Exhibit 5
Stock Purchase Agreement (the "Agreement") effective as of October 9,
1998, between Officeland Inc., an Ontario corporation with principal offices
located at ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇ ▇▇▇ (the "Buyer"),
and ▇▇▇▇ ▇▇▇▇▇▇▇▇, an individual residing at ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ (the "Seller"). The Buyer and Seller are referred to herein
collectively as the "Parties," and individually as a "Party."
WHEREAS the Seller owns all of the outstanding capital stock (the
"Subject Shares") of Telecom Corporation of Chicago, an Illinois corporation
with principal offices located at ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
( "Telecom");
WHEREAS the Seller, as sole shareholder of Telecom, for the purpose of
inducing Buyer to enter into this Agreement, agrees to make certain
representations and covenants concerning Telecom and the Subject Shares;
WHEREAS this Agreement contemplates a transaction in which the Buyer
will purchase from the Seller, and the Seller will sell to the Buyer, the
Subject Shares for purchase consideration consisting of cash and Buyer's common
shares;
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1 Definitions.
1.1 "Adverse Consequences" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses,
expenses, and fees, including reasonable court costs and attorneys' fees and
expenses.
1.2 "Buyer" has the meaning set forth in the preface above.
1.3 "Beneficial Ownership" shall be as determined pursuant to Rule
13d-3 of the General Rules and Regulations under the Securities Exchange Act of
1934.
1.4 "Closing" has the meaning set forth in Section 2.5 below.
1.5 "Closing Date" has the meaning set forth in Section 2.5 below.
1.6 "Code" means the Internal Revenue Code of 1986, as amended.
1.7 "Confidential Information" means any information concerning the
businesses and affairs of Telecom or the Buyer that is not already generally
available to the public.
1.8 "Disclosure Schedule" has the meaning set forth in Section 4 below.
1.9 "Earn-Out Amount," "Earn-Out Shares," and "Earn-Out Cash," have the
meaning set forth in Section 2.3 below.
1.10 "EBT" has the meaning set forth in Section 2.3.1 below.
1.11 "Environmental, Health, and Safety Requirements" shall mean any of
the following which are applicable to Telecom: all federal, state and local
statutes, regulations, ordinances and other provisions having the force or
effect of law, all judicial and administrative orders and determinations, all
contractual obligations and all common law concerning public health and safety,
worker health and safety, and pollution or protection of the environment,
including without limitation all those relating to the presence, use,
production, generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, release, threatened
release, control, or cleanup of any hazardous materials, substances or wastes,
chemical substances or mixtures, pesticides,
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pollutants, contaminants, toxic chemicals, petroleum products or byproducts,
asbestos, polychlorinated biphenyls, noise or radiation, each as in effect on
the Closing Date.
1.12 "Financial Statements" has the meaning set forth in Section 4.6
below.
1.13 "GAAP" means United States generally accepted accounting
principles as in effect from time to time.
1.14 "Indemnified Party" has the meaning set forth in Section 8.2
below.
1.15 "Indemnifying Party" has the meaning set forth in Section 8.2
below.
1.16 "Intellectual Property" means (i) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications, and patent
disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof, (ii)
all trademarks, service marks, trade dress, logos, trade names, and corporate
names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (iii) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection therewith, (iv) all mask works and all applications,
registrations, and renewals in connection therewith, (v) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals), (vi) all computer software (including data and related
documentation), (vii) all other proprietary rights, and (viii) all copies and
tangible embodiments thereof (in whatever form or medium).
1.17 "Knowledge" means actual knowledge of a party after reasonable
investigation or constructive knowledge.
1.18 "Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
1.19 "Material," "Materiality," "Material Adverse Effect" or the like
shall mean any one or more item, circumstance or event which individually or in
the aggregate have a monetary value which exceeds $5,000.
1.20 "Most Recent Fiscal Year End" has the meaning set forth in Section
4.6 below.
1.21 "Most Recent Fiscal Period End" has the meaning set forth in
Section 4.6 below.
1.22 "Nasdaq Share Price" means the average of the closing ask and bid
prices as reported on the Nasdaq SmallCap Market.
1.23 "Ordinary Course of Business" means the ordinary course of
business consistent with past custom and practice (including with respect to
quantity and frequency).
1.24 "Party" has the meaning set forth in the preface above.
1.25 "Person" means an individual, a partnership, a corporation,
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
1.26 "Purchase Consideration" has the meaning set forth in Section 2.2
below.
1.27 "Purchase Shares" has the meaning set forth in Section 2.2 below.
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1.28 "Securities Act" means the Securities Act of 1933, as amended.
1.29 "Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (i) mechanic's, materialmen's,
and similar liens, (ii) liens for Taxes not yet due and payable or for Taxes
that the taxpayer is contesting in good faith through appropriate proceedings,
(iii) purchase money liens and liens securing rental payments under capital
lease arrangements (iv) other liens arising in the Ordinary Course of Business
and not incurred in connection with the borrowing of money and (v) liens
disclosed in Section 4.5 of the Disclosure Schedule attached hereto and
incorporated herein.
1.30 "Seller" has the meaning set forth in the preface above.
1.31 "Subject Shares" has the meaning set forth in the recitals above.
1.32 "Subscription and Registration Rights Agreement" or "Subscription
Agreement" means the Subscription and Registration Rights Agreement &
Stockholder's Certificate annexed hereto as Exhibit A to be entered into by each
of the Seller, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇ and ▇▇▇ ▇▇▇ with the Buyer.
1.33 "Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
1.34 "Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
1.35 "Telecom" has the meaning set forth in the recitals above.
1.36 "Third Party Claim" has the meaning set forth in Section 8.2
below.
2 Purchase and Sale of the Subject Shares.
2.1 Basic Transaction. Section 4.2 of the Disclosure Schedule sets
forth the number of Subject Shares owned by the Seller. At the Closing, on and
subject to the terms and conditions of this Agreement, the Seller will transfer,
convey and deliver to the Buyer all of his right, title and interest in and to
all of the Subject Shares for the consideration specified in this Section 2.
2.2 Purchase Consideration. As consideration for the Subject Shares,
the Buyer shall deliver to the Seller the purchase consideration (the "Purchase
Consideration"), which shall consist of (i) an aggregate cash payment at Closing
in the amount of U.S.$2,600,000 (the "Cash Payment"), which shall consist of
$2,275,000 to Seller, $300,000 to ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇▇"), and $25,000 to
▇▇▇ ▇▇▇ ("Rae"), as set forth in Section 3.1.3 of the Disclosure Schedule, (ii)
a cash payment in the amount of $500,000 plus interest, payable in 8 equal
installments of principal after the Closing Date and (iii) the aggregate amount
of 750,000 shares of the Buyer's common shares (the "Purchase Shares"), the
issuance of such shares to be effected according to the terms of a separate
Subscription and Registration Rights Agreement between the Seller and the Buyer.
The payment of the Purchase Consideration described in (ii) above shall be
evidenced by a promissory note of Buyer in the form attached hereto as Exhibit F
(the "Note"), which the Buyer shall deliver at the Closing. The remaining
Purchase Consideration shall be paid as provided below in this Section 2.2. At
the Closing, the Buyer shall deliver to the Seller and ▇▇▇▇▇▇▇▇ the Cash Payment
by wire transfer of immediately available funds to an account designated by the
Seller. At the Closing, subject to the terms set forth in the Subscription
Agreement, the Buyer shall deliver an
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irrevocable letter of direction to its transfer agent, American Stock Transfer
and Trust Company, to issue the Purchase Shares in installments as follows: (i)
On January 1, 2000: 145,589 Purchase Shares to Seller, 29,411 Purchase Shares to
▇▇▇▇▇▇▇▇, 45,000 Purchase Shares to ▇▇▇ ▇▇▇▇▇ ("▇▇▇▇▇") and 5,000 Purchase
Shares to Rae, as set forth in Section 3.1.3 of the Disclosure Schedule; (ii) On
January 1, 2001: 295,000 Purchase Shares to Seller and 5,000 Purchase Shares to
Rae; and (iii) On January 1, 2002: 220,000 Purchase Shares to Seller and 5,000
Purchase Shares to Rae.
2.3 Additional Consideration. Subject to the terms of this Section 2.3
and the Subscription Agreement, as additional consideration, Seller shall be
paid an additional amount (the "Earn-Out Amount"), subject to the limitations on
the Earn-Out Amount set forth in Section 2.3.5 below, of cash (the "Earn-Out
Cash") or an additional number of Buyer's common shares (the "Earn-Out Shares")
for the three year period (the "Earn-Out Period") commencing December 1, 1998.
Buyer shall have discretion, on a year to year basis during the Earn-Out Period,
in determining whether Buyer will pay Seller the Earn-Out Amount in: (x)
Earn-Out Cash; (y) Earn-Out Shares; or, (z) part Earn-Out Cash and part Earn-Out
Shares. However, should Buyer determine to pay Seller more than 60% of the
Earn-Out Amount in Earn-Out Shares, then Seller shall have the option of
accepting Buyer's determination or receiving up to a maximum of 40% of the
Earn-Out Amount in Earn-Out Cash and the remainder in Earn-Out Shares. Buyer
shall pay the Earn-Out Amount no later than 15 business days after the receipt
by the Buyer of Telecom's audited financial statements for each fiscal year
ending November 30 during the Earn-Out Period. Any Earn-Out Shares payable to
Seller under this Section 2.3 shall be registered by the Buyer (at its sole
expense) pursuant to the Securities Act within six (6) months from the date upon
which Seller becomes entitled to such shares. The Earn-Out Amount will be based
upon the following:
2.3.1 If Telecom's audited earnings before taxes ("EBT") for the
fiscal year ending November 30, 1999 ("1999 EBT") exceeds U.S.$1,300,000, (the
exceeded amount hereinafter referred to as the "1999 Excess Amount"), then
Seller will be entitled to an Earn-Out Amount. Buyer shall pay the Earn-Out
Amount, subject to Section 2.3 above, as follows: (i) an amount of Earn-Out Cash
equal to the 1999 Excess Amount or (ii) a number of Earn-Out Shares determined
by dividing the 1999 Excess Amount by the Nasdaq Share Price for the 15 trading
days prior to the date upon which Telecom's audited financial statements for the
fiscal year ending November 30, 1999 are delivered to Buyer.
2.3.2 If Telecom's EBT for the fiscal year ending November 30, 2000
("2000 EBT") exceeds the greater of U.S.$1,500,000 or the 1999 EBT, (the
exceeded amount hereinafter referred to as the "2000 Excess Amount"), then
Seller will be entitled to an Earn-Out Amount. Buyer shall pay the Earn-Out
Amount subject to Section 2.3 above, as follows: (i) an amount of Earn-Out Cash
equal to the 2000 Excess Amount or (ii) a number of Earn-Out Shares determined
by dividing the 2000 Excess Amount by the Nasdaq Share Price for the 15 trading
days prior to the date upon which Telecom's audited financial statements for the
fiscal year ending November 30, 2000 are delivered to Buyer.
2.3.3 If Telecom's EBT for the fiscal year ending November 30, 2001
("2001 EBT") exceeds the greater of U.S.$1,700,000, 1999 EBT or 2000 EBT (the
exceeded amount hereinafter referred to as the "2001 Excess Amount"), then
Seller will be entitled to an Earn-Out Amount. Buyer shall pay the Earn-Out
Amount, subject to Section 2.3 above, as follows: (i) an amount of Earn-Out Cash
equal to the 2001 Excess Amount or (ii) a number of Earn-Out Shares determined
by dividing the 2001 Excess Amount by the Nasdaq Share Price for the 15 trading
days prior to the date upon which Telecom's audited financial statements for the
fiscal year ending November 30, 2001 are delivered to Buyer.
2.3.4 For the purposes of calculating the Earn-Out Amount under
Section 2.3, the Parties agree that the audited EBT will be calculated as if the
transactions contemplated in this
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Agreement have not occurred, excepting only the Adverse Consequences, and that
Telecom business was operated in the Ordinary Course of Business after the
Closing of this Agreement. In addition to, but not in limitation of the
forgoing, for the purposes of calculating EBT, the Parties agree to the
following:
2.3.4.1 all management fees and charges, allocations of parent
corporation overhead or similar expense or charge whatsoever made by the Buyer
or any of its affiliates, and any other charges made by the Buyer or its
affiliates, against the income of Telecom shall be disregarded (other than (i)
refinancings of current Telecom indebtedness, and (ii) increases in working
capital lines of credit related solely to the business of Telecom;
2.3.4.2 intercompany loans, interest, fees and other charges,
actual or imputed, that Buyer imposes in connection with such borrowings shall
be disregarded;
2.3.4.3 all interest and other costs and charges incurred in
connection with the Buyer's financing of the purchase of the Subject Shares
shall be disregarded;
2.3.4.4 depreciation and amortization shall be calculated as if the
transactions contemplated hereby had not occurred;
2.3.4.5 capital expenditures requested by Buyer shall be ignored;
2.3.4.6 intercompany purchases or sales of goods or services shall
be recalculated at an arm's-length, fair market value price; and
2.3.4.7 the calculation of EBT under this Section 2.3 will take
into account any Adverse Consequences actually due Buyer under this Agreement as
a result of a breach by the Seller of any representations, warranties, and
covenants contained in this Agreement.
2.3.5 Limitations on Earn-Out Amount. The maximum Earn-Out Amount
the Seller may earn during the Earn-Out Period shall be limited to: (i) 350,000
Earn-Out Shares; (ii) the equivalent value of 350,000 Earn-Out Shares in
Earn-Out Cash; or (iii) a number of Earn-Out Shares and an amount of Earn-Out
Cash, which together equal the value of 350,000 Earn-Out Shares. For purposes of
clarity, the following examples show how the provisions of this Paragraph 2.3.5.
will be applied:
2.3.5.1 Example No. 1.
Facts: 1999 Excess Amount is $100,000 and the Nasdaq Share
Price for the 15 trading days period prior to the date upon which Telecom's
audited financial statements are delivered to the buyer is $5.00.
Results: Seller is entitled to, at Buyer's discretion,
(i) 20,000 Earn-Out Shares; (ii) $100,000 in Earn-Out Cash; or (iii) a number
of Earn-Out Shares, valued at $5.00 per Earn-Out Share, and an amount of
Earn-Out Cash, that together equal $100,000 in value. In either, (i), (ii), or
(iii), Seller would have earned the value of 20,000 Earn-Out Shares towards the
maximum Earn-Out Amount.
2.3.5.2 Example No. 2.
Facts: 1999 Excess Amount is $800,000 and the Nasdaq Share
Price for the 15 trading days period prior to the date upon which Telecom's
audited financial statements are delivered to the buyer is $2.00.
Results: Seller is entitled to, at Buyer's discretion,
(i) 350,000 Earn-Out Shares; (ii) $700,000 in Earn-Out Cash; or (iii) a number
of Earn-Out Shares, valued at $2.00 per Earn-Out Share, and an amount of
Earn-Out Cash, that together equal $700,000 in value. In
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either, (i), (ii), or (iii), Seller would have earned the maximum Earn-Out
Amount.
2.3.5.3 Example No. 3.
Facts: 2000 Excess Amount is $1,000,000, the Nasdaq Share
Price for the 15 trading days period prior to the date upon which Telecom's
audited financial statements are delivered to the buyer is $2.00 and Seller has
received 20,000 Earn-Out Shares as a result of a 1999 Excess Amount.
Results: Seller is entitled to, at Buyer's discretion,
(i) 330,000 Earn-Out Shares; (ii) $660,000 in Earn-Out Cash; or (iii) a number
of Earn-Out Shares, valued at $2.00 per Earn-Out Share, and an amount of
Earn-Out Cash, that together equal $660,000 in value. In either, (i), (ii), or
(iii), Seller would have earned the maximum Earn-Out Amount.
2.3.5.4 Example No. 4.
Facts: 2000 Excess Amount is $1,000,000, the Nasdaq Share
Price for the 15 trading days period prior to the date upon which Telecom's
audited financial statements are delivered to the buyer is $5.00 and Seller has
received 20,000 Earn-Out Shares as a result of a 1999 Excess Amount.
Results: Seller is entitled to, at Buyer's discretion,
(i) 200,000 Earn-Out Shares; (ii) $1,000,000 in Earn-Out Cash; or (iii) a number
of Earn-Out Shares, valued at $5.00 per Earn-Out Share, and an amount of
Earn-Out Cash, that together equal $1,000,000 in value. In either, (i), (ii), or
(iii), Seller would have theretofore earned the value of 220,000 Earn-Out Shares
towards the maximum Earn-Out Amount.
2.4 Acceleration of Delivery of Shares. Notwithstanding the dates set
forth above for the delivery of the Purchase Shares and the Earn-Out Shares:
2.4.1 Prior to the date on which the entire Earn-Out Amount has
been earned or paid, if (i) ▇▇▇▇▇▇ ▇▇▇▇ ceases to be Chief Executive Officer
of the Buyer or (ii) if any Person has acquired, or obtained the right to
acquire all or substantially all of the assets of the Buyer or the Beneficial
Ownership of 50% or more of the Buyer's outstanding common shares by purchase,
option, right, consolidation or otherwise, (any of the forgoing events
hereinafter referred to as a "Control Event"), then Seller shall have the option
to immediately receive all remaining Purchase Shares not previously received and
all Earn-Out Shares earned and not previously delivered. The Earn-Out Shares
earned by the Seller prior to the Control Event shall be pro-rated accordingly,
if necessary. If Seller exercise his option under this Section 2.4.1, then the
Purchase Shares and the Earn-Out Shares shall immediately vest and be payable to
the Seller and the Earn-Out Amount shall be deemed all earned and fully paid and
no additional Earn-Out Amount shall be paid pursuant to Section 2.3 of this
Agreement. Subject to the Subscription Agreement, in the event the Seller shall
receive the Purchase Shares and the Earn-Out Shares as a result of the Control
Event, the Purchase Shares and the Earn-Out Shares shall be registered by the
Buyer (at its sole expense) pursuant to the Securities Act within six (6) months
from the date upon which Seller becomes entitled to such shares.
2.5 The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ &
▇▇▇▇▇▇ LLP in New York, New York, or such other place as may mutually be
determined by the Parties, on or about October 30, 1998 or upon the satisfaction
or waiver of all conditions to the obligations of the Parties to consummate the
transactions contemplated hereby (other than conditions with respect to actions
the respective Parties will at the Closing itself) commencing at 9:00 a.m. local
time (the "Closing Date"). In the event the Closing does not occur by November
16, 1998, which date may mutually be extended by the Parties in writing, the
Parties agree that this Agreement shall immediately terminate and each Party
shall bear
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their own expenses in connection with this Agreement.
2.6 Closing Documents. At the Closing, (i) the Seller will deliver to
the Buyer the various certificates, instruments, and documents referred to in
Section 7.1 below, (ii) the Buyer will deliver to the Seller the various
certificates, instruments, and documents referred to in Section 7.2 below, (iii)
the Seller has delivered to the Buyer stock certificates representing all of the
Subject Shares, endorsed in blank or accompanied by duly executed assignment
documents, and (iv) the Buyer has delivered to the Seller the Purchase
Consideration in accordance with the terms and conditions set forth in Section
2.2 above.
3 Representations and Warranties Concerning the Transaction.
3.1 Representations and Warranties of the Seller. The Seller represents
and warrants to the Buyer that the statements contained in this Section 3.1 are
correct and complete to Seller's Knowledge as of the date of this Agreement.
3.1.1 Authorization of Transaction. Seller has all necessary
power and authority to execute and deliver this Agreement and to perform his
obligations hereunder. This Agreement constitutes the valid and legally binding
obligation of the Seller, enforceable in accordance with its terms and
conditions except insofar as enforceability may be limited by bankruptcy,
insolvency or other creditors' rights, laws, or general principles of equity.
Except as otherwise disclosed pursuant to or contemplated by this Agreement,
Seller need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order to consummate the transactions contemplated by this Agreement.
3.1.2 Noncontravention. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Seller is subject, or (ii) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any Material agreement, contract, lease,
license, instrument, or other arrangement to which the Seller is a party or by
which he or it is bound or to which any of his or its assets is subject.
3.1.3 Brokers' Fees. Except as set forth in Section 3.1.3 of the
Disclosure Schedule, the Seller has no Liability or obligation to pay any fees
or commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement for which the Buyer could become liable or
obligated.
3.1.4 Investment. Seller (i) understands that the Purchase Shares
have not been registered under the Securities Act, or under any state securities
laws, and are being offered and sold in reliance upon federal and state
exemptions for transactions not involving any public offering, (ii) is acquiring
the Purchase Shares solely for its own account for investment purposes, and not
with a view to the distribution thereof, (iii) is a sophisticated investor with
knowledge and experience in business and financial matters, (iv) has received
certain information concerning the Buyer and has had the opportunity to obtain
additional information as desired in order to evaluate the merits and the risks
inherent in holding the Purchase Shares, and (v) is able to bear the economic
risk and lack of liquidity inherent in holding the Purchase Shares.
3.1.5 Subject Shares. The Seller holds of record and owns
beneficially the Subject Shares as set forth in Section 4.2 of the Disclosure
Schedule, free and clear of any restrictions on transfer (other than any
restrictions under the Securities Act and state securities laws), Taxes,
Security Interests, options, warrants, purchase rights, contracts, commitments,
equities, claims, and demands. The Seller is not a party to any option, warrant,
purchase right, or other contract or commitment that
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could require the Seller to sell, transfer, or otherwise dispose of any capital
stock of Telecom (other than this Agreement). The Seller is not a party to any
voting trust, proxy, or other agreement or understanding with respect to the
voting of any capital stock of Telecom.
3.2 Representations and Warranties of the Buyer. The Buyer represents
and warrants to the Seller that the statements contained in this Section 3.2 are
correct and complete as of the date of this Agreement.
3.2.1 Organization of the Buyer. The Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
3.2.2 Authorization of Transaction. The Buyer has all necessary
power and authority (including full corporate power and authority) to execute
and deliver this Agreement and to perform its obligations hereunder. This
Agreement constitutes the valid and legally binding obligation of the Buyer,
enforceable in accordance with its terms and conditions except insofar as
enforceability may be limited by bankruptcy, insolvency or other creditors'
rights, laws or general principles of equity. Except as otherwise disclosed
pursuant to or contemplated by this Agreement, the Buyer need not give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order to consummate the
transactions contemplated by this Agreement.
3.2.3 Noncontravention. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Buyer is subject or any provision of
its charter or bylaws or (ii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
the Buyer is a party or by which it is bound or to which any of its assets is
subject.
3.2.4 Brokers' Fees. The Buyer has no Liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Seller could become
liable or obligated.
3.2.5 Investment. The Buyer is not acquiring the Subject Shares
with a view to or for sale in connection with any distribution thereof within
the meaning of the Securities Act. The Purchase Shares have been issued in
accordance with valid exemptions from registration under federal and applicable
state securities laws. The information delivered to Seller pursuant to Section
3.1.4(iv) and Buyer's filings with the Securities and Exchange Commission do not
contain any untrue statement of a material fact, or fail to state any material
fact necessary to make the statements made therein not misleading.
4 Representations and Warranties Concerning Telecom. The Seller
represents and warrants to the Buyer that the statements contained in this
Section 4 are correct and complete to Seller's Knowledge as of the date of this
Agreement, except as set forth in the disclosure schedule delivered by the
Seller to the Buyer on the date hereof and initialed by the Parties (the
"Disclosure Schedule"). The Disclosure Schedule is arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this Section
4.
4.1 Organization, Qualification, and Corporate Power. Telecom is a
corporation validly existing, and in good standing under the laws of the
jurisdiction of its incorporation. Telecom is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction where such
qualification is required except where the failure to be so qualified would not
have a Material Adverse Effect on Telecom. Telecom has all necessary corporate
power and authority and all governmental licenses, permits, and authorizations
necessary to carry on the businesses in which it is engaged and
8
to own and use the properties owned and used by it except where the failure to
obtain such licenses would not have a Material Adverse Effect on Telecom.
Section 4.1 of the Disclosure Schedule lists the directors and officers of
Telecom. The Seller has delivered to the Buyer correct and complete copies of
the articles of incorporation and bylaws of Telecom (as amended to date). The
minute books (containing the records of meetings of the stockholders, the board
of directors, and any committees of the board of directors), the stock
certificate books, and the stock record books of Telecom are correct and
complete in all Material respects. Telecom is not in default under or in
violation of any Material provision of its articles of incorporation charter or
bylaws.
4.2 Capitalization. The entire authorized capital stock of Telecom
consists of 1,000 shares of common stock, no par value, of which 1,000 are
issued and outstanding. All of the issued and outstanding shares of Telecom's
common stock have been duly authorized, are validly issued, fully paid, and
nonassessable, and are held of record by the Seller as set forth in Section 4.2
of the Disclosure Schedule. There are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights, exchange
rights, or other contracts or commitments that could require Telecom to issue,
sell, or otherwise cause to become outstanding any of its capital stock. There
are no outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to Telecom. There are no voting
trusts, proxies, or other agreements or understandings with respect to the
voting of the capital stock of Telecom.
4.3 Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any Material constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which Telecom is subject or any provision of
the charter or bylaws of any of Telecom or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which Telecom is a party or by which it is bound or to which any
of its assets is subject (or result in the imposition of any Security Interest
upon any of its assets). Telecom need not give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any government or
governmental agency in order for the Parties to consummate the transactions
contemplated by this Agreement.
4.4 Brokers' Fees. Telecom does not have any Liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
4.5 Title to Assets. Except as set forth in Section 4.5 of the
Disclosure Schedule, Telecom has good title to, or a valid right to use the
properties and assets used by it, located on its premises, or shown in the
Financial Statements or acquired after the date thereof, free and clear of all
Security Interests, except for properties and assets disposed of in the Ordinary
Course of Business since the date of the Financial Statements.
4.6 Financial Statements. Attached hereto as Exhibit B are the audited
balance sheet and statements of income, changes in stockholders' equity, and
cash flow (collectively the "Financial Statements") as of and for the fiscal
years ended December 31, 1995, December 31, 1996, and December 31, 1997 (the
"Most Recent Fiscal Year End") for Telecom and the unaudited Financial
Statements as of and for the eight months ended August 31, 1998 (the "Most
Recent Fiscal Period End") for Telecom, except the cash flow statement for the
Most Recent Fiscal Period End. Except as set forth in the Disclosure Schedule,
the Financial Statements (including the notes that may be required by GAAP) have
been prepared in accordance with GAAP (except the Financial Statements for the
Most Recent Fiscal Period do not contain notes thereto and year-end adjustments
required by GAAP) applied on a consistent basis throughout the period covered
thereby, present fairly in all
9
Material respects the financial condition and the results of operations of
Telecom as of such periods, are correct and complete in all Material respects,
and are consistent with the books and records of Telecom (which books and
records are correct and complete in all Material respects), subject, in the case
of the Financial Statements for the Most Recent Fiscal Period, to normal
recurring year-end adjustments consistent with Telecom's past practices.
4.7 Events Subsequent to Most Recent Fiscal Year End. Except as set
forth in Section 4.7 of the Disclosure Schedule, since the Most Recent Fiscal
Year End, there has not been any material adverse change in the business,
financial condition, operations or results of operations of Telecom.
Without limiting the generality of the foregoing, since that date:
4.7.1 Telecom has not sold, leased, transferred, or assigned any of
its assets, tangible or intangible, other than for a fair consideration in the
Ordinary Course of Business;
4.7.2 Telecom has not entered into any agreement, contract, lease,
or license (or series of related agreements, contracts, leases, and licenses)
either involving more than $10,000 or outside the Ordinary Course of Business.
4.7.3 no party (including Telecom) has accelerated, terminated,
modified, or canceled any agreement, contract, lease, or license (or series of
related agreements, contracts, leases, and licenses) involving more than $10,000
to which Telecom is a party or by which it is bound;
4.7.4 Telecom has not imposed any Security Interest upon any of its
assets, tangible or intangible;
4.7.5 Telecom has not made any capital expenditure (or series of
related capital expenditures) either involving more than $10,000 or outside the
Ordinary Course of Business;
4.7.6 Telecom has not made any capital investment in, any loan to,
or any acquisition of the securities or assets of, any other Person (or series
of related capital investments, loans, and acquisitions) either involving more
than $10,000 or outside the Ordinary Course of Business;
4.7.7 Telecom has not issued any note, bond, or other debt security
or created, incurred, assumed, or guaranteed any indebtedness for borrowed money
or capitalized lease obligation either involving more than $5,000 singly or
$10,000 in the aggregate;
4.7.8 Telecom has not delayed or postponed the payment of accounts
payable and other Liabilities outside the Ordinary Course of Business;
4.7.9 Telecom has not canceled, compromised, waived, or released
any right or claim (or series of related rights and claims) either involving
more than $10,000 or outside the Ordinary Course of Business;
4.7.10 Telecom has not granted any license or sublicense of any
rights under or with respect to any Intellectual Property;
4.7.11 there has been no change made or authorized in the articles
of incorporation or bylaws of Telecom;
4.7.12 Telecom has not issued, sold, or otherwise disposed of any
of its capital stock, or granted any options, warrants, or other rights to
purchase or obtain (including upon conversion, exchange, or exercise) any of its
capital stock;
4.7.13 Telecom has not declared, set aside, or paid any dividend or
made any distribution with respect to its capital stock (whether in cash or in
kind) or redeemed, purchased, or otherwise acquired any of its capital stock;
10
4.7.14 Telecom has not experienced any Material damage,
destruction, or loss (whether or not covered by insurance) to its property
outside the Ordinary Course of Business;
4.7.15 Telecom has not made any loan to, or entered into any other
transaction with, any of its directors, officers, and employees outside the
Ordinary Course of Business;
4.7.16 Telecom has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of any
existing such contract or agreement;
4.7.17 Telecom has not granted any increase in the base
compensation of any of its directors, officers, and employees outside the
Ordinary Course of Business;
4.7.18 Telecom has not adopted, amended, modified, or terminated
any bonus, profit-sharing, incentive, severance, or other plan, contract, or
commitment for the benefit of any of its directors, officers, and employees (or
taken any such action with respect to any other Employee Benefit Plan);
4.7.19 Telecom has not made any other change in employment terms
for any of its directors, officers, and employees outside the Ordinary Course of
Business;
4.7.20 Telecom has not made or pledged to make any charitable or
other capital contribution outside the Ordinary Course of Business;
4.7.21 there has not been any other material occurrence, event,
incident, action, failure to act, or transaction outside the Ordinary Course of
Business involving Telecom; and
4.7.22 Telecom has not committed to do any of the foregoing.
4.8 Undisclosed Liabilities. Telecom does not have any Material
Liability (and there is no basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any Material Liability), except for (i) Liabilities
set forth on the face of the Financial Statements; (ii) Liabilities disclosed on
the Disclosure Schedule; and (iii) Liabilities which have arisen after the Most
Recent Fiscal Year End in the Ordinary Course of Business (none of which results
from, arises out of, relates to, is in the nature of, or was caused by any
breach of contract, breach of warranty, tort, infringement, or violation of
law).
4.9 Legal Compliance. Telecom has complied with all applicable laws
(including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof) in all Material respects, and no action,
suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or
notice has been filed or commenced against Telecom alleging any failure so to
comply.
4.10 Tax Matters.
4.10.1 Except as set forth in Section 4.10.1 of the Disclosure
Schedule, Telecom has filed all Tax Returns that it was required to file. All
such Tax Returns were correct and complete in all respects. All Taxes owed by
Telecom (whether or not shown on any Tax Return) have been paid. Telecom is not
currently the beneficiary of any extension of time within which to file any Tax
Return. No claim has ever been made by an authority in a jurisdiction where
Telecom does not file Tax Returns that it is or may be subject to taxation by
that jurisdiction. There are no Security Interests on any of the assets of
Telecom that arose in connection with any failure (or alleged failure) to pay
any Tax.
4.10.2 Telecom has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.
4.10.3 Neither the Seller nor any director or officer (or employee
responsible for Tax
11
matters) of Telecom expects any authority to assess any additional Taxes for any
period for which Tax Returns have been filed. There is no dispute or claim
concerning any Tax Liability of Telecom either (i) claimed or raised by any
authority in writing or (ii) as to which any of the Seller and the directors and
officers (and employees responsible for Tax matters) of Telecom has Knowledge
based upon personal contact with any agent of such authority. Section 4.10 of
the Disclosure Schedule lists all federal, state, local, and foreign income Tax
Returns filed with respect to Telecom for taxable periods ended on or after
December 31, 1993, indicates those Tax Returns that have been audited, and
indicates those Tax Returns that currently are the subject of audit. The Seller
has delivered to the Buyer correct and complete copies of all federal income Tax
Returns, examination reports, and statements of deficiencies assessed against or
agreed to by Telecom since December 31, 1993.
4.10.4 Telecom has not waived any statute of limitations in respect
of Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency.
4.10.5 Telecom has not filed a consent under Code Section 341(f)
concerning collapsible corporations. Telecom has not made any payments, is
obligated to make any payments, or is a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Code Section 280G. Telecom has not been a United States real
property holding corporation within the meaning of Code Section 897(c)(2) during
the applicable period specified in Code Section 897(c)(1)(A)(ii). [Telecom has
disclosed on its federal income Tax Returns all positions taken therein that
could give rise to a substantial understatement of federal income Tax within the
meaning of Code Section 6662.] Telecom is not a party to any Tax allocation or
sharing agreement. Telecom (i) has not been a member of an Affiliated Group
(within the meaning of Code Section 1504(a) or similar provision of state, local
or foreign law) filing a consolidated federal income Tax Return (other than a
group the common parent of which was Telecom) or (ii) does not have any
Liability for the Taxes of any Person (other than Telecom ) under Reg. Section
1.1502-6 (or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise.
4.10.6 Section 4.10 of the Disclosure Schedule sets forth the
following information with respect to Telecom as of the most recent practicable
date: (i) the basis of Telecom in its assets; and (ii) the amount of any net
operating loss, net capital loss, unused investment or other credit, unused
foreign tax, or excess charitable contribution allocable to Telecom.
4.10.7 Except as set forth in Section 4.10.7 of the Disclosure
Schedule, the unpaid Taxes of Telecom (i) did not, as of the Most Recent Fiscal
Year End, exceed the reserve for Tax Liability (rather than any reserve for
deferred Taxes established to reflect timing differences between book and Tax
income) set forth on the face of the Financial Statements (rather than in any
notes thereto) and (ii) do not exceed that reserve as adjusted for the passage
of time through the Closing Date in accordance with the past custom and practice
of Telecom in filing its Tax Returns.
4.11 Intellectual Property.
4.11.1 Except as set forth in Section 4.11.1 of the Disclosure
Schedule, Telecom owns or has the right to use pursuant to license, sublicense,
agreement, or permission all Intellectual Property, free and clear of any
Security Interest or other restriction necessary for the operation of the
business of Telecom as presently conducted. Each item of Intellectual Property
owned or used by Telecom immediately prior to the Closing hereunder will be
owned or available for use by Telecom on identical terms and conditions
immediately subsequent to the Closing hereunder. Except as set forth in Section
4.11.1 of the Disclosure Schedule, Telecom has taken all reasonably necessary
action to maintain and protect each item of Intellectual Property that it owns
or uses.
4.11.2 Telecom has not interfered with, infringed upon or
misappropriated any Intellectual Property rights of third parties, and none of
the Seller and the directors and officers (and
12
employees with responsibility for Intellectual Property matters) of Telecom has,
within the last 5 years from the date hereof, ever received any charge,
complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that Telecom
must license or refrain from using any Intellectual Property rights of any third
party). To the Knowledge of any of the Seller and the directors and officers
(and employees with responsibility for Intellectual Property matters) of
Telecom, no third party has interfered with, infringed upon, misappropriated, or
otherwise come into conflict with any Intellectual Property rights of Telecom.
4.11.3 Section 4.11.3 of the Disclosure Schedule (i) lists all of
the trademarks, unregistered trademarks, service marks, trade dress, logos,
trade names, and corporate names used in Telecom's business, together with all
translations, adaptations, derivations, and combinations thereof and including
all goodwill associated therewith, and all applications, registrations, and
renewals in connection therewith; (ii) identifies each license, agreement, or
other permission which Telecom has granted to any third party with respect to
any of its Intellectual Property; and (iii) identifies each item of Intellectual
Property that any third party owns and that Telecom uses pursuant to license,
sublicense, agreement, or permission.
4.12 Tangible Assets. Telecom owns or leases all buildings,
machinery, equipment, and other tangible assets necessary for the conduct of its
business as presently conducted. Each such tangible asset is free from Material
defects (patent and latent), has been maintained in accordance with normal
industry practice, is in good operating condition and repair excluding inventory
in various stages of remanufacturing (subject to normal wear and tear), and is
suitable for the purposes for which it presently is used.
4.13 Inventory. The inventory of Telecom consists of used office
equipment held for resale, raw materials and supplies, manufactured and
purchased parts, goods in process, and finished goods, all of which is
merchantable and fit for the purpose for which it was procured or manufactured
(except as set forth on the Disclosure Schedule), and none of which is
slow-moving, obsolete, damaged, or defective, subject only to the reserves set
forth on the face of the Financial Statements as adjusted for the passage of
time through the Closing Date in accordance with the past custom and practice of
Telecom. Section 4.13 of the Disclosure Schedule lists the inventory of Telecom
as of the Most Recent Fiscal Period End. At Closing, there is no change in the
inventory of Telecom set forth in Section 4.13 of the Disclosure Schedule other
than changes in the Ordinary Course of Business.
4.14 Contracts. Section 4.14 of the Disclosure Schedule lists the
following contracts and other agreements to which Telecom is a party:
4.14.1 any agreement (or group of related agreements) for the
lease of personal property to or from any Person providing for lease payments in
excess of $5,000 per annum;
4.14.2 any agreement (or group of related agreements) for the
purchase or sale of raw materials, commodities, supplies, products, or other
personal property, or for the furnishing or receipt of services, the performance
of which will extend over a period of more than one year, result in a material
loss to Telecom, or involve consideration in excess of $5,000;
4.14.3 any agreement concerning a partnership or joint venture;
4.14.4 any agreement (or group of related agreements) under which
it has created, incurred, assumed, or guaranteed any indebtedness for borrowed
money, or any capitalized lease obligation, in excess of $5,000 or under which
it has imposed a Security Interest on any of its assets, tangible or intangible;
4.14.5 any agreement concerning confidentiality or noncompetition;
4.14.6 any agreement with any of the Seller or its affiliates
(other than Telecom);
13
4.14.7 any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other material plan or
arrangement for the benefit of its current or former directors, officers, and
employees;
4.14.8 any collective bargaining agreement;
4.14.9 any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual compensation
in excess of $5,000 or providing severance benefits;
4.14.10 any agreement under which it has advanced or loaned any
amount to any of its directors, officers, and employees;
4.14.11 any agreement under which the consequences of a default or
termination could have a material adverse effect on the business, financial
condition, operations, results of operations, or future prospects of Telecom; or
4.14.12 any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $5,000.
The Seller has delivered to the Buyer a correct and complete copy of each
written agreement listed in Section 4.14 of the Disclosure Schedule (as amended
to date) and a written summary setting forth the terms and conditions of each
oral agreement referred to in Section 4.14 of the Disclosure Schedule. With
respect to each such agreement: (i) the agreement is the legal, valid, binding
and enforceable obligation of Telecom, and in full force and effect; (ii) the
agreement will continue to be legal, valid, binding and enforceable obligation
of Telecom and in full force and effect on identical terms following the
consummation of the transactions contemplated hereby; (iii) no party is in
breach or default, and no event has occurred which with notice or lapse of time
would constitute a breach or default, or permit termination, modification, or
acceleration, under the agreement; and (iv) no party has repudiated orally or in
writing to Telecom any provision of the agreement.
4.15 Notes and Accounts Receivable. All notes and accounts receivable
of Telecom are reflected properly on its books and records, are valid
receivables subject to no known setoffs or counterclaims, are collectible, and
will be collected in accordance with their terms at their recorded amounts,
subject only to the reserves set forth on the face of the Financial Statements
as adjusted for the passage of time through the Closing Date in accordance with
the past custom and practice of Telecom.
4.16 Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of Telecom.
4.17 Insurance. Section 4.17 of the Disclosure Schedule sets forth the
following information with respect to each insurance policy (including policies
providing property, casualty, liability, and workers' compensation coverage and
bond and surety arrangements) to which Telecom has been a party, a named
insured, or otherwise the beneficiary of coverage at any time within the past
five years:
4.17.1 the name, address, and telephone number of the agent;
4.17.2 the name of the insurer, the name of the policyholder, and
the name of each covered insured;
4.17.3 the policy number and the period of coverage;
4.17.4 the scope (including an indication of whether the coverage
was on a claims made, occurrence, or other basis) and amount (including a
description of how deductibles and ceilings are calculated and operate) of
coverage; and
14
4.17.5 a description of any retroactive premium adjustments or
other loss-sharing arrangements.
With respect to each such insurance policy: (i) the policy is legal, valid,
binding, enforceable and in full force and effect; (ii) the policy will continue
to be legal, valid, binding, enforceable, and in full force and effect on
identical terms following the consummation of the transactions contemplated
hereby; (iii) neither Telecom nor any other party to the policy is in breach or
default (including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of time,
would constitute such a breach or default, or permit termination, modification,
or acceleration, under the policy; and (iv) no party to the policy has
repudiated orally or in writing to Telecom or Seller any provision thereof.
Telecom has been covered during the past five years by insurance in scope and
amount customary and reasonable for the businesses in which it has engaged
during the aforementioned period. Section 4.17 of the Disclosure Schedule
describes any self-insurance arrangements affecting any Telecom.
4.18 Litigation. Section 4.18 of the Disclosure Schedule sets forth
each instance in which Telecom (i) is subject to any outstanding injunction,
judgment, order, decree, ruling, or charge specifically applicable to it or (ii)
is a party or is threatened to be made a party to any action, suit, proceeding,
hearing, or investigation of, in, or before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign jurisdiction or
before any arbitrator. None of the actions, suits, proceedings, hearings, and
investigations set forth in Section 4.18 of the Disclosure Schedule are expected
to result in any material adverse change in the business, financial condition,
operations or results of operations of Telecom. None of the Seller and the
director and officer (and employees with responsibility for litigation matters)
of Telecom has any reason to believe that any such action, suit, proceeding,
hearing, or investigation may be brought or threatened against Telecom.
4.18.1 Representation concerning Graphic Enterprises, Inc. v. TAS
International, Inc. Notwithstanding the forgoing and anything contrary contained
in this Agreement, other than the specific indemnity contained in Section 8.5
hereof, the Seller represents and warrants to the Buyer that the litigation
entitiled Graphic Enterprises, Inc. v. TAS International, Inc. (the "TAS
Action") in which Telecom is named as a Third Party Defendant by Graphic
Enterprises, Inc., will not result in any material adverse change in the
business, financial condition, operations or results of operations of Telecom
other than the payment of attorneys' fees and expenses in connection with
defending such action and settlement or judgment thereto not exceeding $75,000.
To Seller's Knowledge, none of the Seller and the director and officer (and
employees with responsibility for litigation matters) of Telecom has any reason
to believe additional action, suit, proceeding, hearing, or investigation may be
brought or threatened against Telecom in connection with the TAS Action.
4.19 Product Warranty. Each product manufactured or sold by Telecom has
been in conformity with all applicable Material contractual commitments and all
express product warranties, and Telecom has no Material Liability for
replacement or repair thereof or other damages in connection therewith, subject
only to the reserve for product warranty claims set forth on the face of the
Financial Statements as adjusted for the passage of time through the Closing
Date in accordance with the past custom and practice of Telecom. No product
manufactured or sold by Telecom is subject to any guaranty, warranty, or other
indemnity beyond the applicable standard terms and conditions of sale. Section
4.19 of the Disclosure Schedule sets forth the standard terms and conditions of
sale of Telecom (containing applicable guaranty, warranty, and indemnity
provisions).
4.20 Product Liability. Telecom does not have any Material Liability
arising out of any injury to individuals or property as a result of the
ownership, possession, or use of any product manufactured or sold by Telecom.
4.21 Employees. To the Knowledge of the Seller, no executive, key
employee, or group of
15
employees has any plans to terminate employment with Telecom. Telecom is not a
party to or bound by any collective bargaining agreement, nor has it experienced
any strikes, grievances, claims of unfair labor practices, or other collective
bargaining disputes within the last five years. Telecom has not committed any
unfair labor practice. None of the Seller and the directors and officers of
Telecom has any Knowledge of any organizational effort presently being made or
threatened by or on behalf of any labor union with respect to employees of
Telecom.
4.22 Employee Benefits.
4.22.1 Definitions. For the purpose of this Section 4.22, the
following terms shall have the meanings set forth below:
4.22.1.1 "Employee Benefit Plan" means any (i) nonqualified
deferred compensation or retirement plan or arrangement, (ii) qualified defined
contribution retirement plan or arrangement which is an Employee Pension Benefit
Plan, (iii) qualified defined benefit retirement plan or arrangement which is an
Employee Pension Benefit Plan (including any Multiemployer Plan), or (iv)
Employee Welfare Benefit Plan or material fringe benefit or other retirement,
bonus, or incentive plan or program.
4.22.1.2 "Employee Pension Benefit Plan" has the meaning set forth
in ERISA Section 3(2).
4.22.1.3 "Employee Welfare Benefit Plan" has the meaning set forth
in ERISA Section 3(1).
4.22.1.4 "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
4.22.1.5 "ERISA Affiliate" means each entity which is treated as a
single employer with Telecom pursuant to the relevant provisions of Code Section
414.
4.22.1.6 "Multiemployer Plan" has the meaning set forth in ERISA
Section 3(37).
4.22.1.7 "PBGC" means the Pension Benefit Guaranty Corporation.
4.22.2 Section 4.22 of the Disclosure Schedule lists each Employee
Benefit Plan that Telecom maintains or to which Telecom contributes.
4.22.2.1 Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation in all respects
with the applicable requirements of ERISA and the Code.
4.22.2.2 All contributions (including all employer contributions
and employee salary reduction contributions) which are due have been paid to
each such Employee Benefit Plan which is an Employee Pension Benefit Plan.
4.22.2.3 Each such Employee Benefit Plan which is an Employee
Pension Benefit Plan has received a determination letter from the Internal
Revenue Service to the effect that it meets the requirements of Code Section
401(a).
4.22.2.4 As of the last day of the most recent prior plan year,
the market value of assets under each such Employee Benefit Plan which is an
Employee Pension Benefit Plan (other than any Multiemployer Plan) equaled or
exceeded the present value of liabilities thereunder (determined in accordance
with then current funding assumptions).
4.22.2.5 The Seller has delivered to the Buyer correct and
complete copies
16
of the plan documents and summary plan descriptions, the most recent
determination letter received from the Internal Revenue Service, the most recent
Form 5500 Annual Report, and all related trust agreements, insurance contracts,
and other funding agreements which implement each such Employee Benefit Plan.
4.22.3 With respect to each Employee Benefit Plan that Telecom or
any ERISA Affiliate maintains or has maintained during the prior six years or to
which any of them contributes, or has been required to contribute during the
prior six years:
4.22.3.1 No action, suit, proceeding, hearing, or investigation
with respect to the administration or the investment of the assets of any such
Employee Benefit Plan (other than routine claims for benefits) is pending.
4.22.3.2 Telecom has not incurred any liability to the PBGC (other
than PBGC premium payments) or otherwise under Title IV of ERISA (including any
withdrawal liability) with respect to any such Employee Benefit Plan which is an
Employee Pension Benefit Plan.
4.23 Guaranties. Telecom is not a guarantor and is not otherwise liable
for any Liability or obligation (including indebtedness) of any other Person.
4.24 Environmental, Health, and Safety Matters.
4.24.1 Each of Telecom and its predecessors and affiliates has
complied and is in compliance with all Material Environmental, Health, and
Safety Requirements which are applicable to it.
4.24.2 Without limiting the generality of the foregoing, Telecom
has obtained and complied with, and is in compliance with, in all Material
respects, all applicable permits, licenses and other authorizations that are
required pursuant to Environmental, Health, and Safety Requirements for the
occupation of its facilities and the operation of its business. Section 4.24 of
the Disclosure Schedule lists all such permits, licenses and other
authorizations.
4.24.3 Neither Telecom nor the Seller has received any written or
oral notice, report or other information regarding any actual or alleged
violation of Environmental, Health, and Safety Requirements, or any liabilities
or potential liabilities (whether accrued, absolute, contingent, unliquidated or
otherwise), including any investigatory, remedial or corrective obligations,
relating to any of them or its facilities arising under Environmental, Health,
and Safety Requirements.
4.25 Certain Business Relationships with Telecom. Except as set
forth in Section 4.25 of the Disclosure Schedule, neither the Seller nor any of
his affiliates has been involved in any business arrangement or relationship
with Telecom within the past 12 months and neither the Seller nor any of his
affiliates owns any asset, tangible or intangible, which is used in the business
of Telecom.
4.26 Disclosure. The representations and warranties contained in this
Section 4 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Section 4 not misleading.
5 Pre-Closing Covenants. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing.
5.1 General. Each of the Parties will use his or its reasonable best
efforts to take all action and to do all things necessary, proper, or advisable
in order to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions set
forth in Section 7 below).
5.2 Notices and Consents. The Seller will cause Telecom to give any
notices to third parties,
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and will cause Telecom to use its best efforts to obtain any third party
consents, that the Buyer reasonably may request in connection with the matters
referred to in Section 4.3 above. Each of the Parties will (and the Seller will
cause Telecom to) give any notices to, make any filings with, and use its best
efforts to obtain any Material authorizations, consents, and approvals of
governments and governmental agencies in connection with the matters referred to
in Section 3.1.2, Section 3.2.3, and Section 4.3 above.
5.3 Operation of Business. The Seller will not cause or permit Telecom
to engage in any practice, take any action, or enter into any transaction
outside the Ordinary Course of Business. Without limiting the generality of the
foregoing, the Seller will not cause or permit Telecom to (i) declare, set
aside, or pay any dividend or make any distribution with respect to its capital
stock or redeem, purchase, or otherwise acquire any of its capital stock, or
(ii) otherwise engage in any practice, take any action, or enter into any
transaction of the sort described in Section 4.7 above.
5.4 Preservation of Business. The Seller will cause Telecom to keep its
business and properties substantially intact, including its present operations,
physical facilities, working conditions, and relationships with lessors,
licensors, suppliers, customers, and employees.
5.5 Full Access. Upon reasonable prior notice, the Seller will permit,
and the Seller will cause Telecom to permit, representatives of the Buyer to
have full access to all premises, properties, personnel, books, records
(including Tax records), contracts, and documents of or pertaining to Telecom.
5.6 Notice of Developments. The Seller will give prompt written notice
to the Buyer of any Material adverse development causing any of the
representations and warranties in this Agreement to be untrue. Each Party will
give prompt written notice to the other of any Material adverse development
causing a breach of any of its own representations and warranties in Section 3
above.
5.7 Exclusivity. Subject to Paragraph 14 the Letter of Intent between
the Parties dated July 21, 1998, until the later of January 21, 1999 or the
termination of this Agreement, the Seller will not cause or permit Telecom to:
(i) solicit, initiate, or encourage the submission of any proposal or offer from
any Person relating to the acquisition of any capital stock or other voting
securities, or any substantial portion of the assets, of Telecom including any
acquisition structured as a merger, consolidation, or share exchange or (ii)
participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any Person to do or seek any of the
foregoing. Until such date, the Seller will not vote his Subject Shares in favor
of any such acquisition structured as a merger, consolidation, or share
exchange. Until such date, the Seller will notify the Buyer immediately if any
Person makes any proposal, offer, inquiry, or contact with respect to any of the
foregoing.
6 Post-Closing Covenants. The Parties agree as follows with respect to
the period following the Closing.
6.1 General. In case at any time after the Closing any further action
is necessary or mutually desirable to carry out the purposes of this Agreement,
each of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as the other Party may
reasonably request, all at the sole cost and expense of the requesting Party
(unless the requesting Party is entitled to indemnification therefor under
Section 8 below). Seller acknowledges and agrees that from and after the Closing
the Buyer will be entitled to possession of all documents, books, records
(including Tax records), agreements, and financial data of any sort relating to
Telecom; provided that Buyer will maintain, and will not destroy, all such
documents, books, records, agreements and data for a six year period after the
Closing, and during such period Seller, so long as he remains an employee of the
Buyer, shall have the right to inspect such records at its reasonable
18
request for legitimate purposes.
6.2 Litigation Support. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving Telecom, the other Party will cooperate with him
or it and his or its counsel in the contest or defense, make available their
personnel, and provide such testimony and access to their books and records as
shall be necessary in connection with the contest or defense, all at the sole
cost and expense of the contesting or defending Party (unless the contesting or
defending Party is entitled to indemnification therefor under Section 8 below).
6.3 Transition. Seller shall not take any action that is designed or
intended to have the effect of discouraging any lessor, licensor, customer,
supplier, or other business associate of Telecom from maintaining the same
business relationships with Telecom after the Closing as it maintained with
Telecom prior to the Closing.
6.4 Confidentiality. Seller will treat and hold as such all of the
Confidential Information, refrain from using any of the Confidential Information
except in connection with this Agreement, and deliver promptly to the Buyer or
destroy, at the request and option of the Buyer, all tangible embodiments (and
all copies) of the Confidential Information which are in his possession. In the
event that the Seller requests or is required (by oral question or request for
information or documents in any legal proceeding, interrogatory, subpoena, civil
investigative demand, or similar process) to disclose any Confidential
Information, Seller will notify the Buyer promptly of the request or requirement
so that the Buyer may seek an appropriate protective order or waive compliance
with the provisions of this Section 6.4. If, in the absence of a protective
order or the receipt of a waiver hereunder, the Seller is, on the advice of
counsel, compelled to disclose any Confidential Information to any tribunal or
else stand liable for contempt, Seller may disclose the Confidential Information
to the tribunal; provided, however, that Seller shall use his best efforts to
obtain, at the request of the Buyer, an order or other assurance that
confidential treatment will be accorded to such portion of the Confidential
Information required to be disclosed as the Buyer shall designate. The foregoing
provisions shall not apply to any Confidential Information which is generally
available to the public immediately prior to the time of disclosure.
6.5 Covenant Not to Compete. In consideration of $30,000, an amount
which is included in the Purchase Consideration, for a period of five (5) years
from and after the Closing Date, the Seller will not engage directly or
indirectly in any business that Telecom conducts as of the Closing Date in any
geographic area in which Telecom conducts that business as of the Closing Date;
provided, however, that in the event the Seller owns any common shares of the
Buyer or less than 1% of the outstanding stock of any publicly-traded
corporation, the Seller shall not be deemed to engage solely by reason thereof
in any of its businesses. If the final judgment of a court of competent
jurisdiction declares that any term or provision of this Section 6.5 is invalid
or unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
6.6 Purchase Shares and Earn-Out Shares. The certificate or
certificates representing the Purchase Shares and Earn-Out Shares, if any, shall
be imprinted with a legend substantially in the
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following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). SUCH SECURITIES MAY NOT
BE TRANSFERRED, SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED UNLESS
(I) A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT WITH RESPECT TO
THE SECURITIES OR (II) THERE IS AN OPINION OF COUNSEL SATISFACTORY TO
THE ISSUER THAT SUCH REGISTRATION IS NOT REQUIRED OR THAT SUCH TRANSFER
MAY BE MADE PURSUANT TO RULE 144 OR RULE 144A OF THE ACT.
The Seller may not transfer their Purchase Shares and Earn-Out Shares, if any,
until they have first furnished the Buyer with (i) a written opinion
satisfactory to the Buyer in form and substance from counsel satisfactory to the
Buyer by reason of experience to the effect that the Seller may transfer his
Purchase Shares and Earn-Out Shares, if any, as desired without registration
under the Securities Act and (ii) a written undertaking executed by the desired
transferee satisfactory to the Buyer in form and substance agreeing to be bound
by the transfer contained herein. Transfer of the Purchase Shares and Earn-Out
Shares, if any, by the Seller is further restricted as provided below. The
restrictive legend described in this Section will be removed and all other
requirements described in this Section will be terminated after all the Purchase
Shares (or a portion thereof) and Earn-Out Shares (or a portion thereof), if
any, are registered under the Securities Act and a written opinion satisfactory
to the Buyer in form and substance from counsel satisfactory to the Buyer by
reason of experience to the effect that the Seller may transfer such shares.
6.7 Lock-up of Buyer's Common Shares. In the event the directors and
principal officers of the Buyer, for the purpose of furthering the business and
capital needs of the Buyer, unanimously agree to a binding "lock-up" of Buyer's
common shares owned by them, the Seller shall accede to and comply with such
"lock-up" with respect to Buyer's common shares (including the Purchase Shares
and Earn-Out Shares, if any) owned by the Seller for a period of not more than
180 days.
6.8 Lease Guaranty. Buyer shall guaranty Telecom's obligations under a
certain commercial lease dated October 30, 1998, for the premises located at 285
and ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ between the Seller, as
Landlord, and Telecom, as Tenant.
6.9 Qualification of Telecom "Key Employees" for Management Stock Bonus
Plan. Buyer, at its sole discretion, shall designate certain "key employees" of
Telecom as participants in Buyer's Management Stock Bonus Plan.
6.10 Subscription Agreement. Seller shall have entered into the
Subscription and Registration Rights Agreement and Stockholder's Certificate
with the Buyer substantially in the form set forth in Exhibit A attached hereto
and the same shall be in full force and effect;
6.11 Employment Agreement. Seller shall have entered into an Employment
Agreement with the Buyer substantially in the form set forth in Exhibit C
attached hereto and the same shall be in full force and effect.
7 Conditions to Obligation to Close.
7.1 Conditions to Obligation of the Buyer. The obligation of the Buyer
to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
7.1.1 the Buyer shall have obtained, on terms and conditions
satisfactory to Buyer, the necessary financing required to both consummate the
transactions contemplated hereby and fund the working capital requirements of
Telecom after the Closing;
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7.1.2 the Seller and Telecom shall have entered into a commercial
lease for the premises located at 285 and ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ in the city of
Wauconda, Lake County, Illinois, on terms and conditions satisfactory to the
Parties;
7.1.3 the Seller shall have filed releases in connection with all
liens as set forth in Section 4.5 of the Disclosure Schedule and the terms and
conditions of the termination of the liens shall be satisfactory to Buyer;
7.1.4 the representations and warranties set forth in Section 3.1
and Section 4 above shall be true and correct in all material respects at and as
of the Closing Date;
7.1.5 the Seller shall have performed and complied with all of his
covenants hereunder in all material respects through the Closing;
7.1.6 no Material action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator wherein
an unfavorable injunction, judgment, order, decree, ruling, or charge would (i)
prevent consummation of any of the transactions contemplated by this Agreement,
(ii) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation, (iii) Materially and adversely affect the
right of the Buyer to own the Subject Shares and to control Telecom, or (iv)
Materially and adversely affect the right of Telecom to own its assets and to
operate its business (and no such injunction, judgment, order, decree, ruling,
or charge shall be in effect);
7.1.7 the Seller shall have delivered to the Buyer a certificate to
the effect that each of the conditions specified above in Section 7.1.4 -- 7.1.6
is satisfied in all Material respects;
7.1.8 As of the date immediately preceding the Closing, the Most
Recent Financial Statement will not reflect an outstanding (i) note receivable
in the amount greater than U.S.$250,000 from Seller and (ii) any accounts
payable for "Barter Transactions," as the term is set forth in the Most Recent
Financial Statement.
7.1.9 the Seller shall have delivered or caused to be delivered to
the Buyer stock certificates representing the Subject Shares, endorsed in blank
or accompanied by duly executed assignment documents;
7.1.10 Each of the Seller, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ and ▇▇▇ shall have
entered into the Subscription and Registration Rights Agreement & Stockholder's
Certificate with the Buyer substantially in the form set forth in Exhibit A and
Exhibit A.1 attached hereto, and on terms and conditions satisfactory to the
Parties, and the same shall be in full force and effect;
7.1.11 the Seller shall have entered into an Employment Agreement
with the Buyer substantially in the form set forth in Exhibit C attached hereto
and the same shall be in full force and effect;
7.1.12 the Buyer shall have received from counsel to the Seller an
opinion in form and substance as set forth in Exhibit D attached hereto,
addressed to the Buyer, and dated as of the Closing Date;
7.1.13 the Buyer shall have received the resignations, effective as
of the Closing, of each director and officer of Telecom other than those whom
the Buyer shall have specified in writing prior to the Closing;
7.1.14 the Buyer shall have received all corporate books and
records of Telecom; and
7.1.15 all actions to be taken by the Seller in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents
21
required to effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Buyer.
The Buyer may waive any condition specified in this Section 7.1 if it executes a
writing so stating at or prior to the Closing.
7.2 Conditions to Obligation of the Seller. The obligation of the
Seller to consummate the transactions to be performed by him in connection with
the Closing is subject to satisfaction of the following conditions:
7.2.1 the Seller and Telecom shall have entered into a commercial
lease for the premises located at 285 and ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ in the city of
Wauconda, Lake County, Illinois, on terms and conditions satisfactory to the
Parties;
7.2.2 Seller shall have received from American National Bank and
Trust Company of Chicago ("American") a full release and discharge as guarantor
under all loans made by American to Telecom;
7.2.3 the representations and warranties set forth in Section 3.2
above shall be true and correct in all Material respects at and as of the
Closing Date;
7.2.4 the Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
7.2.5 no Material action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator wherein
an unfavorable injunction, judgment, order, decree, ruling, or charge would (i)
prevent consummation of any of the transactions contemplated by this Agreement
or (ii) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation (and no such injunction, judgment, order,
decree, ruling, or charge shall be in effect);
7.2.6 the Buyer shall have delivered to the Seller a certificate to
the effect that each of the conditions specified above in Section 7.2.3 -- 7.2.5
is satisfied in all Material respects;
7.2.7 the Seller shall have received from counsel to the Buyer an
opinion in form and substance as set forth in Exhibit E attached hereto,
addressed to the Seller, and dated as of the Closing Date; and
7.2.8 all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all payment,
certificates, opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form and
substance to the Seller.
The Seller may waive any condition specified in this Section 7.2 if he executes
a writing so stating at or prior to the Closing.
8 Remedies for Breaches of this Agreement.
8.1 Indemnification. Subject to the limitation set forth in this
Section 8, in the event either Party Materially breaches (or in the event any
third party alleges facts that, if true, would mean such Party has Materially
breached) any of its representations, warranties, and covenants contained
herein, and provided that a claiming Party makes a written claim within a
reasonable time for indemnification against the breaching Party pursuant to
Section 10.7 below, then the breaching Party agrees to indemnify the claiming
Party from and against the entirety of any Adverse Consequences the claiming
Party may suffer through and after the date of the claim for indemnification
resulting from, arising out of, relating to, in the nature of, or caused by the
breach (or the alleged breach). All of the
22
representations and warranties by the Seller contained in this Agreement, and
Seller's obligation to indemnify thereunder, (excluding Section 4.10, Section
4.22 , Section 4.24 and Seller's representations and warranties relating to the
TAS Action) shall survive the Closing hereunder (even if the Buyer knew or had
reason to know of any misrepresentation or breach of warranty at the time of
Closing) and continue in full force and effect until the later of April 15, 1999
or sixty (60) days after Telecom's audited financial statements for the fiscal
year ended November 30, 1998 are delivered to the Buyer. All of the other
representations and warranties of the Parties contained in Section 4.10, Section
4.22 and Section 4.24, including Seller's representations and warranties
relating to the TAS Action, and Seller's obligation to indemnify thereunder,
shall survive the Closing (even if the damaged Party knew or had reason to know
of any misrepresentation or breach of warranty at the time of Closing) and
continue in full force and effect forever thereafter subject to any applicable
statutes of limitations; provided, however, that the Seller shall not have any
obligation to indemnify the Buyer from and against any Adverse Consequences
resulting from, arising out of, relating to, in the nature of, or caused by the
breach (or alleged breach) of any representation or warranty of the Seller
contained in Section 4 (excluding Section 4.10, Section 4.22, Section 4.24,
including Seller's representations and warranties relating to the TAS Action,
and any Adverse Consequences resulting from wilful or intentional breach by any
Party) above until the Buyer has suffered Adverse Consequences by reason of any
one or all such breaches (or alleged breaches) in excess of a $150,000 aggregate
threshold, and only to the extent of such excess.
8.1.1 Indemnification Limitations. The liability of Seller under
Section 8, except for the liability of Seller set forth in Section 8.5, shall
not exceed $3,100,000. Notwithstanding anything to the contrary contained in
this Section 8.1, Buyer shall not be entitled to make any claim under the
provisions of this Section 8.1 or Section 8.5 in respect of Adverse Consequences
(i) accruing in the Ordinary Course of Business of Telecom subsequent to the
Closing Date or (ii) if any one or more Adverse Consequence individually or in
the aggregate is less than $5,000. Notwithstanding anything to the contrary
contained in this Section 8, the foregoing, and subject to the following
provisions, the amount of Adverse Consequences payable by Seller to Buyer shall
be limited by the following:
8.1.1.1 In computing the amount of Adverse Consequences,
there shall be deducted therefrom an amount equal to the United States, federal,
state or local income tax savings, if any, to which the Buyer or Telecom becomes
entitled from the income tax deduction or deferral, if any, to which the Buyer
or Telecom shall become entitled as a consequence of any loss, claim, damage,
liability, cost, expense or deficiency giving rise to the Adverse Consequences;
8.1.1.2 In the event that Adverse Consequences are payable to
the Buyer because all or a portion of the account receivables are not collected
by Telecom, the Buyer shall cause Telecom to assign (without recourse) such
accounts receivables (to the extent uncollected, and including any reserve for
doubtful accounts receivable) to the Seller promptly after payment by the Seller
of the Adverse Consequences becoming due as a result of such noncollection.
Prior to making such assignment, Buyer shall use its reasonable best efforts to
collect all of the accounts receivables and shall apply any payment received to
accounts receivables in chronological order beginning with the oldest accounts
receivables (and shall not advise any account debtor to direct the application
of proceeds to accounts receivables in any other manner). After such assignment,
the Seller may use any commercially reasonable means to collect the assigned
account receivables, including a reassignment of such account receivables to a
collection agency. If, after assignment to the Seller, Buyer receives payment
from an account debtor which has an account receivable which has been assigned
to the Seller, Buyer shall immediately deliver such payment, endorsed for
transfer where necessary, to the Seller until all of the assigned account
receivable with respect to such account debtor have been paid in full.
8.1.1.3 In computing the amount of Adverse Consequences,
there shall be
23
deducted therefrom an amount equal to the sum of (i) insurance proceeds to which
the Buyer collects as a consequence of any loss, claim, damage, liability, cost,
expense or deficiency giving rise to Adverse Consequences, or (ii) all amount
collected by Buyer as a result of claims against third parties which reduces the
amount of Adverse Consequences. Buyer shall in good faith pursue and attempt to
collect all insurance proceeds and all claims against third parties which would
reduce the Adverse Consequences.
8.1.1.4 The Buyer shall not be entitled to recover Adverse
Consequences with respect to any matter (including any breach of this Agreement
by Seller) which was disclosed to Buyer under the Disclosure Schedule. If the
Seller prove by a preponderance of the evidence that the matter which forms a
basis for Buyer's claim for Adverse Consequences was disclosed in the Disclosure
Schedule and Buyer then elected to close the transactions contemplated by this
Agreement, then Buyer shall be deemed to have waived its claim for Adverse
Consequences with respect to such matter.
8.1.1.5 The Buyer shall not be entitled to Adverse
Consequences with respect to any contract, agreement, license, permit or other
document which is nonassignable or nontransferable, or the failure of the Seller
to obtain any consent or to fulfill any conditions imposed incident to the
giving of any consent, if such nonassignability, nontransferability of need for
consent or condition is disclosed on the Disclosure Schedule.
8.1.1.6 The sole remedy of the Parties for any monetary
claims for damages resulting or arising in any manner from or with respect to
this Agreement or the transactions contemplated hereby, whether such claims
arise out of contract, tort or violation of law, shall be made pursuant to, and
subject to the limitations of, this Section 8.
8.1.2 Additional Indemnification Provisions. Notwithstanding the
foregoing, neither Party shall be required to indemnify the other with respect
to any breach of warranty, representation, agreement or covenant contained
herein or in the attached documents unless the Party seeking indemnification
(the "Indemnitee") shall, with reasonable promptness from the time the
Indemnitee became aware of the Adverse Consequence, provide the Party (the
"Indemnitor") with copies of any claims or other documents received and shall
otherwise make available to the Indemnitor all relevant information material to
the defense of any claim against the Indemnitee which shall serve as the basis
for a claim by the Indemnitee pursuant to the terms hereof. The Indemnitor shall
have the election to join in the defense of any such claim and the Indemnitee
shall not settle or compromise any such claim unless it shall have first
obtained the written consent of the Indemnitor or unless suit shall have been
instituted against the Indemnitee and the Indemnitor shall have failed, after
the lapse of a reasonable time after written notice to the Indemnitor of such
suit, to take action to defend the same; provided however, that the Indemnitee's
failure to give prompt notice or to provide copies of documents or to furnish
relevant data shall not constitute a defense (in whole or in part) to any claim
by the Indemnitee unless such failure causes a material prejudice to the
Indemnitor.
8.2 Matters Involving Third Parties.
8.2.1 If any third party shall notify either Party (the
"Indemnified Party") with respect to any matter (a "Third Party Claim") which
may give rise to a claim for indemnification against the other Party (the
"Indemnifying Party") under this Section 8, then the Indemnified Party shall
promptly notify the Indemnifying Party thereof in writing; provided, however,
that no delay on the part of the Indemnified Party in notifying the Indemnifying
Party shall relieve the Indemnifying Party from any obligation hereunder unless
(and then solely to the extent) the Indemnifying Party thereby is prejudiced.
8.2.2 An Indemnifying Party will have the right to defend the
Indemnified Party
24
against the Third Party Claim with counsel of its choice reasonably satisfactory
to the Indemnified Party so long as (i) the Indemnifying Party notifies the
Indemnified Party in writing within fifteen (15) days after the Indemnified
Party has given notice of the Third Party Claim that the Indemnifying Party will
indemnify the Indemnified Party from and against the entirety of any Adverse
Consequences the Indemnified Party may suffer resulting from, arising out of,
relating to, in the nature of, or caused by the Third Party Claim, (ii) the
Indemnifying Party provides the Indemnified Party with evidence reasonably
acceptable to the Indemnified Party that the Indemnifying Party will have the
financial resources to defend against the Third Party Claim and fulfill its
indemnification obligations hereunder, (iii) such equitable relief sought by the
Third Party Claim, if any, would not, if granted, result in a material adverse
effect on the Indemnified Party's business, and (iv) the Indemnifying Party
conducts the defense of the Third Party Claim actively and diligently.
8.2.3 So long as the Indemnifying Party is conducting the defense
of the Third Party Claim in accordance with Section 8.2.2 above, (i) the
Indemnified Party may retain separate co-counsel at its sole cost and expense
and participate in the defense of the Third Party Claim, (ii) the Indemnified
Party will not consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written consent of the
Indemnifying Party (not to be withheld unreasonably), and (iii) the Indemnifying
Party will not consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written consent of the
Indemnified Party (not to be withheld unreasonably).
8.2.4 In the event any of the conditions in Section 8.2.2 above is
or becomes unsatisfied, however, (i) the Indemnified Party may defend against,
and consent to the entry of any judgment or enter into any settlement with
respect to, the Third Party Claim in any manner it reasonably may deem
appropriate (and the Indemnified Party need not obtain the consent of the
Indemnifying Party in connection therewith), (ii) the Indemnifying Party will
reimburse the Indemnified Party promptly and periodically for the costs of
defending against the Third Party Claim (including reasonable attorneys' fees
and expenses), and (iii) the Indemnifying Party will remain responsible for any
Adverse Consequences the Indemnified Party may suffer resulting from, arising
out of, relating to, in the nature of, or caused by the Third Party Claim to the
fullest extent provided in this Section 8.
8.3 Character of Indemnification Payments. All indemnification payments
under this Section 8 shall be deemed adjustments to the Purchase Consideration.
8.4 Other Indemnification Provisions. The foregoing indemnification
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy (including without limitation any such remedy
arising under Environmental, Health, and Safety Requirements) either Party may
have with respect to Telecom or the transactions contemplated by this Agreement.
The Seller hereby agrees that it will not make any claim for indemnification
against Telecom by reason of the fact that he or it was a director, officer,
employee, or agent of Telecom or was serving at the request of Telecom as a
partner, trustee, director, officer, employee, or agent of another entity
(whether such claim is for judgments, damages, penalties, fines, costs, amounts
paid in settlement, losses, expenses, or otherwise and whether such claim is
pursuant to any statute, charter document, bylaw, agreement, or otherwise) with
respect to any action, suit, proceeding, complaint, claim, or demand brought by
the Buyer against such Seller (whether such action, suit, proceeding, complaint,
claim, or demand is pursuant to this Agreement, applicable law, or otherwise).
8.5 Specific Indemnification. The Seller shall indemnify Buyer for all
Adverse Consequences, including all legal expenses incurred by Telecom and or
Buyer, in excess of $75,000 (the "Repayment Amount") suffered by Telecom in
connection with, arising out of, relating to, in the nature of, or caused by
Telecom's involvement with the TAS Action. Notwithstanding anything contrary
contained in this Agreement, the representations and warranties contained in
this Agreement
25
concerning the TAS Action shall survive the Closing hereunder, even if the Buyer
knew or had reason to know of any misrepresentation or breach of warranty or
covenant at the time of the Closing, and continue in full force and effect
forever thereafter subject to any applicable statutes of limitations.
8.5.1 Limitation and Payment Under Specific Indemnification.
Notwithstanding anything contrary contained in this Agreement, Seller's
liability for any Repayment Amount under this Section 8.5, when combined with
all other liabilities of Seller pursuant to this Section 8, shall not exceed the
Purchase Consideration. The Repayment Amount that may be due to Buyer under this
Section 8.5 shall be paid by Seller up to a maximum Repayment Amount of
$3,100,000 in cash, plus any Repayment Amount over $3,100,000, shall be offset
by the value of the Purchase Shares due Seller under this Agreement, and any
additional Repayment Amount shall be offset by the value of Earn-Out Shares that
may be due Seller under this Agreement. For the purposes of the offset, the
value of the Purchase Shares and Earn-Out Shares shall be the Nasdaq Share Price
as of the settlement or disposition date of the TAS Action. The Buyer shall have
the option of recouping all or any part of any Repayment Amount, subject to the
limitations contained herein, by reducing the principal amount outstanding under
the Note, should there be any amount of the Note remaining unpaid at the time
that the Repayment Amount becomes due .
8.5.2 Additional Limitation. Buyer shall not be entitled to make
any claim under the provisions of this Section 8.5 in the event that Buyer
causes Telecom to settle the TAS Action without Seller's written consent.
9 Tax Matters. The following provisions shall govern the allocation of
responsibility as between Buyer and Seller for certain tax matters following the
Closing Date:
9.1 Tax Periods Ending on or Before the Closing Date. Buyer shall
prepare or cause to be prepared and file or cause to be filed all Tax Returns
for Telecom for all periods ending on or prior to the Closing Date which are
filed after the Closing Date. Buyer shall permit Seller to review and comment on
each such Tax Return described in the preceding sentence prior to filing.
Telecom shall reimburse Buyer for Taxes of Telecom with respect to such periods
within fifteen (15) days after payment by Buyer or Telecom of such Taxes to the
extent such Taxes are not reflected in the reserve for Tax Liability (rather
than any reserve for deferred Taxes established to reflect timing differences
between book and Tax income) shown on the face of the Most Recent Financial
Statements.
9.2 Tax Periods Beginning Before and Ending After the Closing Date.
Buyer shall prepare or cause to be prepared and file or cause to be filed any
Tax Returns of Telecom for Tax periods which begin before the Closing Date and
end after the Closing Date. Telecom shall pay to Buyer within fifteen (15) days
after the date on which Taxes are paid with respect to such periods an amount
equal to the portion of such Taxes which relates to the portion of such Taxable
period ending on the Closing Date to the extent such Taxes are not reflected in
the reserve for Tax Liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) shown on
the face of the Most Recent Financial Statements. (For purposes of this Section
9.2, in the case of any Taxes that are imposed on a periodic basis and are
payable for a Taxable period that includes (but does not end on) the Closing
Date, the portion of such Tax which relates to the portion of such Taxable
period ending on the Closing Date shall (i) in the case of any Taxes other than
Taxes based upon or related to income or receipts, be deemed to be the amount of
such Tax for the entire Taxable period multiplied by a fraction the numerator of
which is the number of days in the Taxable period ending on the Closing Date and
the denominator of which is the number of days in the entire Taxable period, and
(ii) in the case of any Tax based upon or related to income or receipts be
deemed equal to the amount which would be payable if the relevant Taxable period
ended on the Closing Date. Any credits relating to a Taxable period that begins
before and ends after the Closing Date shall be taken into account as though the
relevant Taxable period ended on the Closing Date. All determinations necessary
to give
26
effect to the foregoing allocations shall be made in a manner consistent with
prior practice of Telecom.
9.3 Cooperation on Tax Matters.
9.3.1 Buyer, Telecom and Seller shall cooperate fully, as and to
the extent reasonably requested by the other party, in connection with the
filing of Tax Returns pursuant to this Section and any audit, litigation or
other proceeding with respect to Taxes. Such cooperation shall include the
retention and (upon the other party's request) the provision of records and
information which are reasonably relevant to any such audit, litigation or other
proceeding and making employees available on a mutually convenient basis to
provide additional information and explanation of any material provided
hereunder. Telecom and Seller agree (i) to retain all books and records with
respect to Tax matters pertinent to Telecom relating to any taxable period
beginning before the Closing Date until the expiration of the statute of
limitations (and, to the extent notified by Buyer or Seller, any extensions
thereof) of the respective taxable periods, and to abide by all record retention
agreements entered into with any taxing authority, and (ii) to give the other
party reasonable written notice prior to transferring, destroying or discarding
any such books and records and, if the other party so requests, Telecom or
Seller, as the case may be, shall allow the other party to take possession of
such books and records.
9.3.2 Buyer and Seller further agree, upon request, to use their
best efforts to obtain any certificate or other document from any governmental
authority or any other Person as may be necessary to mitigate, reduce or
eliminate any Tax that could be imposed (including, but not limited to, with
respect to the transactions contemplated hereby), provided however, that any
such efforts shall not result in any additional Taxes payable by the Seller due
to such efforts.
9.4 Tax Sharing Agreements. All tax sharing agreements or similar
agreements with respect to or involving Telecom shall be terminated as of the
Closing Date and, after the Closing Date, Telecom shall not be bound thereby or
have any liability thereunder.
9.5 Certain Taxes. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement (including any Illinois
Gains Tax, Illinois Transfer Tax and any similar tax imposed in other states or
subdivisions), shall be paid by Seller when due, and Seller will, at its own
expense, file all necessary Tax Returns and other documentation with respect to
all such transfer, documentary, sales, use, stamp, registration and other Taxes
and fees, and, if required by applicable law, Buyer will, and will cause its
affiliates to, join in the execution of any such Tax Returns and other
documentation.
10 Miscellaneous.
10.1 Press Releases and Public Announcements. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement without the prior written approval of the other Party; provided,
however, that the Buyer may make any public disclosure it believes in good faith
is required by applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the Buyer will use its reasonable best
efforts to advise the Seller prior to making the disclosure).
10.2 No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
10.3 Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
10.4 Succession and Assignment. This Agreement shall be binding upon
and inure to the
27
benefit of the Parties named herein and their respective successors and
permitted assigns. No Party may assign either this Agreement or any of his or
its rights, interests, or obligations hereunder without the prior written
approval of the other Party; provided, however, that the Buyer may (i) assign
any or all of its rights and interests hereunder to one or more of its
affiliates and (ii) designate one or more of its affiliates to perform its
obligations hereunder (in any or all of which cases the Buyer nonetheless shall
remain responsible for the performance of all of its obligations hereunder).
10.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument This Agreement shall become
effective when one or more counterparts have been signed and delivered to the
other Party via facsimile or in any other comparable manner followed by a
delivery of the original signed Agreement by express courier to the Party.
10.6 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.7 Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Seller: Copies to:
▇▇▇▇ ▇▇▇▇▇▇▇▇, President ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telecom Corporation of Chicago ▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇, Ext. 1311 Tel: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Thermo-Shield, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇, Ext. 117
If to the Buyer: Copy to:
▇▇▇▇▇▇ ▇▇▇▇, President ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Esq.
Officeland Inc. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇ ▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇ Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Either Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Either
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
10.8 Governing Law. This Agreement shall be governed by and construed
in accordance with the domestic laws of the State of Delaware without giving
effect to any choice or conflict of law provision or rule. The Parties agree to
the exclusive jurisdiction of the courts of (i) New York or the United States
District Court for the Southern District of New York in the event an action is
commenced
28
hereunder by the Seller ; or (ii) Chicago, Illinois or any United States
District Court sitting in Chicago, Illinois in the event an action is commenced
hereunder by Buyer. Each of the Parties hereto agrees that process may be served
upon them in any manner authorized by the laws of the jurisdiction determined in
accordance with the previous sentence and waives and covenants not to assert or
plead any objection which they might otherwise have to such jurisdiction and
such process.
10.9 Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Party to be charged. No waiver by either Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
10.10 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
10.11 Expenses. Each of the Parties and Telecom will bear his or its
own costs and expenses (including legal fees and expenses) incurred in
connection with this Agreement and the transactions contemplated hereby.
Notwithstanding the foregoing, the Seller hereby assumes and agrees to reimburse
Telecom within five days of the Closing Date for fees paid by Telecom prior to
the Closing for legal and accounting fees and expenses in connection with this
Agreement and the transactions contemplated hereby in excess of U.S.$50,000.
10.12 Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If either Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
10.13 Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
10.14 Specific Performance. Seller acknowledges and agrees that the
Buyer would be damaged irreparably in the event Seller breaches his covenant not
to compete as set forth Section 6.5 of this Agreement. Accordingly, Seller
agrees that the Buyer shall be entitled to an injunction or injunctions to
prevent breaches of said covenant not to compete and to enforce specifically
said covenant not to compete in any action instituted in any state or federal
court sitting in the State of Illinois.
10.15 Currency. All references to currencies contained in this
Agreement are in United States dollars.
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on
the date first above written.
Officeland Inc.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇
-------------------------
▇▇▇▇▇▇ ▇▇▇▇, President
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
--------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇
Exhibit Document
------- --------
Exhibit A Form of Seller Subscription and Registration Rights Agreement
& Stockholder's Certificate
Exhibit A.1 Form of Consultant Subscription and Registration Rights
Agreement & Stockholder's Certificate
Exhibit B Financial Statements
Exhibit C Form of Employment Agreement
Exhibit D Form of Opinion of Counsel to the Seller
Exhibit E Form of Opinion of Counsel to the Buyer
Exhibit F Officeland Inc. Promissory Note
Disclosure Schedule Exceptions to Representations and Warranties Concerning
Telecom
30