EXHIBIT 10.5
AGREEMENT AND PLAN OF ORGANIZATION
dated as of the 1st day of December 1997
by and among
PENTACON, INC.
SALES SYSTEMS LIMITED ACQUISITION COMPANY
(a subsidiary of Pentacon, Inc.)
SALES SYSTEMS, LIMITED
and
the STOCKHOLDERS named herein
TABLE OF CONTENTS
Page
RECITALS.....................................................................1
1. THE MERGER.............................................................6
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER........................6
1.2 EFFECTIVE TIME OF THE MERGER.....................................6
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF
SURVIVING CORPORATION............................................6
1.4 EFFECT OF MERGER.................................................7
2. CONVERSION OF STOCK....................................................7
2.1 MANNER OF CONVERSION.............................................7
3. DELIVERY OF MERGER CONSIDERATION.......................................8
3.1 EXCHANGE OF COMPANY STOCK FOR PENTACON STOCK.....................8
3.2 ENDORSED CERTIFICATES; DEFICIENCIES CURED........................8
4. CLOSING................................................................9
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS.....9
5.1 DUE ORGANIZATION................................................10
5.2 AUTHORIZATION...................................................10
5.3 CAPITAL STOCK OF THE COMPANY....................................10
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING..........10
5.5 NO BONUS SHARES.................................................11
5.6 SUBSIDIARIES; OWNERSHIP IN OTHER ENTITIES.......................11
5.7 PREDECESSOR STATUS; ETC.........................................11
5.8 SPIN-OFF BY THE COMPANY.........................................11
5.9 FINANCIAL STATEMENTS............................................11
5.10 LIABILITIES AND OBLIGATIONS.....................................12
5.11 ACCOUNTS AND NOTES RECEIVABLE...................................12
5.12 PERMITS AND INTANGIBLES.........................................13
5.13 ENVIRONMENTAL MATTERS...........................................13
5.14 PERSONAL PROPERTY...............................................15
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS.......15
5.16 REAL PROPERTY...................................................16
5.17 INSURANCE.......................................................16
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; LABOR MATTERS..............17
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5.19 EMPLOYEE PLANS..................................................17
5.20 COMPLIANCE WITH ERISA...........................................18
5.21 CONFORMITY WITH LAW; LITIGATION.................................19
5.22 TAXES...........................................................19
5.23 NO VIOLATIONS; NO CONSENT REQUIRED, ETC.........................20
5.24 GOVERNMENT CONTRACTS; MINORITY BASED CONTRACTS..................21
5.25 ABSENCE OF CHANGES..............................................22
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY............................23
5.27 VALIDITY OF OBLIGATIONS.........................................23
5.28 RELATIONS WITH GOVERNMENTS......................................23
5.29 DISCLOSURE......................................................24
5.30 PROHIBITED ACTIVITIES...........................................24
5.31 NO WARRANTIES OR INSURANCE......................................24
5.32 INTEREST IN CUSTOMERS AND SUPPLIERS AND RELATED-PARTY
TRANSACTIONS....................................................24
5.33 AUTHORITY; OWNERSHIP; VALIDITY OF OBLIGATIONS...................25
5.34 PREEMPTIVE RIGHTS...............................................25
5.35 NO INTENTION TO DISPOSE OF PENTACON STOCK.......................25
6. REPRESENTATIONS OF PENTACON AND NEWCO.................................25
6.1 DUE ORGANIZATION................................................26
6.2 AUTHORIZATION...................................................26
6.3 CAPITAL STOCK OF PENTACON AND NEWCO.............................26
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING..........26
6.5 SUBSIDIARIES....................................................27
6.6 FINANCIAL STATEMENTS............................................27
6.7 LIABILITIES AND OBLIGATIONS.....................................27
6.8 CONFORMITY WITH LAW; LITIGATION.................................27
6.9 NO VIOLATIONS...................................................27
6.10 VALIDITY OF OBLIGATIONS.........................................28
6.11 PENTACON STOCK..................................................28
6.12 NO SIDE AGREEMENTS..............................................29
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS....................29
6.14 DISCLOSURE......................................................29
7. COVENANTS PRIOR TO CLOSING............................................29
7.1 ACCESS AND COOPERATION; DUE DILIGENCE...........................29
7.2 CONDUCT OF BUSINESS PENDING CLOSING.............................30
7.3 PROHIBITED ACTIVITIES...........................................31
7.4 NO SHOP.........................................................32
7.5 NOTICE TO BARGAINING AGENTS.....................................33
7.6 AGREEMENTS......................................................33
7.7 NOTIFICATION OF CERTAIN MATTERS BY THE STOCKHOLDERS AND THE
COMPANY.........................................................33
7.8 AMENDMENT OF SCHEDULES..........................................34
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7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT............35
7.10 FINAL FINANCIAL STATEMENTS......................................35
7.11 FURTHER ASSURANCES..............................................35
7.12 AUTHORIZED CAPITAL..............................................36
7.13 COMPLIANCE WITH THE ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇-▇▇▇▇▇▇ ANTITRUST
IMPROVEMENTS ACT OF 1976 (THE "▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ ACT")..........36
7.14 PRE-CLOSING NOTIFICATIONS.......................................36
7.15 PAYMENT OF INDEBTEDNESS.........................................36
7.16 MINIMUM VALUE...................................................37
7.17 DIRECTORS. ....................................................37
7.18 TRANSACTION REPORTING...........................................37
7.19 PERMITS.........................................................37
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY.......37
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS......37
8.2 SATISFACTION....................................................38
8.3 NO LITIGATION...................................................38
8.4 OPINION OF COUNSEL..............................................38
8.5 REGISTRATION STATEMENT..........................................38
8.6 CONSENTS AND APPROVALS..........................................38
8.7 GOOD STANDING CERTIFICATES......................................38
8.8 NO MATERIAL ADVERSE CHANGE......................................39
8.9 CLOSING OF IPO..................................................39
8.10 SECRETARY'S CERTIFICATE.........................................39
8.11 EMPLOYMENT AGREEMENTS...........................................39
8.12 TAX MATTERS.....................................................39
8.13 EXCHANGE LISTING................................................39
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PENTACON AND NEWCO.............39
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE AND OBLIGATIONS.....40
9.2 NO LITIGATION...................................................40
9.3 SECRETARY'S CERTIFICATE.........................................40
9.4 NO MATERIAL ADVERSE EFFECT......................................40
9.5 STOCKHOLDERS' RELEASE...........................................40
9.6 SATISFACTION....................................................41
9.7 TERMINATION OF RELATED PARTY AGREEMENTS.........................41
9.8 OPINION OF COUNSEL..............................................41
9.9 CONSENTS AND APPROVALS..........................................41
9.10 GOOD STANDING CERTIFICATES......................................41
9.11 REGISTRATION STATEMENT..........................................41
9.12 EMPLOYMENT AGREEMENTS...........................................41
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9.13 CLOSING OF IPO..................................................41
9.14 FIRPTA CERTIFICATE..............................................42
10. COVENANTS OF PENTACON AND THE STOCKHOLDERS AFTER CLOSING..............42
10.1 PRESERVATION OF TAX AND ACCOUNTING TREATMENT....................42
10.2 PREPARATION AND FILING OF TAX RETURNS...........................42
10.3 DIRECTORS.......................................................43
11. INDEMNIFICATION.......................................................43
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS.....................43
11.2 INDEMNIFICATION BY PENTACON.....................................44
11.3 THIRD PERSON CLAIMS.............................................45
11.4 EXCLUSIVE REMEDY................................................46
11.5 LIMITATIONS ON INDEMNIFICATION..................................46
12. TERMINATION OF AGREEMENT..............................................47
12.1 TERMINATION.....................................................47
12.2 LIABILITIES IN EVENT OF TERMINATION.............................48
13. NONCOMPETITION........................................................48
13.1 PROHIBITED ACTIVITIES...........................................48
13.2 DAMAGES.........................................................49
13.3 REASONABLE RESTRAINT............................................49
13.4 SEVERABILITY; REFORMATION.......................................50
13.5 INDEPENDENT COVENANT............................................50
13.6 MATERIALITY.....................................................50
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................50
14.1 STOCKHOLDERS....................................................50
14.2 PENTACON AND NEWCO..............................................51
14.3 DAMAGES.........................................................51
14.4 SURVIVAL........................................................52
15. TRANSFER RESTRICTIONS.................................................52
15.1 TRANSFER RESTRICTIONS...........................................52
16. FEDERAL SECURITIES ACT REPRESENTATIONS................................52
16.1 COMPLIANCE WITH LAW.............................................52
16.2 ECONOMIC RISK; SOPHISTICATION...................................53
17. REGISTRATION RIGHTS...................................................53
17.1 PIGGYBACK REGISTRATION RIGHTS...................................53
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17.2 REGISTRATION PROCEDURES.........................................54
17.3 INDEMNIFICATION.................................................55
17.4 UNDERWRITING AGREEMENT..........................................56
17.5 RULE 144 REPORTING..............................................56
18. GENERAL...............................................................57
18.1 COOPERATION.....................................................57
18.2 SUCCESSORS AND ASSIGNS..........................................57
18.3 ENTIRE AGREEMENT................................................57
18.4 COUNTERPARTS....................................................57
18.5 BROKERS AND AGENTS..............................................57
18.6 EXPENSES........................................................58
18.7 NOTICES.........................................................58
18.8 GOVERNING LAW...................................................60
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES......................60
18.10 EXERCISE OF RIGHTS AND REMEDIES.................................60
18.11 TIME............................................................60
18.12 REFORMATION AND SEVERABILITY....................................60
18.13 REMEDIES CUMULATIVE.............................................60
18.14 CAPTIONS........................................................61
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ANNEXES
Annex I - Consideration to Be Paid to Stockholders and Other
Stockholders
Annex II - Stockholders and Stock Ownership of the Company
Annex III - Certificate of Incorporation and By-Laws of Pentacon and
Newco
Annex IV - Form of Opinion of Counsel to Pentacon and Newco
Annex V - Form of Opinion of Counsel to Company and Stockholders
Annex VI - Form of Founder Employment Agreement
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SCHEDULES
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the Company
5.4 Transactions in Capital Stock, Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries
5.7 Predecessor Status; etc.
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, Consents, etc.
5.24 Government Contracts
5.25 Absence of Changes
5.26 Deposit Accounts; Powers of Attorney
5.30 Prohibited Activities
5.31 No Warranties or Insurance
5.32 Related Party Transactions
5.33 Exceptions Regarding Company Stock
5.35 No Intention to Dispose of Pentacon Stock
6.3 Capital Stock of Pentacon and Newco
6.4 Options, Warrants and Rights
6.8 Litigation
6.9 No Violations
6.12 Side Agreements
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Notice to Bargaining Agents
7.6 Termination Agreements
7.15 Obligations to be Paid at Closing
9.7 Continuing Related Party Agreements
9.12 Employment Agreements
13.1 Prohibited Activities
18.5 Brokers and Agents
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AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (this "Agreement") is made as of
the 1st day of December, 1997, by and among PENTACON, INC., a Delaware
corporation ("Pentacon"), SALES SYSTEMS LIMITED ACQUISITION COMPANY, a Delaware
corporation ("Newco"), SALES SYSTEMS, LIMITED, a Pennsylvania corporation (the
"Company"), and ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇. and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ (the "Stockholders
"), who, together with the other stockholders of the Company, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, who are not party to this Agreement (the "Other
Stockholders "), are all the stockholders of the Company, who herein agree as
follows:
RECITALS
WHEREAS, Newco is a corporation duly organized and existing under the laws
of the State of Delaware, having been incorporated on November 26, 1997, solely
for the purpose of completing the transactions set forth herein, and is a wholly
owned subsidiary of Pentacon, a corporation organized and existing under the
laws of the State of Delaware;
WHEREAS, the respective boards of directors of Newco and the Company
(which together are hereinafter collectively referred to as "Constituent
Corporations") deem it advisable and in the best interests of the Constituent
Corporations and their respective stockholders that Newco merge with and into
the Company pursuant to this Agreement and the applicable provisions of the laws
of the States of Delaware and the State of Incorporation (as hereinafter
defined);
WHEREAS, Pentacon is entering into other separate agreements substantially
similar to this Agreement (the "Other Agreements"), each of which is entitled
"Agreement and Plan of Organization,"with each of the Other Founding Companies
(as defined herein) and their respective stockholders in order to acquire
additional fasteners companies;
WHEREAS, this Agreement and the Other Agreements constitute the "Pentacon
Plan of Organization";
WHEREAS, the Stockholders and Other Stockholders and the boards of
directors and the stockholders of Pentacon, each of the Other Founding Companies
and each of the subsidiaries of Pentacon that are parties to the Other
Agreements have approved and adopted the Pentacon Plan of Organization as an
integrated plan pursuant to which the Stockholders, the Other Stockholders and
the stockholders of each of the other Founding Companies will transfer the
capital stock of each of the Founding Companies to Pentacon and the stockholders
of each of the other Founding Companies will acquire the stock of Pentacon (but
not cash or other property) as a tax-free transfer of property under Section 351
of the Code;
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WHEREAS, the Board of Directors of the Company has approved this Agreement
as part of the Pentacon Plan of Organization in order to transfer the capital
stock of the Company to Pentacon;
WHEREAS, unless the context otherwise requires, capitalized terms used in
this Agreement or in any schedule attached hereto and not otherwise defined
shall have the following meanings for all purposes of this Agreement:
"1933 ACT" means the Securities Act of 1933, as amended.
"1934 ACT" means the Securities Exchange Act of 1934, as amended.
"ACQUIRED PARTY" means the Company, any subsidiary and any member of a
Relevant Group.
"ACQUISITION COMPANIES" shall mean Newco and each of the other Delaware
companies wholly-owned by Pentacon prior to the Consummation Date.
"AFFILIATES" shall mean with respect to any person or entity, any other
person or entity that directly or indirectly, controls, is controlled, or is
under common control with such person or entity. For purposes hereof, control
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a Person, whether through
ownership of voting securities, by contract or otherwise.
"ARTICLES OF MERGER" shall mean those Articles or Certificates of Merger
with respect to the Merger in such forms as may be required by the laws of the
State of Delaware and the State of Incorporation.
"BALANCE SHEET DATE" means September 30, 1997.
"CHARTER DOCUMENTS" has the meaning set forth in Section 5.1.
"CLOSING" has the meaning set forth in Section 4.
"CLOSING DATE" has the meaning set forth in Section 4.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY STOCK" has the meaning set forth in Section 2.1.
"CONSTITUENT CORPORATIONS" has the meaning set forth in the second recital
of this Agreement.
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"CONSUMMATION DATE" has the meaning set forth in Section 4.
"DELAWARE GCL" has the meaning set forth in Section 1.4.
"DRAFT REGISTRATION STATEMENT" means the draft dated November 28, 1997, of
the Registration Statement, and any corrections thereto and supplemental
information delivered by Pentacon to the Company for delivery to the
Stockholders prior to the time this Agreement is delivered by the Company and
the Stockholders to Pentacon.
"EFFECTIVE TIME OF THE MERGER" shall mean the time as of which the Merger
becomes effective, which shall occur on the Consummation Date.
"ENVIRONMENTAL LAW" has the meaning set forth in Section 5.13.
"ERISA" has the meaning set forth in Section 5.19.
"EXPIRATION DATE" has the meaning set forth in Section 5(A).
"FINANCIAL STATEMENTS" has the meaning set forth in Section 5.9(ii).
"FOUNDING COMPANIES" means:
Alatec Products, Inc., a California corporation;
AXS Solutions, Inc., a Delaware corporation;
Capitol Bolt & Supply, Inc., a Texas corporation;
Maumee Industries, Inc., an Indiana corporation; and
Sales Systems, Limited, a Pennsylvania corporation.
"▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ ACT" has the meaning set forth in Section 7.13.
"HAZARDOUS SUBSTANCE" has the meaning set forth in Section 5.13(c).
"INTERIM FINANCIAL STATEMENTS" has the meaning set forth in Section
5.9(ii).
"IPO" means the initial public offering of Pentacon Stock pursuant to the
Registration Statement described herein.
"LICENSES" has the meaning set forth in Section 5.12.
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"MATERIAL ADVERSE EFFECT" means a material adverse effect on the business,
operations, properties, assets or condition (financial or otherwise), of the
subject entity and its subsidiaries taken as a whole.
"MATERIAL DOCUMENTS" has the meaning set forth in Section 5.23(a).
"MERGER" means the merger of Newco with and into the Company pursuant to
this Agreement and the applicable provisions of the laws of the State of
Delaware and the laws of the State of Incorporation.
"NEWCO" has the meaning set forth in the first paragraph of this
Agreement.
"NEWCO STOCK" means the common stock, par value $.0l per share, of Newco.
"OTHER AGREEMENTS" has the meaning set forth in the third recital hereof.
"OTHER FOUNDING COMPANIES" means all of the Founding Companies other than
the Company.
"OTHER STOCKHOLDERS" means those persons or entities owning stock in the
Company other than the Stockholders .
"PBGC" has the meaning set forth in Section 5.19.
"PENTACON" has the meaning set forth in the first paragraph of this
Agreement.
"PENTACON CHARTER DOCUMENTS" has the meaning set forth in Section 6.1
"PENTACON STOCK" means the common stock, par value $.01 per share, of
Pentacon.
"PERSON" means an individual, partnership, joint venture, corporation,
bank, trust, unincorporated organization or other entity.
"PRICING" means the date of determination by Pentacon and the Underwriters
of the public offering price of the shares of Pentacon Stock in the IPO; the
parties hereto contemplate that the Pricing shall take place on the Closing
Date.
"PROHIBITED ACTIVITIES" has the meaning set forth in Section 5.30.
"QUALIFIED PLANS" has the meaning set forth in Section 5.20.
"REDEMPTION AGREEMENTS" has the meaning set forth in Paragraph 3 of Annex
II.
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"REGISTRATION STATEMENT" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of Pentacon Stock to be issued
in the IPO and all amendments thereto.
"RELEVANT GROUP" means the Company and any affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member.
"RETURNS" means any returns, reports or statements (including any
information returns) required to be filed for purposes of reporting, computing
or otherwise required in connection with a particular Tax.
"SCHEDULE" means each Schedule attached hereto, which shall reference the
relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"STATE OF INCORPORATION" means the Commonwealth of Pennsylvania.
"STOCKHOLDERS" has the meaning set forth in the first paragraph of this
Agreement.
"SUBSIDIARIES" means with respect to a person or entity, any corporation
or other entity in which such person or entity owns a 5% or greater ownership
interest.
"SURVIVING CORPORATION" has the meaning set forth in Section 1.2.
"TAX" OR "TAXES" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, withholding, employment, excise, property, deed, stamp, alternative
or add on minimum, or other taxes, assessments, duties, fees, levies or other
governmental charges, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"UNDERWRITERS" means the prospective underwriters identified in the Draft
Registration Statement.
"YEAR-END FINANCIAL STATEMENTS" has the meaning set forth in Section
5.9(i).
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1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and
delivered to Pentacon to be held for filing with the Secretary of State of the
State of Delaware and the Secretary of State (or other appropriate authority) of
the State of Incorporation on or effective as of the Consummation Date.
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
Newco shall be merged with and into the Company in accordance with the Articles
of Merger and the separate existence of Newco shall cease. The Company shall be
the surviving party in the Merger and the Company is sometimes hereinafter
referred to as the "Surviving Corporation". As a result of the Merger, the
outstanding shares of capital stock of Newco and the Company shall be converted
or canceled in the manner provided in Section 2.
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF
SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of the Company then in effect
shall be the Certificate of Incorporation of the Surviving Corporation
until changed as provided by law;
(ii) the By-laws of Newco then in effect shall become the By-laws of
the Surviving Corporation; and subsequent to the Effective Time of the
Merger, such By-laws shall be the By-laws of the Surviving Corporation
until they shall thereafter be duly amended (and such By-laws shall be
amended, if necessary, to comply with applicable state law);
(iii) the Board of Directors of the Surviving Corporation shall
consist of the persons who are on the Board of Directors of the Company
immediately prior to the Effective Time of the Merger, provided that ▇▇▇▇▇
▇▇▇▇▇ shall become an additional director of the Surviving Corporation
effective as of the Effective Time of the Merger, and the number of
directors constituting the entire Board of Directors of the Company shall
be increased, if necessary, to accommodate the addition of such additional
director; the Board of Directors of the Surviving Corporation shall hold
office subject to the provisions of the laws of the State of Incorporation
and of the Certificate of Incorporation and By-laws of the Surviving
Corporation; and
(iv) the officers of the Company immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving
Corporation in the same capacity or capacities, and effective upon the
Effective Time of the Merger ▇▇▇▇▇ ▇▇▇▇▇▇▇ shall become an additional Vice
President and ▇▇▇▇▇ ▇▇▇▇▇ will become the Secretary of the Surviving
Corporation, such officers to serve, subject to the provisions of the
Certificate of Incorporation and By-laws of the Surviving Corporation,
until their respective successors are duly elected and qualified.
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1.4 EFFECT OF MERGER. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware (the "Delaware GCL") and the laws of
the State of Incorporation. Except as herein specifically set forth, the
identity, existence, purposes, powers, objects, franchises, privileges, rights
and immunities of the Company shall continue unaffected and unimpaired by the
Merger and the corporate franchises, existence and rights of Newco shall be
merged with and into the Company, and the Company, as the Surviving Corporation,
shall be fully vested therewith. At the Effective Time of the Merger, the
separate existence of Newco shall cease and, in accordance with the terms of
this Agreement, the Surviving Corporation shall possess all the rights,
privileges, immunities and franchises, of a public, as well as of a private,
nature, and all property, real, personal and mixed, and all debts due on
whatever account, including subscriptions to shares, and all taxes, including
those due and owing and those accrued, and all other choses in action, and all
and every other interest of or belonging to or due to the Company or Newco shall
be transferred to, and vested in, the Surviving Corporation without further act
or deed; and all property, rights and privileges, powers and franchises and all
and every other interest shall be thereafter as effectually the property of the
Surviving Corporation as they were of the Company and Newco; and the title to
any real estate, or interest therein, whether by deed or otherwise, under the
laws of the State of Incorporation vested in the Company or Newco, shall not
revert or be in any way impaired by reason of the Merger. Except as otherwise
provided herein, the Surviving Corporation shall thenceforth be responsible and
liable for all the liabilities and obligations of the Company and Newco and any
claim existing, or action or proceeding pending, by or against the Company or
Newco may be prosecuted as if the Merger had not taken place, or the Surviving
Corporation may be substituted in their place. Neither the rights of creditors
nor any liens upon the property of the Company or Newco shall be impaired by the
Merger, and all debts, liabilities and duties of the Company and Newco shall
attach to the Surviving Corporation, and may be enforced against such Surviving
Corporation to the same extent as if said debts, liabilities and duties had been
incurred or contracted by such Surviving Corporation.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding capital stock of the Company ("Company Stock") into shares of
Pentacon Stock and cash and (ii) outstanding Newco Stock into common stock of
the Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of Company Stock issued and outstanding
immediately prior to the Effective Time of the Merger (other than shares
of Company Stock subject to the Redemption Agreements), by virtue of the
Merger and without any action on the part of the holder thereof,
automatically shall be deemed to represent (1) the right to receive the
number of shares of Pentacon Stock set forth on Annex I hereto with
respect to such holder and (2) the right to receive the amount of cash set
forth on Annex I hereto with respect to such holder;
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(ii) all shares of Company Stock that are held by the Company as
treasury stock or which are otherwise issued but not outstanding
(including the shares of Company Stock subject to the Redemption
Agreements) shall be canceled and retired and shall cease to exist and no
shares of Pentacon Stock or other consideration shall be delivered or paid
in exchange therefor; and
(iii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time of the Merger, shall, by virtue of the Merger
and without any action on the part of Pentacon, automatically be converted
into one fully paid and non-assessable share of common stock of the
Surviving Corporation which shall constitute all of the issued and
outstanding shares of common stock of the Surviving Corporation
immediately after the Effective Time of the Merger.
All Pentacon Stock received by the Stockholders and Other Stockholders
pursuant to this Agreement shall, except for restrictions on resale or transfer
described in Sections 15 and 16 hereof, have the same rights as all the other
shares of outstanding Pentacon Stock by reason of the provisions of the
Certificate of Incorporation of Pentacon or as otherwise provided by the
Delaware GCL. All Pentacon Stock received by the Stockholders and Other
Stockholders shall be issued and delivered to the Stockholders and Other
Stockholders free and clear of any liens, claims or encumbrances of any kind or
nature. All voting rights of such Pentacon Stock received by the Stockholders
and Other Stockholders shall be fully exercisable by the Stockholders and Other
Stockholders and the Stockholders and Other Stockholders shall not be deprived
nor restricted in exercising those rights. At the Effective Time of the Merger,
Pentacon shall have no class of capital stock issued and outstanding other than
the Pentacon Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 EXCHANGE OF COMPANY STOCK FOR PENTACON STOCK. On the Consummation Date
the Stockholders and Other Stockholders , who are the holders of all of the
issued and outstanding Company Stock, shall, upon surrender of their share
certificates, receive the respective number of shares of Pentacon Stock, the
amount of cash or the combination of Pentacon Stock or cash (as appropriate) set
forth on Annex I hereto, said cash to be payable by certified check, or if
hereafter agreed by the Stockholders and Pentacon, by wire transfer.
3.2 ENDORSED CERTIFICATES; DEFICIENCIES CURED. The Stockholders and Other
Stockholders shall deliver to Pentacon at the Closing the certificates
representing Company Stock, duly endorsed in blank by the Stockholders and Other
Stockholders, or accompanied by blank stock powers, and with all necessary
transfer tax and other revenue stamps, acquired at the Stockholders' and Other
Stockholders' expense, affixed and canceled. The Stockholders and Other
Stockholders agree promptly to cure any deficiencies with respect to the
endorsement of the stock certificates or other documents of conveyance with
respect to such Company Stock or with respect to the stock powers accompanying
any Company Stock.
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4. CLOSING
At or prior to the Pricing, the parties shall take all actions reasonably
necessary to prepare to (i) effect the Merger (including the execution of the
Articles of Merger which shall be placed in escrow with Pentacon for filing with
the appropriate authorities effective on the Consummation Date, subject,
however, to satisfaction or waiver of all conditions precedent) and (ii) effect
the conversion and delivery of shares referred to in Section 3 hereof; provided,
that such actions shall not include the actual completion of the Merger or the
conversion and delivery of the shares and certified check(s) (or wire transfers)
referred to in Section 3 hereof, each of which actions shall only be taken upon
the Consummation Date as herein provided. In the event that there is no
Consummation Date and this Agreement automatically terminates as provided in
this Section 4 the Articles of Merger shall not be filed and shall be promptly
returned to the Stockholders. The taking of the actions described in clauses (i)
and (ii) above (the "Closing") shall take place on the closing date (the
"Closing Date") at the offices of ▇▇▇▇▇▇▇ & ▇▇▇▇▇ L.L.P, 4200 Texas Commerce
Tower, ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ or such place as may be agreed between
the Stockholders and Pentacon. On the Consummation Date (x) the Articles of
Merger shall be filed with the appropriate state authorities so that they shall
be, as early as practicable on the Consummation Date, effective and the Merger
shall thereby be effected, (y) all transactions contemplated by this Agreement,
including the conversion and delivery of shares, the delivery of a certified
check or checks (or wire transfers) in an amount equal to the cash portion of
the consideration which the Stockholders shall be entitled to receive pursuant
to Section 3 hereof shall occur and be completed and (z) the closing with
respect to the IPO shall occur and be completed. The date on which the actions
described in the preceding clauses (x), (y) and (z) occurs shall be referred to
as the "Consummation Date". During the period from the Closing Date to the
Consummation Date, this Agreement may only be terminated by the parties if the
underwriting agreement in respect of the IPO is terminated pursuant to the terms
of such underwriting agreement. This Agreement shall also in any event
automatically terminate if the Consummation Date has not occurred within 15
business days following the Closing Date. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS.
Each of the Stockholders, jointly and severally, and the Company represent
and warrant that all of the following representations and warranties in this
Section 5(A) are true at the date of this Agreement, and that such
representations and warranties shall survive the Consummation Date for a period
of twenty-four months (the last day of such period being the "Expiration Date"),
except that the warranties and representations set forth in Sections 5.13 and
5.22 hereof shall survive until such time as the applicable statute of
limitations period has run or for five (5) years if there is no applicable
statute of limitations, which shall be deemed to be the Expiration Date for
Sections 5.13 and 5.22. For purposes of this Section 5, the term "Company" shall
mean and refer to the Company and all of its Subsidiaries, if any.
-9-
5.1 DUE ORGANIZATION. The Company is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Incorporation, and has the requisite power and authority to carry on its
business as it is now being conducted. The Company is duly qualified to do
business and is in good standing in each jurisdiction in which failure to so
qualify would reasonably be expected to have a Material Adverse Effect on the
Company. Schedule 5.1 sets forth a list of all jurisdictions in which the
Company is authorized or qualified to do business. True, complete and correct
copies of (i) the Certificate of Incorporation and By-laws, each as amended, of
the Company (the "Charter Documents"), and (ii) the stock records of the Company
(including, without limitation, a copy of the Company's stock ledger), are all
attached to Schedule 5.1. The Company has delivered complete and correct copies
of all minutes of meetings, written consents and other written evidence, if any,
of deliberations of or actions taken by the Company's Board of Directors, any
Committees of the Board of Directors and stockholders during the last five
years.
5.2 AUTHORIZATION. (i) The officers or other representatives of the
Company executing this Agreement have the authority to enter into and bind the
Company to the terms of this Agreement and (ii) the Company has the full legal
right, power and authority to enter into this Agreement and the Merger. The
directors and Stockholders and Other Stockholders have approved this Agreement
and the transactions contemplated hereby in all respects, and copies of all such
resolutions, certified by the Secretary or an Assistant Secretary of the Company
as being in full force and effect on the date hereof, are attached hereto as
Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the Company are owned by the Stockholders and
Other Stockholders in the amounts set forth in Annex II. Each Stockholder and
each of the Other Stockholders by their execution of the Limited Joinder hereto,
severally represents and warrants that except as set forth on Schedule 5.3, the
shares of capital stock of the Company owned by each Stockholder and Other
Stockholder are owned free and clear of all liens, security interests, pledges,
charges, voting trusts, restrictions, encumbrances and claims of every kind. All
of the issued and outstanding shares of the capital stock of the Company have
been duly authorized and validly issued, are fully paid and nonassessable, are
owned of record and beneficially by the Stockholders and Other Stockholders and
further, such shares were offered, issued, sold and delivered by the Company in
compliance with all applicable state and Federal laws concerning the issuance of
securities. Further, none of such shares were issued in violation of any
preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, the Company has not acquired or redeemed any Company
Stock since January 1, 1995. Except as set forth on Schedule 5.4, (i) no option,
warrant, call, conversion right or commitment of any kind exists which obligates
the Company to issue any of its authorized but unissued capital stock; (ii) the
Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in respect thereof; and (iii) neither
the voting stock structure of the Company nor the
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relative ownership of shares among any of its respective stockholders has been
altered or changed in contemplation of the Merger and/or the Pentacon Plan of
Organization. Except as set forth in Schedule 5.4, there are no voting trusts,
proxies or other agreements or understandings to which the Company or any of its
stockholders is a party or is bound with respect to the voting of any shares of
capital stock of the Company.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the Merger or the Pentacon Plan of Organization.
5.6 SUBSIDIARIES; OWNERSHIP IN OTHER ENTITIES. Except as set forth on
Schedule 5.6, the Company has no Subsidiaries. Except as set forth in Schedule
5.6, the Company does not presently own, of record or beneficially, or control,
directly or indirectly, any capital stock, securities convertible into capital
stock or any other equity interest in any corporation, association or business
entity nor is the Company, directly or indirectly, a participant in any joint
venture, partnership or other non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a listing of all
predecessor companies of the Company, including the names of any entities
acquired by the Company (by stock purchase, merger or otherwise) or owned by the
Company or from whom the Company previously acquired material assets, in any
case, from the earliest date upon which any Stockholder acquired his or her
stock in any Company. Except as disclosed on Schedule 5.7, the Company has not
been, within such period of time, a subsidiary or division of another
corporation or a part of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
Company or any other person or entity that is an Affiliate of the Company since
January 1, 1995.
5.9 FINANCIAL STATEMENTS. Complete and correct copies of the following
financial statements are attached hereto as Schedule 5.9:
(i) the balance sheets of the Company as of December 31, 1995 and
1996 and the related statements of operations, stockholder's equity and
cash flows for the two-year period ended December 31, 1996, together with
the related notes and schedules (such balance sheets, the related
statements of operations, stockholder's equity and cash flows and the
related notes and schedules are referred to herein as the "Year-end
Financial Statements"); and
(ii) the balance sheet of the Company as of September 30, 1997, (the
"Interim Balance Sheet") and the related statements of operations,
stockholder's equity and cash flows for the nine-month periods ended
September 30, 1997, together with the related notes and schedules (such
balance sheets, the related statements of operations, stockholder's equity
and
-11-
cash flows and the related notes and schedules are referred to herein as
the "Interim Financial Statements"). The Year-end Financial Statements and
the Interim Financial Statements are collectively called the "Financial
Statements".
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an accurate
list as of the Balance Sheet Date of (i) all liabilities of the Company which
are not reflected on the Interim Balance Sheet of the Company at the Balance
Sheet Date or otherwise reflected in the Interim Financial Statements at the
Balance Sheet Date except for those liabilities not required to be reflected or
disclosed under generally accepted accounting principles or F.A.S.B. 5 and which
were not reflected or disclosed in the Interim Balance Sheet, and (ii) all loan
agreements, indemnity or guaranty agreements, bonds, mortgages, pledges or other
security agreements to which the Company is a party or by which its properties
may be bound. Except as set forth on Schedule 5.10, since the Balance Sheet
Date, the Company has not incurred any liabilities or obligations of any kind,
character or description, whether accrued, absolute, secured or unsecured,
contingent or otherwise, other than liabilities incurred in the ordinary course
of business and consistent with past practices. The Company has also delivered
to Pentacon on Schedule 5.10, in the case of those contingent liabilities
related to pending or threatened litigation, a good faith and reasonable
estimate (to the extent the Company can reasonably make an estimate) of the
maximum amount which the Company reasonably expects may be payable and the
amount, if any, accrued or reserved for each such potential liability on the
Company's Financial Statements. If no estimate is provided, the estimate shall
for purposes of this Agreement be deemed to be zero. For each such contingent
liability or liability for which the amount is not fixed or is contested, the
Company has provided to Pentacon the following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating thereto;
(b) amounts claimed and any other action or relief sought;
and
(c) name of claimant and all other parties to the claim,
suit or proceeding;
(ii) the name of each court or agency before which such claim, suit
or proceeding is pending; and
(iii) the date (if any) on which such claim, suit or proceeding was
instituted or the date (period) to which such claim relates.
5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an accurate
list of the accounts and notes receivable of the Company, as of the Balance
Sheet Date, including any such amounts which are not reflected in the Interim
Balance Sheet as of the Balance Sheet Date, and including receivables from and
advances to employees and the Stockholders or Other Stockholders, which are
identified as such. Except to the extent reflected on Schedule 5.11, such
accounts, notes
-12-
and other receivables are collectible in the amounts shown on Schedule 5.11, net
of reserves reflected in the Interim Balance Sheet of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company holds all material licenses,
franchises, permits and other governmental authorizations ("Licenses") necessary
to conduct the business of the Company and the Company has delivered to Pentacon
an accurate list and summary description (which is set forth on Schedule 5.12)
of all such material Licenses, including any material trademarks, trade names,
patents, patent applications and copyrights owned or held by the Company or any
of its employees (including interests in software or other technology systems,
programs and intellectual property). At or prior to the Closing, all rights to
such trademarks, trade names, patents, patent applications, copyrights and other
intellectual property held by the Stockholders, or their Affiliates will be
assigned or licensed to the Company for no additional consideration. The
Licenses and other rights listed on Schedule 5.12 are valid, and the Company has
not received any notice that any person intends to cancel, terminate or not
renew any such License or other right. The Company has conducted and is
conducting its business in compliance with the requirements, standards, criteria
and conditions set forth in the Licenses and other rights listed on Schedule
5.12 and is not in violation of any of the foregoing. Except as specifically
provided in Schedule 5.12, the transactions contemplated by this Agreement will
not result in a default under or a breach or violation of, or adversely affect
the rights and benefits afforded to the Company by, any such Licenses or other
rights.
5.13 ENVIRONMENTAL MATTERS. Except as set forth in Schedule 5.13 attached
hereto, (i) the Company has conducted its businesses in compliance with all
applicable Environmental Laws, including, without limitation, having all
environmental permits, licenses and other approvals and authorizations necessary
for the operation of its business as presently conducted, (ii) none of the
properties owned by the Company contain any Hazardous Substance as a result of
any activity of the Company in amounts exceeding the levels permitted by
applicable Environmental Laws, (iii) the Company has not received any notices,
demand letters or requests for information from any Federal, state, local or
foreign governmental entity or third party indicating that the Company may be in
violation of, or liable under, any Environmental Law in connection with the
ownership or operation of its business, (iv) there are no civil, criminal or
administrative actions, suits, demands, claims, hearings, investigations or
proceedings pending or to the knowledge of the Stockholders threatened, against
the Company relating to any violation, or alleged violation, of any
Environmental Law, (v) no reports have been filed, or are required to be filed,
by the Company concerning the release of any Hazardous Substance or the
threatened or actual violation of any Environmental Law, (vi) no Hazardous
Substance has been disposed of, released or transported in violation of any
applicable Environmental Law from any properties owned by the Company as a
result of any activity of the Company during the time such properties were
owned, leased or operated by the Company, (vii) there have been no environmental
investigations, studies, audits, tests, reviews or other analysis regarding
compliance or non-compliance with any applicable Environmental Law conducted by
or which are in the possession of or readily available to the Company relating
to the activities of the Company which are not listed on Schedule 5.13 attached
hereto prior to the date hereof, (viii) there are no underground storage tanks
on, in or under any properties owned by the Company and no
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underground storage tanks have been closed or removed from any of such
properties during the time such properties were owned, leased or operated by the
Company, (ix) there is no asbestos or asbestos containing material present in
any of the properties owned by the Company, and no asbestos has been removed
from any of such properties during the time such properties were owned, leased
or operated by the Company, and (x) neither the Company nor any of its
respective properties are subject to any material liabilities or expenditures
(fixed or contingent) relating to any suit, settlement, court order,
administrative order, regulatory requirement, judgment or claim asserted or
arising under any Environmental Law.
(b) As used herein, "ENVIRONMENTAL LAW" means any federal, state, local or
foreign law, statute, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, legal doctrine, order, judgment, decree,
injunction, requirement or agreement with any governmental entity which is
applicable where the Company conducts or conducted business or owns or owned
property or is applicable to any disposal, transportation or release of
Hazardous Substances by or for the Company and, in each case, relates to (x) the
protection, preservation or restoration of the environment (including, without
limitation, air, water vapor, surface water, groundwater, drinking water supply,
surface land, subsurface land, plant and animal life or any other natural
resource) or to human health or safety or (y) the exposure to, or the use,
storage, recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Hazardous Substances, in each case
as amended and as in effect on the Closing Date. The term Environmental Law
includes, without limitation, (i) the Federal Comprehensive Environmental
Response Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act, the Federal Water Pollution Control Act of 1972, the
Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource
Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste
Amendments thereto), the Federal Solid Waste Disposal and the Federal Toxic
Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide Act,
the Federal Occupational Safety and Health Act of 1970, each as amended and as
in effect on the Closing Date, and (ii) any common law or equitable doctrine
(including, without limitation, injunctive relief and tort doctrines such as
negligence, nuisance, trespass and strict liability) that may impose liability
or obligations for injuries or damages due to, or threatened as a result of, the
presence of, effects of or exposure to any Hazardous Substance.
(c) As used herein, "Hazardous Substance" means any substance presently
listed, defined, designated or classified as hazardous, toxic, radioactive, or
dangerous, or otherwise regulated, under any Environmental Law. Hazardous
Substance includes any substance to which exposure is regulated by any
government authority or any Environmental Law including, without limitation, any
toxic waste, pollutant, contaminant, hazardous substance, toxic substance,
hazardous waste, special waste, industrial substance or petroleum or any
derivative or by-product thereof, radon, radioactive material, asbestos or
asbestos containing material, urea formaldehyde foam insulation, lead or
polychlorinated biphenyls.
-14-
5.14 PERSONAL PROPERTY. The Company has delivered to Pentacon an accurate
list (which is set forth on Schedule 5.14) of (x) all personal property material
to the operations of the Company included in "plant, property and equipment" on
the Interim Balance Sheet of the Company, (y) all other personal property owned
by the Company with an individual fair market value in excess of $5,000 (i) as
of the Balance Sheet Date and (ii) acquired since the Balance Sheet Date and (z)
all material leases and agreements in respect of personal property, including,
in the case of each of (x), (y) and (z), (1) true, complete and correct copies
of all such leases and (2) an indication as to which assets are currently owned,
or were formerly owned, by Stockholders or Other Stockholders, relatives of
Stockholders or Other Stockholders, or Affiliates of the Company. Except as set
forth on Schedule 5.14, (i) all material personal property used by the Company
in its business is either owned by the Company or leased by the Company pursuant
to a lease included on Schedule 5.14, (ii) all of the personal property listed
on Schedule 5.14 is in working order and condition sufficient for the operation
of the Company's business, ordinary wear and tear excepted and (iii) all leases
and agreements included on Schedule 5.14 are in full force and effect and
constitute valid and binding agreements of the Company and of the other parties
(and their successors) thereto in accordance with their respective terms.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS
(a) The Company has delivered to Pentacon an accurate list (which is set
forth on Schedule 5.15) of all customers (persons or entities) representing 5%
or more of the Company's annual revenues for the period covered by any of the
most current Year-End Financial Statements. Except to the extent set forth on
Schedule 5.15, none of such customers have canceled or substantially reduced or,
to the knowledge of the Company and the Stockholders, are currently attempting
or threatening to cancel a contract or substantially reduce utilization of the
services provided by the Company.
(b) The Company has listed on Schedule 5.15 all material contracts,
commitments and similar agreements to which the Company is a party or by which
it or any of its properties are bound (including, but not limited to, contracts
with significant customers, joint venture or partnership agreements, contracts
with any labor organizations, strategic alliances and options to purchase land),
other than agreements listed on Schedules 5.10, 5.14 or 5.16, (a) in existence
as of the Balance Sheet Date and (b) entered into since the Balance Sheet Date,
and in each case has delivered (or, in the case of supplier and distributor
contracts and customer contracts on standard purchase forms, has made available)
true, complete and correct copies of such agreements to Pentacon. The Company
has also indicated on Schedule 5.15 a summary description of all plans or
projects commenced or approved in the last six (6) months and involving the
opening of new operations, expansion of existing operations, the acquisition of
any personal property, business or assets requiring, in any event, the payment
of more than $20,000 by the Company during any 12-month period.
(c) Except as set forth on Schedule 5.15, since January 1, 1995, the
Company has not experienced any difficulties in obtaining any inventory items
necessary to the operation of its business, and, to the knowledge of the Company
and the Stockholders, no such shortage of supply
-15-
of inventory items is threatened or pending. To the knowledge of the Company and
the Stockholders, no customer or supplier of the Company will cease to do
business with, or substantially reduce its purchases from, the Company after the
consummation of the transactions contemplated hereby.
(d) The Company is not required to provide any bonding or other financial
security arrangements in any material amount in connection with any transactions
with any of its customers or suppliers.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real property
owned or leased by the Company at the date hereof and all other real property,
if any, used by the Company in the conduct of its business. Except as set forth
on Schedule 5.16, any such real property owned by the Company will be sold or
distributed by the Company on terms acceptable to Pentacon and leased back by
the Company on terms no less favorable to the Company than those available from
an unaffiliated party and otherwise reasonably acceptable to Pentacon at or
prior to the Closing Date. The Company has good and insurable title to any real
property owned by it that is shown on Schedule 5.16, other than property
intended to be sold or distributed prior to the Closing Date, subject to no
mortgage, pledge, lien, conditional sales agreement, encumbrance or charge,
except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet payable and assessments not in
default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title which do not adversely affect the current use of the property.
True, complete and correct copies of all leases and agreements in respect
of such real property leased by the Company are attached to Schedule 5.16, and
an indication as to which such properties, if any, are currently owned, or were
formerly owned, by Stockholders or Other Stockholders or Affiliates of the
Company or Stockholders or Other Stockholders is included in Schedule 5.16.
Except as set forth on Schedule 5.16, all of such leases included on Schedule
5.16 are in full force and effect and constitute valid and binding agreements of
the Company and of the other parties (and their successors) thereto in
accordance with their respective terms.
5.17 INSURANCE. Set forth on Schedule 5.17 is an accurate list as of the
Balance Sheet Date of all insurance policies carried by the Company, (ii) an
accurate list of all insurance loss runs (to the extent available) or workers
compensation claims received for the past three policy years. True, complete and
correct copies of all insurance policies currently in effect have been delivered
or made available to Pentacon. Such insurance policies evidence all of the
insurance that the
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Company is required to carry pursuant to all of its contracts and other
agreements and pursuant to all applicable laws, and, in the reasonable judgment
of the Company's management, provide adequate coverage against the risks
involved in the Company's business. All of such insurance policies are currently
in full force and effect and are scheduled to remain in full force and effect
through the Consummation Date. Since January 1, 1995, no insurance carried by
the Company has been canceled by the insurer and the Company has not been denied
coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; LABOR MATTERS.
(a) The Company has delivered to Pentacon an accurate list (which is set
forth on Schedule 5.18) showing all officers, directors and key employees of the
Company, listing all employment agreements with such officers, directors and key
employees and the rate of compensation (and the portions thereof attributable to
salary, bonus and other compensation, respectively) of each of such persons as
of (i) the Balance Sheet Date and (ii) the date hereof. The Company has provided
to Pentacon true, complete and correct copies of any existing employment
agreements for persons listed on Schedule 5.18. Since the Balance Sheet Date and
except as described in Schedule 5.18, there have been no increases in the
compensation payable or any special bonuses to any officer, director, key
employee or other employee, except ordinary salary increases implemented on a
basis consistent with past practices and bonuses, as described in Schedule 5.18.
(b) Except as set forth on Schedule 5.18, (i) the Company is not bound by
or subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union, (ii) no employees of the
Company are represented by any labor union or covered by any collective
bargaining agreement, (iii) to the best knowledge of the Company, no campaign to
establish such representation is in progress and (iv) there is no pending or, to
the knowledge of the Company and the Stockholders, threatened labor dispute
involving the Company and any group of its employees nor has the Company
experienced any labor interruptions over the past three years.
(c) Except as set forth in Schedule 5.18 attached hereto, (i) there are no
significant controversies pending or, to the knowledge of the Company and the
Stockholders, threatened between the Company and any of its employees, (ii) the
Company has complied in all material respects with all laws relating to the
employment of labor, including, without limitation, any provisions thereof
relating to wages, hours, collective bargaining, and the payment of social
security and similar taxes, and (iii) to the knowledge of the Company and the
Stockholders, no person has asserted that the Company is liable in any material
amount for any arrears of wages or any taxes or penalties for failure to comply
with any of the foregoing.
5.19 EMPLOYEE PLANS. Schedule 5.19 accurately reflects all employee
benefit plans of the Company, including all employment agreements and other
agreements or arrangements containing "golden parachute" or other similar
provisions, and deferred compensation agreements, together with true, complete
and correct copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on Schedule 5.19, the
Company does not sponsor,
-17-
maintain or contribute to any plan program, fund or arrangement that constitutes
an "employee pension benefit plan", and neither the Company nor any subsidiary
has any obligation to contribute to or accrue or pay any benefits under any
deferred compensation or retirement funding arrangement on behalf of any
employee or employees (such as, for example, and without limitation, any
individual retirement account or annuity, any "excess benefit plan" (within the
meaning of Section 3(36) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) or any non-qualified deferred compensation arrangement).
For the purposes of this Agreement, the term "employee pension benefit plan"
shall have the same meaning as is given that term in Section 3(2) of ERISA. The
Company has not sponsored, maintained or contributed to any employee pension
benefit plan other than the plans set forth on Schedule 5.19, and the Company is
not or could not be required to contribute to any retirement plan pursuant to
the provisions of any collective bargaining agreement establishing the terms and
conditions or employment of any of the Company's employees.
Except as set forth on Schedule 5.19, the Company is not now, or will not
as a result of its past activities become, liable to the Pension Benefit
Guaranty Corporation ("PBGC") or to any multiemployer employee pension benefit
plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 5.19 and the administration
thereof are in compliance with their terms and all applicable provisions of
ERISA and the regulations issued thereunder, as well as with all other
applicable federal, state and local statutes, ordinances and regulations.
All accrued contribution obligations of the Company with respect to any
plan listed on Schedule 5.19 as of the Balance Sheet Date have either been
fulfilled in their entirety or are fully reflected on the Interim Balance Sheet
as of the Balance Sheet Date.
5.20 COMPLIANCE WITH ERISA. Except as set forth on Schedule 5.20, All such
plans listed on Schedule 5.19 that are intended to qualify (the "Qualified
Plans") under Section 401 (a) of the Code are, and have been so qualified and
have been determined by the Internal Revenue Service to be so qualified, and
copies of the most recent determination letters with respect thereto are
attached to Schedule 5.19. Except as disclosed on Schedule 5.20, all reports and
other documents required to be filed with any governmental agency or distributed
to plan participants or beneficiaries (including, but not limited to, actuarial
reports, audits or tax returns) have been timely filed or distributed, and
copies of the most recent reports and filing relating thereto are included as
part of Schedule 5.19 hereof. Neither Stockholders, the Other Stockholders, any
such plan listed in Schedule 5.19, nor the Company has engaged in any
transaction prohibited under the provisions of Section 4975 of the Code or
Section 406 of ERISA. No such Plan listed in Schedule 5.19 has incurred an
accumulated funding deficiency, as defined in Section 412(a) of the Code and
Section 302(l) of ERISA; and the Company has not incurred any liability for
excise tax or penalty due to the Internal Revenue Service nor any liability to
the PBGC. The Stockholders further represent that except as set forth on
Schedule 5.19 hereto:
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(i) there have been no terminations, partial terminations or
discontinuations of contributions to any Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and approval by
the Internal Revenue Service;
(ii) no plan listed in Schedule 5.19 subject to the provisions of
Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed in
Schedule 5.19;
(iv) the Company (including any subsidiaries) has not incurred
liability under Section 4062 of ERISA; and
(v) to the knowledge of the Company and the Stockholders, no
circumstances exist pursuant to which the Company would be reasonably
likely to have any direct or indirect liability whatsoever (including, but
not limited to, any liability to any multiemployer plan or the PBGC under
Title IV of ERISA or to the Internal Revenue Service for any excise tax or
penalty, or being subject to any statutory lien to secure payment of any
such liability) with respect to any plan now or heretofore maintained or
contributed to by any entity other than the Company that is, or at any
time was, a member of a "controlled group" (as defined in Section
412(n)(6)(B) of the Code) that includes the Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13 or in other Schedules to this Agreement, the Company is
not in violation of any law or regulation or any order of any court or Federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality having jurisdiction over it; and except to the extent
set forth on Schedule 5.10 or 5.13, there are no claims, actions, suits or
proceedings, pending or, to the knowledge of the Company and the Stockholders,
threatened against or affecting, the Company, at law or in equity, or before or
by any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over any of them
and no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received by the Company, and, to the knowledge of the
Company and the Stockholders, there is no basis for any such claim, action, suit
or proceeding. The Company has conducted and is now conducting its business in
substantial compliance with the requirements, standards, criteria and conditions
set forth in applicable Federal, state and local statutes, ordinances, orders,
approvals, variances, rules and regulations.
5.22 TAXES.
(a) Except as set forth in Schedule 5.22, the Company has timely filed all
requisite Federal, state and other Tax Returns or extension requests for all
fiscal periods ended on or before the Balance Sheet Date; and except as set
forth on Schedule 5.22, the Company has no notice that any examinations are in
progress or that any claims are pending against it for federal, state and other
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Taxes (including penalties and interest) for any period or periods prior to and
including the Balance Sheet Date and no notice of any claim for Taxes, whether
pending or threatened, has been received. Except as set forth in Schedule 5.22,
all Tax, including interest and penalties (whether or not shown on any Tax
Return) owed by the Company has been paid or accrued in its financial accounts.
The amounts shown as accruals for Taxes on the Company Financial Statements are
sufficient for the payment of all Taxes of the kinds indicated (including
penalties and interest) for all fiscal periods ended on or before that date.
Copies of (i) any tax examinations, (ii) extensions of statutory limitations and
(iii) the federal and local income Tax Returns and franchise Tax Returns of
Company for their last three (3) fiscal years, or such shorter period of time as
any of them shall have existed, are attached hereto as Schedule 5.22 or have
otherwise been delivered to Pentacon. The Company has a taxable year ended
December 31. Except as set forth on Schedule 5.22, Company uses the accrual
method of accounting for income tax purposes, and the Company's methods of
accounting have not changed in the past five years. The Company is not an
investment Company as defined in Section 351(e)(1) of the Code. Except as set
forth in Schedule 5.22, the Company is not and has not during the last five
years been a party to any tax sharing agreement or agreement of similar effect.
The Company is not and has not during the last five years been a member of any
consolidated group. Except as set forth on Schedule 5.22, the Company has not
received, been denied, or applied for any private letter ruling during the last
ten years.
(b) The stockholders of the Company made a valid election under the
provisions of Subchapter S of the Code and the Company has not, within the past
twelve (12) months, been taxed under the provisions of Subchapter C of the Code.
The Stockholders shall pay all income taxes with respect to the Company payable
for all periods through and including the Closing Date, except for income taxes
of the Company which are accrued on the Interim Balance Sheet and payable by the
Company.
5.23 NO VIOLATIONS; NO CONSENT REQUIRED, ETC.
(a) The Company is not in violation of any Charter Document. Except as set
forth in Schedule 5.23, neither the Company nor, to the best knowledge of the
Company and the Stockholders, any other party thereto, is in default under any
lease, instrument, agreement, license, or permit set forth on Schedule 5.12,
5.13, 5.14, 5.15 or 5.16, or any other material agreement to which it is a party
or by which its properties are bound (the "Material Documents").
(b) Except as set forth in Schedule 5.23, the execution and delivery of
this Agreement by each of the Company and the Stockholders do not violate,
conflict with or result in a breach of any provision of, or constitute a default
(or an event which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate the performance
required by, or result in a right of termination or acceleration under, or
result in the creation of any lien, security interest, charge or encumbrance
upon any of the properties or assets of the Company under any of the terms,
conditions or provisions of (i) the Charter Documents (ii) any statute, law,
ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit
or license of any court or governmental authority applicable to the Company or
any of its properties or assets, or (iii) any
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Material Document or other material instrument, obligation or agreement of any
kind to which the Company or any of the Stockholders is now a party or by which
any of the Stockholders or the Company or any of its properties or assets may be
bound or affected. The consummation by the Company and the Stockholders of the
transactions contemplated hereby will not result in any violation, conflict,
breach, right of termination or acceleration or creation of liens under any of
the terms, conditions or provisions of the items described in clauses (i)
through (iii) of the preceding sentence, subject, in the case of the terms,
conditions or provisions of the items described in clause (iii) above, to
obtaining (prior to the Effective Time of the Merger) such consents as may be
required from commercial lenders, lessors or other third parties.
(c) Except as set forth on Schedule 5.23, none of the Material Documents
requires notice to, or the consent or approval of, any governmental agency or
other third party with respect to any of the transactions contemplated hereby in
order to remain in full force and effect, and consummation of the transactions
contemplated hereby will not give rise to any right to termination, cancellation
or acceleration or loss of any material right or benefit.
(d) Except (i) for the filings by Pentacon in connection with the IPO of
the Registration Statement, (ii) for the declaration of the effectiveness
thereof by the SEC and filings with various state blue sky authorities, (iii)
for the making of the merger filings with the Secretary of State of the State of
Delaware and the State of Incorporation in connection with the Merger, (iv) for
filings in connection with listing on the NASDAQ National Market System or New
York Stock Exchange or other nationally recognized securities exchange; (v) for
possible filings under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act as contemplated in Section 7.13
and (vi) as set forth in Schedule 5.23, neither the Company nor the Stockholders
are required to make any declaration, filing or registration with, or notice to,
or obtain any authorization, consent or approval of, any governmental or
regulatory body or authority is necessary for the execution and delivery of this
Agreement by the Company and the Stockholders or the consummation by the Company
and the Stockholders of the transactions contemplated hereby.
(e) Except as set forth on Schedule 5.23, none of the Material Documents
prohibits the use or publication by the Company, Pentacon or Newco of the name
of any other party to such Material Document, and none of the Material Documents
prohibits or restricts the Company from freely providing services or selling
products to any other customer or potential customer of the Company, Pentacon,
Newco or any Other Founding Company.
5.24 GOVERNMENT CONTRACTS; MINORITY BASED CONTRACTS. Except as set forth
on Schedule 5.24, the Company is not now a party to any governmental contract
that, by its express terms, is subject to price redetermination or renegotiation
or that is customarily subject to price redetermination or renegotiations in the
ordinary course of business. Except as set forth on Schedule 5.24, the Company
is not now a party to any material contract based on minority ownership which
would be canceled or otherwise materially adversely impacted by completion of
the Pentacon Plan of Organization.
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5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.25 or as otherwise contemplated hereby, there has not been:
(i) any Material Adverse Effect with respect to the Company;
(ii) any damage, destruction or loss (whether or not covered by
insurance), alone or in the aggregate, materially adversely affecting the
properties or business of the Company;
(iii) any change in the authorized capital of the Company or its
outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of the Company
except for distributions that would have been permitted after the date
hereof under Section 7.3(iii) hereof,
(v) any increase in the compensation, bonus, sales commissions or
fee arrangement payable or to become payable by the Company to any of its
officers, directors, Stockholders, employees, consultants or agents,
except for ordinary and customary bonuses and salary increases for
employees in accordance with past practice;
(vi) any work interruptions, labor grievances or claims filed, or
any event or condition of any character, materially adversely affecting
the business or future prospects of the Company;
(vii) any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of Company outside of the ordinary
course of business to any person, including, without limitation, the
Stockholders, Other Stockholders and their respective affiliates;
(viii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, including without limitation any
indebtedness or obligation of any Stockholders, Other Stockholders or any
respective affiliate thereof;
(ix) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of the Company or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside
of the ordinary course of the Company's business;
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(xi) any waiver of any material rights or claims of the Company;
(xii) any amendment or termination of any Material Document;
(xiii) any transaction by the Company outside the ordinary course of
its business;
(xiv) any cancellation or termination of a Material Document or
material customer contract with a customer or client prior to the
scheduled termination date; or
(xv) any other distribution of property or assets by the Company
other than in the ordinary course of business and other than distributions
of real estate and other assets as permitted by this Agreement.
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. Schedule 5.26 sets forth an
accurate schedule as of the date of the Agreement of:
(i) the name of each financial institution in which the Company has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the Company and
a description of the terms of such power.
5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the Company and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the Company and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms.
5.28 RELATIONS WITH GOVERNMENTS. None of the Company, any of the
Stockholders, or any Affiliate of any of them has given or offered anything of
value to any governmental official, political party or candidate for government
office in violation of any applicable laws, rules or regulations, nor has it or
any of them otherwise taken any action which would cause the Company to be in
violation of the Foreign Corrupt Practices Act of 1977, as amended or any
applicable law of similar effect.
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5.29 DISCLOSURE. (a) This Agreement, including the Annexes and Schedules
hereto, furnished to Pentacon by the Company and the Stockholders in connection
herewith, do not contain an untrue statement of a material fact or omit to state
a material fact necessary to make the statements herein and therein, in light of
the circumstances under which they were made, not misleading; provided, however,
that the foregoing does not apply to statements contained in or omitted from any
of such documents made or omitted in reliance upon information furnished in
writing by Pentacon or Newco.
(b) The Company and the Stockholders acknowledge and agree (i) that there
exists no firm commitment, binding agreement, or promise or other assurance of
any kind, whether express or implied, oral or written, that a Registration
Statement will become effective or that the IPO pursuant thereto will occur at a
particular price or within a particular range of prices or occur at all; (ii)
that neither Pentacon or any of its officers, directors, agents or
representatives nor any Underwriter shall have any liability to the Company, the
Stockholders or any other person affiliated or associated with the Company for
any failure of the Registration Statement to become effective, the IPO to occur
at a particular price or within a particular range of prices or to occur at all;
and (iii) that the decision of Stockholders to enter into this Agreement, or to
vote in favor of or consent to the proposed Merger, has been or will be made
independent of, and without reliance upon, any statements, opinions or other
communications, or due diligence investigations which have been or will be made
or performed by any prospective Underwriter, relative to Pentacon or the
prospective IPO.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30, the
Company has not, between the Balance Sheet Date and the date hereof, taken any
of the actions which are prohibited ("Prohibited Activities") in Section 7.3.
5.31 NO WARRANTIES OR INSURANCE. Except as set forth on Schedule 5.31, to
the knowledge of the Company or the Stockholders, the Company has no liability
or potential liability to any person under any product or service warranty and
the Company does not offer or sell insurance or consumer protection plans or
other similar arrangements that could result in the Company being required to
make any material payment to or perform any material service for any person
thereunder.
5.32 INTEREST IN CUSTOMERS AND SUPPLIERS AND RELATED-PARTY TRANSACTIONS.
Except as described on Schedule 5.32, no Stockholder, officer, director or
Affiliate of the Company (i) possesses, directly or indirectly, any financial
interest in, or is a director, officer, employee or affiliate of, any
corporation, firm, association or business organization that is a client,
supplier, customer, lessor, lessee or competitor of the Company, or (ii) is a
party to an agreement or relationship, that involves the receipt by such person
of compensation or property from the Company other than through a customary
employment relationship.
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(B) REPRESENTATIONS AND WARRANTIES ON BEHALF OF STOCKHOLDERS AND
OTHER STOCKHOLDERS.
Each Stockholder and each of the Other Stockholders by their
execution of the Limited Joinder hereto, severally, but not jointly, represents
and warrants to Pentacon that the representations and warranties set forth below
are true as of the date of this Agreement as they relate to each Stockholder or
Other Stockholder and that the representations and warranties set forth in this
Section 5(B) shall survive the Consummation Date.
5.33 AUTHORITY; OWNERSHIP; VALIDITY OF OBLIGATIONS. Each Stockholder has
the full legal right, power and authority to enter into this Agreement. Each
Stockholder and Other Stockholder owns beneficially and of record all of the
shares of the Company stock identified on Annex II as being owned by such
Stockholder and Other Stockholder, and, except as set forth on Schedule 5.33,
such Company Stock is owned free and clear of all liens, encumbrances and claims
of every kind. This Agreement is a legal, valid, and binding obligation of the
Stockholder. Each Other Stockholder has the full legal right, power and
authority to enter into the Limited Joinder Agreement and such agreement is a
legal, valid and binding obligation of such Other Stockholder.
5.34 PREEMPTIVE RIGHTS. Except as contemplated herein, no Stockholder or
Other Stockholder has any preemptive or other right to acquire shares of Company
Stock or Pentacon Stock. Nothing herein, however, shall limit or restrict the
rights of any Stockholder to acquire Pentacon Stock pursuant to (i) this
Agreement or (ii) any option granted by Pentacon.
5.35 NO INTENTION TO DISPOSE OF PENTACON STOCK. Except as set forth in
Schedule 5.35, no Stockholder or Other Stockholder is under any binding
commitment or contract to sell, exchange or otherwise dispose of shares of
Pentacon Stock received as described in Section 3.1.
6. REPRESENTATIONS OF PENTACON AND NEWCO
Pentacon and Newco, jointly and severally, represent and warrant to the
Stockholders that all of the following representations and warranties in this
Section 6 are true at the date of this Agreement and, subject to Section 7.8
hereof, shall be true at the time of Closing and the Consummation Date, and that
such representations and warranties shall survive the Consummation Date for a
period of twenty-four months (the last day of such period being the "Expiration
Date"), except that (i) the warranties and representations set forth in Section
6.14 hereof shall survive until such time as the limitations period has run for
all tax periods ended on or prior to the Consummation Date, which shall be
deemed to be the Expiration Date for Section 6.14 and (ii) solely for purposes
of determining whether a claim for indemnification under Section 11.2(iv) hereof
has been made on a timely basis, and solely to the extent that in connection
with the IPO, any of the Stockholders actually incurs liability under the 1933
Act, the 1934 Act, or any other Federal or state securities laws, the
representations and warranties of Pentacon and Newco set forth herein shall
survive until the expiration of any applicable limitations period, which shall
be deemed to be the Expiration Date for such purposes.
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6.1 DUE ORGANIZATION. Pentacon and Newco are each corporations duly
incorporated and organized, validly existing and in good standing under the laws
of the State of Delaware, and each has the requisite power and authority to
carry on its business as it is now being conducted. Pentacon and Newco are each
qualified to do business and are each in good standing in each jurisdiction in
which the nature of its business makes such qualification necessary. True,
complete and correct copies of the Certificate of Incorporation and By-laws,
each as proposed to be amended, of Pentacon and Newco (the "Pentacon Charter
Documents") are all attached hereto as Annex III.
6.2 AUTHORIZATION. (i) The respective officers or other representatives of
Pentacon and Newco executing this Agreement have the authority to enter into and
bind Pentacon and Newco to the terms of this Agreement and (ii) Pentacon and
Newco have the full legal right, power and authority to enter into this
Agreement and the Other Agreements and consummate the Merger. All corporate acts
and other proceedings required to have been taken by Pentacon and Newco to
authorize the execution, delivery and performance of this Agreement and the
consummation of the Merger have been duly and properly taken.
6.3 CAPITAL STOCK OF PENTACON AND NEWCO. The authorized capital stock of
Pentacon and Newco is as set forth in Schedule 6.3 and the Draft Registration
Statement. All of the issued and outstanding shares of the capital stock of
Newco are owned by Pentacon and all of the issued and outstanding shares of the
capital stock of Pentacon are owned by the persons set forth on Schedule 6.3
hereof, in each case, free and clear of all liens, security interests, pledges,
charges, voting trusts, restrictions, encumbrances and claims of every kind. All
of the issued and outstanding shares of the capital stock of Pentacon and Newco
have been duly authorized and validly issued, are fully paid and nonassessable,
and further, such shares were offered, issued, sold and delivered by Pentacon
and Newco in compliance with all applicable state and Federal laws concerning
the issuance of securities. Further, none of such shares were issued in
violation of the preemptive rights of any past or present stockholder of
Pentacon or Newco.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth in the Draft Registration Statement or
in Schedule 6.3 hereof, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates Pentacon or Newco to issue any of
their respective authorized but unissued capital stock; (ii) no voting trust,
voting agreement, proxy or other agreements or understandings exist with respect
to the voting of any shares of capital stock of Pentacon; and (iii) neither
Pentacon nor Newco has any obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any of its equity securities or any interests
therein or to pay any dividend or make any distribution in respect thereof.
Schedule 6.4 also includes a list of all outstanding options, warrants or other
rights to acquire shares of the stock of Pentacon.
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6.5 SUBSIDIARIES. Newco has no subsidiaries. Pentacon has no subsidiaries
except for Newco and each of the companies identified as "Newco" in each of the
Other Agreements. Except as set forth in the preceding sentence, neither
Pentacon nor Newco presently owns, of record or beneficially, or controls,
directly or indirectly, any capital stock, securities convertible into capital
stock or any other equity interest in any corporation, association or business
entity, and neither Pentacon nor Newco, directly or indirectly, is a participant
in any joint venture, partnership or other non-corporate entity.
6.6 FINANCIAL STATEMENTS. The financial statements of Pentacon included in
the Draft Registration Statement (the "Pentacon Financial Statements") have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods indicated (except as noted thereon),
and the balance sheet included therein presents fairly the financial position of
Pentacon as of its date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement, Pentacon and Newco have no material liabilities,
contingent or otherwise, except as set forth in or contemplated by this
Agreement and the Other Agreements and except for fees generally described in
Part II of the Draft Registration Statement and incurred in connection with the
transactions contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth in the
Draft Registration Statement, neither Pentacon nor Newco is in violation of any
law or regulation or any order of any court or Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them and except to the extent
set forth in Schedule 6.8, there are no material claims, actions, suits or
proceedings, pending or, to the knowledge of Pentacon or Newco, threatened
against or affecting, Pentacon or Newco, at law or in equity, or before or by
any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over either of them
and no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received. Pentacon and Newco have conducted and are
conducting their respective businesses in substantial compliance with the
requirements, standards, criteria and conditions set forth in applicable
Federal, state and local statutes, ordinances, permits, licenses, orders,
approvals, variances, rules and regulations and are not in violation, in any
material respect, of any of the foregoing.
6.9 NO VIOLATIONS. (a) Neither Pentacon nor Newco is in violation of any
Pentacon Charter Document. None of Pentacon, Newco, or, to the knowledge of
Pentacon and Newco, any other party thereto, is in default under any lease,
instrument, agreement, license, or permit to which Pentacon or Newco is a party,
or by which Pentacon or Newco, or any of their respective properties, are bound
(collectively, the "Pentacon Documents"); and (a) the rights and benefits of
Pentacon and Newco under the Pentacon Documents will not be adversely affected
by the transactions contemplated hereby and (b) the execution and delivery of
this Agreement and the Other Agreements by Pentacon and Newco and the
performance of their obligations hereunder and thereunder do not, and the
consummation of the transactions contemplated hereby and thereby and compliance
with the
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terms hereof and thereof will not, conflict with, or result in any violation or
default (with or without notice or lapse of time, or both), under or give rise
to a right of termination, cancellation, or acceleration of any obligation or to
loss of a material benefit under, or result in the creation of any lien upon any
of the assets of Pentacon or Newco under, any provision of (i) the Certificate
of Incorporation or Bylaws of Pentacon Charter Documents or the comparable
governing instruments of Newco, (ii) any note, bond, mortgage, indenture or deed
of trust or any license, lease, contract, commitment, agreement or arrangement
to which Pentacon or Newco is a party or by which any of their respective
properties or assets are bound or (iii) any judgment, order, decree or law,
ordinance, rule or regulation, applicable to Pentacon or Newco or their
respective properties or assets.
(b) Except as set forth on Schedule 6.9 or in Section 6.9(c), none of the
Pentacon Documents requires notice to, or the consent or approval of, any
governmental agency or other third party with respect to any of the transactions
contemplated hereby in order to remain in full force and effect and consummation
of the transactions contemplated hereby will not give rise to any right to
termination, cancellation or acceleration or loss of any right or benefit.
(c) Except (i) for the filings by Pentacon in connection with the IPO of
the Registration Statement, (ii) for the declaration of the effectiveness
thereof by the SEC and filings with various state blue sky authorities, (iii)
filings with blue sky authorities in connection with the transactions
contemplated by this Agreement, (iv) for the making of the merger filings with
the Secretary of State of the State of Delaware and the State of Incorporation
in connection with the Merger, (v) for filings in consideration for listing on
the NASDAQ National Market System or the New York Stock Exchange or other
nationally recognized securities exchange; and (vi) for possible filings under
the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act as contemplated in Section 7.13, Purchaser is not
required make any declaration, filing or registration with, or notice to, or
obtain any authorization, consent or approval of, any governmental or regulatory
body or authority is necessary for the execution and delivery of this Agreement
by NEWCO or Pentacon or the consummation by the Newco and Pentacon of the
transactions contemplated hereby.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
and the Other Agreements by Pentacon and Newco and the performance of the
transactions contemplated herein and therein have been duly and validly
authorized by the respective Boards of Directors and stockholders of Pentacon
and Newco and this Agreement and the Other Agreements have been duly and validly
authorized by all necessary corporate action and are legal, valid and binding
obligations of Pentacon and Newco, enforceable against them in accordance with
their respective terms.
6.11 PENTACON STOCK. At the time of issuance thereof and delivery to the
Stockholders, the Pentacon Stock to be delivered to the Stockholders pursuant to
this Agreement will constitute valid and legally issued shares of Pentacon,
fully paid and nonassessable, and with the exception of restrictions upon resale
set forth in Sections 15 and 16 hereof, will be identical in all substantive
respects (which do not include the form of certificate upon which it is printed
or the presence or absence of a CUSIP number on any such certificate) to the
Pentacon Stock issued and outstanding
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as of the date hereof by reason of the provisions of the Delaware GCL. The
Pentacon Stock issued and delivered to the Stockholders shall at the time of
such issuance and delivery be free and clear of any liens, claims or
encumbrances of any kind or character. The shares of Pentacon Stock to be issued
to the Stockholders pursuant to this Agreement will not be registered under the
1933 Act, except as provided in Section 17 hereof.
6.12 NO SIDE AGREEMENTS. Except as set forth in Schedule 6.12, neither
Pentacon nor Newco has entered or will enter into any agreement with any of the
Founding Companies or any of the Stockholders of the Founding Companies or
Pentacon other than the Other Agreements and the agreements contemplated by each
of the Other Agreements, including the employment agreements and real property
leases referred to herein or entered into in connection with the transactions
contemplated hereby and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. Pentacon was formed on
March 20, 1997 and has conducted only limited operations since that time.
Neither Pentacon nor Newco has conducted any material business since the date of
its inception, except in connection with this Agreement, the Other Agreements
and the IPO. Except as described in the Draft Registration Statement, neither
Pentacon nor Newco owns or has at any time owned any real property or any
material personal property or is a party to any other material agreement other
than the Other Agreements, the agreements contemplated thereby and such
agreements as will be filed as Exhibits to the Registration Statement.
6.14 DISCLOSURE. The Draft Registration Statement delivered to the Company
and the Stockholders, together with this Agreement and the information furnished
to the Company and the Stockholders in connection herewith, does not contain an
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that the foregoing does not apply
to statements contained in or omitted from any of such documents made or omitted
in reliance upon information furnished in writing by the Company or the
Stockholders or information pertaining to the Company or a Stockholder which is
confirmed in writing by the Company or such Stockholder.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE.
(a) Between the date of this Agreement and the Consummation Date, the
Company will afford to the officers and authorized representatives of Pentacon
and the Other Founding Companies access to all of the Company's sites,
properties, books and records and will furnish Pentacon with such additional
financial and operating data and other information as to the business and
properties of the Company as Pentacon or the Other Founding Companies may from
time to time reasonably request; provided, however, that the Company shall not
prior to the Closing Date be required to disclose to the Other Founding
Companies, and Pentacon shall not without first obtaining the written approval
of the Company disclose to the Other Founding Companies, information relating to
pricing
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or profitability on an account-by-account basis or any pricing information
relating to the Company's suppliers on a supplier-by-supplier basis. The Company
will cooperate with Pentacon, its representatives, auditors and counsel and the
Other Founding Companies in the preparation of any documents or other material
which may be required in connection with any documents or materials required by
this Agreement. Pentacon, Newco, the Stockholders and the Company will treat all
information obtained in connection with the negotiation and performance of this
Agreement or the due diligence investigations conducted with respect to the
Other Founding Companies as confidential in accordance with the provisions of
Section 14 hereof. In addition, Pentacon will cause each of the Other Founding
Companies to enter into a provision similar to this Section 7.1(a) requiring
each such Other Founding Company, its stockholders, directors, officers,
representatives, employees and agents to keep confidential any information
obtained by such Other Founding Company.
(b) Between the date of this Agreement and the Consummation Date, Pentacon
will afford to the officers and authorized representatives of the Company and
the Stockholders access to all of Pentacon's and Newco's sites, properties,
books and records and will furnish the Company with such additional financial
and operating data and other information as to the business and properties of
Pentacon and Newco as the Company may from time to time reasonably request.
Pentacon and Newco will cooperate with the Company, its representatives,
auditors and counsel in the preparation of any documents or other material which
may be required in connection with any documents or materials required by this
Agreement. The Company will cause all information obtained in connection with
the negotiation and performance of this Agreement to be treated as confidential
in accordance with the provisions of Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Consummation Date, the Company will, except as set forth on
Schedule 7.2 or as otherwise expressly contemplated by this Agreement:
(i) carry on its respective businesses in substantially the same
manner as it has heretofore and not introduce any material new method of
management, operation or accounting;
(ii) use commercially reasonable efforts to maintain its respective
properties and facilities, including those held under leases, in as good
working order and condition as at present, ordinary wear and tear
excepted;
(iii) perform in all material respects all of its respective
obligations under agreements relating to or affecting its respective
assets, properties or rights;
(iv) use commercially reasonable efforts to keep in full force and
effect present insurance policies or other comparable insurance coverage;
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(v) use commercially reasonable efforts to maintain and preserve its
business organization intact, retain its respective present key employees
and maintain its respective relationships with material suppliers,
customers and others having business relations with the Company;
(vi) use commercially reasonable efforts to maintain compliance with
all material permits, laws, rules and regulations, consent orders, and all
other orders of applicable courts, regulatory agencies and similar
governmental authorities;
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments without the knowledge and consent
of Pentacon (which consent shall not be unreasonably withheld, delayed or
conditioned), provided that debt and/or lease instruments may be replaced
without the consent of Pentacon if such replacement instruments are on
terms at least as favorable to the Company as the instruments being
replaced; and
(viii)maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and
customary bonus and salary increases for employees in accordance with the
Company's past practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3 or as
otherwise expressly contemplated by this Agreement, between the date hereof and
the Consummation Date, the Company will not, without prior written consent of
Pentacon:
(i) make any change in its Articles of Incorporation or By-laws;
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed in Schedule
5.4;
(iii) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or purchase,
redeem or otherwise acquire or retire for value any shares of its stock
except for (1) dividends paid in respect of the Company's Accumulated
Adjustment Accounts provided that any such dividends shall reduce,
dollar-for-dollar, the amount of cash consideration to be received by the
Stockholder on the Consummation Date whether or not such dividend is
listed or described on a schedule attached hereto and (2) dividends paid
to cover estimated quarterly tax payments required to be made by the
Stockholders and Other Stockholders;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except if it is in
the normal course of business (consistent with past practice) or involves
an amount not in excess of $25,000;
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(v) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except (1) with respect to purchase money liens
incurred in connection with the acquisition of equipment with an aggregate
cost not in excess of $25,000 necessary or desirable for the conduct of
the businesses of the Company, (2) (A) liens for Taxes either not yet due
or being contested in good faith and by appropriate proceedings (and for
which contested Taxes adequate reserves have been established and are
being maintained) or (B) materialmen's, mechanics', workers', repairmen's,
employees' or other like liens arising in the ordinary course of business
(the liens set forth in clause (2) being referred to herein as "Statutory
Liens"), or (3) liens set forth on Schedules 5.10, 5.15 and/or 5.16
hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business and other
than distributions of real estate and other assets as permitted in this
Agreement (including the Schedules hereto);
(vii) negotiate for the acquisition of any business or the start-up
of any new business;
(viii)merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material rights or claims of the Company, provided
that the Company may negotiate and adjust bills and accounts in the course
of good faith disputes with customers in a manner consistent with past
practice, provided, further, that such adjustments shall not be deemed to
be included in Schedule 5.11 to the extent they exceed the reserves, if
any, established therefor, or unless specifically listed thereon;
(x) amend or terminate any material agreement, permit, license or
other right of the Company provided that the Company may continue to
administer vendor and supplier contracts in the ordinary course of
business provided written notice of any such material amendments or
terminations is provided to Pentacon as soon as possible following such
action and in any event prior to the Closing; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 NO SHOP. Except as contemplated hereby, none of the Stockholders, the
Company, nor any agent, officer, director, trustee or any representative of any
of the foregoing will, during the period commencing on the date of this
Agreement and ending with the earlier to occur of the Consummation Date or the
termination of this Agreement in accordance with its terms, directly or
indirectly:
(i) solicit or initiate the submission of proposals or offers from
any person for,
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(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than Pentacon,
Newco or their authorized agents relating to, any acquisition or purchase
of all or a material amount of the assets of, or any equity interest in,
the Company or a merger, consolidation or business combination of the
Company.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide Pentacon on Schedule 7.5 with proof that any required notice has been
sent.
7.6 AGREEMENTS. The Stockholders, Other Stockholders and the Company shall
terminate (i) any stockholders agreements, voting agreements, voting trusts,
options, warrants and employment agreements between the Company and any employee
listed on Schedule 9.12 hereto and (ii) any existing agreement between the
Company and any Stockholder or Other Stockholder, on or prior to the
Consummation Date provided that nothing herein shall prohibit or prevent the
Company from paying (either prior to or on the Closing Date) notes or other
obligations from the Company to the Stockholders or Other Stockholders in
accordance with the terms thereof, which terms have been disclosed to Pentacon.
Such termination agreements are listed on Schedule 7.6 and copies thereof shall
be attached thereto.
7.7 NOTIFICATION OF CERTAIN MATTERS BY THE STOCKHOLDERS AND THE COMPANY.
The Stockholders and the Company shall give prompt notice to Pentacon of (i) the
occurrence or non-occurrence of any event the occurrence or nonoccurrence of
which would be likely to cause any representation or warranty of the Company or
the Stockholders contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing and (ii) any material failure of any
Stockholder or the Company to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by such person hereunder. Pentacon
and Newco shall give prompt notice to the Company of (i) the occurrence or
non-occurrence of any event the occurrence or non-occurrence of which would be
likely to cause any representation or warranty of Pentacon or Newco contained
herein to be untrue or inaccurate in any material respect at or prior to the
Closing and (ii) any material failure of Pentacon or Newco to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder. The delivery or deemed delivery of any notice pursuant to this
Section 7.7 shall not be deemed to (i) modify the representations or warranties
hereunder of the party delivering such notice, which modification may only be
made pursuant to Section 7.8, (ii) modify the conditions set forth in Sections 8
and 9, or (iii) limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
If, prior to the Closing Date, the Chief Executive Officer, the Chief
Financial Officer or the General Counsel of Pentacon shall determine that any of
Pentacon, Newco, the Surviving Corporation or the Company has a claim hereunder
for indemnification against any STOCKHOLDER(S)
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(whether or not such claim might exceed the Indemnification Threshold), then
Pentacon shall promptly advise the affected Stockholder(s), in writing, of such
potential claim and provide information supporting the basis and potential
amount of such claim (a "Potential Claim Notice"). This procedure with respect
to Potential Claim Notices is intended to afford the affected Stockholder(s)
notice so that it may attempt to cure or otherwise address the claim prior to
Closing; provided, however, that (i) this procedure shall not affect or delay
Closing and (ii) neither the failure or delay by Pentacon to give a Potential
Claim Notice nor the information included or omitted from a Potential Claim
Notice shall constitute a waiver of, or shall otherwise adversely affect the
right to receive indemnification for, any such claim paid by Pentacon, Newco,
the Surviving Corporation or the Company hereunder after the Closing Date.
7.8 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect to
the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until 24 hours prior to the
anticipated effectiveness of the Registration Statement to supplement or amend
promptly the Schedules hereto with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in the Schedules, provided however,
that supplements and amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall
only have to be delivered at the Closing Date, unless such Schedule is to be
amended to reflect an event occurring other than in the ordinary course of
business. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the Company that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect with respect to the Company
may be made unless Pentacon and a majority of the Founding Companies other than
the Company consent to such amendment or supplement; and provided further, that
no amendment or supplement to a Schedule prepared by Pentacon or Newco that
constitutes or reflects an event or occurrence that would have a Material
Adverse Effect with respect to Pentacon or Newco may be made unless a majority
of the Founding Companies consent to such amendment or supplement. For all
purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 8.1 and 9.1 have been
fulfilled, the Schedules hereto shall be deemed to be the Schedules as amended
or supplemented pursuant to this Section 7.8. In the event that one of the Other
Founding Companies seeks to amend or supplement a Schedule pursuant to Section
7.8 of one of the Other Agreements, and such amendment or supplement constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
such Other Founding Company, Pentacon shall give the Company written notice
promptly after it has knowledge thereof. If Pentacon and a majority of the
Founding Companies consent to such amendment or supplement, which consent shall
have been deemed given by Pentacon or any Founding Company if no response is
received within 24 hours following receipt of written notice of such amendment
or supplement (or sooner if reasonable and if required by the circumstances
under which such consent is requested), but the Company does not give its
consent, the Company may terminate this Agreement pursuant to Section 12.1(iv)
hereof. In the event that the Company seeks to amend or supplement a Schedule
pursuant to this Section 7.8, and Pentacon and a majority of the Other Founding
Companies do not consent to such amendment or supplement, this Agreement shall
be deemed terminated by mutual consent as set forth in Section 12.1(i) hereof.
In the event that Pentacon or Newco seeks to amend or supplement a
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Schedule pursuant to this Section 7.8 and a majority of the Founding Companies
do not consent to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(i) hereof. No party to
this Agreement shall be liable to any other party if this Agreement shall be
terminated pursuant to the provisions of this Section 7.8. No amendment of or
supplement to a Schedule shall be made later than 24 hours prior to the
anticipated effectiveness of the Registration Statement.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The Company and
Stockholders shall furnish or cause to be furnished to Pentacon and the
Underwriters all of the information concerning the Company and the Stockholders
reasonably required for inclusion in, and will cooperate with Pentacon and the
Underwriters in the preparation of, the Registration Statement and the
prospectus included therein (including audited and unaudited financial
statements, prepared in accordance with generally accepted accounting
principles, in form suitable for inclusion in the Registration Statement, except
that the cost of the preparation of any such audited and unaudited Financial
Statements shall be borne by Pentacon). The Company and the Stockholders agree
promptly to advise Pentacon if at any time during the period in which a
prospectus relating to the IPO is required to be delivered under the Securities
Act, any information contained in the prospectus concerning the Company or the
Stockholders becomes incorrect or incomplete in any material respect, and to
provide the information needed to correct such inaccuracy. Insofar as the
information relates solely to the Company or the Stockholders, the Company
represents and warrants as to such information with respect to itself, and each
Stockholder represents and warrants, as to such information with respect to the
Company and himself or herself, severally, but not jointly, that the information
expressly provided for inclusion in the Registration Statement or otherwise
confirmed in writing by such Stockholder will not include an 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, in light of the circumstances under
which they were made, not misleading.
7.10 FINAL FINANCIAL STATEMENTS. The Company shall provide prior to the
Consummation Date, and Pentacon shall have had sufficient time to review the
unaudited consolidated balance sheets of the Company as of the end of all fiscal
quarters following the Balance Sheet Date, and the unaudited consolidated
statement of income, cash flows and retained earnings of the Company for all
fiscal quarters ended after the Balance Sheet Date. Such financial statements
shall have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated
(except as noted therein). Except as noted in such financial statements, all of
such financial statements will present fairly the results of operations of the
Company for the periods indicated therein.
7.11 FURTHER ASSURANCES. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
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7.12 AUTHORIZED CAPITAL. Prior to the Consummation Date, Pentacon shall
maintain its authorized capital stock as set forth in the Registration Statement
filed with the SEC except for such changes in authorized capital stock as are
made to respond to comments made by the SEC or requirements of any exchange or
automated trading system for which application is made to register the Pentacon
Stock and any changes necessary or advisable in order to permit the delivery of
the opinion contemplated by Section 8.12 hereof.
7.13 COMPLIANCE WITH THE ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇-▇▇▇▇▇▇ ANTITRUST IMPROVEMENTS
ACT OF 1976 (THE "▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ ACT"). All parties to this Agreement hereby
recognize that one or more filings under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act may be
required in connection with the transactions contemplated herein. If it is
determined by the parties to this Agreement that filings under the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act are required, then: (i) each of the parties hereto agrees
to cooperate and use its best efforts to comply with the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act,
(ii) such compliance by the Stockholders and the Company shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
8 of this Agreement, and such compliance by Pentacon and Newco shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
9 of this Agreement, and (iii) the parties agree to cooperate and use their best
efforts to cause all filings required under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act to be
made. If filings under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act are required, the costs and
expenses thereof (including filing fees) shall be borne by Pentacon. The
obligation of each party to consummate the transactions contemplated by this
Agreement is subject to the expiration or termination of the waiting period
under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act, if applicable.
7.14 PRE-CLOSING NOTIFICATIONS. If, prior to the 25th day after the date
of the final prospectus of Pentacon utilized in connection with the IPO, the
Company or the Stockholders become aware of any fact or circumstance which would
materially affect the accuracy of a representation or warranty of Company or
Stockholders in this Agreement, the Company and the Stockholders shall promptly
give notice of such fact or circumstance to Pentacon. However, subject to the
provisions of Section 7.8, such notification shall not relieve either the
Company or the Stockholders of their respective obligations under this
Agreement, and, subject to the provisions of Section 7.8, at the sole option of
Pentacon, the truth and accuracy of any and all warranties and representations
of the Company, or on behalf of the Company and of Stockholders at the date of
this Agreement and on the Closing Date and on the Consummation Date, shall be a
precondition to the consummation of this transaction.
7.15 PAYMENT OF INDEBTEDNESS. On the Consummation Date, immediately
following the Effective Time of the Merger, Pentacon will pay, or cause to be
paid, all of the outstanding liabilities, obligations and indebtedness of
Company to the lenders identified on Schedule 7.15 hereto. In connection with
such repayment of such liabilities, obligations and indebtedness, Pentacon will
cause all associated guaranties or suretyships of the Stockholders and the Other
Stockholders to be terminated and cancelled. Furthermore, on the Consummation
Date the Company will cause to be paid to the Other Stockholders, the $5,000,000
aggregate redemption payment amount owed by the Company in connection with the
Redemption Agreements.
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7.16 MINIMUM VALUE. All of the parties to this Agreement recognize that
one of the conditions to the Stockholders consummating the transactions
contemplated herein is that the IPO shall be closed and the Stockholders and
Other Stockholders (as a group) shall be entitled to receive consideration not
less than the Minimum Value set forth on Annex I attached hereto.
7.17 DIRECTORS. Pentacon agrees that the number of directors of Pentacon
shall not exceed nine members immediately following the IPO unless the Founding
Stockholder representatives to serve on such board agree in writing to a larger
number of directors.
7.18 TRANSACTION REPORTING. Pentacon agrees that, except as otherwise
required by applicable law, Pentacon will describe or report the transaction in
any required tax reports of Pentacon as a tax-free transaction (insofar as its
relates to the delivery of Pentacon Stock for Company Stock) in a manner
consistent with the tax opinion referenced in Section 8.12.
7.19 PERMITS. Pentacon agrees, prior to the Consummation Date, to obtain
all material Licenses necessary for Pentacon to commence the conduct of business
on the Consummation Date.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of Stockholders and the Company with respect to actions to
be taken on the Closing Date are subject to the satisfaction or waiver on or
prior to the Closing Date of all of the following conditions. The obligations of
the Stockholders and the Company with respect to actions to be taken on the
Consummation Date are subject to the satisfaction or waiver on or prior to the
Consummation Date of the conditions set forth in Sections 8.1, 8.5, 8.8, 8.9 and
8.12. As of the Closing Date or, with respect to the conditions set forth in
Sections 8.1, 8.5, 8.8, 8.9 and 8.12, as of the Consummation Date, if any such
conditions have not been satisfied, the Stockholders (acting in unison) shall
have the right to terminate this Agreement, or in the alternative, waive any
condition not so satisfied. The delivery of certificates representing Company
Stock to Pentacon as of the Consummation Date shall constitute a waiver of any
conditions not so satisfied. However, no such waiver shall be deemed to affect
the survival of the representations and warranties of Pentacon and Newco
contained in Section 6 hereof or the rights of the Stockholders pursuant to
Section 11 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of Pentacon and Newco contained in Section 6
shall be true and correct in all material respects as of the Closing Date and
the Consummation Date as though such representations and warranties had been
made as of that time; all of the terms, covenants and conditions of this
Agreement to be complied with and performed by Pentacon and Newco on or before
the Closing Date and the Consummation Date shall have been duly complied with
and performed in all material respects; and certificates to the foregoing effect
dated the Closing Date and the Consummation Date, respectively, and signed by
the President or any Vice President of Pentacon shall have been delivered to the
Stockholders.
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8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to the Company and its counsel.
The Stockholders and the Company shall be satisfied that the Registration
Statement and the prospectus forming a part thereof, including any amendments
thereof or supplements thereto, shall not contain any untrue statement of a
material fact, or omit to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, provided
that, subject to the provisions set forth in the introductory paragraph of this
Section 8, the condition contained in this sentence shall be deemed waived if
the Company or Stockholders shall have failed to inform Pentacon in writing
prior to the effectiveness of the Registration Statement of the existence of an
untrue statement of a material fact or the omission of such a statement of a
material fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of the Company as a result of which
the management of the Company deems it inadvisable to proceed with the
transactions hereunder.
8.4 OPINION OF COUNSEL. The Stockholders shall have received an opinion
from counsel for Pentacon and Newco, dated the Closing Date, in the form annexed
hereto as Annex IV.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, on terms such that the aggregate value of
the cash and the number of shares of Pentacon Stock to be received by the
Stockholders and Other Stockholders is not less than the Minimum Value set forth
on Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency or any third party relating to the consummation
of the transactions contemplated herein or set forth in Schedule 5.23 hereto
shall have been obtained and made and no action or proceeding shall have been
instituted or threatened to restrain or prohibit the Merger and no governmental
agency or body shall have taken any other action or made any request of Company
as a result of which Company deems it inadvisable to proceed with the
transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. Pentacon and Newco each shall have
delivered to the Company a certificate, dated as of a date no later than ten
days prior to the Closing Date, duly issued by the Delaware Secretary of State
and in each state in which Pentacon or Newco is authorized to do business,
showing that each of Pentacon and Newco is in good standing and authorized to do
business and that all state franchise and/or income tax returns and taxes for
Pentacon and Newco, respectively, for all periods prior to the Closing have been
filed and paid.
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8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to Pentacon or Newco which would constitute a Material
Adverse Effect.
8.9 CLOSING OF IPO. The closing of the sale of the Pentacon Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Consummation
Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Stockholders shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of Pentacon and of Newco, certifying the truth and correctness of attached
copies of the Pentacon's and Newco's respective Certificates of Incorporation
(including amendments thereto), By-Laws (including amendments thereto), and
resolutions of the boards of directors and, if required, the Stockholders of
Pentacon and Newco approving Pentacon's and Newco's entering into this Agreement
and the consummation of the transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VI hereto.
8.12 TAX MATTERS. The Stockholders shall have received an opinion of Ernst
& Young LLP or other tax advisor of national recognition reasonably acceptable
to the Stockholders that the Pentacon Plan of Organization (including the Plan
of Organization under this Agreement) will qualify as a tax-free transfer of
property under Section 351 of the Code and that the Stockholders and Other
Stockholders will not recognize gain to the extent the Stockholders and Other
Stockholders exchange stock of the Company for Pentacon Stock (but not cash or
other property) pursuant to the Pentacon Plan of Organization.
8.13 EXCHANGE LISTING. The Pentacon Stock shall have been accepted for
listing on the New York Stock Exchange, NASDAQ National Market System or the
American Stock Exchange.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PENTACON AND NEWCO
The obligations of Pentacon and Newco with respect to actions to be taken
on the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. The obligations of Pentacon and
Newco with respect to actions to be taken on the Consummation Date are subject
to the satisfaction or waiver on or prior to the Consummation Date of the
conditions set forth in Sections 9.1, 9.4 and 9.13. As of the Closing Date or,
with respect to the conditions set forth in Sections 9.1, 9.4 and 9.13, as of
the Consummation Date, if any such conditions have not been satisfied, Pentacon
and Newco shall have the right to terminate this Agreement, or waive any such
condition, but no such waiver shall be deemed to affect the survival of the
representations and warranties contained in Section 5 hereof.
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9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE AND OBLIGATIONS. All the
representations and warranties of the Stockholders and the Company contained in
this Agreement shall be true and correct in all material respects as of the
Closing Date and the Consummation Date with the same effect as though such
representations and warranties had been made on and as of such date; all of the
terms, covenants and conditions of this Agreement to be complied with or
performed by the Stockholders and the Company on or before the Closing Date or
the Consummation Date, as the case may be, shall have been duly performed or
complied with in all material respects; and the Stockholders shall have
delivered to Pentacon certificates dated the Closing Date and the Consummation
Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of Pentacon as a result of which the
management of Pentacon deems it inadvisable to proceed with the transactions
hereunder.
9.3 SECRETARY'S CERTIFICATE. Pentacon shall have received a certificate,
dated the Closing Date and signed by the secretary of the Company, certifying
the truth and correctness of attached copies of the Company's Certificate of
Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the board of directors and the Stockholders and
Other Stockholders approving the Company's entering into this Agreement and the
consummation of the transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the Company which would constitute a Material Adverse
Effect, and the Company shall not have suffered any material loss or damages to
any of its properties or assets, whether or not covered by insurance, which
change, loss or damage materially affects or impairs the ability of the Company
to conduct its business.
9.5 STOCKHOLDERS' RELEASE. The Stockholders and Other Stockholders shall
have delivered to Pentacon an instrument dated the Closing Date, which shall be
effective only upon the occurrence of the Consummation Date and shall relate
only to matters accruing on or prior to the Consummation Date, releasing the
Company and Pentacon from (i) any and all claims of the Stockholders and Other
Stockholders against the Company and Pentacon and (ii) obligations of the
Company and Pentacon to the Stockholders and Other Stockholders, except for (w)
items specifically identified on Schedules 5.10 and 5.15 as being claims of or
obligations to the Stockholders, (x) continuing obligations to Stockholders
relating to their employment by the Company or Pentacon, (y) any obligations or
liabilities arising under this Agreement or the transactions contemplated hereby
(including, but not limited to, any claims for indemnification that the
Stockholders may have against Pentacon pursuant to Section 11 hereof
irrespective of whether such claims accrued, or otherwise relate to matters that
occurred, on or before the Consummation Date) and (z) real estate lease
agreements between the Company and Stockholders and Other Stockholders, as
amended which have been accepted or approved by Pentacon. In the event that the
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Consummation Date does not occur, then the release instrument referenced herein
shall be void and of no further force or effect.
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been approved
by counsel to Pentacon.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 9.7, all existing agreements between the Company and the Stockholders
or Other Stockholders (and entities controlled by the Stockholders or Other
Stockholders) shall have been canceled effective prior to or as of the
Consummation Date.
9.8 OPINION OF COUNSEL. Pentacon shall have received an opinion from
Counsel to the Company and the Stockholders, dated the Closing Date,
substantially in the form annexed hereto as Annex V.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all consents
and approvals of third parties listed on Schedule 5.23 shall have been obtained;
and no action or proceeding shall have been instituted or threatened to restrain
or prohibit the Merger and no governmental agency or body shall have taken any
other action or made any request of Pentacon as a result of which Pentacon deems
it inadvisable to proceed with the transactions hereunder.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to
Pentacon a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
Company's state of incorporation and, unless waived by Pentacon, in each state
in which the Company is authorized to do business, showing the Company is in
good standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the Company for all periods prior to the
Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall enter into an employment agreement substantially in the form of Annex VI
hereto.
9.13 CLOSING OF IPO. The closing of the sale of the Pentacon Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Consummation
Date hereunder.
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9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to Pentacon
a certificate to the effect that he is not a foreign person pursuant to Section
1.1445-2(b) of the Treasury regulations.
10. COVENANTS OF PENTACON AND THE STOCKHOLDERS AFTER CLOSING
10.1 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated
by this Agreement or the Registration Statement, after the Consummation Date,
Pentacon shall not and shall not permit any of its subsidiaries to undertake any
act that would jeopardize the tax-free status of the organization, including
without limitation:
(a) the retirement or reacquisition, directly or indirectly, of all
or part of the Pentacon Stock issued in connection with the transactions
contemplated hereby; or
(b) the entering into of financial arrangements for the benefit of
the Stockholders.
10.2 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the Stockholders shall
file or cause to be filed all Tax Returns (federal, state, local or
otherwise) of any Acquired Party for all taxable periods that end on or
before the Consummation Date, and shall permit Pentacon to review all such
Returns prior to such filings. Unless the Company is a C corporation, the
Stockholders shall pay or cause to be paid all Tax liabilities (in excess
of all amounts already paid with respect thereto or properly accrued or
reserved with respect thereto on the Financial Statements) shown by such
Returns to be due.
(ii) Pentacon shall file or cause to be filed all separate Returns
of, or that include, any Acquired Party for all taxable periods ending
after the Consummation Date.
(iii) Each party hereto shall, and shall cause its Subsidiaries and
Affiliates to, provide to each of the other parties hereto such
cooperation and information as any of them reasonably may request in
filing any Return, amended Return or claim for refund, determining a
liability for Taxes or a right to refund of Taxes or in conducting any
audit or other proceeding in respect of Taxes. Such cooperation and
information shall include providing copies, at the expense of the
requesting party, of all relevant portions of relevant Returns, together
with relevant accompanying schedules and relevant work papers, relevant
documents relating to rulings or other determinations by Taxing
Authorities and relevant records concerning the ownership and Tax basis of
property, which such party may possess. Each party shall make its
employees reasonably available on a mutually convenient basis at its cost
to provide explanation of any documents or information so provided.
Subject to the preceding sentence, each party required to file Returns
pursuant to this Agreement shall bear all costs of filing such Returns.
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(iv) Each of the Company, Newco, Pentacon and each Stockholder shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the transaction
as a tax-free contribution under Section 351(a) of the Code subject to
gain, if any, recognized on the receipt of cash or other property under
Section 351(b) of the Code subject to gain, if any, recognized on the
receipt of cash or other property under Section 351(b) of the Code.
10.3 DIRECTORS. The persons named in the Draft Registration Statement
shall be appointed as directors and elected as officers of Pentacon, as and to
the extent set forth in the Draft Registration Statement, promptly following the
Consummation Date.
11. INDEMNIFICATION
The Stockholders, Pentacon and Newco each make the following covenants
that are applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The Stockholders
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless Pentacon, Newco, the Company and the Surviving
Corporation at all times, from and after the date of this Agreement until the
Expiration Date (provided that for purposes of Section 11.1(iii) below, the
Expiration Date shall be the date on which the applicable statute of limitations
expires), from and against all claims, damages, actions, suits, proceedings,
demands, assessments, adjustments, costs and expenses (including specifically,
but without limitation, reasonable attorneys' fees and expenses of
investigation) incurred by Pentacon, Newco, the Company or the Surviving
Corporation as a result of or arising from (i) any breach of the representations
and warranties of the Stockholders or the Company set forth herein or on the
definitive, final schedules or certificates delivered by them in connection
herewith (but excluding any representations or warranties made by the Other
Stockholders with respect to their Common Stock), (ii) any breach of any
agreement on the part of the Stockholders or, prior to Closing, the Company
under this Agreement, or (iii) any liability under the 1933 Act, the 1934 Act or
other Federal or state law or regulation, at common law or otherwise, arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact relating to the Company or the Stockholders, and provided in
writing to Pentacon or its counsel by the Company or the Stockholders for
inclusion in the Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or arising out of or
based upon any omission or alleged omission to state therein a material fact
relating to the Company or the Stockholders required to be stated therein or
necessary to make the statements therein not misleading, provided, however, that
such indemnity shall not inure to the benefit of Pentacon, Newco, the Company or
the Surviving Corporation to the extent that such untrue statement (or alleged
untrue statement) was made in, or omission (or alleged omission) occurred in,
any preliminary prospectus and the Stockholders provided, in writing, corrected
information to Pentacon counsel and to Pentacon for inclusion in the final
prospectus, and such information was not so included or properly delivered, and
provided further, that no Stockholder shall be liable for any
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indemnification obligation pursuant to this Section 11.1(iii) to the extent
attributable to a breach of any representation, warranty or agreement made
herein individually by any Other Stockholder.
Pentacon and Newco acknowledge and agree that other than the
representations and warranties of Company or Stockholders specifically contained
in this Agreement, there are no representations or warranties of Company or
Stockholders, either express or implied, with respect to the transactions
contemplated by this Agreement, the Company or its assets, liabilities and
business.
Pentacon, Newco and the Company further acknowledge and agree that, should
the Closing occur, their sole and exclusive remedy with respect to any and all
claims relating to this Agreement and the transactions contemplated in this
Agreement, shall be pursuant to the indemnification provisions set forth in this
Section 11.1. Pentacon, Newco and the Company hereby waive, from and after the
Closing, to the fullest extent permitted under applicable law, any and all
rights, claims and causes of action they or any indemnified person may have
against the Company or any Stockholder relating to this Agreement or the
transactions contemplated hereby arising under or based upon any federal, state,
local or foreign statute, law, rule, regulation or otherwise (and other than
pursuant to the terms of this Agreement).
11.2 INDEMNIFICATION BY PENTACON. Pentacon covenants and agrees that it
will indemnify, defend, protect and hold harmless the Stockholders at all times
from and after the date of this Agreement until the Expiration Date, from and
against all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without limitation,
reasonable attorneys' fees and expenses of investigation) incurred by the
Stockholders as a result of or arising from (i) any breach by Pentacon or Newco
of their representations and warranties set forth herein or on the definitive,
final schedules or certificates attached delivered by them pursuant hereto, (ii)
any breach of any agreement on the part of Pentacon or Newco under this
Agreement or any other agreement delivered pursuant hereto, (iii) any
liabilities which the Stockholders may incur due to Pentacon's or Newco's or the
Surviving Corporation's failure to pay, perform or discharge when due any of the
liabilities and obligations of the Company for which Pentacon, Newco or the
Surviving Corporation is responsible pursuant to this Agreement (except to the
extent that Pentacon or Newco has bona fide claims hereunder against the
Stockholders by reason of such liabilities); or (iv) any liability under the
1933 Act, the 1934 Act or other Federal or state law or regulation, at common
law or otherwise, arising out of or based upon any untrue statement or alleged
untrue statement of a material fact relating to Pentacon, Newco or any of the
Other Founding Companies contained in any preliminary prospectus, the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact relating to
Pentacon or Newco or any of the Other Founding Companies required to be stated
therein or necessary to make the statements therein not misleading.
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11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has actual knowledge of any claim
by a Person (including a governmental agency) not a party to this Agreement
("Third Person"), or the commencement of any action or proceeding by a Third
Person, with respect to which the Indemnified Person would be entitled to
receive indemnification pursuant to Section 11, the Indemnified Party shall, as
a condition precedent to a claim with respect thereto being made against any
party obligated to provide indemnification pursuant to Section 11.1 or 11.2
hereof (hereinafter the "Indemnifying Party"), give the Indemnifying Party
written notice of such claim or the commencement of such action or proceeding.
Such notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle, at its own expense and by its own counsel, any such matter so
long as the Indemnifying Party pursues the same in good faith and diligently,
provided that the Indemnifying Party shall not settle any criminal proceeding
without the written consent of the Indemnified Party. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate with the
Indemnifying Party and its counsel in the defense thereof and in any settlement
thereof. Such cooperation shall include, but shall not be limited to, furnishing
the Indemnifying Party with any books, records or information reasonably
requested by the Indemnifying Party that are in the Indemnified Party's
possession or control. All Indemnified Parties shall use the same counsel, which
shall be the counsel selected by Indemnifying Party, provided that if counsel to
the Indemnifying Party shall have a conflict of interest that prevents counsel
for the Indemnifying Party from representing Indemnified Party, Indemnified
Party shall have the right to participate in such matter through counsel of its
own choosing and Indemnifying Party will reimburse the Indemnified Party for the
reasonable expenses of its counsel. After the Indemnifying Party has notified
the Indemnified Party of its intention to undertake to defend or settle any such
asserted liability, and for so long as the Indemnifying Party diligently pursues
such defense through appropriate proceedings, the Indemnifying Party shall not
be liable for any additional legal expenses incurred by the Indemnified Party in
connection with any defense or settlement of such asserted liability, except (i)
as set forth in the preceding sentence and (ii) to the extent such participation
is requested by the Indemnifying Party, in which event the Indemnified Party
shall be reimbursed by the Indemnifying Party for reasonable additional legal
expenses and out-of-pocket expenses. If the Indemnifying Party desires to accept
a final and complete settlement of any such Third Person claim and the
Indemnified Party refuses to consent to such settlement, then the Indemnifying
Party's liability under this Section with respect to such Third Person claim
shall be limited to the amount so offered in settlement by said Third Person.
Upon agreement as to such settlement between said Third Person and the
Indemnifying Party, the Indemnifying Party shall, in exchange for a complete
release from the Indemnified Party, promptly pay to the Indemnified Party the
amount agreed to in such settlement and the Indemnified Party shall, from that
moment on, bear full responsibility for any additional costs of defense which it
subsequently incurs with respect to such claim and all additional costs of
settlement or judgment. If the Indemnifying Party does not undertake to defend
such matter to which the Indemnified Party is entitled to indemnification
hereunder, or fails diligently to pursue such defense, the Indemnified Party may
undertake such defense through counsel of its choice, at the cost and expense of
the Indemnifying Party, and the Indemnified Party may settle such matter, and
the Indemnifying Party shall reimburse the
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Indemnified Party for the amount paid in such settlement and any other
liabilities or expenses incurred by the Indemnified Party in connection
therewith, provided, however, that under no circumstances shall the Indemnified
Party settle any Third Person claim without the written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or delayed.
All settlements hereunder shall effect a complete release of the Indemnified
Party, unless the Indemnified Party otherwise agrees in writing. The parties
hereto will make appropriate adjustments for insurance proceeds in determining
the amount of any indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. (a) The indemnification provided for in this
Section 11 shall (except as prohibited by ERISA) be the exclusive remedy in any
action seeking damages or any other form of monetary relief brought by any party
to this Agreement against another party, provided that, nothing herein shall be
construed to limit the right of a party, in a proper case pursuant to Section
14.3 or otherwise, to seek injunctive or other equitable relief (except for
rescission which shall not be available) for a breach or threatened breach of
this Agreement. Any indemnity payment under this Section 11 shall be treated as
an adjustment to the exchange consideration for tax purposes unless a final
determination (which shall include the execution of a Form 870-AD or successor
form) with respect to the indemnified party or any of its affiliate causes any
such payment not to be treated as an adjustment to the exchange consideration
for U.S. Federal Income Tax purposes.
(b) Nothing in this Article 11 shall restrict the Stockholders from
subrogation or seeking reimbursement from third parties other than the Company.
11.5 LIMITATIONS ON INDEMNIFICATION. Pentacon, Newco, the Surviving
Corporation and the other persons or entities indemnified pursuant to Section
11.1 or 11.2 shall not assert any claim for indemnification hereunder against
the Stockholders after the applicable Expiration Date and in no event until such
time as, and solely to the extent that, the aggregate of all claims which such
persons may have against the Stockholders shall exceed the greater of 1% of the
value of the total consideration (including stock and cash) received by the
Stockholders from the Merger or $100,000 (the "Indemnification Threshold"), and
then only to the extent of the excess over the Indemnification Threshold.
Stockholders shall not assert any claim for indemnification hereunder against
Pentacon or Newco after the applicable Expiration Date and in no event until
such time as, and solely to the extent that, the aggregate of all claims which
Stockholders may have against Pentacon or Newco shall exceed the Indemnification
Threshold, and then only to the extent of the excess over the Indemnification
Threshold.
The Indemnification Threshold and other limitations contained in this
Section 11.5 shall not be applicable to any breach of covenants made by the
Stockholders in this Agreement which require an action or inaction by such
Stockholders from and after the Closing Date (I.E., Article 10, Article 11,
Article 13, Article 14, Article 17 and Sections 18.1 and 18.6). No person shall
be entitled to indemnification under this Section 11 if, and only to the extent
that such person's claim for indemnification is directly related to a breach by
such person of any representation, warranty, covenant or other agreement set
forth in this Agreement.
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The pursuit by Pentacon, the Surviving Corporation, Newco or the Company,
of any claim for indemnification hereunder against a Stockholder shall require a
majority vote of the board of directors of Pentacon excluding for the purposes
of such vote, any director who was previously a stockholder of the Company or is
a representative of the stockholders of the Company as existing prior to the
closing of the transactions contemplated in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall be
liable (in the aggregate from time to time taking into account all
indemnification payments made hereunder) under this Section 11(a) for any amount
which is less than or equal to the Indemnification Threshold (and then only to
the extent of the excess over the Indemnification Threshold) or (b) for any
amount which exceeds the amount of proceeds (including cash and stock) received
by such Stockholder in connection with the Merger. Each Stockholder shall have
the option of satisfying his or her indemnity obligation in cash and/or by
returning or transferring shares of Pentacon Stock to Pentacon or any other
Indemnified Party. For purposes of calculating the value of the Pentacon Stock
received by a Stockholder and satisfying any indemnity claim by returning or
transferring Pentacon Stock, Pentacon Stock shall be valued at its initial
public offering price as set forth in the Registration Statement.
Notwithstanding any of the foregoing provisions of this Section 11 that
might be read to the contrary, it is the agreement of the parties that the
Indemnification Threshold be given full effect under all circumstances.
Accordingly, insofar as any of the foregoing provisions of this Section 11 may
hold harmless an Indemnified Party before the Indemnification Threshold has been
met, then Pentacon and the Stockholders shall cooperate in good faith to
establish an equitable procedure pursuant to which Pentacon reimburses or causes
the reimbursement to the affected Stockholder(s) of all expenditures and
payments by Stockholders that are intended to be absorbed and borne by any
Indemnified Parties as a result of the prior application of the Indemnification
Threshold or otherwise takes such action as may be reasonably necessary to give
effect to the Indemnification Threshold.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated at any time prior to
the Consummation Date solely:
(i) by mutual consent of the boards of directors of Pentacon and the
Company;
(ii) by the Stockholders or the Company (acting through its board of
directors), on the one hand, or by Pentacon (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
February 28, 1998, unless the failure of such transactions to be
consummated is due to the willful failure of the party seeking to
terminate this Agreement to perform any of its obligations under this
Agreement to the extent required to be performed by it prior to or on the
Consummation Date;
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(iii) by the Stockholders or Company, on the one hand, or by
Pentacon, on the other hand, if a material breach or default shall be made
by the other party in the observance or in the due and timely performance
of any of the covenants or agreements contained herein, and the curing of
such default shall not have been made on or before the Consummation Date
or by the Stockholders or the Company, if the conditions set forth in
Section 8 hereof have not been satisfied or waived as of the Closing Date
or the Consummation Date, as applicable, or by Pentacon, if the conditions
set forth in Section 9 hereof have not been satisfied or waived as of the
Closing Date or the Consummation Date, as applicable;
(iv) pursuant to Section 7.8 hereof;
(v) pursuant to the termination provisions contained in Section 4
hereof; or
(vi) pursuant to the other express terms of this Agreement.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The Stockholders will not, for a period of
five (5) years following the Consummation Date, for any reason whatsoever,
directly or indirectly, for themselves or on behalf of or in conjunction with
any other person, persons, company, partnership, corporation or business of
whatever nature:
(i) except as disclosed in Schedule 13.1, engage, as an officer,
director, shareholder, owner, partner, joint venturer, or in a managerial
capacity, whether as an employee, independent contractor, consultant or
advisor, or as a sales representative, in any fastener business or
operation or related services business in direct competition with Pentacon
or any of the subsidiaries thereof, within 100 miles of where the Company
or any of its subsidiaries conducted business prior to the effectiveness
of the Merger (the "Territory");
(ii) except with the prior written consent of Pentacon, call upon
any person who is, at that time, within the Territory, an employee of
Pentacon or any subsidiary thereof for the purpose or with the intent of
enticing such employee away from or out of the employ of Pentacon or any
subsidiary thereof;
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to the Consummation Date, a
customer of Pentacon or any subsidiary
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thereof, of the Company or of any of the Other Founding Companies within
the Territory for the purpose of soliciting or selling products or
services that are in direct competition with Pentacon within the
Territory;
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor in the fastener
business, which candidate, to the actual knowledge of such Stockholder
after due inquiry, was called upon by Pentacon or any subsidiary thereof
or for which, to the actual knowledge of such Stockholder after due
inquiry, Pentacon or any subsidiary thereof made an acquisition analysis,
for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of the
Company to any person, firm, partnership, corporation or business for any
reason or purpose relating to the fastener business except to the extent
that the Company has in the past disclosed such information to the public
for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any Stockholder from acquiring as a passive investment not more than
one percent (1%) of the capital stock of a competing business whose stock is
traded on a national securities exchange or over-the counter.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
Pentacon as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to Pentacon for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by Pentacon in the event of breach by such Stockholder,
by injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of Pentacon and the
subsidiaries thereof on the date of the execution of this Agreement and the
current plans of Pentacon; but it is also the intent of Pentacon and the
Stockholders that such covenants be construed and enforced in accordance with
the changing activities; business and locations of Pentacon and its subsidiaries
throughout the term of this covenant. During the term of this covenant, if
Pentacon or one of its subsidiaries engages in new and different activities,
enters a new business or establishes new locations for its current activities or
business in addition to or other than the activities or business it is currently
conducting in the locations currently established therefor, then the
Stockholders will be precluded from soliciting the customers or employees of
such new activities or business or from such new location and from directly
competing with such new activities or business within 100 miles of its
then-established operating location(s) through the term of this covenant.
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13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against Pentacon or any subsidiary thereof, whether predicated on this Agreement
or otherwise (except for a claim or cause of action based upon Pentacon's
failure to pay or otherwise tender any of the consideration due to the
Stockholders hereunder), shall not constitute a defense to the enforcement by
Pentacon of such covenants. It is specifically agreed that the period of five
(5) years stated at the beginning of this Section 13, during which the
agreements and covenants of each Stockholder made in this Section 13 shall be
effective, shall be computed by excluding from such computation any time during
which such Stockholder is in violation of any provision of this Section 13. The
covenants contained in Section 13 shall not be affected by any breach of any
other provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders and each of the Other Stockholders by
their execution of the Limited Joinder hereto recognize and acknowledge that
they had in the past, currently have, and in the future may possibly have,
access to certain confidential information of the Company, the Other Founding
Companies, and/or Pentacon, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of the Company's, the
Other Founding Companies' and/or Pentacon's respective businesses. The
Stockholders and Other Stockholders agree that they will not disclose such
confidential information to any person, firm, corporation, association or other
entity for any purpose or reason whatsoever, except (a) to authorized
representatives of Pentacon, (b) following the Closing, such information may be
disclosed by the Stockholders as is required in the course of performing their
duties for Pentacon or the Surviving Corporation and (c) to counsel and other
advisers, provided that such advisers (other than counsel) agree to the
confidentiality provisions of this Section 14.1, unless (i) such information
becomes known to the public generally through no fault of the Stockholders or
Other Stockholders (as the case may be), (ii) disclosure is required by law or
the order of any governmental authority under color of law, provided, that prior
to disclosing any information pursuant to this clause (ii), the Stockholders
shall, if possible, give prior written notice thereof to Pentacon and provide
Pentacon with the opportunity to contest such disclosure, or (iii) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party.
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In the event of a breach or threatened breach by any of the Stockholders or
Other Stockholders of the provisions of this Section, Pentacon shall be entitled
to an injunction restraining such Stockholders or Other Stockholders from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting Pentacon from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
In the event the transactions contemplated by this Agreement are not
consummated, the Stockholders or Other Stockholders shall have none of the
above-mentioned restrictions on their ability to disseminate confidential
information with respect to the Company.
14.2 PENTACON AND NEWCO. Pentacon and Newco recognize and acknowledge that
they had in the past and currently have access to certain confidential
information of the Company, including, but not limited to, customer and prospect
lists, financial information, operational policies, and pricing and cost
policies that are valuable, special and unique assets of the Company's business.
Pentacon and Newco agree that, prior to the Consummation Date, or if the
transactions contemplated by this Agreement are not consummated, they will not,
appropriate or make use of any such information, whether for its own benefit or
the benefit of any other person or entity, for any purpose whatsoever (except
pending the Consummation Date, effecting the transactions contemplated hereby)
disclose such confidential information to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except (a) to
authorized representatives of the Company, (b) to counsel and other advisers,
provided that such advisers (other than counsel) agree to the confidentiality
provisions of this Section 14.2, (c) to the Other Founding Companies and their
representatives pursuant to Section 7.1(a), unless (i) such information becomes
known to the public generally through no fault of Pentacon or Newco, (ii)
disclosure is required by law or the order of any governmental authority under
color of law, provided, that prior to disclosing any information pursuant to
this clause (ii), Pentacon and Newco shall, if possible, give prior written
notice thereof to the Company and the Stockholders and provide the Company and
the Stockholders with the opportunity to contest such disclosure, or (iii) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party, and (d)
to the public to the extent necessary or advisable in connection with the filing
of the Registration Statement and the IPO and the securities laws applicable
thereto and to the operation of Pentacon as a publicly held entity after the
IPO. In the event of a breach or threatened breach by Pentacon or Newco of the
provisions of this Section, the Company and the Stockholders shall be entitled
to an injunction restraining Pentacon and Newco from disclosing, in whole or in
part, such confidential information. Nothing herein shall be construed as
prohibiting the Company and the Stockholders from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach or threatened breach by any of them of the foregoing
covenants, the covenant may be enforced against the other parties by injunctions
and
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restraining orders or other appropriate equitable relief, without posting any
bond or other security or having to prove irreparable harm or injury.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Consummation Date, or without limitation if the transactions contemplated hereby
are not consummated.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by Pentacon, except
for transfers to immediate family members who agree to be bound by the
restrictions set forth in this Section 15.1 (or trusts or partnerships for the
benefit of charities, the Stockholders or Other Stockholders, family members,
the trustees or partners of which so agree), for a period of one year from the
Closing, except pursuant to Section 17 hereof, none of the Stockholders or Other
Stockholders shall sell, assign, exchange, transfer, encumber, pledge,
distribute, appoint, or otherwise dispose of any shares of Pentacon Stock
received by the Stockholders or Other Stockholders in the Merger. The
certificates evidencing the Pentacon Stock delivered to the Stockholders or
Other Stockholders pursuant to Section 3 of this Agreement will bear a legend
substantially in the form set forth below and containing such other information
as Pentacon may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT
OR OTHER DISPOSITION PRIOR TO FIRST ANNIVERSARY OF CLOSING DATE. UPON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE
THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT)
AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the shares of
Pentacon Stock to be delivered to the Stockholders pursuant to this Agreement
have not been and will not be registered under the 1933 Act (except as provided
in Section 17 hereof) and therefore may not be resold without compliance with
the 1933 Act. The Pentacon Stock to be acquired by such Stockholders pursuant to
this Agreement is being acquired solely for their own respective accounts, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of it in connection with a distribution. The Stockholders
covenant, warrant and represent that none of the shares of Pentacon Stock issued
to such Stockholders will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all of
the applicable provisions of the 1933 Act and the rules and regulations of the
SEC. All the Pentacon
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Stock shall bear the following legend in addition to the legend required under
Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to bear the
economic risk of an investment in the Pentacon Stock to be acquired pursuant to
this Agreement and can afford to sustain a total loss of such investment and
have such knowledge and experience in financial and business matters that they
are capable of evaluating the merits and risks of the proposed investment in the
Pentacon Stock. The Stockholders party hereto have had an adequate opportunity
to ask questions and receive answers from the officers of Pentacon concerning
any and all matters relating to the transactions described herein including,
without limitation, the background and experience of the current and proposed
officers and directors of Pentacon, the plans for the operations of the business
of Pentacon, the business, operations and financial condition of the Founding
Companies other than the Company, and any plans for additional acquisitions and
the like. The Stockholders have asked any and all questions in the nature
described in the preceding sentence and all questions have been answered to
their satisfaction.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Closing,
whenever Pentacon proposes to register any Pentacon Stock for its own or others
account under the 1933 Act for a public offering, other than (i) any shelf or
other registration of shares to be used as consideration for acquisitions of
additional businesses by Pentacon and (ii) registrations relating to employee
benefit plans, Pentacon shall give each of the Stockholders and Other
Stockholders prompt written notice of its intent to do so. Upon the written
request of any of the Stockholders given within 30 days after receipt of such
notice, Pentacon shall cause to be included in such registration all of the
Pentacon Stock issued to the Stockholders and Other Stockholders pursuant to
this Agreement (including any stock issued as (or issuable upon the conversion
or exchange of any convertible security, warrant, right or other security which
is issued by Pentacon as) a dividend or other distribution with respect to, or
in exchange for, or in replacement of such Pentacon Stock) which any such
Stockholder and Other Stockholder requests, provided that Pentacon shall have
the right to reduce the number of shares included in such registration to the
extent that inclusion of such shares would, in the written opinion of tax
counsel to Pentacon or its independent auditors, reasonably be likely to
jeopardize the status of the transactions contemplated hereby and by the
Registration Statement as a tax-free organization under Section 351 of the Code.
In addition, if Pentacon is advised in writing in good faith by any managing
underwriter of an underwritten offering of the securities being offered pursuant
to any registration statement under this Section 17.1 that the number of shares
to be sold by persons other than Pentacon is greater than the number of such
shares which can be offered without adversely affecting the offering, Pentacon
may reduce pro rata the
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number of shares offered for the accounts of such persons (based upon the number
of shares held by such person) to a number deemed satisfactory by such managing
underwriter, provided, that, for each such offering made by Pentacon after the
IPO, such reduction shall be made first by reducing the number of shares to be
sold by persons other than Pentacon, the Stockholders and Other Stockholders and
the Stockholders of the Other Founding Companies (collectively, the
Stockholders, the Other Stockholders and the Stockholders of the other Founding
Companies being referred to herein as the "Founding Stockholders"), and
thereafter, if a further reduction is required, by reducing the number of shares
to be sold by the Founding Stockholders.
17.2 REGISTRATION PROCEDURES. Whenever Pentacon is required to register
shares of Pentacon Stock pursuant to Section 17.1, Pentacon will, as
expeditiously as possible:
(i) Prepare and file with the SEC a registration statement with
respect to such shares and use its best efforts to cause such registration
statement to become effective (provided that before filing a registration
statement or prospectus or any amendments or supplements or term sheets
thereto, Pentacon will furnish a representative of the Stockholders and
Other Stockholders with copies of all such documents proposed to be filed)
as promptly as practical;
(ii) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement
effective for a period of not less than 120 days;
(iii) Furnish to each Stockholder or Other Stockholder who so
requests such number of copies of such registration statement, each
amendment and supplement thereto and the prospectus included in such
registration statement (including each preliminary prospectus and any term
sheet associated therewith), and such other documents as such Stockholder
or Other Stockholder may reasonably request in order to facilitate the
disposition of the relevant shares;
(iv) Use its best efforts to register or qualify the securities
covered by such registration statement under such other securities or Blue
Sky laws of such jurisdictions as shall be reasonably requested by the
Stockholders or Other Stockholders, and to keep such registration or
qualification effective during the period such registration statement is
to be kept effective, provided that Pentacon shall not be required to
become subject to taxation, to qualify to do business or to file a general
consent to service of process in any such states or jurisdictions;
(v) Cause all such shares of Pentacon Stock to be listed or included
on any securities exchanges or trading systems on which similar securities
issued by Pentacon are then listed or included;
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(vi) Notify each Stockholder or Other Stockholder at any time when a
prospectus relating thereto is required to be delivered under the 1933 Act
within the period that Pentacon is required to keep the registration
statement effective of the happening of any event as a result of which the
prospectus included in such registration statement, together with any
associated term sheet, contains an untrue statement of a material fact or
omits any fact necessary to make the statement therein not misleading,
and, at the request of such Stockholder or Other Stockholder, Pentacon
will prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of the covered shares, such
prospectus will not contain an untrue statement of material fact or omit
to state any fact necessary to make the statements therein not misleading.
All expenses incurred in connection with the registration under this
Article 17 (including all registration, filing, qualification, legal, printer
and accounting fees, but excluding underwriting commissions and discounts),
shall be borne by Pentacon.
17.3 INDEMNIFICATION.
(a) In connection with any registration hereunder, Pentacon shall
indemnify, to the extent permitted by law, each Stockholder and Other
Stockholder against all losses, claims, damages, liabilities and expenses
arising out of or resulting from any untrue or alleged untrue statement of
material fact contained in any registration statement, prospectus or preliminary
prospectus or associated term sheet or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading except insofar as the same are caused by or
contained in or omitted from any information furnished in writing to Pentacon by
such indemnified party expressly for use therein or by any indemnified parties'
failure to deliver a copy of the registration statement or prospectus or any
amendment or supplements thereto after Pentacon has furnished such Indemnified
Party with a sufficient number of copies of the same.
(b) In connection with any registration hereunder, each Stockholder
or Other Stockholder shall furnish to Pentacon in writing such information as is
reasonably requested by Pentacon for use in any such registration statement or
prospectus and will indemnify, to the extent permitted by law, Pentacon, its
directors and officers and each person who controls Pentacon (within the meaning
of the ▇▇▇▇ ▇▇▇) against any losses, claims, damages, liabilities and expenses
resulting from any untrue or alleged untrue statement or material fact or any
omission or alleged omission of a material fact required to be stated in the
registration statement or prospectus or any amendment thereof or supplement
thereto necessary to make the statements therein not misleading, but only to the
extent that such untrue statement or omission is contained in information so
furnished in writing by such Stockholder specifically for use in preparing the
registration statement. Notwithstanding the foregoing, the liability of a
Stockholder or Other Stockholder under this Section 17.3 shall be limited to an
amount equal to the net proceeds actually received by such Stockholder or Other
Stockholder from the sale of the relevant shares covered by the registration
statement.
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(c) Any person entitled to indemnification under this Section will
(i) give prompt notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) unless in such indemnified parties'
reasonable judgment, a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. Any failure to give prompt notice shall
deprive a party of its right to indemnification hereunder only to the extent
that such failure shall have adversely affected the indemnifying party. If the
defense of any claim is assumed, the indemnifying party will not be subject to
any liability for any settlement made without its consent (but such consent
shall not be unreasonably withheld). An indemnifying party who is not entitled
or elects not to assume the defense of a claim, will not be obligated to pay the
fees and expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party, a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
17.4 UNDERWRITING AGREEMENT. In connection with each registration pursuant
to Section 17.1 covering an underwritten registered offering, Pentacon and each
participating holder agree to enter into a written agreement with the managing
underwriters in such form and containing such provisions as are customary in the
securities business for such an arrangement between such managing underwriters
and companies of Pentacon's size and investment stature, including
indemnification.
17.5 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC that may permit the sale of Pentacon
stock to the public without registration, Pentacon agrees to use commercially
reasonable efforts to:
(i) make and keep public information regarding Pentacon available as
those terms are understood and defined in Rule 144 under the 1933 Act for
a period of four years beginning 90 days following the effective date of
the Registration Statement;
(ii) file with the SEC in a timely manner all reports and other
documents required of Pentacon under the 1933 Act and the 1934 Act at any
time after it has become subject to such reporting requirements; and
(iii) so long as a Stockholder or Other Stockholder owns any
restricted Pentacon Stock, furnish to each Stockholder or Other
Stockholder forthwith upon written request a written statement by Pentacon
as to its compliance with the reporting requirements of Rule 144 (at any
time from and after 90 days following the effective date of the
Registration Statement, and of the 1933 Act and the 1934 Act (any time
after it has become subject to such reporting requirements), a copy of the
most recent annual or quarterly report of Pentacon, and such other reports
and documents so filed as a Stockholder or Other Stockholder may
reasonably request in availing itself of any rule or regulation of the SEC
allowing a Stockholder or Other Stockholder to sell any such shares
without registration.
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18. GENERAL
18.1 COOPERATION. The Company, Stockholders or Other Stockholders,
Pentacon and Newco shall each deliver or cause to be delivered to the other on
the Consummation Date, and at such other times and places as shall be reasonably
agreed to, such additional instruments as the other may reasonably request for
the purpose of carrying out this Agreement. The Company will cooperate and use
its reasonable efforts to have the present officers, directors and employees of
the Company cooperate with Pentacon on and after the Consummation Date in
furnishing information, evidence, testimony and other assistance in connection
with any tax return filing obligations, actions, proceedings, arrangements or
disputes of any nature with respect to matters pertaining to all periods prior
to the Consummation Date.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
Pentacon, and the heirs and legal representatives of the Stockholders.
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Stockholders, the
Company, Newco and Pentacon and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement, upon
execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only (i)
pursuant to Section 7.8 with respect to the amendment of Schedules or (ii) by a
written instrument executed by the Stockholders, the Company, Newco and
Pentacon, acting through their respective officers or trustees, duly authorized
by their respective Boards of Directors. Any disclosure made on any Schedule
delivered pursuant hereto shall be deemed to have been disclosed for purposes of
any other Schedule required hereby, provided that the Company shall make a good
faith effort to cross reference disclosure, as necessary or advisable, between
related Schedules, and provided further that the failure to do so will not
affect the validity of such disclosure.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commission of
brokers employed or alleged to have been employed by such indemnifying party.
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18.6 EXPENSES. Whether or not the transactions herein contemplated shall
be consummated, Pentacon will pay the fees, expenses and disbursements of
Pentacon and its agents, representatives, accountants and counsel incurred in
connection with the subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance and compliance with
all conditions to be performed by Pentacon under this Agreement, including the
fees and expenses of Ernst & Young LLP, ▇▇▇▇▇▇▇ & ▇▇▇▇▇ L.L.P., and any other
person or entity retained by Pentacon or by ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ Capital Ventures
II, L.C., and the costs of preparing the Registration Statement. Except as
otherwise agreed in writing by Pentacon, each Stockholder and Other Stockholder
shall pay their respective fees, expenses and disbursements of counsel and other
professionals in connection with this transaction and shall pay all sales, use,
transfer, real property transfer, recording, gains, stock transfer and other
similar taxes and fees ("Transfer Taxes") imposed in connection with the Merger,
other than Transfer Taxes, if any, imposed by the State of Delaware. Each
Stockholder and Other Stockholder shall file all necessary documentation and
Returns with respect to such Transfer Taxes. In addition, each Stockholder and
Other Stockholder acknowledges that he, and not the Company or Pentacon, will
pay all taxes due upon receipt of the consideration payable pursuant to Section
2 hereof. The Stockholders and Other Stockholders acknowledge that the risks of
the transactions contemplated hereby include tax risks, with respect to which
the Stockholders are relying solely on the opinion contemplated by Section 8.12
hereof.
18.7 NOTICES. All notices of communication required or permitted hereunder
shall be in writing and may be given by depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person to
an officer or agent of such party.
(a) If to Pentacon, or Newco, addressed to them at:
Pentacon, Inc.
▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
with copies to:
▇▇▇▇▇ ▇▇▇▇▇, Esquire
Pentacon, Inc.
▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
and
▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esquire
▇▇▇▇▇▇▇ & ▇▇▇▇▇, L.L.P.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
-▇▇-
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
(b) If to the Stockholders, addressed to them at:
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
with copies to:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ & ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
P. O. ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
(c) If to the Company, addressed to it at:
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
Sales Systems, Limited
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
(d) If to the Other Stockholders addressed to them at:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
with a copy to:
▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇
Central Fidelity Bank Building
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ - ▇▇▇▇▇ ▇▇▇
P. O. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇., Esquire
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇., Esquire
▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Delaware.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the applicable Expiration
Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
18.13 REMEDIES CUMULATIVE. Except as set forth in Section 11.4, no right,
remedy or election given by any term of this Agreement shall be deemed exclusive
but each shall be cumulative with all other rights, remedies and elections
available at law or in equity.
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18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
PENTACON, INC.
By:/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Chief Executive Officer
SALES SYSTEMS LIMITED ACQUISITION
COMPANY
By:/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
President
SALES SYSTEMS, LIMITED
By:/s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
President
Stockholders:
/s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-62-
ANNEX I (SSL)
CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
STOCKHOLDER OR SHARES OF COMMON STOCK OF
OTHER STOCKHOLDER PENTACON, INC. MERGER CASH
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▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ .................... 232,132 $1,169,856.50
▇▇▇▇▇▇▇ ▇▇▇▇▇ .......................... 232,132 $1,169,856.50
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ...................... 59,003 0.00
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ...................... 25,287 0.00
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548,554 $2,339,713.00
============= =============
MINIMUM VALUE: ......................... $7,951,420.40
ANNEX II
Sales Systems, Limited Stock Ownership
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇. 12.5 shares
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ 12.5 shares
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ___ shares
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ___ shares
LIMITED JOINDER
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, an adult individual with an address at ▇▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ("▇▇▇▇▇▇▇▇"), and ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇, an adult individual with an address at ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ("▇▇▇▇▇▇") (▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ shall be collectively referred to
herein as the "Other Stockholders"), each intending to be legally bound and to
induce Pentacon, Inc., a Delaware corporation ("Pentacon"), to enter into the
foregoing Agreement and Plan of Organization dated as of December 1, 1997 (the
"Agreement") among Pentacon, Sales Systems Limited Acquisition Corp. and Sales
Systems, Limited, hereby join in the Agreement for the purposes of making and
agreeing to perform and be bound by all of the representations, warranties,
covenants and agreements set forth in (a) Sections 5.3 and 5(B) of the Agreement
pertaining to title to the shares of Company Stock owned by the Other
Stockholders and various related matters and (b) Section 14 of the Agreement
relating to nondisclosure of confidential information all in accordance with
terms and conditions set forth in the Agreement (all of which terms and
conditions including, but not limited to, all defined terms relating thereto)
are hereby incorporated by reference into this Limited Joinder and made a part
hereof.
Capitalized terms used in this Limited Joinder that are not
otherwise defined herein shall have the respective meanings assigned to them in
the Agreement.
This Limited Joinder has been duly executed by the Other
Shareholders as of the 1st day of December, 1997.
Witness:
_____________________________ _________________________________ (SEAL)
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
_____________________________ _________________________________ (SEAL)
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇