Exhibit 10.15
AGREEMENT AND PLAN OF REORGANIZATION
By and Among
Aztec Technology Partners, Inc.,
PCM Merger Corporation,
PCM, Inc.,
Avi Shaked,
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
and
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
made effective as of July 27, 1998
TABLE OF CONTENTS
1. PLAN OF REORGANIZATION.................................................1
1.1 The Merger.......................................................1
1.2 Conversion of Securities.........................................2
1.3 Merger Consideration. ...........................................3
1.4 Post-Closing Adjustment. ........................................5
1.5 Pledged Assets...................................................7
1.6 Exchange of Certificates and Payment of Cash.....................7
1.7 Accounting Terms.................................................8
2. CLOSING................................................................8
2.1 Location and Date................................................8
2.2 Effect...........................................................8
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
STOCKHOLDERS...........................................................9
3.1 Due Organization.................................................9
3.2 Authorization; Validity.........................................10
3.3 No Conflicts....................................................10
3.4 Capital Stock of the Company....................................11
3.5 Transactions in Capital Stock...................................11
3.6 No Bonus Shares.................................................11
3.7 Subsidiaries, Stock, and Notes..................................11
3.8 Complete Copies of Materials....................................12
3.9 Financial Statements............................................12
3.10 Liabilities and Obligations.....................................12
3.11 Books and Records...............................................13
3.12 Bank Accounts; Powers of Attorney...............................13
3.13 Accounts and Notes Receivable...................................14
3.14 Permits.........................................................14
3.15 Real Property...................................................14
3.16 Personal Property...............................................17
3.17 Intellectual Property...........................................17
3.18 Significant Customers; Material Contracts and Commitments. .....18
3.19 Government Contracts............................................20
3.20 Inventory.......................................................21
3.21 Insurance.......................................................21
3.22 Environmental Matters...........................................21
3.23 Labor and Employment Matters....................................22
3.24 Employee Benefit Plans..........................................23
3.25 Taxes...........................................................27
3.26 Conformity with Law; Litigation.................................30
3.27 Relations with Governments......................................30
3.28 Absence of Claims Against Company...............................30
3.29 Absence of Changes..............................................30
3.30 Disclosure......................................................32
3.31 Predecessor Status; Etc.........................................33
3.32 Spin-off by the Company.........................................33
3.33 Location of Chief Executive Offices.............................33
3.34 Location of Equipment and Inventory.............................33
3.35 Warranty Obligations............................................33
4. REPRESENTATIONS OF AZTEC AND NEWCO....................................34
4.1 Due Organization................................................34
4.2 Authorization; Validity of Obligations..........................35
4.3 No Conflicts....................................................35
5. COVENANTS.............................................................35
5.1 Tax Matters.....................................................35
5.2 Accounts Receivable.............................................38
5.3 Employee Benefit Plans..........................................38
5.4 Related Party Agreements........................................39
5.5 Cooperation.....................................................39
5.6 Access to Information; Confidentiality; Public Disclosure.......39
5.7 Conduct of Business Pending Closing.............................40
5.8 Prohibited Activities...........................................41
5.9 Exclusivity.....................................................43
5.10 Notification of Certain Matters.................................43
5.11 Notice to Bargaining Agents.....................................43
5.12 Payment of Notes Receivable.....................................43
5.13 WARN Act........................................................43
5.14 Stockholder Indemnification.....................................44
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF AZTEC AND NEWCO................44
6.1 Representations and Warranties; Performance of Obligations......44
6.2 Company Financial Conditions....................................44
6.3 No Litigation...................................................45
6.4 No Material Adverse Change......................................45
6.5 Consents and Approvals..........................................45
6.6 Opinion of Counsel..............................................45
6.7 Charter Documents...............................................45
6.8 Quarterly Financial Statements..................................46
6.9 Delivery of Closing Financial Certificate.......................46
6.10 FIRPTA Compliance...............................................46
6.11 Employment Agreements...........................................47
6.12 Due Diligence Review............................................47
6.13 Notes Receivable................................................47
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS AND
THE COMPANY...........................................................47
7.1 Representations and Warranties; Performance of Obligations......47
7.2 No Litigation...................................................47
7.3 Consents and Approvals..........................................48
7.4 Employment Agreements...........................................48
8. INDEMNIFICATION.......................................................48
8.1 General Indemnification by the Stockholders.....................48
8.2 Limitation and Expiration.......................................49
8.3 Indemnification Procedures......................................50
8.4 General Indemnification by Aztec and Indemnification Procedures.52
8.5 Survival of Representations Warranties and Covenants............52
8.6 Pledged Assets; Escrow..........................................52
8.7 Arbitration.....................................................52
8.8 Prevailing Party................................................53
9. NONCOMPETITION........................................................54
9.1 Prohibited Activities...........................................54
9.2 Confidentiality.................................................54
9.3 Damages.........................................................55
9.4 Reasonable Restraint............................................55
9.5 Severability; Reformation.......................................55
9.6 Independent Covenant............................................56
9.7 Materiality.....................................................56
10. GENERAL...............................................................56
10.1 Termination.....................................................56
10.2 Effect of Termination...........................................57
10.3 Successors and Assigns..........................................57
10.4 Entire Agreement; Amendment; Waiver.............................57
10.5 Counterparts....................................................57
10.6 Brokers and Agents..............................................58
10.7 Expenses........................................................58
10.8 Specific Performance; Remedies..................................58
10.9 Notices.........................................................58
10.10 Governing Law...................................................59
10.11 Severability....................................................60
10.12 Absence of Third Party Beneficiary Rights.......................60
10.13 Mutual Drafting.................................................60
10.14 Further Representations.........................................60
10.15 Disclosure Schedules............................................60
10.16 Consent to Transfer of Stock....................................60
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made
and entered into this 27th day of July, 1998, by and among Aztec Technology
Partners, Inc., a Delaware corporation ("Aztec"), PCM Merger Corporation, a
Delaware corporation and a newly-formed, wholly-owned subsidiary of Aztec
("Newco"), PCM, Inc., an Illinois corporation (the "Company"), Avi Shaked, ▇▇▇▇
▇▇▇▇▇▇▇, and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ (each a "Stockholder" and collectively, the
"Stockholders").
BACKGROUND
A. The respective Boards of Directors of Newco and the Company
(which together are sometimes referred to as the "Constituent Corporations")
deem it advisable and in the best interests of the Constituent Corporations and
their respective stockholders that Newco merge with and into the Company (the
"Merger") pursuant to this Agreement, the Plan of Merger (defined below) and the
applicable provisions of the laws of the State of Delaware and the State of
Illinois.
B. The Boards of Directors of each of the Constituent Corporations
have approved and adopted this Agreement.
C. The Boards of Directors of each of the Constituent Corporations
intend for this reorganization to be treated as a purchase of the stock of the
Company by Aztec for purposes of Section 338(h)(10) of the Internal Revenue Code
of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements herein contained, the
parties hereto, intending to be legally bound, agree as follows:
1. PLAN OF REORGANIZATION
1.1 The Merger.
(a) The Merger. At the Effective Time (as defined in Section
2.2), Newco shall be merged with and into the Company pursuant to this Agreement
and a plan of merger (the "Plan of Merger") substantially in the form as
attached as Schedule 1.1 hereto, and the separate corporate existence of Newco
shall cease. The Company, as it exists from and after the Effective Time, is
sometimes referred to as the "Surviving Corporation."
(b) Effects of the Merger. The Merger shall have the effects
provided therefor by the Delaware General Corporation Laws and the Illinois
Business Corporation Act of 1983 (the "State Corporation Laws"). Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time (i) all the rights, privileges,
immunities, powers and franchises, of a public as well as of a private nature,
and all property, real, personal and mixed, and all debts due on whatever
account, including without limitation subscriptions to shares, and all other
choses in action, and all and every other interest of or belonging to or due to
the Company or Newco shall be taken and deemed to be transferred to, and vested
in, the Surviving Corporation without further act or deed; and all property,
rights and privileges, immunities, powers and franchises and all and every other
interest shall be thereafter the property of the Surviving Corporation, as they
were of the Company and Newco, and (ii) all debts, liabilities, duties and
obligations of the Company and Newco, subject to the terms hereof, shall become
the debts, liabilities and duties of the Surviving Corporation and the Surviving
Corporation shall thenceforth be responsible and liable for all the debts,
liabilities, duties and obligations of the Company and Newco and neither the
rights of creditors nor any liens upon the property of the Company or Newco
shall be impaired by the Merger, and may be enforced against the Surviving
Corporation.
(c) Articles of Incorporation; By-laws; Directors and
Officers. The Articles of Incorporation of the Surviving Corporation from and
after the Effective Time shall be the Articles of Incorporation of the Company
until thereafter amended in accordance with the provisions therein and as
provided by the applicable provisions of the State Corporation Laws. The By-laws
of the Surviving Corporation from and after the Effective Time shall be the
By-laws of the Company in effect immediately prior to the Effective Time,
continuing until thereafter amended in accordance with their terms and the
Articles of Incorporation of the Surviving Corporation and as provided by the
State Corporation Laws. The initial directors of the Surviving Corporation shall
be: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and Avi Shaked, in each case until
their successors are elected and qualified, and the initial officers of the
Surviving Corporation shall be as appointed by the directors of the Surviving
Corporation, in each case until their successors are duly elected and qualified.
As a condition precedent to Avi Shaked serving as a director, Aztec shall obtain
and maintain, so long as he is acting in such capacity, directors and officers
liability coverage having a scope reasonably acceptable to him and in no event
less than the directors and officers coverage provided by Aztec to its own
directors and officers.
1.2 Conversion of Securities. At the Effective Time, by virtue of
the Merger and without any action on the part of Aztec, Newco, the Company or
any Stockholder, the shares of capital stock of each of the Constituent
Corporations shall be converted as follows:
(a) Capital Stock of Newco. Each issued and outstanding share
of capital stock of Newco shall continue to be issued and outstanding and shall
be converted into one share of validly issued, fully paid and non-assessable
Common Stock of the Surviving Corporation. Each stock certificate of Newco
evidencing ownership of any such shares shall continue to evidence ownership of
such shares of capital stock of the Surviving Corporation.
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(b) Cancellation of Shares of Capital Stock of the Company.
All shares of capital stock of the Company that are owned directly or indirectly
by the Company shall be canceled and no cash or other consideration shall be
delivered in exchange therefor.
(c) Consideration for Capital Stock of the Company. Subject to
Sections 1.3, 1.4 and 1.5, each issued and outstanding share of common stock of
the Company, no par value per share ("Company Common Stock") (other than shares
to be canceled pursuant to Section 1.2(b)), that is issued and outstanding
immediately prior to the Effective Time shall automatically be canceled and
extinguished and converted, without any action on the part of the holder
thereof, for the right to receive cash consideration of $48,599.62 for each
share of Company Common Stock outstanding immediately prior to the Effective
Time. All such shares of Company Common Stock, when so converted, shall no
longer be outstanding and shall automatically be canceled and retired and shall
cease to exist, and each holder of a certificate representing any such shares
shall cease to have any rights with respect thereto, except the right to receive
the cash price per share of Company Common Stock to be issued or paid in
consideration therefor upon the surrender of such certificate in accordance with
Section 1.6 of this Agreement.
1.3 Merger Consideration.
(a) For purposes of this Agreement, the "Merger Consideration"
shall be $54,000,000 adjusted pursuant to this Section 1.3 and Section 1.4. The
Merger Consideration shall be paid in cash to the Stockholders on the Closing.
(b) The Merger Consideration has been calculated based upon
several factors, including the assumption that the net worth of the Company,
calculated in accordance with generally accepted accounting principles ("GAAP"),
consistently applied, is equal to or greater than $5,300,000 (the "Net Worth
Target") as of the Closing.
(c) Subject to the provisions of Section 1.3(d), if on the
Closing Financial Certificate (as defined in Section 6.9), the Certified Closing
Net Worth (as defined in Section 6.9) is less than the Net Worth Target, the
Merger Consideration to be delivered to the Stockholders may, at Aztec's
election, be reduced either (i) at the Closing, or (ii) after completion of the
Post-Closing Audit (as defined in Section 1.4), by the difference between the
Net Worth Target and the Certified Closing Net Worth set forth on the Closing
Financial Certificate (which reduction shall be in cash or other assets of like
liquidity).
(d) Anything to the contrary in this Agreement
notwithstanding, the Stockholders shall be entitled to receive a distribution
from the profits of the Company accrued for the period from January 1, 1998
through the Closing Date (the "Short Period") in an amount (up to $1,800,000)
equal to the federal and state income taxes payable by the Stockholders with
respect to the Company's taxable income and other tax items for the Short Period
allocable to them under applicable federal and state income tax laws. Aztec
shall cause the Company to make such distribution to the Stockholders, pro-rata
in accordance with their
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shareholding percentages in the Company immediately prior to the Closing, not
later than five (5) business days prior to the date such taxes or estimated tax
payments with respect thereto, as the case may be, are due and payable by the
Stockholders. The amount of estimated taxes due as provided in the preceding
sentence shall be determined by Aztec, provided that any underpayment penalties
with respect to such estimated tax payments shall also be payable by Aztec (plus
any taxes payable by the Stockholders by reason of receiving any such penalty
payments, including taxes on the payment so made to the Stockholders). The final
amount of such taxes shall be determined on the basis of the information set
forth in the tax return of the Company for the Short Period, determined as
otherwise provided in this Agreement. Anything in this Agreement to the contrary
notwithstanding, in determining whether the Stockholders met the Net Worth
Target for any purpose under this Agreement, any payment made or required to be
made under this Section 1.3(d) shall not be counted as a reduction of the Actual
Company Net Worth (even if such reduction is required under GAAP), or
alternatively, the Net Worth Target amount set forth in Section 1.3(b) shall be
reduced by the amount distributable under this Section 1.3(d), and the
Stockholders shall not be deemed to have any deficiency with respect to the Net
Worth Target by reason or as a result of such distribution or right to
distribution. By way of example, but without limitation, if the tax distribution
amount is $1,800,000 and by reason of the payment thereof or obligation to pay
it the Actual Company Net Worth has been reduced by an equal amount to reflect
such payment or the obligation to pay it, then either the Actual Company Net
Worth shall be recalculated by adding to it the tax distribution amount or,
alternatively, the Net Worth Target amount shall be reduced to $3,500,000 for
purposes of Section 1.3(b) from $5,300,000. The parties agree that any
distribution or other payment to the Stockholders under this paragraph shall be
deemed to be a distribution of profits of the Company accrued and allocated to
the Stockholders for and with respect to the Short Period, and not as additional
Merger Consideration, and all parties shall so treat the distribution in all
applicable tax returns. If Aztec fails to make payment to the Stockholders as
set forth in this Section 1.3(d), then in addition to all other amounts due to
the Stockholders under this Section 1.3(d), Aztec shall pay to the Stockholders
interest on such payment at the applicable Federal rate provided under the Code
for income tax deficiencies, as of the date such taxes were due and owing, and
any costs the Stockholders incur in collecting such payment from Aztec,
including reasonable attorneys and other professional fees.
(e) As provided in Section 5.1(e), the Stockholders agree to
join in making a Section 338(h)(10) Election (as defined in Section 5.1(e)) if
Aztec elects to make such election as therein provided. If by reason of such
election, the net after-tax amount realized by the Stockholders (determined
individually) with respect to the Merger Consideration, taking into account (i)
all Federal and state income taxes imposed on the Stockholders as a result of
the election, (ii) all reasonable costs and expenses incurred of whasoever kind
or nature by the Stockholders by reason of participating in such election,
including, without limitation, any additional legal or accounting costs (whether
incident to their review of the tax return of the Company for the Short Period
reflecting such election or the audit thereof by the Internal Revenue Service or
any other taxing authority of the return or the election to the extent such
audit relates to the return or the consequences thereof), (iii)
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any interest or penalties imposed as a consequence of any tax audit or other
adjustment with respect to the election, (iv) any timing differences, or (v) any
other reason, is less than the net after-tax Merger Consideration amount which
would have been realized by the Stockholders (determined individually) had the
Section 338(h)(10) Election not been made, then Aztec shall increase the Merger
Consideration by the amount which, after payment of all taxes payable by the
Stockholders for any such increased Merger Consideration, including any taxes
due with respect to any payment under this Section 1.3(e), would result in the
same net after-tax Merger Consideration which would have been realized by the
Stockholders had such election not been made. Any such payment of additional
Merger Consideration shall be made to the Stockholders in each instance within
twenty (20) days after receipt of written demand for such payment made by the
Stockholders to Aztec; provided, however, that any such request shall be
accompanied by a detailed description of all claimed expenses and the reasons
therefor. In the event the Company disagrees with the amount of such payment or
the basis therefor and such dispute cannot be resolved by the parties within
twenty (20) days of the receipt of the claim for expenses, such dispute shall be
resolved in the same manner as a dispute with respect to the Actual Company Net
Worth is resolved under Section 1.4(c), and the cost of such dispute resolution
shall also be shared in accordance with the principles set forth in Section
1.4(c). In the event of a dispute, Aztec shall (i) pay to the Stockholders all
undisputed amounts (including interest as provided below), and (ii) to the
extent the Stockholders prevail in such dispute, interest shall toll while such
dispute is pending and be payable as set forth below. If Aztec fails to make
payment to the Stockholders as set forth in this Section 1.3(e), then in
addition to all other amounts due to the Stockholders under this Section 1.3(e),
Aztec shall pay to the Stockholders interest on such payment at the applicable
Federal rate provided under the Code for income tax deficiencies, as of the date
such taxes were due and owing, and any costs the Stockholders incur in
collecting such payment from Aztec, including reasonable attorneys and other
professional fees.
1.4 Post-Closing Adjustment.
(a) The Merger Consideration shall be subject to adjustment
after the Closing Date as specified in this Section 1.4.
(b) Within one hundred twenty (120) days following the
Effective Time, Aztec shall cause PricewaterhouseCoopers LLP ("Aztec's
Accountant") to audit the Surviving Corporation's books, using generally
accepted auditing standards, to determine the accuracy of the information set
forth on the Closing Financial Certificate (the "Post-Closing Audit"). The
parties acknowledge and agree that for purposes of determining the net worth of
the Company as of the Closing Date, the value of the assets of the Company
shall, except with the prior written consent of Aztec, be calculated as provided
in the last paragraph of Section 6.9. The Stockholders shall cooperate and shall
use their reasonable efforts to cause the officers and employees of the Company
to cooperate with Aztec and Aztec's Accountant after the Closing Date in
furnishing information, documents, evidence and other assistance to Aztec's
Accountant to facilitate the completion of the Post-Closing Audit within the
aforementioned time period. Without limiting the generality of the foregoing,
within two (2) weeks after the Closing the Stockholders shall
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provide Aztec's Accountants with the information and/or documents requested on
the Post-Closing Audit Checklist set forth as Schedule 1.4 hereto in order to
facilitate the completion of the Post-Closing Audit by Aztec's Accountant within
the aforementioned time period. In the event that Aztec's Accountant determines
that the actual Company net worth as of the Closing Date was less than the
Certified Closing Net Worth, Aztec shall deliver a written notice (the
"Financial Adjustment Notice") to the Stockholders, setting forth (i) the
determination made by Aztec's Accountant of the actual Company net worth (the
"Actual Company Net Worth"), together with the calculation thereof and the work
papers related thereto, (ii) the amount of the Merger Consideration that would
have been payable at Closing pursuant to Section 1.3(c) had the Actual Company
Net Worth been reflected on the Closing Financial Certificate instead of the
Certified Closing Net Worth, and (iii) the amount by which the cash paid as the
Merger Consideration would have been reduced at Closing had the Actual Company
Net Worth been used in the calculations pursuant to Section 1.3(c) (the "Merger
Consideration Adjustment"). The Merger Consideration Adjustment shall take
account of the reduction, if any, to the Merger Consideration already taken
pursuant to Section 1.3(c)(i).
(c) The Stockholders shall have thirty (30) days from the
receipt of the Financial Adjustment Notice to notify Aztec if the Stockholders
dispute such Financial Adjustment Notice. If Aztec has not received notice of
such a dispute within such 30-day period, Aztec shall be entitled to receive
from the Stockholders (which may, at Aztec's sole discretion, be from the
Pledged Assets as defined in Section 1.5) the Merger Consideration Adjustment.
If, however, the Stockholders have delivered notice of such a dispute to Aztec
within such 30-day period, then Aztec's Accountant shall select an independent
accounting firm ("Independent Accountant"), reasonably acceptable to the
Stockholders, that has not represented any of the parties hereto within the
preceding two (2) years to review the Surviving Corporation's books, Closing
Financial Certificate and Financial Adjustment Notice (together with the
calculation thereof and the work papers related thereto) to determine the
amount, if any, of the Merger Consideration Adjustment. The Independent
Accountant firm shall be confirmed by the Stockholders and Aztec within three
(3) days of its selection, unless there is an actual conflict of interest or the
Stockholders object to the firm so selected and such objection is not resolved
by the parties. If the objection is not resolved, then the selection shall be
made in accordance with the arbitration provisions of this Agreement. The
Independent Accountant shall be directed to use its best professional judgment
in resolving the dispute and consider those agreements, contracts, commitments
or other documents (or summaries thereof), and information that were either (i)
delivered or made available to Aztec's Accountant in connection with the
transactions contemplated hereby, (ii) reviewed by Aztec's Accountant during the
course of the Post-Closing Audit, or (iii) provided by the parties to the
Independent Accountant in connection with its determination. Nothing in the
preceding sentence, however, shall preclude the Independent Accountant from
requesting, receiving, and taking into account information it deems in its
professional judgment relevant to resolving the dispute between the parties, and
the parties shall fully cooperate in all such requests. The Independent
Accountant shall make its determination of the Merger Consideration Adjustment,
if any, within thirty (30) days of its selection. The determination of the
Independent Accountant shall be final and binding on the parties hereto, and
upon such
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determination, Aztec shall be entitled to receive from the Stockholders (which
may, at Aztec's sole discretion, be from the Pledged Assets as defined in
Section 1.5) the Merger Consideration Adjustment (if any). The costs of the
Independent Accountant shall be borne by the party (either Aztec, or the
Stockholders in accordance with their percentage interest in the Company
immediately prior to the Closing) whose position with respect to the Actual
Company Net Worth at Closing, as communicated to the Independent Accountant when
the dispute is referred to it, was further from the determination thereof of the
Independent Accountant, provided however that if the determination by the
Independent Accountant is within 5% from the positions of Aztec and the
Stockholders, such cost shall be shared equally between them.
1.5 Pledged Assets.
(a) As collateral security for the payment of any post-Closing
adjustment to the Merger Consideration under Section 1.4, and certain
indemnification obligations of the Stockholders pursuant to Article 8, the
Stockholders shall, and by execution hereof do hereby, transfer, pledge and
assign to Aztec, for the benefit of Aztec, a security interest in cash property
of $5,000,000 (the "Pledged Assets"), contributed on a pro-rata basis by each
Stockholder on the basis of each Stockholder's share of the Merger Consideration
as the same may have been adjusted pursuant to Section 1.3 or Section 1.4.
(b) Subject to the provisions of Article 8, the Pledged Assets
shall be deposited into an escrow (the "Escrow") with BankBoston, N.A., Boston,
Massachusetts, for the purpose of satisfying any post-Closing adjustment to the
Merger Consideration pursuant to Section 1.4 and certain indemnification
obligations of the Stockholders pursuant to Article 8 as provided in the Escrow
Agreement attached hereto as Exhibit 1.5(b). The rights of the parties with
respect to the Pledged Assets shall be determined exclusively as set forth in
the Escrow Agreement.
1.6 Exchange of Certificates and Payment of Cash.
(a) Aztec to Provide Cash. In exchange for the outstanding
shares of capital stock of the Company, Aztec shall cause to be made available
to the Stockholders, the Merger Consideration, as adjusted pursuant to Section
1.3 and Section 1.4.
(b) Certificate Delivery Requirements. At the Effective Time,
the Stockholders shall deliver to Aztec the certificates (the "Certificates")
representing Company Common Stock, duly endorsed in blank by the Stockholders,
or accompanied by blank stock powers duly executed by the Stockholders and with
all necessary transfer tax and other revenue stamps, acquired at the
Stockholders' expense, affixed and canceled. The Stockholders shall promptly
cure any deficiencies with respect to the endorsement of the Certificates or
other documents of conveyance with respect to the stock powers accompanying such
Certificates. The Certificates so delivered shall forthwith be canceled. Until
delivered as contemplated by this Section 1.6(b), each Certificate shall be
deemed at any time after the
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Effective Time to represent the right to receive upon such surrender the Merger
Consideration as provided by this Article l and the applicable provisions of the
State Corporation Laws
(c) No Further Ownership Rights in Capital Stock of the
Company. All cash to be delivered upon the surrender by the Stockholders in
exchange for shares of Company Common Stock in accordance with the terms hereof
shall be deemed to have been delivered in full satisfaction of all rights
pertaining to such shares of Company Common Stock, and following the Effective
Time, any Certificates still outstanding shall have no further rights to, or
ownership in, shares of capital stock of the Company. There shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Company Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Section 1.6.
(d) Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, Aztec shall cause
payment to be made in exchange for such lost, stolen or destroyed Certificates,
upon the making of an affidavit of that fact by the holder thereof, such Merger
Consideration as provided in Section 1.2.
(e) No Liability. Notwithstanding anything to the contrary in
this Section 1.6, none of the Surviving Corporation or any party hereto shall be
liable to a holder of shares of Company Common Stock for any amount paid to a
public official if, when and as required by any applicable abandoned property,
escheat or similar law.
1.7 Accounting Terms. Except as otherwise expressly provided herein
or in the Schedules, all accounting terms used in this Agreement shall be
interpreted, and all financial statements, Schedules, certificates and reports
as to financial matters required to be delivered hereunder shall be prepared, in
accordance with GAAP consistently applied.
2. CLOSING
2.1 Location and Date. The consummation of the Merger and the other
transactions contemplated by this Agreement (the "Closing") shall take place at
the offices of ▇▇▇▇ and ▇▇▇▇ LLP, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇, ▇▇ July 27, 1998,
providing that all conditions to Closing shall have been satisfied or waived, or
at such other time and date as Aztec, the Company and the Stockholders may
mutually agree, which date shall be referred to as the "Closing Date."
2.2 Effect. On the Closing Date, provided the Merger Consideration
has been paid to the Stockholders, the articles of merger, certificate of merger
or other appropriate documents executed in accordance with the State Corporation
Laws (the "Merger Documents"), together with any required officers'
certificates, shall be filed with the Secretary of State of the States of
Illinois and Delaware in accordance with the provisions of the State
- 8 -
Corporation Laws. The Merger shall become effective upon such filings or at such
later time as may be specified in such filings (the "Effective Time").
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE STOCKHOLDERS
To induce Aztec and Newco to enter into this Agreement and
consummate the transactions contemplated hereby, each of the Stockholders makes
the representations and warranties set forth in this Article 3 to Aztec and
Newco, subject to the following: (a) To the extent of any "knowledge"
representation or warranty, such representation and warranty is made separately
by each Stockholder, so that any other Stockholder shall not have any liability
under this Agreement by reason of any breach of such knowledge representation or
warranty by any other Stockholders, (b) "knowledge" means actual knowledge
unless the party providing such knowledge representation and warranty was
grossly negligent in not being aware of such information in the exercise of his
or her duties for the Company, (c) the liability of each Stockholder with
respect to any breach of any representation or warranty shall be limited as
provided in Article 8 and in particular, without limitation, the provisions of
Section 8.2, and (d) subject to the provisions of Section 10.15, each
representation and warranty provided in any Section of this Article shall be
subject to exceptions for disclosures made with respect to such Section in the
Disclosure Schedule provided to Aztec prior to the Closing, as same may have
been updated by the Stockholders up to the execution of this Agreement (and
identified by the parties as the Disclosure Schedule at such execution). Changes
to the Disclosure Schedule may be made up to the date of execution of this
Agreement, but shall not be made between such date of execution and the Closing
without the consent of Aztec.
3.1 Due Organization.
(a) The Company is a corporation duly organized, validly
existing and is in good standing under the laws of the jurisdiction of its
incorporation and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
own, operate and lease its properties and to carry on its business in the places
and in the manner as now conducted. Schedule 3.l(a) hereto contains a list of
all jurisdictions in which the Company is authorized or qualified to do
business. The Company is in good standing as a foreign corporation in each
jurisdiction in which it does business, except in any jurisdiction in which the
failure to be so qualified would not reasonably be expected to have Material
Adverse Effect. The term "Material Adverse Effect" when used in this Agreement
means a material adverse effect on the business, operations or financial
condition of the Company, considered as a whole.
(b) The Company has delivered to Aztec true, complete and
correct copies of the Articles of Incorporation and By-laws of the Company. Such
Articles of Incorporation and By-laws are collectively referred to as the
"Charter Documents." The
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Company is not in violation of any Charter Documents. The minute books of the
Company have been made available to Aztec (and have been delivered, along with
the Company's original stock ledger, to Aztec) and are correct and, except as
set forth in Schedule 3.1(b), complete in all material respects.
(c) Schedule 3.1(c) contains a complete and accurate list of
the directors and officers of the Company.
3.2 Authorization; Validity. The Company has all requisite corporate
power and authority to enter into and perform its obligations pursuant to the
terms of this Agreement. The Company has the full legal right, corporate power
and authority to enter into this Agreement and the transactions contemplated
hereby. Each Stockholder has the full legal right and authority to enter into
this Agreement and the transactions contemplated hereby. The execution and
delivery of this Agreement by the Company and the performance by the Company of
the transactions contemplated herein have been duly and validly authorized by
the Board of Directors of the Company and the Stockholders and this Agreement
has been duly and validly authorized by all necessary corporate action. This
Agreement is a legal, valid and binding obligation of the Company and each
Stockholder, enforceable in accordance with its terms.
3.3 No Conflicts. The execution, delivery and performance of this
Agreement, the consummation of the transactions contemplated hereby, and the
fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of, any
of the Charter Documents;
(b) conflict with, or result in a default (or would constitute
a default but for any requirement of notice or lapse of time or both) under, any
document, agreement or other instrument to which the Company or any Stockholder
is a party or by which the Company or any Stockholder is bound, or result in the
creation or imposition of any lien, charge or encumbrance on any of the
Company's properties pursuant to (i) any law or regulation to which the Company
or any Stockholder or any of their respective property is subject, or (ii) any
judgment, order or decree to which the Company or any Stockholder is bound or
any of their respective property is subject;
(c) result in termination or any impairment of any permit,
license, franchise, contractual right or other authorization of the Company; or
(d) violate any law, order, judgment, rule, regulation, decree
or ordinance to which the Company or any Stockholder is subject or by which the
Company or any Stockholder is bound (except for applicable requirements under
the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of ▇▇▇▇ (▇▇▇ "▇▇▇ ▇▇▇"),
together with all rules and regulations promulgated thereunder). Anything in
this Agreement to the contrary notwithstanding, the
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Company and the Stockholders do not make any representations and warranties
under this Agreement with respect to compliance by the Company or the
Stockholders with the requirements of the HSR Act.
3.4 Capital Stock of the Company. The authorized capital stock of
the Company consists of 10,000 shares of common stock, no par value per share,
of which 1,111.12 shares are issued and outstanding, and no shares of preferred
stock. All of the issued and outstanding shares of the capital stock of the
Company have been duly authorized and validly issued, are fully paid and
nonassessable and are owned of record and beneficially by the Stockholders in
the amounts set forth in Schedule 3.4 free and clear of all Liens (defined
below). All of the issued and outstanding shares of the capital stock of the
Company were offered, issued, sold and delivered by the Company in compliance
with all applicable state and federal laws concerning the issuance of
securities. Further, none of such shares was issued in violation of any
preemptive rights. There are no voting agreements or voting trusts with respect
to any of the outstanding shares of the capital stock of the Company. For
purposes of this Agreement, "Lien" means any mortgage, security interest,
pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or otherwise), charge, preference, priority or other security
agreement, option, warrant, attachment, right of first refusal, preemptive,
conversion, put, call or other claim or right, restriction on transfer (other
than restrictions imposed by federal and state securities laws), or preferential
arrangement of any kind or nature whatsoever (including any restriction on the
transfer of any assets, any conditional sale or other title retention agreement,
any financing lease involving substantially the same economic effect as any of
the foregoing and the filing of any financing statement under the Uniform
Commercial Code or comparable law of any jurisdiction).
3.5 Transactions in Capital Stock. No option, warrant, call,
subscription right, conversion right or other contract or commitment of any kind
exists of any character, written or oral, which may obligate the Company to
issue, sell or otherwise become outstanding any shares of capital stock. Except
as set forth in Schedule 3.5, the Company has no obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any of its equity securities
or any interests therein or to pay any dividend or make any distribution in
respect thereof. As a result of the Merger, Aztec will be the record and
beneficial owner of all outstanding capital stock of the Company and rights to
acquire capital stock of the Company.
3.6 No Bonus Shares. Except as set forth in Schedule 3.6, none of
the shares of Company capital stock was issued pursuant to any award, grant or
bonus.
3.7 Subsidiaries, Stock, and Notes.
(a) Except as set forth on Schedule 3.7(a), the Company has no
subsidiaries.
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(b) Except as set forth on Schedule 3.7(b), the Company does
not presently own, of record or beneficially, or control, directly or
indirectly, any capital stock, securities convertible into capital stock or any
other equity interest in any corporation, association or business entity, nor is
the Company, directly or indirectly, a participant in any joint venture,
partnership or other noncorporate entity.
(c) Except as set forth on Schedule 3.7(c), there are no
promissory notes that have been issued to, or are held by, the Company.
3.8 Complete Copies of Materials. The Company has delivered to Aztec
and Newco true and complete copies of each agreement, contract, commitment or
other document (or summaries thereof) that is referred to in the Schedules.
3.9 Financial Statements. Schedule 3.9 includes (a) true, complete
and correct copies of the Company's audited balance sheets as of December 31,
1997, and income statements for the years ended December 31, 1997 (collectively,
the "Audited Financials") and (b) true, complete and correct copies of the
Company's unaudited balance sheet (the "Interim Balance Sheet") as of [May 31,]
1998 (the "Balance Sheet Date") and income statement, for the [5]-month period
then ended (collectively, the "Interim Financials," and together with the
Audited Financials, the "Company Financial Statements"). Except as noted on the
accountants' report accompanying the Audited Financials, or as set forth in
Schedule 3.9, or as disclosed in writing to Aztec by the Company or the
Stockholders, the Company Financial Statements have been prepared in accordance
with GAAP consistently applied, subject, in the case of the Interim Financials,
(i) to normal year-end audit adjustments, which individually or in the aggregate
will not be material, (ii) the exceptions stated on Schedule 3.9, and (iii) to
the omission of footnote information. Subject to the foregoing exceptions, each
balance sheet included in the Company Financial Statements presents fairly the
financial condition of the Company as of the date indicated thereon, and each of
the income statements included in the Company Financial Statements presents
fairly the results of its operations for the periods indicated thereon. Since
the dates of the Company Financial Statements, there have been no material
changes in the Company's accounting policies other than as requested by Aztec to
conform the Company's accounting policies to GAAP.
3.10 Liabilities and Obligations.
(a) The Company is not liable for or subject to any
liabilities except for:
(i) those liabilities reflected on the Interim Balance
Sheet and not previously paid or discharged;
(ii) those liabilities arising in the ordinary course of
its business consistent with past practice under any contract, commitment or
agreement
- 12 -
specifically disclosed on any Schedule to this Agreement or not required to be
disclosed thereon because of the term or amount involved or otherwise; and
(iii) those liabilities incurred since the Balance Sheet
Date in the ordinary course of business consistent with past practice, which
liabilities (excluding solely for purposes of this representation and warranty
liabilities which under GAAP are classified as accounts payable) are not,
individually or in the aggregate, material.
(b) The Company has delivered to Aztec, in the case of those
liabilities which are not fixed or are contested, a reasonable estimate of the
maximum amount which may be payable.
(c) Schedule 3.10(c) also includes a summary description of
all plans or projects involving the opening of new operations, expansion of any
existing operations or the acquisition of any real property or existing
business, to which management of the Company has made any material expenditure
in the two-year period prior to the date of this Agreement, which if pursued by
the Company or the Surviving Corporation would require additional material
expenditures of capital.
(d) For purposes of this Section 3.10, the term "liabilities"
shall include without limitation any direct or indirect liability, indebtedness,
guaranty, endorsement, claim, loss, damage, deficiency, cost, expense,
obligation or responsibility, either accrued, absolute, contingent, mature,
unmature or otherwise and whether known or unknown, fixed or unfixed, ▇▇▇▇▇▇ or
inchoate, liquidated or unliquidated, secured or unsecured.
3.11 Books and Records. The Company has made and kept books and
records and accounts, which, in reasonable detail, accurately and fairly reflect
the activities of the Company. The Company has not engaged in any transaction,
maintained any bank account, or used any corporate funds except for
transactions, bank accounts, and funds which have been and are reflected in its
normally maintained books and records.
3.12 Bank Accounts; Powers of Attorney. Schedule 3.12 sets forth a
complete and accurate list as of the date of this Agreement, of:
(a) the name of each financial institution in which the
Company has any account or safe deposit box;
(b) the names in which the accounts or boxes are held;
(c) the type of account;
(d) the name of each person authorized to draw thereon or have
access thereto; and
- 13 -
(e) the name of each person, corporation, firm or other entity
holding a general or special power of attorney from the Company and a
description of the terms of such power.
3.13 Accounts and Notes Receivable. The Company has delivered to
Aztec a complete and accurate list, as of a date not more than four (4) business
days prior to the date hereof, of the accounts and notes receivable of the
Company (including without limitation receivables from and advances to employees
and the Stockholders), which includes an aging of all accounts and notes
receivable showing amounts due in 30-day aging categories (collectively, the
"Accounts Receivable"). On the Closing Date, the Company will deliver to Aztec a
complete and accurate list, as of a date not more than four (4) business days
prior to the Closing Date, of the Accounts Receivable. All Accounts Receivable
represent valid obligations arising from sales actually made or services
actually performed in the ordinary course of business. Except as disclosed on
Schedule 3.13, there is no contest, claim, or right of set-off, other than
rebates and returns in the ordinary course of business, under any contract with
any obligor of an Account Receivable relating to the amount or validity of such
Account Receivable.
3.14 Permits. The Company owns or holds all licenses, franchises,
permits and other governmental authorizations, including without limitation
permits, titles (including without limitation motor vehicle titles and current
registrations), fuel permits, licenses and franchises necessary for the
continued operation of its business as it is currently being conducted (the
"Permits"), except for those licenses, franchises, permits and other
governmental authorizations the failure of which to own or hold would not
reasonably be expected to have a Material Adverse Effect. The Permits are valid,
and the Company has not received any written notice that any governmental
authority intends to modify, cancel, terminate or fail to renew any Permit. No
present or former officer, manager, member or employee of the Company or any
affiliate thereof, or any other person, firm, corporation or other entity, owns
or has any proprietary, financial or other interest (direct or indirect) in any
Permits. The Company has conducted and is conducting its business in compliance
with the requirements, standards, criteria and conditions set forth in the
Permits and other applicable orders, approvals, variances, rules and regulations
and is not in violation of any of the foregoing. The transactions contemplated
by this Agreement will not result in a default under, or a breach or violation
of, or adversely affect the rights and benefits afforded to the Company, by any
Permit.
3.15 Real Property.
(a) For purposes of this Agreement, "Real Property" means all
interests in real property including, without limitation, fee estates,
leaseholds and subleaseholds, purchase options, easements, licenses, rights to
access, and rights of way, and all buildings and other improvements thereon,
owned or used by the Company, together with any additions thereto or
replacements thereof.
- 14 -
(b) Schedule 3.15(b) contains a complete and accurate
description of all Real Property (including street address, legal description
(where known), owner, and Company's use thereof) and, to the Company's
knowledge, any claims, liabilities, security interests, mortgages, liens,
pledges, conditions, charges, covenants, easements, restrictions, encroachments,
leases, or encumbrances of any nature thereon ("Encumbrances"). Schedule 3.15(b)
indicates whether the Real Property is owned or leased. The Real Property listed
on Schedule 3.15 includes all interests in real property necessary to conduct
the business and operations of the Company.
(c) Except as set forth in Schedule 3.15(c):
(i) All structures and all structural, mechanical and
other physical systems thereof that constitute part of the Real Property,
including but not limited to the walls, roofs and structural elements thereof
and the heating, ventilation, air conditioning, plumbing, electrical,
mechanical, sewer, waste water, storm water, paving and parking equipment,
systems and facility included therein, and other material items at the Real
Property (collectively, the "Tangible Assets"), are free of defects and in good
operating condition and repair. For purposes of this Section, a defect shall
mean a condition relating to the structures or any structural, mechanical or
physical system which requires an expenditure of more than $1,000 to correct. No
maintenance or repair to the Real Property, Structures or any Tangible Asset has
been unreasonably deferred. There is no water, chemical or gaseous seepage,
diffusion or other intrusion into said buildings, including any subterranean
portions, that would impair beneficial use of the Real Property, Structures or
any Tangible Asset.
(ii) All water, sewer, gas, electric, telephone and
drainage facilities, and all other utilities required by any applicable law or
by the use and operation of the Real Property in the conduct of the business of
the Company's business are installed to the property lines of the Real Property,
are connected pursuant to valid permits to municipal or public utility services
or proper drainage facilities, are fully operable and are adequate to service
the Real Property in the operation of the Company's business and to permit full
compliance with the requirements of all laws in the operation of such business.
No fact or condition exists which could result in the termination or material
reduction of the current access from the Real Property to existing roads or to
sewer or other utility services presently serving the Real Property.
(iii) The Real Property and all present uses and
operations of the Real Property comply with all applicable statutes, rules,
regulations, ordinances, orders, writs, injunctions, judgments, decrees, awards
or restrictions of any government entity having jurisdiction over any portion of
the Real Property (including, without limitation, applicable statutes, rules,
regulations, orders and restrictions relating to zoning, land use, safety,
health, employment and employment practices and access by the handicapped)
(collectively, "Laws"), covenants, conditions, restrictions, easements,
disposition agreements and similar matters affecting the Real Property. The
Company has obtained all approvals of governmental authorities (including
certificates of use and occupancy, licenses and permits) required in
- 15 -
connection with the construction, ownership, use, occupation and operation of
the Real Property.
(iv) The Real Property and its continued use, occupancy
and operation as used, occupied and operated in the conduct of the Company's
business does not constitute a nonconforming use and is not the subject of a
special use permit under any applicable Law.
(v) There are no pending or, to the Company's knowledge,
threatened condemnation, fire, health, safety, building, zoning or other land
use regulatory proceedings, lawsuits or administrative actions relating to any
portion of the Real Property or any other matters which do or may adversely
effect the current use, occupancy or value thereof, nor has the Company or any
of the Stockholders received notice of any pending or threatened special
assessment proceedings affecting any portion of the Real Property.
(vi) There are no parties other than the Company in
possession of any of the Real Property or any portion thereof, and there are no
leases, subleases, licenses, concessions or other agreements, written or oral,
granting to any party or parties the right of use or occupancy of any portion of
the Real Property or any portion thereof.
(vii) There are no outstanding options or rights of
first refusal to purchase the Real Property, or any portion thereof or interest
therein. The Company has not transferred any air rights or development rights
relating to the Real Property.
(viii) There are no service contracts or other
agreements relating to the use or operation of the Real Property.
(ix) All real property taxes and assessments that are
due and payable with respect to the Real Property have been paid or will be paid
at or prior to Closing.
(x) All oral or written leases, subleases, licenses,
concession agreements or other use or occupancy agreements pursuant to which the
Company leases from any other party any real property, including all amendments,
renewals, extensions, modifications or supplements to any of the foregoing or
substitutions for any of the foregoing (collectively, the "Leases") are valid
and in full force and effect. The Company has provided Aztec with true and
complete copies of all of the Leases, all amendments, renewals, extensions,
modifications or supplements thereto, and all material correspondence related
thereto, including all correspondence pursuant to which any party to any of the
Leases declared a default thereunder or provided notice of the exercise of any
operation granted to such party under such Lease. The Leases and the Company's
interests thereunder are free of all Liens.
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(xi) None of the Leases requires the consent or approval
of any party thereto in connection with the consummation of the transactions
contemplated hereby.
3.16 Personal Property.
(a) Schedule 3.16(a) sets forth a complete and accurate list
of all personal property (i) included in the Company's 1997 Federal income tax
return, and (ii) acquired since the Balance Sheet Date, including true, complete
and correct copies of leases for material equipment and an indication as to
which assets are currently owned, or were formerly owned, by any Stockholder or
business or personal affiliates of any Stockholder or of the Company.
(b) The Company currently owns or leases all personal property
necessary to conduct the business and operations of the Company as they are
currently being conducted, and to the Company's knowledge, such property is in
working order.
3.17 Intellectual Property.
(a) The Company is the true and lawful owner of, or is
licensed or otherwise possesses legally enforceable rights to use, the
registered and unregistered Marks listed on Schedule 3.17. Such schedule lists
(i) all of the Marks registered in the United States Patent and Trademark Office
("PTO") or the equivalent thereof in any state of the United States or in any
foreign country, and (ii) all of the material unregistered Marks, that the
Company now owns or uses in connection with its business. Except with respect to
those Marks shown as licensed on Schedule 3.17, the Company owns or has the
right to use all of the registered and unregistered trademarks, service marks,
and trade names that it uses in the jurisdictions in which the Company uses
them. The Marks listed on Schedule 3.17 will not cease to be valid rights of the
Company by reason of the execution, delivery and performance of this Agreement
or the consummation of the transactions contemplated hereby. For purposes of
this Section 3.17, the term "▇▇▇▇" shall mean all right, title and interest in
and to any United States or foreign trademarks, service marks and trade names
now held by the Company, including any registration or application for
registration of any trademarks and service marks in the PTO or the equivalent
thereof in any state of the United States or in any foreign country, as well as
any unregistered marks used by the Company, and any trade dress (including
logos, designs, company names, business names, fictitious names and other
business identifiers) used by the Company in the United States or any foreign
country.
(b) The Company is the true and lawful owner of, or is
licensed or otherwise possesses legally enforceable rights to use, all rights in
the Patents and Copyright Registrations listed on Schedule 3.17. Such Patents
and Copyrights constitute all of the Patents and Copyright Registrations that
the Company now owns or uses in connection with its business. For purposes of
this Section 3.17, the term "Patent" shall mean any United States or foreign
patent and any application for a United States or foreign patent; the term
- 17 -
"Copyright Registration" shall mean any United States or foreign copyright
registration from the United States Copyright Office or the equivalent thereof
in any foreign country, as well as any application for a United States or
foreign copyright registration.
(c) The Marks, Patents and Copyright Registrations listed on
Schedule 3.17 are referred to collectively herein as the "Intellectual
Property." The Intellectual Property owned by the Company is referred to herein
collectively as the "Company Intellectual Property." All other Intellectual
Property is referred to herein collectively as the "Third Party Intellectual
Property." Except as indicated on Schedule 3.17, the Company has no obligations
to compensate any person for the use of any Intellectual Property nor has the
Company granted to any person any license, option or other rights to use in any
manner any Intellectual Property, whether requiring the payment of royalties or
not, except in the ordinary course of business.
(e) The Company is not, nor will it be as a result of the
execution and delivery of this Agreement or the performance of its obligations
hereunder, in violation of any Third Party Intellectual Property license,
sublicense or agreement described in Schedule 3.17. No claims with respect to
the Company Intellectual Property or Third Party Intellectual Property are
currently pending or, to the knowledge of the Company, are threatened by any
person, nor, to the Company's knowledge, do any grounds for any claims exist:
(i) to the effect that the manufacture, sale, licensing or use of any product as
now used, sold or licensed or proposed for use, sale or license by the Company
infringes on any copyright, patent, trademark, service ▇▇▇▇ or trade secret;
(ii) against the use by the Company of any trademarks, trade names, trade
secrets, copyrights, patents, technology, know-how or computer software programs
and applications used in the Company's business as currently conducted by the
Company; (iii) challenging the ownership, validity or effectiveness of any of
the Company Intellectual Property or other trade secret material to the Company;
or (iv) challenging the Company's license or legally enforceable right to use of
the Third Party Intellectual Property. To the Company's knowledge, there is no
unauthorized use, infringement or misappropriation of any of the Company
Intellectual Property by any third party. The Company (x) has not been sued or
charged in writing as a defendant in any claim, suit, action or proceeding which
involves a claim of infringement or misappropriation of trade secrets, any
patents, trademarks, service marks, or copyrights and which has not been finally
terminated or been informed or notified by any third party that the Company may
be engaged in such infringement or misappropriation, and (y) has no knowledge of
any infringement or misappropriation liability with respect to, or infringement
or misappropriation by, the Company or any of its subsidiaries of any trade
secret, patent, trademark, service ▇▇▇▇, or copyright of another.
3.18 Significant Customers; Material Contracts and Commitments.
(a) Schedule 3.18(a) sets forth a complete and accurate list
of all Significant Customers and Significant Suppliers. For purposes of this
Agreement, "Significant Customers" are the twenty-five (25) customers that have
effected the most
- 18 -
purchases of goods or services, in dollar terms, from the Company and
"Significant Suppliers" are the eight (8) suppliers who supplied the largest
amount by dollar volume of products or services to the Company, in each case
during the twelve (12) months ending on the Balance Sheet Date.
(b) Schedule 3.18(b) contains a complete and accurate list of
all contracts, commitments, leases, instruments, agreements, licenses or
permits, written or oral, to which the Company is a party or by which it or its
properties are bound (including without limitation contracts with Significant
Customers, joint venture or partnership agreements, contracts with any labor
organizations, employment agreements, consulting agreements, loan agreements,
indemnity or guaranty agreements, bonds, mortgages, options to purchase land,
liens, pledges or other security agreements) (i) to which the Company and any
affiliate of the Company or any officer, director or stockholder of the Company
are parties ("Related Party Agreements"); (ii) that may give rise to obligations
or liabilities exceeding, during the current term thereof, $35,000, or (iii)
that may generate revenues or income exceeding, during the current term thereof,
$35,000 (collectively with the Related Party Agreements, the "Material
Contracts"). The Company has delivered or made available to Aztec true, complete
and correct copies of the Material Contracts.
(c) Except to the extent set forth on Schedule 3.18(c), (i)
none of the Company's Significant Customers has canceled or, to the knowledge of
the Company, is currently attempting or threatening to cancel or substantially
reduce, any purchases from the Company, (ii) none of the Company's Significant
Suppliers has canceled or, to the knowledge of the Company, is currently
attempting to cancel or substantially reduce, the supply of products or services
to the Company, (iii) the Company has complied with all of its commitments and
obligations and is not in default under any of the Material Contracts, and no
written notice of default has been received with respect to any thereof, and
(iv) there are no Material Contracts that were not negotiated at arm's length.
The Company has not received any material customer complaints from any
Significant Customer concerning its products and/or services, nor has it had any
of its products returned by any Significant Customer except for normal warranty
returns consistent with past history and those returns that would not result in
a reversal of any material revenue.
(d) Each Material Contract, except those terminated pursuant
to Section 5.7 and those that expire in accordance with their terms between the
date hereof and the Closing, is valid and binding on the Company and is in full
force and effect and is not subject to any default thereunder by any party
obligated to the Company pursuant thereto. The Company has obtained all
necessary consents, waivers and approvals of parties to any Material Contracts
that are required in connection with any of the transactions contemplated
hereby, or are required by any governmental agency or other third party or are
advisable in order that any such Material Contract remain in effect without
modification after the Merger and without giving rise to any right to
termination, cancellation or acceleration or loss of any right or benefit
("Third Party Consents"). All Third Party Consents are listed on Schedule
3.18(d).
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(e) The Company is not a "women's business enterprise" or
"woman-owned business concern" as defined in 48 C.F.R. ss. 52.204-5, or a
"minority business enterprise" or "minority-owned business concern" as defined
in 48 C.F.R. ss. 52.219- 8, nor has it held itself out to be such to any of its
customers.
(f) The outstanding balance on all loans or credit agreements
either (i) between the Company and any Person in which any of the Stockholders
owns a material interest, or (ii) guaranteed by the Company for the benefit of
any Person in which any of the Stockholders owns a material interest, are set
forth in Schedule 3.18(f).
(g) The pledge, hypothecation or mortgage of all or
substantially all of the Company's assets (including, without limitation, a
pledge of the Company's contract rights under any Material Contract) will not
(i) result in the breach or violation of, (ii) constitute a default under, (iii)
create a right of termination under, or (iv) result in the creation or
imposition of (or the obligation to create or impose) any lien upon any of the
assets of the Company (other than a lien created pursuant to the pledge,
hypothecation or mortgage described at the start of this Section 3.18(g))
pursuant to any of the terms and provisions of, any Material Contract to which
the Company is a party or by which the property of the Company is bound.
3.19 Government Contracts.
(a) Except as set forth on Schedule 3.19, the Company is not a
party to any contract or other agreement to which a governmental entity is a
party.
(b) The Company has not been suspended or debarred from
bidding on contracts or subcontracts for any agency or instrumentality of the
United States Government or any state or local government, nor, to the knowledge
of the Company, has any suspension or debarment action been threatened or
commenced. There is no valid basis for the Company's suspension or debarment
from bidding on contracts or subcontracts for any agency of the United States
Government or any state or local government.
(c) Except as set forth in Schedule 3.19, the Company has not
been, nor is it now being, audited, or investigated by any government agency, or
the inspector general or auditor general or similar functionary of any agency or
instrumentality, nor, to the knowledge of the Company, has such audit or
investigation been threatened.
(d) The Company has no dispute pending before a contracting
office of, nor any current claim (other than the Accounts Receivable) pending
against, any agency or instrumentality of the United States Government or any
state or local government, relating to a contract.
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(e) The Company has not, with respect to any government
contract, received a written or oral cure notice advising the Company that it is
or was in default or would, if it failed to take remedial action, be in default
under such contract.
(f) The Company has not submitted any inaccurate, untruthful,
or misleading cost or pricing data, certification, bid, proposal, report, claim,
or any other information relating to a contract to any agency or instrumentality
of the United States Government or any state or local government.
(g) No employee, agent, consultant, representative, or
affiliate of the Company is in receipt or possession of any competitor or
government proprietary or procurement sensitive information related to the
Company's business under circumstances where there is reason to believe that
such receipt or possession is unlawful or unauthorized.
(h) Each of the Company's government contracts has been
issued, awarded or novated to the Company in the Company's name.
3.20 Inventory. The inventory of the Company consists of
manufactured and purchased products, manufactured and purchased parts, and other
manufactured and purchased items, all of which the Company has purchased for
resale to customers, no material part of which is damaged or defective except to
the extent covered by warranty or insurance (subject to customary deductibles),
subject to a GAAP reserve for inventory set forth on the face of the Interim
Balance Sheet (rather than in any notes thereto) as adjusted for the passage of
time through the Closing Date in accordance with the past custom and practice of
the Company.
3.21 Insurance. Schedule 3.21 sets forth a complete and accurate
list, as of the Balance Sheet Date, of all insurance policies carried by the
Company and all insurance loss runs or workers' compensation claims received for
the past two (2) policy years. The Company has delivered to Aztec true, complete
and correct copies of all current insurance policies, all of which are in full
force and effect. All premiums payable under all such policies have been paid
and the Company is otherwise in full compliance with the terms of such policies.
To the knowledge of the Company, there have been no threatened terminations of,
or material premium increases with respect to, any of such policies.
3.22 Environmental Matters. Other than as set forth on Schedule
3.22(a), (a) the Company is in compliance with all applicable Federal, state,
local and foreign laws and regulations relating to pollution, protection of
human health, or the environment (including, but not limited to, ambient air,
surface water, ground water, land surface or subsurface strata) (collectively,
"Environmental Laws"), and (b) no action, proceeding, revocation proceeding,
amendment procedure, writ, injunction or claim is pending, or to the knowledge
of the Company, threatened concerning any Environmental Laws. There are no past
or present actions, activities, circumstances, conditions, events, or incidents
that could involve the Company (or any person or entity whose liability the
Company has retained or
- 21 -
assumed, either by contract or operation of law) in any environmental
litigation, or impose upon the Company (or any person or entity whose liability
the Company has retained or assumed, either by contract or operation of law) any
environmental liability including, without limitation, common law tort
liability.
3.23 Labor and Employment Matters. With respect to employees of and
service providers to the Company:
(a) For purposes of this Section 3.23 and Section 3.24, the
phrases "Company's knowledge," "to the knowledge of the Company" or words of
similar import include the knowledge of Avi Shaked and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇.
(b) the Company is and has been in compliance in all material
respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, including
without limitation any such laws respecting employment discrimination, workers'
compensation, family and medical leave, the Immigration Reform and Control Act,
and occupational safety and health requirements, and has not and is not engaged
in any unfair labor practice;
(c) there is not now, nor within the past three (3) years has
there been, any unfair labor practice complaint against the Company pending or,
to the Company's knowledge, threatened, before the National Labor Relations
Board or any other comparable authority;
(d) there is not now, nor within the past three (3) years has
there been, any labor strike, slowdown or stoppage actually pending or, to the
Company's knowledge, threatened, against or directly affecting the Company;
(e) to the Company's knowledge, no labor representation
organization effort exists nor has there been any such activity within the past
three (3) years;
(f) no grievance or arbitration proceeding arising out of or
under collective bargaining agreements is pending and, to the Company's
knowledge, no claims therefor exist or have been threatened;
(g) the employees of the Company are not and have never been
represented by any labor union, and no collective bargaining agreement is
binding and in force against the Company or currently being negotiated by the
Company; and
(h) all persons classified by the Company as independent
contractors do satisfy and have satisfied the requirements of law to be so
classified, and the Company has fully and accurately reported their compensation
on IRS Forms 1099 when required to do so.
- 22 -
3.24 Employee Benefit Plans.
(a) Definitions.
(i) "Benefit Arrangement" means any material benefit
arrangement or obligation to provide benefits, other than salary, as
compensation for services rendered, to present or former directors, employees,
agents, or independent contractors, other than any obligation, arrangement,
custom or practice that is an Employee Benefit Plan, including, without
limitation, employment agreements, severance agreements, executive compensation
arrangements, incentive programs or arrangements, sick leave, vacation pay,
severance pay policies, plant closing benefits, salary continuation for
disability, consulting, or other compensation arrangements, workers'
compensation, retirement, deferred compensation, bonus, stock option or
purchase, hospitalization, medical insurance, life insurance, tuition
reimbursement or scholarship programs, any plans subject to Section 125 of the
Code, and any plans providing benefits or payments in the event of a change of
control, change in ownership, or sale of a substantial portion (including all or
substantially all) of the assets of any business or portion thereof, in each
case with respect to any present or former employees, directors, or agents.
(ii) "Company Benefit Arrangement" means any Benefit
Arrangement sponsored or maintained by the Company or with respect to which the
Company has or may have any liability (whether actual, contingent, with respect
to any of its assets or otherwise) as of the Closing Date, in each case with
respect to any present or former directors, employees, or agents of the Company.
(iii) "Company Plan" means, as of the Closing Date, any
Employee Benefit Plan for which the Company is the "plan sponsor" (as defined in
Section 3(16)(B) of ERISA) or any Employee Benefit Plan maintained by the
Company or to which the Company is obligated to make payments, in each case with
respect to any present or former employees of the Company.
(iv) "Employee Benefit Plan" has the meaning given in
Section 3(3) of ERISA.
(v) "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended, and all regulations and rules issued
thereunder, or any successor law.
(vi) "ERISA Affiliate" means any person that, together
with the Company, would be or was at any time in the past five (5) years treated
as a single employer under Section 414 of the Code or Section 4001 of ERISA and
any general partnership of which the Company is or has been a general partner.
- 23 -
(vii) "Multiemployer Plan" means any Employee Benefit
Plan described in Section 3(37) of ERISA.
(viii) "Qualified Plan" means any Employee Benefit Plan
that meets, purports to meet, or is intended to meet the requirements of Section
401(a) of the Code.
(ix) "Welfare Plan" means any Employee Benefit Plan
described in Section 3(1) of ERISA.
(b) Schedule 3.24(b) contains a complete and accurate list of
all Company Plans and Company Benefit Arrangements. Schedule 3.24(b)
specifically identifies all Company Plans (if any) that are Qualified Plans.
(c) With respect, as applicable, to Employee Benefit Plans and
Benefit Arrangements:
(i) true and complete copies of all the following
documents with respect to each Company Plan and Company Benefit Arrangement, to
the extent applicable, have been delivered or made available to Aztec: (A) all
documents constituting the Company Plans and Company Benefit Arrangements,
including but not limited to, trust agreements, insurance policies, service
agreements, and formal and informal amendments thereto; (B) the IRS Forms 5500
or 5500C/R and any financial statements attached thereto for the current and
previous two (2) years; (C) the last Internal Revenue Service determination
letter, the last IRS determination letter that covered the qualification of the
entire plan (if different), and the materials submitted by the Company to obtain
those letters; (D) the most recent summary plan description; (E) the most recent
written descriptions of all non-written agreements relating to any such plan or
arrangement; (F) all reports submitted within the four (4) years preceding the
date of this Agreement by third-party administrators, actuaries, investment
managers, consultants, or other independent contractors; (G) all notices that
were given within the three (3) years preceding the date of this Agreement by
the IRS, Department of Labor, or any other governmental agency or entity with
respect to any plan or arrangement; and (H) employee manuals or handbooks
containing personnel or employee relations policies;
(ii) the Personal Computer Maintenance, Inc. Profit
Sharing Plan and Trust (the "Company Profit Sharing Plan") is the only Qualified
Plan. The Company has never maintained or contributed to another Qualified Plan.
The Company Profit Sharing Plan qualifies under Section 401(a) of the Code, and
any trusts maintained pursuant thereto are exempt from federal income taxation
under Section 501 of the Code, and nothing has occurred with respect to the
design or operation of any Qualified Plans that could reasonably be expected to
cause the loss of such qualification or exemption or the imposition of any
liability, lien, penalty, or tax under ERISA or the Code;
- 24 -
(iii) the Company has never sponsored or maintained, had
any obligation to sponsor or maintain, or had any liability (whether actual or
contingent, with respect to any of its assets or otherwise) with respect to any
Employee Benefit Plan subject to Section 302 of ERISA or Section 412 of the Code
or Title IV of ERISA (including any Multiemployer Plan);
(iv) each Company Plan and each Company Benefit
Arrangement has been maintained in all material respects in accordance with its
constituent documents and with all applicable provisions of the Code, ERISA and
other laws, including federal and state securities laws;
(v) there are no pending claims or lawsuits by, against,
or relating to any Employee Benefit Plans or Benefit Arrangements that are not
Company Plans or Company Benefit Arrangements that would, if successful, result
in liability of the Company or any Stockholder, and no claims or lawsuits have
been asserted, instituted or, to the knowledge of the Company, threatened by,
against, or relating to any Company Plan or Company Benefit Arrangement, against
the assets of any trust or other funding arrangement under any such Company
Plan, by or against the Company with respect to any Company Plan or Company
Benefit Arrangement, or by or against the plan administrator or any fiduciary of
any Company Plan or Company Benefit Arrangement. The Company Plans and Company
Benefit Arrangements are not presently under audit or examination (nor has
notice been received of a potential audit or examination) by the IRS, the
Department of Labor, or any other governmental agency or entity, and no matters
are pending with respect to the Company Profit Sharing Plan under the IRS's
Voluntary Compliance Resolution program, its Closing Agreement Program, or other
similar programs;
(vi) no Company Plan or Company Benefit Arrangement
contains any provision or is subject to any law that would prohibit the
transactions contemplated by this Agreement or that would give rise to any
vesting of benefits, severance, termination, or other payments or liabilities as
a result of the transactions contemplated by this Agreement;
(vii) with respect to each Company Plan, there has
occurred no non-exempt "prohibited transaction" (within the meaning of Section
4975 of the Code) or transaction prohibited by Section 406 of ERISA or breach of
any fiduciary duty described in Section 404 of ERISA that would, if successful,
result in any material liability for the Company or any Stockholder, officer,
director, or employee of the Company;
(viii) all material reporting, disclosure, and notice
requirements of ERISA and the Code have been fully and completely satisfied with
respect to each Company Plan and each Company Benefit Arrangement;
(ix) all amendments and actions required to bring the
Company Benefit Plans into conformity with the applicable provisions of ERISA,
the Code,
- 25 -
and other applicable laws have been made or taken except to the extent such
amendments or actions (A) are not required by law to be made or taken until
after the Effective Date, and (B) are disclosed on Schedule 3.24(c);
(x) payment has been made (or accrued consistent with
the Company's past practice and Federal and state laws and regulations) of all
amounts that the Company is required to pay as contributions to the Company
Benefit Plans as of the last day of the most recent fiscal year of each of the
plans ended before the date of this Agreement; all benefits accrued under any
unfunded Company Plan or Company Benefit Arrangement will have been paid,
accrued, or otherwise adequately reserved in accordance with GAAP as of the
Balance Sheet Date; and all monies withheld from employee paychecks with respect
to Company Plans have been transferred to the appropriate plan within the
applicable period provided by law;
(xi) the Company has not prepaid or prefunded any
Welfare Plan through a trust, reserve, premium stabilization, or similar
account, nor does it provide benefits through a voluntary employee beneficiary
association as defined in Section 501(c)(9);
(xii) no statement, either written or oral, has been
made by the Company to any person with regard to any Company Plan or Company
Benefit Arrangement that was not in accordance with the Company Plan or Company
Benefit Arrangement and that could have a material adverse economic consequence
to the Company;
(xiii) the Company has no liability (whether actual,
contingent, with respect to any of its assets or otherwise) with respect to any
Employee Benefit Plan or Benefit Arrangement that is not a Company Benefit
Arrangement or with respect to any Employee Benefit Plan sponsored or maintained
(or which has been or should have been sponsored or maintained) by any ERISA
Affiliate;
(xiv) all group health plans of the Company and its
affiliates have been operated in material compliance with the requirements of
Code Sections 4980B (and its predecessor) and 5000, and the Company has
provided, or will have provided before the Closing Date, to individuals entitled
thereto all notices and coverage required to be provided prior to the Closing
Date pursuant to Code Section 4980B with respect to any "qualifying event" (as
defined therein) occurring before or on the Closing Date;
(xv) no employee or former employee of the Company or
beneficiary of any such employee or former employee is, by reason of such
employee's or former employee's employment, entitled to receive any benefits,
including, without limitation, death or medical benefits (whether or not
insured) beyond retirement or other termination of employment as described in
Statement of Financial Accounting Standards No. 106, other than (i) death or
retirement benefits under a Qualified Plan, (ii) deferred compensation benefits
accrued as liabilities on the Closing Statement, or (iii) continuation coverage
mandated under Section 4980B of the Code or other applicable law.
- 26 -
(d) Schedule 3.24(d) hereto contains the most recent quarterly
listing of workers' compensation claims and a schedule of workers' compensation
claims of the Company for the last two (2) fiscal years.
(e) Schedule 3.24(e) hereto sets forth an accurate list, as of
the date hereof, of all employees of the Company who may earn more than $75,000
in 1998, all officers and all directors, and lists all employment agreements
with such employees, officers and directors and the rate of compensation (and
the portions thereof attributable to salary, bonus, and other compensation
respectively) of each such person as of (a) the Balance Sheet Date, and (b) the
date hereof.
(f) The Company has not declared or paid any bonus
compensation in contemplation of the transactions contemplated by this
Agreement.
(g) There are no Contingent Deferred Sales Charges ("CDSC's")
or similar surrender fees, asset charges or other penalties that will become
payable as a result of the termination of any Company Plan or Company Benefit
Arrangement or the merger of the assets of such Company Plan or Company Benefit
Arrangement into a plan or benefit arrangement of Aztec. To the extent that any
such CDSC's or similar charges or penalties are payable upon such event, the
Stockholders shall pay such amounts at Closing or, with the concurrence of
Aztec, Aztec may pay such amounts and the Merger Consideration shall be reduced
accordingly.
3.25 Taxes. Except as disclosed in Schedule 3.25:
(a) (i) The Company has timely filed all Tax Returns due on or
before the Closing Date, and all such Tax Returns are true, correct, and
complete in all material respects.
(ii) The Company has paid in full on a timely basis all
Taxes owed by it, whether or not shown on any Tax Return.
(iii) The amount of the Company's liability for unpaid
Taxes as of the Balance Sheet Date did not exceed the amount of the current
liability accruals for Taxes (excluding reserves for deferred Taxes) shown on
the Interim Balance Sheet, and the amount of the Company's liability for unpaid
Taxes for all periods or portions thereof ending on or before the Closing Date
will not exceed the amount of the current liability accruals for Taxes
(excluding reserves for deferred Taxes) as such accruals are reflected on the
books and records of the Company on the Closing Date.
(iv) There are no ongoing examinations or claims against
the Company for Taxes, and no notice of any audit, examination, or claim for
Taxes, whether pending or threatened, has been received.
- 27 -
(v) The Company has a taxable year ended on December 31,
in each year commencing 1988.
(vi) The Company currently utilizes the accrual method
of accounting for income Tax purposes and such method of accounting has not
changed in the past five (5) years. The Company has not agreed to make any
adjustments under Code Section 481(a) as a result of a change in accounting
methods, the termination of S corporation status as a result of this
acquisition, the accounting methods employed by the Company prior to such
termination, or otherwise.
(vii) The Company has withheld and paid over to the
proper governmental authorities all Taxes required to have been withheld and
paid over, and complied with all information reporting and backup withholding
requirements, including maintenance of required records with respect thereto, in
connection with amounts paid to any employee, independent contractor, creditor,
or other third party.
(viii) The Company has delivered to Aztec true, correct
and complete copies of all filed Tax Returns, examination reports, statements of
deficiencies assessed against or agreed to by the Company since 1995. The Tax
Returns of the Company have been audited by the Internal Revenue Service or are
closed by the applicable statute of limitations for all taxable years through
1994. No examination or audit of any Tax Returns of the Company by any
governmental entity is currently in progress or, to the knowledge of the
Company, threatened or contemplated. The Company has not waived any statute of
limitations with respect to Taxes or agreed to any extension of time with
respect to an assessment of or deficiency in Taxes.
(ix) There are (and as of immediately following the
Closing there will be) no Liens on the assets of the Company relating to or
attributable to Taxes.
(x) To the Company's knowledge, there is no basis for
the assertion of any claim relating or attributable to Taxes which, if adversely
determined, would result in any Lien on the assets of the Company or otherwise
have an adverse effect on the Company or its business.
(xi) None of the Company's assets are treated as "tax
exempt use property" within the meaning of Code Section 168(h).
(xii) There are no contracts, agreements, plans or
arrangements, including but not limited to the provisions of this Agreement,
covering any employee or former employee of the Company that, individually or
collectively, could give rise to the payment of any amount (or portion thereof)
that would not be deductible pursuant to Code Sections 280G, 404 or 162.
- 28 -
(xiii) The Company has not filed any consent agreement
under Code Section 341(f) or agreed to have Code Section 341(f)(2) apply to any
disposition of a subsection (f) asset (as defined in Code Section 341(f)(4)
owned by the Company.
(xiv) The Company is not, and has not been at any time,
a party to a tax sharing, tax indemnity or tax allocation agreement, and the
Company has not assumed the tax liability of any other person or entity under
contract.
(xv) The Company is not, and has not been at any time, a
"United States real property holding corporation" within the meaning of Code
Section 897(c)(2).
(xvi) The Company's tax basis in its assets for purposes
of determining its future amortization, depreciation and other federal income
tax deductions is accurately reflected on the Company's tax books and records.
(xvii) The Company has not been a member of an
affiliated group filing a consolidated federal income Tax Return and does not
have any liability for the Taxes of another person under Treas. Reg. ss.
1.1502-6 (or any similar provision of state, local or foreign law), as a
transferee or successor, by contract or otherwise.
(xviii) The Company has not participated in or
cooperated with, nor will it, prior to the Closing Date, participate in or
cooperate with, an international boycott within the meaning of Code Section 999.
(b) The Company has since its formation been an S corporation
within the meaning of Code Section 1361. Notwithstanding the immediately
preceding sentence, the Company and the Stockholders are not making any
representation or warranty, and shall not have any liability whatsoever, with
respect to the consequences to the Company or Aztec of the making the Section
338(h)(10) Election contemplated by this Agreement.
(c) For purposes of this Agreement:
(i) the term "Tax" shall include any tax or similar
governmental charge, impost or levy (including without limitation income taxes,
franchise taxes, transfer taxes or fees, sales taxes, use taxes, gross receipts
taxes, value added taxes, employment taxes, excise taxes, ad valorem taxes,
premium, severance, stamp, occupation, real property, personal property,
unemployment insurance, social security, business license, business
organization, environmental withholding taxes, payroll taxes, minimum taxes or
windfall profit taxes) together with any related penalties, fines, additions to
tax or interest imposed by the Federal or any state, county, local or foreign
government or subdivision or agency thereof; and
- 29 -
(ii) the term "Tax Return" shall mean any return
(including any information return), report, statement, schedule, notice, form,
estimate, or declaration of estimated tax relating to or required to be filed
with any governmental authority in connection with the determination,
assessment, collection or payment of any Tax.
3.26 Conformity with Law; Litigation. Except as set forth in
Schedule 3.26:
(a) The Company is not in violation of any law or regulation
or any order of any court or Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over it where such violation could reasonably be expected to have a
Material Adverse Effect.
(b) No Stockholder has, at any time: (i) filed for personal
bankruptcy; or (ii) been an officer, director, manager, trustee or controlling
shareholder of a company that filed for bankruptcy or Chapter 11 protection.
(c) Except as set forth on Schedule 3.26, there are no claims,
actions, suits or proceedings, pending or, to the knowledge of the Company,
threatened against or affecting the Company at law or in equity, or before or by
any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it and no
notice of any claim, action, suit or proceeding, whether pending or threatened,
has been received. There are no judgments, orders, injunctions, decrees,
stipulations or awards (whether rendered by a court or administrative agency or
by arbitration) against the Company or against any of its properties or
business.
3.27 Relations with Governments. The Company has not made, offered
or agreed to offer anything of value to any governmental official, political
party or candidate for government office in violation of applicable law, nor has
it otherwise taken any action that would cause the Company to be in violation of
the Foreign Corrupt Practices Act of 1977, as amended, or any law of similar
effect.
3.28 Absence of Claims Against Company. Except as disclosed in
Schedule 3.28, no Stockholder has any claims against the Company.
3.29 Absence of Changes. Since the Balance Sheet Date, the Company
has conducted its business in the ordinary course and, except as contemplated
herein or as set forth on Schedule 3.29, there has not been:
(a) any change, by itself or together with other changes, that
in a material way has affected adversely, or is likely to affect adversely, the
business, operations, affairs, properties, assets, or condition (financial or
otherwise) of the Company;
- 30 -
(b) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of the
Company;
(c) any change in the authorized capital of the Company or in
its outstanding securities or any change in its ownership interests or any grant
of any options, warrants, calls, conversion rights or commitments;
(d) any payment of any distribution in respect of the capital
stock of the Company;
(e) any increase in the compensation, bonus, sales commissions
or fee arrangements payable or to become payable by the Company to any of its
officers, directors, Stockholders, employees, consultants or agents, except for
ordinary and customary bonuses and salary increases for employees in accordance
with past practice, nor has the Company entered into or amended any Company
Benefit Arrangement, Company Plan, employment, severance or other agreement
relating to compensation or fringe benefits;
(f) any work interruptions, labor grievances or claims filed,
or any similar event or condition of any character, materially adversely
affecting the business or future prospects of the Company;
(g) any sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of the Company to any person,
including without limitation the Stockholders and their affiliates;
(h) any cancellation, or agreement to cancel, any material
indebtedness or other obligation owing to the Company, including without
limitation any indebtedness or obligation of the Stockholders and their
affiliates, provided that the Company may negotiate and adjust bills in the
course of good faith disputes with customers in a manner consistent with past
practice;
(i) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of the assets,
property or rights of the Company or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(j) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside of
the ordinary course of business of the Company;
(k) any waiver of any material rights or claims of the
Company;
- 31 -
(l) any breach, amendment or termination of any material
contract, agreement, license, permit or other right to which the Company is a
party (other than expiration in accordance with the respective terms thereof);
(m) any transaction by the Company outside the ordinary course
of business;
(n) any capital commitment by the Company, either individually
or in the aggregate, exceeding $50,000;
(o) any change in accounting methods or practices (including
any change in depreciation or amortization policies or rates) by the Company or
the revaluation by the Company of any of its assets;
(p) any creation or assumption by the Company of any mortgage,
pledge, security interest or lien or other encumbrance on any asset (other than
liens arising under existing lease financing arrangements which are not material
and liens for Taxes not yet due and payable);
(q) any entry into, amendment of, relinquishment, termination
or non- renewal by the Company of any contract, lease transaction, commitment or
other right or obligation requiring aggregate payments by the Company in excess
of $20,000;
(r) any loan by the Company to any person or entity, incurring
by the Company, of any indebtedness, guaranteeing by the Company of any
indebtedness, issuance or sale of any debt securities of the Company or
guaranteeing of any debt securities of others;
(s) the commencement or notice or, to the knowledge of the
Company, threat of commencement, of any lawsuit or proceeding against, or
investigation of, the Company or any of its affairs; or
(t) negotiation or agreement by the Company or any officer or
employee thereof to do any of the things described in the preceding clauses (a)
through (s) (other than negotiations with Aztec and its representatives
regarding the transactions contemplated by this Agreement).
3.30 Disclosure. None of the Stockholders has knowingly and
willfully failed to disclose to Aztec, in the course of Aztec's investigation
prior to the Closing of the transactions contemplated by this Agreement, any
material adverse fact relating to the Company which would make the
representations and warranties contained in this Agreement, taken as a whole,
untrue or misleading. Aztec acknowledges that to the best of its knowledge it
has been given full access to all the books and records of the Company, to all
employees of the Company, to other persons having material relations with the
Company, and that neither
- 32 -
the Stockholders nor any such person has refused to respond to any inquiry made
by Aztec, and the Stockholders and such other persons have otherwise fully
cooperated with Aztec with respect to any matter relating to the Company and
Aztec's investigation thereof.
3.31 Predecessor Status; Etc. Schedule 3.31 sets forth a listing of
all legal names, trade names, fictitious names or other names (including,
without limitation, any names of divisions or operations) of the Company and all
of its predecessor companies during the five-year period immediately preceding
the Closing, including without limitation the names of any entities from whom
the Company has acquired material assets (other than inventory). During the
five-year period immediately preceding the Closing, the Company has operated
only under the names set forth on Schedule 3.31 in the jurisdiction or
jurisdictions set forth on Schedule 3.31 and has not been a subsidiary or
division of another corporation or a part of an acquisition which was later
rescinded.
3.32 Spin-off by the Company. There has not been any sale or
spin-off of material assets of either the Company, any other person or entity
that directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the Company within the two (2)
years prior to the date of this Agreement.
3.33 Location of Chief Executive Offices. Schedule 3.33 sets forth
the location of the Company's chief executive offices.
3.34 Location of Equipment and Inventory. All Inventory and
Equipment held on the date hereof by the Company is located at one of the
locations shown on Schedule 3.34. For purposes of this Agreement, (a) the term
"Inventory" shall mean any "inventory" as such term is defined in the Uniform
Commercial Code as in effect on July 15, 1998 in the State of Illinois (the
"I.U.C.C.") owned by the Company as of the date hereof, and, in any event, shall
include, but shall not be limited to, all merchandise, inventory and goods
wherever located, together with all goods, supplies, incidentals, packaging
materials and any other items used or usable in manufacturing, processing,
packaging or shipping same; in all stages of production --from raw materials
through work-in-process to finished goods; and (b) the term "Equipment" shall
mean any "equipment" as such term is defined in the I.U.C.C. owned by the
Company as of the date hereof, and, in any event, shall include, but shall not
be limited to, all machinery, equipment, furnishings, fixtures and vehicles
owned by the Company as of the date hereof, wherever located, together with all
attachments, components, parts, equipment and accessories installed thereon or
affixed thereto.
3.35 Warranty Obligations.
(a) Except as provided in paragraph (b) below, all of the products
sold and/or provided by the Company to its customers (which products shall
include, but not be limited to, computer hardware, parts, components and all
software, whether or not "off-the-shelf"; collectively, the "Products") are
covered by and subject to a guaranty, warranty, right of return, credit or other
indemnity relating to the standard terms and conditions of sale or
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lease from the third-party manufacturer of such Products (together, the
"Warranty"), and all such customers are entitled to fully rely upon such
Warranty for all claims relating to such Products (the "Warranty Claims").
(b) All Products assembled or created by the Company and sold and/or
provided to its customers either are covered by or subject to the Warranty, or
the Company has disclosed and reserved in the Interim Balance Sheet against all
Warranty Claims with respect to Products sold and/or provided to customers prior
to and as of the Closing, and such reserve is adequate and calculated in
accordance with GAAP consistently applied. The Financial Statements set forth
the aggregate expenses incurred by the Company in fulfilling its Warranty
obligations in the periods covered by the Financial Statements, and the
Stockholders know of no reason why such expenses should materially increase as a
percentage of revenue in the future.
(c) Each of the Products sold and/or provided by the Company to its
customers, whether manufactured by the Company or by a third-party manufacturer,
either are Millennium Compliant (as defined below), or the failure by any such
Product to be Millennium Compliant will not result in liability to or obligation
of the Company. For purposes of this Section 3.35(c), the term "Millennium
Compliant" means that such Products are designed to be used prior to, during and
after the calendar year 2000 A.D., and each Product will operate during each
such time period without error relating to date data, including any error
relating to, or the product of, date data which represents or references
different centuries or more than one century. Specifically, the Products will
correctly perform all date-related operations (i) without human intervention,
(ii) without regard to whether any date involved in the operation occurs in the
20th or 21st century, and (iii) without regard to the date at the time that the
calculation is performed.
4. REPRESENTATIONS OF AZTEC AND NEWCO
To induce the Company and the Stockholders to enter into this
Agreement and consummate the transactions contemplated hereby, Aztec and Newco,
severally and not jointly, represent and warrant to the Company and the
Stockholders as follows:
4.1 Due Organization. Aztec and Newco are each a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and each is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on their respective businesses in the places and in the manner as now
conducted. Copies of the Certificate of Incorporation and the By-Laws, each as
amended, of Aztec and Newco (collectively, the "Aztec Charter Documents") have
been made available to the Company. Neither Aztec nor Newco is in violation of
any Aztec Charter Document.
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4.2 Authorization; Validity of Obligations. The representatives of
Aztec and Newco executing this Agreement have all requisite corporate power and
authority to enter into and bind Aztec and Newco to the terms of this Agreement,
Aztec and Newco have the full legal right, power and corporate authority to
enter into this Agreement and the transactions contemplated hereby. The
execution and delivery of this Agreement by Aztec and Newco and the performance
by each of Aztec and Newco of the transactions contemplated herein have been
duly and validly authorized by the respective Boards of Directors of Aztec and
Newco, and this Agreement has been duly and validly authorized by all necessary
corporate action. This Agreement is a legal, valid and binding obligation of
each of Aztec and Newco enforceable in accordance with its terms.
4.3 No Conflicts. The execution, delivery and performance of this
Agreement, the consummation of the transactions herein contemplated hereby and
the fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of the
Aztec Charter Documents;
(b) subject to compliance with any agreements between Aztec
and its lenders, conflict with, or result in a default (or would constitute a
default but for a requirement of notice or lapse of time or both) under any
document, agreement or other instrument to which either Aztec or Newco is a
party, or result in the creation or imposition of any lien, charge or
encumbrance on any of Aztec's or Newco's properties pursuant to (i) any law or
regulation to which either Aztec or Newco or any of their respective property is
subject, or (ii) any judgment, order or decree to which Aztec or Newco is bound
or any of their respective property is subject;
(c) result in termination or any impairment of any material
permit, license, franchise, contractual right or other authorization of Aztec or
Newco; or
(d) violate any law, order, judgment, rule, regulation, decree
or ordinance to which Aztec or Newco is subject, or by which Aztec or Newco is
bound, (including, without limitation, the HSR Act, together with all rules and
regulations promulgated thereunder).
5. COVENANTS
5.1 Tax Matters.
(a) In addition to the provisions of Section 1.3, the
following provisions shall govern the allocation of responsibility as between
the Company, on the one hand, and the Stockholders, on the other, for certain
tax matters following the Closing Date:
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(i) "Flow Through Taxes" means those taxes that are
payable by the Stockholders as a result of the election by the Company to be
taxed as an S corporation within the meaning of Code Section 1361. "Flow Through
Tax Returns" means those Tax Returns that reflect Flow Through Taxes.
(ii) Aztec shall prepare or cause to be prepared, and,
after compliance with the provisions of this Section 5.1(a)(ii), file or cause
to be filed all Tax Returns for the Company for the Short Period. The Tax
Returns for the Short Period shall be prepared based on the status of the
Company as an S corporation within the meaning of Section 1361 of the Code, and
the parties agree to allocate all tax items pursuant to the closing of the books
of the Company on the close of business on the Closing Date as provided under
Treasury Regulation Section 1.1362-3(b)(1) and, if necessary, to elect such
method in accordance with such regulation. Aztec shall provide or cause to be
provided to the Stockholders with copies of the proposed Tax Returns at least
thirty (30) days prior to the due date thereof (not taking into account any
extensions), and shall provide the Stockholders or their representatives with
any information reasonably requested to enable them to understand the basis of
the matters reported in the proposed Tax Returns. Such Tax Returns shall not be
filed until they have been reviewed and approved by the Stockholders. In the
event the Stockholders disagree with the proposed Tax Returns, and such
disagreement cannot be resolved by the parties within thirty (30) days after
receipt of the proposed Tax Returns, such dispute shall be resolved in the same
manner as a dispute with respect to the Actual Company Net Worth is resolved
under Section 1.4(c), and the cost of such dispute resolution shall also be
shared in accordance with the principles set forth in Section 1.4(c). Provided
the requirements of this Section and Section 1.3 are observed or caused to be
observed by Aztec, then to the extent permitted by applicable law, the
Stockholders shall include any income, gain, loss, deduction or other tax items
for such periods on their Tax Returns in a manner consistent with the Schedule
K-1s furnished by the Company to the Stockholders for the Short Period.
(iii) Without limiting the provisions of Section
5.1(a)(ii), Aztec and the Surviving Corporation on one hand and Stockholders on
the other hand shall (A) cooperate fully, as reasonably requested, in connection
with the preparation and filing of Tax Returns pursuant to this Section 5.1 and
any audit, litigation or other proceeding with respect to Taxes; (B) make
available to the other, as reasonably requested, all information, records or
documents with respect to Tax matters pertinent to the Company for all periods
ending prior to or including the Closing Date; and (C) preserve information,
records or documents relating Tax matters pertinent to the Company that is in
their possession or under their control until the expiration of any applicable
statute of limitations or extensions thereof.
(iv) The Stockholders shall timely pay all transfer,
documentary, sales, use, stamp, registration and other Taxes (excluding Federal
and state income Taxes of the Company) and fees arising from or relating to the
transactions contemplated by this Agreement, and the Stockholders shall, at
their own expense, file all necessary Tax Returns and other documentation with
respect to all such transfer,
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documentary, sales, use, stamp, registration, and other Taxes and fees. If
required by applicable law, Aztec and the Surviving Corporation will join in the
execution of any such Tax Returns and other documentation.
(b) The Company shall, up to and including the Closing Date,
maintain its status as an S corporation for Federal and state income tax
purposes.
(c) Except as provided below, in the event that a refund, credit or
reduction of Flow Through Taxes is received by the Company, Aztec, or any
affiliate of Aztec after the Closing Date, and such refund, credit or reduction
is a Stockholders Refund (as hereinafter defined), such refund or credit shall
be solely for the account of the Stockholders provided, however, that if the
liability for Flow Through Taxes for the Short Period is less than $1,800,000,
and such refund, credit or reduction relates to the Short Period and does not
result in a shift of tax liability to a prior tax period, Aztec shall be
entitled to the benefit of such refund, credit or reduction, and if such
liability is greater than $1,800,000, Aztec shall be entitled to the benefit of
such refund to the extent that the credit reduces the tax liability for the
Short Period below $1,800,000. For purposes of the immediately preceding
sentence, a "Stockholders Refund" means a refund or credit of Flow Through Taxes
which results from the filing of an amended return, an audit adjustment, or an
administrative or judicial proceeding. If requested by the Stockholders, Aztec
shall, at the Stockholders' expense, file amended Flow Through Tax Returns and
take other actions and prepare and file such other documents for any such claims
for refunds or credits, and Aztec shall cause the Company to forward to the
Stockholders or to reimburse to the Stockholders for any such refund or credits
promptly after receipt thereof by Aztec or any of its Affiliates. Unless
otherwise required by law, Aztec shall not, without the express written consent
of the Stockholders in each instance, take any position in any Tax Return for
any period subsequent the Short Period which would increase any Flow Through
Taxes payable by the Stockholders for any period before the Closing.
(d) Whenever any taxing authority asserts a claim, makes an
assessment, or otherwise disputes the amount of Flow Through Taxes, Aztec shall
promptly inform the Stockholders and the Stockholders shall have the right, at
their expense, to participate in any resulting proceedings. Aztec and the
Stockholders shall retain joint authority to determine when and whether to
settle any claim, assessment or dispute and make all decisions with respect
thereto, provided that Aztec will not settle a claim, assessment or dispute
relating to Flow Through Taxes without obtaining the consent of the
Stockholders, which shall not be unreasonably withheld. In the event the parties
cannot agree on a settlement, dispute or other matter, the disagreement shall be
resolved in the manner as a dispute under Section 1.4(c) and the cost of such
dispute resolution shall also be shared in accordance with the principles set
forth in Section 1.4(c).
(e) Subject to complete compliance by Aztec with the provisions of
Section 1.3(e), at Aztec's option, the Company and each of the Stockholders will
join Aztec in making an election under Code Section 338(h)(10) (and any
corresponding election under
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state, local, and foreign tax law) with respect to the purchase and sale of the
stock of the Company hereunder (the "Section 338(h)(10) Election"). So long as
the Stockholders have been paid by Aztec all amounts required to be paid under
Section 1.3 with respect to the Section 338(h)(10) Election, the Stockholders
will include any income, gain, loss, deduction, or other tax item resulting from
the Section 338(h)(10) Election on their Tax Returns to the extent permitted by
applicable law. Notwithstanding the foregoing, and without limitation of the
provisions of Section 1.3, under no circumstances shall the Stockholders be
responsible for any taxes arising from the Section 338(h)(10) Election as a
consequence of the application of Code Section 1374.
(c) The Company and the Stockholders agree that the Merger
Consideration and the liabilities of the Company (plus other relevant items)
will be allocated to the assets of the Company for all purposes (including Tax
and financial accounting) as shown on the Allocation Schedule attached hereto.
Aztec, the Company, and the Stockholders will file all Tax Returns (including
amended returns and claims for refund) and information reports in a manner
consistent with such allocation.
5.2 Accounts Receivable. In the event that all Accounts Receivable
counted in the calculation of the Actual Net Worth are not collected in full
(net of reserves specified in Section 3.13) within one hundred twenty (120) days
after the Closing then, at the request of the Surviving Corporation, the
Stockholders shall pay (based on their percentage ownership of the Company
immediately prior to the Effective Time) the Surviving Corporation an amount
equal to such Accounts Receivable not so collected, and upon receipt of such
payment the Surviving Corporation shall assign to the Stockholders making the
payment all of their rights with respect to the uncollected Accounts Receivable
giving rise to the payment, provide the Stockholders all information reasonably
requested to facilitate the collection by them of such assigned Accounts
Receivable, and shall also thereafter promptly remit any collections received by
it with respect to such assigned Accounts Receivable.
5.3 Employee Benefit Plans. If reasonably requested by Aztec, the
Company shall terminate any Company Plan or Company Benefit Arrangement
substantially contemporaneously with the Closing. Notwithstanding the foregoing,
with respect to any Company Plan or Company Benefit Arrangement that is not
terminated or merged into an existing Aztec plan or benefit arrangement
substantially contemporaneously with the Closing, the Stockholders shall
cooperate (and shall use their reasonable efforts to cause the officers and
employees of the Company that are responsible for administering any such Company
Plan or Company Benefit Arrangement to cooperate) with Aztec on and after the
Closing Date in continuing to administer and maintain such Company Plan or
Company Benefit Arrangement in accordance with its constituent documents and
with all applicable provisions of the Code, ERISA and other laws, including
applicable Federal and state securities laws, until such time as the Company
Plan or Company Benefit Arrangement are terminated or merged into a Aztec plan
or benefit arrangement.
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5.4 Related Party Agreements. The Company and/or the Stockholders,
as the case may be, shall terminate any Related Party Agreements which Aztec
requests the Company or Stockholders to terminate.
5.5 Cooperation.
(a) The Company, Stockholders, Aztec and Newco shall each
deliver or cause to be delivered to the other on the Closing Date, and at such
other times and places as shall be reasonably agreed to, such instruments as the
other may reasonably request for the purpose of carrying out this Agreement. In
connection therewith, if required, the president or chief operating officer of
the Company shall execute any documentation reasonably required by Aztec's
independent public accountants (in connection with such accountant's audit of
the Company) or the Nasdaq National Market.
(b) The Stockholders and the Company shall cooperate and use
their reasonable efforts to have the present officers, directors and employees
of the Company cooperate with Aztec on and after the Closing Date in furnishing
information, evidence, testimony and other assistance in connection with any
filing obligations, actions, proceedings, arrangements or disputes of any nature
with respect to matters pertaining to all periods prior to the Closing Date.
(c) Each party hereto shall cooperate in obtaining all
consents and approvals required under this Agreement to effect the transactions
contemplated hereby
(d) The Company, the Stockholders and Aztec shall file all
notices and other information and documents required under the HSR Act (as
defined in Section 3.3) as promptly as practicable after the date hereof.
Notwithstanding the foregoing, Aztec hereby acknowledges that the Stockholders
have been advised by Aztec's legal counsel that all notices and other
information required under the HSR Act has been provided to the applicable
governmental authorities and that all clearances with respect to the
transactions contemplated by this Agreement have been obtained for all parties.
5.6 Access to Information; Confidentiality; Public Disclosure.
(a) Between the date of this Agreement and the Closing Date,
the Company will afford to the officers and authorized representatives of Aztec
access to (i) all of the sites, properties, books and records of the Company,
and (ii) such additional financial and operating data and other information as
to the business and properties of the Company as Aztec may from time to time
reasonably request, including without limitation, access upon reasonable request
to the Company's employees, customers, vendors, suppliers and creditors for due
diligence inquiry. All access, and request for access, shall be provided by
prior notice to, and arranged through, the President or Chief Operating Officer
of the Company. No information or knowledge obtained in any investigation
pursuant to this Section 5.6 shall
- 39 -
affect or be deemed to modify any representation or warranty contained in this
Agreement or the conditions to the obligations of the parties to consummate the
Merger.
(b) Each of Aztec and Newco recognizes and acknowledges that
it had in the past, currently has, and in the future may possibly have, access
to certain confidential information of the Company, such as lists of customers,
operational policies, and pricing and cost policies that are valuable, special
and unique assets of the Company's business. Each of Aztec and Newco agree that,
unless there is a Closing, they will not disclose confidential information with
respect to the Company to any person, firm, corporation, association or other
entity for any purpose or reason whatsoever, except to authorized
representatives of the Company and to counsel and other advisers, provided that
such advisers (other than counsel) agree to the confidentiality provisions of
this Section 5.6(b) (and Aztec is liable and responsible for any such breaches
by advisers), unless (i) such information becomes known to the public generally
through no fault of Aztec or Newco, (ii) disclosure is required by law or the
order of any governmental authority under color of law, or (iii) the disclosing
party reasonably believes that such disclosure is required in connection with
the defense of a lawsuit against the disclosing party, provided, that prior to
disclosing any information pursuant to clause (i), (ii) or (iii) above, Aztec
shall give prior written notice thereof to the Company and provide the Company
with the opportunity to contest such disclosure and shall cooperate with efforts
to prevent such disclosure.
(c) Prior to the Effective Time, neither the Company nor any
Stockholder shall make any disclosure (whether or not in response to an inquiry)
of the subject matter of this Agreement unless previously approved by Aztec and
the Company in writing. Aztec agrees to keep the Company and the Stockholders
apprised in advance of any disclosure of the subject matter of this Agreement by
Aztec prior to the Effective Time.
5.7 Conduct of Business Pending Closing. Between the date hereof
and the Effective Time, the Company will (except as requested or agreed by
Aztec):
(a) carry on its business in substantially the same manner as
it has heretofore and not introduce any material new method of management,
operation or accounting (unless required by law or regulation);
(b) maintain its properties and facilities, including those
held under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(c) perform in all material respects all of its obligations
under agreements relating to or affecting its respective material assets,
properties or rights;
(d) keep in full force and effect present insurance policies
or other comparable insurance coverage;
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(e) use all commercially reasonable efforts to maintain and
preserve its business organization intact, retain its present officers and key
employees and maintain its relationships with suppliers, vendors, customers,
creditors and others having business relations with it;
(f) maintain compliance with all material permits, laws, rules
and regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar governmental authorities;
(g) maintain present debt and lease instruments and not enter
into new or amended debt or lease instruments; and
(h) maintain present salaries and commission levels for all
officers, directors, employees, agents, representatives and independent
contractors, except for ordinary and customary bonuses and salary increases for
employees (other than employees who are also Stockholders) in accordance with
past practice.
5.8 Prohibited Activities. Between the date hereof and the
Effective Time, the Company will not, without the prior written consent of
Aztec:
(a) make any change in its Articles of Incorporation or
By-Laws, or authorize or propose the same;
(b) issue, deliver or sell, authorize or propose the issuance,
delivery or sale of any securities, options, warrants, calls, conversion rights
or commitments relating to its securities of any kind, or authorize or propose
any change in its equity capitalization, or issue or authorize the issuance of
any debt securities;
(c) declare or pay any dividend, or make any distribution
(whether in cash, stock or property) in respect of its stock whether now or
hereafter outstanding, or split, combine or reclassify any of its capital stock
or issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock, or purchase, redeem
or otherwise acquire or retire for value any shares of its stock;
(d) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, or guarantee any
indebtedness, except in the ordinary course of business and consistent with past
practice, in an amount in excess of $20,000, including contracts to provide
services to customers;
(e) increase the compensation payable or to become payable to
any officer, director, Stockholder, employee, agent, representative or
independent contractor; make any bonus or management fee payment to any such
person; make any loans or advances; adopt or amend any Company Plan or Company
Benefit Arrangement; or grant any severance or termination pay;
- 41 -
(f) create or assume any mortgage, pledge or other lien or
encumbrance upon any assets or properties whether now owned or hereafter
acquired;
(g) sell, assign, lease, pledge or otherwise transfer or
dispose of any property or equipment except in the ordinary course of business
consistent with past practice;
(h) acquire or negotiate for the acquisition of (by merger,
consolidation, purchase of a substantial portion of assets or otherwise) any
business or the start-up of any new business, or otherwise acquire or agree to
acquire any assets that are material, individually or in the aggregate, to the
Company;
(i) merge or consolidate or agree to merge or consolidate with
or into any other corporation;
(j) waive any material rights or claims of the Company,
provided that the Company may negotiate and adjust bills in the course of good
faith disputes with customers in a manner consistent with past practice;
(k) commit a breach of or amend or terminate any material
agreement, permit, license or other right;
(l) enter into any other transaction (i) that is not
negotiated at arm's length with a third party not affiliated with the Company or
any officer, director or Stockholder of the Company or (ii) outside the ordinary
course of business consistent with past practice or (iii) prohibited hereunder;
(m) commence a lawsuit other than for routine collection of
bills;
(n) revalue any of its assets, including without limitation,
writing down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business consistent with past practice;
(o) make any tax election other than in the ordinary course of
business and consistent with past practice, change any tax election, adopt any
tax accounting method other than in the ordinary course of business and
consistent with past practice, change any tax accounting method, file any Tax
Return (other than any estimated tax returns, payroll tax returns or sales tax
returns) or any amendment to a Tax Return, enter into any closing agreement,
settle any tax claim or assessment, or consent to any tax claim or assessment,
without the prior written consent of Aztec; or
(p) take, or agree (in writing or otherwise) to take, any of
the actions described in Sections 5.8(a) through (o) above, or any action which
would make any of the representations and warranties of the Company and the
Stockholders contained in this
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Agreement untrue or result in any of the conditions set forth in Articles 6 and
7 not being satisfied.
5.9 Exclusivity. None of the Stockholders, the Company, or any
agent, officer, director or any representative of the Company or any Stockholder
will, during the period commencing on the date of this Agreement and ending with
the earlier to occur of the Closing or the termination of this Agreement in
accordance with its terms, directly or indirectly: (a) solicit, encourage or
initiate the submission of proposals or offers from any person for, (b)
participate in any discussions pertaining to, or (c) furnish any information to
any person other than Aztec relating to, any acquisition or purchase of all or a
material amount of the assets of, or any equity interest in, the Company or a
merger, consolidation or business combination of the Company. In addition to the
foregoing, if the Company or any Stockholder receives any unsolicited offer or
proposal, or has actual knowledge of any unsolicited offer or proposal, relating
to any of the above, the Company or such Stockholder shall immediately notify
Aztec thereof, including the identity of the party making such offer or proposal
and the specific terms of such offer or proposal.
5.10 Notification of Certain Matters. Each party hereto shall give
prompt notice to the other parties hereto of (a) the occurrence or
non-occurrence of any event the occurrence or non-occurrence of which would be
likely to cause any representation or warranty of it contained herein to be
untrue or inaccurate in any material respect at or prior to the Closing, and (b)
any material failure of such party to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by such party hereunder.
The delivery of any notice pursuant to this Section 5.10 shall not, without the
express written consent of the other parties be deemed to (x) modify the
representations or warranties hereunder of the party delivering such notice, (y)
modify the conditions set forth in Articles 6 and 7, or (z) limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
5.11 Notice to Bargaining Agents. Prior to the Closing Date, the
Company shall satisfy any requirement for notice of the transactions
contemplated by this Agreement under applicable collective bargaining
agreements, if requested by Aztec, and shall provide Aztec with proof that any
required notice has been sent.
5.12 Payment of Notes Receivable. Unless paid previously, on or
before the Closing Date the Stockholders shall repay the Stockholder Notes
Receivable to the Company and the affiliates and employees of the Company from
whom the Company has notes receivable shall also repay those notes receivable as
contemplated by Section 6.14 and listed on Schedule 5.12.
5.13 WARN Act. Aztec shall not, at any time prior to the 90th day
after the Closing Date, without complying fully with the notice and other
requirements of the Worker Adjustment and Retraining Act ("WARN ACT"),
effectuate (a) a "plant closing" as defined in the WARN Act affecting any site
of employment of one or more facilities or operating units within any site of
employment of the Company; or (b) a "mass layoff" as defined in the
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WARN Act affecting any site of employment of the Company; or (c) any similar
action under applicable state law requiring notice to employees in the event of
a plant closing or layoff.
5.14 Stockholder Indemnification. In the event that any Stockholder
incurs any personal liability on account of providing to the Company, prior to
the Closing, any guaranty with respect to any Company liability or obligation,
or otherwise personally undertaking to obligate his or herself for the benefit
of the Company, and such liability or obligation relates to a benefit received
by the Company after the Closing, then Aztec shall indemnify, defend and hold
harmless such Stockholder with respect to such liability or obligation, and pay
the amount thereof to the Stockholder within the Stockholder within five
business days after written request therefor.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF AZTEC AND
NEWCO
The obligation of Aztec and Newco to effect the Merger is subject to
the satisfaction or waiver, at or before the Effective Time, of the following
conditions and deliveries:
6.1 Representations and Warranties; Performance of Obligations. All
of the representations and warranties of the Stockholders and the Company
contained in this Agreement shall be true, correct and complete on and as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of such date; all of the terms, covenants, agreements
and conditions of this Agreement to be complied with, performed or satisfied by
the Company and the Stockholders on or before the Closing Date shall have been
duly complied with, performed or satisfied; and a certificate to the foregoing
effects dated the Closing Date and signed on behalf of the Company and by each
of the Stockholders shall have been delivered to Aztec.
6.2 Company Financial Conditions.
(a) The Company's sales (i) for its fiscal year ending
December 31, 1997 were not less than $34,700,000, and (ii) for the five months
ending May 31, 1998 were not less than $16,800,000;
(b) The Company's earnings before interest and taxes ("EBIT")
(i) for the Company's fiscal year ending December 31, 1997 was not less than
$7,150,000 and (ii) for the Company's five months ending May 31, 1998 was not
less than $3,800,000;
(c) Subject to the provisions of Section 1.3(d), the Company's
net worth (i) as of the end of its fiscal year ending December 31, 1997 was not
less than $5,300,000, and (ii) as of the Closing will not be less than the Net
Worth Target.
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(d) The Company has no outstanding long-term or short-term
indebtedness to banks, the Stockholders, or other financial institutions and
creditors as of the Closing (in each case including the current portions of such
indebtedness, but excluding trade payables and other ordinary course accounts
payable).
For purposes of Section 6.2(a) and (c), calculation of amounts as of the Closing
shall be made in accordance with the last paragraph of Section 6.9.
6.3 No Litigation. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
Aztec's proposed acquisition of the Company, or limiting or restricting Aztec's
conduct or operation of the business of the Company (or its own business)
following the Merger shall be in effect, nor shall any proceeding brought by an
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, seeking any of the foregoing be pending.
There shall be no action, suit claim or proceeding of any nature pending or
threatened against Aztec, Newco or the Company, their respective properties or
any of their officers or directors, that could materially and adversely affect
the business, assets, liabilities, financial condition, results of operations or
prospects of the Company.
6.4 No Material Adverse Change. There shall have been no material
adverse changes in the business, operations, properties, assets, existing and
potential liabilities, obligations, profits or condition (financial or
otherwise) of the Company, taken as a whole, since the Balance Sheet Date; and
Aztec shall have received a certificate signed by each Stockholder dated the
Closing Date to such effect.
6.5 Consents and Approvals. All necessary consents of, and filings
with, any governmental authority or agency or third party, relating to the
consummation by the Company and the Stockholders of the transactions
contemplated hereby, shall have been obtained and made. Any waiting period
applicable to the consummation of the Merger under the HSR Act shall have
expired or been terminated, and no action by the Department of Justice or
Federal Trade Commission challenging or seeking to enjoin the consummation of
the transactions contemplated hereby shall be pending.
6.6 Opinion of Counsel. Aztec shall have received an opinion from
counsel to the Company and the Stockholders, dated the Closing Date, in a form
reasonably satisfactory to Aztec.
6.7 Charter Documents. Aztec shall have received (a) a copy of the
Articles of Incorporation of the Company certified by an appropriate authority
in the state of its incorporation and (b) a copy of the By-Laws of the Company
certified by the Secretary of the Company, and such documents shall be in form
and substance reasonably acceptable to Aztec.
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6.8 Quarterly Financial Statements. Aztec shall have received from
the Company completed quarterly financial statements in a form reasonably
satisfactory to Aztec, and the Merger shall have been approved by Aztec's
lenders.
6.9 Delivery of Closing Financial Certificate. Aztec shall have
received a certificate (the "Closing Financial Certificate"), dated as of the
Closing Date, signed on behalf of the Company and by each of the Stockholders,
setting forth:
(a) the sales of the Company for its fiscal year ending
December 31, 1997 (the "Certified Year-End Sales");
(b) the sales of the Company for the five months ending on May
31, 1998 (the "Certified Closing Sales"), it being understood that for purposes
of determining the accuracy of such sales in the Post-Audit Closing, such
compliance shall be deemed to have been achieved if the actual sales for such
period are at least 95% of the amount set forth in Section 6.2(a)(ii);
(c) the Company's EBIT for its fiscal year ending December 31,
1997 as a percent of sales (the "Certified Year-End Profits");
(d) the net worth of the Company as of December 31, 1997 (the
"Certified Year-End Net Worth");
(e) the net worth of the Company as of the Closing Date (the
"Certified Closing Net Worth");
(f) the Company's long-term and short-term indebtedness to
banks, the Stockholders, and other financial institutions and creditors as of
the Closing (in each case including the current portions of such indebtedness,
but excluding trade payables and other ordinary course accounts payable as of
the Closing Date) (the "Certified Closing Debt"); and
(g) a statement that all of the Company financial conditions
set forth in Section 3.9 of the Agreement are satisfied as of the Closing Date.
The parties acknowledge and agree that, for purposes of determining the
Certified Closing Net Worth, the Company shall not take account of any increase
in intangible assets (including without limitation goodwill, franchises and
intellectual property) accounted for after December 31, 1996.
6.10 FIRPTA Compliance. Each of the Stockholders shall have
delivered to Aztec a properly executed statement in a form reasonably acceptable
to Aztec for purposes of satisfying Aztec's obligations under Treas. Reg. Sec.
1.1445-2(b).
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6.11 Employment Agreements. Avid Shaked shall have entered into an
employment agreement with the Company in a form reasonably satisfactory to
Aztec.
6.12 Due Diligence Review. The Company shall have made such
deliveries as are called for by this Agreement. Aztec shall be fully satisfied
in its sole discretion with the results of its review of all of the Schedules,
whether delivered before or after the execution hereof, and such deliveries, and
its review of, and other due diligence investigations with respect to, the
business, operations, affairs, prospects, properties, assets, existing and
potential liabilities, obligations, profits and condition (financial or
otherwise) of the Company.
6.13 Notes Receivable. At or before the Closing, notes receivable
from Stockholders and other affiliates of the Company shall have been repaid in
full in accordance with their terms.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
STOCKHOLDERS AND THE COMPANY
The obligation of the Stockholders and the Company to effect the
Merger are subject to the satisfaction or waiver, at or before the Effective
Time, of the following conditions and deliveries:
7.1 Representations and Warranties; Performance of Obligations. All
of the representations and warranties of Aztec and Newco contained in this
Agreement shall be true, correct and complete on and as of the Closing Date with
the same effect as though such representations and warranties had been made as
of such date; all of the terms, covenants, agreements and conditions of this
Agreement to be complied with, performed or satisfied by Aztec and Newco on or
before the Closing Date shall have been duly complied with, performed or
satisfied; and a certificate to the foregoing effects dated the Closing Date and
signed by the President or any Vice President of Aztec shall have been delivered
to the Company and the Stockholders.
7.2 No Litigation. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
Aztec's proposed acquisition of the Company, or limiting or restricting Aztec's
conduct or operation of the business of the Company (or its own business)
following the Merger shall be in effect, nor shall any proceeding brought by an
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, seeking any of the foregoing be pending.
There shall be no action, suit, claim or proceeding of any nature pending or
threatened, against Aztec, Newco or the Company, their respective properties or
any of their officers or directors, that could materially and adversely affect
the business, assets, liabilities, financial condition, results of operations or
prospects of the Aztec and its subsidiaries taken as a whole.
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7.3 Consents and Approvals. All necessary consents of, and filings
with, any governmental authority or agency or third party relating to the
consummation by Aztec and Newco of the transactions contemplated herein, shall
have been obtained and made. Any waiting period applicable to the consummation
of the Merger under the HSR Act shall have expired or been terminated, and no
action by the Department of Justice or Federal Trade Commission challenging or
seeking to enjoin the consummation of the transactions contemplated hereby shall
be pending.
7.4 Employment Agreements. The Company shall have afforded Avi
Shaked an opportunity to enter into an employment agreement with the Company in
the form attached hereto.
8. INDEMNIFICATION
8.1 General Indemnification by the Stockholders. Each Stockholder
(individually, an "Indemnifying Party" and collectively, "Indemnifying Parties")
severally but only to the extent provided in this Article 8 and other provisions
of this Agreement, covenants and agrees to indemnify, defend, protect and hold
harmless Aztec, Newco and the Surviving Corporation and their respective
officers, directors, employees, stockholders, assigns, successors and affiliates
(individually, an "Indemnified Party" and collectively, "Indemnified Parties")
from, against and in respect of:
(a) all liabilities, losses, claims, damages, punitive
damages, causes of action, lawsuits, administrative proceedings (including
informal proceedings), investigations, audits, demands, assessments,
adjustments, judgments, settlement payments, deficiencies, penalties, fines,
interest (including interest from the date of such damages) and costs and
expenses (including without limitation reasonable attorneys' fees and
disbursements of every kind, nature and description) (collectively, "Damages")
suffered, sustained, incurred or paid by the Aztec Indemnified Parties in
connection with, resulting from or arising out of:
(i) any material breach of any representation or
warranty of the Stockholders or the Company set forth in this Agreement or any
schedule or certificate, delivered by or on behalf of any Stockholder or the
Company in connection herewith; or
(ii) any nonfulfillment of any covenant or agreement by
the Stockholders or, prior to the Effective Time, the Company, under this
Agreement;
Notwithstanding the foregoing, any breach of Sections 3.4, 3.5, and 6.2 shall be
deemed to be material.
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8.2 Limitation and Expiration. Notwithstanding the above:
(a) with respect to any Claim for Damages, each Stockholder's
liability with respect thereto under Article 8 shall be limited to that
Stockholder's Applicable Percentage of the Damages amount applicable to that
Claim. A Stockholder's "Applicable Percentage" shall be equal to the percentage
of the issued Company shares which the Stockholder holds immediately prior to
the Closing.
(b) the aggregate amount of the Stockholders' liability under
this Article 8 shall not exceed the Merger Consideration; provided, however,
that the Stockholders' liability for Damages described in Section 8.1(a)(ii)
shall not be subject to such limitation and shall not count toward the
limitation described in the first clause of this Section 8.2(b);
(c) with respect to claims made by Aztec or the Company
directly against the Stockholder under Article 8, the term Damages shall in no
event include any special, consequential, exemplary, speculative or punitive
damages or any other damages postulating or including a measure or calculation
of lost profits or advantages or similar method or theory, provided, however,
that this limitation shall in no event apply with respect to any such Damages
awarded against the Company or Aztec under a Third Party Claim, as to which all
Damages, whether direct or indirect, incidental, special, consequential,
exemplary, speculative or punitive, suffered by Aztec or the Company as a result
thereof, the limitation set forth in the first clause of this Section 8.2(c)
shall not apply;
(d) if on the Closing Date the Indemnified Party knows of any
information that would cause any representation or warranty made by the
Indemnifying Party to be inaccurate as of the date made, the Indemnified Party
shall have no right or remedy after the Closing with respect to such inaccuracy
and shall be deemed to have waived its rights to indemnification in respect
thereof;
(e) if the Indemnified Party receives any payment from any
Indemnifying Party in respect of any Damages, and the Indemnified Party could
have recovered all or part of such Damages from a third person (a "Potential
Contributor") based on the underlying claim asserted against the Indemnifying
Party, the Indemnified Party shall assign such of its rights to proceed against
the Potential Contributor as are necessary to permit the Indemnifying Party to
recover from the Potential Contributor the amount of such payment, and shall
otherwise assist (at the Indemnifying Party's cost) in effecting such recovery;
(f) the indemnification obligations under this Article 8, or
under any certificate or writing furnished in connection herewith, shall
terminate at the date that is the later of clause (i) or (ii) of this Section
8.2(f), provided that with respect to any Claim the Claim Notice provisions of
Section 8.3 have been complied with:
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(i) (1) with respect to Claims relating to or arising
out of Section 3.22 for a failure to comply with any Environmental Laws, or
Section 3.25 for failure to pay any Tax: (A) the date that is six (6) months
after the expiration of the longest applicable Federal or state statute of
limitation (including extensions thereof), or (B) if there is no applicable
statute of limitation, (x) ten (10) years after the Closing Date if the Claim is
related to the cost of investigating, containing, removing, or remediating a
release of Hazardous Material into the environment, or (y) five (5) years after
the Closing Date for any other Claim covered by clause (i)(1)(B) of this Section
8.2(f); or
(2) with respect to Claims other than those specified in
clause (i)(1) that are of a nature and of sufficient materiality typically
expected to be encountered in the audit process, on the completion of the first
independent audit of financial statements containing combined operations of
Aztec and the Company (the "First Audit"); or
(3) with respect to all Claims other than those referred
to in clause (i)(1) or (2) of this Section 8.2(f), twelve (12) months after the
Effective Time (the "First Anniversary"); or
(ii) the final resolution of any Claim pending as of the
relevant dates described in clause (i) of this Section 8.2(f) (each such Claims
referred to as a "Pending Claim"), provided such Claim has been timely asserted
in accordance with the Claim Notice procedures set forth in Section 8.3,
provided further that any such Pending Claim shall survive under the provisions
of this clause (ii) only to the extent of the Grounds (including the dollar
amount) asserted in the Claim Notice given with respect thereto.
(g) The indemnification provisions of this Article 8 shall be
the sole and exclusive remedy of Aztec for breach of any representation,
warranty, covenant, undertaking or other agreement of the Stockholders contained
in this Agreement, and except as provided in this Article 8 Aztec and its
officers, directors, agents, representatives or any other Indemnified Party
shall have no other recourse (whether in law or in equity) against the
Stockholders with respect to any Damages or Claims by any of them relating to
the transactions contemplated by this Agreement.
8.3 Indemnification Procedures. All claims or demands for
indemnification under this Article 8 ("Claims") asserted by any Indemnified
Party shall be asserted and resolved as follows:
(a) In the event that any Indemnified Party has a Claim to
provide indemnification pursuant to Section 8.1 hereof against any Indemnifying
Party which does not involve a Claim being asserted against or sought to be
collected by a third party, the Indemnified Party shall promptly (and in any
event within thirty (30) days after the Indemnified Party first becomes aware of
such Claim) notify any Indemnifying Party of such Claim, specifying with
reasonable particularity the grounds for the Claim which shall include the
nature of such Claim, the specific representations and warranties, covenants or
agreements
- 50 -
alleged to be breached, the reasons why the Indemnified Party is entitled to
indemnification with respect thereto, and the amount of the Claim or reasonable
estimate thereof to the extent then feasible (the "Claim Notice" and with
respect to all elements of the Claim Notice enumerated in this sentence the
"Grounds"). If an Indemnifying Party does not notify the Indemnified Party
within thirty (30) days after the date of delivery of the Claim Notice that the
Indemnifying Party disputes such Claim, with a detailed statement of the basis
of such position, the amount of such Claim shall be conclusively deemed a
liability of the Indemnifying Party hereunder. In case an objection is made in
writing in accordance with this Section 8.3(a), the Indemnified Party shall
either: (i) respond in a written statement to the objection within thirty (30)
days and, for sixty (60) days thereafter, attempt in good faith to agree upon
the rights of the respective parties with respect to each of such Claims (and,
if the parties should so agree, a memorandum setting forth such agreement shall
be prepared and signed by both parties); or (ii) if Aztec reasonably believes
that the Claim at issue is governed by the time limitation set forth in Section
8.2(f)(i)(2) or (3), then Aztec may, in its sole discretion, submit the
resolution of the Claim to expedited, binding arbitration pursuant to Section
8.7.
(b) (i) In the event that any Claim for which the Indemnifying
Party would be liable to an Indemnified Party hereunder is asserted against an
Indemnified Party by a third party (a "Third Party Claim"), the Indemnified
Party shall deliver a Claim Notice to any Indemnifying Party. The Indemnifying
Parties shall have thirty (30) days from date of delivery of the Claim Notice to
notify the Indemnified Party (A) whether the Indemnifying Party disputes
liability to the Indemnified Party hereunder with respect to the Third Party
Claim, and, if so, the basis for such a dispute, and (B) whether or not it
disputes such liability, whether or not the Indemnifying Party desires (without
waiving its right to dispute the Third Party Claim or its liability under
Section 8.1), at the sole cost and expense of the Indemnifying Party, to defend
against the Third Party Claim, provided that the Indemnified Party is hereby
authorized (but not obligated), prior to and during the Notice Period, to file
any motion, answer or other pleading and to take any other action which the
Indemnified Party shall deem necessary or appropriate to protect the Indemnified
Party's interests.
(ii) In the event that an Indemnifying Party notifies
the Indemnified Party within the Notice Period that the Indemnifying Party that
it desires to defend the Third Party Claim, the Indemnifying Party shall defend
the Indemnified Party against such Third Party Claim by appropriate proceedings,
provided that, unless the Indemnified Party otherwise agrees in writing, the
Indemnifying Party may not settle any Third Party Claim (in whole or in part) if
such settlement does not include a complete and unconditional release of the
Indemnified Party. If the Indemnified Party desires to participate in, but not
control, any such defense or settlement the Indemnified Party may do so at its
sole cost and expense. If the Indemnifying Party elects not to defend the
Indemnified Party against a Third Party Claim, whether by failure of such party
to give the Indemnified Party timely notice as provided herein or otherwise,
then the Indemnified Party, without waiving any rights against such party, may
settle or defend against such Third Party Claim in the
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Indemnified Party's sole discretion and the Indemnified Party shall be entitled
to recover from the Indemnifying Party the amount of any settlement or judgment
and, on an ongoing basis, all indemnifiable costs and expenses of the
Indemnified Party with respect thereto, including interest from the date such
costs and expenses were incurred.
(c) The parties will make appropriate adjustments for any Tax
benefits, Tax detriments or insurance proceeds recovered or recoverable in
determining the amount of any indemnification obligation under this Article 8.
(d) All adjustments and payments made under this Article shall
be deemed adjustments to the Merger Consideration.
8.4 General Indemnification by Aztec and Indemnification Procedures.
Aztec hereby covenants and agrees to indemnify, defend, protect and hold
harmless each of the Stockholders and their respective successors and assigns
(the "Stockholders Indemnified Parties"), to the same extent and scope and
subject to the same procedures as set forth in Sections 8.1, 8.2, and 8.3 as if
the Stockholders were the Indemnified Parties thereunder, and the Aztec were the
Indemnifying Party thereunder.
8.5 Survival of Representations Warranties and Covenants. All
representations, warranties and covenants made by the Company, the Stockholders,
Aztec and Newco in or pursuant to this Agreement or in any document delivered
pursuant hereto shall be deemed to have been made on the date of this Agreement
(except as otherwise provided herein) and, if a Closing occurs, as of the
Closing Date. The representations of the Company and the Stockholders will
survive the Closing and will remain in effect until, and will expire upon, the
termination of the indemnification obligations as provided in Section 8.2. The
representations of Aztec and Newco will survive the Closing and will remain in
effect until, and will expire upon, the First Anniversary, subject to the
survival of any pending claims asserted by the Stockholders with respect thereto
until such claims are finally resolved.
8.6 Pledged Assets; Escrow. The Indemnified Parties shall be
reimbursed for all Damages finally determined under Section 8.3 to be owed to
Aztec by the Indemnifying Parties under Section 8.1 hereof pursuant to Claims
made under this Article 8 (i) first out of the Pledged Assets, which shall be
administered pursuant to an escrow agreement between Aztec and the Stockholders,
and once the Pledged Assets are depleted, or the escrow period has expired, then
(ii) directly by the Indemnifying Parties.
8.7 Arbitration.
(a) Claims submitted to arbitration under this Section 8.7
("Arbitrated Disputes") shall be resolved by binding arbitration administered by
the American Arbitration Association ("AAA") in Detroit, Michigan and, except as
expressly provided in this Agreement, shall be conducted in accordance with the
Expedited Procedures under the Commercial Arbitration Rules of the AAA, as such
rules may be amended from time to time
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(the "Rules"). The hearing locale shall be Detroit, Michigan. A single, neutral
arbitrator (the "Arbitrator") shall be appointed by the AAA, within five (5)
days after an Arbitrated Dispute is submitted for arbitration under this Section
8.7, to preside over the arbitration and resolve the Arbitrated Dispute. The
Arbitrator shall be selected from the AAA's Commercial Panel, and shall be
qualified to practice law in at least one jurisdiction in the United States and
have expertise in the interpretation of financial statements and commercial
contracts. The parties shall have three (3) days to object in writing to the
appointment of the Arbitrator, the sole basis for such objection being an actual
conflict of interest. The AAA, in its sole discretion, shall determine within
three (3) days the validity of any objection to the appointment of the
Arbitrator based on an actual conflict of interest.
(b) The Arbitrator's decision (the "Decision") shall be
binding, and the prevailing party may enforce the Decision in any court of
competent jurisdiction.
(c) The parties shall use their best efforts to cooperate with
each other in causing the arbitration to be held in as efficient and expeditious
a manner as practicable, including but not limited to, providing such documents
and making available such of their personnel as the Arbitrator may request, so
that the Decision may be reached timely. The Arbitrator shall take into account
the parties' stated goal of expedited proceedings in determining whether to
authorize discovery and, if so, the scope of permissible discovery and other
hearing and pre-hearing procedures.
(d) The authority of the Arbitrator shall be limited to
deciding liability for, and the proper amount of, a Claim, and the Arbitrator
shall have no authority to award punitive damages. The Arbitrator shall have
such powers and establish such procedures as are provided for in the Rules, so
long as such powers and procedures are consistent with this Section 8.7 and are
necessary to resolve the Arbitrated Dispute within the time periods specified in
this Agreement. The Arbitrator shall render a Decision within thirty (30) days
after being appointed to serve as Arbitrator (or such shorter period of time, to
the extent reasonable or practicable, as may be appropriate to conform to the
expiration of indemnities set forth in Section 8.2(c)(i)(2) or (3)), unless the
parties otherwise agree in writing or the Arbitrator makes a finding that a
party has carried the burden of showing good cause for a longer period;
provided, however, that in no event may the Arbitrator, without the consent of
both the Stockholders and Aztec, extend the time for rendering a Decision or
otherwise delay a Decision to a date that is later than the First Anniversary.
8.8 Prevailing Party. The party which prevails in any arbitration or
other legal action arising with respect to this Agreement shall be entitled to
reimbursement for all costs incurred by the prevailing party which are
associated with conducting such arbitration or other legal action, including
reasonable attorneys and professional fees and expenses. Such costs shall be
payable within forty-five (45) days after a final order is issued in the
arbitration or other legal action upon detailed written presentation of such
costs by the prevailing party to the losing party.
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9. NONCOMPETITION
9.1 Prohibited Activities. No Stockholder will, for a period of four
(4) years following the Closing Date, for any reason whatsoever, directly or
indirectly, for himself, herself or on behalf of or in conjunction with any
other person, persons, company, partnership, corporation or business of whatever
nature:
(a) engage, as an officer, director, shareholder, owner,
partner, member, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or adviser, or as a sales
representative, in any business selling any products or services in direct
competition with the Surviving Corporation, within one thousand (1000) miles of
anywhere where the Surviving Corporation conducts business as of the Closing
Date (the "Territory");
(b) call upon any person who is, at that time, within the
Territory, an employee of Aztec in a managerial capacity for the purpose or with
the intent of enticing such employee away from or out of the employ of Aztec;
(c) call upon any person who is or entity that is, at that
time, or that has been, within one year prior to that time, a customer of the
Surviving Corporation within the Territory for the purpose of soliciting or
selling products or services in competition with the Surviving Corporation
within the Territory; or
(d) call upon any prospective acquisition candidate that was,
to the knowledge of such Stockholder, either called upon by Aztec as a
prospective acquisition candidate or was the subject of an acquisition analysis
by Aztec. Each Stockholder, to the extent lacking the knowledge described in the
preceding sentence, shall immediately cease all contact with such prospective
acquisition candidate upon being informed and provided with reasonable evidence
that Aztec had called upon such candidate or made an acquisition analysis
thereof.
Notwithstanding the above, the foregoing covenant shall not be
deemed to prohibit any Stockholder from acquiring as an investment not more than
two percent (2%) of the capital stock of a competing business whose stock is
traded on a national securities exchange or over- the-counter. For purposes of
this Article 9, the term "Aztec" includes all subsidiaries of Aztec (including
without limitation the Company and any companies Aztec has resolved to acquire).
9.2 Confidentiality. Each Stockholder recognizes that by reason of
his or her ownership of the Company and his or her employment by the Company, he
or she has acquired confidential information and trade secrets concerning the
operation of the Company, the use or disclosure of which could cause the Company
or its affiliates or subsidiaries substantial loss and damages that could not be
readily calculated and for which no remedy at law would be adequate.
Accordingly, each Stockholder covenants and agrees with the
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Company and Aztec that he or she will not at any time, except in performance of
Stockholder's obligations to the Company or with the prior written consent of
the Company pursuant to authority granted by a resolution of the Board, directly
or indirectly, disclose any secret or confidential information that he or she
may learn or has learned by reason of his or her ownership of the Company or his
or her employment by the Company, or any of its subsidiaries and affiliates, or
use any such information in a manner detrimental to the interests of the Company
or Aztec, unless (i) such information becomes known to the public generally
through no fault of any Stockholder, (ii) disclosure is required by law or the
order of any governmental authority under color of law, or (iii) the disclosing
party reasonably believes that such disclosure is required in connection with
the defense of a lawsuit against the disclosing party, provided, that prior to
disclosing any information pursuant to clause (i), (ii) or (iii) above, the
Stockholder (as applicable) shall give prior written notice thereof to Aztec and
provide Aztec with the opportunity to contest such disclosure and shall
cooperate with efforts to prevent such disclosure. The term "confidential
information" includes, without limitation, information not previously disclosed
to the public or to the trade by the Company's or Aztec's management with
respect to the Company's or Aztec's, or any of their affiliates' or
subsidiaries', products, facilities, and methods, trade secrets and other
intellectual property, software, source code, systems, procedures, manuals,
confidential reports, product price lists, customer lists, financial information
(including the revenues, costs, or profits associated with any of the Company's
products), business plans, prospects, or opportunities but shall exclude any
information already in the public domain.
9.3 Damages. Because of the difficulty of measuring economic losses
to Aztec as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to Aztec for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by Aztec in the event of breach by such Stockholder, by
injunctions and restraining orders.
9.4 Reasonable Restraint. The parties agree that the foregoing
covenants in this Article 9 impose a reasonable restraint on each Stockholder in
light of the activities and business of Aztec on the date of the execution of
this Agreement, assuming the completion of the transactions contemplated hereby,
and the current plans of Aztec; but it is also the intent of Aztec and each
Stockholder that such covenants be construed and enforced in accordance with the
changing activities and business of Aztec throughout the term of this covenant.
The parties further agree that so long as a Stockholder is not an employee of
the Company, in the event a Stockholder shall enter into a business or pursue
other activities not in competition with Aztec or similar activities or business
in locations the operation of which, under such circumstances, does not violate
Section 9.1(a) or the terms of any employment agreement with Aztec, such
Stockholder shall not be chargeable with a violation of this Article 9 if Aztec
shall thereafter enter the same, similar or a competitive (a) business, (b)
course of activities, or (c) location, as applicable.
9.5 Severability; Reformation. The covenants in this Article 9 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the
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provisions of any other covenant. Moreover, in the event any court of competent
jurisdiction shall determine that the scope, time or territorial restrictions
set forth are unreasonable, then it is the intention of the parties that such
restrictions be enforced to the fullest extent which the court deems reasonable,
and the Agreement shall thereby be reformed.
9.6 Independent Covenant. All of the covenants in this Article 9
shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against Aztec, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by Aztec of such covenants. The parties
expressly acknowledge that the terms and conditions of this Article 9 are
independent of the terms and conditions of any other agreements including, but
not limited to, any employment agreements entered into in connection with this
Agreement. It is specifically agreed that the period of four (4) years stated at
the beginning of this Article 9 during which the agreements and covenants of the
Stockholder made in this Article 9 shall be effective, shall be computed by
excluding from such computation any time during which the Stockholder is found
by a court of competent jurisdiction to have been in violation of any provision
of this Article 9. The covenants contained in Article 9 shall not be affected by
any breach of any other provision hereof by any party hereto and shall have no
effect if the transactions contemplated by this Agreement are not consummated.
9.7 Materiality. The Company and each Stockholder hereby agree that
the covenants set forth in this Article 9 are a material and substantial part of
the transactions contemplated by this Agreement, supported by adequate
consideration.
10. GENERAL
10.1 Termination. This Agreement may be terminated at any time prior
to the Closing Date solely:
(a) by mutual consent of the boards of directors of Aztec and
the Company; or
(b) by the Stockholders and the Company as a group, on the one
hand, or by Aztec, on the other hand, if the Closing shall not have occurred on
or before July 23, 1998, provided that the right to terminate this Agreement
under this Section 10.1(b) shall not be available to either party (with the
Stockholders and the Company deemed to be a single party for this purpose) whose
material misrepresentation, breach of warranty or failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Closing to occur on or before such date; or
(c) by the Stockholders and the Company as a group, on the one
hand, or by Aztec, on the other hand, if there is or has been a material breach,
failure to fulfill or default on the part of the other party (with the
Stockholders and the Company
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deemed to be a single party for this purpose) of any of the representations and
warranties contained herein or in the due and timely performance and
satisfaction of any of the covenants, agreements or conditions contained herein,
and the curing of such default shall not have been made or shall not reasonably
be expected to occur before the Closing Date; or
(d) by the Stockholders and the Company as a group, on the one
hand, or by Aztec, on the other hand, if there shall be a final nonappealable
order of a federal or state court in effect preventing consummation of the
Merger; or there shall be any action taken, or any statute, rule regulation or
order enacted, promulgated or issued or deemed applicable to the Merger by any
governmental entity which would make the consummation of the Merger illegal.
10.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 10.1, this Agreement shall forthwith become
ineffective, and there shall be no liability or obligation on the part of any
party hereto or its officers, directors or shareholders. Notwithstanding the
foregoing sentence, (i) the provisions of Articles 10, and Sections 5.6(b) and
9.2, shall remain in full force and effect and survive any termination of this
Agreement; (ii) each party shall remain liable for any breach of this Agreement
prior to its termination; and (iii) in the event of termination of this
Agreement pursuant to Section 10.1(c) above, then notwithstanding the provisions
of Section 10.7 below, the breaching party (with the Stockholders and the
Company deemed to be a single party for purposes of this Article 10), shall be
liable to the other party to the extent of the expenses incurred by such other
party in connection with this Agreement and the transactions contemplated
hereby, as well as any damages in accordance with applicable law.
10.3 Successors and Assigns. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of Aztec, and the heirs and legal representatives of the
Stockholders.
10.4 Entire Agreement; Amendment; Waiver. This Agreement sets forth
the entire understanding of the parties hereto with respect to the transactions
contemplated hereby. Each of the Schedules to this Agreement is incorporated
herein by this reference and expressly made a part hereof. Any and all previous
agreements and understandings between or among the parties regarding the subject
matter hereof, whether written or oral, are superseded by this Agreement. This
Agreement shall not be amended or modified except by a written instrument duly
executed by each of the parties hereto, or in accordance with Section 9.5. Any
extension or waiver by any party of any provision hereto shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
10.5 Counterparts. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when
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executed and delivered shall be deemed to be an original, and all of which
counterparts taken together shall constitute but one and the same instrument.
10.6 Brokers and Agents. Except for Capital Alliance Corporation,
the fees and expenses of which will be paid by the Stockholders, Aztec and Newco
(as a group) and the Company and each Stockholder (as a group) each represents
and warrants to the other that it has not employed any broker or agent in
connection with the transactions contemplated by this Agreement and agrees to
indemnify the other against all losses, damages or expenses relating to or
arising out of claims for fees or commission of any broker or agent employed or
alleged to have been employed by such party.
10.7 Expenses. Aztec has and will pay the fees, expenses and
disbursements of Aztec and Newco and their agents, representatives, accountants
and counsel incurred in connection with the subject matter of this Agreement.
The Stockholders (and not the Company) have and will pay the fees, expenses and
disbursements of the Stockholders, the Company, and their agents,
representatives, financial advisers, accountants and counsel incurred in
connection with the subject matter of this Agreement.
10.8 Specific Performance; Remedies. Each party hereto acknowledges
that the other parties will be irreparably harmed and that there will be no
adequate remedy at law for any violation by any of them of any of the covenants
or agreements contained in this Agreement, including without limitation, the
confidentiality obligations set forth in Section 5.6(b) and the noncompetition
provisions set forth in Article 9. It is accordingly agreed that, in addition to
any other remedies which may be available upon the breach of any such covenants
or agreements, each party hereto shall have the right to obtain injunctive
relief to restrain a breach or threatened breach of, or otherwise to obtain
specific performance of, the other parties, covenants and agreements contained
in this Agreement.
10.9 Notices. Any notice, request, claim, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given if delivered personally or sent by
telefax (with confirmation of receipt), by registered or certified mail, postage
prepaid, or by recognized courier service, as follows:
If to Aztec, Newco or the Surviving Corporation to:
Aztec Technology Partners, Inc.
▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Chief Executive Officer
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with a required copy to:
▇▇▇▇ and ▇▇▇▇ LLP
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
If to any Stockholder to:
Avi Shaked and ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
and
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
with a required copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
or to such other address as the person to whom notice is to be given may have
specified in a notice duly given to the sender as provided herein. Such notice,
request, claim, demand, waiver, consent, approval or other communication shall
be deemed to have been given as of the date so delivered, mailed or dispatched
and, if given by any other means, shall be deemed given only when actually
received by the addressees.
10.10 Governing Law. This Agreement shall be governed by and
construed, interpreted and enforced in accordance with the laws of Delaware. Any
action to enforce any arbitration award made pursuant to this Agreement shall be
adjudicated in a court of competent civil jurisdiction sitting in the City of
Wilmington, Delaware and nowhere else. Each of the parties hereto hereby
irrevocably submits to the jurisdiction of such court for the purposes of such
suit. Each of the parties hereto hereby waives and agrees not to assert by way
of motion, as a defense or otherwise in such suit, any claim that it is not
subject to the jurisdiction of the above courts, that such suit is brought in an
inconvenient forum, or that the venue of such suit is improper.
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10.11 Severability. If any provision of this Agreement or the
application thereof to any person or circumstances is held invalid or
unenforceable in any jurisdiction, the remainder hereof, and the application of
such provision to such person or circumstances in any other jurisdiction, shall
not be affected thereby, and to this end the provisions of this Agreement shall
be severable. The preceding sentence is in addition to and not in place of the
severability provisions in Section 9.5.
10.12 Absence of Third Party Beneficiary Rights. No provision of
this Agreement is intended, nor will any provision be interpreted, to provide or
to create any third party beneficiary rights or any other rights of any kind in
any client, customer, affiliate, shareholder, employee or partner of any party
hereto or any other person or entity.
10.13 Mutual Drafting. This Agreement is the mutual product of the
parties hereto, and each provision hereof has been subject to the mutual
consultation, negotiation and agreement of each of the parties, and shall not be
construed for or against any party hereto.
10.14 Further Representations. Each party to this Agreement
acknowledges and represents that it has been represented by its own legal
counsel in connection with the transactions contemplated by this Agreement, with
the opportunity to seek advice as to its legal rights from such counsel. Each
party further represents that it is being independently advised as to the tax
consequences of the transactions contemplated by this Agreement and is not
relying on any representation or statements made by the other party as to such
tax consequences.
10.15 Disclosure Schedules. The parties acknowledge and agree that
the Disclosure Schedule referred to in the first paragraph of Article 3, and the
Schedules attached thereto may include certain items and information solely for
information purposes for the convenience of Aztec and Newco and that the
disclosure by the Company and the Stockholders of any matter in the Schedules
shall not be deemed to constitute an acknowledgment by the Company and the
Stockholders that the matter is required to be disclosed by the terms of this
Agreement or that the matter is material. If any Schedule discloses an item or
information in such a way as to make its relevance in the disclosure required
under another Schedule readily apparent, the matter shall be deemed to have been
disclosed in such other Schedule, notwithstanding the omission of an appropriate
cross-reference to such other Schedule.
10.16 Consent to Transfer of Stock. The Company hereby consents to
the transfer by ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ to Newco of all of his right, title and interest
in his shares of capital stock of the Company under this Agreement.
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[page intentionally left blank.]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
AZTEC TECHNOLOGY PARTNERS, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
---------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Chief Executive Officer
PCM MERGER CORPORATION
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
---------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
President
PCM, INC.
By: /s/ Avi Shaked
---------------------------------
Avi Shaked
President
STOCKHOLDERS:
/s/ Avi Shaked
-------------------------------------
Avi Shaked
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
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