EXHIBIT 2
STOCK PURCHASE AGREEMENT
AGREEMENT ("Agreement"), made as of the 20th day of December, 1996, by and
among ▇▇▇▇▇▇ INTERNATIONAL CORP., a Delaware corporation with its principal
place of business at ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
("Purchaser") and ▇▇▇▇▇ ▇. ▇▇▇▇▇ (the "Shareholder"), residing at ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇. Purchaser and the Shareholder are sometimes
referred to collectively herein as the "Parties."
WITNESSETH:
WHEREAS, the Shareholder is the record and beneficial owner of nine hundred
fifty (950) shares of the Common Stock, par value One Dollar ($1.00) per share
(the "Shares") of Sedeco, Inc. a Texas corporation ("Sedeco" or the
"Corporation"), which shares constitute one hundred percent (100%) of the issued
and outstanding capital stock of Sedeco; and
WHEREAS, Purchaser desires to purchase the Shares from the Shareholder and
the Shareholder desires to sell such Shares to Purchaser, upon the terms and
conditions set forth in this Agreement, so that, following the consummation of
the transaction contemplated hereby, Purchaser shall be the record and
beneficial owner of the Shares, which constitute all of the issued and
outstanding capital stock of Sedeco.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, covenants, representations and warranties hereinafter contained, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Parties agree as follows:
ARTICLE
PURCHASE AND SALE OF SHARES
1. Purchase and Sale of Shares. Subject to and upon the terms and
conditions set forth in this Agreement, the Shareholder shall sell, assign,
transfer and deliver the Shares to Purchaser free and clear of all liens,
claims, encumbrances and restrictions of any kind, and Purchaser shall purchase
from the Shareholder, at the Closing (as hereinafter defined), the Shares.
ARTICLE
PURCHASE PRICE AND TERMS OF PAYMENT
1. Purchase Price. In consideration of the sale, assignment, transfer and
delivery of the Shares by the Shareholder to Purchaser, and in reliance upon the
representations, warranties, covenants and agreements made herein
by the Shareholder to Purchaser, Purchaser agrees to pay the Shareholder at
the Closing and the Shareholder agrees to accept from Purchaser in full payment
thereof, the sum of Six Million Five Hundred Sixty-Five Thousand and 00/100
($6,565,000.00) Dollars (the "Purchase Price") as follows:
a. Four Million One Hundred Sixty-Five Thousand and 00/100 ($4,165,000.00)
Dollars by delivery to the Shareholder at Closing of a non-negotiable promissory
note (the "Promissory Note"); and
b. the delivery of One Hundred Thirty One Thousand Five Hundred Seven
(131,507) shares of Purchaser's Class A Common Stock registered in the name of
the Shareholder (the "▇▇▇▇▇▇ Stock"), of which Forty One Thousand Ninety Six
(41,096) shares shall be held in escrow by Ruskin, Moscou, ▇▇▇▇▇ & Faltischek,
P.C. (the "Escrow Agent") pursuant to the terms of an escrow agreement, of even
date herewith (the "Escrow Agreement"), among the Shareholder, Purchaser and the
Escrow Agent.
2. Contingent Payment. Sedeco currently operates a separate division (the
"Division") under the assumed name Southwest Computer Company. Separate
financial statements are maintained for the Division and the Shareholder has
previously delivered to Purchaser a copy of the Division's balance sheet dated
as at September 30, 1996 and the related statement of income for the one month
and the five months then ended (collectively, the "Southwest Financial
Statements"). The Southwest Financial Statements correctly and completely
reflect the Division's books and records, fairly present the financial position
and results of operations of the Division as of the dates and for the periods
indicated and have been prepared on a basis consistent with that of prior
periods. Purchaser has advised the Shareholder that it has no interest in
acquiring or operating the Division, in acquiring or owning any assets of the
Division or in assuming any liabilities or obligations of the Division. The
Shareholder and Purchaser agree that Purchaser shall liquidate the Division and
remit the net proceeds thereof to the Shareholder subject to the terms and
conditions set forth below. Accordingly, effective as of the Closing Date,
Purchaser will terminate all operations of the Division and commence the process
of winding down the Division. For a period of one hundred and eighty (180) days
after the Closing, Purchaser will cause Sedeco to permit one (1) person
previously employed by the Division or Sedeco to attempt to collect the accounts
receivable of the Division outstanding as of the Closing Date (the "Southwest
Receivables") in the normal course of business (but without resort to litigation
or the use of collection agencies or similar efforts), to dispose of the
Division's inventory and to pay, satisfy or discharge all of its accounts
payable, and do such other acts as may reasonably be required to liquidate the
Division business and affairs. At the Closing, the Shareholder
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shall deliver to Purchaser a true, correct and complete list of all of the
Southwest Receivables, setting out in reasonable detail such information with
respect thereto as Purchaser shall require (including, without limitation,
aging), as of the most recent practicable date, which shall not be more than
five (5) days prior to the Closing Date (the "Initial Southwest Receivables
List"). The Shareholder shall further provide Purchaser, as soon after the
Closing Date as practicable, but in no event later than the fifth (5th) business
day after the Closing Date, with a true, correct and complete list of the
Southwest Receivables, in form substantially equivalent to the Initial Southwest
Receivables List, as of the Closing Date (such list being hereinafter referred
to as the "Supplemental Southwest Receivables List"). Purchaser will not
compromise any of the Southwest Receivables without the prior written consent of
the Shareholder, which consent shall not be unreasonably withheld. Within one
hundred eighty (180) days after the Closing, and in addition to the Purchase
Price, Purchaser agrees to pay to the Shareholder, an amount up to One Hundred
Fifty Thousand ($150,000.00), such figure to be equal to the actual amount
realized by Purchaser (net of liabilities) through the winding up and
liquidation of the Division. The Shareholder acknowledges that Purchaser is not
being compensated for liquidating the Division and that Purchaser is doing so
solely as an accommodation for the Shareholder. Accordingly, Purchaser shall not
be liable to the Shareholder for any action taken or for any action which
Purchaser fails to take pursuant to this Section 2.2 except to the extent same
constitutes wilful misconduct of Purchaser. Furthermore, Purchaser shall not be
responsible for the payment or satisfaction of any debts, liabilities or
obligations of the Division to the extent (the "Excess Liabilities") the
aggregate amount thereof exceeds the actual amount realized by Purchaser through
the winding up and liquidation of the Division. The Shareholder shall pay and/or
satisfy all Excess Liabilities in accordance with the terms thereof.
3. Accounts Receivable. For a period of one hundred and eighty (180) days
after the Closing, Purchaser will cause Sedeco to attempt to collect (and the
Shareholder will refrain from all efforts in this regard except to provide
assistance to Sedeco upon Sedeco's request) all accounts receivable of Sedeco
(other than the Southwest Receivables) outstanding as of the Closing Date (the
"Transferred Receivables") in the normal course of its business (but without
resort to litigation or the use of collection agencies or similar efforts,
except where consistent with past practice). At the Closing, the Shareholder
shall deliver to Purchaser a true, correct and complete list of all of the
Transferred Receivables, setting out in reasonable detail such information with
respect thereto as Purchaser shall require (including, without limitation,
aging), as of the most recent practicable date, which shall not be more than
five (5) days
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prior to the Closing Date (the "Initial Transferred Receivables List"). The
Shareholder shall further provide Purchaser, as soon after the Closing Date as
practicable, but in no event later than the fifth (5th) business day after the
Closing Date, with a true, correct and complete list of the Transferred
Receivables, in form substantially equivalent to the Initial Transferred
Receivables List, as of the Closing Date (such list being hereinafter referred
to as the "Supplemental Transferred Receivables List"). Purchaser will not
compromise any of the Transferred Receivables without the prior written consent
of the Shareholder, which consent shall not be unreasonably withheld. On the
date which is one hundred and eighty (180) days after the Closing Date (the
"Settlement Date"), Purchaser will cause Sedeco to assign to the Shareholder,
without warranty or recourse of any kind, the uncollected Transferred
Receivables, together with a schedule setting forth, to the best of Sedeco's
knowledge (i) the name of each customer who was an account debtor as of the
Closing Date and who has made any payment on account of any Transferred
Receivables since the Closing Date, (ii) the remaining balance of such account
debtor's account then outstanding, and (iii) the aggregate amount of all then
uncollected Transferred Receivables. On the Settlement Date, the Shareholder
shall reimburse to Purchaser the amount by which the collected Transferred
Receivables is less than Five Hundred Fifty Nine Thousand Three Hundred Sixty
Five and 08/100 ($559,365.08) Dollars. Thereafter, neither Sedeco nor the
Purchaser shall have any continuing obligation whatsoever with respect to the
Transferred Receivables, provided, however, that if Sedeco subsequently collects
any Transferred Receivable reassigned to the Shareholder, Purchaser shall cause
Sedeco to promptly remit the amount thereof to the Shareholder.
4. Inventory. At the Closing, the Shareholder shall deliver to the
Purchaser a true, correct and complete list of all of Sedeco's inventory (other
than inventory of the Division) (the "Transferred Inventory") as of the Closing
Date, which list shall categorize the Transferred Inventory among (a) New
Machinery and Equipment, (b) Used Machinery and Equipment (the "Transferred Used
Inventory"), and (c) Parts. Such list shall value the Transferred Inventory at
the cost thereof as reflected on Sedeco's books and records on a first in first
out basis ("Value"). For a period of eighteen (18) months following the Closing
Date (the "Selling Period"), Purchaser shall cause Sedeco to offer the
Transferred Used Inventory for sale in the ordinary course of business and will
account for the sales thereof using the first in first out method. Sedeco will
not sell such Transferred Used Inventory below Value without consent of the
Shareholder. On the date eighteen (18) months from the Closing Date (the
"Transferred Used Inventory Settlement Date"), the Shareholder shall reimburse
("Reimbursement") to Purchaser an amount equal to the difference between (i) the
total Value of the Transferred Used Inventory plus a 10% "gross profit margin,"
and
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(ii) the total net proceeds realized by Sedeco during the Selling Period
from the sale of the Transferred Used Inventory. For purposes hereof, the gross
profit margin shall be computed by subtracting inventory cost from the selling
price and dividing the result by the selling price. The Transferred Used
Inventory shall continue to be the property of Sedeco and to the extent that it
is sold from time to time thereafter (at such price and terms as shall be
determined by Sedeco), the Value thereof up to the amount of Reimbursement by
the Shareholder shall be refunded to the Shareholder by Sedeco.
5. Open Purchase Orders. Schedule 2.5 heretofore delivered to Purchaser and
certified as true and correct by the President of Sedeco, sets forth a true and
complete list of all open purchase orders of Sedeco relating to leases arranged
by Omni Leasing Corporation which have been shipped but have not yet been paid
for (collectively, the "Pending Orders"). On January 18, 1997, the Shareholder
shall reimburse (the "Pending Order Reimbursement") Purchaser an amount equal to
the aggregate unpaid purchase price for the Pending Orders. Purchaser shall have
the right, at its option, to set-off the Pending Order Reimbursement against the
payment due to the Shareholder under the Promissory Note. If, following January
18, 1997, Purchaser sells any equipment subject to the Pending Orders which has
been reacquired by Sedeco or collects payment on Pending Orders, the net
proceeds thereof will be refunded to the Shareholder by Sedeco.
ARTICLE
CLOSING
The closing of the transactions hereunder (the "Closing") shall take place
at the offices of Ruskin, Moscou, ▇▇▇▇▇ & Faltischek, P.C., ▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, counsel to Purchaser, upon the execution of this
Agreement. The day on which the Closing actually takes place is herein sometimes
referred to as the "Closing Date."
ARTICLE
OBLIGATIONS AT CLOSING
1. Obligations of the Shareholder at Closing. At Closing, the Shareholder
shall deliver, or cause to be delivered, to Purchaser the following:
a. a valid certificate representing the Shares, duly endorsed in blank;
b. an employment agreement between Sedeco and the Shareholder (the "▇▇▇▇▇
Employment Agreement"), duly executed by the Shareholder;
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c. a non-competition undertaking duly executed by the Shareholder;
d. a true and complete copy of Sedeco's Articles of Incorporation (and any
amendments thereto), certified as of a recent date by the Secretary of State of
Texas;
e. a written opinion of counsel for the Shareholder dated the Closing Date;
f. the resignations of the Shareholder, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇▇") and
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ as officers and directors of Sedeco;
g. an investment undertaking of the Shareholder with respect to the ▇▇▇▇▇▇
Stock;
h. the Escrow Agreement, duly executed by the Shareholder together with a
valid certificate representing Forty One Thousand Ninety Six (41,096) shares of
▇▇▇▇▇▇ stock registered in the name of the Escrow Agent;
i. a Settlement Agreement and Mutual Release among Sedeco, Omni Leasing
Corporation, the Shareholder, ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇ ("Settlement Agreement")
duly executed by each of the parties to the "Settlement Agreement; and
j. any and all such other documents, agreements, certificates and
instruments required to be executed and/or delivered by the Shareholder to
Purchaser, and all payments (if any) required to be made, pursuant to the terms
and provisions of this Agreement.
2. Obligations of Purchaser at Closing. At Closing, Purchaser shall
deliver, or cause to be delivered, to the Shareholder the following:
a. the Promissory Note;
b. a valid certificate representing the portion of the ▇▇▇▇▇▇ Stock to be
held by the Shareholder and a valid certificate representing the portion of the
▇▇▇▇▇▇ Stock to be held by the Escrow Agent;
c. the Escrow Agreement, duly executed by Purchaser and the Escrow Agent;
d. the ▇▇▇▇▇ Employment Agreement, duly executed by Sedeco and ▇▇▇▇▇▇, as
guarantor, together with a Stock Option Agreement representing the options
referred to in such employment agreement;
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e. a certificate, dated the Closing Date, of the Secretary of Purchaser
certifying the resolutions adopted by the Board of Directors of Purchaser
approving the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby;
f. a Registration Rights Agreement (herein so called) establishing the
obligation of Purchaser to register the ▇▇▇▇▇▇ Stock;
g. a written opinion of counsel for Purchaser dated the Closing Date;
h. a certificate, dated the Closing Date, of the Secretary of Sedeco
certifying the resolutions adopted by the Board of Directors of Sedeco approving
the execution and delivery of the ▇▇▇▇▇ Employment Agreement and naming the new
officers and directors of Sedeco; and
i. any and all such other documents, agreements, certificates and
instruments required to be executed and/or delivered by Purchaser, and all
payments required to be made, pursuant to the terms and provisions of this
Agreement.
3. Further Assurances. At any time and from time to time after the Closing,
at Purchaser's request and without further consideration, the Shareholder will
execute and deliver such other instruments of sale, transfer, assignment and
delivery and take such action as Purchaser may reasonably deem necessary or
desirable in order to more effectively transfer, assign and deliver to Purchaser
and to confirm Purchaser's title to the Shares.
ARTICLE
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER
The Shareholder represents and warrants to Purchaser as follows:
1. Organization and Good Standing of Seller. Sedeco is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas. Sedeco has all requisite corporate power and authority, licenses, permits
and franchises to own, lease and operate its properties and assets and to carry
on its business as currently conducted. Sedeco is qualified and in good standing
to do business as a foreign corporation in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification necessary, except where the failure to so qualify
would not have a material adverse effect on its business, properties or assets.
The Shareholder has heretofore delivered
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to Purchaser Schedule 5.1, which is a true and complete list of all states
in which Sedeco has qualified to do business.
2. Capacity to Execute Agreement and Enforceability. The Shareholder has
full power and capacity to execute, deliver and perform his obligations under
this Agreement and to consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by the Shareholder
and (assuming the valid execution and delivery of the Agreement by Purchaser)
constitutes a legal, valid and binding obligation of the Shareholder,
enforceable against him in accordance with its terms.
3. Effect of Agreement. Neither the execution, delivery and performance of
this Agreement by the Shareholder, nor the consummation by the Shareholder of
the transactions contemplated hereby will (a) conflict with or result in a
breach of any provision of the Articles of Incorporation or By-laws of Sedeco;
(b) constitute or result in the breach of, conflict with or give rise to a right
of forfeiture, termination, cancellation or acceleration with respect to, any
term, condition or provision of, any note, bond, mortgage, indenture, license or
other contract or obligation to which Sedeco or the Shareholder is a party or by
which Sedeco or the Shareholder is subject, except for such conflicts, breaches
or defaults as to which written waivers or consents have been obtained, or (c)
violate in any material respect any law, statute, regulation, judgment, order,
writ, injunction, or decree applicable to Sedeco or the Shareholder, Sedeco's
business, properties or assets.
4. Capitalization and Ownership of Capital Stock. The presently authorized,
issued and outstanding shares of capital stock of Sedeco and the names and
addresses of the record and beneficial owners thereof are as set forth on
Schedule 5.4 heretofore delivered to Purchaser by the Shareholder and certified
as true and correct by the President of Sedeco. Each of such persons is the
lawful record and beneficial owner of the number of shares set forth opposite
his name, free and clear of any liens, claims, encumbrances or restrictions of
any kind. There are no outstanding subscriptions, options, warrants, calls,
contracts, demands, commitments, convertible securities or other agreements or
arrangements of any character or nature whatsoever under which Sedeco or the
Shareholder is or may become obligated to issue, assign or transfer any shares
of the capital stock of Sedeco.
5. Government and Other Consents. No consent, order, authorization,
qualification, or approval of, or exemption by, or filing with any governmental,
public, or regulatory body or authority is required in connection with the
execution, delivery and performance by the Shareholder of this Agreement.
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6. Books and Records. All financial, business and accounting books,
ledgers, accounts and official and other records relating to Sedeco have been
made available to Purchaser and its representatives. Such books and records have
been substantially, properly and accurately kept and completed in all material
respects, and there are no material inaccuracies or discrepancies of any kind
contained or reflected therein.
7. No Subsidiaries or Investments. Sedeco does not own capital shares or
other equity or ownership or proprietary interest in any corporation, limited
liability company, partnership, association, trust, joint venture or other
entity.
8. Financial Statements.
a. The Shareholder has previously delivered to Purchaser copies of (i)
Sedeco's balance sheet dated as at April 30, 1996 (the "Balance Sheet Date") and
Sedeco's balance sheet (the "Balance Sheet") dated as at November 30, 1996 and
the related statements of income for the twelve (12) months and approximately
seven (7) months, respectively, then ended (collectively, the "Financial
Statements"). The Financial Statements correctly and completely reflect Sedeco's
books and records, fairly present the financial position and results of
operations of Sedeco as of the dates and for the periods indicated and have been
prepared on a basis consistent with that of prior periods. The April 30, 1996
Financial Statements have been prepared in accordance with generally accepted
accounting principals ("GAAP").
b. Except for such claims, debts and liabilities as are reflected or
reserved against on the Balance Sheet, Sedeco does not have any outstanding
indebtedness for money borrowed and is not subject to any material claims or
liabilities, contingent or otherwise, other than obligations incurred in the
ordinary course of business since the date of the Balance Sheet, in amounts
usual and normal, individually and in the aggregate and other than as may not
have been required under GAAP to be disclosed or reserved for as contingencies
as of the date of the Balance Sheet.
c. All of the accounts receivable (trade or otherwise) reflected in the
Balance Sheet, result from the sale of inventory, parts and services in the
ordinary course of business and, subject to the reserve therefor on the Balance
Sheet, the Shareholder has no knowledge that such accounts receivable are not
collectible in the full amount thereof in the ordinary course of business.
Except as shown on the Balance Sheet, and except as noted on Schedule 5.9, all
such accounts receivable are owned by Sedeco free and clear of all liens,
claims, charges, encumbrances and other interests of third parties.
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d. Since the Balance Sheet Date, there has not been any material adverse
change in the condition, financial or otherwise, of the business, assets,
properties, liabilities, prospects or results of operations of Sedeco, and no
fact or condition exists or is contemplated or threatened which might cause any
such change at any time in the future. Since the Balance Sheet Date, Sedeco has
conducted its business only in the ordinary course in all material respects.
e. As of the date hereof and without taking into account the assets of the
Division, Sedeco's net equity is not less than Two Millon One Hundred Ninety-One
Thousand One Hundred Seventy-Three and 00/100 ($2,191,173.00) and the sum of its
cash and cash equivalents is not less than Three Hundred Fifty Thousand One
Hundred Seventy-Eight and 00/100 ($350,178.00) Dollars.
f. The Financial Statements do not reflect any operations, assets or
liabilities of the Division.
9. Title to Properties; Encumbrances. Other than as set forth in Schedule
5.9 heretofore delivered to Purchaser and certified as true and correct by the
President of Sedeco, Sedeco does not own any real property or have any lease or
other interest in real property. Sedeco does not use any real estate or have an
interest in real estate, including, without limitation, any building, office,
plant, factory, warehouse, improvement or structure in connection with its
business other than its building at ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇
and pursuant to the leases identified on Schedule 5.9. Except as disclosed on
Schedule 5.9, Sedeco has good title to all of its properties and assets,
including, without limitation, all of the properties and assets reflected in the
Balance Sheet (except for properties and assets sold since the Balance Sheet
Date in the ordinary course of business and consistent with past practices), and
all of the properties or assets purchased by it since the Balance Sheet Date.
Except as set forth on Schedule 5.9, none of such properties or assets is
subject to any mortgage, pledge, lien, security interest, encumbrance or charge
of any kind except (a) liens shown on the Balance Sheet as securing specified
liabilities or obligations with respect to which no default exists; (b) liens
arising in the ordinary course of business, consistent with past practice since
the Balance Sheet Date and liens arising by operation of law or minor
imperfections of title, if any, none of which is substantial in amount,
materially detracts from the value or materially impairs the use of the property
subject thereof, or materially impairs Sedeco's operations and (c) liens for
current taxes not yet due, or, if due, that are being contested in good faith in
the ordinary course of business. Except as disclosed on Schedule 5.9, Sedeco
does not use in its business any assets owned by a shareholder or affiliate of
Sedeco. For purposes of this Agreement,
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"affiliates" shall have the meaning as it is defined in Rule 12b-2
promulgated under the Securities Exchange Act of 1934, as amended.
10. Leases. Schedule 5.10 heretofore delivered to Purchaser and certified
as true and correct by the President of Sedeco, contains an accurate and
complete list and description of the terms of all leases to which Sedeco is a
party (as lessee or lessor), copies of which have been previously delivered to
Purchaser. Except as disclosed on Schedule 5.10, each lease set forth in
Schedule 5.10 (or required to be set forth in Schedule 5.10) is in full force
and effect; all rents and additional rents due to date on each such lease have
been paid; in each case, the lessee has been in peaceable possession since the
commencement of the original term of such lease and is not in default thereunder
and no waiver, indulgence or postponement of the lessee's obligations thereunder
has been granted by the lessor; and there exists no event of default or event,
occurrence, condition or act (including the purchase of the Shares hereunder)
which, with the giving of notice, the lapse of time or the happening of any
further event or condition, would become a material breach under such lease.
Except as disclosed on Schedule 5.10, Sedeco has not violated any of the terms
or conditions under any such lease in any material respect, and to the knowledge
of the Shareholder, all of the covenants to be performed by any other party
under any such lease have been fully performed. The properties owned and leased
by Sedeco are in a state of reasonable maintenance and repair and are adequate
and suitable for the purposes for which they are presently being used.
11. Business Practices. Neither Sedeco nor the Shareholder has made,
offered or agreed to offer anything of value to any government official,
political party or candidate for government office nor have any of them taken
any action which would be in violation of the Foreign Corrupt Practices Act of
1977 or any anti-boycott or export laws.
12. Officers, Directors and Key Employees. Schedule 5.12 heretofore
delivered to Purchaser and certified as true and correct by the President of
Sedeco sets forth a complete and correct list of (i) the officers and directors
of Sedeco prior to the transaction contemplated by this Agreement; the name,
position and total compensation, including bonuses, of each officer and director
of Sedeco, (ii) the name of each other employee, consultant, independent
contractor, agent or other representative of Sedeco who received $50,000 or more
in any form of compensation from Sedeco since January 1, 1994, and (iii) all
wage or salary increases or bonuses received by any such person since the
Balance Sheet Date, and any accruals for or commitment or agreement by Sedeco to
pay such increases or bonuses. Except as set forth in Schedule 5.12, none of
such persons has, in writing or (to the knowledge of the Shareholder) verbally,
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threatened, informed or otherwise indicated to Sedeco or the Shareholder or
any officer or director of Sedeco that he or she plans to cancel or otherwise
terminate his or her relationship with Sedeco for any reason, including, without
limitation, the consummation of the transactions contemplated hereby.
13. Employment Arrangements. Sedeco does not have any material obligation,
contingent or otherwise, under any employment agreement, collective bargaining
or other labor agreement, any agreement containing severance or termination pay
arrangements, deferred compensation agreement, retainer or consulting
arrangement, pension or retirement plan, bonus or profit-sharing plan, stock
option or purchase plan or other employee contract or non-terminable (whether
with or without penalty) arrangement, group, life, health, medical or
hospitalization insurance plan or program or other employee or fringe benefit
plan, including vacation plans or programs and sick leave plans or programs,
other than those listed or described on Schedule 5.13 heretofore delivered to
Purchaser and certified as true and correct by the President of Sedeco, true and
complete copies of which have heretofore been delivered to Purchaser. Sedeco has
performed all of its obligations required to be performed by it under all such
agreements, plans and arrangements, and to the knowledge of the Shareholder, no
party thereto is in breach of or in default or arrears in any material respect
under any of the provisions thereof.
14. Employee Relations. Sedeco is in compliance in all material respects
with all Federal, state or other applicable laws, domestic or foreign,
respecting employment and employment practices, terms and conditions of
employment and wages and hours, and has not and is not engaged in any unfair
labor practice. No unfair labor practice complaint against Sedeco is pending
before the National Labor Relations Board. No labor strike, picket, dispute,
slowdown, stoppage or other labor trouble has ever occurred or is pending or, to
the knowledge of the Shareholder, threatened against or involving Sedeco. To the
knowledge of the Shareholder, no union representation question exists respecting
the employees of Sedeco. No grievance or any arbitration proceeding is pending
and, to the knowledge of the Shareholder, no such claim has been asserted or is
threatened. No collective bargaining agreement is currently being negotiated by
Sedeco. Except as disclosed on Schedule 5.14 heretofore delivered to Purchaser
and certified as true and correct by the President of Sedeco, no claim of
discrimination or harassment is pending or, to the knowledge of the Shareholder,
threatened before the Equal Employment Opportunity Commission, or any other
judicial or administrative body or agency.
12
15. Contracts and Liabilities.
a. Except as may otherwise be expressly provided for on Schedule 5.15
heretofore delivered to Purchaser and certified as true and correct by the
President of Sedeco, that Schedule sets forth all of the following contracts,
commitments and obligations of, or which relate to the business of Sedeco,
written or otherwise, to which it is a party or by or to which it or its assets
or properties are bound or subject and which are in all events material to the
business, properties or assets of Sedeco:
(1) contracts, commitments and other agreements with any current or former
officer, director, employee, independent contractor, consultant, agent or other
representative (including the Shareholder);
(2) contracts and other agreements with any labor union or association
representing any employee;
(3) contracts, commitments and other agreements for the sale of any of
Sedeco's assets or properties other than in the ordinary course of business or
for the grant to any person of any preferential rights to purchase any of
Sedeco's assets or properties;
(4) joint venture or other agreements involving sharing of profits or joint
ownership of assets or sharing of obligations or liabilities;
(5) contracts or other agreements under which Sedeco agrees to indemnify
any party or to share tax liability of or with any party;
(6) loan, factoring, credit line, security, collateral assignment or pledge
agreement, guaranty, subordination or similar type agreement;
(7) contracts, commitments and other agreements with customers or suppliers
for the sharing of fees, the rebating of charges or other similar arrangements;
(8) contracts, commitments and other agreements containing obligations or
liabilities of any kind to or with the Shareholder as such;
(9) contracts and other agreements containing covenants of Sedeco not to
compete in any line of business or with any person in any geographical area (or
not to solicit or accept any business) or covenants of any other person not to
13
compete with Sedeco in any line of business or in any geographical area (or
not to solicit or accept any business);
(10) contracts and other agreements relating to the acquisition by Sedeco
of any operating business or the capital shares of any other person;
(11) options for the purchase of any asset, tangible or intangible;
(12) contracts and other agreements requiring the payment to any person of
an override or similar commission or fee;
(13) contracts and other agreements for the payment of fees or other
consideration to any officer or director of Sedeco or to any other entity in
which any of the foregoing has a direct or indirect interest;
(14) contracts and other agreements relating to the borrowing of money;
(15) purchase orders, contracts and commitments for the purchase or sale of
any goods or services to or by Sedeco, except for those orders, contracts and
commitments which are less than $10,000 in amount or which cannot be canceled at
will by Sedeco without penalty or premium; and
(16) other contracts or business arrangements which are not made in the
ordinary course of business.
b. Except as set forth in Schedule 5.15, all such contracts are valid,
binding and enforceable and in full force and effect. Except as set forth in
Schedule 5.15, Sedeco is not in default under any such contract and there have
been no claims of defaults and to the knowledge of the Shareholder there are no
existing factors or conditions which with the passage of time or giving of
notice or both would constitute such a default or in any case in which such
default would give rise to a right of termination by the other party thereto or
which would result in any material cost, expense or penalty to Sedeco.
c. There have been delivered to Purchaser complete and correct copies of
all of the written contracts and documents constituting commitments set forth on
Schedule 5.15.
16. Operation of Sedeco. Except as provided on Schedule 5.16 heretofore
delivered to Purchaser and certified as true and correct by the President of
Sedeco, since the Balance Sheet Date, Sedeco has conducted its business and
operations only in the ordinary and usual course of business, consistent with
past practices, has preserved intact its business, has maintained its
14
relationships with all customers and suppliers and has used commercially
reasonable efforts to keep available the services of its officers and employees.
Except as set forth on Schedule 5.16, since the Balance Sheet Date, Sedeco has
not:
a. amended its Articles of Incorporation or ByLaws or merged with or into
or consolidated with any other person, subdivided or in any way reclassified any
of its shares of capital stock or changed or agreed to change in any manner the
rights of any shares of its capital stock or the character of Sedeco;
b. issued or sold or purchased, or issued options or rights to subscribe
to, or entered into any contracts or commitments to issue or sell or purchase,
any shares of its capital stock or any other securities;
c. entered into or amended any employment agreement, entered into or
amended any agreement with any labor union or association representing any
employee, adopted, entered into, or amended any employee benefit plan, or made
any change in the actuarial methods or assumptions used in funding any defined
benefit pension plan, or made any change in the assumption or factors used in
determining benefit equivalencies thereunder;
d. incurred any indebtedness for borrowed money;
e. declared or paid any dividends or declared or made any other
distributions of any kind to its shareholders (other than normal compensation
set forth on Schedule 5.16) not exceeding in the aggregate $200,000), or made
any direct or indirect redemption, retirement, or any purchase or other
acquisition of any shares of its capital stock or any other securities
convertible into shares of its capital stock;
f. reduced its cash or short-term investments or their equivalents, other
than to meet cash needs arising in the ordinary course of business, consistent
with past practices;
g. made any change in its accounting methods or practices or made any
change in depreciation or amortization policies or rates adopted by it;
h. changed any of its business policies in any material respect, including,
without limitation, advertising, marketing, pricing, purchasing, credit,
personnel, sales, returns, budget or product acquisition policies;
i. except in the ordinary course of business, consistent with past
practices, made any wage or salary increase or paid any bonus, or increase any
direct or indirect compensation, for or to any of its officers, directors,
15
employees, consultants, agents or other representatives, or any accrual for
or commitment or agreement to make or pay the same;
j. made any loan or advance to any of its shareholders, officers,
directors, employees, consultants, agents or other representatives (other than
travel advances made in the ordinary course of business), or made any other loan
or advance otherwise than in the ordinary course of business;
k. made any payment or commitment to pay any severance or termination pay
to any of its officers, directors, employees, consultants, agents or other
representatives, other than payments or commitments to pay persons other than
officers, directors or shareholders made in the ordinary course of business;
l. except in the ordinary course of business: entered into any lease (as
lessor or lessee); sold, abandoned or made any other disposition of any of its
assets or properties; granted or suffered any material lien or other encumbrance
of any of its assets or properties; entered into or amended any material
contract or other agreement to which it is a party, or by or to which it or its
assets or properties are bound or subject, or pursuant to which it agrees to
indemnify any party or to refrain from competing with any party;
m. except in the ordinary course of business, incurred or assumed any
material liability;
n. except in the ordinary course of business, made any acquisition of all
or any part of the assets, properties, capital shares or business of any other
person;
o. paid, directly or indirectly, any liabilities or obligations before the
same became due in accordance with its terms or otherwise than in the ordinary
course of business or consistent with prior practice or deferred the payment of
any liability or obligation;
p. suffered or incurred any damage, destruction or loss (whether or not
covered by insurance) which materially adversely affected the business,
properties or assets of Sedeco;
q. collected or billed any accounts receivable in advance of the dates on
which payments were due other than in the ordinary course of business or
consistent with prior practice;
r. gave or agreed to give any of its customers any discounts or special
payment terms or arrangements which were not consistent with prior practice or
which were outside the ordinary course of business;
16
s. made any material change in the type, nature or composition of its
products, or made any material change relating to its fees, commissions or other
changes or terms for its products;
t. terminated or failed to renew, or received any information, written or
otherwise, threatening to terminate or not to renew, any contract or other
agreement that materially affects the assets, properties, business, operations
or condition (financial or otherwise) of Sedeco; or
u. except in the ordinary course of business, entered into any other
material contract, agreement or transaction.
17. Insurance Policies. Schedule 5.17 heretofore delivered to Purchaser and
certified as true and correct by the President of Sedeco, contains a complete
and correct list and description of all insurance polices with respect to the
business, properties, assets and employees of Sedeco. Such policies are in full
force and effect and insure adequately against risks to which Sedeco and its
assets, properties and employees are normally exposed in the operation of
business. No notice of cancellation, expiration or non-renewal of any such
policy has been received by Sedeco and no cause for such termination exists.
18. Related-Party Transactions. Except as disclosed in Schedule 5.18
heretofore delivered to Purchaser and certified as true and correct by the
President of Sedeco, none of Sedeco, the Shareholder, nor any person
controlling, controlled by or under common control with any of the foregoing or
any relative or spouse of any of the foregoing has any interest, financial or
otherwise, in any business, corporate or otherwise (the value of which equals or
exceeds $2,000 per annum), which is a party to, or has an interest in any
property which is the subject of, or has business relationships or arrangements
of any kind with Sedeco, including, without limitation, any customer, supplier,
competitor, or potential competitor or lessor.
19. Compliance with ERISA.
a. Schedule 5.19 heretofore delivered to Purchaser and certified as true
and correct by the President of Sedeco, sets forth a complete and correct list
of all "employee pension benefit plans" and "employee benefit plans" as defined
respectively in Sections 3(2) and 3(3) of ERISA, including "multiemployer plans"
as defined in Section 3(37) of ERISA, and any other pension, profit sharing,
retirement, deferred compensation, vacation, severance, disability,
hospitalization, medical insurance or other employee benefit plan or program, if
any, which Sedeco or any other entity which constitutes part of a "controlled
group" (within the meaning of Section 4001(b) of ERISA and/or Sections
414(b)-(o) of the Code and the Treasury
17
Regulations proposed thereunder) which Sedeco maintains or to which Sedeco
has any present or future obligation to contribute (collectively, the "Sedeco
Plans"). The Shareholder has caused Sedeco to deliver to Purchaser true and
complete copies of all Sedeco Plans (including other instruments relating
thereto), if any, as they may have been amended to the date hereof, embodying,
relating to or summarizing the Sedeco Plans. The Shareholder has made available
to Purchaser the most recent annual report (Form 5500) filed and the most recent
summary plan description with respect to each Sedeco Plan.
b. Other than those employee pension benefit plans set forth on Schedule
5.19, Sedeco maintains no "employee pension benefit plan" as defined in ERISA
Section 3(2) for the benefit of Sedeco's employees and has maintained no such
plan during any part of the past five (5) years.
c. Sedeco has no obligation to contribute to any "multiemployer" plan, as
defined in Section 3(37) of ERISA.
d. Sedeco is in compliance in all material respects with the requirements
prescribed by any and all statutes, orders, governmental rules or regulations
applicable to the Sedeco Plans and all reports and disclosures relating to the
Sedeco Plans required to be filed with or furnished to governmental agencies,
participants or beneficiaries prior to the date of this Agreement have been
filed in accordance with applicable law.
e. Sedeco, as of the date of this Agreement, has not completely or
partially withdrawn from any "multiemployer plan" within the meaning of the
Multiemployer Pension Plan Amendments Act of 1990. Sedeco has not suffered a
seventy (70%) percent decline in "contribution base units" (within the meaning
of ERISA Section 4205(b)(1)(A)) in any plan year beginning after 1979.
f. There are no actions, audits, suits or claims pending (other than
routine claims for benefits) or to the knowledge of the Shareholder, threatened,
against any of the Sedeco Plans or any fiduciary of any of the Sedeco Plans or
against the assets of any of the Sedeco Plans.
g. The consummation of the transactions contemplated hereby will not
accelerate any liability under any of the benefit plans because of an
acceleration of any rights or benefits to which employees may be entitled
thereunder.
h. With respect to any Sedeco Plan that is an "employee welfare benefit
plan" within the meaning of Section 3(1) of ERISA ("Sedeco Welfare Plan") (i)
each such Sedeco Welfare Plan, the contributions to which are claimed as a
deduction under any provision of the Code, is in compliance in
18
all material respects with all applicable requirements pertaining to such
deduction, (ii) with respect to any "welfare benefit fund" within the meaning of
Section 419 of the Code that comprises part of a Sedeco Welfare Plan, there is
no disqualified benefit within the meaning of Section 4976(a) of the Code, (iii)
any such Sedeco Welfare Plan that is a "group health plan" within the meaning of
Section 5000(b)(i) of the Code meets all of the requirements of Section 4980B of
the Code.
i. Except as disclosed on Schedule 5.19 hereto, Sedeco has no obligation to
any retired or former employee under any disability (long or short term),
hospitalization, medical, dental or life insurance plans (whether insured or
self-insured) or other employee welfare plan as defined in ERISA Section 3(1)
maintained by Sedeco.
20. Tax Matters.
a. Filing of Tax Returns; Payment of Taxes; No Audits, Investigations or
Claims. The Shareholder has heretofore delivered to Purchaser true, complete and
correct copies of all Federal, state and local tax returns filed by Sedeco for
each of the three (3) taxable years of Sedeco ended April 30, 1994, 1995 and
1996, any statement of audit adjustments applicable thereto and all Federal,
state and local returns of estimated taxes filed during 1996. Sedeco has duly
and timely filed all federal, state, local and other tax and information returns
required to be filed by it with regard to any income, sales, use, gross
receipts, property, employment and other taxes, charges, levies or other
assessments related to its business, properties or assets, and has duly paid in
full or made adequate provision for all taxes and other charges shown as due on
such returns or which otherwise have been accrued or have become due prior to
the date hereof whether or not shown on any such return. Sedeco has received no
written notice of any claim or claims for additional taxes which are claimed to
be due from it by Federal, state, local or foreign taxing authorities in
connection with such reports or returns. There are no liens for Federal, state,
local or foreign taxes, assessments or government charges or levies upon any of
Sedeco's properties or assets. There are no outstanding agreements or waivers
extending the statutory period of limitation applicable to any income tax or
other return of Sedeco for any period and there are not, nor have there been,
any audits of Sedeco by any Federal, state or local governmental tax authority
and no notice of any audit has been received by Sedeco.
21. Intellectual Property. Schedule 5.21 heretofore delivered to Purchaser
and certified as true and correct by the President of Sedeco, contains a list of
all intellectual property related to, derived from or used in the operation of
Seller's business (the "Intellectual Property") of Sedeco. Sedeco has full
ownership right, title and interest in and to the
19
Intellectual Property and to the best knowledge of the Shareholder, the
Intellectual Property constitutes valid and enforceable rights of Sedeco. Sedeco
has not received any notice and has no reason to believe that the validity of
the Intellectual Property or Sedeco's interest therein can be or is being
challenged by any third party. Sedeco has not heretofore granted any licenses or
conveyed any other rights or interests to any of the Intellectual Property. The
operation of Sedeco as currently conducted does not infringe upon any patents or
other intellectual property rights of any third party. All trade names and
trademarks used by Sedeco to identify its products and services are protected by
registration in the name of Sedeco on the principal register in the United
States Patent and Trademark Office, state registrations and/or by rights in the
United States accorded to Sedeco by virtue of the common law.
22. Environmental Matters.
a. Sedeco has not received any notice from any governmental agency or
private or public entity advising that it is potentially responsible for
response costs or other costs with respect to a release or threatened release of
any Hazardous Substance and neither it nor to Sedeco's knowledge its
predecessors in interest with respect to the business, properties or assets of
Sedeco have conducted activities which could reasonably be expected to result in
such a notice. No administrative, civil or criminal actions, including without
limitation third-party actions for personal injury or property damage, are
pending or threatened with respect to Environmental Laws or related to the
business of Sedeco. No judgements, consent orders, consent decrees,
stipulations, or other restrictions have been entered or applied with respect to
Environmental Laws or related to the business, properties or assets of Sedeco.
Sedeco neither received nor is aware of any governmental orders, notifications,
notices of violation, or requests for information relating to environmental or
health and safety conditions at or related to the business, properties or assets
of Sedeco, nor is Sedeco aware of any past or current violations of any
Environmental Law related to the business, properties or assets of Sedeco or of
environmental conditions related to the business, properties or assets of
Sedeco. Neither the operation of Sedeco, either as currently conducted or
conducted in the past at any office space or other facility or real property
owned, leased, used or occupied by Sedeco, whether currently or at any time in
the past, violate nor have violated any Environmental Laws.
b. For purposes of this Agreement, (i) "Environmental Laws" shall mean
statute, law, ordinance or regulation of any federal, state, county, local or
foreign governmental authority relating to the environment, including air, water
or noise pollution, emissions or discharges, the environment, public
20
health, employee health, safety or welfare, land use or the production,
processing, distribution, use, storage, labeling, handling, transportation,
treatment or disposition of any Hazardous Substance; and (ii) "Hazardous
Substance" shall mean asbestos, paints, solvents, ureaformaldehyde,
polychlorinated biphenyls, nuclear fuel or material, chemical waste, hazardous
waste, radioactive material, explosives, known carcinogens, petroleum products
and by-products and other dangerous, toxic, infectious or hazardous pollutants,
contaminants, chemicals, materials, wastes or substances listed or identified
in, or regulated by, any Environmental Laws.
23. Product Warranty. Each product manufactured, sold, leased, or delivered
by Sedeco has been in conformity with all applicable contractual commitments and
all express and implied warranties, and Sedeco does not have any liability (and
to the knowledge of the Shareholder there is no basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim, or
demand against Sedeco giving rise to any liability of Sedeco) for replacement or
repair thereof or other damages in connection therewith, subject only to the
reserve for product warranty claims set forth on the face of the Balance Sheet.
No product manufactured, sold, leased, or delivered by Sedeco is subject to any
guaranty, warranty, or other indemnity beyond the applicable standard terms and
conditions of sale or lease. Schedule 5.23 heretofore delivered to Purchaser and
certified as true and correct by the President of Sedeco includes copies of the
standard terms and conditions of sale or lease for Sedeco (containing applicable
guaranty, warranty, and indemnity provisions).
24. Permits, Licenses, Compliance with Laws. Sedeco has all permits,
licenses, orders, consents and approvals of federal, state, local or foreign
governmental or regulatory bodies that are required in order to permit Sedeco to
carry on its business as currently conducted. Schedule 5.24 heretofore delivered
to Purchaser and certified as true and correct by the President of Sedeco, sets
forth a correct and complete list of all such permits, licenses, orders and
approvals, all of which are in full force and effect, and no suspension or
cancellation of any of them is, to the knowledge of the Shareholder, threatened,
and to the Shareholder's knowledge, no cause exists for such suspension or
cancellation. The business of Sedeco has been and is being conducted in
accordance and in compliance with all applicable federal, state, local or
foreign laws, codes, ordinances, rules and regulations, except for minor
violations which do not have a material adverse effect on Sedeco.
25. Litigation. There is no claim, action, suit, proceeding, arbitration,
investigation or inquiry except a set forth in Schedule 5.25 heretofore
delivered to Purchaser and certified as true and correct by the President of
Sedeco, pending
21
before any federal, state, local, or other court or governmental,
administrative, or self-regulatory body or agency, or any private arbitration
tribunal, or to the knowledge of the Shareholder, threatened against Sedeco
relating to the business of Sedeco, any of the properties or assets of Sedeco or
the transactions contemplated by this Agreement; nor is there any basis for any
such claim, action, suit, proceeding, arbitration, investigation or inquiry.
Sedeco is not in default under any order, license, regulation or demand of any
federal, state or local, or other court or governmental, administrative or
self-regulatory body or agency.
26. Inventories. The inventories of Sedeco shown on the Balance Sheet and
the inventories acquired subsequent to the Balance Sheet Date consist of items
of a quality and quantity usable and saleable in the normal course of its
business, and the values of obsolete materials and materials below standard
quality have been written down on its books of account to realizable market
value, or adequate reserves have been provided therefor, and the values at which
such inventories are carried reflect the customary inventory valuation policy
consistently applied by Sedeco of stating inventory at the lower of cost or
realizable market value, on a first in first out basis, all in accordance with
GAAP.
27. Broker. No broker, finder, agent or other intermediary has acted on
behalf of the Shareholder or otherwise assisted in bringing about the
transactions contemplated by this Agreement and no broker, finder, agent or
other intermediary (including, without limitation, ▇.▇. ▇▇▇▇▇▇ & Co.) is
entitled to any commission or finder's fee in respect thereof based in any way
on agreements, understandings or arrangements with or the conduct of Sedeco or
the Shareholder.
28. Product Liability. Sedeco has no liability (and there is no basis for
any present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand against Sedeco giving rise to any liability) arising
out of any injury to individuals or property as a result of the ownership,
possession, or use of any product manufactured, sold, leased, or delivered by
Sedeco.
29. Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of Sedeco.
30. Fixed Assets. Schedule 5.30 heretofore delivered to Purchaser and
certified as true and correct by the President of Sedeco sets forth a complete
and correct list of all of Sedeco's fixed property wherever located including,
but not limited to, all of Sedeco's real property, equipment, fixtures and
furniture.
22
31. Material Information; Full Disclosure. This Agreement and any other
certificate, document, agreement or information furnished (including, without
limitation, any schedule hereto) or to be furnished pursuant to this Agreement
by the Shareholder to Purchaser does not contain and will not contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make any statement herein or therein not misleading. There is no
fact, development or, to the knowledge of the Shareholder, threatened
development (excluding general economic factors affecting business in general or
generally affecting Sedeco's industry), which has not been disclosed to
Purchaser in writing which adversely affects or, so far as the Shareholder can
now foresee, may adversely affect, the business, operations, assets, properties,
prospects or condition (financial or otherwise) of Sedeco.
ARTICLE
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to the Shareholder as follows:
1. Organization and Good Standing of Purchaser. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Purchaser has all requisite corporate power and authority to
make the representations, warranties and agreements made hereunder, to own,
lease and operate its properties and assets and to carry on its business as
currently conducted, to execute and deliver this Agreement, the Promissory Note,
the Registration Rights Agreement and the Guaranty (defined below), and to
perform its obligations under this Agreement, the Registration Rights Agreement
and the Guaranty.
2. Authorization of Agreement and Enforceability. Purchaser has full
corporate power and authority to execute and deliver this Agreement, the
Registration Rights Agreement and the guaranty ("Guaranty") under the Employment
Agreement of even date herewith between Sedeco and the Shareholder and to
perform its obligations hereunder and thereunder. This Agreement, the Promissory
Note, the Registration Rights Agreement and the Guaranty have been duly and
validly authorized, executed and delivered by Purchaser and (assuming the valid
execution and delivery of the Agreement by the Shareholder) constitute the
legal, valid and binding obligations of Purchaser, enforceable against Purchaser
in accordance with their terms. The ▇▇▇▇▇▇ Stock, when issued in compliance with
the provisions of this Agreement: (i) will be validly issued, fully paid and
non-assessable; (ii) will have the rights, preferences, privileges and
restrictions described in Purchaser's Certificate of Incorporation; and (iii)
will be free of all liens, claims,
23
restrictions and encumbrances of any kind other than restrictions on
transfer imposed by Federal and state securities laws.
3. Effect of Agreement. Neither the execution, delivery and performance of
this Agreement, the Promissory Note, the Registration Rights Agreement or the
Guaranty by Purchaser, nor the consummation by Purchaser of the transactions
contemplated hereby or thereby will (a) conflict with or result in a breach of
any provision of Purchaser's Certificate of Incorporation or ByLaws, (b)
constitute or result in the breach of, conflict with or give rise to a right of
termination, cancellation or acceleration with respect to, any term, condition
or provision of, any note, bond, mortgage, indenture, license or other contract
or obligation to which Purchaser is a party or by which it or any of its
properties or assets may be bound, except for such conflicts, breaches or
defaults as to which written waivers or consents have been obtained, or (c)
violate any law, statute, regulation, judgment, order, writ, injunction, or
decree applicable to Purchaser or any of its properties or assets.
4. Government and Other Consents. No consent, order, authorization,
qualification, or approval of, or exemption by, or filing with any governmental,
public, or regulatory body or authority is required in connection with the
execution, delivery and performance by Purchaser of this Agreement.
5. Broker. No broker, finder, agent or other intermediary has acted on
behalf of Purchaser or otherwise assisted in bringing about the transactions
contemplated by this Agreement and no broker, finder, agent or other
intermediary is entitled to any commission or finder's fee in respect thereof
based in any way on agreements, understandings or arrangements with or the
conduct of Purchaser.
6. Material Information; Full Disclosure. This Agreement and any other
certificate, document, agreement or information furnished (including, without
limitation, any schedule hereto) or to be furnished pursuant to this Agreement
by the Purchaser to the Shareholder does not contain and will not contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary to make any statement herein or therein not misleading.
6.7 SEC Filings.
(a) Purchaser has filed and made available to the Shareholder all forms,
reports and documents required to be filed by Purchaser with the Securities and
Exchange Commission ("SEC") since February 17, 1994 (collectively, the
"Purchaser's SEC Reports"). The Purchaser's SEC Reports (i) at the time filed,
complied in all material respects with the applicable requirements of the
Securities Act of 1933, as amended, and the
24
Securities Exchange Act of 1934, as the case may be; and (ii) did not at
the time they were filed (or if amended or superseded by a filing prior to the
date of this Agreement, then on the date of such filing) contain any untrue
statement of a material fact or omit to state a material fact required to be
stated in such Purchaser's SEC Reports or necessary in order to make the
statements in such Purchaser's SEC Reports, in the light of the circumstances
under which they were made, not misleading.
(b) Since the date of filing of the last Purchaser's SEC Report, there has
not been any material adverse change in the assets, liabilities, financial
condition or results of operations of Purchaser and its Subsidiaries, taken as a
whole.
ARTICLE
INDEMNIFICATION
1. Indemnification by the Shareholder. The Shareholder agrees that,
notwithstanding the Closing, the sale of the Shares provided for herein and
regardless of any investigation at any time made by or on behalf of Purchaser or
of any information Purchaser may have in respect thereof, the Shareholder will
indemnify and hold Purchaser and Sedeco harmless from and against any damage,
liability, loss or deficiency (including, without limitation, reasonable
attorneys' fees and other costs and expenses incident to any suit, action or
proceeding) arising out of or resulting from, and will pay Purchaser or Sedeco
on demand the full amount of any sum or sums which Purchaser or Sedeco may pay
or become obligated to pay on account of: (i) any inaccuracy in any
representation or the breach of any warranty made by the Shareholder herein or
in any agreement, instrument or document delivered pursuant to this Agreement,
(ii) any failure of the Shareholder duly to perform or observe any term,
provision, covenant, agreement, or condition herein or in any agreement,
instrument or document delivered pursuant to this Agreement on the part of
Shareholder to be performed or observed, (iii) any liability or obligation
arising with respect to the Division's assets (now or previously owned) or the
conduct of the business of the Division, (iv) warranty obligations attributable
to sales prior to Closing in excess of an aggregate of $50,000, (v) any claim
made by or on behalf of ▇▇▇ ▇▇▇▇▇, and (vi) any claims alleging damage to any
embroidery machines or parts shipped by Sedeco without adequate insurance
therefor. Notwithstanding anything herein to the contrary, neither Purchaser nor
Sedeco may bring a claim for indemnification under this Section if the
applicable statute of limitations with respect to such claim has expired.
2. Indemnification by Purchaser. Purchaser hereby agrees to indemnify and
hold the Shareholder harmless from, against and in respect of (and shall on
demand reimburse the Shareholder for) any and all claims, loss, liability,
damage, cost or expense
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(including, without limitation, reasonable attorneys' fees and other costs
and expenses incident to any suit, action or proceeding) suffered or incurred by
the Shareholder on account of: (i) any inaccuracy in any representation or the
breach of any warranty made by Purchaser herein or in any agreement, instrument
or document delivered pursuant to this Agreement; or (ii) any failure of
Purchaser duly to perform or observe any term, provision, covenant, agreement,
or condition herein or in any agreement, instrument or documents delivered
pursuant to this Agreement on the part of Purchaser to be performed or observed.
3. Limitation of Liability. None of the Parties shall assert any claim for
indemnification under Sections 7.1 or 7.2 unless the aggregate amount of all
claims of such party against the other party under this Agreement, on a
cumulative basis, exceeds Fifty Thousand and 00/100 ($50,000.00) Dollars (the
"Indemnification Threshold"); provided, however, that (a) once claims exceed
such Fifty Thousand and 00/100 ($50,000.00) Dollars threshold, the indemnifying
party shall be liable for all valid claims, including the initial claims
aggregating Fifty Thousand and 00/100 ($50,000.00) Dollars, and (b) there shall
be no Indemnification Threshold for indemnification claims under Section 7.1
(v), (vi) or to the extent such claims arise out of the breach by the
Shareholder of a representation, warranty or covenant set forth in Section 2.2,
2.3, 2.4, 2.5 or 5.20. Under no circumstances shall the liability of the
Shareholder in the aggregate pursuant to this Article 7 exceed Eight Million
Five Hundred Fifty Thousand and 00/100 ($8,550,000.00) Dollars, except that such
limitation shall not apply to claims for indemnification arising under Sections
7.1(v) or as a result of the breach by the Shareholder of a representation,
warranty or covenant set forth in Sections 5.28.
4. Right of Set-off. In addition to any remedies available to Purchaser,
Purchaser and Sedeco shall have a right to set-off any obligations of the
Shareholder to Purchaser or Sedeco under this Agreement against any obligation
of Purchaser or Sedeco, as appropriate, to the Shareholder under this Agreement
and under the ▇▇▇▇▇ Employment Agreement, including without limitation, any
payment due after the Closing Date pursuant to Sections 2.1 or 2.2 hereof or
pursuant to the Promissory Note. Notwithstanding the foregoing right of set-off,
if the Shareholder is disputing in good faith an obligation alleged by Purchaser
to be owed by the Shareholder to which a set-off right otherwise applies
hereunder, the Purchaser and Sedeco shall continue making all payments due from
Purchaser to the Shareholder under this Agreement or the ▇▇▇▇▇ Employment
Agreement, as the case may be, until there has been a Final Determination made
with respect to the alleged obligation owing by the Shareholder to Purchaser.
Pending such Final Determination, such payments made by Purchaser shall be
deposited with an escrow agent pursuant to an escrow agreement, which shall
26
be mutually satisfactory to the Shareholder and Purchaser. Upon a Final
Determination the escrowed funds shall be disbursed consistent with the terms of
the escrow agreement. "Final Determination," as used herein, shall mean a final
order of a court, tribunal or adjudicator having jurisdiction over such dispute.
5. No Waiver. No failure or delay on the part of Purchaser or the
Shareholder in exercising any right, power or remedy under this Agreement, or
available to Purchaser or the Shareholder at law or in equity shall operate as a
wavier of such right, power or remedy, nor shall any single or partial exercise
of any such right, power or remedy preclude any or further exercise thereof or
the exercise of any other right, power or remedy available to Purchaser or the
Shareholder. Subject to the limitations of Section 7.3, the remedies provided in
this Agreement are cumulative and not exclusive of any remedies available to any
Party at law or equity.
6. Third Party Claims.
a. In case of the assertion in writing of any claim initiated or asserted
by any person, firm, governmental authority or corporation other than Purchaser
or any affiliate of Purchaser (a "Third Party Claim") against Sedeco or the
commencement of any litigation asserting a Third Party Claim which may give rise
to any indemnification obligation of the Shareholder (each an "Indemnitor") to
Purchaser or Sedeco under the provisions of this Article, Purchaser shall give
notice thereof as provided hereunder as promptly as practicable after
Purchaser's receipt of such written assertion or the commencement of such
litigation unless the failure to give such notice would not materially prejudice
the Shareholder, such notice to be given by Purchaser not later than would
materially prejudice the Shareholder if they chose to defend such litigation as
hereinafter provided. If Indemnitor demonstrates to Purchaser that Indemnitor
will be able to pay the full amount of potential liability in connection with
any Third Party Claim, Indemnitor may at its sole cost and expense, upon written
notice given to Purchaser within fifteen (15) days after its receipt of
Purchaser's notice under this Section 7.6, assume the defense, with counsel
reasonably satisfactory to Purchaser, of any such Third Party Claim or
litigation, provided that Indemnitor admits in writing to Purchaser its
liability solely as between it and Purchaser with respect to all material
elements thereof. If Indemnitor assumes the defense of any such claim or
litigation, the obligations of Indemnitor hereunder as to such claim or
litigation shall be limited to taking all steps necessary in the defense or
settlement thereof and to holding Purchaser harmless from and against any and
all losses, liabilities, expenses and damages caused by or arising out of any
settlement approved by Indemnitor or any judgment in connection with such claim
or
27
litigation, and Purchaser shall make available or cause to be made
available to Indemnitor such books and records in Sedeco's possession as
Indemnitor may reasonably require in connection with such defense. Except with
the express prior written consent of Purchaser, Indemnitor shall not consent to
the settlement or entry of any judgment arising from any such claim or
litigation which in each case does not include as an unconditional term thereof
the giving by the claimant or plaintiff, as the case may be, to Purchaser of any
unconditional release from all liability in respect thereof unless Indemnitor
shall have actually paid the full amount of any such settlement or judgment.
Purchaser shall be entitled to be consulted about (but not control) the defense
of, and receive copies of all pleadings and other material papers in connection
with, any such claim or litigation. If Indemnitor does not assume the defense of
any such claim or litigation, Purchaser may defend the same in such manner as it
may deem appropriate, including but not limited to settling such claim or
litigation after giving reasonable notice of the same to Indemnitor on such
terms as Purchaser may deem appropriate, and Indemnitor will promptly reimburse
Purchaser in accordance with the provisions of this Section 7.6, provided that
Purchaser furnish Indemnitor with copies of all pleadings and other material
documents in connection with any such claim or litigation and that Indemnitor is
consulted about (albeit not in control of) such litigation. Anything contained
in this Section 7.6 to the contrary notwithstanding, (i) Indemnitor shall not be
entitled to assume the defense of any such claim or litigation if the Third
Party Claim seeks an order, injunction or other equitable relief against
Purchaser which, if successful, might materially interfere with, or adversely
affect, the operation of its business by Purchaser or Sedeco; and (ii) Purchaser
or Sedeco may defend any Third Party Claim to which Purchaser or Sedeco may have
a defense or counterclaim which Indemnitor is not entitled to assert to the
extent necessary to assert and maintain such defense or counterclaim provided
that Purchaser provide or cause to be provided to Indemnitor copies of all
pleadings and other material documents in connection with any such claim or
litigation and that Indemnitor is consulted about (albeit not in control of)
such litigation.
b. In case of the assertion in writing of any Third Party Claim or the
commencement of any litigation asserting a Third Party Claim which may give rise
to any obligation of Purchaser to the Shareholder under the provisions of this
Article, the Shareholder shall have the rights, duties and obligations of
Purchaser under Section 7.6(a) and Purchaser shall have the right, duties and
obligations of the Shareholder.
28
ARTICLE
GENERAL
1. Expenses. Purchaser and the Shareholder shall pay their own respective
counsel, accountants and other advisors' fees and expenses arising in connection
with the negotiation and preparation of this Agreement and the consummation of
the transactions contemplated hereby.
2. Sales, Transfer and Documentary Taxes, etc. The Shareholder shall pay
all sales, transfer and documentary taxes, if any, due as a result of the sale
of the Shares to Purchaser and all other fees applicable to the Shareholder
directly relating to the transfer of the Shares to Purchaser.
3. Survival of Representations and Warranties. Each of the Parties
covenants and agrees that all of the representations warranties, covenants, and
agreements set forth in this Agreement shall survive the Closing and shall not
be merged into any instruments of transfer or other documents delivered by any
of the Parties at Closing or at any other time.
4. No Third Party Beneficiaries. Nothing in this Agreement, expressed or
implied, is intended to confer on any person other than the Parties or their
respective heirs, successors and assigns any rights, remedies, obligations, or
other liabilities under or by reason of this Agreement.
5. Notices. All notices permitted or required under this Agreement shall be
in writing and shall be either (a) delivered by personal service, (b) delivered
by courier service, (c) telecopied and confirmed immediately in writing by a
copy mailed by registered or certified mail, postage prepaid, return receipt
requested, or (d) sent by certified or registered mail, postage prepaid, return
receipt requested, to the parties hereto at their addresses set forth below or
at such other addresses which may be designated in writing by the parties:
If to the Shareholder to: ▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
With a copy to: ▇▇▇▇▇▇ & Hanger. L.L.P.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
If to Purchaser to: ▇▇▇▇▇▇ International Corp.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: President
Telecopier No. (▇▇▇) ▇▇▇-▇▇▇▇
29
With a copy to: Ruskin, Moscou, ▇▇▇▇▇ &
Faltischek, P.C.
▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
Such notices shall be effective upon receipt in the case of personal or
courier service or telecopier delivery and on the third (3rd) day after posting
in the U.S. mail.
6. Entire Agreement. This Agreement (including the Schedules hereto)
supersedes all prior agreements and understandings, oral and written, between
the parties with respect to the subject matter, and this Agreement constitutes
the entire agreement of the parties with respect to the subject matter hereof.
7. Headings. The article, section and other headings contained in this
Agreement are for reference purposes only and shall not be deemed to be a part
of this Agreement or to affect the meaning or interpretation of this Agreement.
8. Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when executed, shall be deemed to be an original,
and all of which together shall be deemed to be one and the same instrument.
9. Governing Law. This Agreement shall be construed as to both validity and
performance and governed by and enforced in accordance with the laws of the
State of New York, without giving effect to the choice of law principles. The
Parties each hereby irrevocably consents and submits to in personam jurisdiction
in the courts of New York, County of Nassau, including the United States courts
located in and for the Eastern District of New York, and to all proceedings in
such courts.
10. Severability. If any term, covenant, condition, or provision of this
Agreement or the application thereof to any circumstance shall be invalid or
unenforceable to any extent, the remaining terms, covenants, conditions, and
provisions of this Agreement shall not be affected and each remaining term,
covenant, condition, and provision of this Agreement shall be valid and shall be
enforceable to the fullest extent permitted by law. If any provision of this
Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only as broad as is enforceable.
11. Amendments. This Agreement may not be modified or changed except by an
instrument or instruments in writing signed by all Parties.
30
12. Assignment. None of the Parties shall assign its rights or obligations
under this Agreement without the prior written consent of the other Parties.
13. Successors and Assigns. The covenants, agreements, and conditions
contained or granted shall be binding upon and shall inure to the benefit of
Purchaser and the Shareholder and their respective heirs, successors and
permitted assigns.
14. No Joint Venture. The Parties, by entering into this Agreement and
consummating the transactions contemplated in this Agreement, shall not be and
shall not be considered a partner or joint venturer of one another.
15. Construction of Agreement. This Agreement was negotiated at arm's
length by the Parties and their respective counsel. This Agreement shall not be
construed as having been "drafted" by any one Party and shall not be construed
against any Party as a drafting party.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
▇▇▇▇▇▇ INTERNATIONAL CORP.
By:\s\ ▇▇▇▇▇ ▇▇▇▇▇▇▇
-----------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇, President
\s\ ▇▇▇▇▇ ▇▇▇▇▇▇▇
-----------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇
31