or III, respectively, hereof being untrue in any material
respect (other than those representations or warranties which are qualified as
to materiality, as to which neither the Shareholders nor Company will take any
actions which would result in any of such representations or warranties being
untrue in any respect).
6.7 Continuing Obligation to Inform. From time to time prior to the
Closing, Company will deliver or cause to be delivered to Buyer supplemental
information concerning events
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subsequent to the date hereof which would render any statement, representation,
schedule or warranty in this Agreement or any information contained in any
Schedule inaccurate or incomplete in any material respect at any time after the
date hereof until the Closing Date.
6.8 Exclusive Dealing. As long as this Agreement is in effect,
Company and the Shareholders will not, directly or indirectly, through any
officer, director, agent or otherwise, (a) solicit, initiate or encourage
submission of proposals or offers from any person relating to any acquisition
or purchase of all or a material portion of its assets, or any equity interest
in, Company or any equity investment, merger, consolidation or business
combination with Company, or (b) participate in any substantive discussions or
negotiations regarding, or furnish to any other person, any nonpublic
information with respect to, or otherwise cooperate in any way with, or assist
or participate in, facilitate or encourage, any effort or attempt by any other
person to do or seek any of the foregoing. Company or the Shareholders shall
promptly notify Buyer if any such proposal or offer, or any inquiry or contact
with any person with respect thereto, is made.
6.9 No Publicity. Company and the Shareholders shall make no public
announcement with respect to this Agreement or the transactions contemplated
hereby without the express prior consent of Buyer pursuant to Article V hereto.
Company and the Shareholders shall hold in confidence, and use their best
efforts to have all of their respective officers, directors and personnel hold
in confidence, the terms of this Agreement and the transactions contemplated
hereby.
6.10 Revised Schedules.
(a) Company's Schedules.
(i) No later than 5:00 p.m., Dallas time, on August 24,
1996, Company shall deliver to Buyer revised "redlined" versions, if
any, of the Schedules made a part of this Agreement. Buyer shall have
until 5:00 p.m., Dallas time, on August 28, 1996 to review and approve
such Schedules. Failure of Buyer to respond by 5:00 p.m., Dallas time,
on August 28, 1996, shall constitute approval thereof. In the Buyer
objects to any material change in the revised Schedule(s), Buyer shall
have the right to terminate this Agreement upon written notice to
Company and the Shareholders delivered by 5:00 p.m. on August 28, 1996.
In the event Buyer notifies Company and the Shareholders of its desire
to terminate this Agreement as provided herein, Company shall have until
5:00 p.m. on August 31, 1996 to remove the revised Schedules(s) or
otherwise delete the objectional materials and to close without such
Schedule(s) or materials being included therein. If the Company does
not remove the objectionable Schedules(s) or materials prior to 5:00
p.m. on August 31, 1996, then Buyer shall in writing either elect to
proceed to close this transaction without change in the objectionable
Schedule(s) or materials or to terminate this Agreement.
(ii) Consistent with its obligations under Section 6.7,
Company shall deliver to Buyer, no later than five (5) days prior to the
date of Buyer's preliminary prospectus for the IPO, any supplemental
information concerning events subsequent to the date of this Agreement.
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(iii) At any time prior to ten (10) business days before
the Closing, the Company shall have the right to deliver to Buyer
revised "redlined" Schedules. Buyer shall have the right to notify the
Company within five (5) business days of its receipt of the revised
Schedules of Buyer's objection to any material change in such Schedules
and of its election to terminate this Agreement. Failure of Buyer to
notify the Company of its election to terminate this Agreement within
five (5) business days of receipt of the revised Schedules shall
constitute approval thereof.
(b) Buyer's Schedules. No later than 5:00 p.m., Dallas time,
on August 24, 1996, Buyer shall deliver to Company any revised
"redlined" versions, if any, of the Schedules made a part of this
Agreement.
VII.
CONDITIONS TO OBLIGATIONS OF BUYER
The obligations of Buyer under this Agreement are subject to the
fulfillment, at the Closing Date, of the following conditions precedent, each
of which may be waived in writing in the sole discretion of Buyer:
7.1 Continued Truth of Representations and Warranties of Company;
Compliance with Covenants and Obligations. The representations and warranties
of Company and the Shareholders shall be true on and as of the Closing Date in
all material respects (other than those representations or warranties which are
qualified as to materiality, which representations and warranties shall be true
in all respects) as though such representations and warranties were made on and
as of such date, except for any changes permitted by the terms hereof or
consented to in writing by Buyer. Company and the Shareholders shall have
performed and complied in all material respects with all terms, conditions,
covenants, obligations, agreements and restrictions required by this Agreement
to be performed or complied with by it or them prior to or at the Closing Date.
7.2 Corporate Proceedings. All corporate and other proceedings
required to be taken on the part of Company or the Shareholders to authorize or
carry out this Agreement shall have been taken. The Shareholders shall have
unanimously approved the Merger and the transactions contemplated hereby.
7.3 Governmental Approvals. All governmental agencies, departments,
bureaus, commissions and similar bodies, the consent, authorization or approval
of which is necessary under any applicable law, rule, order or regulation for
the consummation by Company and the Shareholders of the transactions
contemplated by this Agreement and the operation of Company's business by Buyer
shall have consented to, authorized, permitted or approved such transactions.
7.4 Consents of Lenders, Lessors and Other Third Parties. Company
and the Shareholders shall have received all requisite consents and approvals
of all lenders, lessors and other third parties whose consent or approval is
required for Company to consummate the transactions contemplated by this
Agreement.
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7.5 Adverse Proceedings. No action or proceeding by or before any
court or other governmental body shall have been instituted or threatened by
any governmental body or person whatsoever which shall seek to restrain,
prohibit or invalidate the transactions contemplated by this Agreement.
7.6 Review of Company Financial Statements. Buyer shall have
received satisfactory review from its designated representatives of Company's
financial statements for the period ended June 30, 1996, that discloses no
material adverse change in the financial condition of Company and the results
of operations of Company.
7.7 Adaptability of Company's Financial Statements. The Interim
Financial Statements of Company must, in the opinion of Buyer's independent
public accountant, be suitable or readily adaptable for inclusion in the
registration statements, prospectuses and annual reports to be filed by Buyer
with the SEC.
7.8 Review of Company's Compliance. Buyer shall have received a
satisfactory review from its designated representatives of Company's regulatory
practices and procedures, including, but not limited to, compliance with
federal, state and local laws and regulations governing Company's operations,
which discloses no material actual or probable violations, compliance problems
required capital expenditures or other substantive problem.
7.9 Update. Company shall have provided Buyer with a true, correct
and complete list of any material changes, as of the Closing Date, to the
inventory, the fixed assets, and the accounts receivable, including an aging
thereof.
7.10 Payables. On the Closing Date, Company will not have any
outstanding liabilities or unsatisfied obligations other than the leases,
utilities, employee wages (not more than seven (7) days in arrears), benefits
and other operating expenses incurred in the ordinary course of business.
7.11 Closing Deliveries. Buyer shall have received at or prior to the
Closing each of the following documents:
(a) From Escrow Agent the certificates evidencing Company
shares owned by the Shareholders for cancellation in connection with the
Merger, Company's stock record books and stock transfer books and the
Articles of Merger executed by Company;
(b) such contracts, files and other data and documents
pertaining to Company's business as Buyer may reasonably request;
(c) copies of the general ledgers and books of account of
Company, and all federal, state and local income, franchise, property
and other tax returns filed by Company since January 1, 1991;
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(d) such certificates of Company's officers and such other
documents evidencing satisfaction of the conditions specified in Article
VIII as Buyer shall reasonably request;
(e) a certificate of the Secretary of State of the State of
Texas as to the legal existence and good standing (including tax) of
Company in Texas;
(f) certificates of the Secretary of Company attesting to the
incumbency of Company's officers, respectively, the authenticity of the
resolutions authorizing the transactions contemplated by the Agreement,
and the authenticity and continuing validity of the charter documents
delivered pursuant to Section 3.1;
(g) the forms of Spousal Consents in the form attached hereto
as Exhibit 2.3, executed by each Shareholder's respective spouse; and
(h) such other documents, instruments or certificates as Buyer
may reasonably request.
VIII.
CONDITIONS TO OBLIGATIONS OF COMPANY AND THE SHAREHOLDERS
The obligations of Company and the Shareholders under this Agreement are
subject to the fulfillment, at the Closing Date, of the following conditions
precedent, each of which may be waived in writing at the sole discretion of
Company and the Shareholders:
8.1 Continued Truth of Representations and Warranties of Buyer;
Compliance with Covenants and Obligations. The representations and warranties
of Buyer in this Agreement shall be true on and as of the Closing Date in all
material respects (other than those representations or warranties which are
qualified as to materiality, which representations and warranties shall be true
in all respects) as though such representations and warranties were made on and
as of such date, except for any changes consented to in writing by Company.
Buyer shall have performed and complied in all material respects with all
terms, conditions, obligations, agreements and restrictions required by this
Agreement to be performed or complied with by it prior to or at the Closing
Date.
8.2 Corporate Proceedings. All corporate and other proceedings
required to be taken on the part of Buyer to authorize or carry out this
Agreement shall have been taken.
8.3 Governmental Approvals. All governmental agencies, departments,
bureaus, commissions and similar bodies, the consent, authorization or approval
of which is necessary under any applicable law, rule, order or regulation for
the consummation by Buyer of the transactions contemplated by this Agreement
shall have consented to, authorized, permitted or approved such transactions.
8.4 Consents of Third Parties. Buyer shall have received all
requisite consents and approvals of all third parties whose consent or approval
is required in order for Buyer to consummate
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the transactions contemplated by this Agreement, including, without limitation,
those set forth on Schedule 8.4 attached hereto.
8.5 Adverse Proceedings. No action or proceeding by or before any
court or other governmental body shall have been instituted or threatened by
any governmental body or person whatsoever which shall seek to restrain,
prohibit or invalidate the transactions contemplated by this Agreement.
8.6 Closing Deliveries. Company and the Shareholders shall have
received at or prior to the Closing each of the following:
(a) the Merger Consideration;
(b) such certificates of Buyer's officers and such other
documents evidencing satisfaction of the conditions specified in this
Article VIII as Company shall reasonably request;
(c) a certificate of the Secretary of State of the State of
Texas as to the legal existence and good standing (including tax) of
Buyer in Texas;
(d) a certificate of the Secretary of Buyer attesting to the
incumbency of Buyer's officers, the authenticity of the resolutions
authorizing the transactions contemplated by this Agreement, and the
authenticity and continuing validity of the charter documents delivered
pursuant to Section 4.1;
(e) Buyer shall have executed a three-year employment contract
with Congleton and a one-year consulting agreement with ▇▇▇▇▇▇▇▇ in the
forms attached hereto collectively as Exhibit 8.6(e); and
(f) such other documents, instruments or certificates as
Company may reasonably request.
8.7 Tax Opinion. Company and the Shareholders shall have received
the opinion of Wolin, Fuller, ▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP, dated as of the Closing
Date, to the effect that (i) the Merger shall constitute a reorganization under
Section 368(a) of the IRC; (ii) Buyer, Company and Surviving Subsidiary will
each be a party to that reorganization; (iii) no gain or loss shall be
recognized by the Shareholders upon the receipt of the Buyer Common Stock and
the Buyer Preferred Stock pursuant to the Merger; and (iv) gain or loss shall
be recognized by the Shareholders who receive the Cash Portion, if the Company
shares were held by such Shareholders as a capital asset at the time of the
consummation of the Merger.
8.8 Release of Personal Guaranties. Buyer shall cause the
Shareholders to be released within one hundred twenty (120) days after the IPO
Funding from any personal guaranties made by
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the Shareholders of any indebtedness of Company, which guaranties are set forth
on Schedule 8.8 hereto.
8.9 Election of Directors. As of the Effective Time of the Merger,
▇▇▇▇▇▇▇▇ and Congleton shall each have been elected to the Board of Directors
of Buyer to serve a three (3) year term. Messrs. ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ shall
deliver letters at Closing agreeing not to vote to remove without cause Messrs.
▇▇▇▇▇▇▇▇ and Congleton from the Board of Directors during such three-year term.
▇▇▇▇▇▇ ▇▇▇▇▇ shall be elected a director for a three (3) year term. Any other
nominees to the Board of Directors shall be approved by either ▇▇▇▇▇▇▇▇ or
Congleton, which approval shall not be unreasonably withheld. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
shall continue to serve as a director of Buyer. In the event that ▇▇▇▇▇▇▇▇
resigns from the Board, he shall have the right to nominate his successor to
serve the remainder of his term.
8.10 Delivery of Registration Statements to the Shareholders. Buyer
shall furnish to the Shareholders true and complete copies of all registration
statements and prospectuses filed by Buyer with the Securities and Exchange
Commission (the "SEC") relating to the IPO, all amendments and supplements
thereto and all documents and correspondence delivered to the SEC in connection
with the IPO.
IX.
INDEMNIFICATION
9.1 By Buyer, Surviving Subsidiary, Company, Congleton and ▇▇▇▇▇▇▇▇.
Buyer and Surviving Subsidiary on the one hand and Company, Congleton and
▇▇▇▇▇▇▇▇ on the other hand each hereby agree to indemnify and hold harmless the
other against all claims, damages, losses, liabilities, costs and expenses
(including, without limitation, settlement costs and any legal, accounting or
other expenses for investigating or defending any actions or threatened
actions) (collectively "Damages") reasonably incurred by Buyer or Surviving
Subsidiary or Company, Congleton and ▇▇▇▇▇▇▇▇ in connection with each and all
of the matters set forth below. The obligations of Congleton and ▇▇▇▇▇▇▇▇ to
indemnify shall be several and shall be expressly limited as set forth below:
(a) Any breach by the indemnifying party of any representation
or warranty made by such Indemnifying Party (as defined below) in this
Agreement;
(b) Any breach of any covenant, agreement or obligation of the
indemnifying party contained in this Agreement or any other agreement,
instrument or document contemplated by this Agreement; and
(c) Any misrepresentation contained in any statement,
certificate or schedule furnished by the indemnifying party pursuant to
this Agreement or in connection with the transactions contemplated by
this Agreement.
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▇▇▇▇▇▇▇▇ and Congleton agree to indemnify Buyer for any breaches of any
representation or warranty, covenant, agreement or obligation of the Company
made or contained, respectively, in this Agreement or any other agreement,
instrument or document contemplated by this Agreement, or any misrepresentation
by Company, as described in (a) through (c) above; provided, however, that
▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇▇ shall have no obligation to indemnify Buyer hereunder
unless such Shareholder, as applicable, had actual knowledge of the subject
matter of such representation, warranty, covenant, agreement or obligation.
▇▇▇▇▇▇▇▇ shall be deemed to have knowledge of Tax matters.
9.2 Claims for Indemnification. Whenever any claim shall arise for
indemnification hereunder, the party seeking indemnification (the "Indemnified
Party") shall promptly notify the party from whom indemnification is sought
(the "Indemnifying Party") of the claim and, when known, the facts constituting
the basis for such claim. No claim or claims for indemnification shall be
asserted against Congleton or ▇▇▇▇▇▇▇▇ unless the total amount of the
Indemnified Party's claim or claims for damages, excluding costs, fees,
attorneys' fees, and exemplary/punitive damages, equals individually or in the
aggregate at least One Hundred Fifty Thousand Dollars ($150,000.00). In the
event of any such claim for indemnification hereunder resulting from or in
connection with any claim or legal proceedings by a third party, the notice to
the Indemnifying Party shall specify, if known, the amount or an estimate of
the amount of the liability arising therefrom. The Indemnified Party shall not
settle or compromise any claim by a third party for which it is entitled to
indemnification hereunder without the prior written consent of the Indemnifying
Party, which shall not be unreasonably withheld, unless suit shall have been
instituted against it and the Indemnifying Party shall not have taken control
of such suit after notification thereof as provided in Section 9.3 of this
Agreement in which case the Indemnified Party may settle or compromise such
claim without the prior consent of the Indemnifying Party. If the Indemnified
Party fails to give prompt notice of any claim and such failure prejudices the
Indemnifying Party's position or its ability to defend the claim, the
Indemnifying Party's liability to the Indemnified Party shall be reduced by the
amount, if any, demonstrated to be directly attributable to the failure to give
such notice in a timely manner.
9.3 Defense by Indemnifying Party. In connection with any claim
giving rise to indemnity hereunder resulting from or arising out of any claim
or legal proceeding by a person who is not a party to this Agreement, the
Indemnifying Party at its sole cost and expense may, upon written notice to the
Indemnified Party, assume the defense of any such claim or legal proceeding if
it acknowledges to the Indemnified Party in writing its obligations to
indemnify the Indemnified Party with respect to all elements of such claim.
The Indemnified Party shall be entitled to participate in (but not control) the
defense of any such action, with its counsel and at its own expense. If the
Indemnifying Party does not assume the defense of any such claim or litigation
resulting therefrom within thirty (30) days after the date such claim is made,
(a) the Indemnified Party may defend against such claim or litigation, in such
manner as it may deem appropriate, including, but not limited to, settling such
claim or litigation, after giving notice of the same to the Indemnifying Party,
on such terms as the Indemnified Party may deem appropriate, and (b) the
Indemnifying Party shall be entitled to participate in (but not control) the
defense of such action, with its counsel and at its own expense. If the
Indemnifying Party thereafter seeks to question the
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manner in which the Indemnified Party defended such third party claim or the
amount or nature of any such settlement, the Indemnifying Party shall have the
burden to prove by a preponderance of the evidence that the Indemnified Party
did not defend or settle such third party claim in a reasonably prudent manner.
9.4 Payment of Indemnification Obligation. All indemnification by
Buyer, Company or a Shareholder hereunder shall be effected by payment by wire
transfer or delivery of a cashier's or certified check in the amount of the
indemnification liability. In no event shall any Shareholder be required to
pay to Buyer in accordance with this Article IX an aggregate amount greater
than the amount of the cash received by such Shareholder hereunder from Buyer
on the Closing Date.
9.5 Survival of Representations, Claims for Indemnification. All
representations and warranties made by the Parties herein or in any instrument
or document furnished in connection herewith shall survive the Closing and any
investigation at any time made by or on behalf of the Parties. All such
representations and warranties shall expire on the date which is twelve (12)
months after the Closing Date. Notwithstanding the above, claims resulting
from any breach of any representation or warranty concerning Tax or Employee
Benefit Plan matters shall expire one hundred twenty (120) days after the
expiration of any applicable statute of limitations.
X.
POST-CLOSING AGREEMENTS
The Parties agree that from and after the Closing Date as specifically
provided below:
10.1 Proprietary Information.
(a) The Shareholders shall hold in confidence, and use their
best efforts to have all of their agents, accountants and attorneys and
Affiliates hold in confidence, all knowledge and information of a secret
or confidential nature with respect to the business of Company and shall
not disclose, publish or make use of the same without the consent of
Buyer, except to the extent that such information shall have become
public knowledge other than by breach of this Agreement by the
Shareholders.
(b) The Shareholders agree that the remedy at law for any
breach of this Section 10.1 would be inadequate and that Buyer shall be
entitled to injunctive relief in addition to any other remedy it may
have upon breach of any provision of this Section 10.1.
10.2 No Solicitation or Hiring of Former Employees. Except as
provided by law, for a period of three (3) years after the Closing Date, no
Affiliate of Company (including the Shareholders) shall solicit any person who
was an employee of Company on the Closing Date to terminate his employment with
Company or Buyer or to become an employee of such Affiliate or an entity
controlled by such Affiliate or hire any person who was such an employee on the
date hereof or on the Closing Date.
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10.3 Non-Competition Agreement.
(a) For a period of three (3) years after the Closing Date,
the Shareholders or any entity owned or controlled by a Shareholder
shall not (i) market, rent or sell any product which has the same or
substantially the same form, function and primary application as any
existing or proposed product marketed, rented or sold by Company or
Buyer on or prior to the Closing Date or (ii) engage in any business
competitive with the business of Company or Buyer as conducted on the
date hereof or on the Closing Date, in the metropolitan areas where
Company conducted its business, provided that nothing herein shall
prohibit any Shareholder from owning not more than two percent (2%) of
the total outstanding stock of a publicly-held company which engages in
any business competitive with the business of Company as conducted on
the date hereof or on the Closing Date.
(b) The Parties agree that the duration and geographic scope
of the non-competition provision set forth in this Section 10.3 are
reasonable. In the event that any court determines that the duration or
the geographic scope, or both, are unreasonable and that such provision
is to that extent unenforceable, the Parties agree that the provision
shall remain in full force and effect for the greatest time period and
in the greatest area that would not render it unenforceable. The
Parties intend that this non-competition provision shall be deemed to be
a series of separate covenants, one for each and every county of each
and every state of the United States of America and each and every
political subdivision of each and every country outside the United
States of America where this provision is intended to be effective. The
Shareholders agree that damages are an inadequate remedy for any breach
of this provision and that Buyer shall, whether or not it is pursuing
any potential remedies at law, be entitled to equitable relief in the
form of preliminary and permanent injunctions without bond or other
security upon any actual or threatened breach of this non-competition
provision.
10.4 Use of Name. Each of the Shareholders agrees not to use the name
"BodyBilt" or any derivation thereof after the Closing Date in connection with
any business related to, competitive with, or an outgrowth of, the business
conducted by Company on the date hereof.
10.5 Cooperation in Litigation. Each Party will fully cooperate with
the other in the defense or prosecution of any litigation or proceeding already
instituted or which may be instituted hereafter against or by such Party
relating to or arising out of the conduct of the business of Company prior to
or after the Closing Date (other than litigation arising out the transactions
contemplated by this Agreement). The Party requesting such cooperation shall
pay the out-of-pocket expenses (including legal fees and disbursements) of the
Party providing such cooperation and of its officers, directors, employees and
agents reasonably incurred in connection with providing such cooperation, but
shall not be responsible to reimburse the Party providing such cooperation for
such Party's time spent in such cooperation or the salaries or costs of fringe
benefits or similar expenses paid by the Party providing such cooperation to
its officers, directors, employees and agents while assisting in the defense or
prosecution of any such litigation or proceeding.
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10.6 Payment of Obligations to Shareholders and Company. Within one
hundred twenty (120) days of the Closing Date, all amount unpaid to ▇▇▇▇▇▇▇▇
with respect to the Seventy-Five Thousand Dollar ($75,000.00) loan reflected on
Schedule 3.24 shall be paid to ▇▇▇▇▇▇▇▇ by Surviving Subsidiary in full.
Within one hundred twenty (120) days of the Closing Date, all amounts owed by
Congleton to Company with respect to the Thirty-Five Thousand Dollars loan
reflected on Schedule 3.24 shall be repaid by Congleton to Surviving Subsidiary
in full.
XI.
TERMINATION
11.1 Termination by Agreement of the Parties. This Agreement may be
terminated at any time by the mutual written agreement of the Parties. In the
event of such termination by agreement, Buyer shall have no further obligation
or liability to Company or the Shareholders under this Agreement, and Company
and the Shareholders shall have no further obligation or liability to Buyer
under this Agreement.
11.2 Termination by Reason of Breach. This Agreement may be
terminated by Company if, at any time prior to the Closing, there shall occur a
breach of any of the representations, warranties or covenants of Buyer or the
failure by Buyer to perform any condition or obligation hereunder, and may be
terminated by Buyer if at any time prior to the Closing there shall occur a
breach of any of the representations, warranties or covenants of Company and/or
the Shareholders or the failure of Company and/or the Shareholders to perform,
when due to be performed, any condition or obligation hereunder. In the event
of such termination by agreement, Buyer shall have no further obligation or
liability to Company under this Agreement, and Company and the Shareholders
shall have no further obligation or liability to Buyer under this Agreement.
11.3 Termination Upon Failure of IPO Funding. This Agreement shall
automatically terminate in the event the Shareholders have not received the
Merger Consideration as of 5:00 p.m., Dallas time, on March 20, 1997.
XII.
BROKERS
12.1 For Company and the Shareholders. Company and the Shareholders
represent and warrant that they have not engaged any broker or finder or
incurred any liability for brokerage fees, commissions or finder's fees in
connection with the transactions contemplated by this Agreement. The
Shareholders agree to indemnify and hold harmless Buyer against any claims or
liabilities asserted against it by any person acting or claiming to act as a
broker or finder on behalf of Company and/or the Shareholders.
12.2 For Buyer. Buyer represents and warrants that it has not engaged
any broker or finder or incurred any liability for brokerage fees, commissions
or finder's fees in connection with the transactions contemplated by this
Agreement. Buyer agrees to indemnify and hold harmless
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Company and the Shareholders against any claims or liabilities asserted against
it by any person acting or claiming to act as a broker or finder on behalf of
Buyer.
XIII.
NOTICES
Any notices or other communications required or permitted hereunder
shall be in writing and shall be sufficiently given if delivered personally or
sent by telex, federal express, registered or certified mail, postage prepaid,
addressed as follows or to such other address of which the parties may have
given notice:
To Company: BodyBilt Seating, Inc.
One BodyBilt Place
▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇
With a copy to: ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C.
5400 Renaissance Tower
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
To Buyer or the ErgoBilt, Inc.
Surviving Subsidiary: EB Subsidiary, Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
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Attention: ▇▇▇▇▇▇ ▇▇▇▇▇
With a copy to: Wolin, Fuller, ▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
3100 Bank One Center
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Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
To a Shareholder: ▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
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Unless otherwise specified herein, such notices or other communications
shall be deemed received (a) on the date delivered, if delivered personally; or
(b) three (3) business days after being sent, if sent by registered or
certified mail.
XIV.
ARBITRATION, VENUE, AND BINDING EFFECT
14.1 Arbitration. Any dispute, controversy or claim between or among
the Parties arising out of or relating to this Agreement, a breach hereof or
the transactions contemplated hereby, shall be settled by arbitration in
accordance with the provisions of this Article XV. Any arbitration pursuant to
this Article XV shall be conducted by a single arbitrator appointed by the
Houston, Texas, office of the American Arbitration Association upon the request
of a Party. The arbitrator shall have a minimum of five (5) years of
experience in the area of business relevant to the particular dispute. Each
Party shall be permitted to submit only one proposal to the arbitrator, and the
arbitrator shall be required to choose one of such two proposals as the
resolution of the dispute. The arbitrator may proceed to a resolution
notwithstanding the failure of a Party to participate in the proceedings. Each
Party shall pay such Party's own costs and expenses in connection with any such
arbitration, and the Parties shall share equally in the fees and expenses of
the arbitrator.
14.2 Venue/Binding Effect. The Parties agree that any such
arbitration will occur in College Station, Texas, any such arbitration award
shall be final and binding upon the Parties, may be entered in any court having
jurisdiction and shall not be appealable by either Party in any court.
XV.
SUCCESSORS AND ASSIGNS
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors and assigns, except that Buyer and
Company may not assign their respective obligations hereunder without the prior
written consent of the others; provided, however, that Buyer may assign this
Agreement, and its rights and obligations hereunder, to a subsidiary or
affiliate provided that such subsidiary or affiliate is the entity which
conducts or is anticipated to conduct the IPO. Any assignment in contravention
of this provision shall be void. No assignment shall release Buyer from any
obligation or liability under this Agreement.
XVI.
ENTIRE AGREEMENT; AMENDMENTS; ATTACHMENTS
This Agreement, all Schedules and Exhibits hereto, and all agreements
and instruments to be delivered by the Parties pursuant hereto represent the
entire understanding and agreement among the Parties with respect to the
subject matter hereof and supersede all prior oral and written and all
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contemporaneous oral negotiations, commitments and understandings among such
Parties, including that certain letter agreement among the Parties dated May
20, 1996. Buyer, Company and the Shareholders may amend or modify this
Agreement, in such manner as may be agreed upon, by a written instrument
executed by all Parties.
If the provisions of any Schedule or Exhibit to this Agreement are
inconsistent with the provisions of this Agreement, the provisions of the
Agreement shall prevail. The Exhibits and Schedules attached hereto or to be
attached hereafter are hereby incorporated as integral parts of this Agreement.
XVII.
EXPENSES
Except as otherwise expressly provided herein, Buyer on behalf of Buyer
and Surviving Subsidiary, and Company, on behalf of Company and the
Shareholders, shall each pay their own expenses in connection with this
Agreement and the transactions contemplated hereby. Buyer shall pay the costs
and expenses of any audit conducted by, or at the request of, Buyer, and
Company shall pay the costs and expenses of any accounting services provided to
Company and/or the Shareholders conducted by or at the request of Company
and/or the Shareholders in connection with the transactions contemplated hereby
(other than costs and expenses for accounting services provided to the
Shareholders after the Closing which shall be borne by the Shareholders).
XVIII.
LEGAL FEES
In the event legal proceedings are commenced by Buyer against Company
and/or the Shareholders, or by Company and/or the Shareholders against Buyer,
in connection with this Agreement or the transactions contemplated hereby, the
Party or Parties which do not prevail in such proceedings shall pay the
reasonable attorneys' fees and other costs and expenses, including
investigation costs, incurred by the prevailing Party or Parties in such
proceedings.
XIX.
GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of Texas.
XX.
SECTION HEADINGS
The section headings are for the convenience of the Parties and in no
way alter, modify, amend, limit, or restrict the contractual obligations of the
Parties.
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XXI.
SEVERABILITY
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
XXII.
COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which shall be one and the
same document.
[INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, this Agreement has been duly executed by the Parties as of
and on the date first above written.
BODYBILT SEATING, INC., A Texas Corporation
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
-----------------------------------
Printed Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: President
SHAREHOLDERS:
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
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▇▇▇▇ ▇▇▇▇▇▇▇▇
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▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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▇▇▇▇ ▇▇▇▇▇▇▇▇▇
ERGOBILT, INC., A Texas Corporation
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇
-----------------------------------
Printed Name: ▇▇▇▇▇▇ ▇▇▇▇▇
Title: President
EB Subsidiary, Inc., A Texas Corporation
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇
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Printed Name: ▇▇▇▇▇▇ ▇▇▇▇▇
Title: President
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