AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT and PLAN OF REORGANIZATION made and
entered into this ____ day of _______________, 1997 by,
between and among ▇▇▇▇▇▇▇ COMPUTER RESOURCES OF SOUTH
CAROLINA, a South Carolina corporation ("Subsidiary"), a
wholly owned subsidiary of ▇▇▇▇▇▇▇ COMPUTER RESOURCES, INC.,
a Delaware corporation ("▇▇▇▇▇▇▇"), and THE COMPUTER STORE,
INC., a South Carolina corporation ("CSI"), and ▇▇▇▇▇▇ ▇.
▇▇▇ ("▇▇▇"), ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇▇") and ▇▇▇▇▇▇▇
▇. ▇▇▇▇ ("▇▇▇▇") (▇▇▇, ▇▇▇▇▇▇▇▇ and ▇▇▇▇ are also
hereinafter referred to collectively as the "CSI
Shareholders").
W I T N E S S E T H:
WHEREAS, the CSI Shareholders are the owners of 16,000
total common shares of CSI (the "CSI Shares"), said CSI
Shares being one hundred percent (100%) of the total issued
and outstanding shares of CSI; and
WHEREAS, CSI, Subsidiary and ▇▇▇▇▇▇▇ desire to effect a
plan of reorganization pursuant to Section 368(a)(2)(D) of
the Internal Revenue Code whereby CSI shall be acquired by
and merge into Subsidiary in exchange for stock of ▇▇▇▇▇▇▇
and other good and valuable consideration, which stock and
cash shall be delivered to CSI Shareholders upon the
cancellation of their CSI stock, pursuant to the terms of
this Agreement;
WHEREAS, the shareholders of CSI and Subsidiary and the
Boards of Directors of Subsidiary, ▇▇▇▇▇▇▇ and CSI have
adopted resolutions declaring advisable the merger of CSI
into Subsidiary on the terms and conditions hereinafter set
forth;
WHEREAS, at or prior to the Effective Date of the
merger ("Effective Date") as hereinafter defined, Subsidiary
will acquire or otherwise make available from ▇▇▇▇▇▇▇ the
number of shares of ▇▇▇▇▇▇▇ common stock (par value $.01 per
share) necessary to complete the merger provided for herein;
and
NOW, THEREFORE, in consideration of the premises and
the mutual covenants and agreements herein set forth, for
other good and valuable consideration, and for the purpose
of prescribing the terms and conditions of such merger, the
parties hereto covenant and agree as follows:
SECTION 1. MERGER
1.1 Agreement to Merge. Subject to the terms and
conditions set forth herein, CSI and Subsidiary agree to
effect a merger of CSI into Subsidiary with Subsidiary being
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the surviving corporation (the "Surviving Corporation") in
accordance with the Plan of Merger attached hereto as
Exhibit "A". CSI's obligation to merge into Subsidiary is
expressly conditioned upon CSI's Shareholders surrendering
all CSI Shares at the Closing Date pursuant to the terms,
conditions and covenants set forth in this Agreement and the
Plan of Merger.
CERTAIN PORTIONS OF THIS AGREEMENT
ARE SUBJECT TO BINDING ARBITRATION
1.2 ▇▇▇▇▇▇▇ Common Stock. ▇▇▇▇▇▇▇ will make available
to Subsidiary a sufficient number of its common shares (par
value of $.01 per share) ("▇▇▇▇▇▇▇ Stock") to effect the
merger pursuant to the Plan of Merger.
SECTION 2. ELEMENTS OF MERGER TRANSACTION
2.1 Conversion of Shares. Each share of CSI common
stock issued and outstanding immediately prior to the
Effective Date exclusive of shares held in the treasury of
CSI, which shares shall be cancelled upon the Effective Date
and shall, without any action on the part of ▇▇▇▇▇▇▇,
Subsidiary or any holder of such shares, be converted by the
merger into 1.55319 shares of ▇▇▇▇▇▇▇ Stock which has been
determined by dividing $700,002.97 by the base period price
(28.168) and dividing such result by 16,000. As used in
this section, the base period price of ▇▇▇▇▇▇▇ Stock shall
be the average of the closing prices of stock on the NASDAQ
Exchange for the twenty (20) trading days immediately
preceding the third day before the Effective Date. In
determining the base period price of ▇▇▇▇▇▇▇ Stock, the
closing price of ▇▇▇▇▇▇▇ Stock for the dates that preceded
the Stock Split that was effectuated on October 7, 1997
shall be recalculated to give effect to such Stock Split.
(a) At Closing, the CSI Shareholders shall
deposit with ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇, LLP and
▇▇▇▇▇▇▇▇▇ & Dreidame Co., L.P.A. as escrow agents the number
of shares of ▇▇▇▇▇▇▇ Stock having an aggregate value of
$74,983.72 (based on the base period price set forth in
Section 2.1 of this Agreement). Such shares shall be
deposited by the CSI Shareholders proportionately. Such
shares shall be held pursuant to the terms of an Escrow
Agreement which is attached hereto as Exhibit "B".
(b) Incident to the issuance of the ▇▇▇▇▇▇▇
shares, each CSI Shareholder shall execute such
documentation containing such representations regarding the
holding of ▇▇▇▇▇▇▇ Shares, including that each respective
CSI Shareholder is able to bear the economic risk of holding
the shares to be delivered hereunder for the period required
by applicable Federal Securities Laws because such ▇▇▇▇▇▇▇
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Shares will not have been registered under the Securities
Act of 1933 and therefore cannot be sold unless they are
subsequently registered under the Act or an exemption from
registration is available. The form of the documentation to
be executed by each CSI Shareholder incident to the issuance
of these shares pursuant to the merger is attached hereto as
Exhibit "C".
2.2 Non-Stock Consideration Transferred at the
Effective Date.
(a) At the Effective Date, the CSI Shareholders
shall each receive cash in the amount of Forty-three and
749,814/1,000,000 Dollars ($43.749814) for each share of CSI
Common Stock owned by each CSI Shareholder, totaling Six
Hundred Ninety-Nine Thousand Nine Hundred Ninety-seven and
03/100 Dollars ($699,977.03) in the aggregate.
(b) At Closing, the CSI Shareholders shall
deposit with the escrow agents the sum of Seventy-Five
Thousand Sixteen and 78/100 Dollars ($75,016.78) in the
aggregate, which amount shall be deposited by the CSI
Shareholders proportionately. Such funds shall be held
pursuant to the terms of the Escrow Agreement attached
hereto as Exhibit "B".
(c) Not later than the applicable date set forth
in Section 2.2(d) (the "Post Merger Date"), the CSI
Shareholders and Subsidiary agree to determine any
adjustment to the consideration issued incident to the
merger if the book value of the shareholder equity of CSI is
less than One Million Forty-two Thousand Nine Hundred
Twenty-two Dollars ($1,042,922.00) as reflected in the
Closing Balance Sheet referred to in Section 5.6 below. To
the extent the book value of the shareholder's equity of CSI
on the Closing Balance Sheet is less than One Million
Forty-two Thousand Nine Hundred Twenty-two Dollars
($1,042,922.00),, the consideration issued incident to the
merger shall be decreased, on a dollar for dollar basis, to
the extent of such shortfall. Any net reduction in the
consideration for the merger, as a result of such
adjustment, if any, shall be implemented by decreasing
proportionately the amount of cash and ▇▇▇▇▇▇▇ Stock paid to
the CSI Shareholders, which amount shall first be repaid
from the escrow funds in the manner set forth in the Escrow
Agreement, and if such escrow funds are insufficient to
repay such amount, then from the CSI Shareholders. To the
extent the book value of the shareholder's equity of CSI is
greater than One Million Forty-Two Thousand Nine Hundred
Twenty-Two Dollars ($1,042,922.00) on the Closing Balance
Sheet, the consideration issued incident to the merger shall
be increased on a dollar-for-dollar basis, to the extent of
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such increase. Any net increase in the consideration for
the merger, as a result of such adjustment, if any, shall be
implemented by increasing proportionately the amount of cash
and ▇▇▇▇▇▇▇ Stock paid to the CSI Shareholders. Any
reduction or increase in the amount of ▇▇▇▇▇▇▇ Stock repaid
by the CSI Shareholders or paid to the CSI Shareholders as
set forth above shall be based on the average of the closing
price of the ▇▇▇▇▇▇▇ Stock on the NASDAQ Exchange for the
twenty (20) trading days immediately preceding the third day
before an agreement is made by the parties in the manner set
forth in Section 2.2(d) regarding the Closing Balance Sheet
of CSI.
(d) Within forty-five (45) days after the
Effective Date, the CSI Shareholders will deliver to the
Subsidiary a copy of the Closing Balance Sheet prepared by
the CSI Shareholders for the subject period along with any
supporting documentation reasonably requested by Subsidiary.
Within thirty (30) days following delivery to Subsidiary of
such report (the "BV Objection Period"), the Subsidiary
shall have the right to object in writing to the results
contained in such determination. If timely objection is not
made by Subsidiary of such determination, such determination
shall become final and binding for purposes of this
Agreement. If timely objection is made by Subsidiary to the
CSI Shareholders, and the CSI Shareholders and Subsidiary
are able to resolve their differences in writing within
thirty (30) days following the expiration of the BV
Objection Period, then such determination as resolved shall
become final and binding as it relates to this Agreement.
If timely objection is made by Subsidiary to the CSI
Shareholders, and CSI Shareholders and Subsidiary are unable
to resolve their differences in writing within thirty (30)
days following the expiration of the BV Objection Period,
then all disputed matters pertaining to the report shall be
submitted to and reviewed by an Arbitrator (the
"Arbitrator") which shall be an independent accounting firm
selected by Subsidiary and CSI Shareholders. If the
Subsidiary and the CSI Shareholders are unable to agree
promptly on an accounting firm to serve as the Arbitrator,
each shall select, by not later than the seventy-fifth day
following the BV Objection Period, an accounting firm, and
each selected accounting firm shall be instructed to jointly
select promptly another accounting firm, such third selected
firm to serve as the Arbitrator. The Arbitrator shall
consider only the disputed matters pertaining to the
determination and shall act promptly and fairly to resolve
all disputed matters and its decision with respect to all
disputed matters shall be final and binding upon CSI
Shareholders and Subsidiary. Expenses of the arbitration
(including reasonable attorney and accounting fees) shall be
borne by the Subsidiary unless the Arbitrator determines
that the book value of the shareholders' equity as reflected
on the Closing Balance Sheet made by the CSI Shareholder
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exceeds by $25,000 or more the Arbitrator's determination of
the book value of the Shareholder's equity of CSI as of the
Effective Date, in which case, the expense of the
arbitration (including reasonable attorney and accounting
fees) shall be borne by the CSI Shareholders.
2.3 Potential Adjustment for Consideration Transferred
Incident to the Merger.
(a) If during the calendar year 1997, the sum of
(i) CSI's EBIT from January 1, 1997 to the Effective Date
and (ii) Subsidiary's EBIT from its operation, from the
Effective Date to December 31, 1997 (a) exceeds $220,000.00
, then fifty percent (50%) of such excess not to exceed
$100,000.00, shall be paid fifty percent (50%) in cash and
fifty percent (50%) in ▇▇▇▇▇▇▇ Stock to the CSI Shareholders
in accordance with the procedures set forth in Section 2.1
and 2.2 of the Agreement within five (5) days after the
applicable time period set forth below (unless extended as
provided below due to a dispute by the CSI Shareholders) or
(b) is less than $180,000, then fifty percent (50%) of such
deficiency, not to exceed $100,000, shall serve as a
reduction to the consideration paid for the merger, which
reduction will be repaid to Subsidiary from the escrow
account, fifty percent (50%) in cash and fifty percent (50%)
in ▇▇▇▇▇▇▇ Stock according to the procedures set forth in
the Escrow Agreement and if such Escrow Agreement is not
sufficient to repay such amount, then from the CSI
Shareholders. Any reduction or increase in the amount of
▇▇▇▇▇▇▇ Stock to be repaid by the CSI Shareholders or paid
to the CSI Shareholders, if any, shall be based on the
average of the closing price of the ▇▇▇▇▇▇▇ Stock on the
NASDAQ Exchange for the twenty (20) trading days immediately
preceding the third day before an agreement is made by the
parties in the manner set forth in this Section regarding
the EBIT determination.
For purposes of this section, "EBIT" shall
mean the earnings of CSI and Subsidiary from the operation
of CSI and Subsidiary, before interest and taxes, and
without incorporating any gains or losses realized on the
disposition of assets other than in the ordinary course of
business. For purposes of determining Subsidiary's EBIT for
the period from the Effective Date to December 31, 1997, no
item of income or expense shall be allocated by ▇▇▇▇▇▇▇ to
Subsidiary unless such items are reasonably calculated to
contribute to the increased profits of Subsidiary, it being
the intent of the parties that ▇▇▇▇▇▇▇ shall exercise the
utmost good faith with respect to allocation of income and
expense to the Subsidiary. Incident to the determination of
Subsidiary's EBIT, no compensation of any executive or other
employee of ▇▇▇▇▇▇▇ or its affiliates shall be allocated to
Subsidiary. Except as set forth above, no other
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administrative, overhead or any other expense of ▇▇▇▇▇▇▇
shall be allocated to Subsidiary. Subsidiary's EBIT will be
calculated on a basis consistent with CSI's financial
statement determining EBIT for the period January 1, 1997 to
the Effective Date, using the same methodologies, judgments,
variances, assumptions, adjustments and estimates employed
by CSI in preparing such financial statements.
Within sixty (60) days after December 31,
1997, Subsidiary will deliver to the CSI Shareholders a copy
of the reported EBIT prepared by Subsidiary's certified
public accountants for the subject period along with any
supporting documentation reasonably requested by the CSI
Shareholders. Within thirty (30) days following delivery to
the CSI Shareholders of such report (the "EBIT Objection
Period"), the CSI Shareholders shall have the right to
object in writing to the results contained in such
determination. If timely objection is not made by the CSI
Shareholders of such determination, such determination shall
become final and binding for purposes of this Agreement. If
timely objection is made by CSI Shareholders to Subsidiary,
and the CSI Shareholders and Subsidiary are able to resolve
their differences in writing within thirty (30) days
following the expiration of the EBIT Objection Period, then
such determination as resolved shall become final and
binding as it relates to this Agreement. If timely
objection is made by CSI Shareholders to Subsidiary, and CSI
Shareholders and Subsidiary are unable to resolve their
differences in writing within thirty (30) days following the
expiration of the EBIT Objection Period, then all disputed
matters pertaining to the report shall be submitted to and
reviewed by an Arbitrator (the "Arbitrator") which shall be
an independent accounting firm selected by Subsidiary and
CSI Shareholders. If the Subsidiary and the CSI
Shareholders are unable to agree promptly on an accounting
firm to serve as the Arbitrator, each shall select, by not
later than the seventy-fifth day following the EBIT
Objection Period, an accounting firm, and each selected
accounting firm shall be instructed to jointly select
promptly another accounting firm, such third selected firm
to serve as the Arbitrator. The Arbitrator shall consider
only the disputed matters pertaining to the determination
and shall act promptly and fairly to resolve all disputed
matters and its decision with respect to all disputed
matters shall be final and binding upon CSI Shareholders and
Subsidiary. Expenses of the arbitration (including
reasonable attorney and accounting fees) shall be borne by
the CSI Shareholders unless the Arbitrator determines that
EBIT for calendar year 1997 exceeds by at least $25,000, the
determination made by Subsidiary's accounting firm, in which
case, the expense of the arbitration (including reasonable
attorney and accounting fees) shall be borne by Subsidiary.
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The Escrow Agreement shall terminate and any remaining
property contained therein shall be paid to the CSI
Shareholders proportionately as set forth in the Escrow
Agreement on the later of April 1, 1997 or the date upon
which the EBIT determination is resolved and all adjustments
hereunder, if any, have been made by the parties.
SECTION 3. NON-COMPETITION AGREEMENT.
3.1 Non-Competition Agreements. As an inducement for
and consideration of Subsidiary entering into this
Agreement, the CSI Shareholders shall each enter into a non-
competition Agreement for a period of the later of five (5)
years from the Effective Date or one (1) year after the
termination of such individual's employment with Subsidiary.
Such Non-Competition Agreements are set forth in Exhibit
"D", Exhibit "D-1" and Exhibit "D-2", attached hereto and
made a part hereof.
SECTION 4. EMPLOYMENT AGREEMENTS.
4.1 Employment Agreements. Upon the Effective Date,
Subsidiary shall enter into an Employment Agreements with
▇▇▇, ▇▇▇▇▇▇▇▇ and ▇▇▇▇. Copies of said Employment
Agreements are attached hereto and made a part hereof as
▇▇▇▇▇▇▇▇ "▇", "▇-▇" and "E-2". Subsidiary's obligations
under said Employment Agreements shall be guaranteed by
▇▇▇▇▇▇▇. Copies of said Guarantees are attached hereto and
made a part hereof as Exhibits "E-3", "E-4" and "E-5".
SECTION 5. REPRESENTATIONS AND WARRANTIES
OF CSI AND CSI SHAREHOLDERS
Except as set forth in the Disclosure Schedule attached
hereto, CSI and CSI Shareholders, jointly and severally,
represent, warrant and covenant to Subsidiary that the
following statements are materially true as of the date
hereof and shall remain materially true and correct as of
the Effective Date as if made again at and as of that time:
5.1 Organization and Good Standing. CSI is a
corporation duly organized, validly existing and in good
standing under the laws of the State of South Carolina and
is duly authorized and has full corporate power under its
Articles of Incorporation, as amended, and under applicable
laws, to own or lease all of its properties and to engage in
the business carried on by it, and is fully qualified to do
business in those states in which the nature and conduct of
its present business operations requires qualification and
in which the failure to be so qualified, if required, would
have a materially adverse effect on the business operations
and financial condition of CSI taken as a whole. Copies of
CSI's Articles of Incorporation and By-Laws (certified to be
correct by the Secretary of CSI) have been delivered to
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Subsidiary and are complete and correct as of the date
hereof. The Disclosure Schedule correctly lists, with
respect to CSI, each jurisdiction, if any, in which it is
qualified to do business as a foreign corporation.
5.2 Capitalization. CSI has One Hundred Thousand
(100,000) authorized shares of Common Stock, One Dollar
($1.00) par value, of which Sixteen Thousand (16,000) shares
are outstanding; that such outstanding shares of CSI have
been duly and validly authorized and issued and are fully
paid and non-assessable; that such CSI Common Stock is the
only class of stock or securities authorized by CSI's
Articles of Incorporation and By-Laws as amended; and there
are no purchase commitments, purchase agreements,
subscriptions, options, warrants, contracts, other
commitments and/or agreements of any kind expressed or
implied, outstanding for the issuance of any additional
shares of CSI common stock, the issuance of any additional
shares of any other class of stock or the issuance of any
type or class of security.
5.3 Ownership of CSI Common Stock. The Disclosure
Schedule sets forth a complete list of the common stock of
CSI and the owners thereof. The CSI Shareholders are the
lawful record and beneficial owners of the number of shares
of CSI common stock set opposite their names, free and clear
of any liens, claims, encumbrances or restrictions of any
kind.
5.4 Subsidiaries. CSI has no subsidiaries.
5.5 Authority. The execution, delivery and
performance of this Agreement and the Plan of Merger, and
the consummation of the transactions contemplated therein,
have been duly authorized and approved by all requisite
action of CSI's Board of Directors and the CSI Shareholders,
and this Agreement and the Plan of Merger have been duly
executed and delivered and constitute the valid and binding
obligation of CSI in accordance with their respective terms.
Neither the execution and delivery of this Agreement nor the
Plan of Merger nor the consummation of the transactions
contemplated hereby will:
(i) violate, or conflict with, or require any
consent under, or result in a breach of any provisions of,
or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or
result in the termination of, or accelerate the performance
required by, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties
or assets of CSI under any of the terms, conditions or
provisions of the Articles of Incorporation or By-laws of
CSI or of any note, bond, mortgage, indenture, deed of
trust, license, agreement, or other instrument or obligation
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to which CSI, or any CSI Shareholder is a party, or by which
CSI or any CSI Shareholder or any of their properties or
assets may be bound or affected, or
(ii) violate any order, writ, injunction or
decree applicable to any CSI Shareholder or CSI or to any of
their properties or assets or, to the knowledge of CSI
Shareholders violate any statute, rule or regulation
applicable to any CSI Shareholder or CSI or any of their
properties or assets; or,
(iii) except as set forth in the Disclosure
Schedule, Exhibit "5.5(iii)", constitute a default or event
that, with notice or lapse of time, or both, would be a
default, breach, or violation of any lease, license,
promissory note, conditional sales contract, commitment,
indenture, mortgage, deed of trust or other agreement,
instrument or arrangement to which CSI is a party or by
which it is bound; or,
(iv) except as set forth in the Disclosure
Schedule, Exhibit "5.5(iv)", constitute an event that would
permit any party to terminate any agreement or to accelerate
the maturity of any indebtedness or other obligation of CSI.
No consent or approval by, notice to or registration with
any governmental authority is required on the part of any
CSI Shareholder or CSI prior or subsequent to the Closing
Date in connection with the execution, delivery and
performance by CSI or the CSI Shareholders of this Agreement
or the consummation of any of the transactions contemplated
hereby.
5.6 Closing Balance Sheet. The Closing Balance Sheet,
which shall be attached hereto as Exhibit "F" on the Post-
Closing Date, reflects only the assets and liabilities of
CSI as of the Effective Date and does not include any assets
or liabilities of any corporation or entity except CSI. As
of the Effective Date, CSI did not have any liabilities or
obligations of any nature (whether absolute, accrued,
contingent or otherwise and whether due or to become due),
including without limitation, any tax liabilities, of the
nature required by generally accepted accounting principles
to have been reflected or reserved against in financial
statements, which are not accurately and fully reflected or
reserved against in the Closing Balance Sheet; provided,
however, that the Closing Balance Sheet shall not be
accompanied by notes and shall not include normal year-end
adjustments (if any) other than depreciation or any other
accrual of a nature set forth on Exhibit "5.6", attached
hereto, which are not material in the aggregate.
5.7 Year End and Interim Financials.
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(a) Attached to the Disclosure Schedule are the
audited financial statements of CSI for the year ended
December 31, 1996 and the unaudited financial statements of
CSI for the year ended December 31, 1995 and the unaudited
interim balance sheets as of August 31, 1997, including any
and all notes thereto ("Year End and Interim Financials").
The Year End statements are in accordance with the books and
records of CSI, and have been prepared in accordance with
general accepted accounting principles (except that the
unaudited financial statements for the year ended December
31, 1995 are not accompanied by notes and normal year-end
adjustments) as applied by CSI on a consistent basis
throughout the periods covered by such statements and fairly
present the financial condition of CSI as of the respective
dates and the results of operations of CSI for the period
then ended. The Interim Financials are in accordance with
the books and records of CSI and are prepared on a
consistent basis throughout the period covered by such
statements and fairly present the financial condition of CSI
as of such date and the results of operations of CSI for the
period then ended; provided, however, that the Interim
Financials do not include normal year-end adjustments (if
any) which are not material in the aggregate. Except as
stated in the Year End and Interim Financials there have
been no unusual accounting practices engaged in which have
affected the amount or trend of net income of CSI, or any
unusual or nonrecurring transactions, during the periods
reflected in the Year End and Interim Financials. All
charges, expenses and accruals of the nature required by
generally accepted accounting principles to have been
reflected or reserved against in financial statements
relating to the operations or to any aspect of the business
of CSI have been deducted in the preparation of the income
and expenses statements included in the Year End and Interim
Financials and are in accordance with the books and records
kept by CSI. The Year End statements and the Interim
Financials are referred to herein as the "Financial
Statements". In determining whether a Financial Statement
is correct and fairly represents the financial position at
the requisite date, any understatement or omission of a
liability or expense shall be offset by any understatement
or omission of an asset or revenue, and vice versa.
(b) Absence of Undisclosed Liability. Except as
to the extent specifically reflected in the Financial
Statements, and except for trade payables and liabilities
arising in the ordinary course of business and expenses of
CSI relating to the merger which shall be properly accrued
for on the Closing Balance Sheet since the date of the
Financial Statements, CSI, on the Effective Date, does not
have any other liabilities of any nature, whether accrued,
absolute or contingent, or otherwise, and whether due or to
become due of the nature required by generally accepted
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accounting principles to have been reflected or reserved
against in financial statements.
(c) No Liabilities as Guarantor. Except as set
forth in the Disclosure Schedule, CSI is not directly or
indirectly obligated to guaranty or assume any debt,
dividend, or other obligation of any person, corporation,
association, partnership, or other entity, except
endorsements made in the ordinary course of business in
connection with the deposit of items for collection.
(d) Absence of Material Change. Except as set
forth in the Disclosure Schedule or as otherwise set forth
in this Agreement or the exhibits hereto, since the date of
the Interim Financials there has not been:
(i) any change in the condition (financial
or otherwise), properties, business, operations or prospects
of CSI which is materially adverse, singly or in the
aggregate;
(ii) any material loss, damage or destruction
in the nature of a casualty loss or otherwise, whether
covered by insurance or not, adversely affecting any
property or asset of CSI;
(iii) an actual or any threatened strike
or other labor trouble or dispute;
(iv) any loss or any threatened loss of any
governmental permit, license, qualification, special charter
or certificate of authority held or enjoyed or formerly held
or enjoyed by CSI which loss has had or upon occurrence
would have an adverse effect, singly or in the aggregate, on
the condition (financial or otherwise), properties,
business, operations or prospects of CSI;
(v) to the knowledge of the CSI
Shareholders, any statute, regulation, order, ordinance or
other law the adoption, amendment or rescission of which
adversely affects, singly or in the aggregate, the condition
(financial or otherwise), properties, business, operations
or prospects of CSI;
(vi) any indebtedness, liability or
obligation (whether absolute, accrued, contingent or
otherwise) incurred by CSI, or other transaction entered
into by CSI, other than in the ordinary course of business
and consistent with past practice, or any guarantee of any
indebtedness, liability or obligation made by CSI;
(vii) any declaration, setting aside or
payment of any dividend or other distribution in respect of
any capital stock or other securities of CSI;
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(viii) any issuance, sale, combination or
reclassification of any capital stock or other securities
of CSI;
(ix) any issuance or grant of any option,
warrant or other right in respect of any capital stock or
other securities of CSI;
(x) any direct or indirect redemption,
purchase or other acquisition of any capital stock or other
securities of CSI;
(xi) any obligation, liability, lien or
encumbrance paid, discharged or satisfied by CSI other than
current liabilities reflected in the Interim Financials and
current liabilities incurred since August 31, 1997 in the
ordinary course of business;
(xii) any mortgage, lien, pledge, charge
or encumbrance (except for liens for current taxes not yet
due and payable), created, incurred or assumed by CSI;
(xiii) except in the ordinary course of
business, any sale, transfer or other disposition of any
tangible asset of CSI, any cancellation of any debt or claim
of CSI or any disposition of any intangible properties,
assets or rights of CSI;
(xiv) any salary or wage increase granted
or committed to be made, other than normal merit or cost-of-
living increases pursuant to CSI's general prevailing
practices, with respect to any officer, director, employee
or agent of CSI, or any bonus (except bonuses to Cox and
▇▇▇▇▇▇▇▇ in the amounts of $12,000.00 and $12,000.00
respectively, provided that such amounts are properly
accrued for on the Closing Balance Sheet), incentive or
deferred compensation, profit sharing, retirement, pension,
group insurance, death benefit or other fringe benefit plan
or trust agreement entered into or amended or any employment
or consulting agreement entered into or amended or altered;
(xv) any termination (whether by discharge,
retirement or otherwise) of any officer, director, employee
or agent of CSI or any notice to so terminate given or
received by any of the foregoing;
(xvi) any loan made, increased or
forgiven to any officer, director, employee or agent of CSI
or to any member of any of their families;
(xvii) any capital expenditure, addition
or improvement made or committed to be made by CSI in excess
of $5,000.00 with respect to any single expenditure,
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addition or improvement or in excess of $10,000.00 with
respect to all such expenditures, additions and
improvements;
(xviii) any failure on the part of CSI to
operate its business in the ordinary course or to use its
best efforts to preserve its business organization intact,
to retain the services of its employees and to preserve its
goodwill and relationships with suppliers, creditors and
others having business relationships with it;
(xix) any known material loss of
business, termination or discontinuance of any relationship
or dispute between CSI and any customer or supplier;
(xx) any loss, amendment, termination or
waiver of any material right of CSI other than in the
ordinary course of business;
(xxi) any known write-off as
uncollectible of any notes or accounts receivable, or any
portions thereof, in excess of $5,000.00 with respect to any
single note or account or in excess of $10,000.00 with
respect to all such write-offs;
(xxii) any action taken or omitted to be
taken by CSI which would constitute the breach, default or
result in the acceleration of or cause (after lapse of time,
notice or both) the breach, default or acceleration of any
material right, contract, commitment or other obligation of
CSI;
(xxiii) any agreement or commitment by CSI
to do any of the foregoing;
(xxiv) any failure to maintain the books
and records of CSI consistently and in the usual, regular
and ordinary manner and in accordance with good business
practice;
(xxv) any other event or condition of any
character which, singly or in the aggregate, has materially
adversely affected, or any event or condition known to CSI
or to any CSI Shareholder or any of CSI's officers which it
is reasonable to expect will, singly or in the aggregate,
materially adversely affect in the future, the condition
(financial or otherwise), properties, business, operations
or prospects of CSI, except for events, trends, etc.,
generally affecting and known to the industry as a whole.
5.8 Assets. Except as provided in Disclosure Schedule
Exhibit 5.8, CSI has good and marketable title to all of its
assets and properties, real, personal or otherwise,
including but not limited to those assets and properties
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reflected in the August 31, 1997 Interim Financials, except
only for assets subsequently disposed of in the ordinary
course of business, free and clear of all liens, claims,
security interests and encumbrances whatsoever, except (a)
as specifically reflected thereon, or (b) as set forth in
the Disclosure Schedule. To the best of the knowledge of
the CSI Shareholders, all of CSI's tangible and other
operating assets, property and equipment are in generally
good operating condition and repair, free of structural or
material mechanical defects and conform with all applicable
laws and regulations. Without limiting the generality of
the foregoing, specific representations are set forth in the
following subparagraphs of this Section 5.8.
5.8.1 Receivables. Accounts Receivable of CSI
as included in the Interim Financials and all Accounts
Receivable of CSI created after such date up to and
including the Effective Date arose from valid sales in the
ordinary course of business and represent valid, collectible
(as to the Accounts Receivable of CSI, net of any bad debt
reserve as reflected on the Interim Financials) and existing
claims. Subject to customer credits, the payment of each
Account Receivable will not be subject to any known defense,
counterclaim or condition (other than CSI's performance in
the ordinary course of business) whatsoever.
5.8.2 Inventory. The inventory reflected in
the Financial Statements were, and those reflected on the
books of CSI on the date hereof, have been, and those
reflected on such books on the Effective Date will have been
determined and valued in accordance with generally accepted
accounting principles, applied on a consistent basis as
reflected in the Financial Statements and consist of items
which are good and merchantable and of a quality and
quantity presently usable or saleable in the ordinary course
of business (except for items of obsolete and slow moving
materials of below standard quality, all of which were
written down to net realizable value or adequately reserved
for in such Financial Statements or returned or are
returnable to the manufacturer or its distributor for
credit).
5.8.3 Real Property. CSI owns no real
property.
5.8.4 Dealer Agreements. All of CSI's Dealer
Agreements are set forth on Exhibit "F" attached hereto.
5.8.5 Trademarks, etc. CSI neither owns nor
uses in its business any patents, trademarks, trade names,
copyrights, service marks or service names except for common
law trademark rights, if any, and registration rights, if
any, under the trademark laws for the State of South
Carolina in the name "The Computer Store", and except for
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off-the-shelf licenses of certain computer software. CSI
has not infringed, misappropriated or misused or been
charged, or threatened to be charged, with infringement,
misappropriation or misuse of, any patent, trademark, trade
name, copyright, trade secret, know-how or confidential
information or data of another.
5.9 Taxes. CSI has filed and will file (for all
periods ending on or prior to the Effective Date) all tax
returns and other reports to governmental bodies required by
law and has paid or has or will have fully reserved for all
taxes due and payable as reflected on such returns or any
returns that may be filed after the Effective Date which
include periods on or before the Effective Date. Except as
set forth on the Disclosure Schedule, Exhibit "5.9", there
are no pending or proposed deficiency assessments,
reassessments or claims of any governmental body for income
taxes, property taxes, sale or usage taxes, social security,
workers' compensation, unemployment contributions or any
other taxes or contributions; and the charges, accruals and
reserves reflected in the Closing Balance Sheet are and will
be sufficient to pay all such taxes reflected on such
returns related to the periods covered by them and any prior
periods. CSI is not a consenting corporation under the
provisions of Section 341(f) of the Internal Revenue Code
("Code"), nor during the past three (3) years has given or
has been requested to give waivers of any statute of
limitations relating to any such taxes or governmental
charges. CSI is not an electing sub-chapter S corporation
under the provisions of Section 1361 of the Code.
5.10 Outstanding Indebtedness. Except for liabilities
incurred in the ordinary course of business and/or reflected
or reserved against in the Financial Statements, and/or as
provided in the Disclosure Schedule, Exhibit "5.10", CSI has
no liabilities of the nature required by generally accepted
accounting principles to have been reflected or reserved
against in financial statements, is not indebted to any
party and has not pledged or hypothecated, voluntarily or
involuntarily, any of its assets. CSI is not in default in
respect of any material term or conditions of any
indebtedness or any liabilities (including trade payables),
and there are no facts in existence on the date hereof and
known by any of the CSI Shareholders which might reasonably
serve as a basis, in whole or in part, for any material
liabilities or obligations not disclosed in this Agreement
or not adequately covered by insurance.
5.11 Obligations. Except as provided by the contracts,
leases and other documents described in the Disclosure
Schedule Exhibit 5.11 or in other Exhibits hereto, CSI is
not a party to or bound by any written or oral (a) contract
or commitment not made in the ordinary course of business,
(b) lease of real property or personal property or fixtures,
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as lessee, (c) promissory note, loan agreement, guaranty,
mortgage, pledge, security agreement, or other credit
agreement, indenture, instrument, agreement or arrangement
providing for or relating to extensions of credit, (d)
franchise, dealership, distributorship, or other like
agreement, (e) contract, agreement or other arrangement or
commitment involving a payment by, or other obligation of,
CSI of more than $5,000.00, or (f) contract or commitment
which cannot or in reasonable probability will not be
performed or terminated without penalty within 90 days from
the Effective Date. CSI is not in default, and is not aware
of any event which with the giving of notice and/or passage
of time would constitute a default by CSI, in any material
respect, under any contract, lease or other document
described in the Disclosure Schedule or other Exhibit.
5.12 Labor. Except as specifically described in the
Disclosure Schedule Exhibit 5.12, CSI is not a party to any
oral or written: (a) employment contract which is not
immediately terminable at will by the employer without
contractual penalty; (b) non-qualified retirement or profit-
sharing, bonus or stock option plan, group insurance
contract for, or agreement with, its employees or any of
them; (c) collective bargaining or other labor union
contract, vacation pay or severance pay or other so-called
fringe benefit agreement or arrangement; or (d) agreement
with any present or former officer, director or shareholder
of CSI. Furthermore, except as described in the Disclosure
Schedule Exhibit 5.12, there are no material labor
controversies, work stoppages, slow-downs or other
significant labor troubles whatsoever pending, or to the
knowledge of the CSI Shareholders threatened or proposed,
against or affecting CSI, nor has CSI been charged with any
unresolved unfair labor practice, nor does any CSI
Shareholder have knowledge of any present union organizing
activity among any employees of CSI; CSI has complied in all
material respects with all laws and regulations relating to
the employment of labor, including without limitation any
provisions thereof relating to wages, hours, or collective
bargaining, or any regulations of the Occupational Safety
and Health Administration, the Environmental Protection
Agency, the Equal Employment Opportunity Commission, other
civil rights commissions, and similar agencies, and
including the payment of social security, withholding taxes,
income taxes, disability, worker's compensation,
unemployment and similar taxes, and it is not liable for any
arrears in wages or any taxes or penalties for failure to
comply with any of the foregoing. To the extent of any
claim pending at the time of Closing with respect to any of
the foregoing, CSI Shareholders shall indemnify and hold CSI
harmless from and against any and all liabilities arising
out of such claim. The Disclosure Schedule, Exhibit
"5.12" sets forth the names of any former employees of CSI
that are exercising any rights under COBRA.
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5.13 Retirement Plans. Except as specifically
described in the Disclosure Schedule Exhibit 5.13, CSI does
not maintain any qualified Retirement Plans, within the
meaning of Code Section 401(a). CSI has not incurred or
accumulated any funding deficiency within the meaning of the
Employees' Retirement Income Security Act of 1974 as amended
(ERISA) or incurred any liability to Pension Benefit
Guarantee Corporation in connection with any employee
benefit plan established or maintained by CSI and no
reportable event or prohibited transaction, as defined in
ERISA, has occurred with respect to any plans of CSI. CSI
is not a party to nor has ever been a party to any multiple
employer pension plan and never incurred any withdrawal
liability incident thereto.
5.13.1 To the best of CSI and CSI Shareholders'
knowledge, all of the qualified Retirement Plans of CSI have
been operated and administered in full compliance with
applicable requirements of all laws, rules and regulations
governing plans of this type (including, without limitation,
applicable provisions of ERISA, pertaining to reporting and
disclosure requirements, fiduciary responsibility and claims
procedures; the Code, pertaining to disclosure and funding
requirements); and CSI has filed all returns and reports as
required incident thereto.
5.13.2 Except as disclosed on the Disclosure
Schedule Exhibit 5.13, CSI is not and has never been a
member of any controlled group of corporations (as defined
in Code Section 414(b)), any group of trade or business
(whether or not incorporated) which are under common control
(as defined in Code Section 414(c)) or any affiliated
service group (as defined in Code Section 414(m)) which
include in such group a corporation or trade or business
other than CSI and, as a result, CSI has no liability which
could arise by reason of the operation of, termination of or
withdrawal from any employee pension benefit plan in which
any other employer has participated.
5.14 Welfare Plans.
5.14.1 Welfare Plans Described. The employees
welfare benefit plans described in the Disclosure Schedule
Exhibit 5.14 are the only employee welfare benefit plans
(within the meaning of Section 3(a) of ERISA), which are
maintained by CSI for the benefit of eligible employees of
CSI (hereinafter collectively referred to as "Welfare
Plans"), and no oral or written promises have been made to
any employees or former employees of CSI as to the current
or future benefits thereunder other than as set forth in the
summary plan booklet describing such plan.
5.14.2 Operation. Each of the Welfare Plans
has been operated and administered in full compliance with
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applicable requirements of all laws, rules and regulations
governing plans of its type (including, without limitation,
applicable provisions of: Title I of ERISA, pertaining to
reporting and disclosure requirements, fiduciary
responsibility and claims procedures; the Code, pertaining
to disclosure and funding requirements; the Pregnancy
Discrimination Act of 1978; the Age Discrimination in
Employment Act, as amended; and the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended, pertaining to
continuation of health plan coverage).
5.14.3 Funding. Each of the Welfare Plans is
adequately funded through insurance or otherwise, using
reasonable actuarial assumptions, to provide the benefits
contemplated thereunder.
5.14.4 Liens. No lien has attached and no
person has threatened to attach a lien on any assets of any
of the Welfare Plans or on any property of CSI as a result
of any failure to comply with any of the provisions of any
of the Welfare Plans or with any laws, rules or regulations
to which any of such Welfare Plans is subject, and CSI has
no knowledge that any such lien is likely to attach.
5.14.5 Claims. Except as otherwise set forth
in the Disclosure Schedule Exhibit 5.14, no litigation is
pending or, to the best of CSI and CSI Shareholder's
knowledge, has been threatened against CSI, any of the
Welfare Plans, and/or any fiduciary of such Welfare Plans
claiming either violations of any laws, rules or
regulations, governing any of the Welfare Plans and/or
violations of any provision of the Welfare Plans, and CSI
Shareholders have no knowledge of any claims or potential
claims concerning any such violations.
5.15 Plans Reimbursements. CSI Shareholders shall
reimburse Subsidiary for that portion of CSI's contribution
and/or funding obligation and/or premium costs under the
Welfare Plans which is attributable to any period up to the
Closing which was due and payable but remained unpaid at the
Closing.
5.16 Burdensome Obligations. Except for agreements
described in the Disclosure Schedule Exhibit 5.16, CSI is
not a party to any so-called "requirements" or similar type
of contract limiting its freedom or latitude in the purchase
of its inventory, equipment or other items. CSI is not
subject to or bound by any contract or other obligation
whatsoever outside of the ordinary course of business which
materially adversely affects its business, properties or
prospects, except as expressly disclosed in this Agreement.
5.17 Lawful Operations. To the best of CSI
Shareholder's knowledge: (a) the businesses conducted and
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properties owned or leased by CSI conform in all material
respects with all applicable ordinances, regulations and
other laws; and (b) any licenses, franchises, certificates
and other permits required for the conduct of such
businesses and holding of such properties have been procured
and are in good standing and will not be adversely affected
by the consummation of the transactions hereunder in
accordance with the provisions hereof.
5.18 Legal Proceedings; Claims. Except as set forth in
the Disclosure Schedule Exhibit 5.18, there are no decrees
or order of any regulatory agency, court or public authority
affecting the operations of CSI, and CSI is not a party to
any litigation or other judicial or administrative
proceedings. Neither CSI nor any CSI Shareholder is a party
to any litigation or other judicial, administrative or other
proceeding pending or known by CSI Shareholders to be
threatened which would affect CSI's or CSI Shareholders'
ability to perform this Agreement or would materially
adversely affect the assets or operations of CSI; and, to
the best of CSI and CSI Shareholders' knowledge there are no
claims in existence or threatened against CSI or any of its
properties which may result in litigation. There are no
known existing violations of any Federal, State, local or
foreign laws or regulations which might materially adversely
affect the properties, assets, business, financial condition
or corporate status of CSI; and CSI is not in default with
respect to any order or decree of any court or
administrative regulatory agency.
5.19 Environmental Matters.
5.19.1 To the best of CSI and CSI Shareholders'
knowledge, the real estate located at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
Blvd., which CSI leases from ▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ("Real
Estate"), has not been used or operated by CSI in any
fashion involving producing, handling, and disposing of
chemicals, toxic substances, weights and effluent materials,
x-rays or other materials or devices in material violation
of any laws, rules, regulations or orders, and to the best
of CSI and CSI Shareholders' knowledge, CSI's occupancy and
use of the Real Estate is in material compliance with
applicable laws, regulations, ordinances, decrees and orders
arising under or relating to health, safety, environmental
laws and regulations, including without limitation the
Federal Occupation & Safety Health Act, 29 U.S.C. 651, et
seq., Federal Resource Conservation and Recovery Act (RCRA),
42 U.S.C. Section 6901, et seq., Federal Comprehensive
Environmental Response, Compensation and Liability Act, 42
U.S.C. 9601, et seq. The Federal Clean Air Act, 42 U.S.C.
2401, et seq., The Federal Clean Water Act, 33 U.S.C.
1251, et seq., and all state and local laws that correspond
therewith or supplement such laws.
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5.19.2 To the best of CSI and CSI Shareholders'
knowledge, there have been no complaints, citations, claims,
notices, information requests, orders (including but not
limited to clean up orders) or directives on environmental
grounds made or delivered to, pending or served on, or
anticipated by CSI or its agents, or of which CSI or its
agents, are aware or should be aware (i) issued by a
governmental department or agency having jurisdiction over
any of the assets of CSI, real or personal, owned or leased,
and affecting CSI's assets, business, operations, equipment,
property, leaseholds, other facilities, or any part thereof,
including but not limited to clean up orders, or (ii) issued
or claimed by any persons, agencies, or organizations and
affecting CSI's assets, business, operations, equipment,
property, leaseholds, or other facilities or any part
thereof.
5.19.3 To the best of CSI and CSI Shareholders'
knowledge, there have not been, are not now and as of the
Closing Date, there will be no solid waste, hazardous waste,
hazardous substances, toxic substances, toxic chemicals,
pollutants or contaminants, underground storage tanks,
purposeful dumps, or accidental spills in, on or about any
of the assets of CSI, real or personal, owned or leased, or
stored on any real property owned or leased by CSI or by
CSI's lessees, licensees, or invitees at the Real Estate.
5.19.4 To the best of CSI's and CSI
Shareholder's knowledge, there have been no material or
reportable emissions, spills, seepage, damages, releases, or
discharges into or upon the air, soils or improvements
located at the Real Estate, surface water or ground water,
or any sewer or septic system servicing CSI's assets, of any
toxic or hazardous substances, pollutants, contaminants,
solid waste or hazardous waste.
5.19.5 To the best of CSI and CSI Shareholders'
knowledge, CSI has obtained and will maintain all necessary
approvals, permits, licenses, certificates, or satisfactory
clearances for use of its assets from all governmental
authorities, utility companies, or development-related
entities, with respect to CSI's use of its assets and CSI's
discharge of any chemicals, liquids and emissions, into the
atmosphere, ground water or surface water, including but not
limited to sewers or septic systems, from CSI's operations.
5.19.6 To the best of CSI and CSI Shareholders'
knowledge, CSI and its business, operations, assets,
equipment, property, leaseholds or other facilities are in
compliance in all material respects with all applicable
federal, state, and local statutes, laws, regulations and
ordinances.
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5.19.7 To the best of CSI and CSI Shareholders'
knowledge, no asbestos or asbestos containing materials are
installed, used or incorporated into CSI's property, and no
asbestos or asbestos containing materials have been disposed
of on CSI's property.
5.19.8 To the best of CSI and CSI Shareholders'
knowledge, no polychlorinated biphenyls (PCBs) are located
on or in CSI's property in the form of electrical
transformers, fluorescent light fixtures with ballasts,
cooling oils, or in any other device or form.
5.20 Insurance. CSI maintains policies of fire,
extended coverage, liability and other forms of insurance
covering its business, properties and assets in amounts and
against such losses and risks as are generally maintained
for comparable businesses and properties, and valid policies
for such insurance will be outstanding and duly in force
through and on the Effective Date. Set forth in the
Disclosure Schedule is a complete list of all insurance
policies owned by CSI, indicating risks insured against,
carrier, policy number, amount of coverage, premiums and
expiration dates.
5.21 Books and Records. The books of account of CSI
substantially reflect all its known material items of income
and expense and all its known material assets, liabilities
and accruals. The corporate minute books of CSI are
substantially complete as to the records of substantially
all substantial proceedings of incorporators, shareholders
and directors, and there are no substantial and material
minutes or records of the proceedings of any of said person
not included therein. The share ledgers and share
certificate books contain a complete and accurate record of
all issuances and transfers of shares in CSI.
5.22 Certain Debts and Interests. Except as set forth
in the Closing Balance Sheet, there are no debts of CSI owed
to CSI Shareholders or to any officer or director of CSI, or
any family member of the foregoing, or to any corporation,
form or other entity owned or controlled by the foregoing;
and none of such persons is indebted to CSI. CSI
Shareholders do not directly or indirectly own any interest
in any corporation, firm or enterprise engaged in a business
competitive with CSI, except (i) CSI Shares or (ii) any
passive investment by CSI Shareholders in the stock of any
publicly held corporation which is not in excess of five
percent of the issued and outstanding capital stock of such
corporation.
5.23 Officers and Directors; Certain Payments. Exhibit
"G" is a true and complete list showing (a) the names of all
officers and directors of CSI and the directorships and
officerships in CSI held by each; (b) the names and address
E -116
of each financial institution in which CSI has an account,
safe deposit box or investment account, the names of all
persons authorized to draw thereon or to have access
thereto, and the nature of such authorization; and (c) the
names of all persons holding tax or other powers of attorney
from CSI and a summary statement of the terms thereof.
5.24 Commissions or Brokers Fees. Neither CSI nor any
CSI Shareholder has incurred any liability to any person for
investment advisory fees, finder's fees or brokerage
commissions with respect to the transactions contemplated by
this Agreement, which liability may be asserted against CSI,
Subsidiary or any affiliate of Subsidiary.
5.25 Assets Necessary to the Business. CSI owns all
assets and properties (tangible and intangible) materially
necessary to carry on its business and operations as
presently conducted and as shown on the Year-End and Interim
Financials. Such assets and properties are all of the
assets and properties reasonably necessary to carry on the
business and operations of CSI as presently conducted and
none of the CSI Shareholders (other than through their
ownership of stock in CSI) nor any member of their
respective families owns or leases or has any interest in
any assets or properties presently being used to carry on
the business or operations of CSI.
5.26 Illegal Payments. Neither CSI nor, to the
knowledge of any CSI Shareholder, any of its officers,
directors, employees or agents has made or authorized any
payment of funds of CSI prohibited by law and no funds of
CSI have been set aside to be used for any payment
prohibited by law.
5.27 Customers. The Disclosure Schedule includes a
correct list of the fifteen (15) largest customers for CSI
for each of the past two (2) fiscal years and the amount of
business done by CSI with each such customer for each year.
CSI and the CSI Shareholders have no knowledge or
information, and are aware of no facts indicating that any
of the customers will or intend to (a) cease doing business
with CSI; or (b) materially alter the amount of business
they are presently doing with CSI; or (c) not do business
with Subsidiary after the Effective Date.
5.28 Suppliers. The Disclosure Schedule sets forth
the names of and description of contractual arrangements
(whether or not binding or in writing) with the fifteen (15)
largest suppliers of CSI and any sole suppliers of
significant goods or services (other than electricity, gas,
telephone or water) to CSI with respect to which practical
alternative sources of supply are not readily available on
comparable terms and conditions. CSI and each CSI
Shareholder have no knowledge or information, or are aware
E -117
of no facts indicating that any of the suppliers of CSI will
or intend to (a) cease doing business with CSI; or (b)
materially alter the amount of business they are presently
doing with CSI; or (c) not do business with Subsidiary after
the Effective Date.
5.29 Product Liability. There are no product
liability claims against CSI, either potential or existing,
which are not covered by product liability insurance
coverage with a responsible company.
5.30 Transactions with Affiliates. Except as
disclosed on Disclosure Schedule Exhibit 5.30, there is no
lease, sublease, contract, agreement or other arrangement of
any kind whatsoever entered into by CSI with any CSI
Shareholder or with any affiliate (as such term is defined
in the rules and regulations of the Securities and Exchange
Commission under the Securities Act of 1933, as amended) of
any CSI Shareholder, except such of the foregoing which may
be terminated at Closing by Subsidiary without further
liability. As of the Closing, all indebtedness owed by any
CSI Shareholder to CSI shall be repaid.
5.31 Disclosure. None of the representations or
warranties made by CSI and CSI Shareholders herein, or made
in any certificate furnished or to be furnished by them,
pursuant to the requirements of this Agreement, including
any disclosures made in the Disclosure Schedule, contains or
will contain any untrue statement of material fact or omits
or will omit any material fact, an omission of which would,
in light of the circumstances in which it was made, be
misleading. The CSI Shareholders have no knowledge of any
factors materially and adversely affecting the future
prospect of CSI's business which has not been disclosed in
this Agreement and the Disclosure Schedule.
SECTION 6. REPRESENTATIONS OF SUBSIDIARY
Subsidiary and ▇▇▇▇▇▇▇, joint and severally, represent,
warrant and covenant to CSI Shareholders that the following
statements are true and correct as of the date hereof and
shall remain true and correct as of the Effective Date as if
made again at and as of that time:
6.1 Organization. Subsidiary is a corporation duly
organized, validly existing and in good standing under the
laws of the State of South Carolina and has all the
requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as it is
now being conducted, and it is duly licensed, authorized and
qualified to do business and in good standing in all
jurisdictions in which the nature and conduct of its present
business operation requires qualification and in which the
failure to be so qualified, if required, would have a
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material adverse affect on the business operations and
financial condition of Subsidiary taken as a whole or the
ownership or leasing of its property require it to be so
licensed, authorized or qualified.
6.2 Authority. Subsidiary has full power and
authority to enter into this Agreement, the Plan of Merger
and the Employment Agreements. The execution, delivery and
performance of this Agreement, the Plan of Merger and the
Employment Agreements, and the consummation of the
transactions contemplated therein, have been duly authorized
by all requisite corporate actions and constitute the valid
and binding obligation of Subsidiary enforceable in
accordance with their respective terms. All other
agreements, instruments and documents to be executed and
delivered by or on behalf of Subsidiary in connection
herewith will, when executed and delivered, constitute the
valid and binding obligation of Subsidiary enforceable in
accordance with their respective terms. Except for required
approval or consent of ▇▇▇▇▇▇▇'▇ primary lender, Star Bank,
National Association, which consent shall be procured prior
to Closing, no authorization, approval, consent or order of,
or registration, declaration or filing with, any court,
governmental body or agency or other public or private body,
entity or person, is required in connection with the
execution, delivery or performance of this Agreement or any
other agreement, instrument or document to be delivered by
or on behalf of Subsidiary in connection herewith.
6.3 No Default. Subject to obtaining the required
consent and/or approval as described in Section 6.2, neither
the execution or delivery nor performance of this Agreement
or of any other agreements, instruments or documents to be
delivered by or on behalf of Subsidiary in connection
herewith does or will: (a) conflict with, violate or result
in any breach of the Articles of Incorporation or By-laws of
Subsidiary, or any judgment, decree, order, statute, rule or
regulation applicable to Subsidiary; or (b) conflict with,
violate or result in any breach of any agreement or
instrument to which Subsidiary is a party or by which
Subsidiary is bound, or constitute a default thereunder or
give rise to a right of acceleration of an obligation of
Subsidiary.
6.4 Commissions or Brokers Fees. Subsidiary has not
employed any broker, agent or finder or incurred any
liability for any brokerage fees, agent's commissions or
finder's fees in connection with the transactions hereby.
6.5 Single Purpose Subsidiary. Prior to the
Effective Date, Subsidiary will have engaged only in the
transactions contemplated by this Agreement, will have no
material liabilities (other than its guaranty of ▇▇▇▇▇▇▇'▇
credit facility to Star Bank, National Association) and will
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have incurred no obligations except in connection with its
performance under the transactions provided in this
Agreement.
6.6 Purchase for Investment. The CSI Common Stock to
be acquired by the Subsidiary for purposes of SEC Rule 145
and cancelled pursuant to the Merger will be acquired for
the Subsidiary's own account for investment purposes only
and without any present intention to resell, transfer, or
otherwise dispose of the shares. Subsidiary does not have
any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participation to such
person, or to any third persons, with respect to any of the
shares to be acquired and cancelled hereunder. Subsidiary
understands that the CSI Common Stock is not registered
under the 1933 Securities Act or any applicable state
securities laws and that any sale, transfer or other
disposition of the shares must be made only pursuant to any
effective registration under applicable federal and state
securities laws or an available exemption therefrom.
Subsidiary and ▇▇▇▇▇▇▇, collectively, have assets valued at
more than $5,000,000; together with their Affiliates, have a
combined net worth in excess of $5,000,000; and through
their officers, directors and professional advisors have
such knowledge and experience in financial, business, and
investment matters that they are capable of evaluating the
risks and merits of acquiring the CSI Common Stock and
investing in CSI. Subsidiary and ▇▇▇▇▇▇▇ and their
representatives have examined books, records, and documents
furnished or made available to them by CSI and have been
given the opportunity to ask such questions or, and receive
answers from, the CSI Shareholders and the officers of CSI
as Subsidiary has determined are relevant to the decision to
acquire and cancel the CSI Common Stock and invest in CSI
pursuant to the merger. No compensation or consideration to
be paid by Subsidiary to the CSI Shareholders, CSI or their
Affiliates, or any other person shall, as among the parties
hereto, constitute a commission or other remuneration in
connection with procuring the sale or purchase of the CSI
Common Stock or the soliciting of any prospective buyer or
seller for such shares. The CSI Common Stock to be acquired
and cancelled hereunder was not offered to Subsidiary and
▇▇▇▇▇▇▇ by, and Subsidiary and ▇▇▇▇▇▇▇ are not otherwise
aware of, any general advertising or general solicitation in
connection with the sale of the CSI Common Stock or the
business which is the subject hereof.
SECTION 7. REPRESENTATIONS BY ▇▇▇▇▇▇▇
7.1 ▇▇▇▇▇▇▇ hereby represents and warrants to the CSI
Shareholders that the following statements are true and
correct as of the date hereof and shall remain true and
correct as of the Effective Date as if made again at and as
of that time:
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(a) ▇▇▇▇▇▇▇ is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and
authority to own, lease and operate its properties and carry
on its business as is now being conducted. Complete and
corrected copies of ▇▇▇▇▇▇▇'▇ Certificate of Corporation and
By-Laws, as amended, to date hereof, have been delivered to
CSI Shareholders.
(b) ▇▇▇▇▇▇▇'▇ authorized capital stock consists
of Fifteen Million (15,000,000) shares of common stock, par
value .01, of which Eleven Million Three Hundred Thirty-
Seven Thousand Two Hundred Seventy-Eight (11,337,278
including 20,900 shares of Treasury Stock) shares of common
stock were issued and outstanding on October 14, 1997, and
Two Million (2,000,000) shares of preferred stock, none of
which were issued and outstanding on October 14, 1997. A
sufficient number of shares of ▇▇▇▇▇▇▇ Stock has been
reserved with ▇▇▇▇▇▇▇'▇ transfer agent to effectuate this
merger. Upon the determination of any adjustments to this
Agreement, if any, that will require the issuance of
additional ▇▇▇▇▇▇▇ Stock, ▇▇▇▇▇▇▇ agrees to reserve with its
transfer agent at such time sufficient shares to implement
such adjustments.
7.2 Corporate Authority. This Agreement has been
approved by the Board of Directors of ▇▇▇▇▇▇▇. The
execution, delivery and performance of this Agreement by
▇▇▇▇▇▇▇ and the consummation of the transaction contemplated
herein, have been duly authorized by all requisite corporate
action and constitute the valid and binding obligation of
▇▇▇▇▇▇▇ enforceable in accordance with its respective terms.
Neither the execution or delivery of this Agreement, nor
performance hereunder, will conflict with, result in the
breach of the terms, conditions, or provisions of, or
constitute a default under the Certificate of Corporation or
By-laws of ▇▇▇▇▇▇▇ or any agreement or instrument to which
▇▇▇▇▇▇▇ is a party or by which it is bound, except for the
consent of ▇▇▇▇▇▇▇'▇ lender, Star Bank, National
Association, which shall be procured prior to the Effective
Date.
7.3 Financial Matters. ▇▇▇▇▇▇▇ has furnished the CSI
Shareholders with its audited consolidated Financial
Statements as of January 5, 1997 and January 5, 1996. In
addition, ▇▇▇▇▇▇▇ has provided the CSI Shareholders with its
Form 10Q filing for the period ending July 5, 1997. Since
July 5, 1997, there have been no materially adverse changes
in the results of operations or financial condition of
▇▇▇▇▇▇▇, nor are there any demands, commitments, events of
uncertainty known to ▇▇▇▇▇▇▇ which could affect ▇▇▇▇▇▇▇'▇
liquidity, capital resources, or results of operation as of
the date hereof, or as of the Effective Date (other than
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those previously disclosed by ▇▇▇▇▇▇▇ in its periodic
reports filed with the Securities and Exchange Commission)
that would require management's discussion and analysis of
financial conditions and results of operations ("MD&A")
prepared in accordance with Item 303 of Regulation S-K
promulgated by the Securities and Exchange Commission
("SEC") if such MD&A were required to be updated through the
date hereof and through the Effective Date. Until such time
as the CSI Shareholders shall have sold all the ▇▇▇▇▇▇▇
Stock received by them incident to this Agreement, ▇▇▇▇▇▇▇
shall use its best efforts to timely and lawfully make all
periodic filings and disclosures as are required for
purposes of SEC Rule 144(c).
7.4 ▇▇▇▇▇▇▇ will vote all of the outstanding shares of
Subsidiary in favor of the merger of CSI into the Subsidiary
prior to the Effective Date.
7.5 ▇▇▇▇▇▇▇ will provide Subsidiary with the requisite
cash and the requisite ▇▇▇▇▇▇▇ Stock to effectuate the terms
of this Agreement set forth in Section 2.
SECTION 8. RELEASE BY CSI Shareholders
8.1 Each CSI Shareholder as of the Effective Date
shall release and discharge CSI from all actions, claims or
demands of every kind and nature which any of the CSI
Shareholders have or may have against CSI, whether based
upon contract or otherwise, arising before such date.
Nothing contained herein shall constitute a release of any
rights of the CSI Shareholders arising under this Agreement,
with respect to any claims under any medical or dental
plan(s) currently maintained by CSI, with respect to any of
the CSI Shareholder's interests in any Retirement Plans
maintained by CSI, or with respect to anything which may
occur after the Effective Date.
SECTION 9. INTERIM OPERATIONS
9.1 From the date hereof until the Effective Date, CSI
will operate substantially as presently operated in the
ordinary course of business as is consistent with such
operation, will use its best efforts to preserve intact for
the benefit of Subsidiary the present business organization
of CSI and the relationships and good will of suppliers,
customers and others having business relationships with CSI.
Without limiting the generality of the foregoing, CSI will
not, other than in the ordinary course of business, take any
of the actions contemplated by or which would give rise to
the result contemplated by Section 5.7(d) hereof, as set
forth in such Section.
9.2 Access to Information. From the date hereof
until the Effective Date, CSI shall make available or cause
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to be made available to the accountants, attorneys or other
representatives of Subsidiary, for examination during normal
business hours, upon reasonable request, all properties,
assets, books of accounts, title papers, insurance policies,
contracts, leases, commitments, records and other documents
of every character relating to CSI.
9.3 Notice by Subsidiary. Subsidiary agrees that
should its executive officers acquire knowledge prior to
Closing, as a result of their investigation of CSI pursuant
to this Agreement or otherwise, of any breach of the
representations and warranties contained in Section 5 above,
Subsidiary will notify the CSI Shareholders of such breach
in writing prior to Closing; provided such notice shall not
constitute a waiver of any rights that Subsidiary and/or
▇▇▇▇▇▇▇ might have under this Agreement and the CSI
Shareholders shall have the opportunity to cure such breach
prior to Closing.
SECTION 10. SURVIVAL OF AND RELIANCE UPON
REPRESENTATIONS,
WARRANTIES AND AGREEMENTS; INDEMNIFICATION
10.1 Survival of Representations and Warranties. The
parties acknowledge and agree that all the representations,
covenants, warranties and agreements contained in this
Agreement or in any agreement, instrument, exhibit,
certificate, schedule or other document delivered in
connection herewith, shall survive the Closing and shall be
binding upon the party giving such representation, covenant,
warranty or agreement and shall be fully enforceable to the
extent provided for in Sections 10.4 and 10.5 hereof, at law
or in equity, for the period beginning on the date of
Closing and ending two (2) years thereafter, except for
the representations, warranties and agreements designated
and identified in Section 5.9 which shall be fully
enforceable to the extent provided in Sections 10.4 and 10.5
hereof at law or in equity for the period beginning on the
date of Closing and ending three (3) years thereafter and
except for the representations, warranties, and agreements
designated and identified in Sections 5.1, 5.2, 5.3, the
first sentence of 5.5, the first sentence of 5.8, 6.1, the
first two sentences of 6.2, 7.1, the first two sentences of
7.2, and the last sentence of 7.3 which shall survive the
Closing and shall terminate in accordance with the statutes
of limitation governing written contracts and Exhibits "D,"
"D-1," "D-2," "E," "E-1," "E-2," "E-3," "E-4," and "E-5"
which shall terminate as provided therein.
10.2 Reliance Upon and Enforcement of Representations,
Warranties and Agreements of CSI Shareholders and CSI. Each
CSI Shareholder and CSI hereby agrees that, notwithstanding
any right of Subsidiary to fully investigate the affairs of
CSI, and notwithstanding knowledge of facts determined or
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determinable by Subsidiary pursuant to such investigation or
right of investigation, Subsidiary has the right to rely
fully upon the representations, covenants, warranties and
agreements of CSI and each CSI Shareholder contained in this
Agreement and upon the accuracy of any document, certificate
or exhibit given or delivered to Subsidiary pursuant to the
provisions of this Agreement.
10.3 Reliance Upon and Enforcement of Representations,
Warranties and Agreements of Subsidiary and/or ▇▇▇▇▇▇▇.
Subsidiary and/or ▇▇▇▇▇▇▇ hereby agrees that,
notwithstanding any right of CSI Shareholders to fully
investigate the affairs of the Subsidiary and/or ▇▇▇▇▇▇▇,
and notwithstanding knowledge of facts determined or
determinable by CSI Shareholders pursuant to such
investigation or right of investigation, CSI Shareholders
have the right to rely fully upon the representations,
covenants, warranties and agreements of Subsidiary and/or
▇▇▇▇▇▇▇ contained in this Agreement and upon the accuracy of
any document, certificate or exhibit given or delivered to
CSI Shareholders pursuant to the provisions of this
Agreement.
10.4 Indemnification by CSI Shareholders. Each CSI
Shareholder (jointly and severally) shall indemnify
Subsidiary against and hold it harmless from:
(i) any and all loss, damage, liability or
deficiency resulting from or arising out of any inaccuracy
in or breach of any representation, warranty, covenant or
obligation made or incurred by CSI or any CSI Shareholder
herein or in any other agreement, instrument or document
delivered by CSI and any CSI Shareholder pursuant to the
terms of this Agreement; and
(ii) any and all reasonable costs and expenses
(including reasonable legal and accounting fees) related to
any of the foregoing, subject to the provisions of Section
10.6.
10.5 A. Indemnification by Subsidiary. Subsidiary
agrees to defend, indemnify and hold harmless the CSI
Shareholders from, against and in respect of (a) any and all
liabilities, losses, damages, deficiencies or expenses
resulting from or arising out of an inaccuracy in or other
breach of any representation, warranty, covenant, or
obligation made or incurred by Subsidiary herein or in any
other agreement, instrument or document delivered by
Subsidiary pursuant to the terms of this Agreement, and (b)
any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including
reasonable attorneys' fees, related to any of the foregoing.
The CSI Shareholders are not required to commence litigation
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or take any other action against any third party prior to
making a claim against Subsidiary hereunder.
B. Indemnification by ▇▇▇▇▇▇▇. ▇▇▇▇▇▇▇ agrees
to defend, indemnify and hold harmless the CSI Shareholders
from, against and in respect of (a) any and all liabilities,
losses, damages, deficiencies or expenses resulting from any
misrepresentation or breach of warranty or non-fulfillment
of any agreement by ▇▇▇▇▇▇▇ in connection herewith or
inaccuracy in or other breach of any representation,
warranty, covenant or obligation made or incurred by
Subsidiary and ▇▇▇▇▇▇▇ pursuant to Sections 2.3, 6, 7,
12.02 and 12.15 of this Agreement (including without
limitation the attached exhibits, schedules and documents to
which ▇▇▇▇▇▇▇ is a party) or as provided herein, unless
waived in writing by CSI Shareholders, and (b) any and all
actions, suits, proceedings, claims, demands, assessments,
judgments, costs and expenses, including reasonable
attorneys' fees, related to any of the foregoing. The CSI
Shareholders are not required to commence litigation or take
any other action against any third party prior to making a
claim against ▇▇▇▇▇▇▇ hereunder.
10.6 Notification of and Participation in Claims.
(a) No claim for indemnification shall arise
until notice thereof is given to the party from whom
indemnity is sought. Such notice shall be sent within ten
(10) days after the party to be indemnified has received
notification of such claim, but failure to notify the
indemnifying party shall in no event prejudice the right of
the party to be indemnified under this Agreement, unless the
indemnifying party shall be prejudiced by such failure and
then only to the extent of such prejudice. In the event
that any legal proceeding shall be instituted or any claim
or demand is asserted by any third party in respect of which
CSI Shareholders on the one hand, or Subsidiary or ▇▇▇▇▇▇▇,
as applicable, on the other hand, may have an obligation to
indemnify the other, the party asserting such right to
indemnity (the "Party to be Indemnified") shall give or
cause to be given to the party from whom indemnity is sought
(the "Indemnifying Party") written notice thereof and the
Indemnifying Party shall have the right, at its option and
expense, to participate in the defense of such proceeding,
claim or demand, but not to control the defense, negotiation
or settlement thereof, which control shall at all times rest
with the Party to be Indemnified, unless the Indemnifying
Party irrevocably acknowledges in writing full and complete
responsibility for and agrees to provide indemnification of
the Party to be Indemnified, in which case such Indemnifying
Party may assume such control through counsel of its choice
and at its expense. In the event the Indemnifying Party
assumes control of the defense, the Indemnifying Party shall
not be responsible for the legal costs and expenses of the
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Party to be Indemnified in the event the Party to be
Indemnified decides to join in such defense. The parties
hereto agree to cooperate fully with each other in
connection with the mitigation, defense, negotiation or
settlement of any such third party legal proceeding, claim
or demand.
(b) If the Party to be Indemnified is also the
party controlling the defense, negotiation or settlement of
any matter, and if the Party to be Indemnified determines to
compromise the matter, the Party to be Indemnified shall
immediately advise the Indemnifying Party of the terms and
conditions of the proposed settlement. If the Indemnifying
Party agrees to accept such proposal, the Party to be
Indemnified shall proceed to conclude the settlement of the
matter, and the Indemnifying Party shall immediately
indemnify the Party to be Indemnified pursuant to the terms
of Sections 10.4 and 10.5 hereunder, subject to the
limitations set forth elsewhere in this Section 10. If the
Indemnifying Party does not agree within fourteen (14) days
to accept the settlement (said 14-day period to begin on the
first business day following the date such party receives a
complete copy of the settlement proposal), the Indemnifying
Party shall immediately assume control of the defense,
negotiation or settlement thereof, at that Indemnifying
Party's expense. Thereafter, the Party to be Indemnified
shall be indemnified in the entirety for any liability
arising out of the ultimate defenses, negotiation or
settlement of such matter.
(c) If the Indemnifying Party is the party
controlling the defense, negotiation or settlement of any
matter, and the Indemnifying Party determines to compromise
the matter, the Indemnifying Party shall immediately advise
the Party to be Indemnified of the terms and conditions of
the proposed settlement and irrevocably acknowledge in
writing full and complete responsibility for, and agree to
provide, indemnification of the Party to be Indemnified. If
the Party to be Indemnified agrees to accept such proposal,
the Indemnifying Party shall proceed to conclude the
settlement of the matter and immediately indemnify the Party
to be Indemnified pursuant to the terms of Sections 10.4 or
10.5 hereunder. If the Party to be Indemnified does not
agree within fourteen (14) days to accept the settlement
(said 14-day period to begin on the first business day
following the date such party receives a complete copy of
the settlement proposal), the Party to be Indemnified shall
immediately assume control of the defense, negotiation or
settlement thereof, at the Party to be Indemnified's
expense. If the final amount paid to resolve the claim is
less than the amount of the original proposed settlement
made by the Indemnifying Party, then the Party to be
Indemnified shall receive such indemnification pursuant to
Sections 10.4 or 10.5 hereof, including any and all expenses
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incurred by the Party to be Indemnified incurred in
connection with the defense, negotiation or settlement of
such matter. If the amount finally paid to resolve the
claim is equal to or greater than the amount of the original
proposed settlement proposed by the Indemnifying Party, then
the Indemnifying Party shall provide indemnification
pursuant to Sections 10.4 and 10.5 for the amount of the
original settlement proposal submitted by the Indemnifying
Party, and the Party to be Indemnified shall be responsible
for all amounts in excess of the original settlement
proposal submitted by the Indemnifying Party and all costs
and expenses incurred by the Party to be Indemnified in
connection with such defense, negotiation or settlement.
10.7 Provisions of General Application. With respect
to any right of indemnification arising under this
Agreement, the following provisions shall apply:
(a) Procedures. The Party to be Indemnified and
the Indemnifying Party agree to cooperate in the defense of
any third party claim or action subject to this Section 10,
to permit the cooperation and participation of the other
parties in any such claim or action, and to promptly notify
the other parties of the occurrence of any indemnified event
or any material developments or amounts due respecting any
indemnification event.
(b) No Implications. Neither the rights of any
party to indemnification from another party nor the
obligations of any party to indemnify another party, under
this Agreement, shall in any way imply or create, and each
party specifically disclaims, any responsibility whatsoever
by such party for any other party's liabilities to any other
person or entity or governmental body.
(c) Insurance. Prior to enforcing any claim for
indemnification against the indemnifying parties under this
Agreement, the indemnified parties shall administratively
file in good faith with any insurers all forms and
submissions required by applicable policies for the proceeds
of other benefits of insurance coverage, if any, applicable
to the claim or event from which such indemnification right
arose. In the event that insurance proceeds are paid to the
Party to be Indemnified respecting an event to which an
indemnification right applies hereunder, such
indemnification right shall apply only to the extent that
the amount of damages indemnified against exceeds such
insurance proceeds actually paid to the Party to be
Indemnified; provided however, that: (a) such insurance
proceeds shall not affect or be applied towards the maximum
liability established in Section 10.8 and (b) collection by
judicial or legal process of such insurance proceeds shall
not be a condition precedent to asserting or collecting such
indemnification claims under this Agreement. If the
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Indemnifying Party incurs indemnity costs or pays indemnity
damages under this Agreement, and the Party to be
Indemnified subsequently receives insurance proceeds for the
same claim or event, then the Party to be Indemnified shall
refund such indemnity costs or damage payments to the
Indemnifying Party from such insurance proceeds to the
extent that the Party to be Indemnified has received
benefits from both sources (i.e., payments of indemnify
damages from the Indemnifying Party and such insurance
proceeds) in excess of the amount of indemnity damages
incurred by or asserted against the Party to be Indemnified.
(d) Mitigation. The Party to be Indemnified shall
use its good faith efforts to mitigate any claim or loss by
any third party hereunder and the Indemnifying Party shall
be entitled to participate in and coordinate with the Party
to be Indemnified such mitigation.
10.8 A. Limitations. Notwithstanding anything
herein to the contrary, no claims for indemnification shall
be made by Subsidiary and/or ▇▇▇▇▇▇▇ against the CSI
Shareholders until such time as all claims hereunder, net of
income tax benefit realized and/or realizable by
CSI/Subsidiary and/or ▇▇▇▇▇▇▇ total more than Twenty
Thousand Dollars ($20,000.00) in the aggregate and then
indemnification shall be made only to the extent that such
claim or claims exceed Twenty Thousand Dollars ($20,000.00)
in the aggregate. In addition, notwithstanding anything
contained herein to the contrary, the maximum aggregate
liability that the CSI Shareholders may be collectively
required to pay Subsidiary or ▇▇▇▇▇▇▇ under this Section 10,
or as a result of any other provision of this Agreement as a
result of any and all breaches, if any, of representations
or warranties hereunder, or as a result of any and all
defaults of any covenants hereunder, shall be limited to an
amount equal to the total consideration paid hereunder, One
Million Four Hundred Thousand Dollars ($1,400,000.00), as
may be adjusted upward or downward pursuant to the
provisions of Sections 2.2(c) and 2.3 of this Agreement. In
addition, the maximum liability that any CSI Shareholder may
be individually required to pay Subsidiary or ▇▇▇▇▇▇▇ under
this Section 10 shall not exceed an amount equal to such CSI
Shareholder's proportionate share of the total consideration
paid hereunder, as may be adjusted as set forth above.
B. Notwithstanding anything to the contrary in
this Agreement, the maximum aggregate amount that Subsidiary
and ▇▇▇▇▇▇▇ may be collectively required to pay to the CSI
Shareholders hereunder, or as a result of any other
provision of this Agreement as a result of any and all
breaches, if any, of representations or warranties
hereunder, or as a result of any and all defaults of any
covenants hereunder, shall be limited to an amount equal to
the total consideration paid hereunder, One Million Four
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Hundred Thousand Dollars ($1,400,000.00), as may be adjusted
upward or downward pursuant to the provisions of Sections
2.2(c) and 2.3 of this Agreement.
10.9 Assignment and Accounting for Benefits. To the
extent that the Indemnifying Party shall have actually paid
indemnity damages to or on behalf of the Party to be
Indemnified, the Party to be Indemnified shall make a non-
exclusive assignment (to the extent permitted under
applicable law) to the Indemnifying Party (as their interest
may appear) of the remedies, rights and claims, if any, of
the Party to be Indemnified against any and all third
parties for the same liability, including, but not limited
to, remedies, rights and claims against (i) liability
insurers and other insurance companies, (ii) any other
person which has indemnified the Party to be Indemnified for
such liability, and (iii) account debtors for any account
receivable for which the CSI Shareholders incur liability,
if any, under Section 5.8.1. The parties shall cooperate
reasonably in the pursuit of any such remedies, rights and
claims.
For purposes of Section 10.8(a) ($20,000 basket
amount) and/or for purposes of indemnification hereunder,
the amount of any indemnification claim shall be reduced by
the effect of any income tax benefit realized and/or
realizable by CSI and/or Subsidiary/▇▇▇▇▇▇▇. For purposes
hereof, a marginal rate of forty percent (40%) shall be
utilized.
10.10 Exclusive Remedy. Anything contained in
this Agreement or the Related Agreements to the contrary
notwithstanding, the indemnification rights set forth in
this Section 10, all of which are subject to the terms,
limitations, and restrictions of this Section 10, shall be
the exclusive remedy after Closing against the CSI
Shareholders and/or Subsidiary or ▇▇▇▇▇▇▇ for monetary
damages sustained as a result of a breach of a
representation, warranty, covenant, or agreement under this
Agreement. Such limitations set forth in this Section 10
shall not impair the rights of any of the parties: (a) to
seek non-monetary equitable relief, including (without
limitation) specific performance or injunctive relief to
redress any default or breach of this Agreement; or (b) to
seek enforcement, collection, damages, or such non-monetary
equitable relief to redress any subsequent default or breach
of any employment agreement, non-competition agreement,
transfer document, assumption, consent, or agreement to be
delivered at Closing hereunder. In connection with the
seeking of any non-monetary equitable relief, each of the
parties acknowledges and agrees that the other parties
hereto would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance
with their specific terms or otherwise are breached.
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Accordingly, each of the parties hereto agrees the other
parties hereto shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically this Agreement and the
terms and provisions hereof in any competent court having
jurisdiction over the parties.
10.11 Optional Method of Payment. Any CSI
Shareholder shall be entitled, at his option, to pay or
reimburse the Party to be Indemnified for up to fifty
percent (50%) of his portion of any indemnity claim by
transferring to the Party to be Indemnified shares of
▇▇▇▇▇▇▇ Stock retained by such CSI Shareholder at the time
(if any). For purposes of this option method of payment for
an indemnify claim, the value of the shares of ▇▇▇▇▇▇▇ Stock
shall be based on the average of the closing price of the
▇▇▇▇▇▇▇ Stock as reported on the NASDAQ Exchange for the
twenty (20) trading days immediately preceding the third day
before the date of transfer of such shares.
SECTION 11. CLOSING
11.1 Closing Date and Effective Date, Consummation of
the transactions contemplated hereby (the "Closing") shall
take place on October 17, 1997 at 5:00 p.m., at the offices
of ▇▇▇▇▇▇▇▇▇ & Dreidame Co., L.P.A., ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇ or on such other Closing Date,
at such other time and/or place as the parties may mutually
agree upon. The parties shall certify, execute and
acknowledge the Plan of Merger to comply with applicable
laws and filing requirements. The date of such
certification, execution and acknowledgment shall be the
Closing Date. On the Closing Date, an executed counterpart
of the Articles of Merger and the Plan of Merger shall be
filed with Secretary of State of South Carolina and the
merger shall become effective upon the completion of such
filing. The date of such filing shall be the Effective
Date.
11.2 Conditions Precedent to Subsidiary's/▇▇▇▇▇▇▇'▇
Obligations. The obligations of Subsidiary and/or ▇▇▇▇▇▇▇
to perform in accordance with this Agreement and to
consummate the transactions herein contemplated are subject
to the satisfaction of the following conditions at or before
closing:
(a) The CSI Shareholders and CSI shall have
complied with and performed all the agreements and covenants
hereunder required to be performed by them prior to or at
the Closing;
(b) At the Closing Date, there shall be in effect
no order or decree of any court or governmental body which
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(i) shall prohibit the merger, (ii) shall materially and
adversely affect the right of Subsidiary to own the assets
of CSI and to control the operations of CSI or (iii) prevent
the Subsidiary from operating its acquired business in the
normal course;
(c) CSI Shareholders shall have procured any
required approval and/or consents.
(d) The assets of CSI taken as a whole shall not
have been substantially damaged or destroyed if such damage
or destruction is not adequately covered by insurance; CSI
shall not have suffered any extraordinary losses.
(e) Since August 31, 1997, there has been no
material adverse change in the operations of CSI.
(f) CSI Shareholders shall deliver to Subsidiary,
at or before the Closing, the following documents, all of
which shall be in form and substance reasonably acceptable
to Subsidiary and its counsel:
(i) A certificate or certificates for all of
CSI Shares. Such certificate(s) shall be in form for
transfer, duly endorsed in blank by CSI Shareholders, or
with appropriate duly executed stock transfer powers
attached. Such shares shall be cancelled immediately upon
the Effective Date;
(ii) Opinion letter of ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
and ▇▇▇▇▇▇▇, LLP, counsel for CSI and the CSI Shareholders,
addressed to Subsidiary and dated the Closing Date,
containing the opinions set forth on Exhibit "H";
(iii) All minute books, stock
certificates and transfer books, contracts, policies of
insurance, tax returns, records of every kind and nature and
all other documents and writings belonging or relating to
CSI and its corporate organization, business and assets;
(iv) Certificates, dated as of the most
recent practicable date, of the Secretary of State and
Department of Revenue and Taxation of South Carolina as to
the good standing of CSI;
(v) The Disclosure Schedule;
(vi) Copies of the Articles of Incorporation
and By Laws of CSI, certified as true and correct by CSI
Shareholders;
(vii) Such resignations of officers and
directors of CSI as Subsidiary may request; and
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(viii) Such other documents which
Subsidiary reasonably deems necessary to effectuate this
Agreement.
(g) Each CSI Shareholder shall have entered into
the Covenant Not to Compete Agreements set forth in Exhibits
"D", "D-1" and "D-2", respectively.
(h) Each CSI Shareholder shall have entered into
an Employment Agreement with Subsidiary as set forth on
Exhibits "E," "E-1" and "E-2," respectively.
(i) Each CSI Shareholder shall have entered into
an Investor's Certificate as set forth in Exhibit "C"
regarding the holding of ▇▇▇▇▇▇▇ Shares.
11.3 Conditions Precedent to CSI Shareholders' and
CSI's Obligation. The obligations of CSI Shareholders and
CSI to perform in accordance with this Agreement and to
consummate the transactions herein contemplated are subject
to the satisfaction of the following conditions at or before
the Closing:
(a) The performance by Subsidiary/▇▇▇▇▇▇▇ of all
the agreements and covenants to be performed by
Subsidiary/▇▇▇▇▇▇▇, respectively, at or before the Closing.
(b) At the Closing Date there shall be in effect
no order or decree of any court or governmental body which
(i) shall prohibit the merger, (ii) shall materially and
adversely affect the right of the CSI Shareholders to
exchange the CSI Common Stock and grant to Subsidiary
pursuant to the merger, the right to acquire all of the
assets of CSI, or (iii) prevents the Subsidiary from
operating its acquired business in the normal course.
(c) Subsidiary/▇▇▇▇▇▇▇ shall have procured any
necessary consents, and in particular, the approval of
▇▇▇▇▇▇▇'▇ lender shall have been obtained.
(d) Subsidiary shall deliver to CSI Shareholders
at or before the Closing the following documents, all of
which shall be in form and substance acceptable to CSI
Shareholders and its counsel:
(i) A certified or cashier's check for the
aggregate amount to be paid to each CSI Shareholder at the
Closing pursuant to Section 2.2 hereof;
(ii) Stock certificates of ▇▇▇▇▇▇▇ Stock
pursuant to Section 2.1 hereof.
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(iii) Certified copies of the corporate
actions taken by ▇▇▇▇▇▇▇ and Subsidiary authorizing the
execution, delivery and performance of this Agreement;
(iv) A Certificate of Good Standing for
Subsidiary from the Secretary of State of South Carolina
dated no earlier than forty-five (45) days prior to the
Closing Date;
(v) A Certificate of Good Standing for
▇▇▇▇▇▇▇ from the Secretary of State of Delaware dated no
earlier than forty-five (45) days prior to the Closing Date;
(vi) Opinion letter of ▇▇▇▇▇▇▇▇▇ & Dreidame
Co., L.P.A., counsel for ▇▇▇▇▇▇▇ and Subsidiary, addressed
to CSI Shareholders and dated the Closing Date, containing
the opinions set forth in Exhibit "I."
(vii) The Escrow Agreement together with
delivery to the Escrow Agents of the ▇▇▇▇▇▇▇ Stock and cash
required thereby.
(e) Subsidiary shall have entered into the
Employment Agreements with the CSI Shareholders as set
forth on Exhibit "E-1," "E-2" and "E-3," respectively,
guaranteed by ▇▇▇▇▇▇▇ as set forth on Exhibits "E-4," "E-5,"
and "E-6."
(f) A copy of the resolution of the newly
constituted Board of Directors of Subsidiary, certified by a
duly authorized officer of Subsidiary, authorizing the
execution, delivery and performance by Subsidiary of the
Employment Agreements.
(g) There shall be no materially adverse event or
condition effecting ▇▇▇▇▇▇▇ or the ▇▇▇▇▇▇▇ Stock.
SECTION 12. GENERAL PROVISIONS
12.01 Further Documents. The Parties will, upon
request at any time before or after Closing, execute,
deliver and/or furnish all such documents and instruments,
and do or cause to be done all such acts and things, as may
be reasonably necessary to carry out the purpose and intent
of this Agreement.
12.02 Publicity. All public announcements relating
to this Agreement or the transaction contemplated thereby
will be by Subsidiary with the consent of the CSI
Shareholders which consent will not be unreasonably
withheld, except for any disclosure which may be required
because of ▇▇▇▇▇▇▇ being a publicly traded corporation on
the NASDAQ.
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12.03 Expenses. Except for expenses related to the
merger which are accrued on the Closing Balance Sheet or to
the extent otherwise specifically provided herein,
Subsidiary will bear and pay all of its expenses incident to
the transactions contemplated by this Agreement which are
incurred by Subsidiary or its representatives and CSI
Shareholders shall bear and pay all of the expenses incident
to the transactions contemplated by this Agreement which
were incurred by CSI Shareholders or its representatives.
12.04 Notices. All notices and other
communications required by this Agreement shall be in
writing and shall be deemed given if delivered by hand or
mailed by registered mail or certified mail, return receipt
requested, to the appropriate party at the following address
(or at such other address for a party as shall be specified
by notice pursuant hereto):
(a) If to Subsidiary, to: c/▇ ▇▇▇▇▇▇▇
Computer Resources, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(b) If to Pomeroy, to: Pomeroy Computer
Resources, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
With a copy to: ▇▇▇▇▇ ▇. ▇▇▇▇▇ III,
Esq.
▇▇▇▇▇▇▇▇▇ & Dreidame Co.,
L.P.A.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-
4091
(c) If to CSI Shareholders, to: ▇▇▇▇▇▇ ▇. ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇
▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
With a copy to: G. ▇▇▇▇▇▇ ▇▇▇▇▇▇
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▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ &
▇▇▇▇▇▇▇, LLP
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇
▇.▇. ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
12.05 Binding Effect. Except as may be otherwise
provided herein, this Agreement and all provisions hereof
shall be binding upon and shall inure to the benefit of the
parties hereto and their respective heirs, legal
representatives, successors and assigns. Except as
otherwise provided in this Agreement, no party shall assign
its rights or obligations hereunder prior to Closing without
the prior written consent of the other parties.
12.06 Headings. The headings in this Agreement are
intended solely for the convenience of reference and shall
be given no effect in the construction or interpretation of
this Agreement.
12.07 Schedules and Exhibits. Schedules and
exhibits referred to in this Agreement constitute and
integral part of this Agreement as if fully rewritten
herein.
12.08 Counterparts. Counterparts of this Agreement
may be executed in multiple counterparts, each of which
shall be deemed an original, but all of which constitute
together one and the same document.
12.09 Governing Law. This Agreement shall be
construed in accordance with and governed by the laws of the
State of South Carolina.
12.10 Severability. If any provision of this
Agreement shall be held unenforceable, invalid or void to
any extent for any reason, such provision shall remain in
force and effect to the maximum extent allowable, if any,
and the enforceability or validity of the remaining
provisions of this Agreement shall not be affected thereby.
12.11 Waivers, Remedies Accumulated. No waiver of
any right or option hereunder by any Party shall operate as
a waiver of any other right or option, for the same right or
option with respect to any subsequent occasion for its
exercise, or of any right to damages. No waiver by any
Party or any breach of this Agreement or of any
representation or warranty contained herein shall be held to
constitute a waiver of any other breach or a continuation of
the same breach. No waiver of any of the provisions of this
Agreement shall be valid and enforceable unless such waiver
is in writing and signed by the party granting the same.
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12.12 Entire Agreement. This Agreement and the
agreements, instruments and other documents to be delivered
hereunder constitute the entire understanding and agreement
concerning the subject matter hereof. All negotiations
between the Parties hereto are merged into this Agreement,
and there are no representations, warranties, covenants,
understanding or agreements, oral or otherwise, in relation
thereto between the Parties other than those incorporated
herein and to be delivered hereunder. Except as otherwise
expressed or contemplated by this Agreement, nothing
expressed or implied in this Agreement is intended or shall
be construed so as to grant or refer on any person, firm or
corporation other than the Parties hereto any rights or
privileges hereunder. No supplement, modification or
amendment of this Agreement shall be binding unless executed
in writing by the Parties hereto.
12.13 Business Records. CSI Shareholders shall be
permitted to retain copies of such books and records
relating to the business of CSI as related to the accounting
and tax matters of the business, and have access to all
original copies of records so delivered to Subsidiary at
reasonable times, for any reasonable business purpose, for a
period of six years after the Closing Date.
12.14 Construction of Agreement. In the event this
Agreement is interpreted by any court of competent
jurisdiction, no Party shall be deemed the drafter of this
Agreement and such court of law shall not construe this
Agreement or any provision thereof against any Party as the
drafter thereof.
12.15 Release of CSI Shareholders Guarantees. At
the closing or as soon thereafter as reasonably possible,
Subsidiary shall procure the release of the CSI Shareholders
from their guarantees, if any, of CSI's obligation to IBM
Credit Corporation and Deutsche Financial Services
Corporation.
IN WITNESS WHEREOF, the Parties hereto have caused this
Agreement and Plan of Reorganization to be duly executed as
of the day and year first above written.
SUBSIDIARY:
▇▇▇▇▇▇▇ COMPUTER RESOURCES OF
SOUTH CAROLINA, INC.
By:____________________________________
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Title:____________________________________
▇▇▇▇▇▇▇ COMPUTER RESOURCES,
INC.
By:____________________________________
Title:____________________________________
THE COMPUTER STORE, INC.
By:____________________________________
▇▇▇▇▇▇ ▇. ▇▇▇
President
_______________________________________
▇▇▇▇▇▇ ▇. ▇▇▇
_______________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
_______________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇
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