POLYVISION CORPORATION
and
ALL OF THE STOCKHOLDERS OF
▇. ▇▇▇▇▇ CORPORATION
STOCK PURCHASE AGREEMENT
May 17, 1999
TABLE OF CONTENTS
Section Page
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1. Sale and Purchase of the Shares ...........................................1
2. The Closing; Purchase Price, etc. .........................................1
2.1. The Closing .......................................................1
2.2. Delivery of Shares ................................................1
2.3. Payment at Closing ................................................1
2.4. Seller Representative .............................................2
2.5. Section 338(h)(10) Election .......................................3
2.6. Current Year Taxes ................................................3
3. Representations and Warranties of the Sellers .............................4
3.1. Organization and Qualification ....................................4
3.2. No Subsidiaries ...................................................4
3.3. Capitalization ....................................................4
3.4. Agreement; Title to Shares ........................................4
3.5. Financial Statements ..............................................5
3.6. Title to Property, Absence of Encumbrances, etc. ..................6
3.7. Inventories; Accounts Receivable ..................................6
3.8. Patents; Trademarks. ..............................................7
3.9. Employee Remuneration. ............................................7
3.10. Union and Employment and Consulting Agreements. ...................7
3.11. Officers, Directors and Bank Accounts .............................8
3.12. No Material Adverse Change ........................................8
3.13. Absence of Certain Changes ........................................8
3.14. Environmental Matters .............................................9
3.15. Litigation .......................................................10
3.16. Contracts. .......................................................10
3.17. Taxes ............................................................11
3.18. Licenses and Permits .............................................12
3.19. Internal Software Applications. ..................................13
3.20. Employee Benefit Plans ...........................................14
3.21. Other Liabilities ................................................16
3.22. Absence of Certain Payments ......................................16
3.23. Investment Representation ........................................17
4. Representations and Warranties of the Buyer ..............................17
4.1. Organization and Qualification ...................................17
4.2. Agreement ........................................................17
4.3. Validity of Shares ...............................................17
4.4. Information ......................................................18
4.5. Investment Representation ........................................18
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4.6. SEC Compliance ...................................................18
4.7. No Adverse Change ................................................18
5. Covenants of the Sellers .................................................18
5.1. Action Prior to Closing ..........................................18
5.2. Access and Information ...........................................19
5.3. Publicity ........................................................19
5.4. Best Efforts .....................................................19
5.5 No Shopping or Disclosure ........................................19
6. Covenants of the Buyer ...................................................20
6.1. Publicity ........................................................20
6.2. Best Efforts .....................................................20
6.3. Confidentiality ..................................................20
6.4. Buyer Financial Capacity .........................................20
6.5. Merger of the Company ............................................20
6.6. Assignment of Certain Insurance Coverage .........................20
6.7. Guarantees .......................................................21
6.8. Employee Benefits ................................................21
7. Conditions to the Obligations of the Sellers .............................21
7.1. Representations and Warranties ...................................21
7.2. Performance ......................................................21
7.3. Closing Certificate ..............................................21
7.4. Opinion of Counsel ...............................................21
7.5. Execution of Other Documents .....................................21
8. Conditions to the Obligations of the Buyer ...............................22
8.1. Representations and Warranties ...................................22
8.2. Performance ......................................................22
8.3. Closing Certificate ..............................................22
8.4. Report on Environmental Matters ..................................22
8.5. Schedules ........................................................22
8.6. Opinion of Counsel ...............................................22
8.7. Non-Competition Agreements .......................................22
8.8. Employment Agreement .............................................22
8.9. Amended Leases ...................................................22
8.10. Shareholder Loans ................................................22
8.11. Completion of Financing ..........................................23
8.12. No Material Adverse Change .......................................23
8.13. Resignation of Officers and Directors ............................23
9. Survival of Representations and Warranties ...............................23
10. Indemnification ..........................................................23
10.1. By the Sellers ...................................................23
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10.2. Indemnification by the Buyer .....................................25
10.3. Indemnification Procedures .......................................25
10.4. Third Party Claims ...............................................26
11. Termination ..............................................................28
11.1 Termination Events ...............................................28
12. Dispute Resolution .......................................................29
13. Miscellaneous ............................................................29
13.1. Expenses .........................................................29
13.2. Notices. .........................................................29
13.3. Further Assurances ...............................................30
13.4. Amendments .......................................................30
13.5. Miscellaneous ....................................................30
LIST OF DISCLOSURE SCHEDULES AND EXHIBITS
Schedule 2.3 Outstanding Indebtedness
Schedule 3.6 Real Property; Equipment, etc.
Schedule 3.8 Patents, Trademarks and Copyrights
Schedule 3.9 Employees
Schedule 3.10 Union and Employment Agreements
Schedule 3.11 Officers, Directors and Bank Accounts
Schedule 3.12 Adverse Changes
Schedule 3.13 Certain Changes
Schedule 3.14 Environmental Matters
Schedule 3.15 Litigation
Schedule 3.16 Contracts and Other Agreements
Schedule 3.19 Software Applications
Schedule 3.20 Employee Benefit Plans
Exhibit A Certificate of Amendment of the Certificate of Incorporation
Exhibit B Escrow Agreement
Exhibit C Opinion of Buyer's Counsel
Exhibit D Opinion of Sellers' Counsel
Exhibit E Non-Competition Agreement
Exhibit F Employment Agreement
Exhibit G Amended Leases
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STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement"), dated May 17, 1999,
between POLYVISION CORPORATION, a New York corporation (the "Buyer"), and ▇▇▇▇
▇. ▇▇▇▇▇, as trustee under the ▇▇▇▇ ▇. ▇▇▇▇▇ FAMILY TRUST, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ (each individually, a "Seller" and
collectively, the "Sellers").
WHEREAS, the Sellers own all of the issued and outstanding shares of
capital stock, consisting of 1,000 shares of common stock (the "Shares"), of ▇.
▇▇▇▇▇ Corporation, a California corporation (the "Company"); and
WHEREAS, the Buyer desires to purchase from the Sellers and the Sellers
desire to sell to the Buyer all (and not less than all) of the Shares;
NOW, THEREFORE, in reliance on and in consideration of the promises and
agreements contained herein, the parties hereto agree as follows:
1. SALE AND PURCHASE OF THE SHARES. Subject to the terms and conditions
hereof and in reliance upon the representations, warranties and covenants
contained herein, the Sellers will sell all (and not less than all) of the
Shares to the Buyer, and the Buyer will purchase all (and not less than all) of
the Shares from the Sellers on the Closing Date (as defined in Section 2.1).
2. THE CLOSING; PURCHASE PRICE, ETC.
2.1. THE CLOSING. The closing (the "Closing") of the transactions
contemplated by this Agreement shall take place at the offices of ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, at 10:00 a.m., New York time, on
July 1, 1999, or on such other date on or prior to July 15, 1999, or such other
time and place as may be agreed upon by the Buyer and the Sellers. The date of
the Closing is herein referred to as the Closing Date.
2.2. DELIVERY OF SHARES. At the Closing, the Sellers will deliver to
the Buyer certificates for all of the Shares duly endorsed for transfer by the
Sellers or accompanied by stock powers duly executed by the Sellers.
2.3. PAYMENT AT CLOSING. At the Closing, the Buyer will pay the
purchase price for the Shares by (a) paying to the Sellers, by wire transfer of
funds to an account(s) designated by the Sellers, an amount equal to the
difference of (i) $23,500,000, MINUS (ii) all principal, interest and other
charges outstanding on the Closing Date in respect of the indebtedness described
in SCHEDULE 2.3 attached hereto (exclusive of purchase money indebtedness and
capital leases of the Company for operating equipment and vehicles), which
indebtedness will be paid by the Company at Closing, (b) paying to the escrow
agent (the "Escrow Agent") under the Escrow Agreement referred to in Section
10.2(b), the sum of $1,500,000 in immediately available funds and (c) paying to
the Sellers the sum of $5,000,000, payable by delivery to the Sellers of one or
more stock certificates (as the Sellers may elect)
representing, in the aggregate, 100,000 shares of Series D convertible preferred
stock of the Buyer (the "Series D Preferred Stock"), which have a liquidation
preference of $50.00 per share, are convertible into an aggregate of 1,000,000
shares of Common Stock of the Buyer, subject to certain adjustments, and have
the attributes set forth in the Certificate of Amendment of the Certificate of
Incorporation of the Buyer (the "Certificate of Amendment") in the form attached
hereto as EXHIBIT A. The components of the purchase price set forth in clauses
(a) and (c) of this Section 2.3 shall be allocated and paid or issued to the
Sellers in proportion to their relative ownership of the Stock as set forth in
SCHEDULE 3.3.
2.4. SELLER REPRESENTATIVE. Each Seller hereby irrevocably appoints
▇▇▇▇ ▇. ▇▇▇▇▇ with full power of substitution and resubstitution, as their true
and lawful agent, attorney-in-fact and representative (such person and his
appointed and designated successor being herein referred to as the "Seller
Representative"), with full power to act for and on behalf of the Sellers, and
each of them, for purposes of: (i) giving instructions to the Buyer and any
other third party on behalf of the Sellers as to the method of payment of the
portion of the purchase price set forth in clause (a)(i) of Section 2.3 which
may, at the direction of the Seller Representative, be paid into a common bank
account on a temporary basis pending distribution, it being understood and
agreed among the Sellers that the Seller Representative shall consult with each
Seller as to his or her preferences with regard to the manner of payments to be
made to each Seller, but as to which the Buyer shall not be responsible for
verifying that the Seller Representative made any necessary consultation, (ii)
determining the amount of any Losses (as hereinafter defined) suffered or
incurred by the Company or the Buyer, (iii) receiving notices from the Buyer
given under this Agreement, of which the Seller Representative will give a copy
to the other Sellers, (iv) approving and agreeing with the Buyer as to
additions, deletions, changes, modifications and amendments to this Agreement
and the Exhibits and Schedules hereto, except with respect to any addition,
deletion, change, modification or amendment to a material financial term or
condition of any of such documents that would materially, financially and
adversely affect the Sellers, and (v) settling finally and completely any
disputes or controversies among the parties hereto (other than solely among the
Sellers) with respect to the interpretation or effect of or damages or relief
under this Agreement and any and all transactions contemplated hereby. The
Seller Representative shall be entitled to reimbursement by the Sellers from the
consideration actually payable to the Sellers or otherwise for all reasonable
costs and expenses incurred by him in fulfilling his duties hereunder, and the
Sellers agree among themselves that such costs and expenses shall be borne pro
rata among them according to the number of Shares owned by each of the Sellers
immediately prior to the Closing. The Sellers agree that the Seller
Representative may make reasonable requests for advances to cover such costs and
expenses, and the Sellers will promptly make such advances. In no event will the
Buyer be liable for any costs or expenses of any nature incurred by the Seller
Representative in his capacity as such. THE COMPANY AND EACH SELLER, JOINTLY AND
SEVERALLY, AGREE THAT THE SELLER REPRESENTATIVE SHALL HAVE NO LIABILITY TO THE
SELLERS FOR ACTION TAKEN OR OMITTED IN GOOD FAITH IN EXERCISING THE AUTHORITY
GRANTED UNDER THIS SECTION 2.4. The Buyer shall not have any obligation or
liability to indemnify or defend the Seller Representative in respect of any
claim or liability asserted against the Seller Representative by any Seller or
its successors, assigns, heirs or personal representatives. To the extent
permitted by law and this Section 2.4, all
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determinations, decisions, actions and the like made by the Seller
Representative shall be final, conclusive and binding upon all Sellers and all
persons claiming under or through them, and may be relied upon by the Buyer as
such. If ▇▇▇▇ ▇. ▇▇▇▇▇ is at any time unable to act as Seller Representative,
another Seller Representative shall be selected by the written consent of the
holders of a majority of the Shares outstanding immediately prior to the
Closing, or their successors, assigns, heirs or personal representatives, to
serve until such time as ▇▇▇▇ ▇. ▇▇▇▇▇ is again able to serve.
2.5. SECTION 338(H)(10) ELECTION. If requested by the Buyer, the
Sellers agree to jointly make and file a Section 338(h)(10) election on Form
8023-A and under any similar provisions of state law with regard to the purchase
of the Shares no later than the 15th day of the ninth month beginning after the
month in which the Closing occurs. The Buyer shall be responsible for the
preparation and filing of Form 8023-A, including any appraisals and required
schedules thereto, and any similar forms under state or local law. The Buyer and
the Sellers agree to file all federal, state, local and foreign tax returns
consistent with a reasonable allocation schedule based on appraisals obtained by
the Buyer for the purpose of complying with the allocation of the Modified
Adjusted Deemed Sales Price rules of Treas. Reg. Section 1.338(h)(10) or other
regulations promulgated pursuant to Section 338(h)(10) of the Internal Revenue
Code of 1986, as amended (the "Code"). The Buyer shall indemnify the Sellers for
any federal, state or local income taxes (and interest and penalties thereon)
("Taxes") resulting from the Section 338(h)(10) election (including, without
limitation, any Taxes on built-in gains under Code Section 1374, any recapture
under Code Section 1245, and any LIFO inventory recapture under Code Section
1363) in this Section 2.5 over and above such federal, state or local taxes that
the Sellers would have incurred but for the Section 338(h)(10) election (the
"Incremental Taxes") by paying to the Sellers an amount equal to the Incremental
Taxes plus a tax gross-up such that the Sellers' after-tax proceeds from the
sale of the Shares pursuant to this Agreement will equal: (a) the Sellers'
after-tax proceeds from the sale of the Shares, less (b) the Taxes that the
Sellers would have incurred in a stock sale transaction without the Section
338(h)(10) election. For purposes of computing "Incremental Taxes," the Sellers
shall provide to Buyer the computations of the tax basis which each Seller has
in his or her Shares and the tax rate in the absence of the Section 338(h)(10)
election. The Buyer shall have the reasonable right to review such computations
and all supporting schedules and other information related thereto. In the event
that the Buyer and the Sellers cannot agree whether there are any Incremental
Taxes, the parties will retain a Big 5 accounting firm to make the
determination. The determination of such accounting firm shall be dispositive.
The Buyer agrees to pay any amount due pursuant to this Section 2.5 within
ninety (90) days of a determination of the Sellers' liability for Incremental
Taxes.
2.6. CURRENT YEAR TAXES. The net income of the Company for the 1999
calendar year shall not be prorated as between the Sellers (on the one hand) and
the Company or the Buyer (on the other hand), but shall be determined, for
income tax purposes, based on the actual net income of the Company during that
portion of 1999 through the Closing Date (as to which the Sellers shall be
liable for the payment of all taxes payable thereon in accordance with their
respective interests in the Shares) and that portion of 1999 subsequent to the
Closing Date (as to which the Company shall be liable for the payment of all
taxes payable
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thereon), with the Company having been deemed to have closed its books for such
purposes on and as of the Closing Date. The Buyer and the Sellers shall
cooperate with each other and shall share all necessary information required in
order to make the foregoing calculations in a timely manner so as to enable each
subject person to timely pay his, her or its taxes in respect of his, her or its
share of the Company's 1999 net income.
3. REPRESENTATIONS AND WARRANTIES OF THE SELLERS. The Sellers, jointly
and severally, represent and warrant to the Buyer, subject to the exceptions
specifically disclosed in writing in the Disclosure Schedules, as follows:
3.1. ORGANIZATION AND QUALIFICATION. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California and has all requisite power and authority to own, lease and
operate its properties and carry on its business as now being conducted. The
Company is duly qualified and in good standing as a foreign corporation
authorized to do business in the States of Arizona, Florida, Illinois, Nevada,
North Carolina, Oregon, Pennsylvania, South Carolina, Texas, Utah, Virginia,
Wisconsin and Washington, and each other jurisdiction where the character of the
properties owned or leased or the nature of activities conducted makes such
qualification necessary.
3.2. NO SUBSIDIARIES. The Company does not own or control, directly
or indirectly, any shares of, or interest in, any corporation, association or
other business entity.
3.3. CAPITALIZATION. The authorized capital stock of the Company
consists of 20,000 shares of common stock (the "Common Stock"), of which 1,000
shares are issued and outstanding and no shares are held as treasury shares. All
of the issued and outstanding shares of Common Stock are duly authorized,
validly issued, fully paid, nonassessable and free of preemptive rights, and are
owned by the Sellers in the respective amounts and proportions set forth in
Schedule 3.3 attached hereto. There are no options, warrants, calls,
subscriptions, convertible securities, or other rights or other agreements or
commitments of any character whatsoever obligating the Company to issue or sell
any shares of its capital stock, or any securities convertible into or
exchangeable or exercisable for or otherwise evidencing a right to acquire any
shares of its capital stock or other securities of any kind of the Company,
(except for the Stock Purchase Agreement among the Sellers, which will be
terminated on or before the Closing Date). There are no voting trusts or other
agreements or understandings to which the Company or the Sellers are a party
with respect to the voting of the capital stock of the Company.
3.4. AGREEMENT; TITLE TO SHARES. The Sellers have the legal capacity
to enter into this Agreement and, as applicable, the Non-Competition Agreements,
Employment Agreement and Amended Leases referred to in Sections 8.7, 8.8 and 8.9
hereof. This Agreement has been duly executed and delivered by the Sellers and,
assuming due execution by the Buyer, constitutes the legal and binding
obligation of the Sellers enforceable in accordance with its terms. Upon
execution and delivery thereof by the Company and the Sellers (and, in the case
of the Non-Competition Agreements and Employment Agreement, the Buyer), each of
such Non-Competition Agreements, Employment Agreement and Amended Leases will
constitute legal and binding obligations of the Sellers, enforceable in
accordance with their respective terms.
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The execution and delivery by the Sellers of this Agreement and, as applicable,
such Non-Competition Agreements, Employment Agreement and Amended Leases, the
consummation of the transactions contemplated hereby and thereby, and the
performance by the Sellers of their obligations hereunder and thereunder, will
not conflict with or result in any violation of or default under (either
immediately or with notice or lapse of time), or result in any right to
accelerate or the creation of any lien, charge or encumbrance pursuant to, any
provision of (a) the Articles of Incorporation or By-laws of the Company, (b)
except as set forth in SCHEDULE 3.4, any agreement, contract, lease, license,
note, bond, mortgage, indenture, deed of trust or other instrument to which the
Sellers or the Company is a party or by which any of the properties or other
assets of the Company is bound, (c) any governmental franchise, license, permit
or authorization, or any judgment or order of any tribunal or governmental body
applicable to the Sellers or the Company, or any of the properties or other
assets of the Company, or (d) any applicable law, statute, decree, rule or
regulation of any jurisdiction, except where such conflict, violation or
default, acceleration or creation would not have a material adverse effect on
the Company. Except for any applications or other filings required to be made
with the California Commissioner of Corporation's office with regard to the
transfer of shares, no authorization, consent or approval of, or declaration of,
filing with or notice to any governmental body or authority by the Sellers or
the Company is necessary for the execution of this Agreement, such
Non-Competition Agreements, Employment Agreement or Amended Leases by the
Sellers, the consummation by the Sellers of the transactions contemplated hereby
and thereby or the performance by the Sellers of their obligations hereunder and
thereunder. The Sellers own, beneficially and of record, free and clear of any
lien, option or other encumbrance, or own of record and have full power and
authority to convey free and clear of any lien, option or other encumbrance
(except for the Stock Purchase Agreement among the Sellers, which will be
terminated on or before the Closing Date), all of the Shares in the respective
amounts set forth in SCHEDULE 3.3, and, upon delivery of and payment for the
Shares as herein provided, the Buyer will acquire good and valid title thereto,
free and clear of any lien, option or other encumbrance.
3.5. FINANCIAL STATEMENTS. The Company has previously delivered to
the Buyer true and complete copies of (a) the unaudited balance sheets of the
Company as of December 31, 1998 and 1997, and the related unaudited statements
of income, retained earnings and cash flows for such years then ended, and the
schedules thereto, as reviewed by the Company's certified public accountants
(the "Company Financials"), and (b) unaudited financial statements, including
the balance sheet of the Company as of March 31, 1999 and the related statement
of income, for the period from January 1, 1999 to the date of such balance
sheet, certified by the President of the Company (the "Interim Financials"). The
Company Financials and the Interim Financials, including the notes to all such
statements, are referred to herein collectively as the "Financial Statements."
Except as noted in the review letters included in the Company Financials or as
set forth in SCHEDULE 3.5, the Company Financials have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods specified, and present fairly in all material
respects the financial position of the Company as of the respective dates
specified and the results of operations and changes in financial position of the
Company for the respective periods specified. Except as set forth in SCHEDULE
3.5, the Interim Financials have been prepared consistently with the Company's
past practice and, to the Sellers' knowledge, present fairly the financial
position of the Company as of
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March 31, 1999 and the results of operations for the period from January 1
through March 31, 1999, subject to normal, recurring year-end adjustments (which
would not be material) and the absence of notes.
3.6. TITLE TO PROPERTY, ABSENCE OF ENCUMBRANCES, ETC. SCHEDULE 3.6
contains a complete and accurate list of (a) all owned or leased real property
and (b) all machinery, equipment, tools, furniture and fixtures having an
original cost in excess of $25,000, owned or leased by the Company, and of all
mortgages, liens and material encumbrances to which such real property,
machinery, equipment, tools, furniture and fixtures are subject. Except for
leased property and as specified in such SCHEDULE 3.6, the Company has good and
marketable title to, or a valid leasehold or license to use, all assets, real or
personal, tangible or intangible, owned or used by it, including, without
limitation, all assets reflected in the most recent balance sheet included in
the Company Financials (other than any assets sold or otherwise disposed of in
the ordinary course of business since the date of the Company Financials), free
and clear of all mortgages, pledges, liens, security interests or encumbrances
of any nature (other than liens for taxes, assessments or other governmental
charges not yet due and payable, or presently payable without penalty or
interest) including, without limitation, any governmental restrictions on the
operation of such assets, except for such leases and such mortgages, liens and
encumbrances, or as otherwise disclosed in SCHEDULE 3.6 to this Agreement.
Except as noted in SCHEDULE 3.6, all buildings, other improvements and leasehold
improvements, and all machinery, equipment, tools, furniture and fixtures listed
in SCHEDULE 3.6 owned or leased by the Company are in operating condition and
repair, except for reasonable wear and tear. All real property leased by the
Company has been constructed and operated in compliance with all applicable
Federal, state, county and municipal laws, regulations, ordinances, standards
and orders, including, without limitation, all zoning and environmental laws,
regulations, ordinances, standards and orders, except where non-compliance would
not have a material adverse effect on the Company. There are no outstanding
enforcement actions or notices of violation issued by any Federal, state, county
or municipal authority having jurisdiction over any such property.
3.7. INVENTORIES; ACCOUNTS RECEIVABLE. The inventories of the
Company are, as of the date of the Interim Financials, and will be, as of the
Closing Date, except as reserved against on the Interim Financials or in
SCHEDULE 3.7, (a) in the case of raw materials and work in progress, usable for
the production of currently produced products which meet the Company's current
product specifications and, in the case of finished goods, saleable to customers
in the normal course of its business, and (b) not obsolete, deteriorated,
unusable or in excess of customary levels. Except as set forth in SCHEDULE 3.7
and except as reflected in the reserve for doubtful accounts set forth in the
balance sheet included in the Interim Financials as of March 31, 1999, all
accounts receivable of the Company as of the date of such Interim Financials and
uncollected on the date hereof are collectible in the full aggregate face amount
thereof in the ordinary course of business. Except as set forth in SCHEDULE 3.7,
all accounts receivable created subsequent to the date of such Interim
Financials through the Closing Date will have been collected in full prior to
the Closing Date or are collectible thereafter in the full aggregate face amount
thereof in the ordinary course of business, less an applicable reserve for
doubtful accounts established in a manner consistent with the Company's prior
practices and not greater, as a percentage of such accounts receivable, than the
reserve for doubtful accounts stated
6
in such Interim Financials. Any account receivable existing at the Closing Date
and uncollected 180 days after the Closing Date, less any applicable reserves,
shall be deemed a Loss for the purposes of Section 10 and shall, upon payment to
the Buyer of any required indemnification in respect thereof, be assigned
without recourse to the Sellers, provided that no such assignment shall be
required if indemnification under Section 10 is not payable for such Loss for
any reason.
3.8. PATENTS; TRADEMARKS. SCHEDULE 3.8 contains a complete and
correct list of all patents, trademarks registered or claimed by the Company,
trade names and registered copyrights owned or used by, or registered in the
name of, the Company, and all applications for patents or for registration of
trademarks, trade names or copyrights made by the Company, or by any of its
employees for the benefit of the Company. Except as otherwise indicated in
SCHEDULE 3.8, the Company is the registered and beneficial owner of all such
patents, trademarks, trade names and registered copyrights, free and clear of
any license, royalty, lien, encumbrance or, to the Sellers' knowledge, other
interest of a third party. The Company owns or has the right to use all patents,
patent applications, trademarks, trade names, copyrights and other intellectual
property rights, including, without limitation, inventions, processes, designs,
formulae, trade secrets, technology and know-how necessary for the conduct of
its business. There is no pending or, to the Seller's knowledge, threatened
claim by the Company against any third party for infringement, misuse or
misappropriation of any patent, trademark, trade name, copyright or other
intellectual property (including, without limitation, any trade secrets or
know-how), owned by the Company or in which the Company has an interest, whether
as licensee or otherwise. There is no pending or, to the Sellers' knowledge,
threatened action, suit or proceeding against the Company for infringement,
misuse or appropriation by it of any patent, trademark, trade name, copyright or
other intellectual property (including, without limitation, any trade secret or
know-how) owned by any third party or, to the knowledge of the Sellers, are
there any facts or circumstances which would make such an action, suit or
proceeding likely to occur.
3.9. EMPLOYEE REMUNERATION. SCHEDULE 3.9 lists the current salaries
and bonuses (together with pending or anticipated increases therein) of each
director, officer, employee, consultant or agent of the Company currently paid
at a rate in excess of $60,000 per year. Except as set forth in SCHEDULE 3.9, no
officer or other key employee of the Company has indicated to the Sellers that
such officer or key employee will, and to the Sellers' knowledge no such officer
or key employee has an intention to, terminate his or her employment with the
Company. Except as set forth in SCHEDULE 3.9, as of the Closing Date, the
aggregate renumeration paid by the Company to the Sellers, in their capacity as
an officer, director or employee of the Company, since January 1, 1999 shall not
have been at an annualized rate in excess of $150,000 per annum per person.
3.10. UNION AND EMPLOYMENT AND CONSULTING AGREEMENTS. Except as
disclosed in SCHEDULE 3.10, the Company is not a party to any collective
bargaining agreement, or to any written or, to the Sellers' knowledge, oral
employment or consulting agreement, with any of its officers, directors,
employees, consultants or agents. Copies of any written agreements disclosed in
SCHEDULE 3.10 (or written summaries of oral agreements so disclosed) have been
delivered to the Buyer. Except as disclosed on SCHEDULE 3.10, to the Sellers'
knowledge, no attempts to organize the employees of the Company have been made,
nor are any such attempts
7
now threatened or being planned. The Company is in compliance in all material
respects with all applicable Federal, state and local laws, rules and
regulations regarding employment conditions and practices, has withheld all
amounts required by law or agreement to be withheld from the wages or salaries
of its employees and is not liable for any arrears of wages or any taxes or
penalties for failure to comply with any of the foregoing. To the Sellers'
knowledge, the Company has not engaged in any unfair labor practices or has
discriminated on the basis of age, sex, race or other discrimination prohibited
by law in its employment conditions or practices. Except as set forth in
SCHEDULE 3.10, there are no unfair labor practice or age, sex or race
discrimination charges or complaints or other charges or complaints alleging
illegal discriminatory practices pending or, to the Sellers' knowledge,
threatened against the Company before any Federal, state or local board,
department, commission or agency nor, to the Sellers' knowledge, are there any
facts or circumstances which would make any of the foregoing likely to occur.
There are no existing or, to the Sellers' knowledge, threatened labor strikes or
material disputes, grievances, controversies or other labor troubles affecting
the Company. There are no pending or, to the Sellers' knowledge, threatened
union representation questions respecting the employees of the Company or any
pending arbitration proceedings. The Company is not obligated to pay, and has
not granted or promised in writing or, to the Sellers' knowledge, orally, to pay
to any employee, officer, director or provider of services any separation,
severance, termination, change in control or similar benefits in the event of,
or as a consequence of, the severance of their employment or relationship with
the Company, or a change in control of the Company.
3.11. OFFICERS, DIRECTORS AND BANK ACCOUNTS. SCHEDULE 3.11 lists (a)
the names of all directors and officers of the Company and (b) the name and
location of each bank or other institution in which the Company has any account
or safe deposit box, the number or other identification thereof and the names of
all persons authorized to draw thereon or have access thereto.
3.12. NO MATERIAL ADVERSE CHANGE. Except as specified in SCHEDULE
3.12, since January 1, 1999, there has not been, individually or in the
aggregate, any material adverse change or changes in the business, assets,
properties, results of operations or financial condition of the Company.
3.13. ABSENCE OF CERTAIN CHANGES. Except as specified in SCHEDULE
3.13, since January 1, 1999, the Company has not (a) issued, sold or delivered
or agreed to issue, sell or deliver any shares of its capital stock or any
options or rights to acquire any such capital stock or securities convertible
into or exchangeable for such capital stock, (b) incurred any obligations or
liabilities, whether absolute, accrued, contingent or other, other than
obligations and liabilities incurred in the ordinary course of business, (c)
mortgaged, pledged or subjected to any lien, lease, security interest or other
encumbrance (other than liens for taxes, assessments or other governmental
charges not yet due and payable, or presently payable without penalty or
interest) any of its assets, real or personal, tangible or intangible, (d)
acquired or disposed of any assets or properties, or entered into any agreement
for any such acquisition or disposition, except in the ordinary course of
business, (e) declared, made, paid or set apart any sum for any dividend or
other distribution to its shareholders, or purchased or redeemed any shares of
its capital stock
8
or granted any option, warrant or right to purchase any such capital stock, (f)
forgiven or cancelled any debts or claims or waived any rights of material value
not previously accrued for, (g) granted any increase in compensation in any form
to any officer, salaried employee or any class of other employees, or granted
any severance or termination pay, or entered into any employment agreement, or
any modification of a previously existing employment agreement, with any officer
or any other salaried employee, other than increases in compensation of less
than 10% granted in the ordinary course of business consistent with prior
practice to employees whose base pay at the time of such increase was less than
$60,000, (h) adopted, amended or entered into any collective bargaining, bonus,
profit sharing, compensation, stock option, pension, retirement, deferred
compensation or other plan, agreement or arrangement for the benefit of
employees, (i) granted any rights or licenses under any of its patents,
trademarks, trade names, copyrights or other industrial property rights, (j)
suffered any material loss of, or material adverse change in its relationship
with, any supplier or customer and the Sellers have no knowledge that any such
supplier or customer intends or is contemplating any action which would
constitute or lead to such a loss or adverse change, (k) suffered any damage,
destruction or loss (whether or not covered by insurance) which has a material
adverse effect on its business, (1) suffered any strike or other labor trouble
which has materially affected its operations, (m) terminated or made any
substantial revision of, or engaged in any renegotiation of, any material
contract, (n) materially decreased, in the aggregate, the level of maintenance
on, or its expenditures for maintenance of, the real property, machinery,
equipment, tools, furnitures and fixtures owned or leased by it, (o) made any
change in accounting principles or methods or in classification, depreciation or
amortization policies or rates, (p) settled any dispute involving payment by the
Company in excess of $25,000 or cancelled, forgiven or reduced any obligation of
any person or entity in an amount in excess of $25,000, (q) made any loan or
advance in excess of $10,000 to any person or entity other than travel or
expense advances in accordance with its normal policies which have been
accounted for or repaid and extension of trade credit in accordance with its
normal business practices, or (r) entered into any material transaction other
than in the ordinary course of business.
3.14. ENVIRONMENTAL MATTERS. Except as set forth in SCHEDULE 3.14,
there are not nor, to the Sellers' knowledge, are there any facts on
circumstances which would make it likely to occur, (a) any proceedings or
governmental investigations concerning or against the Company, pending or
threatened, before any court or tribunal or governmental instrumentality, (b)
any citation, summons, directive, order or notice of violation of any law,
decree, rule, regulation, permit or order by or against, the Company, (c) any
lien, or any governmental actions resulting or which are likely to result in the
imposition of any such lien, on any of the properties owned or leased by the
Company, (d) any claim against the Company for bodily injury, property damage,
personal injury, consequential damages or clean-up costs, or (e) any obligation
to perform or contribute to remediation or to make capital expenditures, which
in each case is based upon or related in any way to Environmental Matters (as
defined below). To the Sellers' knowledge, no toxic or hazardous substances have
been generated, treated, released, stored, discharged or deposited on any of the
premises of the Company or by the Company (whether directly or indirectly
through a third party) at any other location, except in compliance with
applicable laws. There are no underground storage tanks or friable
asbestos-containing material on any of the premises of the Company. As used
herein, the term "Environmental Matters"
9
refers to all matters relating to ground, air and water pollution or discharge,
solid or hazardous wastes, toxic, hazardous or polluting substances,
occupational health, the transport, storage, recycling or disposal of waste
(including, without limitation, garbage, refuse, sludge and other discarded
materials, whether solid, liquid, semisolid or gaseous and whether on-site or
off-site), ground water and soil monitoring, and discharge or emission of
pollutants, contaminants or by-products (including, without limitation, dredged
soil, solid wastes, incinerator residue, sewage, garbage, sewage sludge,
chemical wastes, biological materials, radioactive materials, heat, wrecked or
discarded equipment, industrial waste, chemicals, metals or other substances),
whether such pollution or discharge was caused by (i) the Company, or (ii) any
third party arising from off-site hazardous waste transport, storage, disposal
or treatment on behalf of the Company.
3.15. LITIGATION. Other than as disclosed in SCHEDULES 3.8, 3.10,
3.14 and 3.15, there are no judicial or administrative actions, suits or
proceedings pending or, to the Sellers' knowledge, governmental investigations
pending or judicial or administrative actions, suits and proceedings threatened
before any court or tribunal or governmental instrumentality, or any citation,
order or notice of violation of any law, decree, rule or regulation, by or
against the Sellers, in their capacity as officers, directors or shareholders of
the Company, or the Company or any of their respective properties, or which
relate in any way to the Company's business, properties, assets or operations,
or which have resulted or are likely to result in an imposition of a lien on any
of the properties or assets owned or leased by the Company, or which question
the validity of this Agreement or the Amended Leases or any action to be taken
in connection herewith or therewith, nor is there any such action, suit,
proceeding or investigation, to the knowledge of the Sellers, pending or
threatened, which involves any director, officer, employee, consultant or
independent contractor of the Company in its or his or her capacity as such.
Except as set forth in SCHEDULE 3.15, neither the Sellers, nor the Company nor
any property or assets of the Company is subject to any judicial or
administrative order, judgment, injunction or decree (except for orders,
judgments and decrees related to garnishment of wages, child support, alimony
payment, divorce settlements and like matters relating to Company employees,
which are not material to the Company).
3.16. CONTRACTS. SCHEDULE 3.16 contains a complete and correct list
of each (a) mortgage, debenture, note or installment obligation, or other
instrument or contract for the borrowing or lending of money by the Company,
including, without limitation, any agreement or arrangement relating to the
maintenance of compensating balances or the availability of a line of credit,
(b) material license agreement, sales agency agreement or distribution agreement
to which the Company is a party, (c) guaranty of any obligation by the Company,
including, without limitation, any keep-well, make-whole or maintenance of
working capital or earnings or similar agreement, (d) agreement for the sale of
any properties or assets by the Company other than sales of products in the
ordinary course of business, (e) contract, other than a contract, purchase order
or other agreement for the purchase of raw materials or other supplies in the
ordinary course of business or for the purchase of machinery, equipment, tools,
furniture or fixtures with a cost of less than $100,000, pursuant to which the
Company is or may be obligated to make payments, contingent or otherwise, on
account of or arising out of the acquisition, prior, pending or future, of the
shares, business or other assets of another enterprise,
10
(f) secrecy or invention agreement under which the Sellers or the Company or, to
the Sellers' knowledge, any of the present officers or employees of the Company
has any obligation and relating to the business of the Company, (g) requirements
contract with the Company as purchaser or other agreement for the purchase or
sale of goods or services not terminable without liability by the Company on 30
days' (or less) notice or involving payments by or to the Company in excess of
$100,000, (h) agreement or arrangement with a customer or supplier of the
Company for rebates, sharing of expenses or any similar device for the effective
reduction or increase of prices or other charges and involving products with a
value in excess of $100,000, (i) agreement of the Company with, or loan or
advance by the Company to or from, or other obligation of the Company to or from
any officer or director of the Company, (j) lease of real or personal property
with the Company as lessor or lessee, involving rents of more than $5,000 per
year, (k) agreement or arrangement limiting the freedom of the Sellers or the
Company or, to the Sellers' knowledge, any of the present officers or employees
of the Company to compete in any line of business similar to the Company's
business, with any person or other entity or in any geographical area, (1)
governmental license, franchise, permit or authorization held by and material to
the business of the Company and not listed on any other Schedule hereto, (m)
insurance policy relating to the properties, businesses or products of the
Company having a currently unexpired term or, as to any casualty, workers'
compensation, general or product liability or excess liability insurance policy
currently in effect, (n) joint venture agreement or partnership, profit sharing
or other agreements to which the Company is a party, (o) agreement pursuant to
which the Company has indemnified or shared tax liability with any party, and
(p) performance bond of the Company and related agreements, and (q) contract,
commitment or agreement not referred to above in this Section 3.16 or in any
other Schedule to this Agreement and which involves aggregate payments by or to
the Company of $100,000 or more. All such contracts and agreements are in full
force and effect against the Company, the Company is not in material default
thereunder and no event has occurred which, whether with notice, lapse or time
or otherwise, would constitute a material default thereunder.
3.17. TAXES.
(a) The Company has been classified throughout its entire
existence as an electing small business (Subchapter S) corporation, and will
continue to be so classified through the Closing Date, for federal and state tax
purposes. All federal, state and local, income, sales, franchise and other taxes
due and payable or accruable by the Company on or before the date of this
Agreement have been paid or adequately reserved in the books and records of the
Company. The Company has filed all tax returns and reports required to be filed
by it with all taxing authorities through December 31, 1997 (and will file all
such returns through the Closing Date) and such returns are, or will be, true,
correct and complete in all material respects, giving due regard to permitted
extensions. All liabilities for taxes reflected in the Company's books and
records have been, or will be, computed in accordance with all applicable laws
and regulations and represent adequate provision for the payment of all accrued
or unpaid or deferred taxes of the Company for all periods through the Closing
Date. There are no tax liens upon any of the Company's property or assets.
11
(b) (i) The Federal income tax returns of the Company are
closed for all years ended on or prior to the end of the taxable year ended
December 31, 1995, (ii) there are no outstanding proposed adjustments, (iii) all
Federal income tax returns for taxable years ended through December 31, 1997,
have been filed and (iv) there are no pending audits.
(c) No deficiency for any other tax has been asserted or
assessed against the Company, and there are neither unresolved claims
concerning, proceedings nor actions pending which relate to, either the tax
liability of the Company or the collection or assessment of tax for any period
for which returns covering the Company have been filed or were due.
(d) There are no outstanding agreements, extensions or waivers
extending the statutory period of limitation applicable to any Federal tax
return or state franchise, income or other tax returns covering the Company.
(e) The Company has not agreed to, or is the Company required
to, make any adjustment pursuant to Section 481(a) of the Code or any
predecessor provision by reason of any change in any accounting method of the
Company (other than any changes mandated by regulations under the Code), and the
Company has not made any application pending with any taxing authority
requesting permission for any changes in any of their respective accounting
methods.
(f) The Company has not consented to the application of
Section 341(f)(2) of the Code (or any predecessor provision).
(g) The Company has duly and timely withheld from all
salaries, wages and other compensation of their respective employees and have
duly and timely paid over to the appropriate governmental authorities all
amounts required to be so withheld and paid over for all periods under all
applicable laws.
3.18. LICENSES AND PERMITS. The Company has obtained and holds, in
its name or in the names of employees who are "qualifiers" under applicable
laws, all licenses, permits, authorizations, consents and orders or approvals of
all foreign, Federal, state or local governmental or regulatory bodies that are
necessary for the lawful conduct of its business (the "Permits") including,
without limitation, any licenses or filings, permits to operate machinery, or to
store, handle, utilize or dispose of raw materials (including without limitation
hazardous materials) and waste, the absence of which would not have a material
adverse effect on the Company. All of the Permits are validly issued and in full
force and effect and the Company is in material compliance therewith. No
proceeding is pending or, to the Sellers' knowledge, threatened which seeks or
may result in canceling, suspending, restricting or modifying any Permit. The
business of the Company is being operated in all respects in accordance with the
terms and conditions of the Permits, the failure of which would not have a
material adverse effect on the Company.
12
3.19. INTERNAL SOFTWARE APPLICATIONS.
(a) SOFTWARE APPLICATIONS; YEAR 2000. The current software
applications used by the Company in the operation of its business are set forth
and described in SCHEDULE 3.19 (the "Software"). All of the Software used by the
Company complies in all material respects with the necessary requirements to
function efficiently after December 31, 1999, and will operate without a
material deviation as a result of the Year 2000 date change.
(b) OWNED SOFTWARE. To the extent that any of the Software has
been designed or developed by the Sellers or the Company's management
information or development staff or by consultants on the Sellers' or the
Company's behalf, such Software is original and capable of copyright protection
in the United States, and the Company has complete rights to and ownership of
such Software, including possession of, or ready access to, the source code for
such Software in its most recent version. To the Sellers' knowledge, no part of
any such Software is an imitation or copy of, or infringes upon, the software of
any other person or entity, or violates or infringes upon any common law or
statutory rights of any other person or entity, including, without limitation,
rights relating to defamation, contractual rights, copyrights, trade secrets,
and rights of privacy or publicity. Except as set forth in SCHEDULE 3.19,
neither the Sellers nor the Company has sold, assigned, licensed, distributed or
in any other way disposed of or encumbered any of the Software.
(c) LICENSED SOFTWARE. The Software, to the extent it is
licensed from any third party licensor or constitutes "off-the-shelf" software,
is held by the Company legitimately and is fully transferable hereunder without
any third party consent. To the Sellers' knowledge, all of the Company's
computer hardware has legitimately licensed software installed therein.
(d) NO ERRORS; NONCONFORMITY. To the Sellers' knowledge, the
Software is free from any significant defect or programming or documentation
error, operates and runs in a reasonable and efficient business manner, conforms
to the stated specifications thereof, and, with respect to owned Software, the
applications can be recreated from their associated source codes.
(e) NO BUGS OR VIRUSES. The Company has not knowingly altered
its data, or any Software or supporting software which may, in turn, damage the
integrity of the data, stored in electronic, optical, or magnetic or other form.
Except as set forth in SCHEDULE 3.19, the Sellers have no knowledge of the
existence of any bugs or viruses with respect to the Software.
(f) PASS-THROUGH WARRANTIES. The Company shall, to the maximum
possible extent, pass through to the Buyer all manufacturer's and supplier's
warranties and support contracts for the Software that are not owned by the
Company, and the Company shall, upon the Buyer's reasonable request, execute
each and every document that is necessary or appropriate to effectuate the
purchaser's obtaining and enjoying the benefits of any such pass-through
warranty.
13
(g) DOCUMENTATION. The Sellers and the Company will, before
the Closing Date, make available to the Buyer true and accurate copies of all
documentation (end user or otherwise) relating to the use, maintenance and
operation of the Software.
3.20. EMPLOYEE BENEFIT PLANS.
(a) EMPLOYEE BENEFIT PLANS. SCHEDULE 3.20 contains a list
setting forth each employee benefit plan or arrangement sponsored, maintained or
contributed to by the Company or with respect to which the Company has or may
have any actual or contingent liability or obligation, including but not limited
to employee pension benefit plans, as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), multiemployer
plans, as defined in Section 3(37) of ERISA, employee welfare benefit plans, as
defined in Section 3(1) of ERISA, deferred compensation plans, stock option
plans, bonus plans, stock purchase plans, material fringe benefit plans, life,
hospitalization, disability and other insurance plans, severance or termination
pay plans and policies, sick pay plans, and vacation plans or arrangements,
whether or not described in Section 3(3) of ERISA (but excluding any plans,
programs, agreements or arrangements maintained or contributed to pursuant to
collective bargaining that are not subject to Title IV of ERISA). Each and every
such plan, program, agreement or arrangement (other than plans, programs,
agreements or arrangements maintained or contributed to pursuant to collective
bargaining) is hereinafter referred to as an "Employee Benefit Plan."
(b) PROVISION OF DOCUMENTS. With respect to each Employee
Benefit Plan, Sellers have delivered to Buyer (i) current, accurate and complete
copies of each such written Employee Benefit Plan (including all related trust
agreements, insurance or annuity contracts); (ii) copies of the most recent
Internal Revenue Service determination or opinion letter (including copies of
any outstanding requests for determination letters) with respect to each such
Employee Benefit Plan which is an employee pension benefit plan (as such term is
defined in Section 3(2) of ERISA) intended to qualify under Section 401(a) of
the Code; (iii) to the extent applicable, copies of the most recent Form 5500
annual report and accompanying schedules, the most recent actuarial report, and
the most recent summary plan descriptions; and (iv) Forms 5310 and any relating
filings with the Pension Benefit Guaranty Corporation ("PBGC") with respect to
the last 6 plan years for each Employee Benefit Plan subject to Title IV of
ERISA.
(c) COMPLIANCE WITH PLAN TERMS AND LAW. Except as otherwise
provided in Schedule 3.20, with respect to each Employee Benefit Plan: (i) each
has been administered in all material respects in compliance with its terms and
with all applicable laws, including, but not limited to, ERISA and the Code;
(ii) no actions, suits, claims or disputes are pending, or to Sellers' knowledge
threatened, other than routine claims for benefits; (iii) no audits, inquiries,
reviews, proceedings, claims, or demands are pending with any governmental or
regulatory agency; (iv) there are no facts which could give rise to any material
liability in the event of any such investigation, claim, action, suit, audit,
review or other proceeding; (v) all premiums, contributions, or other payments
required to have been made by law or under the terms of any Employee Benefit
Plan as of the Closing Date will have been made; (vi) all material reports,
returns and similar documents required to be filed with any governmental agency
or distributed to any plan participant have been duly or timely filed or
distributed; and (vii) no non-
14
exempt "prohibited transaction" has occurred within the meaning of the
applicable provisions of ERISA or the Code for which the Company would have any
liability.
(d) QUALIFIED PLANS. With respect to each Employee Benefit
Plan intended to qualify under Section 401(a) of the Code: (i) the Internal
Revenue Service has issued a favorable determination or opinion letter, true and
correct copies of which have been furnished to Buyer, that such plans are, and
such plans in fact are, qualified and exempt from federal income taxes; (ii) no
such determination letter, and to Seller's knowledge no such opinion letter, has
been revoked nor has revocation been threatened, nor, to Sellers' knowledge, has
any amendment or other action or omission occurred with respect to any such plan
since the date of its most recent determination or opinion letter or application
therefor in any respect which would adversely affect its qualification or
materially increase its costs; (iii) no such plan has been amended in a manner
that would require security to be provided in accordance with Section 401(a)(29)
of the Code; (iv) no reportable event (within the meaning of Section 4043 of
ERISA) has occurred, other than one for which the 30-day notice requirement has
been waived; (v) as of the Closing Date, the present value of all liabilities
that would be "benefit liabilities" under Section 4001(a)(16) of ERISA if
benefits described in Code Section 411(d)(6)(B) were included will not exceed
the then current fair market value of the assets of each such plan subject to
Title IV of ERISA (determined using the actuarial assumptions used for the most
recent actuarial valuation for such plan); (vi) all contributions to, and
payments from and with respect to such plans, which may have been required to be
made in accordance with such plans and, when applicable, Section 302 of ERISA or
Section 412 of the Code, have been timely made; and (vii) all such contributions
to the plans including without limitation PBGC (as defined below) and insurance
premiums for any period ending before the Closing Date that are not yet, but
will be, required to be made are or will be properly accrued and reflected on
the Financial Statements.
(e) MULTIEMPLOYER PLANS. With respect to any multiemployer
plan as described in Section 4001(a)(3) of ERISA to which the Company
contributes or with respect to which the Company may have any actual or
contingent liability ("MPPA Plan"): (i) all contributions required to be made
with respect to employees of the Company have been timely paid; (ii) the Company
has not incurred and as of the Closing is not expected to incur, directly or
indirectly, any withdrawal liability under ERISA with respect to any such plan
(whether by reason of the transactions contemplated by the Agreement or
otherwise); (iii) none of the MPPA Plans covers any employees of the Company or
any Controlled Group Members, other than employees who are "installers" of the
Company's products; and (iv) to Sellers' knowledge, no such plan is insolvent or
in reorganization and no accumulated funding deficiency (as defined in Section
302 of ERISA and Section 412 of the Code), whether or not waived, exists with
respect to any such plan.
(f) WELFARE PLANS. (i) The Company is not obligated under any
Employee Benefit Plan that is an employee welfare benefit plan as described in
Section 3(1) of ERISA ("Welfare Plan") to provide medical or death benefits with
respect to any employee or former employee of the Company or its predecessors
after termination of employment, except as required under Section 4980B of the
Code or Part 6 of Title I of ERISA; and (ii) the Company has complied in all
material respects with the notice and continuation coverage requirements of
15
Section 4980B of the Code and Parts 6 and 7 of Title I of ERISA, and the
regulations thereunder with respect to each Welfare Plan that is, or was during
any taxable year for which the statute of limitations on the assessment of
federal income taxes remains open, by consent or otherwise, a group health plan
within the meaning of Section 5000(b)(1) of the Code.
(g) CONTROLLED GROUP LIABILITY. The Company does not have any
material actual or contingent liability or obligation for, under or with respect
to any employee benefit plan or arrangement sponsored, maintained or contributed
to by any entity that has been or would be aggregated with the Company under
Section 414(b), (c), (m) or (o) of the Code (each a "Controlled Group Member").
(h) OTHER LIABILITIES. (i) The Company is not and will not be
obligated to pay separation, severance, termination or similar benefits, to
accelerate the time of payment or vesting, or increase the amount of
compensation due to any individual as a result of a "change of control" (as such
term is defined in Section 280G of the Code) that occurs on the Closing Date or
solely as a result of any transaction contemplated by this Agreement and (ii)
all required premiums under any group health plan within the meaning of Section
5000(b)(1) of the Code maintained or contributed to by the Company (including
pursuant to collective bargaining) or contributions (including additional
premiums payable in arrears to reflect claims experience) for all periods ending
prior to or as of the Closing shall have been made or properly accrued on the
Financial Statements prior to or as of the Closing and will not, in the
aggregate, exceed by more than 15% the aggregate amount accrued for such items
on the December 31, 1998 Company Financials.
3.21. OTHER LIABILITIES. To the Sellers' knowledge, the Company does
not have any liabilities or obligations (direct or indirect, contingent or
absolute, matured or unmatured) of whatever nature, whether arising out of
contract, tort, statute or otherwise, of the type required to be reflected as
liabilities on a balance sheet of the Company as currently prepared pursuant to
Section 3.5, except (a) as reflected in the balance sheets included in the
Company Financials or Interim Financials, (b) disclosed in the Schedules to this
Agreement, (c) as contemplated by this Agreement and (d) liabilities and
obligations incurred in the ordinary course of business since January 1, 1999.
3.22. ABSENCE OF CERTAIN PAYMENTS. Neither the Sellers nor the
Company nor, to the best of the Sellers' knowledge, any officers, directors,
employees, agents, representatives, or independent contractors of the Company
has made, or arranged for the making of, any unlawful payment to any official,
officer or employee of any Federal, state, county, municipal or other
governmental or regulatory body or authority or any self-regulatory body or
authority, or made any payment to any customer or supplier of the Company or any
officer, director, partner, employee or agent of any customer or supplier, for
the unlawful sharing of fees or to any such customer or supplier or any such
officer, director, partner, employee or agent for the unlawful rebating of
charges, or engaged in any other unlawful reciprocal practice, or made any other
unlawful payment or given any other unlawful consideration to any such customer
or supplier or any such officer, director, partner, employee or agent, in
respect of the Company.
16
3.23. INVESTMENT REPRESENTATION. Each Seller is acquiring the shares
of Series D Preferred Stock issuable under Section 2.3 for investment, and not
with a view toward any distribution thereof except in compliance with the
Securities Act of 1933, as amended (the "Securities Act"), and applicable state
securities laws.
4. REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents
and warrants to the Sellers as follows:
4.1. ORGANIZATION AND QUALIFICATION. The Buyer is a corporation duly
organized, validly existing and in good
standing under the laws of the State of New York and has all requisite power and
authority to own, lease and operate its properties and carry on its business as
it is now being conducted.
4.2. AGREEMENT. This Agreement has been duly executed and delivered
by the Buyer and constitutes the legal and binding obligation of the Buyer
enforceable in accordance with its terms. The execution and delivery by the
Buyer of this Agreement, the consummation of the transactions contemplated
hereby, and the performance by the Buyer of its obligations hereunder will not
conflict with or result in any violation of, or default under (either
immediately or with notice or lapse of time), or in any right to accelerate or
the creation of any lien, charge or encumbrance pursuant to, any provision of
(a) the Certificate of Incorporation or By-laws of the Buyer, (b) any agreement,
contract, lease, license, note, bond, mortgage, indenture, deed of trust or
other instrument to which the Buyer is a party or by which any of the Buyer's
properties or other assets is bound, (c) any governmental franchise, license,
permit or authorization, or any judgment or order of any tribunal or
governmental body applicable to the Buyer, or any of the Buyer's properties or
other assets, or (d) any applicable law, statute, decree, rule or regulation of
any jurisdiction, except where such conflict, violation or default, acceleration
or creation would not have a material adverse effect on the Company. Except for
the filing of the Certificate of Amendment, no authorization, consent or
approval of, or declaration of, filing with or notice to any governmental body
or authority by the Buyer is necessary for the execution of this Agreement by
the Buyer, the consummation by the Buyer of the transactions contemplated hereby
and thereby or the performance by the Buyer of its obligations hereunder.
4.3. VALIDITY OF SHARES. The 100,000 shares of Series D Preferred
Stock to be issued at the Closing pursuant to Section 2.3 hereof, when issued
and delivered in accordance with the terms hereof and of the Certificate of
Amendment, shall be duly and validly issued, fully paid and nonassessable. The
certificates evidencing such shares shall comply as to form with applicable law,
and the Sellers shall receive good title thereto, free and clear of all claims,
encumbrances, security interests and liens. The shares of the Buyer's common
stock initially issuable upon the conversion of the Series D Preferred Stock
shall be duly and validly authorized and reserved for issuance, shall be free
and clear from preemptive rights (if any), and such shares, when issued and
delivered in accordance with the provisions of the Certificate of Amendment
pertaining to the Series D Preferred Stock shall be validly issued, fully paid
and nonassessable. Based in part on the representations and warranties of the
Sellers in this Agreement and assuming the accuracy thereof, the issuance of the
Series D Preferred Stock at the Closing pursuant to Section 2.3 will be exempt
from the registration requirements of the
17
Securities Act and from the qualification or registration requirements of any
applicable state blue sky or securities laws.
4.4. INFORMATION (a) The Buyer has delivered to the Sellers true and
complete copies of the Buyer's (i) Transition Report on Form 10-K for the eight
months ended December 31, 1998, (ii) Current Report on Form 8-K and Form 8-K/A,
dated November 20, 1998, reporting the acquisition of Alliance International
Group, Inc. and containing the financial statements required by reason of such
acquisition, (iii) Quarterly Report on Form 10-Q for the quarter ended March 31,
1999, and (iv) the definitive Proxy Statement, dated April 20, 1999, in
connection with the Buyer's 1998 Annual Meeting of Shareholders to be held May
18, 1999 (the "SEC Documents"). None of the SEC Documents, as of their
respective dates, contained any untrue statement of a material fact or omitted
to state a material fact necessary in order to make the statements contained
therein not misleading.
(b) The Buyer has not filed, and nothing has occurred with
respect to which the Buyer would be required to file, any Current Report on Form
8-K since January 1, 1999. Prior to and until the Closing, the Buyer will
provide to the Sellers copies of any and all reports filed by the Buyer after
January 1, 1999 with the Securities and Exchange Commission (the "SEC") and any
and all reports or notices delivered to the shareholders of the Buyer.
4.5. INVESTMENT REPRESENTATION. The Buyer is acquiring the Shares
for investment and not with a view toward any distribution thereof except in
compliance with the Securities Act of 1933, as amended (the "Securities Act"),
and applicable state securities laws.
4.6. SEC COMPLIANCE. Since 1997, the Buyer has filed all reports
required to be filed with the SEC pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act") (such requests together with all
registration statements, prospectuses and proxy statements filed by the Buyer
referred to as the "Buyer SEC Reports"). As of their respective dates, all such
Buyer SEC Reports complied in all material respects with the applicable
requirements of the Exchange Act.
4.7. NO ADVERSE CHANGE. Since the Buyer filed its Transition Report
on Form 10-K for the eight months ended December 31, 1998 with the SEC, there
has not been any material adverse change in the financial condition, operations
or business of the Buyer.
5. COVENANTS OF THE SELLERS. The Sellers, jointly and severally,
covenant as follows:
5.1. ACTION PRIOR TO CLOSING. From the date of this Agreement until
the Closing Date, the Sellers will use their commercially reasonably efforts to
cause the Company to (a) conduct its operations only in the ordinary course, in
substantially the manner as heretofore conducted and in accordance with all
applicable material laws, rules, regulations, orders, approvals, authorizations,
exemptions, classifications and registrations applicable to the Company or
relating to its operations, (b) maintain its property in substantially the same
condition and repair as of the date hereof, except for reasonable wear and tear,
(c) perform in all material respects all of the respective obligations under all
contracts listed in SCHEDULE 3.16, and
18
not amend, alter or modify any material provision of any such contract or enter
into any new contract or transaction involving consideration in excess of
$25,000 or dispose of any asset having a value in excess of $25,000 without the
prior written consent of the Buyer, (d) use its commercially reasonably efforts
to maintain the existing relationships of the Company with its suppliers and
customers, (e) use its commercially reasonable efforts to keep available the
services of its present officers and employees, (f) promptly deliver to the
Buyer interim financial statements as regularly prepared for its internal use,
which financial statements shall be in accordance with the last sentence of
Section 3.5, (g) not pay any dividends or distributions on its capital stock, or
issue or redeem any shares of capital stock or any options, warrants or other
rights to purchase or acquire capital stock, (h) confer on a regular and
frequent basis with representatives of the Buyer to report material operational
matters and the general status of ongoing operations, and (i) not, without the
prior written consent of the Buyer, take any action or engage in any transaction
not expressly permitted by this Section 5.1 or otherwise contemplated by this
Agreement which would cause any of the representations made by the Sellers
herein to be untrue in any material respect as of the Closing Date or a material
breach of the terms and conditions of this Agreement.
5.2. ACCESS AND INFORMATION. The Sellers agree to cause the Company
to afford the Buyer and the Buyer's employees, accountants, counsel and other
authorized representatives reasonable access to its plants, properties, books
and records and the Sellers will, and will cause the Company to, furnish to the
Buyer and its representatives during normal business hours and upon reasonable
notice all additional financial and operating data and other information as to
its business and properties as the Buyer may from time to time reasonably
request.
5.3. PUBLICITY. The Sellers will not, and will not permit the
Company to, without the consent of the Buyer, issue or cause the publication of
any press release or other announcement with respect to this Agreement, except
where such release or announcement is required by law.
5.4. BEST EFFORTS. The Sellers agree to use their reasonable best
efforts to satisfy the conditions to the obligations of the Buyer hereunder set
forth in Section 8, and will take no action that would impair or preclude the
satisfaction of the conditions to the obligations of the Sellers hereunder set
forth in Section 7.
5.5 NO SHOPPING OR DISCLOSURE. From the date hereof and until the
earlier of termination of this Agreement pursuant to Section 11 or the Closing
Date, neither the Sellers nor the Company will, or will permit their respective
employees, officers or agents to, directly or indirectly (a) solicit, initiate
or encourage any sale or acquisition of the stock of the Company, or sale or
acquisition of the assets of the Company (outside the ordinary course of
business), or any merger, consolidation or business combination with the
Company, or (b) with respect to any effort or attempt by any other person to do
or seek any of the foregoing (i) participate in any discussions or negotiations,
(ii) furnish to any other person any information with respect to the Company, or
(iii) otherwise cooperate in any way with, or assist or participate in, or
facilitate or encourage any such effort. The Sellers will promptly notify the
Buyer if any such proposal or offer, or any inquiry or contact with any person
with respect thereto is made.
19
5.6. NOTICE OF CHANGES. From the date hereof through the Closing
Date, the Sellers or the Buyer, as the case may be, will promptly notify the
other party in writing of any material changes in the representations and
warranties set forth in Section 3 (in the case of the Sellers) or Section 4 (in
the case of the Buyer) of this Agreement, such notice to be given in accordance
with the provisions of Section 13.2 and to state clearly that it is being given
pursuant to this Section 5.6. If, as a result of a notice provided pursuant to
this Section 5.6, the conditions of the Buyer's obligation to close set forth in
Section 8.1 are not fulfilled, and the Buyer provides notice to the Seller of
its decision not to close the transactions contemplated hereby, then the Buyer
and the Sellers shall negotiate in good faith to adjust the purchase price by
mutual agreement to reflect the diminution in value of the Company in connection
with the changes so disclosed. Subject to the preceding sentence, any notice
given hereunder will be effective to cure any breach of a representation or
warranty which would have otherwise existed but for the notice.
6. COVENANTS OF THE BUYER. The Buyer covenants as follows:
6.1. PUBLICITY. The Buyer will not, without the consent of the
Sellers, issue or cause the publication of any press release or other
announcement with respect to this Agreement except where such release or
announcement is required by law.
6.2. BEST EFFORTS. The Buyer will use its reasonable best efforts to
satisfy the conditions to the obligations of the Sellers hereunder set forth in
Section 7, and will take no action that would impair or preclude the
satisfaction of the conditions to the obligations of the Buyer hereunder set
forth in Section 8.
6.3. CONFIDENTIALITY. Notwithstanding anything to the contrary
contained in this Agreement, the Confidentiality Agreement, dated February 9,
1999, between the Buyer and the Company will continue in effect until the
Closing or, in the event that the transactions contemplated hereby do not close,
for the term stated therein.
6.4. BUYER FINANCIAL CAPACITY. The Buyer will deliver to the Sellers
prior to the Closing Date evidence reasonably satisfactory to the Sellers of
Buyer's capacity to finance the transactions contemplated hereby.
6.5. MERGER OF THE COMPANY. Following the Closing Date, the Buyer
intends that the Company will be merged with and into Greensteel, Inc., a
Delaware corporation and wholly-owned subsidiary of the Buyer.
6.6. ASSIGNMENT OF CERTAIN INSURANCE COVERAGE. On the Closing Date,
the Buyer will cause the Company to transfer the ownership to each of the
Sellers the term insurance policies which the Company currently holds on their
lives. On or before the Closing, the Buyer shall add the Sellers as additional
insureds (as their interests appear) on any commercial general liability,
product liability and/or personal injury coverages maintained by the Company for
a period of three years after the Closing Date; provided that the foregoing
shall not require the Buyer to maintain any particular coverages at any time.
20
6.7. GUARANTEES. The Buyer shall use its commercially reasonable
efforts to have released or to replace the Sellers as guarantors under three
automobile loans, the Company's Burlingame, California real property lease and
the performance bonds listed in SCHEDULE 3.16, to be effective on or about the
Closing Date.
6.8. EMPLOYEE BENEFITS. The Buyer agrees to credit Company Employees
with their service with the Company prior to the Closing Date for purposes of
eligibility and vesting under tax-qualified plans of the Buyer, its subsidiaries
and affiliates. The Buyer further agrees to cause elective deferral
contributions (as defined in Section 402(g)(3) of the Code) made by Company
Employees for calendar year 1999 under any tax-qualified plan maintained by the
Company, the Buyer or any of the Buyer's subsidiaries or affiliates to be
matched at the same percentage rate as the elective deferral contributions (as
defined in Section 402(g)(3) of the Code) made by similarly situated employees
of the Buyer or its subsidiaries or affiliates. Buyer further agrees to cover
Company Employees under its bonus programs to the same extent as similarly
situated employees of the Buyer or its subsidiaries and affiliates. For purposes
of this Section 6.8, "Company Employees" means employees of the Company
immediately prior to the Closing.
7. CONDITIONS TO THE OBLIGATIONS OF THE SELLERS. The obligations of the
Sellers to effect the transactions contemplated hereby are subject to the
fulfillment to their satisfaction, prior to or at the Closing, of the following
conditions:
7.1. REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Buyer contained herein shall have been true and correct in all
material respects when made (except for representations and warranties made as
of a specific date, in which case such representations and warranties shall have
been true and correct in all material respects as of such date) and shall be
true and correct at and as of the Closing as though such representations and
warranties were made at and as of the Closing (except for representations and
warranties made as of a specific date, in which case such representations and
warranties shall have been true and correct in all material respects as of such
date).
7.2. PERFORMANCE. The Buyer shall have performed and complied in all
material respects with each covenant or condition required by this Agreement to
be performed or complied with by it prior to or at the Closing.
7.3. CLOSING CERTIFICATE. The Buyer shall have delivered to the
Sellers a certificate, dated the Closing Date and executed on its behalf by a
principal executive or financial officer, certifying that the conditions
specified in Sections 7.1 and 7.2 have been fulfilled.
7.4. OPINION OF COUNSEL. The Sellers shall have received from
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, counsel for the Buyer, an opinion, dated the Closing Date,
substantially in the form attached hereto as EXHIBIT C.
7.5. EXECUTION OF OTHER DOCUMENTS. The Buyer shall have executed and
delivered to the Sellers one or more stock certificates representing the shares
of Series D Preferred Stock issuable at the Closing pursuant to Section 2.3
hereof.
21
8. CONDITIONS TO THE OBLIGATIONS OF THE BUYER. The obligations of the
Buyer to effect the transactions contemplated hereby are subject to the
fulfillment to its satisfaction, prior to or at the Closing, of the following
conditions:
8.1. REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Sellers contained herein and in the Schedules hereto shall
have been true and correct in all material respects when made (except for
representations and warranties made as of a specific date, in which case such
representations and warranties shall have been true and correct in all material
respects as of such date) and shall be true and correct in all material respects
at and as of the Closing as though such representations and warranties were made
at and as of the Closing (except for representations and warranties made as of a
specific date, in which case such representations and warranties shall have been
true and correct in all material respects as of such date).
8.2. PERFORMANCE. The Sellers shall have performed and complied in
all material respects with each covenant and condition required by this
Agreement to be performed or complied with by them prior to or at the Closing.
8.3. CLOSING CERTIFICATE. The Sellers shall have delivered to the
Buyer a certificate, dated the Closing Date and executed by each of the Sellers,
certifying that the conditions specified in Sections 8.1 and 8.2 have been
fulfilled.
8.4. REPORT ON ENVIRONMENTAL MATTERS. The Buyer shall have received
a report from an environmental consultant of the results of soil and other
testing at the production facilities of the Company and such report shall be
reasonably satisfactory to the Buyer.
8.5. SCHEDULES. The Schedules to this Agreement to be delivered by
the Sellers to the Buyer shall be reasonably satisfactory to the Buyer.
8.6. OPINION OF COUNSEL. The Buyer shall have received from the Law
Offices of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, counsels for the Sellers,
opinions, dated the Closing Date, in substantially the forms attached hereto as
Exhibit D.
8.7. NON-COMPETITION AGREEMENTS. The Company and each of the Sellers
shall have executed and delivered a Non-Competition Agreement substantially in
the form attached hereto as EXHIBIT E.
8.8. EMPLOYMENT AGREEMENT. The Company and ▇▇▇▇ ▇. ▇▇▇▇▇ shall have
executed and delivered an Employment Agreement in the form attached hereto as
EXHIBIT F.
8.9. AMENDED LEASES. The Company and the Sellers shall have executed
and delivered Amended Leases with respect to the Company's Corona, California,
Clymer, Pennsylvania and Pompano Beach, Florida sales and production facilities,
in the respective forms attached hereto as EXHIBIT G.
8.10. SHAREHOLDER LOANS. All loans and advances of any kind from the
Company to any of the Sellers or any member of their families or their
affiliates shall have been
22
repaid, except for such advances for travel and business expenses incurred in
the ordinary course of business, which will be repaid and reconciled in the
ordinary course of business.
8.11. COMPLETION OF FINANCING. The Buyer shall have obtained
financing for the transactions contemplated
8.12. NO MATERIAL ADVERSE CHANGE. There shall not have been,
individually or in the aggregate, any material adverse change or changes (except
for any change resulting from general economic or market conditions) since the
date hereof in the business, assets, properties, results of operations or
financial condition of the Company.
8.13. RESIGNATION OF OFFICERS AND DIRECTORS. Except for any officer
or director as to whom the Buyer has waived this condition and as otherwise
provided in the Employment Agreement referred to above, the officers and
directors of the Company shall have submitted their written resignations as
officers and directors of the Company, respectively, effective as of the Closing
Date.
9. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained in Sections 3 and 4 of this Agreement shall survive the
Closing. All statements contained in the Disclosure Schedules hereto, the
Financial Statements and the certificates delivered pursuant to Sections 7.3 and
8.3 shall be deemed representations and warranties of such party under this
Agreement.
10. INDEMNIFICATION
10.1. BY THE SELLERS. (a) From and after the Closing, the Buyer
shall be indemnified and held harmless by the Sellers (jointly and severally)
against and in respect of any and all damages (excluding punitive damages in an
original action commenced in the name of the Buyer), losses or deficiencies,
whether suffered by the Buyer or the Company:
(i) resulting from any misrepresentation or breach of any
warranty or covenant by the Sellers made herein;
(ii) arising out of or relating to Environmental Matters
occurring prior to the Closing Date connected to the activities, facilities or
products of the Company, including without limitation, fines, liabilities for
personal injury, death or property damage, costs of environmental studies and
costs of clean-up as required by applicable law;
(iii) arising out of or relating to any defective,
hazardous or injurious product sold by the Company prior to the Closing Date or
any product sold by the Company prior to the Closing Date in violation of any
applicable governmental law, rule, regulation or other requirement, including
without limitation, liabilities for any violation of any law, rule, regulation
or other requirement of any federal, state or local governmental entity having
jurisdiction over the Company, personal injury, death or property damage, costs
of replacing such products, costs related to recall of such products and refunds
to purchasers;
23
(iv) arising out of any claim for fees or expenses of any
finder, broker, agent or other intermediary who has acted on behalf of the
Sellers or the Company in connection with this Agreement or the transactions
contemplated hereby; and
(v) any and all actions, suits, procedures, demands,
assessments, judgments, damages, fines, awards, costs and expenses (including
but not limited to reasonable fees and disbursements of counsel, interest and
penalties) incident to the foregoing. All such damages, losses, deficiencies,
assessments, judgments, fines, awards, costs and expenses are referred to in
this Agreement as "Losses."
(b) The indemnification of the Buyer hereunder shall be
subject to the following limitations:
(i) Except for indemnification for a Loss described in
Section 10.1(a)(iv) or incident thereto as set forth in Section 10.1(a)(v), no
claim for indemnification shall be made and no payment therefor shall be due
hereunder with respect to the first $100,000 of Losses incurred by the Buyer or
the Company.
(ii) Indemnification hereunder shall be limited solely,
except with respect to indemnification for any breach of Sections 3.3
(pertaining to capitalization and shareholder agreements), 3.4 (pertaining to
title to shares and enforceability), 3.5 (pertaining to financial statements),
3.14 (pertaining to environmental matters), 3.17 (pertaining to taxes) and/or
3.20 (pertaining to employee benefit plans) as hereinafter set forth, to the
remaining principal of the $1,500,000 (the "Escrow Deposit") delivered to the
Escrow Agent pursuant to Section 2.3, which Escrow Deposit is to be held and
disbursed pursuant to an escrow agreement (the "Escrow Agreement") among the
Buyer, the Sellers and the Escrow Agent, in the form attached hereto as EXHIBIT
B.
(iii) With respect to any claim for indemnification for
any breach of Sections 3.5 (pertaining to financial statements), 3.14
(pertaining to environmental matters), 3.17 (pertaining to taxes) and/or 3.20
(pertaining to employee benefit plans), (A) the maximum aggregate liability of
the Sellers therefor shall be $5,000,000 (inclusive of the Escrow Deposit, as to
which the Buyer shall first assert an indemnification claim pursuant to the
Escrow Agreement) and (B) each Seller shall have the right (but not the
obligation) to satisfy all or any portion of his, her or its indemnification
obligations by tendering to the Buyer for cancellation a number of shares of
Series D Preferred Stock (or a number of shares of Common Stock of the Buyer
received upon conversion of the Series D Preferred Stock) having a value equal
to the amount of the subject indemnification claim being satisfied in such
manner. For purposes of this Section 10.1(b)(iii), the Series D Preferred Stock
shall be valued at its $50.00 per share liquidation preference, and any Common
Stock issued upon conversion of the Series D Preferred Stock shall be valued at
the price at which it was converted in accordance with the Certificate of
Amendment (subject to appropriate adjustment in the event of any stock splits,
stock dividends, combinations of shares, recapitalizations or other such events
respecting the Common Stock of the Buyer occurring from time to time following
the conversion of the Series D Preferred Stock).
24
10.2. INDEMNIFICATION BY THE BUYER. (a) From and after the Closing,
the Sellers shall be indemnified and held harmless by the Buyer against and in
respect of any and all Losses:
(i) resulting from any misrepresentation or breach of any
warranty, covenant or undertaking by the Buyer made herein; and
(ii) arising out of any claim for fees or expenses of any
finder, broker, agent or other intermediary who has acted on behalf of the Buyer
in connection with this Agreement or the transactions contemplated hereby.
(b) The indemnification of the Buyer hereunder shall be
subject to the following limitations:
(i) Except for indemnification for a Loss described in
Section 10.2(a)(ii), no claim for indemnification shall be made and no payment
therefor shall be due hereunder with respect to the first $100,000 of Losses
incurred by the Sellers.
(ii) The aggregate amount of indemnification payable by
the Buyer hereunder shall not exceed $1,500,000.
10.3. INDEMNIFICATION PROCEDURES. A party or parties entitled to
indemnification hereunder shall herein be referred to as an "Indemnitee." A
party or parties obligated to indemnify an Indemnitee hereunder shall herein be
referred to as an "Indemnitor."
(a) Any indemnification hereunder shall be net of:
(i) any insurance proceeds recovered by the Indemnitee on
account of, or applicable to, the satisfaction of claims for which
indemnification is provided hereunder; PROVIDED, HOWEVER, that the term
"insurance proceeds," as used in this subdivision, shall mean the payment
received under any applicable insurance policy less the amount of additional
premium payable, or the reduction of any premium refund, consequent to the
application of any retrospective loss adjustment provisions of such insurance
policy to such insurance payment;
(ii) amounts recovered or recoverable by the Indemnitee
under rights of subrogation, or contribution or indemnification (other than
hereunder); and
(iii) any Tax Benefit (as such term is defined in Section
10.3(c)).
(b) The Buyer shall make no claim for indemnification and the
Sellers shall not have any liability for indemnification due unless the Buyer
gives initial written notice of its claim as follows:
(i) with regard to breaches of all representations,
warranties, covenants and agreements, within 18 months after the Closing Date,
except that claims for breaches of (A) Sections 3.3 (pertaining to
capitalization and shareholders agreements)
25
and 3.4 (pertaining to title to shares and enforceability) may be made at any
time, (B) Sections 3.17 (pertaining to taxes) must be made within 90 days after
the expiration of the applicable statute of limitations for any affected tax
period, (C) Section 3.20 (pertaining to employee benefit plans) must be made
within 2 years after the Closing Date, and (D) Section 3.14 (pertaining to
environmental matters) must be made within 3 years after the Closing Date;
(ii) with regard to claims under Sections 10.1(a)(ii)
(pertaining to environmental matters) and 10.1(a)(iii) (pertaining to product
liability matters), within 3 years of the Closing Date; and
(iii) with regard to claims under Section 10.1(a)(iv)
(pertaining to finder's fees), at any time.
(c) The limitations set forth in Section 10.2(b) shall not
apply to any claim of the Sellers based on the Buyer's agreements,
representations and warranties as to the Series D Preferred Stock or to the
Buyer's failure to pay the purchase price.
(d) As used in this Section 10.3, "Tax Benefit," with respect
to any Loss, shall mean any reduction in the net federal or state income tax
liability of the Indemnitee as a result of such Loss, PROVIDED that any
calculation of Tax Benefit, with respect to any Loss, shall include any increase
in federal income tax liability attributable to a reduction in state or local
taxes as a result of such Loss. Any payments for a Loss under the provisions of
this Section 10 shall be reduced by the Tax Benefit in the year in which such
payment is made but not by any potential or anticipated Tax Benefit in future
years. If the Indemnitee receives Tax Benefits subsequent to the year in which
such payment is made but within five years thereafter, the Indemnitee will
refund any amount of indemnification received to the extent of such Tax
Benefits. For the purposes of calculating such Tax Benefits, any net operating
losses shall be deemed to be utilized in the order in which they were incurred.
If the Company becomes part of a group filing consolidated tax returns of which
a corporation other than the Buyer is the parent, the provisions of this Section
10.3(c) shall, with respect to any Tax Benefit relating to such Loss which
becomes available to such new parent instead of the Buyer, henceforth be applied
to the parent of such group rather than to the Buyer. In the event that the
Company files a separate return for state income tax purposes or does not join
in filing a consolidated federal tax return, "Tax Benefit" shall mean any
reduction in the state or federal tax liability of the Company or such
Subsidiary.
(e) Each Indemnitee shall use commercially reasonable efforts
and shall consult and cooperate with the Indemnitor to mitigate any Losses that
may give rise to claims hereunder.
10.4. THIRD PARTY CLAIMS. (a) DEFINITION. As used herein, "Third
Party Claim" means a Loss or potential Loss for which indemnification is claimed
by the Indemnitee under the provisions of this Section 10 and which is
consequent to a claim asserted during the applicable indemnification period
indicated in Section 10.3(b) and (c) against the Indemnitee by a corporation,
association, partnership or other business organization or an individual or a
government, any political subdivision thereof or a governmental agency by
commencement
26
against the Indemnitee of a legal action or proceeding or receipt by the
Indemnitee of a written assertion of such claim.
(b) NOTICE OF CLAIM. The Indemnitee will promptly give notice
of a Third Party Claim to the Indemnitor stating the nature thereof and
enclosing copies of any complaint, summons, written assertion of such Third
Party Claim or similar document. No claim for indemnification on account of a
Third Party Claim shall be made and no payment therefor shall be payable
hereunder unless the Indemnitee shall have given initial written notice of its
claim to the Indemnitor during the applicable indemnification period indicated
in Section 10.3(b) and (c) hereof.
(c) EMPLOYMENT OF COUNSEL BY THE INDEMNITOR. Except as
hereinafter provided, the Indemnitor shall have the right to engage counsel to
defend a Third Party Claim, such right to be exercisable by notice delivered to
the Indemnitee not later than ten (10) business days following delivery by the
Indemnitee to the Indemnitor of a notice of a Third Party Claim. The Indemnitee
will and, in the case of the Buyer, will cause the Company to, fully cooperate
with such counsel. The Indemnitor will cause such counsel to consult with the
Indemnitee as to the defense of such claim, and the Indemnitee may, at its own
expense, participate in such defense, assistance or enforcement but the
Indemnitor shall control such defense, assistance or enforcement. The Indemnitor
will cause such counsel engaged by it to keep the Indemnitee informed at all
times of the status of such defense, assistance or enforcement.
(d) EMPLOYMENT OF COUNSEL BY THE INDEMNITEE. Notwithstanding
the provisions of Section 10.4(c), the Indemnitee shall have the right to engage
counsel and to control the defense of a Third Party Claim if:
(i) the Indemnitor shall not have notified the Indemnitee
of the exercise of their right to choose counsel pursuant to Section 10.4(c)
within the time period therein provided;
(ii) the Third Party Claim is a claim for the payment of
taxes arising out of an audit of a tax period ending subsequent to the Closing
Date but which may nevertheless affect the tax liability of the Company for a
tax period ending prior to the Closing Date and therefore be subject to
indemnification under the provisions of this Section 10; or
(iii) the Third Party Claim relates in a significant
degree to acts, omissions, conditions, events or other matters occurring during
the Indemnitee's period of ownership of the Company and the amount attributable
thereto that may be reasonably payable, if such Third Party Claim is successful,
exceeds the amount so payable which is attributable to acts, omissions,
conditions, events or other matters occurring during the Indemnitor's period of
ownership of the Company. If the Indemnitee chooses to exercise its right to
appoint counsel under this Section 10.4(d), it shall deliver notice thereof to
the Indemnitor setting forth in reasonable detail why it believes that it has
such right and the name of the counsel it proposes to employ. Unless the
Indemnitor delivers a notice of objection thereto to the Indemnitee within the
following ten (10) business days, the Indemnitee shall have the right to appoint
such counsel
27
and to control such defense, assistance or enforcement, but the Indemnitee
will cause such counsel to consult with the Indemnitor as to the conduct of
such defense, assistance or enforcement. If such notice of objection is
timely received, the issue may be submitted to arbitration in accordance with
the procedures set forth in Section 12, and final determination of the party
who shall so appoint counsel and control the defense shall be made upon entry
of judgment on the arbitral award. Pending such determination, the Indemnitee
shall appoint counsel to defend such Third Party Claim. The Indemnitor may
appoint counsel to assist in such defense, assistance or enforcement.
(e) SETTLEMENT OF THIRD PARTY CLAIMS. The Indemnitor will not
enter into a settlement of a Third Party Claim without the written consent of
the Indemnitee; PROVIDED, HOWEVER, if the Indemnitee shall not consent to a bona
fide settlement proposal acceptable to the other party of such Third Party Claim
within ten (10) business days of delivery by the Indemnitor to the Indemnitee of
notice of such settlement proposal, the amount of indemnification payable under
this Section 10 with respect to such Third Party Claim (other than matters not
disposed of by such proposed settlement) shall not exceed the amount that would
have been payable if such settlement had been entered into. If the Buyer or the
Company is the Indemnitee, the Buyer will not, and will not permit the Company
to, enter into an agreement of settlement of a Third Party Claim without the
consent of the Sellers; PROVIDED, HOWEVER, that if the Sellers do not within ten
(10) business days of delivery to them by the Buyer of a notice of such proposed
settlement deliver to the Buyer notice of their objection thereto, they shall be
deemed to have consented to such settlement.
(f) CLAIMS AS TO WHICH INDEMNIFICATION IS PARTIALLY PAYABLE.
Notwithstanding the foregoing, in the event of any settlement of, or final
judgment with respect to, a Third Party Claim which relates to acts, omissions,
conditions, events or other matters occurring both before and after the Closing
Date, the Buyer and the Sellers shall negotiate in good faith as to the portion
of such Third Party Claim as to which such indemnification is payable. If the
Buyer and the Sellers are unable to reach agreement, the issue shall be
submitted to arbitration in accordance with the procedures set forth in Section
12.
11. TERMINATION
11.1 TERMINATION EVENTS. This Agreement may be terminated at any
time prior to the Closing Date:
(a) by mutual written consent of the Buyer and the Sellers;
(b) by either the Buyer or the Sellers if the Closing has not
occurred prior to July 15, 1999, provided that the non-occurrence of the Closing
is not attributable to a breach of the terms hereof by the party seeking
termination; or
(c) by either the Sellers or the Buyer if any court of
competent jurisdiction or any governmental body shall have issued an order,
decree or ruling or taken any other action restraining, enjoining or otherwise
prohibiting the transactions contemplated by this
28
Agreement and such order, decree, ruling or other action shall have become final
and non-appealable.
12. DISPUTE RESOLUTION. Any controversy or dispute between the Buyer
and any of the Sellers involving the construction, interpretation, application
or performance of the terms, covenants or conditions of this Agreement or in any
way arising under this Agreement shall, on demand by either the Buyer or any of
the Sellers by written notice to the other, be finally settled by arbitration in
New York, New York in accordance with the American Arbitration Association Rules
of Arbitration before one arbitrator appointed pursuant thereto. Any
counterclaim shall take place in the same venue. The arbitration award shall be
final, in writing and binding upon the parties hereto, and may be entered in any
court having jurisdiction thereof.
13. MISCELLANEOUS
13.1. EXPENSES. The Buyer and the Sellers shall pay their own
respective expenses and costs, including, without limitation, expenses of their
respective counsel and accountants, incidental to the preparation of this
Agreement and the other agreements referred to herein, the performance and
compliance with all agreements and conditions contained in this Agreement and
such other agreements to be performed or complied with by them, and the
consummation of the transactions contemplated hereby and thereby. The Sellers
expressly stipulate that the Company shall not pay or be liable for any expenses
and costs of the Sellers in connection with this Agreement or such other
agreements or the transactions contemplated hereby or thereby.
13.2. NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed to have been given when delivered in person or
five (5) days after being mailed by first-class registered or certified mail,
postage prepaid, addressed as follows:
(a) If to the Buyer, at:
▇▇-▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇,
Chief Executive Officer
with a copy to:
▇▇▇▇▇▇▇▇▇ Traurig
MetLife Building
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
29
(b) If to the Sellers, at:
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇. ▇▇▇▇ ▇. ▇▇▇▇▇, President
with a copy to:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
- and -
▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
or, in each case, at such other address as may be specified in writing to the
other parties.
13.3. FURTHER ASSURANCES. The parties hereto shall do and perform or
cause to be done and performed all such further acts and things and shall
execute and deliver all such other agreements, certificates, instruments or
documents as the other party hereto may reasonably request in order to carry
out, the intent and purposes of this Agreement and the consummation of the
transactions contemplated hereby.
13.4. AMENDMENTS. This Agreement may be amended, waived, discharged
or terminated only by an instrument in writing executed by or on behalf of the
party against which enforcement of such amendment, waiver, discharge or
termination is sought.
13.5. MISCELLANEOUS. This Agreement and the agreements and
instruments referred to herein embody the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof. The
headings in this Agreement are for convenience of reference only and shall not
constitute a part of this Agreement. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without
reference to the choice of law principles thereof. This Agreement may be
executed in several counterparts, each of which is an original but all of which
shall constitute one instrument. Neither this Agreement nor any rights or
obligations hereunder may be assigned by any party without the consent of all
other parties hereto, except that (a) the Buyer may, without requirement of any
consent, assign this Agreement to any of its subsidiaries or affiliates, such
assignment not to discharge the Buyer from its obligations hereunder, and (b)
the Buyer may, without requirement of any consent, assign its rights and
remedies for indemnification hereunder to any financial institution(s) providing
financing to the Buyer from time to time. Subject to the previous sentence, this
Agreement shall be binding upon and inure to the benefit of the successors and
assigns of the Buyer and the successors, assigns, heirs, administrators,
executors and legal representatives of each of the Sellers.
30
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the date first above written.
The Buyer:
POLYVISION CORPORATION
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Chief Executive Officer
The Sellers:
▇▇▇▇ ▇. ▇▇▇▇▇ FAMILY TRUST
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------
▇▇▇▇ ▇. ▇▇▇▇▇, Trustee
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
31
POLYVISION CORPORATION
▇▇-▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
July 26, 1999
▇. ▇▇▇▇▇ Corporation
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇ ▇. ▇▇▇▇▇, President
Dear Sirs:
PolyVision Corporation, a New York corporation (the "Buyer"), and ▇▇▇▇
▇. ▇▇▇▇▇, as trustee under the ▇▇▇▇ ▇. ▇▇▇▇▇ Family Trust, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ (each individually, a "Seller" and
collectively, the "Sellers"), being all of the shareholders of ▇. ▇▇▇▇▇
Corporation, a California corporation (the "Company"), entered into a Stock
Purchase Agreement, dated May 17, 1999 (the "Purchase Agreement'), which they
now desire to amend and modify as set forth in this amendment (the "Amendment").
(Capitalized terms used herein and not otherwise defined shall have the meanings
set forth in the Purchase Agreement.)
1. CONTINUATION OF AGREEMENT. Despite the fact that the Purchase
Agreement expired on July 15, 1999 pursuant to Section 11.1(b) thereof, the
Purchase Agreement shall be deemed to have continued, unterminated on that date,
so that the parties shall be deemed to continue to possess, as if the Purchase
Agreement had not be terminated, all of their respective rights and suffer all
of their respective covenants and obligations under the Purchase Agreement, as
amended by this Amendment.
2. THE CLOSING; TERMINATION. The outside date of Closing pursuant to
Section 2.1 of the Purchase Agreement, and the date after which the parties may
terminate the Purchase Agreement pursuant to the terms of Section 11.1(b)
thereof, shall be extended to Friday, September 10, 1999.
3. MODIFICATION OF PAYMENT AT CLOSING. Section 2.3 shall be replaced in
its entirety with the following language:
(a) PAYMENTS. The Buyer will pay the purchase price for the
Shares by:
(i) at the Closing, paying to the Sellers, by wire
transfer of funds to an account(s) designated by the Sellers,
an amount equal to the difference of (A)
Twenty-Two Million Five Hundred Thousand Dollars
($22,500,000), MINUS (B) all principal, interest and other
charges outstanding on the Closing Date in respect of the
indebtedness described in SCHEDULE 2.3 attached hereto
(exclusive of purchase money indebtedness and capital leases
of the Company for operating equipment and vehicles), which
indebtedness will be paid by the Company at Closing;
(ii) at the Closing, paying to the escrow agent (the
"Escrow Agent") under the Escrow Agreement referred to in
Section 10.2(b), the sum of One Million Five Hundred Thousand
Dollars ($1,500,000) in immediately available funds;
(iii) at the Closing, paying to the Sellers the sum
of Six Million Dollars ($6,000,000), payable by delivery to
the Sellers of one or more stock certificates (as the Sellers
may elect) representing, in the aggregate, One Hundred Twenty
Thousand (120,000) shares of Series D convertible preferred
stock of the Buyer (the "Series D Preferred Stock"), which
have a liquidation preference of Fifty Dollars ($50.00) per
share, are convertible into an aggregate of One Million Five
Hundred Thousand (1,500,000) shares of Common Stock of the
Buyer, subject to certain adjustments, and have the attributes
set forth in the Certificate of Amendment of the Certificate
of Incorporation of the Buyer (the "Certificate of Amendment")
in the form attached hereto as EXHIBIT A;
(iv) on or following the Closing Date, but no later
than September 13, 1999:
(a) an amount equal to twenty-six and
thirty-five one-hundredths percent (26.35%) of the Company's
net income for the period from July 1, 1999 through and
including the Closing Date, plus interest thereon at a rate of
eight percent (8%) per annum, for the period, if any, between
the date that the Sellers paid their estimated taxes on the
Company's income for such period, through and including the
date that such amount is paid by the Buyer to the Sellers; and
(b) an amount equal to twenty-six and
thirty-five one-hundredths percent (26.35%) of the excess, if
any, of the Company's net income for the six-month period from
January 1, 1999 through and including June 30, 1999 over the
Company's net income projected for such six-month period, as
reflected in the ▇▇▇▇▇▇ ▇▇▇▇▇ Budget (as such term is defined
in Section 11(a) hereof), plus interest thereon at a rate of
eight (8%) per annum, for the period from the Closing Date
through and including the date that such amount is paid by the
Buyer to the Sellers; and
(v) following the Closing (but by no later than
December 31, 1999), paying to the Sellers, by wire transfer of
funds to an account(s) designated by the Sellers, (A) the
amount by which at Closing the Company's indebtedness for
2
working capital, including all interest and other charges,
under its trade credit line with Union Bank of California
exceeds One Million Five Hundred Thousand Dollars
($1,500,000), and (B) interest thereon from the Closing Date
to and including the date such amount is paid to the Sellers,
at a rate of eight percent (8%) per annum; PROVIDED that the
indebtedness referenced in clause (A) above is incurred in the
normal course of business consistent with past practice and is
not incurred through distributions to the Company's
shareholders.
The components of the purchase price set forth in Section
2.3(a)(i), (iii), (iv) and (v) shall be allocated and paid or
issued to the Sellers in proportion to their relative
ownership of the Stock as set forth in SCHEDULE 3.3.
4. CLARIFICATION TO TERMS OF SERIES D PREFERRED STOCK. EXHIBIT A to the
Purchase Agreement shall be amended to include the hand-marked changes to the
Certificate of Amendment which are attached as EXHIBIT A-4 hereto, the intention
of which is to ensure that the Series D Preferred shall (a) with respect to
distribution rights upon the liquidation, dissolution or winding-up of the
affairs of the Buyer and dividend rights, rank senior to all classes or series
of common stock and preferred stock of the Buyer, whether now existing or
hereinafter created, other than the Series B and C Preferred, and (b) with
respect to distribution rights upon the liquidation, dissolution or winding-up
of the affairs of the Buyer and dividend rights, rank PARI PASSU with the Series
B and Series C Preferred.
5. ▇▇▇▇▇▇ ▇▇▇▇▇ INCENTIVE PLAN. The Buyer shall cause the Company to
continue in place, from the Closing Date until December 31, 1999, the ▇▇▇▇▇▇
▇▇▇▇▇ Incentive Plan, and the Buyer shall make, in accordance with the terms of
that plan and consistent with the Company's past practice over prior years, all
payments required to be made thereunder to Company employees for the 1999
calendar year, by no later than March 15, 2000.
6. CONTRACTS AND TRANSACTIONS. Notwithstanding anything to the contrary
set forth in Section 5.1 of the Purchase Agreement, from the date of the
Purchase Agreement through the Closing Date, the Purchase Agreement shall not
prohibit the Company, or the Sellers, acting on behalf of the Company, from
amending, altering or modifying any contract or transaction to which the Company
is or was a party, from entering into any contract or transaction, or from
disposing of any Company asset, all without the prior written consent of the
Buyer, PROVIDED that such actions do not have a material adverse effect on the
Company.
7. SECTION 5.6, NOTICE OF CHANGES. The word "material" shall be deleted
from the first sentence in Section 5.6.
8. SECTION 13.5, MISCELLANEOUS. The third sentence of Section 13.5
shall be replaced in its entirety with the following language:
This Agreement will be governed by and construed under the
laws of the State of New York without regard to conflicts of
laws principles that would require the application of any
other law.
3
9. CONSTRUCTION OF CERTAIN WORDS. On and after the date of this
Amendment, each reference in the Agreement to "this Agreement," "hereunder,"
"hereof," "herein" or like words shall mean and be a reference to the Agreement
as amended hereby.
10. EFFECT ON PURCHASE AGREEMENT; MISCELLANEOUS. The Purchase Agreement
shall be deemed to be amended and modified by the terms of this Amendment.
Except as so amended and modified, all of the terms and conditions of the
Purchase Agreement shall remain in full force and effect. This Amendment shall
be governed by the laws of the State of New York without regard to conflicts of
laws principles that would require the application of any other law, and may be
executed in one or more counterparts which together shall constitute one
instrument.
11. LOYALTY PAYMENTS.
(a) The Buyer acknowledges that the Sellers will pay in cash
up to $600,000 as "loyalty payments" to certain of its key employees for
services previously rendered to the Company and as "matching" payments under the
▇▇▇▇▇▇-▇▇▇▇▇ 401(k) Savings Plan for the period from January 1, 1999 to the
Closing Date (together, the "Loyalty Payments"), at their own expense, from the
cash portion of the purchase price payable to the Sellers at Closing (but not by
the Company prior to Closing). The Buyer agrees that, in the event the net
income of the Company for the year ending December 31, 1999 exceeds the net
income projected for such year, as reflected in the "▇▇▇▇▇▇ ▇▇▇▇▇ Consolidated
Income Statement for the 12 [sic] Period Ending December 31, 1999 Budget,"
attached as EXHIBIT A-11 hereto (the "▇▇▇▇▇▇ ▇▇▇▇▇ Budget") (the amount of such
excess, the "Excess Amount"), by $600,000 or more, the Buyer shall pay and
reimburse the Sellers for all Loyalty Payments paid by the Sellers up to
$600,000. The Buyer shall make payment of the foregoing reimbursement to the
Sellers by no later than March 15, 2000, following its review of all relevant
books and records. If the parties do not agree on the amount of Excess Income
(the amount so disputed, the "Disputed Amount"), they shall resolve their
differences as set forth in Section 11(b) below. If the Sellers do not make any
or all of the Loyalty Payments to Company employees as contemplated by this
Section 11(a), the Company and the Sellers shall have no liability or obligation
to such employees for any such payments after the Closing, and neither the
Sellers nor the Company shall commit the Sellers or the Company to make them.
(b) If there is a Disputed Amount, then the parties will
negotiate in good faith before Closing to determine what the Excess Amount
should be. If they fail to reach agreement, then, with the assistance of ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ LLP, Buyer's independent public accountants, Buyer will prepare and
deliver to the Sellers a draft balance sheet (the "Draft Balance Sheet") for the
Company as of December 31, 1999. The Draft Balance Sheet will (a) set forth the
Company's net income for the year ending December 31, 1999 (the "Net Income"),
and (b) Net Income in accordance with the principles, policies and practices
used in the preparation of the Company's December 31, 1998 balance sheet.
Contemporaneously with the delivery of the Draft Balance Sheet, Buyer will
deliver to the Sellers such work papers and other documents and information
relating to the Draft Balance Sheet as the Sellers may reasonably request (the
"Supporting Schedules").
4
If, within thirty (30) days following delivery of the Draft
Balance Sheet and Supporting Schedules to Sellers, the Sellers have not given
Buyer written notice of their objection to the Draft Balance Sheet, then there
will be deemed not to be any Disputed Amount. If, however, the Sellers have any
objections to the Draft Balance Sheet, then they must provide Buyer with written
notice of their objections, with reasonable detail, within thirty (30) days
following delivery of the Draft Balance Sheet and Supporting Schedules to the
Sellers.
The parties will use reasonable efforts to resolve any
objections to the Draft Balance Sheet themselves. If the parties do not resolve
the objections within thirty (30) days after Buyer has received the Sellers'
written notice of objections, then the parties will select an accounting firm
mutually acceptable to them to resolve any remaining objections. If the parties
are unable to agree on an accounting firm, they will select a
nationally-recognized accounting firm by lot (after excluding their respective
regular outside accounting firms) (any accounting firm agreed to or chosen, the
"Accountants").
If a dispute is submitted to the Accountants for resolution,
then each party: (i) will furnish or make available to the Accountants at
reasonable times and upon reasonable notice, the Draft Balance Sheet, and such
work papers and other documents and information relating to the disputed issues
as the Accountants may request and are available to that party (or its
independent public accountants), including Supporting Schedules, work papers and
back-up materials used in preparing the Draft Balance Sheet, the books, records
and financial staff of the Company, Buyer's accountants, and summaries by the
parties of their resolution of any objections thereto; and (ii) will be afforded
the opportunity to present to the Accountants any material relating to the
determination, and to discuss the determination with the Accountants.
The role of the Accountants will be to confirm the application
of the principles, policies and practices used in the preparation of the
Company's December 31, 1998 financial statements in connection with the
preparation of those items on the Draft Balance Sheet, and to determine whether
the parties wrongly disputed all or any portion of the Disputed Amounts. If the
Accountants determine that any disputed items on the Draft Balance Sheet were
not prepared in accordance with such principles, policies and practices, then
the Accountants will recalculate the Excess Income in accordance therewith, and
so notify the parties. Absent demonstrable error, the Accountants'
determination, as set forth in a notice delivered to both parties by the
Accountants, will be binding and conclusive on the parties. The Buyer and
Sellers will each bear 50% of the fees for the Accountant's determination. The
Buyer will pay the Sellers by wire transfer of funds to an account(s) designated
by the Sellers, (A) the portion of the Disputed Amount which the Accountants
determined was wrongly disputed, and (B) interest thereon from March 15, 2000 to
and including the date such amount is paid to the Sellers, at a rate of eight
percent (8%) per annum.
The foregoing dispute resolution procedure shall also be
applicable to determinations of excess amounts in respect of the ▇▇▇▇▇▇ ▇▇▇▇▇
Budget pursuant to the portion of Section 3 hereof which refers to Section
2.3(a)(iv) of the Purchase Agreement, adjusted for the relevant time periods
specified therein.
5
If the foregoing is in accordance with your understanding, please sign
and return to the Buyer the enclosed counterpart of this Amendment, whereupon
this Amendment shall constitute a binding agreement between the Buyer and the
Sellers in accordance with its terms.
Very truly yours,
POLYVISION CORPORATION
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Chief Executive Officer
Agreed to and Accepted
as of the date first written above:
The Sellers:
▇▇▇▇ ▇. ▇▇▇▇▇ FAMILY TRUST
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇, Trustee
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
6
POLYVISION CORPORATION
▇▇-▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
August 19, 1999
▇. ▇▇▇▇▇ Corporation
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇ ▇. ▇▇▇▇▇, President
Dear Sirs:
PolyVision Corporation, a New York corporation (the "Buyer"),
and ▇▇▇▇ ▇. ▇▇▇▇▇, as trustee under the ▇▇▇▇ ▇. ▇▇▇▇▇ Family Trust, ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ (each individually, a "Seller" and
collectively, the "Sellers"), being all of the shareholders of ▇. ▇▇▇▇▇
Corporation, a California corporation (the "Company"), entered into a Stock
Purchase Agreement, dated May 17, 1999, as amended on July 26, 1999 (the
"Purchase Agreement'), which they now desire to amend and modify as set forth in
this amendment (the "Amendment"). (Capitalized terms used herein and not
otherwise defined shall have the meanings set forth in the Purchase Agreement.)
1. FLORIDA SALES TAX WARRANT. The Sellers acknowledge that the
lien search conducted by Buyer in the course of its ongoing due diligence has
disclosed a Warrant for Collection of Delinquent Sales Tax, a copy of which is
attached hereto (the "Florida Sales Tax Warrant"), issued against AKI Inc., ▇▇▇▇
▇.▇. ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, by the Department of Revenue,
State of Florida, on April 21, 1999, in the total amount of $245,607.76 (which
includes $90,919.83 in interest, and which interest accrues at a cost of $80.74
per day), which the parties have agreed requires prompt final resolution. The
Sellers hereby agree to reimburse, indemnify and hold the Buyer harmless for all
costs and expenses incurred and expenditures made by the Buyer in connection
with the settlement, defense and satisfaction of the Florida Sales Tax Warrant
(including, without limitation, interest, penalties, fines or other
administrative impositions thereon asserted by the Florida Department of
Revenue). Such reimbursement and indemnification shall be payable solely out of
the Florida Sales Tax Warrant Fund (as defined below). The Buyer's rights to
indemnity set forth in this Amendment shall be in addition to, and shall not
count against, its rights pursuant to Section 10 of the Purchase Agreement.
2. FLORIDA SALES TAX WARRANT FUND. On the Closing Date, the
Buyer shall pay to the Sellers in accordance with the terms of Section 2.3(a)(i)
of the Purchase Agreement,
$22,200,000 of the Cash Purchase Price and shall deposit $300,000 of such Cash
Purchase Price as
a fund (the "Florida Sales Tax Warrant Fund") in an interest-bearing escrow
account with ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, counsel to the Buyer, to be held and disbursed
in accordance with the terms of this Amendment exclusively for the satisfaction
of the Florida Sales Tax Warrant. The Sellers (i) shall have sole authority and
control over the settlement and defense of the Florida Sales Tax Warrant, (ii)
shall actively pursue, at its own expense, the resolution of the Florida Sales
Tax Warrant and (iii) shall give notice to the Buyer of any and all developments
concerning the settling or contesting or the Florida Sales Tax Warrant; PROVIDED
that notwithstanding the foregoing, the sole authority and control over the
settlement and defense of the Florida Sales Tax Warrant shall be assumed by the
Buyer upon the earlier of (a) January 1, 2000 or (b) the imposition of a lien by
the Florida Department of Revenue which would reasonably interfere in any way
with the ongoing business operations being conducted by the Buyer at ▇▇▇▇ ▇.▇.
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇, regardless of the status of the Sellers'
then current negotiations with the Florida Department of Revenue. In the event
the Buyer assumes the settlement and defense of the Florida Sales Tax Warrant,
it shall have no obligation to settle the Florida Sales Tax Warrant at a reduced
amount and the attorneys' fees and expenses reasonably incurred by the Buyer in
so settling and defending the Florida Sales Tax Warrant shall be reimbursable to
the Buyer from the Florida Sales Tax Warrant Fund. The disbursement of funds out
of the Florida Sales Tax Warrant Fund by the Buyer in satisfaction of the
Florida Sales Tax Warrant shall be preceded by a written notice from the Sellers
to the Buyer or from the Buyer to the Sellers, as the case may be, setting forth
in reasonable detail, among other things, the amount of such disbursement, the
material facts supporting the disbursement (including copies of relevant
documentation) and a statement (if sent by the Buyer) of the amount remaining in
the Florida Sales Tax Warrant Fund after making such disbursement. The Buyer
shall, within three (3) business days, pay to the Seller the amount of the
Florida Sales Tax Warrant Fund remaining undisbursed, if any, plus interest
thereon, upon the final resolution of the Florida Sales Tax Warrant.
3. CONSTRUCTION OF CERTAIN WORDS. On and after the date of
this Amendment, each reference in the Agreement to "this Agreement,"
"hereunder," "hereof," "herein" or like words shall mean and be a reference to
the Agreement as amended hereby.
4. EFFECT ON PURCHASE AGREEMENT; MISCELLANEOUS. The Purchase
Agreement shall be deemed to be amended and modified by the terms of this
Amendment. Except as so amended and modified, all of the terms and conditions of
the Purchase Agreement shall remain in full force and effect. This Amendment
shall be governed by the laws of the State of New York without regard to
conflicts of laws principles that would require the application of any other
law, and may be executed in one or more counterparts which together shall
constitute one instrument.
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If the foregoing is in accordance with your understanding,
please sign and return to the Buyer the enclosed counterpart of this Amendment,
whereupon this Amendment shall constitute a binding agreement between the Buyer
and the Sellers in accordance with its terms.
Very truly yours,
POLYVISION CORPORATION
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Chief Executive Officer
Agreed to and Accepted
as of the date first written above:
The Sellers:
▇▇▇▇ ▇. ▇▇▇▇▇ FAMILY TRUST
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
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▇▇▇▇ ▇. ▇▇▇▇▇, Trustee
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
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/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
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/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
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