EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
among
SETECH, INC.
and the
SHAREHOLDERS
of
▇▇▇▇▇ SUPPLY COMPANY, INC.
Dated June , 1997
TABLE OF CONTENTS
PAGE
1. DEFINITIONS 1
2. SALE AND TRANSFER OF SHARES; CLOSING 4
2.1 SHARES. 4
2.2 PURCHASE PRICE 4
2.3 CLOSING. 5
2.4 CLOSING OBLIGATIONS 5
2.5 ADJUSTMENTS TO PURCHASE PRICE AND LIMITATIONS UPON
INDEMNIFICATION..................................... 7
3. REPRESENTATIONS AND WARRANTIES OF SELLERS 8
3.1 EXISTENCE; GOOD STANDING; CORPORATE AUTHORITY; COMPLIANCE
WITH LAW............................................ 8
3.2 CONSENTS 9
3.3 AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS 9
3.4 CAPITALIZATION 9
3.5 PRIOR SALES OF SECURITIES 10
3.6 SUBSIDIARIES 10
3.7 OTHER INTERESTS 10
3.8 NO VIOLATION 10
3.9 FINANCIAL STATEMENTS 10
3.10 CONTRACTS 11
3.11 ABSENCE OF CERTAIN CHANGES 12
3.12 TAX MATTERS 13
3.13 EMPLOYEES AND BENEFIT PLANS 13
3.14 ASSETS 15
3.15 LAWFULLY OPERATING 16
3.16 POWER OF ATTORNEY 16
3.17 NO LITIGATION 16
3.18 CORPORATE RECORDS 16
3.19 NO DEFAULTS 16
3.20 HAZARDOUS SUBSTANCES 16
3.21 LABOR MATTERS 18
3.22 CONDITION OF ASSETS 18
3.23 ACCOUNTS RECEIVABLE 19
3.24 INVENTORY 19
3.25 NO LIABILITIES 19
3.26 INSURANCE 19
3.27 INTELLECTUAL PROPERTY 21
3.28 BROKERS OR FINDERS 22
3.29DISCLOSURE 22
3.30 SELLERS' REPRESENTATIVE 23
3.31 SELLERS' KNOWLEDGE OF CLAIMS 23
4. REPRESENTATIONS AND WARRANTIES OF BUYER...................23
4.1 ORGANIZATION AND GOOD STANDING...................... 23
4.2 AUTHORITY; NO CONFLICT 23
4.3 INVESTMENT INTENT 23
4.4 CERTAIN PROCEEDINGS 24
4.5 BROKERS OR FINDERS 24
4.6 SETECH FINANCIAL STATEMENTS 24
4.7 INVENTORY DUE DILIGENCE 24
4.8 BUYER'S KNOWLEDGE OF CLAIMS 24
5. COVENANTS OF SELLERS PRIOR TO CLOSING DATE 24
5.1 ACCESS AND INVESTIGATION 24
5.2 OPERATION OF THE BUSINESSES OF THE COMPANY 24
5.3 REQUIRED APPROVALS 25
5.4 NO NEGOTIATION 25
5.5 NOTIFICATION 25
5.6 [INTENTIONALLY OMITTED] 25
5.7 TAX COVENANTS 25
5.8 DISTRIBUTIONS, DIVIDENDS AND BONUSES 27
5.9 ADVANCES TO SHAREHOLDERS, DIRECTORS AND OFFICERS. 28
6. COVENANTS OF BUYER PRIOR TO CLOSING DATE 28
6.1 APPROVALS OF GOVERNMENTAL BODIES.................... 28
6.2 BEST EFFORTS. 28
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE 28
7.1 ACCURACY OF REPRESENTATIONS 28
7.2 SELLERS' PERFORMANCE 29
7.3 CONSENTS 29
7.4 ADDITIONAL DOCUMENTS.................................29
7.5 NO PROCEEDINGS 29
7.6 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS 29
7.7 NO PROHIBITION 29
7.8 FINANCING 29
8. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE 30
8.1 ACCURACY OF REPRESENTATIONS 30
8.2 BUYER'S PERFORMANCE 30
8.3 ADDITIONAL DOCUMENTS 30
8.4 NO INJUNCTION 30
8.5 CONSENTS 30
8.6 NO PROCEEDINGS 31
9. TERMINATION 31
9.1 TERMINATION EVENTS 31
9.2 EFFECT OF TERMINATION 31
10. INDEMNIFICATION; REMEDIES 31
10.1 SURVIVAL; RIGHT TO INDEMNIFICATION AFFECTED BY CERTAIN
KNOWLEDGE........................................... 31
10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS 32
10.3 [Intentionally Omitted] 33
10.4 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER 33
10.5 TIME LIMITATIONS 33
10.6 THRESHOLD ON AMOUNT--SELLERS 33
10.7 THRESHOLD ON AMOUNT--BUYER 34
10.8 RIGHT OF SET-OFF AND EXERCISE OF REMEDIES 34
10.9PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS 35
10.10 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS 36
11. GENERAL PROVISIONS 36
11.1 EXPENSES 36
11.2 PUBLIC ANNOUNCEMENTS 36
11.3 MANDATORY ARBITRATION 36
11.4 CONFIDENTIALITY 37
11.5 NOTICES 37
11.6 JURISDICTION; SERVICE OF PROCESS 38
11.7 FURTHER ASSURANCES 38
11.8 WAIVER 38
11.9 ENTIRE AGREEMENT AND MODIFICATION 38
11.10 DISCLOSURE LETTER 39
11.11 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS 39
11.12 SEVERABILITY 39
11.13 SECTION HEADINGS, CONSTRUCTION 39
11.14 TIME OF ESSENCE 39
11.15 GOVERNING LAW 39
11.16 COUNTERPARTS 40
EXHIBITS
Exhibit 1 Disclosure Letter
Exhibit 2.2 Allocation of Purchase Price
Exhibit 2.4(a)(ii) Employment and Noncompetition Agreement
Exhibit 2.4(b)(ii) Non-Negotiable Promissory Note
Exhibit 2.4(c)(99) ▇▇▇▇▇▇▇ Employment and Noncompetition Agreement
Exhibit 2.4(c)(iii) Shareholder Agreement
Exhibit 3.30 Sellers' Representative Power of Attorney
Exhibit 4.7 Approved Inventory of Company
Exhibit 5.7 Tax Allocation
Exhibit 7.4(a) Opinion of Counsel to Sellers
Exhibit 8.3(a) Opinion of Counsel to Buyer
Exhibit 11.5 Addresses for Notice to Sellers
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is made as of
June, 1997, by and among SETECH, INC., a Delaware corporation having
its principal place of business at ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ("Buyer"), and the parties appearing on the
signature pages hereto (such parties are collectively referred to herein as
the "Sellers").
RECITALS
Sellers desire to sell, and Buyer desires to purchase, all of the
issued and outstanding shares (the "Shares") of capital stock of ▇▇▇▇▇
Supply Company, Inc., a Delaware corporation having its principal place of
business at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (the
"Company"), for the consideration and on the terms set forth in this
Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS.
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"APPLICABLE CONTRACT"--any contract (a) under which the Company has or
may acquire any rights, (b) under which the Company has or may become
subject to any obligation or liability, or (c) by which the Company or any
of its assets is or may become bound.
"BALANCE SHEET"--as defined in Section 3.09.
"▇▇▇▇▇▇▇ EMPLOYMENT AND NONCOMPETITION AGREEMENT"--as defined in
Section 2.4(c)(ii).
"BUSINESS DAY--any day other than a Saturday, Sunday, a legal holiday
or a day on which banking institutions are authorized or required by law to
close in the State of Tennessee.
"BUYER"--as defined in the first paragraph of this Agreement.
"CLOSING"--as defined in Section 2.3.
"CLOSING DATE"--the date and time as of which the Closing actually
takes place.
"COMPANY"--as defined in the Recitals of this Agreement.
"CONTEMPLATED TRANSACTIONS"--all of the transactions contemplated by
this Agreement, including:
(a) the sale of the Shares by Sellers to Buyer;
(b) the execution, delivery, and performance of the Promissory
Notes, the [Security for Promissory Notes], the Employment and
Noncompetition Agreements, the Shareholder Agreement, and the ▇▇▇▇▇▇▇
Employment and Noncompetition Agreement;
(c) the performance by Buyer and Sellers of their respective
covenants and obligations under this Agreement; and
(d) Buyer's acquisition and ownership of the Shares.
"DAMAGES"--as defined in Section 10.2.
"DEFERRED PAYMENTS"--the payments due under the Promissory Notes under
Section 2.2(a)(i)(A)(B) and (C) and the Stock Purchase Price payable after
the Closing Date under Section 2.2(a)(ii)(A)(B) and (C).
"DISCLOSURE LETTER"--the disclosure letter delivered by Sellers to
Buyer concurrently with the execution and delivery of this Agreement.
"EMPLOYMENT AND NONCOMPETITION AGREEMENTS"--as defined in Section
2.4(a)(ii).
"ENCUMBRANCE"--any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest,
right of first refusal, or restriction of any kind, including any
restriction on use, voting, transfer, receipt of income, or exercise of any
other attribute of ownership.
"ERISA"--the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"GAAP"--generally accepted accounting principles, applied on a basis
consistent with the basis on which the Balance Sheet and the other
financial statements referred to in Section 3.9 were prepared.
"GOVERNMENTAL AUTHORIZATION"--any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to
any Legal Requirement.
"GOVERNMENTAL BODY"--any federal, state, local or municipal government
(or agency thereof) or quasi-governmental authority of any nature.
"INTELLECTUAL PROPERTY ASSETS" --as defined in Section 3.27.
"INTERIM BALANCE SHEET"--as defined in Section 3.9.
"IRC"--the Internal Revenue Code of 1986 or any successor law, and
regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.
"IRS"--the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of the
Treasury.
"LEGAL REQUIREMENT"--any federal, state, local, municipal, or other
administrative order, constitution, law, ordinance, principle of common
law, regulation or statute.
"ORDER"--any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"ORGANIZATIONAL DOCUMENTS"-- the articles or certificate of
incorporation and the bylaws of a corporation and any amendment to the
foregoing.
"PERSON"--any individual, corporation, general or limited partnership,
limited liability company, joint venture, estate, trust, association,
organization, labor union, or other entity or Governmental Body.
"PLAN"--as defined in Section 3.13.
"PROMISSORY NOTES"--as defined in Section 2.4(b)(ii).
"PURCHASE PRICE"--the Dollar Purchase Price (as defined in Section
2.2) and the Stock Purchase Price (as defined in Section 2.2).
"SECURITIES ACT"--the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
"SELLERS"--as defined in the first paragraph of this Agreement.
"SELLERS' REPRESENTATIVE"--▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇.
"SHARES"--as defined in the Recitals of this Agreement.
"SHAREHOLDER AGREEMENT"--as defined in Section 2.4(d)(ii).
"TAX RETURN"--any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment,
collection, or payment of any tax or in connection with the administration,
implementation, or enforcement of or compliance with any Legal Requirement
relating to any tax.
2. SALE AND TRANSFER OF SHARES; CLOSING.
1 SHARES. Subject to the terms and conditions of this Agreement,
at the Closing, Sellers will sell and transfer the Shares to Buyer, and
Buyer will purchase the Shares from Sellers.
2 PURCHASE PRICE.
(a) Subject to the adjustments set forth in Section 2.5, Section
5.8(b) and as set forth in other provisions of this Agreement, the
purchase price for the Shares shall be Six Million Seven Hundred Two
Thousand and Five Thousand Dollars ($6,702,500) payable in cash (the
"Dollar Purchase Price") plus Two Hundred and Eighty-Five Thousand
Seven Hundred Fourteen (285,714) shares of the common stock of Buyer
(the "Stock Purchase Price"). Subject to such adjustments, the
Purchase Price shall be payable as follows:
(i) At the Closing, $5,952,500 will be paid in cash to the
Sellers (to be allocated among the Sellers in accordance with
Exhibit 2.2) with the remainder of the Dollar Purchase Price
payable pursuant to the Promissory Notes as follows:
(A) $250,000 payable to the Sellers on June
1, 1998 (allocated among the Sellers in accordance
with Exhibit 2.2)(together with the payment
described in Section 2.2(a)(ii)(A), the "First
Deferred Payment");
(B) $250,000 payable to the Sellers on June
1, 1999 (allocated among the Sellers in accordance
with Exhibit 2.2)(together with the payment
described in Section 2.2(a)(ii)(B), the "Second
Deferred Payment"); and
(C) $250,000 payable to the Sellers on June
1, 2000 (allocated among the Sellers in accordance
with Exhibit 2.2)(together with the payment
described in Section 2.2(a)(ii)(C), the "Third
Deferred Payment").
Interest on the Promissory Notes shall accrue at a rate
equal to either (i) the thirty-day LIBOR Rate (as quoted by the
telerate system of on the date of Seller's
election) plus one and one-half percent per annum (the "LIBOR
Option"); or (ii) the prime rate (as quoted by on the date of
Seller's election) minus one percent per annum (the "Prime Rate
Option"). Each Seller shall elect either the LIBOR Option or the
Prime Rate Option by written notice delivered to Buyer at least
three (3) Business Days prior to the Closing Date. The interest
rate elected by a Seller shall be a fixed rate during the entire
term of the Promissory Note.
(ii) At the Closing, Buyer will deliver 255,102 shares of
the Stock Purchase Price, which shall be allocated to ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇, ▇▇. and his Permitted Transferees (as defined in the
Shareholder Agreement) in accordance with Exhibit 2.2, with the
remainder of the Stock Purchase Price payable as follows:
(A) 10,204 shares of the Stock Purchase Price to be
delivered on June 1, 1998 to ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ or his
Permitted Transferees (as defined in the Shareholder
Agreement);
(B) 10,204 shares of the Stock Purchase Price to be
delivered on June 1, 1999 to ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ or his
Permitted Transferees (as defined in the Shareholder
Agreement);
(C) 10,204 shares of the Stock Purchase Price to be
delivered on June 1, 2000 to ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ or his
Permitted Transferees (as defined in the Shareholder
Agreement).
Solely for purposes of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇'▇ rights and
options under the Shareholder Agreement, all shares of the Stock
Purchase Price shall be deemed issued as of the Closing Date.
(iii) Buyer, Sellers and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇. acknowledge
that the portion of the Purchase Price payable to ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇, ▇▇., ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇.,
Custodian for ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ under TN UTMA, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇,
▇▇., Custodian for ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ under TN UTMA, ▇▇▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇, Trustee U/A dated 4/23/90 FBO ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Trust I"), ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
Trustee U/A dated 4/23/90 FBO ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
("▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Trust II"), ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Trustee U/A
dated 4/23/90 FBO ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ Trust III") (the "▇▇▇▇▇▇▇ Interests") has been separately
bargained for by and between Buyer and the ▇▇▇▇▇▇▇ Interests due
to the control position of the ▇▇▇▇▇▇▇ Interests, and therefore
the Purchase Price payable to the ▇▇▇▇▇▇▇ Interests is
disproportionate.
3 CLOSING. The purchase and sale (the "Closing") provided for in
this Agreement will take place at the offices of Waring ▇▇▇, PLC in
Memphis, Tennessee, at 10:00 a.m. (local time):
(i) at the option of the Buyer, on a Business Day following the
last to be fulfilled or waived of the conditions set forth in Sections
7 and 8 designated by Buyer upon not less than three Business Days
notice to Sellers' Representative, but in no event earlier than June
20, 1997 nor later than June 30, 1997; or
(ii) at such other time and place as the Buyer and Sellers'
Representative may agree. Subject to the provisions of Section 9,
failure to consummate the purchase and sale provided for in this
Agreement on the date and time and at the place determined pursuant to
this Section 2.3 will not result in the termination of this Agreement
and will not relieve any party of any obligation under this Agreement.
4 CLOSING OBLIGATIONS.
At the Closing:
(a) Sellers will deliver to Buyer:
(i) certificates representing the Shares, duly endorsed (or
accompanied by duly executed stock powers), with signatures
guaranteed by a commercial bank or by a member firm of the New
York Stock Exchange, for transfer to Buyer;
(ii) employment and noncompetition agreements in
substantially the form of collective Exhibit 2.4(a)(ii), executed
by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇
▇▇▇▇▇▇ (collectively, the "Employment and Noncompetition
Agreements"); and
(iii) a certificate executed by Sellers representing and
warranting to Buyer that each of Sellers' representations and
warranties in this Agreement was accurate in all respects as of
the date of this Agreement and is accurate in all respects as of
the Closing Date as if made on the Closing Date (giving full
effect to the Disclosure Letter.
(b) Buyer will deliver to Sellers (subject to the adjustments set
forth in Section 2.5 and Section 5.8):
(i) cash in an amount equal to $5,952,000 payable by wire
transfer in immediately available funds payable to the accounts
(designated in writing to Buyer three (3) Business Days prior to
the Closing Date) of the respective Sellers as allocated in
accordance with Exhibit 2.2;
(ii) promissory notes in the form of Exhibit 2.4(b)(ii)
payable to Sellers (and/or their Permitted Transferees as such
term is defined in the Promissory Notes) in the respective
principal amounts as set forth in Exhibit 2.2 (the "Promissory
Notes") pursuant to which the unpaid balance of the Dollar
Purchase Price shall be payable to Sellers; with interest payable
in accordance with the terms of the Promissory Notes;
(iii) a certificate executed by Buyer to the effect that,
except as otherwise stated in such certificate, each of Buyer's
representations and warranties in this Agreement was accurate in
all respects as of the date of this Agreement and is accurate in
all respects as of the Closing Date as if made on the Closing
Date;
(iv) the Employment and Noncompetition Agreements, executed
by Buyer; and
(v) the ▇▇▇▇▇▇▇ Employment and Noncompetition Agreement,
executed by Buyer.
(c) Buyer will deliver to ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇., Two Hundred
Fifty-Five Thousand One Hundred Two (255,102) shares of the fully paid
and nonassessable Common Stock, $0.01 par value, of Buyer, registered
in the name of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇. (and/or his Permitted
Transferees as defined in the Shareholder Agreement) in accordance
with Exhibit 2.2;
(d) Buyer will deliver to ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇., and ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇, ▇▇. will deliver to Buyer:
(i) an agreement executed by Buyer and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇,
▇▇. in the form of Exhibit 2.4(c)(ii) which consists of, INTER
ALIA, an employment and noncompetition agreement and a grant to
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇. of the right and option to purchase
additional shares of the Buyer under the terms set forth therein
(the "▇▇▇▇▇▇▇ Employment and Noncompetition Agreement"); and
(ii) an agreement executed by Buyer and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇,
▇▇. in the form of Exhibit 2.4(c)(iii) (the "Shareholder
Agreement").
5 ADJUSTMENTS TO PURCHASE PRICE AND LIMITATIONS UPON
INDEMNIFICATION. The Purchase Price may be adjusted under the provisions
of this Section, subject to the following terms and conditions:
(a) ADJUSTMENT BASED ON STOCKHOLDERS' EQUITY OF COMPANY.
(i) The First Deferred Payment (and any interest accrued thereon)
shall be reduced by an amount, if any, that is equal to the sum of:
(A) the positive difference, if any, between:
(1) Three Million Eight Hundred Thousand Dollars
($3,800,000) plus net income of the Company for the
period February 1, 1997 to the Closing Date, minus the
amount of any allowable distributions made by the
Company in accordance with Section 5.8(a)(i) and (ii)
herein); and
(2) any lesser amount of stockholders' equity (calculated
in accordance with GAAP consistently applied) of the
Company as of the Closing Date reflected in the Closing
Financial Statements (defined below)
and;
(B) interest from the Closing Date at a rate equal to the
interest rate payable under the Promissory Notes, on the
amount calculated under (A) immediately above .
(ii) The adjustment of purchase price in this Section 2.5(a) will be
determined in accordance with the following procedure: Buyer, at its
expense, will prepare and will cause ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP and ▇▇▇▇▇▇▇
▇▇▇▇▇▇ & Co., P.C. the Company's certified public accountants, to
audit the consolidated financial statements ("Closing Financial
Statements") of the Company as of the Closing Date (such Closing
Financial Statements to be prepared in accordance with GAAP,
consistently applied) and for the period from the date of the Balance
Sheet through the Closing Date, including a computation of
stockholders' equity as of the Closing Date. Buyer will deliver the
Closing Financial Statements to Sellers' Representative within sixty
(60) days after the Closing Date. If within sixty (60) days following
delivery of the Closing Financial Statements, Sellers' Representative
has not given notice (such notice shall contain a statement of the
basis of the objection by Sellers' Representative) of his objection to
such statements, then the Closing Financial Statements will be used to
compute the adjustment, if any, under Section 2.5(a)(i) above. If
Sellers' Representative gives such notice of its objections, then
Buyer and Sellers' Representative shall use their best efforts to
resolve any objections. If no resolution is made within fifteen (15)
days after the notice of objection by the Sellers' Representative, the
issues in dispute will be submitted to a "Big Six" certified public
accounting firm located in Memphis, Tennessee other than Ernst & Young
and the accountants which prepared the Closing Financial Statements
(or if any such "Big Six" accounting firm is unwilling to accept such
appointment, another nationally recognized certified public accounting
firm which has not provided services to Buyer or the Company during
the last five years) selected by Sellers' Representative, subject to
the reasonable consent of the Buyer, which consent will not be
unreasonably withheld or delayed (the "Mediating Accountants"), for
resolution. If issues in dispute are submitted to the Mediating
Accountants for resolution, (1) each party will furnish to the
Mediating Accountants such workpapers and other documents and
information relating to the disputed issues as the Mediating
Accountants may request and are available to that party, and will be
afforded the opportunity to present to the Mediating Accountants any
material relating to the determination and to discuss the
determination with the Mediating Accountants; (2) the determination by
the Mediating Accountants, as set forth in a notice delivered to both
parties by the Mediating Accountants, will be binding and conclusive
on the parties hereto; and (3) Buyer and Sellers will pay fees of the
Mediating Accountants for such determination as follows: (x) if the
Mediating Accountants determine that the amount of stockholders'
equity as of the Closing Date is equal to or greater than the amount
set forth in Section 2.5(a)(i)(A)(1), Buyer shall pay 100% of the
fees; (y) if the Mediating Accountants determine that the amount of
stockholders' equity as of the Closing Date is less than the amount
set forth in Section 2.5(a)(i)(A)(1), Sellers, pro rata, shall pay
100% of such fees (in which event, at Buyer's option, Buyer may set-
off against the First Deferred Payment to pay such fees.
(iii) any reduction in Deferred Payments constituting a portion of the
Stock Purchase Price shall be valued at the greater of $3.50 per share
(as such shares may be adjusted under Section 3 of the Shareholders
Agreement) or the current fair market value.
3. REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers represent and warrant to Buyer, as of the date hereof and
through the Closing Date, as follows:
1 EXISTENCE; GOOD STANDING; CORPORATE AUTHORITY; COMPLIANCE WITH
LAW. The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware. The Company is
duly licensed or qualified to do business as a foreign corporation and is
in good standing under the laws of Tennessee, Mississippi, Arkansas and any
other state in which the character of the properties owned or leased by it
therein or in which the transaction of its business makes such
qualification necessary, except where the failure to be so qualified would
not have a material adverse effect on the business, results of operations
or financial condition of the Company. The Company has all requisite
corporate power and authority to own, operate and lease its properties and
carry on its business as now conducted. The Company is not in violation of
any order of any court, governmental authority or arbitration board or
tribunal, or any law, ordinance, governmental rule or regulation to which
the Company or any of its properties or assets is subject, where such
violation would have a material adverse effect on the business, results of
operations or financial condition of the Company. The Company has obtained
all licenses, permits and other authorizations and has taken all actions
required by applicable law or governmental regulations in connection with
its business as now conducted, except where such failure to obtain the same
would not have a material adverse effect on the business, results of
operations or financial condition of the Company.
2 CONSENTS. Except as set forth in Part 3.2 of the Disclosure
Letter, neither the Company nor any Sellers will be required to give any
notice to or obtain any consent from any Person in connection with the
execution and delivery of this Agreement or the consummation or performance
of any of the Contemplated Transactions.
3 AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS. This Agreement
constitutes, and all agreements and documents contemplated hereby (when
executed and delivered pursuant hereto for value received) will constitute,
the valid and legally binding obligations of the Sellers, enforceable in
accordance with their respective terms, subject to applicable bankruptcy,
insolvency, moratorium or other similar laws relating to creditors' rights
and general principles of equity. Neither the execution and delivery of
this Agreement by Buyer nor the consummation or performance of any of the
Contemplated Transactions by Buyer will, to the actual knowledge of
Sellers, give any Person the right to prevent, delay, or otherwise
interfere with any of the Contemplated Transactions.
4 CAPITALIZATION. Part 3.4 of the Disclosure Letter includes a
complete and accurate list of each shareholder of the Company and the
number of shares held by each. The authorized equity securities of the
Company consists of shares of common stock, $ par
value. As of the date hereof, there are issued and outstanding
shares of the Company's equity securities. The Company has no other shares
or securities authorized or outstanding other than the Shares. The Company
has no outstanding bonds, debentures, notes or other obligations the
holders of which have the right to vote (or which are convertible into or
exercisable for securities having the right to vote) with the shareholders
of the Company on any matter. All issued and outstanding equity securities
of the Company are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights. There are no options,
warrants, calls subscriptions, convertible securities, or other rights,
agreements or commitments which obligate the Company to issue, transfer or
sell any shares of equity securities of the Company except as disclosed in
Part 3.4 of the Disclosure Letter. Sellers are and will be on the Closing
Date the record and beneficial owners and holders of the Shares, free and
clear of all Encumbrances. With the exception of the Shares owned by the
Sellers, all outstanding and issued equity securities and other securities
of the Company are owned of record by the Company, free and clear of all
Encumbrances. Notwithstanding any provision herein to the contrary, the
representations and warranties set forth in this Section concerning the
Sellers' ownership of shares, the absence of Encumbrances thereon, and any
preemptive rights with respect thereto, are made severally by each of the
Sellers with respect to such Seller's shares.
5 PRIOR SALES OF SECURITIES. All offers and sales of the Company
equity securities prior to the date hereof were at all relevant times
exempt from the registration requirements of the Securities Act of 1933, as
amended, and were duly registered or the subject of an available exemption
from the registration requirements of the applicable state securities or
Blue Sky laws, or the relevant statutes of limitations have expired, or
civil liability therefor has been eliminated by an offer to rescind.
6 SUBSIDIARIES. The Company's subsidiaries are described in Part
3.6 of the Disclosure Letter:
7 OTHER INTERESTS. Except as set forth in Part 3.6 of the
Disclosure Letter and as set forth in Part 3.7 of the Disclosure Letter,
the Company does not own directly or indirectly any interest or investment
in any corporation, partnership, joint venture, business, trust or other
entity.
8 NO VIOLATION. After approval by requisite shareholder vote,
neither the execution and delivery of this Agreement nor the consummation
of the Contemplated Transactions will: (i) conflict with or result in a
breach of any provisions of the Articles of Incorporation or Bylaws of the
Company; (ii) except as set forth in Part 3.8 of the Disclosure Letter,
grant any third party the right to terminate an Applicable Contract; (iii)
except as set forth in Part 3.8 of the Disclosure Letter, conflict with,
result in a breach of any provision of or the modification or termination
of, constitute a default under, or result in the creation of imposition of
any lien, security interest, charge or encumbrance upon any of the assets
of the Company pursuant to any material commitment, lease, Applicable
Contract, or other material agreement or instrument to which the Company is
a party; or (iv) violate any order, arbitration award, judgment, writ,
injunction, decree, statute, rule or regulation applicable to the Company,
the violation of which would have a material adverse effect on the
business, result of operations or financial condition of the Company.
9 FINANCIAL STATEMENTS. Sellers have delivered to Buyer: (a) the
audited balance sheets of the Company as of January 31, 1997 and the
related audited statements of income, changes in stockholders' equity, and
cash flow for the fiscal year then ended, together with the report thereon
of Ernst & Young, LLP (including the notes thereto, the "Balance Sheet"),
and (b) an unaudited consolidated balance sheet of the Company (prepared by
the Company) as of May 31, 1997 (the "Interim Balance Sheet") and the
related unaudited consolidated statements of income and changes in
stockholders' equity for the four months then ended, including in each case
the notes thereto. Such financial statements and notes fairly present the
financial condition and the results of operations, changes in stockholders'
equity, and cash flow (with respect to the Balance Sheet) of the Company as
at the respective dates of and for the periods referred to in such
financial statements. To the best of Seller's knowledge, the Balance Sheet
and the Interim Balance Sheet are prepared in accordance with GAAP except
for any non-GAAP items known to Seller, which are disclosed in Part 3.9 of
the Disclosure Letter.
10 CONTRACTS.
(a) Part 3.10 of the Disclosure Letter lists all material contracts
and other agreements to which the Company is a party, and Sellers have
delivered to Buyer true and complete copies of:
(i) each Applicable Contract that involves performance of
services or delivery of goods or materials by the Company of an amount
or value in excess of $50,000 as to which the Company has not yet
fully performed or delivered;
(ii) each Applicable Contract that involves performance of
services or delivery of goods or materials to the Company of an amount
or value in excess of $100,000 as to which the vendor has not fully
performed or delivered;
(iii) each Applicable Contract that was not entered into in the
ordinary course of business and that involves expenditures or receipts
of the Company in excess of $10,000 as to which the Company or the
vendor has not yet fully performed or delivered;
(iv) each lease, rental or occupancy agreement, license,
installment and conditional sale agreement, and other Applicable
Contract affecting the ownership of, leasing of, title to, use of, or
any leasehold or other interest in, any real or personal property
(except personal property leases and installment and conditional sales
agreements having a value per item or aggregate payments of less than
$5,000 and with terms of less than one year);
(v) each licensing agreement or other Applicable Contract with
respect to patents, trademarks, copyrights, or other intellectual
property, including agreements with current or former employees,
consultants, or contractors regarding the appropriation or the non-
disclosure of any of the Intellectual Property Assets;
(vi) each collective bargaining agreement and other Applicable
Contract to or with any labor union or other employee representative
of a group of employees;
(vii) each joint venture, partnership, and other Applicable
Contract (however named) involving a sharing of profits, losses,
costs, or liabilities by the Company with any other Person;
(viii) each Applicable Contract containing covenants that in any
way purport to restrict the business activity of the Company or limit
the ability of the Company to engage in any line of business or to
compete with any Person;
(ix) each Applicable Contract providing for payments to or by any
Person based on sales, purchases, or profits, other than direct
payments for goods;
(x) each Applicable Contract for capital expenditures in excess
of $50,000;
Part 3.10(a) of the Disclosure Letter shall disclose Applicable
Contracts and other agreements listed therein, effective at least three (3)
Business Days prior to the Closing Date. Each contract listed in Part
3.10(a) of the Disclosure Letter is in full force and effect, each is a
legal, valid and binding contract, and there is no material default (or any
event which, with the giving of notice or lapse of time or both, would be a
material default) by the Company, in the timely performance or any material
obligation to be performed or paid under such contract.
(b) The Company has delivered a full and complete copy (including all
amendments and addenda thereto) of each Applicable Contract constituting an
integrated supply contract (the "Integrated Supply Contracts"). The
Integrated Supply Contracts consist of the agreements set forth in Part
3.10(b) of the Disclosure Letter. Each Integrated Supply Contract is in
full force and effect, each is a legal and binding contract, is not subject
to setoff rights against the Company and there is no default (or any event
with the giving of notice or lapse of time or both would be a default)
thereunder.
11 ABSENCE OF CERTAIN CHANGES. Except as set forth in Part 3.11 of
the Disclosure Letter, since the date of the Company's Balance Sheet
delivered to Buyer, the Company has conducted its business only in the
ordinary course of business and there has not been any:
(a) change in any Company's authorized or issued capital stock;
grant of any stock option or right to purchase shares of capital stock
of the Company; issuance of any security convertible into such capital
stock; grant of any registration rights; purchase, redemption,
retirement, or other acquisition by the Company of any shares of any
such capital stock; or any other transaction that would cause the
authorized or issued shares of capital stock to change or that would
provide additional rights to holders of such shares; or declaration or
payment of any dividend or other distribution or payment in respect of
shares of capital stock except distributions permitted under Section
5.8;
(b) amendment to the Organizational Documents of the Company;
(c) payment or increase by the Company of any bonuses,
distributions, salaries, or other compensation to any stockholder,
director, officer, or (except in the ordinary course of business)
employee or entry into any employment, severance, or similar contract
with any director, officer, or employee, except for bonuses permitted
in Section 5.8;
(d) adoption of, or increase in the payments to or benefits
under, any profit sharing, bonus, deferred compensation, savings,
insurance, pension, retirement, or other employee benefit plan for or
with any employees of the Company;
(e) damage to or destruction or loss of any asset or property of
the Company, whether or not covered by insurance, materially and
adversely affecting the properties, assets, business, financial
condition, or prospects of the Company;
(f) entry into, termination of, or receipt of notice of
termination of (i) any license, distributorship, dealer, sales
representative, joint venture, credit, or similar agreement, or (ii)
any contract or transaction involving a total remaining commitment by
or to the Company of at least $25,000;
(g) sale (other than sales of inventory in the ordinary course of
business), lease, or other disposition of any material asset or
property of the Company or mortgage, pledge, or imposition of any lien
or other encumbrance on any material asset or property of the Company.
12 TAX MATTERS. The Company and Sellers have duly paid all taxes and
other charges (whether or not shown on any tax return) due or claimed to be
due by federal, foreign, state or local taxing authorities; and true and
correct copies of all tax reports and returns of the Company (including
amended returns) relating to such taxes and other charges for the fiscal
years from February 1, 1991 through January 31, 1997 have been heretofore
delivered to the Buyer. Except as set forth in Part 3.12 of the Disclosure
Letter, the reserves for state franchise and excise taxes contained in the
financial statements and carried on the books of the Company are adequate
to cover all tax liabilities as of the date of this Agreement, including
recognition of deferred taxes or benefits determined in accordance with
GAAP. The Company has not incurred any state tax liabilities other than in
the ordinary course of business. There are no tax liens (other than liens
for current state taxes not yet due) upon any properties or assets of the
Company (whether real, personal or mixed, tangible or intangible), and,
there are no pending or threatened questions or examinations relating to,
or claims asserted for, taxes or assessments against the Company or the
Sellers. Neither the Company nor any of the Sellers have been granted any
extension of the limitation period applicable to any claim for taxes or
assessments with respect to taxes. The Company has been at all times since
at least 1981 an S Corporation for federal income tax purposes (as defined
in Section 1361(a)(1) of the IRC). The Company will not incur any tax
liability under Section 1374 of the IRC as a result of the consummation of
this Agreement and the Contemplated Transactions. The Company has not
experienced a termination, as defined in Section 1362(d) of the IRC, of its
S Corporation status. The Company has not filed or been subject to a Legal
Requirement to file any Tax Returns with any Governmental Bodies outside
the United States of America.
13 EMPLOYEES AND BENEFIT PLANS.
(a) Part 3.13 of the Disclosure Letter sets forth the names, ages
and titles of all members of the Board of Directors and officers of
the Company and all employees of the Company earning in excess of
$50,000 per annum, and the annual rate of compensation (including
bonuses) being paid to each such member of the Board of Directors,
officer and employee as of the most recent practicable date.
(b) The Disclosure Letter lists each employment, bonus, deferred
compensation, pension, stock option, stock appreciation right, profit-
sharing or retirement plan, arrangement or practice, each medical,
vacation, retiree medical, severance pay plan, and each other
agreement or fringe benefit plan, arrangement or practice, of the
Company, whether legally binding or not, which affects one or more of
its employees, including all "employee benefit plans" as defined by
Section 3(3) of ERISA (individually, a "Plan" and collectively, the
"Plans"). All Plans which are subject to Title IV of ERISA or the
minimum funding standards of Section 412 of the Code shall be referred
to as the "Pension Plans."
(c) For each Plan which is an "employee benefit plan" under
Section 3(3) of ERISA, the Company has delivered to the Buyer correct
and complete copies of the plan documents and, except for the Plan
listed in Part 3.13(c) of the Disclosure Letter, summary plan
descriptions, the most recent determination letter received from the
IRS, the most recent Form 5500 Annual Report, and all related trust
agreements, insurance contracts and funding agreements which implement
each such Plan.
(d) The Company does not have any commitment, (i) to create any
additional such Plan; (ii) to modify or change any such Plan; or (iii)
to maintain for any period of time any such Plan. The Disclosure
Letter contains an accurate and complete description of the funding
policies (and commitments, if any) of the Company with respect to each
such existing Plan.
(e) The Company has no unfunded past service liability in respect
of any of its Plans; the actually computed value of vested benefits
under any Pension Plan of the Company (determined in accordance with
methods and assumptions utilized by the Pension Benefit Guaranty
Corporation ("PBGC") applicable to a plan terminating on the date of
determination) does not exceed the fair market value of the fund
assets relating to such Pension Plan; neither the Company nor any Plan
nor any trustee, administrator, fiduciary or sponsor of any Plan has
engaged in any prohibited transactions as defined in Section 406 of
ERISA or Section 4975 of the Code for which there is no statutory
exemption in Section 408 of ERISA or Section 4975 of the Code; all
filings, reports and descriptions as to such Plans (including Form
5500 Annual Reports, Summary Plan Descriptions, PBCG-1's and Summary
Annual Reports) required to have been made or distributed to
participants, the Internal Revenue Service, the United States
Department of Labor and other governmental agencies have been made in
a timely manner; there is no material litigation, disputed claim,
governmental proceeding or investigation pending or threatened with
respect to any of such Plans, the related trusts, or any fiduciary,
trustee, administrator or sponsor of such Plans; such Plans have been
established, maintained and administered in all material respects in
accordance with their governing documents and applicable provisions of
ERISA and the Code and Treasury Regulations promulgated thereunder;
there has been no "Reportable Event" as defined in Section 4043 of
ERISA with respect to any Pension Plan; and each Pension Plan and each
Plan which is intended to be a qualified plan under Section 401(a) of
the Code has received, within the last three years, a favorable
determination letter from the Internal Revenue Service.
(f) The Company has complied in all material respects with all
applicable federal, state and local laws, rules and regulations
relating to employees' employment and/or employment relationships,
including, without limitation, wage related laws, anti-discrimination
laws, Occupational Safety and Health Laws and COBRA (defined herein to
mean the requirements of Code Section 4980B, Proposed Treasury
Regulation Section 1.162-26 and Part 6 of Subtitle B of Title I of
ERISA).
(g) The consummation of the transactions contemplated by this
Agreement will not (i) result in the payment or series of payments by
the Company to any employee or other person of an "excess parachute
payment" within the meaning of Section 280G of the Code, (ii) entitle
any employee or former employee of the Company to severance pay,
unemployment compensation or any other payment, and (iii) accelerate
the time of payment or vesting of any stock option, stock appreciation
right (except as set forth in Part 3.13(g) of the Disclosure Letter),
deferred compensation or other employee benefits under any Plan
(including vacation and sick pay).
(h) None of the Plans which are "welfare benefit plans," within
the meaning of Section 3(1) of ERISA, provide for continuing benefits
or coverage after termination or retirement from employment, except
for COBRA rights under a "group health plan" as defined in Code
Section 4980B(g) and ERISA Section 607.
(i) No Pension Plan has been completely or partially terminated,
nor has any plan been instituted by the PBGC to terminate any such
Pension Plan; the Company has not incurred, and does not presently
owe, any liability to the PBGC or the Internal Revenue Service with
respect to any Pension Plan including, but not by way of limitation,
any liability for PBGC premiums or excise taxes under Code Section
4971.
14 ASSETS.
(a) The Company owns the assets reflected on the Balance Sheet
with good and marketable title (as to all real property), free and
clear of any and all claims, liens, mortgages, options, charges,
conditional sale or title retention agreements, security interests,
restrictions, easements, or encumbrances whatsoever and free and clear
of any rights or privileges capable of becoming claims, liens,
mortgages, options, charges, security interests, restrictions,
easements or encumbrances, except (i) for certain of the assets which
are encumbered by liens that are listed in Part 3.14 of the Disclosure
Letter, (ii) as shown on the title insurance policies furnished to the
Buyer, (iii) real property taxes not yet due and payable, (iv) utility
easements for utilities serving the Property, (v) the replacement
and/or disposition of obsolete or worn-out personalty in the ordinary
course of business, (vi) minor imperfections of title which do not
materially affect the value and use of such assets; and (vii) zoning
laws and other land use restrictions that do not impair the use of the
property subject thereto.
(b) The Company owns good and marketable leasehold title to the
premises leased by the Company, free and clear of any and all claims,
liens, mortgages, options, charges, conditional sale or title
retention agreements, security interests, restrictions, easements, or
encumbrances whatsoever and free and clear of any rights or privileges
capable of becoming claims, liens, mortgages, options, charges,
security interests, restrictions, easements or encumbrances, except
(i) to the extent expressly set forth in the leases, (ii) as shown on
the title insurance policies furnished to the Buyer, (iii) real
property taxes not yet due and payable, and (iv) zoning laws and other
land use restrictions that do not impair the use of the property
subject thereto.
15 LAWFULLY OPERATING. To the knowledge of the Company, the Company
has been and currently is conducting and each of the premises leased or
owned have been and now are being used and operated, in compliance in all
material respects with all applicable statutes, regulations, bylaws,
orders, covenants or restrictions of a Governmental Body.
16 POWER OF ATTORNEY. There are no outstanding powers of attorney
executed on behalf of the Company.
17 NO LITIGATION. Except as set forth in Part 3.17 of the Disclosure
Letter, there are currently no pending, or, to the knowledge of the
Sellers, threatened, lawsuits or administrative proceedings or
investigations against the Company or to which its assets are subject. If
adversely determined, none of the pending or threatened litigation
described in Part 3.17 of the Disclosure Letter is likely to have a
material adverse effect on the financial condition, results of operations,
business, prospects, assets, or liabilities of the Company. The Company is
not subject to any currently existing order, writ, injunction, or decree
relating to its operations.
18 CORPORATE RECORDS. True and correct copies of the Articles of
Incorporation and bylaws of the Company have been delivered to the Buyer.
19 NO DEFAULTS. Except as set forth in Part 3.19 of the Disclosure
Letter, the Company has in all material respects performed all material
obligations to be performed by it under all contracts, agreements, and
commitments to which it is a party, and there is not under any such
contracts, agreements, or commitments any existing default or event of
default or event which with notice or lapse of time or both would
constitute a default, which default would have a material adverse effect
upon the business, result of operations or financial condition of the
Company.
20 HAZARDOUS SUBSTANCES. For purposes of this Agreement, the
following terms shall have the following meanings:
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, 42 U.S.C. 9601 ET
SEQ.;
"Company Property" shall mean (i) any real property and improvements
presently owned, leased, used, operated or occupied by the Company, and
(ii) any other real property and improvements at any previous time owned,
leased, used, operated or occupied by the Company, but only as to the time
owned, leased, used, operated or occupied by the Company;
"Environmental Claims" means any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, notices of
noncompliance or violation, investigations or proceedings relating in any
way to any Environmental Law (for purposes of (i) and (ii) below, "Claims")
or any permit issued under any such Environmental Law, including without
limitation:
(a) any and all Claims by governmental or regulatory authorities
for investigation, oversight, enforcement, cleanup, removal, response,
remedial or other actions or damages pursuant to any applicable
Environmental Law; and
(b) any and all Claims by any third party seeking damages,
response, costs, contribution, indemnification, cost recovery,
compensation or injunctive relief resulting from Hazardous Materials
or arising from alleged injury or threat of injury to health, safety
or the environment;
"Environmental Law" means any federal, state or local statute, law,
rule, regulation, ordinance, code, policy or rule of common law now in
effect and as amended, and any judicial or administrative interpretation
thereof, including any judicial or administrative order, consent, decree or
judgment, relating to the environment, health, or safety of hazardous,
toxic or dangerous materials, substances or wastes, including without
limitation CERCLA; the Toxic Substances Control Act, as amended, 15 U.S.C.
2601 ET SEQ.; the Clean Air Act, as amended, 42 U.S.C.
7401 ET SEQ.; the Federal Water Pollution Control Act,
as amended, 33 U.S.C. 1251 ET SEQ.; the Federal
Insecticide, Fungicide, and Rodenticide Act, as amended, 7 U.S.C.
136, ET SEQ.; the Hazardous Materials Transportation
Act, as amended, 49 U.S.C. 1801 ET SEQ.; the Resource
Conservation and Recovery Act, as amended, 42 U.S.C.
6901 ET SEQ.; the Safe Drinking Water Act, 42 U.S.C.
300f ET SEQ.; the Clean Water Act, as amended, 33 U.S.C.
1251, ET SEQ.; and any similar state or local law;
"Hazardous Materials" shall mean those materials listed in Section
101(14) of CERCLA, as hereinafter defined, and any other substance defined
as toxic or hazardous under any federal, state or local law, rules,
regulation, ordinance code or policy, including, but not limited to:
(a) any petroleum or petroleum products, flammable explosives,
radioactive materials, asbestos, asbestos products, urea formaldehyde
foam insulation, polychlorinated biphenyls, including transformers or
other equipment that contain dielectric fluid containing detectible
levels of polychlorinated biphenyls, and radon gas;
(b) any hazardous, toxic or dangerous waste, substance or
material defined as such in (or for purposes of) any current
Environmental Law or currently listed as such pursuant to any
Environmental Law; and
(c) any other chemical, material or substance, exposure to which
is prohibited, limited or regulated by any governmental authority:
"Improperly" means done in any manner that poses a threat to human
health, safety or the environment;
"Release" means disposing, depositing, discharging, injecting,
spilling, leaking, leaching, dumping, emitting, escaping, emptying,
seeping, placing and the like, into or upon any land or water or air, or
otherwise entering into the environment.
Except as set forth in Part 3.20 of the Disclosure Letter, to the
knowledge of the Sellers:
(a) Hazardous Materials have not at any time been illegally or
Improperly generated, used, treated or stored on, or transported to or
from, any Company Property;
(b) No asbestos containing materials or other Hazardous Materials
have been installed in or affixed to structures on any Company
Property;
(c) Hazardous Materials have not at any time been disposed of or
otherwise Released on any Company Property;
(d) The Company is currently, and has at all times in the past
been, in compliance with all applicable Environmental Laws and the
requirements of any permits issued under such Environmental Laws with
respect to any Company Property;
(e) There are no past, pending or, to the knowledge of the
Company, threatened Environmental Claims against the Company or any
Company Property;
(f) There are no facts or circumstances, conditions or
occurrences on any Company Property or otherwise that could reasonably
be anticipated by the Company:
(i) to form the basis of an Environmental Claim against the
Company or any Company Property; or
(ii) to cause such Company Property to be subject to any
restrictions on the ownership, occupancy, use or transferability
of such Company Property under any Environmental Law; and
(g) There are not now, nor have there been at any time, any
aboveground or underground storage tanks located on any Company
Property.
21 LABOR MATTERS. The Company is not a party to any collective
bargaining agreement and has not been the subject of any union activity or
labor dispute, and there has not been any strike of any kind called or
threatened to be called against the Company. To the knowledge of the
Sellers, the Company has not violated any applicable federal or state law
or regulation relating to labor or labor practices. The Company has no
liability to any of its employees, agents, or consultants in connection
with grievances by, or the termination of, such employees, agents, or
consultants. To the knowledge of Sellers, there are no negotiations,
proposals or activities concerning the organization of a union (or any
collective bargaining groups) with respect to the Company.
22 CONDITION OF ASSETS. Except as specifically described in Part
3.22 of the Disclosure Letter, the buildings, plants, structures, equipment
and other tangible personalty of the Company included in the assets on the
Balance Sheet or Interim Balance Sheet are structurally sound and are in
good working order. None of such buildings, plants, structures, equipment
or other tangible personalty included in the assets on the Balance Sheet or
Interim Balance Sheet is in need of maintenance or repairs except for
ordinary, routine maintenance and repairs that are not material in nature
or cost. Notwithstanding the foregoing, the representations and warranties
in this Section concerning the Company's real property, vehicles and
equipment is qualified by and subject to the best of Sellers' knowledge.
23 ACCOUNTS RECEIVABLE. All accounts receivable of the Company that
are reflected on the Balance Sheet or the Interim Balance Sheet or on the
accounting records of the Company as of the Closing Date (collectively, the
"Accounts Receivable") represent valid obligations arising from sales
actually made or services actually performed in the ordinary course of
business. Unless paid prior to the Closing Date, the Accounts Receivable
are or will be as of the Closing Date current and collectible net of the
respective reserves shown on the Balance Sheet or the Interim Balance Sheet
or on the accounting records of the Company as of the Closing Date (which
reserves are adequate and calculated consistent with GAAP). Subject to such
reserves and except as set forth in Part 3.23 of the Disclosure Letter,
each of the Accounts Receivable either has been or will be collected in
full, without any set-off, within ninety days after the day on which it
first becomes due and payable. Except as set forth in Part 3.23 of the
Disclosure Letter, there is no contest, claim, or right of set-off, other
than returns in the ordinary course of business, under any Contract with
any obligor of an Accounts Receivable relating to the amount or validity of
such Accounts Receivable. Part 3.23 of the Disclosure Letter contains a
complete and accurate list of all Accounts Receivable as of the date of the
Interim Balance Sheet, which list sets forth the aging of such Accounts
Receivable. The Buyer and the Sellers' acknowledge that if the Accounts
Receivable are not collected within ninety (90) days, they are not subject
to set-off unless such Accounts Receivable remain uncollected prior to the
Third Deferred Payment.
24 INVENTORY. All inventory of the Company, whether or not reflected
in the Balance Sheet or the Interim Balance Sheet, consists of a quality
and quantity usable and salable in the ordinary course of business, except
for obsolete items and items of below-standard quality, all of which have
been written off or written down to net realizable value in the Balance
Sheet or the Interim Balance Sheet or on the accounting records of the
Company as of the Closing Date, as the case may be. All inventories not
written off have been priced at the lower of cost or market value on a
moving average basis.
25 NO LIABILITIES. Except as set forth in Part 3.25 of the
Disclosure Letter, the Company has no material liabilities or obligations
of any nature (whether known or unknown and whether absolute, accrued,
contingent, or otherwise), except for liabilities or obligations of a
nature which is the subject matter of another representation or warranty
herein and which is limited to Seller's knowledge or which are reflected or
reserved against in the Balance Sheet or the Interim Balance Sheet and
current liabilities incurred in the ordinary course of business since the
respective dates thereof. Part 3.25 of the Disclosure Letter lists all
obligations of the Company with any financial institution.
26 INSURANCE.
(a) Sellers have delivered to Buyer true and complete copies of
all policies of insurance to which the Company is a party and which is
presently in force; and
(b) Part 3.26(b) of the Disclosure Letter describes:
(i) any self-insurance arrangements by the Company, and
(ii) all obligations of the Company to third parties with
respect to insurance (including such obligations under leases and
service agreements) and identifies the policy under which such
coverage is provided.
(c) Part 3.26(c) of the Disclosure Letter sets forth, by year,
for 1996 and 1997:
(i) a summary of the loss experience under all policies of
insurance (including prior policies which have expired);
(ii) a statement describing each claim (other than claims
for health insurance) under an insurance policy for an amount in
excess of $10,000, which sets forth:
(A) the name of the claimant;
(B) a description of the policy by insurer, type of
insurance, and period of coverage; and
(C) the amount and a brief description of the claim;
and
(iii) a statement describing the loss experience for all
claims that were self-insured, including the number and aggregate
cost of such claims.
(d) Except as set forth on Part 3.26(d) of the Disclosure Letter:
(i) To the best of the Sellers' knowledge, all policies to
which the Company is a party or that provide coverage to Sellers,
or any director or officer of the Company:
(A) are valid, outstanding, and enforceable;
(B) taken together, provide adequate insurance coverage
for the assets and the operations of the Company;
(C) are sufficient for compliance with all Legal
Requirements and contracts to which the Company is a party
which require insurance coverage;
(D) will continue in full force and effect following
the consummation of the Contemplated Transactions; and
(E) do not provide for any retrospective premium
adjustment or other experienced-based liability on the part
of the Company.
(ii) The Company has paid all premiums due, and has
otherwise performed all of its obligations, under each policy to
which the Company is a party.
(iii) The Company has given notice to the insurer of all
claims (of which the Company is aware) that may be insured
thereby.
27 INTELLECTUAL PROPERTY.
(a) INTELLECTUAL PROPERTY ASSETS--The term "Intellectual Property
Assets" includes:
(i) the name ▇▇▇▇▇ Supply Company, Inc., all fictitious
business names, trade names, registered and unregistered
trademarks, service marks, and applications currently used by the
Company at its own (collectively, "Marks");
(ii) all patents, patent applications, and inventions and
discoveries that may be patentable (collectively, "Patents"); and
(iii) all know-how, trade secrets, confidential information,
customer lists, software, technical information, data, process
technology, plans, drawings, and blue prints (collectively,
"Trade Secrets"); owned, used, or licensed by the Company as
licensee or licensor.
(b) AGREEMENTS--Part 3.27(b) of the Disclosure Letter contains a
complete and accurate list and summary description, including any
royalties paid or received by the Company, of all contracts relating
to the Intellectual Property Assets to which the Company is a party or
by which the Company is bound. There are no outstanding and, to
Sellers' knowledge, no threatened disputes or disagreements with
respect to any such agreements.
(c) KNOW-HOW NECESSARY FOR THE BUSINESS. The Intellectual
Property Assets are all those of which the Sellers have knowledge and
which are necessary for the operation of the Company's businesses as
they are currently conducted.
(d) PATENTS The Company has no right, title or interest in any
Patents.
(e) TRADEMARKS
(i) Part 3.27(e) of Disclosure Letter contains a complete
and accurate list and summary description of all Marks. To the
best of Sellers' knowledge, the Company is the owner of all
right, title, and interest in and to each of the Marks, free and
clear of all liens, security interests, charges, encumbrances,
equities, and other adverse claims within the Company's trade
area.
(ii) To the best of Sellers' knowledge, all Marks that have
been registered with the United States Patent and Trademark
Office are currently in compliance with all formal legal
requirements and are valid and enforceable.
(iii) To the best of Sellers' knowledge, no ▇▇▇▇ that has
been registered with the United States Patent and Trademark
Office, has been or is now involved in any opposition,
invalidation, or cancellation and, to Sellers' knowledge, no such
action is threatened with the respect to any of the Marks.
(iv) To the best of Sellers' knowledge, there is no
potentially interfering trademark or trademark application of any
third party.
(v) To the best of Sellers' knowledge, no ▇▇▇▇ is infringed
or has been challenged or threatened in any way. To the best of
Sellers' knowledge, none of the Marks used by the Company
infringes or is alleged to infringe any trade name, trademark, or
service ▇▇▇▇ of any third party.
(f) TRADE SECRETS
(i) Except as specifically disclosed in Part 3.27(f)(i) of
the Disclosure Letter, with respect to each Trade Secret (other
than software owned or licensed by the Company), the
documentation relating to such Trade Secret is current, accurate,
and sufficient in detail and content, in all material respects,
to identify and explain it and to allow its full and proper use.
(ii) Sellers and the Company have taken all reasonable
precautions to protect the secrecy, confidentiality, and value of
Trade Secrets owned by the Company.
(iii) The Company has good title and an absolute (but not
necessarily exclusive) right to use the Trade Secrets. The Trade
Secrets are not part of the public knowledge or literature, and,
to Sellers' knowledge, have not been used, divulged, or
appropriated either for the benefit of any Person (other than the
Company) or to the detriment of the Company. To the best of
Sellers' knowledge, no Trade Secret is subject to any adverse
claim or has been challenged or threatened in any way.
28 BROKERS OR FINDERS. Sellers and their agents have incurred no
obligation or liability, contingent or otherwise, for brokerage or finders'
fees or agents' commissions or other similar payment in connection with
this Agreement.
3.29 DISCLOSURE.
(a) To the knowledge of each Seller, no representation or
warranty of any of the Sellers in this Agreement omits to state a
material fact necessary to make the statements herein or therein, in
light of the circumstances in which they were made, not misleading.
(b) To the knowledge of each Seller, the Disclosure Letter,
including any supplement thereto, does not contain any untrue
statement or omit to state a material fact necessary to make the
statements therein or in this Agreement, in light of the circumstances
in which they were made, not misleading.
3.30 SELLERS' REPRESENTATIVE. Pursuant to a written power of attorney
(such power being coupled with an interest) in the form of Exhibit 3.30,
the Sellers have concurrently herewith appointed ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇. as
the Sellers' Representative under this Agreement, delegating to the
Sellers' Representative the power and the right to take any actions, make
certain elections, consent to any matters, and otherwise bind each of the
Sellers with respect to any matters delegated to the Sellers'
Representative under this Agreement or otherwise within the discretion of
the Sellers under this Agreement.
3.31 SELLERS' KNOWLEDGE OF CLAIMS. Sellers have no actual knowledge of
any facts, matters or circumstances that would give rise to a claim for
indemnity by or Damages against Buyer under this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and
warrants to Sellers, as of the date hereof and through the Closing Date, as
follows:
1 ORGANIZATION AND GOOD STANDING. Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the
State of Delaware.
2 AUTHORITY; NO CONFLICT. This Agreement and all agreements and
documents contemplated hereby (when executed and delivered) will constitute
the legal, valid, and binding obligation of Buyer, enforceable against
Buyer in accordance with its terms subject to applicable bankruptcy,
insolvency, moratorium or other similar laws relating to creditors' rights
and general principles of equity. Neither the execution and delivery of
this Agreement by Buyer nor the consummation or performance of any of the
Contemplated Transactions by Buyer will give any Person the right to
prevent, delay, or otherwise interfere with any of the Contemplated
Transactions. Except as set forth in Schedule 4.2, Buyer is not and will
not be required to obtain any consent from any Person in connection with
the execution and delivery of this Agreement or the consummation or
performance of any of the Contemplated Transactions.
3 INVESTMENT INTENT. Buyer is acquiring the Shares for investment
and not with a view to, or for sale or other disposition in connection
with, any distribution thereof, nor with any present intention of selling
or otherwise disposing of the same. Buyer is an Accredited Investor (as
that term is defined in Rule 501 promulgated by the Securities and Exchange
Commission under the Securities Act), and acknowledges that the Shares are
being sold pursuant to a private offering exemption under Section 4(2) of
the Securities Act and are not being registered under the Securities Act or
under the securities or blue sky laws of any state or foreign jurisdiction
and that such Shares must be held indefinitely unless they are subsequently
registered under the Securities Act and any applicable state securities or
blue sky laws, or unless an exemption from registration is available
thereunder.
4 CERTAIN PROCEEDINGS. There is no pending action, suit or
proceeding that has been commenced against Buyer that challenges, or may
have the effect of preventing, delaying, making illegal, or otherwise
interfering with, any of the Contemplated Transactions. To Buyer's
knowledge, no such Proceeding has been threatened.
5 BROKERS OR FINDERS. Buyer and its officers and agents have
incurred no obligation or liability, contingent or otherwise, for brokerage
or finders' fees or agents' commissions or other similar payment in
connection with this Agreement and will indemnify and hold Sellers harmless
from any such payment alleged to be due by or through Buyer as a result of
the action of Buyer or its officers or agents.
6 SETECH FINANCIAL STATEMENTS. The financial statements and any
accompanying notes contained in the annual report of SETECH filed with the
Securities and Exchange Commission (SEC) on Form 10-K for the fiscal year
ended June 30, 1996 and in the quarterly reports on Form 10-Q filed with
the Securities and Exchange Commission after the filing of the annual
report fairly present in all material respects the financial condition and
the results of operations, changes in stockholders' equity, and cash flow
of SETECH and its subsidiaries on a consolidated basis as at the respective
dates of and for the periods referred to in such financial statements, all
in accordance with GAAP, in all material respects. The Buyer is current in
all required filings with the SEC.
7 INVENTORY DUE DILIGENCE. Buyer has inspected a portion of the
Company's inventory described in Exhibit 4.7. The Buyer acknowledges and
agrees that the inventory described in Exhibit 4.7 is not obsolete and that
Buyer will not reduce the Purchase Price by any devaluation of such
inventory after the Closing Date.
4.8 BUYER'S KNOWLEDGE OF CLAIMS. Buyer has no actual knowledge of any
facts, matters or circumstances that would give rise to a claim for setoff
against the Purchase Price, or for Damages against or indemnification by
Sellers under this Agreement.
5. COVENANTS OF SELLERS PRIOR TO CLOSING DATE.
1 ACCESS AND INVESTIGATION. Between the date of this Agreement and
the Closing Date, Sellers will, and will cause the Company and its
representatives to, (a) afford Buyer and its representatives (and its
prospective lenders) (collectively, "Buyer's Advisors") full and free
access to the Company's personnel, properties, contracts, books and
records, and other documents and data at reasonable times and no more
frequently than may be reasonable, (b) furnish Buyer and Buyer's Advisors
with copies of all such contracts, books and records, and other existing
documents and data as Buyer may reasonably request, and (c) furnish Buyer
and Buyer's Advisors with such additional financial, operating, and other
data and information as Buyer may reasonably request.
2 OPERATION OF THE BUSINESSES OF THE COMPANY. Between the date of
this Agreement and the Closing Date, Sellers will, and will cause the
Company to:
(a) conduct the business of the Company only in the ordinary
course of business;
(b) use their best efforts to preserve intact the current
business organization of the Company, keep available the services of
the current officers, employees, and agents of the Company, and
maintain the relations and good will with suppliers, customers,
creditors, employees, agents, and others having business relationships
with the Company.
3 REQUIRED APPROVALS. As promptly as practicable after the date of
this Agreement, Sellers will, and will cause the Company to, make all
filings required by Legal Requirements to be made by them in order to
consummate the Contemplated Transactions. Between the date of this
Agreement and the Closing Date, Sellers will, and will cause the Company
to, (a) cooperate with Buyer with respect to all filings that Buyer elects
to make or is required by Legal Requirements to make in connection with the
Contemplated Transactions, including but not limited to Buyer's filing of
SEC Form 8-K, and (b) cooperate with Buyer in obtaining all consents
identified in Schedule 4.2.
4 NO NEGOTIATION. Until such time, if any, as this Agreement is
terminated pursuant to Section 9, Sellers will not, and will cause the
Company and each of their representatives not to, directly or indirectly
solicit or initiate any inquiries or proposals from, discuss or negotiate
with, provide any non-public information to, any Person (other than Buyer)
relating to any transaction involving the sale of the business or assets
(other than in the ordinary course of business) of the Company, or any of
the capital stock of the Company, or any merger, consolidation, or similar
transaction involving the Company.
5 NOTIFICATION. Between the date of this Agreement and the Closing
Date, each Seller will promptly notify Buyer in writing if such Seller
becomes aware of any fact or condition that causes or constitutes a breach
of any of Sellers' representations and warranties as of the date of this
Agreement, or if such Seller becomes aware of the occurrence after the date
of this Agreement of any fact or condition that would (except as expressly
contemplated by this Agreement) cause or constitute a breach of any such
representation or warranty had such representation or warranty been made as
of the time of occurrence or discovery of such fact or condition. During
the same period, each Seller will promptly notify Buyer of the occurrence
of any breach of any covenant of Sellers in this Section 5 or of the
occurrence of any event that may make the satisfaction of the conditions in
Section 7 impossible or unlikely.
6 [INTENTIONALLY OMITTED].
7 TAX COVENANTS.
(a) The Sellers shall, at their expense, file or cause to be
filed all federal, state, local and foreign tax returns which are
required to be filed by, or with respect to, the Company for the
period immediately prior to and ending with the Closing Date and,
except as provided below, shall pay all taxes required to be paid in
accordance with such tax returns including, without limitation, any
and all tax liabilities attributable to the making of the election
under Section 338(h)(10) of the IRC (the "Election") as described
below. Buyer shall file or cause to be filed such tax returns for the
Company for the period after the Closing Date. In the event that any
state or local tax return is required to be filed on behalf of the
Company and such tax return is required to include periods ending both
on and after the Closing Date, Sellers and Buyer shall each pay a pro
rata portion (such proration to be based upon profitability of the
Company prior to and after the Closing Date) of the liability shown on
such tax return. Each of the parties to this Agreement covenants and
agrees that, at the option of Buyer, it will fully cooperate, in
accordance with all reasonable directions provided by Buyer, in the
making and filing of the Election. In furtherance thereof, Buyer and
the Sellers shall prepare, execute and timely file IRS Form 8023-A and
all schedules thereto in accordance with the instructions to that
Form. Any information on such Form 8023-A allocating the purchase
price to separately identifiable assets and categories thereof shall
conform with the purchase price/asset allocation set forth on Exhibit
5.7 hereof. Upon the making of the Election, Sellers covenant and
agree that, with respect to the preparation and filing of any federal,
state, local or foreign income tax return, Sellers shall prepare and
file all such tax returns on a basis consistent with the principles
illustrated in Treas. Regs. 1.338(h)(10)-1 and information
contained in Exhibit 5.7 hereof. In the event Buyer exercises its
option to cause the Sellers to file the Election, the Buyer shall pay
each of the Sellers (at least fifteen (15) days prior to the date such
taxes are due) an amount equal to the increased federal tax liability
due to such election, together with an amount that will pay the
increased federal tax liability of such Seller incurred by any
payments to Seller's under this Section. The Sellers will provide only
such portions of their federal tax return required to establish their
increased liability for the Election. The Sellers covenant and agree
that the Company will not incur any tax liability under Section 1374
of the IRC as a result of the consummation of this Agreement and the
Contemplated Transactions. The Sellers will, no later than 15 days
prior to the due date for the filing of a tax return required by this
Section to be filed by the Company, provide a copy to Buyer of the
proposed completed form of Company's tax return. Buyer shall have the
right to approve that portion of the Sellers' tax return relating to
the Election and any Company tax returns required by this Section.
Buyer covenants that the Company will become a member of the
affiliated group of corporations of which Buyer is the common parent
and, for the period beginning the day after the Closing Date, will be
properly included in the consolidated federal income tax return filed
by Buyer.
(b) As soon as practicable, but in any event within 30 days after
Sellers' request, from and after the Closing Date, Buyer shall provide
Sellers with such cooperation and shall deliver to Sellers such
information and data concerning the operations of the Company prior to
the Closing Date and make available such knowledgeable employees of
the Company as Sellers may reasonably request, including providing the
information and data required to complete and file all tax returns
when due which they may be required to file with respect to the
operations and business of the Company through the Closing Date or to
respond to audits on a timely basis. Sellers shall have the right, at
their expense, to conduct and, subject to this Section, settle or
contest all examinations of tax returns of the Company relating to all
periods ending on or before the Closing Date.
(c) Except for the changes required in connection with the
termination of the Company's "Subchapter S" status (or other changes
as required by the IRC) as of the Closing Date, neither Sellers nor
the Company shall, without the prior written consent of Buyer, which
consent shall not be unreasonably withheld, to the extent it may
affect or relate to the Company or the Sellers, make or change any tax
election, change any annual tax accounting period, adopt or change any
method of tax accounting, file any amended tax return, enter into any
closing agreement, settle any tax claim or assessment, surrender any
right to claim a tax refund, consent to any extension or waiver of the
limitations period applicable to any tax claim or assessment or take
or omit to take any other action, if any such action or omission would
have the effect of increasing the tax liability or reducing any tax
asset of the Company.
(d) Except for changes required in connection with the
termination of the Company's "Subchapter S" status (or other changes
as required by the IRC) as of the Closing Date, neither Buyer nor the
Company (or any subsidiary or any affiliate of Buyer) shall, without
the prior written consent of Sellers, which consent shall not be
unreasonably withheld, to the extent it may affect or relate to the
Company, make or change any tax election, change any annual tax
accounting period, adopt or change any method of tax accounting, file
any amended tax return, enter into any closing agreement, settle any
tax claim or assessment, surrender any right to claim a tax refund,
consent to any extension or waiver of the limitations period
applicable to any tax claim or assessment or take or omit to take any
other action, if any such action or omission would have the effect of
increasing Sellers' tax liability or obligation to indemnify Buyer.
(e) The Buyer shall be liable for any state or local sales, use
or other transfer taxes imposed as a result of the consummation of the
Contemplated Transactions.
8 DISTRIBUTIONS, DIVIDENDS AND BONUSES.
(a) Since the date of the Company's Balance Sheet, which has been
delivered to Buyer, Sellers have not received a dividend or other
distribution with respect to equity securities of the Company and
Sellers will cause the Company to refrain from declaring, setting
aside or paying any dividend or other distribution with respect to the
equity securities of the Company except as follows:
(i) Buyer and Seller agree that prior to the Closing Date,
the Company may distribute (or has distributed) to Sellers,
proportionately in accordance with the relative percentage
ownership of Shares by Sellers, an amount in the aggregate not to
exceed $ , which distributions to the Sellers
are intended to enable Sellers to pay their respective liability
for federal and state income taxes accrued through January 31,
1997 (but not including any penalties or interest with respect to
such taxes) which are directly attributable to taxable income of
the Sellers from the Sellers' ownership of their respective
Shares;
(ii) In addition to the distribution permitted in Section
5.8(a)(i), Buyer and Seller agree that prior to the Closing Date,
the Company may distribute (or has distributed) to Sellers,
proportionately in accordance with the relative percentage
ownership of Shares by Sellers, an amount equal to the Sellers'
respective liabilities for state and federal income taxes (but
not including any penalties or interest with respect to any such
taxes), directly attributable to taxable income of the Sellers
from the Sellers' ownership of their respective Shares (but not
attributable to any taxes payable by reason of the sale of the
Shares under this Agreement or any Election), and which accrued
from the period commencing February 1, 1997 and ending through
the Closing Date (such period shall be defined as the "Interim
Period"). The tax rate for computation of the distributions under
this Section 5.8(a)(ii) shall not exceed the rate used for
computation of the distribution in Section 5.8(a)(i).
In the event the Company declares a dividend or makes any
distribution in excess of the amounts allowable under Section
5.8(a)(i) and (ii), such excess shall reduce the Dollar Purchase
Price to be paid at the Closing.
(b) Buyer and Sellers acknowledge and agree to the payment by the
Company of bonuses to employees of the Company paid after December 31,
1996 in excess of the Company's compensation plan (set forth in Part
5.8(b) of the Disclosure Letter), in an amount equal to $297,500. Any
bonuses in excess of such amount shall reduce the Dollar Purchase
Price payable at the Closing.
9 ADVANCES TO SHAREHOLDERS, DIRECTORS AND OFFICERS. Part 5.9 of the
Disclosure Letter lists all outstanding loans, receivables or other
advances outstanding to Sellers, directors or officers of the Company. The
Sellers will cause all outstanding loans, receivables and advances to
Sellers, officers and directors of the Company, to be repaid to the Company
prior to the Closing Date.
6. COVENANTS OF BUYER PRIOR TO CLOSING DATE.
1 APPROVALS OF GOVERNMENTAL BODIES. As promptly as practicable
after the date of this Agreement, Buyer will make all filings required by
Legal Requirements to be made by them to consummate the Contemplated
Transactions. Between the date of this Agreement and the Closing Date,
Buyer will, cooperate with Sellers with respect to all filings that Sellers
are required by Legal Requirements to make in connection with the
Contemplated Transactions, and cooperate with Sellers in obtaining all
consents identified in Part 3.2 of the Disclosure Letter; provided that
this Agreement will not require Buyer to dispose of or make any change in
any portion of its business or to incur any other burden to obtain a
Governmental Authorization.
2 BEST EFFORTS. Except as set forth in the proviso to Section 6.1,
between the date of this Agreement and the Closing Date, Buyer will use its
best efforts to cause the conditions in Sections 7 and 8 to be satisfied.
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE. Buyer's
obligation to purchase the Shares and to take the other actions required to
be taken by Buyer at the Closing is subject to the satisfaction, at or
prior to the Closing Date, of each of the following conditions (any of
which may be waived by Buyer, in whole or in part):
1 ACCURACY OF REPRESENTATIONS. Each of the Sellers' representations
and warranties in this Agreement, must have been accurate in all material
respects as of the date of this Agreement, and must be accurate in all
material respects as of the Closing Date as if made on the Closing Date.
2 SELLERS' PERFORMANCE. All of the covenants and obligations that
Sellers are required to perform or to comply with pursuant to this
Agreement at or prior to the Closing must have been duly performed and
complied with in all material respects.
3 CONSENTS. Each of the consents identified in Part 3.2 of the
Disclosure Letter, and each consent identified in Schedule 4.2, must have
been obtained and must be in full force and effect.
4 ADDITIONAL DOCUMENTS. Each of the following documents must have
been delivered to Buyer:
(a) an opinion of Waring ▇▇▇, PLC, dated the Closing Date, in the
form of Exhibit 7.4(a);
(b) such other documents as Buyer may reasonably request for the
purpose of (i) enabling its counsel to provide the opinion referred to
in Section 8.3(a), (ii) evidencing the accuracy of any of Sellers'
representations and warranties, (iii) evidencing the performance by
either Seller of, or the compliance by either Seller with, any
covenant or obligation required to be performed or complied with by
such Seller, (iv) evidencing the satisfaction of any condition
referred to in this Section 7, or (v) otherwise facilitating the
consummation or performance of any of the Contemplated Transactions.
5 NO PROCEEDINGS. Since the date of this Agreement, there must not
have been commenced or threatened against Buyer, any actions, suits or
proceedings (a) involving any challenge to, or seeking damages or other
relief in connection with, any of the Contemplated Transactions, or (b)
that may have the effect of preventing, delaying, making illegal, or
otherwise interfering with any of the Contemplated Transactions.
6 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS. There must
not have been made or threatened by any Person any claim asserting that
such Person (a) is the holder or the beneficial owner of, or has the right
to acquire or to obtain beneficial ownership of, any stock of, or any other
voting, equity, or ownership interest in, any of the Company, or (b) is
entitled to all or any portion of the Purchase Price.
7 NO PROHIBITION. Neither the consummation nor the performance of
any of the Contemplated Transactions will, directly or indirectly (with or
without notice or lapse of time), materially contravene, or conflict with,
or result in a material violation of, or cause Buyer or any Person
affiliated with Buyer to suffer any material adverse consequence under,
(a) any applicable Legal Requirement or Order, or (b) any Legal Requirement
or Order that has been published, introduced, or otherwise formally
proposed by or before any Governmental Body.
8 FINANCING. Buyer shall have obtained financing substantially in
accordance with the terms and provisions of that certain Commitment Letter
dated May 20, 1997 executed by First Union Commercial Corporation and
Buyer, a copy of which Buyer has previously provided to Sellers.
8. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE.
Sellers' obligation to sell the Shares and to take the other actions
required to be taken by Sellers at the Closing is subject to the
satisfaction, at or prior to the Closing Date, of each of the following
conditions (any of which may be waived by Sellers, in whole or in part):
1 ACCURACY OF REPRESENTATIONS. All of Buyer's representations and
warranties in this Agreement, and each of these representations and
warranties, must have been accurate in all material respects as of the date
of this Agreement and must be accurate in all material respects as of the
Closing Date as if made on the Closing Date.
2 BUYER'S PERFORMANCE.
(a) All of the covenants and obligations that Buyer is required
to perform or to comply with pursuant to this Agreement at or prior to
the Closing, and each of these covenants and obligations must have
been performed and complied with in all material respects.
(b) Buyer must have delivered each of the documents required to
be delivered by Buyer pursuant to Section 2.4 and must have made the
payments required to be made by Buyer pursuant to Section 2.4.
3 ADDITIONAL DOCUMENTS. Buyer must have caused the following
documents to be delivered to Sellers:
(a) an opinion of ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, PLC, dated the
Closing Date, in the form of Exhibit 8.3(a); and
(b) such other documents as Sellers may reasonably request for
the purpose of (i) enabling their counsel to provide the opinion
referred to in Section 7.4(a), (ii) evidencing the accuracy of any
representation or warranty of Buyer, (iii) evidencing the performance
by Buyer of, or the compliance by Buyer with, any covenant or
obligation required to be performed or complied with by Buyer,
(ii) evidencing the satisfaction of any condition referred to in this
Section 8, or (v) otherwise facilitating the consummation of any of
the Contemplated Transactions.
4 NO INJUNCTION. There must not be in effect any Legal Requirement
or any injunction or other Order that (a) prohibits the sale of the Shares
by Sellers to Buyer, and (b) has been adopted or issued, or has otherwise
become effective, since the date of this Agreement.
5 CONSENTS. Each of the consents identified in Part 3.2 of the
Disclosure Letter, and each consent identified in Schedule 4.2, must have
been obtained and must be in full force and effect.
6 NO PROCEEDINGS. Since the date of this Agreement, there must not
have been commenced or threatened against the Company or the Sellers, any
actions, suits or proceedings (a) involving any challenge to, or seeking
damages or other relief in connection with, any of the Contemplated
Transactions, or (b) that may have the effect of preventing, delaying,
making illegal, or otherwise interfering with any of the Contemplated
Transactions.
9. TERMINATION.
1 TERMINATION EVENTS. This Agreement may, by notice given prior to
or at the Closing, be terminated:
(a) by either Buyer or Sellers if a material breach of any
provision of this Agreement has been committed by the other party and
such breach has not been waived;
(b) (i) by Buyer if any of the conditions in Section 7 has not
been satisfied as of the Closing Date or if satisfaction of such a
condition is or becomes impossible (other than through the failure of
Buyer to comply with its obligations under this Agreement) and Buyer
has not waived such condition on or before the Closing Date; or (ii)
by Sellers, if any of the conditions in Section 8 has not been
satisfied of the Closing Date or if satisfaction of such a condition
is or becomes impossible (other than through the failure of Sellers to
comply with their obligations under this Agreement) and Sellers have
not waived such condition on or before the Closing Date;
(c) by mutual consent of Buyer and Sellers; or
(d) by either Buyer or Sellers if the Closing has not occurred
(other than through the failure of any party seeking to terminate this
Agreement to comply fully with its obligations under this Agreement)
on or before July 1, 1997, or such later date as the parties may agree
upon.
2 EFFECT OF TERMINATION. Each party's right of termination under
Section 9.1 is in addition to any other rights it may have under this
Agreement or otherwise, and the exercise of a right of termination will not
be an election of remedies. If this Agreement is terminated pursuant to
Section 9.1, all further obligations of the parties under this Agreement
will terminate, except that the obligations in Sections 11.1, 11.3 and 11.4
will survive; provided, however, that if this Agreement is terminated by a
party because of the breach of the Agreement by the other party or because
one or more of the conditions to the terminating party's obligations under
this Agreement is not satisfied as a result of the other party's failure to
comply with its obligations under this Agreement, the terminating party's
right to pursue all legal remedies will survive such termination
unimpaired.
10. INDEMNIFICATION; REMEDIES.
1 SURVIVAL; RIGHT TO INDEMNIFICATION AFFECTED BY CERTAIN KNOWLEDGE.
Subject to the limitations set forth in Section 10.2, all representations,
warranties, covenants, and obligations in this Agreement, the Disclosure
Letter, the certificate delivered pursuant to Section 2.4(a)(iii), and any
other certificate or document delivered pursuant to this Agreement will
survive the Closing. The Buyer will be deemed to have knowledge of matters
disclosed by the express terms and provisions of documents previously
delivered to Buyer by the Company prior to the Closing Date and described
in Exhibit 10.1. Except for matters described in the Disclosure Letter and
matters described in the preceding sentence, the right to indemnification,
payment of damages or other remedy based on such representations,
warranties, covenants, and obligations will not be affected by any
investigation conducted with respect to, or any knowledge acquired (or
capable of being acquired) at any time, whether before or after the
execution and delivery of this Agreement or the Closing Date, with respect
to the accuracy or inaccuracy of or compliance with, any such
representation, warranty, covenant, or obligation. The waiver of any
condition based on the accuracy of any representation or warranty, or on
the performance of or compliance with any covenant or obligation, will not
affect the right to indemnification, payment of damages, or other remedy
based on such representations, warranties, covenants, and obligations, and
Buyer shall have no right of setoff or indemnification (or claim for
Damages) for matters as to which Buyer has knowledge under the terms of
this Section.
2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS. Subject to the
limitations set forth in Sections 3.4, 10.1, 10.5, 10.6 and 10.8, Sellers,
jointly and severally, will indemnify and hold harmless Buyer, the Company,
and their respective representatives, stockholders, controlling persons,
and affiliates (collectively, the "Indemnified Persons") for, and will pay
to the Indemnified Persons the amount of, any loss, liability, claim,
damage, expense (including costs of investigation and defense and
reasonable attorneys' or accountants' fees) or diminution of value, whether
or not involving a third-party claim (collectively, "Damages"), arising,
directly or indirectly, from or in connection with:
(a) any breach of any representation or warranty made by Sellers
in this Agreement, the Disclosure Letter, or any other certificate or
document delivered by Sellers pursuant to this Agreement. With respect
to a breach of certain warranties described in subsections (i) through
(iii) below, the following provisions shall apply:
(i) To the extent that any of the buildings, plants, structures,
equipment and other tangible personalty of the Company included in the
assets on the Balance Sheet or Interim Balance Sheet are not in good
condition or working order as of the Closing Date constituting a
breach of warranties under Section 3.22, an amount equal to the cost
of repair or, if repair is not commercially practicable, the cost of
replacement;
(ii) To the extent of a breach of warranties under Section 3.14
and to the extent items of inventory (except for inventory described
in Section 4.7) are obsolete as of the Closing Date, an amount
reflected in the Balance Sheet or Interim Balance Sheet of the Company
for such inventory;
(iii) To the extent that undisclosed liabilities exist as of the
Closing Date as a breach of warranties under Section 3.25, an amount
necessary to discharge such undisclosed liabilities.
(b) any breach by any Seller of any covenant or obligation of
such Seller in this Agreement.
The remedies provided in this Section 10.2 are separate and distinct
from Buyer's rights under Sections 2.5 and 5.8 hereof for a Purchase Price
adjustment; provided, however, that in the event that facts, events,
conditions or circumstances constituting or resulting in Damages under this
Section 10.2 also give rise to a reduction in the Purchase Price under
Sections 2.5 and 5.8 hereof, any payment obligations of Sellers under
Section 10.2 shall first be deducted from the Third Deferred Payment. If
the Third Deferred Payment is insufficient to satisfy Seller's obligations
under Section 10.2 because the aggregate of the Purchase Price reduction
pursuant to Section 2.5 hereof and the amounts payable by Sellers under
Section 10.2 hereof exceeds $250,000 (the maximum amount of the reduction
in the Third Deferred Payment), Sellers shall be jointly and severally
liable (except under the provisions of Section 3.4) to pay such amount to
Buyer. Amounts payable by the Sellers under this Section 10.2 shall accrue
interest from the Closing Date at the rate equal to the rate of interest
borne by the Promissory Notes. The Buyer shall not be entitled to Damages
under Section 10.2, if an adjustment for purchase price under Section 2.5
or 5.8 has been made for the same matter.
3 [Intentionally Omitted]
4 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER. Buyer will
indemnify and hold harmless Sellers, and will pay to Sellers the amount of
any Damages arising, directly or indirectly, from or in connection with (a)
any breach of any representation or warranty made by Buyer in this
Agreement or in any certificate delivered by Buyer pursuant to this
Agreement, or (b) any breach by Buyer of any covenant or obligation of
Buyer in this Agreement.
5 TIME LIMITATIONS.
(a) If the Closing occurs, Sellers will have no liability (for
indemnification or otherwise) with respect to any representation or
warranty, or covenant or obligation to be performed and complied with prior
to the Closing Date, unless on or before August 31, 1998 (and in the case
of representations, warranties or covenants under Section 3.4, on or before
June , 2000) Buyer notifies the Sellers' Representative of a claim
specifying the factual basis of that claim in reasonable detail to the
extent then known by Buyer. Notwithstanding any provision of this Section
10.5 to the contrary, Sellers' liability (for indemnification or otherwise)
with respect to representations, warranties, covenants or obligations with
respect to Section 3.20 (Environmental Matters) and Section 3.12 (Tax
Matters) will not be limited by the failure of Buyer to notify Sellers of a
claim as set forth in the preceding sentence.
(b) If the Closing occurs, Buyer will have no liability (for
indemnification or otherwise) with respect to any representation or
warranty, or covenant or obligation to be performed and complied with prior
to the Closing Date, unless on or before August 31, 1998 the Sellers'
Representative notifies Buyer of a claim specifying the factual basis of
that claim in reasonable detail to the extent then known by Sellers.
6 THRESHOLD ON AMOUNT--SELLERS. Sellers will have no liability (for
indemnification or otherwise) with respect to the matters described in
Section 10.2 until the total of all Damages exceed $50,000 and only for the
amount by which such Damages exceed $50,000.
Notwithstanding any other provision of this Agreement, the limitations
of this Section 10.6 will not apply:
(a) to a Seller with respect to which any breach of any of such
Seller's representations and warranties of which such Seller had
knowledge prior to the date on which such representation or warranty
is made or any intentional breach by such Seller of any covenant or
obligation; or
(b) any breach of any representation or warranty of Sellers set
forth in Section 3.4.
7 THRESHOLD ON AMOUNT--BUYER. Buyer will have no liability (for
indemnification or otherwise) with respect to the matters described in
Section 10.4 until the total of all damages with respect to such matters
exceeds $50,000, and then only for the amount by which such damages exceed
$50,000. However, this Section 10.7 will not apply to any breach of any of
Buyer's representations and warranties of which Buyer had knowledge prior
to the date on which such representation and warranty is made or any
intentional breach by Buyer of any covenant or obligation.
8 RIGHT OF SET-OFF AND EXERCISE OF REMEDIES. Based upon the
provisions of Section 2.5 and this Section 10, upon prompt notice (after
Buyer learns of the basis for a set-off) to Sellers' Representative
specifying in reasonable detail the basis for such set-off, Buyer may set
off any amount to which it may be entitled under Section 2.5 or this
Section 10 against the Third Deferred Payment. The exercise of such right
of set-off by Buyer in good faith, whether or not ultimately determined to
be justified, will not constitute an event of default under the Promissory
Notes or any instrument securing a Promissory Note. Except as set forth in
this Section, neither the exercise of nor the failure to exercise such
right of set-off will constitute an election of remedies or limit Buyer in
any manner in the enforcement of any other remedies that may be available
to it. Except for a breach of the several warranties under Section 3.4,
Buyer agrees that it will pursue its remedies under Section 10 in the
following order of priority: (i) first, Buyer will exercise its right of
set-off against the Promissory Notes of Sellers and the unpaid Stock
Purchase Price on a pro rata basis; (ii) second, after exercising its set-
off rights as set forth in subsection (i) of this Section, the Buyer shall
pursue its remedies under Section 11.3, and if Buyer's claim is
established, it shall first make demand against Sellers' on a pro rata
basis (if Sellers are liable on a pro rata basis); (iii) third, then if a
Seller (or Sellers) does not make full payment within 120 days after such
demand, the Buyer may exercise its remedies hereunder against the Sellers
on a non pro rata basis. With respect to a breach of the several warranties
under Section 3.4, the Buyer will exercise its rights and remedies under
this Agreement only against such defaulting Seller. Any set-off against the
Stock Purchase Price shall value the shares constituting the Stock Purchase
Price at the greater of current fair market value or $3.50 per share (as
such shares may be adjusted under Section 3 of the Shareholders Agreement).
9 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS.
(a) Promptly after receipt by an indemnified party under Section
10.2 or 10.4 of notice of the commencement of any action, claim, suit
or proceeding against it, such indemnified party will, if a claim is
to be made against an indemnifying party under such Section, give
notice to the indemnifying party of the commencement of such claim,
but the failure to notify the indemnifying party will not relieve the
indemnifying party of any liability that it may have to any
indemnified party, except to the extent that the indemnifying party
demonstrates that the defense of such action is prejudiced by the
indemnifying party's failure to give such notice. Notice to Sellers'
Representative will constitute notice to all Sellers under this
Section 10.9 and the consent of Sellers' Representative under this
Section 10.9 shall constitute the consent of all Sellers to the
matters set forth in Section 10.9.
(b) If any proceeding referred to in Section 10.9(a) is brought
against an indemnified party and it gives notice to the indemnifying
party of the commencement of such proceeding, the indemnifying party
will, unless the claim involves taxes, be entitled to participate in
such proceeding and, to the extent that it wishes (unless (i) the
indemnifying party is also a party to such proceeding and the
indemnified party determines in good faith that joint representation
would be inappropriate, or (ii) the indemnifying party fails to
provide reasonable assurance to the indemnified party of its financial
capacity to defend such proceeding and provide indemnification with
respect to such proceeding), to assume the defense of such proceeding
with counsel satisfactory to the indemnified party and, after notice
from the indemnifying party to the indemnified party of its election
to assume the defense of such proceeding, the indemnifying party will
not, as long as it diligently conducts such defense, be liable to the
indemnified party under this Section 10 for any fees of other counsel
or any other expenses with respect to the defense of such proceeding,
in each case subsequently incurred by the indemnified party in
connection with the defense of such proceeding, other than reasonable
costs of investigation. If the indemnifying party assumes the defense
of a proceeding, (i) it will be conclusively established for purposes
of this Agreement (unless the parties agree otherwise) that the claims
made in that proceeding are within the scope of and subject to
indemnification; (ii) no compromise or settlement of such claims may
be effected by the indemnifying party without the indemnified party's
consent unless (A) there is no finding or admission of any violation
of Legal Requirements or any violation of the rights of any Person and
no effect on any other claims that may be made against the indemnified
party, and (B) the sole relief provided is monetary damages that are
paid in full by the indemnifying party; and (iii) the indemnified
party will have no liability with respect to any compromise or
settlement of such claims effected without its consent. If notice is
given to an indemnifying party of the commencement of any proceeding
and the indemnifying party does not, within ten days after the
indemnified party's notice is given, give notice to the indemnified
party of its election to assume the defense of such proceeding, the
indemnifying party will be bound by any determination made in such
proceeding or any compromise or settlement effected by the indemnified
party.
(c) Notwithstanding the foregoing, if an indemnified party
determines in good faith that there is a reasonable probability that a
proceeding may adversely affect it or its affiliates other than as a
result of monetary damages for which it would be entitled to
indemnification under this Agreement, the indemnified party may, by
notice to the indemnifying party, assume the exclusive right to
defend, compromise, or settle such proceeding, but the indemnifying
party will not be bound by any determination of a proceeding so
defended or any compromise or settlement effected without its consent
(which may not be unreasonably withheld).
(d) Sellers hereby consent to the non-exclusive jurisdiction of
any court in which a proceeding is brought against any Indemnified
Person for purposes of any claim that an Indemnified Person may have
under this Agreement with respect to such proceeding or the matters
alleged therein, and agree that process may be served on Sellers with
respect to such a claim anywhere in the world.
10 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS. A claim for
indemnification for any matter not involving a third-party claim may be
asserted by prompt notice (setting forth in reasonable detail the nature of
the claim) to the party from whom indemnification is sought.
11. GENERAL PROVISIONS.
1 EXPENSES. Except as set forth in the next sentence, each party to
this Agreement will bear its respective expenses incurred in connection
with the preparation, execution, and performance of this Agreement and the
Contemplated Transactions, including all fees and expenses of agents,
representatives, counsel, and accountants. Except for payments equaling
one-half of the fees and expenses of its counsel, Waring ▇▇▇, PLC (which
one-half portion shall not exceed $30,000), Sellers will cause the Company
not to incur any out-of-pocket expenses with third parties in connection
with this Agreement and the consummation of the transactions contemplated
herein. In the event of termination of this Agreement, the obligation of
each party to pay its own expenses will be subject to any rights of such
party arising from a breach of this Agreement by another party.
2 PUBLIC ANNOUNCEMENTS. Any public announcement or similar
publicity with respect to this Agreement or the Contemplated Transactions
will be issued, if at all, at such time and in such manner as Buyer and
Sellers' Representative shall mutually determine. Unless consented to by
Buyer in advance or required by Legal Requirements, prior to the Closing,
Sellers shall, and shall cause the Company to, keep this Agreement strictly
confidential and may not make any disclosure of this Agreement to any
Person. Sellers and Buyer will consult with each other concerning the means
by which the Company's employees, customers, and suppliers and others
having dealings with the Company will be informed of the Contemplated
Transactions, and Buyer will have the right to be present for any such
communication.
3 MANDATORY ARBITRATION. Any controversy or claim between or among
the parties hereto, including but not limited to those arising out of or
relating to this Agreement, including any claim based on or arising from an
alleged tort, (but excluding the adjustment under Section 2.5 which is
governed procedurally by Section 2.5(a)(ii) hereof and excluding claims,
controversies and disputes under the Non-Competition Agreements and the
Employment Agreements, all of which shall be governed by the terms thereof)
shall be determined by binding arbitration in accordance with the Federal
Arbitration Act (or, if not applicable, the applicable Tennessee law), the
rules of practice and procedure for the arbitration of commercial disputes
of the American Arbitration Association ("A.A.A."), and the "Special Rules"
set forth below. In the event of any inconsistency, the Special Rules shall
control. Judgment upon any arbitration award may be entered in any court
having jurisdiction. Any party to this Agreement may bring an action,
including a summary or expedited proceeding, to compel arbitration of any
controversy or claim to which this Agreement applies in any court having
jurisdiction over such action.
(i) SPECIAL RULES. The arbitration shall be conducted in
Nashville, Tennessee and administered by A.A.A., who will appoint an
arbitrator. All arbitration hearings will be commenced within ninety
(90) days of the demand for arbitration. Further, the arbitrator shall
only, upon a showing of cause, be permitted to extend the commencement
of such hearing for an additional sixty (60) days.
4 CONFIDENTIALITY. Between the date of this Agreement and the
Closing Date, Buyer and Sellers will maintain in confidence, and will cause
the directors, officers, employees, agents, and advisors of Buyer and the
Company to maintain in confidence, any information obtained in confidence
from another party or the Company in connection with this Agreement or the
Contemplated Transactions, unless (a) such information is already known to
such party or to others not bound by a duty of confidentiality or such
information becomes publicly available through no fault of such party, (b)
the use of such information is necessary or appropriate in making any
filing or obtaining any consent or approval required for the consummation
of the Contemplated Transactions, or (c) the furnishing or use of such
information is required by legal proceedings. If the Contemplated
Transactions are not consummated, each party will return or destroy as much
of such written information as the other party may reasonably request.
5 NOTICES. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been
duly given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by telecopier (with written confirmation of receipt),
provided that a copy is mailed by registered mail, return receipt
requested, or (c) when received by the addressee, if sent by a nationally
recognized overnight delivery service (receipt requested), in each case to
the appropriate addresses and telecopier numbers set forth in Exhibit 11.5
for Sellers (with a copy as provided below) and as set forth below Buyer:
Buyer: Setech, Inc.
Address: ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ PLC
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
A copy of notice to any of the Sellers shall be sent to:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Waring ▇▇▇, PLC
▇▇▇▇▇▇ ▇▇▇▇▇▇ Tower
▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
The Buyer, the Sellers or any other party described in this Section may
designate such other address or telecopier number by written notice to the
other parties required to give notice under this Agreement.
6 JURISDICTION; SERVICE OF PROCESS. Any action or proceeding
seeking to enforce any provision of, or based on any right arising out of,
the Employment Agreements or the Non-Competition may be brought against any
of the parties thereto in the courts of the State of Tennessee, County of
▇▇▇▇▇▇▇▇▇▇, or, if it has or can acquire jurisdiction, in the United States
District Court for the Middle District of Tennessee, and each of the
parties thereto who is a party to this Agreement consents to the
jurisdiction of such courts (and of the appropriate appellate courts) in
any such action or proceeding and waives any objection to venue laid
therein. Process in any action or proceeding referred to in the preceding
sentence may be served on any party anywhere in the world.
7 FURTHER ASSURANCES. The parties agree (a) to furnish upon request
to each other such further information, (b) to execute and deliver to each
other such other documents, and (c) to do such other acts and things, all
as the other party may reasonably request for the purpose of carrying out
the intent of this Agreement and the documents referred to in this
Agreement.
8 WAIVER. The rights and remedies of the parties to this Agreement
are cumulative and not alternative. Neither the failure nor any delay by
any party in exercising any right, power, or privilege under this Agreement
or the documents referred to in this Agreement will operate as a waiver of
such right, power, or privilege, and no single or partial exercise of any
such right, power, or privilege will preclude any other or further exercise
of such right, power, or privilege or the exercise of any other right,
power, or privilege. To the maximum extent permitted by applicable law,
(a) no claim or right arising out of this Agreement or the documents
referred to in this Agreement can be discharged by one party, in whole or
in part, by a waiver or renunciation of the claim or right unless in
writing signed by the other party; (b) no waiver that may be given by a
party will be applicable except in the specific instance for which it is
given; and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving
such notice or demand to take further action without notice or demand as
provided in this Agreement or the documents referred to in this Agreement.
9 ENTIRE AGREEMENT AND MODIFICATION. This Agreement supersedes all
prior agreements between the parties with respect to its subject matter
(including the Letter of Intent between Buyer and Sellers dated April 7,
1997) and constitutes (along with the documents referred to in this
Agreement) a complete and exclusive statement of the terms of the agreement
between the parties with respect to its subject matter. This Agreement may
not be amended except by a written agreement executed by the party to be
charged with the amendment.
10 DISCLOSURE LETTER.
(a) The disclosures in the Disclosure Letter, may relate not only
to the representations and warranties in the Section of the Agreement
to which they expressly relate, but also to any other representation
or warranty in this Agreement.
(b) In the event of any inconsistency between the statements in
the body of this Agreement and those in the Disclosure Letter (other
than an exception expressly set forth as such in the Disclosure Letter
with respect to a specifically identified representation or warranty),
the statements in the body of this Agreement will control.
11 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS. None of
the parties may assign any of its rights under this Agreement without the
prior consent of the other parties, except that Buyer may assign any of its
rights under this Agreement to any subsidiary of Buyer. Subject to the
preceding sentence, this Agreement will apply to, be binding in all
respects upon, and inure to the benefit of the successors and permitted
assigns of the parties. Nothing expressed or referred to in this Agreement
will be construed to give any Person other than the parties to this
Agreement any legal or equitable right, remedy, or claim under or with
respect to this Agreement or any provision of this Agreement. This
Agreement and all of its provisions and conditions are for the sole and
exclusive benefit of the parties to this Agreement and their heirs, legal
representatives or permitted successors and assigns.
12 SEVERABILITY. If any provision of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any
provision of this Agreement held invalid or unenforceable only in part or
degree will remain in full force and effect to the extent not held invalid
or unenforceable.
13 SECTION HEADINGS, CONSTRUCTION. The headings of Sections in
this Agreement are provided for convenience only and will not affect its
construction or interpretation. All references to "Section" or "Sections"
refer to the corresponding Section or Sections of this Agreement. All words
used in this Agreement will be construed to be of such gender or number as
the circumstances require. Unless otherwise expressly provided, the word
"including" does not limit the preceding words or terms.
14 TIME OF ESSENCE. With regard to all dates and time periods
set forth or referred to in this Agreement, time is of the essence.
15 GOVERNING LAW. This Agreement will be governed by the laws
of the State of Tennessee without regard to conflicts of laws principles.
16 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to
constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
SELLERS:
By:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇.
By:
▇▇▇▇ ▇▇▇▇
By:
▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
By:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
By:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇., Custodian for
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ under TN UTMA
By:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
By:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇., Custodian for
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ under TN UTMA
By:
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
By:
▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Trustee U/A dated
4/23/90 FBO ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Trust I")
By:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Trustee U/A dated
4/23/90 FBO ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ and
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Trust I")
By:
▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Trustee U/A dated
4/23/90 FBO ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Trust II")
By:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Trustee U/A dated
4/23/90 FBO ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ and
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Trust II")
By:
▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Trustee U/A dated
4/23/90 FBO ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Trust III")
By:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Trustee U/A dated
4/23/90 FBO ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ and
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Trust III")
By:
▇▇▇▇▇ ▇▇▇▇
By:
▇▇▇▇▇▇ ▇▇▇▇▇▇
By:
▇▇▇▇ ▇▇▇▇
By:
▇▇▇▇▇ ▇▇▇▇▇▇
By:
▇▇▇▇▇ ▇▇▇▇
By:
▇▇▇▇▇ ▇▇▇▇
BUYER:
SETECH, INC.
By:
Title: