AMENDED & RESTATED
STOCK AND LIMITED PARTNERSHIP INTEREST
PURCHASE AGREEMENT
Dated as of December ___, 2006
by and among
CHARYS HOLDING COMPANY, INC.,
COTTON HOLDINGS 1, INC.,
COTTON COMMERCIAL USA, LP,
COTTON RESTORATION OF CENTRAL TEXAS, LP,
And
THE SELLERS SET FORTH HEREIN
TABLE OF CONTENTS
PAGE
ARTICLE I. PURCHASE AND SALE OF COTTON EQUITY INTERESTS 2
ARTICLE II. PURCHASE PRICE 2
2.01 Determination of Purchase Price 2
2.02 Payment of Cash Consideration 2
2.03 Payment of Stock Consideration 3
2.04 Aggregate Cash Consideration Adjustment Mechanism 3
2.05 Make-Whole Adjustment 5
2.06 Incentive Compensation. 6
2.07 Purchaser Stock Issued to the Seller 6
2.08 Aged Accounts Receivable Adjustment 7
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLERS 7
3.01 Power, Authority and Organization of the Seller 7
3.02 No Conflict 7
3.03 Ownership of the Cotton Equity Interests 7
3.04 Absence of Other Claims 8
3.05 Investment Representations 8
ARTICLE IV. REPRESENTATIONS AND WARRANTIES REGARDING THE COTTON GROUP COMPANIES 10
4.01 Organization and Authorization 10
4.02 Authorized and Outstanding Stock 11
4.03 Absence of Other Claims 11
4.04 No Conflict 11
4.05 Required Consents and Approvals 11
4.06 No Violation of Law 11
4.07 Financial Statements 12
4.08 No Undisclosed Liabilities 12
4.09 Real Property 13
4.10 Personal Property 13
4.11 Indebtedness 14
4.12 Intellectual Property 14
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TABLE OF CONTENTS
(continued)
PAGE
4.13 Litigation 16
4.14 Employees 17
4.15 Employee Benefits 17
4.16 Collective Bargaining 19
4.17 Labor Disputes 19
4.18 Bank Accounts 19
4.19 Environmental Matters 19
4.20 Required Licenses and Permits 21
4.21 Insurance Policies 21
4.22 Major Suppliers and Customers 22
4.23 Contracts and Commitments 22
4.24 Agreements in Full Force and Effect 23
4.25 Absence of Certain Changes and Events 23
4.26 Accounts Receivable 24
4.27 Tax Matters 25
4.28 Brokerage 27
4.29 Disclosure 27
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PURCHASER 27
5.01 Organization 27
5.02 Authorization 28
5.03 No Conflict 28
5.04 SEC Documents; Agreements; Financial Statements; Other Information 28
5.05 Capitalization 29
5.06 Reporting Company 29
5.07 Financial Condition; Taxes; Litigation 29
5.08 Listing 30
5.09 Financing 30
5.10 Brokerage 30
5.11 Disclosure 30
5.12 Purchaser Stock 30
-ii-
TABLE OF CONTENTS
(continued)
PAGE
ARTICLE VI. COVENANTS 30
6.01 Operations of the Cotton Group Companies 30
6.02 Access 33
6.03 Transfer Taxes 34
6.04 Preparation of Supporting Documents 34
6.05 Notices of Certain Events 34
6.06 Supplements to Schedules 35
6.07 No Solicitation of Transactions 35
6.08 Filings; Other Actions; Notification 36
6.09 Confidentiality 36
6.10 Publicity 37
6.11 Expenses 37
6.12 Non-Operating Expenses 37
6.13 Spin-Off Agreement 37
6.14 Tax Matters 37
6.15 Employee Bonus Pool 40
ARTICLE VII. CONDITIONS TO EACH PARTY'S OBLIGATION TO CLOSE 40
7.01 Regulatory Consents 40
7.02 Litigation 40
ARTICLE VIII. CONDITIONS TO OBLIGATIONS OF THE SELLERS 40
8.01 Representations and Warranties True and Correct at Closing Date 40
8.02 Performance of Obligations 41
8.03 Documents Satisfactory in Form and Substance 41
8.04 Certificates 41
8.05 No Material Change 41
8.06 Termination of ▇▇▇▇▇▇▇▇ Contingent Interest 41
8.07 Opinion of Counsel to the Purchaser 41
ARTICLE IX. CONDITIONS TO OBLIGATIONS OF PURCHASER 41
9.01 Representations and Warranties True and Correct at Closing Date 41
9.02 Performance Obligations 42
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TABLE OF CONTENTS
(continued)
PAGE
9.03 No Material Change 42
9.04 Other Necessary Consents 42
9.05 Opinion of Counsel to the Seller 42
9.06 Non-Compete Agreement 42
9.07 Documents Satisfactory in Form and Substance 42
9.08 Certificates 42
9.09 Employment Agreements 43
9.10 Release of Liens 43
ARTICLE X. INDEMNIFICATION 43
10.01 Indemnification Obligations of the Sellers 43
10.02 Indemnification Obligations of Purchaser 44
10.03 Indemnification Procedure. 44
10.04 Survival Period 46
10.05 Liability Limits 46
10.06 Determination of Purchaser Losses 47
10.07 Investigations 47
10.08 Deleted 47
10.09 Reduction of Purchase Price 47
10.10 Damages 47
10.11 Exclusive Remedy 47
ARTICLE XI. TERMINATION PRIOR TO CLOSING DATE 47
11.01 Termination of Agreement 47
11.02 Termination of Obligations 48
ARTICLE XII. MISCELLANEOUS 48
12.01 Entire Agreement; Survival 48
12.02 Amendment 48
12.03 Parties Bound by Agreement; Successors and Assigns 49
12.04 Counterparts; Facsimile 49
12.05 Headings 49
12.06 Modification and Waiver 49
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TABLE OF CONTENTS
(continued)
PAGE
12.07 Expenses 49
12.08 Notices 49
12.09 Governing Law; Jurisdiction 50
12.10 Public Announcements 50
12.11 Knowledge 51
12.12 No Third-Party Beneficiaries 51
12.13 "Including" 51
12.14 Gender and Number 51
12.15 References 51
12.16 Severability 51
12.17 Further Assurances 51
12.18 Currency 51
12.19 Ordinary Course of Business 52
12.20 Commercially Reasonable Efforts 52
12.21 Material Adverse Change (or Effect) 52
12.22 Arbitration 52
12.23 Enforcement 53
-v-
LIST OF SCHEDULES AND EXHIBITS
------------------------------
SCHEDULES
---------
Schedule 2.06(a)(1) Incentive Compensation Mechanics
Schedule 2.06(a)(2) Incentive Employees
Schedule 2.06(b) Integration Incentive Compensation Mechanics
Schedule 3.03 Ownership of Cotton Equity Interests
Schedule 4.01(a) Qualifications to Conduct Business
Schedule 4.01(c) Officers and Directors of the Corporation
Schedule 4.03 Other Claims
Schedule 4.04 Conflicts
Schedule 4.05 Required Consents
Schedule 4.07 Financial Statements
Schedule 4.09(a) Real Property
Schedule 4.09(c) Permitted Liens
Schedule 4.10(a) Personal Property
Schedule 4.10(b) Property Held at Other Locations
Schedule 4.10(d) Personal Property Leases
Schedule 4.11 Indebtedness
Schedule 4.12(b) Intellectual Property
Schedule 4.12(c) Obligations Related to Intellectual Property
Schedule 4.13 Litigation
Schedule 4.14(a) Employees
Schedule 4.15(a)(i) Employee Benefit Plans
Schedule 4.18 Bank Accounts
Schedule 4.19(b) Exceptions to Compliance with Environmental Laws
Schedule 4.20 Cotton Authorizations
Schedule 4.21 Insurance Policies
Schedule 4.22 Major Suppliers and Customers
Schedule 4.23 Contracts and Commitments
Schedule 4.25 Absence of Changes
Schedule 4.26(a) Owner Notes Receivable
Schedule 4.26(b) Accounts Receivable
Schedule 4.27(b) Tax Returns
Schedule 4.27(c) Tax Deficiencies
Schedule 4.27(d) Tax Sharing Agreements
Schedule 4.27(e) Tax Election Adjustments
Schedule 5.05 Capitalization of Purchaser
Schedule 5.07 Financial Condition of Purchaser
Schedule 6.13 Spin-Off Agreement
Schedule 12.11(a) Seller's Knowledge
LIST OF SCHEDULES AND EXHIBITS
------------------------------
(CONTINUED)
EXHIBITS
--------
Exhibit A Cotton Group Companies
Exhibit B Purchase Price Allocation Among Sellers
Exhibit C Form of Seller Note
Exhibit D [OMITTED]
Exhibit E [OMITTED]
Exhibit F-1 [OMITTED]
Exhibit F-2 [OMITTED]
Exhibit G [OMITTED]
Exhibit H [OMITTED]
AMENDED & RESTATED
STOCK AND LIMITED PARTNERSHIP INTEREST
PURCHASE AGREEMENT
This AMENDED & RESTATED STOCK AND LIMITED PARTNERSHIP INTEREST PURCHASE
AGREEMENT (this "Agreement"), is made and entered into as of December ___, 2006,
---------
by and among CHARYS HOLDING COMPANY, INC., a Delaware corporation ("Purchaser"),
---------
COTTON HOLDINGS 1, INC., a Delaware corporation (the "Cotton Holdings"), COTTON
---------------
COMMERCIAL USA, LP, a Texas limited partnership ("Cotton Commercial"), COTTON
-----------------
RESTORATION OF CENTRAL TEXAS, LP, a Texas limited partnership ("Cotton
------
Restoration"), ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇
-----------
and ▇▇▇▇▇ ▇▇▇▇ (collectively, the "Cotton Holdings Sellers"), ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-----------------------
(a/k/a ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇) and ▇▇▇▇ ▇▇▇▇▇▇▇ (collectively, the "Cotton
------
Commercial Sellers") and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇ (collectively, the
-------------------
"Cotton Restoration Sellers" and, together with the Cotton Holdings Sellers and
--------------------------
Cotton Commercial Sellers, the "Sellers"). The parties are joined herein by
-------
C&B / Cotton Holdings, Inc., a Delaware corporation ("Acquisition Subsidiary"),
----------------------
and Crochet & Borel Services, Inc., a Texas corporation ("Crochet & Borel"),
---------------
both of which are wholly owned subsidiaries of Purchaser, for the purposes
herein expressed.
W I T N E S S E T H:
--------------------
WHEREAS, the parties hereto previously entered into that certain Stock and
Limited Partnership Interest Purchase Agreement, dated as of September 1, 2006,
as amended by that certain First Amendment to Purchase Agreement dated October
6, 2006, as further amended by that certain Second Amendment to Purchase
Agreement dated October 19, 2006, and as further amended by that certain Third
Amendment to Purchase Agreement dated October 31, 2006 (as amended, the
"Original Agreement"); and
-------------------
WHEREAS, the parties desire to amend and restate the Original Agreement in
its entirety as provided herein; and
WHEREAS, the Cotton Holdings Sellers own all of the issued and outstanding
shares of capital stock of Cotton Holdings; and
WHEREAS, the Cotton Commercial Sellers and Cotton Holdings collectively own
all of the limited partnership interests in Cotton Commercial, and Cotton USA
GP, LLC, a wholly-owned subsidiary of Cotton Holdings, owns all of the general
partnership interests in Cotton Commercial; and
WHEREAS, the Cotton Restoration Sellers and CCI-LP, LLC, a wholly-owned
subsidiary of Cotton Holdings, collectively own all of the limited partnership
interests in Cotton Restoration, and CCI-GP, LLC, a wholly-owned subsidiary of
Cotton Holdings, owns all of the general partnership interests in Cotton
Restoration; and
WHEREAS, Cotton Holdings, Cotton Commercial, Cotton Restoration, and the
other direct and indirect subsidiaries of Cotton Holdings set forth on EXHIBIT A
---------
attached hereto (collectively, the "Cotton Group Companies" and each,
------------------------
individually, a "Cotton Group Company") are in the business of providing
----------------------
catastrophe management, reconstruction, restoration,
-1-
and environmental remediation services throughout the United States of America
(the "Cotton Group Business"); and
-----------------------
WHEREAS, in reliance on and subject to the terms, conditions,
representations, warranties, covenants and agreements contained herein,
Purchaser desires to purchase all of the issued and outstanding shares of Cotton
Holdings (the "Cotton Holdings Shares") from the Cotton Holdings Sellers; and
-----------------------
WHEREAS, in reliance on and subject to the terms, conditions,
representations, warranties, covenants and agreements contained herein,
Purchaser desires to purchase all of the limited partnership interests of Cotton
Commercial held by the Cotton Commercial Sellers (the "Cotton Commercial LP
--------------------
Interests"), being a 17.5% limited partnership interest held by ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
---------
and a 5% limited partnership interest held by ▇▇▇▇ ▇▇▇▇▇▇▇; and
WHEREAS, in reliance on and subject to the terms, conditions,
representations, warranties, covenants and agreements contained herein,
Purchaser desires to purchase all of the limited partnership interests of Cotton
Restoration held by the Cotton Restoration Sellers (the "Cotton Restoration LP
---------------------
Interests"), being a 5% limited partnership interest held by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
---------
and a 5% limited partnership interest held by ▇▇▇▇▇▇▇ ▇▇▇▇▇ (the Cotton Holdings
Shares, Cotton Commercial LP Interests and Cotton Restoration LP Interests are
collectively referred to herein as the "Cotton Equity Interests"); and
-----------------------
WHEREAS, the Sellers desire to sell the Cotton Equity Interests to
Purchaser and at the request of Purchaser assign, convey and transfer the Cotton
Equity Interests to the Acquisition Subsidiary;
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants and agreements herein contained, and upon and subject to the terms and
the conditions hereinafter set forth, the parties do hereby agree as follows:
ARTICLE I.
PURCHASE AND SALE OF COTTON EQUITY INTERESTS
--------------------------------------------
1.01 PURCHASE AND SALE. Upon the terms and subject to the conditions of
-----------------
this Agreement, at the completion of the First Closing and Second Closing, which
are defined below, (collectively, the "Closings"), (a) the Cotton Holdings
--------
Sellers shall sell, assign, transfer and convey unto Purchaser, and Purchaser
shall purchase and acquire from the Cotton Holdings Sellers, all (but not less
than all) of the Cotton Holdings Shares, (b) the Cotton Commercial Sellers shall
sell, assign, transfer and convey unto Purchaser, and Purchaser shall purchase
and acquire from the Cotton Commercial Sellers, all (but not less than all) of
the Cotton Commercial LP Interests, and (c) the Cotton Restoration Sellers shall
sell, assign, transfer and convey unto Purchaser, and Purchaser shall purchase
and acquire from the Cotton Restoration Sellers, all (but not less than all) of
the Cotton Restoration LP Interests, in each case free and clear of any and all
claims, liens, charges and encumbrances. The Closings shall occur at 10:00 a.m.
on the First Closing Date and the Second Closing Date (defined below), or such
other date(s) as the parties mutually agree in writing (the "Closing Dates"), at
-------------
the offices of ▇▇▇▇▇ & ▇▇▇▇▇▇▇, LLP, ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇.
-2-
1.02 THE FIRST CLOSING. At the first closing ("First Closing"), which
------------------ -------------
shall occur on or before December 8, 2006 (the "First Closing Date"), Purchaser
------------------
shall purchase 40% of the Cotton Equity Interests (the "First Equity
-------------
Interests"), pro-rata from the Sellers as their interests may be currently held,
---------
for the consideration set forth in Sections 2.02(a), 2.02(b), 2.03(a) and
---------------- ------- -------
2.03(b).
-------
1.03 THESECOND CLOSING. At the second closing ("Second Closing"),
------------------ --------------
which shall occur on or before March 8, 2007 (the "Second Closing Date"),
-------------------
Purchaser shall purchase the remaining Cotton Equity Interests not purchased at
the First Closing (the "Second Equity Interests"), pro-rata from the Sellers as
-----------------------
their interests are then held, for the consideration set forth in Section
-------
2.02(c).
-------
ARTICLE II.
PURCHASE PRICE
--------------
2.01 THE TOTAL CONSIDERATION. In consideration of the sale of all of
-------------------------
the Cotton Equity Interests to Purchaser to occur at the Closings, Purchaser
shall pay and deliver to the Sellers aggregate consideration ("Total
-----
Consideration") of (i) cash and promissory notes (the "Cash Consideration") and
------------- ------------------
(ii) shares of the Purchaser's Common Stock and certain make-whole consideration
(collectively the "Stock Consideration"), as more fully set forth below in this
-------------------
Article II. The Total Consideration shall be allocated and distributed among
the Sellers as set forth on EXHIBIT B attached hereto and incorporated herein
---------
for all purposes.
2.02 PAYMENT OF CASH CONSIDERATION. Purchaser shall pay the Cash
--------------------------------
Consideration to Sellers as follows:
(a) NON-REFUNDABLE CASH CONSIDERATION. Prior to the First
-----------------------------------
Closing, Purchaser has paid to Sellers the cumulative cash sum of $2,500,000.00
("Non-Refundable Cash Consideration"), as a material inducement to Sellers to
-----------------------------------
enter into this Agreement. At the First Closing, the Non-Refundable Cash
Consideration shall be credited to the Total Consideration payable by Purchaser
to Sellers for the First Equity Interests to be purchased by Purchaser at the
First Closing. Purchaser acknowledges and agrees that if this Agreement
terminates for any reason whatsoever prior to the First Closing including
(without limitation) due to the lapse of time, the Sellers shall be entitled to
retain all of the Non-Refundable Cash Consideration and Purchaser will not be
entitled to a refund of the Non-Refundable Cash Consideration, and
notwithstanding anything herein to the contrary, Purchaser hereby waives and
forever releases all claims and causes of action with respect to the
Non-Refundable Cash Consideration.
(b) CASH CONSIDERATION AT THE FIRST CLOSING. At the First
--------------------------------------------
Closing, in consideration for the purchase of the First Equity Interests,
Purchaser shall pay to the Sellers the sum of $24,000,000.00 (the "First Closing
-------------
Cash Consideration") in the form of (i) $14,000,000.00 in immediately available
-------------------
federal funds delivered via wire transfer to the accounts of Sellers pursuant to
wire transfer instructions to be delivered to Purchaser at or prior to the First
Closing and (ii) a promissory note (the "Seller Note") in the original principal
-----------
amount of $10,000,000.00, to be made by Purchaser and payable to Sellers, in the
form attached hereto as EXHIBIT C. The Seller Note shall (i) be due and payable
---------
on the 90th day following the First Closing Date or if earlier, upon Purchaser
obtaining "Permanent Financing" as described in the Seller Note, (ii) bear
interest from the First Closing Date at a rate of 9% per annum, (iii) be
-3-
guaranteed by the Acquisition Subsidiary, the Cotton Group Companies and Crochet
and Borel, (iv) be secured by a first pledge and lien (the "Pledge") against the
------
First Equity Interests, a first lien security interest ("Cotton Lien") against
-----------
the assets of the Cotton Group Companies and a subordinate lien security
interest ("C&B Lien") against the assets of Crochet and Borel. At the First
---------
Closing the parties shall execute all necessary guaranty agreements, security
agreements, pledge agreements, UCC financing statements and intercreditor
agreements as needed to perfect the Pledge, Cotton Lien and C&B Lien in favor of
Sellers.
(c) CASH CONSIDERATION ATTHESECOND CLOSING. At the Second
-----------------------------------------
Closing, in consideration for the purchase of the Second Equity Interests,
Purchaser shall (i) pay to the Sellers the cash sum of $22,754,406.06 (the
"Second Closing Cash Consideration") in immediately available federal funds
------------------------------------
delivered via wire transfer to the accounts of Sellers pursuant to wire transfer
instructions to be delivered to Purchaser at or prior to the Second Closing. In
return for Sellers agreeing to accept the Seller Note (rather than all cash at
the First Closing) and in consideration of Sellers agreement to sell to
Purchaser the Second Equity Interests (as contemplated herein), Purchaser agrees
that, notwithstanding anything herein to the contrary, on or before the Second
Closing Date, the Cotton Group Companies will (1) execute and deliver to certain
Sellers (as reflected on Schedule 4.26(a) and allocated on Exhibit B) a waiver
---------
and full release of certain liabilities and notes receivable from such Sellers,
their spouses, and certain related companies including (without limitation)
Cotton Development, LP, Cotton Development 2, LP, Cotton Dev. GP, LLC, and T
double HB, LLC and (2) pay to ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ the sum of $840,000.00 in full
satisfaction of all amounts owed to ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ under his current employment
agreement, which shall be terminated and replaced by a new employment agreement
in accordance with this Agreement.
2.03 PAYMENT OF STOCK CONSIDERATION. Purchaser shall pay, deliver and
-------------------------------
issue the Stock Consideration to Sellers as follows:
(a) NON-REFUNDABLE STOCK CONSIDERATION. Prior to the First
------------------------------------
Closing, Purchaser has issued to Sellers 400,000 shares (the "Non-Refundable
--------------
Stock Consideration") of Purchaser's Common Stock ("Purchaser Stock"), as a
-------------------- ---------------
material inducement to Sellers to enter into this Agreement. At Closing, the
Non-Refundable Stock Consideration shall be credited to the Total Consideration
payable by Purchaser at the First Closing for the First Equity Interests.
Purchaser acknowledges and agrees that if this Agreement terminates for any
reason whatsoever prior to the First Closing including (without limitation) due
to the lapse of time, the Sellers shall be entitled to retain all of the
Non-Refundable Stock Consideration and Purchaser will not be entitled to a
refund of the Non-Refundable Stock Consideration, and notwithstanding anything
herein to the contrary, Purchaser hereby waives and forever releases all claims
and causes of action with respect to the Non-Refundable Stock Consideration.
(b) STOCK CONSIDERATION AT THE FIRST CLOSING. At the First
---------------------------------------------
Closing, Purchaser shall issue to Sellers 1,555,532 shares of Purchaser Stock
(the "Closing Stock Consideration").
----------------------------
(c) NO FRACTIONAL SHARES. No fractional shares of Purchaser Stock
--------------------
shall be issued to the Sellers hereunder, and the number of shares of Purchaser
Stock to be issued shall be rounded down to the nearest whole share. If a
fractional share interest arises pursuant to any
-4-
calculation in Section 2.06 or elsewhere herein, the Purchaser shall eliminate
------------
such fractional share interest by paying the Sellers the amount computed by
multiplying the fractional interest by the price of a full share (with such
price being the same price used to determine the shares then being issued).
(d) REGISTRATION RIGHTS. The Sellers shall be granted
--------------------
registration rights, with respect to all shares of Purchaser Stock issued to the
Sellers hereunder, as more specifically set forth in the Registration Rights
Agreement (the "Registration Rights Agreement") made by Purchaser in favor of
------------------------------
Sellers, dated October 6, 2006.
(e) SHARES FULLY PAID. Shares of Purchaser Stock, when issued and
-----------------
delivered to the Sellers in accordance with the terms hereof, will be duly
authorized, validly issued, fully-paid and non-assessable.
(f) LEGEND ON STOCK CERTIFICATES. The stock certificates
-------------------------------
evidencing the shares of Purchaser Stock issued to Sellers hereunder will bear
the following legend:
THE SHARES OF STOCK EVIDENCED BY THIS STOCK CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED
OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
2.04 [OMITTED]
---------
2.05 MAKE-WHOLE ADJUSTMENT.
----------------------
(a) The following terms have the meanings set forth below:
(i) "Make-Whole Date" means the first anniversary of the
---------------
First Closing Date, provided that if such date falls on a non-business day, the
Make-Whole Date shall be the preceding business day.
(ii) "Make Whole Deficit" means the value, if positive,
-------------------
of (A) the Target Stock Consideration Value, minus (B) the product of (1)
-----
1,955,532 multiplied by (2) the Market Price of the Purchaser Stock during the
--------------
15 consecutive trading days prior to the Make-Whole Date.
(iii) "Market Price" means, with respect to any period,
-------------
the weighted average sale price of the Purchaser Stock during such period as
determined by (i) the principal stock exchange, or the NASDAQ/NMS, as the case
may be, on which shares of Purchaser Stock are then listed or admitted to
trading, or (ii) if the Purchaser Stock is not then listed or admitted to
trading on any stock exchange or the NASDAQ/NMS, the average of the last
reported closing bid and asked prices on each such day in the over-the-counter
market, as furnished by the NASDAQ system or National Quotation Bureau, Inc., or
(iii) if neither NASDAQ, or National
-5-
Quotation Bureau, Inc. is at the time engaged in the business of reporting such
prices, then as furnished by any similar firm then engaged in such business
(iv) "NASDAQ/NMS" means that National Association of
----------
Securities Dealers' Automated Quotation National Market System.
(v) "Target Stock Consideration Value" means
-----------------------------------
$29,332,980.00.
(b) In the event that the Market Price of the Purchaser Stock
during the fifteen consecutive trading days immediately prior to the Make-Whole
Date is less than $15.00 per share (the "Target Per Share Stock Price"),
----------------------------
Purchaser shall, at Purchaser's option, either (x) issue to the Sellers that
number of additional shares of Purchaser Stock (the "Make-Whole Shares") equal
-----------------
to (1) the Make Whole Deficit, divided by the Market Price of the Purchaser
----------
Stock on the Make-Whole Date, or (y) pay to the Sellers an amount in cash equal
to (1) the Target Stock Consideration Value, less (2) the Make Whole Deficit.
----
Such issuance shall be completed or such cash payment shall be made no later
than the third business day after the Make-Whole Date.
(c) Notwithstanding anything to the contrary set forth herein,
Purchaser's obligation to make any adjustment in accordance with this Section
-------
2.05, or to issue any Make-Whole Shares, shall terminate in the event that, at
----
any time prior to the Make-Whole Date, the average Market Price Per Share of the
Stock Consideration during any 90 consecutive trading days following the date
the Sellers are entitled to freely trade the Stock Consideration without
restrictions pursuant to the Registration Rights Agreement exceeds $15.00.
Further, on the Make Whole Date, Purchaser may reduce the Target Stock
Consideration Value by the amount of any Purchaser Losses for which the Sellers
must indemnify the Purchaser Indemnified Parties in accordance with ARTICLE X
---------
hereof, including satisfaction of the procedures and conditions set forth in
Sections 10.03 and 10.06 hereof.
--------------- -----
2.06 INCENTIVE COMPENSATION.
-----------------------
(a) The Sellers shall, for each Performance Year (as defined on
SCHEDULE 2.06(A)(1)), be entitled to earn incentive compensation, payable
--------------------
annually within 30 days following the filing of the Purchaser's 10-K for each of
the fiscal years ending April 30, 2007, 2008 and 2009, based upon the financial
performance of the Cotton Group Companies according to the formula set forth on
SCHEDULE 2.06(A)(1). Upon determining the portion of the Bonus Pool Amount (as
--------------------
defined on SCHEDULE 2.06(A)(1)) payable for each Employment Year, the Sellers
--------------------
shall notify Purchaser of the portion of such amount to be paid to each employee
identified on SCHEDULE 2.06(A)(2) (the "Incentive Employees") (to the extent
-------------------- -------------------
that each such employee continues to be entitled to incentive compensation
pursuant to the terms of his or her employment agreement with Purchaser or the
Cotton Group Companies) or any other employee who becomes eligible for incentive
compensation pursuant to the terms of his or her employment agreement with the
Corporation.
(b) The Sellers shall be entitled to earn additional equity
compensation based upon the financial performance of acquired companies,
determined in accordance with the provisions of SCHEDULE 2.06(B).
-----------------
-6-
2.07 SELLERS' OPTION. For $10.00 and other good and valuable
----------------
consideration paid and delivered to Purchaser by Sellers upon execution of this
Agreement, the receipt and sufficiency of which is hereby acknowledged and
agreed to by Purchaser, Purchaser hereby grants to Sellers the exclusive right
and option, at their sole discretion, to purchase the First Equity Interests
from Purchaser that Purchaser will acquire at the consummation of the First
Closing if the Second Closing does not occur for any reason whatsoever (except
as described in Section 2.07(d) below), by giving notice ("Option Notice") of
-------------
purchase to Purchaser within 60 days following the Second Closing Date, on the
following terms and conditions:
(a) Sellers' shall pay to Purchaser cash consideration of
$14,000,000.00, in immediately available federal funds; and
(b) Sellers' shall assign, transfer, and convey to Purchaser the
Closing Stock Consideration (i.e., 1,555,532 shares), being in unregistered
form as issued to Sellers at the First Closing; and
(c) The closing of the purchase of the First Equity Interests as
set forth above in this Section 2.07 shall take place within 5 business
days following the delivery of the Option Notice to Purchaser, at which the
consideration set forth in Section 2.07(a) and (b) shall be delivered to
Purchaser and Purchaser shall transfer, assign, convey and deliver to the
Sellers the First Equity Interests, free and clear of any liens, claims and
encumbrances of any kind, and thereafter, the parties hereto shall have no
further rights or obligations under this Agreement except as set forth in
this Section 2.07; and
-------------
(d) Notwithstanding anything in this Section 2.07 to the contrary,
------------
Sellers may not exercise their purchase option set forth in this Section
-------
2.07 if and only if the cause of the failure of the Second Closing to occur
---- --------------
is (i) a material breach by Sellers of a provision of this Agreement, or
(ii) Sellers refusal to consummate the Second Closing without cause. In the
event that Sellers do not exercise their purchase option, the parties agree
that the principal amount of the Seller Note will be reduced to
$5,000,000.00.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF SELLERS
-----------------------------------------
Each Seller hereby represents and warrants to the Purchaser, only as to his
respective ownership of Cotton Equity Interests, execution and delivery of this
Agreement, investment in Purchaser Stock pursuant to the transaction
contemplated by this Agreement, and the other matters addressed in this Article
-------
III (and not as to the ownership of other Sellers, their execution and delivery
---
of this Agreement, investment in Purchaser Stock or other such matters), that
the statements contained in this Article III are correct and complete as of
-----------
September 1, 2006 (as then made in the Original Agreement) as though such date
were substituted for the date of this Agreement throughout this Article III,
-----------
except (i) to the extent any such representation or warranty speaks to an
earlier date and (ii) as set forth in the or Schedules ("Schedules") to this
---------
Agreement delivered by the Sellers to the Purchaser.
3.01 POWER, AUTHORITY AND ORGANIZATION OF THE SELLER. Seller has the
-------------------------------------------------
right, power and capacity to execute, deliver and perform this Agreement and to
consummate the transactions
-7-
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Seller and constitutes Seller's legal, valid and binding
obligation, enforceable in accordance with its terms.
3.02 NO CONFLICT. The execution and delivery of this Agreement by
------------
Seller, the consummation of the transactions contemplated herein by Seller, and
the performance of the covenants and agreements of Seller, will not, with or
without the giving of notice or the lapse of time, or both, (a) violate,
conflict with or result in a breach or default under any term or condition, or
result in the termination, of any mortgage, indenture, contract, license,
permit, instrument, trust document, or other agreement, document or instrument
to which Seller is a party or by which Seller or any of Seller's properties may
be bound, or (b) violate any provision of law, statute, rule, regulation, court
order, judgment or decree, or ruling of any governmental authority, to which
Seller is a party or by which Seller or Seller's properties may be bound.
3.03 OWNERSHIP OF THE COTTON EQUITY INTERESTS. Seller owns,
---------------------------------------------
beneficially and of record, good and valid title to the Cotton Equity Interests
set forth beside such Seller's name on SCHEDULE 3.03 hereto, and such Cotton
-------------
Equity Interests (a) are validly issued, fully paid and nonassessable, (b) are
free and clear of any liens, restrictions, claims, equities, charges, options,
rights of first refusal or encumbrances, with no defects of title whatsoever,
and (c) constitute all of the issued and outstanding stock or limited
partnership interests of Cotton Holdings, Cotton Restoration and Cotton
Commercial, as the case may be, other than limited partnership interests in
Cotton Restoration and Cotton Commercial owned directly or indirectly by Cotton
Holdings. Other than the Cotton Equity Interests, Seller owns no shares of
capital stock, limited partnership interests or other equity securities of any
Cotton Group Company and, except as set forth on SCHEDULE 3.03, Seller does not
-------------
have any right of any kind to have any such equity security issued. Upon the
Closing Date, Purchaser shall have obtained good and valid title to the Cotton
Equity Interests, free and clear of any liens, restrictions, claims, equities,
options, charges, rights of first refusal, or encumbrances or other
restrictions, and with no defects of title whatsoever. Seller has full and
exclusive power, right and authority to vote the Cotton Equity Interests. Seller
is not a party to or bound by any agreement affecting or relating to its right
to transfer or vote any Cotton Equity Interest.
3.04 ABSENCE OF OTHER CLAIMS. No prior offer, issue, redemption, call,
-----------------------
purchase, sale, merger, transfer, involvement in any transfer, negotiation or
other transaction of any nature or kind with respect to any capital stock
(including shares, offers, options, warrants, or debt convertible into shares,
options or warrants) or other ownership interest in the Cotton Group Company in
which Seller owns a Cotton Equity Interest, that has given or may give rise to
(a) any valid claim or action by any person (including any former or present
holder of any of the Cotton Equity Interests) which is enforceable against the
Seller or such Cotton Group Company; or (b) any valid ownership interest in such
Cotton Group Company, and no fact or circumstance exists which could give rise
to any such right, claim, action or interest on behalf of any person.
3.05 INVESTMENT REPRESENTATIONS.
---------------------------
(a) Seller has sufficient knowledge and experience in financial
and business matters to be able to evaluate the risks and merits of the
investment represented by the issuance of the Purchaser Stock pursuant to
Article II hereof (the "Issued Securities").
----------- ------------------
-8-
(b) Seller is aware that the business of the Purchaser involves
significant and material economic variables and risks that could adversely
affect Seller's investment in the Issued Securities.
(c) Seller is able to bear the economic risks of an investment in
the Issued Securities, including the risk of losing all of such investment, and
Seller has no need for liquidity with respect to such investment.
(d) Seller acknowledges that no prospectus, offering circular or
other offering statement containing information with respect to the Issued
Securities was delivered in connection with Seller's investment. Seller has
made his own inquiry and analysis with respect to the Purchaser and its
business, and further represents that Seller has had access, for a reasonable
time prior to the issuance of the Issued Securities, to information concerning
the Purchaser and has had the opportunity to ask questions of, and receive
answers from, officers of the Purchaser concerning an investment in the Issued
Securities and the business, management and financial affairs of the Purchaser,
and to obtain additional information (to the extent the Purchaser possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify the accuracy of any information furnished to Seller or to
which the Seller had access.
(e) The Issued Securities were not offered to the Seller by means
of publicly disseminated advertisements or sales literature, or as part of a
general solicitation, nor is Seller aware of any offers made to other persons by
such means.
(f) Seller acknowledges that he has either been supplied with or
has had access to information to which a reasonable investor would attach
significance in making investment decisions. In determining to proceed with this
investment, Seller has relied solely upon the results of his own independent
investigation with respect to the Issued Securities.
(g) Seller is an "accredited investor" as defined in Rule 501(a)
of Regulation D, promulgated under the Securities Act, which requires individual
investors to either (i) have had individual income (exclusive of any income
attributable to a spouse) of more than $200,000, or joint individual income with
a spouse of more than $300,000, in each of the two most recent years and a
reasonable expectation of reaching that level of income in the current year or
(ii) have an individual net worth (or combined net worth with a spouse), in
excess of $1,000,000.
(h) Seller is acquiring the Issued Securities for his own account
and not with a view to resale or other distribution thereof inconsistent with or
in violation of the federal securities laws or the securities or Blue Sky laws
of any state. No other person or entity will have any interest, beneficial or
otherwise, in the Issued Securities that Seller is acquiring hereunder, other
than a community property interest of Seller's spouse, if applicable, in such
Issued Securities under the laws of the State of Texas. Seller is not obligated
to transfer the Issued Securities or any portion thereof to any other person or
entity, nor does Seller have any agreement or understanding to do so.
(i) Seller acknowledges and agrees that he may not, directly or
indirectly, sell, assign, pledge, give, subject to lien or security interest or
otherwise dispose of or encumber
-9-
(collectively, "Transfer") all or any part of the Issued Securities except as
--------
expressly permitted by this Agreement, the Registration Rights Agreement and
applicable law. Seller understands that the Purchaser may, as a condition of
any Transfer of any Issued Securities which are not registered for sale pursuant
to an effective registration statement of the Purchaser, require that he deliver
an opinion of counsel reasonably acceptable to the Purchaser to the effect that
neither the sale nor the proposed Transfer will result in any violation of
applicable state securities laws, the Securities Act or the securities law of
any other jurisdiction.
(j) Seller acknowledges that, to the extent Seller deems
necessary, he has relied on his own professional accounting, tax, legal and
financial advisors with respect to an investment in the Purchaser and the
acquisition of the Issued Securities, and obtained, to the extent he deems
necessary, such professional advice with respect to the risks inherent in such
investment and the suitability of an investment in the Issued Securities in
light of his financial condition and investment needs.
(k) Any non-public information about the Purchaser that has been
disclosed to Seller by Purchaser or any of its representatives in connection
with the acquisition of the Issued Securities is deemed to be confidential
information of the Purchaser, and Seller hereby agrees that, unless the
Purchaser has consented in writing to the contrary, Seller shall treat such
information as Confidential Information under this Agreement.
(l) The agreements, representations and warranties made herein
extend to and apply to all portions of the Issued Securities. The acceptance by
the Sellers of the Issued Securities shall constitute the Sellers confirmation
that all agreements and representations made herein shall be true and correct at
such time.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES REGARDING THE COTTON GROUP COMPANIES
-------------------------------------------------------------------
Cotton Holdings, Cotton Commercial and Cotton Restoration, and each of the
Sellers hereby jointly and severally represent and warrant to the Purchaser that
the statements contained in this Article IV are correct and complete as of the
----------
date of this Agreement, and will be correct and complete as of September 1, 2006
(the "Representation Date") as though made then and as though such date were
--------------------
substituted for the date of this Agreement throughout this Article IV, except
----------
(i) to the extent any such representation or warranty speaks to an earlier date
and (ii) as set forth in the Schedules.
4.01 ORGANIZATION AND AUTHORIZATION.
--------------------------------
(a) Each Cotton Group Company is duly organized, validly existing
and in good standing under the laws of its incorporation as specified on EXHIBIT
-------
A and has all requisite power and authority, corporate or otherwise, to carry on
-
and conduct its business as it is now being conducted and to own or lease its
properties and assets, and is duly qualified and in good standing in the
jurisdictions set forth on SCHEDULE 4.01(A), which, except as set forth on
-----------------
SCHEDULE 4.01(A), are the only jurisdictions in which the ownership of
-----------------
properties or assets of
-10-
each such Cotton Group Company or the conduct of the Cotton Group Business
requires such qualification.
(b) EXHIBIT A sets forth, for each Cotton Group Company, (i) the
--------
authorized number of equity interests in such Cotton Group Company, (ii) the
name of each holder of equity interests in such Cotton Group Company, and (iii)
for each such holder, the number of equity interests held by such holder and
outstanding as of the Representation Date. Except as set forth on EXHIBIT A, no
---------
Cotton Group Company has any interest, direct or indirect, and has no commitment
to purchase or otherwise acquire any interest, direct or indirect, in any other
corporation, partnership, joint venture or other business enterprise.
(c) The current officers and directors of each Cotton Group
Company are listed on SCHEDULE 4.01(C).
-----------------
(d) The copies of the company records of the Cotton Group
Companies that have previously been delivered to Purchaser are true, correct and
complete copies of the corporate records of the Cotton Group Companies in effect
as of the Representation Date. The copies of the minutes of directors',
shareholders' and partners' meetings and the stock or equity books of the Cotton
Group Companies that have been delivered previously to Purchaser are true,
correct and complete copies of the records of all directors', shareholders' and
partners' meetings and equity issuances through and including the date hereof
and, to the Knowledge of the Cotton Group Companies or any Seller, reflect all
transactions and other matters required to be reflected in such records, as well
as such other matters customarily contained in records of such type.
4.02 AUTHORIZED AND OUTSTANDING STOCK. All of the Cotton Equity
-----------------------------------
Interests are validly issued, fully paid and nonassessable. All issuances,
transfers or purchases of Cotton Equity Interests have been in compliance with
all applicable agreements and all applicable laws, including federal and state
securities laws, and all taxes thereon have been paid. There are no shares of
capital stock or other equity interests held in the treasury of any Cotton Group
Company.
4.03 ABSENCE OF OTHER CLAIMS. Except as set forth on SCHEDULE 4.03,
-------------------------- -------------
there are not outstanding, nor is any Cotton Group Company bound by, any
subscriptions, options, preemptive rights, warrants, calls, commitments or
agreements or rights of any character requiring any Cotton Group Company to
issue, or entitling any person or entity to acquire, any additional shares of
capital stock or any other equity security, including any right of conversion or
exchange under any outstanding security or other instrument, and no Cotton Group
Company is obligated to issue or transfer any of its equity interests for any
purpose. There are no outstanding obligations of any Cotton Group Company to
repurchase, redeem or otherwise acquire any outstanding equity interest in any
such Cotton Group Company.
4.04 NO CONFLICT. The execution and delivery of this Agreement by each
-----------
Cotton Group Company that is a signatory hereto, the consummation of the
transactions contemplated herein by each Cotton Group Company that is a
signatory hereto, and the performance of the covenants and agreements of each
Cotton Group Company that is a signatory hereto, will not, with or without the
giving of notice or the lapse of time, or both, (a) except as set forth on
Schedule 4.04, violate or conflict with any of the provisions of any charter
--------------
document, bylaw,
-11-
limited liability company agreement, operating agreement or partnership
agreement of any Cotton Group Company, (b) except as set forth on SCHEDULE 4.04,
-------------
violate, conflict with or result in a breach or default under or cause
termination of any term or condition of any mortgage, indenture, contract,
license, permit, instrument, trust document, or other agreement, document or
instrument to which any Cotton Group Company is a party or by which any Cotton
Group Company or the properties of any Cotton Group Company may be bound, (c)
violate any provision of law, statute, regulation, court order or ruling of any
governmental authority, to which any Cotton Group Company is a party or by which
any Cotton Group Company or the properties of any Cotton Group Company may be
bound, or (d) result in the creation or imposition of any lien, claim, charge,
restriction, security interest or encumbrance of any kind whatsoever upon any
asset of any Cotton Group Company.
4.05 REQUIRED CONSENTS AND APPROVALS. Except as set forth on SCHEDULE
-------------------------------- --------
4.05, no consent or approval is required by virtue of the execution hereof by
----
any Seller or any Cotton Group Company or the consummation of any of the
transactions contemplated herein by any Seller or any Cotton Group Company to
avoid the violation or breach of, or the default under, or the creation of a
lien on any assets of any Cotton Group Company pursuant to the terms of, any
regulation, order, decree or award of any court or governmental agency or any
lease, agreement, contract, mortgage, note, license, or any other instrument to
which any Cotton Group Company is a party or to which any Cotton Group Company
or the property or assets of any Cotton Group Company or any of the Cotton
Equity Interests is subject.
4.06 NO VIOLATION OF LAW. No Cotton Group Company is, and no Cotton
----------------------
Group Company will be (by virtue of any past or present action, omission to act,
contract to which it is a party or any occurrence or state of facts whatsoever)
in violation of any applicable local, state or federal law, ordinance,
regulation, order, injunction or decree, or any other requirement of any
governmental body, agency or authority or court binding on it, or relating to
its property or business or its advertising, sales or pricing practices
(including any antitrust laws and regulations), and no Cotton Group Company
hereafter will suffer or incur any material loss, liability, penalty or expense
(including attorneys' fees) by virtue of any such violation.
4.07 FINANCIAL STATEMENTS. SCHEDULE 4.07 contains (i) the unaudited
--------------------- --------------
balance sheets of Cotton Commercial, Cotton Restoration, and Cotton Restoration,
LP as of the years ended October 31, 2005 and October 31, 2004 reviewed by the
Cotton Group Companies' certified public accountant (the "Reviewed Financial
------------------
Statements"), and the related statements of income, retained earnings, and cash
----------
flows for the years then ended, and the related notes thereto; and (ii) the
audited consolidated balance sheet of Cotton Holdings 1, Inc. and Subsidiaries
(including, without limitation, Cotton Commercial, Cotton Restoration, and
Cotton Restoration, LP) as of July 31, 2006, and the related unaudited
statements of income, retained earnings, and cash flows for the 9-month period
then ended, or if such interim statements are not commonly prepared, equivalent
statements as are commonly prepared (the "Interim Financial Statements", and
----------------------------
collectively with the Reviewed Financial Statements, the "Current Financial
-----------------
Statements"). The Reviewed Financial Statements present fairly the financial
----------
position of the Cotton Group Companies as of the dates thereof, and the related
results of its operations for the years then ended. The Interim Financial
Statements present fairly the financial position of the Cotton Group Companies
as of the date thereof, and the related results of its operations for the
periods then ended. The Reviewed Financial Statements have been prepared in
accordance with
-12-
generally accepted accounting principles, consistently applied ("GAAP"), and the
----
Interim Financial Statements have been prepared in accordance with GAAP for
interim statements on a basis consistent with prior periods. All adjustments,
consisting of normal, recurring accruals necessary for a fair presentation, have
been made in the Interim Financial Statements. The balance sheets as of October
31, 2005 (the "Reviewed Balance Sheet Date") included in the Reviewed Financial
---------------------------
Statements are referred to herein as the "Reviewed Balance Sheets" and the
-----------------------
audited consolidated balance sheet as of July 31, 2006 (the "Interim Balance
---------------
Sheet Date") included in the Interim Financial Statements are referred to herein
----------
as the "Interim Balance Sheets."
------------------------
4.08 NO UNDISCLOSED LIABILITIES. There are no liabilities of any
----------------------------
Cotton Group Company of any kind whatsoever, whether accrued, contingent,
absolute or otherwise, except for:
(a) liabilities and obligations fully reflected or provided for in
the Reviewed Balance Sheets, the Interim Balance Sheets or the Schedules;
(b) liabilities and obligations incurred in the Ordinary Course of
Business, consistent with past practice, since July 31, 2006, which individually
or in the aggregate are not in excess of $50,000.00; and
(c) liabilities and obligations under contracts not (i)
attributable to any failure by any Cotton Group Company to comply with the terms
thereof or any express or implied warranty, or (ii) entered into in violation of
this Agreement or arising out of any such breach by any Cotton Group Company.
4.09 REAL PROPERTY.
--------------
(a) SCHEDULE 4.09(A) sets forth a complete and accurate list and
-----------------
description of all the real property that the Cotton Group Companies own, lease,
have agreed (or have an option) to purchase, sell or lease, or may be obligated
to purchase, sell or lease (the "Real Property"). With respect to each parcel
-------------
of Real Property that is owned by the Cotton Group Companies, Sellers or their
affiliates and required to be listed and described on SCHEDULE 4.09(A), the
----------------
Seller has or will make available prior to Closing to Purchaser true, correct
and complete copies of each instrument (if any) evidencing a grant by or to any
Cotton Group Company of an option to purchase or lease such parcel, each lease
and leasehold mortgage (if any) with respect to such parcel, and any title
policies or commitments and surveys with respect to such parcel.
(b) The Cotton Group Companies have good, valid and marketable
title to, or in the case of leased properties and assets, valid leasehold
interests in, all of their material properties and assets, tangible and
intangible, real, personal and mixed, movable and immovable, used or held for
use in their business.
(c) Except for the matters set forth on SCHEDULE 4.09(C) (the
----------------
"Permitted Liens"), no Real Property owned by the Cotton Group Companies,
----------------
Sellers or their affiliate, or, to the Knowledge of the Cotton Group Companies
or any Seller, any Real Property leased by the Cotton Group, is subject to (i)
any governmental decree or order (or threatened or proposed
-13-
decree or order known to the Cotton Group Companies or the Sellers) to be sold
or taken by public authority, or (ii) any liens, security interests, easements,
rights of way, building use restrictions, exceptions, variances, reservations,
limitations or other encumbrances of any nature whatsoever.
4.10 PERSONAL PROPERTY.
------------------
(a) SCHEDULE 4.10(A) sets forth a complete and accurate list and
-----------------
description of all personal property that the Cotton Group Companies own or
lease, have agreed (or have an option) to purchase, sell or lease, or may be
obligated to purchase, sell or lease, the net book value of which, as properly
reflected in the books and records of the Cotton Group Companies on an
individual, item-by-item basis, exceeds $1,000.00.
(b) The Cotton Group Companies (i) have good and valid title to
all the personal and mixed, tangible and intangible properties and assets which
it purports to own or which it uses in the conduct of the Cotton Group Business,
including Intellectual Property, Software and Licensed Software (as defined in
Section 4.12), and all the personal properties and assets reflected, but not
-------------
shown as leased or encumbered, on the Reviewed Balance Sheet and the Interim
Balance Sheet (except for inventory and assets sold in the Ordinary Course of
Business and supplies consumed in the Ordinary Course of Business), and (ii)
except for Permitted Liens, owns such personal property free and clear of all
title defects or objections, liens, restrictions, claims, charges, security
interests, easements, or other encumbrances of any nature whatsoever, including
any mortgages, leases, chattel mortgages, conditional sales contracts,
collateral, security arrangements and other title or interest retention
arrangements. Except as set forth on SCHEDULE 4.10(B), all personal property
----------------
(including all improvements on any Real Property) and leasehold improvements are
located at the principal location of the Cotton Group Business.
(c) All of the inventories of the Cotton Group Companies included
on the Interim Balance Sheets or subsequently acquired are merchantable and of a
quality and quantity usable and saleable in the Ordinary Course of Business, and
the quantities of each type of inventory (whether raw materials,
work-in-process, or finished goods) are not excessive, and are consistent with
prior levels. All of the inventories of the Cotton Group Companies included on
the Interim Balance Sheet are valued for the purposes thereof at the lower of
cost or market.
(d) SCHEDULE 4.10(D) contains a complete and accurate list of all
-----------------
leases (including any capital leases) and lease-purchase arrangements (other
than Real Property leases) pursuant to which the Cotton Group Companies lease
personal property from others and which (i) require the Cotton Group Companies
to pay, for rent and any obligatory improvements, more than $5,000.00 in any
single year or $10,000.00 during the entire term of such lease or lease-purchase
arrangement (including any renewal term that the Cotton Group Companies may not
avoid by refusing to renew in its sole discretion), or (ii) provide for a
purchase option for a price of more than $5,000.00. SCHEDULE 4.10(D) specifies
----------------
which of such leases, if any, are capital leases. All leases that are required
to be capitalized by GAAP have been so accounted for in the Current Financial
Statements. The Cotton Group Companies have made available to Purchaser a true,
correct and complete copy of each of the items required to be listed on SCHEDULE
--------
4.10(D).
-------
-14-
4.11 INDEBTEDNESS. SCHEDULE 4.11 sets forth a true, correct and
------------ --------------
complete list and description of all instruments or other documents relating to
any direct or indirect indebtedness for borrowed money of the Cotton Group
Companies, as well as indebtedness by way of lease-purchase arrangements,
guarantees, undertakings on which others rely in extending credit and all
conditional sales contracts, chattel mortgages and other security arrangements
with respect to personal property used or owned by the Cotton Group Companies
(other than those set forth on SCHEDULE 4.10(D)). The Cotton Group Companies
-----------------
have made available to Purchaser a true, correct and complete copy of each of
the items required to be listed on SCHEDULE 4.11.
--------------
4.12 INTELLECTUAL PROPERTY.
----------------------
(a) For purposes of this Agreement, the term "Intellectual
------------
Property" shall mean all patents, patent rights, patent applications, registered
--------
trademarks and service marks, trademark rights, trademark applications, service
▇▇▇▇ rights, service ▇▇▇▇ applications, trade names, registered copyrights,
copyright rights, domain names and all intellectual, industrial software or
proprietary rights and trade secrets, technology and know-how, owned or used by
the Cotton Group Companies, together with any amendments, modifications and
supplements thereto and in each case all goodwill associated therewith in
connection with the business in which any such intellectual property is used.
(b) Identification of Intellectual Property. SCHEDULE 4.12(B)
------------------------------------------ -----------------
sets forth a true, correct and complete list and full description of all
Intellectual Property. With respect to any registrations of the Intellectual
Property, SCHEDULE 4.12(B) also sets forth, as to each such item of the
-----------------
Intellectual Property, the (i) relevant application or registration number, (ii)
relevant filing, registration, issue or application date, (iii) record owner,
(iv) country, (v) title or description and (vi) remaining life thereof. In
addition, SCHEDULE 4.12(B) identifies whether each item of the Intellectual
-----------------
Property is owned by the Cotton Group Companies or is possessed and used by the
Cotton Group Companies under any license, contract, agreement or other
commitment and, if under any such commitment, the identity of the parties
thereto, the term thereof and all amounts payable thereunder together with the
payment terms therefor.
(c) Ownership and Protection. With respect to each item of
--------------------------
Intellectual Property identified as being owned by the Cotton Group Companies,
the Cotton Group Companies own all right, title and interest in and to such
Intellectual Property, and have not encumbered or impaired any rights in same.
The Cotton Group Companies have obtained an enforceable written assignment of
all right, title and interest in and to each item of Intellectual Property owned
by the Cotton Group Companies from each person or entity participating in the
discovery, development or creation of such item of Intellectual Property and
have provided to Purchaser true and correct copies of each such assignment.
Except as set forth on SCHEDULE 4.12(C), the Cotton Group Companies do not have
----------------
any obligation to compensate, or to obtain the consent of, any third party for
the use of any item of Intellectual Property. All employees, independent
contractors, or other persons who have had access to or participated in the
development of any Intellectual Property owned by the Cotton Group Companies
have signed appropriate confidentiality and non-disclosure agreements and, in
the case of independent contractors, appropriate work for hire agreements and
assignments, sufficient to protect the Cotton Group Companies' ownership rights
in Intellectual Property and the unauthorized use or disclosure of same. All
registrations and applications to register the Intellectual Property in each
-15-
of the countries in which any of the same is registered are valid and subsisting
in all respects and have been properly maintained. To the Knowledge of the
Cotton Group Companies or any Seller, no party has any claim to any moral rights
with respect to Intellectual Property owned by the Cotton Group Companies.
(d) Litigation and Claims. There is neither pending nor, to the
-----------------------
Knowledge of the Cotton Group Companies or any Seller, threatened any suit,
action, claim, arbitration, grievance, litigation, administrative or legal or
other proceeding, or investigation, against the Cotton Group Companies or their
licensors contesting the validity of, or the Cotton Group Companies' right to
use, any of the Intellectual Property.
(e) Licenses. The Cotton Group Companies have not granted any
--------
license or other right to use, in any manner, any item of Intellectual Property,
whether or not requiring the payment of royalties, and no third party has any
right to use any Intellectual Property owned by the Cotton Group Companies. The
Cotton Group Companies have not licensed, leased, sold or otherwise transferred
or disclosed the source code for any Intellectual Property to any person or
entity other than to the Cotton Group Companies' employees and independent
contractors pursuant to agreements with such employees and independent
contractors protecting the intellectual property rights therein and the
nondisclosure thereof.
(f) Protection. The Cotton Group Companies have reasonably
----------
protected the Intellectual Property as the proprietary property and trade
secrets of the Cotton Group Companies. There has not been any default under any
confidentiality agreement regarding the use and disclosure of the Intellectual
Property.
(g) Infringement.
------------
(i) To the Knowledge of the Cotton Group Companies or
any Seller, no third party is (A) infringing upon all or any portion of the
Intellectual Property, or (B) using all or any portion of the Intellectual
Property in derogation of any rights acquired by Purchaser under this Agreement.
(ii) There is no interference action or other litigation
pending or, to the Knowledge of the Cotton Group Companies or any Seller,
threatened before any governmental entity (including the United States Patent
and Trademark Office or corresponding governmental entities in foreign
jurisdictions) in regard to any of the Intellectual Property.
(iii) None of the Intellectual Property infringes any
copyright, trademark, patent, trade secret, or other right of any third party.
The Cotton Group Companies have not received any notice of infringement upon,
misappropriation of or conflict with any asserted right of any third party, and
there is no basis for any such notice.
(iv) The inception, development and reduction to
practice of the Intellectual Property have not constituted or involved, and do
not constitute or involve, the misappropriation of trade secrets or other rights
of any other person or entity (including any governmental entity).
-16-
4.13 LITIGATION. SCHEDULE 4.13 sets forth all litigation, claims,
---------- --------------
suits, actions, investigations, indictments or information, proceedings or
arbitrations, grievances or other procedures (including grand jury
investigations, actions or proceedings, and product liability and workers'
compensation suits, actions or proceedings) pending, or to the Knowledge of the
Cotton Group Companies or any Seller, threatened, before any court, commission,
arbitration tribunal, or judicial, governmental or administrative department,
body, agency, administrator or official, grand jury, or any other forum for the
resolution of grievances, against any Cotton Group Company or involving any of
their properties or businesses, and (b) indicates which of such matters are
being defended by an insurance carrier, and which of the matters being so
defended are being defended under a reservation of rights. Further, except as
set forth on SCHEDULE 4.13, there are no judgments, orders, writs, injunctions,
-------------
decrees, indictments or information, grand jury subpoenas or civil investigative
demands, plea agreements, stipulations or awards (whether rendered by a court,
commission, arbitration tribunal, or judicial, governmental or administrative
department, body, agency, administrator or official, grand jury or any other
forum for the resolution of grievances) against or relating to any Cotton Group
Company or involving any of their properties or businesses. The Cotton Group
Companies have made available to Purchaser true, correct and complete copies of
all pleadings, briefs and other documents filed in each pending litigation,
claim, suit, action, investigation, indictment or information, proceeding,
arbitration, grievance or other procedure required to be listed on SCHEDULE
--------
4.13, and the judgments, orders, writs, injunctions, decrees, indictments and
----
information, grand jury subpoenas and civil investigative demands, plea
agreements, stipulations and awards required to be listed on said Schedule.
4.14 EMPLOYEES.
---------
(a) SCHEDULE 4.14(A) sets forth the names and current compensation
----------------
(broken down by category, e.g., salary, bonus, commission) of all employees of
the Cotton Group Companies, together with the date and amount of the last
increase in compensation for each such person. To the Knowledge of the Cotton
Group Companies or any Seller, no employee intends to terminate his or her
employment relationship with the Cotton Group Companies as a result of the
transactions contemplated herein or otherwise.
(b) The Cotton Group Companies have conducted a thorough review of
their employee records and have verified that each foreign national employee of
any Cotton Group Company is authorized to be present and employed in the United
States. The Cotton Group Companies are in full compliance with all applicable
laws, regulations, judgments and other requirements relating to the regulation
of foreign nationals in the United States including those items relating to the
employment and compensation of foreign nationals in the United States. There
are no unresolved past, pending or threatened administrative, regulatory or
judicial actions, proceedings, investigations, obligations, liabilities, losses,
decrees, judgments, penalties, fines, fees, demands, demand letters, orders,
directives, claims, or notices of noncompliance or violation relating in any way
to any Cotton Group Company or their operations in connection with any Cotton
Group Company's employment of foreign nationals. As used herein, the term
"foreign national" means a person who is not a citizen of the United States of
America.
4.15 EMPLOYEE BENEFITS.
------------------
-17-
(a) Employee Benefit Plans and Arrangements.
-------------------------------------------
(i) List and Description of Plans and Arrangements.
---------------------------------------------------
SCHEDULE 4.15(A)(I) sets forth a true, correct and complete list and description
-------------------
of all agreements, arrangements, commitments, policies or understandings of any
kind (whether written or oral) (A) which relate to employee benefits, (B) which
pertain to present or former employees, retirees, directors or independent
contractors (or their beneficiaries, dependents or spouses) of the Cotton Group
Companies or the predecessors in interest of any Cotton Group Company, and (C)
which are currently or expected to be adopted, maintained, sponsored, or
contributed to by any Cotton Group Company, any of their predecessors in
interest or any employer which, under Section 414 of the Internal Revenue Code
(the "Code"), would constitute a single employer with any Cotton Group Company
----
(a "Company Affiliate") or as to which any Cotton Group Company or any Company
------------------
Affiliate has any ongoing liability or obligation whatsoever (collectively,
"Employee Benefit Plans"), including all: (1) employee benefit plans as defined
-----------------------
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), (2) all other deferred compensation, early retirement,
-----
incentive, profit-sharing, thrift, stock ownership, stock appreciation rights,
bonus, stock option, stock purchase, welfare or vacation, or other nonqualified
benefit plans or arrangements, and (3) trusts, group annuity contracts,
insurance policies or other funding media for the plans and arrangements
described hereinabove.
(ii) Compliance with ERISA and the Code. Each Cotton
--------------------------------------
Group Company and each Company Affiliate has complied with all of their
respective obligations with respect to all Employee Benefit Plans (including (A)
filing or distributing all reports or notices required by ERISA or the Code and
(B) complying with all requirements of Part 6 of ERISA and Code Section 4980B)
and has maintained the Employee Benefit Plans in compliance with all applicable
laws and regulations (including ERISA and the Code). Each eligible Employee
Benefit Plan has received a favorable determination letter from the Internal
Revenue Service, and the Internal Revenue Service has not threatened or taken
any action to revoke any favorable determination letter issued with respect to
any such Employee Benefit Plan. No amendment to any Employee Benefit Plan or
related trust has been adopted since receipt of the most recent determination
letter issued with respect to the Employee Benefit Plan or related trust which
would cause disqualification of the Employee Benefit Plan or related trust.
(iii) Copies of Documents Provided to Purchaser. The
-------------------------------------------
Cotton Group Companies have made available to Purchaser true, correct and
complete copies of all documents relating to the Employee Benefit Plans that
Purchaser has requested, including: (A) all plan texts, amendments, trust
instruments and other agreements adopted or entered into in connection with each
of the Employee Benefit Plans, (B) all insurance and annuity contracts related
to any Employee Benefit Plan, (C) the notices and election forms used to notify
employees and their dependents of their continuation coverage rights under the
Cotton Group Companies' group health plans (under Code Section 4980B(f) and
ERISA Section 606), if applicable, and (D) the most recently available Form 5500
annual reports, certified financial statements, actuarial reports, summary plan
descriptions and favorable determination letters, if applicable, for Employee
Benefit Plans. Since the date such documents were supplied to Purchaser, no
plan amendments have been adopted, no changes to the documents have been made,
and no such amendments or changes shall be adopted or made prior to the Closing
Date.
-18-
(iv) Agreements to Create, Continue or Terminate Plans.
--------------------------------------------------
Neither any Cotton Group Company nor any Company Affiliate has any agreement,
arrangement, commitment or understanding, whether legally binding or not, to
create any additional Employee Benefit Plan or to continue, modify, change in
any material respect, or terminate any existing Employee Benefit Plan.
(v) Agency Review, Taxes and Fiduciary Liability. None
---------------------------------------------
of the Employee Benefit Plans is currently under investigation, audit or review
by the Department of Labor, the Internal Revenue Service or any other federal or
state agency or is liable for any federal, state, local or foreign taxes. There
is no transaction in connection with which any Cotton Group Company, any Company
Affiliate or any fiduciary of any of the Employee Benefit Plans could be subject
to either a civil penalty assessed pursuant to ERISA Section 502, a tax imposed
by Code Section 4975 or liability for a breach of fiduciary responsibility under
ERISA.
(vi) Claims Against Plans and Fiduciaries. Other than
--------------------------------------
routine claims for benefits payable to participants or beneficiaries in
accordance with the terms of the Employee Benefit Plans, there are no claims,
pending or, to the Knowledge of the Cotton Group Companies or any Seller,
threatened, by any participant or beneficiary against any of the Employee
Benefit Plans or any fiduciary of any of the Employee Benefit Plans, and no
basis for any such claim or claims exists.
(vii) Retiree Welfare Benefits. Neither any Cotton
--------------------------
Group Company nor any Company Affiliate has maintained an Employee Benefit Plan
providing group health, dental, vision, life insurance or other welfare benefits
to employees following retirement or other separation from service, except to
the extent required under Part 6 of Title I of ERISA and Code Section 4980B.
(b) Defined Benefit Plans. No Cotton Group Company has ever
-----------------------
maintained an Employee Benefit Plan that is a pension plan within the meaning of
ERISA Section 3(2) which is subject to Title IV of ERISA (a "Defined Benefit
---------------
Plan"), nor has any Cotton Group Company ever participated in a Defined Benefit
----
Plan that is a multi-employer plan within the meaning of ERISA Section 3(37)(A).
There has never been any Defined Benefit Plan or multi-employer plan maintained
by any Cotton Group Company or any Company Affiliate under which any Cotton
Group Company and any Company Affiliate currently have, or potentially could
ever have, any obligation or liability whatsoever under ERISA.
4.16 COLLECTIVE BARGAINING. There are no labor contracts, collective
----------------------
bargaining agreements, letters of understanding or other arrangements, formal
or, to the Knowledge of the Cotton Group Companies or any Seller, informal, with
any union or labor organization covering any employees of any Cotton Group
Company and none of said employees are represented by any union or labor
organization.
4.17 LABOR DISPUTES. The Cotton Group Companies are in compliance with
--------------
all federal and state laws respecting employment and employment practices, terms
and conditions of employment, wages and hours. The Cotton Group Companies are
not and have not been engaged in any unfair labor practice, and no unfair labor
practice complaint against any Cotton Group Company is pending before the
National Labor Relations Board. Neither any Cotton Group
-19-
Company nor any Seller knows or has reason to know of any labor strike or other
labor trouble actually pending, being threatened against, or affecting the
Cotton Group Companies. To the Knowledge of the Cotton Group Companies or any
Seller, relations between management and labor are amicable and there have not
been, nor are there presently, any attempts to organize non-union employees, nor
are there plans for any such attempts.
4.18 BANK ACCOUNTS. SCHEDULE 4.18 sets forth a true, correct and
-------------- --------------
complete list of each bank or financial institution in which the Cotton Group
Companies have an account or safe deposit box (giving the address and account
numbers) and the names of the persons authorized to draw thereon or to have
access thereto.
4.19 ENVIRONMENTAL MATTERS.
----------------------
(a) For purposes of this Section 4.19, the following terms shall
have the following meanings:
(i) "Environmental Claims" shall mean any and all
---------------------
administrative, regulatory or judicial actions, causes of action, suits,
investigations, obligations, liabilities, losses, proceedings, decrees,
judgments, penalties, fines, fees, demands, demand letters, orders, directives,
claims (including any claims involving liability in tort, strict, absolute or
otherwise), liens, notices of noncompliance or violation, and legal and
consultant fees and costs of investigations or proceedings, relating in any way
to any Environmental Law or the presence or Release (or alleged presence or
Release) into the environment of any Hazardous Material on, at or from the Real
Property including and regardless of the merit of such Claim, any and all Claims
by any governmental or regulatory authority or by any third party or other
person for enforcement, mitigation, cleanup, removal, response, remediation or
other actions or damages, contribution, indemnification, cost recovery,
compensation or injunctive or declaratory relief pursuant to any Environmental
Law or any alleged injury or threat of injury to human health, safety, natural
resources or the environment.
(ii) "Environmental Laws" shall mean all present and
-------------------
future federal, state and local laws, statutes, ordinances, regulations, codes,
policies, rules, directives, orders, decrees, permits, licenses, approvals,
authorizations, criteria, guidelines, covenants, deed restrictions, treaties,
conventions, and rules of common law now or hereafter in effect, and in each
case as amended, and any judicial or administrative judgment, opinion or
interpretation thereof, relating to the regulation or protection of human
health, safety, natural resources or the environment, including laws and
regulations (and all other items recited above) relating to the use, treatment,
storage, management, handling, manufacture, generation, processing, recycling,
distribution, transport, Release or threatened Release of or exposure to any
Hazardous Material.
(iii) "Hazardous Materials" shall mean, collectively,
--------------------
any substance, material, product, derivative, compound, mixture, mineral,
chemical, waste, medical waste or gas, in each case whether naturally occurring,
human-made or the by-product of any process, including petroleum or petroleum
products (A) that is now or hereafter becomes defined or included within the
definition of a "hazardous substance," "hazardous waste," "hazardous material,"
"toxic chemical," "toxic substance," "hazardous chemical," "extremely hazardous
substance," "pollutant," "contaminant," or any other words of similar meaning
under any
-20-
Environmental Law, (B) exposure to which or the presence, use, generation,
treatment, Release, transport or storage of which is now or hereafter
prohibited, limited, restricted or regulated under any Environmental Law or by
any governmental or regulatory authority, or (C) that could require
investigation, response or remediation, or could support the assertion of any
Environmental Claim.
(iv) "Release" shall mean the release, deposit, disposal
-------
or leakage of any Hazardous Material at, into, upon or under any land, water or
air, or otherwise into the environment, including by means of burial, disposal,
discharge, emission, injection, spillage, leakage, seepage, leaching, dumping,
pumping, pouring, escaping, emptying, placement and the like.
(b) Except as disclosed on SCHEDULE 4.19(B):
-----------------
(i) Each Cotton Group Company is in full compliance with
all applicable Environmental Laws;
(ii) Each Cotton Group Company has all permits, licenses
and other approvals required under the Environmental Laws with respect to the
Real Property and such Cotton Group Company's operations thereon;
(iii) There are no past, pending or threatened
Environmental Claims relating to the any Cotton Group Company's operations or
the Real Property;
(iv) Hazardous Materials have not at any time been
present, generated, used, treated, managed, recycled, stored or Released at, on,
in or under, or transported to or from the Real Property;
(v) Hazardous Materials have not at any time been
Released at, on, in or under any other property in the vicinity or area of the
Real Property;
(vi) There are not now and never have been any
underground storage tanks located at, on or under the Real Property, there is no
asbestos contained in, forming part of, or contaminating any part of the Real
Property, and no polychlorinated biphenyls (PCBs) are used, stored, located at
or contaminate any part of the Real Property;
(vii) There are no pending or threatened Environmental
Claims at any treatment, storage or disposal facility that has received
Hazardous Materials from or generated at the Real Property; and
(viii) There are no past or present facts, actions,
activities, circumstances, conditions, occurrences, events or incidents,
including the Release or presence of Hazardous Materials, that could (A) form
the basis of an Environmental Claim against or involving any Cotton Group
Company or the Real Property, (B) cause the Real Property to be subject to any
restrictions on or affect its ownership, occupancy, use or transferability under
any applicable Environmental Law, (C) require the filing or recording of any
notice or restriction relating to the presence of Hazardous Materials in the
real estate records in the county or municipality in which the Real Property is
located, other than any customary disclosure
-21-
requirements in connection with the transfer of the Real Property, or (D)
prevent or interfere with the construction, operation or maintenance of the Real
Property.
4.20 REQUIRED LICENSES AND PERMITS. The Cotton Group Companies have
--------------------------------
all licenses, permits or other authorizations of governmental authorities
necessary for the conduct of the Cotton Group Business, except to the extent
that the Cotton Group Companies are authorized pursuant to permits held by its
customers to conduct operations and perform services in connection with their
respective businesses. A true, correct and complete list of all such licenses,
permits and other authorizations (collectively, the "Cotton Authorizations") is
---------------------
set forth on SCHEDULE 4.20. The Cotton Group Companies have made available to
-------------
Purchaser true, correct and complete copies of all written Cotton Authorizations
required to be listed on SCHEDULE 4.20.
--------------
4.21 INSURANCE POLICIES. SCHEDULE 4.21 sets forth a true, correct and
------------------- -------------
complete list and description of all insurance policies in force naming the
Cotton Group Companies, or any employees thereof in their capacity as such, as
an insured or beneficiary or as a loss payable payee, or for which any Cotton
Group Company has paid or is obligated to pay all or part of the premiums. The
Cotton Group Companies have not received notice of any pending or threatened
termination or premium increase (retroactive or otherwise) with respect thereto,
and the Cotton Group Companies are in compliance with all conditions contained
therein. There have been no lapses (whether cured or not) in the coverage
provided under the insurance policies, referenced herein and as set forth on
SCHEDULE 4.21, during the term of such policies, as extended or renewed. The
--------------
Cotton Group Companies have made available to Purchaser true, correct and
complete copies of each of the policies required to be listed on SCHEDULE 4.21.
-------------
4.22 MAJOR SUPPLIERS AND CUSTOMERS. SCHEDULE 4.22 sets forth a list of
----------------------------- -------------
the top 25 suppliers of goods or services to and the top 25 customers of the
Cotton Group Companies (by amounts paid or billed) during the 12-month period
ended June 30, 2006 together, in each case, with the amount paid or billed
during such period. The Cotton Group Companies are not engaged in any dispute
with any of such suppliers or customers. The Cotton Group Companies have not
been advised nor have any reason to believe that the consummation of the
transactions contemplated hereunder will have any adverse effect on the business
relationship of the Cotton Group Companies with any such supplier or customer.
4.23 CONTRACTS AND COMMITMENTS. SCHEDULE 4.23 sets forth a list of the
------------------------- -------------
Cotton Group Companies' contracts with customers with an estimated value of
$50,000.00 or more. Except as set forth on SCHEDULES 4.10(D) (Leases), 4.11
----------------- ----
(Indebtedness), 4.12(B) AND (D) (Intellectual Property), 4.15(A)(I) (Employee
----------------- ----------
Benefit Plans), 4.16 (Collective Bargaining), 4.21 (Insurance Policies), and
---- ----
4.23 (Contracts and Commitments):
----
(a) The Cotton Group Companies do not have any outstanding
contract, written or oral, with any officer, employee, agent, consultant,
advisor, salesman, manufacturer's representative, distributor, dealer,
subcontractor, or broker that is not cancelable by the Cotton Group Companies on
notice of not longer than thirty (30) days and without liability, penalty or
premium of any kind, except liabilities which arise as a matter of law upon
termination of employment, or any agreement or arrangement providing for the
payment of any bonus or commission based on sales or earnings;
-22-
(b) The Cotton Group Companies are not under any liability or
obligation under any agreement pursuant to which third parties have been
provided with products that can be returned to the Cotton Group Companies in the
event they are not sold and which could involve a liability of the Cotton Group
Companies of $25,000 or more in the aggregate;
(c) The Cotton Group Companies do not have (i) any outstanding
loan or loan commitment (excluding credit extended in the Ordinary Course of
Business to purchasers of job materials) to any person, or (ii) any factoring,
credit line or subordination agreement;
(d) Except as noted on SCHEDULE 4.11 (Indebtedness) and except for
-------------
negotiable instruments in the process of collection, the Cotton Group Companies
do not have any power of attorney outstanding or any contract, commitment or
liability (whether absolute, accrued, contingent or otherwise), as guarantor,
surety, co-signer, endorser, co-maker, indemnitor in respect of the contract or
commitment of any other person, corporation, partnership, joint venture,
association, organization or other entity;
(e) There are no contracts or agreements with any director,
officer, partner or shareholder of any Cotton Group Company, or with any person
related to any such person or with any company or other organization in which
any director, officer, partner or shareholder of any Cotton Group Company, or
anyone related to any such person, has a direct or indirect financial interest;
(f) The Cotton Group Companies are not subject to any contract or
agreement containing covenants limiting the freedom of any Cotton Group Company
to compete in any line of business in any geographic area or requiring any
Cotton Group Company to share any profits;
(g) There is no contract, agreement or other arrangement entitling
any person or other entity to any profits, revenues or cash flows of any Cotton
Group Company or requiring any payments or other distributions based on such
profits, revenues or cash flows; and
(h) To the Knowledge of the Cotton Group Companies or any Seller,
no Cotton Group Company is a party to or bound by any presently or previously
existing contract, agreement or other arrangement that has had or may in the
future have a Material Adverse Effect upon the Cotton Group Business, earnings
or financial condition of any Cotton Group Company.
The Cotton Group Companies have made available to Purchaser true, correct and
complete copies of all contracts, agreements, plans, leases, policies and
licenses referred to, or required to be referred to or listed on, any Schedule
delivered hereunder.
4.24 AGREEMENTS IN FULL FORCE AND EFFECT. All contracts, agreements,
-------------------------------------
plans, leases, policies and licenses referred to, or required to be referred to,
on any Schedule delivered hereunder are valid and binding, and are in full force
and effect and are enforceable in accordance with their terms, except to the
extent that the validity or enforceability thereof may be limited by bankruptcy,
insolvency, reorganization and other similar laws affecting creditors' rights
generally or by principles of equity. Neither the Cotton Group Companies nor
any Seller has any Knowledge of any pending or threatened bankruptcy, insolvency
or similar proceeding with respect to any party to such agreements, and no event
has occurred which (whether with or without notice, lapse of time or the
happening or occurrence of any other event) would constitute
-23-
a default thereunder by any Cotton Group Company or to the Knowledge of the
Cotton Group Companies or any Seller any other party thereto.
4.25 ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as set forth in
-----------------------------------------
SCHEDULE 4.25, since the Interim Balance Sheet Date, the Cotton Group Companies
-------------
have operated only in the Ordinary Course of Business, and have not:
(a) suffered any material damage or destruction adversely
affecting any asset of the Cotton Group Companies or the Cotton Group Business;
(b) made any declaration, setting aside or payment of any dividend
or other distribution of assets (whether in cash, stock or property) with
respect to the Cotton Equity Interests, or any direct or indirect redemption,
purchase or other acquisition of stock or equity interests, or otherwise made
any payment of cash or any transfer of other assets, to the Sellers or any
Cotton Group Company;
(c) suffered any Material Adverse Change in their working capital,
assets, liabilities, financial condition, business prospects, or relationships
with any suppliers or customers listed on SCHEDULE 4.22;
-------------
(d) except for customary increases based on term of service or
regular promotion of non-officer employees, increased (or announced any increase
in) the compensation payable or to become payable to any employee, or increased
(or announced any increase in) any bonus, insurance, pension or other employee
benefit plan, payment or arrangement for such employees, or entered into or
amended any employment, consulting, severance or similar agreement;
(e) incurred, assumed or guaranteed any liability or obligation
(absolute, accrued, contingent or otherwise) other than in the Ordinary Course
of Business;
(f) paid, discharged, satisfied or renewed any claim, liability or
obligation other than payment in the Ordinary Course of Business;
(g) permitted any of their assets to be subjected to any mortgage,
lien, security interest, restriction, charge or other encumbrance of any kind
except for Permitted Liens;
(h) cancelled or forgiven any indebtedness or otherwise waived any
material claims or rights;
(i) sold, transferred or otherwise disposed of any of their
assets, except in the Ordinary Course of Business;
(j) made any single capital expenditure or investment in excess of
$100,000.00;
(k) made any change in any method, practice or principle of
financial or tax accounting;
-24-
(l) managed working capital components, including cash,
receivables, other current assets, trade payables and other current liabilities
in a fashion inconsistent with past practice, including failing to sell
inventory and other property in an orderly and prudent manner or failing to make
all budgeted and other normal capital expenditures, repairs, improvements and
dispositions;
(m) paid, loaned, advanced, sold, transferred or leased any asset
to any employee, except for normal compensation involving salary and benefits;
(n) issued or sold any of their equity interests or issued any
warrant, option or other right to purchase equity interests, or any security
convertible into equity interests;
(o) entered into any material commitment or transaction, other
than in the Ordinary Course of Business, affecting the Cotton Group Business; or
(p) agreed in writing, or otherwise, to take any action described
in this Section.
4.26 ACCOUNTS RECEIVABLE.
--------------------
(a) All accounts receivable owed to any Cotton Group Company by
any director, officer, shareholder or employee of any Cotton Group Company or
any relative of any such person (including those accounts receivable reflected
on the Interim Balance Sheets and incurred since the Interim Balance Sheet Date)
have been paid in full prior to the date hereof or shall have been paid in full
prior to the Closing Date, except for the promissory notes and notes receivable
described on SCHEDULE 4.26(A) which are to be cancelled and released at Closing
----------------
in accordance with Section 2.02(e) of this Agreement.
(b) All accounts receivable of the Cotton Group Companies (i) are
valid, existing and fully collectible (subject to an allowance for doubtful
accounts) without resort to legal proceedings or collection agencies, (ii)
represent monies due for goods sold or services rendered in the Ordinary Course
of Business except as shown on SCHEDULE 4.26(B), and (iii) are not subject to
----------------
any known defenses, rights of set-off, assignment, restrictions, security
interests or other encumbrances, except as shown on SCHEDULE 4.26(B). Except as
----------------
shown on SCHEDULE 4.26(B), as of the Representation Date of such Schedule, all
----------------
such accounts receivable were current, and the Cotton Group Companies are not
aware of any dispute regarding the collectibility of any such accounts
receivable. All reserves shown on the Current Financial Statements are adequate
to cover all losses giving rise to any such reserve.
4.27 TAX MATTERS.
------------
(a) Definitions. For purposes of this Agreement, the following
-----------
definitions shall apply:
(i) The term "Taxes" shall mean all Taxes, however
-----
denominated, including any interest, penalties or other additions to Tax that
may become payable in respect thereof, imposed by any federal, territorial,
state, local or foreign government or any agency or political subdivision of any
such government, which Taxes shall include, without limiting the
-25-
generality of the foregoing, all income or profits Taxes (including federal
income Taxes and state income Taxes), payroll and employee withholding Taxes,
unemployment insurance, social security Taxes, sales and use Taxes, ad valorem
Taxes, excise Taxes, franchise Taxes, gross receipts Taxes, business license
Taxes, occupation Taxes, real and personal property Taxes, stamp Taxes,
environmental Taxes, transfer Taxes, workers' compensation, Pension Benefit
Guaranty Corporation premiums and other governmental charges, and other
obligations of the same or of a similar nature to any of the foregoing, which
any Cotton Group Company is required to pay, withhold or collect.
(ii) The term "Returns" shall mean all reports,
-------
estimates, declarations of estimated Tax, information statements and returns
relating to, or required to be filed in connection with, any Taxes, including
information returns or reports with respect to backup withholding and other
payments to third parties.
(b) Returns Filed and Taxes Paid. Except as otherwise disclosed
------------------------------
in SCHEDULE 4.27(B): (i) all Returns required to be filed by or on behalf of any
----------------
Cotton Group Company have been duly filed on a timely basis and such Returns are
true, complete and correct in all material respects, (ii) all material Taxes
shown to be payable on the Returns or on subsequent assessments with respect
thereto have been paid in full on a timely basis, and no other material Taxes
are payable by any Cotton Group Company with respect to items or periods covered
by such Returns (whether or not shown on or reportable on such Returns) or with
respect to any period prior to the date of this Agreement, (iii) each Cotton
Group Company has withheld and paid over all Taxes required to have been
withheld and paid over, and complied with all information reporting and backup
withholding requirements, including maintenance of required records with respect
thereto, in connection with amounts paid or owing to any employee, creditor,
independent contractor, or other third party, and (iv) there are no liens on any
of the assets of any Cotton Group Company with respect to Taxes, other than
liens for Taxes not yet due and payable or for Taxes that any Cotton Group
Company is contesting in good faith through appropriate proceedings and for
which appropriate reserves have been established, which contested Taxes are
disclosed in SCHEDULE 4.27(B).
-----------------
(c) Tax Deficiencies; Audits; Statutes of Limitations. Except as
--------------------------------------------------
otherwise disclosed in SCHEDULE 4.27(C): (i) the Returns of the Cotton Group
----------------
Companies have never been audited by a government or Taxing authority, nor is
any such audit in process, pending or threatened (either in writing or verbally,
formally or informally), (ii) no deficiencies exist or have been asserted
(either in writing or verbally, formally or informally) or are expected to be
asserted with respect to Taxes of any Cotton Group Company, and no Cotton Group
Company has received notice (either in writing or verbally, formally or
informally) or expects to receive notice that it has not filed a Return or paid
Taxes required to be filed or paid by it, (iii) no Cotton Group Company is
either a party to any action or proceeding for assessment or collection of
Taxes, nor has such event been asserted or threatened (either in writing or
verbally, formally or informally) against any Cotton Group Company or any of
their assets, (iv) no waiver or extension of any statute of limitations is in
effect with respect to Taxes or Returns of any Cotton Group Company, and (v)
each Cotton Group Company has disclosed on its federal income Tax Returns all
positions taken therein that could give rise to a substantial understatement
penalty within the meaning of Code Section 6662.
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(d) Tax Sharing Agreements. Except as otherwise disclosed in
------------------------
SCHEDULE 4.27(D) no Cotton Group Company is (or has ever been) a party to any
-----------------
Tax sharing agreement or otherwise has any liability for the Taxes of any other
Person.
(e) Tax Elections and Special Tax Status. No Cotton Group Company
------------------------------------
has filed a consent pursuant to the collapsible corporation provisions of Code
Section 341(f). No Cotton Group Company is a party to any safe harbor lease
within the meaning of Code Section 168(f)(8), as in effect prior to amendment by
the Tax Equity and Fiscal Responsibility Act of 1982. No Cotton Group Company
is or has been a United States real property holding corporation within the
meaning of Code Section 897(c)(1)(A)(ii) during the applicable period specified
in Code Section 897(c)(1)(A)(ii). No Cotton Group Company has entered into any
compensatory agreements with respect to the performance of services which
payment thereunder would be a nondeductible expense pursuant to Code Section
162(m) or 280G or subject to an excise Tax to the recipient pursuant to Code
Section 4999. No Cotton Group Company has been a "distributing corporation"
(within the meaning of Code Section 355(a)(1)(A)) within the 3-year period
ending as of the Representation Date. No Cotton Group Company has participated
in an international boycott as defined in Code Section 999. Except as set forth
on SCHEDULE 4.27(E), no Cotton Group Company has agreed to make, nor is required
----------------
to make, any adjustment under Code Sections 263A or 481(a) by reason of a change
in accounting method or otherwise) or an election under Code Section 1377(a)(2).
No Cotton Group Company has a permanent establishment in any foreign country, as
defined in any applicable Tax treaty or convention between the United States and
such foreign country. Each Cotton Group Company is in compliance with the terms
and conditions of all applicable Tax exemptions, Tax agreements or Tax orders of
any government to which it may be subject or which it may have claimed, and the
transactions contemplated by this Agreement will not have any adverse effect on
such compliance. No Cotton Group Company is a party to any transaction,
understanding or arrangement treated as a reportable, listed or substantially
similar transaction as defined in the Treasury Regulations promulgated under
Code Section 6011
(f) Tax Claims. No claim has been made by any Taxing authority
----------
in a jurisdiction where the Cotton Group Companies do not file Returns that any
Cotton Group Company is or may be subject to taxation by, or required to file
any Return in, that jurisdiction.
(g) S Corporation Status. Since November 1, 2001, Cotton Holdings
--------------------
has been and is currently a valid "S" corporation for all federal and state Tax
purposes (and will be up to the First Closing Date), and no Taxing Authority has
challenged, or is challenging, the S election of Cotton Holdings.
4.28 BROKERAGE. No broker, agent, or finder has rendered services to
---------
the Cotton Group Companies or the Sellers in connection with the transactions
contemplated under this Agreement. The Cotton Group Companies have not incurred
any obligation or liability, contingent or otherwise, for brokers' or finders'
fees or agents commissions or other similar payments in connection with this
Agreement or the transactions contemplated hereby.
4.29 DISCLOSURE. No representations, warranties, assurances or
----------
statements by the Sellers or the Cotton Group Companies in this Agreement and no
statement contained in any document (including the Financial Statements and the
Schedules), certificates or other writings
-27-
furnished or to be furnished by the Sellers or the Cotton Group Companies (or
caused to be furnished by the Sellers or the Cotton Group Companies) to
Purchaser or any of its representatives pursuant to the provisions hereof
contains or will contain any untrue statement of material fact, or omits or will
omit to state any fact necessary, in light of the circumstances under which it
was made, in order to make the statements herein or therein not misleading as of
the Representation Date.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
-------------------------------------------
Purchaser hereby represents and warrants to the Sellers that the statements
contained in this Article V are correct and complete as of September 1, 2006 (as
---------
then made in the Original Agreement) as though such date were substituted for
the date of this Agreement throughout this Article V, except to the extent any
---------
such representation or warranty speaks to an earlier or later date:
5.01 ORGANIZATION. Purchaser is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to carry on and conduct its business
as it is now being conducted and to own or lease its properties and assets, and
to effect the transactions contemplated hereunder and is duly qualified and in
good standing in each jurisdiction in which the conduct of the business of
Purchaser or the ownership of its properties and assets requires it to be so
qualified, except where the failure to be so qualified or in such good standing,
or to have such power or authority when taken together with all other such
failures, is not reasonably likely to have a Purchaser Material Adverse Effect.
As used in this Agreement, the term "Purchaser Material Adverse Effect" means a
---------------------------------
material adverse effect on the financial condition, properties, business or
results of operation of Purchaser and its subsidiaries taken as a whole;
provided, however, that any such effect resulting from any change (i) in law,
-------- -------
rule or regulation or GAAP or interpretations thereof that applies to Purchaser
or (ii) in economic or business conditions generally or in the industries in
which the Purchaser conducts its business shall not be considered when
determining if a Purchaser Material Adverse Effect has occurred.
5.02 AUTHORIZATION. Purchaser has the right, power and capacity to
-------------
execute, deliver and perform this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement,
and the consummation of the transactions contemplated hereby, have been duly and
validly authorized by all necessary corporate action on the part of Purchaser.
This Agreement has been duly and validly executed and delivered by Purchaser and
constitutes Purchaser's legal, valid and binding obligation, enforceable in
accordance with its terms.
5.03 NO CONFLICT. The execution and delivery of this Agreement by
------------
Purchaser, the consummation of the transactions contemplated herein, and the
performance of the covenants and agreements of Purchaser will not, with or
without the giving of notice or the lapse of time, or both, (a) violate or
conflict with any of the provisions of any charter document or bylaw of
Purchaser, (b) violate, conflict with or result in breach or default under,
result in the acceleration of any obligations or the creation of a lien, pledge,
security interest or other encumbrance on the assets of Purchaser pursuant to,
or cause termination of any term or condition of any mortgage,
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lease, indenture, notes, contract, license, permit, instrument, trust document,
or other agreement, arrangement, obligation, document or instrument to which
Purchaser is a party or by which Purchaser or any of its properties may be
bound, or (c) violate any provision of law, statute, rule, regulation, court
order, judgment or decree, or ruling of any governmental authority, to which
Purchaser is a party or by which Purchaser or its properties may be bound.
5.04 SEC DOCUMENTS; AGREEMENTS; FINANCIAL STATEMENTS; OTHER
-----------------------------------------------------------
INFORMATION. The Purchaser is subject to the reporting requirements of the
-----------
Exchange Act and has filed with the Commission all reports, schedules,
registration statements and definitive proxy statements that the Purchaser was
required to file with the Commission on or after April 30, 2006 (collectively,
the "SEC Documents"). Each SEC Document, as of the date of the filing thereof
--------------
with the Commission, complied in all material respects with the requirements of
the Securities Act or Exchange Act, as applicable, and the rules and regulations
promulgated thereunder and, as of the date of such filing (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing), such SEC Document (including all exhibits and schedules thereto
and documents incorporated by reference therein) did not contain an untrue
statement of material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. All documents
required to be filed as exhibits to the SEC Documents have been filed as
required. As of their respective dates, the financial statements of the
Purchaser included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the Commission with respect thereto. Such financial statements
have been prepared in accordance with GAAP consistently applied at the times and
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and fairly present in all material respects the financial
position of the Purchaser as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end adjustments).
5.05 CAPITALIZATION. The capitalization of the Purchaser as of the
--------------
date hereof, including its authorized capital stock, the number of shares issued
and outstanding, the number of shares issuable and reserved for issuance
pursuant to the Purchaser's stock option plans, and the number of shares
issuable and reserved for issuance pursuant to securities exercisable for, or
convertible into or exchangeable for any shares of Common Stock is set forth on
Schedule 5.05 hereto. All of such outstanding shares of capital stock have
--------------
been, or upon issuance will be, validly issued, fully paid and non-assessable.
The Purchaser owns all of the capital stock of each Subsidiary, which capital
stock is validly issued, fully paid and non-assessable, and no shares of the
capital stock of the Purchaser or any of its Subsidiaries are subject to
preemptive rights or any other similar rights of the stockholders of the
Purchaser or any such Subsidiary or any encumbrances or other liens of any kind
created by or through the Purchaser or any such Subsidiary.
5.06 REPORTING COMPANY. The Purchaser is subject to the reporting
------------------
requirements of the Exchange Act, has a class of securities registered under
Section 12 of the Exchange Act, and has filed all reports required thereby. The
Purchaser is eligible to register the Common Stock for resale in a secondary
offering by each Seller on a registration statement on Form SB-2 pursuant to
Rule 415 under the Securities Act.
-29-
5.07 FINANCIAL CONDITION; TAXES; LITIGATION.
-----------------------------------------
(a) Except as disclosed on Schedule 5.07 hereto, the Purchaser's
-------------
financial condition is, in all material respects, as described in the SEC
Documents, except for changes in the ordinary course of business and normal
year-end adjustments that are not, in the aggregate, materially adverse to the
consolidated business or financial condition of the Purchaser and its
Subsidiaries taken as a whole. Except as otherwise described in the SEC
Documents, there has been no (i) material adverse change to the Purchaser's
business, operations, properties, financial condition, prospects or results of
operations since the date of the Purchaser's most recent audited financial
statements contained in the SEC Documents or (ii) change by the Purchaser in its
accounting principles, policies and methods except as required by changes in
GAAP.
(b) The Purchaser and each of its Subsidiaries has prepared in
good faith and duly and timely filed all tax returns required to be filed by it
and such returns are complete and accurate in all material respects and the
Purchaser and each of its Subsidiaries has paid all taxes required to have been
paid by it, except for taxes which it reasonably disputes in good faith or the
failure of which to pay has not had or would not reasonably be expected to have
a Purchaser Material Adverse Effect. Neither the Purchaser nor any of its
Subsidiaries has any material liability with respect to taxes that accrued on or
before September 30, 2003 in excess of the amounts accrued with respect thereto
that are reflected in the financial statements included in the SEC Documents
filed prior to the date hereof.
(c) Neither the Purchaser nor any of its Subsidiaries is the
subject of any pending or, to the Purchaser's Knowledge, threatened inquiry,
investigation or administrative or legal proceeding by the Internal Revenue
Service, the taxing authorities of any state or local jurisdiction, the
Commission, the NASD, any state securities commission or other governmental
authority.
(d) Except as described in the SEC Documents, there is no material
claim, litigation or administrative proceeding pending, or, to the Purchaser's
Knowledge, threatened or contemplated, against the Purchaser or any of its
Subsidiaries, or against any officer, director or employee of the Purchaser or
any such Subsidiary in connection with such person's employment therewith.
Neither the Purchaser nor any of its Subsidiaries is a party to or subject to
the provisions of, any order, writ, injunction, judgment or decree of any court
or government agency or instrumentality that has had or would reasonably be
expected to have a Parent Material Adverse Effect.
5.08 LISTING. The Purchaser Stock is traded on the OTC Bulletin Board.
-------
The Purchaser currently meets the continuing eligibility requirements for
listing on the OTC Bulletin Board and has not received any notice from the OTC
Bulletin Board that it may not currently satisfy such requirements or that such
continued listing is in any way threatened. The Purchaser has taken no action
designed to, or which, to the Knowledge of the Purchaser, is likely to have the
effect of, terminating the registration of the Common Stock under the Exchange
Act or removing the Purchaser Stock from the OTC Bulletin Board.
5.09 FINANCING. Purchaser has or will have available, immediately
---------
prior to and on the First Closing Date, sufficient cash in immediately available
funds to pay the aggregate Cash
-30-
Consideration (including the Closing Date Cash Consideration and the highest
possible amount of Final Determination Date Cash Consideration payable to
Sellers) pursuant to Article II and to consummate, on the terms contemplated
-----------
hereby, the other transactions contemplated hereby.
5.10 BROKERAGE. No broker, agent or finder has rendered services to
---------
Purchaser in connection with the transactions contemplated under this Agreement.
5.11 DISCLOSURE. No representations, warranties, assurances or
----------
statements by Purchaser in this Agreement and no statement contained in any
document, certificates or other writings furnished or to be furnished by
Purchaser (or caused to be furnished by Purchaser) to the Sellers or any of
their representatives pursuant to the provisions hereof contains or will contain
any untrue statement of material fact, or omits or will omit to state any fact
necessary, in light of the circumstances under which it was made, in order to
make the statements herein or therein not misleading.
5.12 PURCHASER STOCK. The shares of Purchaser Stock, when issued and
---------------
delivered to the Sellers in accordance with the terms hereof, shall be duly
authorized, validly issued, fully-paid and non-assessable.
ARTICLE VI.
COVENANTS
6.01 OPERATIONS OF THECOTTON GROUP COMPANIES. The Cotton Group
-------------------------------------------
Companies and the Sellers hereby covenant and agree that, except as consented to
in writing by Purchaser, from and after the date hereof and prior to the Second
Closing Date, the Cotton Group Companies shall, and the Sellers shall cause the
Cotton Group Companies to, operate and conduct their businesses only in the
Ordinary Course of Business. In connection with the continued operation of the
Cotton Group Companies during the period commencing on the date hereof and
ending on the Second Closing Date, the Cotton Group Companies and the Sellers
shall confer in good faith on a regular and frequent basis with Purchaser
regarding operational matters and the general status of on-going operations of
the Cotton Group Companies. The Cotton Group Companies and the Sellers hereby
acknowledge that Purchaser does not and shall not waive any right it may have
hereunder solely as a result of such consultations. Neither the Sellers nor the
Cotton Group Companies shall, other than actions taken in the Ordinary Course of
Business, take any action that would, or that could reasonably be expected to,
result in any representation or warranty of the Sellers or the Cotton Group
Companies set forth herein to become untrue.
6.02 ACCESS. During the period from and after the date hereof and
------
prior to the Closing Date, the Cotton Group Companies shall, and the Sellers
shall cause the Cotton Group Companies to, (a) provide Purchaser and its
designees (e.g., officers, counsel, accountants, actuaries, and other authorized
representatives) with such information as Purchaser or its designees may from
time to time reasonably request with respect to the Cotton Group Companies and
the transactions contemplated by this Agreement, (b) provide Purchaser and its
designees, access during regular business hours and upon reasonable notice to
the books, records, offices, personnel, counsel, accountants and actuaries of
the Cotton Group Companies, as Purchaser or its designees may from time to time
reasonably request, and (c) permit Purchaser and its
-31-
designees to make such inspections thereof as Purchaser may reasonably request.
Any investigation shall be conducted in such a manner so as not to interfere
unreasonably with the operation of the business of the Cotton Group Companies.
No such investigation shall limit or modify in any way the Sellers' or the
Cotton Group Companies' obligations with respect to any breach of their
representations, warranties, covenants or agreements contained herein.
6.03 TRANSFER TAXES. All sales or transfer taxes, including stock
---------------
transfer taxes, document recording fees, real property transfer taxes, and
excise taxes, arising out of or in connection with the consummation of the
transactions contemplated hereby shall be paid by the party incurring same. The
parties shall cooperate in the preparation, execution and filing of all returns,
questionnaires, applications and other documents regarding any of such taxes and
all transfer, recording, registration and other fees that become payable in
connection with the transactions contemplated hereby that are required or
permitted to be filed at or prior to the Closing Date.
6.04 PREPARATION OF SUPPORTING DOCUMENTS. In addition to such actions
------------------------------------
as the Cotton Group Companies may otherwise be required to take under this
Agreement or applicable law to consummate this Agreement and the transactions
contemplated hereby, the Sellers and the Cotton Group Companies shall take such
action, shall furnish such information, and shall prepare, or cooperate in
preparing, and execute and deliver such certificates, agreements and other
instruments as Purchaser may reasonably request from time to time, before, at or
after the Closing Date, with respect to compliance with obligations of
Purchaser, the Sellers or the Cotton Group Companies in connection with
Purchaser's purchase of the Cotton Equity Interests from the Sellers. Any
information so furnished by the Sellers or the Cotton Group Companies shall be
true, correct and complete in all material respects and shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
6.05 NOTICES OF CERTAIN EVENTS. The Sellers and the Cotton Group
----------------------------
Companies shall promptly notify Purchaser of:
(a) any fact, condition, change or event that, individually or in
the aggregate, results in any representation or warranty of the Cotton Group
Companies or the Sellers hereunder being inaccurate in any respect as of the
date of such fact, condition, change or event had such representation or
warranty been made as of such date;
(b) any fact, condition, change or event that causes or
constitutes a breach of any of the representations or warranties of the Cotton
Group Companies or the Sellers hereunder made as of the date hereof;
(c) any notice or other communication from any person or entity
alleging that the consent of such person or entity is or may be required in
connection with the transactions contemplated hereby;
(d) any notice or other communication from or to any Governmental
Entity in connection with the transactions contemplated hereby;
-32-
(e) any action, suit, claim, investigation or proceeding commenced
or, to the Knowledge of the Cotton Group Companies or any Seller, threatened
against, relating to or involving or otherwise affecting the Cotton Group
Companies or the Cotton Group Business that, if pending on the date hereof,
would have been required to have been disclosed pursuant to Section 4.13 or that
------------
relate to the consummation of the transactions contemplated hereby; and
(f) (i) the damage or destruction by fire or other casualty of any
asset of the Cotton Group Companies or part thereof or (ii) any asset of the
Cotton Group Companies or part thereof becoming the subject of any proceeding
(or, to the Knowledge of the Cotton Group Companies or any Seller, threatened
proceeding) for the taking thereof or of any right relating thereto by
condemnation, eminent domain or other similar governmental action.
The Cotton Group Companies and the Sellers hereby acknowledge that Purchaser
does not and shall not waive any right it may have hereunder solely as a result
of such notifications and any notification given pursuant to this Section 6.05
------------
shall (x) not have any effect for purposes of determining satisfaction of the
conditions set forth in Article IX of this Agreement, (y) be disregarded for
----------
purposes of determining the obligations of the Sellers under Article X hereof,
---------
and (z) not in any way limit Purchaser's exercise of its rights hereunder.
6.06 FILINGS; OTHER ACTIONS; NOTIFICATION.
---------------------------------------
(a) The Sellers and Purchaser shall cooperate with each other and
use their respective Commercially Reasonable Efforts to take or cause to be
taken all actions, and do or cause to be done all things, necessary, proper or
advisable on its part under this Agreement and applicable laws to consummate and
make effective the transactions contemplated by this Agreement as soon as
practicable, including preparing and filing as promptly as practicable all
documentation to effect all necessary notices, reports and other filings and to
obtain as promptly as practicable all consents, registrations, approvals,
permits and authorizations necessary or advisable to be obtained from any third
party and/or any Governmental Entity in order to consummate the transactions
contemplated by this Agreement. Without limiting the generality of the
foregoing, the Sellers and Purchaser have prepared and filed the notifications
required under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as
amended (the "HSR Act"). Prior to the Sellers' and Purchaser's receipt of
-------
clearance or notice of early termination from the applicable Governmental Entity
reviewing the Sellers' and Purchaser's filings made under the HSR Act, Purchaser
shall not be entitled to, and shall not, exercise any decision making authority
or participate in any way in the management of the Cotton Group Companies except
as provided in Section 6.01 hereof. Subject to applicable laws relating to the
------------
exchange of information, Purchaser and the Sellers shall have the right to
review in advance, and to the extent practicable each will consult the other on,
all the information relating to Purchaser or the Cotton Group Companies, as the
case may be, that appear in any filing made with, or written materials submitted
to, any third party and/or any Governmental Entity in connection with the
transactions contemplated by this Agreement. In exercising the foregoing right,
each of the Sellers and Purchaser shall act reasonably and as promptly as
practicable.
(b) The Sellers and Purchaser each shall keep the other apprised
of the status of matters relating to completion of the transactions contemplated
hereby, including promptly furnishing the other with copies of notice or other
communications received by Purchaser, the
-33-
Cotton Group Companies or the Sellers, as the case may be, from any third party
and/or any Governmental Entity with respect to the transactions contemplated by
this Agreement. Purchaser shall give prompt notice to the other of any change
that is reasonably likely to result in a Purchaser Material Adverse Effect.
6.07 CONFIDENTIALITY. The Cotton Group Companies and the Sellers
---------------
shall hold in confidence at all times following the date hereof all Confidential
Information and shall not disclose, publish or make use of Confidential
Information at any time following the date hereof without the prior written
consent of Purchaser. For purposes hereunder, "Confidential Information" means
------------------------
any data or information of the Cotton Group Companies (including trade secrets)
that is not generally known to the public or competitors regarding (for example
and including) (a) business process models, (b) proprietary software, (c)
research, development, products, services, marketing, selling, business plans,
budgets, unpublished financial statements, licenses, prices, costs, contracts,
suppliers, customers, and customer lists, (d) the identity, skills and
compensation of employees, contractors, and consultants, (e) specialized
training, (f) discoveries, developments, trade secrets, processes, formulas,
data, lists, and all other works of authorship, mask works, ideas, concepts,
know-how, designs, and techniques, whether or not any of the foregoing is or are
patentable, copyrightable, or registrable under any intellectual property laws
or industrial property laws in the United States or elsewhere, and (g) such
other information that may give the Cotton Group Companies a competitive
business advantage or the disclosure of which could be detrimental to the
interests of the Cotton Group Companies and from all of the relevant
circumstances could reasonably be assumed by any person or entity to be
confidential and proprietary to the Cotton Group Companies. Notwithstanding the
foregoing, no data or information constitutes "Confidential Information" if such
------------------------
data or information is publicly known and in the public domain through means
that do not involve a breach by the Cotton Group Companies or any Seller of any
covenant or obligation set forth in this Agreement.
6.08 PUBLICITY. The initial press release shall be a joint press
---------
release and thereafter the Sellers, the Cotton Group Companies and Purchaser
each shall consult with each other prior to issuing any press releases or
otherwise making public announcements with respect to the transactions
contemplated by this Agreement and prior to making any filings with any third
party and/or any Governmental Entity (including any national securities exchange
or interdealer quotation service) with respect thereto, except as may be
required by law or by obligations pursuant to any listing agreement with or
rules of any national securities exchange or interdealer quotation service.
6.09 EXPENSES. All costs and expenses incurred in connection with this
--------
Agreement and the transactions contemplated by this Agreement shall be paid by
Purchaser, provided, however, Purchaser shall not be obligated to pay more than
$400,000.00 of cost and expenses incurred by Sellers in connection with this
Agreement.
6.10 [Omitted]
6.11 SPIN-OFF AGREEMENT. Prior to the Closing Date, Purchaser and the
-------------------
Sellers shall use commercially reasonable efforts to negotiate and execute an
agreement regarding the potential spin-off of the Disaster Remediation Holding
Company (as such term is defined on
-34-
Schedule 6.11) from Purchaser with terms and conditions to be mutually agreed
--------------
upon by Purchaser and the Sellers, substantially in accordance with the
provisions of SCHEDULE 6.11.
--------------
6.12 TAX MATTERS.
------------
(a) Cooperation on Tax Matters. The Sellers and Purchaser shall
----------------------------
provide each other with such cooperation and information as either of them
reasonably may request of the other in filing any tax return, amended tax
return, determining a liability for taxes, participating in or conducting any
audit or other proceeding in respect of taxes. Such cooperation and information
shall include providing copies of relevant tax returns or portions thereof,
together with accompanying schedules, related work papers and documents relating
to rulings or other determinations by tax authorities. The Sellers and
Purchaser shall make their respective employees available on a basis mutually
convenient to both parties to provide explanations of any documents or
information provided hereunder. Each of the Sellers and Purchaser shall retain
all tax returns, schedules and work papers, records and other documents in its
possession relating to tax matters of the Cotton Group Companies and the
business and assets of the Cotton Group Companies for each taxable period first
ending after the First Closing Date and for all prior taxable periods until the
later of (i) the expiration of the statute of limitations of the taxable periods
to which such tax returns and other documents relate, without regard to
extensions except to the extent notified by the other party in writing of such
extensions for the respective tax periods, or (ii) six years following the due
date (without extension) for such tax returns. Any information obtained under
this Section 6.12 shall be kept confidential in accordance with the provisions
-------------
of this Agreement except as may be otherwise necessary in connection with the
filing of tax returns or claims for refund or in conducting an audit or other
proceeding.
(b) Tax Returns and Payment of Taxes.
-------------------------------------
(i) The Sellers or the Sellers' designee shall prepare
and timely file or shall cause to be prepared and timely filed all Returns of
the Cotton Group Companies for tax periods ending on or before the First Closing
Date ("Seller Returns"), and shall pay or shall cause to be paid any and all
---------------
Taxes due with respect to such Returns. The Sellers shall have the exclusive
authority and obligation to prepare or cause to be prepared all Seller Returns.
Such authority shall include the determination of the manner in which any items
of income, gain, deduction, loss or credit arising out of the income, properties
and operations of the Cotton Group Companies shall be reported or disclosed in
such Seller Returns; provided, however, that such Returns shall be prepared by
-------- -------
treating items on such Returns in a manner consistent with past practice with
respect to such items, unless otherwise required by law. If any such Seller
Returns are due after the First Closing Date and the Sellers are not authorized
by law to file such Seller Returns, the Sellers shall submit drafts of such
Seller Returns to Purchaser for its review at least 30 days prior to the due
date of any such Return. Such drafts of Seller Returns shall be subject to
Purchaser's review and approval, which approval shall not be unreasonably
withheld, and Purchaser shall timely file, or cause to be timely filed, such
Seller Returns with the appropriate taxing authority.
(ii) Purchaser shall prepare (or cause to be prepared),
execute, and timely file all Returns of the Cotton Group Companies that are not
Seller Returns, and shall pay (or cause to be paid) all Taxes to which such
Returns relate for all periods covered by such
-35-
Returns; provided, however, that Sellers shall reimburse Purchaser for all
-------- -------
portions of such Taxes that are applicable to Pre-Closing Tax Periods to the
extent such Taxes are not reflected in the reserve for Tax liability shown in
the Current Financial Statements, save and except for the Section 1374 Tax which
shall be an obligation of and paid by Purchaser. All such Returns shall be
prepared in accordance with the past practice of the Cotton Group Companies,
unless otherwise required by applicable law. "Pre-Closing Tax Period" shall
----------------------
mean any tax period ending on or before the Closing Date; and, with respect to a
Tax period that begins on or before the Closing Date and ends thereafter, the
portion of such tax period ending on the Closing Date.
(iii) For purposes of calculating Taxes applicable to
the Pre-Closing Tax Periods, the amount of any Tax (except Taxes based on the
Cotton Group Companies' income or gross-receipts) owed shall be apportioned to
Pre-Closing Tax Periods based on the number of days for the portion of the
ending on and including the Closing Date. Any allocation of income or
deductions required to determine any Taxes based on the Cotton Group Companies'
income or gross-receipts applicable to a Pre-Closing Tax Period shall be made by
means of a closing of the books and records of the Cotton Group Companies as of
the close of business on the Closing Date.
6.13 EMPLOYEE BONUS POOL. At the Second Closing, Purchaser shall
--------------------
make available a pool of 700,000 shares of Purchaser Stock in a non-statutory
stock option plan for the benefit of certain employees of the Cotton Group
Entities designated by the Sellers, with an exercise price not to exceed an
amount per share equal to (a) the Market Price of the Purchaser Stock on the
Closing Date, less the lesser of (i) $2.50 or (ii) 30% of the Market Price.
----
ARTICLE VII.
CONDITIONS TO EACH PARTY'S OBLIGATION TO CLOSE
----------------------------------------------
The respective obligation of each party to effect the transactions
contemplated by this Agreement is subject to the satisfaction (or waiver) at or
prior to the First Closing Date of each of the following conditions:
7.01 REGULATORY CONSENTS. At or prior to the First Closing, all
--------------------
notices, reports and other filings required to be made prior to the Closing Date
by the Sellers, the Cotton Group Companies or Purchaser with, and all consents,
registrations, approvals, permits and authorizations required to be obtained
prior to the Closing Date by the Sellers, the Cotton Group Companies or
Purchaser from, any Governmental Entity (collectively, "Governmental Consents")
---------------------
in connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby by the Sellers and
Purchaser shall have been made or obtained (as the case may be), except those
that the failure to make or to obtain are not individually or in the aggregate,
reasonably likely to have a Purchaser Material Adverse Effect or to provide a
reasonable basis to conclude that the parties hereto or any of their affiliates
or respective directors, officers, agents, advisors or other representatives
would be subject to the risk of criminal or material financial liability.
7.02 LITIGATION. No court or Governmental Entity of competent
----------
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
statute, law, ordinance, rule, regulation, judgment, decree, injunction or other
order (whether temporary, preliminary or permanent) that
-36-
is in effect and restrains, enjoins or otherwise prohibits consummation of the
transactions contemplated by this Agreement (collectively, an "Order").
-----
ARTICLE VIII.
CONDITIONS TO OBLIGATIONS OF THE SELLERS
----------------------------------------
The obligation of the Sellers to effect the transactions contemplated by
this Agreement is subject to the satisfaction (or waiver by the Seller) at or
prior to the First Closing Date and/or the Second Closing Date, as applicable,
of each of the following conditions:
8.01 REPRESENTATIONS AND WARRANTIES TRUE AND CORRECT AT CLOSING DATE.
-----------------------------------------------------------------
Each of Purchaser's representations and warranties contained in this Agreement
that are qualified by materiality shall be true and correct in all respects and
each of Purchaser's representations and warranties contained in this Agreement
that are not so qualified shall be true and correct in all material respects, in
each case as of the date of the Representation Date and on and as of the Second
Closing Date, with the same force and effect as though made on and as of such
dates (except to the extent any such representation or warranty expressly speaks
as of an earlier date), and at the Second Closing, Purchaser shall have
delivered to the Seller certificates dated as of the Second Closing Date and
signed on behalf of Purchaser by its President to such effect.
8.02 PERFORMANCE OF OBLIGATIONS. Purchaser shall have performed and
----------------------------
complied in all material respects with the respective covenants and agreements
set forth herein to be performed or complied with on or before the respective
Closing Dates; and at each of the Closings, Purchaser shall have delivered to
the Company a certificate dated as of each of the respective Closing Dates and
signed on behalf of Purchaser by its President to all such effects and
confirming such other matters as may be reasonably requested by the Sellers.
8.03 DOCUMENTS SATISFACTORY IN FORM AND SUBSTANCE. All agreements,
------------------------------------------------
certificates and other documents delivered by Purchaser to the Sellers hereunder
or in connection herewith shall be in form and substance satisfactory to the
Sellers and their counsel, in the exercise of their reasonable judgment.
8.04 CERTIFICATES. Purchaser shall have delivered to the Sellers
------------
certificates of the Secretary or Assistant Secretary of Purchaser (a) attaching
and certifying copies of the resolutions of its board of directors authorizing
the execution, delivery and performance of this Agreement and the other
documents, instruments and certifications required or contemplated hereby, (b)
certifying the name, title and true signature of each officer of Purchaser
executing or authorized to execute this Agreement and the other documents,
instruments and certifications required or contemplated hereby, and (c)
attaching and certifying a true, correct and complete copy of the bylaws of
Purchaser.
8.05 NO MATERIAL CHANGE. The Purchaser shall not have suffered any
--------------------
Material Adverse Change in its business, prospects, financial condition, working
capital, assets, liabilities (absolute, accrued, contingent or otherwise),
reserves or operations.
-37-
ARTICLE IX.
CONDITIONS TO OBLIGATIONS OF PURCHASER
--------------------------------------
The obligations of Purchaser to effect the transactions contemplated by
this Agreement are subject to the satisfaction (or waiver by Purchaser) at or
prior to the First Closing Date and/or the Second Closing Date, as applicable,
of each of the following conditions:
9.01 REPRESENTATIONS AND WARRANTIES TRUE AND CORRECT AT REPRESENTATION
------------------------------------------------------------------
DATE CLOSING DATE. Each of the representations and warranties of the Cotton
-------------------
Group Companies and the Sellers contained in this Agreement that are qualified
by materiality shall be true and correct in all respects and the Cotton Group
Companies' and Sellers' representations and warranties contained in this
Agreement that are not so qualified shall be true and correct in all material
respects, in each case as of September 1, 2006 (except to the extent any such
representation or warranty expressly speaks as of an earlier date), and at the
Second Closing, the Sellers shall have delivered to Purchaser certificates dated
as of the Second Closing Date and signed on behalf of the Cotton Group Companies
by the President of each of Cotton Holdings, Cotton Commercial and Cotton
Restoration to such effect.
9.02 PERFORMANCE OBLIGATIONS. The Cotton Group Companies and the
------------------------
Sellers shall have performed and complied in all material respects with the
covenants and agreements set forth herein to be performed or complied with by it
on or before the Closing Dates; and at each of the Closings the Sellers shall
have delivered to Purchaser certificates dated as of the respective Closing Date
and signed on behalf of the Cotton Group Companies by the President or General
Partner of each of Cotton Holdings, Cotton Commercial and Cotton Restoration to
such effect, and confirming such other matters as may be reasonably requested by
Purchaser.
9.03 NO MATERIAL CHANGE. On or prior to the First Closing Date,
--------------------
neither the Sellers nor the Cotton Group Companies shall have suffered any
Material Adverse Change since the date of the Reviewed Financial Statements
(whether or not such change is referred to or described in any Schedule) in its
business, prospects, financial condition, working capital, assets, liabilities
(absolute, accrued, contingent or otherwise), reserves or operations.
9.04 OTHER NECESSARY CONSENTS. On or prior to the First Closing Date,
-------------------------
the Sellers shall have obtained all consents and approvals required to be listed
on SCHEDULE 4.05. With respect to each such consent or approval, Purchaser
--------------
shall have received written evidence, satisfactory to it, that such consent or
approval has been duly and lawfully filed, given, obtained or taken and is
effective, valid and subsisting.
9.05 NON-COMPETE AGREEMENT. At the Second Closing, each Seller and
----------------------
each Incentive Employee shall have executed and delivered to Purchaser
non-competition agreements substantially in the form of EXHIBIT G.
---------
9.06 DOCUMENTS SATISFACTORY IN FORM AND SUBSTANCE. All agreements,
------------------------------------------------
certificates, opinions and other documents delivered by the Sellers to Purchaser
hereunder shall be in form and substance satisfactory to Purchaser and its
counsel, in the exercise of their reasonable judgment.
-38-
9.07 CERTIFICATES. On or before the First Closing Date the Sellers
------------
shall have delivered to Purchaser:
(a) Certificates of the Secretary or Assistant Secretary of each
of Cotton Holdings, Cotton Commercial and Cotton Restoration (i) attaching and
certifying copies of the resolutions of its board of directors and shareholders,
or its partners, authorizing the execution, delivery and performance of this
Agreement and the other documents, instruments and certifications required or
contemplated hereby, (ii) certifying the name, title and true signature of each
officer or partner of such entity executing or authorized to execute this
Agreement and the other documents, instruments and certifications required or
contemplated hereby, and (iii) attaching and certifying a true, correct and
complete copies of the bylaws or partnership agreement of such entity; and
(b) Copies of the articles of incorporation or articles of
formation of such entity certified by the Secretary of State of the jurisdiction
of its incorporation and by its Secretary or Assistant Secretary, together with
certificates of good standing or existence dated not earlier than September 1,
2006 as may be available from the Secretaries of State of its jurisdiction of
incorporation or organization and every other state of the United States in
which it is qualified.
9.08 EMPLOYMENT AGREEMENTS. At the Second Closing, each Seller and
----------------------
each Incentive Employee shall have executed and delivered to Purchaser
employment agreements substantially in the form of EXHIBIT H, provided, that
--------- --------
Purchaser agrees that the salaries and benefits payable to such persons shall be
the same as in effect on the date of this Agreement or as otherwise provided on
EXHIBIT H.
----------
9.09 RELEASE OF LIENS. At the Second Closing, Purchaser shall have
------------------
received evidence reasonably satisfactory to it that all liens or encumbrances
affecting any asset of the Cotton Group Companies have been released, except for
(i) liens or encumbrances, if any, arising out of indebtedness for borrowed
money reflected in the Current Financial Statements and (ii) purchase money
security liens on equipment incurred in the ordinary course of business.
ARTICLE X.
INDEMNIFICATION
---------------
10.01 INDEMNIFICATION OBLIGATIONS OF THESELLERS. The Sellers shall,
--------------------------------------------
jointly and severally, indemnify, defend and hold harmless Purchaser and its
affiliates, officers, directors, employees, agents and representatives and the
heirs, executors, successors and assigns of any of the foregoing (the "Purchaser
---------
Indemnified Parties") from, against, and in respect of, any and all claims,
--------------------
liabilities, obligations, damages, losses, costs, expenses, penalties, fines and
judgments (at equity or at law, including statutory and common) and damages
whenever arising or incurred (including amounts paid in settlement, costs of
investigation and reasonable attorneys' fees and expenses) arising out of or
relating to:
(a) any breach or inaccuracy of any representation or warranty
made by the Cotton Group Companies or the Sellers in this Agreement or any
documents or agreements executed and delivered by the Cotton Group Companies or
any Seller in connection with the
-39-
transactions contemplated by this Agreement (without regard to any qualification
or exception contained in such representation or warranty relating to
materiality or Material Adverse Effect); or
(b) any breach of any covenant, agreement or undertaking made by
the Cotton Group Companies or the Sellers in this Agreement or in any documents
or agreements executed and delivered by the Cotton Group Companies or any Seller
in connection with the transactions contemplated by this Agreement.
Notwithstanding anything in this Agreement to the contrary, Sellers obligations
--------------------------------------------------------------------------------
to indemnify any Purchaser Indemnified Party under this Section 10.01 or
--------------------------------------------------------------------------------
otherwise, arising from any breach described in Section 10.01(a) and (b) above
--------------------------------------------------------------------------------
occurring prior to the Second Closing, shall be reduced to 40% of the
--------------------------------------------------------------------------------
obligations that Sellers would have otherwise had if the Second Closing had
--------------------------------------------------------------------------------
already occurred when the indemnification obligation arose. For example, if the
----------------------------------------------------------
indemnification obligation is $1,000,000.00 and it arose prior to the Second
Closing, then the obligation shall be reduced to $400,000.00.
The claims, liabilities, obligations, losses, damages, costs, expenses,
penalties, fines and judgments of the Purchaser Indemnified Parties described in
this Section 10.01 as to which the Purchaser Indemnified Parties are entitled to
-------------
indemnification are collectively referred to as "Purchaser Losses".
-----------------
10.02 INDEMNIFICATION OBLIGATIONS OF PURCHASER. Purchaser shall
-------------------------------------------
indemnify and hold harmless the Sellers and their heirs, executors, successors
and assigns (the "Seller Indemnified Parties") from, against and in respect of
--------------------------
any and all claims, liabilities, obligations, losses, damages, costs, expenses,
penalties, fines and judgments (at equity or at law, including statutory and
common) and damages whenever arising or incurred (including amounts paid in
settlement, costs of investigation and reasonable attorneys' fees and expenses)
arising out of or relating to:
(a) any breach or inaccuracy of any representation or warranty
made by Purchaser in this Agreement or in any document or agreement executed and
delivered by Purchaser in connection with the transactions contemplated by this
Agreement; or
(b) any breach of any covenant, agreement or undertaking made by
Purchaser in this Agreement or in any document or agreement executed and
delivered by Purchaser in connection with the transactions contemplated by this
Agreement;
The claims, liabilities, obligations, losses, damages, costs, expenses,
penalties, fines and judgments of the Seller Indemnified Parties described in
this Section 10.02 as to which the Seller Indemnified Parties are entitled to
--------------
indemnification are collectively referred to as "Seller Losses".
--------------
10.03 INDEMNIFICATION PROCEDURE.
--------------------------
(a) Promptly following receipt by a Purchaser Indemnified Party or
a Seller Indemnified Party, as applicable (an "Indemnified Party") of notice by
-----------------
a third party (including any Governmental Entity) of any complaint, dispute or
claim or the commencement of any audit, investigation, action or proceeding with
respect to which such Indemnified Party may be entitled to receive payment from
the other party for any Purchaser Losses or any Seller Losses (as the
-40-
case may be), such Indemnified Party shall give Purchaser or the Sellers, as the
case may be (the "Indemnifying Party"), reasonably prompt written notice
-------------------
thereof, but in any event not later than thirty (30) calendar days after receipt
of such notice of such third party claim, provided, however, that the failure to
-------- -------
so notify the Indemnifying Party shall relieve the Indemnifying Party from
liability hereunder with respect to such claim only if, and only to the extent
that, such failure to so notify the Indemnifying Party prejudices the
Indemnifying Party of rights and defenses otherwise available to the
Indemnifying Party with respect to such claim. The Indemnifying Party shall have
the right, upon written notice delivered to the Indemnified Party within twenty
(20) days thereafter assuming full responsibility for any Purchaser Losses or
Seller Losses (as the case may be) resulting from such audit, investigation,
action or proceeding, to assume the defense of such audit, investigation, action
or proceeding, including the employment of counsel reasonably satisfactory to
the Indemnified Party and the payment of the fees and disbursements of such
counsel. In the event, however, that the Indemnifying Party declines or fails to
assume the defense of the audit, investigation, action or proceeding on the
terms provided above or to employ counsel reasonably satisfactory to the
Indemnified Party, in either case within such 20-day period, then any Purchaser
Losses or any Seller Losses (as the case may be), shall include the reasonable
fees and disbursements of counsel for the Indemnified Party as incurred. In any
audit, investigation, action or proceeding for which indemnification is being
sought hereunder the Indemnified Party or the Indemnifying Party, whichever is
not assuming the defense of such action, shall have the right to participate in
such matter and to retain its own counsel at such party's own expense. The
Indemnifying Party or the Indemnified Party (as the case may be) shall at all
times use reasonable efforts to keep the Indemnifying Party or Indemnified Party
(as the case may be) reasonably apprised of the status of the defense of any
matter the defense of which it is maintaining and to cooperate in good faith
with each other with respect to the defense of any such matter.
(b) No Indemnified Party may settle or compromise any claim or
consent to the entry of any judgment with respect to which indemnification is
being sought hereunder without the prior written consent of the Indemnifying
Party, unless (i) the Indemnifying Party fails to assume and maintain the
defense of such claim pursuant to Section 10.03(a) or (ii) such settlement,
----------------
compromise or consent includes an unconditional release of the Indemnifying
Party and its officers, directors, employees and affiliates from all liability
arising out of such claim. An Indemnifying Party may not, without the prior
written consent of the Indemnified Party, settle or compromise any claim or
consent to the entry of any judgment with respect to which indemnification is
being sought hereunder unless (x) such settlement, compromise or consent
includes an unconditional release of the Indemnified Party and its officers,
directors, employees and affiliates from all liability arising out of such
claim, (y) does not contain any admission or statement suggesting any wrongdoing
or liability on behalf of the Indemnified Party and (z) does not contain any
equitable order, judgment or term that in any manner affects, restrains or
interferes with the business of the Indemnified Party or any of the Indemnified
Party's affiliates.
(c) In the event an Indemnified Party claims a right to payment
pursuant hereto, such Indemnified Party shall send written notice of such claim
to the appropriate Indemnifying Party (a "Notice of Claim"). Such Notice of
---------------
Claim shall specify the basis for such claim. The failure by any Indemnified
Party so to notify the Indemnifying party shall not relieve the Indemnifying
Party from any liability that it may have to such Indemnified Party with respect
to any claim made pursuant to this Section 10.03(c), it being understood that
----------------
notices for claims in
-41-
respect of a breach of a representation or warranty must be delivered prior to
the expiration of the survival period for such representation or warranty under
Section 10.04. In the event the Indemnifying Party does not notify the
--------------
Indemnified Party within thirty (30) days following its receipt of such notice
that the Indemnifying Party disputes its liability to the Indemnified Party
under this Article or the amount thereof, the claim specified by the Indemnified
Party in such Notice of Claim shall be conclusively deemed a liability of the
Indemnifying Party under this Section 10.03(c), and the Indemnifying Party shall
----------------
pay the amount of such liability to the Indemnified Party on demand or, in the
case of any notice in which the amount of the claim (or any portion of the
claim) is estimated, on such later date when the amount of such claim (or such
portion of such claim) becomes finally determined. In the event the
Indemnifying Party has timely disputed its liability with respect to such claim
as provided above, as promptly as possible, such Indemnified Party and the
appropriate Indemnifying Party shall establish the merits and amount of such
claim (by mutual agreement, litigation, arbitration or otherwise) and, within
five (5) Business Days following the final determination of the merits and
amount of such claim, the Indemnifying Party shall pay to the Indemnified Party
immediately available funds in an amount equal to such claim as determined
hereunder.
10.04 SURVIVAL PERIOD. The representations and warranties of the
----------------
parties contained herein shall not be extinguished by the First Closing or the
Second Closing, but shall survive the Closings for, and all claims for
indemnification in connection therewith shall be asserted not later than,
eighteen (18) months following the First Closing Date; provided, however, that
-------- -------
the representations and warranties contained in Section 3.01 (Power, Authority
------------
and Organization of the Sellers), Section 3.03 (Ownership of the Cotton Equity
------------
Interests), Section 4.01 (Organization and Authorization), Section 4.02
------------- -------------
(Authorized and Outstanding Stock), Section 4.15 (Employee Benefits), Section
------------ -------
4.19 (Environmental Matters), Section 4.27 (Tax Matters), and Section 4.28
---- ------------- ------------
(Brokerage) (collectively, the "Surviving Representations") shall survive for a
-------------------------
period of four (4) years following the First Closing Date, and the period during
which a claim for indemnification may be asserted in connection therewith shall
continue during such four (4) year period. The covenants and agreements of the
parties hereunder shall survive without limitation as to time, and the period
during which a claim for indemnification may be asserted in connection therewith
shall continue indefinitely. Notwithstanding the foregoing, if, prior to the
close of business on the last day a claim for indemnification may be asserted
hereunder, an Indemnifying Party shall have been properly notified of a claim
for indemnity hereunder and such claim shall not have been finally resolved or
disposed of at such date, such claim shall continue to survive and shall remain
a basis for indemnity hereunder until such claim is finally resolved or disposed
of in accordance with the terms hereof. In the event that Sellers exercise
their Rescission Right, all of the obligations of the parties under this Article
X shall be cancelled and of no further force or effect, except that Seller shall
be indemnified for any Seller Losses under Sections 10.02(a) or (b) that are
------------------------
based on intentional or knowing breaches or misrepresentations by Purchaser.
10.05 LIABILITY LIMITS. Notwithstanding anything to the contrary set
-----------------
forth herein, the Purchaser Indemnified Parties shall not make a claim against
the Sellers for indemnification under Section 10.01(d) for Purchaser Losses, and
----------------
the Sellers will have no liability for indemnification of any Purchaser
Indemnified Party pursuant to Section 10.01(a) unless and until the aggregate
----------------
Losses claimed thereunder exceed an amount equal to $250,000.00 (the "Threshold
---------
Amount"), and once the aggregate amount of such Losses under Section 10.01(a)
------ ----------------
exceeds the Threshold Amount, the Purchaser Indemnified Parties will be entitled
to recover all such Losses
-42-
to which they are entitled in excess of the Threshold Amount. The total
aggregate amount of the liability of the Seller for Purchaser Losses with
respect any claims made pursuant to Section 10.01(a) other than Claims arising
----------------
under Section 4.19 (Environmental Matters) ("Environmental Claims") shall be
------------- --------------------
limited to $3,000,000.00 (the "Purchaser Cap"); provided, however, that with
------------- -------- -------
respect to Environmental Claims the Purchaser Cap shall be increased by an
additional $2,000,000 to $5,000,000 (the "Environmental Cap"), and the Seller
-----------------
shall be liable for one half (1/2) of the amount of any Environmental Claims in
excess of the Environmental Cap; provided, further, that total aggregate amount
-------- -------
of the liability of the Company and the Seller for Purchaser Losses arising out
of fraud or willful misconduct shall not be subject to any limits.
Notwithstanding the foregoing, any indemnification amounts payable by the
Sellers pursuant to this Article X will be reduced by any amounts actually
----------
recovered by any Purchaser Indemnified Party under insurance policies or other
collateral sources with respect to such Losses and the Purchaser shall use
Commercially Reasonable Efforts to collect any such amounts.
10.06 DETERMINATION OF PURCHASER LOSSES. The Purchaser Losses payable
----------------------------------
by a Seller hereunder shall be determined (i) by the written agreement of the
parties, (ii) by a final judgment or decree of any court of competent
jurisdiction, or (iii) by any other means agreed to in writing by the Sellers
and the Purchaser. A judgment or decree of a court shall be deemed final when
the time for appeal, if any, shall have expired and no appeal shall have been
taken or when all appeals taken have been fully determined.
10.07 INVESTIGATIONS. The respective representations and warranties of
--------------
the parties contained in this Agreement or any certificate or other document
delivered by any party at or prior to the Closing Date, and the rights to
indemnification set forth in this Article X shall not be deemed waived or
----------
otherwise affected by any investigation made, or knowledge acquired, by a party,
provided, that if either party becomes aware of a fact which results in, or
--------
could result in, a breach of a covenant or representation of the other party,
the party become aware of such fact shall promptly notify the other party of
such fact, provided, further, that any party's failure to so notify the other
-------- -------
party shall not in any way limit the rights of such party pursuant to this
Agreement if such failure does not result in a material prejudice to the other
party.
10.08 DELETED.
-------
10.09 REDUCTION OF PURCHASE PRICE. Any indemnification amounts payable
---------------------------
by the Sellers pursuant to this Article X shall be deemed to be a reduction in
---------
the Purchase Price.
10.10 DAMAGES. Notwithstanding any other provision in this
-------
Agreement to the contrary, no party shall be liable to the other party for any
punitive or exemplary damages.
10.11 EXCLUSIVE REMEDY. Except as otherwise set forth in this
-----------------
Agreement, after the Closing, indemnification pursuant to this Article X shall
---------
be the sole and exclusive remedy for the parties with respect to matters arising
under this Agreement of any kind or nature, including, for any misrepresentation
or breach of any warranty, covenant, or other provision contained in this
Agreement, and the parties hereby waive and release any other rights, remedies,
causes of action, or claims that either of them have or that may arise against
any other party with respect thereto.
-43-
ARTICLE XI.
TERMINATION PRIOR TO CLOSING DATE
---------------------------------
11.01 TERMINATION OF AGREEMENT. This Agreement may be terminated at
--------------------------
any time prior to the First Closing Date:
(a) By the mutual written consent of Purchaser, the Sellers and
the Cotton Group Companies;
(b) By the Sellers in writing, without liability, if Purchaser
shall (i) fail to perform in any material respect its agreements contained
herein required to be performed by it on or prior to the First Closing Date, or
(ii) materially breach any of its representations or warranties, or covenants
set forth in Article VI that apply to any period prior to the First Closing,
which failure or breach is not cured within ten (10) days after the Sellers have
notified Purchaser of their intent to terminate this Agreement pursuant to this
subparagraph (b);
(c) By Purchaser in writing, without liability, if the Cotton
Group Companies or the Sellers shall (i) fail to perform in any material respect
their agreements contained herein required to be performed by them on or prior
to the First Closing Date, or (ii) materially breach any of their
representations or warranties, or covenants set forth in Article VI that apply
to any period prior to the First Closing, which failure or breach is not cured
within ten (10) days after Purchaser has notified the Sellers of its intent to
terminate this Agreement pursuant to this subparagraph (c);
(d) By either the Sellers or Purchaser in writing, without
liability, if there shall be any order, writ, injunction or decree of any court
or governmental or regulatory agency binding on Purchaser, the Sellers or the
Cotton Group Companies, which prohibits or restrains Purchaser, the Seller or
the Cotton Group Companies from consummating the transactions contemplated
hereby, provided that Purchaser, the Sellers and the Cotton Group Companies
shall have used their reasonable, good faith efforts to have any such order,
writ, injunction or decree lifted and the same shall not have been lifted within
30 days after entry, by any such court or governmental or regulatory agency; or
(e) By either the Sellers or Purchaser, in writing, without
liability, if for any reason the First Closing Date has not occurred by December
8, 2006 other than as a result of the breach of this Agreement by the party
attempting to terminate the Agreement.
11.02 TERMINATION OF OBLIGATIONS. Termination of this Agreement
----------------------------
pursuant to this Article XI shall terminate all obligations of the parties
-----------
hereunder, except for the obligations under Sections 2.02(a), 2.03(a), 2.07,
---------------- ------- ----
2.08, 6.09, 11.02, 12.07 and 12.10 hereof; provided, however, that termination
---- ---- ----- ----- ----- -------- -------
pursuant to subparagraphs (b), (c) or (e) of Section 11.01 hereof shall not
-------------
relieve a defaulting or breaching party from any liability to the other party
hereto.
ARTICLE XII.
MISCELLANEOUS
-------------
12.01 ENTIRE AGREEMENT; SURVIVAL. This Agreement (including the
----------------------------
Schedules and Exhibits which are incorporated herein) constitutes the sole
understanding of the parties with
-44-
respect to the subject matter hereof; provided, however, that this provision is
-------- -------
not intended to abrogate any other written agreement between the parties
executed with or after this Agreement.
12.02 AMENDMENT. No amendment, modification or alteration of the terms
---------
or provisions of this Agreement shall be binding unless the same shall be in
writing and duly executed by all of the parties hereto.
12.03 PARTIES BOUND BY AGREEMENT; SUCCESSORS AND ASSIGNS. The terms,
----------------------------------------------------
conditions, and obligations of this Agreement shall inure to the benefit of and
be binding upon the parties hereto and the respective successors and assigns
thereof. This Agreement shall not be assignable by operation of law or
otherwise.
12.04 COUNTERPARTS; FACSIMILE. This Agreement may be executed in
------------------------
multiple counterparts, each of which shall for all purposes be deemed to be an
original and all of which, when taken together, shall constitute one and the
same instrument. This Agreement may be executed and delivered by facsimile.
12.05 HEADINGS. The headings of the Sections and paragraphs of this
--------
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction thereof.
12.06 MODIFICATION AND WAIVER. Any of the terms or conditions of this
------------------------
Agreement may be waived in writing at any time by the party which is entitled to
the benefits thereof. No waiver of any of the provisions of this Agreement
shall be deemed to or shall constitute a waiver of any other provision hereof
(whether or not similar).
12.07 EXPENSES. Except as otherwise provided herein, the Purchaser
--------
shall pay all costs and expenses incurred by Purchaser, Sellers and the Cotton
Group Companies in connection with this Agreement and the transactions
contemplated hereby, including fees and expenses of financial consultants,
accountants and attorneys; provided, however, that Purchaser's obligation to pay
the costs and expenses of Sellers and the Cotton Group Companies shall not
exceed $400,000.00. All such expenses incurred by the Cotton Group Companies in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the Purchaser on or before the Second Closing Date.
12.08 NOTICES. Any notice, request, instruction or other document to
-------
be given hereunder by any party hereto to any other party hereto shall be in
writing and delivered personally or sent by registered or certified mail
(including by overnight courier such as FedEx or express mail service), postage
or fees prepaid,
if to the Sellers or, prior to the Cotton
Closing Date, the Cotton Group ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇.
Companies to: ▇▇▇▇▇▇▇, ▇▇. ▇▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇
Chairman/Founder
-45-
with a copy to: ▇▇▇▇▇ & ▇▇▇▇▇▇▇, LLP
▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇
if to Purchaser to: Charys Holding Company, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇, ▇▇., Chief
Executive Officer
with a copy to: Glast, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Fax No.: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
or at such other address for a party as shall be specified by like notice Any
notice which is delivered personally in the manner provided herein shall be
deemed to have been duly given to the party to whom it is directed upon actual
receipt by such party or the office of such party. Any notice which is
addressed and mailed in the manner herein provided shall be conclusively
presumed to have been duly given to the party to which it is addressed at the
close of business, local time of the recipient, on the fourth business day after
the day it is so placed in the mail or, if earlier, the time of actual receipt.
12.09 GOVERNING LAW; JURISDICTION. This Agreement is executed by the
-----------------------------
parties hereto in and shall be construed in accordance with and governed by the
laws of the State of Texas without giving effect to the principles of conflicts
of law thereof. Each of the parties hereto irrevocably agrees that any legal
action or proceeding with respect to this Agreement or the transactions
contemplated hereby, or for recognition and enforcement of any judgment in
respect hereof, brought by the other party hereto or its successors or assigns
shall be brought and determined in state or federal courts sitting in the States
of Georgia or Texas, and each party hereby irrevocably submits with regard to
any such action or proceeding for itself and in respect of its property,
generally and unconditionally, to the exclusive jurisdiction of the aforesaid
courts. Each party hereto hereby irrevocably waives, and agrees not to assert,
by way of a motion, as a defense, counterclaim or otherwise, in any action or
proceeding with respect to this Agreement, (a) any claim that it is not
personally subject to the jurisdiction of the above-named courts for any reason
other than the failure to lawfully serve process, (b) that it or its property is
exempt or immune from jurisdiction of any such court or from any legal process
commenced in such courts (whether through service of notice, attachment prior to
judgment, attachment in aid of execution of judgment, execution of judgment or
otherwise), and (c) to the fullest extent permitted by applicable law, that (i)
the suit, action or proceeding in any such court is brought in an inconvenient
forum, (ii) the venue of such suit, action or proceeding is improper, and (iii)
this Agreement, or the subject matter hereof, may not be enforced in or by such
courts.
-46-
12.10 PUBLIC ANNOUNCEMENTS. No public announcement shall be made by
---------------------
any person with regard to the transactions contemplated by this Agreement
without the prior consent of the Sellers and Purchaser; provided that either
party may make such disclosure if advised by counsel that it is legally required
to do so. The Sellers, the Cotton Group Companies and Purchaser will discuss
any public announcements or disclosures concerning the transactions contemplated
by this Agreement with the other parties prior to making such announcements or
disclosures.
12.11 KNOWLEDGE. The Cotton Group Companies shall be deemed to have
---------
"Knowledge" of a particular fact or matter if an individual listed on SCHEDULE
--------
12.11(A) is actually aware of such fact or matter without further investigation
--------
or inquiry.
(b) An individual Seller shall be deemed to have "Knowledge" of a
particular matter if such Seller is actually aware of such fact or matter
without further investigation or inquiry.
(c) Purchaser shall be deemed to have "Knowledge" of a particular
fact or matter if any of ▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ Oyster and Purchaser's
other executive officers, if any, is actually aware of such fact or matter
without further inquiry.
12.12 NO THIRD-PARTY BENEFICIARIES. With the exception of the parties
-----------------------------
to this Agreement, there shall exist no right of any person to claim a
beneficial interest in this Agreement or any rights occurring by virtue of this
Agreement.
12.13 "INCLUDING". Words of inclusion shall not be construed as terms
-----------
of limitation herein, so that references to "included" matters shall be regarded
as non-exclusive, non-characterizing illustrations.
12.14 GENDER AND NUMBER. Where the context requires, the use of a
-------------------
pronoun of one gender or the neuter is to be deemed to include a pronoun of the
appropriate gender, singular words are to be deemed to include the plural, and
vice versa.
12.15 REFERENCES. Whenever reference is made in this Agreement to any
----------
Article, Section, Schedule or Exhibit, such reference shall be deemed to apply
to the specified Article or Section of this Agreement or the specified Schedule
or Exhibit to this Agreement. The Schedules and Exhibits referenced in this
Agreement are attached hereto, are hereby incorporated into this Agreement and
are hereby made a part hereof as if set forth in full in this Agreement.
12.16 SEVERABILITY. In case any one or more of the provisions
------------
contained in this Agreement should be found by a court of competent jurisdiction
to be invalid, illegal or unenforceable in any respect against any party hereto,
such invalidity, illegality, or unenforceability shall only apply to such party
in the specific jurisdiction where such judgment shall be made, and the
validity, legality, and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby, except that this
Agreement shall not be reformed in any way that will deny to any party the
essential benefits of this Agreement, unless such party waives in writing its
rights to such benefits.
-47-
12.17 FURTHER ASSURANCES. Each of the parties hereto will use its
-------------------
reasonably good faith efforts to take all actions and to do all things
necessary, proper or advisable following the Second Closing Date to consummate
and effectuate the transactions contemplated by this Agreement.
12.18 CURRENCY. All payments hereunder or contemplated by this
--------
Agreement shall be paid in U.S. currency.
12.19 ORDINARY COURSE OF BUSINESS. "Ordinary Course of Business"
------------------------------ ------------------------------
means, with respect to actions and operations conducted by the Cotton Group
Companies, actions and operations that are (a) consistent with the past custom
and practices of the Cotton Group Companies, (b) taken in the ordinary course
of the normal, day-to-day operations of the Cotton Group Companies, (c) not
required to be authorized by the Board of Directors or other governing body of
the Cotton Group Companies, and (d) similar in nature and magnitude to actions
and operations customarily taken, without any authorization by the Board of
Directors or other governing body, in the ordinary course of the normal,
day-to-day operation of other companies that are in the same line of business as
the Cotton Group Companies.
12.20 COMMERCIALLY REASONABLE EFFORTS. "Commercially Reasonable
--------------------------------- ------------------------
Efforts" means efforts which are designed to enable a party, directly or
-------
indirectly, to satisfy a condition to or otherwise assist in the consummation of
a desired result and which do not require the performing party to expend funds
or assume liabilities other than expenditures and liabilities which are
customary and reasonable in nature and amount in the context hereof.
12.21 MATERIAL ADVERSE CHANGE (OR EFFECT). "Material Adverse Change
-------------------------------------- -----------------------
(or Effect)" means any change or effect that individually or in the aggregate
------------
with other changes or effects would be material and adverse to (a) the financial
condition, assets, liabilities, businesses, or results or operations of any
Cotton Group Company or the Purchaser, as the case may be, or (b) the ability of
the Sellers or the Purchaser, as the case may be, to consummate the transactions
contemplated hereby; provided, however, that any change or effect resulting
-------- -------
from, or directly relating to, any of the following shall not be taken into
account in making any such determination and shall not be deemed to constitute
or give rise to a Material Adverse Effect: (i) a change or effect which has a
similar impact on comparable businesses, (ii) a change or changes in general
business or economic conditions, including, without limitation, changes in
applicable laws or regulations and changes in financial or market conditions,
(iii) changes resulting from conditions generally affecting the geographic area
or local, regional, or national industry in which the Cotton Group Companies or
the Purchaser, as the case may be, operates, (iv) acts of terrorism or war
(whether or not declared), (v) the performance by any party of its obligations
under this Agreement, (vi) the compliance by any party with any covenant
hereunder, (vii) the performance by any party of any action to which the other
party has consented, (viii) the fact that the Purchaser is the purchaser of the
Cotton Equity Interests, (ix) the announcement of the transaction or the
existence of this Agreement, or (x) the taking of any action by or on behalf of
the other party or its Affiliates, representatives, or agents.
12.22 ARBITRATION. The parties shall use their respective best
-----------
efforts to resolve any disputes, claims, or controversies arising out of or
relating to this Agreement, including the performance, breach, validity,
interpretation, application, or termination thereof (a "Dispute"). Any party
-------
may give written notice of the existence of a Dispute (the "Notice of Dispute"),
-----------------
after
-48-
which the parties shall attempt to resolve the Dispute through good faith
negotiations by their respective authorized representatives. If the parties are
unable to resolve the Dispute amicably within thirty (30) days after delivery of
the written Notice of Dispute, or such other time as the parties may agree in
writing, then the Dispute shall be subject to arbitration in accordance with
this Section. Any Dispute not resolved amicably through good faith negotiation
as provided above shall be finally resolved by arbitration administered by the
American Arbitration Association in accordance with its Commercial Arbitration
Rules as then in effect (the "AAA Rules"), and judgment on the award may be
---------
entered in any court having jurisdiction thereof. In the event that any party's
claim or counterclaim exceeds $1,000,000, exclusive of interest or attorneys'
fees, the Dispute shall be heard and determined by three arbitrators, each of
whom shall be independent and impartial; otherwise, the Dispute shall be heard
and determined by one arbitrator. In the event that one arbitrator shall hear
the Dispute, the parties shall attempt to agree upon a qualified individual to
serve as arbitrator. If the parties are unable to so agree within thirty (30)
days of the commencement of the arbitration, then the arbitrator shall be
selected and appointed in accordance with the AAA Rules. In the event that
three arbitrators shall hear the Dispute, each party shall, within twenty (20)
days after commencement of the arbitration, select one person to act as
arbitrator. The two arbitrators so selected shall, within twenty (20) days of
their appointment, select a third arbitrator who shall serve as the chairperson
of the arbitral panel. The arbitrators selected shall be qualified by
education, training, and experience to hear and determine matters in the nature
of the Dispute. If a party fails to appoint an arbitrator as provided herein,
or if the arbitrators selected by the parties are unable or fail to agree upon a
third arbitrator within twenty (20) days of their appointment, or such other
time as the parties may agree in writing, then that arbitrator shall be selected
and appointed in accordance with the AAA Rules. Should an arbitrator die,
resign, refuse to act, or become incapable of performing his or her functions as
an arbitrator, the AAA may declare a vacancy on the Panel. The vacancy shall be
filled by the method by which that arbitrator was originally appointed. The
seat of the arbitration shall be Houston, Texas. The arbitrator(s) shall
determine the matters at issue in the Dispute in accordance with the substantive
law of Texas. The parties hereby waive any claim to exemplary, punitive, or
similar damages in excess of compensatory damages, attorneys' fees, costs, and
expenses of arbitration, and the arbitral panel is not empowered to and shall
not award exemplary, punitive, or similar damages in excess of compensatory
damages, attorneys' fees, costs, and expenses of arbitration. The award of the
arbitration(s) shall be in writing and shall set out the reasons therefor.
12.23 ENFORCEMENT. Prior to the First Closing, the parties agree that
-----------
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specified terms. It is
accordingly agreed that prior to the First Closing Date the parties shall be
entitled to specific performance of the terms hereof, this being in addition to
any other remedy to which they are entitled at law or in equity.
**********
-49-
IN WITNESS WHEREOF, each of the parties hereto has duly executed and
delivered this Agreement as of the date first above written.
CHARYS HOLDING COMPANY, INC.
By:
-----------------------------------
Name: ▇▇▇▇▇ ▇▇▇
Title: Chief Executive Officer
C&B / COTTON HOLDINGS, INC
By:
-----------------------------------
Name: ▇▇▇▇ Crochet
Title: President
CROCHET & BOREL SERVICES, INC
By:
-----------------------------------
Name: ▇▇▇▇ Crochet
Title: President
COTTON HOLDINGS 1, INC
By:
-----------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇
Title: President
COTTON COMMERCIAL USA, LP
By: Cotton USA GP, LLC, its sole
general partner
By:
-----------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇
Title: President
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
COTTON RESTORATION OF CENTRAL TEXAS, LP
By: CCI-GP, LLC, its sole general
partner
By:
-----------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇
Title: President
SELLER: SELLER:
------ -------
------------------------------------ ----------------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
SELLER: SELLER:
------ -------
------------------------------------ ----------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
SELLER: SELLER:
------ -------
------------------------------------ ----------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
SELLER: SELLER:
------ -------
------------------------------------ ----------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
SELLER:
-------
------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
EXHIBIT A
---------
COTTON GROUP COMPANIES
COTTON HOLDINGS 1, INC., A DELAWARE CORPORATION
The Corporation is authorized to issue 1,000 shares of common stock
with a par value of $0.01 per share.
Stockholders:
▇▇▇▇▇ ▇▇▇▇ 435 shares of common stock (43.5%)
▇▇▇▇▇ ▇▇▇▇▇▇▇ 435 shares of common stock (43.5%)
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 50 shares of common stock (5%)
▇▇▇▇▇ ▇▇▇▇▇▇ 50 shares of common stock (5%)
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 30 shares of common stock (3%)
COTTON COMMERCIAL USA, LP, A TEXAS LIMITED PARTNERSHIP
Partners:
Cotton USA GP, LLC 1% general partner interest
Cotton Holdings 1, Inc. 76.5% limited partner interest
▇▇▇▇ ▇▇▇▇▇▇▇ 5% limited partner interest
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 17.5% limited partner interest
COTTON RESTORATION, LP, A TEXAS LIMITED PARTNERSHIP
Partners:
CRI-GP, LLC 1% general partner interest
CRI-LP, LLC 99% limited partner interest
COTTON RESTORATION OF CENTRAL TEXAS, LP, A TEXAS LIMITED PARTNERSHIP
Partners:
CCI-GP, LLC 1% general partner interest
CCI-LP, LLC 89% limited partner interest
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 5% limited partner interest
▇▇▇▇▇▇▇ ▇▇▇▇▇ 5% limited partner interest
COTTON USA, LP, A TEXAS LIMITED PARTNERSHIP
Partners:
CCI-GP, LLC 1% general partner interest
CCI-LP, LLC 99% limited partner interest
COTTON HQ, LLC, A TEXAS LIMITED LIABILITY COMPANY
The sole Member is Cotton Holdings 1, Inc.
COTTON USA GP, LLC, A TEXAS LIMITED LIABILITY COMPANY
The sole Member is Cotton Holdings 1, Inc.
CRI-GP, LLC, A TEXAS LIMITED LIABILITY COMPANY
The sole Member is Cotton Holdings 1, Inc.
CRI-LP, LLC, A TEXAS LIMITED LIABILITY COMPANY
The sole Member is Cotton Holdings 1, Inc.
CCI-GP, LLC, A TEXAS LIMITED LIABILITY COMPANY
The sole Member is Cotton Holdings 1, Inc.
CCI-LP, LLC, A DELAWARE LIMITED LIABILITY COMPANY
The sole Member is Cotton Holdings 1, Inc.
EXHIBIT B
---------
PURCHASE PRICE ALLOCATION AMONG SHAREHOLDERS AND PARTNERS
--------------------------------------------------------------------------------------------------------------------------------
NON-
NON- REFUNDABLE FIRST CLOSING
REFUNDABLE FIRST CLOSING LESS FIRST CLOSING STOCK STOCK
CASH DATE CASH SCHEDULE CASH FUNDED FIRST CLOSING CONSIDERATION CONSIDERATION
SELLER CONSIDERATION CONSIDERATION 4.26(a) ITEMS FROM CHARYS SELLER NOTE (SHARES) (SHARES)
---------------- -------------- -------------- --------------- -------------- ------------- -------------- --------------
▇▇▇▇ ▇▇▇▇ $ 1,172,776.88 5,143,773.62 (535,613.80) 4,608,259.72 3,337,368.77 138,146 532,646
---------------- -------------- -------------- --------------- -------------- ------------- -------------- --------------
▇▇▇▇▇ ▇▇▇▇▇▇▇ 1,172,776.88 5,143,773.62 (499,593.03) 4,644,180.49 3,337,368.77 138,146 532,646
---------------- -------------- -------------- --------------- -------------- ------------- -------------- --------------
▇▇▇▇▇ ▇▇▇▇▇▇ 25,630.31 671,884.50 (41,992.20) 629,882.30 435,930.23 17,243 60,220
---------------- -------------- -------------- --------------- -------------- ------------- -------------- --------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 25,630.31 671,884.63 (68,142.82) 613,741.81 435,930.31 17,243 60,220
---------------- -------------- -------------- --------------- -------------- ------------- -------------- --------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 48,585.73 1,827,416.96 (134,750.00) 1,692,665.96 1,185,658.92 53,964 192,010
---------------- -------------- -------------- --------------- -------------- ------------- -------------- --------------
▇▇▇▇ ▇▇▇▇▇▇▇ 23,282.85 840,076.48 - 840,076.48 645,066.08 16,898 77,221
---------------- -------------- -------------- --------------- -------------- ------------- -------------- --------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 14,140.35 879,110.49 (37,627.62) 841,482.87 570,382.01 9,651 36,658
---------------- -------------- -------------- --------------- -------------- ------------- -------------- --------------
▇▇▇▇▇▇▇ ▇▇▇▇▇ 9,583.34 117,371.20 (27,882.06) 89,489.14 76,162.45 4,855 32,006
---------------- -------------- -------------- --------------- -------------- ------------- -------------- --------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 9,583.34 117,371.20 (77,159.97) 40,211.23 76,152.45 4,855 32,006
---------------- -------------- -------------- --------------- -------------- ------------- -------------- --------------
Total $ 2,500,000.00 $15,412,661.50 $(1,412,661.50) $14,000,000.00 10,000,000.00 400,000 1,555.532
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
Non-Owners Participating in Incentive Compensation
---------------- -------------- -------------- --------------- -------------- ------------- -------------- --------------
▇▇▇▇ ▇▇▇▇▇▇▇▇
---------------- -------------- -------------- --------------- -------------- ------------- -------------- --------------
▇▇▇▇▇ ▇▇▇▇▇▇
---------------- -------------- -------------- --------------- -------------- ------------- -------------- --------------
▇▇▇▇ ▇▇▇▇▇▇
---------------- -------------- -------------- --------------- -------------- ------------- -------------- --------------
Pool
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
SECOND TOTAL CASH AND STOCK INTEGRATION
CLOSING DATE NOTE CONSIDERATION INCENTIVE INCENTIVE
CASH TOTAL Cash and EXCLUDING [AT MAKE WHOLE TOTAL COMPENSATION COMPENSATION
SELLER CONSDERATION Note 4.26(a) ITEMS PRICE] CONSIDERATION PERCENTAGE PERCENTAGE
---------------- ------------- -------------- --------------- --------------- -------------- ------------- --------------
▇▇▇▇ ▇▇▇▇ 7,255,549.74 16,909,468.91 $ 16,373,355.11 $ 10,061,884 $ 26,971,353 16% 24%
---------------- ------------- -------------- --------------- --------------- -------------- ------------- --------------
▇▇▇▇▇ ▇▇▇▇▇▇▇ 7,255,549.74 16,909,468.91 $ 16,409,876.88 $ 10,061,884 $ 26,971,353 16% 24%
---------------- ------------- -------------- --------------- --------------- -------------- ------------- --------------
▇▇▇▇▇ ▇▇▇▇▇▇ 1,075,285.59 2,208,730.63 $ 2,166,738.43 $ 1,161,932 $ 3,370,662 12% 16%
---------------- ------------- -------------- --------------- --------------- -------------- ------------- --------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 1,075,285.80 2,208,731.06 $ 2,150,588.23 $ 1,161,932 $ 3,370,663 12% 16%
---------------- ------------- -------------- --------------- --------------- -------------- ------------- --------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 2,947,725.46 6,007,386.06 $ 5,872,636.06 $ 3,685,610 $ 3,696,996 12%
---------------- ------------- -------------- --------------- --------------- -------------- ------------- --------------
▇▇▇▇ ▇▇▇▇▇▇▇ 1,353,213.90 2,761,639.31 $ 2,761,639.31 $ 1,396,785 $ 4,158,424 12%
---------------- ------------- -------------- --------------- --------------- -------------- ------------- --------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 1,428,325.55 2,689.958.40 $ 2,852,330.78 $ 693,143 $ 3,583,102 8% 16%
---------------- ------------- -------------- --------------- --------------- -------------- ------------- --------------
▇▇▇▇▇▇▇ ▇▇▇▇▇ 182,735.15 385,842.14 $ 357,960.08 $ 552,906 $ 938,748 2%
---------------- ------------- -------------- --------------- --------------- -------------- ------------- --------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 182,735.15 385,842.14 $ 308,582.17 $ 552,906 $ 938,748 2%
---------------- ------------- -------------- --------------- --------------- -------------- ------------- --------------
Total 22,764,406.06 50,667,067.56 49,264,406.06 $ 29,332,981 $ 80,000,049 92% 96%
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
Non-Owners Participating in Incentive Compensation
---------------- ------------- -------------- --------------- --------------- -------------- ------------- --------------
▇▇▇▇ ▇▇▇▇▇▇▇▇ 3%
---------------- ------------- -------------- --------------- --------------- -------------- ------------- --------------
▇▇▇▇▇ ▇▇▇▇▇▇ 3%
---------------- ------------- -------------- --------------- --------------- -------------- ------------- --------------
▇▇▇▇ ▇▇▇▇▇▇ 2%
---------------- ------------- -------------- --------------- --------------- -------------- ------------- --------------
Pool 4%
---------------- ------------- -------------- --------------- --------------- -------------- ------------- --------------
100% 100%
--------------------------------------------------------------------------------------------------------------------------------
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇
----------------
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
------------------
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
-----------------
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇
-----------------
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
--------------------
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇
----------------
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-------------------
/s/ ▇▇▇▇ ▇▇▇▇
-------------
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
--------------------
EXHIBIT C
---------
PROMISSORY NOTE
[SELLER NOTE]
$ 10,000,000.00 Houston, Texas
December 8, 2006
FOR VALUE RECEIVED, the undersigned, CHARYS HOLDING COMPANY, INC., A
Delaware corporation ("Maker"), hereby promises to pay to the order of ▇▇▇▇▇
-----
▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, and ▇▇▇▇▇▇▇ ▇▇▇▇▇
(collectively "Sellers"), who now appoint ▇▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇,
-------
individual residents of the State of Texas, as Sellers' co-agents (collectively
"Agent"), acting together, for the purpose of receiving payments on their behalf
-----
under and this Promissory Note (this "Note") and otherwise taking all action
----
necessary or practical in the enforcement of this Note on their behalf, in
lawful money of the United States of America, the principal sum of
$10,000,000.00 subject to the terms hereof, together with interest thereon, at
the rate hereinafter set forth below, with such principal sum and interest being
payable as set forth below. Sellers will share in the principal and interest
under this Note and in the security for payment thereof in accordance with the
allocation schedule set forth on EXHIBIT A to this Note. This Note is being
---------
delivered pursuant to Section 2.02(b) of that certain Amended and Restated Stock
and Limited Partnership Interest Purchase Agreement dated as of December 8,
2006, by and among Maker, as Purchaser, Cotton Holdings 1, Inc., Cotton
Commercial USA, LP, Cotton Restoration of Central Texas, LP and the Sellers set
forth therein (the "Purchase Agreement"), and is subject to the provisions of
------------------
Section. 2.07 thereof. Terms not otherwise defined in this Note shall have the
meaning set forth in the Purchase Agreement.
Section I. Rate of Interest
----------------
From and after the date hereof, interest shall accrue on the
outstanding principal balance of this Note at a rate equal to nine percent (9%)
per annum, calculated on the basis of 365 days per year and actual days elapsed.
Section II. Payment of Principal and Interest
---------------------------------
(a) The principal amount evidenced by this Note and all accrued,
unpaid interest thereon, shall be due and payable in full by Maker on March 8,
2007, or if earlier, the date, if any, that the "Permanent Financing" defined in
(b) below is completed (the earlier date being herein referred to as the
"Maturity Date"). Maker shall have the right to prepay the indebtedness
--------------
evidenced by this Note, in full or in part, at any time, without penalty, fee or
charge.
(b) Maker agrees to diligently pursue and use its commercial best
efforts to obtain capital funding in the approximate range of $125,000,000.00 to
$150,000,000.00 in the form of either capital investments (including investments
in equity or convertible debt instruments) in or loans to Maker, or any
subsidiary of Maker, including but not limited to the Cotton Companies or any of
them. Any and all such capital funding regardless of whether in the form of
capital investment or loans, is referred to herein as the "Permanent Financing."
-------------------
(c) Notwithstanding any provision in this Note to the contrary,
the entire principal amount outstanding hereunder shall be due and payable in
full by Maker in the event that a change of control occurs with respect to
Maker, C & B / Cotton Holdings, Inc., Cotton Holdings 1, Inc., or Cotton
Commercial USA, LP, which shall be deemed to have occurred in the event any
person or group of persons (within the meaning of Section 13(d)) of the
Securities Exchange Act of 1934, as amended, acquires beneficial ownership
(within the meaning of the aforesaid Section 13(d), by conveyance, sale, lease,
assignment, transfer or other disposal, of all or substantially all of the
property, business or assets of any one or more of such, or greater than 50%
voting control of any one or more of such companies, and one or more of such
person(s) acquiring beneficial ownership is a third party not related to Maker.
Section III. Events of Default
-----------------
For purposes of this Note, the occurrence of any of the following
events or conditions shall constitute an event of default hereunder:
(a) Maker or any successor to Maker shall fail to pay in full any
amount under this Note when due and such default shall continue uncured for a
period of 15 days after Sellers' Agent notifies Maker of such default; or
(b) Maker or any successor to Maker shall: (i) file a voluntary
petition or assignment in bankruptcy or a voluntary petition or assignment or
answer seeking liquidation, reorganization, arrangement, readjustment of its
debts, or any other relief under the Bankruptcy Reform Act of 1978, as amended
(the "Bankruptcy Code"), or under any other act or law pertaining to insolvency
---------------
or debtor relief, whether State, Federal, or foreign, now or hereafter existing;
(ii) enter into any agreement indicating consent to, approval of, or
acquiescence in, any such petition or proceeding; (iii) apply for or permit
the appointment, by consent or acquiescence, of a receiver, custodian or
trustee of all or a substantial part of its property; (iv) make an assignment
for the benefit of creditors; (v) be unable or shall fail to pay its debts
generally as such debts become due, or (vi) admit in writing its inability or
failure to pay its debts generally as such debts become due;
(c) There occurs (i) a filing or issuance against Maker or any
successor to Maker of an involuntary petition in bankruptcy or seeking
liquidation, reorganization, arrangement, readjustment of its debts or any other
relief under the Bankruptcy Code, or under any other act or law pertaining to
insolvency or debtor relief, whether Stale, Federal or foreign, now or hereafter
existing; (ii) the involuntary appointment of a receiver, liquidator, custodian
or trustee of Maker or any successor to Maker or for all or a substantial part
of its property; or (iii) the issuance of a warrant of attachment, execution or
similar process against all or any substantial part of the property of Maker or
any successor to Maker and such shall not have been discharged (or provision
shall not have been made for such discharge), or stay of execution thereof shall
not have been procured, within sixty (60) days from the date of entry thereof;
(d) There occurs an Event of Default or other material breach by
Maker or any successor to Maker (or by a subsidiary or affiliate of Maker, as
applicable) under (i) the Pledge Agreement(s), Security Agreement(s) or Guaranty
Agreement(s) defined in Section IV below in this Note, or (ii) any of the
Employment Agreements to be entered into on or about the Maturity Date between
each of the Sellers, respectively, and the employer "Company" defined therein;
and
2
(e) There occurs a breach or default by Maker or C & B / Cotton
Holdings, Inc. under the Purchase Agreement or the Registration Rights
Agreement, or a breach or default by Maker or any successor to Maker, or by any
subsidiary or affiliate of Maker, under any credit facility entered into to
finance the transactions contemplated by the Purchase Agreement, or any other
indebtedness of any such parties to which the payment of this Note or any of the
security interests or guaranty securing payment of this Note have been
subordinated. All expenses incurred in collection of this Note or with respect
to any guaranty agreement, pledge agreement or security agreement associated
with this Note shall be treated as additional advances under this Note and shall
increase the principal amount payable to Sellers under this Note.
Upon any such event of default, the total outstanding principal and
accrued, unpaid interest shall become immediately due and payable, and the
entire unpaid principal of this Note shall bear interest until paid at a rate of
interest equal to the lesser of (i) eighteen percent (18%) per annum, computed
on the basis of 365 days per year for the actual number of days elapsed, or (ii)
the Highest Lawful Rate (defined below). Forbearance by Sellers to exercise its
rights with respect to any failure or breach of Maker shall not constitute a
waiver of the right as to any subsequent failure or breach. For purposes of this
Note, "Highest Lawful Rate" means the maximum non-usurious rate of interest
permitted by applicable federal or Texas law from time to time.
All agreements between Maker and Sellers, whether now existing or hereafter
arising and whether written or oral, are hereby expressly limited so that in no
event, whether by reason of acceleration of maturity hereof or otherwise, shall
the amount paid or agreed to be paid to the Sellers for the use, forbearance, or
detention of the money to be loaned hereunder, or otherwise, exceed the Highest
Lawful Rate. If fulfillment of any provision hereof or of any loan agreement or
other document evidencing or securing the indebtedness evidenced hereby, at the
time performance of such provision shall be due, shall involve transcending the
limit of validity prescribed by law, then, automatically and without the
requirement for affirmative action, the obligation to be fulfilled shall be
reduced to the limit of such validity. Should Sellers ever receive anything of
value deemed interest under this Note under applicable law which would exceed
interest at the Highest Lawful Rate, an amount equal to any excessive interest
shall be applied to the reduction of the principal amount owing hereunder and
not to the payment of interest, or if such excessive interest exceeds the unpaid
balance of principal hereof, such excess shall be refunded to the Maker. All
sums paid or agreed to be paid to Sellers for the use, forbearance, or detention
of the indebtedness of Maker to Sellers shall, to the extent permitted by
applicable law, be amortized, prorated, allocated, and spread throughout the
Full term of such indebtedness until payment in full so that the rate of
interest on account of such indebtedness is uniform throughout the term thereof
The provisions of this paragraph shall control all agreements between Maker and
Sellers.
Section IV. Security for Obligations
------------------------
Payment, of this Note is secured by the following:
3
(a) A Guaranty Agreement of even date herewith from C & B / Cotton
Holdings, Inc and Crochet & Borel Services, Inc.;
(b) A Guaranty Agreement of even date herewith from Cotton
Holdings 1, Inc., Cotton Commercial USA, LP, Cotton Restoration of Central
Texas, LP and all of the other Cotton Group Companies;
(c) A Pledge Agreement of even date herewith from C & B / Cotton
Holdings, Inc. covering all of the Cotton Equity Interests owned by it;
(d) A Security Agreement of even date herewith between the
Sellers, as Lender, and C & B / Cotton Holdings, Inc. and Crochet & Borel
Services, Inc., as Debtors; and
(e) A Security Agreement of even date herewith between Sellers, as
Lender, and Cotton Holdings 1, Inc., Cotton Commercial USA, LP, Cotton
Restoration of Central Texas, LP and all of the other Cotton Group Companies, as
Debtor.
Section V. General Provisions
------------------
Time is of the essence of this Note and, in case this Note is collected by
law or through an attorney at law, or under advice herefrom, Maker agrees to pay
all costs of collection, including reasonable attorneys' fees and expenses.
This Note is a "Negotiable Instrument" pursuant to Section 9.401 of the
Texas Business & Commerce Code, as amended.
Sellers may transfer, sell or assign this Note or his rights hereunder, in
whole or part, without the requirement of the consent of Maker.
Sellers will execute this Note for the purpose of acknowledging the
provisions hereof and his receipt of the Note, but the execution of this Note by
Sellers shall in no event be deemed to constitute Sellers as an endorser of this
Note.
Each Maker, borrower, guarantor, surety and endorser of this Note, and each
party hereafter assuming or otherwise becoming liable hereon: (i) agree to any
substitution, exchange or release of any collateral or security and the release
of any party primarily or secondarily liable hereon; (ii) agree that Lender
shall not be required first to institute suit or exhaust its remedies hereon
against the M or others liable or to become liable hereon or enforce its rights
against any security herewith in order to enforce payment of this Note by it;
and (iii) consent to any extensions, modification or postponement of time of
payment of this Note and to any other indulgence with respect hereto without
notice thereof to any of them.
In addition to all principal and accrued interest on this Note, Maker
agrees to pay (a) all reasonable costs and expenses incurred by Sellers in any
reorganization, bankruptcy or any other proceedings for the establishment or
collection of this Note, and (b) all reasonable attorneys' fees if this Note is
placed in the hands of an attorney for collection after default.
4
This Note may not be amended, extended, or renewed except by a written
instrument signed by Maker and Sellers.
THIS NOTE, AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER, SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS
(WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS).
[SIGNATURE PAGE FOLLOWS]
5
IN WITNESS WHEREOF, the undersigned Maker has hereunto executed this
instrument as of the day and year first above written.
MAKER:
CHARYS HOLDING COMPANY, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇, ▇▇
-----------------------------------------
▇▇▇▇▇ ▇. ▇▇▇, ▇▇, Chief Executive Officer
ACCEPTED BY THE SELLERS:
/s/▇▇▇▇▇ ▇▇▇▇
-------------------------
▇▇▇▇▇ ▇▇▇▇
/s/▇▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇
/s/▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
/s/▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
/s/▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------
▇▇▇▇ ▇▇▇▇▇▇▇
/s/▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
/s/▇▇▇▇▇ ▇▇▇▇▇▇
-------------------------
▇▇▇▇▇ ▇▇▇▇▇▇
/s/▇▇▇▇▇▇▇ ▇▇▇▇▇
-------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇
/s/▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
6
EXHIBIT A
---------
SELLER ALLOCATION SCHEDULE
--------------------------------------------------------------------------------
SELLER NAME ALLOCATED SECURITY NOTE PRINCIPAL
---------------------- --------------------------------------- ---------------
▇▇▇▇▇ ▇▇▇▇ 174 shares of stock of Cotton $ 3,337,368.77
Holdings 1, Inc., and 33.37% of all
other security
---------------------- --------------------------------------- ---------------
▇▇▇▇▇ ▇▇▇▇▇▇▇ 174 shares of stock of Cotton $ 3,337,368.77
Holdings 1, Inc., and 33.37% of all
other security
---------------------- --------------------------------------- ---------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 12 shares of stock of Cotton $ 570,382.01
Holdings 1, Inc., and 5.71% of all
other security
---------------------- --------------------------------------- ---------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 20 shares of stock of Cotton $ 435,930.31
Holdings 1, Inc., and 4.36% of all
other security
---------------------- --------------------------------------- ---------------
▇▇▇▇▇ ▇▇▇▇▇▇ 20 shares of stock of Cotton $ 435,930.23
Holdings 1, Inc., and 4.36% of all
other security
---------------------- --------------------------------------- ---------------
▇▇▇▇ ▇▇▇▇▇▇▇ A 2.0% limited partnership interest $ 545,056.08
in Cotton Commercial USA, LP, and
5.45% of all other security
---------------------- --------------------------------------- ---------------
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ A 7.0% limited partnership interest in $ 1,185,658.92
Cotton Commercial USA, LP, and
11.86% of all other security
---------------------- --------------------------------------- ---------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ A 2.0% limited partnership interest in $ 76,152.45
Cotton Restoration of Central Texas,
LP, and 0.76% of all other security
---------------------- --------------------------------------- ---------------
▇▇▇▇▇▇▇ ▇▇▇▇▇ A 2.0% limited partnership interest in $ 76,152.45
Cotton Restoration of Central Texas,
LP, and 0.76%, of all other security
---------------------- --------------------------------------- ---------------
---------------------- --------------------------------------- ---------------
TOTALS 100.00% $ 10,000,000
--------------------------------------------------------------------------------
By executing this Note, all of the Sellers agree to share in the principal of
this Note (and all interest thereon, respectively and pro-rata) in the amounts
set forth above, and to allocate the security that secures payment of this Note
as set forth above.
7
EXHIBIT D
---------
[OMITTED]
EXHIBIT E
---------
[OMITTED]
EXHIBIT F-1
-----------
[OMITTED]
EXHIBIT F-2
-----------
[OMITTED]
EXHIBIT G
---------
[OMITTED]
EXHIBIT H
---------
[OMITTED]
SCHEDULE 2.06(A)(1)
INCENTIVE COMPENSATION(1)
On the date that is 30 days following the issuance of Purchaser's Form 10K (the
"Incentive Bonus Date") for the fiscal years 2007, 2008 and 2009 (each such year
--------------------
being a "Performance Year"), the board of directors of Purchaser (the "Board")
---------------- -----
shall pay to the Sellers a bonus based on a comparison of the audited year-end
financials of the Cotton Group Companies to the projected financials of the
Cotton Group Companies. Based on the results of such comparison, the Sellers
may be eligible for an incentive bonus calculated as follows:
1. For each Performance Year, the total amount of the bonus pool available
shall be equal to 25% of the audited pre-tax income of the Cotton Group
Companies for such Performance Year (the "Bonus Pool Amount").
-------------------
2. The aggregate amount of incentive bonuses payable for each Performance
Year shall be an amount equal to (a) the Bonus Pool Amount, multiplied by (b)
the percentage set forth in the table below opposite the applicable Financial
Performance Target, calculated as set forth herein.
Actual Performance < 5% Financial Performance Target 0%
Actual Performance 5% but < 20% Financial Performance Target 5%
Actual Performance 20% but < 35% Financial Performance Target 20%
Actual Performance 35% but < 50% Financial Performance Target 35%
Actual Performance 50% but < 65% Financial Performance Target 50%
Actual Performance 65% but < 80% Financial Performance Target 70%
Actual Performance 80% but < 90% Financial Performance Target 90%
Actual Performance 90% but < 100% Financial Performance Target 100%
Actual Performance 100% but < 110% Financial Performance Target 110%
Actual Performance 110% Financial Performance Target 120%
3. The "Financial Performance Target" shall be an amount equal to (i) the
------------------------------
sum of the (x) Revenue Factor, (y) EBITDA Factor, and (z) Net Income Factor, for
each Performance Year, as set forth below:
PERFORMANCE YEAR PROJECTED REVENUE PROJECTED EBITDA PROJECTED NET
INCOME
-----------------------------------------------------------------------
FY 2007 $86,000,000.00 $20,300,000.00 $19,700,000.00
FY 2008 $121,000,000.00 $29,025,000.00 $29,025,000.00
FY 2009 $155,000,000.00 $40,375,000.00 $39,125,000.00
-----------------------------
(1) To be allocated pro rata with ▇▇▇▇ Crochet and certain employees of
Crochet & Borel Services, Inc., as agreed by the Sellers and ▇▇▇▇ Crochet.
4. "Actual Performance" shall be an amount equal to the sum of actual (i)
Revenue Factor, (ii) EBITDA Factor and (iii) Net Income Factor, for any
Performance Year.
5. The Revenue Factor, the EBITDA Factor and the Net Income Factor shall be
calculated in accordance with GAAP.
Any bonus due shall be payable in cash, to the extent such cash payment is
permitted under the loan agreements to which the Cotton Group Companies and
Purchaser are a party. If such agreements do not permit payment of such bonus
in cash, then the bonus shall be paid in shares of Charys common stock, at the
Market Price as of the last trading day of the applicable Performance Year.
For purposes of this Exhibit A, the terms set forth above shall mean
----------
as follows:
(i) Revenue Factor shall be a percentage equal to the product of (x)
---------------
forty percent (40%) multiplied by (y) a fraction the numerator of
which is the Cotton Group Companies' actual revenues for a
Performance Year and the denominator of which is the Cotton Group
Companies' projected revenues for such corresponding Performance
Year.
(ii) EBITDA Factor shall be a percentage equal to, the product of (x)
--------------
fifty percent (50%) multiplied by (y) a fraction the numerator of
which is the Cotton Group Companies' actual EBITDA for a
Performance Year and the denominator of which is the Cotton Group
Companies' projected EBITDA for such corresponding Performance
Year.
(iii) Net Income Factor shall be a percentage equal to, the product of
-----------------
(x) ten percent (10%) multiplied by (y) a fraction the numerator
of which is the Cotton Group Companies' actual audited pre-tax
net income for a Performance Year and the denominator of which is
the Cotton Group Companies' projected pre-tax net income for such
corresponding Performance Year.
EXAMPLE CALCULATION
--------------------
By way of example, and for illustrative purposes only, the following model
depicts the manner in which the bonus shall be calculated for a single
Performance Year. The numbers and assumptions used herein are not intended to
be the final projections or Bonus Pool Amount for purposes of this Schedule
--------
2.06(1).
-------
PERFORMANCE YEAR PROJECTED REVENUE PROJECTED EBITDA PROJECTED NET
INCOME
---------------------------------------------------------------------------
FY 2007 $5,000,000 $1,000,000 $500,000
---------------------------------------------------------------------------
PERFORMANCE YEAR ACTUAL REVENUE ACTUAL EBITDA ACTUAL NET INCOME
---------------------------------------------------------------------------
FY 2007 $6,000,000 $800,000 $250,000
Whereby:
1) Revenue Factor = 48%; EBITDA Factor = 40%; Net Income Factor=5%
2) Calculation Value = 48% + 40% + 5% = 93%
3) Incentive Bonus payable based on a calculation value of 93% = $58,125
SCHEDULE 2.06(A)(2)
INCENTIVE EMPLOYEES
SCHEDULE 2.06(B)
INTEGRATION INCENTIVE COMPENSATION(2)
During the period beginning on the Closing Date and ending on the third
anniversary of the Closing Date (the "Integration Incentive Period"), the
-----------------------------
Sellers shall be entitled to additional equity compensation determined in
accordance with the following provisions:
1. As soon as reasonably practicable following the Closing Date, the Sellers
shall provide to the Purchaser a schedule identifying potential acquisition
targets conducting business similar to the Cotton Group Business (the
"Acquisition Targets" and each, an "Acquisition Target"). For each Acquisition
-------------------- ------------------
Target, the Sellers shall identify the target annual revenue (the "Target
------
Revenue") of such Acquisition Target.
-------
2. On the third anniversary of the Closing Date, the Sellers shall be
entitled to a bonus calculated as follows, payable in cash or shares of shares
of Charys common stock, in Purchaser's discretion: (A) Bonus Multiplier,
multiplied by (B) the Integration Bonus Pool.
--------------
The term "Bonus Multiplier" means a percentage, (A) the numerator of which is
-----------------
the actual aggregate revenue for all Acquisition Targets measured over the
trailing twelve months from Charys' fiscal year end in the year in which such
Acquisition Target is acquired (or, if the target is acquired in September 2006,
the actual revenue of the Acquisition Target from 5-1-06 thru 4-31-07), and (B)
the denominator of which is the aggregate Target Revenue for all Acquisition
Targets. An example calculation of the Bonus Multiplier is as follows:
First Year
Projected Actual
Millions in year acquired
----------------------------------------
Target A $ 30 $ 20
Target B $ 20 $ 20
Target C $ 100 $ 110
Target D $ 40 Did not acquire
Target E $ 10 $ 40
----------------------------------------
$ 200 $ 190
Limit 95.00%
----------------------------------------
The term "Integration Bonus Pool" means the aggregate audited pre-tax revenue of
----------------------
all Acquisition Targets during the Integration Incentive Period. An example
calculation of the Integration Bonus Pool follows:
Actual
Pre-tax
Year 1 Year 2 Year 3
--------------------------------------------------------------------
Target A $ 3 -$1 -$2
Target B $ 2 $ 2 $ 1
Target C $ 15 $ 17
Target D
Target E $ 15
--------------------------------------------------------------------
$ 5 $ 16 $ 31
Pool $ 1 $ 4 $ 8
Total pool payable at end of year three $ 13
amount earned limited to 95% $ 12.35
--------------------------------------------------------------------
SCHEDULE 6.13
SPIN-OFF AGREEMENT
The following general terms and conditions shall be more fully reflected in a
definitive agreement to be negotiated in good faith and, if reasonably
acceptable to both Purchaser and the Sellers, executed, on or prior to the
Closing Date.
- Purchaser shall maintain separate books and records and separately audited
financial statements for a to-be-formed holding company holding (the
"Disaster Remediation Holding Company") all of Purchaser's current future
subsidiaries operating in the Disaster Remediation industry (the "Disaster
Remediation Businesses") during the period beginning on the Closing and
ending on the third anniversary of the Closing (the "Preparation Period")
and during the period ending on the third anniversary of the Closing and
ending on the sixth anniversary of the Closing (the "Option Period").
- During the Option Period, Sellers, collectively with the management of all
of Purchaser's Disaster Remediation Businesses (collectively with Sellers,
the "Disaster Remediation Management Team"), may cause Purchaser to
effectuate a spin-off of the Disaster Remediation Holding Company (a
"Spin-Off Transaction") into a separate publicly-traded entity provided
that the conditions set forth in the following section are met.
- The Disaster Remediation Management Team may only cause Purchaser to
effectuate a Spin-Off Transaction in the event that (a) during the three
year period prior to the Disaster Remediation Management Team's
notification of its intent to effectuate a spin-off (the "Spin-Off Notice
Date") the aggregate net revenue of the Disaster Remediation Holding
Company was greater than or equal to $750,000,000, (b) during the three
year period prior to the Spin-Off Notice Date, the aggregate net earnings
of the Disaster Remediation Holding Company are greater than or equal to
$150,000,000, (c) the Disaster Remediation Management Team collectively
hold in excess of 10,000,000 shares of Charys' common stock, and (d) the
per share Market Price of Charys' common stock for twenty (20) consecutive
trading days prior to the Spin-Off Notice Date is in excess of $20 per
share, adjusted for any splits or dividends occurring between the Closing
Date and the Spin-Off Notice Date.
- The Spin-Off Transaction shall be effectuated by granting to each
shareholder of Purchaser as of the effective date of the Spin-Off
Transaction one publicly traded share of the Corporation for each share of
Purchaser Stock held by such Shareholder. Simultaneously with the issuance
of such shares, each member of the Disaster Remediation Management Team
shall tender to Purchaser not less than 80% of the shares of Purchaser
Stock held by such member of the Disaster Remediation Management Team in
exchange for an equal number of shares of the Disaster Remediation Holding
Company.