Exhibit 2.1
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AGREEMENT AND PLAN OF MERGER
by and among
AMREP CORPORATION
KABLE MEDIA SERVICES, INC.
▇▇▇▇ ▇▇▇▇▇ ACQUISITION, INC.
PALM COAST DATA HOLDCO, INC.
PALM COAST DATA, LLC
and
THE SELLERS SET FORTH ON THE SIGNATURE PAGE HERETO
Dated as of November 7, 2006
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TABLE OF CONTENTS
ARTICLE I THE MERGER
SECTION 1.1 The Merger....................................................2
SECTION 1.2 Closing Date and Effective Time...............................2
SECTION 1.3 Closing.......................................................3
ARTICLE II MERGER CONSIDERATION
SECTION 2.1 Conversion of Shares..........................................6
SECTION 2.2 Stock Appreciation Rights; Options; Phantom Debt..............7
SECTION 2.3 Pre-Closing Adjustment........................................9
SECTION 2.4 Post-Closing Adjustment......................................10
ARTICLE III REPRESENTATIONS AND WARRANTIES OF HOLDINGS
SECTION 3.1 Organization and Authority...................................12
SECTION 3.2 Capitalization...............................................13
SECTION 3.3 Consents and Approvals; No Violations........................14
SECTION 3.4 Financial Statements.........................................15
SECTION 3.5 Absence of Material Adverse Changes, etc.....................15
SECTION 3.6 No Undisclosed Liabilities...................................17
SECTION 3.7 Taxes........................................................17
SECTION 3.8 Employee Benefit Plans.......................................19
SECTION 3.9 Environmental Matters........................................21
SECTION 3.10 Legal Proceedings, etc.......................................22
SECTION 3.11 Compliance with Applicable Law...............................22
SECTION 3.12 Certain Contracts and Arrangements...........................23
SECTION 3.13 Real Property................................................25
SECTION 3.14 Employees; Labor Matters.....................................27
SECTION 3.15 Insurance....................................................27
SECTION 3.16 Intellectual Property........................................28
SECTION 3.17 Customers....................................................29
SECTION 3.18 Certain Fees.................................................29
SECTION 3.19 Title to Assets..............................................30
SECTION 3.20 Receivables..................................................30
SECTION 3.21 Suppliers....................................................30
SECTION 3.22 Geographic Limitations.......................................30
SECTION 3.23 Records......................................................30
SECTION 3.24 Bank Accounts................................................31
SECTION 3.25 Indebtedness.................................................31
SECTION 3.26 Absence of Certain Business Practices........................31
SECTION 3.27 Disclosure...................................................32
SECTION 3.28 Disclaimer of Warranties by Holdings.........................32
ARTICLE IV
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE SELLERS
SECTION 4.1 Organization and Authority...................................32
SECTION 4.2 Holdings Share Ownership.....................................33
SECTION 4.3 Consents and Approvals; No Violations........................33
SECTION 4.4 Certain Fees.................................................33
SECTION 4.5 Legal Proceedings, etc.......................................33
SECTION 4.6 Disclaimer of Warranties.....................................34
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
SECTION 5.1 Corporate Organization and Authority.........................34
SECTION 5.2 Consents and Approvals; No Violations........................35
SECTION 5.3 Legal Proceedings, etc.......................................36
SECTION 5.4 Certain Fees.................................................37
SECTION 5.5 Acquisition of Holdings Shares for Investment................37
SECTION 5.6 Financing....................................................37
SECTION 5.7 Investigation by Parent; Holdings' Liability.................37
SECTION 5.8 Disclaimer of Warranties.....................................38
ARTICLE VI COVENANTS
SECTION 6.1 Conduct of the Business......................................38
SECTION 6.2 Access to Information and Real Property; Confidentiality.....40
SECTION 6.3 Delivery of Monthly Financial Statements.....................40
SECTION 6.4 Reasonable Best Efforts......................................41
SECTION 6.5 Governmental Authorizations..................................41
SECTION 6.6 Public Announcements.........................................42
SECTION 6.7 Employee Matters.............................................42
SECTION 6.8 Tax Matters..................................................43
SECTION 6.9 Audit; Cooperation...........................................44
SECTION 6.10 Return of Insurance Receivables..............................44
SECTION 6.11 Update.......................................................45
SECTION 6.12 Further Assurances...........................................45
SECTION 6.13 Restrictive Covenants........................................45
ARTICLE VII CONDITIONS TO PARENT'S OBLIGATION TO CLOSE
SECTION 7.1 Representations and Warranties; Covenants....................48
SECTION 7.2 Absence of Legal Proceedings.................................49
SECTION 7.3 Consents and Terminations....................................49
SECTION 7.4 Additional Conditions........................................49
SECTION 7.5 HSR Act......................................................50
SECTION 7.6 Deliverables.................................................50
SECTION 7.7 Restructuring Transactions...................................50
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ARTICLE VIII CONDITIONS TO HOLDINGS' OBLIGATIONS TO CLOSE
SECTION 8.1 Representations and Warranties; Covenants....................50
SECTION 8.2 Absence of Legal Proceedings.................................50
SECTION 8.3 HSR Act......................................................50
SECTION 8.4 Deliverables.................................................51
ARTICLE IX TERMINATION
SECTION 9.1 Termination..................................................51
SECTION 9.2 Procedure and Effect of Termination..........................51
ARTICLE X INDEMNIFICATION
SECTION 10.1 Survival.....................................................52
SECTION 10.2 Indemnification Provisions for Benefit of Parent.............53
SECTION 10.3 Indemnification Provisions for Benefit of Sellers............55
SECTION 10.4 Special Indemnification Provisions for Benefit of Parent.....55
SECTION 10.5 Exclusive Remedy.............................................55
SECTION 10.6 Manner of Payment............................................56
ARTICLE XI MISCELLANEOUS
SECTION 11.1 Certain Definitions..........................................56
SECTION 11.2 Notices......................................................56
SECTION 11.3 Interpretation...............................................57
SECTION 11.4 Amendments, Modification and Waiver..........................57
SECTION 11.5 Expenses.....................................................58
SECTION 11.6 Release......................................................58
SECTION 11.7 Successors and Assigns; Binding Effect.......................58
SECTION 11.8 Governing Law................................................59
SECTION 11.9 Jurisdiction; Forum..........................................59
SECTION 11.10 Severability.................................................59
SECTION 11.11 Third Party Beneficiaries....................................59
SECTION 11.12 Schedules; Materiality.......................................59
SECTION 11.13 Entire Agreement.............................................60
SECTION 11.14 Counterparts; Facsimile Delivery.............................60
SECTION 11.15 Specific Performance.........................................60
SECTION 11.16 Sellers' Representative......................................61
ARTICLE XII GUARANTEE
SECTION 12.1 Publico Guarantee............................................62
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INDEX OF DEFINED TERMS
Action......................................................................22
Adverse Consequences........................................................55
Affected Employee...........................................................43
Affiliates..................................................................15
Aggregate Liquidation Preference.............................................7
Aggregate Option Amount......................................................8
Agreement....................................................................1
Annualized Adjusted EBITDA...................................................9
Annualized Adjusted Net Revenues............................................10
Applicable Option Amount.....................................................8
Applicable SAR Amount........................................................8
Audit.......................................................................45
Certificate of Merger........................................................2
Class A Common Stock.........................................................1
Class B Common Stock.........................................................1
Closing......................................................................3
Closing Date.................................................................2
Closing Notice..............................................................51
Closing Statement...........................................................10
Closing Working Capital.....................................................11
Code........................................................................20
Company......................................................................1
Company Common Interests....................................................14
Company Intellectual Property...............................................29
Confidential Information....................................................48
Confidentiality Agreement...................................................41
Current Assets..............................................................10
Current Liabilities.........................................................11
Debt Amount..................................................................4
DGCL.........................................................................2
Disclosure Schedule.........................................................12
Effective Time...............................................................2
Employee Benefit Plans......................................................19
Encumbrances................................................................15
Environmental Claim.........................................................21
Environmental Laws..........................................................21
ERISA.......................................................................19
ERISA Affiliate.............................................................19
Escrow Agent.................................................................5
Escrow Agreement.............................................................5
Escrow Amount................................................................5
Estimated Working Capital....................................................9
Extension Notice............................................................53
Final Statement.............................................................10
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Financial Statements........................................................15
Fully Diluted Basis.........................................................12
GAAP.........................................................................9
Governmental Authority......................................................15
Hazardous Materials.........................................................21
Holdings.....................................................................1
Holdings Breach.............................................................55
Holdings Shares..............................................................1
HSR Act.....................................................................42
Indemnification Basket......................................................55
Indemnification Cap.........................................................55
Independent Accounting Firm.................................................11
Insurance Proceeds..........................................................46
Intellectual Property.......................................................28
June Balance Sheet..........................................................15
June Financial Statements...................................................15
Knowledge of Holdings.......................................................58
Law.........................................................................22
Leased Real Property........................................................26
Leases......................................................................26
Liability...................................................................16
MAE Change Date.............................................................51
Material Adverse Effect.....................................................58
Material Contracts..........................................................23
Material Customers..........................................................29
Material Maintenance Contracts..............................................23
Material Supplier...........................................................31
Merger.......................................................................1
Merger Consideration.........................................................9
Merger Consideration Decrease...............................................12
Merger Consideration Increase...............................................11
Merger Sub...................................................................1
Operating Leases............................................................10
Option Agreements............................................................8
Options......................................................................1
Owned Real Property.........................................................26
Parent.......................................................................1
Parent Breach...............................................................56
Per Escrow Amount............................................................7
Per Share Amount.............................................................7
Permits.....................................................................22
Permitted Encumbrances......................................................25
Person......................................................................13
Phantom Debt.................................................................1
Plan.........................................................................1
Post-Closing Tax Return.....................................................44
Predecessor.................................................................15
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Preferred Holder.............................................................4
Preferred Shares.............................................................1
Prior Agreements............................................................25
Prior Sellers...............................................................25
Publico......................................................................1
Real Property...............................................................26
Release.....................................................................21
Released Parties............................................................60
Representatives.............................................................41
Restructuring Transactions...................................................1
SARs.........................................................................1
Seller Claims...............................................................60
Seller Releasing Parties....................................................60
Sellers......................................................................1
Sellers' Representative.....................................................63
Subsidiary..................................................................13
Supplemental Disclosure.....................................................46
Surviving Company............................................................2
Target Working Capital.......................................................9
Tax.........................................................................19
Tax Return..................................................................19
Tax Returns.................................................................19
Taxes.......................................................................19
Termination Date............................................................53
Transfer Taxes..............................................................45
Working Capital.............................................................10
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AGREEMENT AND PLAN OF MERGER, dated as of November 7, 2006 (this
"Agreement"), by and among KABLE MEDIA SERVICES, INC., a Delaware corporation
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("Parent"), ▇▇▇▇ ▇▇▇▇▇ ACQUISITION, INC., a Delaware corporation and a
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wholly-owned subsidiary of Parent ("Merger Sub"), PALM COAST DATA HOLDCO, INC.,
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a Delaware corporation ("Holdings"), and the Persons (as defined in Section
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3.1(a) hereof) set forth on the signature page hereto and designated as sellers
(the "Sellers") and, with respect to Section 12.1 only, AMREP CORPORATION, an
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Oklahoma corporation ("Publico").
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WITNESSETH
WHEREAS, the Board of Directors of Parent and the Board of Directors of
Merger Sub have each approved this Agreement and the merger of Merger Sub with
and into Holdings, whereby each outstanding share of Class A Common Stock, par
value $0.01 per share (the "Class A Common Stock"), and Class B Common Stock,
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par value $0.01 per share (the "Class B Common Stock"), of Holdings (the
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"Holdings Shares") will be converted into the right to receive the Per Share
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Amount (as defined in Section 2.1 hereof) in accordance with this Agreement,
upon the terms and subject to the conditions and limitations set forth herein
(the "Merger");
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WHEREAS, the Board of Directors and stockholders of Holdings have
unanimously determined that the Merger is fair to, advisable and in the best
interests of Holdings and its stockholders and have unanimously approved this
Agreement, the Merger and the other transactions contemplated by this Agreement;
WHEREAS, the members of the management of Palm Coast Data LLC, a Delaware
limited liability company (the "Company") have each elected to settle for a cash
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payment, pursuant to Section 2.2(c) of this Agreement, all of the issued and
outstanding stock appreciation rights that have been allocated to phantom equity
("SARs"), all amounts allocated to phantom debt under the Incentive Agreements
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set forth in Section 2.2(a) of the Disclosure Schedule (as defined herein) (the
"Phantom Debt") and, pursuant to Section 2.2(b) of this Agreement, all of the
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issued and outstanding options to acquire Class B Common Stock (the "Options")
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under Holdings' 2005 Stock Option Plan (the "Plan");
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WHEREAS, in connection with the Restructuring Transactions described in
Section 1.1 of the Disclosure Schedule (the "Restructuring Transactions"),
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Holdings will issue shares of its Series A Redeemable Voting Preferred Stock,
par value $0.01 per share (the "Preferred Shares"), which, as a result of the
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Merger, will be converted into the right to receive the Aggregate Liquidation
Preference (as defined in Section 2.1 hereof) in accordance with this Agreement,
upon the terms and subject to the conditions and limitations set forth herein.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants, agreements and conditions hereafter set forth, and intending to be
legally bound hereby, the parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger.
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(a) The Merger. Upon the terms and subject to the satisfaction or waiver,
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if permissible, of the conditions hereof, at the Effective Time, Merger Sub
shall be merged with and into Holdings, whereupon the separate corporate
existence of Merger Sub shall cease, and Holdings shall survive and continue to
exist (Holdings, as the surviving corporation in the Merger, is sometimes
referred to herein as the "Surviving Company").
(b) Name. The name of the Surviving Company shall be "Palm Coast Data
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Holdco, Inc."
(c) Certificate of Incorporation and Bylaws. As of the Effective Time, the
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certificate of incorporation and bylaws of the Surviving Company shall be
amended and restated in their entirety to read as the certificate of
incorporation and bylaws, respectively, of Merger Sub as in effect immediately
prior to the Merger, in each case until thereafter amended in accordance with
applicable Law (as defined in Section 3.11 hereof), except as set forth in
Section 1.1(b) hereof.
(d) Directors and Officers of the Surviving Company. The directors of
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Merger Sub immediately before the Merger shall comprise all of the directors of
the Surviving Company immediately after the Merger, each of whom shall serve
until such time as their successors shall be duly elected. The officers of
Merger Sub immediately before the Merger shall comprise all of the officers of
the Surviving Company immediately after the Merger, each of whom shall serve
until such time as their successors shall be duly elected.
(e) Effect of the Merger. At the Effective Time, the effect of the Merger
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shall be as provided in Section 259 of the Delaware General Corporation Law (the
"DGCL"). At the Effective Time, all Holdings Shares held by Parent shall be
cancelled and extinguished and no additional consideration shall be payable
therefor.
SECTION 1.2 Closing Date and Effective Time. Subject to the satisfaction or
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waiver, if permissible, of the conditions set forth in Articles VII and VIII,
other than those conditions that by their nature are to be satisfied at the
consummation of the Merger, but subject to the fulfillment or waiver, if
permissible, of those conditions, the parties shall cause a certificate of
merger relating to the Merger (the "Certificate of Merger") to be filed with the
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Secretary of State of the State of Delaware pursuant to the DGCL on (i) the
later of (x) January 16, 2007 and (y) a date selected by Parent after such
satisfaction or waiver that is no later than five (5) business days after such
satisfaction or waiver, or (ii) such other date to which the parties may
mutually agree (the "Closing Date"). The Merger shall become effective upon such
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filing of the Certificate of Merger (the "Effective Time").
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SECTION 1.3 Closing.
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(a) The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of DLA Piper US LLP, 1200 Nineteenth
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▇▇▇▇▇▇, ▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇ at 10:00 a.m., local time, or at such other
place and time as the parties shall mutually agree, on the Closing Date.
(b) At the Closing, Holdings shall deliver or cause to be delivered the
following to Parent:
(i) a certificate of an officer of Holdings in form and substance
reasonably satisfactory to Parent, dated as of the Closing Date, to the
effect that the conditions specified in Sections 7.1, 7.2 and 7.4 hereof
have been fulfilled;
(ii) the stockholder records and minute books of Holdings and the
limited liability company member records and minute books of the Company;
(iii) a certificate of an officer of Holdings in form and substance
satisfactory to Parent, to be dated as of the Closing Date, attaching (A) a
copy of the resolutions duly adopted by the Board of Directors of Holdings,
authorizing and approving the execution, delivery and performance of this
Agreement and the transactions contemplated hereby and any other documents
or instruments contemplated hereby, and certifying that such resolutions
have not been rescinded, revoked, amended or modified and remain in full
force and effect as of the Closing, (B) a copy of the resolutions duly
adopted by the stockholders of Holdings, approving and adopting this
Agreement and the transactions contemplated hereby, and certifying that
such resolutions have not been rescinded, revoked, amended or modified and
remain in full force and effect as of the Closing, (C) a true, correct and
complete copy of the certificate of incorporation and bylaws of Holdings,
as amended to date, and certifying that such documents are in full force
and effect as of the Closing, and (D) incumbency, authority and specimen
signatures of each of the officers of Holdings executing this Agreement and
any other document or instrument executed on behalf of Holdings in
connection with the transactions contemplated hereby and certifying the
authenticity of such signatures;
(iv) a certificate from the Secretary of State of the State of
Delaware as to (A) Holdings' incorporation, valid existence and good
standing as a domestic corporation in the State of Delaware and (B) the
Company's formation, valid existence and good standing as a domestic
limited liability company in the State of Delaware, together with a
certificate of good standing from the Secretary of State or other
appropriate governmental official of each jurisdiction in which Holdings or
the Company, as applicable, is qualified to conduct its business as a
foreign entity, all dated no more than five days prior to the Closing Date;
(v) the resignations of the members of the Board of Directors of
Holdings and the Board of Managers of the Company;
(vi) an executed counterpart to the Escrow Agreement (as defined in
Section 1.3(c)(vi) hereof);
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(vii) certificates representing all Company Common Interests (as
defined in Section 3.2(b) hereof);
(viii) all appropriate payoff letters or other documentation
sufficient to evidence satisfaction and payment of the outstanding balances
under all Indebtedness (as defined in Section 3.25 hereof) of the Company
and Holdings, which Holdings and the Sellers have represented is the
Indebtedness listed in Section 1.3(b)(viii) of the Disclosure Schedule
(other than any Indebtedness which is specified in Section 1.1 of the
Disclosure Schedule as not being repaid at the Closing), and any interest
therein or thereon or other amounts payable with respect thereto (the "Debt
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Amount"), and all applicable Encumbrance (as defined in Section 3.3(a)
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hereof) releases, cancelled notes or other evidence of Indebtedness duly
marked as cancelled;
(ix) the third party consents and documents evidencing the termination
of the agreements, in each case as specified in Section 1.3(b)(ix) of the
Disclosure Schedule;
(x) certificates from each of the Sellers substantially in the form
set forth in Treasury Regulation Section 1.1445-2(b);
(xi) an opinion from DLA Piper US LLP addressed to the Parent and
dated as of the Closing Date in substantially the form attached hereto as
Exhibit A;
(xii) evidence of the payment of all bonuses accrued through the date
of Closing under the Company's 2006 Incentive Compensation Plan;
(xiii) evidence of the completion of the Restructuring Transactions
immediately prior to the Closing; and
(xiv) all other documents required to be delivered by Holdings on or
prior to the Closing Date pursuant to this Agreement, or otherwise required
from Holdings in connection herewith to consummate the transactions
contemplated herein.
(c) At the Closing, Parent shall deliver:
(i) to each holder of Holdings Shares, the Per Share Amount in cash
multiplied by the aggregate number of Holdings Shares next to the name of
such holder in Section 4.2 of the Disclosure Schedule by wire transfer of
immediately available funds to the bank accounts designated by such Holders
not less than three business days prior to the Closing;
(ii) to each holder of Preferred Shares (the "Preferred Holder"),, an
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amount in cash equal to the Aggregate Liquidation Preference of such
Preferred Shares by wire transfer of immediately available funds to the
bank accounts designated by such Preferred Holder not less than three
business days prior to the Closing;
(iii) on behalf of Holdings or the Company, as applicable, the Debt
Amount, by wire transfer of immediately available funds to the bank
account(s) designated in the payoff letters described in Section
1.3(b)(viii), in the amounts and in the manner specified in such payoff
letters;
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(iv) on behalf of Holdings, to each holder of SARs, the portion of the
Aggregate SAR Amount allocable to such holder, as calculated pursuant to
Section 2.2(c) hereof, less any amounts required to be withheld under
applicable Law, by wire transfer of immediately available funds to the bank
accounts designated by such Holder prior to the Closing;
(v) on behalf of Holdings, to each holder of Options, the portion of
the Aggregate Option Amount allocable to such holder, as calculated
pursuant to Section 2.2(b) hereof, less any amounts required to be withheld
under applicable Law, by wire transfer of immediately available funds to
the bank accounts designated by such Holder prior to the Closing;
(vi) to an escrow agent (the "Escrow Agent"), mutually acceptable to
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Parent and Holdings, as part of the Merger Consideration, an amount equal
to $3,500,000 (the "Escrow Amount") pursuant to an escrow agreement,
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substantially in the form attached hereto as Exhibit B (the "Escrow
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Agreement"), in order to secure the indemnification obligations of the
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Sellers pursuant to Section 10.2 hereof;
(vii) to Holdings, a certificate of an officer of Parent in form and
substance reasonably satisfactory to Holdings, dated as of the Closing
Date, to the effect that the conditions specified in Sections 8.1 and 8.2
hereof have been fulfilled;
(viii) to Holdings, a certificate of the Secretary or Assistant
Secretary of Parent in form and substance satisfactory to Holdings, to be
dated as of the Closing Date, attaching (A) a copy of the resolutions duly
adopted by the Board of Directors of Parent, authorizing and approving the
execution, delivery and performance of this Agreement and the transactions
contemplated hereby and any other documents or instruments contemplated
hereby, and certifying that such resolutions have not been rescinded,
revoked, amended or modified and remain in full force and effect as of the
Closing, (B) a true, correct and complete copy of each of the certificate
of incorporation and bylaws of Parent, as amended to date, and certifying
that such documents are in full force and effect as of the Closing, and (C)
incumbency, authority and specimen signatures of each of the officers of
Parent executing this Agreement and any other document or instrument
executed on behalf of Parent in connection with the transactions
contemplated hereby and certifying the authenticity of such signatures;
(ix) to Holdings, an executed counterpart to the Escrow Agreement; and
(x) all other documents required to be delivered by Parent on or prior
to the Closing Date pursuant to this Agreement or otherwise required from
Parent in connection herewith to consummate the transactions contemplated
herein.
(d) At the Closing, Merger Sub shall deliver to Holdings:
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(i) a certificate of an officer of Merger Sub in form and substance
satisfactory to Holdings, to be dated as of the Closing Date, attaching (A)
a copy of the resolutions duly adopted by the Board of Directors of Merger
Sub, authorizing and approving the execution, delivery and performance of
this Agreement and the transactions contemplated hereby and any other
documents or instruments contemplated hereby, and certifying that such
resolutions have not been rescinded, revoked, amended or modified and
remain in full force and effect as of the Closing, (B) a copy of the
resolutions duly adopted by the Parent as the stockholder of Merger Sub,
approving and adopting this Agreement and the transactions contemplated
hereby, and certifying that such resolutions have not been rescinded,
revoked, amended or modified and remain in full force and effect as of the
Closing, (C) a true, correct and complete copy of the certificate of
incorporation and bylaws of Merger Sub, as amended to date, and certifying
that such documents are in full force and effect as of the Closing, and (D)
incumbency, authority and specimen signatures of each of the officers of
Merger Sub executing this Agreement and any other document or instrument
executed on behalf of Merger Sub in connection with the transactions
contemplated hereby and certifying the authenticity of such signatures; and
(ii) to Holdings, all other documents required to be delivered by
Merger Sub on or prior to the Closing Date pursuant to this Agreement or
otherwise required from Merger Sub in connection herewith to consummate the
transactions contemplated herein.
(e) At the Closing, each Seller shall deliver to Parent:
(i) a certificate of such Seller in form and substance reasonably
satisfactory to Parent, dated as of the Closing Date, to the effect that
the conditions specified in Sections 7.1, 7.2 and 7.4 hereof have been
fulfilled;
(ii) an executed counterpart to the Escrow Agreement;
(iii) stock certificates representing all of the Holdings Shares and
Preferred Shares owned by such Seller, if any; and
(iv) evidence of the settlement of all of the SARs, Options and
Phantom Debt held by such Seller, if any, in the manner specified in
Section 2.3 of this Agreement.
ARTICLE II
MERGER CONSIDERATION
SECTION 2.1 Conversion of Shares.
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(a) Subject to the provisions of this Agreement, each Holdings Share issued
and outstanding immediately prior to the Effective Time shall, by virtue of the
Merger, be cancelled and shall as of the Effective Time automatically be
converted into and shall thereafter only represent (i) the right to receive
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cash, without any interest, in the amount of the Per Share Amount and (ii) the
right to receive in cash such Holdings Shares' pro rata share, on a Fully
Diluted Basis (as defined in Section 2.4(c) hereof), of any amounts to be
distributed or paid to the Sellers pursuant to the Escrow Agreement and any
other amounts to be distributed or paid to the Sellers pursuant to the terms of
this Agreement. For purposes of this Agreement, the "Per Share Amount" and the
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"Per Share Escrow Amount" shall be calculated as set forth in Section 2.1(a) of
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the Disclosure Schedule.
(b) Subject to the provisions of this Agreement, each Preferred Share
issued and outstanding immediately prior to the Effective Time shall, by virtue
of the Merger, be cancelled and shall as of the Effective Time automatically be
converted into and shall thereafter only represent the right to receive cash,
without any interest, in the amount of the liquidation preference for such
Preferred Share as provided in Holdings' Amended and Restated Certificate of
Incorporation establishing the terms of the Preferred Shares (the "Aggregate
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Liquidation Preference").
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(c) At the Effective Time, the transfer books of Holdings shall be closed
as to holders of Holdings Shares and Preferred Shares immediately prior to the
Effective Time and no transfer of Holdings Shares or Preferred Shares by any
such holder shall thereafter be made or recognized.
(d) At and after the Effective Time, each share of common stock of Merger
Sub issued and outstanding immediately prior to the Effective Time shall be
converted into and become one validly issued, fully paid and nonassessable share
of common stock of the Surviving Company and the common stock so converted shall
constitute the only outstanding capital stock of the Surviving Company.
SECTION 2.2 Stock Appreciation Rights; Options; Phantom Debt.
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(a) Effective as of the date of this Agreement, each of the Amended and
Restated Incentive Agreements (the "Incentive Agreements") between Holdings and
the holders of phantom debt ("Phantom Debt") as set forth in Section 2.2(a) of
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the Disclosure Schedule shall be further amended to provide that the holder may
elect to receive payment of such Phantom Debt that is otherwise payable in the
future under Section 4 of the Incentive Agreements as of the later of (i) the
Effective Time or (ii) January 2, 2007 (the "Payment Date"). By executing this
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Agreement, each such holder agrees to such amendment and elects under his or her
Incentive Agreement, as amended by this Agreement, to receive payment of such
Phantom Debt on the Payment Date. Thus, on the Payment Date, Parent shall
settle, or cause to be settled, on behalf of Holdings and its Subsidiary, all
amounts allocated to Phantom Debt under the Incentive Agreements, as amended by
this Agreement, whether or not such Phantom Debt is then vested or exercisable
(it being understood that any outstanding Phantom Debt shall vest in full upon
the Closing), for a dollar amount applicable to such Phantom Debt as set forth
in Section 2.2(a) of the Disclosure Schedule (the "Applicable Phantom Debt
------------------------
Amount"). Each Phantom Debt holder who is entitled to receive his or her portion
------
of the Applicable Phantom Debt Amount, all of whom are Sellers, shall accept
such amount (less payroll tax withholdings) in full settlement and discharge of
all rights of the Phantom Debt holder as to all of the Phantom Debt that he or
she holds under the applicable Incentive Agreement, as amended by this
Agreement. In addition, any unpaid interest on such Phantom Debt provided for in
Sections 4(a)(ii) and 4(a)(iii) of the Incentive Agreements, as accrued after
- 7 -
the last full calendar quarter ending immediately before the Closing Date
through the Closing Date, shall be paid to the applicable holder on the Closing
Date.
(b) At the Effective Time, Parent shall settle, or cause to be settled, on
behalf of Holdings and its Subsidiary, each outstanding Option granted under the
2005 Stock Option Plan between Holdings and the holders of Options and listed in
Section 2.2(b) of the Disclosure Schedule (together, the "Option Agreements"),
------------------
whether or not such Options are then vested or exercisable (it being understood
that any outstanding Options shall vest in full upon the Closing), for a dollar
amount equal to the excess of the Per Share Amount over the Exercise Price as
set forth in Section 2.2(b) of the Disclosure Schedule (such excess, if any, in
respect of such Option, the "Applicable Option Amount"). Each Option holder who
------------------------
is entitled to receive the Applicable Option Amount, all of whom are Sellers,
shall accept such amount (less applicable payroll tax withholdings) in full
settlement and discharge of all rights of the Option holder for each Option that
he or she holds under the applicable Option Agreement. The aggregate amount paid
at Closing pursuant to this Section 2.2(b) (including applicable withholding
taxes) shall be referred to in this Agreement as the "Aggregate Option Amount."
-----------------------
(c) At the Effective Time, Parent shall settle, or cause to be settled, on
behalf of Holdings and its Subsidiary, each outstanding SAR granted under the
Incentive Agreements, whether or not such SARs are then vested or exercisable
(it being understood that any outstanding SARs shall vest in full upon the
Closing), for a dollar amount equal to the SAR Exercise Price in respect of the
SAR (which for purposes of this Section 2.2(c) shall equal the Per Share Amount)
(the "Applicable SAR Amount"). Such payment shall be made pursuant to Section
----------------------
4(e) of the Incentive Agreements, and Parent agrees to amend such Section 4(e)
by the end of 2007 (or by such later time as is permitted by the Internal
Revenue Service) to provide that such payments may only be made in the event of
a "change in control," as defined in the final regulations to be issued under
Section 409A of the Code and to otherwise amend such Incentive Agreements to
comply with Section 409A of the Code and the final regulations to be issued
thereunder. Each SAR holder who is entitled to receive the Applicable SAR
Amount, all of whom are Sellers, shall accept such amount (less applicable
payroll tax withholdings) in full settlement and discharge of all rights of the
SAR holder for each SAR that he or she holds under the applicable Incentive
Agreement. The aggregate amount paid at the Effective Time (including applicable
withholding taxes) shall be referred to in this Agreement as the "Aggregate SAR
-------------
Amount".
------
(d) Notwithstanding anything to the contrary in Sections 2.2(b) and 2.2(c),
each holder of SARs and each holder of Options shall be entitled to receive
their pro rata share, on a Fully Diluted Basis, of any amounts to be distributed
or paid to Sellers pursuant to the Escrow Agreement and any other amounts to be
distributed or paid to the Sellers pursuant to the terms of this Agreement (in
each case, less applicable payroll tax withholdings). All amounts payable
pursuant to Sections 2.2(b) and 2.2(c) shall be paid by wire transfer of
immediately available funds to the bank accounts designated by the applicable
Sellers prior to the Closing.
(e) Notwithstanding anything to the contrary in Section 2.2(a) hereof, if
the Closing occurs before January 2, 2007, Parent on the Closing Date, in lieu
of making future payments of Phantom Debt under Section 4 of the Incentive
- 8 -
Agreements or making payments of Phantom Debt under Section 2.2(a) hereof, shall
instead deposit an amount equal to the aggregate amount of such payments into a
separate subaccount in the escrow account established pursuant to the Escrow
Agreement, to be paid on January 2, 2007, as contemplated by Section 2.2(a)
hereof. Such subaccount shall be subject to the creditors of Parent. No interest
shall be added to the funds in such subaccount other than interest earned by the
escrow subaccount itself.
(f) The amendment and election described in Section 2.2(a) hereof are
intended to comply with the IRS's transition rules under Section 409A of the
Code, as set forth in the preamble to Section 1.409A-1, et seq. of the Proposed
Treasury Regulations and in Notice 2006-79, and, therefore, to result in a
permissible amendment and election as to timing and form of the payment of
deferred compensation under Section 409A to the extent such amounts would not
otherwise be payable in 2006 and to the extent such amendment and election would
not cause an amount to be paid in 2006 that would not otherwise be payable in
2006, under a good faith interpretation of the Incentive Agreements, Section
409A of the Code and applicable guidance thereunder. The required amendment to
Section 4(e) of the Incentive Agreements that is described in Section 2.2(c)
hereof is intended to allow payment under Section 4(e) of the Incentive
Agreements in good-faith compliance with Section 409A of the Code and the
applicable guidance thereunder.
SECTION 2.3 Pre-Closing Adjustment.
----------------------
(a) The "Target Working Capital" is $1,800,000. At least three (3) but not
----------------------
more than five (5) business days prior to Closing, Holdings shall deliver to
Parent a statement that sets forth Holdings' good faith estimate of the Working
Capital of Holdings estimated through and including the Closing Date (the
"Estimated Working Capital"). The Estimated Working Capital shall be determined
-------------------------
in accordance with generally accepted accounting principles ("GAAP"), except as
----
set forth in Section 3.4 of the Disclosure Schedule, using the same methodology
(in terms of selection of GAAP accounting policies and principles) as was used
to prepare Holding's unaudited consolidated balance sheet as of June 30, 2006.
If Parent disputes Holdings' calculation of the Estimated Working Capital,
Parent shall notify Holdings of such dispute at least one (1) business day prior
to Closing and in such event the Estimated Working Capital for purposes of this
Section 2.3 shall be deemed to equal the Working Capital reflected on Holdings'
unaudited consolidated balance sheet as of June 30, 2006. The Merger
Consideration shall be increased by the positive amount by which the Estimated
---------
Working Capital exceeds Target Working Capital, or the Merger Consideration
shall be decreased by the positive amount by which Target Working Capital
exceeds the Estimated Working Capital. For the avoidance of doubt, the Estimated
Working Capital shall exclude the Insurance Proceeds (as defined in Section 6.9
hereof). The "Merger Consideration" shall be $92,000,000, minus the Debt Amount,
-------------------- -----
minus the Aggregate Liquidation Preference, minus the amount specified in
----- -----
Section 2.3(b), plus the amount specified in Section 2.3(c), plus the amount
---- ----
specified in Section 2.3(d), plus or minus the amounts specified in Sections
---- -----
2.3(a) and 2.4 (Working Capital). If the Annualized Adjusted EBITDA of Holdings
derived from the Audit for the period from August 9, 2005 to June 30, 2006 is
equal to or more than $7,847,000 but less than $8,500,000, then the Merger
Consideration shall be reduced by an amount equal to 9.75 multiplied by the
difference between (i) the Annualized Adjusted EBITDA derived from the Audit for
the period from August 9, 2005 to June 30, 2006 and (ii) $8,500,000. For
purposes of this Agreement, (A) "Annualized Adjusted EBITDA" means earnings
----------------------------
- 9 -
before interest, taxes, depreciation and amortization multiplied by 1.123, after
making the adjustments set forth on Schedule 3.4 and Schedule 2.3(a) and (B)
"Annualized Adjusted Net Revenues" means net revenues multiplied by 1.123, after
--------------------------------
making the adjustments set forth on Schedule 3.4 and Schedule 2.3(a). Under no
circumstances shall Parent pay any amount pursuant to this Article II in excess
of the Merger Consideration.
(b) The Merger Consideration shall be reduced, dollar for dollar, by the
net present value amount (using a discount rate of 10.25%) of any and all
remaining lease obligations under the operating lease agreements listed on
Section 2.3(b) of the Disclosure Schedule (the "Operating Leases"), such amount
----------------
of lease obligations under the Operating Leases being $196,415 as of and after
giving effect to the payments due on October 1, 2006, the net present value
amount of which equals $189,216, which amount will be reduced by any lease
obligations paid by the Holdings or the Company in respect of lease obligations
(or buy-out amounts) due after October 1, 2006.
(c) The Merger Consideration shall be increased, dollar for dollar, by an
amount equal to (i) 35% of the product of (A) the Per Share Amount plus the Per
----
Share Escrow Amount minus the Base Price (as defined in the Incentive Agreement
-----
applicable to each SAR and set forth in Section 2.2(c) of the Disclosure
Schedule) multiplied by (B) the number of SARs, plus (ii) $70,000.
(d) The Merger Consideration shall be increased, dollar for dollar, by an
amount equal to 35% of the product of (i) the Per Share Amount plus the Per
----
Share Escrow Amount minus the Exercise Price (as defined in the Option Agreement
-----
applicable to each Option and set forth in Section 2.2(b) of the Disclosure
Schedule) multiplied by (ii) the number of Options.
SECTION 2.4 Post-Closing Adjustment
-----------------------
(a) Within 60 days following the Closing Date, Parent shall prepare, or
cause to be prepared, and deliver to the Sellers' Representative (as defined in
Section 11.16) the statement (the "Closing Statement") that sets forth as of the
-----------------
close of business on the Closing Date the Working Capital of Holdings. The
Closing Statement shall be determined in accordance with GAAP, except as set
forth in Section 3.4 of the Disclosure Schedule, using the same methodology (in
terms of selection of GAAP accounting policies and principles) as was used to
calculate the Estimated Working Capital. Sellers' Representative shall have 30
days after receipt by Sellers' Representative of the Closing Statement during
which to notify Parent of any dispute of any item contained in the Closing
Statement, which notice shall set forth in reasonable detail the basis for such
dispute. If Sellers' Representative fails to notify Parent of any such dispute
within such 30-day period, the Closing Statement shall be deemed to be the final
statement ("Final Statement"), shall be binding and conclusive on the parties
----------------
and shall for all purposes be used to determine any adjustment to the Merger
Consideration pursuant to Section 2.4(c). In the event that Sellers'
Representative shall so notify Parent of any dispute, Parent and Sellers'
Representative and their respective accountants shall cooperate in good faith to
resolve such dispute as promptly as possible. "Working Capital" shall mean the
----------------
sum of Current Assets less Current Liabilities. "Current Assets" shall mean the
--------------
current assets (including cash and cash equivalents and, for the sake of
- 10 -
clarity, excluding any deferred income Tax assets) of Holdings which would be
set forth on a consolidated balance sheet of Holdings prepared in accordance
with GAAP, except as set forth in Section 3.4 of the Disclosure Schedule.
"Current Liabilities" shall mean the current liabilities of Holdings as set
--------------------
forth on a consolidated balance sheet of Holdings prepared in accordance with
GAAP (including all postal deposits and other customer deposits and advances and
excluding any amounts reflected as "accrued interest" on such balance sheet),
except as set forth in Section 3.4 of the Disclosure Schedule. Any liabilities
relating to (i) SARs, (ii) Options, or (iii) the Debt Amount shall not be
treated as Current Liabilities for the purposes of calculating Working Capital.
(b) If Parent and Sellers' Representative and their respective accountants
are unable to resolve any dispute within 30 days of Sellers' Representative's
delivery of any notice of dispute provided pursuant to Section 2.4(a) hereof,
such dispute shall be resolved by Deloitte & Touche USA LLP or another mutually
agreed to nationally recognized accounting firm (the "Independent Accounting
-----------------------
Firm"), which shall be retained to resolve any disputes between Parent and
----
Sellers' Representative over any items contained in the Closing Statement and
shall make its determination as promptly as practicable, and such determination
shall be final and binding on the parties. The Independent Accounting Firm shall
determine in accordance with GAAP (except as set forth in Section 3.4 of the
Disclosure Schedule), whether and to what extent, if any, the Closing Statement
requires adjustment; provided, however, that the amount of Working Capital as
-------- -------
set forth on the Final Statement (the "Closing Working Capital") must fall
-------------------------
within the bounds of Sellers' Representative's and Parent's calculations of the
Working Capital as of the Closing Date. Each Seller shall bear, his, her or its
pro rata share, on a Fully Diluted Basis, of the percentage of the expenses
relating to the engagement of the Independent Accounting Firm that equals the
absolute value of the difference between Sellers' Representative's calculation
of the Working Capital as of the Closing Date and the Closing Working Capital
divided by the absolute value of the difference between Sellers'
Representative's and Parent's calculation of the Working Capital as of the
Closing Date. Parent and Sellers' Representative shall deliver a written notice
to the Escrow Agent setting forth the amount of such expenses and directing the
Escrow Agent to pay such amount to the Independent Accounting Firm from the
Escrow Amount; provided that if the Escrow Amount is not sufficient for payment
--------
of the entire amount, each Seller shall pay its pro rata share on a Fully
Diluted Basis of such expense payment in cash. The Surviving Company shall bear
the percentage of the expenses relating to the engagement of the Independent
Accounting Firm that equals the absolute value of the difference between
Parent's calculation of the Working Capital as of the Closing Date and the
Closing Working Capital divided by the absolute value of the difference between
Sellers' Representative's and Parent's calculation of the Working Capital as of
the Closing Date. The Independent Accounting Firm shall be instructed to use
every reasonable effort to perform its services within fifteen (15) business
days after submission of the Closing Statement to it and, in any case, as soon
as practicable after submission. The Closing Statement, as modified by
resolution of any disputes by Parent and Sellers' Representative or by the
Independent Accounting Firm, shall be the Final Statement.
(c) The Merger Consideration (after giving effect to the adjustment
pursuant to Section 2.3 hereof) shall be increased by the positive amount by
---------
which the Closing Working Capital exceeds the Estimated Working Capital (the
"Merger Consideration Increase"), or the Merger Consideration (after giving
-------------------------------
effect to the adjustment pursuant to Section 2.3 hereof) shall be decreased by
---------
the positive amount by which the Estimated Working Capital exceeds the Closing
- 11 -
Working Capital (the "Merger Consideration Decrease"). To the extent there is a
------------------------------
Merger Consideration Increase, Parent shall within five (5) business days after
the Closing Statement becomes the Final Statement deliver to each Seller by wire
transfer of immediately available funds such Seller's pro rata share, on a Fully
Diluted Basis, of the Merger Consideration Increase, together with interest
thereon at a fixed rate equal to the prime rate per annum as quoted in the Wall
Street Journal on the Closing Date according to the wiring instructions
previously provided to Parent for the Closing unless Parent is otherwise
notified in writing by the Sellers' Representative prior to the authorization of
the wire transfer. To the extent that there is a Merger Consideration Decrease
and such amount is not paid from the Escrow Amount, each Seller shall deliver to
Parent within five (5) business days after the Closing Statement becomes the
Final Statement, by wire transfer of immediately available funds, such Seller's
pro rata share, on a Fully Diluted Basis, of the excess of such Merger
Consideration Decrease, together with interest thereon at a fixed rate equal to
the prime rate per annum as quoted in the Wall Street Journal on the Closing
Date. For purposes of this Agreement, "Fully Diluted Basis" shall mean (A) all
-------------------
Holdings Shares outstanding immediately prior to the Effective Time plus (B) a
----
number of Holdings Shares equal to the number of SARs outstanding immediately
prior to the Effective Time, regardless of whether any such SAR is then vested
or exercisable plus (C) a number of Holdings Shares equal to the number of
----
shares issuable upon exercise of the Options outstanding immediately prior to
the Effective Time, regardless of whether any such Option is then vested or
exercisable.
(d) Amounts payable to Parent or the Independent Accounting Firm pursuant
to this Section 2.4 (including expenses of the Independent Accounting Firm), up
to $500,000 in the aggregate, may be paid from the Escrow Amount. Any amounts so
payable in excess of $500,000 in the aggregate shall not be paid from the Escrow
Amount except with the consent of Parent, in its sole discretion.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF HOLDINGS
Except as set forth under the section heading referring to a specific
section of this Agreement in the Disclosure Schedule of Holdings and the Company
(the "Disclosure Schedule"), Holdings and Sellers (severally on a Fully Diluted
-------------------
Basis and not jointly) represent and warrant that all of the statements
contained in this Article III are true and correct (i) as of the date of this
Agreement (or, if made as of a specified date, as of such date); and (ii) as of
the Closing Date (or if made as of a specified date, as of such date) as though
made then as follows:
SECTION 3.1 Organization and Authority.
--------------------------
(a) Holdings is duly organized, validly existing and in good standing under
the Laws of the jurisdiction of its incorporation, and has all requisite
corporate power and authority to own, lease and operate the properties owned,
leased and operated by it and to carry on the operations of its business as now
being conducted by it. Holdings is duly qualified to do business and is in good
standing in each jurisdiction in which the property owned, leased or operated by
it with respect to its business or the nature of the business conducted by it
makes such qualification necessary, except in such jurisdictions where the
- 12 -
failure to be so duly qualified or in good standing would not individually, or
in the aggregate, be or reasonably be expected to be material to Holdings.
Holdings is not qualified to do business as a foreign business entity in any
jurisdiction. Other than the Company, Holdings does not have any Subsidiaries or
other equity investments. For purposes of this Agreement, "Subsidiary" means
----------
with respect to any Person, any corporation or other legal entity of which such
Person owns, directly or indirectly, more than 50% of the outstanding stock or
other equity interests, the holders of which are entitled to vote for the
election of the Board of Directors or other governing body of such corporation
or other legal entity. For purposes of this Agreement, "Person" means an
------
individual, a corporation, a partnership, a limited liability company, an
association, a joint-stock company, a trust, any unincorporated organization, a
government or political subdivision thereof or any other entity.
(b) The Company is duly organized, validly existing and in good standing
under the Laws of the jurisdiction of its formation, and has all requisite
limited liability company power and authority to own, lease and operate the
properties owned, leased and operated by it and to carry on the operations of
its business as now being conducted by it. The Company is duly qualified to do
business and is in good standing in each jurisdiction in which the property
owned, leased or operated by it with respect to its business or the nature of
the business conducted by it makes such qualification necessary, except in such
jurisdictions where the failure to be so duly qualified or in good standing
would not individually, or in the aggregate, be or reasonably be expected to be
material to the Company. Section 3.1(b) of the Disclosure Schedule lists each
jurisdiction in which the Company is qualified to do business as a foreign
business entity. The Company does not have any Subsidiaries.
(c) Holdings has the requisite corporate power and authority to execute and
deliver this Agreement and the Escrow Agreement and each other agreement and
instrument to be executed and delivered in connection herewith or therewith or
pursuant hereto or thereto and to perform its obligations hereunder and
thereunder. The execution and delivery of this Agreement and the Escrow
Agreement and the performance of its obligations hereunder and thereunder have
been duly and validly unanimously authorized by the Board of Directors of
Holdings and by the holders of Holdings Shares. No other corporate proceedings
on the part of Holdings are necessary to authorize the execution, delivery and
performance of this Agreement and the Escrow Agreement. This Agreement and the
Escrow Agreement have been duly executed and delivered by Holdings, and this
Agreement constitutes, and the Escrow Agreement and each other agreement and
instrument to be executed and delivered in connection herewith or therewith or
pursuant hereto or thereto will constitute, assuming due authorization,
execution and delivery of this Agreement by Parent and Merger Sub and the Escrow
Agreement by Parent, valid and binding obligations of Holdings, enforceable
against Holdings in accordance with their terms, except that such enforcement
may be subject to or limited by (i) the effect of bankruptcy, insolvency,
reorganization, moratorium and similar Laws relating to or affecting the rights
of creditors generally and (ii) the effect of general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
SECTION 3.2 Capitalization.
--------------
(a) The authorized capital stock of Holdings consists of 3,030.90 shares of
the Class A Common Stock and 23,663.90 shares of the Class B Common Stock. As of
- 13 -
the date of this Agreement, there are 1,311.13272 shares of Holdings' Class A
Common Stock issued and outstanding and 21,742.507 shares of Holdings' Class B
Common Stock issued and outstanding. Other than the warrant, dated July 30,
2005, issued to Allied Capital Corporation to purchase shares of Class A Common
Stock (the "Allied Warrant"), the Holdings Shares, the SARs, the Options or as
contemplated by the Restructuring Transactions, there are no other classes or
series of authorized capital stock or any other equity interest in Holdings. As
of the date hereof, 1,911.1 shares of Class B Common Stock are reserved for
issuance upon exercise of Options under the Plan, of which Options exercisable
for 1,790.30 shares of Class B Common Stock are outstanding, and stock
appreciation rights with respect to 516.06680 shares of Class B Common Stock
have been allocated to accounts under outstanding SARs. The outstanding Holdings
Shares (i) have been duly authorized and validly issued, (ii) are fully paid and
nonassessable, and (iii) were issued in compliance with all applicable state and
federal Laws (as in effect on the date of issuance). Other than the SARs, the
Options, the Allied Warrant or as contemplated by the Restructuring
Transactions, there are no outstanding (A) securities of Holdings convertible
into or exchangeable for Holdings Shares or (B) options or other rights to
acquire from Holdings, or any obligation of Holdings to issue, sell, repurchase,
redeem or otherwise acquire, any Holdings Shares or securities convertible into
or exchangeable for Holdings Shares. The Sellers are all of the record and
beneficial owners of all outstanding Holdings Shares, SARs and Options. There
are no voting trusts or proxies or similar voting arrangements with respect to
the Holdings Shares.
(b) The authorized equity interests of the Company consist only of Member
Units (the "Company Common Interests") and there are no other authorized equity
-------------------------
interests of the Company. There is only one Company Common Interest, which is
held by Holdings free and clear of all Encumbrances except those listed on
Disclosure Schedule 3.2(b), issued and outstanding and there are no other equity
interests of the Company issued or outstanding. The outstanding Company Common
Interest (i) has been duly authorized and validly issued, (ii) is fully paid and
nonassessable, and (iii) was issued in compliance with all applicable state and
federal Laws (as in effect on the date of issuance). There are no outstanding
(A) securities of the Company convertible into or exchangeable for Company
Common Interests and (B) options or other rights to acquire from the Company, or
any obligation of the Company to issue, sell, repurchase, redeem or otherwise
acquire, any Company Common Interests or securities convertible into or
exchangeable for Company Common Interests. There are no voting trusts or proxies
or similar voting arrangements with respect to the Company Common Interest.
SECTION 3.3 Consents and Approvals; No Violations.
-------------------------------------
(a) Except as set forth in Section 3.3(a) of the Disclosure Schedule,
neither the execution and delivery of this Agreement or the Escrow Agreement nor
the performance by Holdings of its obligations hereunder and thereunder and will
(i) conflict with or result in any breach of any provision of the certificate of
incorporation or bylaws of Holdings or the certificate of formation or the
limited liability company agreement of the Company; (ii) result in a violation
or breach of or default under (or give rise to any penalty or any right of
termination, modification, cancellation or acceleration), or result in the
creation of any Encumbrance under any of, the terms, conditions or provisions of
any Material Contract (as defined in Section 3.12 below); (iii) require the
consent, approval, waiver, authorization or notification to or of any other
Person; or (iv) assuming that the filings, registrations, notifications,
authorizations, consents and approvals referred to in Section 3.3(b) hereof have
- 14 -
been obtained or made, as the case may be, violate any order, injunction,
decree, statute, rule or regulation of any governmental agency or authority or
court to which Holdings is subject, excluding from the foregoing clause (ii)
such violations, defaults, breaches, or Encumbrances that would not,
individually or in the aggregate, be material to Holdings. For purposes of this
Agreement, "Encumbrances" shall mean any lien, encumbrance, claim, right,
------------
demand, charge, mortgage, option, pledge, security interest or similar
interests, title defects, tenancies (and other possessory interests), easements,
rights of way, covenants, encroachments, rights of first refusal, preemptive
rights, judgments, conditional sale or other title retention agreements and
other impositions or imperfections of title or restrictions on transfer of any
nature whatsoever.
(b) No filing or registration with, notification to, or authorization,
consent or approval of, any local, state, federal or foreign court, legislative,
executive, governmental or regulatory authority or agency (each, a "Governmental
------------
Authority") is required in connection with the execution and delivery of this
---------
Agreement and the Escrow Agreement by Holdings or the performance by Holdings of
its obligations hereunder or thereunder, except (i) those that become applicable
as a result of the matters specifically related to Parent or its affiliates (as
such term is defined in Rule 12b-2 of the Securities Exchange Act of 1934, as
amended) ("Affiliates") or (ii) in connection with the HSR Act as provided for
----------
in Section 6.5 hereof..
SECTION 3.4 Financial Statements. Holdings has delivered to Parent a true
---------------------
and complete copy of (a) the unaudited consolidated balance sheet of Holdings as
of June 30, 2006 (the "June Balance Sheet"), unaudited consolidated statements
------------------
of income and cash flows of Holdings for the period from August 9, 2005 to June
30, 2006 (together with the June Balance Sheet, the "June Financial
----------------
Statements"), (b) the unaudited consolidated balance sheet of the predecessor of
----------
Holdings (the "Predecessor") as of August 9, 2005 and unaudited consolidated
-----------
statements of income and cash flows of the Predecessor for the period from
January 1, 2005 to August 9, 2005 and (c) the audited consolidated balance
sheets of the Predecessor and audited consolidated statements of income and cash
flows of the Predecessor as of and for the fiscal years ended December 31, 2004
and December 31, 2003 (including, in each case, any notes thereto)
(collectively, the "Financial Statements"). The Financial Statements were
---------------------
prepared in accordance with GAAP, applied on a basis consistent with past
practice (except that the Financial Statements of Holdings apply purchase
accounting with respect to Holdings' acquisition of the Predecessor) (subject,
in the case of unaudited statements, to normal, recurring and year-end audit
adjustments and the exclusion of footnotes), and are consistent with the books
and records of Holdings or the Predecessor, as applicable. The Financial
Statements fairly present, in all material respects, the consolidated financial
condition of Holdings, the Company or the Predecessor, as applicable, as of the
dates thereof and the results of operations and cash flows of Holdings, the
Company or the Predecessor for the periods then ended (subject, in the case of
unaudited statements, to normal, recurring and year-end audit adjustments and
the exclusion of footnotes thereto). To the Knowledge of Holdings, except as set
forth in Section 3.4 of the Disclosure Schedule, there are no material normal,
recurring and year-end audit adjustments that would be required for the June
Financial Statements to comply with GAAP.
SECTION 3.5 Absence of Material Adverse Changes, etc. Except as set forth
------------------------------------------
in Section 3.5 of the Disclosure Schedule or as otherwise contemplated by this
Agreement:
(a) Since August 9, 2005, neither Holdings nor the Company has:
- 15 -
(i) suffered any Material Adverse Effect;
(ii) suffered any damage, destruction or loss of physical property
(whether or not covered by insurance) that could reasonably be expected to
have a Material Adverse Effect;
(iii) incurred any direct or indirect Indebtedness (as defined in
Section 3.25 hereof), liability, assessment, expense, claim, loss, damage,
deficiency, obligation or responsibility (including any liability under any
guarantees, or letters of credit) whether absolute, accrued, contingent or
otherwise (a "Liability"), except (A) current Liabilities for trade or
---------
business obligations incurred in connection with the purchase of goods or
services in the ordinary course of business consistent with prior practice,
which Liabilities could not reasonably be expected to have a Material
Adverse Effect and (B) Liabilities related to this Agreement or any of the
transactions contemplated by this Agreement;
(iv) instituted, settled or agreed to settle any litigation, action or
proceeding before any court or Government Authority relating to the Company
or its operations, which resulted (or could result) in net payments or
obligations by the Company in excess of $100,000;
(v) had any actual or threatened employee strikes, work stoppages,
slowdowns or lockouts and, to the Knowledge of Holdings, none of the
Company's or Holdings' employees were involved in any labor union
organizing activity with respect to Holdings or the Company, as applicable;
(vi) made any material change in its accounting methods, policies or
practices with respect to its condition, operations, business, properties,
assets or Liabilities;
(vii) received any notices from any Governmental Authority or any
insurance company which has issued a policy with respect to any portion of
the Owned Real Property or the Leased Real Property of material zoning,
building, fire or health code violations with respect to the Owned Real
Property or the Leased Real Property, or material violations pertaining to
the use and occupancy of the Owned Real Property or the Leased Real
Property; and
(viii) transferred or granted any rights or licenses under, or entered
into any settlement regarding the breach or infringement of, any material
Company Intellectual Property, or modified any material existing rights
with respect thereto.
(b) Since March 31, 2006, neither Holdings nor the Company has:
(i) made or permitted any material amendment or termination of any
Material Contract, other than in the ordinary course of business;
(ii) paid or obligated itself to pay in excess of $100,000 in the
aggregate for fixed assets;
- 16 -
(iii) sold, transferred, leased to others or otherwise disposed of, or
agreed to sell, transfer, lease or otherwise dispose of any portion of the
Owned Real Property or any assets having a fair market value at the time of
sale, transfer or disposition of $100,000 or more in the aggregate, or
forgiven, canceled or compromised, or agreed to forgive, cancel or
compromise, any debts or claims or waived or released any material right,
other than in the ordinary course of business consistent with past
practice;
(iv) had any resignation or termination of employment, or received any
written notice of any threatened or impending resignation or termination of
employment, of any of its officers or employees at the level of director,
vice president or above;
(v) made any change in the rate of compensation, commission, bonus or
other direct or indirect remuneration payable, or paid or promised to pay,
conditionally or otherwise, any bonus, incentive, retention or other
compensation, retirement, welfare, fringe or severance benefit or vacation
pay, or adopted or increased any benefit under any insurance, pension or
other employee benefit plan, payment or arrangement made to or in respect
of any of its officers or employees at the level of director, vice
president or above or executive level consultants;
(vi) made any prepayment of any accounts payable, delayed payment of
any trade payables or other obligations other than in the ordinary course
of business consistent with past practice, or made any other material cash
payments other than in the ordinary course of business; and
(vii) failed to maintain all of the tangible assets and all other
tangible properties and assets owned, leased, occupied or used by the
Company in good repair, working order and operating condition, subject only
to ordinary wear and tear; and
(viii) subjected to any Encumbrance, other than Permitted
Encumbrances, the Owned Real Property or the Leased Real Property.
SECTION 3.6 No Undisclosed Liabilities. Except as and to the extent set
------------------------
forth in Section 3.6 of the Disclosure Schedule or on the face of the June
Balance Sheet, which does not account for any change in liability resulting
solely from SARs or Options since August 9, 2005, neither Holdings nor the
Company has any material undisclosed Liabilities required: (a) to be set forth
on a balance sheet prepared in accordance with GAAP; or (b) to be disclosed in
the footnotes to audited financial statements pursuant to the requirements of
FAS 5. Neither Holdings nor the Company has any "off-balance sheet financing
arrangements" (as defined in Item 303 of Regulation S-K under the Securities Act
of 1933, as amended).
SECTION 3.7 Taxes.
-----
(a) Each of Holdings and the Company has duly filed (taking into account
extensions) all Tax Returns (as defined in Section 3.7(f) hereof) required to be
filed by either of them, and all such Tax Returns were true, correct and
complete in all material respects. All Taxes (as defined in Section 3.7(f)
hereof) owed by Holdings or the Company (whether or not reflected on any Tax
Return) have been timely paid. Neither Holdings nor the Company currently is the
- 17 -
beneficiary of any extension of time within which to file any Tax Return or to
pay any Tax. There are no Encumbrances on any of the assets of Holdings or the
Company, other than liens for Taxes not yet due and payable, that arose in
connection with the failure to pay any Tax.
(b) Each of Holdings and the Company has timely withheld and paid all Taxes
required to have been withheld and paid in connection with any amounts paid or
owing to any employee, independent contractor, creditor, stockholder, or other
third party.
(c) There are no pending or threatened in writing claims, actions, suits,
proceedings, audits or investigations for the assessment or collection of Taxes
of Holdings or the Company. Neither Holdings nor the Company has waived any
statute of limitations in respect of any Taxes or has agreed to any extension of
time with respect to a Tax assessment of deficiency.
(d) Neither Holdings nor the Company is a party to any Tax allocation,
sharing, or similar agreement or arrangement, nor does either have any Liability
for the Taxes of any other Person (other than Holdings and the Company) as a
transferee, successor, by contract, or otherwise.
(e) The Company has, for all taxable periods of its existence, properly
been disregarded as an entity separate from Holdings within the meaning of
Treasury Regulation Section 301.7701-3 for all applicable federal, state, local
and foreign Tax purposes, and Holdings has, for all taxable periods of its
existence, properly been classified as a corporation, for all such purposes.
(f) The Company (i) has not made any payments, is not obligated to make any
payments, and is not a party to any agreement that would reasonably be expected
to obligate the Company to make any payments that would reasonably be expected
to result in a Tax under Section 409A(a)(1)(B) of the Internal Revenue Code of
1986, as amended (the "Code"); (ii) is not a party to any agreement (including,
but not limited to, the SARs and Options) or understanding under which the
Company may become obligated to make a "parachute payment" within the meaning of
Section 280G of the Code; (iii) is not a party to any joint venture,
partnership, or other arrangement or contract that could be treated as a
partnership for federal income tax purposes; (iv) has not engaged in operations
or activities that are subject to reporting obligations under Section 999 of the
Code; and (v) has not participated in any "reportable transaction" as defined in
Section 1.6011-4(b)(1) of the Treasury Regulations.
(g) No tax is required to be withheld pursuant to Section 1445 of the Code
as a result of the transfers contemplated by this Agreement.
(h) The Company (1) is not currently subject to any adjustment under
Section 481(a) of the Code with respect to a change in accounting method or
otherwise, (2) does not own the stock of any "passive foreign investment
company," within the meaning of Section 1297 of the Code, (3) has not made a
transfer of any intangible assets that is subject to Section 367(d) or 482 of
the Code, and (4) has not been either a "distributing corporation" or a
"controlled corporation" (within the meaning of Section 355(a)(1)(A) of the
Code) in a distribution of stock to which Section 355 of the Code (or so much of
- 18 -
Section 356 of the Code as relates to Section 355 of the Code) applies and which
occurred within two years of the date of this Agreement.
(i) The Company has not been included in any other "consolidated,"
"unitary" or "combined" Tax Return provided for under the laws of the United
States, any foreign jurisdiction or any state or locality with respect to Taxes
for any taxable year. The Company is not a party to any agreement providing (in
whole or in part) for the allocation, sharing or indemnification of Taxes (or
any such agreement shall be terminated on or before the Closing Date).
(j) For purposes of this Agreement, "Tax" or "Taxes" shall mean any duty,
--- -----
fee, assessment or other similar charge imposed by any Governmental Authority,
and shall include income, gross income, gross receipts, profits, capital stock,
franchise, withholding, payroll, social security, unemployment, workers'
compensation, disability, severance, property, ad valorem, stamp, excise,
occupation, service, sales, use, license, lease, transfer, import, export, value
added, alternative minimum, estimated or other similar tax (including any fee,
assessment, or other charge in the nature of or in lieu of any tax) imposed by
any Governmental Authority or political subdivision thereof, and any interest,
penalties, additions to tax, or additional amounts in respect of the foregoing,
and "Tax Return" or "Tax Returns" shall mean all returns, reports and
----------- ------------
information statements (including all exhibits and schedules thereto, and
including any amendments thereof) required to be filed with any Governmental
Authority with respect to Taxes.
SECTION 3.8 Employee Benefit Plans.
----------------------
(a) Section 3.8(a) of the Disclosure Schedule lists each deferred
compensation and each bonus or other incentive compensation, stock option, stock
appreciation right and other equity compensation plan, program or arrangement;
each severance, medical, surgical, hospitalization, life insurance and other
"welfare" plan, fund or program (within the meaning of Section 3(1) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")); each
-----
profit-sharing, 401(k) savings or other "pension" plan, fund or program (within
the meaning of Section 3(2) of ERISA); each employment, retention or severance
agreement; and each other employee benefit plan, program, policy or agreement,
in each case, that is sponsored, maintained or contributed to or required to be
contributed to by Holdings or the Company or by any trade or business, whether
or not incorporated (an "ERISA Affiliate"), that together with Holdings or the
----------------
Company would be deemed a "single employer" within the meaning of Section
4001(b) of ERISA, for the benefit of any employee or former employee of Holdings
or the Company (the "Employee Benefit Plans"). Accurate and complete copies of
-----------------------
all such Employee Benefit Plans have been delivered to Parent.
(b) (i) All contributions required to be made with respect to each Employee
Benefit Plan on or prior to the Closing Date have been timely made or have been
reflected on the Financial Statements; (ii) each Employee Benefit Plan has been
operated in accordance with its terms and the requirements of applicable Law;
(iii) neither Holdings nor the Company have incurred any direct or indirect
Liability under, arising out of or by operation of Title IV of ERISA, in
connection with the termination of, or withdrawal from, any Employee Benefit
- 19 -
Plan or other retirement plan or arrangement that Holdings, the Company or any
ERISA Affiliate maintains or ever has maintained or to which any of them
contributes, ever has contributed, or ever has been required to contribute, and,
to the Knowledge of Holdings, no fact or event exists that could reasonably be
expected to give rise to any such Liability; and (iv) none of Holdings, the
Company, any Employee Benefit Plan, nor any trustee or administrator thereof has
engaged in a transaction in connection with which Holdings, the Company, any
Employee Benefit Plan, or any trustee or administrator thereof, could be subject
to either a civil penalty assessed pursuant to Section 409 or 502(i) of ERISA or
a tax imposed pursuant to Section 4975 or 4976 of the Internal Revenue Code of
1986, as amended (the "Code").
----
(c) There is not now, and has not been, any material violation of the Code
or ERISA with respect to the filing of applicable reports, documents, and
notices regarding the Employee Benefit Plans with the Secretary of Labor and the
Secretary of the Treasury or the furnishing of such documents to the
participants or beneficiaries of the Employee Benefit Plans. The Company has
filed all Form 5500 series forms required to be filed for any Employee Benefit
Plan before the Closing Date, and all such forms were true and correct in all
material respects at the time of filing.
(d) No Employee Benefit Plan is subject to Title IV of ERISA or Section 302
of ERISA. None of Holdings, the Company nor any ERISA Affiliate has ever
contributed to or been required to contribute to a "multiemployer pension plan,"
as defined in Section 3(37) of ERISA.
(e) Neither the Company nor Holdings has any employees or employee benefit
plans that are subject to the Laws of any jurisdiction outside the United
States.
(f) Except as required by applicable Law, none of the Employee Benefit
Plans provide for medical or life insurance benefits to retired or former
employees.
(g) All taxes, penalties, interest charges and other financial obligations
to federal, state and local governments and to participants or beneficiaries
under the Employee Benefit Plans with respect to any period ending on or before
the Closing Date have been or will be met in full on or before the Closing Date
(or accrued on the Financial Statements) and to the extent not satisfied in full
shall be taken into account in the calculation of Closing Working Capital.
(h) There are no material proceedings, claims, or lawsuits which are
pending or, to the Knowledge of Holdings, threatened by the IRS, the DOL, the
PBGC, the Equal Employment Opportunity Commission, or any participant,
beneficiary, or any other person or entity involving any aspect of any Employee
Benefit Plan (other than routine benefit claims), nor are there any facts which
could form the basis for any such claim or lawsuit.
(i) The information set forth on Sections 2.2(a), 2.2(b) and 2.2(c) of the
Disclosure Schedule is true, complete and correct and is the actual amount
required to be paid pursuant to the applicable Phantom Debt, Option Agreements
and SARs, respectively. Other than the SARs, Option Agreements, Phantom Debt and
the 2006 Incentive Compensation Plan, the Company and Holdings do not have any
deferred compensation bonus or incentive plans or other similar arrangements.
Except as otherwise provided in Section 6.7 or for payments to be made prior to
- 20 -
the Closing, the Company has no obligation to pay severance or other similar
amounts to any employee whose employment is terminated.
SECTION 3.9 Environmental Matters.
---------------------
(a) (i) "Environmental Claim" means any claim, action, cause of action,
--------------------
investigation or notice (written or oral) by any Person alleging potential
Liability arising out of, based on or resulting from (A) the presence, Release
(as defined below) or threatened Release of any Hazardous Materials (as defined
below) at any location, whether or not owned or operated by the Company or (B)
any violation or alleged violation of any Environmental Law (as defined below).
(ii) "Environmental Laws" means all federal, state, local and foreign
------------------
Laws and regulations, all common Law and all other provisions having the
force or effect of Law relating to pollution or protection of human health
or the environment, including, without limitation, those relating to
Releases or threatened Releases of Hazardous Materials or otherwise
relating to the generation, use, treatment, storage, transport, release,
disposal or handling of Hazardous Materials.
(iii) "Hazardous Materials" means all substances which are listed,
--------------------
defined, controlled or regulated as hazardous substances, hazardous wastes,
solid wastes, pollutants or contaminants or otherwise classified or
regulated as hazardous or toxic in or pursuant to any Environmental Law,
including but not limited to asbestos, radon, any polychlorinated biphenyl,
urea formaldehyde foam insulation, radioactive material or any petroleum
hydrocarbons.
(iv) "Release" means any release, spill, emission, discharge, leaking,
-------
pumping, pouring, dumping, injection, deposit, disposal, dispersal,
leaching or migration of Hazardous Materials into the environment
(including, without limitation, ambient air, surface water, groundwater and
surface or subsurface strata).
(b) (i) The Company is in material compliance with all applicable
Environmental Laws and the Company has obtained, and is in material compliance
with, all necessary permits, authorizations and licenses under all applicable
Environmental Laws. The Company has not received since April 4, 2002 nor, to the
Knowledge of Holdings, prior to April 4, 2002, any written communication,
whether from a governmental authority, citizens' group, employee or any other
Person, alleging that the Company is not in such compliance.
(ii) Except as disclosed in the Phase 1 Environmental Studies
previously provided to Parent, there is no material Environmental Claim
pending or, to the Knowledge of Holdings, threatened against the Company
or, to the Knowledge of Holdings, against any Person whose Liability for
any Environmental Claim the Company has or may have retained or assumed
either contractually or by operation of Law.
(iii) To the Knowledge of Holdings, except as disclosed in the Phase 1
Environmental Studies previously provided to Parent, there neither are nor
have been any actions, activities, circumstances, conditions, events or
incidents, including, without limitation, the Release, threatened Release
or presence of any Hazardous Material which could form the basis of any
- 21 -
material Environmental Claim against the Company or against any Person or
entity whose Liability for any Environmental Claim the Company has or may
have retained or assumed either contractually or by operation of Law.
(iv) Holdings has delivered to Parent true, correct and complete
copies of all material environmental reports, studies, investigations,
inspection reports and other documents regarding any actual or threatened
Environmental Claim, any liabilities of the Company under applicable
Environmental Law, or any environmental conditions (including without
limitation any Release of Hazardous Materials) at any currently or formerly
Owned Real Property or Leased Real Property.
SECTION 3.10 Legal Proceedings, etc.
----------------------
(a) As of the date of this Agreement, there are no suits, actions, claims,
demands, hearings, indictments, proceedings or investigations (each, an
"Action") pending against Holdings, or, to the Knowledge of Holdings, threatened
against or involving Holdings, the equityholders of Holdings or the officers or
directors of Holdings in connection with the business and affairs of Holdings
before any court, arbitrator or administrative or governmental body, United
States or foreign. Holdings is not subject to any judgment, decree, injunction
or order of any court (other than routine wage garnishment and similar orders).
(b) Except as set forth in Section 3.10(b) of the Disclosure Schedule, as
of the date of this Agreement, there are no Actions pending, or, to the
Knowledge of Holdings, threatened against or involving the Company, the
equityholders of the Company or the officers or managers of the Company in
connection with the business and affairs of the Company before any court,
arbitrator or administrative or governmental body, United States or foreign. The
Company is not subject to any judgment, decree, injunction or order of any court
(other than routine wage garnishment and similar orders).
SECTION 3.11 Compliance with Applicable Law.
------------------------------
(a) Except as set forth in Section 3.11 of the Disclosure Schedule,
Holdings and the Company are and at all times since August 9, 2005 have been in
material compliance with all applicable Laws (including, with respect to the
Owned Real Property and the Leased Real Property, all applicable building,
zoning, access and occupational health and safety Laws). Except as set forth in
Section 3.11 of the Disclosure Schedule, all governmental approvals, permits,
licenses and other governmental authorizations (collectively, "Permits")
required to conduct the business of the Company are in the possession of the
Company, are in full force and effect, are being complied with in all material
respects and the Company has not received any notice that any Governmental
Authority intends to cancel, terminate or not renew any such Permit. Section
3.11 of the Disclosure Schedule lists all of the Company's Permits, and Holdings
has delivered or caused to be delivered or made available to Parent true,
correct and complete copies of each Permit. For purposes of this Agreement, the
term "Law" shall mean any constitution, treaty, statute, law, ordinance,
regulation, rule, standard, code, rule of common Law or other requirement or
rule enacted or promulgated by any Governmental Authority, including, without
limitation Laws related to data protection and privacy.
- 22 -
(b) Neither Company nor Holdings has received written notice from any
Governmental Authority that the Owned Real Property or the ▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
parcel of the Leased Real Property is not in material compliance with or
materially violates applicable building and zoning laws, rules or regulations or
governmental rules or regulations currently in effect and applicable to such
Owned Real Property or the ▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ parcel of the Leased Real
Property. Neither the Company nor Holdings has requested, applied for, given its
consent to or has knowledge of any pending zoning variances or change with
respect to the Owned Real Property or the ▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ parcel of the
Leased Real Property. To the Knowledge of Holdings, there is no plan, study or
effort by any Governmental Authority or agency or any nongovernmental Person
which in any way affects or would affect, the use or value of the Real Property.
To the Knowledge of Holdings, there is no existing, proposed or contemplated
plan to widen, modify or realign any street or highway adjoining the Real
Property which would affect access thereto.
SECTION 3.12 Certain Contracts and Arrangements. Section 3.12 of the
-------------------------------------
Disclosure Schedule sets forth a true, correct and complete list of the
following written and oral contracts, agreements, arrangements or undertakings,
to which Holdings or the Company is a party or by which any of their respective
assets or properties are bound (collectively, the "Material Contracts"):
------------------
(a) the Leases (as defined in Section 3.13(a) hereof);
(b) the Employee Benefit Plans and any other profit sharing, equity
interest option, equity interest purchase, equity interest appreciation or other
equity-incentive, deferred compensation, retirement contracts or commitments;
(c) management, consulting, bonus, change in control, severance and
employment contracts and other contracts or commitments to enter into the same
involving annual payments in excess of $70,000;
(d) contracts for service, supply, maintenance, management or the operation
of the Real Property involving annual payments in excess of $75,000 individually
or $75,000 as to any Person in the aggregate, which are not terminable upon
thirty (30) days' notice, without payment of any penalty or premium ("Material
--------
Maintenance Contracts");
---------------------
(e) notes, mortgages, indentures, loan or credit agreements; equipment
lease agreements having a noncancellable term of more than one year or annual
rental payments of more than $75,000 individually or $75,000 as to any Person in
the aggregate; security agreements which secure Indebtedness (as defined in
Section 3.25 hereof) of more than $75,000 individually or $75,000 as to any
Person in the aggregate; and other contracts and instruments reflecting
obligations for borrowed money or other monetary Indebtedness or otherwise
relating to the borrowing of money by, or the extension of credit to (other than
ordinary course trade credits), Holdings or the Company, in each case creating
an actual or potential obligation of Holdings or the Company of more than
$75,000 individually or $75,000 as to any Person in the aggregate; or
commitments to enter into any such agreements;
- 23 -
(f) personal property leases involving annual payments in excess of $75,000
individually or $75,000 as to any Person in the aggregate;
(g) license agreements and other contracts involving Intellectual Property
requiring annual payments in excess of $75,000 individually or $75,000 as to any
Person in the aggregate (other than licenses for readily available commercial
software);
(h) contracts with Material Suppliers (as defined in Section 3.21 hereof);
(i) any partnership, joint venture or other contracts involving the sharing
of profits or losses;
(j) contracts or arrangements with Holdings, the Company or any Seller or
any of their respective Affiliates or any of Holdings' or the Company's
directors, officers or employees;
(k) outstanding powers of attorney empowering any Person to act on behalf
of Holdings or the Company;
(l) outstanding (i) guarantees of, or (ii) subordination agreements whether
or not entered into in the ordinary course of business, under which Holdings or
the Company is or may become liable for or obligated to discharge, or any asset
of Holdings or the Company is or may become subject to the satisfaction of, any
Indebtedness, obligation, performance or undertaking of any Person other than
Holdings or the Company;
(m) contracts which prohibit Holdings or the Company from freely engaging
in business anywhere in the world;
(n) contracts relating to the acquisition by Holdings or the Company of the
outstanding capital stock or equity interest of any business enterprise, except
such agreements or agreements as have already been fully performed;
(o) other contracts requiring future annual payments by Holdings or the
Company in excess of $75,000 per annum individually or $75,000 per annum as to
any Person in the aggregate; and
(p) contracts, whether oral or written, with the Material Customers (as
defined in Section 3.17 hereof);
(q) any other written or oral contract to which Holdings is a party or by
which any of its assets or properties are bound; and
(r) any other written or oral contract to which the Company is a party or
by which any of its assets or properties are bound and which with respect to the
Company is a "material contract" as defined by Item 601 of the Regulation S-K.
Holdings has delivered to Parent true and complete copies of each written
Material Contract set forth on Section 3.12 of the Disclosure Schedule (other
- 24 -
than those customer contracts set forth in Section 3.12(p) of the Disclosure
Schedule), including all amendments, modifications, waivers and elections
applicable thereto, and has disclosed to Parent in writing all terms of any oral
Material Contract set forth on Section 3.12 of the Disclosure Schedule (other
than those customer contracts set forth in Section 3.12(p) of the Disclosure
Schedule). With respect to each Material Contract: (i) such Material Contract is
legal, valid, binding, enforceable and in full force and effect; (ii) Holdings
or the Company, as applicable, is not, and to the Knowledge of Holdings, no
other party thereto is, in breach or default with respect to such Material
Contract; and (iii) to the Knowledge of Holdings, no event has occurred which
with notice or lapse of time would constitute a breach or default, or permit
termination, modification, or acceleration, under any such Material Contract.
Holdings has delivered to Parent true and complete copies of each written
agreement relating to the acquisition of Holdings by Allied Capital Corporation
in 2005 (including that certain Agreement and Plan of Merger dated as of July
30, 2005 by and among Holdings, the Company, the Sellers named therein (the
"Prior Sellers") and the other parties thereto), including all exhibits,
--------------
schedules, amendments, modifications, waivers and elections applicable thereto,
and has disclosed to Parent in writing all terms of any oral agreements,
arrangements or understandings relating thereto (collectively the "Prior
-----
Agreements "). Notwithstanding the foregoing, Holdings may, in the case of
----------
customer contracts and data, redact certain confidential information which is
not otherwise required to be disclosed pursuant to the terms hereof. Neither
Holdings, Company nor any Seller has waived any rights pursuant to any of the
Prior Agreements.
SECTION 3.13 Real Property.
-------------
(a) For purposes of this Agreement, "Permitted Encumbrances" means (i)
-----------------------
customary Encumbrances for current Taxes, assessments and other governmental
charges not yet due and payable, except as otherwise prohibited herein; (ii)
Encumbrances, encroachments and any other matters reflected in the surveys of
the Owned Real Property and the ▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ parcel of the Leased Real
Property delivered by the Sellers, Holdings, or Company to Parent; (iii) any
other Encumbrances or matter reflected in the title policies for the Owned Real
Property or the ▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ parcel of the Leased Real Property
delivered by Holdings or Company to Parent and any other Encumbrances on the ▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ parcel of the Leased Real Property which were not
Encumbrances created by the Company; (iv) applicable zoning Laws, building
codes, land use restrictions, and other similar restrictions imposed by Law,
statute, rule, regulation, ordinance, order or process promulgated by any
Governmental Authority; (v) those Encumbrances listed in Section 3.13(a) of the
Disclosure Schedule; and (vi) any other encumbrance which does not adversely
affect the use or operation of any subject property as it is currently used or
operated in connection with the business of the Company, or the value of the
subject property as used or operated by the Company, in the reasonable
discretion of Parent, provided, however, with respect to each of the foregoing,
that Holdings shall be required to remove or cause the Company to remove prior
to the Closing all liens and Encumbrances securing monetary obligations.
"Leases" means the real property leases, subleases, licenses and use or
------
occupancy agreements pursuant to which the Company is the lessee, sublessee,
licensee, user or occupant of real property, or interests therein. "Leased Real
-----------
Property" means all interests in real property leased, subleased, licensed, used
--------
or occupied by the Company pursuant to the Leases. "Owned Real Property" means
-------------------
all real property owned by the Company. "Real Property" means the Owned Real
--------------
Property and the Leased Real Property.
- 25 -
(b) Section 3.13(b) of the Disclosure Schedule contains a complete and
correct list of all Owned Real Property setting forth information sufficient to
identify specifically such Owned Real Property. The Company has good and valid
fee simple title to the Owned Real Property, free and clear of any Encumbrances
other than Permitted Encumbrances. There are no agreements, including, without
limitation, any leases, licenses, easements, rights of way, access agreements or
occupancy agreements, written or oral, where the Company has granted to any
Person the right to access, enter upon, use, occupy, lease or purchase any
portion of the Real Property that are not otherwise Permitted Encumbrances. To
the Knowledge of Holdings, no condemnation or eminent domain proceedings are
pending or threatened in writing with respect to any Owned Real Property or the
Leased Real Property. Each Owned Real Property, and to the Knowledge of
Holdings, the Leased Real Property, has access to a dedicated, public street,
either by reason of such Owned Real Property abutting a dedicated, public street
or by way of good and insurable appurtenant easement(s), and such access is
adequate for the present use and operation thereof.
(c) Section 3.13(c) of the Disclosure Schedule sets forth a complete and
correct list of all Leased Real Property as of the date hereof specifying
information sufficient to identify all such Leased Real Property. The Company
has delivered to Parent true, correct and complete copies of each of the Leases,
including all amendments, modifications, supplements and renewals thereof. Each
Lease grants the Company the right to use and occupy the applicable Leased Real
Property in accordance with the terms thereof, subject to Permitted
Encumbrances. The Leases are valid, binding, in full force and effect, and are
enforceable against the lessor thereunder and the Company has quiet possession
of the leasehold estate or other interest created by each such Lease. There are
no existing defaults by the Company beyond any applicable grace periods under
the Leases. The Company has not assigned or sublet any interest in any premises
demised under the Leases. To the Knowledge of Holdings, there are no defaults by
the landlord under any of the Leases which remain uncured.
(d) The Real Property constitutes all the fee, leasehold and other
interests in real property (i) held by the Company and (ii) necessary for the
conduct of, or otherwise material to, the business of the Company as it is
currently conducted. To the Knowledge of Holdings, there are no title defects or
other matters of or relating to the title of the Owned Real Property or the ▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ parcel of the Leased Real Property or touching or concerning
the Owned Real Property or the ▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ parcel of the Leased Real
Property that are not otherwise shown as exceptions in the Company's current
title policies for the Owned Real Property or the ▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ parcel of
the Leased Real Property provided or made available to Parent.
(e) Condition of Improvements. As of the date hereof, and as of Closing, to
-------------------------
the Knowledge of Holdings, the improvements (which term as used in this
Agreement includes all buildings, sewer and water and all parts of the Real
Property, including, without limitation, plumbing, heating, air conditioning,
electric systems and the roof) are in good working order and repair in all
material respects.
(f) Structural Defects. To the Knowledge of Holdings there are no material
-------------------
structural or other defects in any of the improvements.
- 26 -
(g) Assessments. Neither Holdings nor the Company has received any written
-----------
notice of a threatened or pending increase of the assessments affecting the
Owned Real Property or the ▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ parcel of the Leased Real
Property from any relevant Taxing or Governmental Authority.
(h) Adequacy of Utilities. The water supply, the sewage and waste disposal
---------------------
systems and all of the utility services now servicing the Owned Real Property or
the ▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ parcel of the Leased Real Property are, to the
Knowledge of Holdings, sufficient for the operation of the Owned Real Property
or the ▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ parcel of the Leased Real Property as currently
operated as of the date hereof.
(i) Holdings does not own or lease any Real Property.
SECTION 3.14 Employees; Labor Matters.
------------------------
(a) (i) The Company is not a party to or bound by any collective bargaining
agreement or other labor union contract applicable to persons employed by the
Company, nor, to the Knowledge of Holdings are there any activities or
proceedings on behalf of or by any labor union to organize any such employees;
(ii) there are no unfair labor practice charges or complaints, or any current
union representation questions, involving employees or former employees of the
Company pending against the Company before the National Labor Relations Board;
and (iii) there is no labor strike, lockout, organized slowdown or organized
work stoppage in effect or, to the Knowledge of Holdings, threatened against the
Company. Holdings has not had any employees since its inception.
(b) Subject to the terms of the agreements specified on Section 3.14 of the
Disclosure Schedule, all of the employees of the Company are
"employees-at-will." Since April 30, 2006, the Company has not terminated the
employment of more than 10 employees, other than terminations for cause.
(c) Holdings has previously delivered to Parent the following information
for each director, officer, employee who earned more than $70,000 in 2005 or who
is expected to earn more than $70,000 in 2006 (including, in each case,
bonuses), consultant and independent contractor of Holdings and the Company
(including each such person on leave or layoff status): (i) name and title; (ii)
current annual rate of compensation (identifying bonuses separately) and any
change in compensation since August 9, 2005; and (iii) vacation accrued and
service credited for purposes of vesting and eligibility to participate in
applicable Employee Benefit Plans. Except as described in Section 3.14 of the
Disclosure Schedule, to the Knowledge of Holdings but without inquiry, none of
Holding's or the Company's employees required to be disclosed to Parent pursuant
this Section 3.14(c) is a party to, or is otherwise bound by, any
non-competition, non-solicitation or confidentiality provision of any contract
or agreement with any Person other than Holdings or the Company that materially
and adversely affects the performance of his or her duties or the ability of
Holdings or the Company to conduct their respective businesses.
SECTION 3.15 Insurance.
---------
(a) Section 3.15 of the Disclosure Schedule sets forth all insurance
- 27 -
policies with respect to the property, assets, operation and business of the
Company (the "Insurance Policies"). Holdings has delivered or caused to be
-------------------
delivered or made available to Parent (i) true, correct and complete copies of
all the Insurance Policies together with all riders and amendments thereto, (ii)
true, correct and complete copies of all pending applications by the Company for
policies of insurance and (iii) any statements by the auditors of the Company's
financial statements or any consultant or risk management advisor with regard to
the adequacy of the Company's coverage or the reserves for claims. All of the
Insurance Policies are in full force and effect, all policy limits thereunder
remain intact, and all premiums due thereon have been paid. No insurer under any
Insurance Policy has cancelled or generally disclaimed liability under any
Insurance Policy or indicated in writing any intent to do so or to materially
increase the premiums payable under or not renew any such Insurance Policy. To
the Knowledge of Holdings, the Company has complied in all material respects
with the terms and provisions of such policies. Section 3.15 of the Disclosure
Schedule sets out all claims made by the Company under any policy of insurance
during the past two years. The Company has had no gaps in its insurance coverage
since April 4, 2002, except that the Company did not maintain a NetProtect
errors and omissions policy during the entire period.
(b) Holdings does not carry any insurance policies with respect to the
property, assets, operation and business of Holdings, although it may be a named
insured under certain of the Company's policies.
SECTION 3.16 Intellectual Property.
---------------------
(a) As used herein: (i) "Intellectual Property" means all U.S. and foreign
----------------------
(A) trademarks, service marks, trade names and Internet domain names, together
with goodwill, registrations and applications relating to the foregoing; (B)
patents and pending patent applications, including divisions, continuations,
continuations-in-part, reissues, reexaminations, and any extensions thereof; (C)
copyrights and all registrations and applications to register the same; and (D)
trade secrets and other confidential and proprietary information; and (ii)
"Company Intellectual Property" means the Intellectual Property owned by the
-------------------------------
Company or licensed to the Company from third parties.
(b) Section 3.16 of the Disclosure Schedule sets forth, for the Company
Intellectual Property owned by the Company, a complete list of all U.S. and
foreign: (i) patents and patent applications; (ii) trademark registrations and
applications (including Internet domain name registrations); and (iii) copyright
registrations and applications.
(c) (i) The Company owns or has the right to use all Company Intellectual
Property necessary for the conduct of the business of the Company as currently
conducted;
(ii) There are no pending or, to the Knowledge of Holdings, threatened
proceedings or litigation or other adverse claims by any Person against the
Company or Holdings alleging that the conduct of the business of the
Company or Holdings, including the products used by the Company or Holdings
in the conduct of such business, as currently conducted infringes or may
infringe upon or misappropriate any Intellectual Property of any third
party; and
- 28 -
(iii) To the Knowledge of Holdings, (A) the conduct of the business of
the Company and Holdings, including the products used by the Company or
Holdings in the conduct of such business, as currently conducted do not
infringe upon or misappropriate any Intellectual Property of any third
party and (B) no third party is infringing any material Company
Intellectual Property (other than shrink wrap licenses or licenses of off
the shelf software).
(d) Holdings does not own or license any Intellectual Property.
SECTION 3.17 Customers. Section 3.17 of the Disclosure Schedule sets forth
---------
separately, with respect to the 30 largest customers of the Company (based on
the dollar volume of purchases during the period from August 9, 2005 to May 31,
2006) (without naming them), (i) the dollar volume of purchases made from the
Company by such customer during the period from August 9, 2005 to May 31, 2006,
and (ii) the earliest date on which such customer may terminate each contract,
agreement, arrangement or undertaking that it has with the Company for any
reason other than a failure by the Company to perform its obligations
thereunder; provided that, with respect to the largest five customers, such
termination date information shall not be specifically identified to any
particular customer. Section 3.17 also sets forth the names and addresses of the
20 largest customers of the Company (based on the dollar volume of purchases
during the period from August 9, 2005 to May 31, 2006) (the "Material
--------
Customers"). Except as disclosed in Section 3.17 of the Disclosure Schedule or
---------
in a Supplemental Disclosure (as defined in Section 6.11), since August 9, 2005
the Company has not received any written notice that any Material Customer has
(i) ceased, or will cease, to use the Company's products or services; (ii)
substantially reduced, or will substantially reduce, the use of such products or
services; or (iii) requested a reduced price for the Company's products or
services.
(b) If a written notice is received by the Company from a Material Customer
between the date of this Agreement and the MAE Change Date (as defined in
Section 7.4) of the type described in clause (i), (ii) or (iii) of Section
3.17(a) (a "Subsequent Notice"), and such notice is disclosed on a Supplemental
-----------------
Disclosure, Parent's sole remedy shall be to terminate this Agreement for
failure to satisfy a condition set forth in Article VII (if such remedy is
available). If Parent waives such remedy and elects to proceed to Closing then
Parent shall not be entitled to an indemnification claim with respect to such
Subsequent Notice (whether pursuant to Section 10.2 or otherwise). If a
Subsequent Notice is received after the MAE Change Date and such notice is
disclosed on a Supplemental Disclosure, then Parent shall not be entitled to an
indemnification claim with respect to such Subsequent Notice (whether pursuant
to Section 10.2 or otherwise). If a Subsequent Notice is received but is not
disclosed on a Supplemental Disclosure, Parent shall be entitled to whatever
remedies are available to it pursuant to this Agreement resulting from a breach
of this Section 3.17. Notwithstanding the foregoing, the provisions of this
Section 3.17(b) shall not apply to any such notice received on or after the date
of the Extension Notice (as defined in Section 9.1).
SECTION 3.18 Certain Fees. Neither Holdings nor the Company has employed
-------------
any financial advisor or finder and neither Holdings nor the Company has
incurred any Liability for any financial advisory or finders' fees or similar
compensation in connection with this Agreement or the transactions contemplated
hereby.
- 29 -
SECTION 3.19 Title to Assets. (i) Except as set forth in Section 3.19 of
---------------
the Disclosure Schedule, the Company now has and at the Closing will have, good
and marketable title, or a valid leasehold interest in and to, the Owned Real
Property, the ▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ parcel of the Leased Real Property and the
assets shown on the June Balance Sheet or acquired after the date thereof, free
and clear of all Encumbrances except for Permitted Encumbrances; and (ii) as of
the Closing, the Company will have sufficient assets, whether pursuant to
ownership, lease, license or other right, to permit Parent to carry on the
business of the Company in substantially the same manner as presently conducted
by Holdings and the Company. Holdings does not have any assets other than the
outstanding Company Common Interest.
SECTION 3.20 Receivables. The accounts receivable reflected in the June
-----------
Balance Sheet or arising thereafter result from bona fide transactions with
third parties in the ordinary course of business and are reflected on the June
Balance Sheet or (in the case of receivables arising thereafter) in the books
and records of Holdings, in each case consistent with past practice, and as of
the date of such Balance Sheet none of such accounts receivable was subject to
any counterclaim or set-off except to the extent of any established reserves.
SECTION 3.21 Suppliers. Section 3.21 of the Disclosure Schedule sets forth
---------
(a) the names of the Company's 20 largest suppliers (based on dollar volume of
purchases during the period from August 9, 2005 to May 31, 2006) (each a
"Material Supplier") and (b) the amount that each such supplier was paid by the
------------------
Company during such period. Except as set forth in a Supplemental Disclosure,
the Company has not received any notice nor has any reason to believe that there
has been any material increase in the price of such supplies, merchandise or
other goods or services, or that any Material Supplier will not sell supplies,
merchandise and other goods or services to Parent at any time after the Closing
Date on terms and conditions similar to those used in its current sales to the
Company, subject to general and customary price increases. To the Knowledge of
Holdings, no Material Supplier has otherwise threatened to take any action
described in the preceding sentence as a result of the consummation of the
transactions contemplated by this Agreement.
SECTION 3.22 Geographic Limitations. The Company is not restricted by any
-----------------------
written or oral agreement with any other Person from carrying on the Company's
business anywhere in the world.
SECTION 3.23 Records. The books of account of Holdings and the Company are
-------
sufficient, in all material respects, to prepare the Financial Statements in
accordance with GAAP. The books and records of Holdings and the Company
accurately and fairly reflect, in all material respects, their respective
income, expenses, assets and liabilities and each of Holdings and the Company
maintains internal accounting controls which provide reasonable assurance that:
(i) transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and (ii) all intercompany transactions,
charges and expenses among or between Holdings, the Company and/or their
Affiliates (x) are (other than the transactions between Holdings or the Company
and Allied Capital Corporation and the compensation arrangements between
Holdings or the Company and the Sellers who are employees of the Company) at
fair arms length value and (y) are accurately reflected in all Financial
Statements.
- 30 -
SECTION 3.24 Bank Accounts. Section 3.24 of the Disclosure Schedule lists
-------------
the names and addresses of all banks and other financial institutions with which
Holdings or the Company have accounts (or to which deposits are made on behalf
of Holdings or the Company), in each case listing the type of account
maintained, the account number therefore, and the names of all Persons
authorized to draw thereupon or who have access thereto, and the locations of
all safe deposit boxes used by Holdings or the Company.
SECTION 3.25 Indebtedness. Except as set forth on Section 3.25 of the
------------
Disclosure Schedule, neither Holdings nor the Company has any Indebtedness (as
defined below) in excess of $50,000 in the aggregate. As used herein,
"Indebtedness" of any Person means, without duplication (i) all indebtedness for
------------
borrowed money, (ii) all obligations issued, undertaken or assumed as the
deferred purchase price of property or services (other than trade payables
entered into in the ordinary course of business), (iii) all reimbursement or
payment obligations with respect to letters of credit, surety bonds and other
similar instruments, (iv) all obligations evidenced by notes, bonds, debentures
or similar instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or businesses, (v) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (vi) all
monetary obligations under any leasing or similar arrangement which, in
connection with GAAP, consistently applied for the periods covered thereby, is
classified as a capital lease, (vii) all indebtedness referred to in clauses (i)
through (vi) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any mortgage,
lien, pledge, charge, security interest or other encumbrance upon or in any
property or assets (including accounts and contract rights) owned by any Person,
even though the Person that owns such assets or property has not assumed or
become liable for the payment of such indebtedness, and (viii) any direct or
indirect liability, contingent or otherwise, of that Person with respect to any
indebtedness or obligations of others of the kinds referred to in clauses (i)
through (vii) above, if the primary purpose or intent of the Person incurring
such liability, or the primary effect thereof, is to provide assurance to the
obligee of such liability that such liability will be paid or discharged, or
that any agreements relating thereto will be complied with, or that the holders
of such liability will be protected (in whole or in part) against loss with
respect thereto.
SECTION 3.26 Absence of Certain Business Practices. To the Knowledge of
---------------------------------------
Holdings, none of the Company, any officer, employee or agent of the Company, or
any other Person acting on the Company's behalf, has, directly or indirectly,
within the past three years given or agreed to give any gift or similar benefit
to any customer, supplier, governmental employee or other Person who is or may
be in a position to help or hinder the Company (or assist the Company in
connection with any actual or proposed transaction relating to the Company) (i)
which could reasonably be expected to subject the Company to any damage or
penalty in any criminal or governmental Action, (ii) for any of the purposes
described in Section 162(c) of the Code or (iii) for the purpose of establishing
or maintaining any concealed fund or concealed bank account. Neither Holdings
nor the Company conducts any business outside the United States.
- 31 -
SECTION 3.27 Disclosure. No representation or warranty made by Holdings or
----------
any Seller contained in this Agreement nor any statement in the Disclosure
Schedule or any certificate furnished or to be furnished by or on behalf of
Holdings, the Company or any Seller to Parent or its representatives pursuant
hereto contains or will contain any untrue statement of a material fact or omit
to state any material fact required to make the statements contained herein or
therein, in light of the circumstances in which it was made, not misleading.
SECTION 3.28 Disclaimer of Warranties by Holdings. EXCEPT AS EXPRESSLY SET
------------------------------------
FORTH IN THIS ARTICLE III, HOLDINGS DOES NOT MAKE AND HAS NOT MADE ANY
REPRESENTATIONS OR WARRANTIES WHATSOEVER, EXPRESS OR IMPLIED, RELATING TO THE
COMPANY AND ITS BUSINESS, INCLUDING ANY REPRESENTATIONS OR WARRANTIES AS TO THE
FUTURE SALES OR PROFITABILITY OF THE COMPANY OR ITS BUSINESS. ALL OTHER
REPRESENTATIONS AND WARRANTIES ARE HEREBY EXPRESSLY DISCLAIMED BY HOLDINGS.
ARTICLE IV
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Except as set forth under the section heading referring to a specific
section of this Agreement in the Disclosure Schedule, each Seller severally (as
to himself or herself and not as to any other Seller) represents and warrants to
Parent that all of the statements contained in this Article IV are true and
correct (i) as of the date of this Agreement (or, if made as of a specified
date, as of such date) and (ii) as of the Closing Date (or, if made as of a
specified date, as of such date) as though made then, as follows:
SECTION 4.1 Organization and Authority.
--------------------------
Each Seller that is an entity is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its formation. Each Seller
has all requisite power to execute and deliver this Agreement and the Escrow
Agreement and to perform his, her or its obligations hereunder and thereunder.
The execution and delivery of this Agreement and the Escrow Agreement and the
performance of its obligations hereunder and thereunder have been duly and
validly authorized by the Board of Directors of each Seller that is an entity
and no other corporate, limited liability company or limited partnership
proceedings on the part of such Sellers are necessary to authorize the
execution, delivery and performance of this Agreement and the Escrow Agreement.
This Agreement has been duly executed and delivered by each Seller, and this
Agreement constitutes and the Escrow Agreement and each other agreement and
instrument to be executed and delivered by such Seller in connection herewith or
therewith or pursuant hereto or thereto will constitute, assuming the due
execution of this Agreement by Parent and Merger Sub and the Escrow Agreement by
Parent, valid and binding obligations of such Seller, enforceable against such
Seller in accordance with their terms, except that such enforcement may be
subject to or limited by (i) the effect of any applicable bankruptcy,
insolvency, reorganization, moratorium and similar Laws relating to or affecting
the rights of creditors generally and (ii) the effect of general principles of
equity (regardless of whether enforceability is considered in a proceeding at
law or in equity).
- 32 -
SECTION 4.2 Holdings Share Ownership. Each Seller is the record and
--------------------------
beneficial owner of the Holdings Shares, SARs and/or Options, free and clear of
any Encumbrances, set forth opposite his, her or its respective names in Section
4.2 of the Disclosure Schedule. Except for this Agreement, the transactions
contemplated hereby and the Restructuring Transactions, the SARs and the Options
or as set forth in Section 4.2 of the Disclosure Schedule, there are no
agreements, arrangements, warrants, options, puts, calls, rights or other
commitments or understandings of any character to which any Seller is a party or
by which any of his, her or its respective assets are bound and relating to the
issuance, sale, purchase, redemption, conversion, exchange, registration, voting
or transfer of Holdings Shares or Preferred Shares.
SECTION 4.3 Consents and Approvals; No Violations.
-------------------------------------
(a) Neither the execution and delivery by any Seller of this Agreement the
Escrow Agreement and each other agreement and instrument to be executed and
delivered by such Seller in connection herewith or therewith or pursuant hereto
or thereto nor the performance by any Seller of his, her or its obligations
hereunder or thereunder will (i) conflict with or result in any breach of any
provision of the certificate of incorporation, certificate of formation,
certificate of limited partnership, limited liability company agreement or
limited partnership agreement of any Seller that is an entity; (ii) result in
the creation or imposition of any Encumbrance upon such Seller's Holdings
Shares; (iii) except as set forth in Section 4.3 of the Disclosure Schedule,
result in a material violation or breach of or default under (or give rise to
any right of termination, cancellation or acceleration), or result in the
creation of any Encumbrance under, any of the terms, conditions or provisions of
any note, mortgage, letter of credit, other evidence of indebtedness, guarantee,
license, lease or agreement or similar instrument or obligation relating to such
Seller or to which such Seller is a party or by which such Seller or any of his,
her or its assets used or held for use by such Seller may be bound; (iv) require
the consent, approval, wavier, authorization or notification to or of any other
Person; or (v) assuming that the filings, registrations, notifications,
authorizations, consents and approvals referred to in Section 4.3(b) hereof have
been obtained or made, as the case may be, violate any order, injunction,
decree, statute, rule or regulation of any Governmental Authority to which the
Seller is subject, excluding from the foregoing clause (v) such violations that
would not, individually or in the aggregate, be material to such Seller.
(b) No filing or registration with, notification to, or authorization,
consent or approval of any Governmental Authority is required in connection with
the execution and delivery of this Agreement or the Escrow Agreement by any
Seller or the performance by any Seller of their obligations hereunder or
thereunder, except (i) those that become applicable as a result of matters
specifically related to Parent or its Affiliates or (ii) in connection with the
HSR Act as provided for in Section 6.5 hereof.
SECTION 4.4 Certain Fees. No Seller has (a) employed any financial advisor
------------
or finder or (b) incurred any Liability for any financial advisory or finders'
fees or similar compensation in connection with this Agreement or the
transactions contemplated hereby.
SECTION 4.5 Legal Proceedings, etc. There are no Actions pending against
------------------------
any Seller, or, to the knowledge of the Sellers, threatened against or involving
- 33 -
any Seller in connection with the business and affairs of such Seller or
otherwise before any court, arbitrator or administrative or governmental body,
United States or foreign which, if adversely determined, could, individually or
in the aggregate, have or reasonably be expected to have any adverse effect on
the ability of such Seller to consummate the transactions contemplated hereby.
No Seller is subject to any judgment, decree, injunction or order of any court,
which would, individually or in the aggregate, reasonably be expected to
materially impact the ability of such Seller to perform his, her or its
obligations under, or to consummate the transactions contemplated by, this
Agreement.
SECTION 4.6 Disclaimer of Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THIS
------------------------
ARTICLE IV OR IN ARTICLE III, THE SELLERS DO NOT MAKE AND HAVE NOT MADE ANY
REPRESENTATIONS OR WARRANTIES WHATSOEVER, EXPRESS OR IMPLIED, RELATING TO THE
SELLERS, HOLDINGS OR THE COMPANY OR THE COMPANY'S BUSINESS, INCLUDING ANY
REPRESENTATIONS OR WARRANTIES AS TO THE FUTURE SALES OR PROFITABILITY OF
HOLDINGS OR THE COMPANY OR ITS BUSINESS. ALL OTHER REPRESENTATIONS AND
WARRANTIES ARE HEREBY EXPRESSLY DISCLAIMED BY THE SELLERS.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
In order to induce the Sellers and Holdings to enter into this Agreement,
Parent and Merger Sub hereby represent and warrant to the Sellers and Holdings
that all of the statements contained in this Article V are true and correct (i)
as of the date of this Agreement (or, if made as of a specified date, as of such
date) and (ii) as of the Closing Date (or, if made as of a specified date, as of
such date) as though made then, as follows:
SECTION 5.1 Corporate Organization and Authority.
------------------------------------
(a) Each of Parent and Merger Sub is duly organized, validly existing and
in good standing under the Laws of the jurisdiction of its incorporation, as
applicable. Other than Merger Sub, the Subsidiaries listed on Exhibit 21 of
Publico's most recent Annual Report on Form 10-K, and the Subsidiaries listed on
Schedule 5.1 hereto, Parent does not have any Subsidiaries.
(b) Parent has the requisite power and authority to execute and deliver
this Agreement and the Escrow Agreement and to perform its obligations hereunder
and thereunder. The execution and delivery of this Agreement and the Escrow
Agreement and the performance of its obligations hereunder and thereunder have
been duly and validly authorized by the Board of Directors of Parent and no
other corporate proceedings on the part of Parent are necessary to authorize the
execution, delivery and performance of this Agreement or the Escrow Agreement.
This Agreement has been duly executed and delivered by Parent, and this
Agreement constitutes and the Escrow Agreement will constitute, assuming due
authorization, execution and delivery of this Agreement and the Escrow Agreement
by the other parties hereto and thereto, valid and binding obligations of
Parent, enforceable against Parent in accordance with its terms, except that
such enforcement may be subject to or limited by (i) the effect of any
- 34 -
applicable bankruptcy, insolvency, reorganization, moratorium and similar Laws
relating to or affecting the rights of creditors generally and (ii) the effect
of general principles of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity).
(c) Merger Sub has the requisite power and authority to execute and deliver
this Agreement and to perform its obligations hereunder. The execution and
delivery of this Agreement and the performance of its obligations hereunder have
been duly and validly authorized by the Board of Directors and sole stockholder
of Merger Sub and no other corporate proceedings on the part of Merger Sub are
necessary to authorize the execution, delivery and performance of this
Agreement. This Agreement has been duly executed and delivered by Merger Sub,
and this Agreement constitutes, assuming due authorization, execution and
delivery of this Agreement by the other parties hereto, a valid and binding
obligation of Merger Sub, enforceable against Merger Sub in accordance with its
terms, except that such enforcement may be subject to or limited by (i) the
effect of any applicable bankruptcy, insolvency, reorganization, moratorium and
similar Laws relating to or affecting the rights of creditors generally and (ii)
the effect of general principles of equity (regardless of whether enforceability
is considered in a proceeding at law or in equity).
SECTION 5.2 Consents and Approvals; No Violations.
-------------------------------------
(a) Neither the execution and delivery of this Agreement and the Escrow
Agreement nor the performance by Parent of its obligations hereunder or
thereunder will (i) conflict with or result in any breach of any provision of
the certificate of incorporation or bylaws (or similar organizational documents)
of Parent and its Subsidiaries; (ii) result in a material violation or breach of
or default under (or give rise to any right of termination, cancellation or
acceleration), or result in the creation of any Encumbrance under, any of the
terms, conditions or provisions of any note, mortgage, letter of credit, other
evidence of indebtedness, guarantee, license, lease or agreement or similar
instrument or obligation relating to the business of Parent or to which Parent
is a party or by which Parent or any of the assets used or held for use by
Parent may be bound; (iii) require the consent, approval, waiver or
authorization to or of any other Person; or (iv) assuming that the filings,
registrations, notifications, authorizations, consents and approvals referred to
in Section 5.2(c) below have been obtained or made, as the case may be,
materially violate any order, injunction, decree, statute, rule or regulation of
any Governmental Authority to which Parent is subject, excluding from the
foregoing clause (iv) such violations that would not, individually or in the
aggregate, be material to Parent.
(b) Neither the execution and delivery of this Agreement nor the
performance by Merger Sub of its obligations hereunder will (i) conflict with or
result in any breach of any provision of the certificate of incorporation or
bylaws of Merger Sub; (ii) result in a violation or breach of or default under
(or give rise to any right of termination, cancellation or acceleration), or
result in the creation of any Encumbrance under, any of the terms, conditions or
provisions of any note, mortgage, letter of credit, other evidence of
indebtedness, guarantee, license, lease or agreement or similar instrument or
obligation relating to the business of Merger Sub or to which Merger Sub is a
party or by which Merger Sub or any of the assets used or held for use by Merger
Sub may be bound; (iii) require the consent, approval, waiver or authorization
to or of any other Person; or (iv) assuming that the filings, registrations,
notifications, authorizations, consents and approvals referred to in Section
- 35 -
5.2(c) below have been obtained or made, as the case may be, violate any order,
injunction, decree, statute, rule or regulation of any Governmental Authority to
which Merger Sub is subject, excluding from the foregoing clause (iv) such
violations that would not, individually or in the aggregate, be material to
Merger Sub.
(c) Except in connection with the HSR Act as provided for in Section 6.5
hereof, no filing or registration with, notification to, or authorization,
consent or approval of, any Governmental Authority is required in connection
with the execution and delivery of this Agreement or, in the case of Parent, the
Escrow Agreement or the performance by Parent or Merger Sub of their obligations
hereunder or thereunder.
SECTION 5.3 Legal Proceedings, etc.. Except as set forth in Publico's
-------------------------
current and periodic reports filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended, as of the date of
this Agreement, there are no Actions pending, or, to the knowledge of Parent,
threatened against or involving Parent or Merger Sub or any of their officers,
managers or directors in connection with the business or affairs of Parent or
Merger Sub before any court, arbitrator or administrative or governmental body,
United States or foreign which, if adversely determined, would, individually or
in the aggregate, have or reasonably be expected to have a material adverse
effect on the ability of Parent or Merger Sub to consummate the transactions
contemplated hereby. Neither Parent nor Merger Sub is subject to any judgment,
decree, injunction or order of any court, which would, individually or in the
aggregate, reasonably be expected to materially impact the ability of Parent or
Merger Sub to perform its obligations under, and to consummate the transactions
contemplated by, this Agreement, and in the case of Parent, the Escrow
Agreement.
- 36 -
SECTION 5.4 Certain Fees. Parent has not employed any financial advisor or
------------
finder and Parent has not incurred any Liability for any financial advisory or
finders' fees or similar compensation in connection with this Agreement or the
transactions contemplated hereby.
SECTION 5.5 Acquisition of Holdings Shares for Investment. Parent has such
---------------------------------------------
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of its purchase of the Holdings Shares. Parent
is acquiring the Holdings Shares for investment and not with a view toward or
for sale in connection with any distribution thereof, or with any present
intention of distributing or selling the Holdings Shares. Parent agrees that the
Holdings Shares may not be sold, transferred, offered for sale, pledged,
hypothecated or otherwise disposed of without registration under the Securities
Act of 1933, as amended, or any applicable state securities Laws, except
pursuant to an exemption from such registration available under the Securities
Act of 1933, as amended, or any applicable state securities Laws.
SECTION 5.6 Financing. Parent currently has (after taking into account the
---------
Publico guarantee set forth in Section 12.1 of this Agreement) and as of the
Closing will have all funds necessary to consummate the transactions
contemplated by this Agreement, including the payment at Closing of the Merger
Consideration and the payment of all expenses incurred by Parent in connection
with the transactions contemplated by this Agreement and the Escrow Agreement.
SECTION 5.7 Investigation by Parent; Holdings' Liability. Parent has
------------------------------------------------
conducted its own independent review and analysis of the business, operations,
assets, liabilities, results of operations, financial condition, software,
technology and prospects of Holdings and the Company and acknowledges that
Parent has been provided access to certain personnel, properties, premises and
records of Holdings and the Company for such purpose. In entering into this
Agreement, Parent has relied solely upon (x) its own investigation and analysis
and (y) the representations and warranties of Holdings and the Sellers set forth
in Article III and Article IV of this Agreement. Parent agrees, to the fullest
extent permitted by Law, that except for claims arising under Article X of this
Agreement or a claim of fraud or intentional misconduct, none of Holdings, the
Company or any of their respective directors, officers, managers, equityholders,
employees, Affiliates, controlling Persons, Sellers, agents, advisors or
Representatives shall have any liability or responsibility whatsoever in respect
of this Agreement to Parent or its directors, officers, employees, Affiliates,
controlling Persons, agents, advisors or Representatives on any basis
(including, without limitation, in contract or tort, under federal or state
securities Laws or otherwise) based upon any information provided or made
available, or statements made, to Parent or its directors, officers, employees,
Affiliates, controlling Persons, advisors, agents or Representatives (or any
omissions therefrom) other than the representations and warranties of Holdings
and the Sellers set forth in Article III and Article IV of this Agreement,
respectively, and the covenants set forth in Article VI hereof, but always
subject to the limitations and restrictions contained therein. For avoidance of
doubt, this Section 5.7 shall not be deemed to apply to any separate agreement
between any member, officer or employee of Holdings or the Company and the
Parent or the Surviving Company. Notwithstanding anything to the contrary in
this Section 5.7, Parent's and Merger Sub's rights to rely on the
representations and warranties of Holdings and the Sellers set forth in this
Agreement, the Disclosure Schedule and any other agreement, instrument or
certificate delivered in connection herewith or therewith or pursuant hereto or
- 37 -
thereto shall not be affected by any investigation with respect thereto
conducted by Parent or Merger Sub.
SECTION 5.8 Disclaimer of Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THIS
------------------------
ARTICLE V, NEITHER PARENT NOR MERGER SUB MAKES AND HAS NOT MADE ANY
REPRESENTATIONS OR WARRANTIES WHATSOEVER, EXPRESS OR IMPLIED, RELATING TO THE
PARENT OR MERGER SUB. ALL OTHER REPRESENTATIONS AND WARRANTIES ARE HEREBY
EXPRESSLY DISCLAIMED BY PARENT AND MERGER SUB.
ARTICLE VI
COVENANTS
SECTION 6.1 Conduct of the Business. Holdings agrees that, during the
------------------------
period from the date hereof until the earlier of the Closing or the termination
of this Agreement, except as (a) expressly provided by the Restructuring
Transactions; (b) otherwise expressly contemplated hereby; (c) set forth in
Section 6.1 of the Disclosure Schedule; or (d) consented to by Parent, in
writing (which consent may be withheld in Parent's sole discretion), Holdings
will, and will cause the Company to:
(i) use its commercially reasonable efforts to (A) cause the Company's
business operations to be conducted in the ordinary course of business; (B)
preserve intact the Company's assets, Real Property and business
organization in all material respects, including, but not limited to
continuing to manage, operate and maintain the Real Property in materially
the same manner as prior to the execution of this Agreement and (C) not
enter into any lease or sublease with respect to the Real Property;
(ii) maintain all assets of the Company in a state of repair and
condition that materially complies with applicable Law and is consistent
with the requirements and normal conduct of the Company's business;
provided, however, that the Company may use and replace tangible personal
-------- -------
property in the ordinary course of business;
(iii) continue in full force and effect the insurance coverage under
the policies set forth in Section 3.15 of the Disclosure Schedule or
substantially equivalent policies;
(iv) maintain all books and records of Holdings and the Company
relating to Holdings' and the Company's business in the ordinary course of
business.
(v) not amend its certificate of formation or limited liability
company agreement;
(vi) not issue, deliver, sell, pledge, dispose of or encumber, or
authorize or commit to the issuance, sale, pledge, disposition or
encumbrance of any equity interest, or any other ownership interest, in
Holdings or the Company, or any options, warrants, convertible securities
or other rights of any kind to acquire any equity interest, or any other
- 38 -
ownership interest, in Holdings or the Company including, without
limitation, any SARs or Options;
(vii) not declare, set aside, make or pay any dividend or other
distribution, payable in cash, shares, property or otherwise, with respect
to the Holdings Shares or the Company Common Interest that would reduce the
Estimated Working Capital at Closing below the Target Working Capital;
(viii) not reclassify, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, the Holdings Shares or the
Company Common Interest;
(ix) other than in the ordinary course of business, not (A) incur any
Indebtedness (except for short term Indebtedness incurred in the ordinary
course of business in an amount not to exceed $50,000 in the aggregate);
(B) commit to any new capital expenditures in excess of $25,000
individually or $100,000 in the aggregate; (C) sell or dispose of any of
its properties or assets having a value individually or in the aggregate in
excess of $25,000; or (D) make any loans, advances or capital contributions
to, or investments in, any other Person on behalf of Holdings or the
Company;
(x) other than in the ordinary course of business, not enter into,
amend or terminate any Material Contracts (including, without limitation,
in connection with obtaining any consent thereunder to the transactions
contemplated hereby);
(xi) perform in all material respects all of Holdings' and the
Company's obligations under all of the Material Contracts;
(xii) other than in the ordinary course of business, not modify or
amend the employment arrangements with its officers, enter into or amend
any employment, senior management consultant, severance, termination or
other similar agreement (except in connection with the hiring of any new
employee earning less than $70,000 per year), adopt any new or amend any
existing employee benefit plan, program, agreement or arrangement (except
as may be required by applicable Law or as necessary or advisable to comply
with Section 409A of the Code), or make any loans to any of its officers,
directors, employees, agents or consultants;
(xiii) not enter into any new unrelated line of business or acquire by
merging or consolidating with, or by purchasing a material portion of the
assets of, or by any other manner, any business or any corporation,
partnership, joint stock company, limited liability company, association or
other business organization or division thereof;
(xiv) not enter into any joint venture, partnership or other similar
arrangement;
(xv) not knowingly waive any right of material value to Holdings or
the Company or settle or compromise any claim in excess of $50,000
individually or $100,000 in the aggregate;
- 39 -
(xvi) not adopt a plan of complete or partial liquidation with respect
to Holdings or the Company or resolutions providing for or authorizing such
a liquidation or dissolution, merger, consolidation, restructuring,
recapitalization or reorganization;
(xvii) not recognize any labor union (unless legally required to do
so) or enter into or amend any collective bargaining agreement;
(xviii) not make or change any material Tax election, change any
method of accounting (except as required by changes in GAAP), file any
amended Tax Return, settle or compromise any Tax liability, enter into any
closing agreement, surrender any claim for refund, consent to any extension
or waiver of the limitation period applicable to any Tax claim or
assessment, or take any other similar action in respect of Taxes;
(xix) not delay or postpone the payment of accounts payable and not
accelerate the collection of accounts receivable, in each case other than
in the ordinary course of business consistent with past practice;
(xx) materially comply with all Laws applicable to the operations of
the business of the Company; provided, however, that the Company shall have
no obligation to comply with any Laws that the Company challenges in good
faith;
(xxi) pay, when due, the required amounts of Taxes related to the
business; and
(xxii) not agree, commit, or adopt any plan or proposal to take any of
the actions set forth in clauses (v) through (xix) above.
SECTION 6.2 Access to Information and Real Property; Confidentiality.
--------------------------------------------------------
(a) Upon reasonable advance notice, between the date hereof and the earlier
of the Closing or the termination of this Agreement in accordance with its
terms, Holdings shall give Parent and its Representatives full access during
normal business hours to the offices, the Real Property, personnel, books,
records, contracts, information and documents of Holdings and the Company to
conduct such examinations and investigations of Holdings and the Company as
Parent reasonably determines necessary. Holdings shall and shall cause the
Company to cooperate in all reasonable respects with Parent's examinations and
investigations. For purposes of this Agreement, "Representatives" means with
---------------
respect to any Person, such Person's counsel, financial advisors, auditors and
other authorized representatives, including, without limitation, any agents,
contractors, engineers, architects and surveyors.
(b) Parent will treat and hold any information and materials it receives in
the course of the reviews contemplated by Section 6.2(a) in accordance with the
confidentiality agreement between Publico and Holdings, dated May 18, 2006 (the
"Confidentiality Agreement").
-------------------------
SECTION 6.3 Delivery of Monthly Financial Statements. Prior to the Closing,
----------------------------------------
Holdings shall cause to be prepared and delivered to Parent a consolidated
- 40 -
balance sheet, income statement and statement of cash flows for Holdings for
each fiscal month ending after the date of this Agreement within 30 days of the
last day of each such month. All such monthly financial statements delivered
pursuant to this Section 6.3 shall be prepared in a manner consistent with the
Company's past practice and consistent with GAAP, subject to the normal,
recurring and year-end audit adjustments set forth in Section 3.4 of the
Disclosure Schedule.
SECTION 6.4 Reasonable Best Efforts. Upon the terms and subject to the
-------------------------
conditions herein provided, each of the parties hereto, with respect to matters
involving such party, agrees to use its reasonable best efforts to take or cause
to be taken all action, to do or cause to be done, and to assist and cooperate
with any party hereto in doing all things necessary, proper or advisable under
applicable Laws and regulations to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this Agreement,
including, but not limited to, (i) the satisfaction of the conditions precedent
to the obligations of any of the parties hereto; (ii) the obtaining of consents,
waivers or approvals of third parties, including those set forth in Section
1.3(b)(ix) of the Disclosure Schedule; (iii) the defending of any Lawsuits or
other legal proceedings, whether judicial or administrative, challenging this
Agreement or the performance of the obligations hereunder; and (iv) the
execution and delivery of such instruments, and the taking of such other actions
as the other parties hereto may reasonably require in order to carry out the
intent of this Agreement; provided, that this Section 6.4 shall not apply with
respect to the matters provided for under Section 6.5(a), which matters shall be
exclusively governed by that section. Prior to the Closing, Sellers shall cause
to be terminated in accordance with their terms the agreements specified on
Section 1.3(b)(ix) as to be terminated, without obligation or liability to
Company or Holdings. Sellers shall not and shall not permit Company to waive any
rights under any such agreements.
SECTION 6.5 Governmental Authorizations.
---------------------------
(a) In connection with the transactions contemplated by this Agreement,
Holdings, on the one hand, and Parent, on the other hand, shall, within one
business day after the execution of this Agreement, comply with the notification
and reporting requirements of the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act
of 1976, as amended (the "HSR Act") and shall request early termination of the
-------
waiting period under the HSR Act. Holdings, on the one hand, and Parent, on the
other hand, shall substantially comply with any additional request for
information, including requests for production of documents and production of
witnesses for interviews or depositions, by any antitrust authority. Parent
shall pay the applicable HSR Act filing fee, but Parent and Holdings shall
otherwise each be responsible for their own costs of HSR Act compliance.
(b) Holdings, on the one hand, and Parent, on the other hand, shall
promptly file all other necessary registrations and filings and submissions of
information requested by any Governmental Authority (other than with respect to
the HSR Act, which is the subject of Section 6.5(a) above but not of this
Section 6.5(b)). Each of Parent and Holdings agrees to cooperate with and
promptly to consult with, to provide any reasonably available information with
respect to, and to provide, subject to appropriate confidentiality provisions,
copies of all presentations and filings to or with any such Governmental
Authority to Holdings or Parent, as the case may be, or the counsel of Holdings
or Parent, as the case may be. Holdings and Parent shall each use its reasonable
best efforts to ensure that any required consents, approvals, waivers or other
- 41 -
authorizations from such Governmental Authorities are obtained as promptly as
practicable and that any conditions set forth in or established by any such
Governmental Authorities are wholly satisfied.
(c) The Company and Holdings will cooperate fully with Parent with respect
to all actions necessary to transfer any permits, licenses, variances or
authorizations as required by applicable Law.
SECTION 6.6 Public Announcements. No press release or announcement
---------------------
concerning the transactions contemplated hereby shall be issued by the Company,
Parent or Holdings without the prior consent of the other parties; provided,
--------
however, that, subject to the non-releasing parties' right to review and
-------
comment, (i) upon not less than 24 hours' prior written notice to Holdings,
Parent may issue a press release announcing the transactions contemplated by
this Agreement, (ii) nothing contained herein shall prohibit any party from
making any public announcement required by Law or the rules or regulations of
the New York Stock Exchange and (iii) nothing contained herein shall prohibit
Parent from making public disclosures to its investors and analysts customary in
the ordinary course of business.
SECTION 6.7 Employee Matters.
----------------
(a) Each individual who is employed by the Company immediately prior to the
Closing Date shall remain an employee of the Company following the Closing Date
(each such employee, an "Affected Employee"); provided, however, that this
------------------ -------- -------
Section 6.7 shall not be construed to limit the ability of the Company to
terminate the employment of any Affected Employee following the Closing Date in
accordance with applicable Law.
(b) Parent shall recognize each Affected Employee's service with, or
recognized by, the Company prior to the Closing Date as service with Parent in
connection with any pension plan, 401(k) savings plan and welfare benefit plan
(including vacations and holidays) maintained by Parent that is made available
by Parent, in its sole discretion and without any obligation to do so, to such
employee following the Closing Date and in which such employee elects to
participate for purposes of any waiting period, vesting, eligibility and benefit
entitlements (but excluding benefit accruals other than vacation) and shall
cause all applicable welfare benefit plans to waive any preexisting condition
limitation, exclusion or waiting period for the Affected Employees and their
dependents, to the same extent such limitations, exclusions or waiting periods
were satisfied, covered or waived under similar Company plans. Parent shall
credit the Affected Employees with any amounts paid prior to the Closing Date
under any Company plan with respect to satisfaction of any applicable deductible
amounts and co-payment minimums under any Parent plans established as of the
Closing Date which provide similar benefits.
(c) Parent shall cause the Company to provide any Affected Employee whose
employment with the Company or Parent is terminated by the Company or Parent
(other than for "cause") during the twelve (12) month period following the
Closing, with severance pay in accordance with the past practice of the Company.
- 42 -
(d) During the 90-day period beginning on the Closing Date, Parent shall
not terminate the employment of any Affected Employees so as to cause any "plant
closing" or "mass layoff" (as those terms are defined in the WARN Act) such that
Holdings has any obligation under the WARN Act that Holdings otherwise would not
have had absent such terminations. In the event of any breach by Parent of this
Section 6.7(d), Parent shall, if the representation set forth in Section 3.14(b)
is fully accurate, indemnify Holdings for any such obligations.
(e) Tax Benefits. Parent and Sellers acknowledge and agree that all tax
-------------
benefits and deductions accruing as a result of the payments contemplated by
this Agreement to holders of the SARs, Options and Phantom Debt shall belong to
Holdings. Neither Parent nor Sellers shall take, nor allow any other Person to
take, a tax reporting position on any Tax Return or claim that is inconsistent
with this Section 6.7(e) unless otherwise required pursuant to the final
determination of a Governmental Authority.
SECTION 6.8 Tax Matters.
-----------
(a) Tax Returns. Holdings shall, or shall cause the Company to, timely file
-----------
all Tax Returns of or related to Holdings or the Company that are required to be
filed (with extensions) on or prior to the Closing Date, and shall pay, or cause
the Company to pay, any Taxes shown as due on such Tax Returns. Parent shall
prepare and timely file or cause to be timely filed all Tax Returns of Holdings
or the Company that include a taxable period (or portion thereof) ending on or
prior to the Closing Date and that are required to be filed (with extensions)
after the Closing Date (each such Tax Return, a "Post-Closing Tax Return").
-------------------------
Parent shall prepare any Post-Closing Tax Returns in a manner consistent with
Holdings' prior Tax Returns, except as otherwise required by law, and shall
provide Sellers' Representative (as defined below) with a copy of any
Post-Closing Tax Return within a reasonable period prior to the filing thereof
for review and comment. Without the consent of Parent, Holdings shall not file
and Sellers shall not cause Holdings or the Company to file, any federal or
state Tax Returns prior to Closing or make any Tax election prior to Closing.
(b) Post-Closing Payments. In the case of a Post-Closing Tax Return, the
----------------------
Sellers shall be solely responsible for, and shall pay within five days of a
request therefore by the Parent, Taxes shown as due on a Post-Closing Tax Return
to the extent such Taxes are allocable under this Section 6.8(b) to a taxable
period (or portion thereof) that ends on or prior to the Closing Date, but only
if and to the extent such Taxes exceed the amount of Taxes included on the
consolidated balance sheet of Holdings dated as of the Closing Date and were
included in the calculation of Working Capital. For purposes of allocating Taxes
to a pre-Closing period, such pre-Closing tax shall be: (i) in the case of a Tax
that is not based on gross or net income or specific transactions, such as real
property taxes, the total amount of such Tax for the period in question
multiplied by a fraction, the numerator of which is the number of days in the
relevant taxable period through and including the Closing Date, and the
denominator of which is the total number of days in such taxable period, and
(ii) in the case of any Tax that is based on gross or net income or specific
transactions, the Tax that would be due with respect to the portion of the
taxable period through and including the Closing Date, if such portion of the
taxable period were a separate taxable period.
- 43 -
(c) Transfer Taxes. Parent and the Sellers shall each pay one half of all
---------------
transfer, documentary, sales, use, stamp, registration and other such Taxes and
fees (including any penalties and interest), if any, incurred in connection with
the transactions contemplated by this Agreement ("Transfer Taxes"). Parent shall
--------------
be responsible for preparing and timely filing all necessary Tax Returns and
other documentation with respect to all such Transfer Taxes. If required by
applicable Law, the Sellers will join in the execution of any such Tax Returns
and other documentation.
(d) Cooperation. Parent and the Sellers shall cooperate fully, as and to
-----------
the extent reasonably requested by the other party, in connection with the
filing of any Tax Returns and any audit, litigation or other proceeding with
respect to Taxes of or related to Holdings or the Company. Such cooperation
shall include the retention and (upon the other party's reasonable request) the
provision of records and information reasonably relevant to any such Tax Return,
audit, litigation or other proceeding and making employees reasonably available
on a mutually convenient basis to provide additional information and explanation
of any material provided hereunder. Each of Sellers' Representative and Parent
agrees to (i) retain or cause to be retained all books and records in its
possession on the Closing Date relating to Tax matters of or pertaining to
Holdings or the Company for any taxable period beginning before the Closing Date
until expiration of the statute of limitations (including any extensions
thereof) of the respective taxable periods, and to abide by all record retention
agreements entered into with any Taxing authority and (ii) give each other party
reasonable written notice prior to transferring, destroying or discarding any
such books and records and, if the other party so requests, allow the requesting
party to take possession of such books and records.
SECTION 6.9 Audit; Cooperation. The Sellers have caused Holdings and the
-------------------
Company to undertake and, as promptly as practicable, to complete an audit (the
"Audit") of (a) the consolidated balance sheet of Holdings as of June 30, 2006
and consolidated statements of income and cash flows of Holdings for the period
from August 9, 2005 to June 30, 2006 and (b) the consolidated balance sheet of
the Predecessor of Holdings as of August 9, 2005 and consolidated statements of
income and cash flows of the Predecessor for the period from January 1, 2005 to
August 9, 2005. The Company's current auditing firm is conducting the Audit.
Following the Closing, each Seller shall provide all cooperation reasonably
requested by Publico and its Affiliates in connection with Publico's preparation
of financial statements, and, if necessary, an audit of the financial
performance of Holdings and the Company, for all periods required in connection
with Publico's obligations under applicable Laws, including, without limitation,
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Such cooperation shall include, but not be limited to, providing
full access to any work papers generated in connection with the preparation of
financial statements of Holdings and the Company before the Closing Date, and
using reasonable efforts to obtain such accountants' consents, comfort letters
and legal opinions as may be reasonably requested by Publico or its Affiliates
(including, without limitation, by providing management representation letters
in customary form).
SECTION 6.10 Return of Insurance Receivables. Within two days of Holdings
--------------------------------
or the Company receiving any amounts received by or reimbursed to Holdings or
the Company with respect to the Chubb insurance policy held by the Company
covering workers compensation claims for the period ending on or about April 4,
2006 (the "Insurance Proceeds"), Parent shall or shall cause the Surviving
-------------------
- 44 -
Company to, pay each Seller such Seller's pro rata share, on a Fully Diluted
Basis, of such amount by wire transfer or check. Sellers shall be solely
responsible for, and shall indemnify Holdings and the Company against any
additional premium or similar payment that may be payable by Holdings or the
Company with respect to such Chubb insurance policy, other than to the extent
accrued on the Final Statement.
SECTION 6.11 Update. Each party hereto will, not less than three (3) nor
------
more than five (5) business days prior to the anticipated Closing Date, disclose
to the other in writing (in the case of Holdings or Sellers by delivering a
supplement to or substitution for a Disclosure Schedule) (a "Supplemental
------------
Disclosure") any event, matter or claim occurring, arising, failing to occur or
----------
arise, or being asserted by a third party after the date hereof, the occurrence
or failure to occur of which would be reasonably likely to cause any
representation or warranty made by such party in this Agreement or any
Disclosure Schedule of such party to become untrue or inaccurate in any material
respect as of the Closing Date. Such delivery of a Supplemental Disclosure shall
not affect any rights of any party (i) to terminate for the other party's
failure to satisfy the conditions to Closing set forth in Article VII or VIII,
if and as applicable, (ii) for indemnification pursuant to Article X (except,
with respect to a Supplemental Disclosure relating to (A) Section 3.17, subject
to the limitation set forth in such Section, or (B) events occurring after the
MAE Change Date and before the date of the Extension Notice (other than to the
extent caused by the action or failure to act of the Company or Holdings that
has resulted in a Material Adverse Effect (excluding actions taken at the
direction or with the prior written consent of Parent), as to which no
indemnification shall be available), or (iii) in respect of any claim or cause
of action of any party to this Agreement against any other party to this
Agreement for fraud for such Person's willful failure to disclose such
information prior to the date of this Agreement to the extent that such Person
actually knew of the event or circumstances giving rise to the Supplemental
Disclosure.
SECTION 6.12 Further Assurances. From and after the Closing Date, each of
-------------------
the parties shall execute and deliver such documents and other papers and take
such further actions as may reasonably be required to carry out the provisions
of this Agreement and the Escrow Agreement and give effect to the transactions
contemplated hereby and thereby.
SECTION 6.13 Restrictive Covenants.
---------------------
(a) As a material and significant inducement to Parent to enter into this
Agreement, and for the consideration set forth in this Agreement, each of the
Sellers (other than Allied Capital Corporation) agrees that, for the periods set
forth opposite such Seller's name in Section 6.13 of the Disclosure Schedule
from and after the Closing Date, such Seller shall not, singly, jointly or as a
partner, member, employee, agent, officer, director, manager, stockholder
(except as expressly provided below), investor, consultant, independent
contractor, or joint venturer of any other person or entity, directly or
indirectly: (i) own, manage, control, participate in, consult with, or render
services for any competitor with respect to the businesses of the Company
(including, without limitation, the magazine fulfillment business currently
owned by Time Warner, Hearst Corporation, Strategic Fulfillment Group, Automated
Resources Group, Inc., Advantage Computing Systems, or any of their respective
successors or assigns, or any of their respective subsidiaries or affiliates);
provided, however, any such Seller may seek employment with the fulfillment
-------- -------
departments of publishers who do not have fulfillment operations that service
- 45 -
third-party publishers and do not have plans to establish fulfillment operations
that service third-party publishers; (ii) in any manner, engage in any business
competing with the businesses of the Company or its subsidiaries or affiliates
as such businesses exist or are in process on the date hereof or on the Closing
Date. Notwithstanding anything herein to the contrary, nothing herein shall
prohibit such any Seller from (x) being a passive owner of not more than 2% of
the outstanding securities of a corporation that is publicly traded, so long as
such Seller has no active participation in the business or management of such
entity or (y) engaging in the activities set forth in Section 6.13 of the
Disclosure Schedule.
(b) As a material and significant inducement to Parent to enter into this
Agreement, and for the consideration set forth in this Agreement, Allied Capital
Corporation agrees that, for a period of three years from and after the Closing
Date, it shall not, directly or indirectly , acquire or otherwise obtain control
(whether by ownership of equity securities, through any voting or similar
agreements or otherwise) of the subscription fulfillment or related business
currently owned, directly or indirectly, by Hearst Corporation and Time Warner
Inc. Nothing herein shall prevent Allied Capital Corporation from owning , as a
passive investor, any class of equity security of the subscription fulfillment
or related businesses currently owned, directly or indirectly, by Hearst
Corporation and Time Warner Inc., or from entering into lending or other
financial arrangements with such businesses that do not result in Allied Capital
Corporation acquiring control of such businesses.
(c) As a material and significant inducement to Parent to enter into this
Agreement, and for the consideration set forth in this Agreement, each of the
Sellers agrees that, for a period of three years from and after the Closing
Date, such Seller shall not, directly or indirectly, either individually,
collectively or in combination, for itself or on behalf of any other Person, (i)
directly or indirectly solicit the employment of any employee of the Company who
is so employed on the date of this Agreement, or (ii) hire any person who on the
date of this Agreement is an officer of the Company, unless such officer ceased
to be employed by the Company for a period of at least three months prior to
such hiring; provided, however, that the foregoing shall not apply if (A) the
-------- -------
contact is a result of an officer's or employee's response to an employment
advertisement directed at the general public, (B) the officer or employee is
contacted by an independent recruiter but without specific instructions to
solicit one or more of such officers or employees, or (C) the officer or
employee initiates the contact with the Seller or its Affiliates. For the
avoidance of doubt, the Parties acknowledge and agree that Allied Capital
Corporation's ownership of an equity or debt investment in a Person, either as
of the date hereof or in the future, shall not, in and of itself, violate the
provisions of this Section 6.13(c).
(d) (i) Each Seller acknowledges that is has acquired and may continue to
acquire, certain confidential information (including, without limitation,
procedures, memoranda, notes, records and customer lists, whether such
information has been or is made, developed or compiled by such Seller or
otherwise has been or is made available to such Seller) regarding the business
and operations of the Company, its subsidiaries or affiliates. Each Seller
acknowledges that such information is unique, valuable and considered to be
proprietary by the Company. Such information is referred to in this Agreement as
"Confidential Information," except that the following shall not be considered
-------------------------
Confidential Information: (A) information released from confidential treatment
by written consent of the Company and Parent, (B) information disclosed and made
available to the general public under operation of law or that is otherwise in
- 46 -
the public domain through no act or failure to act on the part of any Seller,
(C) information that was, at the time of receipt, otherwise known to the Seller
without restrictions as to use or disclosure, (D) information that becomes known
to the Seller from a source other than the Company, which source has no duty of
confidentiality with respect to the information, and (E) information that is
independently developed by the Seller without reliance on or access to any of
the Company's Confidential Information.
(ii) Each Seller agrees that all Confidential Information is and will
remain the property of the Company, and that, from and after the date of
this Agreement, such Seller will hold in the strictest confidence all
Confidential Information and will not, directly or indirectly, duplicate,
sell, use, lease, commercialize, disclose or otherwise divulge or transfer
to any Person any portion of the Confidential Information or use any
Confidential Information for such Seller's own benefit or profit or allow
any Person, other than the Company, its authorized affiliates and their
authorized employees, to use or otherwise gain access to any Confidential
Information.
(iii) In the event that any Seller or any of its Representatives is
requested or required (by oral questions, interrogatories, requests for
information or documents in legal proceedings, subpoena, civil
investigative demand or other similar process) to disclose any Confidential
Information, such Seller shall provide the Company with prompt written
notice of any such request or requirement so that the Company may seek a
protective order or other appropriate remedy or waive compliance with the
provisions of this Section 6.13. If, in the absence of a protective order
or other remedy or the receipt of a written waiver by the Company, such
Seller or any of its Representatives is nonetheless in the opinion of its
counsel legally compelled to disclose any Confidential Information to any
tribunal or else stand liable for contempt or suffer other censure or
penalty, such Seller or such Representative may, without liability
hereunder, disclose to such tribunal only that portion of the Confidential
Information which counsel advises such Seller or its Representative that it
is legally required to disclose, provided that such Seller and its
Representative shall exercise best efforts to preserve the confidentiality
by cooperating with the Company to obtain an appropriate protective order
or other reliable assurance that confidential treatment will be accorded
the Confidential Information by such tribunal.
(iv) Each Seller shall return all Confidential Information and all
copies thereof, including, without limitation, written and electronic
copies, as well as summaries, notes, memoranda, plans, records, reports,
computer tapes, printouts and software or other documents, materials or
things containing Confidential Information to the Company promptly upon the
written request of the Company for any reason and at any time and, if such
Seller is an employee of the Company or its subsidiaries or affiliates,
upon the termination of such employment; provided that each Seller and its
Representatives shall be permitted to retain copies of any Confidential
Information that is reasonably required to be retained for applicable
financial, tax, regulatory, legal or other purposes.
(e) Each of the Sellers acknowledges that the restrictions contained in
this Section 6.13 applicable to such Seller, in light of the nature of the
business in which Holdings and the Company are engaged, are reasonable and
necessary to protect the legitimate interests of the Holdings and the Company
(and their Affiliates, including, following Closing, Parent), and that any
violation of these restrictions would result in irreparable injury to the
Holdings and the Company (and their Affiliates, including, following Closing,
Parent). Each of the Sellers therefore agrees that, in the event of such
- 47 -
Seller's violation of any of the restrictions applicable to such Seller,
Holdings and the Company (and their Affiliates, including, following Closing,
Parent) shall be entitled to seek from any court of competent jurisdiction: (i)
preliminary and permanent injunctive relief against such Seller; (ii) damages
from such Seller (including reasonable legal fees and other costs and expenses);
and (iii) an equitable accounting of all compensation, commissions, earnings,
profits and other benefits to such Seller arising from such violation; all of
which rights shall be cumulative and in addition to any other rights and
remedies to which Holdings and the Company (and their Affiliates, including,
following Closing, Parent) may be entitled as set forth herein or as a matter of
law.
(f) Each of the Sellers agrees that if any portion of the restrictions
contained in this Section 6.13 applicable to such Seller, or the application
thereof, is construed to be invalid or unenforceable, the remainder of such
restrictions or the application thereof shall not be affected and the remaining
restrictions will have full force and effect without regard to the invalid or
unenforceable portions. If any restriction is held to be unenforceable because
of the area covered, the duration thereof or the scope thereof, each of the
Sellers agrees that the court making such determination shall have the power to
reduce the area and/or the duration, and/or limit the scope thereof, and the
restriction shall then be enforceable in its reduced form.
(g) If any Seller violates any restriction set forth in this Section 6.13
applicable to such Seller, the period of such violation (from the commencement
of any such violation until such time as such violation shall be cured by such
Seller) shall not count toward or be included in the restrictive period
applicable to such Seller.
ARTICLE VII
CONDITIONS TO PARENT'S OBLIGATION TO CLOSE
Parent's obligation to consummate the transactions contemplated herein
shall be subject to the satisfaction or written waiver by Parent on or prior to
the Closing Date, of each of the following conditions:
SECTION 7.1 Representations and Warranties; Covenants. The representations
------------------------------
and warranties of Holdings and the Sellers, without giving any effect to any
materiality qualifications therein, shall be true and correct in all respects on
and as of the date hereof and as of the Closing Date as though made on and as of
the Closing Date (except for representations and warranties made as of a
specified date, which need be true and correct only as of the specified date),
except for such failures to be true and correct which (i) in the aggregate would
not have a Material Adverse Effect (but subject to Section 7.4(a)), and (ii)
would not have any material adverse effect on the ability of Holdings or any
Seller to consummate the transactions contemplated hereby; provided that the
representations and warranties set forth in Sections 3.1(a), 3.1(b), 3.2, 3.4
(solely with respect to Holdings' or the Company's Annualized Adjusted Net
Revenues and Annualized Adjusted EBITDA for the period from August 9, 2005 to
June 30, 2006) and 3.8(i) shall be true and correct in all material respects.
Holdings and the Sellers shall have, and Holdings shall have caused the Company
to have, performed in all material respects each of its respective agreements
and covenants contained in or contemplated by this Agreement that are required
- 48 -
to be performed by it at or prior to the Closing pursuant to the terms hereof.
For purposes of this Section 7.1, if (i) the Annualized Adjusted Net Revenues
reflected on the Audit for the period from August 9, 2005 to June 30, 2006 are
less than $48,194,500 or (ii) if the Annualized Adjusted EBITDA derived from the
Audit for the period from August 9, 2005 to June 30, 2006 is less than
$7,847,000, then the representations and warranties set forth in Section 3.4
shall not be considered true and correct in all material respects for purposes
of this Section 7.1.
SECTION 7.2 Absence of Legal Proceedings. At the Closing Date, there shall
----------------------------
be no injunction, restraining order or decree of any nature of any court or
governmental agency or body of competent jurisdiction that is in effect that
restrains or prohibits the consummation of the transactions contemplated herein,
and no Action shall be instituted, pending or threatened in writing by any
Governmental Authority that seeks or would seek to restrain, prohibit
or materially change the terms of or obtain damages or other relief (which
damages or relief if granted would result in a material adverse effect on Parent
or Holdings) in connection with this Agreement or any of the transactions
contemplated hereby.
SECTION 7.3 Consents and Terminations. Holdings shall have procured the
--------------------------
third party consents and terminated the agreements, in each case as set forth in
Section 1.3(b)(ix) of the Disclosure Schedule.
SECTION 7.4 Additional Conditions.
---------------------
(a) There shall not have occurred any Material Adverse Effect; provided,
however, that notwithstanding anything to the contrary set forth herein, no
material adverse effect on the business, properties, assets, financial condition
or results of operations of the Company, taken as a whole, arising due to events
first occurring between the MAE Change Date (as defined below) and the date of
the Extension Notice, if any, shall be considered a Material Adverse Effect for
purposes of this Section 7.4(a) or Section 7.1, other than to the extent caused
by the action or failure to act of Holdings or any Seller (excluding actions
taken at the direction or with the prior written consent of Parent). For
purposes of this Agreement, "MAE Change Date" means the later of (i) 31 days
-----------------
after the date that Allied Capital Corporation completes its initial filing
required pursuant to the HSR Act and (ii) five business days after Holdings'
delivery of written notice to Parent (the "Closing Notice") certifying that (A)
--------------
the conditions specified in Sections 7.1, 7.2, 7.3 and 7.4(a) and (b) hereof
have been satisfied and (B) Holdings and Sellers are prepared, within five
business days thereof, to satisfy the requirements of Sections 7.6 and 7.7 and
take all other actions required in connection with the consummation of the
transactions contemplated by this Agreement.
(b) Holdings and Sellers shall not have taken any action, or failed to act,
that shall have resulted, or could reasonably be expected to result, in a
Material Adverse Effect (excluding actions taken at the direction or with the
prior written consent of Parent).
(c) A period of five business days shall have elapsed since Holdings shall
have delivered the completed Audit to Parent.
- 49 -
SECTION 7.5 HSR Act. The applicable waiting periods, if any, under the HSR
-------
Act (including any extension thereof) shall have expired or been terminated.
SECTION 7.6 Deliverables. Pursuant to Sections 1.3(b) and 1.3(e) hereof,
------------
Holdings and each Seller, respectively, shall have delivered or caused to be
delivered all of the deliverables required by Sections 1.3(b) and 1.3(e), as
applicable. The Escrow Agent shall have delivered to Parent an executed
counterpart to the Escrow Agreement.
SECTION 7.7 Restructuring Transactions. The Restructuring Transactions
---------------------------
shall have been consummated.
ARTICLE VIII
CONDITIONS TO HOLDINGS' OBLIGATIONS TO CLOSE
Holdings' obligations to consummate the transactions contemplated herein
shall be subject to the satisfaction or written waiver, by Holdings on or prior
to the Closing Date, of each of the following conditions:
SECTION 8.1 Representations and Warranties; Covenants. The representations
------------------------------------------
and warranties of Parent and Merger Sub, without giving any effect to any
materiality qualifications or limitations therein shall be true and correct in
all respects as of the date hereof and as of the Closing Date as though made on
and as of the Closing Date (except for representations and warranties made as of
a specified date, which need be true and correct only as of the specified date),
except for such failures to be true and correct which would not have a material
adverse effect on Parent's and Merger Sub's ability to consummate the
transactions contemplated by this Agreement. Parent and Merger Sub shall have
performed in all material respects each of their respective agreements and
covenants contained in or contemplated by this Agreement that are required to be
performed by it at or prior to the Closing pursuant to the terms hereof.
SECTION 8.2 Absence of Legal Proceedings. At the Closing Date, there shall
----------------------------
be no injunction, restraining order or decree of any nature of any court or
governmental agency or body of competent jurisdiction that is in effect that
restrains or prohibits the consummation of the transactions contemplated herein,
and no Action which seeks or would seek to restrain, prohibit or change the
terms of or obtain damages or other relief in connection with this Agreement or
any of the transactions contemplated hereby, shall have been instituted or
threatened in writing by any Person other than a holder of Holdings Shares, SARs
or Options, which Action, to the extent determinable, is reasonably likely to
succeed on its merits and would likely have a Material Adverse Effect.
SECTION 8.3 HSR Act. The applicable waiting periods, if any, under the HSR
-------
Act (including any extension thereof) shall have expired or been terminated.
- 50 -
SECTION 8.4 Deliverables. Parent and Merger Sub shall have, pursuant to
------------
Sections 1.3(c) and (d) hereof, delivered all the deliverables required by
Section 1.3(c) and (d) hereof. The Escrow Agent shall have delivered to Holdings
an executed counterpart to the Escrow Agreement.
ARTICLE IX
TERMINATION
SECTION 9.1 Termination. Notwithstanding anything herein to the contrary,
-----------
this Agreement may be terminated at any time prior to the Closing by:
(a) the mutual written consent of Holdings and Parent;
(b) Parent in the event that any condition set forth in Article VII hereof
shall not be satisfied and shall not be reasonably capable of being satisfied by
the Termination Date (as defined below in this Section 9.1).
(c) Holdings in the event that any condition set forth in Article VIII
hereof shall not be satisfied and shall not be reasonably capable of being
satisfied by the Termination Date;
(d) Holdings if at any time at least 61 days after the date hereof, it
delivers at least 30 days' prior written notice of termination to Parent, if at
the time of such notice (i) the condition set forth in Sections 7.5 and 8.3 has
not been satisfied, (ii) Holdings shall have delivered a Closing Notice more
than six business days prior to the delivery of such written notice (which
Closing Notice remains true and correct) and (iii) the other conditions to
closing set forth in Sections 7.1 to 7.4 shall have been satisfied; provided
--------
that a termination pursuant to this Section 9.1(d) will be ineffective if the
condition specified in Sections 7.5 and 8.3 hereof is subsequently satisfied and
Parent proceeds to consummate the transactions contemplated by this Agreement
prior to expiration of such 30-day notice period;
provided, however, that no party may terminate this Agreement pursuant to clause
-------- -------
(b) or (c) above if the failure of the applicable condition in Article VII or
VIII, as the case may be, to be satisfied results from the willful and material
breach of any covenant in this Agreement (i) by Holdings in the case of a
termination by Holdings or (ii) by Parent in the case of a termination by
Parent. For purposes of this Agreement, "Termination Date" means (A) 135 days
-----------------
after the date hereof or (B) if Holdings has delivered written notice to Parent
prior to 135 days after the date hereof electing to extend the Termination Date
until the date specified in such notice (but no later than 225 days after the
date hereof) (an "Extension Notice") and, at the time of such Extension Notice,
-----------------
(x) the condition set forth in Sections 7.5 and 8.3 has not been satisfied, (y)
Holdings shall have delivered a Closing Notice (which Closing Notice remains
true and correct), and (z) the other conditions set forth in Sections 7.1 to 7.4
shall have been satisfied, then the date specified in such Extension Notice.
SECTION 9.2 Procedure and Effect of Termination. In the event of
---------------------------------------
termination of this Agreement and abandonment of the transactions contemplated
hereby by the parties hereto pursuant to Section 9.1 hereof, written notice
thereof shall be given by the party so terminating to the other parties and this
- 51 -
Agreement shall forthwith terminate and shall become null and void and of no
further effect, and the transactions contemplated hereby shall be abandoned
without further action by Holdings and Parent. If this Agreement is terminated
pursuant to Section 9.1 hereof:
(a) each party shall redeliver all documents, work papers and other
materials of the other parties relating to the transactions contemplated hereby,
whether so obtained before or after the execution hereof, to the party
furnishing the same, and all confidential information received by any party
hereto with respect to the other party shall be treated in accordance with the
Confidentiality Agreement pursuant to Section 6.2(b) hereof;
(b) all filings, applications and other submissions made pursuant hereto
shall, at the option of Holdings, and to the extent practicable, be withdrawn
from the agency or other Person to which made; and
(c) there shall be no liability or obligation hereunder on the part of the
Sellers, the Company, Holdings, Parent or Merger Sub or any of their respective
officers, managers, directors, employees, partners, Affiliates, controlling
Persons, agents, advisors or Representatives, except that (i) Holdings or
Parent, as the case may be, may have liability to the other party if the basis
of termination is a willful, material breach by Holdings or Parent, as the case
may be, of one or more of the provisions of this Agreement, including but not
limited to liability for the non-breaching party's expenses related to the
transaction including fees and expenses of counsel, accountants or other
professionals retained for the purpose of considering the transaction, (ii)
Parent shall reimburse Holdings for the cost of conducting the Audit and (iii)
that the obligations provided for in Section 6.2(b), Section 10.2 and, except as
modified by clause (i), Section 11.5 hereof shall survive any such termination.
ARTICLE X
INDEMNIFICATION
SECTION 10.1 Survival.
--------
(a) Except as otherwise provided in Section 10.1(b) below, the
representations and warranties made herein shall survive the Closing and
continue in full force and effect for a period of eighteen months thereafter, it
being the intention of the parties to shorten the statute of limitations with
respect to any claim relating to a breach or inaccuracy of such representations
and warranties.
(b) The representations and warranties contained in Sections 3.1 (Corporate
Organization and Authority), 3.2 (Capitalization), 3.7 (Taxes), 3.18 (Certain
Fees), 4.1 (Authority), 4.2 (Holdings Share Ownership), 4.4 (Certain Fees), 5.1
(Corporate Organization and Authority) and 5.4 (Certain Fees) hereof shall
survive the Closing and continue in full force and effect until thirty (30) days
following the expiration of the applicable statute of limitations, or if no
statute of limitation is applicable, indefinitely. The representations and
warranties contained in Sections 3.9 (Environmental Matters) and Section 3.19(i)
- 52 -
(Title to Assets) shall survive the Closing and continue in full force and
effect for a period of four (4) years following the Closing Date.
(c) Notwithstanding any other provision of this Section 10.1 to the
contrary, any representation or warranty in respect of which indemnification may
be sought under Section 10.2 or Section 10.3 hereof and the indemnity with
respect thereto, shall survive the time at which it would otherwise terminate
pursuant to this Section 10.1 if notice of the inaccuracy or breach thereof
giving rise to such right of indemnity shall have been given to the party
against whom such indemnity is sought prior to such time. Any agreements of the
parties requiring performance under this Agreement prior to the Closing shall
not survive beyond the Closing Date.
SECTION 10.2 Indemnification Provisions for Benefit of Parent.
------------------------------------------------
(a) Other than in respect of Taxes and Sections 10.2(b)(ii) and
10.2(b)(iii), which shall be governed by Section 10.2(b) hereof, in the event
that Holdings or the Sellers breach any of their representations or warranties
under this Agreement or any other agreement or instrument executed or delivered
in connection herewith or pursuant hereto or any such representation or warranty
is inaccurate or breaches or defaults in the performance of any of their
covenants under this Agreement or any other agreement or instrument executed or
delivered in connection herewith or pursuant hereto (each, a "Holdings Breach")
---------------
and Sellers' Representative (as defined in Section 11.16 hereof) receives a
written claim for indemnification from Parent within the survival period set
forth in Section 10.1 hereof, then each Seller, severally and not jointly,
agrees to indemnify Parent from and against such Seller's pro rata share on
Fully Diluted Basis of any Adverse Consequences (as defined below) caused by any
Holdings Breach; provided, however, that the Sellers shall not have any
-------- -------
obligation to indemnify Parent from and against any Adverse Consequences caused
by a Holdings Breach (i) until Parent has suffered aggregate Adverse
Consequences by reason of all such breaches in excess of $500,000 (such amount,
the "Indemnification Basket") and until after such amount is reached; provided
----------------------- --------
that after such amount is reached, the Sellers shall indemnify Parent for
$250,000 (or 50% of the Indemnification Basket) (except with respect to
Indemnification for breaches of Sections 3.8(i), 3.18 or 4.4, for which the
Sellers shall indemnify Parent from the "first dollar" of such breach without
regard to the Indemnification Basket); provided that any Adverse Consequences
--------
arising from or relating to fraud or willful misconduct shall not be subject to,
or limited by the Indemnification Basket; or (ii) to the extent the Adverse
Consequences Parent has suffered by reason of all such Holdings Breaches exceed
$14,000,000 (such amount, the "Indemnification Cap") (after which point the
--------------------
Sellers shall have no obligation to indemnify Parent from and against any
further such Adverse Consequences resulting from any Holdings Breach); provided
--------
that any Adverse Consequences arising from or relating to Section 3.8(i),
Section 4.2 (Holdings Share Ownership) and fraud or willful misconduct shall not
be subject to, or limited by the Indemnification Basket or the Indemnification
Cap. For purposes of this Agreement, "Adverse Consequences" shall mean all
---------------------
demands, charges, judgments, settlement payments, awards, orders, decrees,
rulings, damages, dues, penalties, fines, costs, Liabilities, losses, fees and
expenses, including, without limitation reasonable attorney's fees; provided
--------
that, except as provided in Section 10.4, Adverse Consequences shall not include
----
lost profits or consequential, punitive, treble or similar damages.
- 53 -
(b) Each Seller shall, severally but not jointly, be liable for, and hold
Parent and the Surviving Company harmless from and against such Seller's pro
rata share on a Fully Diluted Basis of (i) any Adverse Consequences relating to:
(A) Taxes of Holdings or the Company, to the extent allocable (under the
principles of Section 6.8(b) hereof) to a taxable period (or portion thereof)
ending on or prior to the Closing Date except to the extent such Taxes are
reflected as Current Liabilities on the Final Statement and used to calculate
Working Capital; (B) any breach of the representations contained in Section 3.7
hereof; and (C) Taxes of any other Person for which Holdings, the Company or
Parent may be held liable pursuant to any agreement or contract, whether written
or unwritten, entered into by Holdings or the Company on or before the Closing
Date, or as a transferee or successor, by contract or otherwise, (ii) any
Adverse Consequences resulting from any termination that results from the Merger
of either (A) the lease listed as Item 2 of Section 3.12 of the Disclosure
Schedule or (B) the agreement with the client identified as "Client G" in
Section 3.17 of the Disclosure Schedule and (iii) any fines, costs, fees and
expenses arising out of the matter disclosed on Section 3.10(b) of the
Disclosure Schedule. Furthermore, the Company shall not execute any Document (as
defined in Section 3.10(b) of the Disclosure Schedule) that contains any
material change from the Document previously presented to Parent without
Parent's prior written consent, which consent shall not be unreasonably
withheld. The obligations of each Seller under this Section 10.2(b) hereof shall
not be subject to the Indemnification Basket or the Indemnification Cap.
(c) Each Seller shall, severally but not jointly, be liable for and hold
Parent and the Surviving Company harmless from and against such Seller's pro
rata share on a Fully Diluted Basis of any Adverse Consequences relating to the
termination of the agreements set forth in Section 1.3(b)(ix) of the Disclosure
Schedule.
(d) Any Adverse Consequences to which Parent is entitled to indemnification
pursuant to this Section 10.2 shall be satisfied, to the extent possible, by
release of funds held pursuant to the Escrow Agreement, a portion of which funds
shall remain in escrow for 18 months following the Closing Date, subject to the
terms of the Escrow Agreement. Any additional amounts to which Parent is
entitled to indemnification pursuant to this Section 10.2 shall be satisfied by
the Sellers, pro rata on a Fully Diluted Basis.
(e) If Parent asserts a claim for indemnification under this Article X for
all or part of which Holdings or the Company would be entitled to
indemnification under the Prior Agreements, then the Parent will, promptly upon
request of the Sellers' Representative, and will cause the Surviving Company and
the Company to, assign to Sellers the rights of Holdings and the Company to such
indemnification under the Prior Agreements and, subject to satisfaction in full
of the claim asserted by Parent, any rights to receive amounts escrowed with
respect thereto pursuant to the Prior Agreements, which rights Sellers shall be
entitled to pursue at their sole risk and expense with respect to the costs and
expenses (including attorney's fees) of pursuing such claim and claims and
Adverse Consequences resulting from any counterclaims or demands by the parties
to such litigation. If Holdings and the Company are not permitted to assign such
claim then they will permit Sellers to proceed in the name of Holdings and the
Company, at the same risk and expense to Sellers described above. Parent shall
use its reasonable efforts to notify the Sellers' Representative in writing of
any claim for indemnification for all or part of which the Surviving Company or
the Company would be entitled to indemnification under the Prior Agreements.
- 54 -
SECTION 10.3 Indemnification Provisions for Benefit of Sellers. In the
---------------------------------------------------
event Parent or Merger Sub breach any of their representations or warranties
under this Agreement or any such representation or warranty is inaccurate or
Parent or Merger Sub breaches or defaults in the performance of any of their
covenants under this Agreement or any agreement or instrument executed in
connection herewith (each, a "Parent Breach") and Parent receives a written
--------------
claim for indemnification from Sellers' Representative (as defined in
Section 11.16 hereof) within the survival period set forth in Section 10.1
hereof, then Parent agrees to indemnify each Seller, on a pro rata Fully Diluted
Basis, against any Adverse Consequences caused by Parent Breach; provided,
--------
however, that Parent shall not have any obligation to indemnify the Sellers from
-------
and against any Adverse Consequences caused by a Parent Breach (i) until the
Sellers have suffered aggregate Adverse Consequences by reason of all such
Parent Breaches in excess of the Indemnification Basket and until after such
amount is reached; provided that after such amount is reached, Parent shall
--------
indemnify Seller for $250,000 (or 50% of the Indemnification Basket); provided
--------
further that any Adverse Consequences arising from or relating to fraud or
-------
willful misconduct shall not be subject to, or limited by the Indemnification
Basket or (ii) to the extent the Adverse Consequences the Sellers have suffered
by reason of all such Parent Breaches exceed the Indemnification Cap (after
which point Parent shall have no obligation to indemnify Holdings from and
against any further such Adverse Consequences resulting from any Parent Breach);
provided that any Adverse Consequences arising from or relating to fraud or
--------
willful misconduct shall not be subject to, or limited by the Indemnification
Cap.
SECTION 10.4 Special Indemnification Provisions for Benefit of Parent.
-----------------------------------------------------------
Sellers shall or shall cause Holdings to seek to obtain the consent to the
transactions contemplated hereby of the landlord at the ▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
parcel of Leased Real Property (it being understood and agreed that in
connection with seeking such consent, Parent shall, if requested, offer to
guarantee the obligations under the lease); provided, however, that in the event
-------- -------
that Sellers do not deliver such consent to Parent, each Seller severally agrees
to indemnify and hold harmless Parent and the Surviving Company from and against
such Seller's pro rata share on a Fully Diluted Basis of any and all Adverse
Consequences caused by or arising from the failure to obtain such consent. By
way of example and not limitation, Adverse Consequences shall include but not be
limited to (a) costs, charges and expenses incurred by the Company as a result
of the ▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ landlord's termination of the subject lease as a
result of consummation of the transaction described in this Agreement; (b)
costs, fees and expenses arising out of, resulting from or incurred in
connection with any attempted termination or actual termination of the ▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ lease by the landlord thereunder as a result of consummation
of the transaction set forth in this Agreement, and (c) any damages due the ▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ landlord arising out of, related to or resulting from said
landlord's termination of the ▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ lease as a result of
consummation of the transaction described in this Agreement. The indemnification
obligations of each Seller under this Section 10.4 shall not be subject to the
Indemnification Basket or the Indemnification Cap.
SECTION 10.5 Exclusive Remedy. In the absence of fraud or intentional
-----------------
misconduct, Parent, the Sellers and Holdings acknowledge and agree that
following the Closing the foregoing indemnification provisions in this Article X
shall be the exclusive remedy of Parent, the Sellers and Holdings with respect
to the transactions contemplated by this Agreement.
- 55 -
SECTION 10.6 Manner of Payment. Any indemnification payments pursuant to
-----------------
this Article X shall be effected by wire transfer of immediately available funds
to an account designated by the indemnified Person within ten days after the
final determination thereof.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Certain Definitions. For purposes of this Agreement:
-------------------
(a) "Material Adverse Effect" shall mean a material adverse effect on the
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business, properties, assets, financial condition or results of operations of
the Company, taken as a whole, except to the extent such adverse effect results
from, (i) general economic, financial or market conditions in any of the
geographic areas in which the Company operates; (ii) conditions caused by acts
of terrorism or war (whether or not declared); (iii) conditions or circumstances
generally affecting the businesses or industries, as a whole, in which the
Company operates; (iv) the entering into of this Agreement with Parent; (v) any
changes in applicable Laws, ordinances, rules and regulations of any federal,
state, local or foreign governmental authority or the official interpretations
thereof; or (vi) any changes in GAAP.
(b) "Knowledge of Holdings" shall mean the actual knowledge of the
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individuals set forth in Section 11.1 of the Disclosure Schedule.
SECTION 11.2 Notices. Any notices, demands, requests, consents or approvals
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required or permitted by this Agreement must be in writing and addressed to the
other party at the address set forth below, or at such other address as either
party may designate from time to time in writing in accordance with this
Section:
If to Parent or Merger Sub, to:
c/o Amrep Corporation
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
With copy to (which copy shall not constitute notice):
Drinker ▇▇▇▇▇▇ & ▇▇▇▇▇ LLP
One ▇▇▇▇▇ Square
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: F. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, III, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
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If to Holdings, to:
▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇▇▇▇, CEO
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Sellers' Representative, to:
Allied Capital Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
With copies, in the case of notice to Holdings or the
Sellers' Representative, to (which copies shall not
constitute notice):
DLA Piper US LLP
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Sellers, to the address for such Seller set forth in a written
notice from the Sellers' Representative delivered to Parent on or prior to the
date hereof.
Notice is deemed given (a) when delivered personally to the recipient, (b)
when sent by facsimile with a copy of such facsimile sent to the recipient by
reputable overnight courier service (charges prepaid) on the same day, (c) five
days after deposit in the U.S. mail, mailed by registered or certified mail,
return receipt requested, postage prepaid, or (d) one business day after being
sent to the recipient by reputable overnight courier service (charges prepaid).
SECTION 11.3 Interpretation. When a reference is made to an Article,
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Section or Schedule, such reference shall be to an Article, Section or Schedule
of or to this Agreement unless otherwise indicated. Whenever the words
"include", "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation". In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties and no presumption or burden
of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Agreement.
SECTION 11.4 Amendments, Modification and Waiver.
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(a) This Agreement, and the terms and provisions hereof, may not be
modified, waived or amended except by an instrument or instruments in writing
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signed by the party against whom enforcement of any such modification or
amendment is sought (or, in the case of a waiver, by the intended beneficiary of
the waived term or provision).
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by Law.
SECTION 11.5 Expenses.
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(a) Except as otherwise provided herein, each party shall pay its own
out-of-pocket costs and expenses incurred in connection with this Agreement; it
being understood that all such expenses incurred by Holdings or the Company
prior to the Closing Date which have not been paid as of the Closing and are not
reflected in the Closing Statement shall be borne by the Sellers, pro rata on a
Fully Diluted Basis.
(b) Unless otherwise indicated, all dollar amounts stated in this Agreement
are stated in U.S. currency, and all payments required under this Agreement
shall be paid in U.S. currency in immediately available funds.
SECTION 11.6 Release. Effective as of the Closing Date, each Seller, for
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and on behalf of such Seller and its successors and assigns, as applicable
(collectively, the "Seller Releasing Parties"), hereby irrevocably and
---------------------------
unconditionally releases and forever discharges Holdings and the Company and
each of their respective directors, officers, stockholders, agents, past or
present employees, representatives, attorneys, predecessors, successors,
parents, affiliates, insurers, heirs, executors, administrators and assigns, and
all persons acting by, through, under or in concert with any of them, including,
without limitation, Parent (collectively, the "Released Parties"), of and from
----------------
any and all actions, causes of action, suits, debts, charges and expenses
(including attorneys' fees and costs), of any nature whatsoever, whether arising
out of federal, state or local statute, rule or ordinance and any other claims
in law or equity, whether asserted or unasserted, known or unknown, fixed or
contingent, direct or indirect (collectively, the "Seller Claims"), which the
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Seller Releasing Parties ever had or now has, or hereafter may have against the
Released Parties, or any of them, arising from any event or occurrence on or
before the Closing Date, other than employment-related claims or claims arising
with respect to this Agreement or any other agreement entered into by the Seller
Releasing Parties upon or in connection with the Closing. For the sake of
clarity, from and after the Closing, Sellers shall have no claims or rights to
indemnity or contribution from Company or the Surviving Company with respect to
any inaccuracy in or breach of any representation, warranty or covenant of
Company or the Holdings made or to be performed prior to the Effective Time.
SECTION 11.7 Successors and Assigns; Binding Effect. Neither this Agreement
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nor any of the rights, interests or obligations hereunder shall be assigned,
directly or indirectly, including, without limitation, by operation of law, by
any party hereto without the prior written consent of the other parties hereto.
Subject to the preceding sentence and notwithstanding anything to the contrary,
this Agreement and all of the provisions hereof shall be binding upon and shall
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inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
SECTION 11.8 Governing Law. This Agreement shall be governed by and
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construed in accordance with the Laws of the State of Delaware (regardless of
the Laws that might otherwise govern under applicable principles of conflicts of
Laws thereof) as to all matters, including, but not limited to, matters of
validity, construction, effect, performance and remedies.
SECTION 11.9 Jurisdiction; Forum.
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(a) By the execution and delivery of this Agreement, Parent, the Sellers,
Holdings and the Company submit to the personal jurisdiction of any state or
federal court in the State of Delaware in any suit or proceeding arising out of
or relating to this Agreement.
(b) The parties hereto agree that the appropriate and exclusive forum for
any disputes between any of the parties hereto arising out of this Agreement or
the transactions contemplated hereby shall be in any state or federal court in
the State of Delaware. The parties hereto further agree that the parties will
not bring suit with respect to any disputes arising out of this Agreement or the
transactions contemplated hereby in any court or jurisdiction other than the
above specified courts; provided, however, that the foregoing shall not limit
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the rights of the parties to obtain execution of judgment in any other
jurisdiction. The parties hereto further agree, to the extent permitted by Law,
that final and unappealable judgment against a party in any action or proceeding
contemplated above shall be conclusive and may be enforced in any other
jurisdiction within or outside the United States by suit on the judgment, a
certified or exemplified copy of which shall be conclusive evidence of the fact
and amount of such judgment.
SECTION 11.10 Severability. If any term or other provision of this
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Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provision of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated herein is not affected in any manner
materially adverse to any party hereto. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced and so long
as the effect of such determination does not affect the economic or legal
substance of the transactions contemplated herein in any manner materially
adverse to any party hereto, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner.
SECTION 11.11 Third Party Beneficiaries. Nothing in this Agreement, express
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or implied, is intended or shall be construed to create any third party
beneficiaries.
SECTION 11.12 Schedules; Materiality.
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(a) Disclosure of any fact or item in any section of the Disclosure
Schedule referenced by a particular paragraph or section in this Agreement,
shall, should the existence of the fact or item or its contents be readily
apparent to be relevant to and obviously related to any other paragraph or
section, be deemed to be disclosed with respect to that other paragraph or
section whether or not an explicit cross-reference appears.
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(b) Certain of the representations and warranties set forth in this
Agreement contemplate that there will be included in the Disclosure Schedule
information that might be "material" or have a "material adverse effect." The
Company, Holdings, the Sellers or Parent may elect to include in such schedules
items that are not material or are not likely to have a "material adverse
effect," and, in order to avoid any misunderstanding, any such inclusion shall
not be deemed to be an acknowledgment or representation that such items are
material or would have a "material adverse effect," to establish any standard of
materiality or "material adverse effect," or to define further the meaning of
such terms for purposes of this Agreement.
(c) Any and all references in this Agreement to information or matters that
might be "material" to or have a "material adverse effect" on Holdings shall be
deemed to also refer to any information or matters that might be "material" to
or have a "material adverse effect" on the Company. Any and all references in
this Agreement to information or matters that might be "material" to or have a
"material adverse effect" on the Company shall be deemed to also refer to any
information or matters that might be "material" to or have a "material adverse
effect" on Holdings.
SECTION 11.13 Entire Agreement. This Agreement, the Escrow Agreement and
-----------------
the Confidentiality Agreement, including any exhibits or schedules to such
agreements, constitute the entire agreement among the parties hereto with
respect to the subject matter hereof and supersede all other prior agreements or
understandings, both written and oral, between the parties or any of them with
respect to the subject matter hereof. The only representations and warranties
made by the parties hereto with respect to the subject matter hereof are the
representations and warranties contained in or made pursuant to this Agreement.
SECTION 11.14 Counterparts; Facsimile Delivery. This Agreement may be
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signed in any number of counterparts, each of which shall be deemed an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. For purposes of this Agreement, a document (or signature page
thereto) signed and transmitted by facsimile machine, telecopier or electronic
mail is to be treated as an original document. The signature of any party
thereon, for purposes hereof, is to be considered as an original signature, and
the document transmitted is to be considered to have the same binding effect as
an original signature on an original document. At the request of any party, any
facsimile, telecopy or scanned document is to be re-executed in original form by
the parties who executed the facsimile, telecopy or scanned document. No party
may raise the use of a facsimile machine, telecopier or electronic mail or the
fact that any signature was transmitted through the use of a facsimile,
telecopier or electronic mail as a defense to the enforcement of this Agreement
or any amendment or other document executed in compliance with this Agreement.
SECTION 11.15 Specific Performance.
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(a) Holdings acknowledges that the Company's business is unique and
recognizes and affirms that in the event of a breach of this Agreement by
Holdings, money damages may be inadequate and Parent may have no adequate remedy
at law. Accordingly, Holdings agrees that Parent shall have the right, in
addition to any other rights and remedies existing in its favor, to enforce its
rights and Holdings' obligations hereunder not only by an action or actions for
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damages but also by an action or actions for specific performance, injunctive
and/or other equitable relief.
(b) Parent acknowledges that the Company's business is unique and
recognizes and affirms that in the event of a breach of this Agreement by
Parent, money damages may be inadequate and Holdings may have no adequate remedy
at law. Accordingly, Parent agrees that Holdings and the Company shall have the
right, in addition to any other rights and remedies existing in their favor, to
enforce their rights and Parent's obligations hereunder not only by an action or
actions for damages but also by an action or actions for specific performance,
injunctive and/or other equitable relief.
SECTION 11.16 Sellers' Representative. Each Seller hereby authorizes,
------------------------
directs and appoints Allied Capital Corporation to act as sole and exclusive
agent, attorney-in-fact and representative (the "Sellers' Representative") and
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authorizes and directs the Sellers' Representative to (i) take any and all
actions (including, without limitation, executing and delivering any documents,
and any amendments of waivers thereto, incurring any costs and expenses on
behalf of the Sellers and making any and all determinations) which may be
required or permitted by this Agreement or the Escrow Agreement to be taken by
the Sellers, including, without limitation, any determinations with respect to
the decision whether to dispute or settle upon the calculation of Working
Capital as set forth on the Closing Statement pursuant to Section 2.4 hereof,
any determination as to Tax matters, any claim for or settlement with respect to
indemnification pursuant to Section 10.2 hereof or the release of any portion of
the Escrow Amount pursuant to the Escrow Agreement; (ii) exercise such other
rights, power and authority, as are authorized, delegated and granted to the
Sellers' Representative pursuant to this Agreement or the Escrow Agreement; and
(iii) exercise such rights, power and authority as are incidental to the
foregoing. Any such actions taken, exercises of rights, power or authority, and
any decision or determination made by the Sellers' Representative consistent
therewith, shall be absolutely and irrevocably binding on each Seller as if such
Seller personally had taken such action, exercised such rights, power or
authority or made such decision or determination in such Seller's capacity. Each
Seller agrees that the Sellers' Representative shall not be liable for any
actions taken or omitted to be taken under or in connection with this Agreement,
the Escrow Agreement or the transactions contemplated hereby or thereby, except
for such actions taken or omitted to be taken resulting from the Sellers'
Representative's willful misconduct or gross negligence. Each Seller hereby
releases and forever discharges Sellers' Representative of and from any and all
actions, other than actions resulting from Sellers' Representative's willful
misconduct or gross negligence, and other obligations of whatever kind, known or
unknown, arising from or related to actions taken by Sellers' Representative on
behalf of such Seller pursuant to this Agreement or the Escrow Agreement.
Notwithstanding anything to the contrary in this Section 11.16, nothing in this
Section 11.16 shall obligate Allied Capital Corporation to act as sole and
exclusive agent, attorney-in-fact and representative on behalf of the Sellers.
In the event that Allied Capital Corporation chooses not to act as Sellers'
Representative as to any issue relating to the transactions contemplated by this
Agreement, Allied Capital Corporation shall provide written notice to all
Sellers of such decision. Allied Capital Corporation's decision to refrain from
acting as Sellers' Representative as to any issue shall in no way affect its
authority to act as Sellers' Representative as to any other matter within the
grant of authority set forth in this Section 11.16. If Allied Capital
Corporation decides to refrain from acting as Seller's Representative in
connection with any issue as set forth in this Section 11.16, any party hereto
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that has received notice of such decision that is required to give any notice to
or take any other action with respect to the Seller's Representative shall be
deemed to have satisfied such obligation by giving such notice or taking such
action with respect to each Seller at the last known address for each Seller
provided to such party.
ARTICLE XII
GUARANTEE
SECTION 12.1 Publico Guarantee. In consideration of the transactions
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contemplated by this Agreement, Publico hereby unconditionally guarantees to
Holdings that, in the event that Parent fails to fully pay the Merger
Consideration when due in accordance with the terms of this Agreement, Publico
will pay the portion of the Merger Consideration not paid by Parent.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized managers or officers, as the case
may be, as of the date and year first above written.
PALM COAST DATA HOLDCO, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: President and CEO
PALM COAST DATA, LLC
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: President and CEO
KABLE MEDIA SERVICES, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President
▇▇▇▇ ▇▇▇▇▇ ACQUISITION, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President
Solely for the purposes of Section 12.1 of this Agreement:
AMREP CORPORATION
By: /s/ ▇▇▇▇▇ ▇. Pizza
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Name: ▇▇▇▇▇ ▇. Pizza
Title: Vice President
SELLERS
Each Seller hereby approves and adopts this Agreement and the
Merger, as evidenced by his, her or its signature below:
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇
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▇▇▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
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▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
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▇▇▇▇ ▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
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▇▇▇▇ ▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
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▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇▇▇▇▇▇
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▇▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇▇▇
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▇▇▇▇ ▇▇▇
/s/ ▇▇▇▇ ▇▇▇▇▇▇
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▇▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
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▇▇▇▇▇ ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇
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▇▇▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇
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▇▇▇▇▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
ALLIED CAPITAL CORPORATION
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: Principal