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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 1, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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ORIUS CORP.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE
(State or other jurisdiction of incorporation)
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1731 65-0894212
(Primary Standard Industrial Classification Code Number) (I.R.S Employer Identification Number)
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1401 FORUM WAY, SUITE 400
WEST PALM BEACH, FLORIDA 33401
561-687-8300
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
WILLIAM J. MERCURIO
1401 FORUM WAY, SUITE 400
WEST PALM BEACH, FLORIDA 33401
561-687-8300
(Name, Address Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
------------------------
(copies to)
Donn A. Beloff Jorge L. Freeland
Akerman, Senterfitt & Eidson, P.A. White & Case LLP
450 East Las Olas Boulevard 200 S. Biscayne Boulevard
Fort Lauderdale, Florida 33301 Miami, Florida 33131
954-463-2700 305-371-2700
954-463-2224 (facsimile) 305-358-5744 (facsimile)
Approximate date of commencement of proposed sale to the public: AS SOON
AS PRACTICABLE AFTER THE EFFECTIVENESS OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the earlier offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED AMOUNT TO BE REGISTERED(1) AMOUNT OF REGISTRATION FEE
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Common stock, par value $.0001 per share........... $150,000,000 $41,700
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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SUBJECT TO COMPLETION,
DATED JUNE , 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
Shares
[ORIUS LOGO] (sm)
Common Stock
Orius is a leading provider of installation, design, engineering and
maintenance services for the telecom industry. This is our initial public
offering of shares of common stock. We are offering _____ shares and selling
stockholders are offering ____ shares. Orius will not receive any proceeds from
the sale of the shares of common stock by the selling stockholders.
No public market currently exists for our shares. We intend to list the
shares on the New York Stock Exchange under the symbol "ORS." We expect that
the initial public offering price will be between ____ and _____ per share. The
market price of the shares of common stock after this offering may be higher or
lower than the initial public offering price.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 7.
PER SHARE TOTAL
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Public offering price..............................
Underwriting discounts and commissions.............
Proceeds, before expenses, to Orius................
Proceeds to the selling stockholders...............
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
We and certain selling stockholders have granted the underwriters an
option to purchase up to ________ additional shares of common stock on the same
terms and conditions as set forth above solely to cover over-allotments, if
any. See "Plan of Distribution."
----------------------------
The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares of common stock against payment in
Baltimore, Maryland on _______, 1999.
JOINT LEAD MANAGERS
BT Alex. Brown Banc of America Securities LLC
Morgan Keegan & Company, Inc.
The Robinson-Humphrey Company
Prospectus dated , 1999.
<PAGE> 3
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION REGARDING ORIUS AND ITS FINANCIAL STATEMENTS AND NOTES THERETO
APPEARING ELSEWHERE IN THIS DOCUMENT. UNLESS THE CONTEXT OTHERWISE REQUIRES,
ALL INFORMATION CONTAINED IN THIS PROSPECTUS HAS BEEN ADJUSTED TO REFLECT A
____________ FOR ONE STOCK SPLIT TO BE EFFECTED IMMEDIATELY PRIOR TO THE
CLOSING OF THIS OFFERING. WHEN REFERRING TO TELECOM, WE MEAN TELECOMMUNICATIONS
PROVIDERS AND CABLE TELEVISION SYSTEMS OPERATORS. WHEN REFERRING TO ORIUS, WE
MEAN ORIUS AND ITS SUBSIDIARIES AND PREDECESSOR.
OUR COMPANY
We are a leading provider of installation, design, engineering and
maintenance services for the telecom industry in the United States. We also
install, design, engineer and maintain premise wiring for integrated voice,
data and video networks in commercial, institutional and governmental
facilities. Our customers utilize our services to (1) add capacity to their
existing networks, (2) maintain their existing fiber-optic, coaxial and copper
cable infrastructure and (3) expand their networks into new geographic markets.
Our principal customers are telecommunications providers and cable
television system operators including TCI, Time Warner, MediaOne, Jones
Intercable, U.S. West, Southwestern Bell, GTE, MCI WorldCom, Cox Communications,
Charter Communications and Digital Teleport. Approximately 80% of our pro forma
revenues in 1998 were generated from repeat customers, often under turnkey or
master service agreements. The demand for our services has accelerated as (1)
traditional telecommunications and cable television industries have converged,
(2) our telecom provider customers have encountered rapid growth in voice and
data traffic over their networks and (3) many of our customers have identified
outsourcing as an efficient means to expand, maintain and replace their
infrastructure.
We were formed in August 1997 to create a nationwide provider of
comprehensive telecom infrastructure services. We have completed 13
acquisitions since March 1998 and currently perform work nationwide. We had pro
forma revenues for the year ended December 31, 1998 of approximately $265
million, of which 47% was attributable to cable television infrastructure
services, 29% was attributable to telecommunications infrastructure services
and 24% was attributable to premise wiring and other services.
We estimate that the market for telecom infrastructure services
exceeded $15 billion in 1998. We believe that our industry presents substantial
growth opportunities for large companies with broad geographic coverage,
comprehensive technical capabilities, and responsive and quality service.
Growth in our industry has been driven by the following trends:
o telecom deregulation
o growth in bandwidth demand
o increased outsourcing
o telecom consolidation
o emergence of preferred service providers, and
o consolidation of our fragmented industry.
To enhance our position as a leading provider of comprehensive telecom
infrastructure services, we intend to supplement our strong internal growth
with selective acquisitions. The businesses we have acquired have achieved
internal growth on a combined basis at a compound annual rate of 16% between
1996 and 1998. As the size of, and services offered by, telecom providers have
expanded, they are increasingly requiring telecom infrastructure service
providers to offer installation, design, engineering and maintenance services
simultaneously in multiple geographic regions. Many of the smaller companies in
our
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industry do not have the financial resources necessary to provide comprehensive
services over a broad geographic area or the ability to manage multiple
projects. As a result, we believe that there will continue to be consolidation
within our industry and a large number of attractive acquisition candidates.
BACKGROUND
Our company was formed by members of our senior management team to
create a nationwide provider of comprehensive telecom infrastructure services.
The founding members of our executive management each have an average of 30
years of experience within our industry. In March 1998, we acquired four
businesses with operations in 28 states that provide telecom infrastructure
services to cable television system operators. These businesses had combined
1998 revenues of approximately $66 million. Principal customers of these
businesses include TCI, Adelphia, Time Warner, Cablevision, Ameritech, Bell
Atlantic and Jones Intercable.
In June 1998 and August 1998, we acquired four additional businesses
with operations in 16 states that expanded our geographic coverage and
resources to service cable television system operators and enabled us to
broaden our customer base to include telecommunications providers. These
additional acquisitions had combined 1998 revenues of approximately $56
million. Principal customers of these businesses include MediaOne, Cox
Communications, Falcon, Media Com and Intermedia.
RECENT DEVELOPMENTS
RECENT ACQUISITIONS
In February 1999, we acquired four additional businesses with
operations in 17 states and combined 1998 revenues of approximately $113
million. These companies offer telecom infrastructure services primarily to
telecom providers and, to a lesser extent, cable television system operators,
and premise wiring services to a variety of commercial and government
entities.
In May 1999, we acquired Texel Corporation with operations in six
states and the District of Columbia and 1998 revenues of approximately $30
million. Texel provides premise wiring services to commercial, institutional
and government entities.
NEW AND AMENDED CREDIT FACILITY
In February 1999, we entered into a new $145 million credit facility
with a syndicate of financial institutions. The credit facility provides for a
$120 million term loan facility and a $25 million revolving credit facility. In
May 1999, we increased our borrowing capacity from $145 million to $170 million
to fund the Texel acquisition. As of May 26, 1999, the aggregate outstanding
principal indebtedness under our current credit facility was approximately $164
million.
Orius is a Delaware corporation and our principal executive offices
are located at 1401 Forum Way, Suite 400, West Palm Beach, Florida 33401. Our
telephone number is (561) 687-8300.
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THE OFFERING
The following information, and similar information throughout this
prospectus relating to shares to be outstanding after this offering, assumes
that the underwriters do not exercise the option granted by us to purchase up
to _______ additional shares.
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Common stock offered by Orius.......................... _____________________ shares
Common stock offered by the selling stockholders....... _____________________ shares
Total.................................................. _____________________ shares
Common stock to be outstanding after this offering..... _____________________ shares (1)
Use of proceeds........................................ We will use the net proceeds of this offering to reduce
existing indebtedness and for general corporate purposes,
including possible acquisitions.
Over-allotment option.................................. We and the selling stockholders have granted the
underwriters an option to purchase up to _______
additional shares of common stock.
Proposed New York Stock Exchange symbol................ ORS
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(1) Excludes ____________ shares of common stock issuable upon exercise of
outstanding warrants and options at a weighted average exercise price of
$______ per share, and ____________ shares reserved for future grants
under our stock option plan.
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SUMMARY FINANCIAL DATA
(in thousands, except per share data)
We were formed in August 1997 to create a nationwide provider of
comprehensive telecom infrastructure services. We acquired eight businesses in
1998 and five additional businesses in 1999. While the businesses were acquired
at various dates during 1998 and 1999, the following pro forma statements of
operations are presented as if all such acquisitions and this offering had
occurred on January 1, 1998. The following pro forma balance sheet gives effect
to the Texel acquisition and this offering as if they had occurred on March 31,
1999.
The unaudited pro forma financial information presented below is
intended to give you a better understanding of what the results of the
operations and financial position of all of our businesses might have looked
like had they been combined as of January 1, 1998. We prepared the pro forma
statements of operations by combining the historical results of each acquired
company as if it had been acquired on January 1, 1998 with our historical
financial statements. We then adjusted the combined amounts for the effects of
certain other pro forma adjustments discussed in the footnotes below and the
consummation of this offering. The acquired businesses may have performed
differently if they had been combined as of January 1, 1998. You should not
rely on the pro forma information as being indicative of the historical results
that we would have had or the future results that we will experience.
You should read the summary financial data presented below in
conjunction with the information contained in "Selected Pro Forma Financial
Data", "Selected Historical Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and the related notes included elsewhere in this prospectus.
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Year Ended Three Months Ended Three Months Ended
December 31, 1998 March 31, 1998 March 31, 1999
------------------------------ --------------------- ----------------------------
Pro forma, Pro forma Pro forma
Pro as Pro as Pro as
Actual forma(a) Adjusted(b) forma(a) Adjusted(b) Actual forma(a) Adjusted(b)
------ -------- ----------- -------- ----------- ------ -------- -----------
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OPERATING DATA:
REVENUES: $ 81,551 $264,740 $ -- $ 52,032 $ -- $ 46,069 $ 68,372 $ --
EXPENSES:
Direct costs 59,896 193,329 -- 40,013 -- 36,224 51,630 --
General and administrative 8,645 24,851 -- 5,130 -- 4,540 6,925 --
Depreciation and amortization 3,567 9,724 -- 2,431 -- 1,808 2,431 --
-------- -------- ------- -------- ------- -------- -------- -------
Total 72,108 227,904 -- 47,574 -- 42,572 60,986
INCOME FROM OPERATIONS 9,443 36,836 -- 4,458 -- 3,497 7,386 --
OTHER (INCOME) EXPENSE:
Interest expense, net 2,508 14,261 -- 3,565 -- 2,160 3,565 --
Other (income) expense (72) (222) -- (70) -- (26) 29 --
-------- -------- ------- -------- ------- -------- -------- -------
INCOME BEFORE INCOME TAX PROVISION
AND EXTRAORDINARY CHARGE 7,007 22,797 -- 963 -- 1,363 3,792 --
PROVISION FOR INCOME TAXES 3,283 9,917 -- 419 -- 692 1,627 --
-------- -------- ------- -------- ------- -------- -------- -------
INCOME BEFORE EXTRAORDINARY
CHARGE $ 3,724 $ 12,880 $ -- $ 544 $ -- $ 671 $ 2,165 $ --
======== ======== ======= ======== ======= ======== ======== =======
PER SHARE DATA:
Diluted earnings per share
Diluted shares outstanding
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At March 31, 1999
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Pro forma,
Actual Pro forma(a) as Adjusted(b)
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BALANCE SHEET DATA:
Cash and cash equivalents $ -- $ 2,126 $ --
Working capital 37,810 41,274 --
Property and equipment, net 35,314 36,324 --
Total assets 198,694 233,551 --
Long term debt 111,329 134,779 --
Convertible preferred stock and redemption rights on
junior convertible subordinated note(c) 21,526 21,526 --
Total stockholders' equity 8,815 12,126 --
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(a) For an explanation of the calculation of the pro forma adjustments, see
"Selected Pro forma Financial Data."
(b) Adjusted to give effect to the sale of the shares of common stock offered by
us and the application of the net proceeds therefrom. See "Use of Proceeds."
(c) The convertible preferred stock (Preferred Stock) and the junior
convertible subordinated note (Junior Note) contain provisions for the
conversion of those securities at the discretion of the security holder. At
March 31, 1999, the Preferred Stock and the Junior Note were convertible
into ________ and ________ shares of common stock, respectively.
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING
AN INVESTMENT DECISION. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE
ONLY ONES FACING OUR COMPANY. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY
KNOWN TO US OR THAT WE CURRENTLY DEEM IMMATERIAL MAY ALSO IMPAIR OUR
OPERATIONS. IF ANY OF THE FOLLOWING RISKS ACTUALLY MATERIALIZE, OUR BUSINESS,
FINANCIAL CONDITION OR RESULTS OF OPERATIONS COULD BE MATERIALLY AND ADVERSELY
AFFECTED. IN SUCH CASE, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE AND
YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
WE HAVE A LIMITED HISTORY OF OPERATING AND INTEGRATING OUR ACQUIRED BUSINESSES
We were founded in August 1997 but conducted no operations and
generated no revenues prior to acquiring four businesses in March 1998. These
four businesses and the other businesses we have acquired since March 1998 have
been operating as separate subsidiaries and we expect that these businesses and
any others we acquire will continue to operate as separate subsidiaries with a
large degree of operating autonomy. To manage the combined enterprise on a
profitable basis, we must continue to institute certain necessary common
systems and procedures. We intend to continue to integrate the computer,
accounting and financial reporting systems, and certain of the operational,
administrative, banking and insurance procedures of the businesses we acquire.
However, we cannot be certain that we will successfully institute these common
systems and procedures. In addition, we cannot be certain that our recently
assembled management group will be able to successfully manage the businesses
we acquire as a combined entity and effectively implement our operating or
growth strategies. This integration process will require substantial time and
attention on the part of our management. We may not be able to successfully
integrate the operations of these companies, if at all. If we are unable to
integrate or successfully manage the companies we have acquired, our business,
financial condition and results of operations could be materially and adversely
affected.
THERE ARE RISKS RELATED TO OUR OPERATING AND INTERNAL GROWTH STRATEGIES
A key element of our strategy to increase the profitability and
revenues of the businesses we acquire is to operate such businesses on a
decentralized basis, with local management retaining responsibility for
day-to-day operations, profitability and the internal growth of the individual
business. If we do not implement proper overall business controls, this
decentralized operating strategy could result in inconsistent operating and
financial practices at the businesses we acquire, and our overall profitability
could be adversely affected. Another key element of our strategy is our ability
to generate internal growth which will be affected by, among other factors, our
ability to:
o expand the range of services we offer to customers
o attract new customers
o increase the number of projects performed for existing
customers
o hire and retain employees
o open additional facilities, and
o reduce operating and overhead expenses.
Many of the factors affecting our ability to generate internal growth
may be beyond our control and we cannot be certain that our strategies will be
successful or that we will be able to generate cash flow sufficient to fund our
operations and to support internal growth. Our inability to achieve internal
growth could have a material adverse effect on our business, financial
condition and results of operations.
WE MAY BE UNSUCCESSFUL IN INTEGRATING COMPANIES THAT WE ACQUIRE INTO OUR
OPERATIONS
We have grown rapidly through the acquisition of our 13 existing
operating subsidiaries. We intend to make additional acquisitions on a
selective basis as opportunities arise. We expect to face competition for
acquisition candidates, which may limit the number of our acquisition
opportunities and may lead to higher
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acquisition prices. We cannot be sure that we will be able to identify, acquire
or profitably manage additional businesses. We also cannot be sure that we can
integrate successfully any businesses we acquire with our other operations
without substantial costs, delays or other operational or financial problems.
Further, acquisitions involve a number of special risks which could materially
and adversely affect our business, financial condition and results of
operations. These special risks include:
o failure of the acquired businesses to achieve the results we
expect
o diversion of our management's attention from operational
matters
o our inability to retain key personnel of the acquired
businesses
o risks associated with unanticipated events or liabilities
o difficulties integrating the operations and personnel of
acquired companies
o the potential disruption of our business
o the difficulty of maintaining uniform standards, controls,
procedures and policies, and
o customer dissatisfaction or performance problems at the
acquired business which may materially and adversely affect
the reputation of our company.
WE MAY NOT HAVE ACCESS TO SUFFICIENT FUNDING TO FINANCE FUTURE ACQUISITIONS
We cannot readily predict the timing, size and success of our
acquisition efforts or the capital we will need for these efforts. We may use
our common stock for all or a portion of the consideration for future
acquisitions. These issuances could have a dilutive effect on our stockholders.
If our common stock does not maintain a sufficient market value or potential
acquisition candidates are unwilling to accept our common stock as part of the
consideration for the sale of their businesses, we may be required to utilize
more of our cash resources to pursue our acquisition program. Using cash for
acquisitions limits our financial flexibility and makes us more likely to seek
additional capital through future debt or equity financings. If we seek more
debt, we may have to agree to financial covenants that limit our operational
and financial flexibility. If we seek more equity, we may dilute the ownership
interests of our then existing stockholders. When we seek additional debt or
equity financings, we cannot be certain that additional debt or equity will be
available to us at all or on terms acceptable to us. We are required to obtain
the consent of our lenders for acquisitions exceeding a certain level of cash
consideration. If we cannot secure additional financing on acceptable terms, we
may be unable to pursue our acquisition strategy successfully and we may be
unable to support our growth strategy.
MOST OF OUR CONTRACTS CAN BE CANCELED ON SHORT NOTICE
A substantial number of our contracts are cancelable upon short
notice. Accordingly, we cannot give assurance that our future revenues will
approximate our historical performance. If any canceled contracts are not
replaced with contracts from other customers, or if the other parties to our
master service agreements do not submit orders to us, our business, financial
condition and results of operations will be materially and adversely affected.
A substantial amount of our backlog can be canceled at any time
without penalty, except, in some cases, for the recovery of our actual
committed costs and profit on work performed up to the date of cancelation.
Cancelations of pending purchase orders or terminations or reductions of
purchase orders in progress from our customers could have a material adverse
effect on our business, financial condition and operating results. Our backlog
may fluctuate and does not necessarily indicate the amount of future sales. As
of March 31, 1999, our backlog was approximately $368 million. Of that amount,
approximately $200 million is for work scheduled to be performed in 1999 and
approximately $120 million is for work scheduled to be performed in 2000.
Approximately $16.5 million of our backlog represents work subject to
performance bonds and we may be required to pay liquidated damages if we fail
to perform in a timely manner. Two of our customers, TCI and US West, each
represent over 15% of our backlog.
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We cannot be certain we will receive revenues under our master service
agreements or turnkey agreements. Under our master service agreements, we may
be one of several companies that perform services for the customer and our
customers have no obligation to undertake any installation projects or other
work with us. Therefore, despite the long-term nature of these master service
agreements, they do not give us the security that typical long-term contracts
may provide. Under our turnkey agreements, the substantial working capital and
equipment required during the initial stages of these agreements and the fixed
unit-priced nature of these agreements expose us to additional risks. A
significant decline in work assigned to us under these contracts could also
materially and adversely affect our results of operations.
WE MAY BE UNABLE TO ATTRACT AND RETAIN QUALIFIED EMPLOYEES
Our ability to provide high-quality services on a timely basis
requires that we employ an adequate number of skilled engineers, equipment
operators, linemen, foremen, cable and fiber splicers and project managers.
Accordingly, our ability to increase our productivity and profitability will be
limited by our ability to attract, train and retain skilled personnel. We, like
many of our competitors, are currently experiencing shortages of qualified
personnel. We cannot be certain that we will be able to maintain an adequate
skilled labor force necessary to operate efficiently and to support our growth
strategy or that our labor expenses will not increase as a result of a shortage
in the supply of skilled personnel.
WE MAY BE UNABLE TO ADJUST TO CHANGES IN THE TELECOM INDUSTRY AND TO CHANGES IN
TECHNOLOGY
A number of factors could adversely affect our customers and their
ability or willingness to fund capital expenditures in the future, which in
turn could have a material adverse effect on our results of operations. These
factors include the potential adverse nature of, or the uncertainty caused by:
o governmental regulation
o technological changes
o increased competition
o increased consolidation
o adverse financing conditions for the industry, and
o general economic conditions.
The telecom industry is subject to rapid changes in technology.
Wireline systems used for the transmission of video, voice and data are subject
to potential displacement by various technologies, including wireless
technologies. Telecom providers may develop new technologies that allow users
to receive enhanced services without a significant upgrade of the existing
telecom infrastructure. These new technologies could reduce the need for
installation, repair and replacement of wireline services, which could reduce
the demand for our business and adversely affect our financial condition and
results of operations.
WE MAY BE UNABLE TO SUCCESSFULLY COMPETE WITH OTHER COMPANIES IN THE INDUSTRY
Our industry is highly competitive and is served by numerous small,
owner-operated private companies, a few public companies and several large
regional companies. There are no substantial barriers to entry in our industry
and we expect that competition will intensify in the future. As a result, any
organization that has adequate financial resources and access to technical
expertise may become one of our competitors. Competition in the industry
depends on a number of factors, including price. Certain of our competitors may
have lower overhead cost structures and may, therefore, be able to provide
their services at lower rates than we can provide such services. Certain of our
competitors have greater market presence, engineering and marketing
capabilities, and financial, technological and personnel resources than those
available to us. As a result, they may be able to develop and expand their
customer base more quickly, adapt more swiftly to new or emerging technologies
and changes in customer requirements, take advantage of acquisition and other
opportunities more readily, and devote greater resources to the marketing and
sale of their products and services than we can. We cannot assure you that we
will be able to maintain or enhance our competitive position.
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We also face competition from the in-house service organizations of
our existing or prospective customers. Telecom providers usually employ
personnel who perform some of the same types of services as we do. We cannot be
certain that our existing or prospective customers will continue to outsource
services in the future.
OUR OPERATING RESULTS VARY SIGNIFICANTLY QUARTER-TO-QUARTER
We have experienced and expect to continue to experience quarterly
variations in revenues and net income. These variations result from many
factors, including:
o the timing of acquisitions
o variations in the margins of projects performed during any
particular quarter
o the timing and volume of work under new agreements
o the budgetary spending patterns of customers
o the termination of existing agreements
o costs we incur to support growth internally or through
acquisitions or otherwise
o the change in mix of our customers, contracts and business
o increases in construction and design costs, and
o general economic conditions.
Our revenues and net income in the first quarter and the fourth
quarter have in the past been, and may in the future be, materially and
negatively affected by adverse weather conditions and the year-end budgetary
spending patterns of our customers.
THE DEPARTURE OF KEY PERSONNEL COULD DISRUPT OUR BUSINESS
We depend upon the continued services and experience of our senior
management team, including William J. Mercurio, our President and Chief
Executive Officer, and of the managers of businesses we acquire. The loss of
the services of any of our key employees could have a material adverse effect
on our business, financial condition and results of operations.
SHARES ELIGIBLE FOR FUTURE SALE BY OUR CURRENT STOCKHOLDERS MAY ADVERSELY
AFFECT OUR STOCK PRICE
If our stockholders sell substantial amounts of our common stock
(including shares issued upon the exercise of outstanding options) in the
public market following this offering, the market price of our common stock
could fall. Such sales might make it more difficult for us to sell equity or
equity-related securities in the future at a time and price that we deem
appropriate. Upon completion of this offering, we will have outstanding
________ shares of common stock and options and warrants to acquire ____ shares
of common stock, assuming no exercise of the underwriters' over-allotment
option. Of these shares, the ________ shares offered by this prospectus are
freely tradable and the remaining ______ shares of common stock held by
existing stockholders on completion of this offering will be "restricted
securities," as that term is defined in Rule 144 under the Securities Act.
Restricted securities may be sold in the public market only if they are
registered or if they qualify for an exemption from registration under Rules
144 or 701 promulgated under the Securities Act. All of the shares outstanding
prior to completion of this offering are subject to contractual restrictions
that prohibit the stockholders from selling or otherwise disposing of such
shares for a period of 180 days after the date of this prospectus without the
prior written consent of BT Alex. Brown Incorporated.
We and all of our officers, directors and stockholders have agreed not
to sell or otherwise transfer any shares of our common stock or other
securities convertible into or exchangeable or exercisable for shares of our
common stock or derivatives of common stock (or agreement for such) for a
period of 180 days after the date of this prospectus, except upon the issuance
or exercise of stock options, in connection with acquisitions of
- 10 -
<PAGE> 11
businesses, or with the prior written consent of BT Alex. Brown Incorporated.
After 180 days following the completion of this offering, we intend to file a
registration statement under the Securities Act to register ______ shares of
common stock issuable on exercise of stock options or other awards granted or
to be granted under our existing stock option plan. After the filing of such
registration statement and subject to certain restrictions under Rule 144,
those shares will be freely saleable in the public market immediately following
exercise of such options. In addition, our existing stockholders, who after the
closing of this offering will own approximately ______ shares of common stock,
have the right, subject to certain conditions, to include their shares in
public offerings of our securities. Two of our stockholders, holding ______
shares of common stock, have the right to cause us to register shares of common
stock owned by them.
CERTAIN PROVISIONS OF OUR ARTICLES OF INCORPORATION AND BYLAWS COULD MAKE AN
ACQUISITION OF OUR COMPANY MORE DIFFICULT
Our certificate of incorporation provides that our Board of Directors
may issue preferred stock without stockholder approval. Our bylaws provide for
staggered terms for the members of our Board of Directors and impose certain
limitations on the ability of stockholders to propose matters to be voted on at
our annual meeting. These provisions could make it more difficult for a third
party to acquire us.
OUR COMMON STOCK HAS NEVER BEEN PUBLICLY TRADED SO WE CANNOT PREDICT THE EXTENT
TO WHICH A TRADING MARKET WILL DEVELOP FOR OUR COMMON STOCK
There has not been a public market for our common stock. We cannot
predict the extent to which a trading market will develop or how liquid that
market might become. The initial public offering price will be determined by
negotiations between representatives of the underwriters and us and may not be
indicative of prices that will prevail in the trading market.
THE PRICE OF OUR COMMON STOCK MAY BE VOLATILE
The trading price of our common stock could be subject to fluctuations
in response to (1) variations in our results of operations, (2) developments
that affect the industry, (3) the overall economy, and (4) the financial
markets. The market price of our common stock is also influenced by market
conditions for the common stock of telecom infrastructure service companies in
general and by changes in recommendations or earnings estimates by securities
analysts.
THE BOOK VALUE OF YOUR COMMON STOCK WILL BE SUBSTANTIALLY DILUTED IN THIS
OFFERING
The price you will pay for our common stock will be substantially
higher than the pro forma tangible book value per share of our common stock. As
a result, you will experience immediate and substantial dilution of $______ per
share in tangible book value, and the existing stockholders of our company will
receive a material increase in the tangible book value per share of their
shares of common stock. You will experience additional dilution as a result of
common stock being issued upon the exercise of outstanding stock options and
warrants. To implement our acquisition strategy, we intend to issue additional
shares of common stock in connection with future acquisitions, which may result
in additional dilution.
THE YEAR 2000 PROBLEM COULD DISRUPT OUR BUSINESS
Many computer programs and applications define the applicable year
using two digits rather than four. The "Year 2000 problem" refers to the
inability of these computer programs on and after January 1, 2000 to recognize
that "00" refers to "2000" rather than "1900." The term "Year 2000 compliant"
means a computer or
- 11 -
<PAGE> 12
a computer system that has been designed or modified to recognize dates on and
after January 1, 2000. We are in the process of upgrading our information
systems which we expect to be Year 2000 compliant. We have initiated an audit
of our third-party vendors, suppliers and customers to determine their
readiness for the Year 2000 problem. We cannot be certain that unexpected Year
2000 compliance problems of our systems or of our vendors, suppliers and
customers will not materially and adversely affect our business, financial
condition or operating results. The unanticipated failure of one of these
systems to properly recognize date information beyond the year 1999 could have
a significant adverse impact on our ability to deliver services to customers
and to manage our continuing operations.
- 12 -
<PAGE> 13
USE OF PROCEEDS
We estimate that we will receive net proceeds from the sale of the
_______ shares of common stock offered by us, assuming a public offering price
of $___ per share and after deducting underwriting discounts and estimated
expenses payable by us, of $____ million ($____ million if the underwriters'
over-allotment option is exercised in full). We will not receive any portion of
the proceeds from the sale of shares of common stock by the selling
stockholders.
We intend to use the net proceeds of the offering to reduce
outstanding indebtedness under our credit facility. As of May 26, 1999,
approximately $164 million was outstanding under our credit facility. The
indebtedness to be repaid out of the net proceeds from the offering consists of
$_______ of term loans bearing interest at ______ and due on February 26, 2004,
and $___ of term loans, bearing interest at _________ and due on February 26,
2005. This indebtedness was incurred under our credit facility in connection
with our prior acquisitions. The terms of our revolving credit facility permit
us to draw on it as needed for future acquisitions and capital expenditures and
general corporate purposes, subject to certain restrictions.
We intend to use the balance of the estimated net proceeds, if any,
for acquisitions, capital expenditures and working capital. Pending such uses,
we intend to invest the net proceeds in interest-bearing, investment-grade
instruments, certificates of deposit, or direct or guaranteed obligations of
the United States. We continually evaluate potential acquisition candidates and
intend to continue to pursue selective acquisition opportunities.
DIVIDEND POLICY
We have never declared or paid any dividends on our common stock and
we do not anticipate paying any cash dividends in the near future. Our current
credit facility prohibits the payment of dividends on our common stock. We
currently intend to retain future earnings, if any, to finance operations and
the expansion of our business. Any future determination to pay cash dividends
will be at the discretion of the Board of Directors and will be dependent upon
our financial condition, operating results, capital requirements and such other
factors as the Board of Directors deems relevant.
- 13 -
<PAGE> 14
CAPITALIZATION
The following table sets forth (1) our actual capitalization as of
March 31, 1999, (2) our capitalization on a pro forma basis after giving effect
to the acquisition of Texel accounted for as a purchase and (3) our
capitalization on a pro forma basis after giving effect to the acquisition of
Texel, as adjusted to give effect to our sale of ___________ shares offered
hereby and application of the estimated net proceeds from this offering as
described in "Use of Proceeds." This table should be read in conjunction with
our financial statements and notes thereto and the Selected Pro Forma Financial
Data and notes thereto, which are included elsewhere in this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1999
------------------------------------------------
(IN THOUSANDS)
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
-------------- ------------- -------------
<S> <C> <C> <C>
Long-term debt:
Credit facility.....................................$ 110,250 $ 133,700 $
Other............................................... 1,079 1,079
-------------- ------------- -------------
Total long-term debt............................ 111,329 134,779
-------------- ------------- -------------
Convertible preferred stock, par value $.0001 per share;
300,000 shares authorized:
Series A, 10,000 shares outstanding............ 10,017 10,017
Series B, 7,596.38 shares outstanding.......... 10,453 10,453
Value of redemption rights associated with junior
subordinated convertible note....................... 1,056 1,056
-------------- ------------- -------------
21,526 21,526
-------------- ------------- -------------
Stockholders' equity:
Warrants 869 869
Common stock, $0.0001 par value, 4,700,000
shares authorized; shares issued
on an actual basis; shares issued
on a pro forma basis............................... 1 1
Common stock, $0.0001 par value; ______ shares
authorized __________ shares issued on an as
adjusted basis..................................... -- --
Additional paid-in-capital.......................... 7,945 11,256
Retained earnings................................... -- --
-------------- ------------- -------------
Total stockholders' equity...................... 8,815 12,126
-------------- ------------- -------------
Total capitalization.......................$ 141,670 $ 168,431 $
============== ============= =============
</TABLE>
- 14 -
<PAGE> 15
DILUTION
The pro forma negative net tangible book value of our common stock as
of March 31, 1999, was $_____ million or $____ per share of common stock. Pro
forma negative net tangible book value per share represents the amount of our
total tangible assets reduced by the amount of our total liabilities, after
giving effect to the acquisition of Texel, divided by the number of shares of
common stock outstanding immediately prior to this offering.
After giving effect to our sale of ________ shares of common stock in
this offering (and after deduction of the underwriting discounts and
commissions and estimated offering expenses), our pro forma net tangible book
value as of March 31, 1999, would have been approximately $______, or $_____
per share of common stock. This represents an immediate increase in pro forma
net tangible book value of approximately $____ per share to existing
stockholders and an immediate dilution of $______ per share to new investors
purchasing common stock in this offering.
The following table illustrates this per share dilution:
<TABLE>
<CAPTION>
<S> <C>
Offering price per share................................................................ $
Pro forma negative net tangible book value per share prior to this offering.......... $
Increase in pro forma net tangible book value per share to existing stockholders..... $
Pro forma net tangible book value per share after the offering.......................... $
Dilution per share to new investors..................................................... $
</TABLE>
The following table summarizes on a pro forma basis as of March 31,
1999, the differences between the total consideration paid and the average
price per share paid by the existing stockholders and the new investors with
respect to the number of shares of common stock purchased from us based on the
initial public offering price:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
---------------------------- ---------------------------- Price Per
Number Percent Number Percent Share
------------ ----------- ------------ ----------- -----------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..............
New investors......................
Total..........................
</TABLE>
The foregoing tables assume no exercise of outstanding warrants and
options. The tables exclude ____________ shares of common stock issuable upon
exercise of outstanding warrants and options at a weighted average exercise
price of $______ per share, and ____________ shares reserved for future grants
under our stock option plan. We may also issue additional shares to acquire
additional businesses or upon exercise of stock options granted in the future,
which could result in additional dilution to our stockholders.
- 15 -
<PAGE> 16
SELECTED PRO FORMA FINANCIAL DATA
We were formed in August 1997 to create a nationwide provider of
comprehensive telecom infrastructure services. We have completed 13
acquisitions since March 1998. While the businesses were acquired at various
dates during 1998 and 1999, the following pro forma statements of operations
are presented as if all such acquisitions and this offering had occurred on
January 1, 1998. The following pro forma balance sheet gives effect to the
Texel acquisition and this offering as if they had occurred on March 31, 1999.
The following selected pro forma financial data has been derived from
(1) our (including the acquired businesses) financial information and, when
applicable, includes adjustments to conform fiscal periods to calendar periods,
(2) the audited financial statements and notes thereto of certain of the
acquired businesses for certain periods and (3) our audited financial
statements and notes thereto since inception, which financial statements appear
elsewhere in this prospectus.
The selected pro forma financial data has been prepared for
comparative purposes only and do not purport to be indicative of the results
which would have been achieved had the acquired businesses been purchased and
this offering consummated as of the assumed dates, nor are the results
indicative of our future results. The selected pro forma financial data should
be read in conjunction with "Selected Historical Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our Financial Statements and notes thereto since inception and certain of the
acquired businesses for certain periods and the Unaudited Pro Forma Financial
Statements and notes thereto included elsewhere herein.
- 16 -
<PAGE> 17
PRO FORMA STATEMENT OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31, 1998
---------------------------------------------------------------------------------
The Acquired Pro forma Offering Pro forma,
Company(a) Businesses(b) Adjustments Pro forma Adjustments as Adjusted
---------- ------------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES: $ 81,551 $183,189 $ -- $264,740 $ -- $ --
EXPENSES:
Direct costs 59,896 134,358 (925)(c) 193,329 -- --
General and administrative 8,645 31,973 (15,767)(d) 24,851 -- --
Depreciation and amortization 3,567 5,173 984 (e) 9,724 -- --
-------- -------- -------- -------- ------- ------
Total 72,108 171,504 (15,708) 227,904 -- --
INCOME FROM OPERATIONS 9,443 11,685 15,708 36,836 -- --
OTHER (INCOME) EXPENSE:
Interest expense, net 2,508 668 11,085 (f) 14,261 -- --
Other (income) expense (72) (150) -- (222) -- --
-------- -------- -------- -------- ------- ------
INCOME BEFORE INCOME TAX PROVISION 7,007 11,167 4,623 22,797 -- --
PROVISION FOR INCOME TAXES 3,283 263 6,371 (g) 9,917 -- --
-------- -------- -------- -------- ------- ------
NET INCOME $ 3,724 $ 10,904 $ (1,748) $ 12,880 $ -- $ --
======== ======== ======== ======== ======= ======
Basic earnings per share $ --
Diluted earnings per share $ --
</TABLE>
- 17 -
<PAGE> 18
PRO FORMA STATEMENT OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended March 31, 1998
-----------------------------------------------------------------------------
The Acquired Pro forma Offering Pro forma,
Predecessor(a) Businesses(b) Adjustments Pro forma Adjustments as Adjusted
-------------- ------------- ----------- --------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES: $ 4,219 $ 47,813 $ -- $ 52,032 $ -- $ --
EXPENSES:
Direct costs 3,364 36,642 7 (c) 40,013 -- --
General and administrative 710 5,540 (1,120)(d) 5,130 -- --
Depreciation and amortization 203 1,393 835 (e) 2,431 -- --
-------- -------- -------- -------- -------- --------
Total 4,277 43,575 (278) 47,574 -- --
INCOME (LOSS) FROM OPERATIONS (58) 4,238 278 4,458 -- --
OTHER (INCOME) EXPENSE:
Interest expense, net (57) 278 3,344 (f) 3,565 -- --
Other (income) expense (53) (17) -- (70) -- --
-------- -------- -------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAX PROVISION 52 3,977 (3,066) 963 -- --
PROVISION FOR INCOME TAXES 358 519 (458)(g) 419 -- --
-------- -------- -------- -------- -------- --------
NET INCOME (LOSS) $ (306) $ 3,458 $ (2,608) $ 544 $ -- $ --
======== ======== ======== ======== ======== ========
Basic earnings per share $ --
Diluted earnings per share $ --
</TABLE>
- 18 -
<PAGE> 19
PRO FORMA STATEMENT OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
-----------------------------------------------------------------------------
The Acquired Pro forma Offering Pro forma,
Company(a) Businesses(b) Adjustments Pro forma Adjustments as Adjusted
---------- ------------- ----------- --------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES: $ 46,069 $ 22,303 $ -- $ 68,372 $ -- $ --
EXPENSES:
Direct costs 36,224 15,406 -- 51,630 -- --
General and administrative 4,540 2,453 (68)(d) 6,925 -- --
Depreciation and amortization 1,808 661 (38)(e) 2,431 -- --
-------- -------- -------- -------- -------- --------
Total 42,572 18,520 (106) 60,986 -- --
INCOME FROM OPERATIONS 3,497 3,783 106 7,386 -- --
OTHER (INCOME) EXPENSE:
Interest expense, net 2,160 (34) 1,439 (f) 3,565 -- --
Other (income) expense (26) 55 -- 29 -- --
-------- -------- -------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAX PROVISION
AND EXTRAORDINARY CHARGE 1,363 3,762 (1,333) 3,792 -- --
PROVISION FOR INCOME TAXES 692 203 732 (g) 1,627 -- --
-------- -------- -------- -------- -------- --------
INCOME BEFORE EXTRAORDINARY CHARGE $ 671 $ 3,559 $ (2,065) $ 2,165 $ -- $ --
======== ======== ======== ======== ======== ========
Basic earnings per share $ --
Diluted earnings per share $ --
</TABLE>
- 19 -
<PAGE> 20
PRO FORMA BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
At March 31, 1999
----------------------------------------------------------------------------
The Pro forma Offering Pro forma,
Company(h) Texel(h) Adjustments(i) Pro forma Adjustments as Adjusted
---------- -------- -------------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ -- $ 2,126 $ -- $ 2,126 $ -- $ --
Accounts receivable, net 43,400 6,500 -- 49,900 -- --
Unbilled accounts receivable for
work-in-process 25,391 999 -- 26,390 -- --
Inventory 14,682 -- -- 14,682 -- --
Prepaid and other current assets 1,241 14 -- 1,255 -- --
-------- -------- ------- -------- ------ --------
Total current assets 84,714 9,639 -- 94,353 -- --
-------- -------- ------- -------- ------ --------
Property and equipment, net 35,314 1,010 -- 36,324 -- --
-------- -------- ------- -------- ------ --------
Goodwill, net 72,611 -- 24,208 (i) 96,819 -- --
Deferred financing costs, net 3,976 -- -- 3,976 -- --
Other, including deferred income tax asset 2,079 -- -- 2,079 -- --
-------- -------- ------- -------- ------ --------
TOTAL $198,694 $ 10,649 $24,208 $233,551 $ -- $ --
======== ======== ======= ======== ====== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt $ 10,271 $ -- $ 1,550 (ii) $ 11,821 $ -- $ --
Borrowing under credit facility 8,000 -- 2,000 (ii) 10,000 --
Accounts payable 13,796 1,297 -- 15,093 -- --
Accrued liabilities 11,552 786 -- 12,338 -- --
Deferred revenues 3,084 -- -- 3,084 -- --
Other liabilities, including deferred income
tax liability 201 -- 542 (iii) 743 --
-------- -------- ------- -------- ------ --------
Total current liabilities 46,904 2,083 4,092 53,079 -- --
-------- -------- ------- -------- ------ --------
Long-term debt 111,329 -- 23,450 (ii) 134,779 --
Deferred income tax liability 5,450 -- 1,624 (iii) 7,074 --
Deferred revenues 4,670 297 -- 4,967 -- --
-------- -------- ------- -------- ------ --------
Total liabilities 168,353 2,380 29,166 199,899 -- --
-------- -------- ------- -------- ------ --------
Convertible preferred stock 20,470 -- -- 20,470 -- --
Value of redemption rights associated with
junior subordinated convertible note 1,056 -- -- 1,056 -- --
-------- -------- ------- -------- ------ --------
21,526 -- -- 21,526
-------- -------- ------- -------- ------ --------
Stockholders' equity 8,815 8,269 (4,958)(iv) 12,126 --
-------- -------- ------- -------- ------ --------
TOTAL $198,694 $ 10,649 $ 24,208 $233,551 $ -- $ --
======== ======== ======= ======== ====== ========
</TABLE>
- 20 -
<PAGE> 21
NOTES TO SELECTED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(a) Results for the year ended December 31, 1998 and for the three months
ended March 31, 1998 represent the actual historical 1998 results of
the Company and Channel, including results for the acquired businesses
purchased in the related 1998 period from the date of acquisition.
Results for the three months ended March 31, 1999 represent our actual
historical results, including results for the acquired businesses
purchased in the first quarter of 1999 from the date of acquisition.
(b) Results for the year ended December 31, 1998 and for the three months
ended March 31, 1998 represent combined historical 1998 results for
(i) the acquired businesses purchased in the related 1998 period prior
to the date of acquisition and (ii) the acquired businesses purchased
in 1999. Results for the three months ended March 31, 1999 represent
combined historical results for (i) the acquired businesses purchased
in 1999 prior to the date of acquisition and (ii) Texel which was
acquired on May 25, 1999.
(c) Reflects the decrease resulting from differentials between
compensation levels of former owners of the acquired businesses and
the terms of the employment agreements entered into between certain of
the former owners and the Company.
(d) The pro forma adjustment consists of the following:
Three Months Ended
Year Ended March 31,
December 31, -----------------------
1998 1998 1999
------------ ------- ------
Owners compensation(i) $(14,615) $(1,114) $ (168)
Business not acquired(ii) (1,372) (86) --
Rent expense(iii) 220 80 100
-------- ------- ------
$(15,767) $(1,120) $ (68)
-------- ------- ------
(i) The decrease resulting from differentials between
compensation levels of former owners of the acquired
businesses and the terms of the employment agreements entered
into between certain of the former owners and the Company.
(ii) Reflects the elimination of a business not purchased from
CATV Subscriber Services.
(iii) Reflects the rent expense resulting from our current lease
terms as compared to lease terms entered into by former
owners. In addition, reflects the increase in rent expense
and corresponding decrease in depreciation expense and real
estate tax expense resulting from our leasing rather than
owning certain related facilities which were not purchased
from the former owners of the acquired businesses.
(e) Depreciation has been derived utilizing the property and equipment
values of each of the acquired businesses at the time of their
acquisition, rather than utilizing values of property, plant and
equipment actually held by each of the acquired businesses in the
period presented. Reflects the impact on depreciation resulting from
the application of our depreciation policy rather than those of the
former owners of the acquired businesses. In addition, reflects the
change in depreciation
-21-
<PAGE> 22
resulting from the write-up of property and equipment to fair value
arising from purchase accounting. Also reflects amortization of
goodwill calculated based on goodwill lives ranging from 10 to 40
years. The pro forma adjustments consist of the following:
Three Months Ended
Year Ended March 31,
December 31, ------------------------
1998 1998 1999
------------ ------- -------
Depreciation:
Change in accounting
policy $ (3,088) $ (437) $ (738)
Write-up of property
and equipment 1,864 601 363
-------- ------- -------
(1,224) 139 (375)
Amortization of goodwill 2,208 696 336
-------- ------- -------
$ 984 $ 835 $ (38)
======== ======= =======
(f) Reflects the increase in interest expense at our borrowing rate under
our bank credit agreements on the indebtedness resulting from the
purchase of the acquired businesses. In addition, reflects elimination
of $67 and $25 during the year ended December 31, 1998 and three months
ended March 31, 1998, respectively, of a business not purchased from
CATV Subscriber Services. Under the terms of our bank credit
agreements, interest accrues at variable borrowing rates. If interest
rates were to fluctuate by 1/8 of 1 percent, pro forma interest expense
would change by $194 for the year ended December 31, 1998 and $49 for
the three month periods ended March 31, 1998 and March 31, 1999.
(g) Reflects the income tax rate that would have been in effect if the
acquired businesses had been combined and subject to a federal
statutory rate of 35% and the applicable state statutory rate for each
of the Acquired Businesses throughout the period presented.
(h) Represents the actual historical balance sheets for the Company and
Texel as of March 31, 1999.
(i) The following are adjustments to the aforementioned balance sheets:
(i) Reflects $23,458 of goodwill representing the excess of the
purchase price over the fair value of net assets acquired. In
addition, reflects $750 of transaction related expenses.
(ii) Reflects additional borrowings of $25,000 and $2,000 under
the senior secured credit facility and revolving credit
facility, respectively, to fund the Texel acquisition of
$26,250 and $750 of transaction related expenses.
(iii) Reflects liabilities assumed in connection with the Texel
acquisition.
(iv) Reflects the issuance of Orius common stock used to fund the
acquisition of Texel and the elimination of the equity of
Texel.
- 22 -
<PAGE> 23
SELECTED HISTORICAL FINANCIAL DATA
For historical financial data presentation and purchase accounting
purposes, Channel Communications, Inc. has been identified as the predecessor
company and is referred to herein as the "Predecessor Company." The following
selected historical financial data of Channel as of December 31, 1997 and for
the years ended December 31, 1996 and 1997 and the period ended March 31, 1998
have been derived from audited financial statements and notes thereto included
elsewhere herein. The following selected historical financial data of Channel as
of December 31, 1994, 1995 and 1996 and for the years ended December 31, 1994
and 1995 have been derived from unaudited financial statements which have been
prepared on the same basis as the audited financial statements and, in the
opinion of management, reflect all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of such data.
The selected historical financial data of our company as of and for
the period ended December 31, 1998 have been derived from the audited financial
statements and notes thereto appearing elsewhere in this prospectus.
The selected historical financial data of our company as of and for
the three months ended March 31, 1999 have been derived from unaudited
financial statements included elsewhere in this prospectus which have been
prepared on the same basis as the audited financial statements and, in the
opinion of management, reflect all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of such data.
The selected historical financial data should be read in conjunction
with the information contained in "Selected Pro Forma Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and notes thereto included elsewhere
in this prospectus.
- 23 -
<PAGE> 24
SELECTED HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
Operating Data
Three Months
Year Ended December 31, Ended March 31,
--------------------------------------------------------- ---------------------
1994 1995 1996 1997 1998(a) 1998 1999
---- ---- ---- ---- ------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
PREDECESSOR COMPANY:(b)
Total revenues $ 23,218 $ 20,731 $ 32,125 $ 20,268 $ 4,219 $ 4,219
Income (loss) from operations 1,786 279 3,914 1,926 (58) (58)
Income before tax provision 1,613 138 4,100 2,062 52 52
THE COMPANY:
Total revenues $ 77,332 $ 46,069
Income from operations 9,501 3,497
Income before tax provision and
extraordinary charge 6,955 1,363
Extraordinary charge, net of tax
benefit 770
Balance Sheet Data
At December 31, At March 31,
-------------------------------------------------------- ------------
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ------------
PREDECESSOR COMPANY:
Working capital $ 2,476 $ 2,605 $ 4,709 $ 4,746
Total assets 7,555 8,484 12,948 9,669
Total debt 2,228 2,912 -- --
THE COMPANY:
Working capital $ 20,965 $ 37,810
Total assets 95,836 198,694
Total debt 55,264 129,600
</TABLE>
- -------------------------
(a) Operating results for the Predecessor Company represent the historical
results of Channel for the period January 1, 1998 to March 31, 1998.
Operating results for our company represent the actual results for the
period March 31, 1998 to December 31, 1998.
(b) Income from operations and income before tax provision reflect certain
expenses, such as excess owners' compensation, which would not be included
in our company's results going forward. The operating data of the
predecessor includes the results of certain operations which were sold
during 1996.
- 24 -
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS CONTAINS STATEMENTS OF A
FORWARD-LOOKING NATURE RELATING TO FUTURE EVENTS OR OUR FUTURE FINANCIAL
PERFORMANCE. THESE STATEMENTS ARE ONLY PREDICTIONS AND THE ACTUAL EVENTS OR
RESULTS MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING
STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE,
BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS," AS WELL AS THOSE
DISCUSSED ELSEWHERE IN THIS PROSPECTUS. THE HISTORICAL RESULTS SET FORTH IN
THIS DISCUSSION AND ANALYSIS ARE NOT NECESSARILY INDICATIVE OF TRENDS WITH
RESPECT TO OUR ACTUAL OR PROJECTED FUTURE FINANCIAL PERFORMANCE. THIS
DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND RELATED NOTES WHICH APPEAR ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We derive our revenues primarily from installing, designing,
engineering and maintaining aerial and underground fiber optic, coaxial and
copper cable systems. In addition, we provide premise wiring services, which
include the installation of integrated voice, data and video local and wide
area networks in facilities. Finally, we also provide installation services for
utility companies. We currently perform work for more than 200 customers. We
had pro forma 1998 revenues of approximately $265 million and approximately $70
million for the three months ended March 31, 1999. Of our pro forma 1998
revenues, 47% was attributable to cable television infrastructure services, 29%
was attributable to telecommunications infrastructure services and 24% was
attributable to premise wiring and other services.
Our three primary types of contracts include (1) installation
contracts for specific projects, (2) master service agreements for all
specified services within a defined geographic territory, and (3) turnkey
agreements for comprehensive installation, design, engineering and maintenance
services. These contracts are awarded on the basis of competitive bids, the
final terms and pricing of which are frequently negotiated with the customer.
The majority of our contracts provide that we will furnish a specified unit of
service for a specified unit of price (e.g., cable will be installed for a
specified rate per foot). We recognize revenues as the related work is
performed. Production reports are inspected and approved by both our on-site
quality control manager and the customer's on-site project manager. A small
percentage of our work is performed under percentage-of-completion contracts.
Under this method, revenues are recognized on a cost-to-cost method based on
the percentage of total cost incurred to date in proportion to total estimated
cost to complete the contract.
Project-specific agreements are billed on either a unit basis (as work
is completed) or a deferred unit basis (when work is completed in connection
with the overall project). Unbilled revenues consist of work-in-process on
contracts based on work performed, but not yet billed. All costs associated
with unbilled revenues are recorded as expenses in the same period as the
unbilled revenue. Customers are generally billed weekly. This process is
intended to keep disputed billings to a minimum, improve receivable collections
and reduce our risk on projects on deferred billing projects. Master service
agreements are billed on a unit basis where bills are delivered upon completion
of work. Turnkey agreements are billed both on a unit and deferred unit basis.
Direct costs include all direct costs of providing services to our
customers, other than depreciation on fixed assets which we own or use under
capital leases. Except for turnkey agreements, materials are typically provided
by our customers. General and administrative costs include all costs of our
management personnel and the management of our subsidiaries, rent, utilities,
travel and centralized costs such as insurance administration, professional
costs and certain clerical and administrative overhead. Our operating
subsidiaries' management personnel, and, with respect to national accounts, our
executive management, handle all sales and marketing functions as part or their
regular duties and, therefore, we do not incur material selling expenses.
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RECENT ACQUISITIONS
Channel Communications, Inc. has been designated as our "accounting
acquiror." All our acquisitions were accounted for using the purchase method of
accounting and, as a result, our financial statements will not include the
results of operations of the acquisitions prior to the date they were acquired.
The excess of the fair value of the consideration paid for the acquisitions of
$96.5 million over the fair value of the net assets purchased from the acquired
corporations has been recorded as "goodwill." The majority of this goodwill is
being amortized over its estimated useful life of 40 years as a non-cash charge
to operating income. The effect to our net income of this amortization expenses,
a majority which is not deductible for tax purposes, is expected to be
approximately $2.8 million per year. Due to the timing of our acquisitions and
related costs, we believe that period to period comparisons may not be
meaningful in the near future.
1998 ACQUISITIONS
Orius was formed in August 1997 and had no operations until March 1998
when we acquired Cablemasters Corp., Channel, Excel Cable Construction, Inc.
and Mich-Com Cable Services, Incorporated, with combined 1997 revenues of
approximately $44 million.
In June 1998, we acquired U.S. Cable, Inc., with 1997 revenues of
approximately $15 million.
In August 1998, we acquired CATV Subscriber Services, Inc.,
Burn-Techs, Inc. and State Wide CATV, Inc., with combined 1997 revenues of
approximately $26 million.
1999 ACQUISITIONS
In February 1999, we acquired DAS-CO of Idaho, Inc., Schatz
Underground Cable, Inc., Copenhagen Utilities & Construction, Inc. and Network
Cabling Services, Inc., which have combined 1998 revenues of approximately $113
million.
In May 1999, we acquired Texel, with 1998 revenues of approximately
$30 million.
These 13 acquisitions have pro forma 1998 revenues of approximately
$265 million and combined 1997 revenues of approximately $217 million. Prior to
their acquisition by Orius, many of our subsidiaries were operated with
different strategic and financial objectives. Some of the former owners of the
businesses we acquired sought to maximize cash flow and stockholder
distributions, rather than reinvest earnings in future growth. In addition, our
acquired businesses operated under varying tax structures (S corporations or C
corporations) which influenced the historical level of owners' compensation. As
a result of the foregoing, gross profits and selling, general and
administrative expenses as a percentage of revenues may not be comparable among
the acquired businesses on an historical basis.
We entered into a new credit facility in connection with our February
1999 acquisitions and incurred a one-time non-cash related charge of
approximately $0.8 million, net of tax benefit of approximately $0.6 million. At
March 31, 1999 we had deferred financing costs recorded as an asset of
approximately $4.0 million and anticipate that some portion and possibly all of
the $4.0 million may be written-off in a similar non-cash charge upon the
closing of this offering in connection with the refinancing of our existing
credit facility.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
PRO FORMA AND COMBINED RESULTS OF OPERATIONS - ORIUS
PRO FORMA THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO PRO FORMA THREE
MONTHS ENDED MARCH 31, 1998.
REVENUES. Total revenue increased 31.4%, or $16.4 million, from $52.0
million for the three months ended March 31, 1998 to $68.4 million for the three
months ended March 31, 1999. The growth was primarily attributable to a 43%
increase in demand from our cable customers and a 34% increase attributed to our
telecommunications customers, which when combined accounted for $16.0 million of
the total increase. Included in that amount, we recognized approximately $7.2
million of revenues from turnkey contracts with our cable customers, which were
not in place during the prior period and for which 1999 pricing was higher than
1998 pricing. Additionally, favorable weather conditions at key
telecommunications project sites allowed for an overall increase in services
provided. Revenues from premise wiring/other customers grew 4% over the
comparable period, or $0.4 million, due to a general increase in demand for our
services.
DIRECT COSTS. Direct costs increased 29.0%, or $11.6 million, from $40.0
million for the three months ended March 31, 1998 to $51.6 million for the three
months ended March 31, 1999. These amounts represent a 1.4% decrease in direct
costs as a percentage of revenues from 76.9% for the three months ended March
31, 1998 to 75.5% for the three months ended March 31, 1999. The improvement was
a result of improved pricing on selected turnkey and MSA contracts, increased
utilization of assets and generally favorable weather conditions, which led to
improved labor productivity. This productivity was partially offset by the
increased reliance on subcontractors as a percentage of total labor to service
the increasing level of activity.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 35.0%, or $1.8 million from $5.1 million for the three months ended
March 31, 1998 to $7.0 for the three months ended March 31, 1999, and
represented 9.9% of revenues in 1998 and 10.1% of revenues in 1999. The variance
was primarily due to the increased payroll and expenses required to service the
increased levels of activity, and a one time consulting payment of $550,000
related to the closing of four acquisitions in the quarter. Exclusive of this
payment, general and administrative expenses decreased to 9.3% as a percent of
revenues for the three months ended March 31, 1999.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense was $2.4 million for the three months ended March 31, 1998 and for the
three months ended March 31, 1999.
INTEREST EXPENSE. Interest expense, net, was $3.6 million for the three
months ended March 31, 1998 and for the three months ended March 31, 1999.
PROVISION FOR INCOME TAXES. The provision for income taxes increased from
$419,000 to $1.6 million from the first quarter of 1998 to the first quarter of
1999. Our effective tax rate was 43.5% in 1998 and 42.9% in 1999 including
provision for federal, state and local taxes in each of the periods. The
increase was primarily attributable to the increased profits generated by our
company.
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PRO FORMA YEAR ENDED DECEMBER 31,1998 COMPARED TO COMBINED YEAR ENDED
DECEMBER 31, 1997.
REVENUES. Total revenue increased 21.8%, or $47.3 million, from $217.4
million for the year ended December 31, 1997 to $264.7 million for the year
ended December 31, 1998. Growth in demand from our cable and premise wiring
customers each exceeded 45%, a combined increase of $55.3 million due to a
general increase in demand for our services. Revenues from our telephone
customers increased $1.0 million or 1.5% compared to prior year due to an
increase in activities under master service agreements. Other contract revenues
declined $9.0 million or 37.2% due to the completion of several municipal
construction contracts in the Northwest U.S.
DIRECT COSTS. Direct costs increased from $163.9 million for the year
ended December 31, 1997 to $193.3 million for the year ended December 31, 1998.
The increase was due to the increased level of activity, and represents a
decline in direct costs as a percentage of revenues of 2.4% from 75.4% for the
year ended December 31, 1997 to 73.0% for the year ended December 31, 1998. The
increased productivity was due to increased utilization of assets and a shift to
higher margin telecommunications contracts from municipal construction
contracts.
PRO FORMA YEAR ENDED DECEMBER 31, 1998.
REVENUES. Total revenues for the year ended December 31, 1998 were $264.7
million.
DIRECT COSTS. Direct costs for the year ended December 31, 1998 were
$193.3 million, or 73.0% of total revenues.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the year ended December 31, 1998 were $24.8 million, or 9.4% of total
revenues.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense for the year ended December 31, 1998 was $9.7 million, or 3.7% of total
revenues.
INCOME FROM OPERATIONS. Income from operations for the year ended December
31, 1998 was $36.8 million, or 13.9% of total revenues.
INTEREST EXPENSE. Net interest expense for the year ended December 31,
1998 was $14.2 million, or 5.4 % of total revenues.
PROVISION FOR INCOME TAXES. The provision for income taxes for the year
ended December 31, 1998 was $9.9 million, or 3.7% of total revenues.
HISTORICAL RESULTS OF OPERATIONS - ORIUS
Our historical financial statements included herein cover the period from
March 31, 1998 through December 31, 1998 and the three months ended March 31,
1999. We believe that comparison of our historical results for such periods are
not meaningful given the fact that we completed 13 acquisitions at different
times during 1998 and 1999.
THREE MONTHS ENDED MARCH 31,1999.
REVENUES. Total revenues for the three months ended March 31, 1999 were
$46.1 million.
DIRECT COSTS. Direct costs for the three months ended March 31, 1999
were $36.2 million, or 78.6% of total revenues.
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GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expenses
for the three months ended March 31, 1999 were $4.5 million, or 9.9% of total
revenues.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization for
the three months ended March 31, 1999 was $1.8 million, or 3.9% of total
revenues.
INTEREST EXPENSE, NET. Interest expense, net, for the three months ended
March 31, 1999 was $2.2 million.
PROVISION FOR INCOME TAXES. The provision for income taxes for the three
months ended March 31, 1999 was $114,000.
PERIOD FROM MARCH 31, 1998 THROUGH DECEMBER 31, 1998.
REVENUES. Total revenues for the period from March 31, 1998 through
December 31, 1998 were $77.3 million.
DIRECT COSTS. Direct costs for the period from March 31, 1998 through
December 31, 1998 were $56.5 million, or 73.1% of total revenues.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expenses
for the period from March 31, 1998 through December 31, 1998 were $7.9 million,
or 10.3% of total revenues.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
for the period from March 31, 1998 through December 31, 1998 was $3.4 million,
or 4.4% of total revenues.
INTEREST EXPENSE, NET. Interest expense, net, for the period from
March 31, 1998 through December 31, 1998 was $2.6 million.
PROVISION FOR INCOME TAXES. The provision for income taxes for the period
from March 31, 1998 through December 31, 1998 was $2.9 million.
HISTORICAL RESULTS OF OPERATIONS - PREDECESSOR COMPANY
As a result of the timing of the acquisitions, the Predecessor Company's
financial results discussed below cover periods of different lengths.
Accordingly, comparison of historical results for such periods may not be
meaningful.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
REVENUES. Total revenues for the year ended December 31, 1997 were
$20.3 million and for the three months ended March 31, 1998 were $4.2 million.
DIRECT COSTS. Direct costs for the year ended December 31, 1997 were $15.3
million, or 75.3% of total revenues and for the three months ended March 31,
1998 were $3.3 million, or 79.7% of total revenues.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the year ended December 31, 1997 were $2.3 million, or 11.1% of total
revenues, and for the three months ended March 31, 1998 were $710,000, or 16.8%
of total revenues.
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LIQUIDITY AND CAPITAL RESOURCES
Our liquidity requirements have been primarily to support our
increased working capital requirements, for capital expenditures and to fund
acquisitions. We have historically financed our liquidity needs through a
combination of bank borrowings, the sale of debt and equity securities and cash
flow from operations.
As of March 31, 1999, we had $0 cash and cash equivalents, working
capital of $37.8 million (including $18.3 million of short term debt) and long
term debt of $111.3 million, net of current maturities, including borrowings of
$128.0 million under our credit facilities.
During the three months ended March 31, 1999, we used $8.5 million of
net cash in operating activities primarily related to increases in accounts
receivable, unbilled accounts receivable for work in process and inventory.
Changes in working capital accounts are driven predominantly by our acquisitions
and as such are not comparable to prior periods. We used net cash in investing
activities of $67.3 million, including $65.7 million used for the purchase of
businesses, net of cash acquired. Financing activities provided a net cash flow
of $73.6 million, resulting primarily from $130.5 million of borrowings under
our credit facility reduced by payment of debt assumed in connection with
acquisitions and private sales of equity securities. In February 1999, we sold
7,596.38 shares of Series B preferred stock for $7.6 million and ____ shares of
our common stock to our existing stockholders for $2.4 million. The proceeds
from those transactions were used to fund a portion of the 1999 acquisitions.
During the three months ended March 31, 1999, we funded $1.5
million of capital expenditures for an upgrade in our management information
systems and additions to our vehicles and equipment. We expect to spend
approximately $9.5 million for capital expenditures for the remainder of
1999.
During the nine months ended December 31, 1998, we used $5.2 million
of net cash in operating activities primarily related to increases in accounts
receivables, unbilled accounts receivable for work in process and inventory.
Changes in working capital accounts are driven predominantly by the
acquisitions throughout the period and as such are not comparable to prior
periods. We used net cash in investing activities of $44.6 million, including
$40.9 million used for the purchase of businesses, net of cash acquired.
Financing activities provided a net cash flow of $50.7 million, resulting
primarily from $61.3 million of borrowings under our credit facility reduced by
payment of debt assumed in connection with acquisitions and private sales of
equity securities. In March 1998, we sold 10,000 shares of Series A preferred
stock for $4.4 million, net of issuing costs. At the same time, we borrowed $1.0
million in the form of a junior subordinated convertible note. The proceeds from
those transactions were used to fund a portion of the 1998 acquisitions.
We currently have a $170 million credit facility with a syndicate of
financial institutions. Our existing subsidiaries, and future subsidiaries
will, guarantee the repayment of all amounts due under our credit facility, and
the existing facility restricts pledges of our material assets. The credit
facility contains usual and customary covenants for a credit facility of this
nature including the prohibition of the payment of dividends, certain financial
ratios and indebtedness covenants and a requirement to obtain the consent of
our lenders for acquisitions exceeding a certain level of cash consideration.
As of May 26, 1999, we had approximately $164 million outstanding under the
credit facility.
We expect to enter into a new credit facility effective with the
closing of this offering. We expect that the new credit facility will require
the usual and customary covenants for a facility of this nature, including the
consent of our lenders for certain acquisitions.
Through May 26, 1999, we had acquired 13 businesses for an aggregate
consideration of $19.8 million of common stock, $138.6 million in cash and the
assumption of $14.6 million in debt. The cash portion of such consideration was
provided by borrowings under our credit facility and the issuance of debt and
equity securities.
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As part of our growth strategy, we intend to pursue selective
acquisitions. The timing, size or success of any prospective acquisitions and
the related capital commitments cannot be predicted. To the extent that we seek
to grow by acquisitions that involve consideration other than our common stock,
our capital requirements may increase, although we are not currently subject to
any commitments or obligations with respect to any additional acquisitions. We
expect to fund future acquisitions primarily with issuances of additional
equity securities, the available portion of our credit facility and cash flow
from operations. We expect that our cash flow from operations and proceeds from
the offering will provide sufficient cash to allow us to meet our working
capital needs, debt service requirements and planned capital expenditures for
property and equipment through the end of 2000.
SEASONALITY; FLUCTUATIONS OF QUARTERLY RESULTS
Our operations are seasonal generally resulting in reduced revenues
and profits during the first and fourth quarters relative to other quarters.
Factors affecting the seasonality of our business are holiday season
shut-downs, adverse weather conditions and capital expenditure patterns of
telecom providers that can negatively affect infrastructure repair, replacement
and expansion. Additionally, the telecom industry can be highly cyclical. As a
result, our business volume may be adversely affected by declines in new
projects in various geographic regions. Quarterly results may also be
materially affected by the timing and magnitude of acquisitions and related
costs, variations in the margins of projects performed during any particular
quarter and regional economic conditions. Accordingly, our operating results in
any particular quarter may not be indicative of the results that can be
expected for any other quarter or for the entire year.
YEAR 2000 COMPLIANCE
Many computer programs and applications define the applicable year
using two digits rather than four in order to save memory and enhance the speed
of repeated date-based calculations. The "Year 2000 problem" refers to the
inability of these computer programs on and after January 1, 2000 to recognize
that "00" refers to "2000" rather than "1900." The term "Year 2000 compliant"
means a computer or a computer system that has been designed or modified to
recognize dates on and after January 1, 2000. If our systems are not Year 2000
compliant, they could malfunction or fail altogether, causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
We are conducting an internal audit with, and obtaining certificates
from, our software vendors to verify Year 2000 compliance. We are in the
process of upgrading our information systems which we expect to be Year 2000
compliant. We have determined that the Year 2000 problem will not pose
significant operational problems for our computer systems. We will use both
internal and external resources to reprogram, or replace, and test software for
Year 2000 modifications. We anticipate completing the system upgrade before any
anticipated impact on our operating systems.
We have initiated formal communications with all of our significant
suppliers and large customers to determine the extent to which our interface
systems are vulnerable to those third parties' failure to achieve Year 2000
compliance. There can be no guarantee that our customers and suppliers, or any
other company upon which our systems rely or with which we do business, will be
Year 2000 compliant by January 1, 2000, if ever. The inability of such systems
to achieve Year 2000 compliance may have a material adverse effect on our
business, financial condition and results of operations.
The costs of the project and the date on which we believe we will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, third party modification plans
and other factors. However, there can be no assurance that these estimates will
be achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are
not limited to, the availability and cost of personnel trained in this area,
the ability to locate and correct all relevant computer codes and similar
uncertainties.
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OUR BUSINESS
INTRODUCTION
We are a leading provider of installation, design, engineering and
maintenance services for the telecom industry in the United States. We also
install, design, engineer and maintain premise wiring for integrated voice,
data and video networks in commercial, institutional and governmental
facilities, which demand has been stimulated by the rapid increases in internal
networking of personal computers. Our customers utilize our services to (1) add
capacity to their existing networks, (2) maintain their existing fiber-optic,
coaxial and copper cable infrastructure, and (3) expand their networks into new
geographic markets. We had pro forma 1998 revenues of approximately $265
million, of which 47% was attributable to cable television infrastructure
services, 29% was attributable to telecommunications infrastructure services
and 24% was attributable to premise wiring and other services.
We currently have executive offices in 9 states and perform work
nationwide. Our principal customers are telecommunications providers and cable
television system operators including TCI, Time Warner, MediaOne, Jones
Intercable, U.S. West, Southwestern Bell, GTE, MCI WorldCom, Cox Communications,
Charter Communications and Digital Teleport. Approximately 80% of our pro forma
revenues in 1998 was generated from repeat customers, in some cases under
turnkey or master service agreements. The demand for our services has
accelerated as (1) traditional telecommunications and cable television
industries have converged, (2) our telecom provider customers have encountered
rapid growth in voice and data traffic over their networks and (3) outsourcing
has become more attractive to many of our customers.
INDUSTRY
We estimate that the market for telecom infrastructure services
exceeded $15 billion in 1998. We believe that our industry presents substantial
growth opportunities for large companies with broad geographic coverage,
comprehensive technical capabilities, and responsive and quality service.
Growth in our industry has been driven by the following trends:
TELECOM DEREGULATION. The Telecommunications Act of 1996 substantially
revised prior law by preempting state and local government control over access
to the telecom market and eliminating certain regulatory barriers to
competition. We believe the elimination of these entry barriers has and will
continue to increase competition among telecom providers. In addition, many
state regulatory commissions eliminated pricing regulations for telecom
providers, thus requiring such providers to be price competitive and thereby
become efficient in installing and maintaining their telecom infrastructure. As
a result, telecom providers are entering new markets, offering services that
once were reserved for incumbent telecom providers, and expanding and improving
their existing networks.
GROWTH IN BANDWIDTH DEMAND. Growth in demand for telecommunications
voice traffic, electronic commerce, delivery of information and entertainment
services, and the growth, use and reliance on personal computers has created an
increased need for greater bandwidth. Bandwidth controls both the speed and
breadth of voice, video and data communications and is limited by the size of
the cable or other facilities through which communications flow. Because of the
physical limitations of existing network facilities, telecom providers are
upgrading facilities with new and innovative technology, expanding and, in many
cases, replacing existing telecom infrastructure to allow for increased
bandwidth in order to offer faster and greater volume of communications flow.
INCREASED OUTSOURCING. The need to upgrade and expand telecom
infrastructure as a result of deregulation and the growth in demand for
enhanced telecom services and bandwidth are expected to continue to increase
the current level of outsourcing to telecom infrastructure service providers.
The outsourcing trend has largely been driven by the efforts of telecom
providers to expedite the expansion, maintenance, replacement and enhancement of
their infrastructure, to reduce costs and to focus on their core competencies.
Companies that specialize in providing telecom infrastructure services are able
to provide these services on an effective and low cost basis. In addition, we
believe that telecom providers are seeking to reduce the number of service
providers they utilize by
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establishing preferred relationships with a select number of providers that are
able to offer comprehensive solutions to their infrastructure needs across a
broad geographic area.
TELECOM CONSOLIDATION. While deregulation has created new market
participants, consolidation in the telecom industry has created geographically
diverse and in some cases integrated telecom providers. The expanding
geographic markets served by telecom providers increase the requirement for
telecom infrastructure service providers to have broader geographic coverage
capabilities. As the size and scope of telecom providers have expanded, they
are increasingly requiring telecom infrastructure service providers to provide
installation, design, engineering, and maintenance services simultaneously over
multiple geographic regions. Many of the smaller companies in our industry do
not have the financial resources necessary to provide comprehensive service
capabilities over a broad geographic area or the ability to manage multiple
projects.
EMERGENCE OF PREFERRED SERVICE PROVIDERS. We believe that telecom
providers increasingly prefer to simplify vendor management through the use of
well capitalized telecom infrastructure service providers which provide
comprehensive services and broad geographic coverage. Such service providers
must be able to build out large and complex telecom infrastructure quickly and
with a high level of quality. Furthermore, telecom infrastructure service
providers must be able to rapidly mobilize their capital equipment, financial
assets and personnel resources to effectively respond to the increasing scale
and time constraints of customer demands. As telecom providers expand their
geographic market, we believe they often desire to extend existing
relationships with infrastructure service providers to these new markets and
are increasing the use of turnkey and master service agreements. Turnkey
agreements typically require the service provider to install, design, engineer
and often maintain a comprehensive telecom infrastructure for a specific
project. Master service agreements typically require the service provider to
install, design and maintain telecom systems and equipment for a variety of
projects over a three to five year period. Telecom infrastructure service
providers also must be able to support the substantial initial working capital
and equipment commitments required for these turnkey and master service
agreements. This trend favors larger, better capitalized infrastructure service
providers over smaller industry competitors.
CONSOLIDATION OF OUR INDUSTRY. We believe our industry is highly
fragmented. Most companies in our industry are relatively small, privately-held
companies that have limited access to capital and offer a limited range of
services over a small geographic area to a single customer or relatively few
customers. In the future, telecom infrastructure service providers will need
significant management expertise, technical capabilities and capital resources
to provide the level of service necessary to gain significant market share. As
a result, we believe that there will continue to be consolidation within our
industry and a large number of attractive acquisition candidates.
STRATEGY
Our objective is to enhance our position as a leading provider of
comprehensive telecom infrastructure services in the United States. We seek to
take advantage of the growth trends in the telecom industry by offering
reliable, quality service on a nationwide basis. We also seek to expand our
ability to provide services under turnkey and master service agreements that
allow us to be the sole provider of a variety of services. We believe our
ability to offer outside installation and inside premise wiring services
provides us with a competitive advantage as certain projects include the
placement and removal of various types of cable systems both inside and outside
of facilities. We expect to grow both internally and by acquiring
well-established and leading regional telecom infrastructure service companies.
Our growth will enhance our geographic coverage and allow us to continue to
develop our diverse customer base. We also plan to continue to implement our
operating strategy with respect to the businesses we acquire. Key elements of
our growth and operating strategies include the following:
GROWTH STRATEGY
INTERNAL GROWTH. We are focused on generating internal growth by (1)
increasing the volume of services we provide to existing customers in their
current markets, (2) expanding the scope of services we provide to existing
customers, (3) leveraging customer relationships into new markets served by
existing
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customers, (4) broadening our customer base, and (5) geographically expanding
our service area. Additionally, the competitive pressures of deregulation have
prompted several existing customers to increase the outsourcing of noncore
activities, which can provide opportunities for enhancing internal growth
without necessarily requiring us to achieve market share gains. We are also
able to increase internal growth by enhancing the utilization of the businesses
we acquire by integrating their resources with those of our other operating
subsidiaries.
Our strong customer relationships, comprehensive service capabilities
and nationwide geographic coverage enable us to cross-market our services and
resources. These abilities and our expertise in engineering and installation
project management give us a competitive advantage in obtaining new contracts.
In addition, we have recently begun to offer our customers integrated
installation, design, engineering and maintenance services on large-scale
turnkey projects, which we believe distinguishes us from many of our
competitors.
An example of the success of our internal growth strategies is our
experience on a major turnkey project for TCI. In March 1998, we were awarded a
three-year, $60 million contract for the design, engineering and installation
of a fiber optic/coaxial hybrid cable network for TCI in its Pittsburgh region.
The three-year contract, which may be extended from time to time, involves the
installation of approximately 7,800 miles of cable in western Pennsylvania,
northern West Virginia and eastern Ohio. Although the TCI contract was
originally awarded to Channel, Excel, Cablemasters and Mich-Com have also been
involved in the completion of the contract. As a result of our enhanced combined
resources and our active cross-marketing efforts, in June 1998 we were awarded a
similar $10 million turnkey contract in Tulsa, Oklahoma for the installation of
a TCI cable network. Revenues from turnkey agreements for the year ended
December 31, 1998 and the three months ended March 31, 1999 were $4.3 million
and $7.2 million, respectively. We are currently involved in discussions with
several other customers for similar turnkey contracts.
EXPANSION THROUGH SELECTIVE ACQUISITIONS. We believe that the
increasing trend toward the use of preferred service providers will result in a
competitive disadvantage for small and mid-sized companies that do not have
access to capital and cannot provide a comprehensive range of telecom
infrastructure services on a nationwide basis. As a result, we expect that
there will continue to be a large number of attractive acquisition candidates
that desire to join larger, better capitalized industry participants to compete
on a nationwide basis. We believe that our financial strength, experienced
management and decentralized operating strategy will be attractive to
acquisition candidates. The key elements of our acquisition strategy are:
o ENTER NEW GEOGRAPHIC MARKETS. We intend to expand into geographic
markets we do not currently serve by selectively acquiring well-established
telecom infrastructure service providers that, like our current operating
subsidiaries, are leaders in their regional markets, are financially stable,
have a strong customer base, have senior management committed to participating
in our future growth and can enhance the resource utilization and internal
growth of the businesses we have previously acquired.
o EXPAND SERVICES WITHIN EXISTING MARKETS. We intend to explore
selective acquisition opportunities in the geographic markets we already serve
as well as markets serviced by businesses we acquire in the future. Once we
have entered a specific geographic market, we will seek to acquire other
well-established infrastructure service providers in that particular market to
deepen our market penetration and expand the range of services offered to our
customers. We will also pursue "tuck-in" acquisitions of smaller companies
whose operations can be integrated into and leveraged with our existing
operations.
OPERATING STRATEGY
OPERATE ON A DECENTRALIZED BASIS. We manage our operations on a
decentralized basis while overall operating and financial controls and
strategic planning are maintained at our corporate headquarters. Our operating
subsidiaries retain responsibility for the operations, profitability and growth
of their individual businesses. We believe that our decentralized operating
structure retains the entrepreneurial spirit of each of the
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<PAGE> 35
businesses we acquire and permits us to capitalize on the acquired businesses'
local and regional market knowledge, specialized skills, local brand name
recognition and customer relationships. Our operating subsidiaries have been in
business for an average of approximately 22 years. Our executive management team
has responsibility for overall operations, financing, capital expenditures,
insurance, investor relations, employee benefit plans, corporate strategy and
acquisitions. In addition, our executive management team is integrating
management information systems and accounting reporting systems through all of
our operating subsidiaries.
ACHIEVE OPERATING EFFICIENCIES. We are continuing to centralize
certain administrative functions. In addition, by combining overlapping
operations of certain of the businesses we acquire, we expect to achieve more
efficient asset and personnel utilization and realize savings in overhead and
other expenses. We intend to use our increased purchasing power to gain volume
discounts in areas such as vehicles and equipment, materials, marketing,
bonding, employee benefits and insurance. As we grow internally and acquire
additional businesses, we will seek to realize additional cost savings and
other benefits through shared purchasing, bidding, scheduling and other
business practices. We have established a program where we periodically review
our operations at the subsidiary level in order to identify those practices
that can be successfully implemented throughout our operations nationwide. When
appropriate, our operating subsidiaries work together in bidding for, winning
and executing new contracts for telecom infrastructure projects by pooling
their available resources, technical expertise and coverage in key geographic
areas. Our executive management team coordinates our overall bidding strategies
to maximize the utilization of our resources. We intend to continue to develop
and expand the use of management information systems to enhance financial
controls, project costing and asset utilization.
ATTRACT, TRAIN AND RETAIN HIGHLY QUALIFIED PERSONNEL. We focus on
attracting and retaining a highly trained and motivated workforce in order to
consistently deliver innovative customer solutions and high-quality service.
Our strategy is to become the employer of choice in each of the markets in
which we operate by offering our employees (1) comprehensive ongoing internal
technical training programs throughout their careers, (2) competitive
compensation and employee benefits, (3) career development opportunities and
geographic mobility and (4) equity participation in our success. We have a
centralized employee training program and conduct numerous additional training
programs throughout our offices. We believe that we have the comprehensive
training, nationwide presence and financial resources to better attract and
retain a highly qualified workforce than many of our competitors.
SERVICES
INSTALLATION AND MAINTENANCE. We provide a full range of installation
and maintenance services to our telecom provider customers. The services we
provide include the splicing and placing of cable, excavation of trenches in
which to place the cable, placement of related structures such as poles,
anchors, conduits, manholes, cabinets and closures, placement of drop cable
from the main distribution lines to the customer's home and businesses, and
maintenance and removal of these facilities. In addition, we install and
maintain transmission and central office equipment. We have the capacity to
directionally bore the placement of cables, a highly specialized and
increasingly necessary method of placing buried cable networks in congested
urban and suburban markets where trenching is highly impractical. We also
employ a licensed rail plow device which enables us to bury cable on railway
easements expeditiously at a low cost.
DESIGN AND ENGINEERING. We offer a variety of design and engineering
capabilities. We design aerial, buried and underground fiber-optic and copper
cable systems from the telephone central office to the ultimate consumer's home
or business. Engineering services for local exchange carriers include the
design of service area concept boxes, terminals, buried and aerial drops,
transmission and central office equipment design and the proper administration
of feeder and distribution cable pairs. For competitive access providers, we
design building entrance laterals, fiber rings and conduit systems. We obtain
rights of way and permits in support of engineering activities, and provide
installation management and inspection personnel in conjunction with
engineering services or on a stand-alone basis. For cable television system
operators, we perform make ready studies, strand mapping, field walk out,
computer-aided radio frequency design and drafting, and fiber-optic cable
routing and design.
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<PAGE> 36
PREMISE WIRING AND OTHER SERVICES. We provide a variety of premise
wiring services which include the installation, design, engineering and
maintenance of telecom infrastructure in commercial, institutional and
governmental facilities. These services generally include the development of
communication networks within a company or government agency related primarily
to the establishment and maintenance of computer operations, telephone systems,
Internet access and communications systems established for purposes of
monitoring environmental controls or security procedures. We also provide
installation services for gas and water utilities.
ACQUISITION PROGRAM
Since our formation in August 1997, we have acquired 13 telecom
infrastructure service providers which have pro forma 1998 revenues of
approximately $265 million. The following table sets forth the businesses we
have acquired.
<TABLE>
<CAPTION>
Month
Business Acquired Acquired Principal Customers Headquarters
- ----------------- -------- ------------------- ------------
<S> <C> <C> <C>
Texel Corporation May 1999 Premise Wiring Reston, VA
Copenhagen Utilities & Construction, Inc. February 1999 Telecommunications Clackamas, OR
Network Cabling Services, Inc. February 1999 Premise Wiring Houston, TX
Schatz Underground Cable, Inc. February 1999 Telecommunications/Cable TV Villa Ridge, MO
DAS-CO of Idaho, Inc. February 1999 Telecommunications Nampa, ID
Burn-Techs, Inc. August 1998 Telecommunications Tampa, FL
State Wide CATV, Inc. August 1998 Cable TV Tampa, FL
CATV Subscriber Services, Inc. August 1998 Cable TV Greensboro, NC
U.S. Cable, Inc. June 1998 Cable TV O'Fallon, MO
Channel Communications, Inc. March 1998 Cable TV Sheboygan, WI
Cablemasters Corp. March 1998 Cable TV Erie, PA
Mich-Com Cable Services Incorporated March 1998 Cable TV Stuart, FL
Excel Cable Construction, Inc. March 1998 Cable TV Jacksonville, FL
</TABLE>
We believe that we are regarded by acquisition candidates as an
attractive acquirer because of (1) our strategy for creating a nationwide
comprehensive and professionally managed telecom infrastructure service
business, (2) our access to capital resources, (3) our decentralized operating
strategy and opportunities to participate in a larger organization, (4) our
potential for increased profitability due to centralizing certain administrative
functions, enhanced management information systems and economies of scale and
(5) the potential for owners of the businesses being acquired to participate in
our planned growth while realizing liquidity. The management of our acquired
companies are instrumental in identifying and assisting in the completion of
future acquisitions.
We have developed a set of financial, geographic and management
criteria designed to assist management in the evaluation of acquisition
candidates. These criteria evaluate a variety of factors, including, but not
limited to (1) experience and reputation of the candidate's management and
operations, (2) expertise of personnel, (3) composition and size of the
candidate's customer base, (4) whether the geographic location of the candidate
will enhance or expand our market area or ability to attract other acquisition
candidates, (5) whether the acquisition will augment our market share or
services offered or help protect our existing customer base, (6)
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<PAGE> 37
historical and projected financial performance, (7) historical and projected
internal rate of return, return on assets and return on revenues, (8) potential
synergies gained by combining the acquisition candidate with our existing
operations and (9) liabilities, contingent or otherwise, of the candidate. We
anticipate that acquisition candidates in the target markets and services will
typically have annual revenues ranging from $10 million to $100 million,
exclusive of certain "tuck-in" acquisitions which may have annual revenues below
$10 million. All acquisitions are subject to initial evaluation and approval by
our management before being recommended to our Board of Directors. The
evaluation by management includes comprehensive financial, accounting and legal
due diligence of the acquisition candidate.
BIDDING AND CONTRACTS
Our contracts are awarded on a competitive basis, a negotiated basis,
or a combination of the two depending on the nature of the contract and the
customer. Upon receipt of a request for proposal, we develop a detailed bid
which meets the unique specifications and requirements of each project. This
process often entails strategic business analysis, resource planning, network
design, cost and engineering studies and, in some cases, development of
financing alternatives for the project. Bids may be structured as fixed price
or cost plus, depending on the requirements of the request for proposal, and
are typically quoted on a per unit basis. In either case, we believe that we
enjoy a favorable competitive position due to our ability to provide a full
range of high quality installation, design, engineering and maintenance
services nationwide. Although master service agreements have historically been
awarded in a competitive bidding process, recent trends have been toward
securing or extending such contracts on negotiated terms. With the rapid
expansion of the telecom infrastructure, we believe that more master service
agreements will be awarded on the basis of negotiated terms as opposed to the
competitive bidding process.
Our three primary types of contracts include (1) installation
contracts for specific projects, (2) master service agreements for all
specified services within a defined geographic territory and (3) turnkey
agreements for comprehensive installation, design, engineering and maintenance
services.
PROJECT-SPECIFIC CONTRACTS. We refer to contracts covering bids for
particular services at specified prices as project-specific contracts.
Generally, these contracts cover most installation projects completed in over
one year. The majority of these contracts provide that we will furnish a
specified unit of service for a specified unit of price (e.g., cable will be
installed for a specified rate per foot).
MASTER SERVICE AGREEMENTS. We refer to contracts with telecom
providers for the exclusive use of our services to perform all work up to a
price ceiling within a specific geographic area as master service agreements.
Under master service agreements, project services are provided upon the
execution of work orders, which will describe the work to be undertaken. Each
master service agreement contemplates hundreds of individual installation and
maintenance projects generally valued at less than $50,000 each. While the
terms of these agreements range from three to five years, our customers are
generally able to terminate the agreements upon 90 days prior written notice
and are often permitted to use other providers or to have the services
performed by their own regularly employed personnel.
TURNKEY AGREEMENTS. We refer to contracts covering a comprehensive
spectrum of services, including the installation, design, engineering, and
maintenance of telecom infrastructure on a fixed unit-priced basis, as turnkey
agreements. As we continue to grow and expand the scope of services we provide,
we are able to enter into an increasing number of contracts to provide turnkey
services. Even though these are generally long-term agreements, the pricing for
our services is not necessarily fixed because these agreements often contain
price adjustment provisions that are favorable to us as well as performance and
completion incentives. Turnkey agreements require substantial initial working
capital and equipment, which are partially funded by customer prepayments.
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<PAGE> 38
CUSTOMERS
We served a diverse group of more than 200 customers in 1998. Our
customers include (1) telecommunications providers such as incumbent local
exchange carriers, competitive local exchange carriers long-distance service
providers and (2) cable television system operators. We also provide services
to governmental entities, general contractors, owners and managers of
commercial and institutional facilities such as public schools and utility
providers. On a pro forma basis, TCI and U.S. West each accounted for
approximately 10% of our revenues during 1998. For the three months ended March
31, 1999, TCI was the only customer which accounted for more than 10% of our
revenues.
SALES AND MARKETING
Our sales and marketing efforts are primarily the responsibility of
the management of our operating subsidiaries. Our executive management
supplements their efforts with respect to national accounts. We focus on
increasing the value of comprehensive services provided to existing customers,
actively cross-marketing our additional services to our existing customer base
and developing new customer relationships. The management at each of our
operating subsidiaries has been responsible for developing and maintaining
successful long-term relationships with customers which helps facilitate our
repeat business and generate cross-marketing opportunities. We use both the
written and verbal referrals of our customers to help generate new business.
Many of our customers or prospective customers have a qualification procedure
for becoming an approved vendor based upon the satisfaction of particular
performance and safety standards set by the customer. These customers often
maintain a list of vendors meeting such standards and award contracts for
individual jobs only to such vendors. We strive to maintain our status as a
preferred and qualified vendor to such customers.
BACKLOG
We define our backlog as the uncompleted portion of services to be
performed under project specific contracts and the estimated value of future
services that we expect to provide under master service and turnkey agreements.
As of March 31, 1999, our backlog was approximately $368 million. Of that
amount, approximately $200 million is for work scheduled to be performed in 1999
and approximately $120 million is for work scheduled to be performed in 2000.
Due to the nature of our contractual commitments, in many instances our
customers do not commit to the volume of services to be purchased under the
contract. Rather, these contractual provisions commit us to perform these
services if requested by the customer and commit the customer to obtain these
services from us if they are not performed internally. Many of the contracts are
multi-year contracts and we include revenues from all the services projected to
be performed over the life of the contract in our backlog based upon our
historical relationships with our customers and experience in these types of
contracts.
SAFETY AND RISK MANAGEMENT
We are committed to ensuring that our employees perform their work in
a safe environment. We regularly communicate with our employees to promote
safety and to instill safe work habits through our company-wide employee
training and educational programs. We have dedicated risk managers at each of
our operating subsidiaries who review all accidents and claims, examine trends
and implement changes in procedures or communications to address any safety
issues. We also have a dedicated risk manager at our corporate headquarters who
monitors the risk management programs at our subsidiaries and establishes
overall corporate risk management objectives and standards.
EMPLOYEES
As of March 31, 1999, we had approximately 180 salaried employees,
including executive officers, project managers or engineers, job
superintendents, staff and clerical personnel. We also had approximately 2,350
field-based employees, approximately 1,350 of which are paid on an hourly basis
and approximately 1,000 of which are paid on a production basis. The number of
employees can vary significantly according to contracts in progress. We
maintain a core of technical and managerial personnel from which we draw to
supervise all projects. As the need arises, we also subcontract with
independent contractors to supply additional
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<PAGE> 39
employees to complete specific projects. As of March 31, 1999, we had
approximately 1,200 subcontracted workers. Approximately 120 of our employees
are represented by a labor union and we consider relations with key and other
employees to be good.
EQUIPMENT AND FACILITIES
We operate a fleet of owned and leased trucks and trailers, support
vehicles and specialty installation equipment, such as backhoes, excavators,
trenchers, generators, boring machines, cranes, wire pullers and tensioners.
The total size of the equipment fleet approximates 2,100 units. We believe that
these vehicles generally are well-maintained and adequate for our present
operations. We believe that in the future, we will be able to lease or purchase
this equipment at favorable prices due to our larger size and the volume of our
leasing and purchasing activity.
Our corporate headquarters are located in West Palm Beach, Florida.
Our subsidiaries operate from owned or leased administrative offices, district
field offices, equipment yards, shop facilities and temporary storage
locations. We also lease other smaller properties as necessary to enable us to
efficiently perform our obligations under master service agreements and other
contracts. We believe that our facilities are generally adequate for our needs.
We do not anticipate difficulty in replacing such facilities or securing
additional facilities, if needed.
COMPETITION
The market in which we operate is highly competitive, requiring
substantial resources and skilled and experienced personnel. We compete with
other companies in all of the markets in which we operate, some of which are
large publicly traded companies that may have greater financial, technical and
marketing resources than we do, including, Dycom Industries, Inc., MasTec, Inc.
and Quanta Services, Inc. There are relatively few, if any, barriers to entry
into the markets in which we operate and, as a result, any organization that
has adequate financial resources and access to technical expertise may become a
competitor to us. We may also face competition from the in-house service
organizations of our existing or prospective customers which often employ
personnel who perform some of the same types of services as those provided by
us. Although a significant portion of these services is currently outsourced,
there can be no assurance that our existing or prospective customers will
continue to outsource telecom infrastructure services in the future.
We believe that the principal competitive factors in the market for
telecom infrastructure services include technical expertise, reputation, price,
quality of service, availability of skilled technical personnel, geographic
presence, breadth of service offerings, adherence to industry standards and
financial stability. We believe that we compete favorably within our industry
on the basis of these factors.
LEGAL PROCEEDINGS
We occasionally are a party to legal proceedings incidental to our
ordinary business operations. At present, we are not a party to any pending
legal proceedings that we believe could have a material adverse effect on our
business, financial condition or results of operations.
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<PAGE> 40
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning our
executive officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
William J. Mercurio................... 58 President, Chief Executive Officer and Chairman of the Board
of Directors
Robert E. Agres....................... 38 Vice President and Chief Financial Officer
Robert J. Garrett..................... 61 Vice President-Business Development
Joseph P. Powers...................... 53 Vice President-Operations
Bernard E. Czarnecki.................. 45 President-Cablemasters, Director
Jeffrey J. Ebersole................... 43 President-Channel, Director
William Mullen........................ 46 President-U.S. Cable, Director
Douglas F. Berman (1)................. 33 Director
Sami Mnaymneh (1)..................... 38 Director
Brian Schwartz........................ 34 Director
</TABLE>
WILLIAM J. MERCURIO has been our President, Chief Executive Officer and
Chairman of our Board of Directors since our formation in August 1997. Mr.
Mercurio has more than 25 years of experience in the telecom infrastructure
services industry. From 1995 to 1997, Mr. Mercurio served as President and
Chief Executive Officer of Able Telcom Holding Corp., a publicly-traded telecom
infrastructure services company. Before 1995, Mr. Mercurio, who is a certified
public accountant, owned a consulting and accounting firm. From 1971 to 1986,
Mr. Mercurio held various positions with Burnup & Sims, Inc. at the time a
publicly-traded telecom infrastructure service provider, including Senior Vice
President, Chief Financial Officer and was a member of the Board of Directors.
While at Burnup & Sims, Mr. Mercurio participated in over 30 acquisitions and
was responsible for all financing and accounting matters.
ROBERT E. AGRES has been our Chief Financial Officer since June 1998.
Before joining us, Mr. Agres served for four years as Senior Vice President and
Chief Financial Officer of Triarc Beverage Group, where he was primarily
responsible for Triarc's subsidiary, Royal Crown Company, Inc. Mr. Agres, who
is a CPA, has more than 15 years of experience in accounting and financial
reporting including work at two public companies and public accounting at KMG
prior to joining the company.
ROBERT J. GARRETT has been our Vice President for Business Development
since our formation in August 1997. Mr. Garrett has more than 40 years of
experience in the telecom infrastructure services industry. From 1995 to 1997,
Mr. Garrett was Vice President of Development for Irwin Utilities, a
Texas-based cable television installation company. For 36 years, until 1995, he
was a district manager with American Telephone and Telegraph where he managed
major telecom projects in Florida, Georgia, Louisiana, and New York.
JOSEPH P. POWERS has been our Vice President for Operations since our
formation in August 1997. Mr. Powers has more than 32 years of experience in the
telecom infrastructure services industry. From 1995 to 1997, he served as
President of Able Communication Services, Inc., a wholly-owned subsidiary of
Able Telcom. Prior to 1995, he was Director of Operations for Voltelcom, the
telecom infrastructure services division of Volt Information Sciences.
BERNARD E. CZARNECKI has served as a Director since March 1998. He has
served as President of Cablemasters since he founded that company in 1983.
JEFFREY J. EBERSOLE has served as a Director since March 1998. He has
served as President of Channel since he founded that company in 1978.
WILLIAM MULLEN has served as a Director since July 1998. He currently
serves as the President of U.S. Cable and has been associated with that company
since 1972.
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<PAGE> 41
DOUGLAS F. BERMAN has served as a Director since March 1998. Mr.
Berman joined HIG in 1996 and became a Managing Director of HIG in 1998. Before
joining HIG, Mr. Berman was with Bain & Company, an international management
consulting firm, where he managed a variety of projects for Fortune 500
companies. Mr. Berman is also a director of Let's Talk Cellular & Wireless,
Inc.
SAMI MNAYMNEH has served as a Director since March 1998. He co-founded
HIG Capital Management, Inc. in 1993 and serves as one of its Managing
Directors. Before founding HIG, Mr. Mnaymneh was a Managing Director at The
Blackstone Group, where he specialized in providing financial advisory services
to Fortune 100 companies. Mr. Mnaymneh is also a director of Let's Talk
Cellular & Wireless, Inc.
BRIAN SCHWARTZ has served as a Director since February 1999. Mr.
Schwartz joined HIG in 1994 and became a Managing Director of HIG in 1998.
Before joining HIG, Mr. Schwartz worked for PepsiCo, Inc.'s Strategic Planning
Department.
BOARD OF DIRECTORS
Our Board of Directors has seven members. Upon the closing of this
offering, the Board of Directors will have five members, including Messrs.
Mercurio and ____________________. Our certificate of incorporation provides
that our Board of Directors will be divided into three classes, with regular
three year staggered terms and initial terms of one, two and three years.
Accordingly, Mr. _____ will hold office until the annual meeting of stockholders
to be held in 2000, Messrs. ____ and ____ will hold office until the 2001 annual
meeting, and Messrs. Mercurio and ____ will hold office until the 2002 annual
meeting.
COMMITTEES OF THE BOARD OF DIRECTORS
We have established an Audit Committee and a Compensation Committee.
Messrs. _____ and _____ have agreed to serve as the initial members of our
Audit Committee. The duties and responsibilities of the Audit Committee include
(1) recommending to the full Board of Directors the appointment of our auditors
and any termination of engagement, (2) reviewing the plan and scope of audits,
(3) reviewing our significant accounting policies and internal controls, (4)
administering our compliance programs, (5) having general responsibility for
all related auditing matters and (6) approving all transactions with
affiliates.
The Compensation Committee is composed of two directors. Our Chief
Executive Officer makes recommendations to the committee as to the compensation
of our officers, including salary, bonus, stock options and benefits, as well
as the nomination of officers to be appointed by the Board of Directors. The
current members of the Compensation Committee are Messrs. Mnaymneh and
Mercurio. Mr. Mercurio has agreed to resign from the Compensation Committee and
will be replaced by ___________.
DIRECTORS' COMPENSATION
We do not currently pay any fees to directors. We reimburse all
directors for out-of-pocket expenses incurred in connection with the rendering
of services as a director.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Mercurio, a member of the Compensation Committee, is our President
and Chief Executive Officer. Mr. Mnaymneh, a member of our Compensation
Committee, is a controlling person of HIG, one of our principal stockholders.
See "Certain Transactions" for a description of various transactions between
us, Mr. Mercurio and HIG. None of our executive officers has served as a
director or member of the compensation committee of another entity, one of
whose executive officers served as a director or member of our Compensation
Committee.
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<PAGE> 42
EXECUTIVE COMPENSATION
The following table sets forth information for the fiscal year ended
December 31, 1998 concerning compensation we paid to our Chief Executive
Officer and our other executive officers who were compensated over $100,000
during that year. None of the executive officers appearing in the Summary
Compensation Table has received any stock options.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
------------------------------------------------------
Other Annual
NAME Salary Bonus Compensation(1)
- ---- --------------- ----------- -----------------
<S> <C> <C> <C>
William J. Mercurio $135,375 $100,000 $ 6,750
Joseph P. Powers 101,250 60,000 4,500
</TABLE>
- ----------------------
(1) Primarily represents amounts paid for auto allowance.
STOCK OPTION PLAN
We have a stock option plan which provides for the grant of both
nonstatutory stock options and stock options intended to be treated as
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended. Our stock option plan provides that stock
options may be granted by the Compensation Committee. The stock option plan is
intended to provide incentives to, and rewards for, certain of our employees
and non-employee directors. Those eligible are people who have contributed and
will continue to contribute to our success. Incentive stock options granted
under the stock option plan are non-transferable other than by will or by the
laws of descent and distribution. The stock option plan may be amended at any
time by the Board of Directors, although the Board of Directors may condition
any amendment on the approval of our stockholders if such approval is necessary
or advisable with respect to tax, securities or other applicable laws. The
total number of shares of common stock reserved for issuance under the stock
option plan is ______. We have granted incentive stock options to acquire _____
shares of common stock, _______ of which are currently exercisable. Our stock
option plan terminates in 2008.
EXECUTIVE EMPLOYMENT AGREEMENTS
We have employment agreements with Messrs. Mercurio, Powers and
Garrett, dated February 26, 1999. Mr. Mercurio's employment agreement has a
four-year term and Messrs. Powers' and Garrett's agreements have two-year
terms. Mr. Mercurio receives a base salary of $400,000 per year, subject to
adjustments for inflation. Messrs. Powers and Garrett receive a base salary of
$200,000 and $150,000 per year, respectively, subject to adjustments for
inflation. All three employment agreements provide for health, life and
disability insurance and other benefits. They also contain covenants not to
compete for a certain period of time. So long as we do not terminate the
executives without cause, this period will run through their employment and end
on February 28, 2003 with respect to Mr. Mercurio, and February 28, 2001 with
respect to Messrs. Powers and Garrett, or one year after their employment,
whichever date is later. If we terminate Mr. Mercurio without cause or due to
his death or disability, then we must pay him his salary for a period of two
years following the date of termination. If that happens, Mr. Mercurio also will
have the right to exercise any options and warrants granted to him while he was
an employee. If Mr. Mercurio's termination is due to his death or permanent
disability, then we must pay him (or his estate) his salary for one year after
his death or date of disability. If Messrs. Powers or Garrett are terminated
without cause, we must continue to pay full compensation and benefits to the
terminated executive until February 28, 2001. If either executive's termination
is due to his death or permanent disability, then we must pay him (or his
estate) his salary for one year after his death or date of disability.
None of our executive officers are parties to any agreements that are
triggered upon a "change of control."
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<PAGE> 43
CERTAIN TRANSACTIONS
GENERAL
We have, from time to time, entered into various transactions with
certain of our officers, directors and principal stockholders and entities in
which such parties have an interest. We believe that each such transaction has
been on terms no less favorable to us than could be obtained in a transaction
with an independent third party.
ORGANIZATION OF ORIUS
We were formed in August 1997 by William Mercurio, Joseph Powers and
Robert Garrett, who acted as co-founders of Orius and paid nominal cash
consideration for ______ shares of common stock. In March 1998, we acquired
Cablemasters, Excel, Mich-Com and Channel for $25.1 million (including assumed
indebtedness of $2.6 million) and ____ shares of common stock. Messrs. Ebersole
and Czarnecki, directors of Orius, were stockholders of two of the founding
companies. Mr. Ebersole received $12.9 million and _____ shares of common stock
in connection with the sale of Channel to us. We also entered into two
three-year leases with entities controlled by Mr. Ebersole for the lease of
Channel's headquarters and office space. The monthly rent for both leases is
approximately $10,600. At the time of the acquisition of Channel, Mr. Ebersole
entered into a three-year employment agreement with Channel that provided for an
initial annual base salary of $150,000. In addition, Mr. Ebersole received
$200,000 and ______ shares of our common stock as a finders fee for identifying
certain acquisition candidates. Mr. Czarnecki received $4.6 million and _____
shares of common stock in connection with the sale of Cablemasters. Mr.
Czarnecki also signed a three- year employment agreement with Cablemasters, with
an initial annual base salary of $150,000. HIG Cable, Inc. (an entity controlled
by Mr. Mnaymneh) purchased 10,000 shares of our Series A preferred stock for
$4.5 million and $1.0 million of our 9% junior subordinated promissory notes
which are convertible into an aggregate of __________ shares of common stock
upon the closing of this offering, to fund a portion of our initial
acquisitions.
U.S. CABLE ACQUISITION
In June 1998, we acquired U.S. Cable from its former shareholders,
including William Mullen, one of our directors. Mr. Mullen and members of his
immediate family received $5.1 million and _____ shares of our common stock. Mr.
Mullen signed a three year employment agreement with U.S. Cable with an initial
annual base salary of $140,000 and became a member of our Board of Directors.
U.S. Cable also entered into a five-year lease for its corporate headquarters
with an entity controlled by Mr. Mullen at a monthly base rent of $5,000. As a
result of the U.S. Cable acquisition, the conversion ratio of the Series A
preferred stock held by HIG Cable, Inc. was adjusted to convert into an
additional ____ shares of common stock. This adjustment was a term of the Series
A preferred stock when it was originally issued.
1999 ACQUISITIONS
In February 1999, we acquired Schatz, DAS-CO, Copenhagen and Network
in a transaction that was designed to give tax-free treatment to the stock
issued to the former stockholders of the acquired companies. To complete these
acquisitions all of our then existing stockholders exchanged their interests in
the company for new interests in Orius and we raised additional equity to fund
the 1999 acquisitions. HIG Cable West, Inc. (an entity controlled by Mr.
Mnaymneh) acquired 7,596.38 shares of our Series B preferred stock for $7.6
million, which are convertible into __________ shares of common stock upon the
closing of the offering. We also sold _________ shares of our common stock to
our then existing stockholders for $2.4 million. The following officers,
directors and principal stockholders (including immediate family members and
affiliated entities of such persons) purchased the number of shares indicated
at $_______ per share, in cash: William J. Mercurio - ____________, Robert E.
Agres - _____________, Bernard E. Czarnecki - _____________, and William Mullen
- - _____________. In connection with the 1999 acquisitions, we paid (1) Mercurio
and Associates, P.A., an affiliate of William J. Mercurio, a consulting fee of
$550,000 for assistance in identification of, and due diligence with respect
to, acquisition candidates and (2) HIG _____________, an entity controlled by
Mr. Mnaymneh, $267,000 for fees and expenses.
- 43 -
<PAGE> 44
We have agreed to pay HIG Capital LLC, an entity
controlled by Mr. Mnaymneh, an investment banking fee of $________ in
connection with this offering, less $__________ for fees previously paid. We do
not currently have any other agreements or arrangements with any of our
executive officers or directors for the payment of fees or the reimbursement of
expenses, other than pursuant to employment agreements.
OTHER
Rosemarie Mulholland, the daughter of William J. Mercurio, is our
Secretary and Treasurer. Ms. Mulholland, a certified public accountant,
received total compensation of $64,287 from us in 1998, including a salary of
$53,787 and an accrued bonus of $10,500. Ms. Mulholland also received options to
purchase ____ shares of our common stock, exercisable at $____ per share. The
options vest in equal annual increments in April 1999, April 2000 and April
2001.
COMPANY POLICY
In the future, any transactions with our directors, officers,
employees or affiliates are anticipated to be minimal and will, in any case, be
approved by a majority of the Board of Directors or a committee thereof,
including a majority of disinterested members of the Board of Directors.
- 44 -
<PAGE> 45
PRINCIPAL AND SELLING STOCKHOLDERS
The table below lists information about the beneficial ownership of
our common stock as of __________, 1999 by (1) each person whom we know to own
beneficially more than 5% of our common stock, (2) each of our named executive
officers (3) all of our directors and executive officers as a group, and (4)
our selling stockholders.
<TABLE>
<CAPTION>
SHARES
SHARES BENEFICIALLY BENEFICIALLY
OWNED BEFORE THE SHARES TO OWNED AFTER THE
NAME OFFERING(1) BE OFFERED OFFERING
- ---- ----------------------- ------------- ---------------------
NUMBER % NUMBER %
------ --- ------ ---
<S> <C> <C> <C> <C> <C>
Sami Mnaymneh(2).............................
Douglas F. Berman(2).........................
Brian Schwartz(2)............................
HIG Cable, Inc.(3)...........................
HIG Cable West, Inc.(4)......................
Jeffery J. Ebersole..........................
William J. Mercurio..........................
Bernard E. Czarnecki.........................
Robert J. Garrett............................
Larry Bonadeo................................
P. Nicholas Johnson..........................
Jerry R. Wood and Sandra M. Wood, trustees...
William Mullen Trust.........................
Robert E. Agres..............................
Joseph P. Powers.............................
All officers and directors as a
group(__ persons)(5)......................
</TABLE>
- --------------------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, based on factors including voting and
investment power with respect to shares, subject to the applicable
community property laws. The percentage of beneficial ownership is based
on ______________ shares of common stock outstanding as of _____________
1999. Also, shares of common stock subject to options or warrants
currently exercisable, or exercisable by ____________ 1999, are deemed
outstanding for the purpose of computing the percentage ownership of the
person holding such options or warrants, but are not deemed outstanding
for computing the percentage ownership of any other person.
(2) Consists of shares owned by HIG Cable, Inc. and HIG Cable West, Inc. that
are deemed to be owned by this person because of his position as a
managing director of HIG.
(3) Consists of shares issuable upon conversion of Series A preferred stock
and upon conversion of a convertible promissory note.
(4) Consists of shares issuable upon conversion of Series B preferred stock.
(5) Shares owned by HIG are counted only once for purposes of this calculation.
- 45 -
<PAGE> 46
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock will consist of _____________ shares of
common stock having a par value of $.0001 per share and ___________ shares of
preferred stock having a par value of $.0001 per share.
COMMON STOCK
The holders of common stock are entitled to one vote for each share on
all matters voted upon by stockholders, including the election of directors.
Such holders are not entitled to vote cumulatively for the election of
directors. Holders of common stock are entitled to dividends on a pro rata
basis upon declaration of dividends by the Board of Directors. Dividends are
payable only out of funds legally available for the payment of dividends. The
Board of Directors is not required to declare dividends, and it currently
expects to retain earnings to finance the development of our business. See
"Dividend Policy" on page 14.
Upon a liquidation of our company, holders of the common stock will be
entitled to a pro rata distribution of our assets, after payment of all amounts
owed to our creditors, and subject to any preferential amount payable to
holders of our preferred stock, if any. Holders of common stock have no
preemptive, subscription, conversion, redemption or sinking fund rights.
PREFERRED STOCK
Our certificate of incorporation permits the Board of Directors to
issue shares of preferred stock in one or more series and to fix the relative
rights, preferences and limitations of each series. Among such rights,
preferences and limitations are dividend rates, provisions of redemption,
rights upon liquidation, conversion privileges and voting powers. The issuance
of preferred stock could have the effect of making it more difficult for a
third party to acquire, or discouraging a third party from acquiring, a
majority of our outstanding voting stock. There are currently two series of
preferred stock outstanding, all of the shares of which are held by HIG, which
will convert into common stock upon the closing of this offering.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF DELAWARE LAW AND THE COMPANY'S
CERTIFICATE OF INCORPORATION AND BYLAWS
Certain provisions of our certificate of incorporation and bylaws
summarized below may be deemed to have an anti-takeover effect and may
discourage, delay, defer or prevent a tender offer or takeover attempt that a
stockholder might consider in its best interest, including those attempts that
might result in a premium over the market price for the shares held by the
stockholders.
AUTHORIZED BUT UNISSUED SHARES. Subject to the applicable requirements
of the exchange or automated quotation service on which our shares are listed
or traded, the authorized but unissued shares of common stock and preferred
stock are available for future issuance without stockholder approval. These
additional shares may be utilized for a variety of corporate purposes,
including future public or private offerings to raise additional capital,
corporate acquisitions or employee benefit plans. The existence of authorized
but unissued and unreserved common stock and preferred stock may enable the
Board of Directors to issue shares to persons friendly to current management
which could render more difficult or discourage an attempt to obtain control of
our company by means of a proxy contest, tender offer, merger or otherwise, and
thereby protect the continuity of our management.
INDEMNIFICATION AND LIMITATION OF LIABILITY. Our certificate of
incorporation and bylaws provide that our directors, officers, employees and
agents shall be indemnified by us to the full extent permitted by Delaware law,
as it now exists or may be amended in the future, against all expenses and
liabilities reasonably incurred in connection with service for or on our
behalf. Our bylaws also provide that the right of any person to indemnification
shall be a contract right and shall not be exclusive of any other right to
which such person may be entitled. Our certificate of incorporation contains a
provision permitted by Delaware law that generally eliminates the personal
liability of directors for monetary damages for breaches of their fiduciary
duty, unless the director has breached his or her duty of loyalty, failed to
act in good faith, engaged in intentional misconduct or a
- 46 -
<PAGE> 47
knowing violation of law, paid a dividend or approved a stock repurchase in
violation of Delaware law or obtained an improper personal benefit. This
provision does not alter a director's liability under the federal securities
laws. In addition, this provision does not affect the availability of equitable
remedies, such as injunction or rescission, for breach of fiduciary duty.
STATUTORY BUSINESS COMBINATION PROVISIONS. Our certificate of
incorporation provides that we will NOT be governed by certain provisions of
Delaware and Florida law that have been enacted to deter or frustrate takeovers
of Delaware corporations or foreign corporations operating in Florida. Section
203 of the Delaware General Corporation Law generally provides that a Delaware
corporation may not engage in any of a broad range of business combinations
with an interested stockholder, except under certain limited circumstances. The
Florida Control Share Act generally provides that shares acquired above than
some specified thresholds will not possess any voting rights unless such voting
rights are approved by a majority of a corporation's disinterested
stockholders.
TRANSFER AGENT AND REGISTRAR
____________________ will serve as transfer agent and registrar for
our common stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have __________ shares of
common stock outstanding. All of the shares offered hereby will be freely
saleable in the public market after completion of this offering, unless
acquired by affiliates of our company. All of the shares outstanding prior to
completion of this offering are subject to contractual restrictions that
prohibit the stockholders from selling or otherwise disposing of shares for a
period of 180 days after the date of this prospectus without the prior written
consent of BT Alex. Brown Incorporated. After February 25, 2000, all of the
currently outstanding shares will be eligible for resale in the public market,
subject to the restrictions of Rule 144.
We have agreed not to sell, contract or otherwise dispose of any
shares of common stock for a period of 180 days after the date of this
prospectus, except as consideration for business acquisitions or upon exercise
of currently outstanding stock options or warrants, without the prior written
consent of BT Alex. Brown Incorporated.
In general, under Rule 144, a person (or persons who shares are
aggregated), including persons who may be deemed affiliates of our company, who
has beneficially owned his or her shares for at least one year is entitled to
sell within any three-month period that number of shares which does not exceed
the greater of 1% of the outstanding shares of the common stock (____ shares
after completion of this offering) or the average weekly trading volume during
the four calendar week preceding each such sale. Sales under Rule 144 also are
subject to certain manner of sale provisions, notice requirements and the
availability of current public information about our company. Under Rule
144(k), a person (or persons whose shares are aggregated) who is not or has not
been deemed an "affiliate" of the company for at least three months and who has
beneficially owned his or her shares for at least two years would be entitled to
sell such shares under Rule 144 without regard to the limitations discussed
above.
There has been no public market for the common stock prior to this
offering and no assurance can be given that an active public market for the
common stock will develop or be sustained after completion of this offering.
Sales of substantial amounts of the common stock, or the perception that such
sales could occur, could adversely affect the prevailing market price of the
common stock and could impair our ability to raise capital or effect
acquisitions through the issuance of common stock.
After 180 days after completion of this offering, we intend to file a
registration statement under the Securities Act to register ______ shares of
common stock issuable on exercise of stock options or other awards granted or
to be granted under our stock option plan. After the filing of such
registration statement and subject to certain restrictions under Rule 144,
those shares will be freely saleable in the public market immediately following
exercise of such options.
- 47 -
<PAGE> 48
PLAN OF DISTRIBUTION
We have entered into an underwriting agreement with the underwriters
named below in which they have severally agreed to purchase from us the number
of shares of common stock set forth beside their names below. BT Alex. Brown
Incorporated, Banc of America Securities LLC, Morgan Keegan & Company, Inc.,
and The Robinson-Humphrey Company, LLC are the representatives of the
underwriters.
<TABLE>
<CAPTION>
Number of
Underwriter Shares
- ----------- ------
<S> <C>
BT Alex. Brown Incorporated...............................................
Banc of America Securities LLC............................................
Morgan Keegan & Company, Inc..............................................
The Robinson-Humphrey Company, LLC........................................
--------------------
Total............................................................
====================
</TABLE>
The obligation of the underwriters to purchase the common stock is
subject to the terms and conditions set forth in the underwriting agreement.
The underwriting agreement requires the underwriters to purchase all of the
shares of the common stock offered by this prospectus, if any are purchased.
The shares of common stock offered by the underwriters pursuant to this
prospectus are subject to prior sale, when, as and if delivered to and accepted
by the underwriters, and subject to the underwriters' right to reject any order
in whole or in part.
The underwriters have advised us that they propose to offer the shares
of common stock to the public at the public offering price of $_____ per share.
Any shares sold by the underwriters to securities dealers may be sold at a
discount of up to $_____ per share from the public offering price. These
securities dealers may resell any shares purchased from the underwriters to
certain other brokers or dealers at a discount of up to $_____ per share from
the public offering price. The underwriters may change the public offering
price after the common stock is released for sale to the public.
The underwriters may sell more shares than the total number set forth
in the table above. To cover these sales, the underwriters have an option to
purchase up to ________ additional shares of common stock from Orius and
certain selling stockholders at the public offering price less the underwriting
discounts and commissions set forth in the table above. The underwriters may
exercise this option for 30 days after the date of this prospectus only to
cover these sales. To the extent that the underwriters purchase shares pursuant
to this option, each of the underwriters will purchase shares in approximately
the same proportion as the number of shares of common stock to be purchased by
it shown in the above table bears to ________ and we will be obligated,
pursuant to the option, to sell such shares to the underwriters. If purchased,
the underwriters will offer such additional shares on the same terms as those
on which the ______ shares are being offered.
Orius and the selling stockholders have agreed to indemnify the
underwriters with respect to certain liabilities, including liabilities under
the Securities Act of 1933, as amended.
- 48 -
<PAGE> 49
To facilitate the offering of the common stock, the underwriters may
engage in transactions that stabilize, maintain or otherwise affect the market
price of the common stock. Specifically, the underwriters may over allot shares
of the common stock in connection with this offering, thereby creating a short
position in the underwriters' account. A short position results when an
underwriter sells more shares of common stock than such underwriter is
committed to purchase. Additionally, to cover such over allotments or to
stabilize the market price of the common stock, the underwriters may bid for,
and purchase, shares of the common stock at a level above that which might
otherwise prevail in the open market. The underwriters are not required to
engage in these activities, and, if commenced, any such activities may be
discontinued at any time. The underwriters may also reclaim selling concessions
allowed to an underwriter or dealer, if the underwriters repurchase shares
distributed by that underwriter or dealer.
We have agreed not to make any offering, sale, short sale, transfer,
hypothecation, pledge or other disposition of any shares of our common stock or
other securities convertible into or exchangeable or exercisable for shares of
our common stock or derivatives of common stock (or agreement for such) for a
period of 180 days after the date of this prospectus, directly or indirectly,
without the prior written consent of BT Alex. Brown Incorporated, except that
we may, without this consent, issue options granted under the stock option plan
and issue shares (1) upon exercise of options granted under the stock option
plan, and (2) in connection with the acquisitions of businesses.
Our executive officers, directors, and current stockholders have
agreed not to offer, sell, contract to sell, grant any option or other right
for the sale of, hypothecate, pledge or otherwise dispose of any shares of
common stock or any securities convertible or exchangeable into common stock
owned or acquired in the future in any manner until 180 days after the date of
this prospectus, without the prior written consent of BT Alex. Brown
Incorporated. These restrictions will be applicable to any shares acquired by
any of those persons during the applicable restricted period.
The representatives of the underwriters have advise us that they do
not intend to confirm sales to any account over which they exercise
discretionary authority.
At our request, the underwriters have reserved for sale, at the
initial public offering price, up to ______ shares to be sold and offered
hereby by us to certain of our employees and other persons. The number of
shares of common stock available for sale to the general public will be reduced
to the extent such persons purchase such reserved shares. Any reserved shares
which are not orally confirmed for purchase within one day of the pricing of
the offering will be offered by the underwriters to the general public on the
same terms as the other shares offered hereby. Certain individuals purchasing
reserved shares may be required to agree not to sell, offer or otherwise
dispose of any shares of common stock for a period of three months after the
date of this prospectus.
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price will be determined by
negotiations between us and the representatives of the underwriters. Among the
factors to be considered in such negotiations are prevailing market conditions,
our result of operations in recent periods, the market capitalizations and
stages of development of other companies that we and the representatives
believe to be comparable to Orius, estimates of our business potential, the
present state of our development and other factors deemed relevant. The initial
public offering price set forth on the cover page of this prospectus should not
be considered an indication of the actual value of our common stock. Such price
is subject to change as a result of market conditions and other factors.
Application has been made to have our common stock listed on the New York Stock
Exchange under the proposed symbol "ORS."
EXPERTS
The consolidated financial statements of Orius Corp. and Subsidiaries
as of December 31, 1998 and for the period from March 31, 1998 through December
31, 1998 included in this prospectus have been included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
- 49 -
<PAGE> 50
The consolidated financial statements of Channel Communications, Inc.,
f/k/a Kenya Corp., as of and for the three months ended March 31, 1998 included
in this prospectus have been included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The consolidated financial statements of Channel Communications, Inc.,
f/k/a Kenya Corp., as of and for the two years ended December 31, 1997 included
in this prospectus have been included in reliance on the report of Williams,
Young & Associates, LLC, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The financial statements of U.S. Cable, Inc. as of September 30, 1996
and 1997 and June 30, 1998 and for each of the two years in the period ended
September 30, 1997 and for the nine months ended June 30, 1998 included in this
prospectus have been included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of CATV Subscriber Services, Inc. and its
subsidiary as of December 31, 1997 and August 31, 1998 and for the year ended
December 31, 1997 and the eight months ended August 31, 1998 included in this
prospectus have been included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of DAS-CO of Idaho, Inc. as of December 31,
1997 and 1998 and for each of three years in the period ended December 31, 1998
included in this prospectus have been included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of Schatz Underground Cable, Inc. as of
December 31, 1997 and 1998 and for each of the three years in the period ended
December 31, 1998 included in this prospectus have been included in reliance on
the report of Milhouse, Martz & Neal, L.L.P., independent accountants, given on
the authority of said firm as experts in auditing and accounting.
The financial statements of Network Cablings Services, Inc. included in
this prospectus and in the registration statement have been audited by BDO
Seidman, LLP, independent certified public accountants, to the extent and for
the periods set forth in their reports appearing elsewhere herein and in the
registration statement, and are included in reliance upon such reports given
upon the authority of said firm as experts in auditing and accounting.
The financial statements of Copenhagen Utilities and Construction,
Inc. as of December 31, 1997 and 1998 and for each of three years in the period
ended December 31, 1998 included in this prospectus have been included in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
The financial statements of Texel Corporation as of December 31, 1997
and 1998 and for each of two years in the period ended December 31, 1998
included in this prospectus have been included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
LEGAL MATTERS
Akerman, Senterfitt & Eidson, P.A., Fort Lauderdale, Florida will pass
upon the validity of the common stock offered by this prospectus for us.
Certain legal matters in connection with the offering will be passed upon for
the underwriters by White & Case LLP, Miami, Florida.
- 50 -
<PAGE> 51
ADDITIONAL INFORMATION
We intend to file annual, quarterly, and special reports, proxy
statements, and other information with the Securities and Exchange Commission.
Such reports, proxy and other information can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at its
regional offices located at 7 World Trade Center, New York, New York 10048 and
Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois, at prescribed rates. The Commission maintains a website that
contains all information filed electronically by us. The address of the
Commission's website is (http://www.sec.gov). Our common stock is listed on the
New York Stock Exchange. Reports, proxy statements and other information
concerning Orius can be inspected at the offices of the New York Stock Exchange,
Inc., 20 Broad Street, New York, New York 10005.
This prospectus constitutes a part of a registration statement on Form
S-1 filed by us with the Commission under the Securities Act, with respect to
the securities offered in this prospectus. This prospectus does not contain all
the information that is in the registration statement. Certain parts of the
registration statement are omitted as allowed by the rules and regulations of
the Commission. We refer to the registration statement and to the exhibits to
such registration statement for further information with respect to Orius and
the securities offered in this prospectus. Copies of the registration statement
and the exhibits to such registration statement are on file at the offices of
the Commission and may be obtained upon payment of the prescribed fee or may be
examined without charge at the public reference facilities of the Commission
described above.
Statements contained in this prospectus concerning the provisions of
documents are necessarily summaries of the material provisions of such
documents, and each statement is qualified in its entirety by reference to the
copy of the applicable document filed with the Commission.
REPORTS TO SECURITY HOLDERS
We intend to distribute to our stockholders annual reports containing
audited financial statements and will make available copies of quarterly
reports for the first three quarters of each fiscal year containing unaudited
interim financial information.
- 51 -
<PAGE> 52
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
ORIUS CORP. AND SUBSIDIARIES INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Interim Consolidated Balance Sheets..................................................................F-3
Interim Consolidated Statements of Operations........................................................F-4
Interim Consolidated Statements of Cash Flows........................................................F-5
Notes to Interim Consolidated Financial Statements (unaudited).......................................F-6
ORIUS CORP. AND SUBSIDIARIES UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Introduction to Unaudited Pro Forma Financial Statements.............................................F-9
Unaudited Pro Forma Statements of Operations.........................................................F-10
Unaudited Pro Forma Balance Sheet....................................................................F-13
Notes to Unaudited Pro Forma Financial Statements....................................................F-14
ORIUS CORP. AND SUBSIDIARIES
Financial Statements - December 31, 1998
Report of Independent Accountants....................................................................F-16
Consolidated Balance Sheet ..........................................................................F-20
Consolidated Statements of Operations................................................................F-21
Consolidated Statements of Cash Flows ...............................................................F-22
Consolidated Statements of Changes in Stockholders' Equity...........................................F-23
Notes to Consolidated Financial Statements ..........................................................F-24
U.S. CABLE, INC.
Financial Statements - September 30, 1996 and 1997 and June 30, 1998
Report of Independent Accountants....................................................................F-37
Balance Sheets ......................................................................................F-38
Statements of Operations.............................................................................F-39
Statements of Cash Flows.............................................................................F-40
Statements of Changes in Shareholders' Equity .......................................................F-41
Notes to Financial Statements........................................................................F-42
CATV SUBSCRIBER SERVICES, INC. AND ITS SUBSIDIARY
Financial Statements - December 31, 1997 and August 31, 1998
Report of Independent Accountants....................................................................F-49
Balance Sheets.......................................................................................F-50
Statements of Operations.............................................................................F-51
Statements of Cash Flows.............................................................................F-52
Statements of Changes in Stockholders' Equity........................................................F-53
Notes to Financial Statements........................................................................F-54
DAS-CO OF IDAHO, INC.
Financial Statements - December 31, 1996, 1997 and 1998
Report of Independent Accountants....................................................................F-60
Balance Sheets.......................................................................................F-61
Statements of Operations.............................................................................F-62
Statements of Cash Flows.............................................................................F-63
Statements of Changes in Stockholders' Equity........................................................F-64
Notes to Financial Statements........................................................................F-65
SCHATZ UNDERGROUND CABLE, INC.
Financial Statements - December 31, 1996, 1997 and 1998
Report of Independent Accountants....................................................................F-70
Balance Sheets.......................................................................................F-71
Statements of Income and Retained Earnings...........................................................F-72
Statements of Cash Flows.............................................................................F-73
Notes to Financial Statements........................................................................F-74
NETWORK CABLING SERVICES, INC.
Financial Statements - September 30, 1997 and 1998
Report of Independent Certified Public Accountants...................................................F-80
Balance Sheets.......................................................................................F-81
Statements of Income.................................................................................F-82
Statements of Cash Flows.............................................................................F-83
Statements of Stockholders' Equity...................................................................F-84
Notes to Financial Statements........................................................................F-85
COPENHAGEN UTILITIES AND CONSTRUCTION, INC.
Consolidated Financial Statements - December 31, 1996, 1997 and 1998
Report of Independent Accountants....................................................................F-92
Consolidated Balance Sheets..........................................................................F-93
Consolidated Statements of Operations................................................................F-94
Consolidated Statements of Cash Flows................................................................F-95
Notes to Consolidated Financial Statements...........................................................F-96
</TABLE>
F-1
<PAGE> 53
<TABLE>
<CAPTION>
<S> <C>
TEXEL CORPORATION
Financial Statements - December 31, 1997 and 1998
Report of Independent Accountants....................................................................F-103
Balance Sheets.......................................................................................F-104
Statements of Operations.............................................................................F-105
Statements of Cash Flows.............................................................................F-106
Statements of Changes in Shareholders' Equity........................................................F-107
Notes to Financial Statements........................................................................F-108
</TABLE>
F-2
<PAGE> 54
ORIUS CORP.
INTERIM CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 2,252,303 $ --
Accounts receivable, net 26,153,402 43,399,783
Unbilled accounts receivable 12,189,615 25,391,153
Inventory 9,542,743 14,681,541
Prepaid and other current assets 852,481 1,241,667
----------- ------------
Total current assets 50,990,544 84,714,144
----------- ------------
PROPERTY AND EQUIPMENT, net 15,474,071 35,314,088
----------- ------------
OTHER ASSETS:
Goodwill, net 27,052,711 72,611,233
Deferred financing costs, net 1,400,527 3,976,256
Other 917,986 2,078,681
----------- ------------
Total other assets 29,371,224 78,666,170
----------- ------------
TOTAL $95,835,839 $198,694,402
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Current portion of long term debt $ 5,864,268 $ 10,270,713
Borrowing under credit facility 6,750,000 8,000,000
Accounts payable 8,288,999 13,796,238
Accrued liabilities 5,844,889 11,552,177
Deferred revenues 2,621,398 3,083,725
Other liabilities, including deferred income tax liability 655,988 201,099
----------- ------------
Total current liabilities 30,025,542 46,903,952
----------- ------------
Long-term debt 42,649,585 111,328,837
Deferred income tax liability 2,594,697 5,450,539
Deferred revenues 4,670,000 4,670,000
----------- ------------
Total liabilities 79,939,824 168,353,328
----------- ------------
Convertible preferred stock, par value $.0001 per share;
300,000 shares authorized:
Series A, 10,000 shares issued and outstanding 7,340,649 10,017,496
Series B, 7,596.33 shares issued and outstanding -- 10,452,866
Value of redemption rights associated with junior
subordinated convertible note 493,358 1,056,290
----------- ------------
7,834,007 21,526,652
----------- ------------
STOCKHOLDERS' EQUITY:
Warrants -- 868,538
Common stock, par value $.0001 per share; 4,700,000
shares authorized; 1,051,756 and 1,295,365 shares issued and
outstanding at December 31, 1998 and March 31, 1999,
respectively 105 130
Additional paid-in capital 7,427,745 7,945,754
Retained earnings 634,158 --
----------- ------------
Total stockholders' equity 8,062,008 8,814,422
----------- ------------
TOTAL $95,835,839 $198,694,402
=========== ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-3
<PAGE> 55
ORIUS CORP. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Predecessor Company
----------------------------
1998 1999
----------- -----------
<S> <C> <C>
REVENUES, NET: $ 4,218,833 $46,069,230
----------- -----------
EXPENSES:
Direct costs 3,364,584 36,223,996
General and administrative 709,928 4,540,170
Depreciation and amortization 202,643 1,808,211
----------- -----------
Total 4,277,155 42,572,377
----------- -----------
Income (loss) from operations (58,322) 3,496,853
Other (income) expense:
Interest expense, net (57,697) 2,160,091
Other income (52,966) (26,257)
----------- -----------
Income before income tax provision
and extraordinary item 52,341 1,363,019
Provision for income taxes 358,430 692,000
----------- -----------
(Loss) income before extraordinary
charge (306,089) 671,019
Extraordinary charge for debt
retirement, net of tax benefit
of $578,000 -- (770,000)
----------- -----------
(LOSS) FROM OPERATIONS $ (306,089) $ (98,981)
=========== ===========
Accretion and dividends associated
with preferred stock and
junior convertible note (6,096,307)
-----------
Net (loss) available to common
stockholders $(6,195,288)
===========
(Loss) per share:
Basic:
(Loss) available to common
stockholders $ (4.79)
Extraordinary charge $ (0.68)
-----------
Net loss available to common
stockholders $ (1,113.05) $ (5.47)
=========== ===========
Weighted average shares outstanding:
Basic 275 1,132,959
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-4
<PAGE> 56
ORIUS CORP. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Predecessor Company
-----------------------------
1998 1999
----------- -----------
<S> <C> <C>
Increase (Decrease) in Cash and Equivalents from:
OPERATING ACTIVITIES:
Net (Loss) $ (306,089) $ (98,981)
Adjustments to reconcile net cash provided by (used in)
operating activities:
Provision for uncollectible accounts 165,000 4,091
Depreciation and amortization 202,643 1,808,211
Extraordinary charge -- 1,348,000
Amortization of deferred finance costs -- 1,890,162
Loss (gain) on disposal of assets 1,928 (16,400)
Deferred income taxes 330,254 (314,673)
Changes in assets and liabilities:
Accounts receivable, billed and unbilled 903,872 (8,232,905)
Inventories -- (3,714,821)
Other current assets (51,198) (364,733)
Other noncurrent assets (2,598) 47,329
Accounts payable and accrued liabilities (46,997) (926,969)
Deferred revenues -- 171,202
Other liabilities (31,242) (133,261)
----------- ------------
Net cash provided by (used in) operating activities 1,165,573 (8,533,748)
----------- ------------
INVESTING ACTIVITIES:
Capital expenditures (152,337) (1,534,966)
Purchases of subsidiaries, net of cash acquired -- (65,745,431)
----------- ------------
Net cash (used in) investing activities (152,337) (67,280,397)
----------- ------------
FINANCING ACTIVITIES:
Borrowings on credit facility 51,074 130,500,000
Principal payments on notes payable and credit facility -- (62,472,266)
Amounts paid for deferred financing costs -- (4,465,891)
Distributions paid to stockholder (6,117) --
Proceeds from issuance of common stock -- 2,403,622
Proceeds from issuance of convertible preferred
stock, net of costs -- 7,596,377
----------- ------------
Net cash provided by financing activities 44,957 73,561,842
----------- ------------
NET CASH INFLOW (OUTFLOW) FROM ALL ACTIVITIES 1,058,193 (2,252,303)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 346,636 2,252,303
----------- ------------
CASH AND EQUIVALENTS AT END OF PERIOD $ 1,404,829 $ --
=========== ============
Cash paid for:
Interest $ 855 $ 760,363
Income taxes $ 59,418 $ 793,760
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-5
<PAGE> 57
ORIUS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The interim consolidated financial statements of Orius Corp. and its
subsidiaries (the Company) as of and for the period ended March 31, 1999
includes the accounts of the Company and its subsidiaries and in the
opinion of management, includes all necessary adjustments, consisting of
only normal recurring adjustments, to present fairly the consolidated
financial position and results of operations of the Company for the
periods presented. The accompanying unaudited consolidated financial
statements have been prepared by the Company, without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the disclosures
made are adequate to make the information presented not misleading.
Accordingly, these unaudited consolidated financial statements and related
notes should be read in conjunction with the consolidated financial
statements and notes thereto included in this registration statement.
Reported interim results of operations are based in part on estimates, and
are not necessarily indicative of those expected for the year.
The financial information as of and for the period ended March 31, 1998
represents the information of Channel Communications, Inc., which was
deemed the accounting acquirer in the March 31, 1998 simultaneous business
combination. Such financial information has been derived from the audited
accounts as of and for the same period which appear elsewhere in this
registration statement.
2. REORGANIZATION
At December 31, 1998, the organization consisted of eight subsidiaries
operating under the Company: Channel Communications, Inc.; Cablemasters
Corp.; Excel Cable Construction, Inc.; Mich-Com Cable Services
Incorporated; U.S. Cable, Inc.; CATV Subscriber Services, Inc.; Statewide
CATV, Inc.; and Burn-Techs, Inc. The common stock of NATG is owned by the
former owners of these companies and certain executive officers and
founders of NATG. HIG Cable, Inc. owns all the outstanding Convertible
Preferred Stock.
On February 8, 1999, a reorganization of the Company occurred in
connection with the acquisition of four companies and related financing.
Orius Corp., a Delaware corporation, was formed, and it formed NATG
Holdings, LLC, a Delaware limited liability company. All of the interest
in NATG Holdings is held by Orius Corp. NATG Holdings formed a subsidiary,
NATG Merger Sub., which was merged with and into NATG with NATG as the
surviving corporation.
As a result of the Reorganization, NATG became an indirect wholly owned
subsidiary of Orius. The Reorganization resulted in all of the
stockholders of NATG holding shares of Orius. Shares of common and
Preferred Stock of NATG were converted into one-tenth of a share of common
and preferred stock of Orius, respectively. This one-for-ten exchange was
the same for all stockholders and has been reflected in these financial
statements by restating all share amounts.
3. EARNINGS PER SHARE
Diluted earnings per common share have been excluded because inclusion of
the effects on earnings per share associated with the convertible
preferred stock, junior convertible note, options and warrants issued
during the period would be anti-dilutive.
4. ACQUISITIONS
On February 26, 1999, four companies were acquired for total consideration
of $73.1 million plus transaction related expenses of $.9 million.
Additionally, approximately $7.1 million of debt was assumed. Cash paid
for the four acquisitions totaled $65.7 million (net of cash acquired of
$4.8 million) and the value of common stock issued (144,285 shares)
totaled $3.5 million. In connection with one of the acquisitions, 23,214
additional shares of common stock may be issued if the acquired company
meets certain performance levels through December 31, 2000. The purchase
price of each acquisition is subject to a customary purchase price
adjustment mechanism and finalization of certain valuations.
The companies acquired were: DAS-CO of Idaho, Inc.; Copenhagen Utilities
and Construction, Inc.; Shatz Underground Cable, Inc.; and Network Cabling
Services, Inc. All the acquisitions were accounted for as purchases and
were included in the results of operations from the date of acquisition.
The goodwill associated with all the acquisitions during the period ended
March 31, 1999 totaled $45.0 million.
The following pro forma financial information represents the unaudited pro
forma results of operations as if the aforementioned acquisitions and the
seven acquisitions completed during the nine-month period ended December
31, 1998 had been completed on January 1, 1998. These pro forma results
give effect to increased interest expense for acquisition debt and
amortization of related goodwill. These pro forma results have been
prepared for comparative purposes only and do not purport to be indicative
of the results of operations which would have been achieved had these
acquisitions been completed on January 1, 1998 nor are the results
indicative of the company's future results of operations (in thousands).
Revenues $62,105
Net income $ 1,685
Net (loss) available to common stock
per share $ (3.40)
F-6
<PAGE> 58
ORIUS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
5. DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt outstanding at December 31, 1998 and March 31, 1999 is
detailed by type of borrowing as follows:
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
----------- -----------
<S> <C> <C>
Bank credit facilities:
Revolving credit facility, maturing on April 1, 2005; interest rate of LIBOR
or Federal Funds Rate plus 0.50%, in either case plus a margin of 2.00%
or 0.50%, respectively $ 6,750,000 $ --
Revolving credit facility, maturing on February 26, 2004; interest rate of
LIBOR or Federal Funds Rate plus 0.50%, plus a margin ranging
from 2.25% to 3.00% for LIBOR and 1.25% to 2.00% for Federal Funds.
Margin based on leverage ratio, beginning June 30, 1999 8,000,000
Term loan, amortizing with final payment due April 1, 2003; interest rate of
LIBOR or Federal Funds Rate plus 0.50%, in either case plus a margin of
2.00% or 0.50%, respectively 27,625,000 --
Term loan, amortizing with final payment due April 1, 2005; interest rate of
LIBOR or Federal Funds Rate plus 0.50%, in either case plus a margin of
2.375% or 0.875%, respectively 18,950,000 --
Term loan A, amortizing with final payment due December 31, 2003; interest
rate of LIBOR or Federal Funds Rate plus 0.50%, plus a margin
ranging from 2.25% to 3.00% for LIBOR and 1.25% to 2.00% for Federal
Funds. Margin based on leverage ratio, beginning June 30, 1999 60,000,000
Term loan B, amortizing with final payment due December 31, 2004; interest
rate of LIBOR or Federal Funds Rate plus 0.50%, in either case
plus a margin of 3.75% or 2.75%, respectively 45,000,000
Term loan C, amortizing with final payment due December 31, 2005; interest
rate of LIBOR or Federal Funds Rate plus 0.50%, in either case
plus a margin of 5.00% or 4.00%, respectively 14,151,462
Junior subordinated convertible note, due April 15, 2005, interest rate of 9% 1,063,750 1,086,300
Other debt and capital lease obligations 875,103 1,361,788
----------- ------------
Total debt and capital lease obligations 55,263,853 129,599,550
Less current portion 12,614,268 18,270,713
----------- ------------
Long-term debt $42,649,585 $111,328,837
=========== ============
</TABLE>
On February 26, 1999, NATG Holdings entered into a new credit agreement
with Merrill Lynch, Pierce, Fenner & Smith Incorporated and PNC Bank,
National Association (PNC), as joint lead arrangers and a new syndication
of banks (New Credit Agreement). The New Credit Agreement includes a $25.0
million revolving credit facility, maturing in 5 years, and a $120.0
million senior secured term loan credit facility. The term loan facility
is allocated among a $60.0 million Term Loan A facility, maturing on
December 1, 2003; a $45.0 million Term Loan B facility, maturing on
December 1, 2004; and a $15.0 million Term Loan C facility, maturing on
December 1, 2005. Of this credit facility, NATG Holding borrowed $2.0
million under the revolving credit facility, $60.0 million under the Term
Loan A facility, $45.0 million under the Term Loan B facility, and $15.0
million under the Term Loan C facility to complete the four new
acquisitions and to repay substantially all indebtedness of NATG, and
terminate all commitments to make extensions of credit to NATG, under
NATG's old credit facility with PNC.
Amounts under the credit facility bear interest, at the Company's choice,
at either LIBOR plus an applicable margin; or, the higher of PNC's
corporate base rate of interest, or the Federal Fund Rate plus 0.50% (the
ABR), in each case plus an applicable margin. For LIBOR loans, the margin
is 3.00% for the revolving credit facility and Term Loan A facility, 3.75%
for the Term Loan B facility and 5.00% for Term Loan C facility. For ABR
loans, the margin is 2.00% for the revolving credit facility and Term Loan
A facility, 2.75% for the Term Loan B facility and 4.00% for Term Loan C
facility. Beginning June 30, 1999, the margins for all interest rates will
be adjusted based upon certain leverage ratios, but cannot exceed the
ranges disclosed above. Outstanding amounts under the credit facility are
secured by substantially all of NATG Holdings' assets and the pledge of
all of the outstanding shares of common stock of each or Orius' direct and
indirect subsidiaries, including NATG. The credit facility also contains
certain affirmative and negative covenants relating to NATG Holdings'
operations.
As a result of the termination and repayment of the indebtedness
outstanding under the old credit facility, the deferred financing costs
associated with the old credit facility totaling $1,348,000 were written
off resulting in an extraordinary charge to income of $770,000, net of tax
benefits of $578,000.
During the three months ended March 31, 1999, the accretion associated
with the junior subordinated convertible note totaled approximately
$562,732 which represents the estimated appreciation in the value of
common stock into which the debt could have been converted.
F-7
<PAGE> 59
ORIUS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
6. CONVERTIBLE PREFERRED STOCK
In connection with the reorganization discussed above, the number of
shares of common stock into which the Series A Convertible Preferred
Stock (Series A Preferred) was convertible was changed to 300,826.
Additionally, the provision that reduced the conversion rate in the event
of an initial public stock offering of Orius Corp. common stock was
removed from the Series A Preferred rights. At March 31, 1999, the total
recorded value of the Series A Preferred has been determined based upon
the convertible common shares of 300,826 at $33.30 per share, or
$10,017,496. The accretion to that value during the period ended March
31, 1999 was $2,676,847.
In connection with the acquisitions on February 26, 1999, HIG Cable West,
Inc. purchased 7,596.38 shares of Series B Convertible Preferred Stock
(Series B Preferred) for $7,569,377. The Series B Preferred has the same
rights as the Series A Preferred and may be converted into 313,890 shares
of Orius Corp. common stock. At March 31, 1999, the recorded value of the
Series B Preferred has been determined based upon the converted common
shares of 313,890 at $33.30 per share, or $10,452,866. The accretion from
February 26, 1999 to March 31, 1999 totaled $2,856,728.
7. INCOME TAXES
In connection with the simultaneous business combination on March 31,
1998, the predecessor's Channel Communications, Inc.'s S corporation
status for income tax purposes was terminated. Consequently, a change to
income tax expense of $330,254 was recorded to establish deferred tax
liabilities with payment to be spread over four years.
8. SUBSEQUENT EVENTS - ACQUISITION
On May 25, 1999, the Company acquired all of the outstanding stock of
Texel Corporation for cash of $26.25 million and 99,444 shares of common
stock, plus transaction costs of $750 thousand.
F-8
<PAGE> 60
ORIUS CORP. AND SUBSIDIARIES
INTRODUCTION TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
We (Orius Corp.) were formed in August 1997 to create a nationwide
provider of comprehensive telecom infrastructure services. We have completed 13
acquisitions since March 1998. While the businesses were acquired at various
dates during 1998 and 1999, the following unaudited pro forma statements of
operations are presented as if all such acquisitions and this offering had
occurred on January 1, 1998. The following unaudited pro forma balance sheet
gives effect to the Texel acquisition and this offering as if they had occurred
on March 31, 1999. All other acquisitions occurred prior to March 31, 1999 and
are included in the Company's balance sheet at March 31, 1999.
The following unaudited pro forma financial statements have been
derived from (1) our (including the acquired businesses) financial information
and, when applicable, includes adjustments to conform fiscal periods to calendar
periods, (2) the audited financial statements and notes thereto of certain of
the acquired businesses for certain periods and (3) audited financial statements
and notes thereto since inception, which financial statements appear elsewhere
in this prospectus.
The unaudited pro forma financial statements have been prepared for
comparative purposes only and do not purport to be indicative of the results
which would have been achieved had the acquired businesses been purchased and
this offering consummated as of the assumed dates, nor are the results
indicative of our future results. The unaudited pro forma financial statements
should be read in conjunction with "Selected Historical Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and notes thereto since inception and
certain of the acquired businesses for certain periods included elsewhere
herein.
F-9
<PAGE> 61
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS(a)
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31, 1998
-------------------------------------------------------------------------------------
The | Cable- U.S. State
Company Channel Subtotal | masters Excel Mich-Com Cable Wide Burn-Techs
------- ------- -------- | ------- ----- -------- ----- ---- ----------
<S> <C> <C> <C> | <C> <C> <C> <C> <C> <C>
REVENUES: $77,332 $4,219 $81,551 | $3,485 $1,868 $2,379 $ 9,465 $3,524 $ 597
|
EXPENSES: |
Direct costs 56,532 3,364 59,896 | 2,500 1,545 1,953 6,832 2,879 223
General and administrative 7,935 710 8,645 | 572 94 187 3,013 272 41
Depreciation and amortization 3,364 203 3,567 | 114 35 73 259 125 14
------- ------ ------- | ------ ------ ------ ------- ------ -----
Total 67,831 4,277 72,108 | 3,186 1,674 2,213 10,104 3,276 278
|
INCOME (LOSS) FROM OPERATIONS 9,501 (58) 9,443 | 299 194 166 (639) 248 319
|
OTHER (INCOME) EXPENSE: |
Interest expense, net 2,565 (57) 2,508 | 43 -- 7 (67) 24 --
Other (income) expense (19) (53) (72)| (6) (1) 30 (144) -- --
------- ------ ------- | ------ ------ ------ ------- ------ -----
INCOME (LOSS) BEFORE INCOME TAX PROVISION 6,955 52 7,007 | 262 195 129 (428) 224 319
|
PROVISION FOR INCOME TAXES 2,925 358 3,283 | -- -- 21 (156) 1 96
------- ------ ------- | ------ ------ ------ ------- ------ -----
|
NET INCOME (LOSS) $ 4,030 $ (306) $ 3,724 | $ 262 $ 195 $ 108 $ (272) $ 223 $ 223
======= ====== ======= | ====== ====== ====== ======= ====== =====
<CAPTION>
Year Ended December 31, 1998
-----------------------------------------------------------------------------------
Network | |
CATV DAS-CO Schatz Copenhagen Cabling Texel | Adjustments | Pro forma
---- ------ ------ ---------- ------- ----- | ----------- | ---------
<S> <C> <C> <C> <C> <C> <C> | <C> | <C>
REVENUES: $19,412 $21,778 $31,254 $35,192 $24,586 $29,649 | $ -- | $ 264,740
| |
EXPENSES: | |
Direct costs 16,018 14,548 18,867 27,092 21,267 20,634 | (925)(b) | 193,329
General and administrative 3,493 3,830 9,137 7,701 1,871 1,762 | (15,767)(c) | 24,851
Depreciation and | |
amortization 296 938 2,199 840 179 101 | 984 (d) | 9,724
------- ------- ------- ------- ------- ------- | -------- | ---------
Total 19,807 19,316 30,203 35,633 23,317 22,497 | (15,708) | 227,904
| |
INCOME (LOSS) FROM | |
OPERATIONS (395) 2,462 1,051 (441) 1,269 7,152 | 15,708 | 36,836
| |
OTHER (INCOME) EXPENSE: | |
Interest expense, net 290 (44) 576 (170) 137 (128) | 11,085 (e) | 14,261
Other (income) expense 4 (77) (35) (9) 88 | -- | (222)
------- ------- ------- ------- ------- ------- | -------- | ---------
INCOME (LOSS) BEFORE INCOME | |
TAX PROVISION (685) 2,502 552 (236) 1,141 7,192 | 4,623 | 22,797
| |
PROVISION FOR INCOME TAXES (248) -- 224 (76) 401 -- | 6,371 (f) | 9,917
------- ------- ------- ------- ------- ------- | -------- | ---------
NET INCOME (LOSS) $ (437) $ 2,502 $ 328 $ (160) $ 740 $ 7,192 | $(1,748) | $12,880
======= ======= ======= ======= ======= ======= | ======= | =======
</TABLE>
F-10
<PAGE> 62
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS(a)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31, 1998
-------------------------------------------------------------------------------------
The Cable-
Company masters Excel Mich-Com U.S. Cable State Wide Burn-Techs CATV
-------- ------- ----- -------- -------- ---------- ---------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES: $ 4,219 $ 3,485 $ 1,868 $ 2,379 $ 3,948 $ 909 $ 189 $ 8,069
EXPENSES:
Direct costs 3,364 2,500 1,545 1,953 2,557 598 30 6,673
General and administrative 710 572 94 187 888 166 4 639
Depreciation and amortization 203 114 35 73 75 36 2 139
-------- -------- -------- -------- -------- -------- -------- --------
Total 4,277 3,186 1,674 2,213 3,520 800 36 7,451
INCOME (LOSS) FROM OPERATIONS (58) 299 194 166 428 109 153 618
OTHER (INCOME) EXPENSE:
Interest expense, net (57) 43 -- 7 (32) 15 -- 115
Other (income) expense (53) (6) (1) 30 (12) -- -- (9)
-------- -------- -------- -------- -------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME
TAX PROVISION 52 262 195 129 472 94 153 512
PROVISION FOR INCOME TAXES 358 -- -- 21 196 -- -- 167
-------- -------- -------- -------- -------- -------- -------- --------
NET INCOME (LOSS) $ (306) $ 262 $ 195 $ 108 $ 276 $ 94 $ 153 $ 345
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31, 1998
---------------------------------------------------------------------------------------
Network | |
DAS-CO Schatz Copenhagen Cabling Texel | Adjustments | Pro forma
------ ------ ---------- ------- ----- | ----------- | ---------
<S> <C> <C> <C> <C> <C> | <C> | <C>
REVENUES: $ 2,655 $ 4,830 $ 7,654 $ 4,903 $ 6,924 | $ -- | $ 52,032
| |
EXPENSES: | |
Direct costs 2,060 3,458 6,149 4,272 4,847 | 7 (b) | 40,013
General and administrative 682 1,066 532 339 371 | (1,120)(c) | 5,130
Depreciation and amortization 235 400 221 38 25 | 835 (d) | 2,431
-------- -------- -------- -------- -------- | -------- | --------
Total 2,977 4,924 6,902 4,649 5,243 | (278) | 47,574
| |
INCOME (LOSS) FROM OPERATIONS (322) (94) 752 254 1,681 | 278 | 4,458
| |
OTHER (INCOME) EXPENSE: | |
Interest expense, net (2) 129 (5) 38 (30) | 3,344 (e) | 3,565
Other (income) expense 8 (15) (31) -- 19 | -- | (70)
-------- -------- -------- -------- -------- | -------- | --------
INCOME (LOSS) BEFORE INCOME | |
TAX PROVISION (328) (208) 788 216 1,692 | (3,066) | 963
| |
PROVISION FOR INCOME TAXES -- 56 -- 79 -- | (458)(f) | 419
-------- -------- -------- -------- -------- | -------- | --------
NET INCOME (LOSS) $ (328) $ (264) $ 788 $ 137 $ 1,692 | $ (2,608) | $ 544
======== ======== ======== ======== ========= | ======== | ========
</TABLE>
F-11
<PAGE> 63
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS(a)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
------------------------------------------------------------------------------------------
The Network | |
Company DAS-CO Schatz Copenhagen Cabling Texel | Adjustments | Pro forma
------- ------ ------ ---------- ------- ----- | ----------- | ---------
<S> <C> <C> <C> <C> <C> <C> | <C> | <C>
REVENUES: $ 46,069 $ 3,660 $ 4,698 $ 3,877 $ 3,801 $ 6,267 | $ -- | $ 68,372
| |
EXPENSES: | |
Direct costs 36,224 1,910 3,457 2,640 3,012 4,387 | -- | 51,630
General and administrative 4,540 368 902 474 314 395 | (68)(c) | 6,925
Depreciation and amortization 1,808 122 320 160 28 31 | (38)(d) | 2,431
-------- -------- -------- -------- --------- -------- | -------- | --------
Total 42,572 2,400 4,679 3,274 3,354 4,813 | (106) | 60,986
| |
INCOME FROM OPERATIONS 3,497 1,260 19 603 447 1,454 | 106 | 7,386
| |
OTHER (INCOME) EXPENSE: | |
Interest expense, net 2,160 (3) (12) (19) 31 (31) | 1,439 (e) | 3,565
Other (income) expense (26) 1 (1) 8 1 46 | -- | 29
-------- -------- -------- -------- --------- -------- | -------- | --------
INCOME (LOSS) BEFORE INCOME TAX PROVISION | |
AND EXTRAORDINARY CHARGE 1,363 1,262 32 614 415 1,439 | (1,333) | 3,792
| |
PROVISION FOR INCOME TAXES 692 18 13 -- 172 -- | 732 (f) | 1,627
-------- -------- -------- -------- --------- -------- | -------- | --------
INCOME (LOSS) BEFORE EXTRAORDINARY | |
CHARGE $ 671 $ 1,244 $ 19 $ 614 $ 243 $ 1,439 | $ (2,065) | $ 2,165
======== ======== ======== ======== ========= ======== | ======== | ========
</TABLE>
F-12
<PAGE> 64
UNAUDITED PRO FORMA BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
At March 31, 1999
------------------------------------------------------------------------
The Pro forma Offering Pro forma,
Company(g) Texel(g) Adjustments(h) Pro forma Adjustments as Adjusted
-------- -------- -------------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ -- $ 2,126 $ -- $ 2,126 $ -- $ --
Accounts receivable, net 43,400 6,500 -- 49,900 -- --
Unbilled accounts receivable for
work-in-process 25,391 999 -- 26,390 -- --
Inventory 14,682 -- -- 14,682 -- --
Prepaid and other current assets 1,241 14 -- 1,255 -- --
-------- -------- ------- -------- -------- ----------
Total current assets 84,714 9,639 -- 94,353 -- --
-------- -------- ------- -------- -------- ----------
Property and equipment, net 35,314 1,010 -- 36,324 -- --
-------- -------- ------- -------- -------- ----------
Goodwill, net 72,611 -- 24,208 (i) 96,819 -- --
Deferred financing costs, net 3,976 -- -- 3,976 -- --
Other, including deferred income tax asset 2,079 -- -- 2,079 -- --
-------- -------- ------- -------- -------- ----------
TOTAL $198,694 $ 10,649 $24,208 $233,551 $ -- $ --
======== ======== ======= ======== ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long term debt $ 10,271 $ -- $ 1,550 (ii) $ 11,821 $ -- $ --
Borrowing under credit facility 8,000 -- 2,000 (ii) 10,000 -- --
Accounts payable 13,796 1,297 -- 15,093 -- --
Accrued liabilities 11,552 786 -- 12,338 -- --
Deferred revenues 3,084 -- -- 3,084 -- --
Other liabilities, including deferred income
tax liability 201 -- 542 (iii) 743 --
-------- -------- ------- -------- -------- ----------
Total current liabilities 46,904 2,083 4,042 53,079 -- --
-------- -------- ------- -------- -------- ----------
Long-term debt 111,329 -- 23,450 (ii) 134,779 --
Deferred income tax liability 5,450 -- 1,624 (iii) 7,074 --
Deferred revenues 4,670 297 -- 4,967 -- --
-------- -------- ------- -------- -------- ----------
Total liabilities 168,353 2,380 29,166 199,899 -- --
-------- -------- ------- -------- -------- ----------
Convertible preferred stock 20,470 -- -- 20,470 -- --
Value of redemption rights associated with
junior subordinated convertible note 1,056 -- -- 1,056 -- --
-------- -------- ------- -------- -------- ----------
21,526 -- -- 21,526
-------- -------- ------- -------- -------- ----------
Stockholders' equity 8,815 8,269 (4,958)(iv) 12,126 -- --
-------- -------- ------- -------- -------- ----------
TOTAL $198,694 $ 10,649 $ 24,208 $233,551 $ -- $ --
======== ======== ======= ======== ======== ==========
</TABLE>
F-13
<PAGE> 65
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(a) For the Company, results for the year ended December 31, 1998 and for
the three months ended March 31, 1998 represent actual historical 1998
results, including results for the Acquired Businesses purchased in
the related 1998 period from the date of acquisition. Results for the
three months ended March 31, 1999 represent actual historical results
for the Company, including results for the acquired businesses
purchased in the first quarter of 1999 from the date of acquisition.
For the acquired businesses, results for the year ended December 31,
1998 and for the three months ended March 31, 1998, represent combined
historical results for (i) the acquired businesses purchased in the
related 1998 period prior to the date of acquisition and (ii) the
acquired businesses purchased in 1999. For the acquired businesses,
results for the three months ended March 31, 1999 represent combined
historical results for (i) the acquired businesses purchased in 1999
prior to the date of acquisition and (ii) Texel which was acquired on
May 25, 1999.
(b) Reflects the decrease resulting from differentials between
compensation levels of former owners of the acquired businesses and
the terms of the employment agreements entered into between certain of
the former owners and the Company.
(c) The pro forma adjustment consists of the following:
Three Months Ended
Year Ended March 31,
December 31, -----------------------
1998 1998 1999
------------ ------- ------
Owners compensation(i) $(14,615) $(1,114) $ (168)
Business not acquired(ii) (1,372) (86) --
Rent expense(iii) 220 80 100
-------- ------- ------
$(15,767) $(1,120) $ (68)
-------- ------- ------
(i) The decrease resulting from differentials between
compensation levels of former owners of the acquired
businesses and the terms of the employment agreements entered
into between certain of the former owners and the Company.
(ii) Reflects the elimination of a business not purchased from
CATV Subscriber Services.
(iii) Reflects the rent expense resulting from our current lease
terms as compared to lease terms entered into by former
owners. In addition, reflects the increase in rent expense
and corresponding decrease in depreciation expense and real
estate tax expense resulting from leasing rather than owning
certain related facilities which were not purchased from the
former owners of the acquired businesses.
(d) Depreciation has been derived utilizing the property, plant and
equipment values of each of the acquired businesses at the time of
their acquisition, rather than utilizing values of property, plant and
equipment actually held by each of the acquired businesses in the
period presented. Reflects the impact on depreciation resulting from
the application of our depreciation policy rather than those of the
former owners of the acquired businesses. In addition, reflects the
change in depreciation resulting from the write-up of property, plant
and equipment to fair value.
F-14
<PAGE> 66
value arising from purchase accounting. Also reflects amortization of
goodwill calculated based on goodwill lives ranging from 10 to 40
years. The pro forma adjustments consist of the following:
Three Months Ended
Year Ended March 31,
December 31, ------------------------
1998 1998 1999
------------ ------- -------
Depreciation:
Change in accounting
policy $(3,088) $ (462) $ (738)
Write-up of property
and equipment 1,864 601 363
------- ------- -------
(1,224) 139 (375)
Amortization of goodwill 2,208 696 337
------- ------- -------
$ 984 $ 835 $ (38)
------- ------- -------
(e) Reflects the increase in interest expense at our borrowing rate under
our bank credit agreements on the indebtedness resulting from the
purchase of the acquired businesses. In addition, reflects elimination
of $67 and $25 during the year ended December 31, 1998 and three
months ended March 31, 1998, respectively, of a business not purchased
from CATV Subscriber Services. Under the terms of our bank credit
agreements, interest accrues at variable borrowing rates. If interest
rates were to fluctuate by 1/8 of 1 percent, pro forma interest expense
would change by $194 for the year ended December 31, 1998 and $49 for
the three month periods ended March 31, 1998 and 1999.
(f) Reflects the income tax rate that would have been in effect if the
acquired businesses had been combined and subject to a federal
statutory rate of 35% and the applicable state statutory rate for each
of the acquired businesses throughout the period presented.
(g) Represents the actual historical balance sheets for the Company and
Texel as of March 31, 1999.
(h) The following are adjustments to the aforementioned balance sheets:
(i) Reflects $23,458 of goodwill representing the excess of the
purchase price over the fair value of net assets acquired. In
addition, reflects $750 of transaction related expenses.
(ii) Reflects additional borrowings of $25,000 and $2,000 under
the senior secured credit facility and revolving credit
facility, respectively, to fund the Texel acquisition of
$26,250 and $750 of transaction related expenses.
(iii) Reflects liabilities assumed in connection with the Texel
acquisition.
(iv) Reflects the issuance of Orius common stock used to fund the
acquisition of Texel and the elimination of the equity of
Texel.
F-15
<PAGE> 67
REPORT OF INDEPENDENT ACCOUNTANTS
The Stockholders and Board of Directors of
Orius Corp. and Subsidiaries
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of Orius Corp.
and Subsidiaries (the "Company") at December 31, 1998, and the results of their
operations and their cash flows for the period from March 31, 1998 through
December 31, 1998, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
April 29, 1999
F-16
<PAGE> 68
REPORT OF INDEPENDENT ACCOUNTANTS
The Stockholders and Board of Directors of
Orius Corp. and Subsidiaries
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of Channel
Communications, Inc. (the "Company" f/k/a Kenya Corp.) at March 31, 1998, and
the results of their operations and their cash flows for the three months ended
March 31, 1998, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
April 29, 1999
F-17
<PAGE> 69
REPORT OF INDEPENDENT ACCOUNTANTS
Stockholder and Board of Directors of
Kenya Corporation and Subsidiary
Sheboygan, Wisconsin
We have audited the accompanying consolidated balance sheet of Channel
Communications, Inc. (f/k/a Kenya Corp.) as of December 31, 1997, and the
related consolidated statements of income and retained earnings and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to in the first
paragraph present fairly, in all material respects, the consolidated financial
position of Kenya Corporation and subsidiary as of December 31, 1997, and the
consolidated results of their operations and their consolidated cash flows for
the year then ended in conformity with generally accepted accounting principles.
/s/ WILLIAMS, YOUNG & ASSOCIATES, LLC
Madison, Wisconsin
February 27, 1998
F-18
<PAGE> 70
INDEPENDENT AUDITORS' REPORT
Stockholder and Board of Directors
Kenya Corporation and Subsidiary
Sheboygan, Wisconsin
We have audited the accompanying consolidated balance sheet of Kenya
Corporation and Subsidiary as of December 31, 1996, and the related
consolidated statement of income and retained earnings and cash flows for the
year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our report dated August 15, 1997, we expressed a qualified opinion because
of the non recognition of a loss of $723,716 for an uncollectible receivable in
1995. This loss was recorded in 1996. If the financial statements were
corrected for this departure, net income would be increased by $723,716 in 1996
and decreased by $723,716 in 1995. The net effect of this loss on retained
earnings as of December 31, 1996 is $0. The Company has changed its method of
accounting for this transaction and restated its financial statements to
conform with generally accepted accounting principles. Accordingly, our present
opinion on the financial statements, as presented herein, is different from
that expressed in our previous report.
In our opinion, the consolidated financial statements referred to in the first
paragraph present fairly, in all material respects, the consolidated financial
position of Kenya Corporation and Subsidiary as of December 31, 1996, and the
consolidated results of their operations and their consolidated cash flows for
the year then ended in conformity with generally accepted accounting principles.
/s/ WILLIAMS, YOUNG & ASSOCIATES, LLC
Madison, Wisconsin
August 15, 1997, except as to the
third paragraph above, which is
as of May 26, 1999.
F-19
<PAGE> 71
ORIUS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
----------------------------- ------------
DECEMBER 31, MARCH 31, DECEMBER 31,
1997 1998 1998
------------ ----------- ------------
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 346,636 $ 1,404,829 $ 2,252,303
Accounts receivable, net 4,349,058 3,989,436 26,153,402
Unbilled accounts revenue 1,495,732 786,482 12,189,615
Inventory -- -- 9,542,743
Prepaid and other current assets 76,158 128,356 852,481
------------ ----------- -----------
Total current assets 6,267,584 6,309,103 50,990,544
------------ ----------- -----------
Property and equipment, net 3,303,390 3,090,889 15,474,071
------------ ----------- -----------
Other assets:
Goodwill, net 81,304 81,304 27,052,711
Deferred financing costs, net -- -- 1,400,527
Other 16,450 19,048 917,986
------------ ----------- -----------
Total other assets 97,754 100,352 29,371,224
------------ ----------- -----------
Total assets $ 9,668,728 $ 9,500,344 $95,835,839
============ =========== ===========
Liabilities and stockholders' equity:
Current liabilities:
Current portion of long term debt $ -- $ 51,074 $ 5,864,268
Borrowing under credit facility -- -- 6,750,000
Accounts payable 1,244,919 1,162,230 8,288,999
Accrued liabilities 276,682 282,535 5,844,889
Deferred revenues -- -- 2,621,398
Other liabilities, including deferred
income tax liability -- 330,254 655,988
------------ ----------- -----------
Total current liabilities 1,521,601 1,826,093 30,025,542
------------ ----------- -----------
Long-term debt -- -- 42,649,585
Deferred income tax liability -- -- 2,594,697
Deferred revenues -- -- 4,670,000
------------ ----------- -----------
Total liabilities 1,521,601 1,826,093 79,939,824
------------ ----------- -----------
Convertible preferred stock, par value $.0001 per share;
300,000 shares authorized; 10,000 shares issued and
outstanding -- -- 7,340,649
Value of redemption rights associated with junior
subordinated convertible note -- -- 493,358
------------ ----------- -----------
-- -- 7,834,007
------------ ----------- -----------
Stockholders' equity:
Common stock, predecessor 27,500 27,500 --
Common stock, par value $.0001 per share; 4,700,000
shares authorized; 1,051,756 shares issued and
outstanding at December 31, 1998 -- -- 105
Additional paid-in capital 386 386 7,427,745
Retained earnings 8,119,241 7,646,365 634,158
------------ ----------- -----------
Total stockholders' equity 8,147,127 7,674,251 8,062,008
------------ ----------- -----------
Total liabilities and stockholders' equity $ 9,668,728 $ 9,500,344 $95,835,839
============ =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED
FINANCIAL STATEMENTS
F-20
<PAGE> 72
ORIUS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
--------------------------------------------------- --------------
YEARS ENDED JANUARY 1, 1998 MARCH 31, 1998
DECEMBER 31, THROUGH THROUGH
-------------------------------- MARCH 31, DECEMBER 31,
1996 1997 1998 1998
------------ ------------ --------------- --------------
<S> <C> <C> <C> <C>
REVENUES, NET: $ 32,124,776 $ 20,267,800 $ 4,218,833 $ 77,331,592
------------ ------------ ------------ ------------
EXPENSES:
Direct costs 23,518,738 15,256,947 3,364,584 56,532,270
General and administrative 4,021,648 2,260,758 709,928 7,935,079
Depreciation and amortization 670,436 823,602 202,643 3,363,865
------------ ------------ ------------ ------------
Total 28,210,822 18,341,307 4,277,155 67,831,214
------------ ------------ ------------ ------------
Income (loss) from operations 3,913,954 1,926,493 (58,322) 9,500,378
Other (income) expense:
Interest expense, net (97,068) (66,314) (57,697) 2,565,092
Other income (88,669) (69,812) (52,966) (19,379)
------------ ------------ ------------ ------------
Income before income tax provision
and discontinued operations 4,099,691 2,062,619 52,341 6,954,665
(Benefit) provision for income taxes 1,619,000 (137,387) 358,430 2,925,000
------------ ------------ ------------ ------------
Income (loss) from continuing operations 2,480,691 2,200,006 (306,089) 4,029,665
Loss from discontinued operations,
net of tax benefit of $77,401 (121,063) -- -- --
Gain on sale of assets of discontinued
operation, net of tax of $1,042,760 2,003,648 -- -- --
------------ ------------ ------------ ------------
Net income (loss) $ 4,363,276 $ 2,200,006 $ (306,089) 4,029,665
============ ============ ============
Accretion and dividends associated with
preferred stock and junior convertible
note (3,395,507)
------------
Net income available to
common stockholders $ 634,158
============
Per common share:
Basic:
Income (loss) from operations $ 9,020.69
Loss from discontinued operations (440.23)
Gain on sale of discontinued
operations 7,285.99
------------
Net income (loss) available to
common stockholders $ 15,866.46 $ 8,000.02 $ (1,113.05) $ 0.69
============ ============ ============ ============
Weighted average shares outstanding:
Basic 275 275 275 920,818
============ ============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED
FINANCIAL STATEMENTS
F-21
<PAGE> 73
ORIUS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
-------------------------------------------- --------------
YEARS ENDED JANUARY 1 MARCH 31, 1998
DECEMBER 31, THROUGH THROUGH
---------------------------- MARCH 31, DECEMBER 31,
1996 1997 1998 1998
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Increase (Decrease) in cash and equivalents from:
OPERATING ACTIVITIES:
Net Income $ 5,086,992 $ 2,200,006 $ (306,089) $ 4,029,665
Adjustments to reconcile net cash provided by (used in)
operating activities:
Provision for uncollectible accounts -- 14,047 165,000 240,284
Depreciation and amortization 837,130 823,602 202,643 3,363,865
Amortization of deferred finance costs -- -- -- 166,919
Loss (gain) on disposal of assets (3,032,742) (13,705) 1,928 51,222
Deferred income tax benefit 133,420 (220,276) 330,254 (637,693)
Changes in assets and liabilities:
Accounts receivable and unbilled revenues (1,246,198) (2,982,762) 903,872 (12,055,189)
Inventories -- -- -- (9,542,743)
Income tax receivable 196,406 -- -- --
Other current assets (69,602) 86,050 (51,198) 742,119
Other noncurrent assets 958,917 9,623 (2,598) (573,986)
Accounts payable and accrued liablities 303,055 (112,602) (46,997) 2,320,170
Deferred revenues -- -- -- 7,291,398
Other liabilities 2,216,568 (2,185,326) (31,242) (610,565)
------------ ------------ ------------ ------------
Net cash provided by (used in) operating activities 5,383,946 (2,381,343) 1,165,573 (5,214,534)
------------ ------------ ------------ ------------
INVESTING ACTIVITIES:
Capital expenditures (2,475,748) (211,947) (152,337) (3,770,863)
Proceeds from sale of assets 3,214,590 57,542 -- 75,510
Purchases of subsidiaries, net of cash acquired,
including payment to accounting acquirer -- -- -- (40,934,547)
Collection on notes receivable stockholder 982,823 548,614 -- --
------------ ------------ ------------ ------------
Net cash provided by (used in) investing activities 1,721,665 394,209 (152,337) (44,629,900)
------------ ------------ ------------ ------------
FINANCING ACTIVITIES:
Borrowings on credit facility -- -- 51,074 61,255,603
Principal payments on notes payable and credit facility (2,911,878) -- -- (13,434,749)
Amounts paid for deferred financing costs -- -- -- (1,567,446)
Distributions paid to stockholder -- (2,593,439) (6,117) --
Proceeds from issuance of convertible preferred
stock, net of costs -- -- -- 4,438,500
------------ ------------ ------------ ------------
Net cash provided by (used in) financing activities (2,911,878) (2,593,439) 44,957 50,691,908
------------ ------------ ------------ ------------
NET CASH INFLOW (OUTFLOW) FROM ALL ACTIVITIES 4,193,733 (4,580,573) 1,058,193 847,474
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 733,476 4,927,209 346,636 1,404,829
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,927,209 $ 346,636 $ 1,404,829 $ 2,252,303
============ ============ ============ ============
Cash paid for:
Interest $ 97,525 $ 19,858 $ 855 $ 2,305,846
Income taxes $ 26,356 $ 2,185,326 $ 59,418 $ 2,709,825
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED
FINANCIAL STATEMENTS
F-22
<PAGE> 74
ORIUS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK ADDITIONAL TOTAL
----------------------- ------------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS EQUITY
---------- ----------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
PREDECESSOR:
Balance at December 31, 1996 275 $ 27,500 -- $ -- $ 386 $8,512,674 $8,540,560
Net Income 2,200,006 2,200,006
Distributions (2,593,439) (2,593,439)
---------- ----------- ---------- ----------- ---------- ---------- ----------
Balance at December 31, 1997 275 27,500 -- -- 386 8,119,241 8,147,127
Net Income (306,089) (306,089)
Distributions (166,787) (166,787)
---------- ----------- ---------- ----------- ---------- ---------- -----------
Balance at March 31, 1998 275 $ 27,500 -- $ -- $ 386 $7,646,365 $7,674,251
====================================================================================================================================
COMPANY:
Shares exchanged (275) $ (27,500) 268,257 $ 27 $ 27,473 $ -- $ --
Cash payment to accounting acquirer (4,440,635) (7,646,365)(12,087,000)
Common stock issued for acquisitions 783,499 78 11,840,521 11,840,599
Accretion associated with junior
subordinated convertible note (493,358) (493,358)
Accretion associated with
convertible preferred stock,
including dividends (2,902,149) (2,902,149)
Net income 4,029,665 4,029,665
---------- ----------- ---------- ----------- ---------- ---------- -----------
Balance at December 31, 1998 -- $ -- 1,051,756 $ 105 $7,427,745 $ 634,158 $8,062,008
========== =========== ========== =========== ========== ========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED
FINANCIAL STATEMENTS
F-23
<PAGE> 75
ORIUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. COMMENCEMENT OF OPERATIONS
Orius Corp. was formed in January 1999 by North American Tel-Com
Group, Inc. (NATG or the Company). NATG was formed in 1997 to create a
nationwide provider of comprehensive telecom infrastructure
services. As further discussed in Note 16, as a result of a merger in
February 1999, NATG became an indirect subsidiary of Orius. NATG had no
substantive operations prior to March 31, 1998 and these financial
statements reflect the NATG operations from March 31, 1998 through
December 31, 1998, NATG's fiscal year end.
On March 31, 1998, NATG and several other parties simultaneously
entered into a series of transactions and agreements including: a new
stockholders' agreement (Note 9); preferred stock coupled with a
redemption agreement (Notes 7 and 8) and a junior subordinated
convertible note (Note 6) were issued to HIG Cable, Inc. (HIG), a
credit facility and loan agreement was completed (Note 6); and four
stock exchange agreements were completed (Note 3). The result of these
transactions was the commencement of NATG's operations. As further
discussed in Note 16, Orius was reorganized in early 1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - The Company's operations consist primarily of
installation, design, engineering, and maintenance services for the
telecom industry in the United States.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include NATG Corp. and its subsidiaries, all of which are currently
wholly owned subsidiaries of NATG. All material intercompany accounts
and transactions have been eliminated. The Company operates and reports
financial results on a fiscal year of 52 or 53 weeks ending on the
Saturday closest to December 31. Accordingly, fiscal 1998 ended on
December 31, 1998.
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual
results could differ from those estimates and such differences may be
material to the financial statements.
Estimates are used in the Company's revenue recognition of
work-in-process, allowance for doubtful accounts, depreciation and
amortization, and in the estimated lives of assets including
intangibles.
EARNINGS PER SHARE - Diluted earnings per share have not been presented
because inclusion of the effects of the Company's convertible
securities and options granted to management are anti-dilutive
individually and in the aggregate.
F-24
<PAGE> 76
ORIUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REVENUES - Revenues from contracts are recognized as the related work
is completed. Unbilled revenues consist of work-in-process on contracts
based on management's estimate of work performed, but not billed. All
costs associated with unbilled revenues are recorded as expenses in the
same period as the unbilled revenue. At the time a loss on a contract
becomes known, the entire amount of the estimated ultimate loss is
accrued. Deferred revenues consist principally of prepayments by
customers for the cost of material and services to be provided and are
recognized as revenues as the related material is used or services are
provided.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include all
highly liquid investments with a maturity of three months or less at
the time of purchase. For purposes of the consolidated statements of
cash flows, the Company considers these to be cash equivalents.
PROPERTY AND EQUIPMENT - Property and equipment is stated at cost.
Depreciation and amortization is computed over the estimated useful
life of the assets utilizing the straight-line method. The estimated
useful service lives of the assets are: buildings - 20-30 years;
leasehold improvements - the term of the respective lease or the
estimated useful life of the improvements, whichever is shorter;
vehicles - 3-7 years; equipment and machinery - 3-7 years; computer
software and hardware - 3-5 years; and furniture and fixtures - 5-7
years. Maintenance and repairs are expensed as incurred; expenditures
that enhance the value of the property or extend its useful life are
capitalized. When assets are sold or retired, the cost and related
accumulated depreciation are removed from the accounts and the
resulting gain or loss is included in income.
INVENTORY - Inventories are stated at the lower of cost, on a first-in,
first-out basis, or market. Inventory consists of items purchased for
resale at cost based on terms of customer contracts. Accordingly, there
is no cost other than the purchase price of the items purchased
included in the carrying value.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The fair value of the Company's
financial instruments approximate the carrying values.
INTANGIBLE ASSETS - The excess of the purchase price over the fair
market value of the tangible net assets of acquired businesses
(goodwill) is amortized on a straight-line basis over estimated useful
lives of 10 to 40 years. The appropriateness of the carrying value of
goodwill is reviewed periodically by the Company at a subsidiary level.
An impairment loss is recognized when the projected future cash flows
are less than the carrying value of goodwill. No impairment loss has
been recognized in the period presented. Amortization expense was
$574,753 for the fiscal period ending December 31, 1998. The intangible
assets at December 31, 1998 are net of accumulated amortization of
$574,753.
Included in other assets are intangible assets for deferred financing
costs. Deferred financing costs of $1,567,446 are being amortized over
the term of the related debt facility. For the period ended December
31, 1998, $166,919 of amortization expense related to these costs has
been included in interest expense.
F-25
<PAGE> 77
ORIUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INCOME TAXES - The Company and its subsidiaries file a consolidated
federal income tax return. Deferred income taxes are provided for the
temporary differences between the financial reporting basis and the tax
basis of the Company's assets and liabilities.
STOCK OPTION PLANS - In October 1995, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock Based Compensation,"
which was effective for the Company beginning August 1, 1996. SFAS No.
123 requires expanded disclosures of stock based compensation
arrangements with employees, and encourages, but does not require,
compensation cost to be measured based on the fair value of the equity
instrument awarded. Under SFAS No. 123, companies are permitted,
however, to continue to apply Accounting Principle Board (APB) Opinion
No. 25, which recognizes compensation based on the intrinsic value of
the equity instrument awarded. The Company will continue to apply APB
Opinion No. 25 to its stock based compensation awards to employees, and
will disclose in the annual financial statements the required pro forma
effect on net income and earnings per share. See Note 12.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS - In June 1998, the FASB
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which establishes standards for the accounting and
reporting of derivative instruments, including certain derivative
instruments imbedded in other contracts, (collectively referred to as
derivatives), and for hedging activities. It requires that an entity
recognize all derivatives as other assets or liabilities in the
statement of financial position, and measure those instruments at fair
value. This statement is effective for financial statements for periods
beginning after December 15, 1999.
3. ACQUISITIONS
On March 31, 1998, Channel Communications, Inc. (Channel), Cablemasters
Corp., Excel Cable Construction, Inc. and Mich-Com Cable Services
Incorporated simultaneously entered into stock exchange agreements with
the Company. Common stock of each of these companies was exchanged for
cash and common stock of the Company. In accordance with APB Opinion
No. 16, Channel was deemed to be the accounting acquirer of the other
companies involved in the simultaneous business combination. This
designation was made because after giving effect to the transactions on
March 31, 1998, Channel held the largest percentage of voting common
stock and was the largest entity involved in the simultaneous business
combination. Accordingly, the cash paid of $12,087,000 to former
Channel stockholders was accounted for as a reduction of Channel's
March 31 equity and no value was ascribed to the Company shares of
common stock received by the former stockholders.
F-26
<PAGE> 78
ORIUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Seven companies, including the companies involved in the simultaneous
business combination other than Channel, were acquired during 1998 for
total consideration of $39,583,400 plus transaction related expenses of
$1,209,350. Cash paid for the seven acquisitions totaled $27,638,200
(net of cash acquired of $3,025,200) and the value of common stock
issued, including the value of the shares held by Orius management,
totaled $11,840,600. Additionally, approximately $7.5 million of debt
was assumed. Summarized below are the seven acquisitions:
<TABLE>
<CAPTION>
ACQUISITION PRIMARY PRINCIPAL
COMPANY ACQUIRED DATE LOCATION CUSTOMERS
------------------------------ ----------- ------------------ ------------------
<S> <C> <C> <C>
Cablemasters Corp. 3/31/98 Pennsylvania Cable TV
Excel Cable Construction, Inc. 3/31/98 Florida Cable TV
Mich-Com Cable Services
Incorporated 3/31/98 Florida Cable TV
U.S. Cable, Inc. 6/30/98 Missouri Cable TV
CATV Subscriber Services, Inc. 8/31/98 North Carolina Cable TV
State Wide CATV, Inc. 8/31/98 Florida Cable TV
Burn-Techs, Inc. 8/31/98 Florida Telecommunications
</TABLE>
All the acquisitions were accounted for as purchases and were included
in the results of operations from the date of acquisition. The goodwill
associated with all the acquisitions during 1998 totaled $27,627,465.
The following pro forma financial information represents the unaudited
pro forma results of operations as if the aforementioned acquisitions
had been completed on January 1, 1998. These pro forma results give
effect to increased interest expense for acquisition debt and
amortization of related goodwill. These pro forma results have been
prepared for comparative purposes only and do not purport to be
indicative of the results of operations which would have been achieved
had these acquisitions been completed on January 1, 1998 nor are the
results indicative of the company's future results of operations (in
thousands).
Revenues $ 123,338
Net income $ 6,591
Net income available to
common stock per share $ 3.04
F-27
<PAGE> 79
ORIUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1998 consist of the following:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------------------- ---------------
DECEMBER 31, MARCH 31, DECEMBER 31,
1997 1998 1998
<S> <C> <C> <C>
Contract billings $ 4,067,489 $ 3,828,236 $23,673,522
Retainage 301,569 336,000 2,818,579
----------- ----------- -----------
4,369,058 4,164,236 26,492,101
Less allowance for doubtful accounts 20,000 174,800 338,699
----------- ----------- -----------
Accounts receivable, net $ 4,349,058 $ 3,989,436 $26,153,402
=========== =========== ===========
</TABLE>
The balances billed but not paid by customers pursuant to retainage
provisions in customer contracts will be due upon completion of the
contracts and acceptance by the customer. Based on the Company's
experience with similar contracts, the majority of the retention
balances at December 31, 1998 are expected to be collected within the
next twelve months.
5. PROPERTY AND EQUIPMENT
The accompanying consolidated balance sheet includes the following
property and equipment at December 31, 1998:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------------------ ---------------
DECEMBER 31, MARCH 31, DECEMBER 31,
1997 1998 1998
<S> <C> <C> <C>
Land, building and leasehold improvements $ 510,217 $ 270,939 $ 616,258
Vehicles 3,010,131 3,066,409 12,957,646
Equipment and machinery 3,331,415 3,414,406 7,579,213
Office equipment, including furniture and fixtures,
and computer equipment and software -- -- 770,931
----------- ----------- -----------
6,851,763 6,751,754 21,924,048
Less accumulated depreciation 3,548,374 3,660,865 6,449,977
----------- ----------- -----------
Property and equipment, net $ 3,303,389 $ 3,090,889 $15,474,071
=========== =========== ===========
</TABLE>
Certain subsidiaries of the Company have entered into lease
arrangements accounted for as capitalized leases. The carrying value of
capital leases at December 31, 1998 was $474,326, net of accumulated
depreciation of $76,628. Assets under capital leases are included as a
component of vehicles, and equipment and machinery. Maintenance and
repairs of property and equipment amounted to $1,204,600 for the period
ended December 31, 1998.
F-28
<PAGE> 80
ORIUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt outstanding at December 31, 1998 is detailed by type of
borrowing as follows:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
---------------- ----------------
MARCH 31, DECEMBER 31,
1998 1998
<S> <C> <C>
Bank credit facility:
Revolving credit facility, maturing on April 1, 2005; interest rate of LIBOR
or Federal Funds Rate plus 0.50%, in either case plus a margin of 2.00%
or 0.50%, respectively $ -- $ 6,750,000
Term loan, amortizing with final payment due April 1, 2003; interest rate of
LIBOR or Federal Funds Rate plus 0.50%, in either case plus a margin of
2.00% or 0.50%, respectively 51,704 27,625,000
Term loan, amortizing with final payment due April 1, 2005; interest rate of
LIBOR or Federal Funds Rate plus 0.50%, in either case plus a margin of
2.375% or 0.875%, respectively 18,950,000
Capital lease obligations -- 402,819
Equipment loans -- 472,284
Junior subordinated convertible note, due April 15, 2005, interest rate of 9% -- 1,063,750
----------- -----------
Total debt and capital lease obligations 51,704 55,263,853
Less current portion 51,704 12,614,268
----------- -----------
Long-term debt $ -- $42,649,585
=========== ===========
</TABLE>
BANK CREDIT FACILITY
On March 31, 1998, the Company entered into a credit facility with PNC
Bank, National Bank (PNC) as Bank and agent (the Credit Agreement), to
provide for two term notes totaling $19,000,000 and a revolving credit
facility, including a letter of credit subfacility, in the amount of
$10,000,000. In conjunction with the purchase of U.S. Cable, Inc., the
Credit Agreement was amended on June 30, 1998, increasing the revolving
credit note to $12,000,000 and the term notes to $33,000,000. In
conjunction with the acquisition of CATV Subscriber Services, Inc.,
State Wide CATV, Inc., and Burn-Techs, Inc., a second amendment to the
credit facility occurred on August 31, 1998, increasing the revolving
credit note to $15,000,000 and the term loans to $47,000,000. The term
loan in the amount of $28,000,000 matures on April 1, 2003. The
revolving credit note and the other term loan in the amount of
$19,000,000, mature on April 1, 2005. There is a commitment fee of
0.50% of the unused portion of the credit facility.
Outstanding amounts under the credit facility were secured by
substantially all of the Company's assets and the pledge of all of the
outstanding shares of common stock of each of the Company's direct and
indirect subsidiaries. The credit facility also contains certain
affirmative and negative covenants relating to the Company's Holding's
operations. As discussed in Note 16, the Company entered a new bank
credit agreement on February 26, 1999.
At March 31, 1998 and December 31, 1997, Channel had a revolving
line-of-credit with a bank for $2,500,000. The line of credit agreement
expires June 30, 1998. At March 31, 1998 and December 31, 1997, none of
the line-of-credit had been drawn.
F-29
<PAGE> 81
ORIUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL LEASE OBLIGATIONS AND EQUIPMENT LOANS
In addition to the borrowings under the credit facility, certain
subsidiaries have obligations outstanding under capital leases and
other equipment financing arrangements. The remaining obligations are
payable in monthly installments expiring at various dates through June
2003.
JUNIOR SUBORDINATED CONVERTIBLE NOTE
On March 31, 1998, the Company sold to HIG a $1,000,000, 9% junior
subordinated convertible note, due April 15, 2005 (the Junior
Convertible Note). Any time at the option of HIG, or at the Company's
option upon an initial public offering, the debt may be converted into
64,343.3 shares of the Company's common stock. As further discussed in
Note 8, the Company and HIG entered into a redemption agreement that
gives HIG certain rights to put its converted common stock to the
Company. Due to the conversion feature of the Junior Convertible Note
coupled with the redemption rights of HIG, the liability associated
with the Junior Convertible Note is adjusted at each balance sheet date
to the greater of the principal plus interest due or the fair market
value of the converted common stock. At January 2, 1998, the fair
market value of the converted common stock is estimated at $24.20.
Accordingly, the liability for the Junior Convertible Note is recorded
at $1,063,750. The amount attributable to the accretion to the fair
value of the converted common stock for the period ended December 31,
1998 of $493,358 is recorded as a reduction of retained earnings and on
a separate line in the balance sheet. The interest charge for the
period ended December 31, 1998 totaled $63,500 and was recorded as
interest expense.
MATURITIES
At December 31, 1998, the estimated aggregate annual repayments for
notes payable and capital lease obligations are as follows:
Maturities for fiscal years:
1999 $ 12,614,268
2000 6,277,265
2001 6,722,108
2002 7,027,750
2003 8,021,212
Thereafter 14,601,250
------------------
$ 55,263,853
==================
F-30
<PAGE> 82
ORIUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. SERIES A CONVERTIBLE PREFERRED STOCK
The Company issued 10,000 shares of Series A Convertible Preferred
Stock (Preferred Stock) to HIG for $4,438,500, net of $61,500 of issue
costs. The Preferred Stock has an 8% cumulative dividend, is
convertible to shares of Orius common stock, has full voting rights on
an as-if converted basis and conversion is at the discretion of HIG. At
December 31, 1998, the Preferred Stock could have been converted to
303,333 shares of common stock. The conversion rate may be reduced to
ensure that the value received by HIG in an initial public offering of
Orius common stock (an IPO) is equal to the face value of the Preferred
Stock plus accrued and unpaid dividends. In the event of an IPO, the
Company has the right to force conversion of the Preferred Stock.
Further, HIG has been given certain redemption rights discussed in Note
8.
At December 31, 1998, the total recorded value of the Preferred Stock
has been determined based upon the value of the converted common stock
shares of 303,333 at $24.20 per share or $7,340,649. The $24.20 per
share price was based upon the value of the additional preferred stock
purchased by HIG on February 26, 1999 as further discussed in Note 16.
8. HIG REDEMPTION RIGHTS
The Company entered into a redemption agreement on March 31, 1998 with
HIG (the Redemption Agreement) that allows HIG to redeem its converted
shares of common stock derived from the Preferred Stock and Junior
Convertible Note. Pursuant to the Redemption Agreement, HIG may redeem
its converted shares of common stock at the earlier of a sale of the
Company, a merger involving the Company, commencement of liquidation or
bankruptcy proceedings, an IPO or April 15, 2005. Conversion can only
occur for all of the shares Preferred Stock at once and the Junior
Convertible Note must be converted at the same time. The redemption
value of the converted shares of common stock is the greater of fair
market value at the date of redemption or the initial purchase price
for the Preferred Stock and Junior Convertible Note plus any
accumulated and unpaid dividends and interest. In the event of an
initial public offering of Orius common stock, HIG's redemption rights
are terminated.
9. STOCKHOLDERS' AGREEMENT
On March 31, 1998, a stockholders agreement was entered into by all of
the common stockholders and HIG. The stockholders agreement limits the
transfer of the common shares to immediate family and HIG has certain
limited rights with respect to sales of its shares. Generally, the
existing stockholders have the right of first refusal for all proposed
sales of common stock, but the Company has no obligation to repurchase
any shares except those covered by the Redemption Agreement discussed
in Note 8.
F-31
<PAGE> 83
ORIUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. INCOME TAXES
Effective January 1, 1997, Channel elected to be treated as an S
corporation for income tax purpose as allowed under the Internal
Revenue Code. With this conversion, the Company's net deferred tax
balance of $220,276 was reversed as a credit to the provision for
income taxes. The tax liabilities for the year ended December 31, 1997
were the responsibility of the individual shareholder. In connection
with the transaction on March 31, 1998, the Company's S corporation
status was terminated. With this termination, the Company was required
to recognize a deferred tax liability and corresponding charge to
income of $330,254 with payment to be spread over four years.
The components of the provision for income taxes for the period ended
December 31, 1998 and 1996 are:
Predecessor Company
--------------- ------------
1996 1998
Current:
Federal $ 2,225,000 $ 2,847,352
State 225,859 715,341
----------- -----------
2,450,859 3,562,693
----------- -----------
Deferred:
Federal 123,000 (555,480)
State 10,500 (82,213)
----------- -----------
133,500 (637,693)
----------- -----------
Total tax provision $ 2,584,359 $ 2,925,000
=========== ===========
The types of temporary differences between the tax bases of assets and
liabilities and their financial reporting amounts that give rise to the
deferred liabilities and assets at December 31, 1998 and their
approximate tax effects are as follows:
TEMPORARY TAX
DIFFERENCE EFFECT
------------------ ----------
Allowance for doubtful accounts $1,169,722 $ 463,327
Deferred compensation 212,037 83,988
Other 48,220 19,100
---------- ----------
Total deferred tax assets 1,429,980 566,415
---------- ----------
Accumulated depreciation 4,780,492 1,893,553
Reversal of cash basis 3,200,098 1,267,559
---------- ----------
Total deferred tax liabilities 7,980,591 3,161,112
---------- ----------
Net deferred tax liability $6,550,611 $2,594,697
========== ==========
F-32
<PAGE> 84
ORIUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the expected provision for income taxes at the
statutory Federal income tax rate and the actual provision for the
period ended December 31, 1998 and 1996 are as follows:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------------ -------------------------
1996 1998
------------------------ -------------------------
AMOUNT % AMOUNT %
----------- ---- ----------- ----
<S> <C> <C> <C> <C>
Expected total tax at statutory rate $ 2,362,196 34.0 $ 2,364,586 34.0
State taxes, net of federal benefit 149,067 2.1 472,125 6.8
Nondeductible amortization -- -- 195,416 2.8
Other, net 73,096 1.1 (107,127) (1.5)
----------- ---- ----------- ----
$ 2,584,359 37.2 $ 2,925,000 42.1
=========== ==== =========== ====
</TABLE>
11. EMPLOYEE BENEFIT PLANS
Certain subsidiaries of the Company have defined contribution plans
that provide retirement benefits to all employees that elect to
participate. Under the plans, participating employees may defer up to
15% of their base pre-tax compensation. Generally, the Company's
contributions to the plans are discretionary. The Company's
contributions were $72,509 in the fiscal period ended December 31,
1998.
12. STOCK OPTION PLANS
The Company has reserved 50,000 shares of common stock under its 1998
Incentive Stock Option Plan (the "1998 Plan") which was approved by the
stockholders on March 30, 1998. The 1998 Plan provides for the granting
of options to key employees. Options are exercisable over a period of 5
years. At December 31, 1998, options available for grant under the 1998
plan totaled 17,525 shares.
In fiscal 1998, the Company granted to key employees under the 1998
Plan, options to purchase an aggregate of 32,475 shares of common
stock. The options were granted at prices ranging from $50 to $90,
prices representing a premium to the fair market value on the date of
grant. At December 31, 1998, the weighted-average remaining contractual
life of the stock options outstanding is approximately nine years. As
of December 31, 1998, no options were exercisable.
Grants of options under the plan are accounted for using the intrinsic
value method. Accordingly, no compensation cost has been recognized for
grants made to date. There would have been no difference in net income
for the year ended December 31, 1998 had compensation cost been
determined by computing under the provisions of SFAS 123 regarding the
minimum fair value of each grant. For purposes of this calculation, the
fair value of each option grant is estimated as of the date of grant
using the Black-Scholes option pricing model. The weighted-average
assumptions used in determining fair value as disclosed for SFAS 123
were risk-free interest rates ranging from 5.0% to 5.7% and an option
life of six years.
F-33
<PAGE> 85
ORIUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
The operating subsidiaries obtain contracts from both public and
private concerns. For the period ended December 31, 1998, approximately
56% of the contract revenues were from three customers (TCI, Time
Warner, and MediaOne), with the largest customer representing
approximately 24% of the contract revenues.
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of trade accounts
receivable. The three customers noted above represent a significant
portion of the Company's customer base. As of December 31, 1998, the
total outstanding trade receivables from these customers was
approximately $13 million or 50% of the Company's outstanding trade
receivables.
14. COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries have entered operating leases covering
office facilities, vehicles and equipment that have non-cancelable
terms in excess of one year. Certain of these leases contain renewal
provisions and generally require the Company to pay insurance,
maintenance, and other operating expenses. Total expense incurred under
operating lease agreements for period ended December 31, 1998 was
approximately $1,183,300.
For fiscal years ending:
1999 $ 610,512
2000 262,510
2001 150,497
2002 133,929
2003 68,278
----------
Total Payments $1,225,726
==========
15. RELATED PARTY TRANSACTIONS
Certain subsidiaries of the Company lease administrative offices from
partnerships and corporations of which certain officers of the
subsidiaries are the general partners or shareholders. The total
expense under these arrangements was $174,718 during the period ended
December 31, 1998. The future minimum lease commitments under these
arrangements are $140,715 in 1999 and 2000, $121,500 in 2001, $83,070
in 2002 and $35,768 in 2003.
F-34
<PAGE> 86
ORIUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. SALE OF SUBSIDIARY
In January 1996 and September 1996, the Company sold the operating
assets of its subsidiary, Channelvision Cable TV, Inc. in two separate
transactions. Proceeds from the sales were $3,195,640 with a gain of
$3,046,408 being recognized on the sales. The 1996 financial statements
include the losses from discontinued operations and the net gain from
the disposal of assets, after applicable income taxes of $1,042,760.
Revenues of the subsidiary were $114,606 in 1996.
17. SUBSEQUENT EVENTS
At December 31, 1998, the organization consisted of eight subsidiaries
operating under the Company: Channel Communications, Inc.; Cablemasters
Corp.; Excel Cable Construction, Inc.; Mich-Com Cable Services
Incorporated; U.S. Cable, Inc.; CATV Subscriber Services, Inc.; State
Wide CATV, Inc., and Burn-Techs, Inc. The common stock of the Company
is owned by the former owners of these companies and certain executive
officers and founders of the Company. HIG Cable, Inc. owns all the
outstanding Preferred Stock of the Company.
On February 8, 1999 a reorganization of NATG occurred in connection
with the acquisition of four companies and related financing. Orius
Corp., a Delaware corporation, was formed, and it formed NATG Holdings,
LLC, a Delaware limited liability company. All of the interest in NATG
Holdings is held by Orius Corp. In February 1999, NATG Holdings formed
a subsidiary, NATG Merger Sub., which was merged with and into NATG
with NATG as the surviving corporation.
As a result of the merger, NATG became an indirect wholly owned
subsidiary of Orius. The merger resulted in all of the stockholders of
NATG holding shares of Orius. Shares of common and Preferred Stock of
NATG were converted into one-tenth of a share of common and preferred
stock of Orius, respectively. This one-for-ten exchange was the same
for all stockholders and has been reflected in these financial
statements. Furthermore, the Company sold a total of 99,323.25 shares
(on a post-split basis) of common stock to existing stockholders for
$2,403,623.
On February 26, 1999, four companies were acquired by NATG Holdings for
consideration of $69.4 million in cash and 144,285 shares of Orius
common stock. The four companies acquired by NATG Holdings were Schatz
Underground Cable, Inc; DAS-CO of Idaho, Inc.; Copenhagen Utilities and
Construction, Inc.; and Network Cabling Services, Inc.
F-35
<PAGE> 87
ORIUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with these acquisitions, NATG Holdings entered into a
$25.0 million revolving credit facility, maturing in 5 years, and a
$120.0 million senior secured credit facility with Merrill Lynch
Capital Corporation and PNC, as agents for a syndicate of financial
institutions (the Agents). The term loan facility is allocated among a
$60.0 million Term Loan A facility, maturing on December 1, 2003; a
$45.0 million Term Loan B facility, maturing on December 1, 2004; and a
$15.0 million Term Loan C facility, maturing on December 1, 2005. Of
this credit facility, NATG Holdings borrowed $2.0 million under the
revolving credit facility, $60.0 million under the Term Loan A
facility, $45.0 million under the Term Loan B facility, and $15.0
million under the Term Loan C facility to complete the four new
acquisitions and to repay substantially all indebtedness of NATG, and
terminate all commitments to make extensions of credit to NATG, under
NATG's existing credit facility with PNC. Additiionally, the Company
issued to the Agents 35,890 warrants to purchase common stock of
Orius Corp. for $.01 per share.
Amounts under the credit facility bear interest, at the Company's
choice, at either LIBOR plus an applicable margin; or, the higher of
PNC's corporate base rate of interest, or the Federal Fund Rate plus
0.50% (the ABR), in each case plus an applicable margin. For LIBOR
loans, the margin is 3.00% for the revolving credit facility and Term
Loan A facility, 3.75% for the Term Loan B facility and 5.00% for Term
Loan C facility. For ABR loans, the margin is 2.00% for the revolving
credit facility and Term Loan A facility, 2.75% for the Term Loan B
facility and 4.00% for Term Loan C facility. Outstanding amounts under
the credit facility are secured by substantially all of NATG Holdings'
assets and the pledge of all of the outstanding shares of common stock
of each of Orius' direct and indirect subsidiaries, including NATG. The
credit facility also contains certain affirmative and negative
covenants relating to NATG Holding's operations.
Also in connection with the acquisitions, HIG made an additional
investment in 7,596.38 shares of the Company's Series B Preferred Stock
(the Series B Preferred) for $7,569,377. The Series B Preferred is
convertible into Orius common stock based upon a conversion rate that
resulted in 312,784 converted common shares at the date of issuance, or
a value of $24.20 per share on a split basis.
F-36
<PAGE> 88
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Orius Corp.
In our opinion, the accompanying balance sheets and the related statements of
operations and of cash flows present fairly, in all material respects, the
financial position of U.S. Cable, Inc. at September 30, 1996 and 1997 and June
30, 1998, and the results of its operations and its cash flows for each of the
two years in the period ended September 30, 1997 and the nine months ended June
30, 1998 in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
April 1, 1999
F-37
<PAGE> 89
U.S. CABLE, INC.
BALANCE SHEETS
SEPTEMBER 30, 1996 AND 1997 AND JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 856,593 $ 4,251,340 $ 2,069,038
Accounts receivable 3,200,754 2,426,636 3,771,432
Deferred billings 2,043,590 1,393,030 2,706,321
Inventory 386,473 315,112 204,609
Prepaid expenses 112,074 105,678 81,133
Income tax receivable -- -- 574,211
----------- ----------- -----------
Total current assets 6,599,484 8,491,796 9,406,744
----------- ----------- -----------
Property and equipment, net 1,331,382 1,465,180 1,079,415
----------- ----------- -----------
Other assets 239,742 235,111 176,255
----------- ----------- -----------
Total assets $ 8,170,608 $10,192,087 $10,662,414
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Current maturities of long-term debt $ 245,465 $ 167,433 $ --
Accounts payable 1,086,878 665,798 1,014,495
Accrued payroll and payroll taxes 2,399,806 3,294,402 3,026,879
Accrued expenses 92,736 74,351 30,918
Income taxes payable 49,820 103,389 --
------------ ------------ ------------
Total current liabilities 3,874,705 4,305,373 4,072,292
------------ ------------ ------------
Long-term debt 741,424 649,187 --
------------ ------------ ------------
Shareholders' equity:
Common stock, no par value, 40,000
shares authorized; 36,720 (1996 and
1997) and 27,356 (1998) shares
issued and outstanding 232,174 901,541 1,904,022
Retained earnings 5,387,405 6,329,855 4,686,100
Less treasury stock, 19,697 (1996),
16,267 (1997) shares at cost (2,065,100) (1,993,869) --
------------ ------------ ------------
Total shareholders' equity 3,554,479 5,237,527 6,590,122
------------ ------------ ------------
Total liabilities and
shareholders' equity $ 8,170,608 $ 10,192,087 $ 10,662,414
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-38
<PAGE> 90
U.S. CABLE, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1997
AND THE PERIOD ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Revenues $ 14,963,035 $ 16,111,159 $ 12,354,223
------------ ------------ ------------
Cost of revenues:
Materials 1,203,284 404,374 466,178
Subcontracting fees 5,094,629 6,299,154 5,006,676
Direct labor 2,022,261 1,860,541 1,445,939
Overhead expenses 3,162,098 3,543,693 2,326,318
------------ ------------ ------------
Total cost of revenues 11,482,272 12,107,762 9,245,111
------------ ------------ ------------
Gross profit 3,480,763 4,003,397 3,109,112
General and administrative expenses 1,753,565 2,175,709 3,440,303
------------ ------------ ------------
Income (loss) from operations 1,727,198 1,827,688 (331,191)
------------ ------------ ------------
Other (income) expenses:
Interest income (22,969) (125,026) (134,320)
Interest expense 38,076 58,885 30,150
Miscellaneous 14,807 (22,738) (145,101)
------------ ------------ ------------
Total other (income) expense 29,914 (88,879) (249,271)
------------ ------------ ------------
Income (loss) before income taxes 1,697,284 1,916,567 (81,974)
(Benefit) Provision for income taxes 681,758 766,725 (19,598)
------------ ------------ ------------
Net income (loss) $ 1,015,526 $ 1,149,842 $ (62,376)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-39
<PAGE> 91
U.S. CABLE, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1997
AND THE PERIOD ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 1,015,526 $ 1,149,842 $ (62,376)
----------- ----------- -----------
Adjustments to reconcile net income to
net cash provided by operating
activities:
Gain on investments, net (2,798) (2,599) (29,629)
Gain on sale of equipment, net (32,883) (40,028) (70,947)
Depreciation 447,349 458,508 334,187
Equity in losses (earnings) of
affiliated company 15,008 (8,398) (20,259)
Deferred income tax provision -- (25,000) 15,000
Changes in assets and liabilities
Accounts receivable (1,721,481) 774,118 (1,344,796)
Deferred billings (176,469) 650,560 (1,313,291)
Inventory (53,171) 71,361 110,503
Other assets (8,433) 6,396 24,545
Accounts payable 261,354 (421,080) 348,697
Accrued payroll and payroll taxes 1,468,503 894,596 (267,523)
Accrued expenses 44,870 (18,385) (43,433)
Income taxes payable/receivable (477,119) 78,569 (692,600)
----------- ----------- -----------
Total adjustment (235,270) 2,418,618 (2,949,546)
----------- ----------- -----------
Net cash (used) provided by operating
activities 780,256 3,568,460 (3,011,922)
----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (627,479) (699,134) (493,830)
Proceeds from sale of property and
equipment 61,040 146,856 616,355
Proceeds from distributions of
investment earnings 5,696 30,654 --
Proceeds from sale of investments -- -- 120,049
Net increase in cash value
of life insurance (14,660) (15,026) (11,305)
----------- ----------- -----------
Net cash provided by (used in)
investing activities $ (575,403) $ (536,650) $ 231,269
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from borrowing on long-
term debt 750,907 391,730 --
Principal payments on long-term debt (351,107) (561,999) (816,620)
Payments of dividends to shareholders (55,718) (207,392) (205,056
Sales of treasury stock 340,283 1,132,328 1,620,027
Purchases of treasury stock (643,050) (391,730) --
----------- ----------- -----------
Net cash provided by
financing activities 41,315 362,937 598,351
----------- ----------- -----------
Net (decrease) increase in cash and
cash equivalent 246,168 3,394,747 (2,182,302)
Cash and cash equivalent -
Beginning of year 610,425 856,593 4,251,340
----------- ----------- -----------
Cash and cash equivalent -
End of year $ 856,593 $ 4,251,340 $ 2,069,038
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-40
<PAGE> 92
U.S. CABLE, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1997
AND FOR THE PERIOD ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
------------------------------ RETAINED ------------------------------
SHARES AMOUNT EARNINGS SHARES AMOUNT
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1995 36,720 $ 72,819 $ 4,427,597 18,398 $(1,602,978)
Net income 1,015,526
Dividends paid (55,718)
Purchases of 3,370 shares 3,370 (643,050)
Sales of 2,071 shares 159,355 (2,071) 180,928
----------- ----------- ----------- ----------- -----------
BALANCE AT SEPTEMBER 30, 1996 36,720 $ 232,174 $ 5,387,405 19,697 $(2,065,100)
Net income 1,149,842
Dividends paid (207,392)
Purchases of 1,822 shares 1,822 (391,730)
Sales of 5,252 shares 669,367 (5,252) 462,961
----------- ----------- ----------- ----------- -----------
BALANCE AT SEPTEMBER 30, 1997 36,720 $ 901,541 $ 6,329,855 16,267 $(1,993,869)
Net loss (62,376)
Dividends (205,056)
Sales of 6,903 shares 1,017,666 (6,803) 602,361
Retirement of 9,364 shares (9,364) (15,185) (1,376,323) (9,364) 1,391,508
----------- ----------- ----------- ----------- -----------
BALANCE AT JUNE 30, 1998 27,356 $ 1,904,022 $ 4,686,100 -- $ --
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-41
<PAGE> 93
U.S. CABLE, INC.
NOTES TO FINANCIAL STATEMENTS
THE YEARS ENDED SEPTEMBER 30, 1996 AND 1997
AND FOR THE PERIOD ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
The following is a summary of certain significant accounting policies followed
in the preparation of the financial statements.
PRINCIPAL ACTIVITIES
U.S. Cable, Inc. (the "Company"), incorporated on December 12, 1963, is a cable
installation contractor for cable companies throughout the United States. During
the course of its business, the Company grants unsecured credit to its
customers.
BASIS OF ACCOUNTING
The Company's policy is to prepare its financial statements on the accrual basis
of accounting.
REVENUE RECOGNITION
Revenue is recorded as units and footages are actually installed. If the unit
price of a contract is determined to be below estimated cost, the entire
estimated ultimate loss is accrued.
DEFERRED BILLINGS
Deferred billings consist of unbilled accounts receivable for work performed
prior to the balance sheet date. All costs associated with the deferred billings
are also recognized as expenses as of the balance sheet date.
ACCOUNTS RECEIVABLE
Accounts receivable include amounts that represent retainage on contracts which
is collectible at the conclusion of the contracts. Retainage included in the
accounts receivable balance totaled $627,348, $288,770 and $607,200 as of
September 30, 1996 and 1997, June 30, 1998, respectively. Historically, the
Company has not experienced any significant bad debts or pricing adjustments
and, accordingly, there is no provision for bad debts or other allowances
recorded as of any balance sheet date.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments purchased with
original maturities of three months or less.
INVENTORY
Inventory is stated at the lower of cost, on a first-in, first-out (FIFO) basis,
or market. Inventory consists primarily of purchased materials used in the
installation of cable systems.
F-42
<PAGE> 94
U.S. CABLE, INC.
NOTES TO FINANCIAL STATEMENTS
THE YEARS ENDED SEPTEMBER 30, 1996 AND 1997
AND FOR THE PERIOD ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is computed using various accelerated and straight-line methods.
Repairs and maintenance charges which do not increase the useful lives of the
assets are charged to expense as incurred. Upon sale or retirement, the cost and
related accumulated depreciation are eliminated from the respective accounts and
resulting gain or loss included in other income.
TREASURY STOCK
The Company's common stock is no par value. When common stock is repurchased, it
is recorded as treasury stock at the cost of repurchase. When treasury stock is
sold, treasury stock is reduced by the lesser of the sale price or original cost
with any excess proceeds over cost used to increase common stock. All treasury
stock was retired during the period ended June 30, 1998.
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes.
Deferred taxes, which have not been material, are recognized for differences
between the basis of assets and liabilities for financial statement and income
tax purposes.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair values of the Company's financial instruments approximate the carrying
values due to their short-term maturities.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates and such differences may be
material to the financial statements.
Estimates are used in the Company's revenue recognition of work-in-process,
costs associated with the work-in-progress, allowances for doubtful accounts,
depreciation and amortization, and in the estimated lives of assets.
F-43
<PAGE> 95
U.S. CABLE, INC.
NOTES TO FINANCIAL STATEMENTS
THE YEARS ENDED SEPTEMBER 30, 1996 AND 1997
AND FOR THE PERIOD ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
NOTE 2 - STATEMENT OF CASH FLOWS
For the purpose of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents.
1996 1997 1998
---- ---- ----
Cash paid during the year for:
Interest $ 36,826 $ 59,714 $ 49,732
========== ========== ==========
Income taxes $1,158,877 $ 713,156 $ 83,791
========== ========== ==========
NOTE 3 - PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
1996 1997 1998
---- ---- ----
Land $ 142,430 $ 140,075 $ --
Buildings and improvements 368,352 414,903 --
Vehicles 1,156,937 1,170,674 1,398,052
Construction equipment 822,094 848,179 885,981
Office equipment 106,515 117,477 68,701
----------- ----------- -----------
2,596,328 2,691,308 2,352,734
Accumulated depreciation (1,477,590) (1,598,441) (1,614,133)
----------- ----------- -----------
Total $ 1,118,738 $ 1,092,867 $ 738,601
=========== =========== ===========
NOTE 4 - INVESTMENT IN AFFILIATED COMPANY
The Company has an investment in an affiliated company which is accounted for
using the equity method of accounting. The total investment was $26,558 and
$19,026 at September 30, 1996 and 1997, respectively. The Company sold its
interest in the affiliated company during 1998 for $62,144 resulting in a gain
of $38,789. Cash received from the affiliates in the form of distributions has
not been significant.
F-44
<PAGE> 96
U.S. CABLE, INC.
NOTES TO FINANCIAL STATEMENTS
THE YEARS ENDED SEPTEMBER 30, 1996 AND 1997
AND FOR THE PERIOD ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
NOTE 5 - LONG-TERM DEBT
Long-term debt at September 30, 1996 and 1997 consists of the following:
1996 1997
---- ----
Note payable to Allegiant Bank
with 35 monthly payments of $2,889
including interest at prime plus
1/2% and a final payment due June 28,
1999. Secured by certain equipment $ 84,319 $ --
Promissory note to former shareholder
with annual installments of $12,210
plus interest at the one-year US Treasury
Bill rate determined at each anniversary 61,050 --
Promissory note to shareholder with
annual installments of $83,143 plus
interest at the one-year U.S. Treasury
Bill rate determined at each anniversary 498,857 415,714
Promissory note to shareholder payable
in monthly installments of $1,032
including interest at 8.75%
Secured by certain land 45,940 37,232
Promissory note to shareholder payable
in monthly installments of $1,032
including interest at 8.75%
Secured by certain land 45,940 37,232
Promissory note to former shareholder,
payable in annual installments of
$46,583 plus interest (tied to the rate
on US Treasury Bills) 93,167 --
Promissory note to former shareholder,
payable in annual installments of $49,911
plus interest (tied to the rate on US Treasury
Bills) 149,732 --
Promissory note to shareholder, payable in
annual installments of $65,288 plus interest
(tied to the rate on US Treasury Bills) -- 326,442
--------- ---------
Total other 9,884 --
Total 986,889 816,620
Less current portion (245,465) (167,433)
--------- ---------
Total $ 741,424 $ 649,187
========= =========
F-45
<PAGE> 97
U.S. CABLE, INC.
NOTES TO FINANCIAL STATEMENTS
THE YEARS ENDED SEPTEMBER 30, 1996 AND 1997
AND FOR THE PERIOD ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
NOTE 6 - INCOME TAXES
The components of the provision for income taxes are:
SEPTEMBER 30,
-------------------------
1996 1997 JUNE 30, 1998
--------- --------- -------------
Current:
Federal 586,317 $ 664,369 (20,676)
State 95,441 127,356 (13,922)
--------- --------- ---------
681,758 791,725 (34,598)
Deferred -- (25,000) 15,000
--------- --------- ---------
Total tax provision
(benefit) $ 681,758 $ 766,725 $ (19,598)
========= ========= =========
The difference between income tax expense (or benefit) calculated by multiplying
the Federal statutory rate by income (or loss) before income taxes and the
reported amount of income tax expense (or benefit) is due state taxes and
nondeductible meals and entertainment expenses. Deferred tax assets and
liabilities are not significant.
NOTE 7 - RETIREMENT PLAN
The Company has a qualified 401(k) profit sharing plan covering all full-time
employees employed one year. The Company matches 100% of the employee deferral
amount up to 2.5% of the employee's compensation. Total Company contributions
were $38,098 and $38,937 for the years ended September 30, 1996 and 1997,
respectively and $30,845 for the period ended June 30, 1998.
NOTE 8 - COMMON STOCK
All of the common stock of U.S. Cable, Inc., is subject to an agreement between
the company and its shareholders who have the right to require the Company to
repurchase shares at fair market value in the event of death, retirement and
certain financial hardships.
F-46
<PAGE> 98
U.S. CABLE, INC.
NOTES TO FINANCIAL STATEMENTS
THE YEARS ENDED SEPTEMBER 30, 1996 AND 1997
AND FOR THE PERIOD ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
NOTE 9 - CONCENTRATIONS OF BANK BALANCE
The Company maintains accounts with a bank totaling $856,593, $4,251,340 and
$2,069,038 at September 30, 1996 and 1997 and June 30, 1998, respectively. The
cash at this bank is primarily invested in cash equivalents.
NOTE 10 - CONCENTRATION OF CUSTOMERS
Sales to three major customers; Media One, Time Warner and Cox Communications,
who operate cable television networks, for the years ended September 30, 1996
and 1997 and the period ended June 30, 1998 were $14,228,938, $13,889,838 and
$10,857,676, respectively representing 95%, 86% and 88% of sales, respectively.
Account receivable from the three major customers at September 30, 1996 and 1997
and June 30, 1998 were $5,025,742, $3,475,362, and $6,102,784, and, respectively
representing 95%, 91% and 94% of account receivable balance, respectively.
NOTE 11 - DIVIDEND
The Board of Directors of the Company declared and paid the dividends of $2, $11
and $8 per share for the years ended September 30, 1996 and 1997 and the period
ended June 30, 1998, respectively.
NOTE 12 - RELATED PARTY TRANSACTIONS
The Company paid consultancy fees of $250,000 to its shareholders for the period
ended June 30, 1998 in connection with the negotiation of the sale of the
Company's common stock to North American Tel-Com Group, Inc.
("NATG"). These amounts were recorded as administrative expenses.
The Company sold certain land, buildings, construction equipment and other
investments to a shareholder for $672,894 during the period ended June 30, 1998
resulting in a gain of approximately $110,000 which was recorded as
miscellaneous income. Management believes the prices paid by the shareholder
approximated fair market value.
The Company sold and purchased shares of common stock to certain employees of
the company during all the periods presented. The share prices for these
transactions were determined by a formula which management believes resulted in
share prices that approximated the fair value of the common stock. There were no
differences between the formula prices per share and the prices per share paid
or received by the company. Accordingly, no compensation expense was recorded in
the financial statements for any of these transactions.
F-47
<PAGE> 99
U.S. CABLE, INC.
NOTES TO FINANCIAL STATEMENTS
THE YEARS ENDED SEPTEMBER 30, 1996 AND 1997
AND FOR THE PERIOD ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
NOTE 13 - LEASE COMMITMENT
Prior to June 30, 1998, the Company sold its building to a shareholder and
leased it back commencing from July 1, 1998 under a capital lease agreement.
Under the capital lease agreement, the Company is required to pay the annual
lease payment for a term of five years commencing from July 1, 1998. The lease
payments are as follows:
1999 $ 60,000
2000 60,000
2001 60,000
2002 60,000
2003 60,000
---------
300,000
Less: Imputed interest (54,567)
---------
$ 245,433
=========
NOTE 14 - SALE OF COMMON STOCK
On June 30, 1998 the Company's shareholders entered into a stock exchange
agreement with NATG. Pursuant to that transaction, all the shares of the
Company's common stock were exchanged for cash and shares of NATG common stock.
The financial statements of the Company as of and for the period ended June 30,
1998 do not reflect the share exchange agreement.
F-48
<PAGE> 100
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Orius Corp.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, retained earnings and of cash flows
present fairly, in all material respects, the financial position of CATV
Subscriber Services, Inc. and its subsidiary (the "Company") at December 31,
1997 and August 31, 1998, and the results of its operations and its cash flows
for the year ended December 31, 1997 and the eight months ended August 31, 1998,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
April 23, 1999
F-49
<PAGE> 101
CATV SUBSCRIBER SERVICES, INC. AND SUBSIDIARY
BALANCE SHEETS AT DECEMBER 31, 1997
AND AUGUST 31, 1998
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1997 1998
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 31,100 $ 231,418
Accounts receivable, net 5,976,705 4,713,417
Deferred billings 1,364,080 2,975,188
Inventory -- 138,421
Prepaid expenses & other current assets 134,848 493,941
-------------- -------------
Total current assets 7,506,733 8,552,385
-------------- -------------
Property and equipment, net 1,837,508 2,154,989
-------------- -------------
Other assets 47,887 24,031
-------------- -------------
Total assets $ 9,392,128 $ 10,731,405
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 3,108,447 $ 190,676
Capital lease obligation, current 246,763 347,445
Accounts payable 883,702 465,882
Amounts due to - NATG -- 3,317,768
Accrued costs in excess of billings 784,000 1,709,503
Accrued payroll and payroll taxes 42,406 120,491
Accrued expenses 912,431 1,063,840
-------------- -------------
Total current liabilities 5,977,749 7,215,605
-------------- -------------
Long-term liabilities:
Notes payable 582,043 251,060
Capital lease obligation, noncurrent 192,698 319,818
Deferred income tax payable 159,093 188,947
-------------- -------------
Total long-term liabilities 933,834 759,825
-------------- -------------
Shareholders' equity:
Common stock, par value $10; 10,000
shares authorized; 1,615 (1997) and
1,806 (1998) shares issued and outstanding 16,150 18,060
Paid-in capital 5,015 813,700
Retained earnings 2,459,380 1,924,215
-------------- -------------
Total shareholders' equity 2,480,545 2,755,975
-------------- -------------
Total liabilities and shareholders' equity $ 9,392,128 $ 10,731,405
============== =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-50
<PAGE> 102
CATV SUBSCRIBER SERVICES, INC. AND SUBSIDIARY
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND
THE PERIOD ENDED AUGUST 31, 1998
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1997 1998
------------ -----------
<S> <C> <C>
Revenues $21,546,731 $19,411,946
-------------- --------------
Cost of revenues:
Materials 489,937 404,313
Subcontracting fees 8,302,304 8,333,115
Direct labor 6,096,415 4,505,819
Overhead expenses 4,375,972 3,070,671
-------------- --------------
Total cost of revenues 19,264,628 16,313,918
-------------- --------------
Gross profit 2,282,103 3,098,028
General and administrative expenses 1,972,025 3,493,019
-------------- --------------
(Loss) income from operations 310,078 (394,991)
-------------- --------------
Other (income) expense:
Interest expense, net 333,332 289,788
Miscellaneous 31,170 --
-------------- --------------
Total other (income) expense 364,502 289,788
--------------- --------------
Loss before income taxes (54,424) (684,779)
Income tax benefit (1,725) (247,564)
--------------- --------------
Net loss $ (52,699) $ (437,215)
=============== ==============-
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-51
<PAGE> 103
CATV SUBSCRIBER SERVICES, INC. AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
AND THE PERIOD ENDED AUGUST 31, 1998
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $ (52,699) $ (437,215)
--------------- ----------------
Adjustment to reconcile net (loss) to
net cash used in operating activities:
Loss on sale of equipment 31,509 --
Depreciation expense 505,639 296,369
Provision for bad debt 385,017 1,014,578
Deferred income tax provision 33,813 (354,734)
Changes in assets and liabilities
Accounts receivable (2,065,764) 248,710
Deferred billings (1,364,080) (1,611,108)
Inventory -- (138,421)
Prepaid and other current assets (5,387) 25,495
Other assets (3,164) 23,856
Accounts payable 844,807 (417,820)
Accrued costs in excess of billings 784,000 925,503
Accrued payroll and payroll taxes 17,437 78,085
Accrued expenses (12,990) 151,409
Accrued income taxes (359,198) --
-------------- -------------
Total adjustment (1,208,361) 241,922
-------------- -------------
Net cash used in operating activities $ (1,261,060) $ (195,293)
-------------- -------------
Cash flows from investing activities:
Purchases of property and equipment (254,448) (271,421)
Proceeds from sale of property and equipment 19,920 --
Net (increase) in cash value of life insurance (9,993) --
-------------- -------------
Net cash (used in) investing activities (244,521) (271,421)
-------------- -------------
Cash flows from financing activities:
Proceeds from borrowing on long-term debt 9,366,314 257,350
Principal payments on long-term debt (7,913,819) (3,506,104)
Payment of capital lease obligation (320,075) (114,627)
Amounts received from NATG -- 3,317,768
Payment of dividends -- (97,950)
Proceeds from issuance of stock -- 810,595
------------- -------------
Net cash provided by financing activities 1,132,420 667,032
------------- -------------
Net increase (decrease) in cash and cash equivalent (373,161) 200,318
Cash and cash equivalent - Beginning of year 404,261 31,100
------------- -------------
Cash and cash equivalent - End of year $ 31,100 $ 231,418
============= =============
Non-Cash Transactions:
Capital lease obligations $ 207,242 $ 342,429
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-52
<PAGE> 104
CATV SUBSCRIBER SERVICES, INC. AND SUBSIDIARY
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE
PERIOD ENDED AUGUST 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES ISSUED
AND COMMON RETAINED PAID-IN
OUTSTANDING STOCK EARNINGS CAPITAL
------------- ------ -------- -------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 1,615 $16,150 $2,512,079 $ 5,015
Net loss (52,699)
------ ------- ---------- --------
BALANCE AT DECEMBER 31, 1997 1,615 $16,150 $2,459,380 $ 5,015
Net loss (437,215)
Dividends paid (97,950)
Issuance of 191 shares 191 1,910 808,685
------ ------- ---------- --------
BALANCE AT AUGUST 31, 1998 1,806 $18,060 $1,924,215 $813,700
===== ======= ========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-53
<PAGE> 105
CATV SUBSCRIBER SERVICES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of certain significant accounting policies followed
in the preparation of the financial statements.
COMPANY'S ACTIVITIES
CATV Subscriber Services, Inc. (the Company), incorporated in North Carolina in
March 1972, is a provider of infrastructure services to cable television system
operators.
BASIS OF ACCOUNTING
The Company's policy is to prepare its financial statements on the accrual
basis of accounting. The consolidated financial statements include the accounts
of CATV Subscriber Services, Inc., and its wholly owned inactive subsidiary,
Arizona Cable Concepts, Inc. Intercompany accounts have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates and such differences
may be material to the financial statements.
Estimates are used in determining the Company's revenue recognition of
work-in-progress, costs associated with the work-in-progress, allowances for
doubtful accounts, depreciation and amortization, and in the estimated useful
lives of assets.
REVENUE RECOGNITION
Revenue is recorded as units and footages are actually installed. If the unit
price of a contract is determined below cost, the entire estimated ultimate
loss is accrued.
DEFERRED BILLINGS
Deferred billings consist of unbilled accounts receivable on work performed
prior to December 31, 1997 and August 31, 1998. All costs associated with the
deferred billings are also recognized as expenses as of the balance sheet date.
ACCRUED COSTS IN EXCESS OF BILLINGS
Accrued costs in excess of billings represents estimated cost required to
complete the current units of production in excess of amounts billed for those
units of production.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments purchased with
original maturities of three months or less.
F-54
<PAGE> 106
CATV SUBSCRIBER SERVICES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
INVENTORY
Inventory is stated at the lower of cost, on a first-in, first-out (FIFO)
basis, or market, and consists of materials purchased for installation of cable
television networks.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is computed using various accelerated and straight-line methods
for income tax and financial statement purposes. Repairs and maintenance
charges which do not increase the useful lives of the assets are charged to
expense as incurred. Upon sale or retirement, the cost and related accumulated
depreciation are eliminated from the respective accounts and resulting gain or
loss included in current income.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of the Company's financial instruments approximate their
carrying value due to the short-term maturities of these financial instruments.
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes.
Deferred taxes are recognized for differences between the basis of assets and
liabilities for financial statement and income tax purposes. The differences
relate primarily to depreciable assets (use of different depreciation methods
and lives for financial statement and income tax purposes) and certain reserves
recorded for book purposes that are not currently deductible for tax purposes.
The deferred tax assets and liabilities represent the future tax return
consequences of those differences, which will either be taxable or deductible
when the assets and liabilities are recovered or settled.
NOTE 2 - STATEMENT OF CASH FLOWS
For the purpose of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
Year ended Eight months
December 31, Ended August 31,
1997 1998
---- ----
Cash paid during the year for:
Interest $ 333,332 $ 289,788
============ =========
Income taxes $ 359,198 $ 201,983
============ =========
F-55
<PAGE> 107
CATV SUBSCRIBER SERVICES AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 3 - ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following at December 31, 1997 and August
31, 1998:
1997 1998
---- ----
Trade receivables $ 5,433,509 $ 5,097,585
Retainage 928,213 745,732
Allowance for doubtful accounts (385,017) (1,129,900)
------------ -----------
Accounts receivable, net $ 5,976,705 $ 4,713,417
============ ===========
Retainage consists of amounts that are not due until the completion of a
contract. The allowance for doubtful accounts was increased by $997,374 during
1998 for the write-off of receivables from St. Martin Cable TV, FWI. (SMCTV).
The Company filed a claim against SMCTV in mid-1997 and has received only
insignificant payments since that time. During 1998, the Company elected to not
pursue the collection of the receivable due to costs associated with doing so.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
1997 1998
---- ----
Land $ 37,018 $ --
Office building 93,628 --
Leasehold improvements 2,344 2,344
Automobiles and trucks 2,315,510 2,820,681
Equipment and tools 1,684,571 1,847,788
Furniture and fixtures 147,568 223,676
----------- ------------
4,280,639 4,894,489
Accumulated depreciation (2,443,131) (2,739,500)
----------- ------------
Total $ 1,837,508 $ 2,154,989
=========== ============
F-56
<PAGE> 108
CATV SUBSCRIBER SERVICES AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 5 - LONG-TERM DEBT
Long-term debt at December 31, 1997 and August 31, 1998, consists of the
following:
1997 1998
---- ----
Notes payable to BB&T Bank with monthly
installments of $33,333 plus interest at
prime plus 1.5%. Secured by St. Martin
Cable TV system and all Company assets. $ 987,993 $ --
Note payable to BB&T Bank. Monthly interest
payable at prime plus 2% and a principal due
upon demand. Secured by all Company assets 2,341,991 --
Notes payable to Ford Motor Credit payable in
monthly installments ranging from $405 to $906
with terms of 36 to 60 months; interest ranges
from 8.25% to 10.95%. 308,970 387,401
Notes payable to GMAC Financial Services
with 48 monthly payments of principal and
interest of $795; interest at 9.50%. 17,726 12,474
Notes payable to Mazda American Credit
payable in 36 monthly installments of $1,198;
interest at 8.25%. -- 37,128
Other equipment loans 33,810 4,733
---------- --------
Total 3,690,490 441,736
Less current portion 3,108,447 190,676
---------- --------
Total $ 582,043 $251,060
========== ========
Maturities of long-term debt for each of the 5 years subsequent to August 31,
1998 are as follows:
1999 $190,676
2000 130,655
2001 79,940
2002 33,770
2003 6,695
----------
$441,736
==========
On August 30, 1998, NATG loaned the Company $3,317,768 which was used to repay
certain of the Company's indebtedness.
F-57
<PAGE> 109
CATV SUBSCRIBER SERVICES AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 6 - INCOME TAXES
The components of the provision (benefit) for income taxes for the year ended
December 31, 1997 and the period ended August 31, 1998:
1997 1998
---- ----
Current:
Federal $ (30,918) $ 93,238
State (4,620) 13,932
------------ ------------
(35,538) 107,170
------------ ------------
Deferred:
Federal 29,417 (308,619)
State 4,396 (46,115)
------------ ------------
33,813 (354,734)
------------ ------------
Total tax benefit $ (1,725) $ (247,564)
============ ============
The effective income tax rate for 1997 and 1998 varies from the federal
statutory rate of 34% due primarily to state taxes, as detailed above, and
certain non-deductible entertainment expenses.
Deferred tax assets in the amount of $398,000 due to reserves for the St.
Martin receivable are included in prepaid expenses and other current assets as
of August 31, 1998. The deferred tax liabilities of $159,093 and $188,947 at
December 31, 1997 and August 31, 1998, respectively consist primarily of tax
depreciation in excess of book. There are no other significant deferred tax
amounts recorded as of December 31, 1997 or August 31, 1998.
NOTE 7 - CONCENTRATION OF CUSTOMERS
The Company's customer base is highly concentrated with customers operating
cable television networks. For the year ended December 31, 1997 and the eight
months ended August 31, 1998 and as of those dates, five customers Media One,
Falcon Communications, Cox Communications, Charter Communications and Time
Warner, accounted for approximately 77% and 87%, respectively, of net revenues
and accounts receivable.
NOTE 8 - LEASE COMMITMENT
The Company and its subsidiary maintain various capital leases for equipment.
Future minimum lease payments for each of the years subsequent to August 31,
1998 are as follows:
1999 $ 347,445
2000 180,425
2001 93,469
2002 45,924
---------
$ 667,263
=========
F-58
<PAGE> 110
CATV SUBSCRIBER SERVICES AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 9 - SUBSEQUENT EVENTS
On August 31, 1998, the company's shareholders entered into an agreement to
exchange all of the common stock of CATV for cash and stock of the Company. The
effect of this stock exchange agreement has not been reflected in these
accounts.
F-59
<PAGE> 111
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders
of DAS-CO of Idaho, Inc.
and the Board of Directors of Orius Corp.
In our opinion, the accompanying balance sheets and the related statements of
operations, stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of DAS-CO of Idaho, Inc. at December
31, 1997 and 1998, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Boise, Idaho
May 3, 1999
F-60
<PAGE> 112
DAS-CO OF IDAHO, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
ASSETS 1997 1998
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 283,383 $ 826,986
Accounts receivable 4,182,269 4,551,536
Unbilled accounts receivable for contracts-in-process 844,114 433,416
Inventory 159,526 166,881
Other current assets 59,412 3,213
----------- -----------
Total current assets 5,528,704 5,982,032
----------- -----------
Property and equipment, net 3,422,112 3,097,182
----------- -----------
Total assets $ 8,950,816 $ 9,079,214
=========== ===========
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 206,180 $ 208,500
Accounts payable 683,810 1,258,516
Accrued liabilities 127,982 115,662
Profit sharing contribution payable 100,000 100,000
Deferred revenue -- 306,669
----------- -----------
Total current liabilities 1,117,972 1,989,347
Long-term debt, less current portion 510,154 284,828
----------- -----------
Total liabilities 1,628,126 2,274,175
----------- -----------
Contingencies and Commitments (Note 8) -- --
STOCKHOLDERS' EQUITY
Stockholders' equity:
Common stock, par value $1 per share; 5,000 shares authorized
and issued (including 1,200 shares held in treasury) 5,000 5,000
Retained earnings 7,322,997 6,805,346
----------- -----------
Total 7,327,997 6,810,346
Less treasury stock, at cost (5,307) (5,307)
----------- -----------
Total stockholders' equity 7,322,690 6,805,039
----------- -----------
Total liabilities and stockholders' equity $ 8,950,816 $ 9,079,214
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-61
<PAGE> 113
DAS-CO OF IDAHO, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Revenues $ 20,389,928 $ 19,126,148 $ 21,778,456
------------ ------------ ------------
Costs and expenses:
Cost of revenues 14,443,164 13,682,534 15,415,090
Selling, general and administrative 3,267,175 3,502,691 3,900,768
------------ ------------ ------------
Total 17,710,339 17,185,225 19,315,858
------------ ------------ ------------
Income from operations 2,679,589 1,940,923 2,462,598
Other (income) expense:
Interest income (46,722) (62,683) (86,981)
Interest expense 115,010 72,991 42,914
(Gain) loss on disposal of assets (14,236) (6,848) 4,238
------------ ------------ ------------
Income before income tax provision 2,625,537 1,937,463 2,502,427
Provision for income taxes -- -- --
------------ ------------ ------------
Net income $ 2,625,537 $ 1,937,463 $ 2,502,427
============ ============ ============
Pro Forma Tax Provision (Unaudited):
Income before income taxes $ 2,625,537 $ 1,937,463 $ 2,502,427
Pro forma provision for income taxes 997,000 736,200 950,900
------------ ------------ ------------
$ 1,628,537 $ 1,201,263 $ 1,551,527
============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-62
<PAGE> 114
DAS-CO OF IDAHO, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Increase (decrease) in cash and cash equivalents from:
OPERATING ACTIVITIES:
Net income $ 2,625,537 $ 1,937,463 $ 2,502,427
Adjustments to reconcile net cash provided by
operating activities:
Depreciation and amortization 768,440 883,658 937,988
(Gain) loss on disposal of assets (14,236) (6,848) 4,238
Changes in assets and liabilities:
Accounts receivable 1,445,670 (1,439,915) (369,267)
Unbilled accounts receivable for
contracts-in-process (491,856) (352,258) 410,698
Inventories (20,170) (139,356) (7,355)
Other current assets (11,223) (15,852) 56,199
Accounts payable (160,178) 30,677 574,706
Accrued liabilities (21,893) 62,631 (12,320)
Deferred revenue (155,120) -- 306,669
----------- ----------- -----------
Net cash inflow from operating activities 3,964,971 960,200 4,403,983
----------- ----------- -----------
INVESTING ACTIVITIES:
Capital expenditures (1,692,719) (758,280) (1,014,322)
Proceeds from sale of assets 16,931 6,848 90,362
----------- ----------- -----------
Net cash outflow from investing activities (1,675,788) (751,432) (923,960)
----------- ----------- -----------
FINANCING ACTIVITIES:
Payments on line of credit (905,000) -- --
Proceeds from long-term debt 821,303 -- --
Principal payments on long-term debt (683,756) (177,713) (223,006)
Distributions (200,000) (1,330,000) (2,713,414)
----------- ----------- -----------
Net cash outflow from financing activities (967,453) (1,507,713) (2,936,420)
----------- ----------- -----------
Net cash inflow (outflow) from all activities 1,321,730 (1,298,945) 543,603
Cash and cash equivalents at beginning of year 260,598 1,582,328 283,383
----------- ----------- -----------
Cash and cash equivalents at end of year $ 1,582,328 $ 283,383 $ 826,986
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 142,592 $ 72,991 $ 42,914
Noncash investing and financing activities:
Assets acquired through a capital lease $ 178,697 $ -- $ --
Distribution of equipment to stockholders $ -- $ -- $ 306,664
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-63
<PAGE> 115
DAS-CO OF IDAHO, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK RETAINED TREASURY STOCKHOLDERS'
SHARES AMOUNT EARNINGS STOCK EQUITY
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 5,000 $ 5,000 $ 4,289,997 $ (5,307) $ 4,289,690
Net income 2,625,537 2,625,537
Distributions (200,000) (200,000)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1996 5,000 $ 5,000 $ 6,715,534 (5,307) $ 6,715,227
Net income 1,937,463 1,937,463
Distributions (1,330,000) (1,330,000)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 5,000 $ 5,000 7,322,997 (5,307) 7,322,690
Net income 2,502,427 2,502,427
Distributions (3,020,078) (3,020,078)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 5,000 $ 5,000 $ 6,805,346 $ (5,307) $ 6,805,039
=========== =========== =========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-64
<PAGE> 116
DAS-CO OF IDAHO, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DAS-CO of Idaho, Inc. (the Company) is a provider of installation,
design, engineering and maintenance services for the telecom industry,
formerly in the western United States. The Company is headquartered in
Nampa, Idaho, and has offices in Twin Falls and Pocatello, Idaho.
On February 26, 1999, the Company was sold to Orius Corp. headquartered
in West Palm Beach, Florida, (the acquisition).
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates and such differences may be material to the financial
statements.
REVENUE: Revenues from contracts are recognized as the related costs are
incurred based on the relationship of costs incurred to total estimated
contract costs. Unbilled accounts receivable for contracts-in-process
represents revenue recognized but not billed. Deferred revenue represents
billings on contracts for which costs have not yet been incurred and
revenue has not been recognized. At the time a loss on a contract becomes
known, the entire amount of the estimated loss is accrued.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents include cash
balances on deposit with banks, overnight repurchase agreements, and
various other financial instruments purchased with a remaining maturity
of three months or less. At times, balances on deposit with banks may
exceed amounts insured by the Federal Deposit Insurance Corporation.
F-65
<PAGE> 117
NOTES TO FINANCIAL STATEMENTS - CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED:
INVENTORY: Inventories are stated at the lower of cost, on a first-in,
first-out basis, or market.
PROPERTY AND EQUIPMENT: Property and equipment is stated at cost.
Depreciation and amortization is computed over the estimated useful life
of the assets utilizing the straight-line method. The estimated useful
lives of the assets are: leasehold improvements - the term of the
respective lease or the estimated useful life of the improvements,
whichever is shorter; vehicles - 5 years; equipment and machinery - 5
years; computer equipment - 3-5 years; and other equipment - 10 years.
Maintenance and repairs are expensed as incurred; expenditures that
enhance the value of the property or extend its useful life are
capitalized. When assets are sold or retired, the cost and related
accumulated depreciation are removed from the accounts and the resulting
gain or loss is included in income.
INCOME TAXES: Prior to the acquisition date, the Company was an S
corporation for income tax purposes, and accordingly, any income tax
liabilities for the periods prior to acquisition were the responsibility
of the respective stockholders. Pro forma income taxes are calculated at
a combined federal and state tax rate of 38%.
Subsequent to the acquisition the Company became part of the consolidated
group for federal income tax purposes.
2. ACCOUNTS RECEIVABLE:
Accounts receivable consist of the following:
DECEMBER 31,
-----------------------------------
1997 1998
-----------------------------------
Contract billings $ 4,180,459 $ 4,117,007
Retainage 1,810 434,529
---------------- ----------------
Total $ 4,182,269 $ 4,551,536
================ ===============-
The balances billed but not paid by customers pursuant to retainage
provisions in customer contracts will be due upon completion of the
contracts and acceptance by the customer. Based on the Company's
experience with similar contracts in recent years, retainages are
expected to be collected within twelve months.
F-66
<PAGE> 118
NOTES TO FINANCIAL STATEMENTS - CONTINUED
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1997 1998
----------------------------------
<S> <C> <C>
Land and leasehold improvements $ 267,601 $ 282,400
Equipment and machinery 5,224,075 5,149,400
Vehicles 2,048,723 2,274,269
Office equipment 256,175 252,865
Computer equipment 134,337 128,337
---------------- ---------------
7,930,911 8,087,271
Less accumulated depreciation and amortization (4,508,799) (4,990,089)
---------------- ---------------
Property and equipment, net $ 3,422,112 $ 3,097,182
================ ===============
</TABLE>
4. DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1997 1998
----------------------------------
<S> <C> <C>
Contract payable with monthly payments of $19,802,
including interest at 7.062%, due April 2001;
equipment is pledged as collateral $ 704,606 $ 493,328
Contract payable with monthly payments of $1,099,
including interest at 7.9%, due November 1998;
equipment is pledged as collateral 11,728 --
---------------- ---------------
716,334 493,328
Less current portion (206,180) (208,500)
---------------- ---------------
Total long-term debt $ 510,154 $ 284,828
================ ===============
</TABLE>
At December 31, 1998, the Company had an unsecured $1 million revolving
line of credit available through a financial institution, bearing
interest at 2% over the LIBOR index rate (7.75% at December 31, 1998).
The note was guaranteed by the stockholders. There were no amounts
outstanding at December 31, 1997 and 1998. As part of the acquisition,
the line of credit agreement was terminated.
F-67
<PAGE> 119
NOTES TO FINANCIAL STATEMENTS - CONTINUED
4. LONG-TERM DEBT - CONTINUED:
Maturities of long-term debt at December 31, 1998 are as follows:
1999 $ 208,500
2000 223,582
2001 61,246
----------------
$ 493,328
================
5. PROFIT SHARING PLAN:
The Company sponsors a 401(k) profit sharing plan covering substantially
all full-time employees. Company discretionary contributions to the plan
totaled $75,000, $100,000 and $100,000 for 1996, 1997 and 1998,
respectively.
6. TRANSACTIONS WITH RELATED PARTIES:
During 1998, the Company leased office and shop facilities from
businesses owned by a related party on a month-to-month basis. On
February 26, 1999 these lease agreements were restructured to require
minimum annual lease payments of $168,744 for each of the next five
years. The lease agreements contain two five-year renewal options, at
which time lease terms will be renegotiated. Rental expense for these
leases totaled $160,926, $169,200 and $155,000 for 1996, 1997 and 1998,
respectively.
The Company paid consulting fees to businesses owned by related parties.
These businesses provided property management, product development, and
other services to the Company. Consulting fees were $290,910, $149,996
and $152,000 for 1996, 1997 and 1998, respectively. As a result of the
acquisition, these services will no longer be provided by these related
parties.
At December 31, 1997 and 1998, the Company had related party receivables
of $5,027 and $9,477, respectively; and had related party payables of
$14,100 and $13,007, respectively.
7. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK:
In 1996, revenues from three customers; US West, Citizens and Idaho
Power, represented approximately 61%, 12%, and 10% of total revenue; in
1997, revenues from three customers represented approximately 50%, 16%,
and 15% of total revenue; and in 1998, revenues from three customers
represented approximately 41%, 13%, and 12% of total revenue.
F-68
<PAGE> 120
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of cash and cash
equivalents and accounts receivable. The Company grants credit, generally
without collateral, to its customers, which include utility companies,
telecommunications providers and commercial companies located primarily
in the Western United States. Consequently, the Company is subject to
potential credit risk related to changes in business and economic factors
throughout the Western United States.
8. CONTINGENCIES AND COMMITMENTS:
The Company is subject to lawsuits and other legal claims in the normal
course of its operations. Management believes that the resolution of any
such lawsuits and legal claims, if any, will not have a material impact
on the Company's financial position, results of operations or cash flows.
F-69
<PAGE> 121
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of
Schatz Underground Cable, Inc. and Orius Corp.
We have audited the accompanying balance sheets of Schatz Underground Cable,
Inc. as of December 31, 1997 and 1998, and the related statements of income,
retained earnings and cash flows for each of the three years in the period ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Schatz Underground Cable, Inc.
as of December 31, 1997 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
/s/ Milhouse, Martz & Neal, L.L.P.
Maryland Heights, Missouri
February 17, 1999
F-70
<PAGE> 122
SCHATZ UNDERGROUND CABLE, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
ASSETS 1997 1998
<S> <C> <C>
Current assets:
Cash (Notes 2 & 13) $ 917,337 $ 2,080,720
Accounts receivable, trade (Notes 1, 5 & 12) 4,947,062 5,533,608
Inventory (Notes 1, 3 & 5) 391,886 873,287
Prepaid expenses 210,762 269,579
Deferred income tax benefit (Note 7) 47,200 1,193,204
Prepaid income taxes -- --
----------- -----------
Total current assets 6,514,247 9,950,398
Property, plant and equipment (Notes 1, 4, 5 & 6) 6,858,690 7,483,645
Other assets (Note 1) 13,615 19,332
----------- -----------
Total assets $13,386,552 $17,453,375
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, line of credit (Note 5) $ -- $ --
Notes payable, current (Note 6) 2,115,383 2,543,486
Accounts payable 535,598 540,973
Accrued salaries 473,300 3,672,358
Accrued income taxes 448,877 225,784
Other accrued expenses 200,469 268,775
Customer deposits 386,233 316,498
----------- -----------
Total current liabilities 4,159,860 7,567,874
Notes payable, long-term (Note 6) 3,829,194 4,182,397
Deferred income taxes (Note 7) 186,000 163,769
Stockholders' equity:
Common stock, $1 par value; authorized 30,000
shares; issued and outstanding 1,000 shares 1,000 1,000
Paid-in capital 7,392 7,392
Retained earnings 5,203,106 5,530,943
----------- -----------
Total stockholders' equity 5,211,498 5,539,335
----------- -----------
Total liabilities and stockholders equity $13,386,552 $17,453,375
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-71
<PAGE> 123
SCHATZ UNDERGROUND CABLE, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
Revenues, net $ 20,601,378 $ 29,530,683 $ 31,254,221
Direct costs 15,745,117 22,293,285 21,065,985
------------ ------------ ------------
Gross margin 4,856,261 7,237,398 10,188,236
General and administrative expenses 4,153,824 4,948,418 9,136,881
------------ ------------ ------------
Income from operations 702,437 2,288,980 1,051,355
Other income (expense):
Interest income 39,032 33,031 61,373
Other income 3,236 56,104 34,699
Gain (loss) on sale of equipment 87,988 (4,282) 41,249
Interest expense (452,796) (582,709) (636,850)
Lawsuit settlement 155,000 -- --
------------ ------------ ------------
Total other income (expense) (167,540) (497,856) (499,529)
------------ ------------ ------------
Income before provision for income taxes 534,897 1,791,124 551,826
Provision for income taxes (Note 7):
Current 273,335 728,420 1,392,224
Deferred (12,445) (20,084) (1,168,235)
------------ ------------ ------------
260,890 708,336 223,989
------------ ------------ ------------
Net income 274,007 1,082,788 327,837
Retained earnings, beginning of year 3,846,311 4,120,318 5,203,106
------------ ------------ ------------
Retained earnings, end of year $ 4,120,318 $ 5,203,106 $ 5,530,943
============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-72
<PAGE> 124
SCHATZ UNDERGROUND CABLE, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 274,007 $ 1,082,788 $ 327,837
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
(Gain) loss on disposal of property, plant and
equipment (87,988) 4,282 (41,249)
Depreciation and amortization 1,602,284 1,972,539 2,200,018
Deferred taxes (12,445) (20,084) (1,168,235)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (2,174,654) (43,572) (586,546)
(Increase) decrease in inventory (571,288) 468,387 (481,401)
(Increase) decrease in prepaid expenses (97,839) (11,326) (58,817)
(Increase) decrease in prepaid income taxes 634,629 28,209 --
(Increase) decrease in other assets 1,232 (4,143) (5,717)
Increase (decrease) in accounts payable (140,498) 1,886 5,375
Increase (decrease) in accrued expenses 373,293 (226,840) 3,267,364
Increase (decrease) in customer deposits 27,277 358,956 (69,735)
Increase (decrease) in accrued income taxes -- 448,877 (223,093)
----------- ----------- -----------
Net cash provided (used) by operating
activities (171,990) 4,059,959 3,165,801
----------- ----------- -----------
Cash flows from investing activities:
Purchase of property, plant and equipment (2,483,688) (2,705,201) (2,917,848)
Proceeds from sale of property and equipment 182,901 32,890 134,124
----------- ----------- -----------
Net cash used by investing activities (2,300,787) (2,672,311) (2,783,724)
----------- ----------- -----------
Cash flows from financing activities:
Payments on and proceeds from line-of-credit, net 1,255,000 (1,255,000) --
Loan proceeds - long term 4,258,733 4,860,170 2,223,266
Payments on long-term debt (3,441,610) (4,111,675) (1,251,960)
Payments to and proceeds from stockholder, net (190,000) (190,000) (190,000)
----------- ----------- -----------
Net cash provided (used) by financing
activities 1,882,123 (696,505) 781,306
----------- ----------- -----------
Net increase (decrease) in cash (590,654) 691,143 1,163,383
Cash, beginning of year 816,848 226,194 917,337
----------- ----------- -----------
Cash, end of year $ 226,194 $ 917,337 $ 2,080,720
=========== =========== ===========
Schedule of noncash investing and financing transactions:
Cost of property, plant and equipment purchased $ 2,490,504 $ 2,807,580 $ 2,944,135
Net book value of trade-ins (6,816) (102,379) (26,287)
----------- ----------- -----------
Cash paid for property, plant and equipment $ 2,483,688 $ 2,705,201 $ 2,917,848
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 456,794 $ 583,524 $ 636,850
Income taxes 103,783 251,334 1,627,615
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-73
<PAGE> 125
SCHATZ UNDERGROUND CABLE, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company is a provider of installation, design, engineering and
maintenance services for the telecom industry. The company operates in
the St. Louis metropolitan area, as well as throughout the United States.
REVENUE AND COST RECOGNITION
Revenues from fixed price contracts are recognized on the
percentage-of-completion method for individual contracts. Revenues are
recognized based on fixed prices per contract for amount of work
performed. Changes in job performance, estimated profitability and final
contract settlements may result in revisions to costs and income, and are
recognized in the period in which the revisions are determined.
Contract costs include all direct materials, subcontracts, labor costs
and those indirect costs related to contract performance. General and
administrative costs are charged to expenses as incurred.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
short-term debt securities purchased with a maturity of three months or
less to be cash equivalents.
ACCOUNTS RECEIVABLE, TRADE
Trade accounts receivable are recorded net of allowance for doubtful
accounts of $40,000 at December 31, 1997 and 1998.
INVENTORY
Materials are valued at cost on the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation has been
provided for in the financial statements using accelerated methods over
the estimated useful lives. Repairs and maintenance are charged to
expense in the year incurred. Additions and improvements are capitalized.
OTHER ASSETS
At December 31, 1997 and 1998, other assets consist of the following:
1997 1998
Deposits $13,615 $11,715
Construction in progress -- 7,617
------- -------
$13,615 $19,332
======= =======
F-74
<PAGE> 126
SCHATZ UNDERGROUND CABLE, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
ACCRUED HEALTH INSURANCE
During 1997 and through May 31, 1998, employees and their dependents were
provided comprehensive health care coverage under a self-funded plan. The
Company pays the first $50,000 in medical expenses per covered individual
per year. Any additional costs are paid by the Plan's underwriters.
Premiums due the underwriters are accrued and paid monthly. The Company's
self-funded liability is accrued based on actual claims filed. The
reserve liability for accrued health insurance benefits payable was
$52,466 for the year ended December 31, 1997. The Company ceased to be
self-funded on June 1, 1998 and paid all remaining self-funded liability;
therefore, no liability exists at December 31, 1998.
LEASE AGREEMENTS
Annual rentals pertaining to leases which convey merely the right to use
property are charged to current operations. Leases which are in substance
installment purchases of property are recorded as acquisitions with the
asset and the related obligation recorded in the balance sheet.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of financial instruments have been estimated by
management to approximate fair value.
ADVERTISING
The costs of advertising are expensed as incurred.
2. RESTRICTED CASH
At December 31, 1997, $7,500 of cash had been segregated to fund the
insurance companies draws in connection with the health benefit plan
discussed in Note 1.
F-75
<PAGE> 127
SCHATZ UNDERGROUND CABLE, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. INVENTORY
Inventory consists of the following:
1997 1998
Work-in-process $369,512 $865,046
Materials 22,374 8,241
-------- --------
$391,886 $873,287
======== ========
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Trucks, automobiles, equipment and tools $ 13,311,204 $ 15,217,306
Office furniture and equipment 156,592 216,662
Buildings and improvements 1,489,684 1,661,519
Land 350,000 350,000
------------ ------------
15,307,480 17,445,487
Less accumulated depreciation 8,448,790 9,961,842
------------ ------------
$ 6,858,690 $ 7,483,645
============ ============
</TABLE>
Depreciation expense was $1,602,284, $1,972,539 and $2,200,018 for years
ended December 31, 1996, 1997 and 1998, respectively.
5. NOTE PAYABLE, LINE-OF-CREDIT
The Company has an annually renewable agreement for a $2,000,000
line-of-credit with Jefferson Bank and Trust Company, which provides for
accounts receivable and inventory financing. Borrowings bear interest at
1/2% above the Bank's prime rate and are secured by accounts receivable,
inventory, and personal guaranty of the stockholder.
At December 31, 1997 and 1998, no amount had been drawn against the
line-of-credit.
F-76
<PAGE> 128
SCHATZ UNDERGROUND CABLE, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. NOTES PAYABLE
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Note payable, stockholder, payable in quarterly
installments of $47,500 plus interest at 9%
Matures December 31, 2005. $1,520,000 $1,330,000
Note payable, Jefferson Bank and Trust Company,
payable in monthly installments of $8,929
including interest at 8.5%. Matures March 22, 2001
with outstanding balance due; secured by real
estate and a personal guaranty of the stockholder. 842,383 805,415
Note payable, Jefferson Bank and Trust Company, payable
in monthly installments of $33,333 plus interest at prime
plus 1/2%. Matures April 22, 2001, secured by equipment and a
personal guaranty of the stockholder. 1,333,333 933,333
Note payable, Jefferson Bank and Trust Company, payable
in monthly installments of $25,000 plus interest at prime plus 1/2%
Matures April 22, 2001; secured by equipment and a personal
guaranty of the stockholder. 1,000,000 700,000
Note payable, Jefferson Bank and Trust Company, interest only
at prime plus 1/2%. Maximum borrowings of $1,200,000 to finance
equipment purchased during 1997. Matures April 22, 1998
secured by equipment and a personal guaranty of the
stockholder. The intent is to refinance the note over four
years commencing March 20, 1998. At December 31, 1997,
this note is classified as a current liability. 1,173,423 --
Note payable, Jefferson Bank and Trust Company, payable
in monthly installments of $50,000 plus interest at prime
plus 1/2%. Matures February 20, 2002 Secured by
equipment and personal guarantee of the stockholder. -- 1,900,000
Note payable, Jefferson Bank and Trust Company, interest
only of prime plus 1/2%. Matures February 20, 1999. Secured by
equipment and personal guarantee of the stockholders. -- 996,689
Note payable, individual, payable in monthly installments of
$1,822 including interest at 10.0% 5 year amortization.
Matures March 15, 2002 secured by a freightliner truck. 75,438 60,446
---------- ----------
5,944,577 6,725,883
Less current portion 2,115,383 2,543,486
---------- ----------
$3,829,194 $4,182,397
========== ==========
</TABLE>
F-77
<PAGE> 129
SCHATZ UNDERGROUND CABLE, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. NOTES PAYABLE, CONTINUED
Maturities of debt for 1999 and the succeeding years are as follows:
Amount
1999 $ 2,543,486
2000 1,552,089
2001 1,764,932
2002 295,376
2003 190,000
Thereafter 380,000
-------------
$ 6,725,883
=============
7. INCOME TAXES
The Corporation provides for deferred income taxes for temporary
differences between the financial and income tax reporting of accrued
shareholder bonus, depreciation, accrued vacation and allowance for
doubtful accounts.
8. RELATED PARTY TRANSACTIONS
The Company has a note payable with the stockholder as explained in
Note 6.
The Company leases additional facilities and real estate from the
stockholders at $2,550 and $2,000 a month, respectively, under
month-to-month leases.
9. RETIREMENT PLAN
The Company has a retirement plan (401k) which covers all employees
meeting minimum age and service requirements. The Company makes a
matching contribution of 25% of the first 4% of compensation an employee
contributes. The Company made $46,614, $49,038 and $47,241 in matching
contributions for the years ended December 31, 1996, 1997 and 1998,
respectively.
Under the plan, the Company can make discretionary contributions to the
plan. For the years ended December 31, 1996, 1997 and 1998, no
discretionary contributions were made.
F-78
<PAGE> 130
SCHATZ UNDERGROUND CABLE, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. LEASE COMMITMENTS
The Company currently leases a facility in Kansas City under a long-term
lease expiring May 30, 1999. Minimum rental commitments under this lease
are as follows:
YEAR ENDED
DECEMBER 31
-------------
1999 $ 17,500
============
The Company leases equipment under month-to-month leases. The Company
also leases a facility at Nixa and real estate in Villa Ridge from the
stockholder under month-to-month leases.
11. MAJOR CUSTOMERS
Sales to four major customers were approximately $16,556,622, $25,382,560
and $26,221,856 for the years ended December 31, 1996, 1997 and 1998,
respectively, representing 79.9%, 85.9% and 83.7% of total sales for
those years.
12. CREDIT RISK
The Company is involved in construction for various levels of government
and therefore issues credit under binding construction contracts to these
agencies. The Company also is engaged in commercial construction and
issues credit under binding construction contracts to various companies.
13. CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the organization to credit
risk include cash on deposit with one financial institution amounting to
$896,603 and $2,070,597 at December 31, 1997 and 1998, respectively,
which was insured for up to $100,000 by the U.S. Federal Deposit
Insurance Corporation.
F-79
<PAGE> 131
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders
and the Board of Directors of Network Cabling Services, Inc.
We have audited the accompanying balance sheets of Network Cabling Services,
Inc. (formerly JAR Industries, Inc.) as of September 30, 1997 and 1998, and the
related statements of income, stockholders' equity and cash flows for each of
the two years in the period ended September 30, 1998. These financial statements
are the responsibility of the company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Network Cabling Services, Inc.,
as of September 30, 1997 and 1998, and the results of its operations and its
cash flows for each of the two years in the period ended September 30, 1998 in
conformity with generally accepted accounting principles.
As more fully discussed in Note 10, subsequent to December 31, 1998, the
Company's stockholders sold all of the outstanding common stock of the Company
to an unrelated company.
/s/ BDO Seidman, LLP
Houston, Texas
December 22, 1998, except for Note 10,
which date is February 26, 1999
F-80
<PAGE> 132
NETWORK CABLING SERVICES, INC.
BALANCE SHEETS
SEPTEMBER 30, 1997 AND 1998
<TABLE>
<CAPTION>
ASSETS (Note 4) 1997 1998
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,996 $ 121,842
Accounts receivable:
Trade, net of allowance for doubtful
accounts of $24,000 and $30,000 3,406,797 5,236,298
Affiliates (Note 6) 42,161 40,256
Other 13,400 1,680
Costs and estimated earnings in excess of
billings on uncompleted contracts (Note 2) 53,989 679,450
Inventories 712,765 709,128
Prepaid expenses 24,182 13,941
Refundable income taxes -- 93,499
----------- -----------
Total current assets 4,255,290 6,896,094
----------- -----------
Property and equipment, less accumulated depreciation (Note 3) 351,713 463,071
----------- -----------
Other assets 14,920 27,320
----------- -----------
Total assets $ 4,621,923 $ 7,386,485
=========== ===========
LIABILITIES
Current liabilities:
Accounts payable $ 1,605,506 $ 2,386,989
Accrued expenses 661,553 828,197
Income taxes payable (Note 5) 169,000 --
Note payable (Note 4) -- 1,625,528
Current maturities of long-term debt (Note 4) 131,599 161,929
Deferred income taxes (Note 5) 12,000 193,000
----------- -----------
Total current liabilities 2,579,658 5,195,643
Note payable (Note 4) 400,265 --
Long-term debt, less current maturities (Note 4) 328,426 262,468
Deferred income taxes (Note 5) 34,000 40,000
----------- -----------
Total liabilities 3,342,349 5,498,111
----------- -----------
Commitments (Note 7 and 8)
STOCKHOLDERS' EQUITY
Common stock, $1 par; shares authorized 10,000;
issued and outstanding 2,000 2,000 2,000
Additional paid-in capital 25,000 25,000
Retained earnings 1,267,574 1,876,374
----------- -----------
Total 1,294,574 1,903,374
Treasury stock, at cost, 100 shares (15,000) (15,000)
----------- -----------
Total stockholders' equity 1,279,574 1,888,374
----------- -----------
Total liabilities and stockholders' equity $ 4,621,923 $ 7,386,485
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-81
<PAGE> 133
NETWORK CABLING SERVICES, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND 1998
1997 1998
------------ ------------
Net sales (Note 1) $ 13,399,655 $ 22,862,869
Cost of Sales 10,744,383 19,750,187
------------ ------------
Gross Profit 2,655,272 3,112,682
General and administrative expenses 1,784,612 2,041,916
------------ ------------
Income from operations 870,660 1,070,766
Other income (expense):
Interest expense (95,483) (124,061)
Miscellaneous income 7,456 6,095
------------ ------------
Total other expense, net (88,027) (117,966)
------------ ------------
Income before income tax expense 782,633 952,800
Income tax expense (benefit):
Current 312,000 157,000
Deferred (12,000) 187,000
------------ ------------
Total 300,000 344,000
------------ ------------
Net income $ 482,633 $ 608,800
============ ============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-82
<PAGE> 134
NETWORK CABLING SERVICES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Cash flows from Operating Activities:
Net income $ 482,633 $ 608,800
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 103,965 151,757
Loss (gain) on disposition of property and equipment (5,015) 112
Provision for doubtful accounts 16,533 6,000
Deferred income taxes (12,000) 187,000
Changes in assets and liabilities:
Accounts receivable (1,300,397) (1,821,876)
Costs and estimated earnings in excess of
billings on uncompleted contracts 102,865 (625,461)
Inventories (339,282) 3,637
Prepaid expenses and other assets (40,868) (2,159)
Accounts payable 809,748 781,483
Accrued expenses 315,097 166,644
Income taxes payable 48,000 (262,499)
----------- -----------
Net cash provided by (used in) operating activities 181,279 (806,562)
----------- -----------
Cash Flows from Investing Activities:
Capital expenditures (151,953) (268,004)
Proceeds from sale of property and equipment 7,249 4,777
----------- -----------
Net cash used in investing activities (144,704) (263,227)
----------- -----------
Cash Flows from Financing Activities:
Repayment of long-term debt (96,783) (138,983)
Proceeds from long-term debt -- 85,000
Net borrowings on line of credit 35,265 1,243,618
Purchase of treasury stock (15,000) --
----------- -----------
Net cash (used in) provided by financing activities (76,518) 1,189,635
----------- -----------
Net increase (decrease) in cash and cash equivalents (39,943) 119,846
Cash and cash equivalents, beginning of year 41,939 1,996
----------- -----------
Cash and cash equivalents, at end of year $ 1,996 $ 121,842
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-83
<PAGE> 135
NETWORK CABLING SERVICES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Retained Treasury
Shares Amount Capital Earnings Stock Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 1, 1996 2,000 $ 2,000 $ 25,000 $ 784,941 $ -- $ 811,941
Treasury stock, at cost, 100 shares -- -- -- -- (15,000) (15,000)
Net income -- -- -- 482,633 -- 482,633
----------- ----------- ----------- ----------- ----------- -----------
Balance at September 30, 1997 2,000 $ 2,000 $ 25,000 1,267,574 (15,000) $ 1,279,574
Net income -- -- -- 608,800 -- 608,800
----------- ----------- ----------- ----------- ----------- -----------
Balance at September 30, 1998 2,000 $ 2,000 $ 25,000 $ 1,876,374 $ (15,000) $ 1,888,374
=========== =========== =========== =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-84
<PAGE> 136
NETWORK CABLING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - Network Cabling Services, Inc. (formerly JAR Industries,
Inc.) (the Company) was incorporated in the state of Texas in April 1981.
The Company is engaged in designing, installing and servicing data
telecommunication cabling, including fiber optic, as well as the
fabrication of data and telecommunication patch cables. The Company
conducts its business primarily in Texas, principally in Houston, Dallas,
Austin, and Corpus Christi.
REVENUE AND COST RECOGNITION - Revenues from fixed price and time and
material cost contracts are recognized on the percentage-of-completion
method. Revenues from such contracts are measured primarily by the
percentage of labor hours incurred to date to the estimated total labor
hours for each contract. This method is used because management considers
labor hours to be the best available measure of progress on these
contracts.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance, such as indirect labor,
supplies, tools, repairs and depreciation costs. Selling and
administrative costs are charged to expense as incurred. Provisions for
estimated losses on uncompleted contracts are made in the period in which
such losses are determined.
For uncompleted jobs at September 30, 1997 and 1998, the Company records
revenues earned in excess of amounts billed as an asset in the
accompanying balance sheet as "Costs and estimated earnings in excess of
billings on uncompleted contracts."
PROPERTY, EQUIPMENT AND DEPRECIATION - Property and equipment are
recorded at cost. Depreciation is computed using primarily the
straight-line method for financial reporting purposes. Depreciation is
computed for tax reporting purposes using accelerated methods. The
Company reviews the carrying values of its long-lived assets for possible
impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable.
INVENTORIES - Inventory consists primarily of fiber optic and coaxial
cable, connectors, adapters, and similar items. Inventories are valued at
the lower of cost or market using the average cost method which
approximates the first-in, first-out (FIFO) method.
INCOME TAXES - Provision for estimated income taxes is based on the
elements of income and expense reported in the statements of income.
Deferred income taxes result from temporary differences between the
financial statement and tax basis of assets and liabilities.
CONCENTRATION OF CREDIT RISK - The Company had revenues from one customer
that represented 14% of total revenues for the year ended September 30,
1997, and revenue from two customers that represented 17% and 12% of
total revenue for the year ended September 30, 1998.
F-85
<PAGE> 137
NETWORK CABLING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
The Company maintains its cash in bank deposit accounts which, at
times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts and management believes it is
not exposed to any significant credit risk on cash and cash
equivalents.
CASH AND CASH EQUIVALENTS - For purposes of the statements of cash
flows, all highly liquid investments purchased with original maturities
of three months or less are considered to be cash equivalents.
MANAGEMENT'S ESTIMATES AND ASSUMPTIONS - The preparation of financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reported periods.
Actual results could differ from those estimates.
2. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
At September 30, 1997 and 1998, contracts totaling approximately
$2,092,000 and $8,277,000, respectively, were in process. Costs and
estimated earnings on uncompleted contracts at September 30, 1997 and
1998 are as follows:
<TABLE>
<CAPTION>
1997 1998
---------------- -----------------
<S> <C> <C>
Costs incurred on uncompleted contracts $ 361,293 $ 5,286,761
Estimated earnings 355,235 818,044
---------------- -----------------
716,528 6,104,805
Less, billings to date (662,539) (5,425,355)
--------------- ----------------
Total $ 53,989 $ 679,450
================ =================
</TABLE>
F-86
<PAGE> 138
NETWORK CABLING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
3. PROPERTY AND EQUIPMENT
The cost and estimated useful lives of property and equipment at September
30, are summarized as follows:
<TABLE>
<CAPTION>
LIVES 1997 1998
----- -------------- -------------
<S> <C> <C> <C>
Installation and fabrication equipment 3-7 $ 429,050 $ 675,252
Vehicles 5 84,269 86,826
Furniture and office equipment 3-7 107,326 86,301
-------------- -------------
620,645 848,379
Less accumulated depreciation (268,932) (385,308)
-------------- -------------
Net property and equipment $ 351,713 $ 463,071
============== =============
</TABLE>
4. NOTE PAYABLE AND LONG-TERM DEBT
Effective November 30, 1997, the Company refinanced its revolving line of
credit facility with another bank. The new credit agreement provides for
maximum borrowings of $2,500,000, expiring January 31, 1999, bears
interest at prime plus .25% to .75% (8.75% at September 30, 1998), and is
cross-collateralized by substantially all the assets of the Company and
the personal guaranty of the two major stockholders. As of September 30,
1998, borrowings under the credit facility totaled $1,625,528. The credit
facility requires the Company to maintain certain net worth and debt to
equity ratios, as defined. As of September 30, 1998, the Company was not
in violation of these covenants.
For the year ended September 30, 1997, the Company had a revolving credit
facility with a bank with similar terms as the new line. As of September
30, 1997, borrowings under the credit facility totaled $400,265.
F-87
<PAGE> 139
NETWORK CABLING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
4. NOTE PAYABLE AND LONG-TERM DEBT - CONTINUED:
Long-term debt at September 30, consisted of the following:
<TABLE>
<CAPTION>
1997 1998
---------------- ---------------
<S> <C> <C>
Note payable to a bank bearing interest at 9.25% payable in monthly
installments of $12,694 plus interest, through May 2001, cross-
collateralized by substantially all assets of the Company and
personal guarantees of the two major stockholders $ 452,488 $ 406,200
Note payable to a bank bearing interest at 8.25% payable in monthly
installments of $510 plus interest, through December 2000,
collateralized by business vehicles -- 13,766
Other 7,537 4,431
---------------- ---------------
460,025 424,397
Less current maturities 131,599 161,929
---------------- ---------------
Total long-term debt $ 328,426 $ 262,468
================ ===============
</TABLE>
At September 30, 1998, the aggregate remaining principal repayments of
long-term debt were as follows:
<TABLE>
<CAPTION>
AMOUNT
-----------------
<S> <C> <C>
Year ending September 30,
1999 $ 161,929
2000 159,389
2001 103,079
-----------------
Total $ 424,397
=================
</TABLE>
F-88
<PAGE> 140
NETWORK CABLING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
5. INCOME TAXES
The components of deferred income tax assets and liabilities at September
30, consisted of the following:
<TABLE>
<CAPTION>
1997 1998
---------------- ----------------
<S> <C> <C>
Current deferred tax asset (liability):
Inventory capitalization $ 12,000 $ 14,000
Allowance for doubtful accounts 8,000 10,000
Difference between book method of
contract accounting (percentage of completion)
and tax method (completed contract) (32,000) (217,000)
---------------- ----------------
$ (12,000) $ (193,000)
================ ================
Non-current deferred tax liability:
Basis difference in property and equipment $ (34,000) $ (40,000)
================ ================
</TABLE>
For the years ended September 30, 1997 and 1998, the effective tax rate
differs from the statutory income tax rate applied to pre-tax income
primarily due to expenses not deductible for tax purposes.
6. RELATED PARTY TRANSACTIONS
The Company leases its facilities and vehicles from a company affiliated
through common ownership (see Note 8). Total lease payments for the years
ended September 30, 1997 and 1998 were $200,105 and $249,195,
respectively. At September 30, 1997 and 1998, the Company had balances
from related parties bearing interest at prime due upon demand of $42,161
and $40,256, respectively. The Company recorded interest income of
approximately $1,900 and $2,400, for the years ended September 30, 1997
and 1998, respectively.
7. EMPLOYEE BENEFIT PLAN
Prior to September 30, 1997, the Company maintained a 401(a) plan covering
all employees with one year of service. Employees could not contribute to
the plan, however, the Company could contribute a discretionary amount.
For the year ended September 30, 1997, the Company made a discretionary
contribution of $30,000 to the plan.
Vesting occurs in 20% increments per year with full vesting upon
completion of six years of participation for the contributions made by
the Company.
F-89
<PAGE> 141
NETWORK CABLING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. EMPLOYEE BENEFIT PLAN - CONTINUED
Effective October 1, 1997, the plan was amended to a 401(k) plan whereby
employees can contribute up to the dollar limit set by law. The Company
will make matching contributions equal to 25% of employee contributions up
to 4% of total compensation for a maximum matching contribution of 1% of
total employee compensation. For the year ended September 30, 1998, the
Company contributed approximately $22,100 in matching contributions to the
plan.
8. COMMITMENTS
The Company leases its facilities, vehicles and certain equipment, under
noncancelable operating leases. Future minimum rental payments are as
follows:
AMOUNT
-----------------
Year ending September 30,
1999 $ 301,655
2000 142,452
2001 37,279
-----------------
Total $ 481,386
=================
The Company incurred rental expense for the year ended September 30, 1997
of approximately $235,000, of which approximately $69,000 was for
short-term rentals of operating equipment. The Company incurred rental
expense for the year ended September 30, 1998 of approximately $454,000, of
which $120,000 was for short-term rentals of operating equipment.
The Company is self-insured for the health and medical insurance program
provided to employees. The coverage is a maximum of $15,000, per
employee, per year. The Company will pay approximately 67% of the cost of
this coverage for employees. If claims for an employee exceed the maximum
of $15,000, re-insurance will cover the excess. Also, if aggregate claims
exceed certain calculated levels for any given year, the re-insurance
will cover any excess. The Company incurred expenses related to the
health and medical program of approximately $166,000 and $297,000 for the
years ended September 30, 1997 and 1998, respectively. No claims were
outstanding at September 30, 1997 and 1998.
9. SUPPLEMENTAL CASH FLOW INFORMATION
During the years ended September 30, 1997 and 1998, the Company paid
interest of approximately $88,000 and $129,000, respectively. During the
years ended September 30, 1997 and 1998, the Company paid federal income
taxes of approximately $264,000 and $419,000, respectively.
F-90
<PAGE> 142
NETWORK CABLING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
10. SUBSEQUENT EVENT
On February 26, 1999, the stockholders of the Company sold all of the
outstanding common stock of the Company to an unrelated company.
Subsequent to the sale, the unrelated company paid off all of the
outstanding debt of the Company (see Note 4).
F-91
<PAGE> 143
REPORT OF INDEPENDENT ACCOUNTANTS
To the Management of
Copenhagen Utilities & Construction, Inc.
and the Board of Directors of Orius Corp.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, retained earnings and of cash flows
present fairly, in all material respects, the financial position of Copenhagen
Utilities & Construction, Inc. (the "Company") at December 31, 1997 and 1998 and
the results of its operations and its cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards, which
require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Portland, Oregon
May 20, 1999
F-92
<PAGE> 144
COPENHAGEN UTILITIES & CONSTRUCTION, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
ASSETS
1997 1998
<S> <C> <C>
Current assets:
Cash $1,100,760 $1,638,845
Short-term investments 750,000 750,000
Accounts receivable, net 5,522,908 3,980,602
Costs and estimated earnings in excess of billings on
uncompleted contracts 2,438,416 2,217,739
Deferred income taxes 16,000 21,000
Prepaid expenses and other current assets 76,300 105,938
Income taxes receivable 94,103
----------- -----------
Total current assets 9,904,384 8,808,227
Vehicles, equipment and leasehold improvements, net 2,098,858 1,835,429
----------- -----------
Total assets $12,003,242 $10,643,656
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, including retainage of $499,749 in 1997 and
$69,466 in 1998 $2,519,770 $1,300,495
Accrued liabilities 2,112,636 3,185,607
Long-term debt, current portion 61,023 129,364
Billings in excess of costs and estimated earnings on
uncompleted contracts 780,404 250,437
Income taxes payable 435,450
----------- -----------
Total current liabilities 5,909,283 4,865,903
Long-term debt 835,277 28,032
----------- -----------
Total liabilities 6,744,560 4,893,935
----------- -----------
Contingencies (Note 12)
Stockholders' equity:
Common stock:
Voting; 10,000 shares authorized, 2,496 issued and outstanding
in 1997 and 1998, par value $.02 50 50
Nonvoting; 90,000 shares authorized, 59,904 shares issued
and outstanding in 1997 and 1998, par value $.02 1,198 1,198
Additional paid-in capital 651,319
Retained earnings 5,257,434 5,097,154
----------- -----------
Total stockholders' equity 5,258,682 5,749,721
----------- -----------
Total liabilities and stockholders' equity $12,003,242 $10,643,656
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-93
<PAGE> 145
COPENHAGEN UTILITIES & CONSTRUCTION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
Contract revenue $ 33,945,841 $ 48,377,526 $ 35,191,894
Contract costs 27,942,424 39,166,200 27,092,236
------------ ------------ ------------
Gross profit 6,003,417 9,211,326 8,099,658
General and administrative expenses 4,086,357 6,888,750 8,541,112
------------ ------------ ------------
Income (loss) from operations 1,917,060 2,322,576 (441,454)
------------ ------------ ------------
Other (income) expense:
Interest income (108,694) (207,866) (238,701)
Interest expense 52,173 43,126 68,882
(Gain) loss on disposal of assets 2,181 (3,238) (35,355)
------------ ------------ ------------
(54,340) (167,978) (205,174)
------------ ------------ ------------
Income (loss) before income tax provision 1,971,400 2,490,554 (236,280)
Income tax provision (benefit) 749,000 900,000 (76,000)
------------ ------------ ------------
Net income (loss) 1,222,400 1,590,554 (160,280)
Retained earnings, beginning of year 2,694,480 3,816,880 5,257,434
Dividends paid (100,000) (150,000) --
------------ ------------ ------------
Retained earnings, end of year $ 3,816,880 $ 5,257,434 $ 5,097,154
============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-94
<PAGE> 146
COPENHAGEN UTILITIES & CONSTRUCTION, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,222,400 $ 1,590,554 $ (160,280)
----------- ----------- -----------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 686,294 635,084 839,632
Gain on disposal of assets 2,181 (3,238) (35,355)
Net changes in operating assets and liabilities:
Accounts receivables (2,545,305) (645,554) 1,542,306
Prepaid expenses and other current assets (30,871) (21,264) (29,638)
Costs and estimated earnings in excess of billings on
uncompleted contracts (1,388,584) (549,642) 220,677
Deferred income tax (12,000) 11,000 (5,000)
Billings in excess of costs and estimated earnings on
uncompleted contracts (1,420) 180,963 (529,967)
Accounts payable 1,074,149 2,550 (1,219,275)
Accrued liabilities 650,728 1,164,688 1,072,971
Income taxes payable (receivable) 804,829 (259,754) (529,553)
----------- ----------- -----------
Total adjustments (759,999) 514,833 1,326,798
----------- ----------- -----------
Net cash provided by operating activities 462,401 2,105,387 1,166,518
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from disposal of assets 800 23,300 38,500
Purchase of vehicles, equipment and leasehold improvements (988,255) (449,190) (464,648)
Purchase of short-term investments -- (750,000) --
----------- ----------- -----------
Net cash used in investing activities (987,455) (1,758,190) (426,148)
----------- ----------- -----------
Cash flows from financing activities:
Dividends paid (100,000) (150,000) 0
Contributions from shareholders -- -- 109,085
Payments on long-term debt (45,023) (720,223) (311,370)
----------- ----------- -----------
Net cash used in financing activities (145,023) (870,223) (202,285)
----------- ----------- -----------
Net increase (decrease) in cash (670,077) 59,274 538,085
Cash at beginning of year 1,711,563 1,041,486 1,100,760
----------- ----------- -----------
Cash at end of year $ 1,041,486 $ 1,100,760 $ 1,638,845
=========== =========== ===========
Supplemental disclosure of noncash investing and financing transactions:
Notes payable assumed by a related party recorded as additional
paid-in capital $ -- $ -- $ 542,234
=========== =========== ===========
Equipment purchased with notes payable $ 535,277 $ 405,277 $ 114,700
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ $ 1,148,754 $ 458,553
=========== =========== ===========
Cash paid for interest $ 63,919 $ 72,336 $ 51,290
=========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-95
<PAGE> 147
COPENHAGEN UTILITIES & CONSTRUCTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
Copenhagen Utilities & Construction, Inc. (the "Company"), an Oregon
corporation since 1975, operates in Oregon, Washington, California and
Nevada. The Company is a provider of installation, design, engineering and
maintenance services for the telecom industry. The Company also provides
installation services for gas and water utilities. The Company is located
in Clackamas, Oregon and Sacramento, California.
These financial statements include the accounts of a special purpose
entity, Excel Equipment LLC, and is owned by the same shareholders as the
Company. On December 31, 1998, in preparation for the sale of the
outstanding shares of stock of the Company as discussed in Note 13,
substantially all assets of Excel were transferred to the Company, and the
Company assumed a portion of the Company's long-term debt. In connection
with this transfer amounts owing related entities by Excel totaling
$542,234 was not assumed by the Company and accordingly, was recorded as a
contribution of capital.
Following is a summary of the Company's significant accounting policies:
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less at date of purchase to be cash equivalents. The cost
of these investments approximates fair value. At times, temporary cash
investments may be in excess of the Federal Deposit Insurance Corporation
insurance limit. The Companies deposits in high credit quality investments
with reputable financial institutions.
SHORT-TERM INVESTMENTS
Short-term investments are stated at fair market value as of the balance
sheet date. Unrealized holding gains or losses are reported in the balance
sheet as a separate component of stockholders' equity until realized.
Realized gains and losses are included in operations.
The Company reported no unrealized gains or losses as the market value of
short-term investments approximated their cost at December 31, 1997 and
1998.
ACCOUNTING FOR LONG-TERM CONTRACTS
The accompanying financial statements have been prepared using the
percentage-of-completion method of accounting for long-term contracts. This
accounting method provides for the recognition of revenue on contracts
which are not yet completed. The amount of revenue recognized is based on
the percentage that contract costs incurred to date bear to estimated total
contract costs, except that anticipated losses are recognized in their
entirety without reference to percentage-of-completion. Contract costs
include all subcontracts, direct labor and benefits, materials and
allocated equipment and indirect costs.
F-96
<PAGE> 148
COPENHAGEN UTILITIES & CONSTRUCTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
The Company allocates equipment and indirect costs to each contract based
on equipment usage and direct labor rates. These rates are reviewed and
adjusted periodically to reflect changes in the Company's total equipment
and indirect costs.
Revisions in estimated costs and earnings are reported in the accounting
period in which the facts requiring revisions become known.
Profits and losses from service and minor installation contracts are
recognized in the period the work is completed.
OPERATING CYCLE
Assets and liabilities related to long-term contracts are included in
current assets and current liabilities in the accompanying balance sheets
as they will be liquidated in the normal course of contract completion,
although this may require more than one year.
VEHICLES, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Vehicles, equipment and leasehold improvements are stated at cost.
Maintenance and repairs of a routine nature are charged to operations as
incurred; additions and improvements are capitalized. Gains and losses from
sales or retirements are included in operations.
Depreciation is computed by accelerated methods over the estimated useful
lives of the related assets, which are as follows:
Construction vehicles and equipment 5 years
Office furniture and equipment 5 to 7 years
Leasehold improvements 15 years
Amortization of leasehold improvements is classified as depreciation
expense for financial reporting.
INCOME TAXES
Deferred income taxes are provided for the expected future income tax
effect of differences between the tax basis of assets and liabilities and
their financial reporting amounts. At the balance sheet date, based on
enacted tax laws and statutory tax rates applicable to the years in which
the differences are expected to affect taxable income. Valuation allowances
are established when necessary to reduce deferred tax assets to the amount
expected to be realized.
F-97
<PAGE> 149
COPENHAGEN UTILITIES & CONSTRUCTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
CONCENTRATIONS OF CREDIT RISK
The Company's cash and accounts receivable subject the Company to
concentrations of potential credit risk. The Company limits its risk by
depositing cash only with established financial institutions which maintain
high credit standings. The Company limits its exposure to losses on
accounts receivable by maintaining a broad customer base and performing the
majority of its contracts for public agencies.
The Company has a long-term service contract to provide service for one
major customer. The Company had total revenues of $10,197,923, $16,521,016
and $15,219,596 for fiscal years 1996, 1997 and 1998, which comprises
approximately 30%, 34.2% and 43.5%, respectively.
2. SHORT-TERM INVESTMENTS:
Short-term investments at December 31, 1997 and 1998 consist of municipal
bonds with an approximately 5.60% effective annual yield. The market value
of these investments approximated cost at December 31, 1997 and 1998.
3. ACCOUNTS RECEIVABLE:
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Construction contracts $ 4,134,239 $ 3,533,164
Retainage on construction contracts 1,398,669 457,438
----------------- ----------------
5,532,908 3,990,602
Less allowance for uncollectible accounts 10,000 10,000
----------------- ----------------
$ 5,522,908 $ 3,980,602
================ ================
</TABLE>
Retainage billed but not due until contract completion is $1,398,669 and
$457,438 at December 31, 1997 and 1998. The Company expects to collect the
retainage over the next year upon contract completion.
F-98
<PAGE> 150
COPENHAGEN UTILITIES & CONSTRUCTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM CONTRACTS IN PROGRESS:
Following is a summary of long-term contracts in progress:
<TABLE>
<CAPTION>
1997 1998
-------------------------------- -------------------------------
ESTIMATED ESTIMATED
TOTAL CONTRACT TOTAL CONTRACT
CONTRACT TO DATE CONTRACT TO DATE
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Contract costs $ 43,967,855 $ 30,758,952 $ 45,321,883 $ 42,768,316
Gross profit 6,403,291 3,318,369 9,450,258 9,111,308
------------ ------------ ------------ ------------
Contract revenue $ 50,371,146 34,077,321 $ 54,772,141 51,879,624
============ ============
Less billings (32,419,309) (49,912,322)
------------ ------------
Net underbillings $ 1,658,012 $ 1,967,302
============ ============
</TABLE>
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 2,438,416 $ 2,217,739
Billings in excess of costs and estimated
earnings on uncompleted contracts (780,404) (250,437)
----------- -----------
$ 1,658,012 $ 1,967,302
=========== ===========
</TABLE>
5. VEHICLES, EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Vehicles, equipment and leasehold improvements:
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Construction vehicles and equipment $5,633,278 $5,995,829
Office furniture and equipment 338,780 500,407
Leasehold improvements 126,786 126,786
---------- ----------
6,098,844 6,623,022
Less accumulated depreciation 3,999,986 4,787,593
---------- ----------
$2,098,858 $1,835,429
========== ==========
</TABLE>
F-99
<PAGE> 151
COPENHAGEN UTILITIES & CONSTRUCTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LINE OF CREDIT:
The Company maintains an operating line of credit agreement with U.S. Bank
which renews annually in May. Funds are available to a maximum of $750,000,
subject to availability of collateral (80% of eligible accounts
receivable). Borrowings under this agreement bear interest at the bank's
prime lending rate. There were no outstanding borrowings under the line of
credit agreement at December 31, 1997 or 1998.
The line of credit agreement contains certain restrictive covenants related
to the Company's current ratio, net worth and debt to equity ratio. The
Company was in compliance with all requirements at December 31, 1998.
The Company maintains a term-financing line of credit agreement with U.S.
Bank for equipment acquisitions. Under this agreement, the Company may
borrow up to $750,000 (not to exceed 80% of the sales price of equipment
acquired). Borrowings bear interest at the bank's prime lending rate plus
one-half percent (8.25% and 8.75% at December 31, 1997 and 1998). Loans are
amortized over three to five years. There were no outstanding borrowings
under the equipment line of credit agreement at December 31, 1997 or 1998.
7. LONG-TERM DEBT:
Long-term debt consists of the following at December 31,:
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Contracts payable to Case Credit Corporation (12) and
Western Traction Company (1) in aggregate monthly average
installments of $11,775, including interest ranging from 6%
to 7.90%; maturing in November 1999; collateralized by
construction equipment $284,138 $157,396
Related party long-term debt:
Leota Johnson, monthly installments of $3,533, including
interest of 7.5%; maturing in February 2010 353,470 --
Johnson Family Trust monthly installments of $2,581, including
interest of 7.5%; maturing in February 2010 258,692 --
------------ ------------
896,300 157,396
Less amount due within one year 61,023 129,364
------------ ------------
$835,277 $ 28,032
============ ============
</TABLE>
F-100
<PAGE> 152
COPENHAGEN UTILITIES & CONSTRUCTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES:
The income tax provision (benefit) reported in the accompanying statements
of operations and retained earnings consist of the following for the years
ended December 31:
<TABLE>
<CAPTION>
1996 1997 1998
------------------------------------ ------------------------------------- --------------------------------------
CURRENTLY DEFERRED CURRENTLY DEFERRED CURRENTLY DEFERRED
PAYABLE PROVISION PAYABLE PROVISION PAYABLE PROVISION
(RECEIVABLE) (BENEFIT) TOTAL (RECEIVABLE) (BENEFIT) TOTAL (RECEIVABLE) BENEFIT TOTAL
------------ --------- --------- ------------ --------- --------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal $ 632,000 $(11,000) $ 621,000 $ 790,000 $ 8,000 $ 798,000 $(71,000) $ 2,000 $(69,000)
State 129,000 (1,000) 128,000 99,000 3,000 102,000 (7,000) (7,000)
--------- -------- --------- --------- -------- --------- -------- -------- --------
$ 761,000 $(12,000) $ 749,000 $ 889,000 $ 11,000 $ 900,000 $(71,000) $ (5,000) $(76,000)
========= ======== ========= ========= ======== ========= ======== ======== ========
Effective
tax rate 38.0% 36.1% (32.2)%
======= ======= =======
</TABLE>
The income tax provision (benefit) result in effective rates which differ
from the statutory federal income tax rate (34%) for the following reasons:
<TABLE>
<CAPTION>
1996 1997 1998
------------------- ------------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Income tax at statutory federal income tax rate $ 670,300 34.0 % $ 846,800 34.0 % $(80,400) (34.0)%
State income taxes, net of federal benefit 84,400 4.3 % 68,800 2.8 % (7,000) (3.0)%
Permanent differences 16,000 0.8 % 18,700 0.7 % 12,700 5.4 %
Fuel tax credit and other, net (21,700) (1.1)% (34,300) (1.4)% (1,300) (0.6)%
--------- ---- --------- ---- -------- -----
$ 749,000 38.0 % $ 900,000 36.1 % $(76,000) (32.2)%
========= ==== ========= ==== ======== =====
</TABLE>
Deferred income taxes are recognized for the expected future income tax
effect of differences between the tax bases of assets and liabilities and
their financial reporting amounts (temporary differences). Following is a
summary of temporary differences and the related deferred income tax effect
as of December 31, 1997 and 1998:
F-101
<PAGE> 153
COPENHAGEN UTILITIES & CONSTRUCTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES, CONTINUED:
<TABLE>
<CAPTION>
1997 1998
---------------------------- ----------------------------
AMOUNT OF DEFERRED AMOUNT OF DEFERRED
TEMPORARY INCOME TAX TEMPORARY INCOME TAX
SOURCES OF TEMPORARY DIFFERENCES DIFFERENCES EFFECT DIFFERENCES EFFECT
- -------------------------------------------------------------------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Accrued insurance reserves $ 35,000 $ 12,000 $ 25,000 $ 10,000
Allowance for uncollectible accounts receivable 10,000 4,000 10,000 4,000
State tax net operating losses net of federal provision 165,000 7,000
--------- ---------
Deferred income tax benefit $ 16,000 $ 21,000
========= =========
</TABLE>
Recoverable income taxes totaling $94,103 reported in the accompanying
December 31, 1998 balance sheet result from federal and state estimated tax
payments which exceeded the Company's current income tax obligations.
9. OPERATING LEASE COMMITMENTS:
The Company leases office and shop facilities in Clackamas, Oregon and
Sacramento, California from its stockholders under lease agreements which
require the Company to pay certain operating costs such as property taxes,
insurance and utilities in addition to the basic rent.
The combined rent commitment under these leases is $19,000 per month
through February 2004, exclusive of operating costs.
Rent expense charged to operations under all operating leases, including
the leases with the Company's stockholders described above, totaled
approximately, $1,291,000, $1,719,100 and $1,085,000 for 1996, 1997 and
1998, respectively. Rent expense paid to a related party was $168,000 for
each of the years ended 1996, 1997 and 1998.
10. EMPLOYEE BENEFIT PLANS:
RETIREMENT PLANS:
The Company's hourly field employees and certain salaried employees
participate in a multi-employer money purchase pension plan sponsored by
the Associated General Contractors of America, Inc. Contributions charged
to operations under this plan totaled approximately $628,000, $683,000 and
$604,000 for 1996, 1997 and 1998, respectively.
The Company maintains a defined contribution retirement plan under
provisions of Internal Revenue Code Section 401(k) for its eligible
employees not covered by the money purchase pension plan described above.
The plan requires the Company to match 50% of employee contributions, to a
maximum Company contribution of 3% of the employee's annual compensation
(up to specified limits set by law). The plan also allows for discretionary
contributions to be determined annually by the Company's Board of
Directors. Contributions charged to operations under this plan totaled
approximately, $55,000, $64,000 and $54,000, for the years ended December
31, 1996, 1997 and 1998, respectively.
INCENTIVE BONUS PLAN:
The Company has an incentive bonus plan for certain key employees under
which the employees can share in profits which the Company earns in excess
of predetermined norms. Bonuses earned under this formula have been paid or
accrued as of year-end. Bonuses paid by the Company were $1,575,000,
$4,035,000 and $5,218,500 during fiscal years 1996, 1997 and 1998,
respectively.
11. RECAPITALIZATION:
In July 1997 the Company's stockholders recapitalized the Company by
creating a second class of (nonvoting) capital stock to facilitate business
succession plans. The stockholders exchanged 1,248 shares of $1 par value
voting common stock for 2,496 of voting common stock and 59,904 shares of
nonvoting common stock.
12. CONTINGENCIES:
The Company is a party to certain claims and suits arising out of the
conduct of its business. While there can be no assurance as to their
ultimate outcome, management does not believe these matters will have a
material adverse effect on its consolidated financial condition or
operating results.
13. SUBSEQUENT EVENT:
On February 26, 1999, the stockholders of the Company sold all outstanding
shares of stock to the Orius Corporation of West Palm Beach, Florida for
cash and common stock.
F-102
<PAGE> 154
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder of
TEXEL Corporation and the
Board of Directors of Orius Corp.
In our opinion, the accompanying balance sheets and the related statements of
operations, changes in shareholder's equity and of cash flows present fairly, in
all material respects, the financial position of TEXEL Corporation (the Company)
as of December 31, 1997 and 1998, and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Baltimore, Maryland
May 14, 1999
F-103
<PAGE> 155
TEXEL CORPORATION
BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
-------
<TABLE>
<CAPTION>
ASSETS
1997 1998
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,395,669 $ 3,144,841
Accounts receivable 4,725,915 7,172,628
Costs in excess of billings on uncompleted contracts 177,080 644,353
Prepaid expenses 52,570 --
------------ ------------
Total current assets 6,351,234 10,961,822
Property and equipment, net 195,395 920,046
------------ ------------
Total assets $ 6,546,629 $ 11,881,868
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 757,528 $ 2,028,443
Accrued expenses 414,636 618,298
Billings in excess of costs on uncompleted contracts 40,351 73,153
------------ ------------
Total current liabilities 1,212,515 2,719,894
Deferred rent -- 198,065
------------ ------------
Total liabilities 1,212,515 2,917,959
------------ ------------
Shareholders' equity:
Common stock, par value $1.00, authorized 1,000 shares;
issued and outstanding 400 shares 400 400
Additional paid in capital 1,600 1,600
Treasury stock, 200 shares at cost (24,000) (24,000)
Retained earnings 5,356,114 8,985,909
------------ ------------
Total shareholders' equity 5,334,114 8,963,909
------------ ------------
Total liabilities and shareholders' equity $ 6,546,629 $ 11,881,868
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THESE FINANCIAL STATEMENTS.
F-104
<PAGE> 156
TEXEL CORPORATION
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
-------
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
Contract and service revenue $ 21,832,078 $ 29,648,953
Cost of sales 14,989,003 20,633,959
------------ ------------
Gross profit 6,843,075 9,014,994
Selling, general and administrative expenses 1,265,074 1,862,802
------------ ------------
Income from operations 5,578,001 7,152,192
Other (income) expense
Interest income (102,617) (127,621)
Other expense 101,730 88,145
------------ ------------
Net Income $ 5,578,888 $ 7,191,668
============ ============
Pro Forma Tax Provision (Unaudited):
Income before income taxes $ 5,578,888 $ 7,191,668
Pro forma provision for income taxes 2,120,000 2,732,800
------------ ------------
Total $ 3,458,888 $ 4,458,868
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THESE FINANCIAL STATEMENTS.
F-105
<PAGE> 157
TEXEL CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
-------
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,578,888 $ 7,191,668
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 83,767 101,434
Changes in:
Accounts receivable (735,921) (2,446,713)
Prepaid expenses (52,570) 52,570
Billings in excess of costs 40,351 32,802
Accounts payable 193,091 1,270,915
Accrued expenses 30,805 203,662
Costs in excess of billings (97,607) (467,273)
Deferred rent -- 198,065
----------- -----------
Net cash provided by operating activities 5,040,804 6,137,130
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (89,460) (826,085)
----------- -----------
Net cash used in investing activities (89,460) (826,085)
----------- -----------
Cash flows from financing activities:
Distributions to stockholder (4,751,016) (3,561,873)
----------- -----------
Net cash used in financing activities (4,751,016) (3,561,873)
----------- -----------
Increase in cash and cash equivalents 200,328 1,749,172
Cash and cash equivalents, beginning of year 1,195,341 1,395,669
----------- -----------
Cash and cash equivalents, end of year $ 1,395,669 $ 3,144,841
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THESE FINANCIAL STATEMENTS.
F-106
<PAGE> 158
TEXEL CORPORATION
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
-------
<TABLE>
<CAPTION>
Additional
Common Common Paid-in Retained Treasury
Shares Stock Capital Earnings Stock Total
----------- ----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 400 $ 400 $ 1,600 $ 4,528,242 $ (24,000) $ 4,506,242
Net income -- -- -- 5,578,888 -- 5,578,888
Distributions to shareholder -- -- -- (4,751,016) -- (4,751,016)
----------- ----------- ----------- ----------- ------------- -----------
Balance at December 31, 1997 400 400 1,600 5,356,114 (24,000) 5,334,114
Net income -- -- -- 7,191,668 -- 7,191,668
Distributions to shareholder -- -- -- (3,561,873) -- (3,561,873)
----------- ----------- ----------- ----------- ------------- -----------
Balance at December 31, 1998 400 $ 400 $ 1,600 $ 8,985,909 $ (24,000) $ 8,963,909
=========== =========== =========== =========== ============= ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THESE FINANCIAL STATEMENTS.
F-107
<PAGE> 159
TEXEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
-------
1. ORGANIZATION
Texel Corporation (the "Company") was incorporated in 1983 under the
laws of the Commonwealth of Virginia. The Company is a provider of
premise wiring services, primarily in the Washington, D.C. metropolitan
area. The Company's corporate headquarters are located in Reston,
Virginia and as of April 30, 1999, the Company had two regional field
offices in Columbia, Maryland and Richmond, Virginia.
The shareholder of the Company has signed a definitive agreement to
sell all of the Company's outstanding shares to Orius Corporation. The
transaction is expected to close on May 24, 1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONTRACT REVENUE
The Company recognizes revenue from contracts in process on the
percentage of completion method of accounting based on contract costs
incurred to date compared with total estimated contract costs. Contract
costs include all direct labor, material, subcontract, depreciation,
and other direct project costs related to contract performance. General
and administrative costs are charged to expense as incurred.
Service revenue is recognized when the work is complete. This work is
primarily short term and completed within five days or less.
Revenues recognized in excess of amounts billed are classified as
current assets under costs in excess of billings, and amounts billed in
excess of revenues recognized to date are classified as current
liabilities as billings in excess of costs. Contract retentions are
included in accounts receivable.
F-108
<PAGE> 160
TEXEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
-------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
INCOME TAXES
The Company elected subchapter S-Corporation status effective
January 1, 1984. As an S-Corporation, the shareholder reports profits
or losses of the Company, for Federal and State income tax purposes, on
his individual income tax return. As an S-Corporation, the Company was
not subject to certain income taxes at the corporate level.
Substantially all payments made to the shareholder are in the form of
S-Corporation shareholder distributions. In conjunction with the sale
of the Company's outstanding stock, the Company's S-Corporation filing
status will be terminated and the Company will begin to be taxed as a
C-Corporation for federal and state income tax purposes. Pro forma
income taxes are calculated at a combined federal and state tax rate of
38%.
CASH AND CASH EQUIVALENTS
Cash equivalents are highly liquid short-term investments readily
convertible into cash. Cash equivalents consist primarily of time
deposits and certificates of deposit with various financial
institutions. These investments are carried at cost, which approximates
market and mature within 90 days and therefore are subject to minimal
risk.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. The cost of assets sold or
retired and the related amounts of accumulated depreciation are
eliminated from the accounts and the resulting gain or loss is included
in the income. Renewals and betterments are capitalized. Repairs and
maintenance are charged to expense when incurred.
Depreciation is computed using the straight-line and accelerated
methods over the following estimated useful lives:
Furniture and fixtures 7.5 years
Machinery and equipment 5.5 years
Automobiles 5.5 years
Computer software 5.5 years
Leasehold improvements 31.5 years
Depreciation expense in 1997 and 1998 was $83,767 and $101,434,
respectively.
F-109
<PAGE> 161
TEXEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
-------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's assets and liabilities
approximate fair value due to the short-term maturity of these
financial instruments.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual amounts could differ
from these estimates.
3. MAJOR CUSTOMERS
Sales to individual customers representing more than 10% of total sales
were approximately $5,933,000 and $11,246,000 in 1997 and 1998,
respectively. These amounts represent sales to 2 and 3 customers,
respectively.
F-110
<PAGE> 162
TEXEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
-------
4. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following at December 31:
1997 1998
--------------- -------------
Contract billings $ 4,261,637 $ 4,924,667
Unbilled accounts receivable 360,083 1,845,201
Retainage 44,012 345,424
Rebates and other 60,183 57,336
--------------- -------------
Total $ 4,725,915 $ 7,172,628
=============== =============
The balances billed but not paid by customers pursuant to retainage
provisions in customer contracts will be due upon completion of the
contracts and acceptance by the customer. Based on the Company's
experience with similar contracts in recent years, the retention
balances at December 31, 1997 and 1998 are expected to be collected
within twelve months of year end.
5. PROPERTY AND EQUIPMENT
Property and equipment, stated at cost, consisted of the following at
December 31:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Leasehold improvements $ 3,413 $ 687,427
Automobiles 345,061 424,502
Machinery and equipment 292,938 338,392
Computer software 83,891 83,891
Furniture and fixtures 50,598 67,774
----------- -----------
775,901 1,601,986
Less accumulated depreciation (580,506) (681,940)
----------- -----------
Property and equipment, net $ 195,395 $ 920,046
=========== ===========
</TABLE>
F-111
<PAGE> 163
TEXEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
-------
6. COSTS AND BILLINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Costs incurred on uncompleted contracts $ 387,343 $ 2,673,895
Billings on uncompleted contracts (250,614) (2,102,695)
----------- -----------
$ 136,729 $ 571,200
=========== ===========
Costs in excess of billings on
uncompleted contracts 177,080 644,353
Billings in excess of costs on
uncompleted contracts (40,351) (73,153)
----------- -----------
$ 136,729 $ 571,200
=========== ===========
</TABLE>
7. LEASE COMMITMENTS
The Company leases office space at various locations under
noncancelable operating leases expiring through 2005. Each lease
agreement provides for an annual escalation of 3%.
Certain office space is leased from Trison LLC, a real estate company
owned by the sole shareholder of the Company. The lease requires
monthly payments of approximately $33,000 over a 7-year term, with a
5-year renewal option. Based on the terms of the lease, the Company
received 10-month rent abatement in return for making necessary
leasehold improvements to the office space. The rent abatement is
recognized on a straight line basis over the term of the lease. Rent
expense for office space for the year ended December 31, 1998 was
$307,323.
F-112
<PAGE> 164
TEXEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
-------
7. LEASE COMMITMENTS, continued
Minimum rental payments due under noncancelable operating leases are as
follows:
<TABLE>
<CAPTION>
Related
Party Other Total
------------- ---------- --------------
<S> <C> <C> <C>
1999 $ 396,130 $ 36,784 $ 432,914
2000 396,130 18,059 414,189
2001 396,130 16,798 412,928
2002 396,130 17,303 413,433
2003 396,130 8,779 404,909
Thereafter 594,196 -- 594,196
------------- ---------- --------------
Total future minimum lease payments $ 2,574,846 $ 97,723 $ 2,672,569
============= ========== ==============
</TABLE>
8. ACCRUED EXPENSES
Accrued expenses were comprised of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
--------------------------------
<S> <C> <C>
Salaries, wages and benefits $ 196,244 $ 273,352
Profit sharing 115,304 177,399
Vacation accrual 49,448 59,012
Other 53,640 108,535
--------------- ---------------
Total $ 414,636 $ 618,298
=============== ===============
</TABLE>
F-113
<PAGE> 165
TEXEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
-------
9. PROFIT SHARING PLAN
A defined contribution retirement plan is maintained by the Company.
All full-time employees who have attained the age of twenty-one and
completed one year of service are eligible to participate in the plan.
The participants may elect to make a contribution up to 15% of their
compensation not exceeding $9,500 in 1998 as defined by the plan. The
Company matches 20% of employee contributions up to 4% of the
employee's compensation. Vesting of Company contributions occur
ratably over a 7-year period. The Company also provides a discretionary
contribution to the profit sharing plan. During 1997 and 1998,
approximately $125,000 and $177,000, respectively, was expensed related
to this contribution.
10. OTHER RELATED PARTY TRANSACTIONS
The president and sole shareholder of the Company is the 30%
shareholder of Texel Systems, Inc., which is a company that performs
certain phone and cable system installation services. The Company
occasionally uses Texel Systems, Inc. as a subcontractor on its
projects, and vice-versa. Total revenue and expense recorded by the
Company for services provided to or obtained from Texel Systems, Inc.
was approximately $44,000 and $173,000, respectively in 1998.
F-114
<PAGE> 166
<TABLE>
<CAPTION>
================================================= ====================================================
<S> <C>
YOU SHOULD RELY ONLY ON THE INFORMATION
CONTAINED IN THIS PROSPECTUS. ORIUS HAS NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION DIFFERENT FROM THAT CONTAINED IN
THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER
TO SELL, AND IT DOES NOT SEEK AN OFFER TO BUY, Shares
THESE SECURITIES IN ANY JURISDICTION WHERE THE
OFFER OR SALE IS NOT PERMITTED. THE INFORMATION
IN THIS PROSPECTUS IS CORRECT ONLY AS OF THE DATE [GRAPHIC OMITTED](sm)
OF THIS PROSPECTUS, REGARDLESS OF WHEN THIS
PROSPECTUS IS DELIVERED OR THESE SECURITIES ARE
SOLD.
------------------
TABLE OF CONTENTS
PAGE
Prospectus Summary........................ 3
Risk Factors.............................. 7
Use of Proceeds........................... 13 COMMON STOCK
Dividend Policy........................... 13
Capitalization............................ 14
Dilution.................................. 15
Selected Pro Forma Financial Data......... 16
Selected Historical Financial Data........ 23
Management's Discussion and Analysis of
Financial Condition and Results of ________________
Operations............................. 25
Our Business.............................. 32 PROSPECTUS
Management................................ 40 ________________
Certain Transactions...................... 43
Principal and Selling Stockholders........ 45
Description of Capital Stock.............. 46 BT Alex. Brown
Shares Eligible for Future Sale........... 47
Plan of Distribution...................... 48 Banc of America Securities LLC
Experts................................... 49
Legal Matters............................. 50 Morgan Keegan & Company, Inc.
Additional Information.................... 51
Reports to Security Holders............... 51 The Robinson-Humphrey
Index to Financial Statements............. F-1 Company
UNTIL , 1999 (25 DAYS AFTER THE
DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING
TRANSACTIONS IN THE COMMON STOCK OFFERED
HEREBY, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION _______________, 1999
OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
================================================= ====================================================
</TABLE>
<PAGE> 167
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the fees and expenses in connection
with the issuance and distribution of the securities being registered
hereunder.
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission Registration Fee...................... $_______
NASD Filing Fee.......................................................... $_______
NYSE Listing Fee......................................................... $_______
Printing and Engraving Costs............................................. $_______
Accounting Fees and Expenses............................................. $_______
Legal Fees and Expenses.................................................. $_______
Transfer Agent and Registrar Fees........................................ $_______
Miscellaneous............................................................ $_______
Total........................................................... $_______
</TABLE>
- --------------------
* To be supplied by amendment.
All amounts are estimated except for the SEC registration fee, the
NASD filing fee and NYSE listing fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Generally, Section 145 of the General Corporate Law of the State of
Delaware (the "GCL") permits a corporation to indemnify certain persons made a
party to an action, by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation or enterprise. To the extent that person has been
successful in any such matter, that person shall be indemnified against
expenses actually and reasonably incurred by him. In the case of an action by
or in the right of the corporation, no indemnification may be made in respect
of any matter as to which that person was adjudged liable unless and only to
the extent that the Delaware Court of Chancery or the court in which the action
was brought determines that despite the adjudication of liability that person
is fairly and reasonably entitled to indemnity for proper expenses.
Section 102(b)(7) of the GCL enables a Delaware corporation to include
a provision in its certificate of incorporation limiting a director's liability
to the corporation or its stockholders for monetary damages for breaches of
fiduciary duty as a director. The Company has adopted a provision in its
Amended and Restated Certificate of Incorporation that provides for such
limitation to the full extent permitted under Delaware law.
The Company's Bylaws provides that the Company shall indemnify any
director, officer or employee or any former director, officer or employee to
the full extent permitted under Delaware law.
The Company has acquired insurance with respect to, among other
things, certain liabilities that may arise under the statutory provisions
referred to above. The directors and officers of the Company are insured
against certain liabilities, including certain liabilities arising under the
Securities Act of 1933, which might be incurred by them in such capacities and
against which they are not indemnified by the Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this Registration
Statement, the Company has sold the following securities that were not
registered under the Securities Act of 1933, as amended (the "Securities Act").
II-1
<PAGE> 168
On February 26, 1999, an indirect subsidiary of the Registrant was
merged with and into North American Tel-Com Group, Inc. ("NATG"). As a result
of the merger, NATG became an indirect subsidiary of the Registrant. In the
merger, each issued and outstanding share of NATG common stock was converted
into one-tenth of one share of the Registrant's common stock and each issued
and outstanding share of NATG preferred stock was converted into one-tenth of
one share of the Registrant's preferred stock. As a result of the merger,
10,517,561 shares of NATG common stock were converted into ________________
shares of the Registrant's common stock and 100,000 shares of NATG Series A
Preferred Stock were converted into 10,000 shares of Orius Series A Preferred
Stock (the "Series A Stock"). The securities issued in these transactions were
intended to be exempt from registration pursuant to Section 4(2) of the
Securities Act.
On the date of the merger, the Registrant also entered into certain
subscription agreements to raise capital to complete additional acquisitions.
The Registrant entered into a subscription agreement with HIG whereby HIG
received 7,596.38 shares of Orius Series B Preferred Stock (the "Series B
Stock") in exchange for $7,596,378. In addition, the Registrant entered into
subscription agreements with a number of then existing stockholders of NATG and
issued an aggregate amount of ___________ shares of Orius common stock to these
stockholders in exchange for an aggregate sum of $2.4 million. The securities
issued in these transactions were intended to be exempt from registration
pursuant to Section 4(2) of the Securities Act.
On February 26, 1999, the Registrant consummated the acquisitions of
Network Cabling Services, Inc., ("NCS"), Copenhagen Utilities & Construction,
Inc. ("CUCI"), and DAS-CO of Idaho, Inc ("DAS-CO"). In connection with the
acquisition of all of NSC's outstanding capital stock, the Registrant issued
_______ shares of its common stock to the former NCS stockholders as partial
consideration for the purchase. In connection with acquisition of all of CUCI's
outstanding capital stock, the Registrant issued _______ shares of its common
stock to the former CUCI stockholders as partial consideration for the
purchase. In connection with the acquisition of all of DAS-CO's outstanding
capital stock, the Registrant issued _______ shares of its common stock to a
key employee of DAS-CO. The securities issued in these transactions were
intended to be exempt from registration pursuant to Section 4(2) of the
Securities Act.
On February 26, 1999, in connection with the completion of its new
credit facility, the Registrant issued warrants (the "Warrants") to acquire
______ shares of its common stock to certain members of the loan syndicate. The
securities issued in these transactions were intended to be exempt from
registration pursuant to Section 4(2) of the Securities Act.
On May 24, 1999, the Registrant consummated the acquisitions of Texel
Corporation ("Texel"). In connection with the acquisition of all of Texel's
outstanding capital stock, the Registrant issued ______ shares of its common
stock to the former Texel stockholder as partial consideration for the
purchase. The securities issued in this transactions were intended to be exempt
from registration pursuant to Section 4(2) of the Securities Act.
In connection with the consummation of this offering, the Series A
Stock and the Series B Stock will be converted into shares of the Registrant's
common stock and some or all of the Warrants may be exercised. The securities
issued in those transactions are intended to be exempt from registration
pursuant to Section 4(2) of the Securities Act.
For all transactions listed in this Item other exemptions from
registration under the Securities Act may also have been available.
II-2
<PAGE> 169
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
EXHIBITS:
The following exhibits are filed as part of this registration
statement:
EXHIBIT
NUMBER DESCRIPTION
------- -----------
1.1* Form of Underwriting Agreement
3.1* Amended and Restated Certificate of Incorporation
3.2* Amended Bylaws
4.1 See Exhibits 3.1 and 3.2 for provisions of the Amended and
Restated Certificate of Incorporation and Amended Bylaws of
the Registrant defining the rights of holders of the
Registrant's common stock
4.2* Specimen certificate for the Registrant's common stock
5.1* Form of Opinion of Akerman, Senterfitt & Eidson, P.A.
regarding the validity of the securities offered
10.1 Employment Agreement, dated as of February 26, 1999, between
William J. Mercurio and the Registrant
10.2 Employment Agreement, dated as of February 26, 1999, between
Joseph P. Powers and the Registrant
10.3 Employment Agreement, dated as of February 26, 1999, between
Robert Garrett and the Registrant
10.4* 1999 Stock Option Plan, as amended
10.5 Form of Indemnification Agreement, dated as of February 26,
1999, between the Registrant and each member of the Board of
Directors
10.6 Stock Exchange Agreement between North American Tel-Com
Group, Inc. ("NATG") and Jeffery J. Ebersole, dated March 31,
1998
10.7 Stock Exchange Agreement among NATG, David Mai and Frank
Back, dated March 31, 1998
10.8 Stock Exchange Agreement between NATG and Larry Bonadeo,
dated March 31, 1998
10.9 Stock Exchange Agreement between NATG and Bernard E.
Czarnecki, dated March 31, 1998
10.10 Stock Purchase Agreement among NATG and the Shareholders of
U.S. Cable, Inc., dated June 30, 1998
10.11 Stock Purchase Agreement between NATG and the Sole
Shareholder of Burn-Techs, Inc., dated August 31, 1998
10.12 Stock Purchase Agreement between NATG and the Sole
Shareholder of State Wide CATV, Inc., dated August 31, 1998
10.13 Stock Purchase Agreement among NATG and the Shareholders of
CATV Subscriber Services, Inc., dated August 31, 1998
10.14 Stock Purchase Agreement among NATG Holdings, LLC
("Holdings") and the Shareholders of Schatz Underground
Cable, Inc., dated February 19, 1999
10.15 Stock Purchase Agreement among Holdings and the Shareholders
of DAS-CO of Idaho, Inc., dated February 20, 1999
10.16 Stock Exchange Agreement among the Registrant, Holdings and
the Shareholders of Copenhagen Utilities & Construction,
Inc., dated February 20, 1999
10.17 Stock Purchase Agreement among the Registrant, Holdings and
the Shareholders of Network Cabling Services, Inc., dated
February 23, 1999
10.18 Stock Purchase Agreement among the Registrant, Holdings and
E. Scott Kasprowicz, dated May 24, 1999
10.19 Credit Agreement, dated as of February 26, 1999
10.20 First Amendment to Credit Agreement, dated as of May 24, 1999
10.21 Warrant Agreement, dated as of February 26, 1999
21.1 Subsidiaries of the Company
II-3
<PAGE> 170
23.1* Consent of Akerman, Senterfitt & Eidson, P.A. (included in
Exhibit 5 of this Registration Statement)
23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of BDO Seidman, LLP
23.4 Consent of Milhouse, Martz & Neal, L.L.P.
23.5 Consent of Williams, Young & Associates, LLC
25.1 Power of Attorney (included on the signature page of this
Registration Statement)
27.1 Financial Data Schedule
---------------------------
* To be filed by amendment
ITEM 17. UNDERTAKINGS.
The Company hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Company of expenses incurred or paid by a Director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such Director, officer or controlling person in
connection with the securities being registered, the Company will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
The Company hereby undertakes that:
For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective. For the purpose of
determining any liability under the Securities Act of 1933, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof. For purposes of determining any liability under the
Securities Act of 1933, each filing of the Company's annual report pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the Registration Statement shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
II-4
<PAGE> 171
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Orius Corp.
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Ft. Lauderdale, State of
Florida, on the 28th day of May, 1999.
ORIUS CORP.
/s/ William J. Mercurio
----------------------------------------------
By: William J. Mercurio
Its: President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints William J. Mercurio, Robert E. Agres,
and each of them, his true and lawful attorney-in-fact and agent, with full
power of substitution and revocation, for him and in his name, place and stead,
in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to sign any
Registration Statement (and any and all amendments thereto) related to this
Registration Statement and filed pursuant to Rule 462(b) promulgated by the
Securities and Exchange Commission, and to file the same with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact
and agent, or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE Title Date
--------- ----- ----
<S> <C> <C>
/s/ William J. Mercurio President, Chairman and Chief Executive
- -------------------------------- Officer (Principal Executive Officer) and
William J. Mercurio Director May 28, 1999
/s/ Robert E. Agres Vice-President Finance and Chief Financial
- -------------------------------- Officer (Principal Financial and Principal
Robert E. Agres Accounting Officer) May 28, 1999
/s/ Jeffrey J. Ebersole Director May 28, 1999
- --------------------------------
Jeffrey J. Ebersole
/s/ Bernard E. Czarnecki Director May 28, 1999
- --------------------------------
Bernard E. Czarnecki
/s/ William Mullen Director May 28, 1999
- --------------------------------
William Mullen
/s/ Sami Mnaymneh Director May 28, 1999
- --------------------------------
Sami Mnaymneh
/s/ Douglas F. Berman Director May 28, 1999
- --------------------------------
Douglas F. Berman
/s/ Brian Schwartz Director May 28, 1999
- --------------------------------
Brian Schwartz
</TABLE>
II-5
<PAGE> 1
Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement") is made as of the 26th day of
February, 1999, by and between Orius Corp., a Delaware corporation
("Corporation"), and William J. Mercurio ("Employee").
R E C I T A L S:
WHEREAS, Executive and North American Tel-Com Group, Inc., a Florida
corporation ("North American"), are parties to that certain Amended Employment
Agreement, dated March 31, 1998;
WHEREAS, on the date of this Agreement, North American will effect a
corporate reorganization (the "Reorganization") pursuant to which North
American will become an operating subsidiary of the Corporation;
WHEREAS, in connection with the Reorganization, the Parties desire to
terminate the existing Amended Employment Agreement between Executive and North
American; and
WHEREAS, in connection with the Reorganization, the Corporation,
through its Board of Directors, desires to retain the services of Executive,
and Executive desires to be retained by the Corporation, on the terms and
conditions set forth in this Agreement.
AGREEMENT
For and in consideration of the foregoing and of the mutual covenants
of the parties herein contained, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
1. EMPLOYMENT.
During his employment hereunder, Employee will serve as the President,
Chief Executive Officer and Chairman of the Board of Directors of the
Corporation. Employee shall have general and active charge of the business and
affairs of the Corporation and, in such capacity, shall have responsibility for
the day-to-day operations of the Corporation, subject to the authority and
control of the Board of Directors of the Corporation. The Employee agrees to
perform faithfully, industriously, and to the best of Employee's ability,
experience and talents, all of the duties that may be required by the express
and implicit terms of this Agreement, to the reasonable satisfaction of the
Corporation. Such duties shall be provided principally in metropolitan West
Palm Beach, Florida and at such other place(s) as the needs, business, or
opportunities of the Corporation may require from time to time.
<PAGE> 2
2. TERM.
The term of this Agreement shall commence as of February 26, 1999 (the
"Effective Date") and shall continue until February 28, 2003 unless sooner
terminated as provided herein.
3. COMPENSATION.
a. BASE SALARY.
(i) The Corporation will pay to Employee for
services to be rendered by Employee, an annual base salary of FOUR HUNDRED
THOUSAND DOLLARS ($400,000.00)(the "Base Salary").
(ii) The Base Salary shall be adjusted as of each
March 1, during the term of this Agreement, beginning March 1, 2000, to reflect
the increase, if any, that occurred in the Revised Consumer Price Index, U.S.
City Average (1984 = 100) published by the Bureau of Labor Statistics of the
United States Department of Labor (the "Price Index") (or, if publication of
such Price Index is terminated, any substantially equivalent successor
thereto). Annual adjustments shall be made by determining the percentage
increase in the Price Index over the previous twelve-month period ending
December 31. This percentage shall be applied to the then-existing Base Salary
to determine the dollar amount of the annual Base Salary increase; provided,
however, that if the percentage increase in the Price Index for a twelve month
period is less than five percent (5%), the annual base salary shall be
increased five percent (5%) for the corresponding year. The Employee's annual
base salary, including adjustments made pursuant to the above formula, is
referred to hereinafter as "Base Salary." The Base Salary will be payable in
installments at such periodic intervals as the Corporation pays its other
employees but not less than on a monthly basis.
(iii) Notwithstanding the foregoing, the Board of
Directors may, in its sole discretion, during the term of this Agreement,
increase Employee's Base Salary in an amount greater than his Base Salary would
otherwise be adjusted in accordance with Section 3(a)(i) hereof.
b. BONUSES. In addition to payments made to Employee pursuant
to Section 3(a) hereof, the Corporation, in its sole and absolute discretion,
may pay bonuses to Employee from time to time.
4. EXPENSE REIMBURSEMENTS.
Employee shall receive an annual automobile allowance equal to NINE
THOUSAND DOLLARS ($9,000.00) which (i) may be applied by the Corporation toward
the leasing of an automobile by the Corporation for Employee or (ii) may be
given directly to Employee to reimburse Employee for the purchase or leasing of
an automobile, as the parties hereto may agree. In addition to the foregoing,
upon the approval of the Board of Directors, the
2
<PAGE> 3
Corporation shall pay the following expenses incurred by Employee on behalf of
the Corporation: travel, transportation, business organization dues, licenses,
membership dues for professional organizations, and reasonable business
promotional expense.
5. HEALTH INSURANCE AND OTHER PLANS.
Employee shall be entitled to participate in the Corporation's health
insurance and other employee benefit and welfare plans and to receive
reasonable fringe benefits in accordance with his position as President, Chief
Executive Officer and Chairman of the Board of Directors of the Corporation as
may be determined by the parties hereto from time to time. Notwithstanding the
foregoing, the Corporation shall at all times provide the Employee with
disability insurance and life insurance on the Employee's life in an amount not
less than $1 million.
6. DEDUCTIONS.
Deductions may be made by the Corporation from all payments to
Employee for social security, Federal withholding taxes, and any other taxes
and deductions as may from time to time be required by law.
7. TERMINATION.
a. FOR CAUSE. The Corporation may terminate this Agreement
"For Cause" (as hereinafter defined). In the event termination is For Cause,
the Employee shall only be entitled to accrued and unpaid installments of Base
Salary up to the date of termination. For purposes of this Agreement, "For
Cause" shall mean a basis for the Corporation to terminate this Agreement, as
determined by the Board of Directors of the Corporation in its reasonable
discretion, due to (i) the conviction of the Employee, by a court of competent
jurisdiction, of a felony, (ii) the Employee engaging in any material act of
dishonesty, disloyalty, and/or fraud which is intended to, and does, result in
a material personal benefit to the Employee, (iii) the material breach by the
Employee of any provision of this Agreement or (iv) failure to appropriately
respond to instructions from the Board of Directors. Notwithstanding the
foregoing, the Corporation shall not terminate this Agreement pursuant to this
Section 7(a) unless the Corporation provides Employee with no fewer than thirty
(30) days prior written notice ("Notice") of its decision to terminate this
Agreement "For Cause." Such notice shall detail the basis for such termination.
Following receipt of such notice, Employee shall have the right to request in
writing within ten (10) days the opportunity to address a duly convened meeting
of the Board of Directors and attempt to refute the basis of his termination
("Appeal"). If Employee requests an Appeal, Employee shall not be terminated
pursuant to this Section 7(a) until such time as the Board of Directors has met
to consider Employee's Appeal. Following an Appeal, the Board of Directors
shall, in its sole discretion, determine whether to terminate Employee For
Cause.
b. TERMINATION OTHER THAN FOR CAUSE. Notwithstanding anything
to the contrary contained in this Agreement, if this Agreement or the
employment of the Employee
3
<PAGE> 4
hereunder is terminated by the Corporation other than (i) For Cause or (ii)
pursuant to Sections 7(d) or 7(e) hereof, then the Corporation shall pay
Employee for a period of two (2) years following the date of termination (the
"Noncompetition Period"), Employee's Base Salary, calculated in accordance with
Section 3(a) hereof, at Employee's sole option, either in lump sum within
thirty (30) days following the date of termination or in installments at such
periodic intervals as the Corporation customarily pays its current employees
(but at least monthly). In addition to the foregoing, Employee shall have the
right to exercise all options and warrants granted to Employee by the
Corporation for the greater of (i) the Noncompetition Period or (ii) with
respect to each option or warrant, the remainder of the period of
exercisability under the terms of the appropriate documents that grant such
options or warrants.
c. GOOD REASON. Employee may terminate this Agreement with
Good Reason. "Good Reason" means:
(1) Without Employee's express written consent, the
assignment to Employee of duties materially inconsistent with
Employee's positions with the Corporation as set forth in this
Agreement (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as contemplated
by Section 1; or
(2) A material breach of the provisions of this
Agreement by the Corporation (except those set forth in Section 3(a))
and Employee provides at least 15 days' prior written notice to at
least two members of the Corporation's Board of Directors (other than
Employee) of the existence of such breach and his intention to
terminate this Agreement (no such termination shall be effective if
such breach is cured during such period); or
(3) The failure of the Corporation to comply with
the provisions of Paragraph 3(a) for an uninterrupted thirty (30) day
period; or
(4) Notwithstanding anything to the contrary in this
Agreement, the requirement that Employee perform his duties to the
Corporation at a location greater than twenty-five (25) miles from
West Palm Beach, Florida for a period exceeding thirty (30) continuous
days during any twelve month period.
d. DISABILITY. Employee's employment hereunder may be
terminated by the Corporation for disability. In such event, Employee shall be
paid an additional six months of Base Salary and shall be entitled to continue
participation, at the Corporation's expense, in the Corporation's health
insurance and other benefit plans that Employee participated in under Section 5
hereof. In addition, the noncompetition and nonsolicitation provisions of
Paragraphs 10(b) and 10(c) hereof shall continue to apply to Employee for a
period of one year from the date of termination. For purposes of this
Agreement, "disability" is defined to mean that, as a result of Employee's
incapacity due to physical or mental illness:
4
<PAGE> 5
(1) Employee shall have been absent from his duties
as an officer of the Corporation on a substantially full-time basis
for four (4) consecutive months; and
(2) Within thirty (30) days after the Corporation
notifies Employee in writing that it intends to replace him, Employee
shall not have returned to the performance of his duties as an officer
of the Corporation on a full-time basis.
e. DEATH. If the death of Employee shall occur during the
term hereof, this Agreement shall terminate, without notice, and Employee's
estate shall be entitled to the accrued Base Salary installments up to the date
of death. All health insurance and other benefit plans that Employee
participated in under Section 5 hereof shall continue for the benefit of his
dependents who were covered under such plans for a period of one year after
Employee's death at the Corporation's expense.
f. ELECTION TO TERMINATE. The Employee may terminate this
Agreement, at Employee's election, upon ninety (90) days prior written notice
to the Corporation. In such event, Employee shall only be paid Base Salary
installments up to the date of termination.
8. VACATION TIME AND DAYS OFF.
Employee shall be entitled to such reasonable paid vacation time and
paid and unpaid sick days and personal days, as may be agreed to by the parties
hereto from time to time; provided, however, that Employee shall be entitled to
at least four (4) weeks paid vacation during each year of the term of this
Agreement, shall be entitled to carry forward not more than two (2) unused
vacation weeks from one year to the next and shall not take more than three (3)
weeks consecutive vacation at any time.
9. CONFIDENTIAL INFORMATION.
Executive recognizes and acknowledges that he will have access to
certain confidential information of the Corporation and of corporations with
whom the Corporation does business, and that such information constitutes
valuable, special and unique property of the Corporation and such other
corporations. For the period of time which is the greater of (i) the fourth
anniversary of the date hereof or (ii) one year after the Executive is no
longer employed by the Corporation ("Confidentiality Period"), Executive agrees
not to disclose or use any confidential information, including without
limitation, information regarding research, developments, product designs or
specifications, manufacturing processes, "know-how," prices, suppliers,
customers, costs or any knowledge or information with respect to confidential
or trade secrets of the Corporation, it being understood that such confidential
information does not include information that is publicly available unless such
information became publicly available as a result of a breach of this
Agreement. Executive acknowledges and agrees that all notes, records, reports,
sketches, plans, unpublished memoranda or other documents belonging to the
Corporation, but held by Executive, concerning any information relating to the
Corporation's business, whether confidential or not, are the property of the
Corporation and will be promptly delivered to it upon
5
<PAGE> 6
Executive's leaving the employ of the Corporation. Executive also agrees to
execute such confidentiality agreements that the Board may adopt, and may
modify from time to time, as a standard form to be executed by all employees of
the Corporation, to the extent such standard forms are not materially more
restrictive than the provisions of this Agreement.
10. NON-SOLICITATION.
At all times during the term of this Agreement, and thereafter during
his period of non-competition, Executive shall not, directly or indirectly,
induce, influence, combine or conspire with, or attempt to induce, influence,
combine or conspire with, any of the officers, employees, agents, consultants,
customers or supplies of the Corporation to terminate their employment, or
other relationship, with or compete against the Corporation or any future
subsidiaries, parents or affiliates of the Corporation in the cable industry
(the "Business").
11. NON-COMPETITION. Executive acknowledges that his services and
responsibilities are unique in character and are of particular significance to
the Corporation, that the Corporation engages in a competitive business with a
national market and that Executive's continued and exclusive service to the
Corporation under this Agreement is of a high degree of importance to the
Corporation. Therefore, for the period of time which is the greater of (i) the
fourth anniversary of the date hereof or (ii) one year after the Executive is
no longer employed by the Corporation (the "Noncompete Period"), Executive
shall not, directly or indirectly, engage in the Business, or in any other
business which, at the time of Executive's termination, the Corporation is
actively engaged in, except as an employee or agent of the Corporation, and
shall not, directly or indirectly, as owner, partner, joint venturer, employee,
broker, agent, corporate officer, principal, licensor, shareholder (unless as
owner of no more than three percent (3%) of the issued and outstanding capital
stock of such entity if such stock is publicly traded) or in any other capacity
whatsoever, engage in or have any connection with any business which is
competitive with the Business, and which operates anywhere in the United States
where the Corporation is doing or has done business within the prior three (3)
years. In the event Executive is terminated by the Corporation without Cause
prior to the expiration of the term of this Agreement, the Noncompete Period
shall be modified such that it expires on the date of such involuntary
termination.
12. RESTRICTIVE COVENANTS.
(a) If, in any judicial proceedings, a court shall refuse to
enforce any of the covenants included in Paragraphs 10, 11, or 12 hereof, then
such unenforceable covenant shall be amended to relate to such lesser period or
geographical area as shall be enforceable. In the event the Corporation should
bring any legal action or other proceeding against Executive for enforcement of
this Agreement, the calculation of the Noncompete Period, if any, shall not
include the period of time commencing with the filing of legal action or other
proceeding to enforce this Agreement through the date of final judgment or
final resolution including all appeals, if any, of such legal action or other
proceeding unless the Corporation is receiving the practical benefits of this
Paragraph 9 during such time.
6
<PAGE> 7
(b) Executive hereby acknowledges that the restrictions on
his activity as contained in this Agreement are required for the Corporation's
reasonable protection and is a material inducement to the Corporation to enter
into this Agreement. Executive hereby agrees that in the event of the violation
by him of any of the provisions of this Agreement, the Corporation will be
entitled to institute and prosecute proceedings at law or in equity to obtain
damages with respect to such violation or to enforce the specific performance
of this Agreement by Executive or to enjoin Executive from engaging in any
activity in violation hereof. The prevailing party in any litigation brought to
enforce the restrictive provisions contained in this Agreement shall be
entitled to reimbursement from the nonprevailing party for reasonable
attorneys' fees and expenses incurred in connection with such litigation.
(c) Notwithstanding anything to the contrary contained
herein, in the event that Executive engages in any material conduct prohibited
by Paragraphs 10, 11, or 12 hereof for any reason whatsoever, Executive shall
not receive any of the severance benefits he otherwise would be entitled to
receive pursuant to Paragraph 9 hereof.
13. REMEDIES. The Executive acknowledges that the Corporation would be
irreparably injured by a violation of Paragraphs 10, 11 or 12 and agrees that
the Corporation shall be entitled to an injunction restraining the Executive
from any actual or threatened breach of Paragraphs 10, 11 or 12 any other
appropriate remedy, without bond or other security being required. The
Executive understands and acknowledges that his failure to provide services to
the Corporation in accordance with the terms of this Agreement will result in
financial injury to the Corporation, and the Corporation will be entitled to
damages for any such failure arising from reasons entirely or partly within
Executive's control.
14. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if sent by registered mail to
the addresses below or to such other address as either party shall designate by
written notice to the other:
IF TO THE EXECUTIVE: To the address set forth below his signature on
the signature page hereof.
IF TO THE CORPORATION:
----------------------
Orius Corp.
1401 Forum Way, Suite 400
West Palm Beach, Florida 33401
15. REPURCHASE PROVISIONS
(a) Prior to a Qualified Public Offering (as that term is
defined in that certain Stockholders' Agreement of the Corporation dated of
even date herewith), in the event the Executive is either terminated for Cause
(as defined in Section 7(a) of the Agreement) or resigns from employment with
the Corporation ("Repurchase Termination"), all of the Executive's
7
<PAGE> 8
shares of common stock of the Corporation, whether held by Executive or
transferred by Executive to one or more transferees (collectively, the
"Executive Stock") shall be subject to repurchase by the Corporation as set
forth in this Paragraph 16 (the "Repurchase Option").
(b) Following any Repurchase Termination the Corporation
shall have the right, but not the obligation, to purchase all, but not less
than all of the Executive Stock for the following amounts: from March 1, 1999
through February 28, 2000, fifty percent (50%) of the book value of such
securities; after March 1, 2000, the book value of such securities.
(c) The Board of Directors of the Corporation may elect to
exercise the Repurchase Option by delivering written notice (the "Repurchase
Notice") to the holder or holders of such stock within forty-five (45) days
after the date of the Repurchase Termination. The Repurchase Notice will set
forth the number of shares of the Executive Stock to be acquired from each
holder, the aggregate consideration to be paid for such shares and the time and
place for the closing of the transaction.
(d) The closing of the purchase of the Executive Stock
pursuant to the Repurchase Option shall take place on the date designated by
the Corporation in the Repurchase Notice, which date shall not be more than
forty-five (45) days nor less than two (2) business days after the delivery of
the Repurchase Notice. The Corporation shall pay for the Executive Stock to be
purchased pursuant to the Repurchase Option by delivery of (i) a check or wire
transfer of funds, (ii) a subordinated note or notes payable prior to the first
anniversary of the closing of such purchase and bearing interest at a rate per
annum equal to the prime rate of interest as announced by Citibank, N.A., or
(iii) both (i) and (ii), in the aggregate amount of the purchase price for such
shares; provided that the Corporation shall use reasonable efforts to make all
such repurchases with a check or wire transfer of funds unless prohibited by
law or by its lenders (in writing). Any notes issued by the Corporation
pursuant to this Paragraph 16(d) shall be subject to any restrictive covenants
to which the Corporation is subject at the time of such purchase. The
Corporation shall be entitled to receive customary representations and
warranties as to title from the sellers regarding such sale and to require all
sellers' signatures be guaranteed. The Corporation may elect to assign its
right to purchase to the stockholders of the Corporation (which rights to
purchase shall be distributed pro rata to all stockholders (other than the
Executive), based upon the number of votes held by such stockholders). In the
event the Corporation elects to assign its rights to the other stockholders of
the Corporation (other than the Executive) such other stockholders shall have
the same right as the Corporation to purchase stock pursuant to the Repurchase
Notice.
(e) Notwithstanding anything to the contrary contained in
this Agreement, all repurchases of the Executive Stock by the Corporation
hereunder shall be subject to applicable restrictions contained in the Delaware
General Corporation Law and in the Corporation' and its direct and indirect
subsidiaries' debt and equity financing agreements. If any such restrictions
prohibit the repurchase of the Executive Stock hereunder which the Corporation
is otherwise entitled or required to make, the Corporation may make such
repurchases as soon as it is
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<PAGE> 9
permitted to do so under such restrictions, but in any event within 180 days of
the Repurchase Termination.
(f) Notwithstanding anything to the contrary contained in
this Agreement, the Corporation's right to repurchase the Executive Stock shall
terminate upon the consummation of a Qualified Public Offering.
16. ENTIRE AGREEMENT; MODIFICATION.
(a) This Agreement contains the entire agreement of the
Corporation and Executive, and the Corporation and Executive hereby acknowledge
and agree that this Agreement supersedes any prior statements, writings,
promises, understandings or commitments between the parties hereof.
(b) No future oral statements, promises or commitments with
respect to the subject matter hereof, or other purported modification hereof,
shall be binding upon the parties hereto unless the same is reduced to writing
and signed by each party hereto.
17. ASSIGNMENT. The rights and obligations of the parties under this
Agreement shall inure to the benefit of and shall be binding upon the
successors and permitted assigns of the parties. Neither party may assign his
or its rights or obligations under this Agreement without the prior written
consent of the other party.
18. TERMINATION. All of the provisions of this Agreement shall
terminate after the expiration of the Term of this Agreement, except that (i)
Paragraphs 10 and 11 shall only terminate upon the expiration of the
Confidentiality Period (ii) Paragraph 12 (except as set forth in the last
sentence thereof) shall only terminate upon the expiration of the Noncompete
Period and (iii) Paragraph 16 shall only terminate upon a Qualified Public
Offering.
19. MISCELLANEOUS.
(a) The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or the interpretation
of this Agreement.
(b) The failure of any party to enforce any provision of this
Agreement shall in no manner affect the right to enforce the same, and the
waiver by any party of any breach of any provision of this Agreement shall not
be construed to be a waiver by such party of any succeeding breach of such
provision or a waiver by such party of any breach of any other provision.
(c) All written notices required in this Agreement shall be
sent postage prepaid by certified or registered mail, return receipt requested
or by overnight delivery service against receipt or by overnight delivery
service against receipt.
9
<PAGE> 10
(e) In the event any one or more of the provisions of this
Agreement shall for any reason be held invalid, illegal or unenforceable, the
remaining provisions of this Agreement shall be unimpaired, and the invalid,
illegal or unenforceable provision shall be replaced by a mutually acceptable
valid, and enforceable provision which comes closest to the intent of the
parties.
(f) The prevailing party in any litigation brought to enforce
the provisions contained in this Agreement shall be entitled to reimbursement
from the nonprevailing party for reasonable attorneys' fees and expenses
incurred in connection with such litigation.
(g) This Agreement may be executed in any number of
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first written above.
WITNESSES: CORPORATION:
ORIUS CORP.
By:
- ----------------------------------- ------------------------------------
Name:
Title:
EMPLOYEE:
- ----------------------------------- ---------------------------------------
William J. Mercurio
Address:
12268 Channel Drive
North Palm Beach, Florida 33408
10
<PAGE> 1
Exhibit 10.2
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement") is made as of the 26th day of
February, 1999 by and between ORIUS CORP., a Delaware corporation (the
"Company"), and JOSEPH P. POWERS (the "Executive").
RECITALS
WHEREAS, Executive and North American Tel-Com Group, Inc., a Florida
corporation ("North American"), are parties to that certain Employment
Agreement, dated March 31, 1998;
WHEREAS, on the date of this Agreement, North American will effect a
corporate reorganization (the "Reorganization") pursuant to which North
American will become an operating subsidiary of the Company;
WHEREAS, in connection with the Reorganization, the Parties desire to
terminate the existing Amended Employment Agreement between Executive and North
American; and
WHEREAS, in connection with the Reorganization, the Company, through
its Board of Directors, desires to retain the services of Executive, and
Executive desires to be retained by the Company, on the terms and conditions
set forth in this Agreement.
AGREEMENT
For and in consideration of the foregoing and of the mutual covenants
of the parties herein contained, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
1. EMPLOYMENT. The Company hereby employs Executive to serve in the capacities
described herein and Executive hereby accepts such employment and agrees to
perform the services described herein upon the terms and conditions hereinafter
set forth.
2. TERM. The term of Executive's employment pursuant to this Agreement shall
commence on the effective date hereof and shall terminate at the close of
business on February 28, 2001 (the "Term") subject to earlier termination in
accordance with the other terms and conditions set forth herein.
3. DUTIES. Executive shall serve as and have the title of Vice President of the
Company. The Executive's principal place of employment shall be in West Palm
Beach, Florida. Executive agrees to devote his full business time, energy,
skills and best efforts to such employment while so employed. Nothing in this
Agreement shall preclude Executive from engaging, so long as, in the reasonable
determination of the Board of Directors, such activities do not interfere with
his duties and responsibilities hereunder, in charitable and community affairs,
from managing any passive investment made by him or from serving, subject to
the prior approval of the Board of Directors, as a member of the board of
directors or as a trustee of any other corporation, association or entity.
<PAGE> 2
4. COMPENSATION.
(a) BASE COMPENSATION. The Company shall pay Executive, and
Executive agrees to accept, base compensation at the rate of $200,000 per year,
payable in equal installments no less frequently than monthly, through the Term
of this Agreement ("Base Compensation"). The Base Compensation specified in
this Section 4(a) may be increased annually during the Term of this Agreement
in the sole discretion of the Compensation Committee of the Board of Directors.
5. FRINGE BENEFITS.
(a) GENERALLY. Executive shall be eligible for fringe
benefits pursuant to any insurance, pension or other employee fringe benefit
plan approved by the Board of Directors that now or hereafter may be made
available to employees of the Company and for which Executive will qualify
according to his eligibility under the provisions thereof.
(b) HEALTH AND DISABILITY INSURANCE. Executive shall be
entitled to participate in such health and disability insurance plans that the
Company offers to other executive officers of the Company from time to time.
(c) VACATION, HOLIDAYS AND ILLNESS. During the Term of this
Agreement, Executive shall be entitled to such number of days off for vacation,
holidays, illness or any other purposes as currently provided to the Executive
in accordance with the Company's past practice and custom.
6. EXPENSES. Except as otherwise agreed to herein, the Executive shall be
reimbursed for all usual expenses incurred on behalf of the Company, in
accordance with Company practices and procedures, provided that:
(a) Each such expenditure is of a nature deductible under
Section 162 of the Internal Revenue Code on the Federal income tax return of
the Company as a business expense and not as deductible compensation to
Executive; and
(b) Executive furnishes the Company with adequate documentary
evidence required by the Code or any regulation promulgated thereunder for the
substantiation of such expenditures as a deductible business expense of the
Company and not as deductible compensation to Executive.
Executive agrees that, if at any time, any payment made to Executive by the
Company as a business expense reimbursement shall be disallowed in whole as a
deductible expense to the Company by the appropriate taxing authorities,
Executive shall reimburse the Company to the full extent of such disallowance.
2
<PAGE> 3
7. TERMINATION. The term of Executive's employment under this Agreement may be
terminated prior to expiration of the term provided in Section 2 hereof only in
accordance with the following paragraphs.
(a) FOR CAUSE. This Agreement may be immediately terminated
by the Company for Cause (as herein defined). For purposes of this Agreement,
the term "Cause" shall mean the termination of the Executive by the Board of
Directors of the Company as a result of the existence or occurrence of one or
more of the following conditions or events:
(i) a material breach by the Executive of any
provision of this Agreement, or the willful and continued failure of Executive
substantially to perform his duties under his employment with the Company;
(ii) Executive's willful misconduct in connection
with the performance of his duties as an employee or officer of the Company;
(iii) performance by the Executive of any act of
fraud or material misrepresentation or a material act of misappropriation which
results or is intended to result in Executive's personal enrichment at the
expense of the Company;
(iv) conviction of the Executive of any crime which
constitutes a felony offense involving violence (but not involving a motorized
vehicle) or fraud, embezzlement, theft or business activities;
(v) the entry of a judgment or order enjoining or
preventing the Executive from such activities as are essential for the
Executive to perform his services as required by this Agreement unless such
judgment or order is the subject of an appeal or other proceedings to set it
aside or modify it and such proceedings are timely filed and being pursued with
due diligence; or
(vi) Executive has engaged in willful and deliberate
conduct or activities intended to materially damage the business of the
Company, it being understood that neither conduct or activities pursuant to the
Executive's exercise of his good faith business judgment nor unintentional
physical damage to properties by the Executive shall be a ground for such a
determination.
(b) MUTUAL. Executive's employment under this Agreement may
be terminated upon mutual written agreement of the Company and the executive.
(c) DEATH. In the event of the death of Executive, this
Agreement shall terminate immediately.
(d) DISABILITY. If, during Executive's employment under this
Agreement, Executive shall become permanently disabled and unable to perform
his duties as required herein
3
<PAGE> 4
("Disability") for a consecutive period of one hundred eighty (180) days, then
the Company many, upon thirty (30) days written notice to Executive, terminate
Executive's employment under this Agreement.
8. DEATH AND DISABILITY. In the event of the termination of Executive's
employment under this Agreement by reason of the Executive's death or
Disability, the Company shall pay Executive (or his heirs and/or personal
representatives), Base Compensation through a date which is one (1) year after
the date of Death or the date of termination for Disability as provided in
Paragraph 7(d), respectively.
9. SEVERANCE. In the event of the termination of Executive's employment under
this Agreement for any reason other than Executive's death or Disability, the
Company shall provide the payments and benefits to Executive as indicated
below:
(a) WITH CAUSE OR VOLUNTARY TERMINATION BY
EXECUTIVE. If Executive is terminated for Cause (as defined in Section 7(a) of
this Agreement), or if Executive voluntarily terminates his employment with the
Company, the Company shall be obligated only to continue to pay to Executive
his Base Compensation, if any, earned up to the date of termination and shall
reimburse the Executive for any expenses to which the Executive is due
reimbursement by the Company under Section 6 hereof. In addition, Company shall
pay vested benefits, if any, owed to Executive under any plan provided for
Executive under Paragraph 5 hereof in accordance with the terms of such plan as
in effect on the date of termination of employment under this Paragraph 9(a).
(b) WITHOUT CAUSE. In the event that the Company
shall terminate the Executive without cause, the Company shall be obligated to
continue to pay full compensation and benefits to the Executive through and
including February 28, 2001 as if the Executive had not been so terminated.
10. CONFIDENTIAL INFORMATION. Executive recognizes and acknowledges that he
will have access to certain confidential information of the Company and of
corporations with whom the Company does business, and that such information
constitutes valuable, special and unique property of the Company and such other
corporations. For the period of time which is the greater of (i) the fourth
anniversary of the date hereof or (ii) one year after the Executive is no
longer employed by the Company ("Confidentiality Period"), Executive agrees not
to disclose or use any confidential information, including without limitation,
information regarding research, developments, product designs or
specifications, manufacturing processes, "know-how," prices, suppliers,
customers, costs or any knowledge or information with respect to confidential
or trade secrets of the Company, it being understood that such confidential
information does not include information that is publicly available unless such
information became publicly available as a result of a breach of this
Agreement. Executive acknowledges and agrees that all notes, records, reports,
sketches, plans, unpublished memoranda or other documents belonging to the
Company, but held by Executive, concerning any information relating to the
Company's business, whether confidential or not, are the property of the
Company and will be promptly delivered to it upon
4
<PAGE> 5
Executive's leaving the employ of the Company. Executive also agrees to execute
such confidentiality agreements that the Board may adopt, and may modify from
time to time, as a standard form to be executed by all employees of the
Company, to the extent such standard forms are not materially more restrictive
than the provisions of this Agreement.
11. NON-SOLICITATION. At all times during the term of this Agreement, and
thereafter during his period of non-competition, Executive shall not, directly
or indirectly, induce, influence, combine or conspire with, or attempt to
induce, influence, combine or conspire with, any of the officers, employees,
agents, consultants, customers or supplies of the Company to terminate their
employment, or other relationship, with or compete against the Company or any
future subsidiaries, parents or affiliates of the Company in the cable industry
(the "Business").
12. NON-COMPETITION. Executive acknowledges that his services and
responsibilities are unique in character and are of particular significance to
the Company, that the Company engages in a competitive business with a national
market and that Executive's continued and exclusive service to the Company
under this Agreement is of a high degree of importance to the Company.
Therefore, for the period of time which is the greater of (i) the fourth
anniversary of the date hereof or (ii) one year after the Executive is no
longer employed by the Company (the "Noncompete Period"), Executive shall not,
directly or indirectly, engage in the Business, or in any other business which,
at the time of Executive's termination, the Company is actively engaged in,
except as an employee or agent of the Company, and shall not, directly or
indirectly, as owner, partner, joint venturer, employee, broker, agent,
corporate officer, principal, licensor, shareholder (unless as owner of no more
than three percent (3%) of the issued and outstanding capital stock of such
entity if such stock is publicly traded) or in any other capacity whatsoever,
engage in or have any connection with any business which is competitive with
the Business, and which operates anywhere in the United States where the
Company is doing or has done business within the prior three (3) years. In the
event Executive is terminated by the Company without Cause prior to the
expiration of the term of this Agreement, the Noncompete Period shall be
modified such that it expires on the date of such involuntary termination.
13. RESTRICTIVE COVENANTS.
(a) If, in any judicial proceedings, a court shall refuse to
enforce any of the covenants included in Paragraphs 10, 11, or 12 hereof, then
such unenforceable covenant shall be amended to relate to such lesser period or
geographical area as shall be enforceable. In the event the Company should
bring any legal action or other proceeding against Executive for enforcement of
this Agreement, the calculation of the Noncompete Period, if any, shall not
include the period of time commencing with the filing of legal action or other
proceeding to enforce this Agreement through the date of final judgment or
final resolution including all appeals, if any, of such legal action or other
proceeding unless the Company is receiving the practical benefits of this
Paragraph 9 during such time.
(b) Executive hereby acknowledges that the restrictions on
his activity as contained in this Agreement are required for the Company's
reasonable protection and is a
5
<PAGE> 6
material inducement to the Company to enter into this Agreement. Executive
hereby agrees that in the event of the violation by him of any of the
provisions of this Agreement, the Company will be entitled to institute and
prosecute proceedings at law or in equity to obtain damages with respect to
such violation or to enforce the specific performance of this Agreement by
Executive or to enjoin Executive from engaging in any activity in violation
hereof. The prevailing party in any litigation brought to enforce the
restrictive provisions contained in this Agreement shall be entitled to
reimbursement from the nonprevailing party for reasonable attorneys' fees and
expenses incurred in connection with such litigation.
(c) Notwithstanding anything to the contrary contained
herein, in the event that Executive engages in any material conduct prohibited
by Paragraphs 10, 11, or 12 hereof for any reason whatsoever, Executive shall
not receive any of the severance benefits he otherwise would be entitled to
receive pursuant to Paragraph 9 hereof.
14. REMEDIES. The Executive acknowledges that the Company would be irreparably
injured by a violation of Paragraphs 10, 11 or 12 and agrees that the Company
shall be entitled to an injunction restraining the Executive from any actual or
threatened breach of Paragraphs 10, 11 or 12 any other appropriate remedy,
without bond or other security being required. The Executive understands and
acknowledges that his failure to provide services to the Company in accordance
with the terms of this Agreement will result in financial injury to the
Company, and the Company will be entitled to damages for any such failure
arising from reasons entirely or partly within Executive's control.
15. NOTICES. Any notice required or permitted to be given under this Agreement
shall be sufficient if in writing and if sent by registered mail to the
addresses below or to such other address as either party shall designate by
written notice to the other:
IF TO THE EXECUTIVE: To the address set forth below his signature on
the signature page hereof.
IF TO THE COMPANY:
------------------
Orius Corp.
1401 Forum Way, Suite 400
West Palm Beach, Florida 33401
16. REPURCHASE PROVISIONS
(a) Prior to a Qualified Public Offering (as that term is
defined in that certain Stockholders' Agreement of the Company dated of even
date herewith), in the event the Executive is either terminated for Cause (as
defined in Section 7(a) of the Agreement) or resigns from employment with the
Company ("Repurchase Termination"), all of the Executive's shares of common
stock of the Company, whether held by Executive or transferred by Executive to
one
6
<PAGE> 7
or more transferees (collectively, the "Executive Stock") shall be subject to
repurchase by the Company as set forth in this Paragraph 16 (the "Repurchase
Option").
(b) Following any Repurchase Termination the Company shall
have the right, but not the obligation, to purchase all, but not less than all
of the Executive Stock for the following amounts: from March 1, 1999 through
February 28, 2000, fifty percent (50%) of the book value of such securities;
after March 1, 2000, the book value of such securities.
(c) The Board of Directors of the Company may elect to
exercise the Repurchase Option by delivering written notice (the "Repurchase
Notice") to the holder or holders of such stock within forty-five (45) days
after the date of the Repurchase Termination. The Repurchase Notice will set
forth the number of shares of the Executive Stock to be acquired from each
holder, the aggregate consideration to be paid for such shares and the time and
place for the closing of the transaction.
(d) The closing of the purchase of the Executive Stock
pursuant to the Repurchase Option shall take place on the date designated by
the Company in the Repurchase Notice, which date shall not be more than
forty-five (45) days nor less than two (2) business days after the delivery of
the Repurchase Notice. The Company shall pay for the Executive Stock to be
purchased pursuant to the Repurchase Option by delivery of (i) a check or wire
transfer of funds, (ii) a subordinated note or notes payable prior to the first
anniversary of the closing of such purchase and bearing interest at a rate per
annum equal to the prime rate of interest as announced by Citibank, N.A., or
(iii) both (i) and (ii), in the aggregate amount of the purchase price for such
shares; provided that the Company shall use reasonable efforts to make all such
repurchases with a check or wire transfer of funds unless prohibited by law or
by its lenders (in writing). Any notes issued by the Company pursuant to this
Paragraph 16(d) shall be subject to any restrictive covenants to which the
Company is subject at the time of such purchase. The Company shall be entitled
to receive customary representations and warranties as to title from the
sellers regarding such sale and to require all sellers' signatures be
guaranteed. The Company may elect to assign its right to purchase to the
stockholders of the Company (which rights to purchase shall be distributed pro
rata to all stockholders (other than the Executive), based upon the number of
votes held by such stockholders). In the event the Company elects to assign its
rights to the other stockholders of the Company (other than the Executive) such
other stockholders shall have the same right as the Company to purchase stock
pursuant to the Repurchase Notice.
(e) Notwithstanding anything to the contrary contained in
this Agreement, all repurchases of the Executive Stock by the Company hereunder
shall be subject to applicable restrictions contained in the Delaware General
Corporation Law and in the Company's and its direct and indirect subsidiaries'
debt and equity financing agreements. If any such restrictions prohibit the
repurchase of the Executive Stock hereunder which the Company is otherwise
entitled or required to make, the Company may make such repurchases as soon as
it is permitted to do so under such restrictions, but in any event within 180
days of the Repurchase Termination.
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<PAGE> 8
(f) Notwithstanding anything to the contrary contained in
this Agreement, the Company's right to repurchase the Executive Stock shall
terminate upon the consummation of a Qualified Public Offering.
17. ENTIRE AGREEMENT; MODIFICATION.
(a) This Agreement contains the entire agreement of the
Company and Executive, and the Company and Executive hereby acknowledge and
agree that this Agreement supersedes any prior statements, writings, promises,
understandings or commitments between the parties hereof.
(b) No future oral statements, promises or commitments with
respect to the subject matter hereof, or other purported modification hereof,
shall be binding upon the parties hereto unless the same is reduced to writing
and signed by each party hereto.
18. ASSIGNMENT. The rights and obligations of the parties under this Agreement
shall inure to the benefit of and shall be binding upon the successors and
permitted assigns of the parties. Neither party may assign his or its rights or
obligations under this Agreement without the prior written consent of the other
party.
19. TERMINATION. All of the provisions of this Agreement shall terminate after
the expiration of the Term of this Agreement, except that (i) Paragraphs 10 and
11 shall only terminate upon the expiration of the Confidentiality Period (ii)
Paragraph 12 (except as set forth in the last sentence thereof) shall only
terminate upon the expiration of the Noncompete Period and (iii) Paragraph 16
shall only terminate upon a Qualified Public Offering.
20. MISCELLANEOUS.
(a) The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or the interpretation
of this Agreement.
(b) The failure of any party to enforce any provision of this
Agreement shall in no manner affect the right to enforce the same, and the
waiver by any party of any breach of any provision of this Agreement shall not
be construed to be a waiver by such party of any succeeding breach of such
provision or a waiver by such party of any breach of any other provision.
(c) All written notices required in this Agreement shall be
sent postage prepaid by certified or registered mail, return receipt requested
or by overnight delivery service against receipt or by overnight delivery
service against receipt.
(e) In the event any one or more of the provisions of this
Agreement shall for any reason be held invalid, illegal or unenforceable, the
remaining provisions of this
8
<PAGE> 9
Agreement shall be unimpaired, and the invalid, illegal or unenforceable
provision shall be replaced by a mutually acceptable valid, and enforceable
provision which comes closest to the intent of the parties.
(f) The prevailing party in any litigation brought to enforce
the provisions contained in this Agreement shall be entitled to reimbursement
from the nonprevailing party for reasonable attorneys' fees and expenses
incurred in connection with such litigation.
(g) This Agreement may be executed in any number of
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Employment
Agreement as of the day and year first above written.
COMPANY:
ORIUS CORP.
By:
------------------------------------
Its:
EXECUTIVE:
---------------------------------------
Joseph P. Powers
Address:
17763 Crooked Oak Avenue
Boca Raton, Florida 33487
9
<PAGE> 1
Exhibit 10.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement") is made as of the 26th day of
February, 1999, by and between ORIUS CORP., a Delaware corporation (the
"Company"), and ROBERT GARRETT (the "Executive").
RECITALS
WHEREAS, Executive and North American Tel-Com Group, Inc., a Florida
corporation ("North American"), are parties to that certain Employment
Agreement, dated March 31, 1998;
WHEREAS, on the date of this Agreement, North American will effect a
corporate reorganization (the "Reorganization") pursuant to which North
American will become an operating subsidiary of the Company;
WHEREAS, in connection with the Reorganization, the Parties desire to
terminate the existing Amended Employment Agreement between Executive and North
American; and
WHEREAS, in connection with the Reorganization, the Company, through
its Board of Directors, desires to retain the services of Executive, and
Executive desires to be retained by the Company, on the terms and conditions
set forth in this Agreement.
AGREEMENT
For and in consideration of the foregoing and of the mutual covenants
of the parties herein contained, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
1. EMPLOYMENT. The Company hereby employs Executive to serve in the capacities
described herein and Executive hereby accepts such employment and agrees to
perform the services described herein upon the terms and conditions hereinafter
set forth.
2. TERM. The term of Executive's employment pursuant to this Agreement shall
commence on the effective date hereof and shall terminate at the close of
business on February 28, 2001 (the "Term") subject to earlier termination in
accordance with the other terms and conditions set forth herein.
3. DUTIES. Executive shall serve as and have the title of Vice President of the
Company. The Executive's principal place of employment shall be in West Palm
Beach, Florida. Executive agrees to devote his full business time, energy,
skills and best efforts to such employment while so employed. Nothing in this
Agreement shall preclude Executive from engaging, so long as, in the reasonable
determination of the Board of Directors, such activities do not interfere with
his duties and responsibilities hereunder, in charitable and community affairs,
from managing any passive investment made by him or from serving, subject to
the prior approval of the Board of
<PAGE> 2
Directors, as a member of the board of directors or as a trustee of any other
corporation, association or entity.
4. COMPENSATION.
(a) BASE COMPENSATION. The Company shall pay Executive, and
Executive agrees to accept, base compensation at the rate of $150,000 per year,
payable in equal installments no less frequently than monthly, through the Term
of this Agreement ("Base Compensation"). The Base Compensation specified in
this Section 4(a) may be increased annually during the Term of this Agreement
in the sole discretion of the Compensation Committee of the Board of Directors.
5. FRINGE BENEFITS.
(a) GENERALLY. Executive shall be eligible for fringe
benefits pursuant to any insurance, pension or other employee fringe benefit
plan approved by the Board of Directors that now or hereafter may be made
available to employees of the Company and for which Executive will qualify
according to his eligibility under the provisions thereof.
(b) HEALTH AND DISABILITY INSURANCE. Executive shall be
entitled to participate in such health and disability insurance plans that the
Company offers to other executive officers of the Company from time to time.
(c) VACATION, HOLIDAYS AND ILLNESS. During the Term of this
Agreement, Executive shall be entitled to such number of days off for vacation,
holidays, illness or any other purposes as currently provided to the Executive
in accordance with the Company's past practice and custom.
6. EXPENSES. Except as otherwise agreed to herein, the Executive shall be
reimbursed for all usual expenses incurred on behalf of the Company, in
accordance with Company practices and procedures, provided that:
(a) Each such expenditure is of a nature deductible under
Section 162 of the Internal Revenue Code on the Federal income tax return of
the Company as a business expense and not as deductible compensation to
Executive; and
(b) Executive furnishes the Company with adequate documentary
evidence required by the Code or any regulation promulgated thereunder for the
substantiation of such expenditures as a deductible business expense of the
Company and not as deductible compensation to Executive.
Executive agrees that, if at any time, any payment made to Executive by the
Company as a business expense reimbursement shall be disallowed in whole as a
deductible expense to the
2
<PAGE> 3
Company by the appropriate taxing authorities, Executive shall reimburse the
Company to the full extent of such disallowance.
7. TERMINATION. The term of Executive's employment under this Agreement may be
terminated prior to expiration of the term provided in Section 2 hereof only in
accordance with the following paragraphs.
(a) FOR CAUSE. This Agreement may be immediately terminated
by the Company for Cause (as herein defined). For purposes of this Agreement,
the term "Cause" shall mean the termination of the Executive by the Board of
Directors of the Company as a result of the existence or occurrence of one or
more of the following conditions or events:
(i) a material breach by the Executive of any
provision of this Agreement, or the willful and continued failure of Executive
substantially to perform his duties under his employment with the Company;
(ii) Executive's willful misconduct in connection
with the performance of his duties as an employee or officer of the Company;
(iii) performance by the Executive of any act of
fraud or material misrepresentation or a material act of misappropriation which
results or is intended to result in Executive's personal enrichment at the
expense of the Company;
(iv) conviction of the Executive of any crime which
constitutes a felony offense involving violence (but not involving a motorized
vehicle) or fraud, embezzlement, theft or business activities;
(v) the entry of a judgment or order enjoining or
preventing the Executive from such activities as are essential for the
Executive to perform his services as required by this Agreement unless such
judgment or order is the subject of an appeal or other proceedings to set it
aside or modify it and such proceedings are timely filed and being pursued with
due diligence; or
(vi) Executive has engaged in willful and deliberate
conduct or activities intended to materially damage the business of the
Company, it being understood that neither conduct or activities pursuant to the
Executive's exercise of his good faith business judgment nor unintentional
physical damage to properties by the Executive shall be a ground for such a
determination.
(b) MUTUAL. Executive's employment under this Agreement may
be terminated upon mutual written agreement of the Company and the executive.
(c) DEATH. In the event of the death of Executive, this
Agreement shall terminate immediately.
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(d) DISABILITY. If, during Executive's employment under this
Agreement, Executive shall become permanently disabled and unable to perform
his duties as required herein ("Disability") for a consecutive period of one
hundred eighty (180) days, then the Company many, upon thirty (30) days written
notice to Executive, terminate Executive's employment under this Agreement.
8. DEATH AND DISABILITY. In the event of the termination of Executive's
employment under this Agreement by reason of the Executive's death or
Disability, the Company shall pay Executive (or his heirs and/or personal
representatives), Base Compensation through a date which is one (1) year after
the date of Death or the date of termination for Disability as provided in
Paragraph 7(d), respectively.
9. SEVERANCE. In the event of the termination of Executive's employment under
this Agreement for any reason other than Executive's death or Disability, the
Company shall provide the payments and benefits to Executive as indicated
below:
(a) WITH CAUSE OR VOLUNTARY TERMINATION BY
EXECUTIVE. If Executive is terminated for Cause (as defined in Section 7(a) of
this Agreement), or if Executive voluntarily terminates his employment with the
Company, the Company shall be obligated only to continue to pay to Executive
his Base Compensation, if any, earned up to the date of termination and shall
reimburse the Executive for any expenses to which the Executive is due
reimbursement by the Company under Section 6 hereof. In addition, Company shall
pay vested benefits, if any, owed to Executive under any plan provided for
Executive under Paragraph 5 hereof in accordance with the terms of such plan as
in effect on the date of termination of employment under this Paragraph 9(a).
(b) WITHOUT CAUSE. In the event that the Company
shall terminate the Executive without cause, the Company shall be obligated to
continue to pay full compensation and benefits to the Executive through and
including February 28, 2001 as if the Executive had not been so terminated.
10. CONFIDENTIAL INFORMATION. Executive recognizes and acknowledges that he
will have access to certain confidential information of the Company and of
corporations with whom the Company does business, and that such information
constitutes valuable, special and unique property of the Company and such other
corporations. For the period of time which is the greater of (i) the fourth
anniversary of the date hereof or (ii) one year after the Executive is no
longer employed by the Company ("Confidentiality Period"), Executive agrees not
to disclose or use any confidential information, including without limitation,
information regarding research, developments, product designs or
specifications, manufacturing processes, "know-how," prices, suppliers,
customers, costs or any knowledge or information with respect to confidential
or trade secrets of the Company, it being understood that such confidential
information does not include information that is publicly available unless such
information became publicly available as a result of a breach of this
Agreement. Executive acknowledges and agrees that all notes, records, reports,
sketches, plans, unpublished memoranda or other documents belonging to the
Company,
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but held by Executive, concerning any information relating to the Company's
business, whether confidential or not, are the property of the Company and will
be promptly delivered to it upon Executive's leaving the employ of the Company.
Executive also agrees to execute such confidentiality agreements that the Board
may adopt, and may modify from time to time, as a standard form to be executed
by all employees of the Company, to the extent such standard forms are not
materially more restrictive than the provisions of this Agreement.
11. NON-SOLICITATION. At all times during the term of this Agreement, and
thereafter during his period of non-competition, Executive shall not, directly
or indirectly, induce, influence, combine or conspire with, or attempt to
induce, influence, combine or conspire with, any of the officers, employees,
agents, consultants, customers or supplies of the Company to terminate their
employment, or other relationship, with or compete against the Company or any
future subsidiaries, parents or affiliates of the Company in the cable industry
(the "Business").
12. NON-COMPETITION. Executive acknowledges that his services and
responsibilities are unique in character and are of particular significance to
the Company, that the Company engages in a competitive business with a national
market and that Executive's continued and exclusive service to the Company
under this Agreement is of a high degree of importance to the Company.
Therefore, for the period of time which is the greater of (i) the fourth
anniversary of the date hereof or (ii) one year after the Executive is no
longer employed by the Company (the "Noncompete Period"), Executive shall not,
directly or indirectly, engage in the Business, or in any other business which,
at the time of Executive's termination, the Company is actively engaged in,
except as an employee or agent of the Company, and shall not, directly or
indirectly, as owner, partner, joint venturer, employee, broker, agent,
corporate officer, principal, licensor, shareholder (unless as owner of no more
than three percent (3%) of the issued and outstanding capital stock of such
entity if such stock is publicly traded) or in any other capacity whatsoever,
engage in or have any connection with any business which is competitive with
the Business, and which operates anywhere in the United States where the
Company is doing or has done business within the prior three (3) years. In the
event Executive is terminated by the Company without Cause prior to the
expiration of the term of this Agreement, the Noncompete Period shall be
modified such that it expires on the date of such involuntary termination.
13. RESTRICTIVE COVENANTS.
(a) If, in any judicial proceedings, a court shall refuse to
enforce any of the covenants included in Paragraphs 10, 11, or 12 hereof, then
such unenforceable covenant shall be amended to relate to such lesser period or
geographical area as shall be enforceable. In the event the Company should
bring any legal action or other proceeding against Executive for enforcement of
this Agreement, the calculation of the Noncompete Period, if any, shall not
include the period of time commencing with the filing of legal action or other
proceeding to enforce this Agreement through the date of final judgment or
final resolution including all appeals, if any, of such legal action or other
proceeding unless the Company is receiving the practical benefits of this
Paragraph 9 during such time.
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(b) Executive hereby acknowledges that the restrictions on
his activity as contained in this Agreement are required for the Company's
reasonable protection and is a material inducement to the Company to enter into
this Agreement. Executive hereby agrees that in the event of the violation by
him of any of the provisions of this Agreement, the Company will be entitled to
institute and prosecute proceedings at law or in equity to obtain damages with
respect to such violation or to enforce the specific performance of this
Agreement by Executive or to enjoin Executive from engaging in any activity in
violation hereof. The prevailing party in any litigation brought to enforce the
restrictive provisions contained in this Agreement shall be entitled to
reimbursement from the nonprevailing party for reasonable attorneys' fees and
expenses incurred in connection with such litigation.
(c) Notwithstanding anything to the contrary contained
herein, in the event that Executive engages in any material conduct prohibited
by Paragraphs 10, 11, or 12 hereof for any reason whatsoever, Executive shall
not receive any of the severance benefits he otherwise would be entitled to
receive pursuant to Paragraph 9 hereof.
14. REMEDIES. The Executive acknowledges that the Company would be irreparably
injured by a violation of Paragraphs 10, 11 or 12 and agrees that the Company
shall be entitled to an injunction restraining the Executive from any actual or
threatened breach of Paragraphs 10, 11 or 12 any other appropriate remedy,
without bond or other security being required. The Executive understands and
acknowledges that his failure to provide services to the Company in accordance
with the terms of this Agreement will result in financial injury to the
Company, and the Company will be entitled to damages for any such failure
arising from reasons entirely or partly within Executive's control.
15. NOTICES. Any notice required or permitted to be given under this Agreement
shall be sufficient if in writing and if sent by registered mail to the
addresses below or to such other address as either party shall designate by
written notice to the other:
IF TO THE EXECUTIVE: To the address set forth below his signature on
the signature page hereof.
IF TO THE COMPANY:
------------------
Orius Corp.
1401 Forum Way, Suite 400
West Palm Beach, Florida 33401
16. REPURCHASE PROVISIONS
(a) Prior to a Qualified Public Offering (as that term is
defined in that certain Stockholders' Agreement of the Company dated of even
date herewith), in the event the Executive is either terminated for Cause (as
defined in Section 7(a) of the Agreement) or resigns from employment with the
Company ("Repurchase Termination"), all of the Executive's shares
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<PAGE> 7
of common stock of the Company, whether held by Executive or transferred by
Executive to one or more transferees (collectively, the "Executive Stock")
shall be subject to repurchase by the Company as set forth in this Paragraph 16
(the "Repurchase Option").
(b) Following any Repurchase Termination the Company shall
have the right, but not the obligation, to purchase all, but not less than all
of the Executive Stock for the following amounts: from March 1, 1999 through
February 28, 2000, fifty percent (50%) of the book value of such securities;
after March 1, 2000, the book value of such securities.
(c) The Board of Directors of the Company may elect to
exercise the Repurchase Option by delivering written notice (the "Repurchase
Notice") to the holder or holders of such stock within forty-five (45) days
after the date of the Repurchase Termination. The Repurchase Notice will set
forth the number of shares of the Executive Stock to be acquired from each
holder, the aggregate consideration to be paid for such shares and the time and
place for the closing of the transaction.
(d) The closing of the purchase of the Executive Stock
pursuant to the Repurchase Option shall take place on the date designated by
the Company in the Repurchase Notice, which date shall not be more than
forty-five (45) days nor less than two (2) business days after the delivery of
the Repurchase Notice. The Company shall pay for the Executive Stock to be
purchased pursuant to the Repurchase Option by delivery of (i) a check or wire
transfer of funds, (ii) a subordinated note or notes payable prior to the first
anniversary of the closing of such purchase and bearing interest at a rate per
annum equal to the prime rate of interest as announced by Citibank, N.A., or
(iii) both (i) and (ii), in the aggregate amount of the purchase price for such
shares; provided that the Company shall use reasonable efforts to make all such
repurchases with a check or wire transfer of funds unless prohibited by law or
by its lenders (in writing). Any notes issued by the Company pursuant to this
Paragraph 16(d) shall be subject to any restrictive covenants to which the
Company is subject at the time of such purchase. The Company shall be entitled
to receive customary representations and warranties as to title from the
sellers regarding such sale and to require all sellers' signatures be
guaranteed. The Company may elect to assign its right to purchase to the
stockholders of the Company (which rights to purchase shall be distributed pro
rata to all stockholders (other than the Executive), based upon the number of
votes held by such stockholders). In the event the Company elects to assign its
rights to the other stockholders of the Company (other than the Executive) such
other stockholders shall have the same right as the Company to purchase stock
pursuant to the Repurchase Notice.
(e) Notwithstanding anything to the contrary contained in
this Agreement, all repurchases of the Executive Stock by the Company hereunder
shall be subject to applicable restrictions contained in the Delaware General
Corporation Law and in the Company's and its direct and indirect subsidiaries'
debt and equity financing agreements. If any such restrictions prohibit the
repurchase of the Executive Stock hereunder which the Company is otherwise
entitled or required to make, the Company may make such repurchases as soon as
it is permitted to do so under such restrictions, but in any event within 180
days of the Repurchase Termination.
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(f) Notwithstanding anything to the contrary contained in
this Agreement, the Company's right to repurchase the Executive Stock shall
terminate upon the consummation of a Qualified Public Offering.
17. ENTIRE AGREEMENT; MODIFICATION.
(a) This Agreement contains the entire agreement of the
Company and Executive, and the Company and Executive hereby acknowledge and
agree that this Agreement supersedes any prior statements, writings, promises,
understandings or commitments between the parties hereof.
(b) No future oral statements, promises or commitments with
respect to the subject matter hereof, or other purported modification hereof,
shall be binding upon the parties hereto unless the same is reduced to writing
and signed by each party hereto.
18. ASSIGNMENT. The rights and obligations of the parties under this Agreement
shall inure to the benefit of and shall be binding upon the successors and
permitted assigns of the parties. Neither party may assign his or its rights or
obligations under this Agreement without the prior written consent of the other
party.
19. TERMINATION. All of the provisions of this Agreement shall terminate after
the expiration of the Term of this Agreement, except that (i) Paragraphs 10 and
11 shall only terminate upon the expiration of the Confidentiality Period (ii)
Paragraph 12 (except as set forth in the last sentence thereof) shall only
terminate upon the expiration of the Noncompete Period and (iii) Paragraph 16
shall only terminate upon a Qualified Public Offering.
20. MISCELLANEOUS.
(a) The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or the interpretation
of this Agreement.
(b) The failure of any party to enforce any provision of this
Agreement shall in no manner affect the right to enforce the same, and the
waiver by any party of any breach of any provision of this Agreement shall not
be construed to be a waiver by such party of any succeeding breach of such
provision or a waiver by such party of any breach of any other provision.
(c) All written notices required in this Agreement shall be
sent postage prepaid by certified or registered mail, return receipt requested
or by overnight delivery service against receipt or by overnight delivery
service against receipt.
(e) In the event any one or more of the provisions of this
Agreement shall for any reason be held invalid, illegal or unenforceable, the
remaining provisions of this
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Agreement shall be unimpaired, and the invalid, illegal or unenforceable
provision shall be replaced by a mutually acceptable valid, and enforceable
provision which comes closest to the intent of the parties.
(f) The prevailing party in any litigation brought to enforce
the provisions contained in this Agreement shall be entitled to reimbursement
from the nonprevailing party for reasonable attorneys' fees and expenses
incurred in connection with such litigation.
(g) This Agreement may be executed in any number of
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Employment
Agreement as of the day and year first above written.
COMPANY:
NORTH AMERICAN TEL-COM GROUP, INC.
By:
------------------------------------
Its:
EXECUTIVE:
---------------------------------------
Robert Garrett
Address:
817 Pink Camelia Court
Apopka, Florida 32712
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<PAGE> 1
EXHIBIT 10.5
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT, dated as of the ____ day of February,
1999, between Orius Corp, a Delaware corporation (the "Company"), and a resident
of the State of Florida (the "Indemnitee").
RECITALS
--------
A. The Company desires to retain the services of the Indemnitee as
Director of the Company.
B. As a condition to the Indemnitee's agreement to continue to serve
as Director of the Company, the Indemnitee requires that he be indemnified from
liability to the fullest extent permitted by law.
C. The Company is willing to indemnify the Indemnitee to the fullest
extent pennitted by law in order to retain the services of the Indemnitee.
NOW, THEREFORE, for and in consideration of the mutual premises. and
covenants contained herein, the Company and the Indemnitee agree as follows:
SECTION 1. MANDATORY INDEMNIFICATION IN PROCEEDINGS OTHER THAN THOSE BY
OR IN THE RIGHT OF THE COMPANY. Subject to Section 4 hereof, the Company shall
indemnify and hold harmless the Indemnitee from and against any and all claims,
damages, expenses (including attorneys' fees), judgments, penalties, fines
(including excise taxes assessed with respect to an employee benefit plan),
settlements, and all other liabilities incurred or paid by him in connection
with the investigation, defense, prosecution, settlement or appeal of any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) and to which the Indemnitee was or is a party or is
threatened to be made a party by reason of the fact that the Indemnitee is or
was an officer, director, shareholder, employee or agent of the Company, or is
or was serving at the request of the Company as an officer, director, partner,
trustee, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, or by reason of anything done
or not done by the Indemnitee in any such capacity or capacities, provided that
the Indemnitee acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful.
<PAGE> 2
SECTION 2. MANDATORY INDEMNIFICATION IN PROCEEDINGS BY OR IN THE RIGHT
OF THE COMPANY. Subject to Section 4 hereof, the Company shall indemnify and
hold harmless the Indemnitee from and against any and all expenses (including
attorneys' fees) and amounts actually and reasonably incurred or paid by him in
connection with the investigation, defense, prosecution, settlement or appeal of
any threatened, pending or completed action, suit or proceeding by or in the
right of the Company to procure a judgment in its favor, whether civil,
criminal, administrative or investigative, and to which the Indemnitee was or is
a party or is threatened to be made a party by reason of the fact that the
Indemnitee is or was an officer, director, shareholder, employee or agent of the
Company, or is or was serving at the request of the Company as an officer,
director, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise, or
by reason of anything done or not done by the Indemnitee in any such capacity or
capacities, provided that (i) the Indemnitee acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Company and (ii) no indemnification shall be made under this Section 2 in
respect of any claim, issue or matter as to which the Indemnitee shall have been
adjudged to be liable to the Company for misconduct in the performance of his
duty to the Company unless, and only to the extent that, the court in which such
proceeding was brought (or any other court of competent jurisdiction) shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, the Indemnitee is fairly and
reasonably entitled to indemnity for such expenses which such court shall deem
proper.
SECTION 3. REIMBURSEMENT OF EXPENSES FOLLOWING ADJUDICATION OF
NEGLIGENCE. The Company shall reimburse the Indemnitee for any expenses
(including attorneys' fees) and amounts actually and reasonably incurred or paid
by him in connection with the investigation, defense, settlement or appeal of
any action or suit described in Section 2 hereof that results in an adjudication
that the Indemnitee was liable for negligence, gross negligence or recklessness
(but not willful misconduct) in the performance of his duty to the Company;
provided, however, that the Indemnitee acted in good faith and in a manner he
believed to be in the best interests of the Company.
SECTION 4. AUTHORIZATION OF INDEMNIFICATION. Any indemnification under
Sections 1 and 2 hereof (unless ordered by a court) and any reimbursement made
under Section 3 hereof shall be made by the Company only as authorized in the
specific case upon a determination (the "Determination") that indemnification or
reimbursement of the Indemnitee is proper in the circumstances because the
Indemnitee has met the applicable standard of conduct set forth in Section 1, 2
or 3 hereof, as the case may be. Subject to Sections 5.6, 5.7 and 8 of this
Agreement, the Determination shall be made in the following order of preference:
(1) first, by the Company's Board of Directors (the
"Board") by majority vote or consent of a quorum consisting of directors
("Disinterested Directors") who are not, at the time of the Determination, named
parties to such action, suit or proceeding; or
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(2) next, if such a quorum of Disinterested Directors
cannot be obtained, by majority vote or consent of a committee duly designated
by the Board (in which designation all directors, whether or not Disinterested
Directors, may participate) consisting solely of two or more Disinterested,
Directors; or
(3) next, if such a committee cannot be designated,
by any independent legal counsel (who may be any outside counsel regularly
employed by the Company) in a written opinion; or
(4) next, if such legal counsel determination cannot
be obtained, by vote or consent of the holders of a majority of the Company's
common stock.
4.1 NO PRESUMPTIONS. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of NOLO
CONTENDERE or its equivalent, shall not, of itself, create a presumption that
the Indemnitee (i) did not act in good faith and in a manner that he reasonably
believed to be in or not opposed to the best interests of the Company; and (ii)
with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
4.2 BENEFIT PLAN CONDUCT. The Indemnitee's conduct with respect to
an employee benefit plan for a purpose he reasonably believed to be in the
interests of the participants in and beneficiaries of the plan shall be deemed
to be conduct that the Indemnitee reasonably believed to be not opposed to the
best interests of the Company.
4.3 RELIANCE AS SAFE HARBOR. For purposes of any Determination
hereunder, the Indemnitee shall be deemed to have acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company, or, with respect to any criminal action or proceeding, to have had
no reasonable cause to believe his conduct was unlawful, if his action is based
on (i) the records or books of account of the Company or another enterprise,
including financial statements, (ii) information supplied to him by the officers
of the Company or another enterprise in the course of their duties, (iii) the
advice of legal counsel for the Company or another enterprise, or (iv)
information or records given or reports made to the Company or another
enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Company or another enterprise.
The term "another enterprise" as used in this Section 4.3 shall mean any other
corporation or any partnership, joint venture, trust, employee benefit plan or
other enterprise of which the Indemnitee is or was serving at the request of the
Company as an officer, director, partner, trustee, employee or agent. The
provisions of this Section 4.3 shall not be deemed to be exclusive or to limit
in any way the other circumstances in which the Indemnitee may be deemed to have
met the applicable standard of conduct set forth in Sections 1, 2 or 3 hereof,
as the case may be.
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4.4 SUCCESS ON MERITS OR OTHERWISE. Notwithstanding any other
provision of this Agreement, to the extent that the Indemnitee has been
successful on the merits or otherwise in defense of any action, suit or
proceeding described in Section 1 or 2 hereof, or in defense of any claim, issue
or matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
investigation, defense, settlement or appeal thereof. For purposes of this
Section 4.4, the term "successful on the merits or otherwise" shall include, but
not be limited to, (i) any termination, withdrawal, or dismissal (with or
without prejudice) of any claim, action, suit or proceeding against the
Indemnitee without any express finding of liability or guilt against him, (ii)
the expiration of 120 days after the making of any claim or threat of an action,
suit or proceeding without the institution of the same and without any promise
or payment made to induce a settlement, or (iii) the settlement of any action,
suit or proceeding under Section 1, 2 or 3 hereof pursuant to which the
Indemnitee pays less than $10,000.
4.5 PARTIAL INDEMNIFICATION OR REIMBURSEMENT. If the Indemnitee is
entitled under any provision of this Agreement to indemnification and/or
reimbursement by the Company for some or a portion of the claims, damages,
expenses (including attorneys' fees), judgments, fines or amounts paid in
settlement by the Indemnitee in connection with the investigation, defense,
settlement or appeal of any action specified in Section 1, 2 or 3 hereof, but
not, however, for the total airnount thereof, the Company shall nevertheless
indemnify and/or reimburse the Indemnitee for the portion thereof to which the
Indemnitee is entitled. The party or parties making the Determination shall
determine the portion (if less than all) of such claims, damages, expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement for
which the Indemnitee is entitled to indemnification and/or reimbursement under
this Agreement.
SECTION 5. PROCEDURES FOR DETERMINATION OF WHETHER STANDARDS HAVE BEEN
SATISFIED.
5.1 COSTS. All costs of making the Determination required by
Section 4 hereof shall be borne solely by the Company, including, but not
limited to, the costs of legal counsel, proxy solicitations and judicial
determinations. The Company shall also be solely responsible for paying (i) all
reasonable expenses incurred by the Indemnitee to enforce this Agreement,
including, but not limited to, the costs incurred by the Indemnitee to obtain
court-ordered indemnification pursuant to Section 8 hereof, regardless of the
outcome of any such application or proceeding, and (ii) all costs of defending
any suits or proceedings challenging payments to the Indemnitee under this
Agreement.
5.2 TIMING OF THE DETERMINATION. The Company shall use its best
efforts to make the Determination contemplated by Section 4 hereof promptly. In
addition, the Company agrees:
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<PAGE> 5
(a) if the Determination is to be made by the Board
or a committee thereof, such Determination shall be made not later than 15
days after a written request for a Determination (a "Request") is delivered to
the Company by the Indemnitee;
(b) if the Determination is to be made by independent
legal counsel, such Determination shall be made not later than 30 days after a
Request is delivered to the Company by the Indemnitee; and
(c) if the Determination is to be made by the
Company, such Determination shall be made not later than 90 days after a Request
is delivered to the Company by the Indemnitee.
The failure to make a Determination within the above-specified time period shall
constitute a Determination approving full indemnification or reimbursement of
the Indemnitee. Notwithstanding anything herein to the contrary, a Determination
may be made in advance of (i) the Indemnitee's payment (or incurring) of
expenses with respect to which indemnification or reimbursement is sought,
and/or (ii) final disposition of the action, suit or proceeding with respect to
which indernnification or reimbursement is sought.
5.3 REASONABLENESS OF EXPENSES. The evaluation and finding as to
the reasonableness of expenses incurred by the Indemnitee for purposes of this
Agreement shall be made (in the following order of preference) within 15 days of
the Indemnitee's delivery to the Company of a Request that includes a reasonable
accounting of expenses incurred:
(a) first, by the Board by a majority vote of a quorum
consisting of Disinterested Directors; or
(b) next, if a quorum cannot be obtained under subdivision
(a), by majority vote or consent of a committee duly designated by the Board
(in which designation all directors, whether or not Disinterested Directors, may
participate), consisting solely of two or more Disinterested Directors; or
(c) next, if a finding cannot be obtained under either
subdivision (a) or (b), by vote or consent of the holders of a majority of the
Company's Common Stock that are represented in person or by proxy at a meeting
called for such purpose. All expenses shall be considered reasonable for
purposes of this Agreement if the finding contemplated by this Section 5.3 is
not made within the prescribed time. The finding required by this Section 5.3
may be made in advance of the payment (or incurring) of the expenses for which
indemnification or reimbursement is sought.
5.4 PAYMENT OF INDEMNIFIED AMOUNT. Immediately following a
Determination that the Indemnitee has met the applicable standard of conduct set
forth in Section 1, 2 or 3 hereof, as the case may be, and the finding of
reasonableness of expenses contemplated by
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<PAGE> 6
Section 5.3 hereof, or the passage of time prescribed for making such
determination(s), the Company shall pay to the Indemnitee in cash the amount to
which the Indemnitee is entitled to be indemnified and/or reimbursed, as the
case may be, without further authorization or action by the Board; provided,
however, that the expenses for which indemnification or reimbursement is sought
have actually been incurred by the Indemnitee.
5.5 STOCKHOLDER VOTE ON DETERMINATION. Notwithstanding the
provisions of the Delaware Statute, the Indemnitee and any other stockholder who
is a party to the proceeding for which indemnification or reimbursement is
sought shall be entitled to vote on any Determination to be made by the
Company's stockholders, including a Determination made pursuant to Section 5.7
hereof. In addition, in connection with each meeting at which a stockholder
Determination will be made, the Company shall solicit proxies that expressly
include a proposal to indemnify or reimburse the Indemnitee. The Company proxy
statement relating to the proposal to indemnify or reimburse the Indemnitee
shall not include a recommendation against indemnification or reimbursement.
5.6 SELECTION OF INDEPENDENT LEGAL COUNSEL. If the Determination
required under Section 4 is to be made by independent legal counsel, such
counsel shall be selected by the Indemnitee with the approval of the Board,
which approval shall not be unreasonably withheld. The fees and expenses
incurred by counsel in making any Determination (including Determinations
pursuant to Section 5.8 hereof) shall be borne solely by the Company regardless
of the results of any Determination and, if requested by counsel, the Company
shall give such counsel an appropriate written agreement with respect to the
payment of their fees and expenses and such other matters as may be reasonably
requested by counsel.
5.7 RIGHT OF INDEMNITEE TO ARPEAL AN ADVERSE DETERMINATION BY
BOARD. If a Determination is made by the Board or a committee thereof that the
Indemnitee did not meet the applicable standard of conduct set forth in Section
1, 2 or 3 hereof, upon the written request of the Indemnitee and the
Indemnitee's delivery of $500 to the Company, the Company shall cause a new
Determination to be made by the Company's stockholders at the next regular or
special meeting of stockholders. Subject to Section 8 hereof, such Determination
by the Company's stockholders shall be binding and conclusive for all purposes
of this Agreement.
5.8 RIGHT OF INDEMNITEE TO SELECT FORUM FOR DETERMINATION. If, at
any time subsequent to the date of this Agreement, "Continuing Directors" do not
constitute a majority of the members of the Board, or there is otherwise a
change in control of the Company (as contemplated by Item 403(c) of Regulation
S-K), then upon the request of the Indemnitee, the Company shall cause the
Determination required by Section 4 hereof to be made by independent legal
counsel selected by the Indemnitee and approved by the Board (which approval
shall not be unreasonably withheld), which counsel shall be deemed to satisfy
the requirements of clause (3) of Section 4 hereof. If none of the legal counsel
selected by the Indemnitee are willing and/or able to make the Determination,
then the Company shall cause the Determination
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<PAGE> 7
to be made by a majority vote or consent of a Board committee consisting solely
of Continuing Directors. For purposes of this Agreement, a "Continuing Director"
means either a member of the Board at the date of this Agreement or a person
nominated to serve as a member of the Board by a majority of the then Continuing
Directors.
5.9 ACCESS BY INDEMNITEE TO DETERMINATION. The Company shall
afford to the Indemnitee and his representatives ample opportunity to present
evidence of the facts upon which the Indemnitee relies for indemnification or
reimbursement, together with other information relating to any requested
Determination. The Company shall also afford the Indemnitee the reasonable
opportunity to include such evidence and information in any Co ro statement
relating to a stockholder Determination.
5.10 JUDICIAL DETERMINATIONS IN DERIVATIVE SUITS. In each action
or suit described in Section 2 hereof, the Company shall cause its counsel to
use its best efforts to obtain from the Court in which such action or suit was
brought (i) an express adjudication whether the Indemnitee is liable for
negligence or misconduct in the performance of his duty to the Company, and, if
the Indemnitee is so liable, (ii) a determination whether and to what extent,
despite the adjudication of liability but in view of all the circumstances of
the case (including this Agreement), the Indemnitee is fairly and reasonably
entitled to indemnification.
SECTION 6. SCOPE OF INDEMNITY. The actions, suits and proceedings
described in Sections 1 and 2 hereof shall include, for purposes of this
Agreement, any actions that involve, directly or indirectly, activities of the
Indemnitee both in his official capacities as a Company director or officer and
actions taken in another capacity while serving as director or officer,
including, but not limited to, actions or proceedings involving (i) compensation
paid to the Indemnitee by the Company, (ii) activities by the Indemnitee on
behalf of the Company, including actions in which the Indemnitee is plaintiff,
(iii) actions alleging a misappropriation of a corporate opportunity, (iv)
responses to a takeover attempt or threatened takeover attempt of the Company,
(v) transactions by the Indemnitee in Company securities, and (vi) the
Indemnitee's preparation for and appearance (or potential appearance) as a
witness in any proceeding relating, directly or indirectly, to the Company. In
addition, the Company agrees that, for purposes of this Agreement, all services
performed by the Indemnitee on behalf of, in connection with or related to any
subsidiary of the Company, any employee benefit plan established for the benefit
of employees of the Company or any subsidiary, any corporation or partnership or
other entity in which the Company or any subsidiary has a 5% ownership interest,
or any other affiliate shall be deemed to be at the request of the Company.
SECTION 7. ADVANCE FOR EXPENSES.
7.1 MANDATORY ADVANCE. Expenses (including attorneys' fees)
incurred by the Indenmitee in investigating, defending, settling or appealing
any action, suit or proceeding described in Section 1 or 2 hereof shall be paid
by the Company in advance of the final disposition of such action, suit or
proceeding. The Company shall promptly pay the amount of
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<PAGE> 8
such expenses to the Indemnitee, but in no event later than 10 days following
the Indemnitee's delivery to the Company of a written request for an advance
pursuant to this Section 7, together with a reasonable accounting of such
expenses.
7.2 UNDERTAKING TO REPAY. The Indemnitee hereby undertakes and
agrees to repay to the Company any advances made pursuant to this Section 7 if
and to the extent that it shall ultimately be found that the Indemnitee is not
entitled to be indemnified by the Company for such amounts.
7.3 MISCELLANEOUS. The Company shall make the advances
contemplated by this Section 7 regardless of the Indemnitee's financial ability
to make repayment, and regardless whether indemnification of the Indemnitee by
the Company will ultimately be required. Any advances and undertakings to repay
pursuant to this Section 7 shall be unsecured and interest free.
SECTION 8. COURT-ORDERED INDEMNIFICATION. Regardless whether the
Indemnitee has met the standards of conduct set forth in Sections 1, 2 or 3
hereof, as the case may be, and notwithstanding the presence or absence of any
Determination whether such standards have been satisfied, the Indemnitee may
apply for indemnification (and/or reimbursement pursuant to Section 3 or 12
hereof) to the court conducting any proceeding to which the Indemnitee is a
party or to any other court of competent jurisdiction. On receipt of an
application, the court, after giving any notice the court considers necessary,
may order indemnification (and/or reimbursement) if it determines the
Indemnitee is fairly and reasonably entitled to indemnification (and/or
reimbursement) in view of all the relevant circumstances (including this
Agreement).
SECTION 9. NONDISCLOSURE OF PAYMENTS. Except as expressly required by
Federal securities laws, neither party shall disclose any payments under this
Agreement unless prior approval of the other party is obtained. Any payments to
the Indemnitee that must be disclosed shall, unless otherwise required by law,
be described only in Company proxy or information statements relating to special
and/or annual meetings of the Company's stockholders, and the Company shall
afford the Indemnitee the reasonable opportunity to review all such disclosures
and, if requested, to explain in such statement any mitigating circumstances
regarding the events reported.
SECTION 10. COVENANT NOT TO SUE, LIMITATION OF ACTIONS AND RELEASE OF
CLAIMS. No legal action shall be brought and no cause of action shall be
asserted by or on behalf of the Company (or any of its subsidiaries) against the
Indemnitee, his spouse, heirs, executors, personal representatives or
administrators after the expiration of 2 years from the date the Indemnitee
ceases (for any reason) to serve as either an officer or a director of the
Company, and any claim or cause of action of the Company (or any of its
subsidiaries) shall be extinguished and deemed released unless asserted by
filing of a legal action within such 2-year period.
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<PAGE> 9
SECTION 11. INDEMNIFICATION OF INDEMNITEE'S ESTATE. Notwithstanding
any other provision of this Agreement and regardless whether indemnification of
the Indemnitee would be permitted and/or required under this Agreement, if the
Indemnitee is deceased, the Company shall indemnify and hold harmless the
Indemnitee's estate, spouse, heirs, administrators, personal representatives and
executors (collectively the, Indemnitee's Estate) against, and the Company
shall assume, any and all claims, damages, expenses (including attorneys' fees),
penalties, judgments, fines and amounts paid in settlement actually incurred by
the Indemnitee or the Indemnitee's Estate in connection with the investigation,
defense, settlement or appeal of any action described in Section 1 or 2 hereof.
Indemnification of the Indemnitee's Estate pursuant to this Section 11 shall be
mandatory and not require a Determination or any other finding that the
Indemnitee's conduct satisfied a particular standard of conduct.
SECTION 12. REIMBURSEMENT OF ALL LEGAL EXPENSES. Notwithstanding any
other provision of this Agreement, and regardless of the presence or absence of
any Determination, the Company promptly (but not later than 30 days following
the Indemnitee's submission of a reasonable accounting) shall reimburse the
Indemnitee for all attorneys' fees and related court costs and other expenses
incurred by the Indemnitee in connection with the investigation, defense,
settlement or appeal of any action described in Section 1 or 2 hereof
(including, but not limited to, the matters specified in Section 6 hereof).
SECTION 13. MISCELLANEOUS.
13.1 NOTICE PROVISION. Any notice, payment, demand or
communication required or permitted to be delivered or given by the provisions
of this Agreement shall be deemed to have been effectively delivered or given
and received on the date personally delivered to the respective party to whom it
is directed, or when deposited by registered or certified mail, with postage and
charges prepaid and addressed to the parties at the addresses set forth below
opposite their signatures to this Agreement.
13.2 ENTIRE AGREEMENT. Except for the Company's Certificate of
Incorporation, this Agreement constitutes the entire understanding of the
parties and supersedes all prior understandings, whether written or oral,
between the parties with respect to the subject matter of this Agreement.
13.3 SEVERABILITY OF PROVISIONS. If any provision of this
Agreement is held to be illegal, invalid, or unenforceable under present or
future laws effective during the term of this Agreement, such provision shall be
fully severable; this Agreement shall be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a part of this
Agreement; and the remaining provisions of this Agreement shall remain in full
force and effect and shall not be affected by the illegal, invalid, or
unenforceable provision or by its severance from this Agreement. Furthermore, in
lieu of each such illegal, invalid, or unenforceable provision there shall be
added automatically as a part of this Agreement a provision as similar
-9-
<PAGE> 10
in terms to such illegal, invalid or unenforceable provision as may be possible
and be legal, valid, and enforceable.
13.4 APPLICABLE LAW. This Agreement shall be governed by and
construed under the laws of the State of Delaware.
13.5 EXECUTION IN COUNTERPARTS. This Agreement and any amendment
may be executed simultaneously or in counterparts, each of which together shall
constitute one and the same instrument.
13.6 COOPERATION AND INTENT. The Company shall cooperate in good
faith with the Indemnitee and use its best efforts to ensure that the Indemnitee
is indemnified and/or reimbursed for liabilities described herein to the fullest
extent permitted by law.
13.7 AMENDMENT. No amendment, modification or alteration of the
terms of this Agreement shall be binding unless in writing, dated subsequent to
the date of this Agreement, and executed by the parties.
13.8 BINDING EFFECT. The obligations of the Company to the
Indemnitee hereunder shall survive and continue as to the Indemnitee even if the
Indemnitee ceases to be a director, officer, employee and/or agent of the
Company. Each and all of the covenants, terms and provisions of this Agreement
shall be binding upon and inure to the benefit of the successors to the Company
and, upon the death of the Indemnitee, to the benefit of the estate, heirs,
executors, administrators and personal representatives of the Indemnitee.
13.9 NONEXCLUSIVITY. The rights of indemnification and
reimbursement provided in this Agreement shall be in addition to any rights to
which the Indemnitee may otherwise be entitled by statute, bylaw, agreement,
vote of stockholders or otherwise.
13.10 EFFECTIVE DATE. The provisions of this Agreement shall cover
claims, actions, suits and proceedings whether now pending or hereafter
commenced and shall be retroactive to cover acts or omissions or alleged acts or
omissions which heretofore have taken place.
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<PAGE> 11
EXECUTED AS OF THE DATE FIRST ABOVE WRITTEN.
ADDRESS: ORIUS CORP
- --------
1401 Forum Way
Suite 400
West Palm Beach, FL 33401 By:
--------------------------
Name:
------------------------
Title:
-----------------------
ADDRESS: THE INDEMNITEE:
- --------------------------
- --------------------------
- -------------------------- --------------------------
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<PAGE> 1
Exhibit 10.6
STOCK EXCHANGE AGREEMENT
AMONG
NORTH AMERICAN TEL-COM GROUP, INC.,
AND
JEFFERY J. EBERSOLE
March 31, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AGREEMENT.............................................................................................. 1
1. Definitions................................................................................... 1
2. Exchange Transaction.......................................................................... 6
(a) Basic Transaction.................................................................... 6
(b) Consideration........................................................................ 6
(c) The Closing.......................................................................... 6
(d) Deliveries at Closing................................................................ 7
3. Representations and Warranties Concerning the Transaction..................................... 7
(a) Representations and Warranties of the Transferor..................................... 7
(b) Representations and Warranties of the North American................................. 8
4. Representations and Warranties Concerning Target.............................................. 11
(a) Organization, Qualification, and Corporate Power..................................... 11
(b) Authorization of Transaction......................................................... 11
(c) Capitalization....................................................................... 11
(d) Noncontravention..................................................................... 12
(e) Brokers' Fees........................................................................ 12
(f) Title to Assets...................................................................... 12
(g) Subsidiaries......................................................................... 12
(h) Financial Statements................................................................. 12
(i) Events Subsequent to Most Recent Fiscal Year End..................................... 13
(j) Undisclosed Liabilities.............................................................. 15
(k) Legal Compliance..................................................................... 15
(l) Tax Matters.......................................................................... 15
(m) Real Property........................................................................ 17
(n) Intellectual Property................................................................ 18
(o) Tangible Assets...................................................................... 20
(p) Inventory............................................................................ 20
(q) Contracts............................................................................ 20
(r) Notes and Accounts Receivable........................................................ 21
(s) Powers of Attorney................................................................... 21
(t) Insurance............................................................................ 21
(u) Litigation........................................................................... 21
(v) Commitments and Warranties........................................................... 22
(w) Liability for Services Performed..................................................... 22
(x) Employees............................................................................ 22
(y) Employee Benefits.................................................................... 23
(z) Guaranties........................................................................... 25
(aa) Environmental, Health, and Safety Matters............................................ 25
(ab) Certain Business Relationships with Target........................................... 26
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
(ac) Customers and Suppliers.............................................................. 26
(ad) Disclosure........................................................................... 26
5. Pre-Closing Covenants......................................................................... 27
(a) General.............................................................................. 27
(b) Notices and Consents................................................................. 27
(c) Operation of Business................................................................ 27
(d) Preservation of Business............................................................. 27
(e) Full Access.......................................................................... 27
(f) Notice of Developments............................................................... 28
(g) Exclusivity.......................................................................... 28
(h) No Termination of Transferor's Obligation by Subsequent Incapacity................... 28
6. Post-Closing Covenants........................................................................ 28
(a) General.............................................................................. 28
(b) Litigation Support................................................................... 28
(c) Transition........................................................................... 29
(d) Confidentiality...................................................................... 29
(e) Stock Options........................................................................ 29
(f) Independent Accountants.............................................................. 29
(g) Employees of Target.................................................................. 29
(h) Tax Matters.......................................................................... 30
(i) Corporate Name....................................................................... 30
(j) Lockup Agreement..................................................................... 30
7. Conditions to Obligation to Close............................................................. 30
(a) Conditions to Obligation of the North American....................................... 30
(b) Conditions to Obligation of the Transferor........................................... 32
(c) Post-Closing Obligations of Transferor............................................... 34
8. Remedies for Breaches of This Agreement....................................................... 34
(a) Survival of Representations and Warranties........................................... 34
(b) Indemnification Provisions for Benefit of the North American......................... 34
(c) Indemnification Provisions for Benefit of the Transferor............................. 36
(d) Matters Involving Third Parties...................................................... 36
(e) Determination of Adverse Consequences................................................ 37
(f) Basket............................................................................... 38
(g) Other Indemnification Provisions..................................................... 38
9. Adjustment of Consideration................................................................... 38
10. Tax Matters................................................................................... 40
(a) Tax Periods Ending on or Before the Closing Date..................................... 40
(b) Tax Periods Beginning Before and Ending After the Closing Date....................... 40
(c) Cooperation on Tax Matters........................................................... 41
(d) Tax Sharing Agreements............................................................... 42
(e) S Corporation Status................................................................. 42
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
(f) Certain Taxes........................................................................ 42
11. Termination................................................................................... 42
(a) Termination of Agreement............................................................. 42
(b) Effect of Termination................................................................ 43
12. Miscellaneous................................................................................. 43
(a) Press Releases and Public Announcements.............................................. 43
(b) No Third-Party Beneficiaries......................................................... 43
(c) Entire Agreement..................................................................... 43
(d) Succession and Assignment............................................................ 43
(e) Counterparts......................................................................... 44
(f) Headings............................................................................. 44
(g) Notices.............................................................................. 44
(h) Governing Law........................................................................ 45
(i) Amendments and Waivers............................................................... 45
(j) Severability......................................................................... 46
(k) Expenses............................................................................. 46
(l) Construction......................................................................... 46
(m) Incorporation of Exhibits, Annexes, and Schedules.................................... 46
(n) Specific Performance................................................................. 46
(o) Submission to Jurisdiction........................................................... 46
(p) WAIVER OF JURY TRIAL................................................................. 47
</TABLE>
Exhibit A--Intentionally Omitted
Exhibit B--Financial Statements
Exhibit C--List of Key Employees
Exhibit D--Opinion of Transferor's Counsel
Exhibit E--[NOT APPLICABLE]
Exhibit F--Secretary and Incumbency Certificate (Target)
Exhibit G--Employment Agreements
Exhibit H--Opinion of North American's Counsel
Exhibit I--Secretary and Incumbency Certificate (North American)
Annex I--Exceptions to the Transferor's Representations and Warranties
Concerning the Transaction
Annex II--Exceptions to the North American's Representations and Warranties
Concerning the Transaction
Disclosure Schedule--Exceptions to Representations and Warranties
Concerning Target
iii
<PAGE> 5
STOCK EXCHANGE AGREEMENT
Agreement entered into as of March 31, 1998, by and among North
American Tel-Com Group, Inc., a Florida corporation ("North American"), and
Jeffery J. Ebersole (the "Transferor"), the sole shareholder of Kenya
Corporation, a Kansas corporation ("Target"). North American and the Transferor
are referred to collectively herein as the "Parties."
The Transferor in the aggregate owns all of the outstanding capital
stock of Target.
This Agreement contemplates the transfer by Transferor of all of the
issued and outstanding capital stock of Target to North American. The
Transferor will receive cash and capital stock in North American in exchange
for his capital stock in Target.
Simultaneously herewith, North American is entering into stock
exchange agreements for the acquisition of all of the issued and outstanding
capital stock of each of Mich-Com Cable Services Incorporated, CableMasters
Corp., and Excel Cable Construction, Inc. (together with this Agreement, the
"Exchange Agreements") and a Securities Purchase Agreement with HIG Cable, Inc.
All of the parties to the Exchange Agreements intend for the transfers
contemplated pursuant to the Exchange Agreements to be treated as a single
transaction qualifying under Section 351 of the Code (as that term is hereafter
defined).
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1. DEFINITIONS.
"ACCREDITED INVESTOR" has the meaning set forth in Regulation
D promulgated under the Securities Act.
"ADVERSE CONSEQUENCES" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses,
expenses, and fees, including court costs and reasonable attorneys' fees and
expenses, and any other cost of enforcing a party's rights under this
Agreement.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act.
"AFFILIATED GROUP" means any affiliated group within the
meaning of Code Section 1504(a) or any similar group defined under a similar
provision of state, local or foreign law.
"APPLICABLE RATE" means the corporate base rate of interest
publicly announced from time to time by PNC Bank, N.A.
<PAGE> 6
"BASIS" means any past or present fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction that forms or could form the
basis for any specified consequence.
"CLOSING" has the meaning set forth in Section 2(c) below.
"CLOSING DATE" has the meaning set forth in Section 2(c)
below.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONFIDENTIAL INFORMATION" means any information concerning
the businesses and affairs of Target that is not already generally available to
the public.
"CONSIDERATION" has the meaning set forth in Section 2(b)
below.
"CONTROLLED GROUP OF CORPORATIONS" has the meaning set forth
in Code Section 1563.
"DISCLOSURE SCHEDULE" has the meaning set forth in Section 4
below.
"EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan), (d) Employee Welfare Benefit Plan or (e)
bonus, incentive, stock purchase, stock ownership, stock option, stock
appreciation right, severance, salary continuation, termination, change of
control or other material fringe benefit plan or program.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in
ERISA Section 3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in
ERISA Section 3(1).
"ENVIRONMENTAL, HEALTH, AND SAFETY REQUIREMENTS" shall mean
all federal, state, local and foreign statutes, regulations, ordinances and
other provisions having the force or effect of law, all judicial and
administrative orders and determinations, all contractual obligations and all
common law concerning public health and safety, worker health and safety, and
pollution or protection of the environment, including without limitation all
those relating to the presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution, labeling, testing,
processing, discharge, release, threatened release, control, or cleanup of any
Hazardous Materials (which, for purposes of this Agreement, shall meany any
hazardous materials, substances or wastes, chemical substances or mixtures,
pesticides, pollutants, contaminants, toxic chemicals, petroleum products or
byproducts, asbestos, polychlorinated biphenyls, noise or radiation), each as
amended and as now or hereafter in effect.
2
<PAGE> 7
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA AFFILIATE" means (i) any corporation included with
Target in a controlled group of corporations within the meaning of Section
414(b) of the Code; (ii) any trade or business (whether or not incorporated)
which is under common control with Target within the meaning of Section 414(c)
of the Code; (iii) any member of an affiliated service group of which Target is
a member within the meaning of Section 414(m) of the Code; or (iv) any other
person or entity treated as an affiliate of Target under Section 414(o) of the
Code.
"EXCHANGE AGREEMENTS" has the meaning set forth in the
preface above.
"EXCHANGES" means the transactions contemplated under the
Exchange Agreements.
"FIDUCIARY" has the meaning set forth in ERISA Section 3(21).
"FINANCIAL STATEMENT" has the meaning set forth in Section
4(h) below.
"GAAP" means United States generally accepted accounting
principles as in effect from time to time.
"HIG" refers to HIG Cable, Inc., a Cayman Islands
corporation.
"HART-SCOTT-RODINO ACT" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"INDEMNIFIED PARTY" has the meaning set forth in Section 8(d)
below.
"INDEMNIFYING PARTY" has the meaning set forth in Section
8(d) below.
"INTELLECTUAL PROPERTY" means (a) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications, and patent
disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof, (b)
all trademarks, service marks, trade dress, logos, trade names, and corporate
names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection therewith, (d) all mask works and all applications,
registrations, and renewals in connection therewith, (e) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals),
3
<PAGE> 8
(f) all computer software (including data and related documentation), (g) all
other proprietary rights, and (h) all copies and tangible embodiments thereof
(in whatever form or medium).
"KNOWLEDGE" means that which is known by a person and that of
which a person has constructive knowledge based upon information readily
available to that person in the performance of such person's duties. In the
case of North American or Target, "Knowledge" means the "Knowledge" of its
respective directors and executive officers.
"LIABILITY" means any liability (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"MATERIAL ADVERSE EFFECT" means, individually or together
with other adverse effects, any material adverse effect on the assets,
liabilities, results of operations, business condition (financial or otherwise)
or prospects of Target or on Target's ability to consummate the transactions
contemplated hereby or the ability of the North American to operate the
business of Target immediately after the Closing in substantially the same
manner as such business is conducted prior to Closing.
"MOST RECENT BALANCE SHEET" means the balance sheet contained
within the Most Recent Financial Statements.
"MOST RECENT FINANCIAL STATEMENTS" has the meaning set forth
in Section 4(h) below.
"MOST RECENT FISCAL PERIOD END" has the meaning set forth in
Section 4(h) below.
"MOST RECENT FISCAL YEAR END" has the meaning set forth in
Section 4(h) below.
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA
Section 3(37).
"NATIONAL SECURITIES EXCHANGE" shall have the meaning
ascribed to that term in the rules and regulations promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934.
"NORTH AMERICAN" has the meaning set forth in the preface
above.
"NORTH AMERICAN CLASS A COMMON SHARES" means any share of the
Class A Common Stock, par value $.01 per share, of North American.
"NORTH AMERICAN CLASS B COMMON SHARES" means any share of the
Class B Common Stock, par value $.01 per share, of North American.
"NORTH AMERICAN COMMON STOCK" means any share of the common
stock, par value $.01 par share, of North American.
4
<PAGE> 9
"NORTH AMERICAN SERIES A PREFERRED SHARES" means any share of
the Series A Convertible Preferred Stock, par value $.01 per share, of North
American.
"NORTH AMERICAN PREFERRED STOCK" means any share of the
preferred stock, par value $.01 per share, of North American.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of
business consistent with past custom and practice (including with respect to
quantity and frequency).
"PARTY" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PERSON" means an individual, a partnership, a corporation,
an association, a joint stock company, a trust, a joint venture, an
unincorporated organization, or a governmental entity (or any department,
agency, or political subdivision thereof).
"PROHIBITED TRANSACTION" has the meaning set forth in ERISA
Section 406 and Code Section 4975.
"REPORTABLE EVENT" has the meaning set forth in ERISA Section
4043.
"SECURITIES ACT" means the Securities Act of 1933, as
amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act
of 1934, as amended.
"SECURITIES PURCHASE AGREEMENT" means the Securities Purchase
Agreement of even date herewith, by and between North American and HIG,
including exhibits thereto.
"SECURITY INTEREST" means any mortgage, pledge, lien,
encumbrance, charge, or other security interest, other than (a) mechanic's,
materialmen's, and similar liens that could not reasonably be expected to have
a Material Adverse Effect, (b) liens for Taxes not yet due and payable or for
Taxes that the taxpayer is contesting in good faith through appropriate
proceedings disclosed on Section 4(l) of the Disclosure Schedule, (c) purchase
money liens and liens securing rental payments under capital lease arrangements
disclosed in the Most Recent Financial Statements, and (d) other liens arising
in the Ordinary Course of Business and not incurred in connection with the
borrowing of money, so long as such liens could not reasonably be expected to
have a Material Adverse Effect.
"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement of
North American of even date herewith.
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<PAGE> 10
"SUBSIDIARY" means any corporation with respect to which a
specified Person (or a Subsidiary thereof) owns a majority of the common stock
or has the power to vote or direct the voting of sufficient securities to elect
a majority of the directors.
"TARGET" has the meaning set forth in the preface above.
"TARGET SHARE" means any share of the Common Stock, par value
$100.00 per share, of Target.
"TARGET SHAREHOLDER" means any Person who or which holds any
Target Shares.
"TAX" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Code Section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed or not,
and any obligations under any agreements or arrangements with respect to any of
the foregoing.
"TAX RETURN" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"THIRD PARTY CLAIM" has the meaning set forth in Section 8(d)
below.
"TRANSFEROR" has the meaning set forth in the preface above.
2. EXCHANGE TRANSACTION.
(a) BASIC TRANSACTION. On and subject to the terms and
conditions of this Agreement, North American agrees to acquire from the
Transferor, and the Transferor agrees to transfer to North American, all of his
Target Shares for the consideration specified below in this Section 2.
(b) CONSIDERATION. North American agrees to deliver to the
Transferor at Closing (i) cash in the amount of $12,887,000 payable by wire
transfer or other immediately available funds and (ii) 2,682,600 North American
Class B Common Shares and those items listed in Schedule A attached to and made
part of this Agreement (collectively, the "Consideration"). The Consideration
shall be subject to adjustment pursuant to the provisions of Section 9 hereof.
(c) THE CLOSING. The closing of the transactions contemplated
by this Agreement (the "CLOSING") shall take place at the offices of Holland &
Knight LLP in Miami,
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Florida, commencing at 9:00 a.m. local time on March 31, 1998 or such other
date, time and place as the Parties may mutually determine (the "CLOSING
DATE").
(d) DELIVERIES AT CLOSING. At the Closing, (i) the Transferor
will deliver to the North American the various certificates, instruments, and
documents referred to in Section 7(a) below, (ii) North American will deliver
to the Transferor the various certificates, instruments, and documents referred
to in ss.7(b) below, and (iii) the Transferor will deliver to North American
stock certificates representing all of his Target Shares, endorsed in blank or
accompanied by duly executed assignment documents, and (iv) North American will
deliver to the Transferor the Consideration specified in Section 2(b) above.
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
(a) REPRESENTATIONS AND WARRANTIES OF THE TRANSFEROR.
Transferor represents and warrants to North American that the statements
contained in this Section 3(a) are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Section 3(a)), except as set forth in Annex I
attached hereto.
(i) AUTHORIZATION OF TRANSACTION. The Transferor has
full power and authority to execute and deliver this Agreement and to
perform his obligations hereunder. This Agreement constitutes the
valid and legally binding obligation of the Transferor, enforceable in
accordance with its terms and conditions except to the extent
enforcement thereof may be limited by applicable bankruptcy,
reorganization, insolvency or moratorium laws, or other laws affecting
the enforcement of creditors' rights or by the principles governing
the availability of equitable remedies. The Transferor need not give
any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency or any
other Person in order to consummate the transactions contemplated by
this Agreement.
(ii) NONCONTRAVENTION. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court
to which the Transferor is subject or (B) conflict with, result in a
breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or
cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which the Transferor is a
party or by which he is bound or to which any of his assets is
subject.
(iii) BROKERS' FEES. Transferor has, or prior to
Closing will have, paid any fees or commissions due from Transferor to
any broker, finder, or agent with respect to the transactions
contemplated by this Agreement. Transferor agrees that he will pay
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<PAGE> 12
any additional amounts that may become due from him or Target to any
such broker, finder or agent in the future, including as a result of
any indemnification obligations.
(iv) INVESTMENT. The Transferor (A) understands
that, except as contemplated under the Stockholders Agreement, the
North American Class B Common Shares that he will receive as part of
the Purchase Price have not been, and will not be, registered under
the Securities Act, or under any state securities laws, and are being
offered and sold in reliance upon federal and state exemptions for
transactions not involving any public offering, (B) is acquiring such
North American Class B Common Shares solely for his own account for
investment purposes, and not with a view to the distribution thereof,
(C) is a sophisticated investor with knowledge and experience in
business and financial matters, (D) has received certain information
concerning North American and has had the opportunity to obtain
additional information as desired in order to evaluate the merits and
the risks inherent in holding the North American Class B Common
Shares, (E) is able to bear the economic risk and lack of liquidity
inherent in holding the North American Class B Common Shares, and (F)
is an Accredited Investor for the reasons set forth on Annex I.
(v) TARGET SHARES. The Transferor holds of record
and owns beneficially all of the issued and outstanding Target Shares,
as further described in Section 4(c) hereof, free and clear of any
restrictions on transfer (other than any restrictions under the
Securities Act and state securities laws), Taxes, security interests
liens or other encumbrances, options, warrants, purchase rights,
contracts, commitments, equities, claims, and demands. The Transferor
is not a party to any option, warrant, purchase right, or other
contract or commitment that could require the Transferor to sell,
transfer, or otherwise dispose of any capital stock of Target (other
than this Agreement). The Transferor is not a party to any voting
trust, proxy, shareholders agreement, or other agreement or
understanding with respect to the voting of any capital stock of
Target.
(vi) DISCLOSURE. Neither this Agreement nor any of
the exhibits, attachments, written statements, documents, certificates
or other items prepared for or supplied to North American by the
Transferor with respect to the transactions contemplated hereby
contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make each statement contained
herein or therein not misleading. There is no fact which the
Transferor has not disclosed to the North American herein and of which
the Transferor is aware which could be anticipated to have a Material
Adverse Effect.
(b) REPRESENTATIONS AND WARRANTIES OF THE NORTH AMERICAN.
North American represents and warrants to Transferor that the statements
contained in this Section 3(b) are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Section 3(b)), except as set forth in Annex II
attached hereto.
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<PAGE> 13
(i) ORGANIZATION OF THE NORTH AMERICAN. North
American is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Florida. Correct and
complete copies of the charter and bylaws of North American (as
amended to date) are included as part of Annex II. The names and
titles of each officer and director of North American is set forth in
Annex II.
(ii) CAPITALIZATION OF NORTH AMERICAN. The entire
authorized capital stock of North American consists of (i) 98,000,000
shares of North American Common Stock, including 10,000,000 North
American Class A Common Shares, 20,000,000 North American Class B
Common Shares, and 68,000,000 Shares of undesignated North American
Common Stock and (ii) 2,000,000 shares of North American Preferred
Stock, including 100,000 designated as North American Series A
Preferred Shares. The issued and outstanding capital stock of North
American, immediately prior to (i) the closing of the transactions
contemplated pursuant to the Exchange Agreements and (ii) the proposed
sale of 100,000 North American Series A Preferred Shares to HIG,
consists of 1,946,330 North American Class A Common Shares, no North
American Class B Common Stock and no North American Preferred Stock.
The issued and outstanding capital stock of North American,
immediately following the (i) closing of the transactions contemplated
pursuant to the Exchange Agreements and (ii) the proposed sale of
100,000 North American Series A Preferred Shares to HIG, shall consist
of 1,946,330 North American Class A Shares, 5,011,800 North American
Class B Shares and 100,000 North American Series A Preferred Shares,
held of record as set forth in Annex II hereto. All of the issued and
outstanding North American Class A Common Shares have been, and upon
issuance pursuant to the Exchange Agreements and the Securities
Purchase Agreement, respectively, the 5,011,800 Class B Common Shares
and the 100,000 North American Series A Preferred Shares will be, duly
authorized, validly issued, fully paid, and nonassessable. Except as
disclosed in Annex II, there are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights,
exchange rights, or other contracts or commitments that could require
North American to issue, sell, or otherwise cause to become
outstanding any of its capital stock. Except as disclosed in Annex II,
there are no outstanding or authorized stock appreciation, phantom
stock, profit participation, or similar rights with respect to North
American. Except as disclosed in Annex II, there are no voting trusts,
proxies or other agreements or understandings with respect to the
voting of the capital stock of North American.
Included as part of Annex II is an unaudited pro
forma balance sheet for North American, dated as of the date of this
Agreement, which gives effect on a pro forma basis to (i) the
consummation of the transactions contemplated by the Exchange
Agreements, (ii) the sale of 100,000 North American Series A Preferred
Shares to HIG and (iii) the proposed $10,000,000 Revolving Credit
Facility and $19,000,000 Term Loan from PNC Bank, N.A.
Also included as part of Annex II is a table listing
the percentage of North American capital stock attributable to each
class of shareholders of North American
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<PAGE> 14
immediately following the closing of (i) the transactions contemplated
by the Exchange Agreements and (ii) the transactions contemplated by
the Securities Purchase Agreement.
(iii) OPERATION. North American has not conducted
any activities or incurred any liabilities other than in connection
with the Exchanges and in connection with securing financing for the
Exchanges.
(iv) AUTHORIZATION OF TRANSACTION. North American
has full power and authority (including full corporate power and
authority) to execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement constitutes the valid and
legally binding obligation of North American, enforceable in
accordance with its terms and conditions except to the extent
enforcement thereof may be limited by applicable bankruptcy,
reorganization, insolvency or moratorium laws, or other laws affecting
the enforcement of creditors' rights or by the principles governing
the availability of equitable remedies. North American need not give
any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency or any
other Person in order to consummate the transactions contemplated by
this Agreement.
(v) NONCONTRAVENTION. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court
to which either North American is subject or any provision of their
respective charter or bylaws or (B) conflict with, result in a breach
of, constitute a default under, result in the acceleration of, create
in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which North American is a party or
by which North American is bound or to which any of its assets is
subject.
(vi) BROKERS' FEES. North American has, or prior to
the Closing will have, paid any fees or commissions due from North
American to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement. North American agrees
that they will pay any additional amounts that may become due from
North American to any such broker, finder or agent in the future,
including as a result of any indemnification obligations.
(vii) DISCLOSURE. Neither this Agreement nor any of
the exhibits, attachments, written statements, documents, certificates
or other items prepared for or supplied to the Transferor by the North
American with respect to the transactions contemplated hereby contains
any untrue statement of a material fact or omits to state any material
fact necessary in order to make each statement contained herein or
therein not misleading. There is no fact which North American has not
disclosed to the Transferor herein and of which North American or any
of the its officers or directors is aware and
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<PAGE> 15
which could be anticipated to have a material adverse effect on the
operations of North American after the Closing.
4. REPRESENTATIONS AND WARRANTIES CONCERNING TARGET. The Transferor
represents and warrants to the North American that the statements contained in
this Section 4 are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 4), except as set forth in the Disclosure Schedule
delivered by the Transferor to the North American on the date hereof and
initialed by the Parties (the "DISCLOSURE SCHEDULE"). The Disclosure Schedule
shall be effective to modify only those representations and warranties to which
the Disclosure Schedule makes explicit reference. The Disclosure Schedule will
be arranged in paragraphs corresponding to the lettered and numbered paragraphs
contained in this Section 4.
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. Target
is a corporation duly organized, validly existing, and in good standing under
the laws of the jurisdiction of its incorporation. Target is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required. Target has full corporate power and
authority and all licenses, permits, and authorizations necessary to carry on
the businesses in which it is engaged and in which it presently proposes to
engage and to own and use the properties owned and used by it. Section 4(a) of
the Disclosure Schedule lists the directors and officers of Target. Correct and
complete copies of the charter and bylaws of Target (as amended to date) are
included as part of Section 4(a) of the Disclosure Schedule. The minute books
(containing the records of meetings of the stockholders, the board of
directors, and any committees of the board of directors), the stock certificate
books, and the stock record books of Target are correct and complete and an
true and correct copy thereof has been provided to North American. Target is
not in default under or in violation of any provision of its charter or bylaws.
(b) AUTHORIZATION OF TRANSACTION. [INTENTIONALLY LEFT BLANK]
(c) CAPITALIZATION. The entire authorized capital stock of
Target consists of 3,000 Target Shares, of which 275 Target Shares are issued
and outstanding and No Target Shares are held in treasury. All of the issued
and outstanding Target Shares have been duly authorized, are validly issued,
fully paid, and nonassessable, and are held of record and owned beneficially
solely by the Transferor. There are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights, exchange
rights, preemptive rights or other contracts or commitments that could require
Target to issue, sell, or otherwise cause to become outstanding any of its
capital stock or securities convertible or exchangeable for, or any options,
warranties, or rights to purchase, any of such capital stock. There are no
outstanding obligations of Target to repurchase, redeem or otherwise acquire
any capital stock or any securities convertible into or exchangeable for such
capital stock or any options, warrants or rights to purchase such capital stock
or securities. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to Target.
There are no voting trusts, proxies, or other agreements or understandings with
respect to the voting,
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<PAGE> 16
transfer, dividend or other rights (such as registration rights under the
Securities Act) of the capital stock of Target.
(d) NONCONTRAVENTION. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated
hereby, will (i) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of
any government, governmental agency, or court to which Target is subject or any
provision of the charter or bylaws of Target or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which Target is a party or by which it is bound or to which any
of its assets is subject (or result in the imposition of any Security Interest
upon any of its assets). Target need not give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any Person,
government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
(e) BROKERS' FEES. Target has, or prior to Closing will have,
paid any fees or commissions due from Target to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement. Transferor
agrees that he will pay any additional amounts that may become due from Target
to any such broker, finder or agent in the future, including as a result of any
indemnification obligations.
(f) TITLE TO ASSETS. Target has good and marketable title to,
or a valid leasehold interest in, the properties and assets used by it, located
on its premises, or shown on the Most Recent Balance Sheet or acquired after
the date thereof, free and clear of all Security Interests (other than the
Security Interests disclosed on the face of the Most Recent Balance Sheet),
except for properties and assets disposed of in the Ordinary Course of Business
since the date of the Most Recent Balance Sheet, none of which disposals are
expected to have a Material Adverse Effect. The consummation of the
transactions contemplated by this Agreement will not affect Target's good and
marketable title to, or valid leasehold interest in, the properties and assets
described in the preceding sentence.
(g) SUBSIDIARIES. Target does not currently have, and has
never had, any Subsidiaries and does not own any securities of any other
Person.
(h) FINANCIAL STATEMENTS. Attached hereto as EXHIBIT B are
the following financial statements (collectively the "FINANCIAL STATEMENTS"):
(i) audited consolidated balance sheets and statements of income, changes in
stockholders' equity, and cash flow including the audit report thereon as of
and for the fiscal year ended December 31, 1997 (the "MOST RECENT FISCAL YEAR
END") for Target; (ii) audited consolidated balance sheets, statements of
income, changes in stockholders' equity, and cash flow as of and for the fiscal
years ended December 31, 1993, December 31, 1994, December 31, 1995, and
December 31, 1996 and (iii) unaudited consolidated balance sheets and
statements of income, changes in stockholders' equity, and cash flow, (the
"MOST RECENT FINANCIAL STATEMENTS") as of and for the period from January 1,
1998,
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through February 28, 1998 (the "MOST RECENT FISCAL PERIOD END") for Target. The
Financial Statements (including the notes thereto) have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby, present fairly the financial condition of Target as of such
dates and the results of operations of Target for such periods, are correct and
complete, and are consistent with the books and records of Target (which books
and records are correct and complete); provided, however, that the Most Recent
Financial Statements are subject to normal year-end adjustments (which will not
be material individually or in the aggregate) and lack footnotes.
Since the date of the Most Recent Balance Sheet, Target has
not (i) declared or paid any cash dividends or made any distributions or
payments of any kind to the Transferor, (ii) repaid any portion of principal or
interest on any outstanding indebtedness of Target, (iii) incurred any
indebtedness for borrowed money, (iv) entered into any contracts, leases or
other agreements other than in the ordinary course of business that require
Target to make payments thereunder, or (v) made any distributions or payments
of any kind to any directors or officers of Target or any family member of
Transferor except for wages paid to such directors, officers or family members
who are employees of Target and which wages are consistent with Target's past
practice and custom.
(i) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. Since
the Most Recent Fiscal Year End and except as disclosed in the Disclosure
Schedule, there has not occurred any Material Adverse Effect. Without limiting
the generality of the foregoing, since that date:
(i) Target has not sold, leased, transferred, or
assigned any of its assets, tangible or intangible, other than for a
fair consideration in the Ordinary Course of Business;
(ii) Target has not entered into any agreements,
contracts, leases, or licenses either involving more than $10,000 in
the aggregate, having a term greater than 12 months or outside the
Ordinary Course of Business;
(iii) no party (including any of Target) has
accelerated, terminated, modified, or cancelled any agreements,
contracts, leases, or licenses involving more than $10,000 in the
aggregate to which Target is a party or by which it is bound;
(iv) Target has not imposed or allowed to be imposed
any Security Interest upon any of its assets, tangible or intangible;
(v) Target has not made any capital expenditures
involving more than $10,000 in the aggregate or outside the Ordinary
Course of Business;
(vi) Target has not made any capital investment in,
any loan to, or any acquisition of the securities or assets of, any
other Person;
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<PAGE> 18
(vii) Target has not issued any note, bond, or other
debt security or created, incurred, assumed, or guaranteed any
indebtedness for borrowed money or capitalized lease obligation
involving more than $10,000 in the aggregate;
(viii) Target has not delayed or postponed the
payment of accounts payable and other Liabilities (other than as set
forth in Schedule B hereto) outside the Ordinary Course of Business;
(ix) Target has not cancelled, compromised, waived,
or released any right or claim either involving more than $10,000 in
the aggregate or outside the Ordinary Course of Business;
(x) Target has not granted any license or sublicense
of any rights under or with respect to any Intellectual Property;
(xi) there has been no change made or authorized in
the charter or bylaws of any of Target;
(xii) Target has not issued, sold, or otherwise
disposed of any of its capital stock or securities convertible into or
exchangeable for such stock, or granted any options, warrants, or
other rights to purchase or obtain any of such capital stock or
securities;
(xiii) Target has not declared, set aside, or paid
any dividend or made any distribution with respect to its capital
stock (whether in cash or in kind) or redeemed, purchased, or
otherwise acquired any of its capital stock or other securities;
(xiv) Target has not experienced any damage,
destruction, or loss (whether or not covered by insurance) to its
property involving more than $10,000 in the aggregate;
(xv) Target has not made any loan to, or entered
into any other transaction with, any of its directors, officers, and
employees or their "Associates" (as defined in Rule 12b-2 under the
Exchange Act);
(xvi) Target has not entered into any employment
contract or collective bargaining agreement, written or oral, or
modified the terms of any existing such contract or agreement;
(xvii) Target has not granted any increase in any
compensation of any of its directors, officers, or other employees;
(xviii) Target has not adopted, amended, modified,
or terminated any bonus, profit-sharing, incentive, severance, or
other plan, contract, or commitment for
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<PAGE> 19
the benefit of any of its directors, officers, and employees (or taken
any such action with respect to any other Employee Benefit Plan);
(xix) Target has not made any other change in
employment terms for any of its directors, officers, and employees
outside the Ordinary Course of Business;
(xx) Target has not made or pledged to make any
charitable or other capital contribution outside the Ordinary Course
of Business;
(xxi) there has not been any other material
occurrence, event, incident, action, failure to act, or transaction
outside the Ordinary Course of Business involving Target; and
(xxii) Target has not increased, or experienced any
change in assumptions underlying or method of calculating, any bad
debt, contingency, tax or other reserves or changed its accounting
practices, methods or assumptions (including changes in estimates or
valuation methods); or written down the value of any assets; and
(xxiii) Target has not committed to any of the
foregoing.
(j) UNDISCLOSED LIABILITIES. Except as disclosed in Section
4(j) of the Disclosure Schedule, Target does not have any Liability, except for
(i) Liabilities set forth on the face of the Most Recent Balance Sheet (rather
than in any notes thereto) and (ii) Liabilities which have arisen after the
Most Recent Fiscal Period End in the Ordinary Course of Business (none of which
results from, arises out of, relates to, is in the nature of, or was caused by
any breach of contract, breach of warranty, tort, infringement, or violation of
law and none of which could reasonably be expected to have a Material Adverse
Effect).
(k) LEGAL COMPLIANCE. Target and its predecessors and
Affiliates has complied, in all material respects, with all applicable laws
(including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof), and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has been
filed or commenced against any of them alleging any failure so to comply.
(l) TAX MATTERS.
(i) Target has filed all Tax Returns that it was
required to file. All such Tax Returns were correct and complete in
all respects. All Taxes owed by Target (whether or not shown on any
Tax Return) have been paid or are fully and adequately accrued and
adequately disclosed on the Most Recent Balance Sheet. Target is not
currently the beneficiary of any extension of time within which to
file any Tax Return. No claim has ever been made by an authority in a
jurisdiction where Target does not file Tax Returns that it is or may
be subject to taxation by that jurisdiction. There are no
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<PAGE> 20
Security Interests on any of the assets of Target that arose in
connection with any failure (or alleged failure) to pay any Tax.
(ii) Target has withheld and paid all Taxes required
to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder,
or other third party.
(iii) Neither Transferor nor Target has Knowledge
that any authority expects to assess any additional Taxes for any
period for which Tax Returns have been filed. There is no action, suit
or proceeding, investigation, dispute or claim now pending or
threatened concerning any Tax Liability of Target or proposed
adjustment to the taxable income of Target either (A) claimed or
raised by any authority in writing or (B) as to which any of the
Transferor and Target has Knowledge based upon personal contact with
any agent of such authority. Section 4(l) of the Disclosure Schedule
lists all Tax Returns filed with respect to Target for the last three
completed tax years, indicates those Tax Returns that have been
audited, and indicates those Tax Returns that currently are the
subject of audit. The Transferor has delivered to the North American
correct and complete copies of all Tax Returns, examination reports,
and statements of deficiencies assessed against or agreed to by Target
since January 1, 1994.
(iv) Target has not waived any statute of
limitations in respect of Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency.
(v) Target has not filed a consent under Code
Section 341(f) concerning collapsible corporations. Target has not
made any payments, is not obligated to make any payments, or is not a
party to any agreement that under certain circumstances could obligate
it to make any payments that will not be deductible under Code Section
280G or that would give rise to any obligation to indemnify any Person
for any excise tax payable pursuant to Code Section 4999. The Target
has not been a United States real property holding corporation within
the meaning of Code Section 897(c)(2) during the applicable period
specified in Code Section 897(c)(1)(A)(ii). Target has disclosed on
its federal income Tax Returns all positions taken therein that could
give rise to a substantial understatement of federal income Tax within
the meaning of Code Section 6662. Neither Target nor any predecessor
or affiliate thereof is a party to any Tax allocation, sharing,
indemnification or similar agreement. Target (A) has not been a member
of an Affiliated Group filing a consolidated federal income Tax Return
(other than a group the common parent of which was Target) and (B)
does not have any Liability for the Taxes of any Person (other than
any of Target and its Subsidiaries) under Reg. Section 1.1502-6 (or
any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise. No indebtedness of
Target consists of "corporate acquisition indebtedness" within the
meaning of Code Section 279.
(vi) Section 4(l) of the Disclosure Schedule sets
forth as of the most recent practicable date the basis for Federal
income tax purposes of Target in its assets.
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(vii) The unpaid Taxes of Target (A) did not, as of
the Most Recent Fiscal Period End, exceed the reserve for Tax
Liability (provided, however, that the reserve for Tax Liability shall
not include any reserve for deferred taxes established to reflect
timing differences between book and Tax income) set forth on the face
of the Most Recent Balance Sheet (rather than in any notes thereto)
and (B) do not, and will not as of the Closing Date, exceed that
reserve as adjusted for the passage of time through the Closing Date
in accordance with the past custom and practice of Target in filing
its Tax Returns.
(viii) Target has properly qualified as an S
corporation for federal income tax purposes within the meaning of
Section 1361 of the Code at all times since January 1, 1997, and has
so qualified under analogous provision of the income tax laws of
California, Colorado, Connecticut, Georgia, Iowa, Illinois, Kansas,
Maryland, Minnesota, Montana, North Carolina, North Dakota, Nebraska,
New Jersey, Ohio, Oklahoma, Utah, Virginia and Wisconsin.
(m) REAL PROPERTY. Target does not own any real property.
Section 4(m) of the Disclosure Schedule lists and describes briefly all real
property leased or subleased to Target. The Transferor has delivered to North
American correct and complete copies of the leases and subleases listed in
Section 4(m) of the Disclosure Schedule (as amended to date). With respect to
each lease and sublease listed in Section 4(m) of the Disclosure Schedule:
(A) the lease or sublease is legal, valid,
binding, enforceable, and in full force and effect;
(B) the lease or sublease will continue to
be legal, valid, binding, enforceable, and in full force and
effect on identical terms following the consummation of the
transactions contemplated hereby;
(C) no party to the lease or sublease is in
breach or default, and no event has occurred which, with
notice or lapse of time, would constitute a breach or default
or permit termination, modification, or acceleration
thereunder;
(D) no party to the lease or sublease has
repudiated any provision thereof;
(E) there are no disputes, oral agreements,
or forbearance programs in effect as to the lease or
sublease;
(F) Target has not received a notice from
the lessor indicating that the lease will not be renewed at
the end of its current term for any additional terms provided
for in the lease;
(G) the term of the lease will continue for
a minimum of six months past the Closing Date;
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(H) with respect to each sublease, the
representations and warranties set forth in subsections (A)
through (G) above are true and correct with respect to the
underlying lease;
(I) Target has not assigned, transferred,
conveyed, mortgaged, deeded in trust, or encumbered any
interest in the leasehold or subleasehold;
(J) all facilities leased or subleased
thereunder have received all approvals of governmental
authorities (including licenses and permits) required in
connection with the operation thereof and have been operated
and maintained in accordance with applicable laws, rules, and
regulations;
(K) all facilities leased or subleased
thereunder are supplied with utilities and other services
necessary for the operation of said facilities; and
(L) the Transferor is not aware of any
pending or threatened foreclosure or other enforcement
proceedings relating to the real property underlying the
leases or subleases set forth in Section 4(m) of the
Disclosure Schedule that could result in Target's loss of
possession of such real property.
(n) INTELLECTUAL PROPERTY.
(i) Target owns or has the right to use pursuant to
license, sublicense, agreement, or permission in writing all
Intellectual Property necessary for the operation of the businesses of
Target as presently conducted and as presently proposed to be
conducted. Each item of Intellectual Property owned or used by Target
immediately prior to the Closing hereunder will be owned or available
for use by Target on identical terms and conditions immediately
subsequent to the Closing hereunder. Target has taken all necessary
action to maintain and protect each item of Intellectual Property that
it owns or uses.
(ii) Target has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of third parties, and none of the Transferor and the
directors and officers (and employees with responsibility for
Intellectual Property matters) of Target has ever received any charge,
complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that
Target must license or refrain from using any Intellectual Property
rights of any third party). To the Knowledge of Transferor and Target,
no third party has interfered with, infringed upon, misappropriated,
or otherwise come into conflict with any Intellectual Property rights
of Target.
(iii) Section 4(n)(iii) of the Disclosure Schedule
identifies each patent or registration which has been issued to Target
with respect to any of its Intellectual Property, identifies each
pending patent application or application for registration which
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Target has made with respect to any of its Intellectual Property, and
identifies each license, agreement, or other permission which Target
has granted to any third party with respect to any of its Intellectual
Property (together with any exceptions). The Transferor has delivered
to North American correct and complete copies of all such patents,
registrations, applications, licenses, agreements, and permissions (as
amended to date) and have made available to North American correct and
complete copies of all other written documentation evidencing
ownership and prosecution (if applicable) of each such item.
Section 4(n)(iii) of the Disclosure Schedule also identifies each
trade name or unregistered trademark used by Target in connection with
any of its businesses. With respect to each item of Intellectual
Property required to be identified in Section 4(n)(iii) of the
Disclosure Schedule:
(A) Target possesses all right, title, and
interest in and to the item, free and clear of any Security
Interest, license, or other restriction;
(B) the item is not subject to any
outstanding injunction, judgment, order, decree, ruling, or
charge;
(C) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending
or is threatened which challenges the legality, validity,
enforceability, use, or ownership of the item; and
(D) Target has never agreed to indemnify
any Person for or against any interference, infringement,
misappropriation, or other conflict with respect to the item.
(iv) Section 4(n)(iv) of the Disclosure Schedule
identifies each item of Intellectual Property that any third party
owns and that Target uses pursuant to license, sublicense, agreement,
or permission. The Transferor has delivered to the North American
correct and complete copies of all such licenses, sublicenses,
agreements, and permissions (as amended to date). With respect to each
item of Intellectual Property required to be identified in Section
4(n)(iv) of the Disclosure Schedule:
(A) the license, sublicense, agreement, or
permission covering the item is legal, valid, binding,
enforceable, and in full force and effect;
(B) the license, sublicense, agreement, or
permission will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated
hereby;
(C) no party to the license, sublicense,
agreement, or permission is in breach or default, and no
event has occurred which with notice or lapse of time would
constitute a breach or default or permit termination,
modification, or acceleration thereunder;
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(D) no party to the license, sublicense,
agreement, or permission has repudiated any provision
thereof;
(E) with respect to each sublicense, the
representations and warranties set forth in subsections (A)
through (D) above are true and correct with respect to the
underlying license;
(F) the underlying item of Intellectual
Property is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
(G) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending
or is threatened which challenges the legality, validity, or
enforceability of the underlying item of Intellectual
Property; and
(H) Target has never granted any sublicense
or similar right with respect to the license, sublicense,
agreement, or permission.
(v) To the Knowledge of Transferor and Target,
Target will not interfere with, infringe upon, misappropriate, or
otherwise come into conflict with, any Intellectual Property rights of
third parties as a result of the continued operation of its businesses
as presently conducted and as presently proposed to be conducted.
(vi) None of the Transferor and Target has any
Knowledge of any new products, inventions, procedures, or methods of
manufacturing or processing that any competitors or other third
parties have developed which reasonably could be expected to supersede
or make obsolete any product or process of any of Target.
(o) TANGIBLE ASSETS. Target owns or leases all buildings,
machinery, equipment, and other tangible assets necessary for the conduct of
its business as presently conducted and as presently proposed to be conducted.
Each such tangible asset has been maintained in accordance with normal industry
practice, is in good operating condition and repair (subject to normal wear and
tear), and is suitable for the purposes for which it presently is used and
presently is proposed to be used. Section 4(o) of the Disclosure Schedule lists
all tangible assets owned by Target.
(p) INVENTORY. Target does not have any inventory.
(q) CONTRACTS. Section 4(q) of the Disclosure Schedule lists
all the contracts and other agreements to which Target is a party. The
Transferor has delivered to the North American a correct and complete copy of
each written agreement listed in Section 4(q) of the Disclosure Schedule (as
amended to date). With respect to each such agreement: (A) the agreement is
legal, valid, binding, enforceable, and in full force and effect; (B) the
agreement will continue to be legal, valid, binding, enforceable, and in full
force and effect on identical terms following the
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consummation of the transactions contemplated hereby; (C) no party is in breach
or default, and no event has occurred which with notice or lapse of time would
constitute a breach or default, or permit termination, modification, or
acceleration, under the agreement; and (D) no party has repudiated any
provision of the agreement. Section 4(q) of the Disclosure Schedule lists each
currently outstanding bid or proposal for business submitted by Target in
excess of $1,000,000.
(r) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts
receivable of Target are reflected properly on the Most Recent Balance Sheet in
accordance with GAAP, are valid receivables subject to no setoffs or
counterclaims, are current and collectible, and, will be collected in
accordance with their terms at their recorded amounts, subject only to the
reserve for bad debts set forth on the face of the Most Recent Balance Sheet
(rather than in any notes thereto) as adjusted for the passage of time through
the Closing Date in accordance with the past custom and practice of Target.
(s) POWERS OF ATTORNEY. There are no outstanding powers of
attorney executed on behalf of Target.
(t) INSURANCE. Section 4(t) of the Disclosure Schedule
includes a true, correct and complete list of all policies of insurance
(including policies providing property, casualty, liability, and workers'
compensation coverage and bond and surety arrangements) to which Target is a
party, a named insured, or otherwise the beneficiary of coverage. Genuine and
complete copies of each of the insurance policies listed in Section 4(t) of the
Disclosure Schedule have been provided to North American.
With respect to each such insurance policy: (A) the policy is legal, valid,
binding, enforceable, and in full force and effect; (B) the policy will
continue to be legal, valid, binding, enforceable, and in full force and effect
on identical terms following the consummation of the transactions contemplated
hereby; (C) neither Target nor any other party to the policy is in breach or
default (including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of time,
would constitute such a breach or default, or permit termination, modification,
or acceleration, under the policy; (D) neither Target, any ERISA Affiliate nor
the North American shall be subject to a retroactive rate adjustment, loss
sharing arrangement or other actual or contingent liability and (E) to
Transferor's or Target's Knowledge, no party to the policy has repudiated any
provision thereof. Target has been fully covered at all times during the past 5
years by insurance in scope and amount customary and reasonable for the
businesses in which it has engaged during the aforementioned period. Section
4(t) of the Disclosure Schedule describes any self-insurance arrangements
affecting Target.
(u) LITIGATION. Section 4(u) of the Disclosure Schedule sets
forth each instance in which Target (i) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (ii) is a party, or
to the Knowledge of Transferor or Target, is threatened to be made a party to
any claim, action, suit, proceeding, hearing, or investigation of, in, or
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator. Except as set
forth in ss.4(u) of the Disclosure Schedule,
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there is no other pending, or to the knowledge of Transferor or Target,
threatened claim, arbitration proceeding, action, suit, investigation or other
proceeding against or involving Target or any property or rights of Target or
any officer or director or Target. None of the actions, suits, proceedings,
hearings, and investigations set forth in Section 4(u) of the Disclosure
Schedule could result in any material adverse change in the business, financial
condition, operations, results of operations, or future prospects of Target.
Neither the Transferor nor the directors and officers (and employees with
responsibility for litigation matters) of Target has any reason to believe that
any such action, suit, proceeding, hearing, or investigation may be brought or
threatened against Target.
(v) COMMITMENTS AND WARRANTIES. All services provided by the
Company have been performed in conformity with all applicable contractual
commitments (written or oral) and all express and implied warranties (written
or oral), and Target has no Liability and, to the Knowledge of the Transferor
and Target, there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any Liability) in connection with any such services.
ss.4(v) of the Disclosure Schedule includes copies of the standard forms of
agreement entered into between Target and its customers. Target has not entered
into any written or oral agreements with any of its customers that include
guaranties, warranties, or indemnity provisions other than those included in
the agreements included as part of Section 4(v) of the Disclosure Schedule.
Neither Target nor the Transferor has received notice (written or
oral) from any of its customers stating that the customer intends to reduce the
volume of business that it currently conducts with Target or to cease doing
business with Target.
(w) LIABILITY FOR SERVICES PERFORMED. Target has no Liability
(and, to Transferor's knowledge, there is no Basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim, or
demand against any of them giving rise to any Liability) arising out of any
injury to individuals or property as a result of or in connection with any
services provided by Target.
(x) EMPLOYEES. To the Knowledge of the Transferor or Target,
no executive, key employee, or group of employees has any plans to terminate
employment with Target. Target is not currently, nor at any prior time has
been, a party to or bound by any collective bargaining agreement, nor has
Target experienced any strikes, grievances, claims of unfair labor practices,
or other collective bargaining disputes. Target has not committed any unfair
labor practice. Neither the Transferor nor Target has any Knowledge of any
organizational effort presently being made or threatened by or on behalf of any
labor union with respect to employees of Target.
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(y) EMPLOYEE BENEFITS.
(i) Section 4(y) of the Disclosure Schedule lists
each Employee Benefit Plan that Target or any ERISA Affiliate
maintains, contributes to, or is required to contribute to or under
which Target or any ERISA Affiliate has any liability.
(A) Each such Employee Benefit Plan (and
each related trust, insurance contract, or fund) complies in
form and in operation in all respects with the applicable
requirements of ERISA, the Code, and other applicable laws.
(B) All required reports and disclosures
(including Form 5500 Annual Reports, Summary Annual Reports,
PBGC-1's, and Summary Plan Descriptions) have been filed or
distributed appropriately with respect to each such Employee
Benefit Plan. The requirements of Part 6 of Subtitle B of
Title I of ERISA and of Code Section 4980B have been met with
respect to each such Employee Benefit Plan which is an
Employee Welfare Benefit Plan.
(C) All contributions (including all
employer contributions and employee salary reduction
contributions) which are due have been paid to each such
Employee Benefit Plan which is an Employee Pension Benefit
Plan and all contributions for any period ending on or before
the Closing Date which are not yet due have been paid to each
such Employee Pension Benefit Plan or accrued in accordance
with the past custom and practice of Target and in accordance
with GAAP. All premiums or other payments for all periods
ending on or before the Closing Date have been paid with
respect to each such Employee Benefit Plan which is an
Employee Welfare Benefit Plan.
(D) Each such Employee Benefit Plan which
is an Employee Pension Benefit Plan now meets and at all
times since inception have met the requirements of a
"qualified plan" under Code Section 401(a) and has received,
within the last two years, a favorable determination letter
from the Internal Revenue Service.
(E) As of the Closing Date, the market
value of assets under each such Employee Benefit Plan which
is an Employee Pension Benefit Plan (other than any
Multiemployer Plan) will equal or exceed the present value of
all vested and nonvested Liabilities thereunder determined in
accordance with PBGC methods, factors, and assumptions
applicable to an Employee Pension Benefit Plan terminating on
such date.
(F) The Transferor has delivered to the
North American correct and complete copies of the plan
documents and summary plan descriptions including all
amendments thereto, the most recent determination letter
received from the Internal Revenue Service, the three most
recent Form 5500 Annual
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Reports (including all schedules thereto), the three most
recent annual premium payment forms filed with the PBGC, and
all related trust agreements, insurance contracts, and other
funding agreements which implement each such Employee Benefit
Plan.
(ii) With respect to each Employee Benefit Plan that
Target or any ERISA Affiliate maintains, contributes to, or is
required to contribute to or under which Target or any ERISA Affiliate
has any liability:
(A) No such Employee Benefit Plan which is
an Employee Pension Benefit Plan (other than any
Multiemployer Plan) has been completely or partially
terminated or been the subject of a Reportable Event as to
which notices would be required to be filed with the PBGC. No
proceeding by the PBGC to terminate any such Employee Pension
Benefit Plan (other than any Multiemployer Plan) has been
instituted or threatened.
(B) There have been no Prohibited
Transactions with respect to any such Employee Benefit Plan.
No Fiduciary has any Liability for breach of fiduciary duty
or any other failure to act or comply in connection with the
administration or investment of the assets of any such
Employee Benefit Plan. No action, suit, proceeding, hearing,
or investigation with respect to any such Employee Benefit
Plan (other than routine claims for benefits) is pending or
threatened. Neither the Transferor nor Target has any
Knowledge of any Basis for any such action, suit, proceeding,
hearing, or investigation.
(C) Neither Target nor any ERISA Affiliate
has not incurred, and none of the Transferor and the
directors and officers (and employees with responsibility for
employee benefits matters) of Target has any reason to expect
that Target or any ERISA Affiliate will incur, any Liability
to the PBGC (other than PBGC premium payments) or otherwise
under Title IV of ERISA (including any withdrawal Liability)
or under the Code with respect to any such Employee Benefit
Plan which is an Employee Pension Benefit Plan.
(iii) Neither Target nor any ERISA Affiliate
contributes to, ever has contributed to, or ever has been required to
contribute to any Multiemployer Plan or has any Liability (including
withdrawal Liability) under any Multiemployer Plan.
(iv) Neither Target nor any ERISA Affiliate
maintains or contributes to, or has ever been required to contribute
to any Employee Welfare Benefit Plan providing medical, health, or
life insurance or other welfare-type benefits for current or future
retired or terminated employees, their spouses, or their dependents
(other than in accordance with Code Section 4980B).
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(z) GUARANTIES. Target is not a guarantor or otherwise is
liable for any Liability or obligation (including indebtedness) of any other
Person.
(aa) ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS.
(i) Target and its predecessors and Affiliates have
complied and are in compliance with all Environmental, Health, and
Safety Requirements.
(ii) Without limiting the generality of the
foregoing, Target and its Affiliates have obtained and complied with,
and are in compliance with, all permits, licenses and other
authorizations that are required pursuant to Environmental, Health,
and Safety Requirements for the occupation of its facilities and the
operation of its business; a list of all such permits, licenses and
other authorizations is set forth on the attached "ENVIRONMENTAL AND
SAFETY PERMITS SCHEDULE."
(iii) Neither Target nor its predecessors or
Affiliates has received any written or oral notice, report or other
information regarding any actual or alleged violation of
Environmental, Health, and Safety Requirements, or any liabilities or
potential liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise), including any investigatory, remedial or
corrective obligations, relating to any of them or its facilities
arising under Environmental, Health, and Safety Requirements.
(iv) None of the following exists at any property or
facility owned or operated by Target: (1) underground storage tanks,
(2) asbestos-containing material in any form or condition, (3)
materials or equipment containing polychlorinated biphenyls, or (4)
landfills, surface impoundments, or disposal areas.
(v) None of Target or its predecessors or Affiliates
has treated, stored, disposed of, arranged for or permitted the
disposal of, transported, handled, or released any substance,
including without limitation any hazardous substance, or owned or
operated any property or facility (and no such property or facility is
contaminated by any such substance) in a manner that has given or
would give rise to liabilities, including any liability for response
costs, corrective action costs, personal injury, property damage,
natural resources damages or attorney fees, pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended ("CERCLA"), the Solid Waste Disposal Act, as
amended ("SWDA") or any other Environmental, Health, and Safety
Requirements.
(vi) Neither this Agreement nor the consummation of
the transaction that is the subject of this Agreement will result in
any obligations for site investigation or cleanup, or notification to
or consent of government agencies or third parties, pursuant to any of
the so-called "transaction-triggered" or "responsible property
transfer" Environmental, Health, and Safety Requirements.
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(vii) Neither Target nor its predecessors or
Affiliates has, either expressly or by operation of law, assumed or
undertaken any liability, including without limitation any obligation
for corrective or remedial action, of any other Person relating to
Environmental, Health, and Safety Requirements.
(viii) No facts, events or conditions relating to
the past or present facilities, properties or operations of Target or
any of its predecessors or Affiliates will prevent, hinder or limit
continued compliance with Environmental, Health, and Safety
Requirements, give rise to any investigatory, remedial or corrective
obligations pursuant to Environmental, Health, and Safety Requirements
(whether on-site or off-site), or give rise to any other liabilities
(whether accrued, absolute, contingent, unliquidated or otherwise)
pursuant to Environmental, Health, and Safety Requirements, including
without limitation any relating to onsite or offsite releases or
threatened releases of hazardous materials, substances or wastes,
personal injury, property damage or natural resources damage.
(ab) CERTAIN BUSINESS RELATIONSHIPS WITH TARGET. Neither the
Transferor, its Affiliates, any director or employee of Target, or any
relatives of Transferor, or any person living in the same residence as such
persons, has been involved in any business arrangement or relationship with
Target within the past 12 months, and neither the Transferor nor its Affiliates
nor any of such other persons own leases, licenses, or otherwise has any
interest in any asset, tangible or intangible, which is used in the business of
Target or any contract, lease or commitment to which Target is a party. Target
is not indebted to any officer, director or employee of Target for any
liability or obligation. No officer, director or employee of Target is indebted
to Target for any liability or obligation.
(ac) CUSTOMERS AND SUPPLIERS. No purchase order or commitment
of Target is in excess of normal requirements, nor are prices provided therein
in excess of current market prices for the products or services to be provided
thereunder. No material supplier of Target has advised Target in writing within
the past year that it will stop, or decrease the rate of, supplying materials,
products or services to Target and no material customer of Target has advised
Target in writing within the past year that it will stop, or decrease the rate
of buying materials, products or services from Target. Section 4(ac) of the
Disclosure Schedule sets forth a list of (a) each customer that accounted for
more that 5% of the consolidated revenues of Target during the last full fiscal
year or the interim period through the date of the Most Recent Financial
Statements and the amount of revenues accounted for by such customer during
each such period and (b) each supplier that is the sole supplier of any
significant product or component to Target. The consummation of the
transactions contemplate hereby will not have a material adverse effect on
Target's relationship with any customer or supplier listed in Section 4(ac) of
the Disclosure Schedule.
(ad) DISCLOSURE. Neither this Agreement nor any of the
exhibits, attachments, written statements, documents, certificates or other
items prepared for or supplied to the North American by or on behalf of Target
or the Transferor with respect to the transactions
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contemplated hereby contains any untrue statement of a material fact or omits
to state any material fact necessary in order to make each statement contained
herein or therein not misleading. There is no fact which Target or the
Transferor have not disclosed to the North American herein and of which the
Transferor, Target, or any of Target's officers or directors is aware and which
could be anticipated to have a Material Adverse Effect.
5. PRE-CLOSING COVENANTS. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing.
(a) GENERAL. Each of the Parties will use his or its best
efforts to take all action and to do all things necessary, proper, or advisable
in order to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions
set forth in Section 7 below).
(b) NOTICES AND CONSENTS. The Transferor will cause Target to
give any notices to third parties, and will cause Target to use its best
efforts to obtain any third party consents, that the North American reasonably
may request in connection with the matters referred to in Section 4(d) above.
Each of the Parties will (and the Transferor will cause Target to) give any
notices to, make any filings with, and use its best efforts to obtain any
authorizations, consents, and approvals of governments and governmental
agencies in connection with the matters referred to in Section 3(a)(ii),
ss.3(b)(vi), and Section 4(d) above. Without limiting the generality of the
foregoing, each of the Parties will file (and the Transferor will cause Target
to file) any Notification and Report Forms and related material that he or it
may be required to file with the Federal Trade Commission and the Antitrust
Division of the United States Department of Justice under the Hart-Scott-Rodino
Act, will use his or its best efforts to obtain (and the Transferor will cause
Target to use its best efforts to obtain) an early termination of the
applicable waiting period, and will make (and the Transferor will cause Target
to make) any further filings pursuant thereto that may be necessary, proper, or
advisable in connection therewith.
(c) OPERATION OF BUSINESS. The Transferor will not cause or
permit Target to engage in any practice, take any action, or enter into any
transaction outside the Ordinary Course of Business. Without limiting the
generality of the foregoing, the Transferor will not cause or permit Target to
(i) declare, set aside, or pay any dividend or make any distribution with
respect to its capital stock or redeem, purchase, or otherwise acquire any of
its capital stock or (ii) otherwise engage in any practice, take any action, or
enter into any transaction of the sort described in Section 4(i) above.
(d) PRESERVATION OF BUSINESS. The Transferor will cause
Target to keep its business and properties substantially intact, including its
present operations, physical facilities, working conditions, and relationships
with lessors, licensors, suppliers, customers, and employees.
(e) FULL ACCESS. The Transferor will permit, and will cause
Target to permit, representatives of North American to have full access at all
reasonable times, and in a manner
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so as not to interfere with the normal business operations of Target, to all
premises, properties, personnel, books, records (including Tax records),
contracts, and documents of or pertaining to Target. At the request of North
American, Transferor will permit, and will cause Target to permit, the lenders
and the investors who are expected to provide the capital necessary to
consummate the transactions contemplated hereby, and their respective counsel,
to have the same access as permitted to the North American in accordance with
the immediately preceding sentence.
(f) NOTICE OF DEVELOPMENTS. The Transferor will give prompt
written notice to the North American of any breach of any of the
representations and warranties in Section 4 above. Each Party will give prompt
written notice to the others of any breach of any of his or its own
representations and warranties in Section 3 above. No disclosure by any Party
pursuant to this Section 5(f), however, shall be deemed to amend or supplement
Annex I, Annex II, or the Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
(g) EXCLUSIVITY. The Transferor will not (and the Transferor
will not cause or permit Target to) (i) solicit, initiate, or encourage the
submission of any proposal or offer from any Person relating to the acquisition
of any capital stock or other voting securities, or any substantial portion of
the assets, of Target (including any acquisition structured as a merger,
consolidation, or share exchange) or (ii) participate in any discussions or
negotiations regarding, furnish any information with respect to, assist or
participate in, or facilitate in any other manner any effort or attempt by any
Person to do or seek any of the foregoing. The Transferor will notify the North
American immediately if any Person makes any proposal, offer, inquiry, or
contact with respect to any of the foregoing.
(h) NO TERMINATION OF TRANSFEROR'S OBLIGATION BY SUBSEQUENT
INCAPACITY. Transferor specifically agrees that his obligations hereunder,
including, without limitation, the obligations pursuant to Section 8 hereof,
shall not be eliminated by his or her death or incapacity.
6. POST-CLOSING COVENANTS. The Parties agree as follows with respect
to the period following the Closing.
(a) GENERAL. In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, each of the Parties will take such further action (including the
execution and delivery of such further instruments and documents) as any other
Party reasonably may request, all at the sole cost and expense of the
requesting Party (unless the requesting Party is entitled to indemnification
therefor under Section 8 below). The Transferor acknowledges and agrees that
from and after the Closing North American will be entitled to possession of all
documents, books, records (including Tax records), agreements, and financial
data of any sort relating to Target.
(b) LITIGATION SUPPORT. In the event and for so long as any
Party actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this
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Agreement or (ii) any fact, situation, circumstance, status, condition,
activity, practice, plan, occurrence, event, incident, action, failure to act,
or transaction on or prior to the Closing Date involving Target, each of the
other Parties will cooperate with him or it and his or its counsel in the
contest or defense, make available their personnel, and provide such testimony
and access to their books and records as shall be necessary in connection with
the contest or defense, all at the sole cost and expense of the contesting or
defending Party (unless the contesting or defending Party is entitled to
indemnification therefor under Section 8 below).
(c) TRANSITION. The Transferor will not take any action that
is designed or intended to have the effect of discouraging any lessor,
licensor, customer, supplier, or other business associate of Target from
maintaining the same business relationships with Target after the Closing as it
maintained with Target prior to the Closing. The Transferor will refer all
customer inquiries relating to the businesses of Target to the North American
from and after the Closing.
(d) CONFIDENTIALITY. [INTENTIONALLY LEFT BLANK]
(e) STOCK OPTIONS. Within 90 days after the Closing, North
American will adopt a stock incentive plan (the "Stock Incentive Plan")
pursuant to which stock options and other forms of stock-based compensation may
be awarded to the officers, directors and employees of North American and its
subsidiaries. North American agrees that upon adoption of the Stock Incentive
Plan, it shall grant options to purchase an aggregate of 70,000 shares of North
American common stock, at an exercise price of $5.00 per share (the "Options"),
to the key employees of Target named in EXHIBIT C to this Agreement. The terms
and conditions of the Options and the number of Options to be awarded to each
key employee shall be determined by the Board of Directors of North American at
the time of grant.
(f) INDEPENDENT ACCOUNTANTS. After the Closing, Transferor
shall (i) use reasonable efforts to cause Target's past and present independent
auditors and accounting personnel to make available to North American and its
representatives all financial information, including the right to examine all
working papers pertaining to audits or reviews previously or hereafter made by
such auditors, and (ii) provide such cooperation as North American and its
representatives may request in connection with any audit or review of Target
that North American may direct its representatives to make. Without limiting
the generality of the foregoing, Transferor agrees that he will cooperate with,
and cause Target's past and present independent auditors, accounting personnel
and other necessary persons to cooperate with the North American in the
preparation of any documents filed by the North American with the U.S.
Securities and Exchange Commission in connection with an offering of
securities, to the extent information about Target is required therein.
(g) EMPLOYEES OF TARGET. North American agrees that, for a
period of one year after the Closing Date, the group health benefits, vacation,
and paid holidays provided to employees of Target will be comparable to such
items provided by Target to such employees prior to the Closing Date. Although
North American has no present intention of dismissing any
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<PAGE> 34
current employees of Target, nothing in this section is intended to impose any
obligation on North American to retain any such employees.
(h) TAX MATTERS. The Transferor covenants and agrees not to
take any action, or fail to take any action, with respect to Taxes, that would
have an adverse effect on the North American on or after the Closing Date,
including, without limitation, amending or otherwise supplementing any Tax
Return or report of Target with respect to any period prior to the Closing Date
without the consent of the North American. If any taxing authority conducts any
audit or investigation relating to Target prior to the Closing Date, the North
American may, in its sole election, have the right to supervise such audit or
investigation and provide any response required in connection therewith.
(i) CORPORATE NAME. As soon as reasonably practicable after
the Closing Date, North American shall cause Target to change its corporate
name. Thereafter all rights in the corporate name "Kenya Corporation" shall be
deemed transferred to and vested in the Transferor. It is contemplated that
Target's corporate name will be changed to "Channel Communications, Inc." If
Target in its sole and absolute discretion determines in the future to cease
using the corporate name "Channel Communications, Inc." Target agrees it will
transfer the rights it has in such name to Transferor.
(j) LOCKUP AGREEMENT. The Transferor agrees that he shall not
sell, transfer, assign, pledge, hypothecate, encumber or otherwise dispose of
his North American Class B Common Shares until the earlier of (i) a Public
Offering or (ii) March 31, 2001, unless otherwise agreed in writing by HIG
Cable, Inc. The certificates representing the Transferor's shares shall bear a
legend reflecting this restriction on transfer contained in this Agreement and
the Corporation shall be authorized to place transfer restrictions on the books
of the company.
7. CONDITIONS TO OBLIGATION TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF THE NORTH AMERICAN. The
obligation of North American to consummate the transactions to be performed by
it in connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth in
Section 3(a) and Section 4 above shall be true and correct in all
material respects at and as of the Closing Date and there shall not
have occurred any Material Adverse Effect;
(ii) the Transferor and Target shall have performed
and complied with all of his covenants hereunder in all material
respects through the Closing;
(iii) Target shall have procured all of the third
party consents specified in Section 5(b) above;
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<PAGE> 35
(iv) no action, suit, or proceeding shall be pending
or threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction, or
before any arbitrator, wherein an unfavorable injunction, judgment,
order, decree, ruling, or charge would (A) prevent consummation of any
of the transactions contemplated by this Agreement, (B) cause any of
the transactions contemplated by this Agreement to be rescinded
following consummation, (C) affect adversely the right of Target to
own its assets and to operate its businesses (and no such injunction,
judgment, order, decree, ruling, or charge shall be in effect);
(v) the Transferor shall have delivered to the North
American a certificate, which pursuant to its terms authorizes PNC
Bank, N.A. and HIG to rely thereon to the same extent as if the
certificate was addressed directly to them, to the effect that each of
the conditions specified above in Section 7(a)(i)-(iv) is satisfied in
all respects;
(vi) all applicable waiting periods (and any
extensions thereof) under the Hart-Scott-Rodino Act shall have expired
or otherwise been terminated and the Parties shall have received all
other authorizations, consents, and approvals of governments and
governmental agencies referred to in Section 3(a)(ii), Section
3(b)(vi), and Section 4(d) above;
(vii) the North American shall have received from
counsel to the Transferor an opinion in form and substance as set
forth in EXHIBIT D attached hereto, addressed to the North American
and which pursuant to its terms authorizes PNC Bank, N.A. and HIG to
rely thereon to the same extent as if it were addressed directly to
them, and dated as of the Closing Date;
(viii) the North American shall have obtained on
terms and conditions reasonably satisfactory to it the proceeds of all
of the financing it needs in order to consummate the transactions
contemplated by all of the Exchange Agreements.
(ix) all actions to be taken by the Transferor in
connection with the consummation of the transactions contemplated
hereby and all certificates, opinions, instruments, and other
documents required to effect the transactions contemplated hereby will
be reasonably satisfactory in form and substance to the North
American.
(x) North American shall have received an appraisal,
from an appraiser selected by the North American, that states that the
fair market value of Target's tangible assets listed in Section 4(o)
of the Disclosure Schedule is at least equal to the book value of such
assets reflected in the Closing Balance Sheet.
(xi) [INTENTIONALLY LEFT BLANK];
(xii) Target shall have delivered a Secretary and
Incumbency Certificate in the form attached hereto as EXHIBIT F;
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(xiii) Target shall have delivered evidence of its
qualification to do business in each jurisdiction where it is so
qualified and a certificate of good standing issued by the Secretary
of State of each such jurisdiction demonstrating that Target is in
good standing in that jurisdiction;
(xiv) Target shall have delivered landlord consent
and estoppel certificates, in form and substance satisfactory to the
North American, relating to each of the real property leases listed in
Section 4(m) of the Disclosure Schedule;
(xv) Target shall have delivered (A) payoff letters
relating to all existing indebtedness of Target to creditors for
borrowed money and (B) UCC-3 financing statements executed by such
creditors releasing any security interests of such creditors in
Target's assets;
(xvi) Target shall have delivered the resignations
of all directors of Target that Buyer shall have requested;
(xvii) Transferor shall have entered into an
Employment Agreement with Target in the form attached hereto as
EXHIBIT G;
(xviii) On or prior to the Closing Date, North
American shall have closed the transactions contemplated by each of
the other Exchange Agreements;
(xix) [INTENTIONALLY LEFT BLANK]
(xx) all actions to be taken by the Transferor in
connection with consummation of the transactions contemplated hereby
and all certificates, opinions, instruments, and other documents
required to effect the transactions contemplated hereby will be
reasonably satisfactory in form and substance to the North American.
North American may waive any condition specified in this Section 7(a) if it
executes a writing so stating at or prior to the Closing.
(b) CONDITIONS TO OBLIGATION OF THE TRANSFEROR. The
obligation of the Transferor to consummate the transactions to be performed by
them in connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth in
Section 3(b) above shall be true and correct in all material respects
at and as of the Closing Date;
(ii) the North American shall have performed and
complied with all of its covenants hereunder in all material respects
through the Closing;
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(iii) no action, suit, or proceeding shall be
pending or threatened before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign
jurisdiction, or before any arbitrator, wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this
Agreement or (B) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation (and no such
injunction, judgment, order, decree, ruling, or charge shall be in
effect);
(iv) the North American shall have delivered to the
Transferor a certificate to the effect that each of the conditions
specified above in Section 7(b)(i)-(iii) is satisfied in all respects;
(v) all applicable waiting periods (and any
extensions thereof) under the Hart-Scott-Rodino Act shall have expired
or otherwise been terminated and the Parties shall have received all
other authorizations, consents, and approvals of governments and
governmental agencies referred to in Section 3(a)(ii), Section
3(b)(v), and Section 4(d) above;
(vi) Transferor shall have entered into an
Employment Agreement with Target, in the form attached hereto as
EXHIBIT G (Transferor covenants and agrees to execute the Employment
Agreement as of the Closing Date);
(vii) Transferor shall have received from counsel to
the North American an opinion in form and substance as set forth in
EXHIBIT H attached hereto, addressed to the Transferor, and dated as
of the Closing Date;
(viii) Buyer shall have delivered a Secretary and
Incumbency Certificate in the form attached hereto as EXHIBIT I;
(ix) This Agreement and the transactions
contemplated hereby shall have been approved by the Board of Directors
and Shareholders of North American;
(x) on or prior to the Closing Date, the
transactions contemplated pursuant to each of the other Exchange
Agreements, and the Securities Purchase Agreement shall have been
closed; and
(xi) all actions to be taken by the North American
in connection with consummation of the transactions contemplated
hereby and all certificates, opinions, instruments, and other
documents required to effect the transactions contemplated hereby will
be reasonably satisfactory in form and substance to the Transferor.
The Transferor may waive any condition specified in this Section 7(b) if he
executes a writing so stating at or prior to the Closing.
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<PAGE> 38
(c) POST-CLOSING OBLIGATIONS OF TRANSFEROR. Transferor shall
use best efforts to obtain Employment Agreements between Target and each of
Paul Haskin, Larry Johnson and Gary Dixon in the form attached hereto as
EXHIBIT G within 30 days of the Closing Date.
8. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations, warranties, covenants and agreements of the Parties contained
in this Agreement or in any certificate, document, instrument or agreement
delivered pursuant to this Agreement shall survive the Closing hereunder
(notwithstanding any due diligence investigations that may have been undertaken
by the damaged Party) and continue in full force and effect through all
statutes of limitations. Notwithstanding the foregoing, no claim for
indemnification in respect of a breach of a representation or warranty shall be
made after the date three years from and after the Closing Date, except that a
claim for indemnification in respect of a breach of the representations set
forth in Section 3(a), 3(b), 4(a)-(f), 4(l), 4(y) and 4(aa) may be made at
anytime following the Closing Date and are not subject to the foregoing three
year limitation.
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE NORTH
AMERICAN.
(i) In the event the Transferor breaches (or in the
event any third party alleges facts that, if true, would mean the
Transferor has breached) any of his representations, warranties (or
any of such representations or warranties is untrue or inaccurate),
covenants and agreements contained herein or in any certificate,
document, instrument or agreement delivered pursuant to this
Agreement, and, provided that the Indemnified Buyers (as hereafter
defined) make a written claim for indemnification against the
Transferor pursuant to Section 12(g) below within the applicable claim
period provided in 8(a) above, then the Transferor agrees to indemnify
North American and each of its officers, directors, employees,
representatives and shareholders (the "Indemnified Buyers") from and
against the entirety of any Adverse Consequences the Indemnified
Buyers may suffer through and after the date of the claim for
indemnification (including any Adverse Consequences the Indemnified
Buyers may suffer after the end of any applicable claim period)
resulting from, arising out of, relating to, in the nature of, or
caused by the breach (or the alleged breach).
(ii) The Transferor agrees to indemnify the
Indemnified Buyers from and against the entirety of any Adverse
Consequences the Indemnified Buyers may suffer resulting from, arising
out of, relating to, in the nature of, or caused by any Liability of
Target (x) for any Taxes of Target with respect to any Tax year or
portion thereof ending on or before the Closing Date or for any Tax
year beginning before and ending after the Closing Date to the extent
allocable (determined in a manner consistent with Section 9(b)) to the
portion of such period beginning before and ending on the Closing
Date), to the extent such Taxes are not reflected in the reserve for
Tax Liability shown on the face of the Closing Date Balance Sheet;
provided, however, that the reserve for Tax Liability shall not
include any reserve for deferred taxes established to reflect timing
differences
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between book and tax income, and (y) for the unpaid Taxes of any
Person (other than Target) under Reg. Section 1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
(iii) Transferor agrees to indemnify North American
from and against the entirety of any Adverse Consequences North
American may suffer resulting from, arising out of, relating to, in
the nature of, or caused by the activities of any entity which at any
time has been owned, in whole or in part, by Target.
(iv) Transferor agrees to indemnify North American
from and against the entirety of any Adverse Consequences the North
American may suffer resulting from, arising out of, relating to, in
the nature of, or caused by any Retained Liabilities (as hereafter
defined). As used herein, the term Retained Liabilities means all
liabilities, claims, commitments, demands or obligations of Target (or
any subsidiary of Target) existing or arising out of any facts or set
of operative facts existing on or prior to the Closing Date, except
for any such liabilities, claims, commitments, demands or obligations
of Target (or any subsidiary of Target) set forth (A) on the face of
the Most Recent Balance or, if applicable, the Revised Most Recent
Balance Sheet or (B) in Section 4(j) of the Disclosure Schedule.
(v) Transferor agrees to indemnify North American
from and against the entirety of any Adverse Consequences the North
American may suffer resulting from, or arising out of, relating to, or
in the nature of or caused by any claim by a stockholder or former
stockholder of Target or any other Person seeking to assert: (i)
ownership or rights to ownership of any shares of capital stock of
Target or any Subsidiary, (ii) any rights of a stockholder (other than
the right to receive the Purchase Price) including any option,
preemptive rights or rights to receive notice or to vote, (iii) any
rights under Target's charter, bylaws or other constituent documents,
or (iv) any claim that his shares of capital stock were to be
repurchased by Target.
(vi) Transferor agrees to indemnify North American
from and against the entirety of any Adverse Consequences the North
American may suffer resulting from, or arising out of, relating to, or
in the nature of or caused by any claim by a dissenting shareholder
that the Purchase Price is less than the fair value of his shares.
(vii) Without limiting any other provision in this
Section 8, Transferor agrees to indemnify North American from and
against the entirety of any Adverse Consequences North American may
suffer as a result of a taxing authority taking the position that any
former or current subcontractor of Target should have been, at any
time prior to the Closing Date, treated as an employee of Target.
(viii) Without limiting any other provision in this
Section 8, Transferor agrees to indemnify North American from and
against the entirety of any Adverse Consequences North American may
suffer as a result of Target's failure to be duly authorized to
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conduct business and in good standing under the laws of any
jurisdiction where such qualification is or has been required as of or
prior to the Closing Date. The indemnification obligations of the
Transferor under this Section 8(b)(viii) shall not be limited or
otherwise affected in any manner by any disclosures made by the
Transferor in the Disclosure Schedule.
(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE TRANSFEROR.
(i) In the event North American breaches (or in the
event any third party alleges facts that, if true, would mean the
North American had breached) any of their representations, warranties
(or any of such representations or warranties is untrue or
inaccurate), covenants and agreements contained herein or in any
certificate, document, instrument or agreement delivered pursuant to
this Agreement, and, provided that the Transferor makes a written
claim for indemnification against the North American pursuant to
Section 12(g) below within the applicable claim period provided in
8(a) above, then North American agrees to indemnify the Transferor and
each of his representatives (the "Indemnified Transferor") from and
against the entirety of any Adverse Consequences the Indemnified
Transferor may suffer through and after the date of the claim for
indemnification (including any Adverse Consequences the Indemnified
Transferor may suffer after the end of any applicable claim period)
resulting from, arising out of, relating to, in the nature of, or
caused by the breach (or the alleged breach).
(ii) North American agrees to indemnify the
Transferor from and against the entirety of any Adverse Consequences
the Transferor may suffer as a result of Target's failure to pay the
amounts due, for periods after the Closing Date, under any of the
contracts, leases and other agreements set forth in Section 4(q) of
the Disclosure Schedule as to which Transferor is a personal
guarantor; provided, however, that Transferor shall not be entitled to
indemnification pursuant to this Section 8(c)(ii) to the extent that
North American is otherwise entitled to indemnification from the
Transferor in connection with the matters described in this Section
8(c)(ii).
(d) MATTERS INVOLVING THIRD PARTIES.
(i) If any third party shall notify any party
entitled to indemnification hereunder (the "INDEMNIFIED PARTY") with
respect to any matter (a "THIRD PARTY CLAIM") which may give rise to a
claim for indemnification against any other Party (the "INDEMNIFYING
PARTY") under this Section 8, then the Indemnified Party shall
promptly notify each Indemnifying Party thereof in writing; PROVIDED,
HOWEVER, that no delay on the part of the Indemnified Party in
notifying any Indemnifying Party shall relieve the Indemnifying Party
from any obligation hereunder unless (and then solely to the extent)
the Indemnifying Party thereby is materially prejudiced.
(ii) Any Indemnifying Party will have the right to
defend the Indemnified Party against the Third Party Claim with
counsel of its choice reasonably satisfactory to
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the Indemnified Party so long as (A) the Indemnifying Party notifies
the Indemnified Party in writing within 15 days after the Indemnified
Party has given notice of the Third Party Claim that the Indemnifying
Party will indemnify the Indemnified Party from and against the
entirety of any Adverse Consequences the Indemnified Party may suffer
resulting from, arising out of, relating to, in the nature of, or
caused by the Third Party Claim, (B) the Indemnifying Party provides
the Indemnified Party with evidence reasonably acceptable to the
Indemnified Party that the Indemnifying Party will have the financial
resources to defend against the Third Party Claim and fulfill its
indemnification obligations hereunder, (C) the Third Party Claim
involves only money damages and does not seek an injunction or other
equitable relief, (D) settlement of, or an adverse judgment with
respect to, the Third Party Claim is not, in the good faith judgment
of the Indemnified Party, likely to establish a precedential custom or
practice materially adverse to the continuing business interests of
the Indemnified Party, (E) the named parties to the Third Party Claim
do not include both the Indemnified Party and the Indemnifying Party,
and (F) the Indemnifying Party conducts the defense of the Third Party
Claim actively and diligently.
(iii) So long as the Indemnifying Party is
conducting the defense of the Third Party Claim in accordance with
Section 8(d)(ii) above, (A) the Indemnified Party may retain separate
co-counsel at its sole cost and expense and participate in the defense
of the Third Party Claim, (B) the Indemnified Party will not consent
to the entry of any judgment or enter into any settlement with respect
to the Third Party Claim without the prior written consent of the
Indemnifying Party (not to be withheld unreasonably), and (C) the
Indemnifying Party will not consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim
without the prior written consent of the Indemnified Party (not to be
withheld unreasonably).
(iv) In the event any of the conditions in
Section 8(d)(ii) above is or becomes unsatisfied, however, (A) the
Indemnified Party may defend against, and consent to the entry of any
judgment or enter into any settlement with respect to, the Third Party
Claim in any manner it reasonably may deem appropriate (and the
Indemnified Party need not consult with, or obtain any consent from,
any Indemnifying Party in connection therewith), (B) the Indemnifying
Parties will reimburse the Indemnified Party promptly and periodically
for the costs of defending against the Third Party Claim (including
reasonable attorneys' fees and expenses), and (C) the Indemnifying
Parties will remain responsible for any Adverse Consequences the
Indemnified Party may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the Third Party Claim to the
fullest extent provided in this Section 8.
(e) DETERMINATION OF ADVERSE CONSEQUENCES. The Parties shall
take into account the time cost of money (using the Applicable Rate as the
discount rate) in determining Adverse Consequences for purposes of this Section
8. All indemnification payments under this Section 8 shall be deemed
adjustments to the Consideration.
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(f) BASKET. The Transferor shall not be obligated to
indemnify North American pursuant to this Section 8 for any Adverse
Consequences in respect of a breach of (or inaccuracy in) a representation or
warranty until the aggregate amount of all Adverse Consequences in respect of
breaches (or inaccuracies) in representation or warranties exceeds $10,000 (the
"Trigger Amount"). Once the aggregate Adverse Consequences in respect of
breaches (or inaccuracies) in representation or warranties exceed the Trigger
Amount, North American shall be entitled to indemnification for the full amount
of all Adverse Consequences in respect of breaches (or inaccuracies) in
representation or warranties above the Trigger Amount.
The foregoing limitation on the indemnification obligations of
Transferor shall not apply to any breach of any covenants or agreements of
Transferor in this Agreement. In addition, notwithstanding the foregoing
provisions of this paragraph, such limitations shall not apply to breaches of
(or inaccuracies in) any of the representations or warranties in the following
provisions of this Agreement: Sections 3(a), 4(a), 4(b), 4(c), 4(d) and 4(e).
Further, the foregoing limitations of liability shall not apply to any breach
of any representation or warranty if such representation or warranty was made
with actual knowledge or reckless disregard of its falsity or inaccuracy or
incompleteness.
In calculating the amount of Adverse Consequences incurred arising out
of or related to any breach of a representation or warranty, references to
"material" or "Material Adverse Effect" or "knowledge" or "Knowledge" or other
materiality or similar qualifications, including as expressed in accounting
concepts such as GAAP, shall be disregarded. No right of indemnification
hereunder shall be limited by reason of any investigation or audit conducted
before or after the Closing by any party hereto or the knowledge of such party
of any breach of any representation, warranty, covenant or agreement by the
other party at any time.
(g) OTHER INDEMNIFICATION PROVISIONS. The foregoing
indemnification provisions are in addition to, and not in derogation of, any
statutory, equitable, or common law remedy (including without limitation any
such remedy arising under Environmental, Health, and Safety Requirements) any
Party may have with respect to Target, or the transactions contemplated by this
Agreement. The Transferor hereby agrees that he or it will not make any claim
for indemnification against Target by reason of the fact that he or it was a
director, officer, employee, or agent of any such entity or was serving at the
request of any such entity as a partner, trustee, director, officer, employee,
or agent of another entity (whether such claim is for judgments, damages,
penalties, fines, costs, amounts paid in settlement, losses, expenses, or
otherwise and whether such claim is pursuant to any statute, charter document,
bylaw, agreement, or otherwise) with respect to any matter for which a Buyer
Indemnified Party may be entitled to indemnification from the Transferor as
provided in this Section 8.
9. ADJUSTMENT OF CONSIDERATION.
(a) North American shall have a period of 60 days after the
Closing Date to review the Most Recent Balance Sheet. If North American has any
objections to the Most
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Recent Balance Sheet, it will deliver a detailed statement describing such
objections to the Transferor within such 60-day period. North American and the
Transferor will use reasonable efforts to resolve any such objections
themselves. If the Parties do not obtain a final resolution within 30 days
after the Transferor has received the statement of objections, however, North
American and the Transferor will select an accounting firm mutually acceptable
to them to resolve any remaining objections. If North American and the
Transferor are unable to agree on the choice of an accounting firm, they will
select a nationally-recognized accounting firm by lot (after excluding their
respective regular outside accounting firms). The determination of any
accounting firm so selected will be set forth in writing and will be conclusive
and binding upon the Parties. North American will revise the Most Recent
Balance Sheet as appropriate to reflect the resolution of any objections
thereto pursuant to this Section 9(a). ThE "REVISED MOST RECEnt BALANCE SHEET"
shall mean the Most Recent Balance Sheet together with any revisions thereto
pursuant to this Section 9(a).
(i) In the event the Parties submit any unresolved
objections to an accounting firm for resolution as provided in Section
9(a) above, any expenses relating to the engagement of the accounting
firm shall be allocated between the Transferor and the North American
by the accounting firm in proportion to the amount in dispute which is
decided in favor of the challenging party.
(ii) The Transferor will make the work papers and
back-up materials used in preparing the Most Recent Balance Sheet
available to North American and its accountants and other
representatives at reasonable times and upon reasonable notice during
(A) the review by North American of the Most Recent Balance Sheet, and
(B) the resolution by the Parties of any objections to the Most Recent
Balance Sheet.
(iii) The Consideration, as the case may be, will be
adjusted as follows:
(A) If the Shareholder's Equity set forth
in the Revised Most Recent Balance Sheet is
less than the Shareholder's Equity set
forth in the Most Recent Balance Sheet, the
Transferor will pay to the North American
an amount equal to such deficiency (plus
interest thereon at the Applicable Rate
from the Closing Date) within three
business days after the date on which the
Revised Most Recent Balance Sheet finally
is determined pursuant to Section 9(a)
above.
(B) If the notes payable and capital lease
obligations of Target set forth in the
Revised Most Recent Balance Sheet are
greater than the notes payable and capital
lease obligations of Target set forth on
the Most Recent Balance Sheet, the
Transferor will pay to the North American
an amount equal to such excess (plus
interest thereon at the Applicable Rate
from the Closing Date) within three
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business days after the date on which the
Revised Most Recent Balance Sheet finally
is determined pursuant to Section 9(a)
above.
(C) If the cash of Target set forth in the
Revised Most Recent Balance Sheet is less
than the cash of Target set forth on the
Most Recent Balance Sheet, the Transferor
will pay to the North American an amount
equal to such deficiency (plus interest
thereon at the Applicable Rate from the
Closing Date) within three business days
after the date on which the Revised Most
Recent Balance Sheet finally is determined
pursuant to Section 9(a) above.
(iv) METHOD OF PAYMENT. The aggregate of all amounts
required to be paid by Transferor to North American pursuant to
Section 9(a)(iii) shall be paid 100% in cash up to $100,000, and
thereafter 49% in cash and 51% in North American Class B Common Shares
(valued at $5.00 per share). The cash portion of any such payment
shall be made by wire transfer or delivery of other immediately
available funds.
10. TAX MATTERS. The following provisions shall govern the allocation
of responsibility as between North American and Transferor for certain tax
matters following the Closing Date:
(a) TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE.
Transferor shall prepare or cause to be prepared and timely file or cause to be
timely filed all Tax Returns for Target for all periods ending on or prior to
the Closing Date which are filed after the Closing Date (the "Pre-Closing
Period"). Such Tax Returns shall be prepared by treating items on such Tax
Return in a manner consistent with the past practices with respect to such
items, unless otherwise required by law. Transferor shall permit North American
to review and comment on each such Tax Return described in the preceding
sentence prior to filing. North American shall pay the amounts due for Taxes of
Target with respect to the Pre-Closing Periods, up to the amount reflected in
the reserve for Tax Liability shown on the face of the Most Recent Balance
Sheet or, if applicable, the Revised Most Recent Balance Sheet; provided,
however, that the reserve for Tax Liability shall not include any reserve for
deferred taxes established to reflect timing differences between book and tax
income. Transferor agrees that he will pay, when due, all amounts due for Taxes
of Target with respect to Pre-Closing Periods, that exceed the reserve for Tax
Liability (provided, however, that the reserve for Tax Liability shall not
include any reserve for deferred taxes established to reflect timing
differences between book and Tax income) shown on the face of the Closing Date
Balance Sheet.
(b) TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING
DATE. North American shall prepare or cause to be prepared and file or cause to
be filed any Tax Returns of Target for Tax periods which begin before the
Closing Date and end after the Closing Date. North American shall permit
Transferor to review and comment on each such Tax return described in the
preceding sentence prior to filing. Transferor shall pay to North American
within fifteen (15) days after the date on which Taxes are paid with respect to
such periods an
40
<PAGE> 45
amount equal to the portion of such Taxes which relates to the portion of such
Taxable period ending on the Closing Date to the extent such Taxes are not
reflected in the reserve for Tax Liability shown on the face of the Most Recent
Balance Sheet or, if applicable, the Revised Most Recent Balance Sheet;
provided, however, that the reserve for Tax Liability shall not include any
reserve for deferred taxes established to reflect timing differences between
book and tax income. For purposes of this Section, in the case of any Taxes
that are imposed on a periodic basis and are payable for a Taxable period that
includes (but does not end on) the Closing Date, the portion of such Tax which
relates to the portion of such Taxable period ending on the Closing Date shall
(x) in the case of any real and personal property Taxes, be deemed to be the
amount of such Tax for the entire Taxable period multiplied by a fraction the
numerator of which is the number of days in the Taxable period ending on the
Closing Date and the denominator of which is the number of days in the entire
Taxable period, and (y) in the case of any other Tax be deemed equal to the
amount which would be payable if the relevant Taxable period ended on the
Closing Date. Any credits relating to a Taxable period that begins before and
ends after the Closing Date shall be taken into account as though the relevant
Taxable period ended on the Closing Date. All determinations necessary to give
effect to the foregoing allocations shall be made in a manner consistent with
prior practice of Target.
(c) COOPERATION ON TAX MATTERS.
(i) North American, Target and Transferor shall
cooperate fully, as and to the extent reasonably requested by the
other party, in connection with the filing of Tax Returns pursuant to
this Section and any audit, litigation or other proceeding with
respect to Taxes. Such cooperation shall include the retention and
(upon the other party's request) the provision of records and
information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a
mutually convenient basis to provide additional information and
explanation of any material provided hereunder. Target and Transferor
agree (A) to retain all books and records with respect to Tax matters
pertinent to Target relating to any taxable period beginning before
the Closing Date until the expiration of the statute of limitations
(and, to the extent notified by North American or Transferor, any
extensions thereof) of the respective taxable periods, and to abide by
all record retention agreements entered into with any taxing
authority, and (B) to give the other party reasonable written notice
prior to transferring, destroying or discarding any such books and
records and, if the other party so requests, Target or Transferor, as
the case may be, shall allow the other party to take possession of
such books and records.
(ii) North American and Transferor further agree,
upon request, to use their best efforts to obtain any certificate or
other document from any governmental authority or any other Person as
may be necessary to mitigate, reduce or eliminate any Tax that could
be imposed (including, but not limited to, with respect to the
transactions contemplated hereby).
41
<PAGE> 46
(iii) North American and Transferor further agree,
upon request, to provide the other party with all information that
either party may be required to report pursuant to Section 6043 of the
Code and all Treasury Department Regulations promulgated thereunder.
(iv) Transferor agrees that promptly after the
Closing Date, he will prepare and file any required S Corporation
federal and state tax returns for Target for the period from January
1, 1997 through the Closing Date and will pay all applicable Taxes for
that period, as more particularly described in Section 10(e) below.
(d) TAX SHARING AGREEMENTS. All tax sharing agreements or
similar agreements with respect to or involving Target shall be terminated as
of the Closing Date and, after the Closing Date, Target shall not be bound
thereby or have any liability thereunder.
(e) S CORPORATION STATUS. If Target is an S Corporation,
Transferor acknowledges that as a result of the consummation of the
transactions contemplated by this Agreement, Target's S Corporation status will
terminate as of the Closing Date. Notwithstanding anything in this Section 10
to the contrary, Transferor agrees that he will file any required S Corporation
federal, state or local tax returns for Target for the period from January 1,
1997 through the Closing Date and will pay all applicable Taxes for such
period. Transferor will elect under Section 1362(e)(3) of the Code not to have
the pro rata allocation method of Section 1362(e)(2) of the Code apply to
Target's final taxable year as an S Corporation.
(f) CERTAIN TAXES. All transfer, documentary, sales, use,
stamp, registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement, shall be paid by
Transferor when due, and Transferor will, at its own expense, file all
necessary Tax Returns and other documentation with respect to all such
transfer, documentary, sales, use, stamp, registration and other Taxes and
fees, and, if required by applicable law, North American will, and will cause
its affiliates to, join in the execution of any such Tax Returns and other
documentation.
11. TERMINATION.
(a) TERMINATION OF AGREEMENT. The Parties may terminate this
Agreement as provided below:
(i) North American and the Transferor may terminate
this Agreement by mutual written consent at any time prior to the
Closing;
(ii) North American may terminate this Agreement by
giving written notice to the Transferor at any time prior to the
Closing (A) in the event the Transferor has breached any
representation, warranty, or covenant contained in this Agreement in
any material respect, North American has notified the Transferor of
the breach, and the breach has continued without cure for a period of
30 days after the notice of breach or
42
<PAGE> 47
(B) if the Closing shall not have occurred on or before April 15,
1998, by reason of the failure of any condition precedent under
Section 7(a) hereof (unless the failure results primarily from the
North American itself breaching any representation, warranty, or
covenant contained in this Agreement); and
(iii) the Transferor may terminate this Agreement by
giving written notice to North American at any time prior to the
Closing (A) in the event North American has breached any
representation, warranty, or covenant contained in this Agreement in
any material respect, the Transferor has notified the North American
of the breach, and the breach has continued without cure for a period
of 30 days after the notice of breach or (B) if the Closing shall not
have occurred on or before April 15, 1998, by reason of the failure of
any condition precedent under Section 7(b) hereof (unless the failure
results primarily from the Transferor himself breaching any
representation, warranty, or covenant contained in this Agreement).
(b) EFFECT OF TERMINATION. If any Party terminates this
Agreement pursuant to Section 11(a) above, all rights and obligations of the
Parties hereunder shall terminate without any Liability of any Party to any
other Party (except for any Liability of any Party then in breach).
12. MISCELLANEOUS.
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall
issue any press release or make any public announcement relating to the subject
matter of this Agreement prior to the Closing without the prior written
approval of the North American and the Transferor; PROVIDED, HOWEVER, that any
Party may make any public disclosure it believes in good faith is required by
applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing Party will use its
best efforts to advise the other Parties prior to making the disclosure).
(b) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not
confer any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns and the Indemnified Parties
referred to in Section 8 hereof.
(c) ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or among
the Parties, written or oral, to the extent they related in any way to the
subject matter hereof.
(d) SUCCESSION AND ASSIGNMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the Parties
named herein and their respective successors and permitted assigns. No Party
may assign either this Agreement or any of his or its rights, interests, or
obligations hereunder without the prior written approval of the North American
and the Transferor; PROVIDED, HOWEVER, that the North American may (i) assign
any or all of its rights and interests hereunder to one or more of its
Affiliates, (ii) designate one
43
<PAGE> 48
or more of its Affiliates to perform its obligations hereunder (in any or all
of which cases the North American nonetheless shall remain responsible for the
performance of all of its obligations hereunder) and (iii) without the approval
of the Transferor assign its rights and interests hereunder to its lenders (and
any agent for the lenders), and the Parties consent to any exercise by such
lenders (and such agents) of their rights and remedies with respect to such
collateral.
(e) COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) HEADINGS. The section headings contained in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
(g) NOTICES. All notices, requests, demands, claims, and
other communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
<TABLE>
<CAPTION>
IF TO THE TRANSFEROR: COPY TO:
--------------------- --------
<S> <C>
Jeffery J. Ebersole White and Williams LLP
c/o Kenya Corporation 1800 One Liberty Place
3410 Mill Road Philadelphia, PA 19103
Sheboygan, WI 53083 Attn: M. Melvin Shralow
</TABLE>
44
<PAGE> 49
<TABLE>
<CAPTION>
IF TO THE NORTH AMERICAN: COPY TO:
------------------------- --------
<S> <C>
North American Tel-Com Group, Inc. Holland & Knight LLP
2240 Palm Beach Lakes Blvd, Ste. 100 1 East Broward Blvd., 13th Floor
West Palm Beach, FL 33409 Ft. Lauderdale, Florida 33301
Attn: William J. Mercurio Attn: Donn A. Beloff, Esq.
Holland & Knight LLP
701 Brickell Avenue
Miami, Florida 33131
Attn: Teresita H. Garcia, Esq.
H.I.G. Capital Management, Inc.
1001 Brickell Bay Drive, Suite 2708
Miami, Florida 33131
Attn: Sami W. Mnaymneh
White & Case, LLP
First Union Financial Tower
Suite 4900
200 S. Biscayne Blvd.
Miami, Florida 33131
Attn: Jorge L. Freeland, Esq.
</TABLE>
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been
duly given unless and until it actually is received by the intended recipient.
Any Party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other
Parties notice in the manner herein set forth.
(h) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Florida without
giving effect to any choice or conflict of law provision or rule (whether of
the State of Florida or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Florida.
(i) AMENDMENTS AND WAIVERS. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
the North American and the Transferor. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
45
<PAGE> 50
(j) SEVERABILITY. Any term or provision of this Agreement
that is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
(k) EXPENSES. Each of the Parties will bear his or its own
costs and expenses (including legal fees and expenses) incurred in connection
with this Agreement and the transactions contemplated hereby. The Transferor
agrees Target has not borne or will bear any of the Transferor's costs and
expenses (including any of their legal fees and expenses) in connection with
this Agreement or any of the transactions contemplated hereby.
(l) CONSTRUCTION. The Parties have participated jointly in
the negotiation of this Agreement. In the event an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as if
drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local,
or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
(m) INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The
Exhibits, Annexes, Schedules and Certificates identified in this Agreement are
incorporated herein by reference and made a part hereof.
(n) SPECIFIC PERFORMANCE. Each of the Parties acknowledges
and agrees that the other Parties would be damaged irreparably in the event any
of the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter (subject to the provisions set
forth in Section 10(o) below), in addition to any other remedy to which they
may be entitled, at law or in equity.
(o) SUBMISSION TO JURISDICTION. Each of the Parties submits
to the jurisdiction of any state or federal court sitting in Palm Beach County,
Florida, in any action or proceeding arising out of or relating to this
Agreement and agrees that all claims in respect of the action or proceeding may
be heard and determined in any such court. Each of the Parties waives any
defense of inconvenient forum to the maintenance of any action or proceeding so
brought and
46
<PAGE> 51
waives any bond, surety, or other security that might be required of any other
Party with respect thereto. Any Party may make service on any other Party by
sending or delivering a copy of the process to the Party to be served at the
address and in the manner provided for the giving of notices in Section 12(o)
above. Nothing in this Section 12(g), however, shall affect the right of any
Party to bring any action or proceeding arising out of or relating to this
Agreement in any other court or to serve legal process in any other manner
permitted by law or at equity. Each Party agrees that a final judgment in any
action or proceeding so brought shall be conclusive and may be enforced by suit
on the judgment or in any other manner provided by law or at equity.
In any action or proceeding arising out of or relating to this
Agreement, the prevailing party shall be entitled to recover reasonable
attorney's fees and costs from the other party to the action or proceeding.
(p) WAIVER OF JURY TRIAL. THE PARTIES HEREBY IRREVOCABLY
WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY AND TO
THE FULLEST EXTENT PERMITTED BY LAW WAIVE ANY RIGHTS THAT THEY MAY HAVE TO
CLAIM OR RECEIVE CONSEQUENTIAL OR SPECIAL DAMAGES IN CONNECTION WITH ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
*****
47
<PAGE> 52
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
NORTH AMERICAN TEL-COM, INC.
By:
--------------------------------
William J. Mercurio
TRANSFEROR
------------------------------------
Jeffery J. Ebersole
48
<PAGE> 1
Exhibit 10.7
STOCK EXCHANGE AGREEMENT
AMONG
NORTH AMERICAN TEL-COM GROUP, INC.,
AND
DAVID MAI AND FRANK BACK
March 31, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AGREEMENT.............................................................................................. 1
1. Definitions................................................................................... 1
2. Exchange Transaction.......................................................................... 6
(a) Basic Transaction.................................................................... 6
(b) Consideration........................................................................ 6
(c) The Closing.......................................................................... 6
(d) Deliveries at Closing................................................................ 7
3. Representations and Warranties Concerning the Transaction..................................... 7
(a) Representations and Warranties of the Transferors.................................... 7
(b) Representations and Warranties of the North American................................. 8
4. Representations and Warranties Concerning Target.............................................. 11
(a) Organization, Qualification, and Corporate Power..................................... 11
(b) Authorization of Transaction......................................................... 11
(c) Capitalization....................................................................... 11
(d) Noncontravention..................................................................... 12
(e) Brokers' Fees........................................................................ 12
(f) Title to Assets...................................................................... 12
(g) Subsidiaries......................................................................... 12
(h) Financial Statements................................................................. 12
(i) Events Subsequent to Most Recent Fiscal Year End..................................... 13
(j) Undisclosed Liabilities.............................................................. 15
(k) Legal Compliance..................................................................... 15
(l) Tax Matters.......................................................................... 15
(m) Real Property........................................................................ 17
(n) Intellectual Property................................................................ 18
(o) Tangible Assets...................................................................... 20
(p) Inventory............................................................................ 20
(q) Contracts............................................................................ 20
(r) Notes and Accounts Receivable........................................................ 21
(s) Powers of Attorney................................................................... 21
(t) Insurance............................................................................ 21
(u) Litigation........................................................................... 21
(v) Commitments and Warranties........................................................... 22
(w) Liability for Services Performed..................................................... 22
(x) Employees............................................................................ 22
(y) Employee Benefits.................................................................... 22
(z) Guaranties........................................................................... 24
(aa) Environmental, Health, and Safety Matters............................................ 24
(ab) Certain Business Relationships with Target........................................... 26
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
(ac) Customers and Suppliers.............................................................. 26
(ad) Disclosure........................................................................... 26
5. Pre-Closing Covenants......................................................................... 26
(a) General.............................................................................. 27
(b) Notices and Consents................................................................. 27
(c) Operation of Business................................................................ 27
(d) Preservation of Business............................................................. 27
(e) Full Access.......................................................................... 27
(f) Notice of Developments............................................................... 28
(g) Exclusivity.......................................................................... 28
(h) No Termination of Transferors' Obligation by Subsequent Incapacity................... 28
6. Post-Closing Covenants........................................................................ 28
(a) General.............................................................................. 28
(b) Litigation Support................................................................... 28
(c) Transition........................................................................... 29
(d) Confidentiality...................................................................... 29
(e) Stock Options........................................................................ 29
(f) Independent Accountants.............................................................. 29
(g) Employees of Target.................................................................. 29
(h) Tax Matters.......................................................................... 29
7. Conditions to Obligation to Close............................................................. 30
(a) Conditions to Obligation of the North American....................................... 30
(b) Conditions to Obligation of the Transferors.......................................... 32
(c) Post-Closing Obligation of Transfers................................................. 33
8. Remedies for Breaches of This Agreement....................................................... 34
(a) Survival of Representations and Warranties........................................... 34
(b) Indemnification Provisions for Benefit of North American............................. 34
(c) Indemnification Provisions for Benefit of the Transferors............................ 36
(d) Matters Involving Third Parties...................................................... 36
(e) Determination of Adverse Consequences................................................ 37
(f) Basket............................................................................... 37
(g) Other Indemnification Provisions..................................................... 38
9. Post-Closing Adjustment of Consideration...................................................... 38
10. Tax Matters................................................................................... 40
(a) Tax Periods Ending on or Before the Closing Date..................................... 40
(b) Tax Periods Beginning Before and Ending After the Closing Date....................... 40
(c) Cooperation on Tax Matters........................................................... 41
(d) Tax Sharing Agreements............................................................... 42
(e) S Corporation Status................................................................. 42
(f) Certain Taxes........................................................................ 42
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
11. Termination................................................................................... 42
(a) Termination of Agreement............................................................. 42
(b) Effect of Termination................................................................ 43
12. Miscellaneous................................................................................. 43
(a) Press Releases and Public Announcements.............................................. 43
(b) No Third-Party Beneficiaries......................................................... 43
(c) Entire Agreement..................................................................... 43
(d) Succession and Assignment............................................................ 43
(e) Counterparts......................................................................... 44
(f) Headings............................................................................. 44
(g) Notices.............................................................................. 44
(h) Governing Law........................................................................ 45
(i) Amendments and Waivers............................................................... 45
(j) Severability......................................................................... 46
(k) Expenses............................................................................. 46
(l) Construction......................................................................... 46
(m) Incorporation of Exhibits, Annexes, and Schedules.................................... 46
(n) Specific Performance................................................................. 46
(o) Submission to Jurisdiction........................................................... 46
(p) WAIVER OF JURY TRIAL................................................................. 47
</TABLE>
Exhibit A--Intentionally Omitted
Exhibit B--Financial Statements
Exhibit C--List of Key Employees
Exhibit D--Opinion of Transferors' Counsel
Exhibit E--[NOT APPLICABLE]
Exhibit F--Secretary and Incumbency Certificate (Target)
Exhibit G--Employment Agreements
Exhibit H--Opinion of North American's Counsel
Exhibit I--Secretary and Incumbency Certificate (North American)
Annex I--Exceptions to the Transferors' Representations and Warranties
Concerning the Transaction
Annex II--Exceptions to the North American's Representations and Warranties
Concerning the Transaction
Disclosure Schedule--Exceptions to Representations and Warranties
Concerning Target
iii
<PAGE> 5
STOCK EXCHANGE AGREEMENT
Agreement entered into as of March 31, 1998, by and among North
American Tel-Com Group, Inc., a Florida corporation ("North American"), and
David Mai and Frank Back (the "Transferors"), the sole shareholders of Excel
Cable Construction, Inc., a Florida corporation ("Target"). North American and
the Transferors are referred to collectively herein as the "Parties."
The Transferors in the aggregate owns all of the outstanding capital
stock of Target.
This Agreement contemplates the transfer by Transferors of all of the
issued and outstanding capital stock of Target to North American. The
Transferors will receive cash and capital stock in North American in exchange
for their capital stock in Target.
Simultaneously herewith, North American is entering into stock
exchange agreements for the acquisition of all of the issued and outstanding
capital stock of each of Mich-Com Cable Services Incorporated, Kenya
Corporation, and CableMasters Corp. (together with this Agreement, the
"Exchange Agreements") and a Securities Purchase Agreement with HIG Cable, Inc.
All of the parties to the Exchange Agreements intend for the transfers
contemplated pursuant to the Exchange Agreements to be treated as a single
transaction qualifying under Section 351 of the Code (as that term is hereafter
defined).
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1. DEFINITIONS.
"ACCREDITED INVESTOR" has the meaning set forth in Regulation
D promulgated under the Securities Act.
"ADVERSE CONSEQUENCES" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses,
expenses, and fees, including court costs and reasonable attorneys' fees and
expenses, and any other cost of enforcing a party's rights under this
Agreement.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act.
"AFFILIATED GROUP" means any affiliated group within the
meaning of Code Section 1504(a) or any similar group defined under a similar
provision of state, local or foreign law.
"APPLICABLE RATE" means the corporate base rate of interest
publicly announced from time to time by PNC Bank, N.A.
<PAGE> 6
"BASIS" means any past or present fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction that forms or could form the
basis for any specified consequence.
"CLOSING" has the meaning set forth in Section 2(c) below.
"CLOSING DATE" has the meaning set forth in Section 2(c)
below.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONFIDENTIAL INFORMATION" means any information concerning
the businesses and affairs of Target that is not already generally available to
the public.
"CONSIDERATION" has the meaning set forth in Section 2(b)
below.
"CONTROLLED GROUP OF CORPORATIONS" has the meaning set forth
in Code Section 1563.
"DISCLOSURE SCHEDULE" has the meaning set forth in Section 4
below.
"EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan), (d) Employee Welfare Benefit Plan or (e)
bonus, incentive, stock purchase, stock ownership, stock option, stock
appreciation right, severance, salary continuation, termination, change of
control or other material fringe benefit plan or program.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in
ERISA Section 3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in
ERISA Section 3(1).
"ENVIRONMENTAL, HEALTH, AND SAFETY REQUIREMENTS" shall mean
all federal, state, local and foreign statutes, regulations, ordinances and
other provisions having the force or effect of law, all judicial and
administrative orders and determinations, all contractual obligations and all
common law concerning public health and safety, worker health and safety, and
pollution or protection of the environment, including without limitation all
those relating to the presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution, labeling, testing,
processing, discharge, release, threatened release, control, or cleanup of any
Hazardous Materials (which, for purposes of this Agreement, shall meany any
hazardous materials, substances or wastes, chemical substances or mixtures,
pesticides, pollutants, contaminants, toxic chemicals, petroleum products or
byproducts, asbestos, polychlorinated biphenyls, noise or radiation), each as
amended and as now or hereafter in effect.
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<PAGE> 7
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA AFFILIATE" means (i) any corporation included with
Target in a controlled group of corporations within the meaning of Section
414(b) of the Code; (ii) any trade or business (whether or not incorporated)
which is under common control with Target within the meaning of Section 414(c)
of the Code; (iii) any member of an affiliated service group of which Target is
a member within the meaning of Section 414(m) of the Code; or (iv) any other
person or entity treated as an affiliate of Target under Section 414(o) of the
Code.
"EXCHANGE AGREEMENTS" has the meaning set forth in the
preface above.
"EXCHANGES" means the transactions contemplated under the
Exchange Agreements.
"FIDUCIARY" has the meaning set forth in ERISA Section 3(21).
"FINANCIAL STATEMENT" has the meaning set forth in Section
4(h) below.
"GAAP" means United States generally accepted accounting
principles as in effect from time to time.
"HIG" refers to HIG Cable, Inc., a Cayman Islands corporation.
"HART-SCOTT-RODINO ACT" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"INDEMNIFIED PARTY" has the meaning set forth in Section 8(d)
below.
"INDEMNIFYING PARTY" has the meaning set forth in Section
8(d) below.
"INTELLECTUAL PROPERTY" means (a) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications, and patent
disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof, (b)
all trademarks, service marks, trade dress, logos, trade names, and corporate
names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection therewith, (d) all mask works and all applications,
registrations, and renewals in connection therewith, (e) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals),
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<PAGE> 8
(f) all computer software (including data and related documentation), (g) all
other proprietary rights, and (h) all copies and tangible embodiments thereof
(in whatever form or medium).
"KNOWLEDGE" means that which is known by a person and that of
which a person has constructive knowledge based upon information readily
available to that person in the performance of such person's duties. In the
case of North American or Target, "Knowledge" means the "Knowledge" of its
respective directors and executive officers.
"LIABILITY" means any liability (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"MATERIAL ADVERSE EFFECT" means, individually or together
with other adverse effects, any material adverse effect on the assets,
liabilities, results of operations, business condition (financial or otherwise)
or prospects of Target or on Target's ability to consummate the transactions
contemplated hereby or the ability of the North American to operate the
business of Target immediately after the Closing in substantially the same
manner as such business is conducted prior to Closing.
"MOST RECENT BALANCE SHEET" means the balance sheet contained
within the Most Recent Financial Statements.
"MOST RECENT FINANCIAL STATEMENTS" has the meaning set forth
in Section 4(h) below.
"MOST RECENT FISCAL PERIOD END" has the meaning set forth in
Section 4(h) below.
"MOST RECENT FISCAL YEAR END" has the meaning set forth in
Section 4(h) below.
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA
Section 3(37).
"NATIONAL SECURITIES EXCHANGE" shall have the meaning
ascribed to that term in the rules and regulations promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934.
"NORTH AMERICAN" has the meaning set forth in the preface
above.
"NORTH AMERICAN CLASS A COMMON SHARES" means any share of the
Class A Common Stock, par value $.01 per share, of North American.
"NORTH AMERICAN CLASS B COMMON SHARES" means any share of the
Class B Common Stock, par value $.01 per share, of North American.
"NORTH AMERICAN COMMON STOCK" means any share of the common
stock, par value $.01 par share, of North American.
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<PAGE> 9
"NORTH AMERICAN SERIES A PREFERRED SHARES" means any share of
the Series A Convertible Preferred Stock, par value $.01 per share, of North
American.
"NORTH AMERICAN PREFERRED STOCK" means any share of the
preferred stock, par value $.01 per share, of North American.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of
business consistent with past custom and practice (including with respect to
quantity and frequency).
"PARTY" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PERSON" means an individual, a partnership, a corporation,
an association, a joint stock company, a trust, a joint venture, an
unincorporated organization, or a governmental entity (or any department,
agency, or political subdivision thereof).
"PROHIBITED TRANSACTION" has the meaning set forth in ERISA
Section 406 and Code Section 4975.
"REPORTABLE EVENT" has the meaning set forth in ERISA Section
4043.
"SECURITIES ACT" means the Securities Act of 1933, as
amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act
of 1934, as amended.
"SECURITIES PURCHASE AGREEMENT" means the Securities Purchase
Agreement of even date herewith, by and between North American and HIG,
including exhibits thereto.
"SECURITY INTEREST" means any mortgage, pledge, lien,
encumbrance, charge, or other security interest, other than (a) mechanic's,
materialmen's, and similar liens that could not reasonably be expected to have
a Material Adverse Effect, (b) liens for Taxes not yet due and payable or for
Taxes that the taxpayer is contesting in good faith through appropriate
proceedings disclosed on Section 4(l) of the Disclosure Schedule, (c) purchase
money liens and liens securing rental payments under capital lease arrangements
disclosed in the Most Recent Financial Statements, and (d) other liens arising
in the Ordinary Course of Business and not incurred in connection with the
borrowing of money, so long as such liens could not reasonably be expected to
have a Material Adverse Effect.
"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement of
North American of even date herewith.
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<PAGE> 10
"SUBSIDIARY" means any corporation with respect to which a
specified Person (or a Subsidiary thereof) owns a majority of the common stock
or has the power to vote or direct the voting of sufficient securities to elect
a majority of the directors.
"TARGET" has the meaning set forth in the preface above.
"TARGET SHARE" means any share of the Common Stock, par value
$1.00 per share, of Target.
"TARGET SHAREHOLDER" means any Person who or which holds any
Target Shares.
"TAX" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Code Section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed or not,
and any obligations under any agreements or arrangements with respect to any of
the foregoing.
"TAX RETURN" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"THIRD PARTY CLAIM" has the meaning set forth in Section 8(d)
below.
"TRANSFERORS" has the meaning set forth in the preface above.
2. EXCHANGE TRANSACTION.
(a) BASIC TRANSACTION. On and subject to the terms and
conditions of this Agreement, North American agrees to acquire from the
Transferors, and the Transferors agree to transfer to North American, all of
their Target Shares for the consideration specified below in this Section 2.
(b) CONSIDERATION. North American agrees to deliver to the
Transferors at Closing (i) cash in the amount of $2,009,000 payable by wire
transfer or other immediately available funds and (ii) 563,200 North American
Class B Common Shares (collectively, the "Consideration"). The Consideration
shall be subject to adjustment pursuant to the provisions of Section 9 hereof.
The Consideration shall be allocated among the Transferors in proportion to
their respective holdings of Target Shares as set forth in Section 4(c) hereof.
(c) THE CLOSING. The closing of the transactions contemplated
by this Agreement (the "CLOSING") shall take place at the offices of Holland &
Knight LLP in Miami,
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Florida, commencing at 9:00 a.m. local time on March 31, 1998 or such other
date, time and place as the Parties may mutually determine (the "CLOSING
DATE").
(d) DELIVERIES AT CLOSING. At the Closing, (i) the
Transferors will deliver to the North American the various certificates,
instruments, and documents referred to in Section 7(a) below, (ii) North
American will deliver to the Transferors the various certificates, instruments,
and documents referred to in Section 7(b) below, and (iii) the Transferors will
deliver to North American stock certificates representing all of their Target
Shares, endorsed in blank or accompanied by duly executed assignment documents,
and (iv) North American will deliver to the Transferors the Consideration
specified in Section 2(b) above.
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
(a) REPRESENTATIONS AND WARRANTIES OF THE TRANSFERORS. Each
Transferor represents and warrants to North American that the statements
contained in this Section 3(a) are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Section 3(a)), except as set forth in Annex I
attached hereto.
(i) AUTHORIZATION OF TRANSACTION. Such Transferor
has full power and authority to execute and deliver this Agreement and
to perform his obligations hereunder. This Agreement constitutes the
valid and legally binding obligation of such Transferor, enforceable
in accordance with its terms and conditions except to the extent
enforcement thereof may be limited by applicable bankruptcy,
reorganization, insolvency or moratorium laws, or other laws affecting
the enforcement of creditors' rights or by the principles governing
the availability of equitable remedies. Such Transferor need not give
any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency or any
other Person in order to consummate the transactions contemplated by
this Agreement.
(ii) NONCONTRAVENTION. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court
to which such Transferor is subject or (B) conflict with, result in a
breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or
cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which such Transferor is
a party or by which he is bound or to which any of his assets is
subject.
(iii) BROKERS' FEES. Such Transferor has, or prior
to Closing will have, paid any fees or commissions due from Transferor
to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement. Such Transferor agrees that he will
pay any additional amounts that may become due from him or Target to
any such
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<PAGE> 12
broker, finder or agent in the future, including as a result of any
indemnification obligations.
(iv) INVESTMENT. Such Transferor (A) understands
that, except as contemplated under the Stockholders Agreement, the
North American Class B Common Shares that he will receive as part of
the Purchase Price have not been, and will not be, registered under
the Securities Act, or under any state securities laws, and are being
offered and sold in reliance upon federal and state exemptions for
transactions not involving any public offering, (B) is acquiring such
North American Class B Common Shares solely for his own account for
investment purposes, and not with a view to the distribution thereof,
(C) is a sophisticated investor with knowledge and experience in
business and financial matters, (D) has received certain information
concerning North American and has had the opportunity to obtain
additional information as desired in order to evaluate the merits and
the risks inherent in holding the North American Class B Common
Shares, (E) is able to bear the economic risk and lack of liquidity
inherent in holding the North American Class B Common Shares, and (F)
is an Accredited Investor for the reasons set forth on Annex I.
(v) TARGET SHARES. Such Transferor holds of record
and owns beneficially all of his issued and outstanding Target Shares,
as further described in Section 4(c) hereof, free and clear of any
restrictions on transfer (other than any restrictions under the
Securities Act and state securities laws), Taxes, security interests
liens or other encumbrances, options, warrants, purchase rights,
contracts, commitments, equities, claims, and demands. Such Transferor
is not a party to any option, warrant, purchase right, or other
contract or commitment that could require such Transferor to sell,
transfer, or otherwise dispose of any capital stock of Target (other
than this Agreement). Such Transferor is not a party to any voting
trust, proxy, shareholders agreement, or other agreement or
understanding with respect to the voting of any capital stock of
Target.
(vi) DISCLOSURE. Neither this Agreement nor any of
the exhibits, attachments, written statements, documents, certificates
or other items prepared for or supplied to North American by such
Transferor with respect to the transactions contemplated hereby
contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make each statement contained
herein or therein not misleading. There is no fact which such
Transferor has not disclosed to the North American herein and of which
such Transferor is aware which could be anticipated to have a Material
Adverse Effect.
(b) REPRESENTATIONS AND WARRANTIES OF THE NORTH AMERICAN.
North American represents and warrants to Transferors that the statements
contained in this Section 3(b) are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Section 3(b)), except as set forth in Annex II
attached hereto.
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<PAGE> 13
(i) ORGANIZATION OF THE NORTH AMERICAN. North
American is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Florida. Correct and
complete copies of the charter and bylaws of North American (as
amended to date) are included as part of Annex II. The names and
titles of each officer and director of North American is set forth in
Annex II.
(ii) CAPITALIZATION OF NORTH AMERICAN. The entire
authorized capital stock of North American consists of (i) 98,000,000
shares of North American Common Stock, including 10,000,000 North
American Class A Common Shares, 20,000,000 North American Class B
Common Shares, and 68,000,000 Shares of undesignated North American
Common Stock and (ii) 2,000,000 shares of North American Preferred
Stock including 100,000 designated as North American Series A
Preferred Shares. The issued and outstanding capital stock of North
American, immediately prior to (i) the closing of the transactions
contemplated pursuant to the Exchange Agreements and (ii) the proposed
exchange of 100,000 North American Series A Preferred Shares with HIG,
consists of 1,946,330 North American Class A Common Shares, no North
American Class B Common Shares and no North American Preferred Stock.
The issued and outstanding capital stock of North American,
immediately following the (i) closing of the transactions contemplated
pursuant to the Exchange Agreements and (ii) the proposed exchange of
100,000 North American Series A Preferred Shares to HIG, shall consist
of 1,946,330 North American Class A Shares, 50,011,800 North American
Class B Shares and 100,000 North American Series A Preferred Shares,
held of record as set forth in Annex II hereto. All of the issued and
outstanding North American Class A Common Shares have been, and upon
issuance pursuant to the Exchange Agreements and the Securities
Purchase Agreement, respectively, the 5,011,800 Class B Common Shares
and the 100,000 North American Series A Preferred Shares will be, duly
authorized, validly issued, fully paid, and nonassessable. Except as
disclosed in Annex II, there are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights,
exchange rights, or other contracts or commitments that could require
North American to issue, sell, or otherwise cause to become
outstanding any of its capital stock. Except as disclosed in Annex II,
there are no outstanding or authorized stock appreciation, phantom
stock, profit participation, or similar rights with respect to North
American. Except as disclosed in Annex II, there are no voting trusts,
proxies or other agreements or understandings with respect to the
voting of the capital stock of North American.
Included as part of Annex II is an unaudited pro
forma balance sheet for North American, dated as of the date of this
Agreement, which gives effect on a pro forma basis to (i) the
consummation of the transactions contemplated by the Exchange
Agreements, (ii) the exchange of 100,000 North American Series A
Preferred Shares to HIG and (iii) the proposed $10,000,000 Revolving
Credit Facility and $19,000,000 Term Loan from PNC Bank, N.A.
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<PAGE> 14
Also included as part of Annex II is a table listing
the percentage of North American capital stock attributable to each
class of shareholders of North American immediately following the
closing of (i) the transactions contemplated by the Exchange
Agreements and (ii) the transactions contemplated by the Securities
Purchase Agreement.
(iii) OPERATION. North American has not conducted
any activities or incurred any liabilities other than in connection
with the Exchanges and in connection with securing financing for the
Exchanges.
(iv) AUTHORIZATION OF TRANSACTION. North American
has full power and authority (including full corporate power and
authority) to execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement constitutes the valid and
legally binding obligation of North American, enforceable in
accordance with its terms and conditions except to the extent
enforcement thereof may be limited by applicable bankruptcy,
reorganization, insolvency or moratorium laws, or other laws affecting
the enforcement of creditors' rights or by the principles governing
the availability of equitable remedies. North American need not give
any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency or any
other Person in order to consummate the transactions contemplated by
this Agreement.
(v) NONCONTRAVENTION. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court
to which either North American is subject or any provision of their
respective charter or bylaws or (B) conflict with, result in a breach
of, constitute a default under, result in the acceleration of, create
in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which North American is a party or
by which North American is bound or to which any of its assets is
subject.
(vi) BROKERS' FEES. North American has, or prior to
the Closing will have, paid any fees or commissions due from North
American to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement. North American agrees
that they will pay any additional amounts that may become due from
North American to any such broker, finder or agent in the future,
including as a result of any indemnification obligations.
(vii) DISCLOSURE. Neither this Agreement nor any of
the exhibits, attachments, written statements, documents, certificates
or other items prepared for or supplied to the Transferors by the
North American with respect to the transactions contemplated hereby
contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make each statement contained
herein or therein not
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<PAGE> 15
misleading. There is no fact which North American has not disclosed to
the Transferors herein and of which North American or any of the its
officers or directors is aware and which could be anticipated to have
a material adverse effect on the operations of North American after
the Closing.
4. REPRESENTATIONS AND WARRANTIES CONCERNING TARGET. The Transferors
jointly and severally represent and warrant to the North American that the
statements contained in this Section 4 are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date
of this Agreement throughout this Section 4), except as set forth in the
Disclosure Schedule delivered by the Transferors to the North American on the
date hereof and initialed by the Parties (the "DISCLOSURE SCHEDULE"). The
Disclosure Schedule shall be effective to modify only those representations and
warranties to which the Disclosure Schedule makes explicit reference. The
Disclosure Schedule will be arranged in paragraphs corresponding to the
lettered and numbered paragraphs contained in this Section 4.
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. Target
is a corporation duly organized, validly existing, and in good standing under
the laws of the jurisdiction of its incorporation. Target is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required. Target has full corporate power and
authority and all licenses, permits, and authorizations necessary to carry on
the businesses in which it is engaged and in which it presently proposes to
engage and to own and use the properties owned and used by it. Section 4(a) of
the Disclosure Schedule lists the directors and officers of Target. Correct and
complete copies of the charter and bylaws of Target (as amended to date) are
included as part of Section 4(a) of the Disclosure Schedule. The minute books
(containing the records of meetings of the stockholders, the board of
directors, and any committees of the board of directors), the stock certificate
books, and the stock record books of Target are correct and complete and an
true and correct copy thereof has been provided to North American. Target is
not in default under or in violation of any provision of its charter or bylaws.
(b) AUTHORIZATION OF TRANSACTION. [INTENTIONALLY LEFT BLANK]
(c) CAPITALIZATION. The entire authorized capital stock of
Target consists of 5,000 Target Shares, of which 1,000 Target Shares are issued
and outstanding and no Target Shares are held in treasury. All of the issued
and outstanding Target Shares have been duly authorized, are validly issued,
fully paid, and nonassessable, and are held of record and owned beneficially
solely by the Transferors in the following amounts: David Mai - 520 Target
Shares, and Frank Back - 480 Target Shares. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights, preemptive rights or other contracts or commitments
that could require Target to issue, sell, or otherwise cause to become
outstanding any of its capital stock or securities convertible or exchangeable
for, or any options, warranties, or rights to purchase, any of such capital
stock. There are no outstanding obligations of Target to repurchase, redeem or
otherwise acquire any capital stock or any securities convertible into or
exchangeable for such capital stock or any options, warrants or
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<PAGE> 16
rights to purchase such capital stock or securities. There are no outstanding
or authorized stock appreciation, phantom stock, profit participation, or
similar rights with respect to Target. There are no voting trusts, proxies, or
other agreements or understandings with respect to the voting, transfer,
dividend or other rights (such as registration rights under the Securities Act)
of the capital stock of Target.
(d) NONCONTRAVENTION. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated
hereby, will (i) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of
any government, governmental agency, or court to which Target is subject or any
provision of the charter or bylaws of Target or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which Target is a party or by which it is bound or to which any
of its assets is subject (or result in the imposition of any Security Interest
upon any of its assets). Target need not give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any Person,
government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
(e) BROKERS' FEES. Target has, or prior to Closing will have,
paid any fees or commissions due from Target to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement. Transferors
agrees that they will pay any additional amounts that may become due from
Target to any such broker, finder or agent in the future, including as a result
of any indemnification obligations.
(f) TITLE TO ASSETS. Target has good and marketable title to,
or a valid leasehold interest in, the properties and assets used by it, located
on its premises, or shown on the Most Recent Balance Sheet or acquired after
the date thereof, free and clear of all Security Interests (other than the
Security Interests disclosed on the face of the Most Recent Balance Sheet),
except for properties and assets disposed of in the Ordinary Course of Business
since the date of the Most Recent Balance Sheet, none of which disposals are
expected to have a Material Adverse Effect. The consummation of the
transactions contemplated by this Agreement will not affect Target's good and
marketable title to, or valid leasehold interest in, the properties and assets
described in the preceding sentence.
(g) SUBSIDIARIES. Target does not currently have, and has
never had, any Subsidiaries and does not own any securities of any other
Person.
(h) FINANCIAL STATEMENTS. Attached hereto as EXHIBIT B are
the following financial statements (collectively the "FINANCIAL STATEMENTS"):
(i) audited consolidated balance sheets and statements of income, changes in
stockholders' equity, and cash flow including the audit report thereon as of
and for the fiscal year ended December 31, 1997 (the "MOST RECENT FISCAL YEAR
END") for Target; (ii) unaudited consolidated balance sheets and statements of
income for the fiscal years ended December 31, 1995, and December 31, 1996 and
(iii)
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unaudited consolidated balance sheets and statements of income, (the "MOST
RECENT FINANCIAL STATEMENTS") as of and for the period from January 1, 1998,
through February 28, 1998 (the "MOST RECENT FISCAL PERIOD END") for Target. The
Financial Statements (including the notes thereto) have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby, present fairly the financial condition of Target as of such
dates and the results of operations of Target for such periods, are correct and
complete, and are consistent with the books and records of Target (which books
and records are correct and complete); provided, however, that the Most Recent
Financial Statements are subject to normal year-end adjustments (which will not
be material individually or in the aggregate) and lack footnotes.
Target's cash balance, in its corporate bank accounts, as of
the Closing Date is less than $1,000.00.
(i) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. Since
the Most Recent Fiscal Year End and except as disclosed in the Disclosure
Schedule, there has not occurred any Material Adverse Effect. Without limiting
the generality of the foregoing, since that date:
(i) Target has not sold, leased, transferred, or
assigned any of its assets, tangible or intangible, other than for a
fair consideration in the Ordinary Course of Business;
(ii) Target has not entered into any agreements,
contracts, leases, or licenses either involving more than $10,000 in
the aggregate, having a term greater than 12 months or outside the
Ordinary Course of Business;
(iii) no party (including any of Target) has
accelerated, terminated, modified, or cancelled any agreements,
contracts, leases, or licenses involving more than $10,000 in the
aggregate to which Target is a party or by which it is bound;
(iv) Target has not imposed or allowed to be imposed
any Security Interest upon any of its assets, tangible or intangible;
(v) Target has not made any capital expenditures
involving more than $10,000 in the aggregate or outside the Ordinary
Course of Business;
(vi) Target has not made any capital investment in,
any loan to, or any acquisition of the securities or assets of, any
other Person;
(vii) Target has not issued any note, bond, or other
debt security or created, incurred, assumed, or guaranteed any
indebtedness for borrowed money or capitalized lease obligation
involving more than $10,000 in the aggregate;
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(viii) Target has not delayed or postponed the
payment of accounts payable and other Liabilities outside the Ordinary
Course of Business;
(ix) Target has not cancelled, compromised, waived,
or released any right or claim either involving more than $10,000 in
the aggregate or outside the Ordinary Course of Business;
(x) Target has not granted any license or sublicense
of any rights under or with respect to any Intellectual Property;
(xi) there has been no change made or authorized in
the charter or bylaws of any of Target;
(xii) Target has not issued, sold, or otherwise
disposed of any of its capital stock or securities convertible into or
exchangeable for such stock, or granted any options, warrants, or
other rights to purchase or obtain any of such capital stock or
securities;
(xiii) Target has not declared, set aside, or paid
any dividend or made any distribution with respect to its capital
stock (whether in cash or in kind) or redeemed, purchased, or
otherwise acquired any of its capital stock or other securities;
(xiv) Target has not experienced any damage,
destruction, or loss (whether or not covered by insurance) to its
property involving more than $10,000 in the aggregate;
(xv) Target has not made any loan to, or entered
into any other transaction with, any of its directors, officers, and
employees or their "Associates" (as defined in Rule 12b-2 under the
Exchange Act);
(xvi) Target has not entered into any employment
contract or collective bargaining agreement, written or oral, or
modified the terms of any existing such contract or agreement;
(xvii) Target has not granted any increase in any
compensation of any of its directors, officers, or other employees;
(xviii) Target has not adopted, amended, modified,
or terminated any bonus, profit-sharing, incentive, severance, or
other plan, contract, or commitment for the benefit of any of its
directors, officers, and employees (or taken any such action with
respect to any other Employee Benefit Plan);
(xix) Target has not made any other change in
employment terms for any of its directors, officers, and employees
outside the Ordinary Course of Business;
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(xx) Target has not made or pledged to make any
charitable or other capital contribution outside the Ordinary Course
of Business;
(xxi) there has not been any other material
occurrence, event, incident, action, failure to act, or transaction
outside the Ordinary Course of Business involving Target; and
(xxii) Target has not increased, or experienced any
change in assumptions underlying or method of calculating, any bad
debt, contingency, tax or other reserves or changed its accounting
practices, methods or assumptions (including changes in estimates or
valuation methods); or written down the value of any assets; and
(xxiii) Target has not committed to any of the
foregoing.
(j) UNDISCLOSED LIABILITIES. Except as disclosed in Section
4(j) of the Disclosure Schedule, Target does not have any Liability, except for
(i) Liabilities set forth on the face of the Most Recent Balance Sheet (rather
than in any notes thereto) and (ii) Liabilities which have arisen after the
Most Recent Fiscal Period End in the Ordinary Course of Business (none of which
results from, arises out of, relates to, is in the nature of, or was caused by
any breach of contract, breach of warranty, tort, infringement, or violation of
law and none of which could reasonably be expected to have a Material Adverse
Effect).
(k) LEGAL COMPLIANCE. Target and its predecessors and
Affiliates has complied, in all material respects, with all applicable laws
(including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof), and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has been
filed or commenced against any of them alleging any failure so to comply.
(l) TAX MATTERS.
(i) Target has filed all Tax Returns that it was
required to file. All such Tax Returns were correct and complete in
all respects. All Taxes owed by Target (whether or not shown on any
Tax Return) have been paid or are fully and adequately accrued and
adequately disclosed on the Most Recent Balance Sheet. Target is not
currently the beneficiary of any extension of time within which to
file any Tax Return. No claim has ever been made by an authority in a
jurisdiction where Target does not file Tax Returns that it is or may
be subject to taxation by that jurisdiction. There are no Security
Interests on any of the assets of Target that arose in connection with
any failure (or alleged failure) to pay any Tax.
(ii) Target has withheld and paid all Taxes required
to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder,
or other third party.
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(iii) Neither Transferors nor Target has Knowledge
that any authority expects to assess any additional Taxes for any
period for which Tax Returns have been filed. There is no action, suit
or proceeding, investigation, dispute or claim now pending or
threatened concerning any Tax Liability of Target or proposed
adjustment to the taxable income of Target either (A) claimed or
raised by any authority in writing or (B) as to which any of the
Transferors and Target have Knowledge based upon personal contact with
any agent of such authority. Section 4(l) of the Disclosure Schedule
lists all Tax Returns filed with respect to Target for the last three
completed tax years, indicates those Tax Returns that have been
audited, and indicates those Tax Returns that currently are the
subject of audit. The Transferors have delivered to the North American
correct and complete copies of all Tax Returns, examination reports,
and statements of deficiencies assessed against or agreed to by Target
since January 1, 1994.
(iv) Target has not waived any statute of
limitations in respect of Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency.
(v) Target has not filed a consent under Code
Section 341(f) concerning collapsible corporations. Target has not
made any payments, is not obligated to make any payments, or is not a
party to any agreement that under certain circumstances could obligate
it to make any payments that will not be deductible under Code Section
280G or that would give rise to any obligation to indemnify any Person
for any excise tax payable pursuant to Code Section 4999. The Target
has not been a United States real property holding corporation within
the meaning of Code Section 897(c)(2) during the applicable period
specified in Code Section 897(c)(1)(A)(ii). Target has disclosed on
its federal income Tax Returns all positions taken therein that could
give rise to a substantial understatement of federal income Tax within
the meaning of Code Section 6662. Neither Target nor any predecessor
or affiliate thereof is a party to any Tax allocation, sharing,
indemnification or similar agreement. Target (A) has not been a member
of an Affiliated Group filing a consolidated federal income Tax Return
(other than a group the common parent of which was Target) and (B)
does not have any Liability for the Taxes of any Person (other than
any of Target and its Subsidiaries) under Reg. Section 1.1502-6 (or
any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise. No indebtedness of
Target consists of "corporate acquisition indebtedness" within the
meaning of Code Section 279.
(vi) Section 4(l) of the Disclosure Schedule sets
forth as of the most recent practicable date the basis for Federal
income tax purposes of Target in its assets.
(vii) The unpaid Taxes of Target (A) did not, as of
the Most Recent Fiscal Period End, exceed the reserve for Tax
Liability (provided, however, that the reserve for Tax Liability shall
not include any reserve for deferred taxes established to reflect
timing differences between book and Tax income) set forth on the face
of the Most Recent Balance Sheet (rather than in any notes thereto)
and (B) do not, and will not as of the
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Closing Date, exceed that reserve as adjusted for the passage of time
through the Closing Date in accordance with the past custom and
practice of Target in filing its Tax Returns.
(viii) Target has properly qualified as an S
corporation for federal income tax purposes within the meaning of
Section 1361 of the Code at all times since February 12, 1988.
(m) REAL PROPERTY. Target does not own any real property.
Section 4(m) of the Disclosure Schedule lists and describes briefly all real
property leased or subleased to Target. The Transferors have delivered to North
American correct and complete copies of the leases and subleases listed in
Section 4(m) of the Disclosure Schedule (as amended to date). With respect to
each lease and sublease listed in Section 4(m) of the Disclosure Schedule:
(A) the lease or sublease is legal, valid,
binding, enforceable, and in full force and effect;
(B) the lease or sublease will continue to
be legal, valid, binding, enforceable, and in full force and
effect on identical terms following the consummation of the
transactions contemplated hereby;
(C) no party to the lease or sublease is in
breach or default, and no event has occurred which, with
notice or lapse of time, would constitute a breach or default
or permit termination, modification, or acceleration
thereunder;
(D) no party to the lease or sublease has
repudiated any provision thereof;
(E) there are no disputes, oral agreements,
or forbearance programs in effect as to the lease or
sublease;
(F) Target has not received a notice from
the lessor indicating that the lease will not be renewed at
the end of its current term for any additional terms provided
for in the lease;
(G) the term of the lease will continue for
a minimum of six months past the Closing Date;
(H) with respect to each sublease, the
representations and warranties set forth in subsections (A)
through (G) above are true and correct with respect to the
underlying lease;
(I) Target has not assigned, transferred,
conveyed, mortgaged, deeded in trust, or encumbered any
interest in the leasehold or subleasehold;
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(J) all facilities leased or subleased
thereunder have received all approvals of governmental
authorities (including licenses and permits) required in
connection with the operation thereof and have been operated
and maintained in accordance with applicable laws, rules, and
regulations;
(K) all facilities leased or subleased
thereunder are supplied with utilities and other services
necessary for the operation of said facilities; and
(L) the Transferors are not aware of any
pending or threatened foreclosure or other enforcement
proceedings relating to the real property underlying the
leases or subleases set forth in Section 4(m) of the
Disclosure Schedule that could result in Target's loss of
possession of such real property.
(n) INTELLECTUAL PROPERTY.
(i) Target owns or has the right to use pursuant to
license, sublicense, agreement, or permission in writing all
Intellectual Property necessary for the operation of the businesses of
Target as presently conducted and as presently proposed to be
conducted. Each item of Intellectual Property owned or used by Target
immediately prior to the Closing hereunder will be owned or available
for use by Target on identical terms and conditions immediately
subsequent to the Closing hereunder. Target has taken all necessary
action to maintain and protect each item of Intellectual Property that
it owns or uses.
(ii) Target has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of third parties, and none of the Transferors and the
directors and officers (and employees with responsibility for
Intellectual Property matters) of Target has ever received any charge,
complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that
Target must license or refrain from using any Intellectual Property
rights of any third party). To the Knowledge of Transferors and
Target, no third party has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of Target.
(iii) Section 4(n)(iii) of the Disclosure Schedule
identifies each patent or registration which has been issued to Target
with respect to any of its Intellectual Property, identifies each
pending patent application or application for registration which
Target has made with respect to any of its Intellectual Property, and
identifies each license, agreement, or other permission which Target
has granted to any third party with respect to any of its Intellectual
Property (together with any exceptions). The Transferors have
delivered to North American correct and complete copies of all such
patents, registrations, applications, licenses, agreements, and
permissions (as amended to date) and have made available to North
American correct and complete copies of all other written
documentation evidencing ownership and prosecution (if applicable) of
each such
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item. Section 4(n)(iii) of the Disclosure Schedule also identifies
each trade name or unregistered trademark used by Target in connection
with any of its businesses. With respect to each item of Intellectual
Property required to be identified in Section 4(n)(iii) of the
Disclosure Schedule:
(A) Target possesses all right, title, and
interest in and to the item, free and clear of any Security
Interest, license, or other restriction;
(B) the item is not subject to any
outstanding injunction, judgment, order, decree, ruling, or
charge;
(C) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending
or is threatened which challenges the legality, validity,
enforceability, use, or ownership of the item; and
(D) Target has never agreed to indemnify
any Person for or against any interference, infringement,
misappropriation, or other conflict with respect to the item.
(iv) Section 4(n)(iv) of the Disclosure Schedule
identifies each item of Intellectual Property that any third party
owns and that Target uses pursuant to license, sublicense, agreement,
or permission. The Transferors have delivered to the North American
correct and complete copies of all such licenses, sublicenses,
agreements, and permissions (as amended to date). With respect to each
item of Intellectual Property required to be identified in Section
4(n)(iv) of the Disclosure Schedule:
(A) the license, sublicense, agreement, or
permission covering the item is legal, valid, binding,
enforceable, and in full force and effect;
(B) the license, sublicense, agreement, or
permission will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated
hereby;
(C) no party to the license, sublicense,
agreement, or permission is in breach or default, and no
event has occurred which with notice or lapse of time would
constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(D) no party to the license, sublicense,
agreement, or permission has repudiated any provision
thereof;
(E) with respect to each sublicense, the
representations and warranties set forth in subsections (A)
through (D) above are true and correct with respect to the
underlying license;
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(F) the underlying item of Intellectual
Property is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
(G) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending
or is threatened which challenges the legality, validity, or
enforceability of the underlying item of Intellectual
Property; and
(H) Target has never granted any sublicense
or similar right with respect to the license, sublicense,
agreement, or permission.
(v) To the Knowledge of Transferors and Target,
Target will not interfere with, infringe upon, misappropriate, or
otherwise come into conflict with, any Intellectual Property rights of
third parties as a result of the continued operation of its businesses
as presently conducted and as presently proposed to be conducted.
(vi) None of the Transferors and Target has any
Knowledge of any new products, inventions, procedures, or methods of
manufacturing or processing that any competitors or other third
parties have developed which reasonably could be expected to supersede
or make obsolete any product or process of any of Target.
(o) TANGIBLE ASSETS. Target owns or leases all buildings,
machinery, equipment, and other tangible assets necessary for the conduct of
its business as presently conducted and as presently proposed to be conducted.
Each such tangible asset has been maintained in accordance with normal industry
practice, is in good operating condition and repair (subject to normal wear and
tear), and is suitable for the purposes for which it presently is used and
presently is proposed to be used. Section 4(o) of the Disclosure Schedule lists
all tangible assets owned by Target.
(p) INVENTORY. Target does not have any inventory.
(q) CONTRACTS. Section 4(q) of the Disclosure Schedule lists
all the contracts and other agreements to which Target is a party. The
Transferors have delivered to the North American a correct and complete copy of
each written agreement listed in Section 4(q) of the Disclosure Schedule (as
amended to date). With respect to each such agreement: (A) the agreement is
legal, valid, binding, enforceable, and in full force and effect; (B) the
agreement will continue to be legal, valid, binding, enforceable, and in full
force and effect on identical terms following the consummation of the
transactions contemplated hereby; (C) no party is in breach or default, and no
event has occurred which with notice or lapse of time would constitute a breach
or default, or permit termination, modification, or acceleration, under the
agreement; and (D) no party has repudiated any provision of the agreement.
Section 4(q) of the Disclosure Schedule lists each currently outstanding bid or
proposal for business submitted by Target in excess of $1,000,000.
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(r) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts
receivable of Target are reflected properly on the Most Recent Balance Sheet in
accordance with GAAP, are valid receivables subject to no setoffs or
counterclaims, are current and collectible, and, will be collected in
accordance with their terms at their recorded amounts, subject only to the
reserve for bad debts set forth on the face of the Most Recent Balance Sheet
(rather than in any notes thereto) as adjusted for the passage of time through
the Closing Date in accordance with the past custom and practice of Target.
(s) POWERS OF ATTORNEY. There are no outstanding powers of
attorney executed on behalf of Target.
(t) INSURANCE. Section 4(t) of the Disclosure Schedule
includes a true, correct and complete list of all policies of insurance
(including policies providing property, casualty, liability, and workers'
compensation coverage and bond and surety arrangements) to which Target is a
party, a named insured, or otherwise the beneficiary of coverage. Genuine and
complete copies of each of the insurance policies listed in Section 4(t) of the
Disclosure Schedule have been provided to North American.
With respect to each such insurance policy: (A) the policy is legal, valid,
binding, enforceable, and in full force and effect; (B) the policy will
continue to be legal, valid, binding, enforceable, and in full force and effect
on identical terms following the consummation of the transactions contemplated
hereby; (C) neither Target nor any other party to the policy is in breach or
default (including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of time,
would constitute such a breach or default, or permit termination, modification,
or acceleration, under the policy; (D) neither Target, any ERISA Affiliate nor
the North American shall be subject to a retroactive rate adjustment, loss
sharing arrangement or other actual or contingent liability and (E) to
Transferors' or Target's Knowledge, no party to the policy has repudiated any
provision thereof. Target has been fully covered at all times during the past 5
years by insurance in scope and amount customary and reasonable for the
businesses in which it has engaged during the aforementioned period. Section
4(t) of the Disclosure Schedule describes any self-insurance arrangements
affecting Target.
(u) LITIGATION. Section 4(u) of the Disclosure Schedule sets
forth each instance in which Target (i) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (ii) is a party, or
to the Knowledge of Transferors or Target, is threatened to be made a party to
any claim, action, suit, proceeding, hearing, or investigation of, in, or
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator. Except as set
forth in Section 4(u) of the Disclosure Schedule, there is no other pending, or
to the knowledge of Transferors or Target, threatened claim, arbitration
proceeding, action, suit, investigation or other proceeding against or involving
Target or any property or rights of Target or any officer or director or Target.
None of the actions, suits, proceedings, hearings, and investigations set forth
in Section 4(u) of the Disclosure Schedule could result in any material adverse
change in the business, financial condition, operations, results of operations,
or future prospects of Target. Neither the Transferors nor the directors
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and officers (and employees with responsibility for litigation matters) of
Target has any reason to believe that any such action, suit, proceeding,
hearing, or investigation may be brought or threatened against Target.
(v) COMMITMENTS AND WARRANTIES. All services provided by the
Company have been performed in conformity with all applicable contractual
commitments (written or oral) and all express and implied warranties (written
or oral), and Target has no Liability and, to the Knowledge of the Transferors
and Target, there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any Liability) in connection with any such services.
ss.4(v) of the Disclosure Schedule includes copies of the standard forms of
agreement entered into between Target and its customers. Target has not entered
into any written or oral agreements with any of its customers that include
guaranties, warranties, or indemnity provisions other than those included in
the agreements included as part of Section 4(v) of the Disclosure Schedule.
Neither Target nor the Transferors has received notice (written or
oral) from any of its customers stating that the customer intends to reduce the
volume of business that it currently conducts with Target or to cease doing
business with Target.
(w) LIABILITY FOR SERVICES PERFORMED. Target has no Liability
(and, to Transferors' Knowledge, there is no Basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim, or
demand against any of them giving rise to any Liability) arising out of any
injury to individuals or property as a result of or in connection with any
services provided by Target.
(x) EMPLOYEES. To the Knowledge of the Transferors or Target,
no executive, key employee, or group of employees has any plans to terminate
employment with Target. Target is not currently, nor at any prior time has
been, a party to or bound by any collective bargaining agreement, nor has
Target experienced any strikes, grievances, claims of unfair labor practices,
or other collective bargaining disputes. Target has not committed any unfair
labor practice. Neither the Transferors nor Target have any Knowledge of any
organizational effort presently being made or threatened by or on behalf of any
labor union with respect to employees of Target.
(y) EMPLOYEE BENEFITS.
(i) Section 4(y) of the Disclosure Schedule lists
each Employee Benefit Plan that Target or any ERISA Affiliate
maintains, contributes to, or is required to contribute to or under
which Target or any ERISA Affiliate has any liability.
(A) Each such Employee Benefit Plan (and
each related trust, insurance contract, or fund) complies in
form and in operation in all respects with the applicable
requirements of ERISA, the Code, and other applicable laws.
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(B) All required reports and disclosures
(including Form 5500 Annual Reports, Summary Annual Reports,
PBGC-1's, and Summary Plan Descriptions) have been filed or
distributed appropriately with respect to each such Employee
Benefit Plan. The requirements of Part 6 of Subtitle B of
Title I of ERISA and of Code Section 4980B have been met with
respect to each such Employee Benefit Plan which is an
Employee Welfare Benefit Plan.
(C) All contributions (including all
employer contributions and employee salary reduction
contributions) which are due have been paid to each such
Employee Benefit Plan which is an Employee Pension Benefit
Plan and all contributions for any period ending on or before
the Closing Date which are not yet due have been paid to each
such Employee Pension Benefit Plan or accrued in accordance
with the past custom and practice of Target and in accordance
with GAAP. All premiums or other payments for all periods
ending on or before the Closing Date have been paid with
respect to each such Employee Benefit Plan which is an
Employee Welfare Benefit Plan.
(D) Each such Employee Benefit Plan which
is an Employee Pension Benefit Plan now meets and at all
times since inception have met the requirements of a
"qualified plan" under Code Section 401(a) and has received,
within the last two years, a favorable determination letter
from the Internal Revenue Service.
(E) As of the Closing Date, the market
value of assets under each such Employee Benefit Plan which
is an Employee Pension Benefit Plan (other than any
Multiemployer Plan) will equal or exceed the present value of
all vested and nonvested Liabilities thereunder determined in
accordance with PBGC methods, factors, and assumptions
applicable to an Employee Pension Benefit Plan terminating on
such date.
(F) The Transferors have delivered to the
North American correct and complete copies of the plan
documents and summary plan descriptions including all
amendments thereto, the most recent determination letter
received from the Internal Revenue Service, the three most
recent Form 5500 Annual Reports (including all schedules
thereto), the three most recent annual premium payment forms
filed with the PBGC, and all related trust agreements,
insurance contracts, and other funding agreements which
implement each such Employee Benefit Plan.
(ii) With respect to each Employee Benefit Plan that
Target or any ERISA Affiliate maintains, contributes to, or is
required to contribute to or under which Target or any ERISA Affiliate
has any liability:
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(A) No such Employee Benefit Plan which is
an Employee Pension Benefit Plan (other than any
Multiemployer Plan) has been completely or partially
terminated or been the subject of a Reportable Event as to
which notices would be required to be filed with the PBGC. No
proceeding by the PBGC to terminate any such Employee Pension
Benefit Plan (other than any Multiemployer Plan) has been
instituted or threatened.
(B) There have been no Prohibited
Transactions with respect to any such Employee Benefit Plan.
No Fiduciary has any Liability for breach of fiduciary duty
or any other failure to act or comply in connection with the
administration or investment of the assets of any such
Employee Benefit Plan. No action, suit, proceeding, hearing,
or investigation with respect to any such Employee Benefit
Plan (other than routine claims for benefits) is pending or
threatened. Neither the Transferors nor Target have any
Knowledge of any Basis for any such action, suit, proceeding,
hearing, or investigation.
(C) Neither Target nor any ERISA Affiliate
has not incurred, and none of the Transferors and the
directors and officers (and employees with responsibility for
employee benefits matters) of Target has any reason to expect
that Target or any ERISA Affiliate will incur, any Liability
to the PBGC (other than PBGC premium payments) or otherwise
under Title IV of ERISA (including any withdrawal Liability)
or under the Code with respect to any such Employee Benefit
Plan which is an Employee Pension Benefit Plan.
(iii) Neither Target nor any ERISA Affiliate
contributes to, ever has contributed to, or ever has been required to
contribute to any Multiemployer Plan or has any Liability (including
withdrawal Liability) under any Multiemployer Plan.
(iv) Neither Target nor any ERISA Affiliate
maintains or contributes to, or has ever been required to contribute
to any Employee Welfare Benefit Plan providing medical, health, or
life insurance or other welfare-type benefits for current or future
retired or terminated employees, their spouses, or their dependents
(other than in accordance with Code Section 4980B).
(z) GUARANTIES. Target is not a guarantor or otherwise is
liable for any Liability or obligation (including indebtedness) of any other
Person.
(aa) ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS.
(i) Target and its predecessors and Affiliates have
complied and are in compliance with all Environmental, Health, and
Safety Requirements.
(ii) Without limiting the generality of the
foregoing, Target and its Affiliates have obtained and complied with,
and are in compliance with, all permits,
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licenses and other authorizations that are required pursuant to
Environmental, Health, and Safety Requirements for the occupation of
its facilities and the operation of its business; a list of all such
permits, licenses and other authorizations is set forth on the
attached "ENVIRONMENTAL AND SAFETY PERMITS SCHEDULE."
(iii) Neither Target nor its predecessors or
Affiliates has received any written or oral notice, report or other
information regarding any actual or alleged violation of
Environmental, Health, and Safety Requirements, or any liabilities or
potential liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise), including any investigatory, remedial or
corrective obligations, relating to any of them or its facilities
arising under Environmental, Health, and Safety Requirements.
(iv) None of the following exists at any property or
facility owned or operated by Target: (1) underground storage tanks,
(2) asbestos-containing material in any form or condition, (3)
materials or equipment containing polychlorinated biphenyls, or (4)
landfills, surface impoundments, or disposal areas.
(v) None of Target or its predecessors or Affiliates
has treated, stored, disposed of, arranged for or permitted the
disposal of, transported, handled, or released any substance,
including without limitation any hazardous substance, or owned or
operated any property or facility (and no such property or facility is
contaminated by any such substance) in a manner that has given or
would give rise to liabilities, including any liability for response
costs, corrective action costs, personal injury, property damage,
natural resources damages or attorney fees, pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended ("CERCLA"), the Solid Waste Disposal Act, as
amended ("SWDA") or any other Environmental, Health, and Safety
Requirements.
(vi) Neither this Agreement nor the consummation of
the transaction that is the subject of this Agreement will result in
any obligations for site investigation or cleanup, or notification to
or consent of government agencies or third parties, pursuant to any of
the so-called "transaction-triggered" or "responsible property
transfer" Environmental, Health, and Safety Requirements.
(vii) Neither Target nor its predecessors or
Affiliates has, either expressly or by operation of law, assumed or
undertaken any liability, including without limitation any obligation
for corrective or remedial action, of any other Person relating to
Environmental, Health, and Safety Requirements.
(viii) No facts, events or conditions relating to
the past or present facilities, properties or operations of Target or
any of its predecessors or Affiliates will prevent, hinder or limit
continued compliance with Environmental, Health, and Safety
Requirements, give rise to any investigatory, remedial or corrective
obligations pursuant to Environmental, Health, and Safety Requirements
(whether on-site or off-site), or give
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rise to any other liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise) pursuant to Environmental, Health, and
Safety Requirements, including without limitation any relating to
onsite or offsite releases or threatened releases of hazardous
materials, substances or wastes, personal injury, property damage or
natural resources damage.
(ab) CERTAIN BUSINESS RELATIONSHIPS WITH TARGET. Neither the
Transferors, their Affiliates, any director or employee of Target, or any
relatives of Transferors, or any person living in the same residence as such
persons, has been involved in any business arrangement or relationship with
Target within the past 12 months, and neither the Transferors nor their
Affiliates nor any of such other persons own leases, licenses, or otherwise has
any interest in any asset, tangible or intangible, which is used in the
business of Target or any contract, lease or commitment to which Target is a
party. Target is not indebted to any officer, director or employee of Target
for any liability or obligation. No officer, director or employee of Target is
indebted to Target for any liability or obligation.
(ac) CUSTOMERS AND SUPPLIERS. No purchase order or commitment
of Target is in excess of normal requirements, nor are prices provided therein
in excess of current market prices for the products or services to be provided
thereunder. No material supplier of Target has advised Target in writing within
the past year that it will stop, or decrease the rate of, supplying materials,
products or services to Target and no material customer of Target has advised
Target in writing within the past year that it will stop, or decrease the rate
of buying materials, products or services from Target. Section 4(ac) of the
Disclosure Schedule sets forth a list of (a) each customer that accounted for
more that 5% of the consolidated revenues of Target during the last full fiscal
year or the interim period through the date of the Most Recent Financial
Statements and the amount of revenues accounted for by such customer during
each such period and (b) each supplier that is the sole supplier of any
significant product or component to Target. The consummation of the
transactions contemplate hereby will not have a material adverse effect on
Target's relationship with any customer or supplier listed in Section 4(ac) of
the Disclosure Schedule.
(ad) DISCLOSURE. Neither this Agreement nor any of the
exhibits, attachments, written statements, documents, certificates or other
items prepared for or supplied to the North American by or on behalf of Target
or the Transferors with respect to the transactions contemplated hereby
contains any untrue statement of a material fact or omits to state any material
fact necessary in order to make each statement contained herein or therein not
misleading. There is no fact which Target or the Transferors has not disclosed
to the North American herein and of which the Transferors, Target, or any of
Target's officers or directors is aware and which could be anticipated to have
a Material Adverse Effect.
5. PRE-CLOSING COVENANTS. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing.
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(a) GENERAL. Each of the Parties will use his or its best
efforts to take all action and to do all things necessary, proper, or advisable
in order to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions
set forth in Section 7 below).
(b) NOTICES AND CONSENTS. The Transferors will cause Target
to give any notices to third parties, and will cause Target to use its best
efforts to obtain any third party consents, that the North American reasonably
may request in connection with the matters referred to in Section 4(d) above.
Each of the Parties will (and the Transferors will cause Target to) give any
notices to, make any filings with, and use its best efforts to obtain any
authorizations, consents, and approvals of governments and governmental
agencies in connection with the matters referred to in Section 3(a)(ii),
ss.3(b)(vi), and Section 4(d) above. Without limiting the generality of the
foregoing, each of the Parties will file (and the Transferors will cause Target
to file) any Notification and Report Forms and related material that he or it
may be required to file with the Federal Trade Commission and the Antitrust
Division of the United States Department of Justice under the Hart-Scott-Rodino
Act, will use his or its best efforts to obtain (and the Transferor will cause
Target to use its best efforts to obtain) an early termination of the
applicable waiting period, and will make (and the Transferors will cause Target
to make) any further filings pursuant thereto that may be necessary, proper, or
advisable in connection therewith.
(c) OPERATION OF BUSINESS. The Transferors will not cause or
permit Target to engage in any practice, take any action, or enter into any
transaction outside the Ordinary Course of Business. Without limiting the
generality of the foregoing, the Transferors will not cause or permit Target to
(i) declare, set aside, or pay any dividend or make any distribution with
respect to its capital stock or redeem, purchase, or otherwise acquire any of
its capital stock or (ii) otherwise engage in any practice, take any action, or
enter into any transaction of the sort described in Section 4(i) above.
(d) PRESERVATION OF BUSINESS. The Transferors will cause
Target to keep its business and properties substantially intact, including its
present operations, physical facilities, working conditions, and relationships
with lessors, licensors, suppliers, customers, and employees.
(e) FULL ACCESS. The Transferors will permit, and will cause
Target to permit, representatives of North American to have full access at all
reasonable times, and in a manner so as not to interfere with the normal
business operations of Target, to all premises, properties, personnel, books,
records (including Tax records), contracts, and documents of or pertaining to
Target. At the request of North American, Transferors will permit, and will
cause Target to permit, the lenders and the investors who are expected to
provide the capital necessary to consummate the transactions contemplated
hereby, and their respective counsel, to have the same access as permitted to
the North American in accordance with the immediately preceding sentence.
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(f) NOTICE OF DEVELOPMENTS. The Transferors will give prompt
written notice to the North American of any breach of any of the
representations and warranties in Section 4 above. Each Party will give prompt
written notice to the others of any breach of any of his or its own
representations and warranties in Section 3 above. No disclosure by any Party
pursuant to this Section 5(f), however, shall be deemed to amend or supplement
Annex I, Annex II, or the Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
(g) EXCLUSIVITY. The Transferors will not (and the
Transferors will not cause or permit Target to) (i) solicit, initiate, or
encourage the submission of any proposal or offer from any Person relating to
the acquisition of any capital stock or other voting securities, or any
substantial portion of the assets, of Target (including any acquisition
structured as a merger, consolidation, or share exchange) or (ii) participate
in any discussions or negotiations regarding, furnish any information with
respect to, assist or participate in, or facilitate in any other manner any
effort or attempt by any Person to do or seek any of the foregoing. The
Transferors will notify the North American immediately if any Person makes any
proposal, offer, inquiry, or contact with respect to any of the foregoing.
(h) NO TERMINATION OF TRANSFERORS' OBLIGATION BY SUBSEQUENT
INCAPACITY. Transferors specifically agree that their obligations hereunder,
including, without limitation, the obligations pursuant to Section 8 hereof,
shall not be eliminated by his or her death or incapacity.
6. POST-CLOSING COVENANTS. The Parties agree as follows with respect
to the period following the Closing.
(a) GENERAL. In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, each of the Parties will take such further action (including the
execution and delivery of such further instruments and documents) as any other
Party reasonably may request, all at the sole cost and expense of the
requesting Party (unless the requesting Party is entitled to indemnification
therefor under Section 8 below). The Transferors acknowledge and agree that
from and after the Closing North American will be entitled to possession of all
documents, books, records (including Tax records), agreements, and financial
data of any sort relating to Target.
(b) LITIGATION SUPPORT. In the event and for so long as any
Party actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving Target, each of the other Parties will cooperate
with him or it and his or its counsel in the contest or defense, make available
their personnel, and provide such testimony and access to their books and
records as shall be necessary in connection with the contest or defense, all at
the sole cost and expense of the contesting or defending Party (unless the
contesting or defending Party is entitled to indemnification therefor under
Section 8 below).
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(c) TRANSITION. The Transferors will not take any action that
is designed or intended to have the effect of discouraging any lessor,
licensor, customer, supplier, or other business associate of Target from
maintaining the same business relationships with Target after the Closing as it
maintained with Target prior to the Closing. The Transferors will refer all
customer inquiries relating to the businesses of Target to the North American
from and after the Closing.
(d) CONFIDENTIALITY. [INTENTIONALLY LEFT BLANK]
(e) STOCK OPTIONS. Within 90 days after the Closing, North
American will adopt a stock incentive plan (the "Stock Incentive Plan")
pursuant to which stock options and other forms of stock-based compensation may
be awarded to the officers, directors and employees of North American and its
subsidiaries. North American agrees that upon adoption of the Stock Incentive
Plan, it shall grant options to purchase an aggregate of up to 50,000 shares of
North American common stock, at an exercise price of $5.00 per share (the
"Options"), to the key employees of Target named in EXHIBIT C to this
Agreement. The terms and conditions of the Options and the number of Options to
be awarded to each key employee shall be determined by the Board of Directors
of North American at the time of grant.
(f) INDEPENDENT ACCOUNTANTS. After the Closing, Transferors
shall (i) use reasonable efforts to cause Target's past and present independent
auditors and accounting personnel to make available to North American and its
representatives all financial information, including the right to examine all
working papers pertaining to audits or reviews previously or hereafter made by
such auditors, and (ii) provide such cooperation as North American and its
representatives may request in connection with any audit or review of Target
that North American may direct its representatives to make. Without limiting
the generality of the foregoing, Transferors agree that he will cooperate with,
and cause Target's past and present independent auditors, accounting personnel
and other necessary persons to cooperate with the North American in the
preparation of any documents filed by the North American with the U.S.
Securities and Exchange Commission in connection with an offering of
securities, to the extent information about Target is required therein.
(g) EMPLOYEES OF TARGET. North American agrees that, for a
period of one year after the Closing Date, the group health benefits, vacation,
and paid holidays provided to employees of Target will be comparable to such
items provided by Target to such employees prior to the Closing Date. Although
North American has no present intention of dismissing any current employees of
Target, nothing in this section is intended to impose any obligation on North
American to retain any such employees.
(h) TAX MATTERS. The Transferors covenant and agree not to
take any action, or fail to take any action, with respect to Taxes, that would
have an adverse effect on the North American on or after the Closing Date,
including, without limitation, amending or otherwise supplementing any Tax
Return or report of Target with respect to any period prior to the Closing Date
without the consent of the North American. If any taxing authority conducts any
audit or
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investigation relating to Target prior to the Closing Date, the North American
may, in its sole election, have the right to supervise such audit or
investigation and provide any response required in connection therewith.
North American agrees not to take any action after the Closing Date
that would affect the ability of the transfers contemplated under the Exchange
Agreements to be treated as a single transaction qualifying under Section 351
of the code.
(i) In the event North American has not closed a Qualified
Public Offering (as defined in the Stockholders Agreement) on or prior to April
15, 1999, then, at the written request of the Transferors, on or prior to May
15, 1999 North American shall lend up to $355,250 (pro rata between the
Transferors according to stock ownership as of the date hereof) with a maturity
of one year, interest free, secured on a non recourse basis with 71,050 shares
of North American's common stock; provided that the Transferor's right to
borrow funds hereunder shall be reduced by the number of shares used to reduce
or offset indemnification claims.
7. CONDITIONS TO OBLIGATION TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF THE NORTH AMERICAN. The
obligation of North American to consummate the transactions to be performed by
it in connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth in
Section 3(a) and Section 4 above shall be true and correct in all
material respects at and as of the Closing Date and there shall not
have occurred any Material Adverse Effect;
(ii) the Transferors and Target shall have performed
and complied with all of his covenants hereunder in all material
respects through the Closing;
(iii) Target shall have procured all of the third
party consents specified in Section 5(b) above;
(iv) no action, suit, or proceeding shall be pending
or threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction, or
before any arbitrator, wherein an unfavorable injunction, judgment,
order, decree, ruling, or charge would (A) prevent consummation of any
of the transactions contemplated by this Agreement, (B) cause any of
the transactions contemplated by this Agreement to be rescinded
following consummation, (C) affect adversely the right of Target to
own its assets and to operate its businesses (and no such injunction,
judgment, order, decree, ruling, or charge shall be in effect);
(v) the Transferors shall have delivered to the
North American a certificate, which pursuant to its terms authorizes
PNC Bank, N.A. and HIG to rely
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thereon to the same extent as if the certificate was addressed
directly to them, to the effect that each of the conditions specified
above in Section 7(a)(i)-(iv) is satisfied in all respects;
(vi) all applicable waiting periods (and any
extensions thereof) under the Hart-Scott-Rodino Act shall have expired
or otherwise been terminated and the Parties shall have received all
other authorizations, consents, and approvals of governments and
governmental agencies referred to in Section 3(a)(ii), Section
3(b)(vi), and Section 4(d) above;
(vii) the North American shall have received from
counsel to the Transferors an opinion in form and substance as set
forth in EXHIBIT D attached hereto, addressed to the North American
and which pursuant to its terms authorizes PNC Bank, N.A. and HIG to
rely thereon to the same extent as if it were addressed directly to
them, and dated as of the Closing Date;
(viii) the North American shall have obtained on
terms and conditions reasonably satisfactory to it the proceeds of all
of the financing it needs in order to consummate the transactions
contemplated by all of the Exchange Agreements.
(ix) all actions to be taken by the Transferors in
connection with the consummation of the transactions contemplated
hereby and all certificates, opinions, instruments, and other
documents required to effect the transactions contemplated hereby will
be reasonably satisfactory in form and substance to the North
American.
(x) at least five business days prior to the
Closing, the North American shall have received the Most Recent
Balance Sheet. The Most Recent Balance Sheet will reflect (A)
Shareholders' Equity of at least $1,005,177 and include a $463,111
reserve for deferred tax liability and (B) notes payable and capital
lease obligations not exceeding $210,000. North American shall not
have objected to, challenged or otherwise repudiated any of the
amounts included in the Most Recent Balance Sheet.
(xi) North American shall have received an
appraisal, from an appraiser selected by the North American, that
states that the fair market value of Target's tangible assets listed
in Section 4(o) of the Disclosure Schedule is at least equal to the
book value of such assets reflected in the Closing Balance Sheet.
(xii) [INTENTIONALLY LEFT BLANK];
(xiii) Target shall have delivered evidence of its
qualification to do business in each jurisdiction where it is so
qualified and a certificate of good standing issued by the Secretary
of State of each such jurisdiction demonstrating that Target is in
good standing in that jurisdiction;
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(xiv) Target shall have delivered landlord consent
and estoppel certificates, in form and substance satisfactory to the
North American, relating to each of the real property leases listed in
Section 4(m) of the Disclosure Schedule;
(xv) Target shall have delivered (A) payoff letters
relating to all existing indebtedness of Target to creditors for
borrowed money and (B) UCC-3 financing statements executed by such
creditors releasing any security interests of such creditors in
Target's assets;
(xvi) Target shall have delivered the resignations
of all directors of Target that Buyer shall have requested;
(xvii) Transferors shall have entered into
Employment Agreements with Target in the form attached hereto as
EXHIBIT G;
(xviii) On or prior to the Closing Date, North
American shall have closed the transactions contemplated by each of
the other Exchange Agreements;
(xix) [INTENTIONALLY LEFT BLANK]
(xx) all actions to be taken by the Transferors in
connection with consummation of the transactions contemplated hereby
and all certificates, opinions, instruments, and other documents
required to effect the transactions contemplated hereby will be
reasonably satisfactory in form and substance to the North American.
North American may waive any condition specified in this Section 7(a) if it
executes a writing so stating at or prior to the Closing.
(b) CONDITIONS TO OBLIGATION OF THE TRANSFERORS. The
obligation of the Transferors to consummate the transactions to be performed by
them in connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth in
Section 3(b) above shall be true and correct in all material respects
at and as of the Closing Date;
(ii) the North American shall have performed and
complied with all of its covenants hereunder in all material respects
through the Closing;
(iii) no action, suit, or proceeding shall be
pending or threatened before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign
jurisdiction, or before any arbitrator, wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this
Agreement or (B) cause any of the transactions
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contemplated by this Agreement to be rescinded following consummation
(and no such injunction, judgment, order, decree, ruling, or charge
shall be in effect);
(iv) the North American shall have delivered to the
Transferors a certificate to the effect that each of the conditions
specified above in Section 7(b)(i)-(iii) is satisfied in all respects;
(v) all applicable waiting periods (and any
extensions thereof) under the Hart-Scott-Rodino Act shall have expired
or otherwise been terminated and the Parties shall have received all
other authorizations, consents, and approvals of governments and
governmental agencies referred to in Section 3(a)(ii), Section
3(b)(v), and Section 4(d) above;
(vi) Transferors shall have entered into an
Employment Agreement with Target, in the form attached hereto as
EXHIBIT G (Transferors covenant and agree to execute the Employment
Agreement as of the Closing Date);
(vii) Transferors shall have received from counsel
to the North American an opinion in form and substance as set forth in
EXHIBIT H attached hereto, addressed to the Transferors, and dated as
of the Closing Date;
(viii) Buyer shall have delivered a Secretary and
Incumbency Certificate in the form attached hereto as EXHIBIT I;
(ix) This Agreement and the transactions
contemplated hereby shall have been approved by the Board of Directors
and Shareholders of North American;
(x) on or prior to the Closing Date, the
transactions contemplated pursuant to each of the other Exchange
Agreements, and the Securities Purchase Agreement shall have been
closed; and
(xi) all actions to be taken by the North American
in connection with consummation of the transactions contemplated
hereby and all certificates, opinions, instruments, and other
documents required to effect the transactions contemplated hereby will
be reasonably satisfactory in form and substance to the Transferors.
The Transferors may waive any condition specified in this Section 7(b) if he
executes a writing so stating at or prior to the Closing.
(c) POST-CLOSING OBLIGATION OF TRANSFERS. Transferors shall
use best efforts to obtain an Employment Agreement between Target and Ken
Donahue in the form attached hereto as EXHIBIT G within 30 days of the Closing
Date.
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8. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations, warranties, covenants and agreements of the Parties contained
in this Agreement or in any certificate, document, instrument or agreement
delivered pursuant to this Agreement shall survive the Closing hereunder
(notwithstanding any due diligence investigations that may have been undertaken
by the damaged Party) and continue in full force and effect through all
statutes of limitations. Notwithstanding the foregoing, no claim for
indemnification in respect of a breach of a representation or warranty shall be
made after the date three years from and after the Closing Date, except that a
claim for indemnification in respect of a breach of the representations set
forth in Section 3(a), 3(b), 4(a)-(f), 4(l), 4(y) and 4(aa) may be made at
anytime following the Closing Date and are not subject to the foregoing three
year limitation.
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF NORTH AMERICAN.
(i) In the event the Transferors breach (or in the
event any third party alleges facts that, if true, would mean the
Transferors have breached) any of their representations, warranties
(or any of such representations or warranties is untrue or
inaccurate), covenants and agreements contained herein or in any
certificate, document, instrument or agreement delivered pursuant to
this Agreement, and, provided that the Indemnified Buyers (as
hereafter defined) make a written claim for indemnification against
the Transferors pursuant to Section 12(g) below within the applicable
claim period provided in 8(a) above, then the Transferors agree to
indemnify North American and each of its officers, directors,
employees, representatives and shareholders (the "Indemnified Buyers")
from and against the entirety of any Adverse Consequences the
Indemnified Buyers may suffer through and after the date of the claim
for indemnification (including any Adverse Consequences the
Indemnified Buyers may suffer after the end of any applicable claim
period) resulting from, arising out of, relating to, in the nature of,
or caused by the breach (or the alleged breach).
(ii) The Transferors agree to indemnify the
Indemnified Buyers from and against the entirety of any Adverse
Consequences the Indemnified Buyers may suffer resulting from, arising
out of, relating to, in the nature of, or caused by any Liability of
Target (x) for any Taxes of Target with respect to any Tax year or
portion thereof ending on or before the Closing Date or for any Tax
year beginning before and ending after the Closing Date to the extent
allocable (determined in a manner consistent with Section 9(b)) to the
portion of such period beginning before and ending on the Closing
Date), to the extent such Taxes are not reflected in the reserve for
Tax Liability shown on the face of the Closing Date Balance Sheet;
provided, however, that the reserve for Tax Liability shall not
include any reserve for deferred taxes established to reflect timing
differences between book and tax income, and (y) for the unpaid Taxes
of any Person (other than Target) under Reg. Section 1.1502-6 (or any
similar provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
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(iii) Transferors agree to indemnify North American
from and against the entirety of any Adverse Consequences North
American may suffer resulting from, arising out of, relating to, in
the nature of, or caused by the activities of any entity which at any
time has been owned, in whole or in part, by Target.
(iv) Transferors agree to indemnify North American
from and against the entirety of any Adverse Consequences the North
American may suffer resulting from, arising out of, relating to, in
the nature of, or caused by any Retained Liabilities (as hereafter
defined). As used herein, the term Retained Liabilities means all
liabilities, claims, commitments, demands or obligations of Target (or
any subsidiary of Target) existing or arising out of any facts or set
of operative facts existing on or prior to the Closing Date, except
for any such liabilities, claims, commitments, demands or obligations
of Target (or any subsidiary of Target) set forth (A) on the face of
the Closing Date Balance Sheet or (B) in Section 4(j) of the
Disclosure Schedule.
(v) Transferors agree to indemnify North American
from and against the entirety of any Adverse Consequences the North
American may suffer resulting from, or arising out of, relating to, or
in the nature of or caused by any claim by a stockholder or former
stockholder of Target or any other Person seeking to assert: (i)
ownership or rights to ownership of any shares of capital stock of
Target or any Subsidiary, (ii) any rights of a stockholder (other than
the right to receive the Purchase Price) including any option,
preemptive rights or rights to receive notice or to vote, (iii) any
rights under Target's charter, bylaws or other constituent documents,
or (iv) any claim that his shares of capital stock were to be
repurchased by Target.
(vi) Transferors agree to indemnify North American
from and against the entirety of any Adverse Consequences the North
American may suffer resulting from, or arising out of, relating to, or
in the nature of or caused by any claim by a dissenting shareholder
that the Purchase Price is less than the fair value of his shares.
(vii) Without limiting any other provision in this
Section 8, Transferors agree to indemnify North American from and
against the entirety of any Adverse Consequences North American may
suffer as a result of a taxing authority taking the position that any
former or current subcontractor of Target should have been, at any
time prior to the Closing Date, treated as an employee of Target.
(viii) Without limiting any other provision in this
Section 8, Transferors agree to indemnify North American from and
against the entirety of any Adverse Consequences North American may
suffer as a result of Target's failure to be duly authorized to
conduct business and in good standing under the laws of any
jurisdiction where such qualification is or has been required as of or
prior to the Closing Date. The indemnification obligations of
Transferors under this Section 8(b)(viii) shall not be limited or
otherwise affected in any manner by any disclosures made by the
Transferors in the Disclosure Schedule.
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(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE TRANSFERORS.
(i) In the event North American breaches (or in the
event any third party alleges facts that, if true, would mean the
North American had breached) any of their representations, warranties
(or any of such representations or warranties is untrue or
inaccurate), covenants and agreements contained herein or in any
certificate, document, instrument or agreement delivered pursuant to
this Agreement, and, provided that the Transferors make a written
claim for indemnification against North American pursuant to Section
12(g) below within the applicable claim period provided in 8(a) above,
then North American agrees to indemnify the Transferors and each of
their representatives (the "Indemnified Transferors") from and against
the entirety of any Adverse Consequences the Indemnified Transferors
may suffer through and after the date of the claim for indemnification
(including any Adverse Consequences the Indemnified Transferors may
suffer after the end of any applicable claim period) resulting from,
arising out of, relating to, in the nature of, or caused by the breach
(or the alleged breach).
(ii) North American agrees to indemnify the
Indemnified Transferors from and against the entirety of any Adverse
Consequences the Indemnified Transferors may suffer as a result of
Target's failure to pay any amounts due, for periods after the Closing
Date, under any of the contracts, leases and other agreements set
forth in Section 4(q) of the Disclosure Schedule as to which
Transferors are personal guarantors; provided, however, that
Transferors shall not be entitled to indemnification pursuant to this
Section 8(c)(ii) to the extent that North American is otherwise
entitled to indemnification from the Transferors in connection with
the matters described in this Section 8(c)(ii).
(d) MATTERS INVOLVING THIRD PARTIES.
(i) If any third party shall notify any party
entitled to indemnification hereunder (the "INDEMNIFIED PARTY") with
respect to any matter (a "THIRD PARTY CLAIM") which may give rise to a
claim for indemnification against any other Party (the "INDEMNIFYING
PARTY") under this Section 8, then the Indemnified Party shall promptly
notify each Indemnifying Party thereof in writing; PROVIDED, HOWEVER,
that no delay on the part of the Indemnified Party in notifying any
Indemnifying Party shall relieve the Indemnifying Party from any
obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is materially prejudiced.
(ii) Any Indemnifying Party will have the right to
defend the Indemnified Party against the Third Party Claim with
counsel of its choice reasonably satisfactory to the Indemnified Party
so long as (A) the Indemnifying Party notifies the Indemnified Party
in writing within 15 days after the Indemnified Party has given notice
of the Third Party Claim that the Indemnifying Party will indemnify
the Indemnified Party from and against the entirety of any Adverse
Consequences the Indemnified Party may suffer resulting from, arising
out of, relating to, in the nature of, or caused by the Third Party
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Claim, (B) the Indemnifying Party provides the Indemnified Party with
evidence reasonably acceptable to the Indemnified Party that the
Indemnifying Party will have the financial resources to defend against
the Third Party Claim and fulfill its indemnification obligations
hereunder, (C) the Third Party Claim involves only money damages and
does not seek an injunction or other equitable relief, (D) settlement
of, or an adverse judgment with respect to, the Third Party Claim is
not, in the good faith judgment of the Indemnified Party, likely to
establish a precedential custom or practice materially adverse to the
continuing business interests of the Indemnified Party, (E) the named
parties to the Third Party Claim do not include both the Indemnified
Party and the Indemnifying Party, and (F) the Indemnifying Party
conducts the defense of the Third Party Claim actively and diligently.
(iii) So long as the Indemnifying Party is
conducting the defense of the Third Party Claim in accordance with
Section 8(d)(ii) above, (A) the Indemnified Party may retain separate
co-counsel at its sole cost and expense and participate in the defense
of the Third Party Claim, (B) the Indemnified Party will not consent
to the entry of any judgment or enter into any settlement with respect
to the Third Party Claim without the prior written consent of the
Indemnifying Party (not to be withheld unreasonably), and (C) the
Indemnifying Party will not consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim
without the prior written consent of the Indemnified Party (not to be
withheld unreasonably).
(iv) In the event any of the conditions in
Section 8(d)(ii) above is or becomes unsatisfied, however, (A) the
Indemnified Party may defend against, and consent to the entry of any
judgment or enter into any settlement with respect to, the Third Party
Claim in any manner it reasonably may deem appropriate (and the
Indemnified Party need not consult with, or obtain any consent from,
any Indemnifying Party in connection therewith), (B) the Indemnifying
Parties will reimburse the Indemnified Party promptly and periodically
for the costs of defending against the Third Party Claim (including
reasonable attorneys' fees and expenses), and (C) the Indemnifying
Parties will remain responsible for any Adverse Consequences the
Indemnified Party may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the Third Party Claim to the
fullest extent provided in this Section 8.
(e) DETERMINATION OF ADVERSE CONSEQUENCES. The Parties shall
take into account the time cost of money (using the Applicable Rate as the
discount rate) in determining Adverse Consequences for purposes of this Section
8. All indemnification payments under this Section 8 shall be deemed
adjustments to the Consideration.
(f) BASKET. The Transferors shall not be obligated to
indemnify North American pursuant to this Section 8 for any Adverse
Consequences in respect of a breach of (or inaccuracy in) a representation or
warranty until the aggregate amount of all Adverse Consequences in respect of
breaches (or inaccuracies) in representation or warranties exceeds $10,000 (the
"Trigger Amount"). Once the aggregate Adverse Consequences in respect of
37
<PAGE> 42
breaches (or inaccuracies) in representation or warranties exceed the Trigger
Amount, North American shall be entitled to indemnification for the full amount
of all Adverse Consequences in respect of breaches (or inaccuracies) in
representation or warranties above the Trigger Amount.
The foregoing limitation on the indemnification obligations of
Transferors shall not apply to any breach of any covenants or agreements of
Transferors in this Agreement. In addition, notwithstanding the foregoing
provisions of this paragraph, such limitations shall not apply to breaches of
(or inaccuracies in) any of the representations or warranties in the following
provisions of this Agreement: Sections 3(a), 4(a), 4(b), 4(c), 4(d) and 4(e).
Further, the foregoing limitations of liability shall not apply to any breach
of any representation or warranty if such representation or warranty was made
with actual knowledge or reckless disregard of its falsity or inaccuracy or
incompleteness.
In calculating the amount of Adverse Consequences incurred arising out
of or related to any breach of a representation or warranty, references to
"material" or "Material Adverse Effect" or "knowledge" or "Knowledge" or other
materiality or similar qualifications, including as expressed in accounting
concepts such as GAAP, shall be disregarded. No right of indemnification
hereunder shall be limited by reason of any investigation or audit conducted
before or after the Closing by any party hereto or the knowledge of such party
of any breach of any representation, warranty, covenant or agreement by the
other party at any time.
(g) OTHER INDEMNIFICATION PROVISIONS. The foregoing
indemnification provisions are in addition to, and not in derogation of, any
statutory, equitable, or common law remedy (including without limitation any
such remedy arising under Environmental, Health, and Safety Requirements) any
Party may have with respect to Target, or the transactions contemplated by this
Agreement. The Transferors hereby agree that he or it will not make any claim
for indemnification against Target by reason of the fact that he or it was a
director, officer, employee, or agent of any such entity or was serving at the
request of any such entity as a partner, trustee, director, officer, employee,
or agent of another entity (whether such claim is for judgments, damages,
penalties, fines, costs, amounts paid in settlement, losses, expenses, or
otherwise and whether such claim is pursuant to any statute, charter document,
bylaw, agreement, or otherwise) with respect to any matter for which a Buyer
Indemnified Party may be entitled to indemnification from the Transferors as
provided in this Section 8.
(h) The aggregate of all amounts required to be paid by
Transferor to North American shall be paid pursuant to the provision of
Section 9(g).
9. POST-CLOSING ADJUSTMENT OF CONSIDERATION.
(a) Within 60 days after the Closing Date, North American
will prepare and deliver to the Transferors a draft balance sheet (the "DRAFT
CLOSING DATE BALANCE SHEET") for Target as of the close of business on the
Closing Date (determined as though the Parties had not consummated the
transactions contemplated by this Agreement but on the accrual basis of
38
<PAGE> 43
accounting). North American will prepare the Draft Closing Date Balance Sheet
in accordance with GAAP applied on a basis consistent with the preparation of
the Financial Statements.
(b) If either Transferor has any objections to the Draft
Closing Date Balance Sheet, he will deliver a detailed statement describing his
objections to North American within 30 days after receiving the Draft Closing
Date Balance Sheet. North American and the Transferors will use reasonable
efforts to resolve any such objections themselves. If the Parties do not obtain
a final resolution within 30 days after North American has received the
statement of objections, however, North American and Transferors will select an
accounting firm mutually acceptable to them to resolve any remaining
objections. If North American and the Transferors are unable to agree on the
choice of an accounting firm, the will select a nationally-recognized
accounting firm by lot (after excluding their respective regular outside
accounting firms). The determination of any accounting firm so selected will be
set forth in writing and will be conclusive and binding upon the Parties. North
American will revise the Draft Closing Date Balance Sheet as appropriate to
reflect the resolution of any objections thereto pursuant to this Section 9(b).
The "CLOSING DATE BALANCE SHEET" shall mean the Draft Closing Date Balance
Sheet together with any revisions thereto pursuant to this Section 9(b).
(c) In the event the Parties submit any unresolved objections
to an accounting firm for resolution as provided in Section 9(b) above, any
expenses relating to the engagement of the accounting firm shall be allocated
between the Transferors and North American by the accounting firm in proportion
to the amount in dispute which is decided in favor of the challenging party.
(d) North American will make the work papers and back-up
materials used in preparing the Draft Closing Date Balance Sheet available to
Transferors and their accountants and other representatives at reasonable times
and upon reasonable notice during (A) the preparation by North American of the
Draft Closing Date Balance Sheet, (B) review by the Transferors of the Draft
Closing Date Balance Sheet, and (C) the resolution by the Parties of any
objections thereto.
(e) The Consideration, will be adjusted as follows:
(i) If the Shareholder's Equity set forth in the
Closing Date Balance Sheet is less than the Shareholder's Equity set
forth in the Most Recent Balance Sheet, the Transferors will pay to
the North American an amount equal to such deficiency (plus interest
thereon at the Applicable Rate from the Closing Date) within three
business days after the date on which the Revised Closing Date Balance
Sheet finally is determined pursuant to Section 9(b).
(ii) If the notes payable of Target set forth in the
Closing Date Balance Sheet are greater than the notes payable and
capital lease obligations of Target set forth on the Most Recent
Balance Sheet, the Transferors will pay to the North American an
amount equal to such excess (plus interest thereon at the Applicable
Rate from the
39
<PAGE> 44
Closing Date) within three business days after the date on which the
Closing Date Balance Sheet finally is determined pursuant to Section
9(b) above.
(f) In addition to the adjustments to the Consideration, if
any, made pursuant to Section 9(e) above, if the cash balances of Target in its
corporate bank accounts or on hand as of April 1, 1998 do not equal at least
$100,000, the Transferors will pay to North American an amount equal to such
deficiency (plus interest thereon at the Applicable Rate from the Closing Date)
within three business days after the date on which the Closing Date Balance
Sheet is finally determined pursuant to Section 9(b) above.
(g) The aggregate of all amounts required to be paid by
Transferor to North American pursuant to Section 9(e) and Section 8 shall be
paid 100% in North American Class B Common Stock (valued at $5.00 per share) up
to $355,250, then 100% in cash up to $50,000, and thereafter 49% in cash and
51% in North American Class B Common Shares (valued at $5.00 per share). The
cash portion of any such payment shall be made by wire transfer or delivery of
other immediately available funds.
10. TAX MATTERS. The following provisions shall govern the allocation
of responsibility as between North American and Transferors for certain tax
matters following the Closing Date:
(a) TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE.
Transferors shall prepare or cause to be prepared and timely file or cause to
be timely filed all Tax Returns for Target for all periods ending on or prior
to the Closing Date which are filed after the Closing Date (the "Pre-Closing
Period"). Such Tax Returns shall be prepared by treating items on such Tax
Return in a manner consistent with the past practices with respect to such
items, unless otherwise required by law (income tax returns shall be based on
the cash basis of accounting). Transferors shall permit North American to
review and comment on each such Tax Return described in the preceding sentence
prior to filing. North American shall pay the amounts due for Taxes of Target
with respect to the Pre-Closing Periods, up to the amount reflected in the
reserve for Tax Liability shown on the face of the Closing Date Balance Sheet.
Provided, however, that the reserve for Tax Liability shall not include any
reserve for deferred taxes established to reflect timing differences between
book and tax income. Transferors agree that they will pay, when due, all
amounts due for Taxes of Target with respect to Pre-Closing Periods, that
exceed the reserve for Tax Liability (provided, however, that the reserve for
Tax Liability shall not include any reserve for deferred taxes established to
reflect timing differences between book and Tax income) shown on the face of
the Closing Date Balance Sheet.
(b) TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING
DATE. North American shall prepare or cause to be prepared and file or cause to
be filed any Tax Returns of Target for Tax periods which begin before the
Closing Date and end after the Closing Date. North American shall permit
Transferors to review and comment on each such Tax return described in the
preceding sentence prior to filing. Transferors shall pay to North American
within fifteen (15) days after the date on which Taxes are paid with respect to
such periods an
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<PAGE> 45
amount equal to the portion of such Taxes which relates to the portion of such
Taxable period ending on the Closing Date to the extent such Taxes are not
reflected in the reserve for Tax Liability shown on the face of the Closing
Date Balance Sheet or, provided, however, that the reserve for Tax Liability
shall not include any reserve for deferred taxes established to reflect timing
differences between book and tax income. For purposes of this Section, in the
case of any Taxes that are imposed on a periodic basis and are payable for a
Taxable period that includes (but does not end on) the Closing Date, the
portion of such Tax which relates to the portion of such Taxable period ending
on the Closing Date shall (x) in the case of any real and personal property
Taxes, be deemed to be the amount of such Tax for the entire Taxable period
multiplied by a fraction the numerator of which is the number of days in the
Taxable period ending on the Closing Date and the denominator of which is the
number of days in the entire Taxable period, and (y) in the case of any other
Tax be deemed equal to the amount which would be payable if the relevant
Taxable period ended on the Closing Date. Any credits relating to a Taxable
period that begins before and ends after the Closing Date shall be taken into
account as though the relevant Taxable period ended on the Closing Date. All
determinations necessary to give effect to the foregoing allocations shall be
made in a manner consistent with prior practice of Target.
(c) COOPERATION ON TAX MATTERS.
(i) North American, Target and Transferors shall
cooperate fully, as and to the extent reasonably requested by the
other party, in connection with the filing of Tax Returns pursuant to
this Section and any audit, litigation or other proceeding with
respect to Taxes. Such cooperation shall include the retention and
(upon the other party's request) the provision of records and
information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a
mutually convenient basis to provide additional information and
explanation of any material provided hereunder. Target and Transferors
agree (A) to retain all books and records with respect to Tax matters
pertinent to Target relating to any taxable period beginning before
the Closing Date until the expiration of the statute of limitations
(and, to the extent notified by North American or Transferors, any
extensions thereof) of the respective taxable periods, and to abide by
all record retention agreements entered into with any taxing
authority, and (B) to give the other party reasonable written notice
prior to transferring, destroying or discarding any such books and
records and, if the other party so requests, Target or Transferors, as
the case may be, shall allow the other party to take possession of
such books and records.
(ii) North American and Transferors further agree,
upon request, to use their best efforts to obtain any certificate or
other document from any governmental authority or any other Person as
may be necessary to mitigate, reduce or eliminate any Tax that could
be imposed (including, but not limited to, with respect to the
transactions contemplated hereby).
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<PAGE> 46
(iii) North American and Transferors further agree,
upon request, to provide the other party with all information that
either party may be required to report pursuant to Section 6043 of the
Code and all Treasury Department Regulations promulgated thereunder.
(iv) Transferors agree that promptly after the
Closing Date, he will prepare and file any required S Corporation
federal and state tax returns for Target for the period from January
1, 1997 through the Closing Date and will pay all applicable Taxes for
that period, as more particularly described in Section 10(e) below.
(d) TAX SHARING AGREEMENTS. All tax sharing agreements or
similar agreements with respect to or involving Target shall be terminated as
of the Closing Date and, after the Closing Date, Target shall not be bound
thereby or have any liability thereunder.
(e) S CORPORATION STATUS. If Target is an S Corporation,
Transferors acknowledge that as a result of the consummation of the
transactions contemplated by this Agreement, Target's S Corporation status will
terminate as of the Closing Date. Notwithstanding anything in this Section 10
to the contrary, Transferors agree that they will file any required S
Corporation federal, state or local tax returns for Target for the period from
January 1, 1997 through the Closing Date and will pay all applicable Taxes for
such period. Transferors will elect under Section 1362(e)(3) of the Code not to
have the pro rata allocation method of Section 1362(e)(2) of the Code apply to
Target's final taxable year as an S Corporation.
(f) CERTAIN TAXES. All transfer, documentary, sales, use,
stamp, registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement, shall be paid by
Transferors when due, and Transferors will, at its own expense, file all
necessary Tax Returns and other documentation with respect to all such
transfer, documentary, sales, use, stamp, registration and other Taxes and
fees, and, if required by applicable law, North American will, and will cause
its affiliates to, join in the execution of any such Tax Returns and other
documentation.
11. TERMINATION.
(a) TERMINATION OF AGREEMENT. The Parties may terminate this
Agreement as provided below:
(i) North American and the Transferors may terminate
this Agreement by mutual written consent at any time prior to the
Closing;
(ii) North American may terminate this Agreement by
giving written notice to the Transferors at any time prior to the
Closing (A) in the event the Transferors have breached any
representation, warranty, or covenant contained in this Agreement in
any material respect, North American has notified the Transferors of
the breach, and the breach has continued without cure for a period of
30 days after the notice of breach or
42
<PAGE> 47
(B) if the Closing shall not have occurred on or before April 15,
1998, by reason of the failure of any condition precedent under
Section 7(a) hereof (unless the failure results primarily from the
North American itself breaching any representation, warranty, or
covenant contained in this Agreement); and
(iii) the Transferors may terminate this Agreement
by giving written notice to North American at any time prior to the
Closing (A) in the event North American has breached any
representation, warranty, or covenant contained in this Agreement in
any material respect, the Transferors have notified the North American
of the breach, and the breach has continued without cure for a period
of 30 days after the notice of breach or (B) if the Closing shall not
have occurred on or before April 15, 1998, by reason of the failure of
any condition precedent under Section 7(b) hereof (unless the failure
results primarily from the Transferors themselves breaching any
representation, warranty, or covenant contained in this Agreement).
(b) EFFECT OF TERMINATION. If any Party terminates this
Agreement pursuant to Section 11(a) above, all rights and obligations of the
Parties hereunder shall terminate without any Liability of any Party to any
other Party (except for any Liability of any Party then in breach).
12. MISCELLANEOUS.
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall
issue any press release or make any public announcement relating to the subject
matter of this Agreement prior to the Closing without the prior written
approval of the North American and the Transferors; PROVIDED, HOWEVER, that any
Party may make any public disclosure it believes in good faith is required by
applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing Party will use its
best efforts to advise the other Parties prior to making the disclosure).
(b) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not
confer any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns and the Indemnified Parties
referred to in Section 8 hereof.
(c) ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or among
the Parties, written or oral, to the extent they related in any way to the
subject matter hereof.
(d) SUCCESSION AND ASSIGNMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the Parties
named herein and their respective successors and permitted assigns. No Party
may assign either this Agreement or any of his or its rights, interests, or
obligations hereunder without the prior written approval of the North American
and the Transferors; PROVIDED, HOWEVER, that the North American may (i) assign
any or all of its rights and interests hereunder to one or more of its
Affiliates, (ii) designate one
43
<PAGE> 48
or more of its Affiliates to perform its obligations hereunder (in any or all
of which cases the North American nonetheless shall remain responsible for the
performance of all of its obligations hereunder) and (iii) without the approval
of the Transferors assign their rights and interests hereunder to its lenders
(and any agent for the lenders), and the Parties consent to any exercise by
such lenders (and such agents) of their rights and remedies with respect to
such collateral.
(e) COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) HEADINGS. The section headings contained in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
(g) NOTICES. All notices, requests, demands, claims, and
other communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
<TABLE>
<CAPTION>
IF TO THE TRANSFERORS: COPY TO:
---------------------- --------
<S> <C>
David Mai Ansbacher & Schneider
Frank Back 4215 Southpoint Blvd.
c/o Excel Cable Construction, Inc. Suite 100
1189 Cunningham Creek Drive Jacksonville, Florida 32216
Jacksonville, Florida 32259 Attn: Michael Schneider, Esq.
</TABLE>
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<TABLE>
<CAPTION>
IF TO THE NORTH AMERICAN: COPY TO:
------------------------- --------
<S> <C>
North American Tel-Com Group, Inc. Holland & Knight LLP
2240 Palm Beach Lakes Blvd, Ste. 100 1 East Broward Blvd., 13th Floor
West Palm Beach, FL 33409 Ft. Lauderdale, Florida 33301
Attn: William J. Mercurio Attn: Donn A. Beloff, Esq.
Holland & Knight LLP
701 Brickell Avenue
Miami, Florida 33131
Attn: Teresita H. Garcia, Esq.
H.I.G. Capital Management, Inc.
1001 Brickell Bay Drive, Suite 2708
Miami, Florida 33131
Attn: Sami W. Mnaymneh
White & Case, LLP
First Union Financial Tower
Suite 4900
200 S. Biscayne Blvd.
Miami, Florida 33131
Attn: Jorge L. Freeland, Esq.
</TABLE>
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been
duly given unless and until it actually is received by the intended recipient.
Any Party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other
Parties notice in the manner herein set forth.
(h) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Florida without
giving effect to any choice or conflict of law provision or rule (whether of
the State of Florida or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Florida.
(i) AMENDMENTS AND WAIVERS. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
the North American and the Transferors. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
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(j) SEVERABILITY. Any term or provision of this Agreement
that is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
(k) EXPENSES. Each of the Parties will bear his or its own
costs and expenses (including legal fees and expenses) incurred in connection
with this Agreement and the transactions contemplated hereby. The Transferors
agree Target has not borne or will bear any of the Transferors' costs and
expenses (including any of their legal fees and expenses) in connection with
this Agreement or any of the transactions contemplated hereby.
(l) CONSTRUCTION. The Parties have participated jointly in
the negotiation of this Agreement. In the event an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as if
drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local,
or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
(m) INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The
Exhibits, Annexes, Schedules and Certificates identified in this Agreement are
incorporated herein by reference and made a part hereof.
(n) SPECIFIC PERFORMANCE. Each of the Parties acknowledges
and agrees that the other Parties would be damaged irreparably in the event any
of the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter (subject to the provisions set
forth in Section 10(o) below), in addition to any other remedy to which they
may be entitled, at law or in equity.
(o) SUBMISSION TO JURISDICTION. Each of the Parties submits
to the jurisdiction of any state or federal court sitting in Palm Beach County,
Florida, in any action or proceeding arising out of or relating to this
Agreement and agrees that all claims in respect of the action or proceeding may
be heard and determined in any such court. Each of the Parties waives any
defense of inconvenient forum to the maintenance of any action or proceeding so
brought and
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<PAGE> 51
waives any bond, surety, or other security that might be required of any other
Party with respect thereto. Any Party may make service on any other Party by
sending or delivering a copy of the process to the Party to be served at the
address and in the manner provided for the giving of notices in Section 12(o)
above. Nothing in this Section 12(g), however, shall affect the right of any
Party to bring any action or proceeding arising out of or relating to this
Agreement in any other court or to serve legal process in any other manner
permitted by law or at equity. Each Party agrees that a final judgment in any
action or proceeding so brought shall be conclusive and may be enforced by suit
on the judgment or in any other manner provided by law or at equity.
In any action or proceeding arising out of or relating to this
Agreement, the prevailing party shall be entitled to recover reasonable
attorney's fees and costs from the other party to the action or proceeding.
(p) WAIVER OF JURY TRIAL. THE PARTIES HEREBY IRREVOCABLY
WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY AND TO
THE FULLEST EXTENT PERMITTED BY LAW WAIVE ANY RIGHTS THAT THEY MAY HAVE TO
CLAIM OR RECEIVE CONSEQUENTIAL OR SPECIAL DAMAGES IN CONNECTION WITH ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
*****
47
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
NORTH AMERICAN TEL-COM, INC.
By:
-------------------------------
William J. Mercurio
TRANSFERORS
----------------------------------
David Mai
----------------------------------
Frank Back
48
<PAGE> 1
Exhibit 10.8
STOCK EXCHANGE AGREEMENT
AMONG
NORTH AMERICAN TEL-COM GROUP, INC.,
AND
LARRY BONADEO
March 31, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AGREEMENT.............................................................................................. 1
1. Definitions................................................................................... 1
2. Exchange Transaction.......................................................................... 6
(a) Basic Transaction.................................................................... 6
(b) Consideration........................................................................ 6
(c) The Closing.......................................................................... 6
(d) Deliveries at Closing................................................................ 7
3. Representations and Warranties Concerning the Transaction..................................... 7
(a) Representations and Warranties of the Transferor..................................... 7
(b) Representations and Warranties of the North American................................. 8
4. Representations and Warranties Concerning Target.............................................. 11
(a) Organization, Qualification, and Corporate Power..................................... 11
(b) Authorization of Transaction......................................................... 11
(c) Capitalization....................................................................... 11
(d) Noncontravention..................................................................... 12
(e) Brokers' Fees........................................................................ 12
(f) Title to Assets...................................................................... 12
(g) Subsidiaries......................................................................... 12
(h) Financial Statements................................................................. 12
(i) Events Subsequent to Most Recent 12-Month Period End................................. 13
(j) Undisclosed Liabilities.............................................................. 15
(k) Legal Compliance..................................................................... 15
(l) Tax Matters.......................................................................... 15
(m) Real Property........................................................................ 17
(n) Intellectual Property................................................................ 18
(o) Tangible Assets...................................................................... 20
(p) Inventory............................................................................ 20
(q) Contracts............................................................................ 20
(r) Notes and Accounts Receivable........................................................ 20
(s) Powers of Attorney................................................................... 21
(t) Insurance............................................................................ 21
(u) Litigation........................................................................... 21
(v) Commitments and Warranties........................................................... 22
(w) Liability for Services Performed..................................................... 22
(x) Employees............................................................................ 22
(y) Employee Benefits.................................................................... 22
(z) Guaranties........................................................................... 24
(aa) Environmental, Health, and Safety Matters............................................ 24
(ab) Certain Business Relationships with Target........................................... 26
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
(ac) Customers and Suppliers.............................................................. 26
(ad) Disclosure........................................................................... 26
5. Pre-Closing Covenants......................................................................... 26
(a) General.............................................................................. 26
(b) Notices and Consents................................................................. 26
(c) Operation of Business................................................................ 27
(d) Preservation of Business............................................................. 27
(e) Full Access.......................................................................... 27
(f) Notice of Developments............................................................... 27
(g) Exclusivity.......................................................................... 28
(h) No Termination of Transferor's Obligation by Subsequent Incapacity................... 28
6. Post-Closing Covenants........................................................................ 28
(a) General.............................................................................. 28
(b) Litigation Support................................................................... 28
(c) Transition........................................................................... 28
(d) Confidentiality...................................................................... 29
(e) Stock Options........................................................................ 29
(f) Independent Accountants.............................................................. 29
(g) Employees of Target.................................................................. 29
(h) Tax Matters.......................................................................... 29
7. Conditions to Obligation to Close............................................................. 30
(a) Conditions to Obligation of North American........................................... 30
(b) Conditions to Obligation of the Transferor........................................... 32
(c) Post-Closing Obligations of Transferor............................................... 33
8. Remedies for Breaches of This Agreement....................................................... 33
(a) Survival of Representations and Warranties........................................... 33
(b) Indemnification Provisions for Benefit of the North American......................... 34
(c) Indemnification Provisions for Benefit of the Transferor............................. 36
(d) Matters Involving Third Parties...................................................... 36
(e) Determination of Adverse Consequences................................................ 38
(f) Basket............................................................................... 38
(g) Other Indemnification Provisions..................................................... 38
9. Post-Closing Adjustment of Consideration...................................................... 39
10. Tax Matters................................................................................... 40
(a) Tax Periods Ending on or Before the Closing Date..................................... 40
(b) Tax Periods Beginning Before and Ending After the Closing Date....................... 40
(c) Cooperation on Tax Matters........................................................... 41
(d) Tax Sharing Agreements............................................................... 42
(e) S Corporation Status................................................................. 42
(f) Certain Taxes........................................................................ 42
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
11. Termination................................................................................... 42
(a) Termination of Agreement............................................................. 42
(b) Effect of Termination................................................................ 43
12. Miscellaneous................................................................................. 43
(a) Press Releases and Public Announcements.............................................. 43
(b) No Third-Party Beneficiaries......................................................... 43
(c) Entire Agreement..................................................................... 43
(d) Succession and Assignment............................................................ 43
(e) Counterparts......................................................................... 44
(f) Headings............................................................................. 44
(g) Notices.............................................................................. 44
(h) Governing Law........................................................................ 45
(i) Amendments and Waivers............................................................... 45
(j) Severability......................................................................... 46
(k) Expenses............................................................................. 46
(l) Construction......................................................................... 46
(m) Incorporation of Exhibits, Annexes, and Schedules.................................... 46
(n) Specific Performance................................................................. 46
(o) Submission to Jurisdiction........................................................... 46
(p) WAIVER OF JURY TRIAL................................................................. 47
</TABLE>
Exhibit A--Intentionally Omitted
Exhibit B--Financial Statements
Exhibit C--List of Key Employees
Exhibit D--Opinion of Transferor's Counsel
Exhibit E--Real Property Lease
Exhibit F--Secretary and Incumbency Certificate (Target)
Exhibit G--Employment Agreements
Exhibit H--Intentionally Omitted
Exhibit I--Opinion of North American's Counsel
Exhibit J--Secretary and Incumbency Certificate (North American)
Annex I--Exceptions to the Transferor's Representations and Warranties
Concerning the Transaction
Annex II--Exceptions to the North American's Representations and Warranties
Concerning the Transaction
Disclosure Schedule--Exceptions to Representations and Warranties
Concerning Target
iii
<PAGE> 5
STOCK EXCHANGE AGREEMENT
Agreement entered into as of March 31, 1998, by and among North
American Tel-Com Group, Inc., a Florida corporation ("North American"), and
Larry Bonadeo (the "Transferor"), the sole shareholder of Mich-Com Cable
Services Incorporated, a Michigan corporation ("Target"). North American and
the Transferor are referred to collectively herein as the "Parties."
The Transferor in the aggregate owns all of the outstanding capital
stock of Target.
This Agreement contemplates the transfer by Transferor of all of the
issued and outstanding capital stock of Target to North American. The
Transferor will receive cash and capital stock in North American in exchange
for his capital stock in Target.
Simultaneously herewith, North American is entering into stock
exchange agreements for the acquisition of all of the issued and outstanding
capital stock of each of Kenya Corporation, CableMasters Corp., and Excel Cable
Construction, Inc. (together with this Agreement, the "Exchange Agreements")
and a Securities Purchase Agreement with HIG Cable, Inc. All of the parties to
the Exchange Agreements intend for the transfers contemplated pursuant to the
Exchange Agreements to be treated as a single transaction qualifying under
Section 351 of the Code (as that term is hereafter defined).
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1. DEFINITIONS.
"ACCREDITED INVESTOR" has the meaning set forth in Regulation
D promulgated under the Securities Act.
"ADVERSE CONSEQUENCES" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses,
expenses, and fees, including court costs and reasonable attorneys' fees and
expenses, and any other cost of enforcing a party's rights under this
Agreement.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act.
"AFFILIATED GROUP" means any affiliated group within the
meaning of Code Section 1504(a) or any similar group defined under a similar
provision of state, local or foreign law.
"APPLICABLE RATE" means the corporate base rate of interest
publicly announced from time to time by PNC Bank, N.A.
<PAGE> 6
"BASIS" means any past or present fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction that forms or could form the
basis for any specified consequence.
"CLOSING" has the meaning set forth in Section 2(c) below.
"CLOSING DATE" has the meaning set forth in Section 2(c)
below.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONFIDENTIAL INFORMATION" means any information concerning
the businesses and affairs of Target that is not already generally available to
the public.
"CONSIDERATION" has the meaning set forth in Section 2(b)
below.
"CONTROLLED GROUP OF CORPORATIONS" has the meaning set forth
in Code Section 1563.
"DISCLOSURE SCHEDULE" has the meaning set forth in Section 4
below.
"EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan), (d) Employee Welfare Benefit Plan or (e)
bonus, incentive, stock purchase, stock ownership, stock option, stock
appreciation right, severance, salary continuation, termination, change of
control or other material fringe benefit plan or program.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in
ERISA Section 3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in
ERISA Section 3(1).
"ENVIRONMENTAL, HEALTH, AND SAFETY REQUIREMENTS" shall mean
all federal, state, local and foreign statutes, regulations, ordinances and
other provisions having the force or effect of law, all judicial and
administrative orders and determinations, all contractual obligations and all
common law concerning public health and safety, worker health and safety, and
pollution or protection of the environment, including without limitation all
those relating to the presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution, labeling, testing,
processing, discharge, release, threatened release, control, or cleanup of any
Hazardous Materials (which, for purposes of this Agreement, shall meany any
hazardous materials, substances or wastes, chemical substances or mixtures,
pesticides, pollutants, contaminants, toxic chemicals, petroleum products or
byproducts, asbestos, polychlorinated biphenyls, noise or radiation), each as
amended and as now or hereafter in effect.
2
<PAGE> 7
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA AFFILIATE" means (i) any corporation included with
Target in a controlled group of corporations within the meaning of Section
414(b) of the Code; (ii) any trade or business (whether or not incorporated)
which is under common control with Target within the meaning of Section 414(c)
of the Code; (iii) any member of an affiliated service group of which Target is
a member within the meaning of Section 414(m) of the Code; or (iv) any other
person or entity treated as an affiliate of Target under Section 414(o) of the
Code.
"EXCHANGE AGREEMENTS" has the meaning set forth in the
preface above.
"EXCHANGES" means the transactions contemplated under the
Exchange Agreements.
"FIDUCIARY" has the meaning set forth in ERISA Section 3(21).
"FINANCIAL STATEMENT" has the meaning set forth in Section
4(h) below.
"GAAP" means United States generally accepted accounting
principles as in effect from time to time.
"HIG" refers to HIG Cable, Inc., a Cayman Islands
corporation.
"HART-SCOTT-RODINO ACT" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"INDEMNIFIED PARTY" has the meaning set forth in Section 8(d)
below.
"INDEMNIFYING PARTY" has the meaning set forth in Section
8(d) below.
"INTELLECTUAL PROPERTY" means (a) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications, and patent
disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof, (b)
all trademarks, service marks, trade dress, logos, trade names, and corporate
names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection therewith, (d) all mask works and all applications,
registrations, and renewals in connection therewith, (e) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals),
3
<PAGE> 8
(f) all computer software (including data and related documentation), (g) all
other proprietary rights, and (h) all copies and tangible embodiments thereof
(in whatever form or medium).
"KNOWLEDGE" means that which is known by a person and that of
which a person has constructive knowledge based upon information readily
available to that person in the performance of such person's duties. In the
case of North American or Target, "Knowledge" means the "Knowledge" of its
respective directors and executive officers.
"LIABILITY" means any liability (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"MATERIAL ADVERSE EFFECT" means, individually or together
with other adverse effects, any material adverse effect on the assets,
liabilities, results of operations, business condition (financial or otherwise)
or prospects of Target or on Target's ability to consummate the transactions
contemplated hereby or the ability of the North American to operate the
business of Target immediately after the Closing in substantially the same
manner as such business is conducted prior to Closing.
"MOST RECENT BALANCE SHEET" means the balance sheet contained
within the Most Recent Financial Statements.
"MOST RECENT FINANCIAL STATEMENTS" has the meaning set forth
in Section 4(h) below.
"MOST RECENT FISCAL PERIOD END" has the meaning set forth in
Section 4(h) below.
"MOST RECENT 12-MONTH PERIOD END" has the meaning set forth
in Section 4(h) below.
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA
Section 3(37).
"NATIONAL SECURITIES EXCHANGE" shall have the meaning
ascribed to that term in the rules and regulations promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934.
"NORTH AMERICAN" has the meaning set forth in the preface
above.
"NORTH AMERICAN CLASS A COMMON SHARES" means any share of the
Class A Common Stock, par value $.01 per share, of North American.
"NORTH AMERICAN CLASS B COMMON SHARES" means any share of the
Class B Common Stock, par value $.01 per share, of North American.
"NORTH AMERICAN COMMON STOCK" means any share of the common
stock, par value $.01 par share, of North American.
4
<PAGE> 9
"NORTH AMERICAN SERIES A PREFERRED SHARES" means any share of
the Series A Convertible Preferred Stock, par value $.01 per share, of North
American.
"NORTH AMERICAN PREFERRED STOCK" means any share of the
preferred stock, par value $.01 per share, of North American.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of
business consistent with past custom and practice (including with respect to
quantity and frequency).
"PARTY" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PERSON" means an individual, a partnership, a corporation,
an association, a joint stock company, a trust, a joint venture, an
unincorporated organization, or a governmental entity (or any department,
agency, or political subdivision thereof).
"PROHIBITED TRANSACTION" has the meaning set forth in ERISA
Section 406 and Code Section 4975.
"REPORTABLE EVENT" has the meaning set forth in ERISA Section
4043.
"SECURITIES ACT" means the Securities Act of 1933, as
amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act
of 1934, as amended.
"SECURITIES PURCHASE AGREEMENT" means the Securities Purchase
Agreement of even date herewith, by and between North American and HIG,
including exhibits thereto.
"SECURITY INTEREST" means any mortgage, pledge, lien,
encumbrance, charge, or other security interest, other than (a) mechanic's,
materialmen's, and similar liens that could not reasonably be expected to have
a Material Adverse Effect, (b) liens for Taxes not yet due and payable or for
Taxes that the taxpayer is contesting in good faith through appropriate
proceedings disclosed on Section 4(l) of the Disclosure Schedule, (c) purchase
money liens and liens securing rental payments under capital lease arrangements
disclosed in the Most Recent Financial Statements, and (d) other liens arising
in the Ordinary Course of Business and not incurred in connection with the
borrowing of money, so long as such liens could not reasonably be expected to
have a Material Adverse Effect.
"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement of
North American of even date herewith.
5
<PAGE> 10
"SUBSIDIARY" means any corporation with respect to which a
specified Person (or a Subsidiary thereof) owns a majority of the common stock
or has the power to vote or direct the voting of sufficient securities to elect
a majority of the directors.
"TARGET" has the meaning set forth in the preface above.
"TARGET SHARE" means any share of the Common Stock, par value
$1.00 per share, of Target.
"TARGET SHAREHOLDER" means any Person who or which holds any
Target Shares.
"TAX" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Code Section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed or not,
and any obligations under any agreements or arrangements with respect to any of
the foregoing.
"TAX RETURN" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"THIRD PARTY CLAIM" has the meaning set forth in Section 8(d)
below.
"TRANSFEROR" has the meaning set forth in the preface above.
2. EXCHANGE TRANSACTION.
(a) BASIC TRANSACTION. On and subject to the terms and
conditions of this Agreement, North American agrees to acquire from the
Transferor, and the Transferor agrees to transfer to North American, all of his
Target Shares for the consideration specified below in this Section 2.
(b) CONSIDERATION. North American agrees to deliver to the
Transferor at Closing (i) cash in the amount of $3,773,000 payable by wire
transfer or other immediately available funds and (ii) 817,400 North American
Class B Common Shares (collectively, the "Consideration"). The Consideration
shall be subject to adjustment pursuant to the provisions of Section 9 hereof.
(c) THE CLOSING. The closing of the transactions contemplated
by this Agreement (the "CLOSING") shall take place at the offices of Holland &
Knight LLP in Miami,
6
<PAGE> 11
Florida, commencing at 9:00 a.m. local time on March 31, 1998 or such other
date, time and place as the Parties may mutually determine (the "CLOSING
DATE").
(d) DELIVERIES AT CLOSING. At the Closing, (i) the Transferor
will deliver to the North American the various certificates, instruments, and
documents referred to in Section 7(a) below, (ii) North American will deliver to
the Transferor the various certificates, instruments, and documents referred to
in Section 7(b) below, and (iii) the Transferor will deliver to North American
stock certificates representing all of his Target Shares, endorsed in blank or
accompanied by duly executed assignment documents, and (iv) North American will
deliver to the Transferor the Consideration specified in Section 2(b) above.
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
(a) REPRESENTATIONS AND WARRANTIES OF THE TRANSFEROR.
Transferor represents and warrants to North American that the statements
contained in this Section 3(a) are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Section 3(a)), except as set forth in Annex I
attached hereto.
(i) AUTHORIZATION OF TRANSACTION. The Transferor has
full power and authority to execute and deliver this Agreement and to
perform his obligations hereunder. This Agreement constitutes the
valid and legally binding obligation of the Transferor, enforceable in
accordance with its terms and conditions except to the extent
enforcement thereof may be limited by applicable bankruptcy,
reorganization, insolvency or moratorium laws, or other laws affecting
the enforcement of creditors' rights or by the principles governing
the availability of equitable remedies. The Transferor need not give
any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency or any
other Person in order to consummate the transactions contemplated by
this Agreement.
(ii) NONCONTRAVENTION. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court
to which the Transferor is subject or (B) conflict with, result in a
breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or
cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which the Transferor is a
party or by which he is bound or to which any of his assets is
subject.
(iii) BROKERS' FEES. Transferor has, or prior to
Closing will have, paid any fees or commissions due from Transferor to
any broker, finder, or agent with respect to the transactions
contemplated by this Agreement. Transferor agrees that he will pay
7
<PAGE> 12
any additional amounts that may become due from him or Target to any
such broker, finder or agent in the future, including as a result of
any indemnification obligations.
(iv) INVESTMENT. The Transferor (A) understands
that, except as contemplated under the Stockholders Agreement, the
North American Class B Common Shares that he will receive as part of
the Purchase Price have not been, and will not be, registered under
the Securities Act, or under any state securities laws, and are being
offered and sold in reliance upon federal and state exemptions for
transactions not involving any public offering, (B) is acquiring such
North American Class B Common Shares solely for his own account for
investment purposes, and not with a view to the distribution thereof,
(C) is a sophisticated investor with knowledge and experience in
business and financial matters, (D) has received certain information
concerning North American and has had the opportunity to obtain
additional information as desired in order to evaluate the merits and
the risks inherent in holding the North American Class B Common
Shares, (E) is able to bear the economic risk and lack of liquidity
inherent in holding the North American Class B Common Shares, and (F)
is an Accredited Investor for the reasons set forth on Annex I.
(v) TARGET SHARES. The Transferor holds of record
and owns beneficially all of the issued and outstanding Target Shares,
as further described in Section 4(c) hereof, free and clear of any
restrictions on transfer (other than any restrictions under the
Securities Act and state securities laws), Taxes, security interests
liens or other encumbrances, options, warrants, purchase rights,
contracts, commitments, equities, claims, and demands. The Transferor
is not a party to any option, warrant, purchase right, or other
contract or commitment that could require the Transferor to sell,
transfer, or otherwise dispose of any capital stock of Target (other
than this Agreement). The Transferor is not a party to any voting
trust, proxy, shareholders agreement, or other agreement or
understanding with respect to the voting of any capital stock of
Target.
(vi) DISCLOSURE. Neither this Agreement nor any of
the exhibits, attachments, written statements, documents, certificates
or other items prepared for or supplied to North American by the
Transferor with respect to the transactions contemplated hereby
contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make each statement contained
herein or therein not misleading. There is no fact which the
Transferor has not disclosed to the North American herein and of which
the Transferor is aware which could be anticipated to have a Material
Adverse Effect.
(b) REPRESENTATIONS AND WARRANTIES OF THE NORTH AMERICAN.
North American represents and warrants to Transferor that the statements
contained in this Section 3(b) are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Section 3(b)), except as set forth in Annex II
attached hereto.
8
<PAGE> 13
(i) ORGANIZATION OF THE NORTH AMERICAN. North
American is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Florida. Correct and
complete copies of the charter and bylaws of North American (as
amended to date) are included as part of Annex II. The names and
titles of each officer and director of North American is set forth in
Annex II.
(ii) CAPITALIZATION OF NORTH AMERICAN. The entire
authorized capital stock of North American consists of (i) 98,000,000
shares of North American Common Stock, including (i) 10,000,000 North
American Class A Common Shares, 20,000,000 North American Class B
Common Shares, and 68,000,000 Shares of undesignated North American
Common Stock and (ii) 2,000,000 shares of North American Preferred
Stock, including 100,000 designated as North American Series A
Preferred Shares. The issued and outstanding capital stock of North
American, immediately prior to (i) the closing of the transactions
contemplated pursuant to the Exchange Agreements and (ii) the proposed
sale of 100,000 North American Series A Preferred Shares to HIG,
consists of 1,946,330 North American Class A Common Shares, no North
American Class B Common Shares and no North American Preferred Stock.
The issued and outstanding capital stock of North American,
immediately following the (i) closing of the transactions contemplated
pursuant to the Exchange Agreements and (ii) the proposed sale of
100,000 North American Series A Preferred Shares to HIG, shall consist
of 1,946,330 North American Class A Shares, 5,011,800 North American
Class B Shares and 100,000 North American Series A Preferred Shares,
held of record as set forth in Annex II hereto. All of the issued and
outstanding North American Class A Common Shares have been, and upon
issuance pursuant to the Exchange Agreements and the Securities
Purchase Agreement, respectively, the 5,011,800 Class B Common Shares
and the 100,000 North American Series A Preferred Shares will be, duly
authorized, validly issued, fully paid, and nonassessable. Except as
disclosed in Annex II, there are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights,
exchange rights, or other contracts or commitments that could require
North American to issue, sell, or otherwise cause to become
outstanding any of its capital stock. Except as disclosed in Annex II,
there are no outstanding or authorized stock appreciation, phantom
stock, profit participation, or similar rights with respect to North
American. Except as disclosed in Annex II, there are no voting trusts,
proxies or other agreements or understandings with respect to the
voting of the capital stock of North American.
Included as part of Annex II is an unaudited pro
forma balance sheet for North American, dated as of the date of this
Agreement, which gives effect on a pro forma basis to (i) the
consummation of the transactions contemplated by the Exchange
Agreements, (ii) the sale of 100,000 North American Series A Preferred
Shares to HIG and (iii) the proposed $10,000,000 Revolving Credit
Facility and $19,000,000 Term Loan from PNC Bank, N.A.
Also included as part of Annex II is a table listing
the percentage of North American capital stock attributable to each
class of shareholders of North American
9
<PAGE> 14
immediately following the closing of (i) the transactions contemplated
by the Exchange Agreements and (ii) the transactions contemplated by
the Securities Purchase Agreement.
(iii) OPERATION. North American has not conducted
any activities or incurred any liabilities other than in connection
with the Exchanges and in connection with securing financing for the
Exchanges.
(iv) AUTHORIZATION OF TRANSACTION. North American
has full power and authority (including full corporate power and
authority) to execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement constitutes the valid and
legally binding obligation of North American, enforceable in
accordance with its terms and conditions except to the extent
enforcement thereof may be limited by applicable bankruptcy,
reorganization, insolvency or moratorium laws, or other laws affecting
the enforcement of creditors' rights or by the principles governing
the availability of equitable remedies. North American need not give
any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency or any
other Person in order to consummate the transactions contemplated by
this Agreement.
(v) NONCONTRAVENTION. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court
to which either North American is subject or any provision of their
respective charter or bylaws or (B) conflict with, result in a breach
of, constitute a default under, result in the acceleration of, create
in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which North American is a party or
by which North American is bound or to which any of its assets is
subject.
(vi) BROKERS' FEES. North American has, or prior to
the Closing will have, paid or made arrangements to pay any fees or
commissions due from North American to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement. North
American agrees that they will pay any additional amounts that may
become due from North American to any such broker, finder or agent in
the future, including as a result of any indemnification obligations.
(vii) DISCLOSURE. Neither this Agreement nor any of
the exhibits, attachments, written statements, documents, certificates
or other items prepared for or supplied to the Transferor by the North
American with respect to the transactions contemplated hereby contains
any untrue statement of a material fact or omits to state any material
fact necessary in order to make each statement contained herein or
therein not misleading. There is no fact which North American has not
disclosed to the Transferor herein and of which North American or any
of the its officers or directors is aware and
10
<PAGE> 15
which could be anticipated to have a material adverse effect on the
operations of North American after the Closing.
4. REPRESENTATIONS AND WARRANTIES CONCERNING TARGET. The Transferor
represents and warrants to the North American that the statements contained in
this Section 4 are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 4), except as set forth in the Disclosure Schedule
delivered by the Transferor to the North American on the date hereof and
initialed by the Parties (the "DISCLOSURE SCHEDULE"). The Disclosure Schedule
shall be effective to modify only those representations and warranties to which
the Disclosure Schedule makes explicit reference. The Disclosure Schedule will
be arranged in paragraphs corresponding to the lettered and numbered paragraphs
contained in this Section 4.
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. Target
is a corporation duly organized, validly existing, and in good standing under
the laws of the jurisdiction of its incorporation. Target is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required. Target has full corporate power and
authority and all licenses, permits, and authorizations necessary to carry on
the businesses in which it is engaged and in which it presently proposes to
engage and to own and use the properties owned and used by it. Section 4(a) of
the Disclosure Schedule lists the directors and officers of Target. Correct and
complete copies of the charter and bylaws of Target (as amended to date) are
included as part of Section 4(a) of the Disclosure Schedule. The minute books
(containing the records of meetings of the stockholders, the board of
directors, and any committees of the board of directors), the stock certificate
books, and the stock record books of Target are correct and complete and an
true and correct copy thereof has been provided to North American. Target is
not in default under or in violation of any provision of its charter or bylaws.
(b) AUTHORIZATION OF TRANSACTION. [INTENTIONALLY LEFT BLANK]
(c) CAPITALIZATION. The entire authorized capital stock of
Target consists of 50,000 Target Shares, of which 5,000 Target Shares are
issued and outstanding and no Target Shares are held in treasury. All of the
issued and outstanding Target Shares have been duly authorized, are validly
issued, fully paid, and nonassessable, and are held of record and owned
beneficially solely by the Transferor. There are no outstanding or authorized
options, warrants, purchase rights, subscription rights, conversion rights,
exchange rights, preemptive rights or other contracts or commitments that could
require Target to issue, sell, or otherwise cause to become outstanding any of
its capital stock or securities convertible or exchangeable for, or any
options, warranties, or rights to purchase, any of such capital stock. There
are no outstanding obligations of Target to repurchase, redeem or otherwise
acquire any capital stock or any securities convertible into or exchangeable
for such capital stock or any options, warrants or rights to purchase such
capital stock or securities. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation, or similar rights with
respect to Target. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting,
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transfer, dividend or other rights (such as registration rights under the
Securities Act) of the capital stock of Target.
(d) NONCONTRAVENTION. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated
hereby, will (i) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of
any government, governmental agency, or court to which Target is subject or any
provision of the charter or bylaws of Target or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which Target is a party or by which it is bound or to which any
of its assets is subject (or result in the imposition of any Security Interest
upon any of its assets). Target need not give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any Person,
government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
(e) BROKERS' FEES. Target has, or prior to Closing will have,
paid any fees or commissions due from Target to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement. Transferor
agrees that he will pay any additional amounts that may become due from Target
to any such broker, finder or agent in the future, including as a result of any
indemnification obligations.
(f) TITLE TO ASSETS. Target has good and marketable title to,
or a valid leasehold interest in, the properties and assets used by it, located
on its premises, or shown on the Most Recent Balance Sheet or acquired after
the date thereof, free and clear of all Security Interests (other than the
Security Interests disclosed on the face of the Most Recent Balance Sheet),
except for properties and assets disposed of in the Ordinary Course of Business
since the date of the Most Recent Balance Sheet, none of which disposals are
expected to have a Material Adverse Effect. The consummation of the
transactions contemplated by this Agreement will not affect Target's good and
marketable title to, or valid leasehold interest in, the properties and assets
described in the preceding sentence.
(g) SUBSIDIARIES. Target does not currently have, and has
never had, any Subsidiaries and does not own any securities of any other
Person.
(h) FINANCIAL STATEMENTS. Attached hereto as EXHIBIT B are
the following financial statements (collectively the "FINANCIAL STATEMENTS"):
(i) audited consolidated balance sheets and statements of income, changes in
stockholders' equity, and cash flow including the audit report thereon as of
and for the 12-month period ended December 31, 1997 (the "MOST RECENT 12-MONTH
PERIOD END") for Target; (ii) unaudited consolidated balance sheets, statements
of income, changes in stockholders' equity, and cash flow as of and for the
fiscal years ended June 30, 1993, June 30, 1994, June 30, 1995, June 30, 1996
and June 30, 1997 and (iii) unaudited consolidated balance sheets and
statements of income, changes in stockholders' equity, and cash flow, (the
"MOST RECENT FINANCIAL STATEMENTS") as of and for the period from January
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1, 1998, through February 28, 1998 (the "MOST RECENT FISCAL PERIOD END") for
Target. The Financial Statements (including the notes thereto) have been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered thereby, present fairly the financial condition of Target as of
such dates and the results of operations of Target for such periods, are
correct and complete, and are consistent with the books and records of Target
(which books and records are correct and complete); provided, however, that the
Most Recent Financial Statements are subject to normal year-end adjustments
(which will not be material individually or in the aggregate) and lack
footnotes.
(i) EVENTS SUBSEQUENT TO MOST RECENT 12-MONTH PERIOD END.
Since the Most Recent 12-Month Period End and except as disclosed in the
Disclosure Schedule, there has not occurred any Material Adverse Effect.
Without limiting the generality of the foregoing, since that date:
(i) Target has not sold, leased, transferred, or
assigned any of its assets, tangible or intangible, other than for a
fair consideration in the Ordinary Course of Business;
(ii) Target has not entered into any agreements,
contracts, leases, or licenses either involving more than $10,000 in
the aggregate, having a term greater than 12 months or outside the
Ordinary Course of Business;
(iii) no party (including any of Target) has
accelerated, terminated, modified, or cancelled any agreements,
contracts, leases, or licenses involving more than $10,000 in the
aggregate to which Target is a party or by which it is bound;
(iv) Target has not imposed or allowed to be imposed
any Security Interest upon any of its assets, tangible or intangible;
(v) Target has not made any capital expenditures
involving more than $10,000 in the aggregate or outside the Ordinary
Course of Business;
(vi) Target has not made any capital investment in,
any loan to, or any acquisition of the securities or assets of, any
other Person;
(vii) Target has not issued any note, bond, or other
debt security or created, incurred, assumed, or guaranteed any
indebtedness for borrowed money or capitalized lease obligation
involving more than $10,000 in the aggregate;
(viii) Target has not delayed or postponed the
payment of accounts payable and other Liabilities outside the Ordinary
Course of Business;
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(ix) Target has not cancelled, compromised, waived,
or released any right or claim either involving more than $10,000 in
the aggregate or outside the Ordinary Course of Business;
(x) Target has not granted any license or sublicense
of any rights under or with respect to any Intellectual Property;
(xi) there has been no change made or authorized in
the charter or bylaws of any of Target;
(xii) Target has not issued, sold, or otherwise
disposed of any of its capital stock or securities convertible into or
exchangeable for such stock, or granted any options, warrants, or
other rights to purchase or obtain any of such capital stock or
securities;
(xiii) Target has not declared, set aside, or paid
any dividend or made any distribution with respect to its capital
stock (whether in cash or in kind) or redeemed, purchased, or
otherwise acquired any of its capital stock or other securities;
(xiv) Target has not experienced any damage,
destruction, or loss (whether or not covered by insurance) to its
property involving more than $10,000 in the aggregate;
(xv) Target has not made any loan to, or entered
into any other transaction with, any of its directors, officers, and
employees or their "Associates" (as defined in Rule 12b-2 under the
Exchange Act);
(xvi) Target has not entered into any employment
contract or collective bargaining agreement, written or oral, or
modified the terms of any existing such contract or agreement;
(xvii) Target has not granted any increase in any
compensation of any of its directors, officers, or other employees;
(xviii) Target has not adopted, amended, modified,
or terminated any bonus, profit-sharing, incentive, severance, or
other plan, contract, or commitment for the benefit of any of its
directors, officers, and employees (or taken any such action with
respect to any other Employee Benefit Plan);
(xix) Target has not made any other change in
employment terms for any of its directors, officers, and employees
outside the Ordinary Course of Business;
(xx) Target has not made or pledged to make any
charitable or other capital contribution outside the Ordinary Course
of Business;
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(xxi) there has not been any other material
occurrence, event, incident, action, failure to act, or transaction
outside the Ordinary Course of Business involving Target; and
(xxii) Target has not increased, or experienced any
change in assumptions underlying or method of calculating, any bad
debt, contingency, tax or other reserves or changed its accounting
practices, methods or assumptions (including changes in estimates or
valuation methods); or written down the value of any assets; and
(xxiii) Target has not committed to any of the
foregoing.
(j) UNDISCLOSED LIABILITIES. Except as disclosed in Section
4(j) of the Disclosure Schedule, Target does not have any Liability, except for
(i) Liabilities set forth on the face of the Most Recent Balance Sheet (rather
than in any notes thereto) and (ii) Liabilities which have arisen after the
Most Recent 12-Month Period End in the Ordinary Course of Business (none of
which results from, arises out of, relates to, is in the nature of, or was
caused by any breach of contract, breach of warranty, tort, infringement, or
violation of law and none of which could reasonably be expected to have a
Material Adverse Effect).
(k) LEGAL COMPLIANCE. Target and its predecessors and
Affiliates has complied, in all material respects, with all applicable laws
(including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof), and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has been
filed or commenced against any of them alleging any failure so to comply.
(l) TAX MATTERS.
(i) Target has filed all Tax Returns that it was
required to file. All such Tax Returns were correct and complete in
all respects. All Taxes owed by Target (whether or not shown on any
Tax Return) have been paid or are fully and adequately accrued and
adequately disclosed on the Most Recent Balance Sheet. Target is not
currently the beneficiary of any extension of time within which to
file any Tax Return. No claim has ever been made by an authority in a
jurisdiction where Target does not file Tax Returns that it is or may
be subject to taxation by that jurisdiction. There are no Security
Interests on any of the assets of Target that arose in connection with
any failure (or alleged failure) to pay any Tax.
(ii) Target has withheld and paid all Taxes required
to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder,
or other third party.
(iii) Neither Transferor nor Target has Knowledge
that any authority expects to assess any additional Taxes for any
period for which Tax Returns have been
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filed. There is no action, suit or proceeding, investigation, dispute
or claim now pending or threatened concerning any Tax Liability of
Target or proposed adjustment to the taxable income of Target either
(A) claimed or raised by any authority in writing or (B) as to which
any of the Transferor and Target has Knowledge based upon personal
contact with any agent of such authority. Section 4(l) of the
Disclosure Schedule lists all Tax Returns filed with respect to Target
for the last three completed tax years, indicates those Tax Returns
that have been audited, and indicates those Tax Returns that currently
are the subject of audit. The Transferor has delivered to the North
American correct and complete copies of all Tax Returns, examination
reports, and statements of deficiencies assessed against or agreed to
by Target since January 1, 1994.
(iv) Target has not waived any statute of
limitations in respect of Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency.
(v) Target has not filed a consent under Code
Section 341(f) concerning collapsible corporations. Target has not
made any payments, is not obligated to make any payments, or is not a
party to any agreement that under certain circumstances could obligate
it to make any payments that will not be deductible under Code Section
280G or that would give rise to any obligation to indemnify any Person
for any excise tax payable pursuant to Code Section 4999. The Target
has not been a United States real property holding corporation within
the meaning of Code Section 897(c)(2) during the applicable period
specified in Code Section 897(c)(1)(A)(ii). Target has disclosed on
its federal income Tax Returns all positions taken therein that could
give rise to a substantial understatement of federal income Tax within
the meaning of Code Section 6662. Neither Target nor any predecessor
or affiliate thereof is a party to any Tax allocation, sharing,
indemnification or similar agreement. Target (A) has not been a member
of an Affiliated Group filing a consolidated federal income Tax Return
(other than a group the common parent of which was Target) and (B)
does not have any Liability for the Taxes of any Person (other than
any of Target and its Subsidiaries) under Reg. Section 1.1502-6 (or
any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise. No indebtedness of
Target consists of "corporate acquisition indebtedness" within the
meaning of Code Section 279.
(vi) Section 4(l) of the Disclosure Schedule sets
forth as of the most recent practicable date the basis for Federal
income tax purposes of Target in its assets.
(vii) The unpaid Taxes of Target (A) did not, as of
the Most Recent Fiscal Period End, exceed the reserve for Tax
Liability set forth on the face of the Most Recent Balance Sheet
(rather than in any notes thereto) and (B) do not, and will not as of
the Closing Date, exceed that reserve as adjusted for the passage of
time through the Closing Date in accordance with the past custom and
practice of Target in filing its Tax Returns.
(viii) INTENTIONALLY LEFT BLANK.
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(m) REAL PROPERTY. Target does not own any real property.
Section 4(m) of the Disclosure Schedule lists and describes briefly all real
property leased or subleased to Target. The Transferor has delivered to North
American correct and complete copies of the leases and subleases listed in
Section 4(m) of the Disclosure Schedule (as amended to date). With respect to
each lease and sublease listed in Section 4(m) of the Disclosure Schedule:
(A) the lease or sublease is legal, valid,
binding, enforceable, and in full force and effect;
(B) the lease or sublease will continue to
be legal, valid, binding, enforceable, and in full force and
effect on identical terms following the consummation of the
transactions contemplated hereby;
(C) no party to the lease or sublease is in
breach or default, and no event has occurred which, with
notice or lapse of time, would constitute a breach or default
or permit termination, modification, or acceleration
thereunder;
(D) no party to the lease or sublease has
repudiated any provision thereof;
(E) there are no disputes, oral agreements,
or forbearance programs in effect as to the lease or
sublease;
(F) Target has not received a notice from
the lessor indicating that the lease will not be renewed at
the end of its current term for any additional terms provided
for in the lease;
(G) the term of the lease will continue for
a minimum of six months past the Closing Date;
(H) with respect to each sublease, the
representations and warranties set forth in subsections (A)
through (G) above are true and correct with respect to the
underlying lease;
(I) Target has not assigned, transferred,
conveyed, mortgaged, deeded in trust, or encumbered any
interest in the leasehold or subleasehold;
(J) all facilities leased or subleased
thereunder have received all approvals of governmental
authorities (including licenses and permits) required in
connection with the operation thereof and have been operated
and maintained in accordance with applicable laws, rules, and
regulations;
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(K) all facilities leased or subleased
thereunder are supplied with utilities and other services
necessary for the operation of said facilities; and
(L) the Transferor is not aware of any
pending or threatened foreclosure or other enforcement
proceedings relating to the real property underlying the
leases or subleases set forth in Section 4(m) of the
Disclosure Schedule that could result in Target's loss of
possession of such real property.
(n) INTELLECTUAL PROPERTY.
(i) Target owns or has the right to use pursuant to
license, sublicense, agreement, or permission in writing all
Intellectual Property necessary for the operation of the businesses of
Target as presently conducted and as presently proposed to be
conducted. Each item of Intellectual Property owned or used by Target
immediately prior to the Closing hereunder will be owned or available
for use by Target on identical terms and conditions immediately
subsequent to the Closing hereunder. Target has taken all necessary
action to maintain and protect each item of Intellectual Property that
it owns or uses.
(ii) Target has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of third parties, and none of the Transferor and the
directors and officers (and employees with responsibility for
Intellectual Property matters) of Target has ever received any charge,
complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that
Target must license or refrain from using any Intellectual Property
rights of any third party). To the Knowledge of Transferor and Target,
no third party has interfered with, infringed upon, misappropriated,
or otherwise come into conflict with any Intellectual Property rights
of Target.
(iii) Section 4(n)(iii) of the Disclosure Schedule
identifies each patent or registration which has been issued to Target
with respect to any of its Intellectual Property, identifies each
pending patent application or application for registration which
Target has made with respect to any of its Intellectual Property, and
identifies each license, agreement, or other permission which Target
has granted to any third party with respect to any of its Intellectual
Property (together with any exceptions). The Transferor has delivered
to North American correct and complete copies of all such patents,
registrations, applications, licenses, agreements, and permissions (as
amended to date) and have made available to North American correct and
complete copies of all other written documentation evidencing
ownership and prosecution (if applicable) of each such item. Section
4(n)(iii) of the Disclosure Schedule also identifies each trade name
or unregistered trademark used by Target in connection with any of its
businesses. With respect to each item of Intellectual Property
required to be identified in Section 4(n)(iii) of the Disclosure
Schedule:
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(A) Target possesses all right, title, and
interest in and to the item, free and clear of any Security
Interest, license, or other restriction;
(B) the item is not subject to any
outstanding injunction, judgment, order, decree, ruling, or
charge;
(C) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending
or is threatened which challenges the legality, validity,
enforceability, use, or ownership of the item; and
(D) Target has never agreed to indemnify
any Person for or against any interference, infringement,
misappropriation, or other conflict with respect to the item.
(iv) Section 4(n)(iv) of the Disclosure Schedule
identifies each item of Intellectual Property that any third party
owns and that Target uses pursuant to license, sublicense, agreement,
or permission. The Transferor has delivered to the North American
correct and complete copies of all such licenses, sublicenses,
agreements, and permissions (as amended to date). With respect to each
item of Intellectual Property required to be identified in Section
4(n)(iv) of the Disclosure Schedule:
(A) the license, sublicense, agreement, or
permission covering the item is legal, valid, binding,
enforceable, and in full force and effect;
(B) the license, sublicense, agreement, or
permission will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated
hereby;
(C) no party to the license, sublicense,
agreement, or permission is in breach or default, and no
event has occurred which with notice or lapse of time would
constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(D) no party to the license, sublicense,
agreement, or permission has repudiated any provision
thereof;
(E) with respect to each sublicense, the
representations and warranties set forth in subsections (A)
through (D) above are true and correct with respect to the
underlying license;
(F) the underlying item of Intellectual
Property is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
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(G) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending
or is threatened which challenges the legality, validity, or
enforceability of the underlying item of Intellectual
Property; and
(H) Target has never granted any sublicense
or similar right with respect to the license, sublicense,
agreement, or permission.
(v) To the Knowledge of Transferor and Target,
Target will not interfere with, infringe upon, misappropriate, or
otherwise come into conflict with, any Intellectual Property rights of
third parties as a result of the continued operation of its businesses
as presently conducted and as presently proposed to be conducted.
(vi) None of the Transferor and Target has any
Knowledge of any new products, inventions, procedures, or methods of
manufacturing or processing that any competitors or other third
parties have developed which reasonably could be expected to supersede
or make obsolete any product or process of any of Target.
(o) TANGIBLE ASSETS. Target owns or leases all buildings,
machinery, equipment, and other tangible assets necessary for the conduct of
its business as presently conducted and as presently proposed to be conducted.
Each such tangible asset has been maintained in accordance with normal industry
practice, is in good operating condition and repair (subject to normal wear and
tear), and is suitable for the purposes for which it presently is used and
presently is proposed to be used. Section 4(o) of the Disclosure Schedule lists
all tangible assets owned by Target.
(p) INVENTORY. Target does not have any inventory.
(q) CONTRACTS. Section 4(q) of the Disclosure Schedule lists
all the contracts and other agreements to which Target is a party. The
Transferor has delivered to the North American a correct and complete copy of
each written agreement listed in Section 4(q) of the Disclosure Schedule (as
amended to date). With respect to each such agreement: (A) the agreement is
legal, valid, binding, enforceable, and in full force and effect; (B) the
agreement will continue to be legal, valid, binding, enforceable, and in full
force and effect on identical terms following the consummation of the
transactions contemplated hereby; (C) no party is in breach or default, and no
event has occurred which with notice or lapse of time would constitute a breach
or default, or permit termination, modification, or acceleration, under the
agreement; and (D) no party has repudiated any provision of the agreement.
Section 4(q) of the Disclosure Schedule lists each currently outstanding bid or
proposal for business submitted by Target in excess of $1,000,000.
(r) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts
receivable of Target are reflected properly on the Most Recent Balance Sheet in
accordance with GAAP, are valid receivables subject to no setoffs or
counterclaims, are current and collectible, and, will be collected in
accordance with their terms at their recorded amounts, subject only to the
reserve
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for bad debts set forth on the face of the Most Recent Balance Sheet (rather
than in any notes thereto) as adjusted for the passage of time through the
Closing Date in accordance with the past custom and practice of Target.
(s) POWERS OF ATTORNEY. There are no outstanding powers of
attorney executed on behalf of Target.
(t) INSURANCE. Section 4(t) of the Disclosure Schedule
includes a true, correct and complete list of all policies of insurance
(including policies providing property, casualty, liability, and workers'
compensation coverage and bond and surety arrangements) to which Target is a
party, a named insured, or otherwise the beneficiary of coverage. Genuine and
complete copies of each of the insurance policies listed in Section 4(t) of the
Disclosure Schedule have been provided to North American.
With respect to each such insurance policy: (A) the policy is legal, valid,
binding, enforceable, and in full force and effect; (B) the policy will
continue to be legal, valid, binding, enforceable, and in full force and effect
on identical terms following the consummation of the transactions contemplated
hereby; (C) neither Target nor any other party to the policy is in breach or
default (including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of time,
would constitute such a breach or default, or permit termination, modification,
or acceleration, under the policy; (D) neither Target, any ERISA Affiliate nor
the North American shall be subject to a retroactive rate adjustment, loss
sharing arrangement or other actual or contingent liability and (E) to
Transferor's or Target's Knowledge, no party to the policy has repudiated any
provision thereof. Target has been fully covered at all times during the past 5
years by insurance in scope and amount customary and reasonable for the
businesses in which it has engaged during the aforementioned period. Section
4(t) of the Disclosure Schedule describes any self-insurance arrangements
affecting Target.
(u) LITIGATION. Section 4(u) of the Disclosure Schedule sets
forth each instance in which Target (i) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (ii) is a party, or
to the Knowledge of Transferor or Target, is threatened to be made a party to
any claim, action, suit, proceeding, hearing, or investigation of, in, or
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator. Except as set
forth in ss.4(u) of the Disclosure Schedule, there is no other pending, or to
the knowledge of Transferor or Target, threatened claim, arbitration
proceeding, action, suit, investigation or other proceeding against or
involving Target or any property or rights of Target or any officer or director
or Target. None of the actions, suits, proceedings, hearings, and
investigations set forth in ss.4(u) of the Disclosure Schedule could result in
any material adverse change in the business, financial condition, operations,
results of operations, or future prospects of Target. Neither the Transferor
nor the directors and officers (and employees with responsibility for
litigation matters) of Target has any reason to believe that any such action,
suit, proceeding, hearing, or investigation may be brought or threatened
against Target.
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(v) COMMITMENTS AND WARRANTIES. All services provided by the
Company have been performed in conformity with all applicable contractual
commitments (written or oral) and all express and implied warranties (written
or oral), and Target has no Liability and, to the Knowledge of the Transferor
and Target, there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any Liability) in connection with any such services.
ss.4(v) of the Disclosure Schedule includes copies of the standard forms of
agreement entered into between Target and its customers. Target has not entered
into any written or oral agreements with any of its customers that include
guaranties, warranties, or indemnity provisions other than those included in
the agreements included as part of Section 4(v) of the Disclosure Schedule.
Neither Target nor the Transferor has received notice (written or
oral) from any of its customers stating that the customer intends to reduce the
volume of business that it currently conducts with Target or to cease doing
business with Target.
(w) LIABILITY FOR SERVICES PERFORMED. Target has no Liability
(and, to Transferor's knowledge, there is no Basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim, or
demand against any of them giving rise to any Liability) arising out of any
injury to individuals or property as a result of or in connection with any
services provided by Target.
(x) EMPLOYEES. To the Knowledge of the Transferor or Target,
no executive, key employee, or group of employees has any plans to terminate
employment with Target. Target is not currently, nor at any prior time has
been, a party to or bound by any collective bargaining agreement, nor has
Target experienced any strikes, grievances, claims of unfair labor practices,
or other collective bargaining disputes. Target has not committed any unfair
labor practice. Neither the Transferor nor Target has any Knowledge of any
organizational effort presently being made or threatened by or on behalf of any
labor union with respect to employees of Target.
(y) EMPLOYEE BENEFITS.
(i) Section 4(y) of the Disclosure Schedule lists
each Employee Benefit Plan that Target or any ERISA Affiliate
maintains, contributes to, or is required to contribute to or under
which Target or any ERISA Affiliate has any liability.
(A) Each such Employee Benefit Plan (and
each related trust, insurance contract, or fund) complies in
form and in operation in all respects with the applicable
requirements of ERISA, the Code, and other applicable laws.
(B) All required reports and disclosures
(including Form 5500 Annual Reports, Summary Annual Reports,
PBGC-1's, and Summary Plan Descriptions) have been filed or
distributed appropriately with respect to each such Employee
Benefit Plan. The requirements of Part 6 of Subtitle B of
Title I
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of ERISA and of Code Section 4980B have been met with respect
to each such Employee Benefit Plan which is an Employee
Welfare Benefit Plan.
(C) All contributions (including all
employer contributions and employee salary reduction
contributions) which are due have been paid to each such
Employee Benefit Plan which is an Employee Pension Benefit
Plan and all contributions for any period ending on or before
the Closing Date which are not yet due have been paid to each
such Employee Pension Benefit Plan or accrued in accordance
with the past custom and practice of Target and in accordance
with GAAP. All premiums or other payments for all periods
ending on or before the Closing Date have been paid with
respect to each such Employee Benefit Plan which is an
Employee Welfare Benefit Plan.
(D) Each such Employee Benefit Plan which
is an Employee Pension Benefit Plan now meets and at all
times since inception have met the requirements of a
"qualified plan" under Code Section 401(a) and has received,
within the last two years, a favorable determination letter
from the Internal Revenue Service.
(E) As of the Closing Date, the market
value of assets under each such Employee Benefit Plan which
is an Employee Pension Benefit Plan (other than any
Multiemployer Plan) will equal or exceed the present value of
all vested and nonvested Liabilities thereunder determined in
accordance with PBGC methods, factors, and assumptions
applicable to an Employee Pension Benefit Plan terminating on
such date.
(F) The Transferor has delivered to the
North American correct and complete copies of the plan
documents and summary plan descriptions including all
amendments thereto, the most recent determination letter
received from the Internal Revenue Service, the three most
recent Form 5500 Annual Reports (including all schedules
thereto), the three most recent annual premium payment forms
filed with the PBGC, and all related trust agreements,
insurance contracts, and other funding agreements which
implement each such Employee Benefit Plan.
(ii) With respect to each Employee Benefit Plan that
Target or any ERISA Affiliate maintains, contributes to, or is
required to contribute to or under which Target or any ERISA Affiliate
has any liability:
(A) No such Employee Benefit Plan which is
an Employee Pension Benefit Plan (other than any
Multiemployer Plan) has been completely or partially
terminated or been the subject of a Reportable Event as to
which notices would be required to be filed with the PBGC. No
proceeding by the PBGC to terminate
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any such Employee Pension Benefit Plan (other than any
Multiemployer Plan) has been instituted or threatened.
(B) There have been no Prohibited
Transactions with respect to any such Employee Benefit Plan.
No Fiduciary has any Liability for breach of fiduciary duty
or any other failure to act or comply in connection with the
administration or investment of the assets of any such
Employee Benefit Plan. No action, suit, proceeding, hearing,
or investigation with respect to any such Employee Benefit
Plan (other than routine claims for benefits) is pending or
threatened. Neither the Transferor nor Target has any
Knowledge of any Basis for any such action, suit, proceeding,
hearing, or investigation.
(C) Neither Target nor any ERISA Affiliate
has not incurred, and none of the Transferor and the
directors and officers (and employees with responsibility for
employee benefits matters) of Target has any reason to expect
that Target or any ERISA Affiliate will incur, any Liability
to the PBGC (other than PBGC premium payments) or otherwise
under Title IV of ERISA (including any withdrawal Liability)
or under the Code with respect to any such Employee Benefit
Plan which is an Employee Pension Benefit Plan.
(iii) Neither Target nor any ERISA Affiliate
contributes to, ever has contributed to, or ever has been required to
contribute to any Multiemployer Plan or has any Liability (including
withdrawal Liability) under any Multiemployer Plan.
(iv) Neither Target nor any ERISA Affiliate
maintains or contributes to, or has ever been required to contribute
to any Employee Welfare Benefit Plan providing medical, health, or
life insurance or other welfare-type benefits for current or future
retired or terminated employees, their spouses, or their dependents
(other than in accordance with Code Section 4980B).
(z) GUARANTIES. Target is not a guarantor or otherwise is
liable for any Liability or obligation (including indebtedness) of any other
Person.
(aa) ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS.
(i) Target and its predecessors and Affiliates have
complied and are in compliance with all Environmental, Health, and
Safety Requirements.
(ii) Without limiting the generality of the
foregoing, Target and its Affiliates have obtained and complied with,
and are in compliance with, all permits, licenses and other
authorizations that are required pursuant to Environmental, Health,
and Safety Requirements for the occupation of its facilities and the
operation of its business; a list of all such permits, licenses and
other authorizations is set forth on the attached "ENVIRONMENTAL AND
SAFETY PERMITS SCHEDULE."
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(iii) Neither Target nor its predecessors or
Affiliates has received any written or oral notice, report or other
information regarding any actual or alleged violation of
Environmental, Health, and Safety Requirements, or any liabilities or
potential liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise), including any investigatory, remedial or
corrective obligations, relating to any of them or its facilities
arising under Environmental, Health, and Safety Requirements.
(iv) None of the following exists at any property or
facility owned or operated by Target: (1) underground storage tanks,
(2) asbestos-containing material in any form or condition, (3)
materials or equipment containing polychlorinated biphenyls, or (4)
landfills, surface impoundments, or disposal areas.
(v) None of Target or its predecessors or Affiliates
has treated, stored, disposed of, arranged for or permitted the
disposal of, transported, handled, or released any substance,
including without limitation any hazardous substance, or owned or
operated any property or facility (and no such property or facility is
contaminated by any such substance) in a manner that has given or
would give rise to liabilities, including any liability for response
costs, corrective action costs, personal injury, property damage,
natural resources damages or attorney fees, pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended ("CERCLA"), the Solid Waste Disposal Act, as
amended ("SWDA") or any other Environmental, Health, and Safety
Requirements.
(vi) Neither this Agreement nor the consummation of
the transaction that is the subject of this Agreement will result in
any obligations for site investigation or cleanup, or notification to
or consent of government agencies or third parties, pursuant to any of
the so-called "transaction-triggered" or "responsible property
transfer" Environmental, Health, and Safety Requirements.
(vii) Neither Target nor its predecessors or
Affiliates has, either expressly or by operation of law, assumed or
undertaken any liability, including without limitation any obligation
for corrective or remedial action, of any other Person relating to
Environmental, Health, and Safety Requirements.
(viii) No facts, events or conditions relating to
the past or present facilities, properties or operations of Target or
any of its predecessors or Affiliates will prevent, hinder or limit
continued compliance with Environmental, Health, and Safety
Requirements, give rise to any investigatory, remedial or corrective
obligations pursuant to Environmental, Health, and Safety Requirements
(whether on-site or off-site), or give rise to any other liabilities
(whether accrued, absolute, contingent, unliquidated or otherwise)
pursuant to Environmental, Health, and Safety Requirements, including
without limitation any relating to onsite or offsite releases or
threatened releases of hazardous materials, substances or wastes,
personal injury, property damage or natural resources damage.
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(ab) CERTAIN BUSINESS RELATIONSHIPS WITH TARGET. Neither the
Transferor, its Affiliates, any director or employee of Target, or any
relatives of Transferor, or any person living in the same residence as such
persons, has been involved in any business arrangement or relationship with
Target within the past 12 months, and neither the Transferor nor its Affiliates
nor any of such other persons own leases, licenses, or otherwise has any
interest in any asset, tangible or intangible, which is used in the business of
Target or any contract, lease or commitment to which Target is a party. Target
is not indebted to any officer, director or employee of Target for any
liability or obligation. No officer, director or employee of Target is indebted
to Target for any liability or obligation.
(ac) CUSTOMERS AND SUPPLIERS. No purchase order or commitment
of Target is in excess of normal requirements, nor are prices provided therein
in excess of current market prices for the products or services to be provided
thereunder. No material supplier of Target has advised Target in writing within
the past year that it will stop, or decrease the rate of, supplying materials,
products or services to Target and no material customer of Target has advised
Target in writing within the past year that it will stop, or decrease the rate
of buying materials, products or services from Target. Section 4(ac) of the
Disclosure Schedule sets forth a list of (a) each customer that accounted for
more that 5% of the consolidated revenues of Target during the last full fiscal
year or the interim period through the date of the Most Recent Financial
Statements and the amount of revenues accounted for by such customer during
each such period and (b) each supplier that is the sole supplier of any
significant product or component to Target. The consummation of the
transactions contemplate hereby will not have a material adverse effect on
Target's relationship with any customer or supplier listed in Section 4(ac) of
the Disclosure Schedule.
(ad) DISCLOSURE. Neither this Agreement nor any of the
exhibits, attachments, written statements, documents, certificates or other
items prepared for or supplied to the North American by or on behalf of Target
or the Transferor with respect to the transactions contemplated hereby contains
any untrue statement of a material fact or omits to state any material fact
necessary in order to make each statement contained herein or therein not
misleading. There is no fact which Target or the Transferor have not disclosed
to the North American herein and of which the Transferor, Target, or any of
Target's officers or directors is aware and which could be anticipated to have
a Material Adverse Effect.
5. PRE-CLOSING COVENANTS. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing.
(a) GENERAL. Each of the Parties will use his or its best
efforts to take all action and to do all things necessary, proper, or advisable
in order to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions
set forth in Section 7 below).
(b) NOTICES AND CONSENTS. The Transferor will cause Target to
give any notices to third parties, and will cause Target to use its best
efforts to obtain any third party
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consents, that the North American reasonably may request in connection with the
matters referred to in Section 4(d) above. Each of the Parties will (and the
Transferor will cause Target to) give any notices to, make any filings with,
and use its best efforts to obtain any authorizations, consents, and approvals
of governments and governmental agencies in connection with the matters
referred to in Section 3(a)(ii), Section 3(b)(vi), and Section 4(d) above.
Without limiting the generality of the foregoing, each of the Parties will file
(and the Transferor will cause Target to file) any Notification and Report
Forms and related material that he or it may be required to file with the
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice under the Hart-Scott-Rodino Act, will use his or its best
efforts to obtain (and the Transferor will cause Target to use its best efforts
to obtain) an early termination of the applicable waiting period, and will make
(and the Transferor will cause Target to make) any further filings pursuant
thereto that may be necessary, proper, or advisable in connection therewith.
(c) OPERATION OF BUSINESS. The Transferor will not cause or
permit Target to engage in any practice, take any action, or enter into any
transaction outside the Ordinary Course of Business. Without limiting the
generality of the foregoing, the Transferor will not cause or permit Target to
(i) declare, set aside, or pay any dividend or make any distribution with
respect to its capital stock or redeem, purchase, or otherwise acquire any of
its capital stock or (ii) otherwise engage in any practice, take any action, or
enter into any transaction of the sort described in Section 4(i) above.
(d) PRESERVATION OF BUSINESS. The Transferor will cause
Target to keep its business and properties substantially intact, including its
present operations, physical facilities, working conditions, and relationships
with lessors, licensors, suppliers, customers, and employees.
(e) FULL ACCESS. The Transferor will permit, and will cause
Target to permit, representatives of North American to have full access at all
reasonable times, and in a manner so as not to interfere with the normal
business operations of Target, to all premises, properties, personnel, books,
records (including Tax records), contracts, and documents of or pertaining to
Target. At the request of North American, Transferor will permit, and will
cause Target to permit, the lenders and the investors who are expected to
provide the capital necessary to consummate the transactions contemplated
hereby, and their respective counsel, to have the same access as permitted to
the North American in accordance with the immediately preceding sentence.
(f) NOTICE OF DEVELOPMENTS. The Transferor will give prompt
written notice to the North American of any breach of any of the
representations and warranties in Section 4 above. Each Party will give prompt
written notice to the others of any breach of any of his or its own
representations and warranties in Section 3 above. No disclosure by any Party
pursuant to this Section 5(f), however, shall be deemed to amend or supplement
Annex I, Annex II, or the Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
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(g) EXCLUSIVITY. The Transferor will not (and the Transferor
will not cause or permit Target to) (i) solicit, initiate, or encourage the
submission of any proposal or offer from any Person relating to the acquisition
of any capital stock or other voting securities, or any substantial portion of
the assets, of Target (including any acquisition structured as a merger,
consolidation, or share exchange) or (ii) participate in any discussions or
negotiations regarding, furnish any information with respect to, assist or
participate in, or facilitate in any other manner any effort or attempt by any
Person to do or seek any of the foregoing. The Transferor will notify the North
American immediately if any Person makes any proposal, offer, inquiry, or
contact with respect to any of the foregoing.
(h) NO TERMINATION OF TRANSFEROR'S OBLIGATION BY SUBSEQUENT
INCAPACITY. Transferor specifically agrees that his obligations hereunder,
including, without limitation, the obligations pursuant to Section 8 hereof,
shall not be eliminated by his or her death or incapacity.
6. POST-CLOSING COVENANTS. The Parties agree as follows with respect
to the period following the Closing.
(a) GENERAL. In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, each of the Parties will take such further action (including the
execution and delivery of such further instruments and documents) as any other
Party reasonably may request, all at the sole cost and expense of the
requesting Party (unless the requesting Party is entitled to indemnification
therefor under Section 8 below). The Transferor acknowledges and agrees that
from and after the Closing North American will be entitled to possession of all
documents, books, records (including Tax records), agreements, and financial
data of any sort relating to Target.
(b) LITIGATION SUPPORT. In the event and for so long as any
Party actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving Target, each of the other Parties will cooperate
with him or it and his or its counsel in the contest or defense, make available
their personnel, and provide such testimony and access to their books and
records as shall be necessary in connection with the contest or defense, all at
the sole cost and expense of the contesting or defending Party (unless the
contesting or defending Party is entitled to indemnification therefor under
ss.8 below).
(c) TRANSITION. The Transferor will not take any action that
is designed or intended to have the effect of discouraging any lessor,
licensor, customer, supplier, or other business associate of Target from
maintaining the same business relationships with Target after the Closing as it
maintained with Target prior to the Closing. The Transferor will refer all
customer inquiries relating to the businesses of Target to the North American
from and after the Closing.
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(d) CONFIDENTIALITY. [INTENTIONALLY LEFT BLANK]
(e) STOCK OPTIONS. Within 90 days after the Closing, North
American will adopt a stock incentive plan (the "Stock Incentive Plan")
pursuant to which stock options and other forms of stock-based compensation may
be awarded to the officers, directors and employees of North American and its
subsidiaries. North American agrees that upon adoption of the Stock Incentive
Plan, it shall grant options to purchase an aggregate of up to 50,000 shares of
North American common stock, at an exercise price of $5.00 per share (the
"Options"), to the key employees of Target named in EXHIBIT C to this
Agreement. The terms and conditions of the Options and the number of Options to
be awarded to each key employee shall be determined by the Board of Directors
of North American at the time of grant. In addition to the foregoing,
Transferor shall be entitled to transfer up to 82,500 shares of his North
American Common Stock to employees of Target as provided in the Shareholders
Agreement.
(f) INDEPENDENT ACCOUNTANTS. After the Closing, Transferor
shall (i) use reasonable efforts to cause Target's past and present independent
auditors and accounting personnel to make available to North American and its
representatives all financial information, including the right to examine all
working papers pertaining to audits or reviews previously or hereafter made by
such auditors, and (ii) provide such cooperation as North American and its
representatives may request in connection with any audit or review of Target
that North American may direct its representatives to make. Without limiting
the generality of the foregoing, Transferor agrees that he will cooperate with,
and cause Target's past and present independent auditors, accounting personnel
and other necessary persons to cooperate with the North American in the
preparation of any documents filed by the North American with the U.S.
Securities and Exchange Commission in connection with an offering of
securities, to the extent information about Target is required therein.
(g) EMPLOYEES OF TARGET. North American agrees that, for a
period of one year after the Closing Date, the group health benefits, vacation,
and paid holidays provided to employees of Target will be comparable to such
items provided by Target to such employees prior to the Closing Date. Although
North American has no present intention of dismissing any current employees of
Target, nothing in this Section is intended to impose any obligation on North
American to retain any such employees. In the event Targets 401(k) plan is
terminated, North American agrees that each of the participants under said plan
shall be fully vested provided said plan permits such option.
(h) TAX MATTERS. The Transferor covenants and agrees not to
take any action, or fail to take any action, with respect to Taxes, that would
have an adverse effect on North American on or after the Closing Date,
including, without limitation, amending or otherwise supplementing any Tax
Return or report of Target with respect to any period prior to the Closing Date
without the consent of the North American. If any taxing authority conducts any
audit or investigation relating to Target prior to the Closing Date, North
American may, in its sole
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election, have the right to supervise such audit or investigation and provide
any response required in connection therewith.
(i) North American agrees not to take any action at or after
the Closing Date that would affect the ability of the transfers contemplated
under the Exchange Agreements to be treated as a single transaction qualifying
under Section 351 of the Code.
(j) North American shall pay or cause to be paid in
accordance with their terms all liabilities relating to equipment leases and
employee bonuses of Target, including but not limited to accrued but unpaid
bonuses as reflected on the Most Recent Financial Statement.
7. CONDITIONS TO OBLIGATION TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF NORTH AMERICAN. The
obligation of North American to consummate the transactions to be performed by
it in connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth in
Section 3(a) and Section 4 above shall be true and correct in all
material respects at and as of the Closing Date and there shall not
have occurred any Material Adverse Effect;
(ii) the Transferor and Target shall have performed
and complied with all of his covenants hereunder in all material
respects through the Closing;
(iii) Target shall have procured all of the third
party consents specified in Section 5(b) above;
(iv) no action, suit, or proceeding shall be pending
or threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction, or
before any arbitrator, wherein an unfavorable injunction, judgment,
order, decree, ruling, or charge would (A) prevent consummation of any
of the transactions contemplated by this Agreement, (B) cause any of
the transactions contemplated by this Agreement to be rescinded
following consummation, (C) affect adversely the right of Target to
own its assets and to operate its businesses (and no such injunction,
judgment, order, decree, ruling, or charge shall be in effect);
(v) the Transferor shall have delivered to the North
American a certificate, which pursuant to its terms authorizes PNC
Bank, N.A. and HIG to rely thereon to the same extent as if the
certificate was addressed directly to them, to the effect that each of
the conditions specified above in Section 7(a)(i)-(iv) is satisfied in
all respects;
(vi) all applicable waiting periods (and any
extensions thereof) under the Hart-Scott-Rodino Act shall have expired
or otherwise been terminated and the Parties
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shall have received all other authorizations, consents, and approvals
of governments and governmental agencies referred to in Section
3(a)(ii), Section 3(b)(vi), and Section 4(d) above;
(vii) North American shall have received from
counsel to the Transferor an opinion in form and substance as set
forth in EXHIBIT D attached hereto, addressed to the North American
and which pursuant to its terms authorizes PNC Bank, N.A. and HIG to
rely thereon to the same extent as if it were addressed directly to
them, and dated as of the Closing Date;
(viii) North American shall have obtained on terms
and conditions reasonably satisfactory to it the proceeds of all of
the financing it needs in order to consummate the transactions
contemplated by all of the Exchange Agreements.
(ix) all actions to be taken by the Transferor in
connection with the consummation of the transactions contemplated
hereby and all certificates, opinions, instruments, and other
documents required to effect the transactions contemplated hereby will
be reasonably satisfactory in form and substance to the North
American.
(x) at least five business days prior to the
Closing, North American shall have received the Most Recent Balance
Sheet. The Most Recent Balance Sheet will reflect (A) Shareholders'
Equity of at least $1,260,000, (B) notes payable not exceeding
$650,000 and (C) cash at least equal to $157,000. North American shall
not have objected to, challenged or otherwise repudiated any of the
amounts included in the Most Recent Balance Sheet.
(xi) North American shall have received an
appraisal, from an appraiser selected by the North American, that
states that the fair market value of Target's tangible assets listed
in Section 4(o) of the Disclosure Schedule is at least equal to the
book value of such assets reflected in the Closing Balance Sheet.
(xii) Target and Transferor shall have entered into
the real property lease agreement attached hereto as EXHIBIT E;
(xiii) Target shall have delivered a Secretary and
Incumbency Certificate in the form attached hereto as EXHIBIT F;
(xiv) Target shall have delivered evidence of its
qualification to do business in each jurisdiction where it is so
qualified and a certificate of good standing issued by the Secretary
of State of each such jurisdiction demonstrating that Target is in
good standing in that jurisdiction;
(xv) Target shall have delivered (A) payoff letters
relating to all existing indebtedness of Target to creditors for
borrowed money and (B) UCC-3 financing
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statements executed by such creditors releasing any security interests
of such creditors in Target's assets;
(xvi) Transferor shall have entered into an
Employment Agreement with Target in the form attached hereto as
EXHIBIT G;
(xvii) on or prior to the Closing Date, North
American shall have closed the transactions contemplated by each of
the other Exchange Agreements;
(xviii) all actions to be taken by the Transferor in
connection with consummation of the transactions contemplated hereby
and all certificates, opinions, instruments, and other documents
required to effect the transactions contemplated hereby will be
reasonably satisfactory in form and substance to the North American.
North American may waive any condition specified in this Section 7(a) if it
executes a writing so stating at or prior to the Closing.
(b) CONDITIONS TO OBLIGATION OF THE TRANSFEROR. The
obligation of the Transferor to consummate the transactions to be performed by
them in connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth in
Section 3(b) above shall be true and correct in all material respects
at and as of the Closing Date;
(ii) the North American shall have performed and
complied with all of its covenants hereunder in all material respects
through the Closing;
(iii) no action, suit, or proceeding shall be
pending or threatened before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign
jurisdiction, or before any arbitrator, wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this
Agreement or (B) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation (and no such
injunction, judgment, order, decree, ruling, or charge shall be in
effect);
(iv) the North American shall have delivered to the
Transferor a certificate to the effect that each of the conditions
specified above in Section 7(b)(i)-(iii) is satisfied in all respects;
(v) all applicable waiting periods (and any
extensions thereof) under the Hart-Scott-Rodino Act shall have expired
or otherwise been terminated and the Parties shall have received all
other authorizations, consents, and approvals of governments and
governmental agencies referred to in Section 3(a)(ii), Section
3(b)(v), and Section 4(d) above;
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(vi) Transferor shall have entered into an
Employment Agreement with Target, in the form attached hereto as
EXHIBIT G (Transferor covenants and agrees to execute the Employment
Agreement as of the Closing Date);
(vii) Transferor shall have received from counsel to
the North American an opinion in form and substance as set forth in
EXHIBIT I attached hereto, addressed to the Transferor, and dated as
of the Closing Date;
(viii) Buyer shall have delivered a Secretary and
Incumbency Certificate in the form attached hereto as EXHIBIT J;
(ix) This Agreement and the transactions
contemplated hereby shall have been approved by the Board of Directors
and Shareholders of North American;
(x) on or prior to the Closing Date, the
transactions contemplated pursuant to each of the other Exchange
Agreements, and the Securities Purchase Agreement shall have been
closed; and
(xi) all actions to be taken by the North American
in connection with consummation of the transactions contemplated
hereby and all certificates, opinions, instruments, and other
documents required to effect the transactions contemplated hereby will
be reasonably satisfactory in form and substance to the Transferor.
The Transferor may waive any condition specified in this Section 7(b) if he
executes a writing so stating at or prior to the Closing.
(c) POST-CLOSING OBLIGATIONS OF TRANSFEROR.
(i) Transferor shall use best efforts to obtain
Employment Agreements between Target and each of Dan Lloyd and Jeffrey
Williams in the form attached hereto as EXHIBIT G within 30 days of
the Closing Date.
(ii) Target shall use its best efforts to deliver
landlord consent and estoppel certificates, in form and substance
satisfactory to the North American, relating to each of the real
property leases listed in Section 4(m) of the Disclosure Schedule;
(iii) Target shall use its best efforts to deliver
the resignations of all directors of Target that Buyer shall have
requested.
8. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations, warranties, covenants and agreements of the Parties contained
in this Agreement or in any certificate, document, instrument or agreement
delivered pursuant to this Agreement shall
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survive the Closing hereunder (notwithstanding any due diligence investigations
that may have been undertaken by the damaged Party) and continue in full force
and effect through all statutes of limitations. Notwithstanding the foregoing,
no claim for indemnification in respect of a breach of a representation or
warranty shall be made after the date three years from and after the Closing
Date, except that a claim for indemnification in respect of a breach of the
representations set forth in Section 3(a), 3(b), 4(a)-(f), 4(l), 4(y) and 4(aa)
may be made at anytime following the Closing Date and are not subject to the
foregoing three year limitation.
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE NORTH
AMERICAN.
(i) In the event the Transferor breaches (or in the
event any third party alleges facts that, if true, would mean the
Transferor has breached) any of his representations, warranties (or
any of such representations or warranties is untrue or inaccurate),
covenants and agreements contained herein or in any certificate,
document, instrument or agreement delivered pursuant to this
Agreement, and, provided that the Indemnified Buyers (as hereafter
defined) make a written claim for indemnification against the
Transferor pursuant to Section 12(g) below within the applicable claim
period provided in 8(a) above, then the Transferor agrees to indemnify
North American and each of its officers, directors, employees,
representatives and shareholders (the "Indemnified Buyers") from and
against the entirety of any Adverse Consequences the Indemnified
Buyers may suffer through and after the date of the claim for
indemnification (including any Adverse Consequences the Indemnified
Buyers may suffer after the end of any applicable claim period)
resulting from, arising out of, relating to, in the nature of, or
caused by the breach (or the alleged breach).
(ii) The Transferor agrees to indemnify the
Indemnified Buyers from and against the entirety of any Adverse
Consequences the Indemnified Buyers may suffer resulting from, arising
out of, relating to, in the nature of, or caused by any Liability of
Target (x) for any Taxes of Target with respect to any Tax year or
portion thereof ending on or before the Closing Date or for any Tax
year beginning before and ending after the Closing Date to the extent
allocable (determined in a manner consistent with Section 9(b)) to the
portion of such period beginning before and ending on the Closing
Date), to the extent such Taxes are not reflected in the reserve for
Tax Liability shown on the face of the Most Recent Balance Sheet or,
if applicable, the Closing Date Balance Sheet, and (y) for the unpaid
Taxes of any Person (other than Target) under Reg. Section 1.1502-6
(or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise.
(iii) Transferor agrees to indemnify the Indemnified
Buyers from and against the entirety of any Adverse Consequences they
may suffer resulting from, arising out of, relating to, in the nature
of, or caused by the activities of any entity which at any time has
been owned, in whole or in part, by Target.
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<PAGE> 39
(iv) Transferor agrees to indemnify the Indemnified
Buyers from and against the entirety of any Adverse Consequences they
may suffer resulting from, arising out of, relating to, in the nature
of, or caused by any Retained Liabilities (as hereafter defined). As
used herein, the term Retained Liabilities means all liabilities,
claims, commitments, demands or obligations of Target (or any
subsidiary of Target) existing or arising out of any facts or set of
operative facts existing on or prior to the Closing Date, except for
any such liabilities, claims, commitments, demands or obligations of
Target (or any subsidiary of Target) set forth (A) on the face of the
Closing Date Balance Sheet or (B) in Section 4(j) of the Disclosure
Schedule.
(v) Transferor agrees to indemnify the Indemnified
Buyers from and against the entirety of any Adverse Consequences they
may suffer resulting from, or arising out of, relating to, or in the
nature of or caused by any claim by a stockholder or former
stockholder of Target or any other Person seeking to assert: (i)
ownership or rights to ownership of any shares of capital stock of
Target or any Subsidiary, (ii) any rights of a stockholder (other than
the right to receive the Purchase Price) including any option,
preemptive rights or rights to receive notice or to vote, (iii) any
rights under Target's charter, bylaws or other constituent documents,
or (iv) any claim that his shares of capital stock were to be
repurchased by Target.
(vi) Transferor agrees to indemnify the Indemnified
Buyers from and against the entirety of any Adverse Consequences they
may suffer resulting from, or arising out of, relating to, or in the
nature of or caused by any claim by a dissenting shareholder that the
Consideration is less than the fair value of his shares.
(vii) Without limiting any other indemnification
provided in this Section 8, Transferor agrees to indemnify the
Indemnified Buyers from and against the entirety of any Adverse
Consequences they may suffer as a result of a taxing authority taking
the position that any former or current subcontractor of Target should
have been, at any time prior to the Closing Date, treated as an
employee of Target.
(viii) Without limiting any other indemnification
provided in this Section 8, Transferor agrees to indemnify the
Indemnified Buyers from and against the entirety of any Adverse
Consequences they may suffer as a result of Target's failure to be
duly authorized to conduct business and in good standing under the
laws of any jurisdiction where such qualification is or has been
required as of or prior to the Closing Date. The indemnification
obligation of Transferor under this Section 8(b)(viii) shall not be
limited or otherwise affected in any manner by any disclosures made by
the Transferor in the Disclosure Schedule.
(ix) Without limiting any other indemnification
provided in this Section 8, Transferor agrees to indemnify the
Indemnified Buyers from and against the entirety of any Adverse
Consequences they may suffer resulting from, arising out of, related
to, or in the nature of or caused by the Department of Labor
investigation (the "Investigation")
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<PAGE> 40
and the Internal Revenue Service audit (the "Audit") referenced in
Section 4(k) of the Disclosure Schedule. The Transferror agrees and
acknowledges that the indemnification provided in this Section
8(b)(viii) with respect to the Investigation and the Audit shall not
be limited or affected in any manner by the disclosure of the
Investigation and the Audit in Section 4(k) of the Disclosure
Schedule. The provisions of Section 8(f) shall not apply to the
indemnification obligations under this Section 8(b)(ix).
(x) Notwithstanding anything set forth herein to the
contrary, as to the first $160,000 (reduced for any stock used to
satisfy the purchase price adjustment in Section 9) of indemnification
required by Transferor, he shall be permitted to satisfy that
obligation with North American common stock which shall be valued at
$5.00 per share (appropriately adjusted for any capital adjustment)
provided said indemnification is required within six months from the
date hereof.
(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE TRANSFEROR.
(i) In the event North American breaches (or in the
event any third party alleges facts that, if true, would mean the
North American had breached) any of their representations, warranties
(or any of such representations or warranties is untrue or
inaccurate), covenants and agreements contained herein or in any
certificate, document, instrument or agreement delivered pursuant to
this Agreement, and, provided that the Transferor makes a written
claim for indemnification against the North American pursuant to
Section 12(g) below within the applicable claim period provided in
8(a) above, then North American agrees to indemnify the Transferor and
each of his representatives (the "Indemnified Transferors") from and
against the entirety of any Adverse Consequences the Indemnified
Transferors may suffer through and after the date of the claim for
indemnification (including any Adverse Consequences the Indemnified
Transferors may suffer after the end of any applicable claim period)
resulting from, arising out of, relating to, in the nature of, or
caused by the breach (or the alleged breach).
(ii) North American agrees to indemnify the
Transferor from and against the entirety of any Adverse Consequences
the Transferor may suffer as a result of Target's failure to pay the
amounts due, for periods after the Closing Date, under any of the
contracts, leases and other agreements set forth in Section 4(q) of
the Disclosure Schedule as to which Transferor is a personal
guarantor; provided, however, that Transferor shall not be entitled to
indemnification pursuant to this Section 8(c)(ii) to the extent that
North American is otherwise entitled to indemnification from the
Transferor in connection with the matters described in this Section
8(c)(ii).
(d) MATTERS INVOLVING THIRD PARTIES.
(i) If any third party shall notify any party
entitled to indemnification hereunder (the "INDEMNIFIED PARTY") with
respect to any matter (a "THIRD PARTY CLAIM") which may give rise to a
claim for indemnification against any other Party (the
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<PAGE> 41
"INDEMNIFYING PARTY") under this Section 8, then the Indemnified Party
shall promptly notify each Indemnifying Party thereof in writing;
PROVIDED, HOWEVER, that no delay on the part of the Indemnified Party
in notifying any Indemnifying Party shall relieve the Indemnifying
Party from any obligation hereunder unless (and then solely to the
extent) the Indemnifying Party thereby is materially prejudiced.
(ii) Any Indemnifying Party will have the right to
defend the Indemnified Party against the Third Party Claim with
counsel of its choice reasonably satisfactory to the Indemnified Party
so long as (A) the Indemnifying Party notifies the Indemnified Party
in writing within 15 days after the Indemnified Party has given notice
of the Third Party Claim that the Indemnifying Party will indemnify
the Indemnified Party from and against the entirety of any Adverse
Consequences the Indemnified Party may suffer resulting from, arising
out of, relating to, in the nature of, or caused by the Third Party
Claim, (B) the Indemnifying Party provides the Indemnified Party with
evidence reasonably acceptable to the Indemnified Party that the
Indemnifying Party will have the financial resources to defend against
the Third Party Claim and fulfill its indemnification obligations
hereunder, (C) the Third Party Claim involves only money damages and
does not seek an injunction or other equitable relief, (D) settlement
of, or an adverse judgment with respect to, the Third Party Claim is
not, in the good faith judgment of the Indemnified Party, likely to
establish a precedential custom or practice materially adverse to the
continuing business interests of the Indemnified Party, (E) the named
parties to the Third Party Claim do not include both the Indemnified
Party and the Indemnifying Party, and (F) the Indemnifying Party
conducts the defense of the Third Party Claim actively and diligently.
(iii) So long as the Indemnifying Party is
conducting the defense of the Third Party Claim in accordance with
Section 8(d)(ii) above, (A) the Indemnified Party may retain separate
co-counsel at its sole cost and expense and participate in the defense
of the Third Party Claim, (B) the Indemnified Party will not consent
to the entry of any judgment or enter into any settlement with respect
to the Third Party Claim without the prior written consent of the
Indemnifying Party (not to be withheld unreasonably), and (C) the
Indemnifying Party will not consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim
without the prior written consent of the Indemnified Party (not to be
withheld unreasonably).
(iv) In the event any of the conditions in
Section 8(d)(ii) above is or becomes unsatisfied, however, (A) the
Indemnified Party may defend against, and consent to the entry of any
judgment or enter into any settlement with respect to, the Third Party
Claim in any manner it reasonably may deem appropriate (and the
Indemnified Party need not consult with, or obtain any consent from,
any Indemnifying Party in connection therewith), (B) the Indemnifying
Parties will reimburse the Indemnified Party promptly and periodically
for the costs of defending against the Third Party Claim (including
reasonable attorneys' fees and expenses), and (C) the Indemnifying
Parties will remain responsible for any Adverse Consequences the
Indemnified Party may suffer resulting
37
<PAGE> 42
from, arising out of, relating to, in the nature of, or caused by the
Third Party Claim to the fullest extent provided in this Section 8.
(e) DETERMINATION OF ADVERSE CONSEQUENCES. The Parties shall
take into account the time cost of money (using the Applicable Rate as the
discount rate) in determining Adverse Consequences for purposes of this Section
8. All indemnification payments under this Section 8 shall be deemed
adjustments to the Consideration.
(f) BASKET. The Transferor shall not be obligated to
indemnify North American pursuant to this Section 8 for any Adverse
Consequences in respect of a breach of (or inaccuracy in) a representation or
warranty until the aggregate amount of all Adverse Consequences in respect of
breaches (or inaccuracies) in representation or warranties exceeds $10,000 (the
"Trigger Amount"). Once the aggregate Adverse Consequences in respect of
breaches (or inaccuracies) in representation or warranties exceed the Trigger
Amount, North American shall be entitled to indemnification for the full amount
of all Adverse Consequences in respect of breaches (or inaccuracies) in
representation or warranties above the Trigger Amount.
The foregoing limitation on the indemnification obligations of
Transferor shall not apply to any breach of any covenants or agreements of
Transferor in this Agreement. In addition, notwithstanding the foregoing
provisions of this paragraph, such limitations shall not apply to breaches of
(or inaccuracies in) any of the representations or warranties in the following
provisions of this Agreement: Sections 3(a), 4(a), 4(b), 4(c), 4(d) and 4(e).
Further, the foregoing limitations of liability shall not apply to any breach
of any representation or warranty if such representation or warranty was made
with actual knowledge or reckless disregard of its falsity or inaccuracy or
incompleteness.
In calculating the amount of Adverse Consequences incurred arising out
of or related to any breach of a representation or warranty, references to
"material" or "Material Adverse Effect" or "knowledge" or "Knowledge" or other
materiality or similar qualifications, including as expressed in accounting
concepts such as GAAP, shall be disregarded. No right of indemnification
hereunder shall be limited by reason of any investigation or audit conducted
before or after the Closing by any party hereto or the knowledge of such party
of any breach of any representation, warranty, covenant or agreement by the
other party at any time.
(g) OTHER INDEMNIFICATION PROVISIONS. The foregoing
indemnification provisions are in addition to, and not in derogation of, any
statutory, equitable, or common law remedy (including without limitation any
such remedy arising under Environmental, Health, and Safety Requirements) any
Party may have with respect to Target, or the transactions contemplated by this
Agreement. The Transferor hereby agrees that he or it will not make any claim
for indemnification against Target by reason of the fact that he or it was a
director, officer, employee, or agent of any such entity or was serving at the
request of any such entity as a partner, trustee, director, officer, employee,
or agent of another entity (whether such claim is for judgments, damages,
penalties, fines, costs, amounts paid in settlement, losses, expenses,
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<PAGE> 43
or otherwise and whether such claim is pursuant to any statute, charter
document, bylaw, agreement, or otherwise) with respect to any matter for which
a Buyer Indemnified Party may be entitled to indemnification from the
Transferor as provided in this Section 8.
9. POST-CLOSING ADJUSTMENT OF CONSIDERATION.
(a) Within 60 days after the Closing Date, North American
will prepare and deliver to the Transferor a draft balance sheet (the "DRAFT
CLOSING DATE BALANCE SHEET") for Target as of the close of business on the
Closing Date (determined as though the Parties had not consummated the
transactions contemplated by this Agreement). North American will prepare the
Draft Closing Date Balance Sheet in accordance with GAAP applied on a basis
consistent with the preparation of the Financial Statements.
(b) If the Transferor has any objections to the Draft Closing
Date Balance Sheet, he will deliver a detailed statement describing his
objections to North American within 30 days after receiving the Draft Closing
Date Balance Sheet. North American and the Transferor will use reasonable
efforts to resolve any such objections themselves. If the Parties do not obtain
a final resolution within 30 days after North American has received the
statement of objections, however, North American and Transferor will select an
accounting firm mutually acceptable to them to resolve any remaining
objections. If North American and the Transferor are unable to agree on the
choice of an accounting firm, they will select a nationally-recognized
accounting firm by lot (after excluding their respective regular outside
accounting firms). The determination of any accounting firm so selected will be
set forth in writing and will be conclusive and binding upon the Parties. North
American will revise the Draft Closing Date Balance Sheet as appropriate to
reflect the resolution of any objections thereto pursuant to this Section 9(b).
ThE "CLOSING DATE BALANCE SHEEt" shall mean the Draft Closing Date Balance
Sheet together with any revisions thereto pursuant to this Section 9(b).
(c) In the event the Parties submit any unresolved objections
to an accounting firm for resolution as provided in Section 9(b) above, any
expenses relating to the engagement of the accounting firm shall be allocated
between the Transferor and North American by the accounting firm in proportion
to the amount in dispute which is decided in favor of the challenging party.
(d) North American will make the work papers and back-up
materials used in preparing the Draft Closing Date Balance Sheet available to
the Transferor and its accountants and other representatives at reasonable
times and upon reasonable notice during (A) the preparation by North American
of the Draft Closing Date Balance Sheet, (B) review by the Transferor of the
Draft Closing Date Balance Sheet, and (C) the resolution by the Parties of any
objections thereto.
(e) The Consideration, will be adjusted as follows:
(i) If the Shareholder's Equity set forth in the
Closing Date Balance Sheet is less than $1,260,000, the Transferor
will pay to the North American an amount equal
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<PAGE> 44
to such deficiency (plus interest thereon at the Applicable Rate from
the Closing Date) within three business days after the date on which
the Closing Date Balance Sheet finally is determined pursuant to
Section 9(b).
(ii) If the notes payable of Target set forth in the
Closing Balance Sheet are greater than $650,000 the Transferor will
pay to the North American an amount equal to such excess (plus
interest thereon at the Applicable Rate from the Closing Date) within
three business days after the date on which the Closing Date Balance
Sheet finally is determined pursuant to Section 9(b) above.
(iii) If the cash of Target set forth in the Closing
Date Balance Sheet is less than $344,000 the Transferor will pay to
the North American an amount equal to such deficiency (plus interest
thereon at the Applicable Rate from the Closing Date) within three
business days after the date on which the Closing Date Balance Sheet
finally is determined pursuant to Section 9(b) above.
(f) The aggregate of all amounts required to be paid by
Transferor to North American pursuant to Section 9(a)(iii) shall be paid (i)
first, at the option of the Transferor, up to $160,000 in value (at $5.00 per
share) of North American Class B Common Shares, (ii) then, 100% in cash up to
$100,000, and (iii) thereafter 49% in cash and 51% in North American Class B
Common Shares (valued at $5.00 per share). The cash portion of any such payment
shall be made by wire transfer or delivery of other immediately available
funds.
10. TAX MATTERS. The following provisions shall govern the allocation
of responsibility as between North American and Transferor for certain tax
matters following the Closing Date:
(a) TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE.
Transferor shall prepare or cause to be prepared and timely file or cause to be
timely filed all Tax Returns for Target for all periods ending on or prior to
the Closing Date which are filed after the Closing Date (the "Pre-Closing
Period"). Such Tax Returns shall be prepared by treating items on such Tax
Return in a manner consistent with the past practices with respect to such
items, unless otherwise required by law. Transferor shall permit North American
to review and comment on each such Tax Return described in the preceding
sentence prior to filing. North American shall pay the amounts due for Taxes of
Target with respect to the Pre-Closing Periods, up to the amount reflected in
the reserve for Tax Liability shown on the face of the Most Recent Balance
Sheet. Transferor agrees that he will pay, when due, all amounts due for Taxes
of Target with respect to Pre-Closing Periods, that exceed the reserve for Tax
Liability.
(b) TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING
DATE. North American shall prepare or cause to be prepared and file or cause to
be filed any Tax Returns of Target for Tax periods which begin before the
Closing Date and end after the Closing Date. North American shall permit
Transferor to review and comment on each such Tax return described in the
preceding sentence prior to filing. Transferor shall pay to North American
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<PAGE> 45
within fifteen (15) days after the date on which Taxes are paid with respect to
such periods an amount equal to the portion of such Taxes which relates to the
portion of such Taxable period ending on the Closing Date to the extent such
Taxes are not reflected in the reserve for Tax Liability shown on the face of
the Most Recent Balance Sheet. For purposes of this Section , in the case of
any Taxes that are imposed on a periodic basis and are payable for a Taxable
period that includes (but does not end on) the Closing Date, the portion of
such Tax which relates to the portion of such Taxable period ending on the
Closing Date shall (x) in the case of any real and personal property Taxes, be
deemed to be the amount of such Tax for the entire Taxable period multiplied by
a fraction the numerator of which is the number of days in the Taxable period
ending on the Closing Date and the denominator of which is the number of days
in the entire Taxable period, and (y) in the case of any other Tax be deemed
equal to the amount which would be payable if the relevant Taxable period ended
on the Closing Date. Any credits relating to a Taxable period that begins
before and ends after the Closing Date shall be taken into account as though
the relevant Taxable period ended on the Closing Date. All determinations
necessary to give effect to the foregoing allocations shall be made in a manner
consistent with prior practice of Target.
(c) COOPERATION ON TAX MATTERS.
(i) North American, Target and Transferor shall
cooperate fully, as and to the extent reasonably requested by the
other party, in connection with the filing of Tax Returns pursuant to
this Section and any audit, litigation or other proceeding with
respect to Taxes. Such cooperation shall include the retention and
(upon the other party's request) the provision of records and
information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a
mutually convenient basis to provide additional information and
explanation of any material provided hereunder. Target and Transferor
agree (A) to retain all books and records with respect to Tax matters
pertinent to Target relating to any taxable period beginning before
the Closing Date until the expiration of the statute of limitations
(and, to the extent notified by North American or Transferor, any
extensions thereof) of the respective taxable periods, and to abide by
all record retention agreements entered into with any taxing
authority, and (B) to give the other party reasonable written notice
prior to transferring, destroying or discarding any such books and
records and, if the other party so requests, Target or Transferor, as
the case may be, shall allow the other party to take possession of
such books and records.
(ii) North American and Transferor further agree,
upon request, to use their best efforts to obtain any certificate or
other document from any governmental authority or any other Person as
may be necessary to mitigate, reduce or eliminate any Tax that could
be imposed (including, but not limited to, with respect to the
transactions contemplated hereby).
(iii) North American and Transferor further agree,
upon request, to provide the other party with all information that
either party may be required to report
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pursuant to Section 6043 of the Code and all Treasury Department
Regulations promulgated thereunder.
(iv) If Target is an S Corporation, Transferor
agrees that promptly after the Closing Date, he will prepare and file
any required S Corporation federal and state tax returns for Target
for the period from January 1, 1997 through the Closing Date and will
pay all applicable Taxes for that period, as more particularly
described in Section 10(e) below.
(d) TAX SHARING AGREEMENTS. All tax sharing agreements or
similar agreements with respect to or involving Target shall be terminated as
of the Closing Date and, after the Closing Date, Target shall not be bound
thereby or have any liability thereunder.
(e) S CORPORATION STATUS. If Target is an S Corporation,
Transferor acknowledges that as a result of the consummation of the
transactions contemplated by this Agreement, Target's S Corporation status will
terminate as of the Closing Date. Notwithstanding anything in this Section 10
to the contrary, Transferor agrees that he will file any required S Corporation
federal, state or local tax returns for Target for the period from January 1,
1997 through the Closing Date and will pay all applicable Taxes for such
period. Transferor will elect under Section 1362(e)(3) of the Code not to have
the pro rata allocation method of Section 1362(e)(2) of the Code apply to
Target's final taxable year as an S Corporation.
(f) CERTAIN TAXES. All transfer, documentary, sales, use,
stamp, registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement, shall be paid by
Transferor when due, and Transferor will, at its own expense, file all
necessary Tax Returns and other documentation with respect to all such
transfer, documentary, sales, use, stamp, registration and other Taxes and
fees, and, if required by applicable law, North American will, and will cause
its affiliates to, join in the execution of any such Tax Returns and other
documentation.
11. TERMINATION.
(a) TERMINATION OF AGREEMENT. The Parties may terminate this
Agreement as provided below:
(i) North American and the Transferor may terminate
this Agreement by mutual written consent at any time prior to the
Closing;
(ii) North American may terminate this Agreement by
giving written notice to the Transferor at any time prior to the
Closing (A) in the event the Transferor has breached any
representation, warranty, or covenant contained in this Agreement in
any material respect, North American has notified the Transferor of
the breach, and the breach has continued without cure for a period of
30 days after the notice of breach or (B) if the Closing shall not
have occurred on or before April 15, 1998, by reason of the
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<PAGE> 47
failure of any condition precedent under Section 7(a) hereof (unless
the failure results primarily from the North American itself breaching
any representation, warranty, or covenant contained in this
Agreement); and
(iii) the Transferor may terminate this Agreement by
giving written notice to North American at any time prior to the
Closing (A) in the event North American has breached any
representation, warranty, or covenant contained in this Agreement in
any material respect, the Transferor has notified the North American
of the breach, and the breach has continued without cure for a period
of 30 days after the notice of breach or (B) if the Closing shall not
have occurred on or before April 15, 1998, by reason of the failure of
any condition precedent under Section 7(b) hereof (unless the failure
results primarily from the Transferor himself breaching any
representation, warranty, or covenant contained in this Agreement).
(b) EFFECT OF TERMINATION. If any Party terminates this
Agreement pursuant to Section 11(a) above, all rights and obligations of the
Parties hereunder shall terminate without any Liability of any Party to any
other Party (except for any Liability of any Party then in breach).
12. MISCELLANEOUS.
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall
issue any press release or make any public announcement relating to the subject
matter of this Agreement prior to the Closing without the prior written
approval of the North American and the Transferor; PROVIDED, HOWEVER, that any
Party may make any public disclosure it believes in good faith is required by
applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing Party will use its
best efforts to advise the other Parties prior to making the disclosure).
(b) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not
confer any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns and the Indemnified Parties
referred to in Section 8 hereof.
(c) ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or among
the Parties, written or oral, to the extent they related in any way to the
subject matter hereof.
(d) SUCCESSION AND ASSIGNMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the Parties
named herein and their respective successors and permitted assigns. No Party
may assign either this Agreement or any of his or its rights, interests, or
obligations hereunder without the prior written approval of the North American
and the Transferor; PROVIDED, HOWEVER, that the North American may (i) assign
any or all of its rights and interests hereunder to one or more of its
Affiliates, (ii) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases the
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<PAGE> 48
North American nonetheless shall remain responsible for the performance of all
of its obligations hereunder) and (iii) without the approval of the Transferor
assign its rights and interests hereunder to its lenders (and any agent for the
lenders), and the Parties consent to any exercise by such lenders (and such
agents) of their rights and remedies with respect to such collateral.
(e) COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) HEADINGS. The Section headings contained in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
(g) NOTICES. All notices, requests, demands, claims, and
other communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
<TABLE>
<CAPTION>
IF TO THE TRANSFEROR: COPY TO:
--------------------- --------
<S> <C>
Larry Bonadeo Tescher, Chaves, Rubin,
c/o Mich-Com Cable Services, Inc. Forman & Muller, P.A.
5534 South Kanner Highway 2101 Corporate Blvd.
Stuart, Florida 34997 Boca Corporate Center
Boca Raton, Florida 33431
Attn: Robert Chaves, Esq.
</TABLE>
44
<PAGE> 49
<TABLE>
<CAPTION>
IF TO THE NORTH AMERICAN: COPY TO:
------------------------- --------
<S> <C>
North American Tel-Com Group, Inc. Holland & Knight LLP
2240 Palm Beach Lakes Blvd, Ste. 100 1 East Broward Blvd., 13th Floor
West Palm Beach, FL 33409 Ft. Lauderdale, Florida 33301
Attn: William J. Mercurio Attn: Donn A. Beloff, Esq.
Holland & Knight LLP
701 Brickell Avenue
Miami, Florida 33131
Attn: Teresita H. Garcia, Esq.
H.I.G. Capital Management, Inc.
1001 Brickell Bay Drive, Suite 2708
Miami, Florida 33131
Attn: Sami W. Mnaymneh
White & Case, LLP
First Union Financial Tower
Suite 4900
200 S. Biscayne Blvd.
Miami, Florida 33131
Attn: Jorge L. Freeland, Esq.
</TABLE>
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been
duly given unless and until it actually is received by the intended recipient.
Any Party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other
Parties notice in the manner herein set forth.
(h) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Florida without
giving effect to any choice or conflict of law provision or rule (whether of
the State of Florida or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Florida.
(i) AMENDMENTS AND WAIVERS. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
the North American and the Transferor. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
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(j) SEVERABILITY. Any term or provision of this Agreement
that is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
(k) EXPENSES. Each of the Parties will bear his or its own
costs and expenses (including legal fees and expenses) incurred in connection
with this Agreement and the transactions contemplated hereby. The Transferor
agrees Target has not borne or will bear any of the Transferor's costs and
expenses (including any of their legal fees and expenses) in connection with
this Agreement or any of the transactions contemplated hereby.
(l) CONSTRUCTION. The Parties have participated jointly in
the negotiation of this Agreement. In the event an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as if
drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local,
or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
(m) INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The
Exhibits, Annexes, Schedules and Certificates identified in this Agreement are
incorporated herein by reference and made a part hereof.
(n) SPECIFIC PERFORMANCE. Each of the Parties acknowledges
and agrees that the other Parties would be damaged irreparably in the event any
of the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter (subject to the provisions set
forth in Section 10(o) below), in addition to any other remedy to which they
may be entitled, at law or in equity.
(o) SUBMISSION TO JURISDICTION. Each of the Parties submits
to the jurisdiction of any state or federal court sitting in Palm Beach County,
Florida, in any action or proceeding arising out of or relating to this
Agreement and agrees that all claims in respect of the action or proceeding may
be heard and determined in any such court. Each of the Parties waives any
defense of inconvenient forum to the maintenance of any action or proceeding so
brought and
46
<PAGE> 51
waives any bond, surety, or other security that might be required of any other
Party with respect thereto. Any Party may make service on any other Party by
sending or delivering a copy of the process to the Party to be served at the
address and in the manner provided for the giving of notices in Section 12(o)
above. Nothing in this Section 12(g), however, shall affect the right of any
Party to bring any action or proceeding arising out of or relating to this
Agreement in any other court or to serve legal process in any other manner
permitted by law or at equity. Each Party agrees that a final judgment in any
action or proceeding so brought shall be conclusive and may be enforced by suit
on the judgment or in any other manner provided by law or at equity.
In any action or proceeding arising out of or relating to this
Agreement, the prevailing party shall be entitled to recover reasonable
attorney's fees and costs from the other party to the action or proceeding.
(p) WAIVER OF JURY TRIAL. THE PARTIES HEREBY IRREVOCABLY
WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY AND TO
THE FULLEST EXTENT PERMITTED BY LAW WAIVE ANY RIGHTS THAT THEY MAY HAVE TO
CLAIM OR RECEIVE CONSEQUENTIAL OR SPECIAL DAMAGES IN CONNECTION WITH ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
*****
47
<PAGE> 52
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
NORTH AMERICAN TEL-COM, INC.
By:
------------------------------
William J. Mercurio
TRANSFEROR
----------------------------------
Larry Bonadeo
48
<PAGE> 1
Exhibit 10.9
STOCK EXCHANGE AGREEMENT
BETWEEN
NORTH AMERICAN TEL-COM GROUP, INC.,
AND
BERNARD E. CZARNECKI
March 31, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AGREEMENT.............................................................................................. 1
1. Definitions................................................................................... 1
2. Exchange Transaction.......................................................................... 6
(a) Basic Transaction.................................................................... 6
(b) Consideration........................................................................ 6
(c) The Closing.......................................................................... 6
(d) Deliveries at Closing................................................................ 7
3. Representations and Warranties Concerning the Transaction..................................... 7
(a) Representations and Warranties of the Transferor..................................... 7
(b) Representations and Warranties of the North American................................. 8
4. Representations and Warranties Concerning Target.............................................. 11
(a) Organization, Qualification, and Corporate Power..................................... 11
(b) Authorization of Transaction......................................................... 11
(c) Capitalization....................................................................... 11
(d) Noncontravention..................................................................... 12
(e) Brokers' Fees........................................................................ 12
(f) Title to Assets...................................................................... 12
(g) Subsidiaries......................................................................... 12
(h) Financial Statements................................................................. 12
(i) Events Subsequent to Most Recent Fiscal Year End..................................... 13
(j) Undisclosed Liabilities.............................................................. 15
(k) Legal Compliance..................................................................... 15
(l) Tax Matters.......................................................................... 15
(m) Real Property........................................................................ 17
(n) Intellectual Property................................................................ 18
(o) Tangible Assets...................................................................... 20
(p) Inventory............................................................................ 20
(q) Contracts............................................................................ 20
(r) Notes and Accounts Receivable........................................................ 21
(s) Powers of Attorney................................................................... 21
(t) Insurance............................................................................ 21
(u) Litigation........................................................................... 21
(v) Commitments and Warranties........................................................... 22
(w) Liability for Services Performed..................................................... 22
(x) Employees............................................................................ 22
(y) Employee Benefits.................................................................... 23
(z) Guaranties........................................................................... 25
(aa) Environmental, Health, and Safety Matters............................................ 25
(ab) Certain Business Relationships with Target........................................... 26
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
(ac) Customers and Suppliers.............................................................. 26
(ad) Disclosure........................................................................... 26
5. Pre-Closing Covenants......................................................................... 27
(a) General.............................................................................. 27
(b) Notices and Consents................................................................. 27
(c) Operation of Business................................................................ 27
(d) Preservation of Business............................................................. 27
(e) Full Access.......................................................................... 27
(f) Notice of Developments............................................................... 28
(g) Exclusivity.......................................................................... 28
(h) No Termination of Transferor's Obligation by Subsequent Incapacity................... 28
6. Post-Closing Covenants........................................................................ 28
(a) General.............................................................................. 28
(b) Litigation Support................................................................... 28
(c) Transition........................................................................... 29
(d) Confidentiality...................................................................... 29
(e) Stock Options........................................................................ 29
(f) Independent Accountants.............................................................. 29
(g) Employees of Target.................................................................. 29
(h) Tax Matters.......................................................................... 30
(i) Use of Name.......................................................................... 30
7. Conditions to Obligation to Close............................................................. 30
(a) Conditions to Obligation of the North American....................................... 30
(b) Conditions to Obligation of the Transferor........................................... 32
8. Remedies for Breaches of This Agreement....................................................... 34
(a) Survival of Representations and Warranties........................................... 34
(b) Indemnification Provisions for Benefit of the North American......................... 34
(c) Indemnification Provisions for Benefit of the Transferor............................. 36
(d) Matters Involving Third Parties...................................................... 36
(e) Determination of Adverse Consequences................................................ 38
(f) Basket............................................................................... 38
(g) Other Indemnification Provisions..................................................... 38
9. Adjustment of Consideration................................................................... 39
10. Tax Matters................................................................................... 40
(a) Tax Periods Ending on or Before the Closing Date..................................... 40
(b) Tax Periods Beginning Before and Ending After the Closing Date....................... 41
(c) Cooperation on Tax Matters........................................................... 41
(d) Tax Sharing Agreements............................................................... 42
(e) S Corporation Status................................................................. 42
(f) Certain Taxes........................................................................ 42
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
11. Termination................................................................................... 42
(a) Termination of Agreement............................................................. 42
(b) Effect of Termination................................................................ 43
12. Miscellaneous................................................................................. 43
(a) Press Releases and Public Announcements.............................................. 43
(b) No Third-Party Beneficiaries......................................................... 43
(c) Entire Agreement..................................................................... 43
(d) Succession and Assignment............................................................ 44
(e) Counterparts......................................................................... 44
(f) Headings............................................................................. 44
(g) Notices.............................................................................. 44
(h) Governing Law........................................................................ 45
(i) Amendments and Waivers............................................................... 45
(j) Severability......................................................................... 46
(k) Expenses............................................................................. 46
(l) Construction......................................................................... 46
(m) Incorporation of Exhibits, Annexes, and Schedules.................................... 46
(n) Specific Performance................................................................. 46
(o) Submission to Jurisdiction........................................................... 46
(p) WAIVER OF JURY TRIAL................................................................. 47
</TABLE>
Exhibit A--Intentionally Omitted
Exhibit B--Financial Statements
Exhibit C--List of Key Employees
Exhibit D--Opinion of Transferor's Counsel
Exhibit E--[NOT APPLICABLE]
Exhibit F--Secretary and Incumbency Certificate (Target)
Exhibit G--Employment Agreements
Exhibit H--Opinion of North American's Counsel
Exhibit I--Secretary and Incumbency Certificate (North American)
Annex I--Exceptions to the Transferor's Representations and Warranties
Concerning the Transaction
Annex II--Exceptions to the North American's Representations and Warranties
Concerning the Transaction
Disclosure Schedule--Exceptions to Representations and Warranties
Concerning Target
iii
<PAGE> 5
STOCK EXCHANGE AGREEMENT
Agreement entered into as of March 31, 1998, by and between North
American Tel-Com Group, Inc., a Florida corporation ("North American"), and
Bernard E. Czarnecki (the "Transferor"), the sole shareholder of CableMasters
Corp., a Pennsylvania corporation ("Target"). North American and the Transferor
are referred to collectively herein as the "Parties."
The Transferor in the aggregate owns all of the outstanding capital
stock of Target.
This Agreement contemplates the transfer by Transferor of all of the
issued and outstanding capital stock of Target to North American. The
Transferor will receive cash and capital stock in North American in exchange
for his capital stock in Target.
Simultaneously herewith, North American is entering into stock
exchange agreements for the acquisition of all of the issued and outstanding
capital stock of each of Mich-Com Cable Services Incorporated, Kenya
Corporation, and Excel Cable Construction, Inc. (together with this Agreement,
the "Exchange Agreements") and a Securities Purchase Agreement with HIG Cable,
Inc. All of the parties to the Exchange Agreements intend for the transfers
contemplated pursuant to the Exchange Agreements to be treated as a single
transaction qualifying under Section 351 of the Code (as that term is hereafter
defined).
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1. DEFINITIONS.
"ACCREDITED INVESTOR" has the meaning set forth in Regulation
D promulgated under the Securities Act.
"ADVERSE CONSEQUENCES" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses,
expenses, and fees, including court costs and reasonable attorneys' fees and
expenses, and any other cost of enforcing a party's rights under this
Agreement.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act.
"AFFILIATED GROUP" means any affiliated group within the
meaning of Code Section 1504(a) or any similar group defined under a similar
provision of state, local or foreign law.
"APPLICABLE RATE" means the corporate base rate of interest
publicly announced from time to time by PNC Bank, N.A.
<PAGE> 6
"BASIS" means any past or present fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction that forms or could form the
basis for any specified consequence.
"CLOSING" has the meaning set forth in Section 2(c) below.
"CLOSING DATE" has the meaning set forth in Section 2(c)
below.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONFIDENTIAL INFORMATION" means any information concerning
the businesses and affairs of Target that is not already generally available to
the public.
"CONSIDERATION" has the meaning set forth in Section 2(b)
below.
"CONTROLLED GROUP OF CORPORATIONS" has the meaning set forth
in Code Section 1563.
"DISCLOSURE SCHEDULE" has the meaning set forth in Section 4
below.
"EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan), (d) Employee Welfare Benefit Plan or (e)
bonus, incentive, stock purchase, stock ownership, stock option, stock
appreciation right, severance, salary continuation, termination, change of
control or other material fringe benefit plan or program.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in
ERISA Section 3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in
ERISA Section 3(1).
"ENVIRONMENTAL, HEALTH, AND SAFETY REQUIREMENTS" shall mean
all federal, state, local and foreign statutes, regulations, ordinances and
other provisions having the force or effect of law, all judicial and
administrative orders and determinations, all contractual obligations and all
common law concerning public health and safety, worker health and safety, and
pollution or protection of the environment, including without limitation all
those relating to the presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution, labeling, testing,
processing, discharge, release, threatened release, control, or cleanup of any
Hazardous Materials (which, for purposes of this Agreement, shall meany any
hazardous materials, substances or wastes, chemical substances or mixtures,
pesticides, pollutants, contaminants, toxic chemicals, petroleum products or
byproducts, asbestos, polychlorinated biphenyls, noise or radiation), each as
amended and as now or hereafter in effect.
2
<PAGE> 7
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA AFFILIATE" means (i) any corporation included with
Target in a controlled group of corporations within the meaning of Section
414(b) of the Code; (ii) any trade or business (whether or not incorporated)
which is under common control with Target within the meaning of Section 414(c)
of the Code; (iii) any member of an affiliated service group of which Target is
a member within the meaning of Section 414(m) of the Code; or (iv) any other
person or entity treated as an affiliate of Target under Section 414(o) of the
Code.
"EXCHANGE AGREEMENTS" has the meaning set forth in the
preface above.
"EXCHANGES" means the transactions contemplated under the
Exchange Agreements.
"FIDUCIARY" has the meaning set forth in ERISA Section 3(21).
"FINANCIAL STATEMENT" has the meaning set forth in Section
4(h) below.
"GAAP" means United States generally accepted accounting
principles as in effect from time to time.
"HIG" refers to HIG Cable, Inc., a Cayman Islands
corporation.
"HART-SCOTT-RODINO ACT" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"INDEMNIFIED PARTY" has the meaning set forth in Section 8(d)
below.
"INDEMNIFYING PARTY" has the meaning set forth in Section
8(d) below.
"INTELLECTUAL PROPERTY" means (a) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications, and patent
disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof, (b)
all trademarks, service marks, trade dress, logos, trade names, and corporate
names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection therewith, (d) all mask works and all applications,
registrations, and renewals in connection therewith, (e) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals),
3
<PAGE> 8
(f) all computer software (including data and related documentation), (g) all
other proprietary rights, and (h) all copies and tangible embodiments thereof
(in whatever form or medium).
"KNOWLEDGE" means that which is known by a person and that of
which a person has constructive knowledge based upon information readily
available to that person in the performance of such person's duties. In the
case of North American or Target, "Knowledge" means the "Knowledge" of its
respective directors and executive officers.
"LIABILITY" means any liability (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"MATERIAL ADVERSE EFFECT" means, individually or together
with other adverse effects, any material adverse effect on the assets,
liabilities, results of operations, business condition (financial or otherwise)
or prospects of Target or on Target's ability to consummate the transactions
contemplated hereby or the ability of the North American to operate the
business of Target immediately after the Closing in substantially the same
manner as such business is conducted prior to Closing.
"MOST RECENT BALANCE SHEET" means the balance sheet contained
within the Most Recent Financial Statements.
"MOST RECENT FINANCIAL STATEMENTS" has the meaning set forth
in Section 4(h) below.
"MOST RECENT FISCAL PERIOD END" has the meaning set forth in
ss.4(h) below.
"MOST RECENT FISCAL YEAR END" has the meaning set forth in
ss.4(h) below.
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA
ss.3(37).
"NATIONAL SECURITIES EXCHANGE" shall have the meaning
ascribed to that term in the rules and regulations promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934.
"NORTH AMERICAN" has the meaning set forth in the preface
above.
"NORTH AMERICAN CLASS A COMMON SHARES" means any share of the
Class A Common Stock, par value $.01 per share, of North American.
"NORTH AMERICAN CLASS B COMMON SHARES" means any share of the
Class B Common Stock, par value $.01 per share, of North American.
4
<PAGE> 9
"NORTH AMERICAN SERIES A PREFERRED SHARES" means any share of
the Series A Convertible Preferred Stock, par value $.01 per share, of North
American.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of
business consistent with past custom and practice (including with respect to
quantity and frequency).
"PARTY" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PERSON" means an individual, a partnership, a corporation,
an association, a joint stock company, a trust, a joint venture, an
unincorporated organization, or a governmental entity (or any department,
agency, or political subdivision thereof).
"PROHIBITED TRANSACTION" has the meaning set forth in ERISA
Section 406 and Code Section 4975.
"REPORTABLE EVENT" has the meaning set forth in ERISA Section
4043.
"REVISED MOST RECENT BALANCE SHEET" has the meaning set forth
in Section 9 of this Agreement.
"SECURITIES ACT" means the Securities Act of 1933, as
amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act
of 1934, as amended.
"SECURITIES PURCHASE AGREEMENT" means the Securities Purchase
Agreement of even date herewith, by and between North American and HIG,
including exhibits thereto.
"SECURITY INTEREST" means any mortgage, pledge, lien,
encumbrance, charge, or other security interest, other than (a) mechanic's,
materialmen's, and similar liens that could not reasonably be expected to have
a Material Adverse Effect, (b) liens for Taxes not yet due and payable or for
Taxes that the taxpayer is contesting in good faith through appropriate
proceedings disclosed on Section 4(l) of the Disclosure Schedule, (c) purchase
money liens and liens securing rental payments under capital lease arrangements
disclosed in the Most Recent Financial Statements, and (d) other liens arising
in the Ordinary Course of Business and not incurred in connection with the
borrowing of money, so long as such liens could not reasonably be expected to
have a Material Adverse Effect.
"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement of
North American of even date herewith.
5
<PAGE> 10
"SUBSIDIARY" means any corporation with respect to which a
specified Person (or a Subsidiary thereof) owns a majority of the common stock
or has the power to vote or direct the voting of sufficient securities to elect
a majority of the directors.
"TARGET" has the meaning set forth in the preface above.
"TARGET SHARE" means any share of the Common Stock, par value
$1.00 per share, of Target.
"TARGET SHAREHOLDER" means any Person who or which holds any
Target Shares.
"TAX" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Code Section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed or not,
and any obligations under any agreements or arrangements with respect to any of
the foregoing.
"TAX RETURN" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"THIRD PARTY CLAIM" has the meaning set forth in Section 8(d)
below.
"TRANSFEROR" has the meaning set forth in the preface above.
2. EXCHANGE TRANSACTION.
(a) BASIC TRANSACTION. On and subject to the terms and
conditions of this Agreement, North American agrees to acquire from the
Transferor, and the Transferor agrees to transfer to North American, all of his
Target Shares for the consideration specified below in this Section 2.
(b) CONSIDERATION. North American agrees to deliver to the
Transferor at Closing (i) cash in the amount of $4,557,000 payable by wire
transfer or other immediately available funds and (ii) 948,600 North American
Class B Common Shares (collectively, the "Consideration"). The Consideration
shall be subject to adjustment pursuant to the provisions of Section 9 hereof.
(c) THE CLOSING. The closing of the transactions contemplated
by this Agreement (the "CLOSING") shall take place at the offices of Holland &
Knight LLP in Miami,
6
<PAGE> 11
Florida, commencing at 9:00 a.m. local time on March 31, 1998 or such other
date, time and place as the Parties may mutually determine (the "CLOSING
DATE").
(d) DELIVERIES AT CLOSING. At the Closing, (i) the Transferor
will deliver to the North American the various certificates, instruments, and
documents referred to in Section 7(a) below, (ii) North American will deliver
to the Transferor the various certificates, instruments, and documents referred
to in ss.7(b) below, and (iii) the Transferor will deliver to North American
stock certificates representing all of his Target Shares, endorsed in blank or
accompanied by duly executed assignment documents, and (iv) North American will
deliver to the Transferor the Consideration specified in Section 2(b) above.
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
(a) REPRESENTATIONS AND WARRANTIES OF THE TRANSFEROR.
Transferor represents and warrants to North American that the statements
contained in this Section 3(a) are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Section 3(a)), except as set forth in Annex I
attached hereto.
(i) AUTHORIZATION OF TRANSACTION. The Transferor has
full power and authority to execute and deliver this Agreement and to
perform his obligations hereunder. This Agreement constitutes the
valid and legally binding obligation of the Transferor, enforceable in
accordance with its terms and conditions except to the extent
enforcement thereof may be limited by applicable bankruptcy,
reorganization, insolvency or moratorium laws, or other laws affecting
the enforcement of creditors' rights or by the principles governing
the availability of equitable remedies. The Transferor need not give
any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency or any
other Person in order to consummate the transactions contemplated by
this Agreement.
(ii) NONCONTRAVENTION. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court
to which the Transferor is subject or (B) conflict with, result in a
breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or
cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which the Transferor is a
party or by which he is bound or to which any of his assets is
subject.
(iii) BROKERS' FEES. Transferor has, or prior to
Closing will have, paid any fees or commissions due from Transferor to
any broker, finder, or agent with respect to the transactions
contemplated by this Agreement. Transferor agrees that he will pay
7
<PAGE> 12
any additional amounts that may become due from him or Target to any
such broker, finder or agent in the future, including as a result of
any indemnification obligations.
(iv) INVESTMENT. The Transferor (A) understands
that, except as contemplated under the Stockholders Agreement, the
North American Class B Common Shares that he will receive as part of
the Purchase Price have not been, and will not be, registered under
the Securities Act, or under any state securities laws, and are being
offered and sold in reliance upon federal and state exemptions for
transactions not involving any public offering, (B) is acquiring such
North American Class B Common Shares solely for his own account for
investment purposes, and not with a view to the distribution thereof,
(C) is a sophisticated investor with knowledge and experience in
business and financial matters, (D) has received certain information
concerning North American and has had the opportunity to obtain
additional information as desired in order to evaluate the merits and
the risks inherent in holding the North American Class B Common
Shares, (E) is able to bear the economic risk and lack of liquidity
inherent in holding the North American Class B Common Shares, and (F)
is an Accredited Investor for the reasons set forth on Annex I.
(v) TARGET SHARES. The Transferor holds of record
and owns beneficially all of the issued and outstanding Target Shares,
as further described in Section 4(c) hereof, free and clear of any
restrictions on transfer (other than any restrictions under the
Securities Act and state securities laws), Taxes, security interests
liens or other encumbrances, options, warrants, purchase rights,
contracts, commitments, equities, claims, and demands. The Transferor
is not a party to any option, warrant, purchase right, or other
contract or commitment that could require the Transferor to sell,
transfer, or otherwise dispose of any capital stock of Target (other
than this Agreement). The Transferor is not a party to any voting
trust, proxy, shareholders agreement, or other agreement or
understanding with respect to the voting of any capital stock of
Target.
(vi) DISCLOSURE. Neither this Agreement nor any of
the exhibits, attachments, written statements, documents, certificates
or other items prepared for or supplied to North American by the
Transferor with respect to the transactions contemplated hereby
contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make each statement contained
herein or therein not misleading. There is no fact which the
Transferor has not disclosed to the North American herein and of which
the Transferor is aware which could be anticipated to have a Material
Adverse Effect.
(b) REPRESENTATIONS AND WARRANTIES OF THE NORTH AMERICAN.
North American represents and warrants to Transferor that the statements
contained in this Section 3(b) are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Section 3(b)), except as set forth in Annex II
attached hereto.
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(i) ORGANIZATION OF THE NORTH AMERICAN. North
American is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Florida. Correct and
complete copies of the charter and bylaws of North American (as
amended to date) are included as part of Annex II. The names and
titles of each officer and director of North American is set forth in
Annex II.
(ii) CAPITALIZATION OF NORTH AMERICAN. The entire
authorized capital stock of North American consists of (i) 98,000,000
shares of North American Common Stock, including 10,000,000 North
American Class A Common Shares, 20,000,000 North American Class B
Common Shares, and 68,000,000 Shares of undesignated North American
Common Stock and (ii) 2,000,000 shares of North American Preferred
Stock, including 100,000 designated as North American Series A
Preferred Shares. The issued and outstanding capital stock of North
American, immediately prior to (i) the closing of the transactions
contemplated pursuant to the Exchange Agreements and (ii) the proposed
sale of 100,000 North American Series A Preferred Shares to HIG,
consists of 1,946,330 North American Class A Common Shares, no North
American Class B Common Shares and no North American Preferred Stock.
The issued and outstanding capital stock of North American,
immediately following the (i) closing of the transactions contemplated
pursuant to the Exchange Agreements and (ii) the proposed sale of
100,000 North American Series A Preferred Shares to HIG, shall consist
of 1,946,330 North American Class A Shares, 5,011,800 North American
Class B Shares and 100,000 North American Series A Preferred Shares,
held of record as set forth in Annex II hereto. All of the issued and
outstanding North American Class A Common Shares have been, and upon
issuance pursuant to the Exchange Agreements and the Securities
Purchase Agreement, respectively, the 5,011,800 Class B Common Shares
and the 100,000 North American Series A Preferred Shares will be, duly
authorized, validly issued, fully paid, and nonassessable. Except as
disclosed in Annex II, there are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights,
exchange rights, or other contracts or commitments that could require
North American to issue, sell, or otherwise cause to become
outstanding any of its capital stock. Except as disclosed in Annex II,
there are no outstanding or authorized stock appreciation, phantom
stock, profit participation, or similar rights with respect to North
American. Except as disclosed in Annex II, there are no voting trusts,
proxies or other agreements or understandings with respect to the
voting of the capital stock of North American.
Included as part of Annex II is an unaudited pro
forma balance sheet for North American, dated as of the date of this
Agreement, which gives effect on a pro forma basis to (i) the
consummation of the transactions contemplated by the Exchange
Agreements, (ii) the sale of 100,000 North American Series A Preferred
Shares to HIG and (iii) the proposed $10,000,000 Revolving Credit
Facility and $19,000,000 Term Loan from PNC Bank, N.A.
Also included as part of Annex II is a table listing
the percentage of North American capital stock attributable to each
class of shareholders of North American
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immediately following the closing of (i) the transactions contemplated
by the Exchange Agreements and (ii) the transactions contemplated by
the Securities Purchase Agreement.
(iii) OPERATION. North American has not conducted
any activities or incurred any liabilities other than in connection
with the Exchanges and in connection with securing financing for the
Exchanges.
(iv) AUTHORIZATION OF TRANSACTION. North American
has full power and authority (including full corporate power and
authority) to execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement constitutes the valid and
legally binding obligation of North American, enforceable in
accordance with its terms and conditions except to the extent
enforcement thereof may be limited by applicable bankruptcy,
reorganization, insolvency or moratorium laws, or other laws affecting
the enforcement of creditors' rights or by the principles governing
the availability of equitable remedies. North American need not give
any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency or any
other Person in order to consummate the transactions contemplated by
this Agreement.
(v) NONCONTRAVENTION. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court
to which either North American is subject or any provision of their
respective charter or bylaws or (B) conflict with, result in a breach
of, constitute a default under, result in the acceleration of, create
in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which North American is a party or
by which North American is bound or to which any of its assets is
subject.
(vi) BROKERS' FEES. North American has, or prior to
the Closing will have, paid any fees or commissions due from North
American to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement. North American agrees
that they will pay any additional amounts that may become due from
North American to any such broker, finder or agent in the future,
including as a result of any indemnification obligations.
(vii) DISCLOSURE. Neither this Agreement nor any of
the exhibits, attachments, written statements, documents, certificates
or other items prepared for or supplied to the Transferor by the North
American with respect to the transactions contemplated hereby contains
any untrue statement of a material fact or omits to state any material
fact necessary in order to make each statement contained herein or
therein not misleading. There is no fact which North American has not
disclosed to the Transferor herein and of which North American or any
of the its officers or directors is aware and
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which could be anticipated to have a material adverse effect on the
operations of North American after the Closing.
4. REPRESENTATIONS AND WARRANTIES CONCERNING TARGET. The Transferor
represents and warrants to the North American that the statements contained in
this Section 4 are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 4), except as set forth in the Disclosure Schedule
delivered by the Transferor to the North American on the date hereof and
initialed by the Parties (the "DISCLOSURE SCHEDULE"). The Disclosure Schedule
shall be effective to modify only those representations and warranties to which
the Disclosure Schedule makes explicit reference. The Disclosure Schedule will
be arranged in paragraphs corresponding to the lettered and numbered paragraphs
contained in this Section 4.
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. Target
is a corporation duly organized, validly existing, and in good standing under
the laws of the jurisdiction of its incorporation. Target is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required. Target has full corporate power and
authority and all licenses, permits, and authorizations necessary to carry on
the businesses in which it is engaged and in which it presently proposes to
engage and to own and use the properties owned and used by it. Section 4(a) of
the Disclosure Schedule lists the directors and officers of Target. Correct and
complete copies of the charter and bylaws of Target (as amended to date) are
included as part of Section 4(a) of the Disclosure Schedule. The minute books
(containing the records of meetings of the stockholders, the board of
directors, and any committees of the board of directors), the stock certificate
books, and the stock record books of Target are correct and complete and an
true and correct copy thereof has been provided to North American. Target is
not in default under or in violation of any provision of its charter or bylaws.
(b) AUTHORIZATION OF TRANSACTION. [INTENTIONALLY LEFT BLANK]
(c) CAPITALIZATION. The entire authorized capital stock of
Target consists of 1,000 Target Shares, of which 100 Target Shares are issued
and outstanding and no Target Shares are held in treasury. All of the issued
and outstanding Target Shares have been duly authorized, are validly issued,
fully paid, and nonassessable, and are held of record and owned beneficially
solely by the Transferor. There are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights, exchange
rights, preemptive rights or other contracts or commitments that could require
Target to issue, sell, or otherwise cause to become outstanding any of its
capital stock or securities convertible or exchangeable for, or any options,
warranties, or rights to purchase, any of such capital stock. There are no
outstanding obligations of Target to repurchase, redeem or otherwise acquire
any capital stock or any securities convertible into or exchangeable for such
capital stock or any options, warrants or rights to purchase such capital stock
or securities. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to Target.
There are no voting trusts, proxies, or other agreements or understandings with
respect to the voting,
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transfer, dividend or other rights (such as registration rights under the
Securities Act) of the capital stock of Target.
(d) NONCONTRAVENTION. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated
hereby, will (i) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of
any government, governmental agency, or court to which Target is subject or any
provision of the charter or bylaws of Target or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which Target is a party or by which it is bound or to which any
of its assets is subject (or result in the imposition of any Security Interest
upon any of its assets). Target need not give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any Person,
government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
(e) BROKERS' FEES. Target has, or prior to Closing will have,
paid any fees or commissions due from Target to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement. Transferor
agrees that he will pay any additional amounts that may become due from Target
to any such broker, finder or agent in the future, including as a result of any
indemnification obligations.
(f) TITLE TO ASSETS. Target has good and marketable title to,
or a valid leasehold interest in, the properties and assets used by it, located
on its premises, or shown on the Most Recent Balance Sheet or acquired after
the date thereof, free and clear of all Security Interests (other than the
Security Interests disclosed on the face of the Most Recent Balance Sheet),
except for properties and assets disposed of in the Ordinary Course of Business
since the date of the Most Recent Balance Sheet, none of which disposals are
expected to have a Material Adverse Effect. The consummation of the
transactions contemplated by this Agreement will not affect Target's good and
marketable title to, or valid leasehold interest in, the properties and assets
described in the preceding sentence.
(g) SUBSIDIARIES. Target does not currently have, and has
never had, any Subsidiaries and does not own any securities of any other
Person.
(h) FINANCIAL STATEMENTS. Attached hereto as EXHIBIT B are
the following financial statements (collectively the "FINANCIAL STATEMENTS"):
(i) audited consolidated balance sheets and statements of income, changes in
stockholders' equity, and cash flow including the audit report thereon as of
and for the fiscal year ended December 31, 1997 (the "MOST RECENT FISCAL YEAR
END") for Target; (ii) unaudited consolidated balance sheets, statements of
income, changes in stockholders' equity, and cash flow as of and for the fiscal
years ended December 31, 1993, December 31, 1994, December 31, 1995, and
December 31, 1996 and (iii) unaudited consolidated balance sheets and
statements of income, changes in stockholders' equity, and cash flow, (the
"MOST RECENT FINANCIAL STATEMENTS") as of and for the period from January 1,
1998,
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through February 28, 1998 (the "MOST RECENT FISCAL PERIOD END") for Target. The
Financial Statements (including the notes thereto) have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby, present fairly the financial condition of Target as of such
dates and the results of operations of Target for such periods, are correct and
complete, and are consistent with the books and records of Target (which books
and records are correct and complete); provided, however, that the Most Recent
Financial Statements are subject to normal year-end adjustments (which will not
be material individually or in the aggregate) and lack footnotes.
Since the date of the Most Recent Balance Sheet, Target has
not (i) declared or paid any cash dividends or made any distributions or
payments of any kind to the Transferor, (ii) repaid any portion of principal or
interest on any outstanding indebtedness of Target, (iii) incurred any
indebtedness for borrowed money, (iv) entered into any contracts, leases or
other agreements other than in the ordinary course of business that require
Target to make payments thereunder, or (v) made any distributions or payments
of any kind to any directors or officers of Target or any family member of
Transferor except for wages paid to such directors, officers or family members
who are employees of Target and which wages are consistent with Target's past
practice and custom.
(i) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. Since
the Most Recent Fiscal Year End and except as disclosed in the Disclosure
Schedule, there has not occurred any Material Adverse Effect. Without limiting
the generality of the foregoing, since that date:
(i) Target has not sold, leased, transferred, or
assigned any of its assets, tangible or intangible, other than for a
fair consideration in the Ordinary Course of Business;
(ii) Target has not entered into any agreements,
contracts, leases, or licenses either involving more than $10,000 in
the aggregate, having a term greater than 12 months or outside the
Ordinary Course of Business;
(iii) no party (including any of Target) has
accelerated, terminated, modified, or cancelled any agreements,
contracts, leases, or licenses involving more than $10,000 in the
aggregate to which Target is a party or by which it is bound;
(iv) Target has not imposed or allowed to be imposed
any Security Interest upon any of its assets, tangible or intangible;
(v) Target has not made any capital expenditures
involving more than $10,000 in the aggregate or outside the Ordinary
Course of Business;
(vi) Target has not made any capital investment in,
any loan to, or any acquisition of the securities or assets of, any
other Person;
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(vii) Target has not issued any note, bond, or other
debt security or created, incurred, assumed, or guaranteed any
indebtedness for borrowed money or capitalized lease obligation
involving more than $10,000 in the aggregate;
(viii) Target has not delayed or postponed the
payment of accounts payable and other Liabilities outside the Ordinary
Course of Business;
(ix) Target has not cancelled, compromised, waived,
or released any right or claim either involving more than $10,000 in
the aggregate or outside the Ordinary Course of Business;
(x) Target has not granted any license or sublicense
of any rights under or with respect to any Intellectual Property;
(xi) there has been no change made or authorized in
the charter or bylaws of any of Target;
(xii) Target has not issued, sold, or otherwise
disposed of any of its capital stock or securities convertible into or
exchangeable for such stock, or granted any options, warrants, or
other rights to purchase or obtain any of such capital stock or
securities;
(xiii) Target has not declared, set aside, or paid
any dividend or made any distribution with respect to its capital
stock (whether in cash or in kind) or redeemed, purchased, or
otherwise acquired any of its capital stock or other securities;
(xiv) Target has not experienced any damage,
destruction, or loss (whether or not covered by insurance) to its
property involving more than $10,000 in the aggregate;
(xv) Target has not made any loan to, or entered
into any other transaction with, any of its directors, officers, and
employees or their "Associates" (as defined in Rule 12b-2 under the
Exchange Act);
(xvi) Target has not entered into any employment
contract or collective bargaining agreement, written or oral, or
modified the terms of any existing such contract or agreement;
(xvii) Target has not granted any increase in any
compensation of any of its directors, officers, or other employees;
(xviii) Target has not adopted, amended, modified,
or terminated any bonus, profit-sharing, incentive, severance, or
other plan, contract, or commitment for
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the benefit of any of its directors, officers, and employees (or taken
any such action with respect to any other Employee Benefit Plan);
(xix) Target has not made any other change in
employment terms for any of its directors, officers, and employees
outside the Ordinary Course of Business;
(xx) Target has not made or pledged to make any
charitable or other capital contribution outside the Ordinary Course
of Business;
(xxi) there has not been any other material
occurrence, event, incident, action, failure to act, or transaction
outside the Ordinary Course of Business involving Target; and
(xxii) Target has not increased, or experienced any
change in assumptions underlying or method of calculating, any bad
debt, contingency, tax or other reserves or changed its accounting
practices, methods or assumptions (including changes in estimates or
valuation methods); or written down the value of any assets; and
(xxiii) Target has not committed to any of the
foregoing.
(j) UNDISCLOSED LIABILITIES. Except as disclosed in Section
4(j) of the Disclosure Schedule, Target does not have any Liability, except for
(i) Liabilities set forth on the face of the Most Recent Balance Sheet (rather
than in any notes thereto) and (ii) Liabilities which have arisen after the
Most Recent Fiscal Period End in the Ordinary Course of Business (none of which
results from, arises out of, relates to, is in the nature of, or was caused by
any breach of contract, breach of warranty, tort, infringement, or violation of
law and none of which could reasonably be expected to have a Material Adverse
Effect).
(k) LEGAL COMPLIANCE. Target and its predecessors and
Affiliates has complied, in all material respects, with all applicable laws
(including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof), and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has been
filed or commenced against any of them alleging any failure so to comply.
(l) TAX MATTERS.
(i) Target has filed all Tax Returns that it was
required to file. All such Tax Returns were correct and complete in
all respects. All Taxes owed by Target (whether or not shown on any
Tax Return) have been paid or are fully and adequately accrued and
adequately disclosed on the Most Recent Balance Sheet. Target is not
currently the beneficiary of any extension of time within which to
file any Tax Return. No claim has ever been made by an authority in a
jurisdiction where Target does not file Tax Returns that it is or may
be subject to taxation by that jurisdiction. There are no
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Security Interests on any of the assets of Target that arose in
connection with any failure (or alleged failure) to pay any Tax.
(ii) Target has withheld and paid all Taxes required
to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder,
or other third party.
(iii) Neither Transferor nor Target has Knowledge
that any authority expects to assess any additional Taxes for any
period for which Tax Returns have been filed. There is no action, suit
or proceeding, investigation, dispute or claim now pending or
threatened concerning any Tax Liability of Target or proposed
adjustment to the taxable income of Target either (A) claimed or
raised by any authority in writing or (B) as to which any of the
Transferor and Target has Knowledge based upon personal contact with
any agent of such authority. Section 4(l) of the Disclosure Schedule
lists all Tax Returns filed with respect to Target for the last three
completed tax years, indicates those Tax Returns that have been
audited, and indicates those Tax Returns that currently are the
subject of audit. The Transferor has delivered to the North American
correct and complete copies of all Tax Returns, examination reports,
and statements of deficiencies assessed against or agreed to by Target
since January 1, 1994.
(iv) Target has not waived any statute of
limitations in respect of Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency.
(v) Target has not filed a consent under Code
Section 341(f) concerning collapsible corporations. Target has not
made any payments, is not obligated to make any payments, or is not a
party to any agreement that under certain circumstances could obligate
it to make any payments that will not be deductible under Code Section
280G or that would give rise to any obligation to indemnify any Person
for any excise tax payable pursuant to Code Section 4999. The Target
has not been a United States real property holding corporation within
the meaning of Code Section 897(c)(2) during the applicable period
specified in Code Section 897(c)(1)(A)(ii). Target has disclosed on
its federal income Tax Returns all positions taken therein that could
give rise to a substantial understatement of federal income Tax within
the meaning of Code Section 6662. Neither Target nor any predecessor
or affiliate thereof is a party to any Tax allocation, sharing,
indemnification or similar agreement. Target (A) has not been a member
of an Affiliated Group filing a consolidated federal income Tax Return
(other than a group the common parent of which was Target) and (B)
does not have any Liability for the Taxes of any Person (other than
any of Target and its Subsidiaries) under Reg. Section 1.1502-6 (or
any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise. No indebtedness of
Target consists of "corporate acquisition indebtedness" within the
meaning of Code Section 279.
(vi) Section 4(l) of the Disclosure Schedule sets
forth as of the most recent practicable date the basis for Federal
income tax purposes of Target in its assets.
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(vii) The unpaid Taxes of Target (A) did not, as of
the Most Recent Fiscal Period End, exceed the reserve for Tax
Liability (provided, however, that the reserve for Tax Liability shall
not include any reserve for deferred taxes established to reflect
timing differences between book and Tax income) set forth on the face
of the Most Recent Balance Sheet (rather than in any notes thereto)
and (B) do not, and will not as of the Closing Date, exceed that
reserve as adjusted for the passage of time through the Closing Date
in accordance with the past custom and practice of Target in filing
its Tax Returns.
(viii) Target has properly qualified as an S
corporation for federal income tax purposes within the meaning of
Section 1361 of the Code at all times since September 30, 1983, and
has so qualified under analogous provision of the income tax laws of
Pennsylvania at all times since January 1, 1989.
(m) REAL PROPERTY. Target does not own any real property.
Section 4(m) of the Disclosure Schedule lists and describes briefly all real
property leased or subleased to Target. The Transferor has delivered to North
American correct and complete copies of the leases and subleases listed in
Section 4(m) of the Disclosure Schedule (as amended to date). With respect to
each lease and sublease listed in Section 4(m) of the Disclosure Schedule:
(A) the lease or sublease is legal, valid,
binding, enforceable, and in full force and effect;
(B) the lease or sublease will continue to
be legal, valid, binding, enforceable, and in full force and
effect on identical terms following the consummation of the
transactions contemplated hereby;
(C) no party to the lease or sublease is in
breach or default, and no event has occurred which, with
notice or lapse of time, would constitute a breach or default
or permit termination, modification, or acceleration
thereunder;
(D) no party to the lease or sublease has
repudiated any provision thereof;
(E) there are no disputes, oral agreements,
or forbearance programs in effect as to the lease or
sublease;
(F) Target has not received a notice from
the lessor indicating that the lease will not be renewed at
the end of its current term for any additional terms provided
for in the lease;
(G) the term of the lease will continue for
a minimum of six months past the Closing Date;
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(H) with respect to each sublease, the
representations and warranties set forth in subsections (A)
through (G) above are true and correct with respect to the
underlying lease;
(I) Target has not assigned, transferred,
conveyed, mortgaged, deeded in trust, or encumbered any
interest in the leasehold or subleasehold;
(J) all facilities leased or subleased
thereunder have received all approvals of governmental
authorities (including licenses and permits) required in
connection with the operation thereof and have been operated
and maintained in accordance with applicable laws, rules, and
regulations;
(K) all facilities leased or subleased
thereunder are supplied with utilities and other services
necessary for the operation of said facilities; and
(L) the Transferor is not aware of any
pending or threatened foreclosure or other enforcement
proceedings relating to the real property underlying the
leases or subleases set forth in Section 4(m) of the
Disclosure Schedule that could result in Target's loss of
possession of such real property.
(n) INTELLECTUAL PROPERTY.
(i) Target owns or has the right to use pursuant to
license, sublicense, agreement, or permission in writing all
Intellectual Property necessary for the operation of the businesses of
Target as presently conducted and as presently proposed to be
conducted. Each item of Intellectual Property owned or used by Target
immediately prior to the Closing hereunder will be owned or available
for use by Target on identical terms and conditions immediately
subsequent to the Closing hereunder. Target has taken all necessary
action to maintain and protect each item of Intellectual Property that
it owns or uses.
(ii) Target has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of third parties, and none of the Transferor and the
directors and officers (and employees with responsibility for
Intellectual Property matters) of Target has ever received any charge,
complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that
Target must license or refrain from using any Intellectual Property
rights of any third party). To the Knowledge of Transferor and Target,
no third party has interfered with, infringed upon, misappropriated,
or otherwise come into conflict with any Intellectual Property rights
of Target.
(iii) Section 4(n)(iii) of the Disclosure Schedule
identifies each patent or registration which has been issued to Target
with respect to any of its Intellectual Property, identifies each
pending patent application or application for registration which
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Target has made with respect to any of its Intellectual Property, and
identifies each license, agreement, or other permission which Target
has granted to any third party with respect to any of its Intellectual
Property (together with any exceptions). The Transferor has delivered
to North American correct and complete copies of all such patents,
registrations, applications, licenses, agreements, and permissions (as
amended to date) and have made available to North American correct and
complete copies of all other written documentation evidencing
ownership and prosecution (if applicable) of each such item. Section
4(n)(iii) of the Disclosure Schedule also identifies each trade name
or unregistered trademark used by Target in connection with any of its
businesses. With respect to each item of Intellectual Property
required to be identified in Section 4(n)(iii) of the Disclosure
Schedule:
(A) Target possesses all right, title, and
interest in and to the item, free and clear of any Security
Interest, license, or other restriction;
(B) the item is not subject to any
outstanding injunction, judgment, order, decree, ruling, or
charge;
(C) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending
or is threatened which challenges the legality, validity,
enforceability, use, or ownership of the item; and
(D) Target has never agreed to indemnify
any Person for or against any interference, infringement,
misappropriation, or other conflict with respect to the item.
(iv) Section 4(n)(iv) of the Disclosure Schedule
identifies each item of Intellectual Property that any third party
owns and that Target uses pursuant to license, sublicense, agreement,
or permission. The Transferor has delivered to the North American
correct and complete copies of all such licenses, sublicenses,
agreements, and permissions (as amended to date). With respect to each
item of Intellectual Property required to be identified in Section
4(n)(iv) of the Disclosure Schedule:
(A) the license, sublicense, agreement, or
permission covering the item is legal, valid, binding,
enforceable, and in full force and effect;
(B) the license, sublicense, agreement, or
permission will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated
hereby;
(C) no party to the license, sublicense,
agreement, or permission is in breach or default, and no
event has occurred which with notice or lapse of time would
constitute a breach or default or permit termination,
modification, or acceleration thereunder;
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(D) no party to the license, sublicense,
agreement, or permission has repudiated any provision
thereof;
(E) with respect to each sublicense, the
representations and warranties set forth in subsections (A)
through (D) above are true and correct with respect to the
underlying license;
(F) the underlying item of Intellectual
Property is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
(G) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending
or is threatened which challenges the legality, validity, or
enforceability of the underlying item of Intellectual
Property; and
(H) Target has never granted any sublicense
or similar right with respect to the license, sublicense,
agreement, or permission.
(v) To the Knowledge of Transferor and Target,
Target will not interfere with, infringe upon, misappropriate, or
otherwise come into conflict with, any Intellectual Property rights of
third parties as a result of the continued operation of its businesses
as presently conducted and as presently proposed to be conducted.
(vi) None of the Transferor and Target has any
Knowledge of any new products, inventions, procedures, or methods of
manufacturing or processing that any competitors or other third
parties have developed which reasonably could be expected to supersede
or make obsolete any product or process of any of Target.
(o) TANGIBLE ASSETS. Target owns or leases all buildings,
machinery, equipment, and other tangible assets necessary for the conduct of
its business as presently conducted and as presently proposed to be conducted.
Each such tangible asset has been maintained in accordance with normal industry
practice, is in good operating condition and repair (subject to normal wear and
tear), and is suitable for the purposes for which it presently is used and
presently is proposed to be used. Section 4(o) of the Disclosure Schedule lists
all tangible assets owned by Target.
(p) INVENTORY. Target does not have any inventory.
(q) CONTRACTS. Section 4(q) of the Disclosure Schedule lists
all the contracts and other agreements to which Target is a party. The
Transferor has delivered to the North American a correct and complete copy of
each written agreement listed in Section 4(q) of the Disclosure Schedule (as
amended to date). With respect to each such agreement: (A) the agreement is
legal, valid, binding, enforceable, and in full force and effect; (B) the
agreement will continue to be legal, valid, binding, enforceable, and in full
force and effect on identical terms following the
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consummation of the transactions contemplated hereby; (C) no party is in breach
or default, and no event has occurred which with notice or lapse of time would
constitute a breach or default, or permit termination, modification, or
acceleration, under the agreement; and (D) no party has repudiated any
provision of the agreement. Section 4(q) of the Disclosure Schedule lists each
currently outstanding bid or proposal for business submitted by Target in
excess of $1,000,000.
(r) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts
receivable of Target are reflected properly on the Most Recent Balance Sheet in
accordance with GAAP, are valid receivables subject to no setoffs or
counterclaims, are current and collectible, and, will be collected in
accordance with their terms at their recorded amounts, subject only to the
reserve for bad debts set forth on the face of the Most Recent Balance Sheet
(rather than in any notes thereto) as adjusted for the passage of time through
the Closing Date in accordance with the past custom and practice of Target.
(s) POWERS OF ATTORNEY. There are no outstanding powers of
attorney executed on behalf of Target.
(t) INSURANCE. Section 4(t) of the Disclosure Schedule
includes a true, correct and complete list of all policies of insurance
(including policies providing property, casualty, liability, and workers'
compensation coverage and bond and surety arrangements) to which Target is a
party, a named insured, or otherwise the beneficiary of coverage. Genuine and
complete copies of each of the insurance policies listed in Section 4(t) of the
Disclosure Schedule have been provided to North American.
With respect to each such insurance policy: (A) the policy is legal, valid,
binding, enforceable, and in full force and effect; (B) the policy will
continue to be legal, valid, binding, enforceable, and in full force and effect
on identical terms following the consummation of the transactions contemplated
hereby; (C) neither Target nor any other party to the policy is in breach or
default (including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of time,
would constitute such a breach or default, or permit termination, modification,
or acceleration, under the policy; (D) neither Target, any ERISA Affiliate nor
the North American shall be subject to a retroactive rate adjustment, loss
sharing arrangement or other actual or contingent liability and (E) to
Transferor's or Target's Knowledge, no party to the policy has repudiated any
provision thereof. Target has been fully covered at all times during the past 5
years by insurance in scope and amount customary and reasonable for the
businesses in which it has engaged during the aforementioned period. Section
4(t) of the Disclosure Schedule describes any self-insurance arrangements
affecting Target.
(u) LITIGATION. Section 4(u) of the Disclosure Schedule sets
forth each instance in which Target (i) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (ii) is a party, or
to the Knowledge of Transferor or Target, is threatened to be made a party to
any claim, action, suit, proceeding, hearing, or investigation of, in, or
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator. Except as set
forth in Section 4(u) of the Disclosure Schedule,
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there is no other pending, or to the knowledge of Transferor or Target,
threatened claim, arbitration proceeding, action, suit, investigation or other
proceeding against or involving Target or any property or rights of Target or
any officer or director or Target. None of the actions, suits, proceedings,
hearings, and investigations set forth in Section 4(u) of the Disclosure
Schedule could result in any material adverse change in the business, financial
condition, operations, results of operations, or future prospects of Target.
Neither the Transferor nor the directors and officers (and employees with
responsibility for litigation matters) of Target has any reason to believe that
any such action, suit, proceeding, hearing, or investigation may be brought or
threatened against Target.
(v) COMMITMENTS AND WARRANTIES. All services provided by the
Company have been performed in conformity with all applicable contractual
commitments (written or oral) and all express and implied warranties (written
or oral), and Target has no Liability and, to the Knowledge of the Transferor
and Target, there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any Liability) in connection with any such services.
Section 4(v) of the Disclosure Schedule includes copies of the standard forms of
agreement entered into between Target and its customers. Target has not entered
into any written or oral agreements with any of its customers that include
guaranties, warranties, or indemnity provisions other than those included in
the agreements included as part of Section 4(v) of the Disclosure Schedule.
Neither Target nor the Transferor has received notice (written or
oral) from any of its customers stating that the customer intends to reduce the
volume of business that it currently conducts with Target or to cease doing
business with Target.
(w) LIABILITY FOR SERVICES PERFORMED. Target has no Liability
(and, to Transferor's knowledge, there is no Basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim, or
demand against any of them giving rise to any Liability) arising out of any
injury to individuals or property as a result of or in connection with any
services provided by Target.
(x) EMPLOYEES. To the Knowledge of the Transferor or Target,
no executive, key employee, or group of employees has any plans to terminate
employment with Target. Target is not currently, nor at any prior time has
been, a party to or bound by any collective bargaining agreement, nor has
Target experienced any strikes, grievances, claims of unfair labor practices,
or other collective bargaining disputes. Target has not committed any unfair
labor practice. Neither the Transferor nor Target has any Knowledge of any
organizational effort presently being made or threatened by or on behalf of any
labor union with respect to employees of Target.
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(y) EMPLOYEE BENEFITS.
(i) Section 4(y) of the Disclosure Schedule lists
each Employee Benefit Plan that Target or any ERISA Affiliate
maintains, contributes to, or is required to contribute to or under
which Target or any ERISA Affiliate has any liability.
(A) Each such Employee Benefit Plan (and
each related trust, insurance contract, or fund) complies in
form and in operation in all respects with the applicable
requirements of ERISA, the Code, and other applicable laws.
(B) All required reports and disclosures
(including Form 5500 Annual Reports, Summary Annual Reports,
PBGC-1's, and Summary Plan Descriptions) have been filed or
distributed appropriately with respect to each such Employee
Benefit Plan. The requirements of Part 6 of Subtitle B of
Title I of ERISA and of Code Section 4980B have been met with
respect to each such Employee Benefit Plan which is an
Employee Welfare Benefit Plan.
(C) All contributions (including all
employer contributions and employee salary reduction
contributions) which are due have been paid to each such
Employee Benefit Plan which is an Employee Pension Benefit
Plan and all contributions for any period ending on or before
the Closing Date which are not yet due have been paid to each
such Employee Pension Benefit Plan or accrued in accordance
with the past custom and practice of Target and in accordance
with GAAP. All premiums or other payments for all periods
ending on or before the Closing Date have been paid with
respect to each such Employee Benefit Plan which is an
Employee Welfare Benefit Plan.
(D) Each such Employee Benefit Plan which
is an Employee Pension Benefit Plan now meets and at all
times since inception have met the requirements of a
"qualified plan" under Code Section 401(a) and has received,
within the last two years, a favorable determination letter
from the Internal Revenue Service.
(E) As of the Closing Date, the market
value of assets under each such Employee Benefit Plan which
is an Employee Pension Benefit Plan (other than any
Multiemployer Plan) will equal or exceed the present value of
all vested and nonvested Liabilities thereunder determined in
accordance with PBGC methods, factors, and assumptions
applicable to an Employee Pension Benefit Plan terminating on
such date.
(F) The Transferor has delivered to the
North American correct and complete copies of the plan
documents and summary plan descriptions including all
amendments thereto, the most recent determination letter
received from the Internal Revenue Service, the three most
recent Form 5500 Annual
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Reports (including all schedules thereto), the three most
recent annual premium payment forms filed with the PBGC, and
all related trust agreements, insurance contracts, and other
funding agreements which implement each such Employee Benefit
Plan.
(ii) With respect to each Employee Benefit Plan that
Target or any ERISA Affiliate maintains, contributes to, or is
required to contribute to or under which Target or any ERISA Affiliate
has any liability:
(A) No such Employee Benefit Plan which is
an Employee Pension Benefit Plan (other than any
Multiemployer Plan) has been completely or partially
terminated or been the subject of a Reportable Event as to
which notices would be required to be filed with the PBGC. No
proceeding by the PBGC to terminate any such Employee Pension
Benefit Plan (other than any Multiemployer Plan) has been
instituted or threatened.
(B) There have been no Prohibited
Transactions with respect to any such Employee Benefit Plan.
No Fiduciary has any Liability for breach of fiduciary duty
or any other failure to act or comply in connection with the
administration or investment of the assets of any such
Employee Benefit Plan. No action, suit, proceeding, hearing,
or investigation with respect to any such Employee Benefit
Plan (other than routine claims for benefits) is pending or
threatened. Neither the Transferor nor Target has any
Knowledge of any Basis for any such action, suit, proceeding,
hearing, or investigation.
(C) Neither Target nor any ERISA Affiliate
has not incurred, and none of the Transferor and the
directors and officers (and employees with responsibility for
employee benefits matters) of Target has any reason to expect
that Target or any ERISA Affiliate will incur, any Liability
to the PBGC (other than PBGC premium payments) or otherwise
under Title IV of ERISA (including any withdrawal Liability)
or under the Code with respect to any such Employee Benefit
Plan which is an Employee Pension Benefit Plan.
(iii) Neither Target nor any ERISA Affiliate
contributes to, ever has contributed to, or ever has been required to
contribute to any Multiemployer Plan or has any Liability (including
withdrawal Liability) under any Multiemployer Plan.
(iv) Neither Target nor any ERISA Affiliate
maintains or contributes to, or has ever been required to contribute
to any Employee Welfare Benefit Plan providing medical, health, or
life insurance or other welfare-type benefits for current or future
retired or terminated employees, their spouses, or their dependents
(other than in accordance with Code Section 4980B).
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(z) GUARANTIES. Target is not a guarantor or otherwise is
liable for any Liability or obligation (including indebtedness) of any other
Person.
(aa) ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS.
(i) Target and its predecessors and Affiliates have
complied and are in compliance with all Environmental, Health, and
Safety Requirements.
(ii) Without limiting the generality of the
foregoing, Target and its Affiliates have obtained and complied with,
and are in compliance with, all permits, licenses and other
authorizations that are required pursuant to Environmental, Health,
and Safety Requirements for the occupation of its facilities and the
operation of its business; a list of all such permits, licenses and
other authorizations is set forth on the attached "ENVIRONMENTAL AND
SAFETY PERMITS SCHEDULE."
(iii) Neither Target nor its predecessors or
Affiliates has received any written or oral notice, report or other
information regarding any actual or alleged violation of
Environmental, Health, and Safety Requirements, or any liabilities or
potential liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise), including any investigatory, remedial or
corrective obligations, relating to any of them or its facilities
arising under Environmental, Health, and Safety Requirements.
(iv) None of the following exists at any property or
facility owned or operated by Target: (1) underground storage tanks,
(2) asbestos-containing material in any form or condition, (3)
materials or equipment containing polychlorinated biphenyls, or (4)
landfills, surface impoundments, or disposal areas.
(v) None of Target or its predecessors or Affiliates
has treated, stored, disposed of, arranged for or permitted the
disposal of, transported, handled, or released any substance,
including without limitation any hazardous substance, or owned or
operated any property or facility (and no such property or facility is
contaminated by any such substance) in a manner that has given or
would give rise to liabilities, including any liability for response
costs, corrective action costs, personal injury, property damage,
natural resources damages or attorney fees, pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended ("CERCLA"), the Solid Waste Disposal Act, as
amended ("SWDA") or any other Environmental, Health, and Safety
Requirements.
(vi) Neither this Agreement nor the consummation of
the transaction that is the subject of this Agreement will result in
any obligations for site investigation or cleanup, or notification to
or consent of government agencies or third parties, pursuant to any of
the so-called "transaction-triggered" or "responsible property
transfer" Environmental, Health, and Safety Requirements.
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(vii) Neither Target nor its predecessors or
Affiliates has, either expressly or by operation of law, assumed or
undertaken any liability, including without limitation any obligation
for corrective or remedial action, of any other Person relating to
Environmental, Health, and Safety Requirements.
(viii) No facts, events or conditions relating to
the past or present facilities, properties or operations of Target or
any of its predecessors or Affiliates will prevent, hinder or limit
continued compliance with Environmental, Health, and Safety
Requirements, give rise to any investigatory, remedial or corrective
obligations pursuant to Environmental, Health, and Safety Requirements
(whether on-site or off-site), or give rise to any other liabilities
(whether accrued, absolute, contingent, unliquidated or otherwise)
pursuant to Environmental, Health, and Safety Requirements, including
without limitation any relating to onsite or offsite releases or
threatened releases of hazardous materials, substances or wastes,
personal injury, property damage or natural resources damage.
(ab) CERTAIN BUSINESS RELATIONSHIPS WITH TARGET. Neither the
Transferor, its Affiliates, any director or employee of Target, or any
relatives of Transferor, or any person living in the same residence as such
persons, has been involved in any business arrangement or relationship with
Target within the past 12 months, and neither the Transferor nor its Affiliates
nor any of such other persons own leases, licenses, or otherwise has any
interest in any asset, tangible or intangible, which is used in the business of
Target or any contract, lease or commitment to which Target is a party. Target
is not indebted to any officer, director or employee of Target for any
liability or obligation. No officer, director or employee of Target is indebted
to Target for any liability or obligation.
(ac) CUSTOMERS AND SUPPLIERS. No purchase order or commitment
of Target is in excess of normal requirements, nor are prices provided therein
in excess of current market prices for the products or services to be provided
thereunder. No material supplier of Target has advised Target in writing within
the past year that it will stop, or decrease the rate of, supplying materials,
products or services to Target and no material customer of Target has advised
Target in writing within the past year that it will stop, or decrease the rate
of buying materials, products or services from Target. Section 4(ac) of the
Disclosure Schedule sets forth a list of (a) each customer that accounted for
more that 5% of the consolidated revenues of Target during the last full fiscal
year or the interim period through the date of the Most Recent Financial
Statements and the amount of revenues accounted for by such customer during
each such period and (b) each supplier that is the sole supplier of any
significant product or component to Target. The consummation of the
transactions contemplate hereby will not have a material adverse effect on
Target's relationship with any customer or supplier listed in Section 4(ac) of
the Disclosure Schedule.
(ad) DISCLOSURE. Neither this Agreement nor any of the
exhibits, attachments, written statements, documents, certificates or other
items prepared for or supplied to the North American by or on behalf of Target
or the Transferor with respect to the transactions
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contemplated hereby contains any untrue statement of a material fact or omits
to state any material fact necessary in order to make each statement contained
herein or therein not misleading. There is no fact which Target or the
Transferor have not disclosed to the North American herein and of which the
Transferor, Target, or any of Target's officers or directors is aware and which
could be anticipated to have a Material Adverse Effect.
5. PRE-CLOSING COVENANTS. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing.
(a) GENERAL. Each of the Parties will use his or its best
efforts to take all action and to do all things necessary, proper, or advisable
in order to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions
set forth in Section 7 below).
(b) NOTICES AND CONSENTS. The Transferor will cause Target to
give any notices to third parties, and will cause Target to use its best
efforts to obtain any third party consents, that the North American reasonably
may request in connection with the matters referred to in Section 4(d) above.
Each of the Parties will (and the Transferor will cause Target to) give any
notices to, make any filings with, and use its best efforts to obtain any
authorizations, consents, and approvals of governments and governmental
agencies in connection with the matters referred to in Section 3(a)(ii),
ss.3(b)(vi), and Section 4(d) above. Without limiting the generality of the
foregoing, each of the Parties will file (and the Transferor will cause Target
to file) any Notification and Report Forms and related material that he or it
may be required to file with the Federal Trade Commission and the Antitrust
Division of the United States Department of Justice under the Hart-Scott-Rodino
Act, will use his or its best efforts to obtain (and the Transferor will cause
Target to use its best efforts to obtain) an early termination of the
applicable waiting period, and will make (and the Transferor will cause Target
to make) any further filings pursuant thereto that may be necessary, proper, or
advisable in connection therewith.
(c) OPERATION OF BUSINESS. The Transferor will not cause or
permit Target to engage in any practice, take any action, or enter into any
transaction outside the Ordinary Course of Business. Without limiting the
generality of the foregoing, the Transferor will not cause or permit Target to
(i) declare, set aside, or pay any dividend or make any distribution with
respect to its capital stock or redeem, purchase, or otherwise acquire any of
its capital stock or (ii) otherwise engage in any practice, take any action, or
enter into any transaction of the sort described in Section 4(i) above.
(d) PRESERVATION OF BUSINESS. The Transferor will cause
Target to keep its business and properties substantially intact, including its
present operations, physical facilities, working conditions, and relationships
with lessors, licensors, suppliers, customers, and employees.
(e) FULL ACCESS. The Transferor will permit, and will cause
Target to permit, representatives of North American to have full access at all
reasonable times, and in a manner
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so as not to interfere with the normal business operations of Target, to all
premises, properties, personnel, books, records (including Tax records),
contracts, and documents of or pertaining to Target. At the request of North
American, Transferor will permit, and will cause Target to permit, the lenders
and the investors who are expected to provide the capital necessary to
consummate the transactions contemplated hereby, and their respective counsel,
to have the same access as permitted to the North American in accordance with
the immediately preceding sentence.
(f) NOTICE OF DEVELOPMENTS. The Transferor will give prompt
written notice to the North American of any breach of any of the
representations and warranties in Section 4 above. Each Party will give prompt
written notice to the others of any breach of any of his or its own
representations and warranties in Section 3 above. No disclosure by any Party
pursuant to this Section 5(f), however, shall be deemed to amend or supplement
Annex I, Annex II, or the Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
(g) EXCLUSIVITY. The Transferor will not (and the Transferor
will not cause or permit Target to) (i) solicit, initiate, or encourage the
submission of any proposal or offer from any Person relating to the acquisition
of any capital stock or other voting securities, or any substantial portion of
the assets, of Target (including any acquisition structured as a merger,
consolidation, or share exchange) or (ii) participate in any discussions or
negotiations regarding, furnish any information with respect to, assist or
participate in, or facilitate in any other manner any effort or attempt by any
Person to do or seek any of the foregoing. The Transferor will notify the North
American immediately if any Person makes any proposal, offer, inquiry, or
contact with respect to any of the foregoing.
(h) NO TERMINATION OF TRANSFEROR'S OBLIGATION BY SUBSEQUENT
INCAPACITY. Transferor specifically agrees that his obligations hereunder,
including, without limitation, the obligations pursuant to Section 8 hereof,
shall not be eliminated by his or her death or incapacity.
6. POST-CLOSING COVENANTS. The Parties agree as follows with respect
to the period following the Closing.
(a) GENERAL. In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, each of the Parties will take such further action (including the
execution and delivery of such further instruments and documents) as any other
Party reasonably may request, all at the sole cost and expense of the
requesting Party (unless the requesting Party is entitled to indemnification
therefor under Section 8 below). The Transferor acknowledges and agrees that
from and after the Closing North American will be entitled to possession of all
documents, books, records (including Tax records), agreements, and financial
data of any sort relating to Target.
(b) LITIGATION SUPPORT. In the event and for so long as any
Party actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this
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Agreement or (ii) any fact, situation, circumstance, status, condition,
activity, practice, plan, occurrence, event, incident, action, failure to act,
or transaction on or prior to the Closing Date involving Target, each of the
other Parties will cooperate with him or it and his or its counsel in the
contest or defense, make available their personnel, and provide such testimony
and access to their books and records as shall be necessary in connection with
the contest or defense, all at the sole cost and expense of the contesting or
defending Party (unless the contesting or defending Party is entitled to
indemnification therefor under Section 8 below).
(c) TRANSITION. The Transferor will not take any action that
is designed or intended to have the effect of discouraging any lessor,
licensor, customer, supplier, or other business associate of Target from
maintaining the same business relationships with Target after the Closing as it
maintained with Target prior to the Closing. The Transferor will refer all
customer inquiries relating to the businesses of Target to the North American
from and after the Closing.
(d) CONFIDENTIALITY. [INTENTIONALLY LEFT BLANK]
(e) STOCK OPTIONS. Within 90 days after the Closing, North
American will adopt a stock incentive plan (the "Stock Incentive Plan")
pursuant to which stock options and other forms of stock-based compensation may
be awarded to the officers, directors and employees of North American and its
subsidiaries. North American agrees that upon adoption of the Stock Incentive
Plan, it shall grant options to purchase an aggregate of up to 50,000 shares of
North American common stock, at an exercise price of $5.00 per share (the
"Options"), to the key employees of Target named in EXHIBIT C to this
Agreement. The terms and conditions of the Options and the number of Options to
be awarded to each key employee shall be determined by the Board of Directors
of North American at the time of grant.
(f) INDEPENDENT ACCOUNTANTS. After the Closing, Transferor
shall (i) use reasonable efforts to cause Target's past and present independent
auditors and accounting personnel to make available to North American and its
representatives all financial information, including the right to examine all
working papers pertaining to audits or reviews previously or hereafter made by
such auditors, and (ii) provide such cooperation as North American and its
representatives may request in connection with any audit or review of Target
that North American may direct its representatives to make. Without limiting
the generality of the foregoing, Transferor agrees that he will cooperate with,
and cause Target's past and present independent auditors, accounting personnel
and other necessary persons to cooperate with the North American in the
preparation of any documents filed by the North American with the U.S.
Securities and Exchange Commission in connection with an offering of
securities, to the extent information about Target is required therein.
(g) EMPLOYEES OF TARGET. North American agrees that, for a
period of one year after the Closing Date, the group health benefits, vacation,
and paid holidays provided to employees of Target will be comparable to such
items provided by Target to such employees prior to the Closing Date. Although
North American has no present intention of dismissing any
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current employees of Target, nothing in this section is intended to impose any
obligation on North American to retain any such employees.
(h) TAX MATTERS. The Transferor and North American covenant
and agree not to take any action, or fail to take any action, with respect to
Taxes, that would have an adverse effect on the North American on or after the
Closing Date, including, without limitation, amending or otherwise
supplementing any Tax Return or report of Target with respect to any period
prior to the Closing Date without the consent of the North American. If any
taxing authority conducts any audit or investigation relating to Target prior
to the Closing Date, the North American may, in its sole election, have the
right to supervise such audit or investigation and provide any response
required in connection therewith.
North American agrees not to take any action after the Closing Date
that would affect the ability of the transfers contemplated under the Exchange
Agreements to be treated as a single transaction qualifying under Section 351
of the Code.
(i) USE OF NAME. If at any time North American and/or Target
determines to cease doing business under the name "Cablemasters," and, Target
will give notice to Transferor if Transferror is no longer employed by Target
at such time, and Transferor shall have the opportunity to use the name
Cablemasters.
7. CONDITIONS TO OBLIGATION TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF THE NORTH AMERICAN. The
obligation of North American to consummate the transactions to be performed by
it in connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth in
Section 3(a) and Section 4 above shall be true and correct in all
material respects at and as of the Closing Date and there shall not
have occurred any Material Adverse Effect;
(ii) the Transferor and Target shall have performed
and complied with all of his covenants hereunder in all material
respects through the Closing;
(iii) Target shall have procured all of the third
party consents specified in Section 5(b) above;
(iv) no action, suit, or proceeding shall be pending
or threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction, or
before any arbitrator, wherein an unfavorable injunction, judgment,
order, decree, ruling, or charge would (A) prevent consummation of any
of the transactions contemplated by this Agreement, (B) cause any of
the transactions contemplated by this Agreement to be rescinded
following consummation, (C) affect
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adversely the right of Target to own its assets and to operate its
businesses (and no such injunction, judgment, order, decree, ruling,
or charge shall be in effect);
(v) the Transferor shall have delivered to the North
American a certificate, which pursuant to its terms authorizes PNC
Bank, N.A. and HIG to rely thereon to the same extent as if the
certificate was addressed directly to them, to the effect that each of
the conditions specified above in Section 7(a)(i)-(iv) is satisfied in
all respects;
(vi) all applicable waiting periods (and any
extensions thereof) under the Hart-Scott-Rodino Act shall have expired
or otherwise been terminated and the Parties shall have received all
other authorizations, consents, and approvals of governments and
governmental agencies referred to in Section 3(a)(ii), Section
3(b)(vi), and Section 4(d) above;
(vii) the North American shall have received from
counsel to the Transferor an opinion in form and substance as set
forth in EXHIBIT D attached hereto, addressed to the North American
and which pursuant to its terms authorizes PNC Bank, N.A. and HIG to
rely thereon to the same extent as if it were addressed directly to
them, and dated as of the Closing Date;
(viii) the North American shall have obtained on
terms and conditions reasonably satisfactory to it the proceeds of all
of the financing it needs in order to consummate the transactions
contemplated by all of the Exchange Agreements.
(ix) all actions to be taken by the Transferor in
connection with the consummation of the transactions contemplated
hereby and all certificates, opinions, instruments, and other
documents required to effect the transactions contemplated hereby will
be reasonably satisfactory in form and substance to the North
American.
(x) at least five business days prior to the
Closing, the North American shall have received the Most Recent
Balance Sheet. The Most Recent Balance Sheet will reflect (A)
Shareholders' Equity of at least $1,648,921 after reserve for deferred
taxes of $588,245, (B) notes payable and capital lease obligations not
exceeding $1,883,733 and (C) cash at least equal to $205,085. North
American shall not have objected to, challenged or otherwise
repudiated any of the amounts included in the Most Recent Balance
Sheet.
(xi) North American shall have received an
appraisal, from an appraiser selected by the North American, that
states that the fair market value of Target's tangible assets listed
in Section 4(o) of the Disclosure Schedule is at least equal to the
book value of such assets reflected in the Closing Balance Sheet.
(xii) [INTENTIONALLY LEFT BLANK];
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(xiii) Target shall have delivered a Secretary and
Incumbency Certificate in the form attached hereto as EXHIBIT F;
(xiv) Target shall have delivered evidence of its
qualification to do business in each jurisdiction where it is so
qualified and a certificate of good standing issued by the Secretary
of State of each such jurisdiction demonstrating that Target is in
good standing in that jurisdiction;
(xv) Target shall have delivered landlord consent
and estoppel certificates, in form and substance satisfactory to the
North American, relating to each of the real property leases listed in
Section 4(m) of the Disclosure Schedule;
(xvi) Target shall have delivered (A) payoff letters
relating to all existing indebtedness of Target to creditors for
borrowed money and (B) UCC-3 financing statements executed by such
creditors releasing any security interests of such creditors in
Target's assets;
(xvii) Target shall have delivered the resignations
of all directors of Target that Buyer shall have requested;
(xviii) Transferor shall have entered into an
Employment Agreement with Target in the form attached hereto as
EXHIBIT G;
(xix) On or prior to the Closing Date, North
American shall have closed the transactions contemplated by each of
the other Exchange Agreements;
(xx) [INTENTIONALLY LEFT BLANK]
(xxi) all actions to be taken by the Transferor in
connection with consummation of the transactions contemplated hereby
and all certificates, opinions, instruments, and other documents
required to effect the transactions contemplated hereby will be
reasonably satisfactory in form and substance to the North American.
North American may waive any condition specified in this Section 7(a) if it
executes a writing so stating at or prior to the Closing.
(b) CONDITIONS TO OBLIGATION OF THE TRANSFEROR. The
obligation of the Transferor to consummate the transactions to be performed by
them in connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth in
Section 3(b) above shall be true and correct in all material respects
at and as of the Closing Date;
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<PAGE> 37
(ii) the North American shall have performed and
complied with all of its covenants hereunder in all material respects
through the Closing;
(iii) no action, suit, or proceeding shall be
pending or threatened before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign
jurisdiction, or before any arbitrator, wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this
Agreement or (B) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation (and no such
injunction, judgment, order, decree, ruling, or charge shall be in
effect);
(iv) the North American shall have delivered to the
Transferor a certificate to the effect that each of the conditions
specified above in Section 7(b)(i)-(iii) is satisfied in all respects;
(v) all applicable waiting periods (and any
extensions thereof) under the Hart-Scott-Rodino Act shall have expired
or otherwise been terminated and the Parties shall have received all
other authorizations, consents, and approvals of governments and
governmental agencies referred to in Section 3(a)(ii), Section
3(b)(v), and Section 4(d) above;
(vi) Transferor shall have entered into an
Employment Agreement with Target, in the form attached hereto as
EXHIBIT G (Transferor covenants and agrees to execute the Employment
Agreement as of the Closing Date);
(vii) Transferor shall have received from counsel to
the North American an opinion in form and substance as set forth in
EXHIBIT H attached hereto, addressed to the Transferor, and dated as
of the Closing Date;
(viii) Buyer shall have delivered a Secretary and
Incumbency Certificate in the form attached hereto as EXHIBIT I;
(ix) This Agreement and the transactions
contemplated hereby shall have been approved by the Board of Directors
and Shareholders of North American;
(x) on or prior to the Closing Date, the
transactions contemplated pursuant to each of the other Exchange
Agreements, and the Securities Purchase Agreement shall have been
closed; and
(xi) all actions to be taken by the North American
in connection with consummation of the transactions contemplated
hereby and all certificates, opinions, instruments, and other
documents required to effect the transactions contemplated hereby will
be reasonably satisfactory in form and substance to the Transferor.
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<PAGE> 38
The Transferor may waive any condition specified in this Section 7(b) if he
executes a writing so stating at or prior to the Closing.
(c) POST-CLOSING OBLIGATIONS OF TRANSFEROR. Transferor shall
use best efforts to obtain Employment Agreements between Target and Steve
Wiencek and John Gomolchak in the form attached hereto as EXHIBIT G within 30
days of the Closing Date.
8. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations, warranties, covenants and agreements of the Parties contained
in this Agreement or in any certificate, document, instrument or agreement
delivered pursuant to this Agreement shall survive the Closing hereunder
(notwithstanding any due diligence investigations that may have been undertaken
by the damaged Party) and continue in full force and effect through all
statutes of limitations. Notwithstanding the foregoing, no claim for
indemnification in respect of a breach of a representation or warranty shall be
made after the date three years from and after the Closing Date, except that a
claim for indemnification in respect of a breach of the representations set
forth in Section 3(a), 3(b), 4(a)-(f), 4(l), 4(y) and 4(aa) may be made at
anytime following the Closing Date and are not subject to the foregoing three
year limitation.
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE
NORTH AMERICAN.
(i) In the event the Transferor breaches (or in the
event any third party alleges facts that, if true, would mean the
Transferor has breached) any of his representations, warranties (or
any of such representations or warranties is untrue or inaccurate),
covenants and agreements contained herein or in any certificate,
document, instrument or agreement delivered pursuant to this
Agreement, and, provided that the Indemnified Buyers (as hereafter
defined) make a written claim for indemnification against the
Transferor pursuant to Section 12(g) below within the applicable claim
period provided in 8(a) above, then the Transferor agrees to indemnify
North American and each of its officers, directors, employees,
representatives and shareholders (the "Indemnified Buyers") from and
against the entirety of any Adverse Consequences the Indemnified
Buyers may suffer through and after the date of the claim for
indemnification (including any Adverse Consequences the Indemnified
Buyers may suffer after the end of any applicable claim period)
resulting from, arising out of, relating to, in the nature of, or
caused by the breach (or the alleged breach).
(ii) The Transferor agrees to indemnify the
Indemnified Buyers from and against the entirety of any Adverse
Consequences the Indemnified Buyers may suffer resulting from, arising
out of, relating to, in the nature of, or caused by any Liability of
Target (x) for any Taxes of Target with respect to any Tax year or
portion thereof ending on or before the Closing Date or for any Tax
year beginning before and ending after the Closing Date to the extent
allocable (determined in a manner consistent with Section 9(b)) to the
portion of such period beginning before and ending on the Closing
Date), to the
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extent such Taxes are not reflected in the reserve for Tax Liability
shown on the face of the Most Recent Balance Sheet or, if applicable,
the Revised Most Recent Balance Sheet; provided, however, that the
reserve for Tax Liability shall not include any reserve for deferred
taxes established to reflect timing differences between book and tax
income, and (y) for the unpaid Taxes of any Person (other than Target)
under Reg. Section 1.1502-6 (or any similar provision of state, local,
or foreign law), as a transferee or successor, by contract, or
otherwise.
(iii) Transferor agrees to indemnify North American
from and against the entirety of any Adverse Consequences North
American may suffer resulting from, arising out of, relating to, in
the nature of, or caused by the activities of any entity which at any
time has been owned, in whole or in part, by Target.
(iv) Transferor agrees to indemnify North American
from and against the entirety of any Adverse Consequences the North
American may suffer resulting from, arising out of, relating to, in
the nature of, or caused by any Retained Liabilities (as hereafter
defined). As used herein, the term Retained Liabilities means all
liabilities, claims, commitments, demands or obligations of Target (or
any subsidiary of Target) existing or arising out of any facts or set
of operative facts existing on or prior to the Closing Date, except
for any such liabilities, claims, commitments, demands or obligations
of Target (or any subsidiary of Target) set forth (A) on the face of
the Most Recent Balance or, if applicable, the Revised Most Recent
Balance Sheet or (B) in Section 4(j) of the Disclosure Schedule.
(v) Transferor agrees to indemnify North American
from and against the entirety of any Adverse Consequences the North
American may suffer resulting from, or arising out of, relating to, or
in the nature of or caused by any claim by a stockholder or former
stockholder of Target or any other Person seeking to assert: (i)
ownership or rights to ownership of any shares of capital stock of
Target or any Subsidiary, (ii) any rights of a stockholder (other than
the right to receive the Purchase Price) including any option,
preemptive rights or rights to receive notice or to vote, (iii) any
rights under Target's charter, bylaws or other constituent documents,
or (iv) any claim that his shares of capital stock were to be
repurchased by Target.
(vi) Transferor agrees to indemnify North American
from and against the entirety of any Adverse Consequences the North
American may suffer resulting from, or arising out of, relating to, or
in the nature of or caused by any claim by a dissenting shareholder
that the Purchase Price is less than the fair value of his shares.
(vii) Without limiting any other provision in this
Section 8, Transferor agrees to indemnify North American from and
against the entirety of any Adverse Consequences North American may
suffer as a result of a taxing authority taking the position that any
former or current subcontractor of Target should have been, at any
time prior to the Closing Date, treated as an employee of Target.
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(viii) Without limiting any other provision in this
Section 8, Transferor agrees to indemnify North American from and
against the entirety of any Adverse Consequences North American may
suffer as a result of Target's failure to be duly authorized to
conduct business and in good standing under the laws of any
jurisdiction where such qualification is or has been required as of or
prior to the Closing Date. The indemnification obligation of
Transferor under this Section 8(b)(viii) shall not be limited or
otherwise affected in any manner by any disclosures made by the
Transferor in the Disclosure Schedule.
a taxing authority taking the position that any former or current subcontractor
of Target should have been, at any time prior to the Closing Date, treated as
an employee of Target.
(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE TRANSFEROR.
(i) In the event North American breaches (or in the
event any third party alleges facts that, if true, would mean the
North American had breached) any of their representations, warranties
(or any of such representations or warranties is untrue or
inaccurate), covenants and agreements contained herein or in any
certificate, document, instrument or agreement delivered pursuant to
this Agreement, and, provided that the Transferor makes a written
claim for indemnification against the North American pursuant to
Section 12(g) below within the applicable claim period provided in
8(a) above, then North American agrees to indemnify the Transferor and
each of his representatives (the "Indemnified Transferor") from and
against the entirety of any Adverse Consequences the Indemnified
Transferor may suffer through and after the date of the claim for
indemnification (including any Adverse Consequences the Indemnified
Transferor may suffer after the end of any applicable claim period)
resulting from, arising out of, relating to, in the nature of, or
caused by the breach (or the alleged breach).
(ii) North American agrees to indemnify the
Transferor from and against the entirety of any Adverse Consequences
the Transferor may suffer as a result of Target's failure to pay the
amounts due, for periods after the Closing Date, under any of the
contracts, leases and other agreements set forth in Section 4(q) of
the Disclosure Schedule as to which Transferor is a personal
guarantor; provided, however, that Transferor shall not be entitled to
indemnification pursuant to this Section 8(c)(ii) to the extent that
North American is otherwise entitled to indemnification from the
Transferor in connection with the matters described in this Section
8(c)(ii).
(d) MATTERS INVOLVING THIRD PARTIES.
(i) If any third party shall notify any party
entitled to indemnification hereunder (the "INDEMNIFIED PARTY") with
respect to any matter (a "THIRD PARTY CLAIM") which may give rise to a
claim for indemnification against any other Party (the "INDEMNIFYING
PARTY") under this Section 8, then the Indemnified Party shall
promptly notify
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<PAGE> 41
each Indemnifying Party thereof in writing; PROVIDED, HOWEVER, that no
delay on the part of the Indemnified Party in notifying any
Indemnifying Party shall relieve the Indemnifying Party from any
obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is materially prejudiced.
(ii) Any Indemnifying Party will have the right to
defend the Indemnified Party against the Third Party Claim with
counsel of its choice reasonably satisfactory to the Indemnified Party
so long as (A) the Indemnifying Party notifies the Indemnified Party
in writing within 15 days after the Indemnified Party has given notice
of the Third Party Claim that the Indemnifying Party will indemnify
the Indemnified Party from and against the entirety of any Adverse
Consequences the Indemnified Party may suffer resulting from, arising
out of, relating to, in the nature of, or caused by the Third Party
Claim, (B) the Indemnifying Party provides the Indemnified Party with
evidence reasonably acceptable to the Indemnified Party that the
Indemnifying Party will have the financial resources to defend against
the Third Party Claim and fulfill its indemnification obligations
hereunder, (C) the Third Party Claim involves only money damages and
does not seek an injunction or other equitable relief, (D) settlement
of, or an adverse judgment with respect to, the Third Party Claim is
not, in the good faith judgment of the Indemnified Party, likely to
establish a precedential custom or practice materially adverse to the
continuing business interests of the Indemnified Party, (E) the named
parties to the Third Party Claim do not include both the Indemnified
Party and the Indemnifying Party, and (F) the Indemnifying Party
conducts the defense of the Third Party Claim actively and diligently.
(iii) So long as the Indemnifying Party is
conducting the defense of the Third Party Claim in accordance with
Section 8(d)(ii) above, (A) the Indemnified Party may retain separate
co-counsel at its sole cost and expense and participate in the defense
of the Third Party Claim, (B) the Indemnified Party will not consent
to the entry of any judgment or enter into any settlement with respect
to the Third Party Claim without the prior written consent of the
Indemnifying Party (not to be withheld unreasonably), and (C) the
Indemnifying Party will not consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim
without the prior written consent of the Indemnified Party (not to be
withheld unreasonably).
(iv) In the event any of the conditions in
Section 8(d)(ii) above is or becomes unsatisfied, however, (A) the
Indemnified Party may defend against, and consent to the entry of any
judgment or enter into any settlement with respect to, the Third Party
Claim in any manner it reasonably may deem appropriate (and the
Indemnified Party need not consult with, or obtain any consent from,
any Indemnifying Party in connection therewith), (B) the Indemnifying
Parties will reimburse the Indemnified Party promptly and periodically
for the costs of defending against the Third Party Claim (including
reasonable attorneys' fees and expenses), and (C) the Indemnifying
Parties will remain responsible for any Adverse Consequences the
Indemnified Party may suffer resulting
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from, arising out of, relating to, in the nature of, or caused by the
Third Party Claim to the fullest extent provided in this Section 8.
(e) DETERMINATION OF ADVERSE CONSEQUENCES. The Parties shall
take into account the time cost of money (using the Applicable Rate as the
discount rate) in determining Adverse Consequences for purposes of this Section
8. All indemnification payments under this Section 8 shall be deemed
adjustments to the Consideration.
(f) BASKET. The Transferor shall not be obligated to
indemnify North American pursuant to this Section 8 for any Adverse
Consequences in respect of a breach of (or inaccuracy in) a representation or
warranty until the aggregate amount of all Adverse Consequences in respect of
breaches (or inaccuracies) in representation or warranties exceeds $10,000 (the
"Trigger Amount"). Once the aggregate Adverse Consequences in respect of
breaches (or inaccuracies) in representation or warranties exceed the Trigger
Amount, North American shall be entitled to indemnification for the full amount
of all Adverse Consequences in respect of breaches (or inaccuracies) in
representation or warranties above the Trigger Amount.
The foregoing limitation on the indemnification obligations of
Transferor shall not apply to any breach of any covenants or agreements of
Transferor in this Agreement. In addition, notwithstanding the foregoing
provisions of this paragraph, such limitations shall not apply to breaches of
(or inaccuracies in) any of the representations or warranties in the following
provisions of this Agreement: Section ss.3(a), 4(a), 4(b), 4(c), 4(d) and 4(e).
Further, the foregoing limitations of liability shall not apply to any breach
of any representation or warranty if such representation or warranty was made
with actual knowledge or reckless disregard of its falsity or inaccuracy or
incompleteness.
In calculating the amount of Adverse Consequences incurred arising out
of or related to any breach of a representation or warranty, references to
"material" or "Material Adverse Effect" or "knowledge" or "Knowledge" or other
materiality or similar qualifications, including as expressed in accounting
concepts such as GAAP, shall be disregarded. No right of indemnification
hereunder shall be limited by reason of any investigation or audit conducted
before or after the Closing by any party hereto or the knowledge of such party
of any breach of any representation, warranty, covenant or agreement by the
other party at any time.
(g) OTHER INDEMNIFICATION PROVISIONS. The foregoing
indemnification provisions are in addition to, and not in derogation of, any
statutory, equitable, or common law remedy (including without limitation any
such remedy arising under Environmental, Health, and Safety Requirements) any
Party may have with respect to Target, or the transactions contemplated by this
Agreement. The Transferor hereby agrees that he or it will not make any claim
for indemnification against Target by reason of the fact that he or it was a
director, officer, employee, or agent of any such entity or was serving at the
request of any such entity as a partner, trustee, director, officer, employee,
or agent of another entity (whether such claim is for judgments, damages,
penalties, fines, costs, amounts paid in settlement, losses, expenses,
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or otherwise and whether such claim is pursuant to any statute, charter
document, bylaw, agreement, or otherwise) with respect to any matter for which
a Buyer Indemnified Party may be entitled to indemnification from the
Transferor as provided in this Section 8.
9. ADJUSTMENT OF CONSIDERATION.
(a) North American shall have a period of 60 days after the
Closing Date to review the Most Recent Balance Sheet. If North American has any
objections to the Most Recent Balance Sheet, it will deliver a detailed
statement describing such objections to the Transferor within such 60-day
period. North American and the Transferor will use reasonable efforts to
resolve any such objections themselves. If the Parties do not obtain a final
resolution within 30 days after the Transferor has received the statement of
objections, however, North American and the Transferor will select an
accounting firm mutually acceptable to them to resolve any remaining
objections. If North American and the Transferor are unable to agree on the
choice of an accounting firm, they will select a nationally-recognized
accounting firm by lot (after excluding their respective regular outside
accounting firms). The determination of any accounting firm so selected will be
set forth in writing and will be conclusive and binding upon the Parties. North
American will revise the Most Recent Balance Sheet as appropriate to reflect
the resolution of any objections thereto pursuant to this Section 9(a). ThE
"REVISED MOST RECEnt BALANCE SHEET" shall mean the Most Recent Balance Sheet
together with any revisions thereto pursuant to this Section 9(a).
(i) In the event the Parties submit any unresolved
objections to an accounting firm for resolution as provided in Section
9(a) above, any expenses relating to the engagement of the accounting
firm shall be allocated between the Transferor and the North American
by the accounting firm in proportion to the amount in dispute which is
decided in favor of the challenging party.
(ii) The Transferor will make the work papers and
back-up materials used in preparing the Most Recent Balance Sheet
available to North American and its accountants and other
representatives at reasonable times and upon reasonable notice during
(A) the review by North American of the Most Recent Balance Sheet, and
(B) the resolution by the Parties of any objections to the Most Recent
Balance Sheet.
(iii) The Consideration, as the case may be, will be
adjusted as follows:
(A) If the Shareholder's Equity set forth
in the Revised Most Recent Balance Sheet is
less than the Shareholder's Equity set
forth in the Most Recent Balance Sheet, the
Transferor will pay to the North American
an amount equal to such deficiency (plus
interest thereon at the Applicable Rate
from the Closing Date) within three
business days after the date on which the
Revised Most Recent Balance Sheet finally
is determined pursuant to Section 9(a)
above.
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(B) If the notes payable and capital lease
obligations of Target set forth in the
Revised Most Recent Balance Sheet are
greater than the notes payable and capital
lease obligations of Target set forth on
the Most Recent Balance Sheet, the
Transferor will pay to the North American
an amount equal to such excess (plus
interest thereon at the Applicable Rate
from the Closing Date) within three
business days after the date on which the
Revised Most Recent Balance Sheet finally
is determined pursuant to Section 9(a)
above.
(C) If the cash of Target set forth in the
Revised Most Recent Balance Sheet is less
than the cash of Target set forth on the
Most Recent Balance Sheet, the Transferor
will pay to the North American an amount
equal to such deficiency (plus interest
thereon at the Applicable Rate from the
Closing Date) within three business days
after the date on which the Revised Most
Recent Balance Sheet finally is determined
pursuant to Section 9(a) above.
(iv) METHOD OF PAYMENT. The aggregate of all amounts
required to be paid by Transferor to North American pursuant to
Section 9(a)(iii) shall be paid 100% in cash up to $100,000, and
thereafter 49% in cash and 51% in North American Class B Common Shares
(valued at $5.00 per share). The cash portion of any such payment
shall be made by wire transfer or delivery of other immediately
available funds.
10. TAX MATTERS. The following provisions shall govern the allocation
of responsibility as between North American and Transferor for certain tax
matters following the Closing Date:
(a) TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE.
Transferor shall prepare or cause to be prepared and timely file or cause to be
timely filed all Tax Returns for Target for all periods ending on or prior to
the Closing Date which are filed after the Closing Date (the "Pre-Closing
Period"). Such Tax Returns shall be prepared by treating items on such Tax
Return in a manner consistent with the past practices with respect to such
items, unless otherwise required by law. Transferor shall permit North American
to review and comment on each such Tax Return described in the preceding
sentence prior to filing. North American shall pay the amounts due for Taxes of
Target with respect to the Pre-Closing Periods, up to the amount reflected in
the reserve for Tax Liability shown on the face of the Most Recent Balance
Sheet or, if applicable, the Revised Most Recent Balance Sheet; provided,
however, that the reserve for Tax Liability shall not include any reserve for
deferred taxes established to reflect timing differences between book and tax
income. Transferor agrees that he will pay, when due, all amounts due for Taxes
of Target with respect to Pre-Closing Periods, that exceed the reserve for Tax
Liability (provided, however, that the reserve for Tax Liability shall not
include any reserve for deferred taxes established to reflect timing
differences between book and Tax income) shown on the face of the Closing Date
Balance Sheet.
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(b) TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING
DATE. North American shall prepare or cause to be prepared and file or cause to
be filed any Tax Returns of Target for Tax periods which begin before the
Closing Date and end after the Closing Date. North American shall permit
Transferor to review and comment on each such Tax return described in the
preceding sentence prior to filing. Transferor shall pay to North American
within fifteen (15) days after the date on which Taxes are paid with respect to
such periods an amount equal to the portion of such Taxes which relates to the
portion of such Taxable period ending on the Closing Date to the extent such
Taxes are not reflected in the reserve for Tax Liability shown on the face of
the Most Recent Balance Sheet or, if applicable, the Revised Most Recent
Balance Sheet; provided, however, that the reserve for Tax Liability shall not
include any reserve for deferred taxes established to reflect timing
differences between book and tax income. For purposes of this Section, in the
case of any Taxes that are imposed on a periodic basis and are payable for a
Taxable period that includes (but does not end on) the Closing Date, the
portion of such Tax which relates to the portion of such Taxable period ending
on the Closing Date shall (x) in the case of any real and personal property
Taxes, be deemed to be the amount of such Tax for the entire Taxable period
multiplied by a fraction the numerator of which is the number of days in the
Taxable period ending on the Closing Date and the denominator of which is the
number of days in the entire Taxable period, and (y) in the case of any other
Tax be deemed equal to the amount which would be payable if the relevant
Taxable period ended on the Closing Date. Any credits relating to a Taxable
period that begins before and ends after the Closing Date shall be taken into
account as though the relevant Taxable period ended on the Closing Date. All
determinations necessary to give effect to the foregoing allocations shall be
made in a manner consistent with prior practice of Target.
(c) COOPERATION ON TAX MATTERS.
(i) North American, Target and Transferor shall
cooperate fully, as and to the extent reasonably requested by the
other party, in connection with the filing of Tax Returns pursuant to
this Section and any audit, litigation or other proceeding with
respect to Taxes. Such cooperation shall include the retention and
(upon the other party's request) the provision of records and
information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a
mutually convenient basis to provide additional information and
explanation of any material provided hereunder. Target and Transferor
agree (A) to retain all books and records with respect to Tax matters
pertinent to Target relating to any taxable period beginning before
the Closing Date until the expiration of the statute of limitations
(and, to the extent notified by North American or Transferor, any
extensions thereof) of the respective taxable periods, and to abide by
all record retention agreements entered into with any taxing
authority, and (B) to give the other party reasonable written notice
prior to transferring, destroying or discarding any such books and
records and, if the other party so requests, Target or Transferor, as
the case may be, shall allow the other party to take possession of
such books and records.
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(ii) North American and Transferor further agree,
upon request, to use their best efforts to obtain any certificate or
other document from any governmental authority or any other Person as
may be necessary to mitigate, reduce or eliminate any Tax that could
be imposed (including, but not limited to, with respect to the
transactions contemplated hereby).
(iii) North American and Transferor further agree,
upon request, to provide the other party with all information that
either party may be required to report pursuant to Section 6043 of the
Code and all Treasury Department Regulations promulgated thereunder.
(iv) Transferor agrees that promptly after the
Closing Date, he will prepare and file any required S Corporation
federal and state tax returns for Target for the period from January
1, 1997 through the Closing Date and will pay all applicable Taxes for
that period, as more particularly described in Section 10(e) below.
(d) TAX SHARING AGREEMENTS. All tax sharing agreements or
similar agreements with respect to or involving Target shall be terminated as
of the Closing Date and, after the Closing Date, Target shall not be bound
thereby or have any liability thereunder.
(e) S CORPORATION STATUS. If Target is an S corporation,
Transferor acknowledges that as a result of the consummation of the
transactions contemplated by this Agreement, Target's S Corporation status will
terminate as of the Closing Date. Notwithstanding anything in this Section 10
to the contrary, Transferor agrees that he will file any required S Corporation
federal, state or local tax returns for Target for the period from January 1,
1997 through the Closing Date and will pay all applicable Taxes for such
period. Transferor will elect under Section 1362(e)(3) of the Code not to have
the pro rata allocation method of Section 1362(e)(2) of the Code apply to
Target's final taxable year as an S Corporation.
(f) CERTAIN TAXES. All transfer, documentary, sales, use,
stamp, registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement, shall be paid by
Transferor when due, and Transferor will, at its own expense, file all
necessary Tax Returns and other documentation with respect to all such
transfer, documentary, sales, use, stamp, registration and other Taxes and
fees, and, if required by applicable law, North American will, and will cause
its affiliates to, join in the execution of any such Tax Returns and other
documentation.
11. TERMINATION.
(a) TERMINATION OF AGREEMENT. The Parties may terminate this
Agreement as provided below:
(i) North American and the Transferor may terminate
this Agreement by mutual written consent at any time prior to the
Closing;
42
<PAGE> 47
(ii) North American may terminate this Agreement by
giving written notice to the Transferor at any time prior to the
Closing (A) in the event the Transferor has breached any
representation, warranty, or covenant contained in this Agreement in
any material respect, North American has notified the Transferor of
the breach, and the breach has continued without cure for a period of
30 days after the notice of breach or (B) if the Closing shall not
have occurred on or before April 15, 1998, by reason of the failure of
any condition precedent under Section 7(a) hereof (unless the failure
results primarily from the North American itself breaching any
representation, warranty, or covenant contained in this Agreement);
and
(iii) the Transferor may terminate this Agreement by
giving written notice to North American at any time prior to the
Closing (A) in the event North American has breached any
representation, warranty, or covenant contained in this Agreement in
any material respect, the Transferor has notified the North American
of the breach, and the breach has continued without cure for a period
of 30 days after the notice of breach or (B) if the Closing shall not
have occurred on or before April 15, 1998, by reason of the failure of
any condition precedent under Section 7(b) hereof (unless the failure
results primarily from the Transferor himself breaching any
representation, warranty, or covenant contained in this Agreement).
(b) EFFECT OF TERMINATION. If any Party terminates this
Agreement pursuant to Section 11(a) above, all rights and obligations of the
Parties hereunder shall terminate without any Liability of any Party to any
other Party (except for any Liability of any Party then in breach).
12. MISCELLANEOUS.
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall
issue any press release or make any public announcement relating to the subject
matter of this Agreement prior to the Closing without the prior written
approval of the North American and the Transferor; PROVIDED, HOWEVER, that any
Party may make any public disclosure it believes in good faith is required by
applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing Party will use its
best efforts to advise the other Parties prior to making the disclosure).
(b) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not
confer any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns and the Indemnified Parties
referred to in Section 8 hereof.
(c) ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or among
the Parties, written or oral, to the extent they related in any way to the
subject matter hereof.
43
<PAGE> 48
(d) SUCCESSION AND ASSIGNMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the Parties
named herein and their respective successors and permitted assigns. No Party
may assign either this Agreement or any of his or its rights, interests, or
obligations hereunder without the prior written approval of the North American
and the Transferor; PROVIDED, HOWEVER, that the North American may (i) assign
any or all of its rights and interests hereunder to one or more of its
Affiliates, (ii) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases the North American
nonetheless shall remain responsible for the performance of all of its
obligations hereunder) and (iii) without the approval of the Transferor assign
its rights and interests hereunder to its lenders (and any agent for the
lenders), and the Parties consent to any exercise by such lenders (and such
agents) of their rights and remedies with respect to such collateral.
(e) COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) HEADINGS. The section headings contained in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
(g) NOTICES. All notices, requests, demands, claims, and
other communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
<TABLE>
<CAPTION>
IF TO THE TRANSFEROR: COPY TO:
--------------------- --------
<S> <C>
Bernard E. Czarnecki White and Williams LLP
12109 W. Lake Road 1800 One Liberty Place
E. Springfield, PA 16411 Philadelphia, PA 19103
Attn: M. Melvin Shralow, Esq.
</TABLE>
44
<PAGE> 49
<TABLE>
<CAPTION>
IF TO THE NORTH AMERICAN: COPY TO:
------------------------- --------
<S> <C>
North American Tel-Com Group, Inc. Holland & Knight LLP
2240 Palm Beach Lakes Blvd, Ste. 100 1 East Broward Blvd., 13th Floor
West Palm Beach, FL 33409 Ft. Lauderdale, Florida 33301
Attn: William J. Mercurio Attn: Donn A. Beloff, Esq.
Holland & Knight LLP
701 Brickell Avenue
Miami, Florida 33131
Attn: Teresita H. Garcia, Esq.
H.I.G. Capital Management, Inc.
1001 Brickell Bay Drive, Suite 2708
Miami, Florida 33131
Attn: Sami W. Mnaymneh
White & Case, LLP
First Union Financial Tower
Suite 4900
200 S. Biscayne Blvd.
Miami, Florida 33131
Attn: Jorge L. Freeland, Esq.
</TABLE>
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been
duly given unless and until it actually is received by the intended recipient.
Any Party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other
Parties notice in the manner herein set forth.
(h) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Florida without
giving effect to any choice or conflict of law provision or rule (whether of
the State of Florida or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Florida.
(i) AMENDMENTS AND WAIVERS. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
the North American and the Transferor. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
45
<PAGE> 50
(j) SEVERABILITY. Any term or provision of this Agreement
that is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
(k) EXPENSES. Each of the Parties will bear his or its own
costs and expenses (including legal fees and expenses) incurred in connection
with this Agreement and the transactions contemplated hereby. The Transferor
agrees Target has not borne or will bear any of the Transferor's costs and
expenses (including any of their legal fees and expenses) in connection with
this Agreement or any of the transactions contemplated hereby.
(l) CONSTRUCTION. The Parties have participated jointly in
the negotiation of this Agreement. In the event an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as if
drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local,
or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
(m) INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The
Exhibits, Annexes, Schedules and Certificates identified in this Agreement are
incorporated herein by reference and made a part hereof.
(n) SPECIFIC PERFORMANCE. Each of the Parties acknowledges
and agrees that the other Parties would be damaged irreparably in the event any
of the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter (subject to the provisions set
forth in Section 10(o) below), in addition to any other remedy to which they
may be entitled, at law or in equity.
(o) SUBMISSION TO JURISDICTION. Each of the Parties submits
to the jurisdiction of any state or federal court sitting in Palm Beach County,
Florida, in any action or proceeding arising out of or relating to this
Agreement and agrees that all claims in respect of the action or proceeding may
be heard and determined in any such court. Each of the Parties waives any
defense of inconvenient forum to the maintenance of any action or proceeding so
brought and
46
<PAGE> 51
waives any bond, surety, or other security that might be required of any other
Party with respect thereto. Any Party may make service on any other Party by
sending or delivering a copy of the process to the Party to be served at the
address and in the manner provided for the giving of notices in Section 12(o)
above. Nothing in this Section 12(g), however, shall affect the right of any
Party to bring any action or proceeding arising out of or relating to this
Agreement in any other court or to serve legal process in any other manner
permitted by law or at equity. Each Party agrees that a final judgment in any
action or proceeding so brought shall be conclusive and may be enforced by suit
on the judgment or in any other manner provided by law or at equity.
In any action or proceeding arising out of or relating to this
Agreement, the prevailing party shall be entitled to recover reasonable
attorney's fees and costs from the other party to the action or proceeding.
(p) WAIVER OF JURY TRIAL. THE PARTIES HEREBY IRREVOCABLY
WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY AND TO
THE FULLEST EXTENT PERMITTED BY LAW WAIVE ANY RIGHTS THAT THEY MAY HAVE TO
CLAIM OR RECEIVE CONSEQUENTIAL OR SPECIAL DAMAGES IN CONNECTION WITH ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
*****
47
<PAGE> 52
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
NORTH AMERICAN TEL-COM, INC.
By:
----------------------------------
William J. Mercurio
TRANSFEROR
-------------------------------------
Bernard E. Czarnecki
48
<PAGE> 1
Exhibit 10.10
STOCK PURCHASE AGREEMENT
AMONG
NORTH AMERICAN TEL-COM GROUP, INC.
AND
THE SHAREHOLDERS OF U.S. CABLE, INC.
June 30, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. Definitions................................................................................... 1
2. Purchase and Sale Transaction................................................................. 6
(a) Basic Transaction.................................................................... 6
(b) Consideration........................................................................ 6
(c) The Closing.......................................................................... 6
(d) Deliveries at Closing................................................................ 6
3. Representations and Warranties Concerning the Transaction..................................... 6
(a) Representations and Warranties of the Shareholders................................... 6
(b) Representations and Warranties of the North American................................. 8
4. Representations and Warranties Concerning Target.............................................. 10
(a) Organization, Qualification, and Corporate Power..................................... 10
(b) [INTENTIONALLY LEFT BLANK]
(c) Capitalization................................................................................ 10
(d) Noncontravention..................................................................... 11
(e) Brokers' Fees........................................................................ 11
(f) Title to Assets...................................................................... 11
(g) Subsidiaries......................................................................... 11
(h) Financial Statements................................................................. 12
(i) Events Subsequent to Most Recent Fiscal Year End..................................... 12
(j) Undisclosed Liabilities.............................................................. 14
(k) Legal Compliance..................................................................... 14
(l) Tax Matters.......................................................................... 14
(m) Real Property........................................................................ 16
(n) Intellectual Property................................................................ 17
(o) Tangible Assets...................................................................... 19
(p) Inventory............................................................................ 19
(q) Contracts............................................................................ 19
(r) Notes and Accounts Receivable........................................................ 19
(s) Powers of Attorney................................................................... 20
(t) Insurance............................................................................ 20
(u) Litigation........................................................................... 20
(v) Commitments and Warranties........................................................... 21
(w) Liability for Services Performed..................................................... 21
(x) Employees............................................................................ 21
(y) Employee Benefits.................................................................... 21
(z) Guaranties........................................................................... 23
(aa) Environmental, Health, and Safety Matters............................................ 23
(ab) Certain Business Relationships with Target........................................... 25
(ac) Customers and Suppliers.............................................................. 25
(ad) Disclosure........................................................................... 25
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
5. Pre-Closing Covenants......................................................................... 25
(a) General.............................................................................. 25
(b) Notices and Consents................................................................. 25
(c) Operation of Business ............................................................... 26
(d) Preservation of Business ............................................................ 26
(e) Full Access ......................................................................... 26
(f) Notice of Developments............................................................... 26
(g) Exclusivity.......................................................................... 27
(h) No Termination of Shareholders's Obligation by Subsequent Incapacity................. 27
(i) Satisfaction of Shareholder Loans.................................................... 27
6. Post-Closing Covenants........................................................................ 27
(a) General.............................................................................. 27
(b) Litigation Support................................................................... 27
(c) Transition........................................................................... 28
(d) Independent Accountants.............................................................. 28
(e) Tax Matters.......................................................................... 28
(f) Stock Options........................................................................ 28
(g) Audited Financial Statements......................................................... 28
(h) Life Insurance....................................................................... 29
(i) Health Insurance..................................................................... 29
(j) Pro Forma Income Statements.......................................................... 29
(k) Adjustment of Shareholders' Equity................................................... 29
7. Conditions to Obligation to Close............................................................. 29
(a) Conditions to Obligation of North American........................................... 29
(b) Conditions to Obligation of the Shareholders......................................... 31
8. Remedies for Breaches of This Agreement....................................................... 32
(a) Survival of Representations and Warranties........................................... 32
(b) Indemnification Provisions for Benefit of the North American......................... 32
(c) Indemnification Provisions for Benefit of the Shareholders........................... 34
(d) Matters Involving Third Parties...................................................... 34
(e) Determination of Adverse Consequences................................................ 36
(f) Other Indemnification Provisions..................................................... 36
9. Post-Closing Adjustment of Consideration...................................................... 36
10. Tax Matters................................................................................... 37
(a) Tax Periods Ending on or Before the Closing Date..................................... 37
(b) Tax Periods Beginning Before and Ending After the Closing Date....................... 37
(c) Cooperation on Tax Matters........................................................... 38
(d) Tax Sharing Agreements............................................................... 39
(e) Certain Taxes........................................................................ 39
11. Termination................................................................................... 39
(a) Termination of Agreement............................................................. 39
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
(b) Effect of Termination................................................................ 40
12. Miscellaneous................................................................................. 40
(a) Press Releases and Public Announcements.............................................. 40
(b) No Third-Party Beneficiaries......................................................... 40
(c) Entire Agreement..................................................................... 40
(d) Succession and Assignment............................................................ 40
(e) Counterparts......................................................................... 40
(f) Headings............................................................................. 40
(g) Notices.............................................................................. 41
(h) Governing Law........................................................................ 41
(i) Amendments and Waivers............................................................... 41
(j) Severability......................................................................... 41
(k) Expenses............................................................................. 42
(l) Construction......................................................................... 42
(m) Incorporation of Exhibits, Annexes, and Schedules.................................... 42
(n) Specific Performance................................................................. 42
(o) Submission to Jurisdiction........................................................... 42
(p) WAIVER OF JURY TRIAL................................................................. 43
</TABLE>
Exhibit A--Financial Statements
Exhibit B--Opinion of Target's Counsel
Exhibit C--Real Property Lease
Exhibit D--Employment Agreements
Exhibit E--Opinion of North American's Counsel
Exhibit F--Stepped-up Assets
Exhibit G--Life Insurance Policies to be Cancelled
Annex I-- Accredited Investor Status
Disclosure Schedule
North American Disclosure Schedule
iii
<PAGE> 5
STOCK PURCHASE AGREEMENT
Agreement entered into as of June 30, 1998, by and among North
American Tel-Com Group, Inc., a Florida corporation ("North American" or the
"Buyer"), and the shareholders of U.S. Cable, Inc., a Wisconsin corporation
(the "Target") listed on the signature page to this Agreement (the
"Shareholders"). The Buyer and the Shareholders are referred to collectively
herein as the "PARTIES."
The Shareholders in the aggregate own all of the outstanding capital
stock of the Target.
This Agreement contemplates the sale by the Shareholders of all of the
issued and outstanding capital stock of Target to Buyer. The Shareholders will
receive cash and capital stock in North American in exchange for their shares
of capital stock of Target.
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1. DEFINITIONS.
"ACCREDITED INVESTOR" has the meaning set forth in Regulation
D promulgated under the Securities Act.
"ADVERSE CONSEQUENCES" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses,
expenses, and fees, including court costs and reasonable attorneys' fees and
expenses, and any other cost of enforcing a party's rights under this
Agreement.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act.
"AFFILIATED GROUP" means any affiliated group within the
meaning of Code Section 1504(a) or any similar group defined under a similar
provision of state, local or foreign law.
"APPLICABLE RATE" means the corporate base rate of interest
publicly announced from time to time by PNC Bank, N.A.
"BASIS" means any past or present fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction that forms or could form the
basis for any specified consequence.
"CLOSING" has the meaning set forth in Section 2(c) below.
"CLOSING DATE" has the meaning set forth in Section 2(c)
below.
<PAGE> 6
"CLOSING DATE BALANCE SHEET" has the meaning set forth in
Section 9(b) below.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONSIDERATION" has the meaning set forth in Section 2(b)
below.
"CONTROLLED GROUP OF CORPORATIONS" has the meaning set forth
in Code Section 1563.
"DISCLOSURE SCHEDULE" has the meaning set forth in Section 4
below.
"DRAFT CLOSING DATE BALANCE SHEET" has the meaning set forth
in Section 9(a) below.
"EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan), (d) Employee Welfare Benefit Plan or (e)
bonus, incentive, stock purchase, stock ownership, stock option, stock
appreciation right, severance, salary continuation, termination, change of
control or other material fringe benefit plan or program.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in
ERISA Section 3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in
ERISA Section 3(1).
"ENVIRONMENTAL, HEALTH, AND SAFETY REQUIREMENTS" shall mean
all federal, state, local and foreign statutes, regulations, ordinances and
other provisions having the force or effect of law, all judicial and
administrative orders and determinations, all contractual obligations and all
common law concerning public health and safety, worker health and safety, and
pollution or protection of the environment, including without limitation all
those relating to the presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution, labeling, testing,
processing, discharge, release, threatened release, control, or cleanup of any
Hazardous Materials (which, for purposes of this Agreement, shall meany any
hazardous materials, substances or wastes, chemical substances or mixtures,
pesticides, pollutants, contaminants, toxic chemicals, petroleum products or
byproducts, asbestos, polychlorinated biphenyls, noise or radiation), each as
amended and as now or hereafter in effect.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA AFFILIATE" means (i) any corporation included with
Target in a controlled group of corporations within the meaning of Section
414(b) of the Code; (ii) any trade or business (whether or not incorporated)
which is under common control with Target within the meaning of Section 414(c)
of the Code; (iii) any member of an affiliated service group of which
2
<PAGE> 7
Target is a member within the meaning of Section 414(m) of the Code; or (iv)
any other person or entity treated as an affiliate of Target under Section
414(o) of the Code.
"FIDUCIARY" has the meaning set forth in ERISA Section 3(21).
"FINANCIAL STATEMENT" has the meaning set forth in Section
4(h) below.
"GAAP" means United States generally accepted accounting
principles as in effect from time to time.
"HART-SCOTT-RODINO ACT" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"INDEMNIFIED PARTY" has the meaning set forth in Section 8(d)
below.
"INDEMNIFYING PARTY" has the meaning set forth in Section
8(d) below.
"INTELLECTUAL PROPERTY" means (a) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications, and patent
disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof, (b)
all trademarks, service marks, trade dress, logos, trade names, and corporate
names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection therewith, (d) all mask works and all applications,
registrations, and renewals in connection therewith, (e) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals), (f) all computer software (including data and related
documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"KNOWLEDGE" means that which is known by a person and that of
which a reasonable person should have knowledge as a result of the performance
of such person's duties. In the case of North American or Target, "Knowledge"
means the "Knowledge" of its respective directors and executive officers.
"LIABILITY" means any liability (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"MATERIAL ADVERSE EFFECT" means, individually or together
with other adverse effects, any material adverse effect on the assets,
liabilities, results of operations, business
3
<PAGE> 8
condition (financial or otherwise) or prospects of Target or on Target's
ability to consummate the transactions contemplated hereby or the ability of
North American to operate the business of Target immediately after the Closing
in substantially the same manner as such business is conducted prior to
Closing.
"MOST RECENT BALANCE SHEET" means the balance sheet contained
within the Most Recent Financial Statements.
"MOST RECENT FINANCIAL STATEMENTS" has the meaning set forth
in Section 4(h) below.
"MOST RECENT FISCAL PERIOD END" has the meaning set forth in
Section 4(h) below.
"MOST RECENT FISCAL YEAR END" has the meaning set forth in
Section 4(h) below.
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA
Section 3(37).
"NATIONAL SECURITIES EXCHANGE" shall have the meaning
ascribed to that term in the rules and regulations promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934.
"NORTH AMERICAN" has the meaning set forth in the preface
above.
"NORTH AMERICAN CLASS A COMMON SHARES" means any share of the
Class A Common Stock, par value $.01 per share, of North American.
"NORTH AMERICAN CLASS B COMMON SHARES" means any share of the
Class B Common Stock, par value $.01 per share, of North American.
"NORTH AMERICAN COMMON STOCK" means any share of the common
stock, par value $.01 par share, of North American.
"NORTH AMERICAN SERIES A PREFERRED SHARES" means any share of
the Series A Convertible Preferred Stock, par value $.01 per share, of North
American.
"NORTH AMERICAN PREFERRED STOCK" means any share of the
preferred stock, par value $.01 per share, of North American.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of
business consistent with past custom and practice (including with respect to
quantity and frequency).
"PARTY" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
4
<PAGE> 9
"PERSON" means an individual, a partnership, a corporation,
an association, a joint stock company, a trust, a joint venture, an
unincorporated organization, or a governmental entity (or any department,
agency, or political subdivision thereof).
"PROHIBITED TRANSACTION" has the meaning set forth in ERISA
Section 406 and Code Section 4975.
"REPORTABLE EVENT" has the meaning set forth in ERISA Section
4043.
"SECURITIES ACT" means the Securities Act of 1933, as
amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act
of 1934, as amended.
"SECURITY INTEREST" means any mortgage, pledge, lien,
encumbrance, charge, or other security interest, other than (a) mechanic's,
materialmen's, and similar liens that could not reasonably be expected to have
a Material Adverse Effect, (b) liens for Taxes not yet due and payable or for
Taxes that the taxpayer is contesting in good faith through appropriate
proceedings disclosed on Section 4(l) of the Disclosure Schedule, (c) purchase
money liens and liens securing rental payments under capital lease arrangements
disclosed in the Most Recent Financial Statements, and (d) other liens arising
in the Ordinary Course of Business and not incurred in connection with the
borrowing of money, so long as such liens could not reasonably be expected to
have a Material Adverse Effect.
"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement of
North American dated as of March 31, 1998.
"SUBSIDIARY" means any corporation with respect to which a
specified Person (or a Subsidiary thereof) owns a majority of the common stock
or has the power to vote or direct the voting of sufficient securities to elect
a majority of the directors.
"TARGET" has the meaning set forth in the preface above.
"TARGET SHARE" means any share of the Common Stock, no par
value, of Target.
"TARGET SHAREHOLDER" means any Person who or which holds any
Target Shares.
"TAX" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Code Section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition
5
<PAGE> 10
thereto, whether disputed or not, and any obligations under any agreements or
arrangements with respect to any of the foregoing.
"TAX RETURN" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"THIRD PARTY CLAIM" has the meaning set forth in Section 8(d)
below.
"SHAREHOLDERS" has the meaning set forth in the preface
above.
2. PURCHASE AND SALE TRANSACTION.
(a) BASIC TRANSACTION. On and subject to the terms and
conditions of this Agreement, North American agrees to purchase from the
Shareholders, and the shareholders agree to sell to North American, all of
their respective Target Shares for the consideration specified below in this
Section 2.
(b) CONSIDERATION. No American agrees to deliver to the
Shareholders at Closing (i) cash in the amount of $11,691,400.00 payable by
wire transfer or other immediately available funds and (ii) 2,433,720 North
American Class B Common Shares (collectively, the "Consideration"). The
Consideration shall be subject to adjustment pursuant to the provisions of
Section 9 hereof. The Consideration shall be allocated among the Shareholders
in proportion to their respective holdings of Target Shares as set forth in
Section 4(c) to the Disclosure Schedule.
(c) THE CLOSING. The closing of the transactions contemplated
by this Agreement (the "CLOSING") shall take place at the offices of Holland &
Knight LLP in Ft. Lauderdale, Florida, commencing at 9:00 a.m. local time on
June 30, 1998 or such other date, time and place as the Parties may mutually
determine (the "CLOSING DATE").
(d) DELIVERIES AT CLOSING. At the Closing, (i) the
Shareholders will deliver to North American the various certificates,
instruments, and documents referred to in Section 7(a) below, (ii) North
American will deliver to the Shareholders the various certificates,
instruments, and documents referred to in Section 7(b) below, and (iii) the
shareholders will deliver to North American stock certificates representing all
of their Target Shares, endorsed in blank or accompanied by duly executed
assignment documents, and (iv) North American will deliver to the Shareholders
the Consideration specified in Section 2(b) above.
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
(a) REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS. Each
Shareholder represents and warrants to North American that the statements
contained in this Section 3(a) are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
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<PAGE> 11
Agreement throughout this Section 3(a)), except as set forth on Section 3(a) of
the Disclosure Schedule (as hereinafter defined).
(i) AUTHORIZATION OF TRANSACTION. Such Shareholder
has full power and authority to execute and deliver this Agreement and
to perform his obligations hereunder. This Agreement constitutes the
valid and legally binding obligation of such Shareholder, enforceable
in accordance with its terms and conditions except to the extent
enforcement thereof may be limited by applicable bankruptcy,
reorganization, insolvency or moratorium laws, or other laws affecting
the enforcement of creditors' rights or by the principles governing
the availability of equitable remedies. Such Shareholder need not give
any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency or any
other Person in order to consummate the transactions contemplated by
this Agreement.
(ii) NONCONTRAVENTION. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court
to which such Shareholder is subject or (B) conflict with, result in a
breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or
cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which such Shareholder is
a party or by which he is bound or to which any of his assets is
subject.
(iii) BROKERS' FEES. Such Shareholder has, or prior
to Closing will have, paid any fees or commissions due from
Shareholders to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement. Such Shareholder agrees
that he will pay any additional amounts that may become due from him
or Target to any such broker, finder or agent in the future, including
as a result of any indemnification obligations.
(iv) INVESTMENT. Such Shareholder (A) understands
that, the North American Class B Common Shares that he will receive as
part of the Consideration have not been, and will not be, registered
under the Securities Act, or under any state securities laws, and are
being offered and sold in reliance upon federal and state exemptions
for transactions not involving any public offering, (B) is acquiring
such North American Class B Common Shares solely for his own account
for investment purposes, and not with a view to the distribution
thereof, (C) is a sophisticated investor with knowledge and experience
in business and financial matters, (D) has received certain
information concerning North American and has had the opportunity to
obtain additional information as desired in order to evaluate the
merits and the risks inherent in holding the North American Class B
Common Shares, (E) is able to bear the economic risk and lack of
liquidity inherent in holding the North American Class B Common
Shares, and (F) is an Accredited Investor for the reasons set forth on
Annex I.
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<PAGE> 12
(v) TARGET SHARES. Such Shareholder holds of record
and owns beneficially the number of Target Shares set forth opposite
such Shareholder's name, in Section 4(c) of the Disclosure Schedule,
free and clear of any restrictions on transfer (other than any
restrictions under the Securities Act and state securities laws),
Taxes, security interests liens or other encumbrances, options,
warrants, purchase rights, contracts, commitments, equities, claims,
and demands. Such Shareholder is not a party to any option, warrant,
purchase right, or other contract or commitment that could require
such Shareholder to sell, transfer, or otherwise dispose of any
capital stock of Target (other than this Agreement). Such Shareholder
is not a party to any voting trust, proxy, shareholders agreement, or
other agreement or understanding with respect to the voting of any
capital stock of Target.
(vi) DISCLOSURE. Neither this Agreement nor any of
the exhibits, attachments, written statements, documents, certificates
or other items prepared for or supplied to North American by such
Shareholder with respect to the transactions contemplated hereby
contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make each statement contained
herein or therein not misleading. There is no fact which such
Shareholder has not disclosed to North American herein and of which
the Shareholders is aware which could be anticipated to have a
Material Adverse Effect.
(b) REPRESENTATIONS AND WARRANTIES OF NORTH AMERICAN. North
American represents and warrants to the Shareholders that the statements
contained in this Section 3(b) are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Section 3(b)), except as set forth in the disclosure
schedule delivered by North American to the Shareholders on the date hereof
(the "North American Disclosure Schedule").
(i) ORGANIZATION OF THE NORTH AMERICAN. North
American is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Florida. Correct and
complete copies of the charter and bylaws of North American (as
amended to date) are included as part of the North American Disclosure
Schedule. The names and titles of each officer and director of North
American is set forth on the North American Disclosure Schedule.
(ii) CAPITALIZATION OF NORTH AMERICAN. The entire
authorized capital stock of North American consists of (i) 98,000,000
shares of North American Common Stock, par value $.01, including (i)
10,000,000 North American Class A Common Shares, 20,000,000 North
American Class B Common Shares, and 68,000,000 Shares of undesignated
North American Common Stock and (ii) 2,000,000 shares of North
American Preferred Stock, par value $.01, including 100,000 designated
as North American Series A Preferred Shares. The issued and
outstanding capital stock of North American, consists of 1,946,330
North American Class A Shares, 5,011,800 North
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<PAGE> 13
American Class B Shares and 100,000 North American Series A Preferred
Shares, held of record as set forth on the North American Disclosure
Schedule. All of the issued and outstanding North American Class A
Common Shares, North American Class B Common Shares, and North
American Series A Preferred Shares have been, duly authorized, validly
issued, fully paid, and nonassessable. Except as disclosed in the
North American Disclosure Schedule, there are no outstanding or
authorized options, warrants, purchase rights, subscription rights,
conversion rights, exchange rights, or other contracts or commitments
that could require North American to issue, sell, or otherwise cause
to become outstanding any of its capital stock. Except as disclosed in
the North American Disclosure Schedule, there are no outstanding or
authorized stock appreciation, phantom stock, profit participation, or
similar rights with respect to North American. Except as disclosed in
North American Disclosure Schedule, there are no voting trusts,
proxies or other agreements or understandings with respect to the
voting of the capital stock of North American.
(iii) AUTHORIZATION OF TRANSACTION. North American
has full power and authority (including full corporate power and
authority) to execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement constitutes the valid and
legally binding obligation of North American, enforceable in
accordance with its terms and conditions except to the extent
enforcement thereof may be limited by applicable bankruptcy,
reorganization, insolvency or moratorium laws, or other laws affecting
the enforcement of creditors' rights or by the principles governing
the availability of equitable remedies. North American need not give
any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency or any
other Person in order to consummate the transactions contemplated by
this Agreement.
(iv) NONCONTRAVENTION. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court
to which either North American is subject or any provision of their
respective charter or bylaws or (B) conflict with, result in a breach
of, constitute a default under, result in the acceleration of, create
in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which North American is a party or
by which North American is bound or to which any of its assets is
subject.
(v) BROKERS' FEES. North American has, or prior to
the Closing will have, paid any fees or commissions due from North
American to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement. North American agrees
that they will pay any additional amounts that may become due from
North American to any such broker, finder or agent in the future,
including as a result of any indemnification obligations.
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<PAGE> 14
(vi) DISCLOSURE. Neither this Agreement nor any of
the exhibits, attachments, written statements, documents, certificates
or other items prepared for or supplied to the Shareholders by North
American with respect to the transactions contemplated hereby contains
any untrue statement of a material fact or omits to state any material
fact necessary in order to make each statement contained herein or
therein not misleading. There is no fact which North American has not
disclosed to the Shareholders herein and of which North American or
any of the its officers or directors is aware and which could be
anticipated to have a Material Adverse Effect on the operations of
North American after the Closing.
4. REPRESENTATIONS AND WARRANTIES CONCERNING TARGET. The Shareholders
jointly and severally represent and warrant to North American that the
statements contained in this Section 4 are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date
of this Agreement throughout this Section 4), except as set forth in the
Disclosure Schedule delivered by the Shareholders to North American on the date
hereof and initialed by the Parties (the "DISCLOSURE SCHEDULE"). The Disclosure
Schedule shall be effective to modify only those representations and warranties
to which the Disclosure Schedule makes explicit reference. The Disclosure
Schedule will be arranged in paragraphs corresponding to the lettered and
numbered paragraphs contained in this Section 4.
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. Target
is a corporation duly organized, validly existing, and in good standing under
the laws of the jurisdiction of its incorporation. Target is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required. Target has full corporate power and
authority and all licenses, permits, and authorizations necessary to carry on
the businesses in which it is engaged and in which it presently proposes to
engage and to own and use the properties owned and used by it. Section 4(a) of
the Disclosure Schedule lists the directors and officers of Target. Correct and
complete copies of the charter and bylaws of Target (as amended to date) are
included as part of Section 4(a) of the Disclosure Schedule. The minute books
(containing the records of meetings of the stockholders, the board of
directors, and any committees of the board of directors), the stock certificate
books, and the stock record books of Target are correct and complete and an
true and correct copy thereof has been provided to North American. Target is
not in default under or in violation of any provision of its charter or bylaws.
(b) [INTENTIONALLY LEFT BLANK]
(c) CAPITALIZATION. The entire authorized capital stock of
Target consists of 40,000 Target Shares, of which 27,356 Target Shares are
issued and outstanding and no Target Shares are held in treasury. All of the
issued and outstanding Target Shares have been duly authorized, are validly
issued, fully paid, and nonassessable, and are held of record and owned
beneficially by the Shareholders in the amounts set forth in Section 4(c) of
the Disclosure Schedule. There are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights, exchange
rights, preemptive rights or other contracts or
10
<PAGE> 15
commitments that could require Target to issue, sell, or otherwise cause to
become outstanding any of its capital stock or securities convertible or
exchangeable for, or any options, warranties, or rights to purchase, any of
such capital stock. There are no outstanding obligations of Target to
repurchase, redeem or otherwise acquire any capital stock or any securities
convertible into or exchangeable for such capital stock or any options,
warrants or rights to purchase such capital stock or securities. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to Target. There are no voting
trusts, proxies, or other agreements or understandings with respect to the
voting, transfer, dividend or other rights (such as registration rights under
the Securities Act) of the capital stock of Target.
(d) NONCONTRAVENTION. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated
hereby, will (i) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of
any government, governmental agency, or court to which Target is subject or any
provision of the charter or bylaws of Target or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which Target is a party or by which it is bound or to which any
of its assets is subject (or result in the imposition of any Security Interest
upon any of its assets). Target need not give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any Person,
government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
(e) BROKERS' FEES. Target has, or prior to Closing will have,
paid any fees or commissions due from Target to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement. Shareholders
agrees that he will pay any additional amounts that may become due from Target
to any such broker, finder or agent in the future, including as a result of any
indemnification obligations.
(f) TITLE TO ASSETS. Target has good and marketable title to,
or a valid leasehold interest in, the properties and assets used by it, located
on its premises, or shown on the Most Recent Balance Sheet or acquired after
the date thereof, free and clear of all Security Interests (other than the
Security Interests disclosed on the face of the Most Recent Balance Sheet),
except for properties and assets disposed of in the Ordinary Course of Business
since the date of the Most Recent Balance Sheet, none of which disposals are
expected to have a Material Adverse Effect. The consummation of the
transactions contemplated by this Agreement will not affect Target's good and
marketable title to, or valid leasehold interest in, the properties and assets
described in the preceding sentence.
(g) SUBSIDIARIES. Except as set forth in Section (g) of the
Disclosure Schedule, Target does not currently have, and has never had, any
Subsidiaries and does not own any securities of any other Person.
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<PAGE> 16
(h) FINANCIAL STATEMENTS. Attached hereto as EXHIBIT A are
the following financial statements (collectively the "FINANCIAL STATEMENTS"):
(i) reviewed consolidated balance sheets and statements of income, including
the independent accountant's report thereon as of and for the fiscal year ended
September 30,1997 (the "MOST RECENT FISCAL YEAR END") for Target; (ii) reviewed
consolidated balance sheets and statements of income, including the independent
accountant's report thereon as of and for the fiscal years ended September 30,
1994 September 30, 1995 and September 30, 1996 and (iii) unaudited consolidated
balance sheets and statements of income, (the "MOST RECENT FINANCIAL
STATEMENTS") as of and for the period from October 1, 1997, through May 31,
1998 for Target. The Financial Statements (including the notes thereto) have
been prepared in accordance with GAAP applied on a consistent basis throughout
the periods covered thereby, present fairly the financial condition of Target
as of such dates and the results of operations of Target for such periods, are
correct and complete, and are consistent with the books and records of Target
(which books and records are correct and complete).
(i) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. Since
the Most Recent Fiscal Year End and except as disclosed in the Disclosure
Schedule, there has not occurred any Material Adverse Effect. Without limiting
the generality of the foregoing, since that date:
(i) Target has not sold, leased, transferred, or
assigned any of its assets, tangible or intangible, other than for a
fair consideration in the Ordinary Course of Business;
(ii) Target has not entered into any agreements,
contracts, leases, or licenses either involving more than $25,000 in
the aggregate, having a term greater than 12 months or outside the
Ordinary Course of Business;
(iii) no party (including any of Target) has
accelerated, terminated, modified, or cancelled any agreements,
contracts, leases, or licenses involving more than $25,000 in the
aggregate to which Target is a party or by which it is bound;
(iv) Target has not imposed or allowed to be imposed
any Security Interest upon any of its assets, tangible or intangible;
(v) Target has not made any capital expenditures
involving more than $25,000 in the aggregate or outside the Ordinary
Course of Business;
(vi) Target has not made any capital investment in,
any loan to, or any acquisition of the securities or assets of, any
other Person;
(vii) Target has not issued any note, bond, or other
debt security or created, incurred, assumed, or guaranteed any
indebtedness for borrowed money or capitalized lease obligation
involving more than $25,000 in the aggregate;
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<PAGE> 17
(viii) Target has not delayed or postponed the
payment of accounts payable and other Liabilities outside the Ordinary
Course of Business;
(ix) Target has not cancelled, compromised, waived,
or released any right or claim either involving more than $25,000 in
the aggregate and outside the Ordinary Course of Business;
(x) Target has not granted any license or sublicense
of any rights under or with respect to any Intellectual Property;
(xi) there has been no change made or authorized in
the charter or bylaws of any of Target;
(xii) Target has not issued, sold, or otherwise
disposed of any of its capital stock or securities convertible into or
exchangeable for such stock, or granted any options, warrants, or
other rights to purchase or obtain any of such capital stock or
securities;
(xiii) Target has not declared, set aside, or paid
any dividend or made any distribution with respect to its capital
stock (whether in cash or in kind) or redeemed, purchased, or
otherwise acquired any of its capital stock or other securities;
(xiv) Target has not experienced any damage,
destruction, or loss (whether or not covered by insurance) to its
property involving more than $25,000 in the aggregate;
(xv) Target has not made any loan to, or entered
into any other transaction with, any of its directors, officers, and
employees or their "Associates" (as defined in Rule 12b-2 under the
Exchange Act);
(xvi) Target has not entered into any employment
contract or collective bargaining agreement, written or oral, or
modified the terms of any existing such contract or agreement;
(xvii) Target has not granted any increase in any
compensation of any of its directors, officers, or other employees;
(xviii) Target has not adopted, amended, modified,
or terminated any bonus, profit-sharing, incentive, severance, or
other plan, contract, or commitment for the benefit of any of its
directors, officers, and employees (or taken any such action with
respect to any other Employee Benefit Plan);
(xix) Target has not made any other change in
employment terms for any of its directors, officers, and employees
outside the Ordinary Course of Business;
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<PAGE> 18
(xx) Target has not made or pledged to make any
charitable or other capital contribution outside the Ordinary Course
of Business;
(xxi) there has not been any other material
occurrence, event, incident, action, failure to act, or transaction
outside the Ordinary Course of Business involving Target; and
(xxii) Target has not increased, or experienced any
change in assumptions underlying or method of calculating, any bad
debt, contingency, tax or other reserves or changed its accounting
practices, methods or assumptions (including changes in estimates or
valuation methods); or written down the value of any assets; and
(xxiii) Target has not committed to any of the
foregoing.
(j) UNDISCLOSED LIABILITIES. Except as disclosed in Section
4(j) of the Disclosure Schedule, Target does not have any Liability, except for
(i) Liabilities set forth on the face of the Most Recent Balance Sheet (rather
than in any notes thereto) and (ii) Liabilities which have arisen after the
Most Recent Fiscal Year End in the Ordinary Course of Business (none of which
results from, arises out of, relates to, is in the nature of, or was caused by
any breach of contract, breach of warranty, tort, infringement, or violation of
law and none of which could reasonably be expected to have a Material Adverse
Effect).
(k) LEGAL COMPLIANCE. Target and its predecessors and
Affiliates has complied, in all material respects, with all applicable laws
(including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof), and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has been
filed or commenced against any of them alleging any failure so to comply.
(l) TAX MATTERS.
(i) Target has filed all Tax Returns that it was
required to file. All such Tax Returns were correct and complete in
all respects. All Taxes owed by Target (whether or not shown on any
Tax Return) have been paid or are fully and adequately accrued and
adequately disclosed on the Most Recent Balance Sheet. Target is not
currently the beneficiary of any extension of time within which to
file any Tax Return. No claim has ever been made by an authority in a
jurisdiction where Target does not file Tax Returns that it is or may
be subject to taxation by that jurisdiction. There are no Security
Interests on any of the assets of Target that arose in connection with
any failure (or alleged failure) to pay any Tax.
(ii) Target has withheld and paid all Taxes required
to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder,
or other third party.
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(iii) Neither Shareholders nor Target has Knowledge
that any authority expects to assess any additional Taxes for any
period for which Tax Returns have been filed. There is no action, suit
or proceeding, investigation, dispute or claim now pending or
threatened concerning any Tax Liability of Target or proposed
adjustment to the taxable income of Target either (A) claimed or
raised by any authority in writing or (B) as to which any of the
Shareholders and Target has Knowledge based upon personal contact with
any agent of such authority. Section 4(l) of the Disclosure Schedule
contains a summary of all Tax Returns filed with respect to Target for
the last three completed tax years, indicates those Tax Returns that
have been audited, and indicates those Tax Returns that currently are
the subject of audit. The Shareholders have made available to North
American correct and complete copies of all Tax Returns, examination
reports, and statements of deficiencies assessed against or agreed to
by Target since January 1, 1994.
(iv) Target has not waived any statute of
limitations in respect of Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency.
(v) Target has not filed a consent under Code
Section 341(f) concerning collapsible corporations. Target has not
made any payments, is not obligated to make any payments, or is not a
party to any agreement that under certain circumstances could obligate
it to make any payments that will not be deductible under Code Section
280G or that would give rise to any obligation to indemnify any Person
for any excise tax payable pursuant to Code Section 4999. The Target
has not been a United States real property holding corporation within
the meaning of Code Section 897(c)(2) during the applicable period
specified in Code Section 897(c)(1)(A)(ii). Target has disclosed on
its federal income Tax Returns all positions taken therein that could
give rise to a substantial understatement of federal income Tax within
the meaning of Code Section 6662. Neither Target nor any predecessor
or affiliate thereof is a party to any Tax allocation, sharing,
indemnification or similar agreement. Target (A) has not been a member
of an Affiliated Group filing a consolidated federal income Tax Return
(other than a group the common parent of which was Target) and (B)
does not have any Liability for the Taxes of any Person (other than
any of Target and its Subsidiaries) under Reg. Section 1.1502-6 (or
any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise. No indebtedness of
Target consists of "corporate acquisition indebtedness" within the
meaning of Code Section 279.
(vi) Section 4(l) of the Disclosure Schedule sets
forth as of the most recent practicable date the basis for Federal
income tax purposes of Target in its assets.
(vii) The unpaid Taxes of Target (A) did not, as of
the Most Recent Fiscal Period End, exceed the reserve for Tax
Liability set forth on the face of the Most Recent Balance Sheet
(rather than in any notes thereto) and (B) do not, and will not as of
the Closing Date, exceed that reserve as adjusted for the passage of
time through the Closing Date in accordance with the past custom and
practice of Target in filing its Tax Returns.
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<PAGE> 20
(m) REAL PROPERTY. Target does not own any real property.
Section 4(m) of the Disclosure Schedule lists and describes briefly all real
property leased or subleased to Target. The Shareholders have delivered to
North American correct and complete copies of the leases and subleases listed
in Section 4(m) of the Disclosure Schedule (as amended to date). With respect
to each lease and sublease listed in Section 4(m) of the Disclosure Schedule:
(A) the lease or sublease is legal, valid,
binding, enforceable, and in full force and effect;
(B) the lease or sublease will continue to
be legal, valid, binding, enforceable, and in full force and
effect on identical terms following the consummation of the
transactions contemplated hereby;
(C) no party to the lease or sublease is in
breach or default, and no event has occurred which, with
notice or lapse of time, would constitute a breach or default
or permit termination, modification, or acceleration
thereunder;
(D) no party to the lease or sublease has
repudiated any provision thereof;
(E) there are no disputes, oral agreements,
or forbearance programs in effect as to the lease or
sublease;
(F) Target has not received a notice from
the lessor indicating that the lease will not be renewed at
the end of its current term for any additional terms provided
for in the lease;
(G) the term of the lease will continue for
a minimum of six months past the Closing Date;
(H) with respect to each sublease, the
representations and warranties set forth in subsections (A)
through (G) above are true and correct with respect to the
underlying lease;
(I) Target has not assigned, transferred,
conveyed, mortgaged, deeded in trust, or encumbered any
interest in the leasehold or subleasehold;
(J) all facilities leased or subleased
thereunder have received all approvals of governmental
authorities (including licenses and permits) required in
connection with the operation thereof and have been operated
and maintained in accordance with applicable laws, rules, and
regulations;
(K) all facilities leased or subleased
thereunder are supplied with utilities and other services
necessary for the operation of said facilities; and
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<PAGE> 21
(L) the Shareholders are not aware of any
pending or threatened foreclosure or other enforcement
proceedings relating to the real property underlying the
leases or subleases set forth in Section 4(m) of the
Disclosure Schedule that could result in Target's loss of
possession of such real property.
(n) INTELLECTUAL PROPERTY.
(i) Target owns or has the right to use pursuant to
license, sublicense, agreement, or permission in writing all
Intellectual Property necessary for the operation of the businesses of
Target as presently conducted and as presently proposed to be
conducted. Each item of Intellectual Property owned or used by Target
immediately prior to the Closing hereunder will be owned or available
for use by Target on identical terms and conditions immediately
subsequent to the Closing hereunder. Target has taken all necessary
action to maintain and protect each item of Intellectual Property that
it owns or uses.
(ii) Target has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of third parties, and none of the Shareholders and the
directors and officers (and employees with responsibility for
Intellectual Property matters) of Target has ever received any charge,
complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that
Target must license or refrain from using any Intellectual Property
rights of any third party). To the Knowledge of Shareholders and
Target, no third party has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of Target.
(iii) Section 4(n)(iii) of the Disclosure Schedule
identifies each patent or registration which has been issued to Target
with respect to any of its Intellectual Property, identifies each
pending patent application or application for registration which
Target has made with respect to any of its Intellectual Property, and
identifies each license, agreement, or other permission which Target
has granted to any third party with respect to any of its Intellectual
Property (together with any exceptions). The Shareholders have
delivered to North American correct and complete copies of all such
patents, registrations, applications, licenses, agreements, and
permissions (as amended to date) and have made available to North
American correct and complete copies of all other written
documentation evidencing ownership and prosecution (if applicable) of
each such item. Section 4(n)(iii) of the Disclosure Schedule also
identifies each trade name or unregistered trademark used by Target in
connection with any of its businesses. With respect to each item of
Intellectual Property required to be identified in Section 4(n)(iii)
of the Disclosure Schedule:
(A) Target possesses all right, title, and
interest in and to the item, free and clear of any Security
Interest, license, or other restriction;
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(B) the item is not subject to any
outstanding injunction, judgment, order, decree, ruling, or
charge;
(C) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending
or is threatened which challenges the legality, validity,
enforceability, use, or ownership of the item; and
(D) Target has never agreed to indemnify
any Person for or against any interference, infringement,
misappropriation, or other conflict with respect to the item.
(iv) Section 4(n)(iv) of the Disclosure Schedule
identifies each item of Intellectual Property that any third party
owns and that Target uses pursuant to license, sublicense, agreement,
or permission. The Shareholders have delivered to North American
correct and complete copies of all such licenses, sublicenses,
agreements, and permissions (as amended to date). With respect to each
item of Intellectual Property required to be identified in Section
4(n)(iv) of the Disclosure Schedule:
(A) the license, sublicense, agreement, or
permission covering the item is legal, valid, binding,
enforceable, and in full force and effect;
(B) the license, sublicense, agreement, or
permission will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated
hereby;
(C) no party to the license, sublicense,
agreement, or permission is in breach or default, and no
event has occurred which with notice or lapse of time would
constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(D) no party to the license, sublicense,
agreement, or permission has repudiated any provision
thereof;
(E) with respect to each sublicense, the
representations and warranties set forth in subsections (A)
through (D) above are true and correct with respect to the
underlying license;
(F) the underlying item of Intellectual
Property is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
(G) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending
or is threatened which challenges the legality, validity, or
enforceability of the underlying item of Intellectual
Property; and
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(H) Target has never granted any sublicense
or similar right with respect to the license, sublicense,
agreement, or permission.
(v) To the Knowledge of Shareholders and Target,
Target will not interfere with, infringe upon, misappropriate, or
otherwise come into conflict with, any Intellectual Property rights of
third parties as a result of the continued operation of its businesses
as presently conducted and as presently proposed to be conducted.
(vi) None of the Shareholders and Target has any
Knowledge of any new products, inventions, procedures, or methods of
manufacturing or processing that any competitors or other third
parties have developed which reasonably could be expected to supersede
or make obsolete any product or process of any of Target.
(o) TANGIBLE ASSETS. Target owns or leases all buildings,
machinery, equipment, and other tangible assets necessary for the conduct of
its business as presently conducted and as presently proposed to be conducted.
Each such tangible asset has been maintained in accordance with normal industry
practice, is in substantially the same operating condition and repair (subject
to normal wear and tear) as the condition and repair on the date of North
American's appraisal thereof, and is suitable for the purposes for which it
presently is used and presently is proposed to be used. Section 4(o) of the
Disclosure Schedule lists all tangible assets owned by Target.
(p) INVENTORY. The inventory of Target shown on the Most
Recent Balance Sheet consists of raw materials and supplies, manufactured and
purchased parts, goods in process, and finished goods, all of which is
merchantable and fit for the purpose for which it was procured or manufactured,
and none of which is slow-moving, obsolete, damaged, or defective, subject only
to the reserve for inventory writedown set forth on the face of the Most Recent
Balance Sheet (rather than in any notes thereto) as adjusted for the passage of
time through the Closing Date in accordance with the past custom and practice
of the Target.
(q) CONTRACTS. Section 4(q) of the Disclosure Schedule lists
all the contracts and other agreements to which Target is a party. The
Shareholders have delivered to North American a correct and complete copy of
each written agreement listed in Section 4(q) of the Disclosure Schedule (as
amended to date). With respect to each such agreement: (A) the agreement is
legal, valid, binding, enforceable, and in full force and effect; (B) the
agreement will continue to be legal, valid, binding, enforceable, and in full
force and effect on identical terms following the consummation of the
transactions contemplated hereby; (C) no party is in breach or default, and no
event has occurred which with notice or lapse of time would constitute a breach
or default, or permit termination, modification, or acceleration, under the
agreement; and (D) no party has repudiated any provision of the agreement.
Section 4(q) of the Disclosure Schedule lists each currently outstanding bid or
proposal for business submitted by Target in excess of $1,000,000.
(r) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts
receivable of Target are reflected properly on the Most Recent Balance Sheet in
accordance with GAAP, are
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valid receivables subject to no setoffs or counterclaims, are current and
collectible, and, will be collected in accordance with their terms at their
recorded amounts, subject only to the reserve for bad debts set forth on the
face of the Most Recent Balance Sheet (rather than in any notes thereto) as
adjusted for the passage of time through the Closing Date in accordance with
the past custom and practice of Target.
(s) POWERS OF ATTORNEY. There are no outstanding powers of
attorney executed on behalf of Target.
(t) INSURANCE. Section 4(t) of the Disclosure Schedule
includes a true, correct and complete list of all policies of insurance
(including policies providing property, casualty, liability, and workers'
compensation coverage and bond and surety arrangements) to which Target is a
party, a named insured, or otherwise the beneficiary of coverage. Genuine and
complete copies of each of the insurance policies listed in Section 4(t) of the
Disclosure Schedule have been provided to North American. With respect to each
such insurance policy: (A) the policy is legal, valid, binding, enforceable,
and in full force and effect; (B) the policy will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms following
the consummation of the transactions contemplated hereby; (C) neither Target
nor any other party to the policy is in breach or default (including with
respect to the payment of premiums or the giving of notices), and no event has
occurred which, with notice or the lapse of time, would constitute such a
breach or default, or permit termination, modification, or acceleration, under
the policy; (D) neither Target, any ERISA Affiliate nor North American shall be
subject to a retroactive rate adjustment, loss sharing arrangement or other
actual or contingent liability and (E) to Shareholders' or Target's Knowledge,
no party to the policy has repudiated any provision thereof. Target has been
fully covered at all times during the past 5 years by insurance in scope and
amount customary and reasonable for the businesses in which it has engaged
during the aforementioned period. Section 4(t) of the Disclosure Schedule
describes any self-insurance arrangements affecting Target.
(u) LITIGATION. Section 4(u) of the Disclosure Schedule sets
forth each instance in which Target (i) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (ii) is a party, or
to the Knowledge of Shareholders or Target, is threatened to be made a party to
any claim, action, suit, proceeding, hearing, or investigation of, in, or
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator. Except as set
forth in Section 4(u) of the Disclosure Schedule, there is no other pending, or
to the knowledge of Shareholders or Target, threatened claim, arbitration
proceeding, action, suit, investigation or other proceeding against or
involving Target or any property or rights of Target or any officer or director
or Target. None of the actions, suits, proceedings, hearings, and
investigations set forth in Section 4(u) of the Disclosure Schedule could
result in any material adverse change in the business, financial condition,
operations, results of operations, or future prospects of Target. Neither the
Shareholders nor the directors and officers (and employees with responsibility
for litigation matters) of Target has any reason to believe that any such
action, suit, proceeding, hearing, or investigation may be brought or
threatened against Target.
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(v) COMMITMENTS AND WARRANTIES. All services provided by the
Target have been performed in conformity with all applicable contractual
commitments (written or oral) and all express and implied warranties (written
or oral), and Target has no Liability and, to the Knowledge of the Shareholders
and Target, there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any Liability) in connection with any such services.
Section 4(v) of the Disclosure Schedule includes copies of the standard forms
of agreement entered into between Target and its customers. Target has not
entered into any written or oral agreements with any of its customers that
include guaranties, warranties, or indemnity provisions other than those
included in the agreements included as part of Section 4(v) of the Disclosure
Schedule.
Neither Target nor the Shareholders has received notice (written or
oral) from any of its customers stating that the customer intends to reduce the
volume of business that it currently conducts with Target or to cease doing
business with Target.
(w) LIABILITY FOR SERVICES PERFORMED. Target has no Liability
(and, to Shareholders' knowledge, there is no Basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim, or
demand against any of them giving rise to any Liability) arising out of any
injury to individuals or property as a result of or in connection with any
services provided by Target.
(x) EMPLOYEES. To the Knowledge of the Shareholders or
Target, no executive, key employee, or group of employees has any plans to
terminate employment with Target. Target is not currently, nor at any prior
time has been, a party to or bound by any collective bargaining agreement, nor
has Target experienced any strikes, grievances, claims of unfair labor
practices, or other collective bargaining disputes. Target has not committed
any unfair labor practice. Other than as set forth in Section 4(x) of the
Disclosure Schedule, neither the Shareholders nor Target have any Knowledge of
any organizational effort presently being made or threatened by or on behalf of
any labor union with respect to employees of Target.
(y) EMPLOYEE BENEFITS.
(i) Section 4(y) of the Disclosure Schedule lists
each Employee Benefit Plan that Target or any ERISA Affiliate
maintains, contributes to, or is required to contribute to or under
which Target or any ERISA Affiliate has any liability.
(A) Each such Employee Benefit Plan (and
each related trust, insurance contract, or fund) complies in
form and in operation in all respects with the applicable
requirements of ERISA, the Code, and other applicable laws.
(B) All required reports and disclosures
(including Form 5500 Annual Reports, Summary Annual Reports,
PBGC-1's, and Summary Plan Descriptions) have been filed or
distributed appropriately with respect to each such Employee
Benefit Plan. The requirements of Part 6 of Subtitle B of
Title I
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of ERISA and of Code Section 4980B have been met with respect
to each such Employee Benefit Plan which is an Employee
Welfare Benefit Plan.
(C) All contributions (including all
employer contributions and employee salary reduction
contributions) which are due have been paid to each such
Employee Benefit Plan which is an Employee Pension Benefit
Plan and all contributions for any period ending on or before
the Closing Date which are not yet due have been paid to each
such Employee Pension Benefit Plan or accrued in accordance
with the past custom and practice of Target and in accordance
with GAAP. All premiums or other payments for all periods
ending on or before the Closing Date have been paid with
respect to each such Employee Benefit Plan which is an
Employee Welfare Benefit Plan.
(D) Each such Employee Benefit Plan which
is an Employee Pension Benefit Plan now meets and at all
times since inception have met the requirements of a
"qualified plan" under Code Section 401(a) and has received,
within the last two years, a favorable determination letter
from the Internal Revenue Service.
(E) As of the Closing Date, the market
value of assets under each such Employee Benefit Plan which
is an Employee Pension Benefit Plan (other than any
Multiemployer Plan) will equal or exceed the present value of
all vested and nonvested Liabilities thereunder determined in
accordance with PBGC methods, factors, and assumptions
applicable to an Employee Pension Benefit Plan terminating on
such date.
(F) The Shareholders have delivered to
North American correct and complete copies of the plan
documents and summary plan descriptions including all
amendments thereto, the most recent determination letter
received from the Internal Revenue Service, the three most
recent Form 5500 Annual Reports (including all schedules
thereto), the three most recent annual premium payment forms
filed with the PBGC, and all related trust agreements,
insurance contracts, and other funding agreements which
implement each such Employee Benefit Plan.
(ii) With respect to each Employee Benefit Plan that
Target or any ERISA Affiliate maintains, contributes to, or is
required to contribute to or under which Target or any ERISA Affiliate
has any liability:
(A) No such Employee Benefit Plan which is
an Employee Pension Benefit Plan (other than any
Multiemployer Plan) has been completely or partially
terminated or been the subject of a Reportable Event as to
which notices would be required to be filed with the PBGC. No
proceeding by the PBGC to terminate any such Employee Pension
Benefit Plan (other than any Multiemployer Plan) has been
instituted or threatened.
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(B) There have been no Prohibited
Transactions with respect to any such Employee Benefit Plan.
No Fiduciary has any Liability for breach of fiduciary duty
or any other failure to act or comply in connection with the
administration or investment of the assets of any such
Employee Benefit Plan. No action, suit, proceeding, hearing,
or investigation with respect to any such Employee Benefit
Plan (other than routine claims for benefits) is pending or
threatened. Neither the Shareholders nor Target has any
Knowledge of any Basis for any such action, suit, proceeding,
hearing, or investigation.
(C) Neither Target nor any ERISA Affiliate
has incurred, and none of the Shareholders and the directors
and officers (and employees with responsibility for employee
benefits matters) of Target has any reason to expect that
Target or any ERISA Affiliate will incur, any Liability to
the PBGC (other than PBGC premium payments) or otherwise
under Title IV of ERISA (including any withdrawal Liability)
or under the Code with respect to any such Employee Benefit
Plan which is an Employee Pension Benefit Plan.
(iii) Neither Target nor any ERISA Affiliate
contributes to, ever has contributed to, or ever has been required to
contribute to any Multiemployer Plan or has any Liability (including
withdrawal Liability) under any Multiemployer Plan.
(iv) Neither Target nor any ERISA Affiliate
maintains or contributes to, or has ever been required to contribute
to any Employee Welfare Benefit Plan providing medical, health, or
life insurance or other welfare-type benefits for current or future
retired or terminated employees, their spouses, or their dependents
(other than in accordance with Code Section 4980B).
(z) GUARANTIES. Target is not a guarantor or otherwise is
liable for any Liability or obligation (including indebtedness) of any other
Person.
(aa) ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS.
(i) Target and its predecessors and Affiliates have
complied and are in compliance with all Environmental, Health, and
Safety Requirements.
(ii) Without limiting the generality of the
foregoing, Target and its Affiliates have obtained and complied with,
and are in compliance with, all permits, licenses and other
authorizations that are required pursuant to Environmental, Health,
and Safety Requirements for the occupation of its facilities and the
operation of its business; a list of all such permits, licenses and
other authorizations is set forth on the attached "ENVIRONMENTAL AND
SAFETY PERMITS SCHEDULE."
(iii) Neither Target nor its predecessors or
Affiliates has received any written or oral notice, report or other
information regarding any actual or alleged
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violation of Environmental, Health, and Safety Requirements, or any
liabilities or potential liabilities (whether accrued, absolute,
contingent, unliquidated or otherwise), including any investigatory,
remedial or corrective obligations, relating to any of them or its
facilities arising under Environmental, Health, and Safety
Requirements.
(iv) None of the following exists at any property or
facility owned or operated by Target: (1) underground storage tanks,
(2) asbestos-containing material in any form or condition, (3)
materials or equipment containing polychlorinated biphenyls, or (4)
landfills, surface impoundments, or disposal areas.
(v) None of Target or its predecessors or Affiliates
has treated, stored, disposed of, arranged for or permitted the
disposal of, transported, handled, or released any substance,
including without limitation any hazardous substance, or owned or
operated any property or facility (and no such property or facility is
contaminated by any such substance) in a manner that has given or
would give rise to liabilities, including any liability for response
costs, corrective action costs, personal injury, property damage,
natural resources damages or attorney fees, pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended ("CERCLA"), the Solid Waste Disposal Act, as
amended ("SWDA") or any other Environmental, Health, and Safety
Requirements.
(vi) Neither this Agreement nor the consummation of
the transaction that is the subject of this Agreement will result in
any obligations for site investigation or cleanup, or notification to
or consent of government agencies or third parties, pursuant to any of
the so-called "transaction-triggered" or "responsible property
transfer" Environmental, Health, and Safety Requirements.
(vii) Neither Target nor its predecessors or
Affiliates has, either expressly or by operation of law, assumed or
undertaken any liability, including without limitation any obligation
for corrective or remedial action, of any other Person relating to
Environmental, Health, and Safety Requirements.
(viii) No facts, events or conditions relating to
the past or present facilities, properties or operations of Target or
any of its predecessors or Affiliates will prevent, hinder or limit
continued compliance with Environmental, Health, and Safety
Requirements, give rise to any investigatory, remedial or corrective
obligations pursuant to Environmental, Health, and Safety Requirements
(whether on-site or off-site), or give rise to any other liabilities
(whether accrued, absolute, contingent, unliquidated or otherwise)
pursuant to Environmental, Health, and Safety Requirements, including
without limitation any relating to onsite or offsite releases or
threatened releases of hazardous materials, substances or wastes,
personal injury, property damage or natural resources damage.
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(ab) CERTAIN BUSINESS RELATIONSHIPS WITH TARGET. Neither the
Shareholders, their respective Affiliates, any director or employee of Target,
or any relatives of the Shareholders, or any person living in the same
residence as such persons, has been involved in any business arrangement or
relationship with Target within the past 12 months, and neither the
Shareholders nor their respective Affiliates nor any of such other persons own
leases, licenses, or otherwise has any interest in any asset, tangible or
intangible, which is used in the business of Target or any contract, lease or
commitment to which Target is a party. Target is not indebted to any officer,
director or employee of Target for any liability or obligation. No officer,
director or employee of Target is indebted to Target for any liability or
obligation.
(ac) CUSTOMERS AND SUPPLIERS. No purchase order or commitment
of Target is in excess of normal requirements, nor are prices provided therein
in excess of current market prices for the products or services to be provided
thereunder. No material supplier of Target has advised Target in writing within
the past year that it will stop, or decrease the rate of, supplying materials,
products or services to Target and no material customer of Target has advised
Target in writing within the past year that it will stop, or decrease the rate
of buying materials, products or services from Target. Section 4(aa) of the
Disclosure Schedule sets forth a list of (a) each customer that accounted for
more that 5% of the consolidated revenues of Target during the last full fiscal
year or the interim period through the date of the Most Recent Financial
Statements and the amount of revenues accounted for by such customer during
each such period and (b) each supplier that is the sole supplier of any
significant product or component to Target. The consummation of the
transactions contemplate hereby will not have a material adverse effect on
Target's relationship with any customer or supplier listed in Section 4(aa) of
the Disclosure Schedule.
(ad) DISCLOSURE. Neither this Agreement nor any of the
exhibits, attachments, written statements, documents, certificates or other
items prepared for or supplied to North American by or on behalf of Target or
the Shareholders with respect to the transactions contemplated hereby contains
any untrue statement of a material fact or omits to state any material fact
necessary in order to make each statement contained herein or therein not
misleading. There is no fact which Target or the Shareholders have not
disclosed to North American herein and of which the Shareholders, Target, or
any of Target's officers or directors is aware and which could be anticipated
to have a Material Adverse Effect.
5. PRE-CLOSING COVENANTS. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing.
(a) GENERAL. Each of the Parties will use his or its best
efforts to take all action and to do all things necessary, proper, or advisable
in order to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions
set forth in Section 7 below).
(b) NOTICES AND CONSENTS. The Shareholders will cause Target
to give any notices to third parties, and will cause Target to use its best
efforts to obtain any third party
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required in connection with the matters referred to in Section 4(d) above. Each
of the Parties will (and the Shareholders will cause Target to) give any
notices to, make any filings with, and use its best efforts to obtain any
authorizations, consents, and approvals of governments and governmental
agencies in connection with the matters referred to in Section 3(a)(ii),
Section 3(b)(v), and Section 4(d) above. Without limiting the generality of the
foregoing, each of the Parties will file (and the Shareholders will cause
Target to file) any Notification and Report Forms and related material that he
or it may be required to file with the Federal Trade Commission and the
Antitrust Division of the United States Department of Justice under the
Hart-Scott-Rodino Act, will use his or its best efforts to obtain (and the
Shareholders will cause Target to use its best efforts to obtain) an early
termination of the applicable waiting period, and will make (and the
Shareholders will cause Target to make) any further filings pursuant thereto
that may be necessary, proper, or advisable in connection therewith.
(c) OPERATION OF BUSINESS. The Shareholders will not
cause or permit Target to engage in any practice, take any action, or enter
into any transaction outside the Ordinary Course of Business. Without
limiting the generality of the foregoing, the Shareholders will not cause or
permit Target to (i) declare, set aside, or pay any dividend or make any
distribution with respect to its capital stock or redeem, purchase, or
otherwise acquire any of its capital stock or (ii) otherwise engage in any
practice, take any action, or enter into any transaction of the sort described
in Section 4(i) above.
(d) PRESERVATION OF BUSINESS.
(i) IN GENERAL. The Shareholders will cause Target
to keep its business and properties substantially intact, including its present
operations, physical facilities, working conditions, and relationships with
lessors, licensors, suppliers, customers, and employees.
(ii) SALE OF CERTAIN ASSETS. Prior to the Closing,
the Shareholders have caused Target to sell the assets listed on Section
5(d)(ii) of the Disclosure Schedule to WMC Properties, L.L.C. for a total cash
consideration of $672,893.75, which amount is approximately equal to the sum of
the fair market values of each of such assets.
(e) FULL ACCESS. The Shareholders will permit, and will
cause Target to permit, representatives of North American to have full access
at all reasonable times, and in a manner so as not to interfere with the normal
business operations of Target, to all premises, properties, personnel, books,
records (including Tax records), contracts, and documents of or pertaining to
Target. At the request of North American, Shareholders will permit, and will
cause Target to permit, North American's lenders, and their respective counsel,
to have the same access as permitted to North American in accordance with the
immediately preceding sentence.
(f) NOTICE OF DEVELOPMENTS. The Shareholders will give prompt
written notice to North American of any breach of any of the representations
and warranties in Section 4 above. Each Party will give prompt written notice
to the others of any breach of any of his or its own representations and
warranties in Section 3 above. No disclosure by any Party pursuant to this
Section 5(f),
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however, shall be deemed to amend or supplement the North American Disclosure
Schedule or the Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
(g) EXCLUSIVITY. The Shareholders will not (and the
Shareholders will not cause or permit Target to) (i) solicit, initiate, or
encourage the submission of any proposal or offer from any Person relating to
the acquisition of any capital stock or other voting securities, or any
substantial portion of the assets, of Target (including any acquisition
structured as a merger, consolidation, or share exchange) or (ii) participate
in any discussions or negotiations regarding, furnish any information with
respect to, assist or participate in, or facilitate in any other manner any
effort or attempt by any Person to do or seek any of the foregoing. The
Shareholders will notify North American immediately if any Person makes any
proposal, offer, inquiry, or contact with respect to any of the foregoing.
(h) NO TERMINATION OF SHAREHOLDERS'S OBLIGATION BY SUBSEQUENT
INCAPACITY. Shareholders specifically agrees that his obligations hereunder,
including, without limitation, the obligations pursuant to Section 8 hereof,
shall not be eliminated by his or her death or incapacity.
(i) SATISFACTION OF SHAREHOLDER LOANS. Prior to the Closing,
the amount due by Target to its former shareholders, in the approximate amount
of $706,500, was paid in full.
6. POST-CLOSING COVENANTS. The Parties agree as follows with respect
to the period following the Closing.
(a) GENERAL. In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, each of the Parties will take such further action (including the
execution and delivery of such further instruments and documents) as any other
Party reasonably may request, all at the sole cost and expense of the
requesting Party (unless the requesting Party is entitled to indemnification
therefor under Section 8 below). The Shareholders acknowledge and agree that
from and after the Closing North American will be entitled to possession of all
documents, books, records (including Tax records), agreements, and financial
data of any sort relating to Target.
(b) LITIGATION SUPPORT. In the event and for so long as any
Party actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving Target, each of the other Parties will cooperate
with him or it and his or its counsel in the contest or defense, make available
their personnel, and provide such testimony and access to their books and
records as shall be necessary in connection with the contest or defense, all at
the sole cost and expense of the contesting or defending Party (unless the
contesting or defending Party is entitled to indemnification therefor under
Section 8 below).
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(c) TRANSITION. The Shareholders will not take any action
that is designed or intended to have the effect of discouraging any lessor,
licensor, customer, supplier, or other business associate of Target from
maintaining the same business relationships with Target after the Closing as it
maintained with Target prior to the Closing. The Shareholders will refer all
customer inquiries relating to the businesses of Target to North American from
and after the Closing.
(d) INDEPENDENT ACCOUNTANTS. After the Closing, Shareholders
shall (i) use reasonable efforts to cause Target's past and present independent
auditors and accounting personnel to make available to North American and its
representatives all financial information, including the right to examine all
working papers pertaining to audits or reviews previously or hereafter made by
such auditors, and (ii) provide such cooperation as North American and its
representatives may request in connection with any audit or review of Target
that North American may direct its representatives to make. Without limiting
the generality of the foregoing, Shareholders agrees that they will cooperate
with, and cause Target's past and present independent auditors, accounting
personnel and other necessary persons to cooperate with North American in the
preparation of any documents filed by North American with the U.S. Securities
and Exchange Commission in connection with an offering of securities, to the
extent information about Target is required therein.
(e) TAX MATTERS. The Shareholders covenant and agree not to
take any action, or fail to take any action, with respect to Taxes, that would
have an adverse effect on North American on or after the Closing Date,
including, without limitation, amending or otherwise supplementing any Tax
Return or report of Target with respect to any period prior to the Closing Date
without the consent of North American. If any taxing authority conducts any
audit or investigation relating to Target prior to the Closing Date, North
American may, in its sole election, have the right to supervise such audit or
investigation and provide any response required in connection therewith.
(f) STOCK OPTIONS. North American has adopted a stock
incentive plan (the "Stock Incentive Plan") pursuant to which stock options and
other forms of stock-based compensation may be awarded to the officers,
directors and employees of North American and its subsidiaries. The key
employees of Target shall be eligible to receive awards under the Stock
Incentive Plan of options to acquire 50,000 shares of North American stock.
Within 60 days of the Closing, the officers of the Target shall recommend to
the Stock Option Committee under the Stock Incentive Plan the terms, conditions
and amounts of awards to be granted and the identity of the key employees of
Target to receive such awards, however, all such awards, and the terms and
conditions thereof, shall be finally determined by the Stock Option Committee.
(g) AUDITED FINANCIAL STATEMENTS. Shareholders shall cause
Target's auditors to cooperate with North American's auditors in the
preparation of audited consolidated balance sheets and statements of income,
changes in stockholders' equity, and cash flow including the audit report
thereon as of and for the 12-month period ended December 31, 1997 for the
Target.
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All costs associated with the preparation and audit of Target's December 31,
1997 financial statements shall be paid by North American.
(h) LIFE INSURANCE. Within 30 days after the Closing, Target
will cancel all life insurance policies owned by Target on the lives of the
Shareholders listed on Exhibit G.
(i) HEALTH INSURANCE. For the period ending December 31,
1998, Target will continue to pay the health insurance costs of those
individuals listed on Section 4(y) of the Disclosure Schedule, at the same
levels as are in effect on the date hereof.
(j) PRO FORMA INCOME STATEMENTS. Within ten (10) days of the
Closing Date, the Shareholders shall deliver to North American, projected,
pro-forma income statements for Target for the calendar years 1998, 1999 and
2000.
(k) ADJUSTMENT OF SHAREHOLDERS' EQUITY. On or before July 31,
1998, Kenneth Childress, as Chief Financial Officer of Target, shall be
entitled to adjust the accruals to be used in preparing the Closing Date
Balance Sheet in order to insure that the Shareholders' Equity on the Closing
Date Balance Sheet not exceed $7,953,333. It is anticipated that there will be
post-closing bonuses paid to certain present and former employees of Target to
insure that the Shareholders' Equity on the Closing Date Balance Sheet not
exceed $7,953,333. Such bonuses shall be paid at a time mutually agreed to by
Kenneth Childress and North American.
7. CONDITIONS TO OBLIGATION TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF NORTH AMERICAN. The
obligation of North American to consummate the transactions to be performed by
it in connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth in
Section 3(a) and Section 4 above shall be true and correct in all
material respects at and as of the Closing Date and there shall not
have occurred any Material Adverse Effect;
(ii) the Shareholders and Target shall have
performed and complied with all of his covenants hereunder in all
material respects through the Closing;
(iii) Target shall have procured all of the third
party consents specified in Section 5(b) above;
(iv) no action, suit, or proceeding shall be pending
or threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction, or
before any arbitrator, wherein an unfavorable injunction, judgment,
order, decree, ruling, or charge would (A) prevent consummation of any
of the transactions contemplated by this Agreement, (B) cause any of
the transactions contemplated by this Agreement to be rescinded
following consummation, (C) affect
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adversely the right of Target to own its assets and to operate its
businesses (and no such injunction, judgment, order, decree, ruling,
or charge shall be in effect);
(v) the Shareholders shall have delivered to North
American a certificate, to the effect that each of the conditions
specified above in Section 7(a)(i)-(iv) is satisfied in all respects;
(vi) all applicable waiting periods (and any
extensions thereof) under the Hart-Scott-Rodino Act shall have expired
or otherwise been terminated and the Parties shall have received all
other authorizations, consents, and approvals of governments and
governmental agencies referred to in Section 3(a)(ii), Section
3(b)(v), and Section 4(d) above;
(vii) North American shall have received from
counsel to the Shareholders an opinion in form and substance as set
forth in EXHIBIT B attached hereto, addressed to North American and
dated as of the Closing Date;
(viii) all actions to be taken by the Shareholders
in connection with the consummation of the transactions contemplated
hereby and all certificates, opinions, instruments, and other
documents required to effect the transactions contemplated hereby will
be reasonably satisfactory in form and substance to North American.
(ix) at least five business days prior to the
Closing, North American shall have received a balance sheet prepared
by Target, estimating the assets, liabilities and shareholders' equity
of Target as of the Closing Date (" Estimated Closing Balance Sheet").
The Estimated Closing Balance Sheet shall be prepared in accordance
with the method set forth in Section 9(a), including the valuation of
the assets listed on Schedule G, for the preparation of the Draft
Closing Balance Sheet and will reflect (A) Shareholders' Equity of at
least $7,953,333.00, (B) no notes payable or other debt and (C) cash
of not less than $750,000. North American shall not have objected to,
challenged or otherwise repudiated any of the amounts included in the
Estimated Closing Balance Sheet.
(x) North American shall have received an appraisal,
from an appraiser selected by North American, that states that the
fair market value of Target's tangible assets listed in Section 4(o)
of the Disclosure Schedule is at least equal to the book value of such
assets reflected in the Closing Balance Sheet.
(xi) Target and Shareholders shall have entered into
the real property lease agreements attached hereto as EXHIBIT C;
(xii) INTENTIONALLY LEFT BLANK;
(xiii) Target shall have delivered evidence of its
qualification to do business in each jurisdiction where it is so
qualified and a certificate of good standing
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issued by the Secretary of State of each such jurisdiction
demonstrating that Target is in good standing in that jurisdiction;
(xiv) William Mullen shall have entered into an
Employment Agreement with Target in the form attached hereto as
EXHIBIT D;
(xv) all actions to be taken by the Shareholders in
connection with consummation of the transactions contemplated hereby
and all certificates, opinions, instruments, and other documents
required to effect the transactions contemplated hereby will be
reasonably satisfactory in form and substance to North American.
North American may waive any condition specified in this Section 7(a) if it
executes a writing so stating at or prior to the Closing.
(b) CONDITIONS TO OBLIGATION OF THE SHAREHOLDERS. The
obligation of the Shareholders to consummate the transactions to be performed
by them in connection with the Closing is subject to satisfaction of the
following conditions:
(i) the representations and warranties set forth in
Section 3(b) above shall be true and correct in all material respects
at and as of the Closing Date;
(ii) North American shall have performed and
complied with all of its covenants hereunder in all material respects
through the Closing;
(iii) no action, suit, or proceeding shall be
pending or threatened before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign
jurisdiction, or before any arbitrator, wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this
Agreement or (B) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation (and no such
injunction, judgment, order, decree, ruling, or charge shall be in
effect);
(iv) North American shall have delivered to the
Shareholders a certificate to the effect that each of the conditions
specified above in Section 7(b)(i)-(iii) is satisfied in all respects;
(v) all applicable waiting periods (and any
extensions thereof) under the Hart-Scott-Rodino Act shall have expired
or otherwise been terminated and the Parties shall have received all
other authorizations, consents, and approvals of governments and
governmental agencies referred to in Section 3(a)(ii), Section
3(b)(v), and Section 4(d) above;
(vi) Shareholders shall have received from counsel
to North American an opinion in form and substance as set forth in
EXHIBIT E attached hereto, addressed to the Shareholders, and dated as
of the Closing Date;
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(vii) [INTENTIONALLY LEFT BLANK];
(viii) This Agreement and the transactions
contemplated hereby shall have been approved by the Board of Directors
and Shareholders of North American;
(ix) all actions to be taken by North American in
connection with consummation of the transactions contemplated hereby
and all certificates, opinions, instruments, and other documents
required to effect the transactions contemplated hereby will be
reasonably satisfactory in form and substance to the Shareholders.
The Shareholders may waive any condition specified in this Section 7(b) if they
execute a writing so stating at or prior to the Closing.
8. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations, warranties, covenants and agreements of the Parties contained
in this Agreement or in any certificate, document, instrument or agreement
delivered pursuant to this Agreement shall survive the Closing hereunder
(notwithstanding any due diligence investigations that may have been undertaken
by the damaged Party) and continue in full force and effect through all
statutes of limitations. Notwithstanding the foregoing, no claim for
indemnification in respect of a breach of a representation or warranty shall be
made after the date three years from and after the Closing Date, except that a
claim for indemnification in respect of a breach of the representations set
forth in Section 3(a), 3(b), 4(a)-(f), 4(l), 4(y) and 4(aa) may be made at
anytime following the Closing Date and are not subject to the foregoing three
year limitation.
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF NORTH AMERICAN.
(i) In the event the Shareholders breach any of
their representations, warranties (or any of such representations or
warranties is untrue or inaccurate), covenants and agreements
contained herein or in any certificate, document, instrument or
agreement delivered pursuant to this Agreement, and, provided that the
Indemnified Buyers (as hereafter defined) make a written claim for
indemnification against the Shareholders pursuant to Section 12(g)
below within the applicable claim period provided in 8(a) above, then
the Shareholders agree to indemnify North American and each of its
officers, directors, employees, representatives and shareholders (the
"Indemnified Buyers") from and against the entirety of any Adverse
Consequences the Indemnified Buyers may suffer through and after the
date of the claim for indemnification (including any Adverse
Consequences the Indemnified Buyers may suffer after the end of any
applicable claim period) resulting from, arising out of, relating to,
in the nature of, or caused by the breach (or the alleged breach).
(ii) The Shareholders agrees to indemnify the
Indemnified Buyers from and against the entirety of any Adverse
Consequences the Indemnified Buyers may suffer
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resulting from, arising out of, relating to, in the nature of, or
caused by any Liability of Target (x) for any Taxes of Target with
respect to any Tax year or portion thereof ending on or before the
Closing Date or for any Tax year beginning before and ending after the
Closing Date to the extent allocable (determined in a manner
consistent with Section 9(b)) to the portion of such period beginning
before and ending on the Closing Date), to the extent such Taxes are
not reflected on the Disclosure Schedule or in the reserve for Tax
Liability shown on the face of the Most Recent Balance Sheet, and (y)
for the unpaid Taxes of any Person (other than Target) under Reg.
Section 1.1502-6 (or any similar provision of state, local, or foreign
law), as a transferee or successor, by contract, or otherwise.
(iii) Shareholders agree to indemnify the
Indemnified Buyers from and against the entirety of any Adverse
Consequences they may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the activities of any entity which
at any time has been owned, in whole or in part, by Target and not
otherwise listed on the Disclosure Schedule.
(iv) Shareholders agree to indemnify the Indemnified
Buyers from and against the entirety of any Adverse Consequences they
may suffer resulting from, arising out of, relating to, in the nature
of, or caused by any Retained Liabilities (as hereafter defined). As
used herein, the term Retained Liabilities means all liabilities,
claims, commitments, demands or obligations of Target (or any
subsidiary of Target) existing or arising out of any facts or set of
operative facts existing on or prior to the Closing Date and not
listed on Most Recent Balance Sheet or the Disclosure Schedule.
(v) Shareholders agree to indemnify the Indemnified
Buyers from and against the entirety of any Adverse Consequences they
may suffer resulting from, or arising out of, relating to, or in the
nature of or caused by any claim by a stockholder or former
stockholder of Target or any other Person seeking to assert: (i)
ownership or rights to ownership of any shares of capital stock of
Target or any Subsidiary, (ii) any rights of a stockholder (other than
the right to receive the Consideration) including any option,
preemptive rights or rights to receive notice or to vote, (iii) any
rights under Target's charter, bylaws or other constituent documents,
or (iv) any claim that his shares of capital stock were to be
repurchased by Target.
(vi) Shareholders agrees to indemnify the
Indemnified Buyers from and against the entirety of any Adverse
Consequences they may suffer resulting from, or arising out of,
relating to, or in the nature of or caused by any claim by a
dissenting shareholder that the Consideration is less than the fair
value of his shares.
(vii) Without limiting any other indemnification
provided in this Section 8, Shareholders agrees to indemnify the
Indemnified Buyers from and against the entirety of any Adverse
Consequences they may suffer as a result of a taxing authority taking
the position that any former or current subcontractor of Target should
have been, at any time prior to the Closing Date, treated as an
employee of Target.
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<PAGE> 38
(viii) Without limiting any other indemnification
provided in this Section 8, Shareholders agrees to indemnify the
Indemnified Buyers from and against the entirety of any Adverse
Consequences they may suffer as a result of Target's failure to be
duly authorized to conduct business and in good standing under the
laws of any jurisdiction where such qualification is or has been
required as of or prior to the Closing Date.
(ix) All of the indemnification obligations of
Shareholders under this Section 8 shall be joint and several.
(x) In addition to any other indemnification
obligation of Shareholders hereunder, WMC Properties, L.L.C. ("WMC")
agrees to indemnify and hold the Indemnified Buyers harmless from and
against the entirety of any Adverse Consequences the Indemnified
Buyers may suffer beginning on the Closing Date and thereafter
(including any Adverse Consequences the Indemnified Buyers may suffer
after the end of any applicable survival period) as a result of,
arising out of, or relating to the breach of any of the
representations or warranties contained in Section 4(aa) hereof with
respect to that certain real property located at 3926 Highway 79,
O'Fallon, Missouri 63366. The inclusion of information relating to any
of the foregoing matters on the Disclosure Schedule shall not limit in
any manner the indemnification obligations of WMC pursuant to this
Section 8(b)(x).
(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE
SHAREHOLDERS.
In the event North American breaches (or in the
event any third party alleges facts that, if true, would mean North
American had breached) any of their representations, warranties (or
any of such representations or warranties is untrue or inaccurate),
covenants and agreements contained herein or in any certificate,
document, instrument or agreement delivered pursuant to this
Agreement, and, provided that the Shareholders makes a written claim
for indemnification against North American pursuant to Section 12(g)
below within the applicable claim period provided in 8(a) above, then
North American agrees to indemnify the Shareholders and each of his
representatives (the "Indemnified Shareholders") from and against the
entirety of any Adverse Consequences the Indemnified Shareholders may
suffer through and after the date of the claim for indemnification
(including any Adverse Consequences the Indemnified Shareholders may
suffer after the end of any applicable claim period) resulting from,
arising out of, relating to, in the nature of, or caused by the breach
(or the alleged breach).
(d) MATTERS INVOLVING THIRD PARTIES.
(i) If any third party shall notify any party
entitled to indemnification hereunder (the "INDEMNIFIED PARTY") with
respect to any matter (a "THIRD PARTY CLAIM") which may give rise to a
claim for indemnification against any other Party (the "INDEMNIFYING
PARTY") under this Section 8, then the Indemnified Party shall
promptly notify each Indemnifying Party thereof in writing; PROVIDED,
HOWEVER, that no delay on the part
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<PAGE> 39
of the Indemnified Party in notifying any Indemnifying Party shall
relieve the Indemnifying Party from any obligation hereunder unless
(and then solely to the extent) the Indemnifying Party thereby is
materially prejudiced.
(ii) Any Indemnifying Party will have the right to
defend the Indemnified Party against the Third Party Claim with
counsel of its choice reasonably satisfactory to the Indemnified Party
so long as (A) the Indemnifying Party notifies the Indemnified Party
in writing within 15 days after the Indemnified Party has given notice
of the Third Party Claim that the Indemnifying Party will indemnify
the Indemnified Party from and against the entirety of any Adverse
Consequences the Indemnified Party may suffer resulting from, arising
out of, relating to, in the nature of, or caused by the Third Party
Claim, (B) the Indemnifying Party provides the Indemnified Party with
evidence reasonably acceptable to the Indemnified Party that the
Indemnifying Party will have the financial resources to defend against
the Third Party Claim and fulfill its indemnification obligations
hereunder, (C) the Third Party Claim involves only money damages and
does not seek an injunction or other equitable relief, (D) settlement
of, or an adverse judgment with respect to, the Third Party Claim is
not, in the good faith judgment of the Indemnified Party, likely to
establish a precedential custom or practice materially adverse to the
continuing business interests of the Indemnified Party, (E) the named
parties to the Third Party Claim do not include both the Indemnified
Party and the Indemnifying Party, and (F) the Indemnifying Party
conducts the defense of the Third Party Claim actively and diligently.
(iii) So long as the Indemnifying Party is
conducting the defense of the Third Party Claim in accordance with
Section 8(d)(ii) above, (A) the Indemnified Party may retain separate
co-counsel at its sole cost and expense and participate in the defense
of the Third Party Claim, (B) the Indemnified Party will not consent
to the entry of any judgment or enter into any settlement with respect
to the Third Party Claim without the prior written consent of the
Indemnifying Party (not to be withheld unreasonably), and (C) the
Indemnifying Party will not consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim
without the prior written consent of the Indemnified Party (not to be
withheld unreasonably).
(iv) In the event any of the conditions in
Section 8(d)(ii) above is or becomes unsatisfied, however, (A) the
Indemnified Party may defend against, and consent to the entry of any
judgment or enter into any settlement with respect to, the Third Party
Claim in any manner it reasonably may deem appropriate (and the
Indemnified Party need not consult with, or obtain any consent from,
any Indemnifying Party in connection therewith), (B) the Indemnifying
Parties will reimburse the Indemnified Party promptly and periodically
for the costs of defending against the Third Party Claim (including
reasonable attorneys' fees and expenses), and (C) the Indemnifying
Parties will remain responsible for any Adverse Consequences the
Indemnified Party may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the Third Party Claim to the
fullest extent provided in this Section 8.
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(e) DETERMINATION OF ADVERSE CONSEQUENCES. The Parties shall
take into account the time cost of money (using the Applicable Rate as the
discount rate) in determining Adverse Consequences for purposes of this Section
8. All indemnification payments under this Section 8 shall be deemed
adjustments to the Consideration.
(f) OTHER INDEMNIFICATION PROVISIONS. The foregoing
indemnification provisions are in addition to, and not in derogation of, any
statutory, equitable, or common law remedy (including without limitation any
such remedy arising under Environmental, Health, and Safety Requirements) any
Party may have with respect to Target, or the transactions contemplated by this
Agreement. Each Shareholder hereby agrees that he will not make any claim for
indemnification against Target by reason of the fact that he was a director,
officer, employee, or agent of Target or was serving at the request of Target
as a partner, trustee, director, officer, employee, or agent of another entity
(whether such claim is for judgments, damages, penalties, fines, costs, amounts
paid in settlement, losses, expenses, or otherwise and whether such claim is
pursuant to any statute, charter document, bylaw, agreement, or otherwise) with
respect to any action, suit, proceeding, complaint, claim, or demand brought by
the Buyer against such Shareholder (whether such action, suit, proceeding,
complaint, claim, or demand is pursuant to this Agreement, applicable law, or
otherwise).
9. POST-CLOSING ADJUSTMENT OF CONSIDERATION.
(a) Within 90 days after the Closing Date, North American
will prepare and deliver to Shareholders a draft balance sheet (the "DRAFT
CLOSING DATE BALANCE SHEET") for Target as of the close of business on the
Closing Date, which Draft Closing Date Balance Sheet will include a valuation
of the assets listed on Exhibit F hereto at the amounts set forth thereon,
which amounts the parties hereby agree is the fair market value thereof, and
will reflect the accruals provided for in Section 6(k) hereof. North American
will otherwise prepare the Draft Closing Date Balance Sheet in accordance with
GAAP applied on a basis consistent with the preparation of the Financial
Statements; except that the Draft Closing Date Balance Sheet shall include all
of the same types of adjustments as were made in connection with the
preparation of the Most Recent Fiscal Year End Financial Statements.
(b) If the Shareholders have any objections to the Draft
Closing Date Balance Sheet, they will deliver a detailed statement describing
their objections to North American within 30 days after receiving the Draft
Closing Date Balance Sheet. North American and the Shareholders will use
reasonable efforts to resolve any such objections themselves. If the Parties do
not obtain a final resolution within 30 days after North American has received
the statement of objections, however, North American and Shareholders will
select an accounting firm mutually acceptable to them to resolve any remaining
objections. If North American and the Shareholders are unable to agree on the
choice of an accounting firm, they will select a nationally-recognized
accounting firm by lot (after excluding their respective regular outside
accounting firms). The determination of any accounting firm so selected will be
set forth in writing and will be conclusive and binding upon the Parties. North
American will revise the Draft Closing Date Balance Sheet as appropriate to
reflect the resolution of any objections
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thereto pursuant to this Section 9(b). ThE "CLOSING DATE BALANCE SHEET" shall
mean the Draft Closing Date Balance Sheet together with any revisions thereto
pursuant to this Section 9(b).
(c) In the event the Parties submit any unresolved objections
to an accounting firm for resolution as provided in Section 9(b) above, any
expenses relating to the engagement of the accounting firm shall be allocated
between the Shareholders and North American by the accounting firm in
proportion to the amount in dispute which is decided in favor of the
challenging party.
(d) North American will make the work papers and back-up
materials used in preparing the Draft Closing Date Balance Sheet available to
the Shareholders and their accountants and other representatives at reasonable
times and upon reasonable notice during (A) the preparation by North American
of the Draft Closing Date Balance Sheet, (B) review by the Shareholders of the
Draft Closing Date Balance Sheet, and (C) the resolution by the Parties of any
objections thereto.
(e) If the Shareholder's Equity set forth in the Closing Date
Balance Sheet is less than $7,953,333.00, the Shareholders will pay to North
American an amount equal to such deficiency (plus interest thereon at the
Applicable Rate from the Closing Date) within three business days after the
date on which the Closing Date Balance Sheet finally is determined pursuant to
Section 9(b).
10. TAX MATTERS. The following provisions shall govern the allocation
of responsibility as between North American and Shareholders for certain tax
matters following the Closing Date:
(a) TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE.
Shareholders shall prepare or cause to be prepared and timely file or cause to
be timely filed all Tax Returns for Target for all periods ending on or prior
to the Closing Date which are filed after the Closing Date (the "Pre-Closing
Period"). Such Tax Returns shall be prepared by treating items on such Tax
Return in a manner consistent with the past practices with respect to such
items, unless otherwise required by law. Shareholders shall permit North
American to review and comment on each such Tax Return described in the
preceding sentence prior to filing. North American shall pay the amounts due
for Taxes of Target with respect to the Pre-Closing Periods, up to the amount
reflected in the reserve for Tax Liability shown on the face of the Most Recent
Balance Sheet. Shareholders jointly and severally agree that they will pay,
when due, all amounts due for Taxes of Target with respect to Pre-Closing
Periods, that exceed the reserve for Tax Liability.
(b) TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING
DATE. North American shall prepare or cause to be prepared and file or cause to
be filed any Tax Returns of Target for Tax periods which begin before the
Closing Date and end after the Closing Date. North American shall permit
Shareholders to review and comment on each such Tax return described in the
preceding sentence prior to filing. Shareholders shall pay to North American
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within fifteen (15) days after the date on which Taxes are paid with respect to
such periods an amount equal to the portion of such Taxes which relates to the
portion of such Taxable period ending on the Closing Date to the extent such
Taxes are not reflected in the reserve for Tax Liability shown on the face of
the Most Recent Balance Sheet. For purposes of this Section, in the case of any
Taxes that are imposed on a periodic basis and are payable for a Taxable period
that includes (but does not end on) the Closing Date, the portion of such Tax
which relates to the portion of such Taxable period ending on the Closing Date
shall (x) in the case of any real and personal property Taxes, be deemed to be
the amount of such Tax for the entire Taxable period multiplied by a fraction
the numerator of which is the number of days in the Taxable period ending on
the Closing Date and the denominator of which is the number of days in the
entire Taxable period, and (y) in the case of any other Tax be deemed equal to
the amount which would be payable if the relevant Taxable period ended on the
Closing Date. Any credits relating to a Taxable period that begins before and
ends after the Closing Date shall be taken into account as though the relevant
Taxable period ended on the Closing Date. All determinations necessary to give
effect to the foregoing allocations shall be made in a manner consistent with
prior practice of Target.
(c) COOPERATION ON TAX MATTERS.
(i) North American, Target and Shareholders shall
cooperate fully, as and to the extent reasonably requested by the
other party, in connection with the filing of Tax Returns pursuant to
this Section and any audit, litigation or other proceeding with
respect to Taxes. Such cooperation shall include the retention and
(upon the other party's request) the provision of records and
information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a
mutually convenient basis to provide additional information and
explanation of any material provided hereunder. Target and
Shareholders agree (A) to retain all books and records with respect to
Tax matters pertinent to Target relating to any taxable period
beginning before the Closing Date until the expiration of the statute
of limitations (and, to the extent notified by North American or
Shareholders, any extensions thereof) of the respective taxable
periods, and to abide by all record retention agreements entered into
with any taxing authority, and (B) to give the other party reasonable
written notice prior to transferring, destroying or discarding any
such books and records and, if the other party so requests, Target or
Shareholders, as the case may be, shall allow the other party to take
possession of such books and records.
(ii) North American and Shareholders further agree,
upon request, to use their best efforts to obtain any certificate or
other document from any governmental authority or any other Person as
may be necessary to mitigate, reduce or eliminate any Tax that could
be imposed (including, but not limited to, with respect to the
transactions contemplated hereby).
(iii) North American and Shareholders further agree,
upon request, to provide the other party with all information that
either party may be required to report
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pursuant to Section 6043 of the Code and all Treasury Department
Regulations promulgated thereunder.
(d) TAX SHARING AGREEMENTS. All tax sharing agreements or
similar agreements with respect to or involving Target shall be terminated as
of the Closing Date and, after the Closing Date, Target shall not be bound
thereby or have any liability thereunder.
(e) CERTAIN TAXES. All transfer, documentary, sales, use,
stamp, registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement, shall be paid by
Shareholders when due, and Shareholders will, at its own expense, file all
necessary Tax Returns and other documentation with respect to all such
transfer, documentary, sales, use, stamp, registration and other Taxes and
fees, and, if required by applicable law, North American will, and will cause
its affiliates to, join in the execution of any such Tax Returns and other
documentation.
11. TERMINATION.
(a) TERMINATION OF AGREEMENT. The Parties may terminate this
Agreement as provided below:
(i) North American and the Shareholders may
terminate this Agreement by mutual written consent at any time prior
to the Closing;
(ii) North American may terminate this Agreement by
giving written notice to the Shareholders at any time prior to the
Closing (A) in the event the Shareholders has breached any
representation, warranty, or covenant contained in this Agreement in
any material respect, North American has notified the Shareholders of
the breach, and the breach has continued without cure for a period of
30 days after the notice of breach or (B) if the Closing shall not
have occurred on or before July 31, 1998, by reason of the failure of
any condition precedent under Section 7(a) hereof (unless the failure
results primarily from North American itself breaching any
representation, warranty, or covenant contained in this Agreement);
and
(iii) the Shareholders may terminate this Agreement
by giving written notice to North American at any time prior to the
Closing (A) in the event North American has breached any
representation, warranty, or covenant contained in this Agreement in
any material respect, the Shareholders has notified North American of
the breach, and the breach has continued without cure for a period of
30 days after the notice of breach or (B) if the Closing shall not
have occurred on or before July 31, 1998, by reason of the failure of
any condition precedent under Section 7(b) hereof (unless the failure
results primarily from the Shareholders himself breaching any
representation, warranty, or covenant contained in this Agreement).
39
<PAGE> 44
(b) EFFECT OF TERMINATION. If any Party terminates this
Agreement pursuant to Section 11(a) above, all rights and obligations of the
Parties hereunder shall terminate without any Liability of any Party to any
other Party (except for any Liability of any Party then in breach).
12. MISCELLANEOUS.
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall
issue any press release or make any public announcement relating to the subject
matter of this Agreement prior to the Closing without the prior written
approval of North American and the Shareholders; PROVIDED, HOWEVER, that any
Party may make any public disclosure it believes in good faith is required by
applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing Party will use its
best efforts to advise the other Parties prior to making the disclosure).
(b) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not
confer any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns and the Indemnified Parties
referred to in Section 8 hereof.
(c) ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or among
the Parties, written or oral, to the extent they related in any way to the
subject matter hereof.
(d) SUCCESSION AND ASSIGNMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the Parties
named herein and their respective successors and permitted assigns. No Party
may assign either this Agreement or any of his or its rights, interests, or
obligations hereunder without the prior written approval of North American and
the Shareholders; PROVIDED, HOWEVER, that North American may (i) assign any or
all of its rights and interests hereunder to one or more of its Affiliates,
(ii) designate one or more of its Affiliates to perform its obligations
hereunder (in any or all of which cases North American nonetheless shall remain
responsible for the performance of all of its obligations hereunder) and (iii)
without the approval of the Shareholders assign its rights and interests
hereunder to its lenders (and any agent for the lenders), and the Parties
consent to any exercise by such lenders (and such agents) of their rights and
remedies with respect to such collateral.
(e) COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) HEADINGS. The section headings contained in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
40
<PAGE> 45
(g) NOTICES. All notices, requests, demands, claims, and
other communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
<TABLE>
<CAPTION>
IF TO THE SHAREHOLDERS: COPY TO:
----------------------- --------
<S> <C>
c/o William Mullen Daniel Barklage, Esq.
4 Cannes Court Barklage, Barklage, Brett, Ohlms & Martin
Lake St. Louis, MO 63367 211 Third Street
St. Charles, MO 63301-2812
IF TO NORTH AMERICAN: COPY TO:
--------------------- --------
North American Tel-Com Group, Inc. Holland & Knight LLP
1401 Forum Way, Suite 400 One East Broward Boulevard
West Palm Beach, FL 33401 Fort Lauderdale, FL 33131
Attn: William J. Mercurio Attn: Donn Beloff, Esq.
</TABLE>
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been
duly given unless and until it actually is received by the intended recipient.
Any Party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other
Parties notice in the manner herein set forth.
(h) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Florida without
giving effect to any choice or conflict of law provision or rule (whether of
the State of Florida or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Florida.
(i) AMENDMENTS AND WAIVERS. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
North American and the Shareholders. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(j) SEVERABILITY. Any term or provision of this Agreement
that is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
41
<PAGE> 46
(k) EXPENSES. Each of the Parties will bear his or its own
costs and expenses (including legal fees and expenses) incurred in connection
with this Agreement and the transactions contemplated hereby. The Shareholders
agrees Target has not borne or will bear any of the Shareholders's costs and
expenses (including any of their legal fees and expenses) in connection with
this Agreement or any of the transactions contemplated hereby.
(l) CONSTRUCTION. The Parties have participated jointly in
the negotiation of this Agreement. In the event an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as if
drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local,
or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
(m) INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The
Exhibits, Annexes, Schedules and Certificates identified in this Agreement are
incorporated herein by reference and made a part hereof.
(n) SPECIFIC PERFORMANCE. Each of the Parties acknowledges
and agrees that the other Parties would be damaged irreparably in the event any
of the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter (subject to the provisions set
forth in Section 10(o) below), in addition to any other remedy to which they
may be entitled, at law or in equity.
(o) SUBMISSION TO JURISDICTION. Each of the Parties submits
to the exclusive jurisdiction of any state or federal court sitting in Palm
Beach County, Florida, in any action or proceeding arising out of or relating
to this Agreement and agrees that all claims in respect of the action or
proceeding shall be heard and determined in any such court. Each of the Parties
waives any defense of inconvenient forum to the maintenance of any action or
proceeding so brought and waives any bond, surety, or other security that might
be required of any other Party with respect thereto. Any Party may make service
on any other Party by sending or delivering a copy of the process to the Party
to be served at the address and in the manner provided for the giving of
notices in Section 12(o) above. Each Party agrees that a final judgment in any
action or
42
<PAGE> 47
proceeding so brought shall be conclusive and may be enforced by suit on the
judgment or in any other manner provided by law or at equity.
In any action or proceeding arising out of or relating to this
Agreement, the prevailing party shall be entitled to recover reasonable
attorney's fees and costs from the other party to the action or proceeding.
(p) WAIVER OF JURY TRIAL. THE PARTIES HEREBY IRREVOCABLY
WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY AND TO
THE FULLEST EXTENT PERMITTED BY LAW WAIVE ANY RIGHTS THAT THEY MAY HAVE TO
CLAIM OR RECEIVE CONSEQUENTIAL OR SPECIAL DAMAGES IN CONNECTION WITH ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
*****
43
<PAGE> 48
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
NORTH AMERICAN TEL-COM GROUP, INC.
By:
------------------------------------
William J. Mercurio
President
SHAREHOLDERS:
Jerry Wood and Sabra Wood, Trustees
of the Jerry R. Wood and Sabra M. Wood
Loving Trust
By:
------------------------------------
Jerry R. Wood, Trustee
1854 Alois Avenue
O'Fallon, MO 63366
By: /s/ SABRA WOOD*
------------------------------------
Sabra Wood, Trustee
1854 Alois Avenue
O'Fallon, MO 63366
/s/ GLENN E. MULLEN*
------------------------------------
Glenn E. Mullen
601 Circlewood Dr.
Venice, FL 34293
44
<PAGE> 49
------------------------------------
William Mullen
4 Cannes Court
Lake St. Louis, MO 63367
/s/ ROBERT MULLEN*
------------------------------------
Robert Mullen
320 23rd Avenue
Moline, IL 61265
/s/ DOUGLAS HOFFMAN*
------------------------------------
Douglas Hoffman
401 DeClark Street
Beaver Dam, WI 53916
------------------------------------
Kenneth Childress
921 Ferngate Lane
Creve Couer, MO 63141
/s/ DUANE JOHNSON*
------------------------------------
Duane Johnson
1153 Colby Drive
St. Peters, MO 63376
/s/ TIMOTHY LIGHT*
------------------------------------
Timothy Light
3216 Yale Blvd.
St. Charles, MO 63301
/s/ DONALD VETTER*
------------------------------------
Donald Vetter
230 New Ballwin Road
St. Louis, MO 63021
45
<PAGE> 50
/s/ DENNIS DIXON*
------------------------------------
Dennis Dixon
Rt. 1 Box 29
Blair, NE 68008
/s/ JOSEPH RUDIN*
------------------------------------
Joseph Rudin
2199 Oberhelman Road
Foristell, MO 63348
*By
------------------------------------
William Mullen
Attorney-in-Fact
With respect to Section 8(b)(x) hereof:
WMC PROPERTIES, L.L.C.
By
------------------------------------
Name:
----------------------------
Title:
----------------------------
46
<PAGE> 1
Exhibit 10.11
STOCK PURCHASE AGREEMENT
AMONG
NORTH AMERICAN TEL-COM GROUP, INC.
AND
THE SOLE SHAREHOLDER OF BURN-TECHS, INC.
August 31, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. DEFINITIONS................................................................................... 1
2. PURCHASE AND SALE TRANSACTION................................................................. 6
(a) BASIC TRANSACTION.................................................................... 6
(b) CONSIDERATION........................................................................ 6
(c) THE CLOSING.......................................................................... 6
(d) DELIVERIES AT CLOSING................................................................ 6
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION..................................... 6
(a) REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER.................................... 6
(b) REPRESENTATIONS AND WARRANTIES OF NORTH AMERICAN..................................... 8
4. REPRESENTATIONS AND WARRANTIES CONCERNING TARGET.............................................. 10
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER..................................... 10
(b) [INTENTIONALLY LEFT BLANK]........................................................... 10
(c) CAPITALIZATION....................................................................... 10
(d) NONCONTRAVENTION..................................................................... 11
(e) BROKERS' FEES........................................................................ 11
(f) TITLE TO ASSETS...................................................................... 11
(g) SUBSIDIARIES......................................................................... 11
(h) FINANCIAL STATEMENTS................................................................. 12
(i) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END..................................... 12
(j) UNDISCLOSED LIABILITIES.............................................................. 14
(k) LEGAL COMPLIANCE..................................................................... 14
(l) TAX MATTERS.......................................................................... 14
(m) REAL PROPERTY........................................................................ 16
(n) INTELLECTUAL PROPERTY................................................................ 17
(o) TANGIBLE ASSETS...................................................................... 19
(p) INVENTORY............................................................................ 19
(q) CONTRACTS............................................................................ 19
(r) NOTES AND ACCOUNTS RECEIVABLE........................................................ 20
(s) POWERS OF ATTORNEY................................................................... 20
(t) INSURANCE............................................................................ 20
(u) LITIGATION........................................................................... 21
(v) COMMITMENTS AND WARRANTIES........................................................... 21
(w) LIABILITY FOR SERVICES PERFORMED..................................................... 21
(x) EMPLOYEES............................................................................ 22
(y) EMPLOYEE BENEFITS.................................................................... 22
(z) GUARANTIES........................................................................... 24
(aa) ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS............................................ 24
(ab) CERTAIN BUSINESS RELATIONSHIPS WITH TARGET........................................... 25
(ac) CUSTOMERS AND SUPPLIERS.............................................................. 25
(ad) DISCLOSURE........................................................................... 26
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
5. PRE-CLOSING COVENANTS......................................................................... 26
(a) GENERAL.............................................................................. 26
(b) SHAREHOLDER DISTRIBUTION............................................................. 26
(c) NOTICES AND CONSENTS................................................................. 26
(d) OPERATION OF BUSINESS................................................................ 26
(e) PRESERVATION OF BUSINESS............................................................. 27
(f) FULL ACCESS.......................................................................... 27
(g) NOTICE OF DEVELOPMENTS............................................................... 27
(h) EXCLUSIVITY.......................................................................... 27
(i) NO TERMINATION OF SHAREHOLDER'S OBLIGATION BY SUBSEQUENT INCAPACITY.................. 27
6. POST-CLOSING COVENANTS........................................................................ 28
(a) GENERAL.............................................................................. 28
(b) LITIGATION SUPPORT................................................................... 28
(c) TRANSITION........................................................................... 28
(d) INDEPENDENT ACCOUNTANTS.............................................................. 28
(e) TAX MATTERS.......................................................................... 29
(f) STOCK OPTIONS........................................................................ 29
(g) AUDITED FINANCIAL STATEMENTS......................................................... 29
7. CONDITIONS TO OBLIGATION TO CLOSE............................................................. 29
(a) CONDITIONS TO OBLIGATION OF NORTH AMERICAN........................................... 29
(b) CONDITIONS TO OBLIGATION OF THE SHAREHOLDER.......................................... 31
8. REMEDIES FOR BREACHES OF THIS AGREEMENT....................................................... 32
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES........................................... 32
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF NORTH AMERICAN............................. 32
(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE SHAREHOLDER............................ 34
(d) MATTERS INVOLVING THIRD PARTIES...................................................... 34
(e) DETERMINATION OF ADVERSE CONSEQUENCES................................................ 35
9. POST-CLOSING ADJUSTMENT OF CONSIDERATION...................................................... 36
10. TAX MATTERS................................................................................... 38
(a) TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE..................................... 38
(b) TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING DATE....................... 38
(c) COOPERATION ON TAX MATTERS........................................................... 38
(d) TAX SHARING AGREEMENTS............................................................... 39
(e) CERTAIN TAXES........................................................................ 39
11. TERMINATION................................................................................... 39
(a) TERMINATION OF AGREEMENT............................................................. 39
(b) EFFECT OF TERMINATION................................................................ 40
12. MISCELLANEOUS................................................................................. 40
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS.............................................. 40
(b) NO THIRD-PARTY BENEFICIARIES......................................................... 40
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
(c) ENTIRE AGREEMENT..................................................................... 40
(d) SUCCESSION AND ASSIGNMENT............................................................ 41
(e) COUNTERPARTS......................................................................... 41
(f) HEADINGS............................................................................. 41
(g) NOTICES.............................................................................. 41
(h) GOVERNING LAW........................................................................ 42
(i) AMENDMENTS AND WAIVERS............................................................... 42
(j) SEVERABILITY......................................................................... 42
(k) EXPENSES............................................................................. 42
(l) CONSTRUCTION......................................................................... 42
(m) INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES.................................... 43
(n) SPECIFIC PERFORMANCE................................................................. 43
(o) SUBMISSION TO JURISDICTION........................................................... 43
(p) WAIVER OF JURY TRIAL................................................................. 43
</TABLE>
Exhibit A--Financial Statements
Exhibit B--Opinion of Target's Counsel
Exhibit C--Employment Agreements
Exhibit D--Opinion of North American's Counsel
Annex I-- Accredited Investor Status
Disclosure Schedule
North American Disclosure Schedule
iii
<PAGE> 5
STOCK PURCHASE AGREEMENT
Agreement entered into as of August 31, 1998, by and among North
American Tel-Com Group, Inc., a Florida corporation ("North American" or the
"Buyer"), and Michael Wallace, the sole shareholder (the "Shareholder") of
Burn-Techs, Inc., a Florida corporation (the "Target"). The Buyer and the
Shareholder are referred to collectively herein as the "PARTIES."
The Shareholder owns all of the outstanding capital stock of the
Target.
This Agreement contemplates the sale by the Shareholder of all of the
issued and outstanding capital stock of Target and the purchase thereof by
Buyer. The Shareholder will receive cash and capital stock in North American in
exchange for his shares of capital stock of Target.
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1. DEFINITIONS.
"ACCREDITED INVESTOR" has the meaning set forth in Regulation
D promulgated under the Securities Act.
"ADVERSE CONSEQUENCES" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses,
expenses, and fees, including court costs and reasonable attorneys' fees and
expenses, and any other cost of enforcing a party's rights under this
Agreement.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act.
"AFFILIATED GROUP" means any affiliated group within the
meaning of Code Section 1504(a) or any similar group defined under a similar
provision of state, local or foreign law.
"AMENDED AND RESTATED STOCKHOLDERS AGREEMENT" means that
certain Amended and Restated Stockholders Agreement among North American and
the shareholders of North American dated as of June 30, 1998.
"APPLICABLE RATE" means the corporate base rate of interest
publicly announced from time to time by PNC Bank, N.A.
"BASIS" means any past or present fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction that forms or could form the
basis for any specified consequence.
<PAGE> 6
"CLOSING" has the meaning set forth in Section 2(c) below.
"CLOSING DATE" has the meaning set forth in Section 2(c)
below.
"CLOSING DATE BALANCE SHEET" has the meaning set forth in
Section 9(b) below.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONSIDERATION" has the meaning set forth in Section 2(b)
below.
"CONTROLLED GROUP OF CORPORATIONS" has the meaning set forth
in Code Section 1563.
"DISCLOSURE SCHEDULE" has the meaning set forth in Section 4
below.
"DRAFT CLOSING DATE BALANCE SHEET" has the meaning set forth
in Section 9(a) below.
"EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan), (d) Employee Welfare Benefit Plan or (e)
bonus, incentive, stock purchase, stock ownership, stock option, stock
appreciation right, severance, salary continuation, termination, change of
control or other material fringe benefit plan or program.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in
ERISA Section 3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in
ERISA Section 3(1).
"ENVIRONMENTAL, HEALTH, AND SAFETY REQUIREMENTS" shall mean
all federal, state, local and foreign statutes, regulations, ordinances and
other provisions having the force or effect of law, all judicial and
administrative orders and determinations, all contractual obligations and all
common law concerning public health and safety, worker health and safety, and
pollution or protection of the environment, including without limitation all
those relating to the presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution, labeling, testing,
processing, discharge, release, threatened release, control, or cleanup of any
Hazardous Materials (which, for purposes of this Agreement, shall meany any
hazardous materials, substances or wastes, chemical substances or mixtures,
pesticides, pollutants, contaminants, toxic chemicals, petroleum products or
byproducts, asbestos, polychlorinated biphenyls, noise or radiation), each as
amended and as now or hereafter in effect.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
2
<PAGE> 7
"ERISA AFFILIATE" means (i) any corporation included with
Target in a controlled group of corporations within the meaning of Section
414(b) of the Code; (ii) any trade or business (whether or not incorporated)
which is under common control with Target within the meaning of Section 414(c)
of the Code; (iii) any member of an affiliated service group of which Target is
a member within the meaning of Section 414(m) of the Code; or (iv) any other
person or entity treated as an affiliate of Target under Section 414(o) of the
Code.
"FIDUCIARY" has the meaning set forth in ERISA Section 3(21).
"FINANCIAL STATEMENT" has the meaning set forth in Section
4(h) below.
"GAAP" means United States generally accepted accounting
principles as in effect from time to time.
"INDEMNIFIED PARTY" has the meaning set forth in Section 8(d)
below.
"INDEMNIFYING PARTY" has the meaning set forth in Section
8(d) below.
"INTELLECTUAL PROPERTY" means (a) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications, and patent
disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof, (b)
all trademarks, service marks, trade dress, logos, trade names, and corporate
names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection therewith, (d) all mask works and all applications,
registrations, and renewals in connection therewith, (e) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals), (f) all computer software (including data and related
documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"KNOWLEDGE" means that which is known by a person and that of
which a person has constructive knowledge based upon information readily
available to that person in the performance of such person's duties. In the
case of North American or Target, "Knowledge" means the "Knowledge" of its
respective directors and executive officers.
"LIABILITY" means any liability (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
3
<PAGE> 8
"MATERIAL ADVERSE EFFECT" means, individually or together
with other adverse effects, any material adverse effect on the assets,
liabilities, results of operations, business condition (financial or otherwise)
or prospects of Target or on Target's ability to consummate the transactions
contemplated hereby or the ability of North American to operate the business of
Target immediately after the Closing in substantially the same manner as such
business is conducted prior to Closing.
"MOST RECENT BALANCE SHEET" means the balance sheet contained
within the Most Recent Financial Statements.
"MOST RECENT FINANCIAL STATEMENTS" has the meaning set forth
in Section 4(h) below.
"MOST RECENT FISCAL PERIOD END" has the meaning set forth in
Section 4(h) below.
"MOST RECENT FISCAL YEAR END" has the meaning set forth in
Section 4(h) below.
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA
Section 3(37).
"NATIONAL SECURITIES EXCHANGE" shall have the meaning
ascribed to that term in the rules and regulations promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934.
"NORTH AMERICAN" has the meaning set forth in the preface
above.
"NORTH AMERICAN CLASS A COMMON SHARES" means any share of the
Class A Common Stock, par value $.01 per share, of North American.
"NORTH AMERICAN CLASS B COMMON SHARES" means any share of the
Class B Common Stock, par value $.01 per share, of North American.
"NORTH AMERICAN COMMON STOCK" means any share of the common
stock, par value $.01 par share, of North American.
"NORTH AMERICAN SERIES A PREFERRED SHARES" means any share of
the Series A Convertible Preferred Stock, par value $.01 per share, of North
American.
"NORTH AMERICAN PREFERRED STOCK" means any share of the
preferred stock, par value $.01 per share, of North American.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of
business consistent with past custom and practice (including with respect to
quantity and frequency).
"PARTY" has the meaning set forth in the preface above.
4
<PAGE> 9
"PBGC" means the Pension Benefit Guaranty Corporation.
"PERSON" means an individual, a partnership, a corporation,
an association, a joint stock company, a trust, a joint venture, an
unincorporated organization, or a governmental entity (or any department,
agency, or political subdivision thereof).
"PROHIBITED TRANSACTION" has the meaning set forth in ERISA
Section 406 and Code Section 4975.
"REPORTABLE EVENT" has the meaning set forth in ERISA Section
4043.
"SECURITIES ACT" means the Securities Act of 1933, as
amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act
of 1934, as amended.
"SECURITY INTEREST" means any mortgage, pledge, lien,
encumbrance, charge, or other security interest, other than (a) mechanic's,
materialmen's, and similar liens that could not reasonably be expected to have
a Material Adverse Effect, (b) liens for Taxes not yet due and payable or for
Taxes that the taxpayer is contesting in good faith through appropriate
proceedings disclosed on Section 4(l) of the Disclosure Schedule, (c) purchase
money liens and liens securing rental payments under capital lease arrangements
disclosed in the Most Recent Financial Statements, and (d) other liens arising
in the Ordinary Course of Business and not incurred in connection with the
borrowing of money, so long as such liens could not reasonably be expected to
have a Material Adverse Effect.
"SHAREHOLDER DISTRIBUTION" has the meaning set forth in
Section 5(b) below.
"SUBSIDIARY" means any corporation with respect to which a
specified Person (or a Subsidiary thereof) owns a majority of the common stock
or has the power to vote or direct the voting of sufficient securities to elect
a majority of the directors.
"TARGET" has the meaning set forth in the preface above.
"TARGET SHARE" means any share of the Common Stock, no par
value, of Target.
"TARGET SHAREHOLDER" means any Person who or which holds any
Target Shares.
"TAX" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Code Section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition
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<PAGE> 10
thereto, whether disputed or not, and any obligations under any agreements or
arrangements with respect to any of the foregoing.
"TAX RETURN" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"THIRD PARTY CLAIM" has the meaning set forth in Section 8(d)
below.
"SHAREHOLDER" has the meaning set forth in the preface above.
2. PURCHASE AND SALE TRANSACTION.
(a) BASIC TRANSACTION. On and subject to the terms and
conditions of this Agreement, North American agrees to purchase from the
Shareholder, and the Shareholder agrees to sell to North American, all of the
Target Shares for the consideration specified below in this Section 2.
(b) CONSIDERATION. North American agrees to deliver at
Closing to the Shareholder (x) cash in the amount of $560,000.00 payable by
wire transfer or other immediately available funds and (y) 30,000 North
American Class B Common Shares, with a value of $1.4959 per share
(collectively, the "Consideration"). The Consideration shall be subject to
adjustment pursuant to the provisions of Section 9 hereof.
(c) THE CLOSING. The closing of the transactions contemplated
by this Agreement (the "CLOSING") shall take place at the offices of Holland &
Knight LLP in Fort Lauderdale, Florida, effective at 9:00 a.m. local time on
August 31, 1998 or such other date, time and place as the Parties may mutually
determine (the "CLOSING DATE").
(d) DELIVERIES AT CLOSING. At the Closing, (i) the
Shareholder will deliver to North American the various certificates,
instruments, and documents referred to in Section 7(a) below, (ii) North
American will deliver to the Shareholder the various certificates, instruments,
and documents referred to in Section 7(b) below, (iii) the Shareholder will
deliver to North American stock certificates representing all of his Target
Shares, endorsed in blank or accompanied by duly executed assignment documents,
and (iv) North American will deliver to the Shareholder the Consideration
specified in Section 2(b) above.
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
(a) REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER. The
Shareholder represents and warrants to North American that the statements
contained in this Section 3(a) are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
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<PAGE> 11
Agreement throughout this Section 3(a)), except as set forth on Section 3(a) of
the Disclosure Schedule (as hereinafter defined).
(i) AUTHORIZATION OF TRANSACTION. The Shareholder
has full power and authority to execute and deliver this Agreement and
to perform his obligations hereunder. This Agreement constitutes the
valid and legally binding obligation of the Shareholder, enforceable
in accordance with its terms and conditions except to the extent
enforcement thereof may be limited by applicable bankruptcy,
reorganization, insolvency or moratorium laws, or other laws affecting
the enforcement of creditors' rights or by the principles governing
the availability of equitable remedies. The Shareholder need not give
any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency or any
other Person in order to consummate the transactions contemplated by
this Agreement.
(ii) NONCONTRAVENTION. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court
to which the Shareholder is subject or (B) conflict with, result in a
breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or
cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which the Shareholder is
a party or by which he is bound or to which any of his assets is
subject.
(iii) BROKERS' FEES. The Shareholder has, or prior
to Closing will have, paid any fees or commissions due from the
Shareholder to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement. The Shareholder agrees
that he will pay any additional amounts that may become due from him
or Target to any such broker, finder or agent in the future, including
as a result of any indemnification obligations.
(iv) INVESTMENT. The Shareholder (A) understands
that the North American Class B Common Shares that he will receive as
part of the Consideration have not been, and will not be, registered
under the Securities Act, or under any state securities laws, and are
being offered and sold in reliance upon federal and state exemptions
for transactions not involving any public offering, (B) is acquiring
such North American Class B Common Shares solely for his own account
for investment purposes, and not with a view to the distribution
thereof, (C) has received certain information concerning North
American and has had the opportunity to obtain additional information
as desired in order to evaluate the merits and the risks inherent in
holding the North American Class B Common Shares, and (D) is able to
bear the economic risk and lack of liquidity inherent in holding the
North American Class B Common Shares, and (F) is an Accredited
Investor for the reasons set forth on Annex I.
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<PAGE> 12
(v) TARGET SHARES. The Shareholder holds of record
and owns beneficially all of the Target Shares, free and clear of any
restrictions on transfer (other than any restrictions under the
Securities Act and state securities laws), Taxes, security interests,
liens or other encumbrances, options, warrants, purchase rights,
contracts, commitments, equities, claims, and demands. The Shareholder
is not a party to any option, warrant, purchase right, or other
contract or commitment that could require the Shareholder to sell,
transfer, or otherwise dispose of any capital stock of Target (other
than this Agreement). The Shareholder is not a party to any voting
trust, proxy, shareholders agreement, or other agreement or
understanding with respect to the voting of any capital stock of
Target.
(vi) DISCLOSURE. Neither this Agreement nor any of
the exhibits, attachments, written statements, documents, certificates
or other items prepared for or supplied to North American by the
Shareholder with respect to the transactions contemplated hereby
contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make each statement contained
herein or therein not misleading. There is no fact which the
Shareholder has not disclosed to North American herein and of which
the Shareholder is aware which could be anticipated to have a Material
Adverse Effect.
(b) REPRESENTATIONS AND WARRANTIES OF NORTH AMERICAN. North
American represents and warrants to the Shareholder that the statements
contained in this Section 3(b) are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Section 3(b)), except as set forth in the Disclosure
Schedule delivered by North American to the Shareholder on the date hereof (the
"North American Disclosure Schedule").
(i) ORGANIZATION OF NORTH AMERICAN. North American
is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Florida. Correct and complete
copies of the charter and bylaws of North American (as amended to
date) are included as part of the North American Disclosure Schedule.
The names and titles of each officer and director of North American is
set forth on the North American Disclosure Schedule.
(ii) CAPITALIZATION OF NORTH AMERICAN. The entire
authorized capital stock of North American consists of (i) 98,000,000
shares of North American Common Stock, including (i) 10,000,000 North
American Class A Common Shares, 20,000,000 North American Class B
Common Shares, and 68,000,000 Shares of undesignated North American
Common Stock and (ii) 2,000,000 shares of North American Preferred
Stock, including 100,000 designated as North American Series A
Preferred Shares. The issued and outstanding capital stock of North
American consists of 2,412,350 North American Class A Common Shares,
7,502,850 North American Class B Shares and 100,000 North American
Series A Preferred Shares, held of record as set forth on the North
American
8
<PAGE> 13
Disclosure Schedule. All of the issued and outstanding North American
Class A Common Shares, North American Class B Common Shares, and North
American Series A Preferred Shares have been duly authorized, validly
issued, fully paid, and nonassessable. Except as set forth in the
North American Disclosure Schedule, there are no outstanding or
authorized options, warrants, purchase rights, subscription rights,
conversion rights, exchange rights, or other contracts or commitments
that could require North American to issue, sell, or otherwise cause
to become outstanding any of its capital stock. Except as set forth in
the North American Disclosure Schedule, there are no outstanding or
authorized stock appreciation, phantom stock, profit participation, or
similar rights with respect to North American. Except as set forth in
the North American Disclosure Schedule, there are no voting trusts,
proxies or other agreements or understandings with respect to the
voting of the capital stock of North American.
(iii) AUTHORIZATION OF TRANSACTION. North American
has full power and authority (including full corporate power and
authority) to execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement constitutes the valid and
legally binding obligation of North American, enforceable in
accordance with its terms and conditions except to the extent
enforcement thereof may be limited by applicable bankruptcy,
reorganization, insolvency or moratorium laws, or other laws affecting
the enforcement of creditors' rights or by the principles governing
the availability of equitable remedies. North American need not give
any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency or any
other Person in order to consummate the transactions contemplated by
this Agreement.
(iv) NONCONTRAVENTION. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court
to which North American is subject or any provision of its charter or
bylaws or (B) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the
right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or
other arrangement to which North American is a party or by which North
American is bound or to which any of its assets is subject (or result
in the imposition of any Security Interest upon any of its assets).
North American need not give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any Person,
government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
(v) BROKERS' FEES. North American has, or prior to
the Closing will have, paid any fees or commissions due from North
American to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement. North American agrees
that it will pay any additional amounts that may become due from North
American
9
<PAGE> 14
to any such broker, finder or agent in the future, including as a
result of any indemnification obligations.
(vi) DISCLOSURE. Neither this Agreement nor any of
the exhibits, attachments, written statements, documents, certificates
or other items prepared for or supplied to the Shareholder by North
American with respect to the transactions contemplated hereby contains
any untrue statement of a material fact or omits to state any material
fact necessary in order to make each statement contained herein or
therein not misleading. There is no fact which North American has not
disclosed to the Shareholder of which North American or any of its
officers or directors is aware and which could be anticipated to have
a Material Adverse Effect on the operations of North American after
the Closing.
4. REPRESENTATIONS AND WARRANTIES CONCERNING TARGET. The Shareholder
represents and warrants to North American that the statements contained in this
ss.4 are correct and complete as of the date of this Agreement and will be
correct and complete as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date of this Agreement throughout
this Section 4), except as set forth in the Disclosure Schedule delivered by
the Shareholder to North American on the date hereof and initialed by the
Parties (the "DISCLOSURE SCHEDULE"). The Disclosure Schedule shall be effective
to modify only those representations and warranties to which the Disclosure
Schedule makes explicit reference. The Disclosure Schedule will be arranged in
paragraphs corresponding to the lettered and numbered paragraphs contained in
this Section 4.
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. Target
is a corporation duly organized, validly existing, and in good standing under
the laws of the jurisdiction of its incorporation. Target is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required. Target has full corporate power and
authority and all licenses, permits, and authorizations necessary to carry on
the businesses in which it is engaged and in which it presently proposes to
engage and to own and use the properties owned and used by it. Section 4(a) of
the Disclosure Schedule lists the directors and officers of Target. Correct and
complete copies of the charter and bylaws of Target (as amended to date) are
included as part of Section 4(a) of the Disclosure Schedule. The minute books
(containing the records of meetings of the shareholders, the board of
directors, and any committees of the board of directors), the stock certificate
books, and the stock record books of Target are correct and complete and a true
and correct copy thereof has been provided to North American. Target is not in
default under or in violation of any provision of its charter or bylaws.
(b) [INTENTIONALLY LEFT BLANK]
(c) CAPITALIZATION. The entire authorized capital stock of
Target consists of 500 Target Shares, of which 100 Target Shares are issued and
outstanding and no Target Shares are held in treasury. All of the issued and
outstanding Target Shares have been duly authorized, are validly issued, fully
paid and nonassessable, and are held of record and owned beneficially
10
<PAGE> 15
by the Shareholder. There are no outstanding or authorized options, warrants,
purchase rights, subscription rights, conversion rights, exchange rights,
preemptive rights or other contracts or commitments that could require Target
to issue, sell, or otherwise cause to become outstanding any of its capital
stock or securities convertible or exchangeable for, or any options,
warranties, or rights to purchase, any of such capital stock. There are no
outstanding obligations of Target to repurchase, redeem or otherwise acquire
any capital stock or any securities convertible into or exchangeable for such
capital stock or any options, warrants or rights to purchase such capital stock
or securities. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to Target.
There are no voting trusts, proxies, or other agreements or understandings with
respect to the voting, transfer, dividend or other rights (such as registration
rights under the Securities Act) of the capital stock of Target.
(d) NONCONTRAVENTION. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated
hereby, will (i) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of
any government, governmental agency, or court to which Target is subject or any
provision of the charter or bylaws of Target or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which Target is a party or by which it is bound or to which any
of its assets is subject (or result in the imposition of any Security Interest
upon any of its assets). Target need not give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any Person,
government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
(e) BROKERS' FEES. Target has, or prior to Closing will have,
paid any fees or commissions due from Target to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement. Shareholder
agrees that he will pay any additional amounts that may become due from Target
to any such broker, finder or agent in the future, including as a result of any
indemnification obligations.
(f) TITLE TO ASSETS. Target has good and marketable title to,
or a valid leasehold interest in, the properties and assets used by it, located
on its premises, or shown on the Most Recent Balance Sheet or acquired after
the date thereof, free and clear of all Security Interests (other than the
Security Interests disclosed on the face of the Most Recent Balance Sheet),
except for properties and assets disposed of in the Ordinary Course of Business
since the date of the Most Recent Balance Sheet, none of which disposals are
expected to have a Material Adverse Effect. The consummation of the
transactions contemplated by this Agreement will not affect Target's good and
marketable title to, or valid leasehold interest in, the properties and assets
described in the preceding sentence.
(g) SUBSIDIARIES. Except as set forth in Section 4(g) of the
Disclosure Schedule, Target does not currently have, and has never had, any
Subsidiaries and does not own any securities of any other Person.
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<PAGE> 16
(h) FINANCIAL STATEMENTS. Attached hereto as EXHIBIT A are
the following internally prepared financial statements (collectively the
"FINANCIAL STATEMENTS"): (i) balance sheets and statements of income as of and
for the fiscal year ended December 31, 1997 (the "MOST RECENT FISCAL YEAR END")
for Target; (ii) balance sheets and statements of income as of and for the
fiscal year ended December 31, 1996 and (iii) balance sheets and statements of
income, (the "MOST RECENT FINANCIAL STATEMENTS") as of and for the period from
January 1, 1998, through July 31, 1998 for Target (the "MOST RECENT FISCAL
PERIOD END"). Except for the utilization of tax depreciation therein, the
Financial Statements (including the notes thereto) have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby, present fairly the financial condition of Target as of such
dates and the results of operations of Target for such periods, are correct and
complete, and are consistent with the books and records of Target (which books
and records are correct and complete).
(i) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. Since
the Most Recent Fiscal Year End and except as disclosed in the Disclosure
Schedule, there has not occurred any Material Adverse Effect and Target has not
engaged in any transactions outside of the Ordinary Course of Business. Without
limiting the generality of the foregoing, since that date:
(i) Target has not sold, leased, transferred, or
assigned any of its assets, tangible or intangible, other than for a
fair consideration in the Ordinary Course of Business;
(ii) Target has not entered into any agreements,
contracts, leases, or licenses either involving more than $10,000 in
the aggregate, having a term greater than 12 months or outside the
Ordinary Course of Business;
(iii) no party (including Target) has accelerated,
terminated, modified, or cancelled any agreements, contracts, leases,
or licenses involving more than $10,000 in the aggregate to which
Target is a party or by which it is bound;
(iv) Target has not imposed or allowed to be imposed
any Security Interest upon any of its assets, tangible or intangible;
(v) Target has not made any capital expenditures
involving more than $10,000 in the aggregate or outside the Ordinary
Course of Business;
(vi) Target has not made any capital investment in,
any loan to, or any acquisition of the securities or assets of, any
other Person;
(vii) Target has not issued any note, bond, or other
debt security or created, incurred, assumed, or guaranteed any
indebtedness for borrowed money or capitalized lease obligation
involving more than $10,000 in the aggregate;
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<PAGE> 17
(viii) Target has not delayed or postponed the
payment of accounts payable and other Liabilities outside the Ordinary
Course of Business;
(ix) Target has not cancelled, compromised, waived,
or released any right or claim either involving more than $10,000 in
the aggregate and outside the Ordinary Course of Business;
(x) Target has not granted any license or sublicense
of any rights under or with respect to any Intellectual Property;
(xi) there has been no change made or authorized in
the charter or bylaws of Target;
(xii) Target has not issued, sold, or otherwise
disposed of any of its capital stock or securities convertible into or
exchangeable for such stock, or granted any options, warrants, or
other rights to purchase or obtain any of such capital stock or
securities;
(xiii) Target has not declared, set aside, or paid
any dividend or made any distribution with respect to its capital
stock (whether in cash or in kind) or redeemed, purchased, or
otherwise acquired any of its capital stock or other securities;
(xiv) Target has not experienced any damage,
destruction, or loss (whether or not covered by insurance) to its
property involving more than $10,000 in the aggregate;
(xv) Target has not made any loan to, or entered
into any other transaction with, any of its directors, officers, and
employees or their "Associates" (as defined in Rule 12b-2 under the
Exchange Act);
(xvi) Target has not entered into any employment
contract or collective bargaining agreement, written or oral, or
modified the terms of any existing such contract or agreement;
(xvii) Target has not granted any increase in any
compensation of any of its directors, officers, or other employees;
(xviii) Target has not adopted, amended, modified,
or terminated any bonus, profit-sharing, incentive, severance, or
other plan, contract, or commitment for the benefit of any of its
directors, officers, or employees (or taken any such action with
respect to any other Employee Benefit Plan);
(xix) Target has not made any other change in
employment terms for any of its directors, officers, or employees
outside the Ordinary Course of Business;
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<PAGE> 18
(xx) Target has not made or pledged to make any
charitable or other capital contribution outside the Ordinary Course
of Business;
(xxi) there has not been any other material
occurrence, event, incident, action, failure to act, or transaction
outside the Ordinary Course of Business involving Target;
(xxii) Target has not increased, or experienced any
change in assumptions underlying or method of calculating, any bad
debt, contingency, tax or other reserves or changed its accounting
practices, methods or assumptions (including changes in estimates or
valuation methods) or written down the value of any assets;
(xxiii) Target has not granted any bonuses or made
any other payments of any kind (other than base compensation in the
Ordinary Course of Business) to any officer, director or employee of
Target, or to any Person related to any of the foregoing Persons; and
(xxiv) Target has not committed to any of the
foregoing.
(j) UNDISCLOSED LIABILITIES. Except as disclosed in Section
4(j) of the Disclosure Schedule, Target does not have any Liability, except for
(i) Liabilities set forth on the face of the Most Recent Balance Sheet (rather
than in any notes thereto) and (ii) Liabilities which have arisen after the
Most Recent Fiscal Year End in the Ordinary Course of Business (none of which
results from, arises out of, relates to, is in the nature of, or was caused by
any breach of contract, breach of warranty, tort, infringement, or violation of
law and none of which could reasonably be expected to have a Material Adverse
Effect).
(k) LEGAL COMPLIANCE. Target and its corporate predecessors
and Affiliates have complied, in all material respects, with all applicable
laws (including rules, regulations, codes, plans, injunctions, judgments,
orders, decrees, rulings, and charges thereunder) of federal, state, local, and
foreign governments (and all agencies thereof), and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand, or notice
has been filed or commenced against any of them alleging any failure so to
comply.
(l) TAX MATTERS.
(i) Target has filed all Tax Returns that it was
required to file. All such Tax Returns were correct and complete in
all respects. All Taxes owed by Target (whether or not shown on any
Tax Return) have been paid or are fully and adequately accrued and
adequately disclosed on the Most Recent Balance Sheet. Target is not
currently the beneficiary of any extension of time within which to
file any Tax Return. No claim has ever been made by an authority in a
jurisdiction where Target does not file Tax Returns that it is or may
be subject to taxation by that jurisdiction. There are no
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<PAGE> 19
Security Interests on any of the assets of Target that arose in
connection with any failure (or alleged failure) to pay any Tax.
(ii) Target has withheld and paid all Taxes required
to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder,
or other third party.
(iii) Neither Shareholder nor Target has Knowledge
that any authority expects to assess any additional Taxes for any
period for which Tax Returns have been filed. There is no action, suit
or proceeding, investigation, dispute or claim now pending or
threatened concerning any Tax Liability of Target or proposed
adjustment to the taxable income of Target either (A) claimed or
raised by any authority in writing or (B) as to which the Shareholder
and Target has Knowledge based upon personal contact with any agent of
such authority. Section 4(l) of the Disclosure Schedule contains a
summary of all Tax Returns filed with respect to Target for the last
three completed tax years, indicates those Tax Returns that have been
audited, and indicates those Tax Returns that currently are the
subject of audit. The Shareholder has made available to North American
correct and complete copies of all Tax Returns, examination reports,
and statements of deficiencies assessed against or agreed to by Target
since January 1, 1994.
(iv) Target has not waived any statute of
limitations in respect of Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency.
(v) Target has not filed a consent under Code
Section 341(f) concerning collapsible corporations. Target has not
made any payments, is not obligated to make any payments, or is not a
party to any agreement that under certain circumstances could obligate
it to make any payments that will not be deductible under Code Section
280G or that would give rise to any obligation to indemnify any Person
for any excise tax payable pursuant to Code Section 4999. The Target
has not been a United States real property holding corporation within
the meaning of Code Section 897(c)(2) during the applicable period
specified in Code Section 897(c)(1)(A)(ii). Target has disclosed on
its federal income Tax Returns all positions taken therein that could
give rise to a substantial understatement of federal income Tax within
the meaning of Code Section 6662. Neither Target nor any predecessor
or affiliate thereof is a party to any Tax allocation, sharing,
indemnification or similar agreement. Target (A) has not been a member
of an Affiliated Group filing a consolidated federal income Tax Return
(other than a group the common parent of which was Target) and (B)
does not have any Liability for the Taxes of any Person (other than
any of Target and its Subsidiaries) under Reg. Section 1.1502-6 (or
any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise. No indebtedness of
Target consists of "corporate acquisition indebtedness" within the
meaning of Code Section 279.
(vi) Section 4(l) of the Disclosure Schedule sets
forth as of the most recent practicable date the basis for Federal
income tax purposes of Target in its assets and the
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<PAGE> 20
amount of any net operating loss, net capital loss, unused investment
or other credit, unused foreign tax credit or excess charitable
contribution allocable to Target.
(vii) The unpaid Taxes of Target (A) did not, as of
the Most Recent Fiscal Period End, exceed the reserve for Tax
Liability set forth on the face of the Most Recent Balance Sheet
(rather than in any notes thereto) and (B) do not, and will not as of
the Closing Date, exceed that reserve as adjusted for the passage of
time through the Closing Date in accordance with the past custom and
practice of Target in filing its Tax Returns.
(m) REAL PROPERTY. Target does not own any real property.
ss.4(m) of the Disclosure Schedule lists and describes briefly all real
property leased or subleased to Target. The Shareholder has delivered to North
American correct and complete copies of the leases and subleases listed in
ss.4(m) of the Disclosure Schedule (as amended to date). With respect to each
lease and sublease listed in Section 4(m) of the Disclosure Schedule:
(i) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect;
(ii) the lease or sublease will continue to be
legal, valid, binding, enforceable, and in full force and effect on
identical terms following the consummation of the transactions
contemplated hereby;
(iii) no party to the lease or sublease is in breach
or default, and no event has occurred which, with notice or lapse of
time, would constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(iv) no party to the lease or sublease has
repudiated any provision thereof;
(v) there are no disputes, oral agreements, or
forbearance programs in effect as to the lease or sublease;
(vi) Target has not received a notice from the
lessor indicating that the lease will not be renewed at the end of its
current term for any additional terms provided for in the lease;
(vii) the term of the lease will continue for a
minimum of six months past the Closing Date;
(viii) the representations and warranties set forth
in subsections (i) through (vii) above are true and correct with
respect to the underlying lease of each sublease;
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(ix) Target has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the
leasehold or subleasehold;
(x) all facilities leased or subleased thereunder
have received all approvals of governmental authorities (including
licenses and permits) required in connection with the operation
thereof and have been operated and maintained in accordance with
applicable laws, rules, and regulations;
(xi) all facilities leased or subleased thereunder
are supplied with utilities and other services necessary for the
operation of said facilities; and
(xii) the Shareholder is not aware of any pending or
threatened foreclosure or other enforcement proceedings relating to
the real property underlying the leases or subleases set forth in
Section 4(m) of the Disclosure Schedule that could result in Target's
loss of possession of such real property.
(n) INTELLECTUAL PROPERTY.
(i) Target owns or has the right to use pursuant to
license, sublicense, agreement, or permission in writing all
Intellectual Property necessary for the operation of the businesses of
Target as presently conducted and as presently proposed to be
conducted. Each item of Intellectual Property owned or used by Target
immediately prior to the Closing hereunder will be owned or available
for use by Target on identical terms and conditions immediately
subsequent to the Closing hereunder. Target has taken all necessary
action to maintain and protect each item of Intellectual Property that
it owns or uses.
(ii) Target has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of third parties, and none of the Shareholder and the
directors and officers (and employees with responsibility for
Intellectual Property matters) of Target has ever received any charge,
complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that
Target must license or refrain from using any Intellectual Property
rights of any third party). To the Knowledge of Shareholder and
Target, no third party has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of Target.
(iii) Section 4(n)(iii) of the Disclosure Schedule
identifies each patent or registration which has been issued to Target
with respect to any of its Intellectual Property, identifies each
pending patent application or application for registration which
Target has made with respect to any of its Intellectual Property, and
identifies each license, agreement, or other permission which Target
has granted to any third party with respect to any of its Intellectual
Property (together with any exceptions). The Shareholder has delivered
to North American correct and complete copies of all such patents,
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registrations, applications, licenses, agreements, and permissions (as
amended to date) and has made available to North American correct and
complete copies of all other written documentation evidencing
ownership and prosecution (if applicable) of each such item. Section
4(n)(iii) of the Disclosure Schedule also identifies each trade name
or unregistered trademark used by Target in connection with any of its
businesses. With respect to each item of Intellectual Property
required to be identified in Section 4(n)(iii) of the Disclosure
Schedule:
(A) Target possesses all right, title, and
interest in and to the item, free and clear of any Security
Interest, license, or other restriction;
(B) the item is not subject to any
outstanding injunction, judgment, order, decree, ruling, or
charge;
(C) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending
or is threatened which challenges the legality, validity,
enforceability, use, or ownership of the item; and
(D) Target has never agreed to indemnify
any Person for or against any interference, infringement,
misappropriation, or other conflict with respect to the item.
(iv) Section 4(n)(iv) of the Disclosure Schedule
identifies each item of Intellectual Property that any third party
owns and that Target uses pursuant to license, sublicense, agreement,
or permission. The Shareholder has delivered to North American correct
and complete copies of all such licenses, sublicenses, agreements, and
permissions (as amended to date). With respect to each item of
Intellectual Property required to be identified in Section 4(n)(iv) of
the Disclosure Schedule:
(A) the license, sublicense, agreement, or
permission covering the item is legal, valid, binding,
enforceable, and in full force and effect;
(B) the license, sublicense, agreement, or
permission will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated
hereby;
(C) no party to the license, sublicense,
agreement, or permission is in breach or default, and no
event has occurred which with notice or lapse of time would
constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(D) no party to the license, sublicense,
agreement, or permission has repudiated any provision
thereof;
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(E) the representations and warranties set
forth in subsections (A) through (D) above are true and
correct with respect to the underlying license of each
sublicense;
(F) the underlying item of Intellectual
Property is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
(G) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending
or is threatened which challenges the legality, validity, or
enforceability of the underlying item of Intellectual
Property; and
(H) Target has never granted any sublicense
or similar right with respect to the license, sublicense,
agreement, or permission.
(v) To the Knowledge of Shareholder and Target,
Target will not interfere with, infringe upon, misappropriate, or
otherwise come into conflict with, any Intellectual Property rights of
third parties as a result of the continued operation of its businesses
as presently conducted and as presently proposed to be conducted.
(vi) None of the Shareholder and Target has any
Knowledge of any new products, inventions, procedures, or methods of
manufacturing or processing that any competitors or other third
parties have developed which reasonably could be expected to supersede
or make obsolete any product or process of any of Target.
(o) TANGIBLE ASSETS. Target owns or leases all buildings,
machinery, equipment, and other tangible assets necessary for the conduct of
its business as presently conducted and as presently proposed to be conducted.
Each such tangible asset is in good operating condition and repair (subject to
normal wear and tear), and is suitable for the purposes for which it presently
is used. Section 4(o) of the Disclosure Schedule lists all tangible assets
owned by Target.
(p) INVENTORY. Target has no inventory.
(q) CONTRACTS. Section 4(q) of the Disclosure Schedule lists
all the contracts and other agreements to which Target is a party. The
Shareholder has delivered to North American a correct and complete copy of each
written agreement listed in Section 4(q) of the Disclosure Schedule (as amended
to date). With respect to each such agreement:
(i) the agreement is legal, valid, binding,
enforceable, and in full force and effect;
(ii) the agreement will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms
with respect to Target, and to the
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Knowledge of the Shareholder, with respect to any other parties
thereto, following the consummation of the transactions contemplated
hereby;
(iii) neither Target, nor to the Knowledge of the
Shareholder, any other party is in breach or default, and no event has
occurred which with notice or lapse of time would constitute a breach
or default, or permit termination, modification, or acceleration,
under the agreement; and
(iv) neither Target, nor to the Knowledge of the
Shareholder, any other party has repudiated any provision of the
agreement. Section 4(q) of the Disclosure Schedule lists each currently
outstanding bid or proposal for business submitted by Target in excess
of $100,000.
(r) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts
receivable of Target are reflected properly on the Most Recent Balance Sheet in
accordance with GAAP, are valid receivables subject to no setoffs or
counterclaims, are current and collectible, and will be collected in accordance
with their terms at their recorded amounts, subject only to the reserve for bad
debts set forth on the face of the Most Recent Balance Sheet (rather than in
any notes thereto) as adjusted for the passage of time through the Closing Date
in accordance with the past custom and practice of Target.
(s) POWERS OF ATTORNEY. There are no outstanding powers of
attorney executed on behalf of Target.
(t) INSURANCE. Section 4(t) of the Disclosure Schedule
includes a true, correct and complete list of all policies of insurance
(including policies providing property, casualty, liability, and workers'
compensation coverage and bond and surety arrangements) to which Target is a
party, a named insured, or otherwise the beneficiary of coverage. Genuine and
complete copies of each of the insurance policies listed in Section 4(t) of the
Disclosure Schedule have been provided to North American. With respect to each
such insurance policy:
(i) the policy is legal, valid, binding,
enforceable, and in full force and effect;
(ii) the policy will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms
with respect to Target, and to the Knowledge of the Shareholder, with
respect to any other parties thereto, following the consummation of
the transactions contemplated hereby;
(iii) neither Target nor, to the Knowledge of the
Shareholder, any other party to the policy is in breach or default
(including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of
time, would constitute such a breach or default, or permit
termination, modification, or acceleration, under the policy;
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(iv) to the Knowledge of the Shareholder, neither
Target, any ERISA Affiliate nor North American shall be subject to a
retroactive rate adjustment, loss sharing arrangement or other actual
or contingent liability; and
(v) to Shareholder's and Target's Knowledge, no
party to the policy has repudiated any provision thereof. Target has
been fully covered at all times during the past five years by
insurance in scope and amount customary and reasonable for the
businesses in which it has engaged during the aforementioned period.
Section 4(t) of the Disclosure Schedule describes any self-insurance
arrangements affecting Target.
(u) LITIGATION. Section 4(u) of the Disclosure Schedule sets
forth each instance in which Target (i) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (ii) is a party, or
to the Knowledge of Shareholder and Target, is threatened to be made a party to
any claim, action, suit, proceeding, hearing, or investigation of, in or before
any court or quasi-judicial or administrative agency of any federal, state,
local, or foreign jurisdiction or before any arbitrator. Except as set forth in
ss.4(u) of the Disclosure Schedule, there is no other pending, or to the
knowledge of Shareholder and Target, threatened claim, arbitration proceeding,
action, suit, investigation or other proceeding against or involving Target or
any property or rights of Target or any officer or director or Target. None of
the actions, suits, proceedings, hearings, and investigations set forth in
ss.4(u) of the Disclosure Schedule could result in any Material Adverse Effect.
Neither the Shareholder nor the directors and officers (and employees with
responsibility for litigation matters) of Target has any reason to believe that
any such action, suit, proceeding, hearing, or investigation may be brought or
threatened against Target.
(v) COMMITMENTS AND WARRANTIES. All services provided by the
Target have been performed in conformity with all applicable contractual
commitments (written or oral) and all express and implied warranties (written
or oral), and Target has no Liability and, to the Knowledge of the Shareholder
and Target, there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any Liability) in connection with any such services.
ss.4(v) of the Disclosure Schedule includes copies of the standard forms of
agreement entered into between Target and its customers. Target has not entered
into any written or oral agreements with any of its customers that include
guaranties, warranties, or indemnity provisions other than those contained in
the agreements included as part of Section 4(v) of the Disclosure Schedule.
Neither Target nor the Shareholder has received notice
(written or oral) from any of its customers stating that the customer intends
to reduce the volume of business that it currently conducts with Target or to
cease doing business with Target. Target has not entered into any minimum
purchase commitments or guaranteed pricing agreements.
(w) LIABILITY FOR SERVICES PERFORMED. Target has no Liability
(and, to Share- holder's Knowledge, there is no Basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim, or
demand against any of them giving rise to any
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Liability) arising out of any injury to individuals or property as a result of
or in connection with any services provided by Target.
(x) EMPLOYEES. To the Knowledge of the Shareholder and
Target, no executive, key employee, or group of employees has any plans to
terminate employment with Target. Target is not currently, nor at any prior
time has been, a party to or bound by any collective bargaining agreement, nor
has Target experienced any strikes, grievances, claims of unfair labor
practices, or other collective bargaining disputes. Target has not committed
any unfair labor practice. Neither the Shareholder nor Target has any Knowledge
of any organizational effort presently being made or threatened by or on behalf
of any labor union with respect to employees of Target.
(y) EMPLOYEE BENEFITS.
(i) Section 4(y) of the Disclosure Schedule lists
each Employee Benefit Plan that Target or any ERISA Affiliate
maintains, contributes to, or is required to contribute to or under
which Target or any ERISA Affiliate has any liability.
(A) Each such Employee Benefit Plan (and
each related trust, insurance contract, or fund) complies in
form and in operation in all respects with the applicable
requirements of ERISA, the Code, and other applicable laws.
(B) All required reports and disclosures
(including Form 5500 Annual Reports, Summary Annual Reports,
PBGC-1's, and Summary Plan Descriptions) have been filed or
distributed appropriately with respect to each such Employee
Benefit Plan. The requirements of Part 6 of Subtitle B of
Title I of ERISA and of Code Section 4980B have been met with
respect to each such Employee Benefit Plan which is an
Employee Welfare Benefit Plan.
(C) All contributions (including all
employer contributions and employee salary reduction
contributions) which are due have been paid to each such
Employee Benefit Plan which is an Employee Pension Benefit
Plan and all contributions for any period ending on or before
the Closing Date which are not yet due have been paid to each
such Employee Pension Benefit Plan or accrued in accordance
with the past custom and practice of Target and in accordance
with GAAP. All premiums or other payments for all periods
ending on or before the Closing Date have been paid with
respect to each such Employee Benefit Plan which is an
Employee Welfare Benefit Plan.
(D) Each such Employee Benefit Plan which
is an Employee Pension Benefit Plan now meets and at all
times since inception has met the requirements of a
"qualified plan" under Code Section 401(a) and has received,
within the last two years, a favorable determination letter
from the Internal Revenue Service.
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(E) As of the Closing Date, the market
value of assets under each such Employee Benefit Plan which
is an Employee Pension Benefit Plan (other than any
Multiemployer Plan) will equal or exceed the present value of
all vested and nonvested Liabilities thereunder determined in
accordance with PBGC methods, factors, and assumptions
applicable to an Employee Pension Benefit Plan terminating on
such date.
(F) The Shareholder has delivered to North
American correct and complete copies of the plan documents
and summary plan descriptions including all amendments
thereto, the most recent determination letter received from
the Internal Revenue Service, the three most recent Form 5500
Annual Reports (including all schedules thereto), the three
most recent annual premium payment forms filed with the PBGC,
and all related trust agreements, insurance contracts, and
other funding agreements which implement each such Employee
Benefit Plan.
(ii) With respect to each Employee Benefit Plan that
Target or any ERISA Affiliate maintains, contributes to, or is
required to contribute to or under which Target or any ERISA Affiliate
has any liability:
(A) No such Employee Benefit Plan which is
an Employee Pension Benefit Plan (other than any
Multiemployer Plan) has been completely or partially
terminated or been the subject of a Reportable Event as to
which notices would be required to be filed with the PBGC. No
proceeding by the PBGC to terminate any such Employee Pension
Benefit Plan (other than any Multiemployer Plan) has been
instituted or threatened.
(B) There have been no Prohibited
Transactions with respect to any such Employee Benefit Plan.
No Fiduciary has any Liability for breach of fiduciary duty
or any other failure to act or comply in connection with the
administration or investment of the assets of any such
Employee Benefit Plan. No action, suit, proceeding, hearing,
or investigation with respect to any such Employee Benefit
Plan (other than routine claims for benefits) is pending or
threatened. Neither the Shareholder nor Target has any
Knowledge of any Basis for any such action, suit, proceeding,
hearing, or investigation.
(C) Neither Target nor any ERISA Affiliate
has incurred, and none of the Shareholder, the directors and
officers (and employees with responsibility for employee
benefits matters) of Target has any reason to expect that
Target or any ERISA Affiliate will incur, any Liability to
the PBGC (other than PBGC premium payments) or otherwise
under Title IV of ERISA (including any withdrawal Liability)
or under the Code with respect to any such Employee Benefit
Plan which is an Employee Pension Benefit Plan.
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(iii) Neither Target nor any ERISA Affiliate
contributes to, ever has contributed to, or ever has been required to
contribute to, any Multiemployer Plan or has any Liability (including
withdrawal Liability) under any Multiemployer Plan.
(iv) Neither Target nor any ERISA Affiliate
maintains or contributes to, or has ever been required to contribute
to, any Employee Welfare Benefit Plan providing medical, health, or
life insurance or other welfare-type benefits for current or future
retired or terminated employees, their spouses, or their dependents
(other than in accordance with Code Section 4980B).
(z) GUARANTIES. Target is not a guarantor or otherwise liable
for any Liability or obligation (including indebtedness) of any other Person.
(aa) ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS.
(i) Target and its corporate predecessors and
Affiliates have complied and are in compliance with all Environmental,
Health, and Safety Requirements.
(ii) Without limiting the generality of the
foregoing, Target and its Affiliates have obtained and complied with,
and are in compliance with, all permits, licenses and other
authorizations that are required pursuant to Environmental, Health,
and Safety Requirements for the occupation of its facilities and the
operation of its business; a list of all such permits, licenses and
other authorizations is set forth on Section 4(aa) of the Disclosure
Schedule.
(iii) Neither Target nor its corporate predecessors
or Affiliates has received any written or oral notice, report or other
information regarding any actual or alleged violation of
Environmental, Health, and Safety Requirements, or any liabilities or
potential liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise), including any investigatory, remedial or
corrective obligations, relating to any of them or its facilities
arising under Environmental, Health, and Safety Requirements.
(iv) None of the following exists at any property or
facility owned or operated by Target: (1) underground storage tanks,
(2) asbestos-containing material in any form or condition, (3)
materials or equipment containing polychlorinated biphenyls, or (4)
landfills, surface impoundments, or disposal areas.
(v) None of Target or its corporate predecessors or
Affiliates has treated, stored, disposed of, arranged for or permitted
the disposal of, transported, handled, or released any substance,
including without limitation any hazardous substance, or owned or
operated any property or facility (and no such property or facility is
contaminated by any such substance) in a manner that has given or
would give rise to liabilities, including any liability for response
costs, corrective action costs, personal injury, property damage,
natural resources damages or attorney fees, pursuant to the
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Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended ("CERCLA"), the Solid Waste Disposal Act, as
amended ("SWDA") or any other Environmental, Health, and Safety
Requirements.
(vi) Neither this Agreement nor the consummation of
the transactions that are the subject of this Agreement will result in
any obligations for site investigation or cleanup, or notification to
or consent of government agencies or third parties, pursuant to any of
the so-called "transaction-triggered" or "responsible property
transfer" Environmental, Health, and Safety Requirements.
(vii) Neither Target nor its corporate predecessors
or Affiliates has, either expressly or by operation of law, assumed or
undertaken any liability, including without limitation any obligation
for corrective or remedial action, of any other Person relating to
Environmental, Health, and Safety Requirements.
(viii) No facts, events or conditions relating to
the past or present facilities, properties or operations of Target or
any of its corporate predecessors or Affiliates will prevent, hinder
or limit continued compliance with Environmental, Health, and Safety
Requirements, give rise to any investigatory, remedial or corrective
obligations pursuant to Environmental, Health, and Safety Requirements
(whether on-site or off-site), or give rise to any other liabilities
(whether accrued, absolute, contingent, unliquidated or otherwise)
pursuant to Environmental, Health, and Safety Requirements, including
without limitation any relating to onsite or offsite releases or
threatened releases of hazardous materials, substances or wastes,
personal injury, property damage or natural resources damage.
(ab) CERTAIN BUSINESS RELATIONSHIPS WITH TARGET. Neither the
Shareholder, his Affiliates, any director or employee of Target, or any
relatives of the Shareholder, or any person living in the same residence as
such persons, has been involved in any business arrangement or relationship
with Target within the past 12 months, and neither the Shareholder nor his
respective Affiliates nor any of such other persons owns leases, licenses, or
otherwise has any interest in any asset, tangible or intangible, which is used
in the business of Target or any contract, lease or commitment to which Target
is a party. Target is not indebted to any officer, director or employee of
Target for any liability or obligation. No officer, director or employee of
Target is indebted to Target for any liability or obligation.
(ac) CUSTOMERS AND SUPPLIERS. No purchase order or commitment
of Target is in excess of normal requirements, nor are prices provided therein
in excess of current market prices for the products or services to be provided
thereunder. No material supplier of Target has advised Target in writing during
the past 12 months that it will stop, or decrease the rate of, supplying
materials, products or services to Target and no material customer of Target
has advised Target in writing during the past 12 months that it will stop, or
decrease the rate of buying materials, products or services from Target.
ss.4(ac) of the Disclosure Schedule sets forth a list of (a) each customer that
accounted for more that 5% of the consolidated revenues of
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Target during the last full fiscal year or the interim period through the date
of the Most Recent Financial Statements and the amount of revenues accounted
for by such customer during each such period and (b) each supplier that is the
sole supplier of any significant product or component to Target. The
consummation of the transactions contemplated hereby will not have a Material
Adverse Effect on Target's relationship with any customer or supplier listed in
ss.4(ac) of the Disclosure Schedule.
(ad) DISCLOSURE. Neither this Agreement nor any of the
exhibits, attachments, written statements, documents, certificates or other
items prepared for or supplied to North American by or on behalf of Target or
the Shareholder with respect to the transactions contemplated hereby contains
any untrue statement of a material fact or omits to state any material fact
necessary in order to make each statement contained herein or therein not
misleading. There is no fact which Target or the Shareholder has not disclosed
to North American herein and of which the Shareholder, Target, or any of
Target's officers or directors is aware and which could be anticipated to have
a Material Adverse Effect.
5. PRE-CLOSING COVENANTS. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing.
(a) GENERAL. Each of the Parties will use his or its best
efforts to take all action and to do all things necessary, proper, or advisable
in order to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions
set forth in Section 7 below).
(b) SHAREHOLDER DISTRIBUTION. Target shall declare, and
record as a liability of Target, a cash distribution to be paid to the
Shareholder in an amount equal to the estimated federal income tax to be paid
by the Shareholder, with respect to the earnings and profits of Target, for the
period from January 1, 1998 through the Closing Date (the "SHAREHOLDER
DISTRIBUTION").
(c) NOTICES AND CONSENTS. The Shareholder will cause Target
to give any notices to third parties, and will cause Target to use its best
efforts to obtain any third party consent required in connection with the
matters referred to in Section 4(d) above. Each of the Parties will (and the
Shareholder will cause Target to) give any notices to, make any filings with,
and use its best efforts to obtain any authorizations, consents, and approvals
of governments and governmental agencies in connection with the matters
referred to in Section 3(a)(ii), Section 3(b)(iv), and Section 4(d) above.
(d) OPERATION OF BUSINESS. The Shareholder will not cause or
permit Target to engage in any practice, take any action, or enter into any
transaction outside the Ordinary Course of Business. Without limiting the
generality of the foregoing, the Shareholder will not cause or permit Target to
(i) declare, set aside, or pay any dividend or make any distribution with
respect to its capital stock or redeem, purchase, or otherwise acquire any of
its capital stock, except for the Shareholder Distribution; or (ii) otherwise
engage in any practice, take any
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action, or enter into any transaction of the sort described in Section 4(i)
above. The Shareholder will immediately notify North American in writing with
respect to any proposed capital expenditures in excess of $10,000.
(e) PRESERVATION OF BUSINESS. The Shareholder will cause
Target to keep its business and properties substantially intact, including its
present operations, physical facilities, working conditions, and relationships
with lessors, licensors, suppliers, customers, and employees.
(f) FULL ACCESS. The Shareholder will permit, and will cause
Target to permit, representatives of North American to have full access at all
reasonable times, and in a manner so as not to interfere with the normal
business operations of Target, to all premises, properties, personnel, books,
records (including Tax records), contracts, and documents of or pertaining to
Target. At the request of North American, Shareholder will permit, and will
cause Target to permit, North American's lenders, and their respective counsel,
to have the same access as permitted to North American in accordance with the
immediately preceding sentence.
(g) NOTICE OF DEVELOPMENTS. Each of the Parties will give
prompt written notice to the other Parties of any breach of any of the
representations and warranties in Section 4 above. Each Party will give prompt
written notice to the others of any breach of any of his or its own
representations and warranties in Section 3 above. No disclosure by any Party
pursuant to this Section 5(g), however, shall be deemed to amend or supplement
the North American Disclosure Schedule or the Disclosure Schedule or to prevent
or cure any misrepresentation, breach of warranty, or breach of covenant.
(h) EXCLUSIVITY. The Shareholder will not (and the
Shareholder will not cause or permit Target to) (i) solicit, initiate, or
encourage the submission of any proposal or offer from any Person relating to
the acquisition of any capital stock or other voting securities, or any
substantial portion of the assets, of Target (including any acquisition
structured as a merger, consolidation, or share exchange) or (ii) participate
in any discussions or negotiations regarding, furnish any information with
respect to, assist or participate in, or facilitate in any other manner any
effort or attempt by any Person to do or seek any of the foregoing. The
Shareholder will notify North American immediately if any Person makes any
proposal, offer, inquiry, or contact with respect to any of the foregoing.
(i) NO TERMINATION OF SHAREHOLDER'S OBLIGATION BY SUBSEQUENT
INCAPACITY. Shareholder specifically agrees that his obligations hereunder,
including, without limitation, the obligations pursuant to Section 8 hereof,
shall not be eliminated by his death or incapacity.
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6. POST-CLOSING COVENANTS. The Parties agree as follows with respect
to the period following the Closing.
(a) GENERAL. In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, each of the Parties will take such further action (including the
execution and delivery of such further instruments and documents) as any other
Party reasonably may request, all at the sole cost and expense of the
requesting Party (unless the requesting Party is entitled to indemnification
therefor under Section 8 below). The Shareholder acknowledges and agrees that
from and after the Closing North American will be entitled to possession of all
documents, books, records (including Tax records), agreements, and financial
data of any sort relating to Target.
(b) LITIGATION SUPPORT. In the event and for so long as any
Party actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving Target, each of the other Parties will cooperate
with him or it and his or its counsel in the contest or defense, make available
their personnel, and provide such testimony and access to their books and
records as shall be necessary in connection with the contest or defense, all at
the sole cost and expense of the contesting or defending Party (unless the
contesting or defending Party is entitled to indemnification therefor under
ss.8 below).
(c) TRANSITION. The Shareholder will not take any action that
is designed or intended to have the effect of discouraging any lessor,
licensor, customer, supplier, or other business associate of Target from
maintaining the same business relationships with Target after the Closing as it
maintained with Target prior to the Closing. The Shareholder will refer all
customer inquiries relating to the businesses of Target to North American from
and after the Closing.
(d) INDEPENDENT ACCOUNTANTS. After the Closing, Shareholder
shall (i) use reasonable efforts to cause Target's past and present independent
auditors and accounting personnel to make available to North American and its
representatives all financial information, including the right to examine all
working papers pertaining to audits or reviews previously or hereafter made by
such auditors, and (ii) provide such cooperation as North American and its
representatives may reasonably request in connection with any audit or review
of Target that North American may direct its representatives to make. Without
limiting the generality of the foregoing, the Shareholder agrees that he will
cooperate with, and cause Target's past and present independent auditors,
accounting personnel and other necessary persons to cooperate with North
American in the preparation, at North American's expense, of any documents
filed by North American with the U.S. Securities and Exchange Commission in
connection with an offering of securities, to the extent information about
Target is required therein.
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(e) TAX MATTERS. The Shareholder covenants and agrees not to
take any action, or fail to take any action, with respect to Taxes, that would
have a Material Adverse Effect on North American on or after the Closing Date,
including, without limitation, amending or otherwise supplementing any Tax
Return or report of Target with respect to any period prior to the Closing Date
without the consent of North American. If any taxing authority conducts any
audit or investigation relating to Target prior to the Closing Date, North
American may, in its sole election, have the right to supervise such audit or
investigation and provide any response required in connection therewith.
(f) STOCK OPTIONS. North American has adopted a stock
incentive plan (the "Stock Incentive Plan") pursuant to which stock options and
other forms of stock-based compensation may be awarded to the officers,
directors and employees of North American and its subsidiaries. The key
employees of Target shall be eligible to receive awards under the Stock
Incentive Plan of options to acquire shares of North American stock. Within 60
days of the Closing, the officers of Target shall recommend to the Stock Option
Committee under the Stock Incentive Plan the terms, conditions and amounts of
awards to be granted and the identity of the key employees of Target to receive
such awards; however, all such awards, and the terms and conditions thereof,
shall be finally determined by the Stock Option Committee.
(g) AUDITED FINANCIAL STATEMENTS. At the request of North
American, Shareholder shall cause Target's auditors to prepare audited
consolidated balance sheets and statements of income, changes in stockholders'
equity, and cash flow including the audit report thereon as of and for the
12-month periods ended December 31, 1996 and December 31, 1997 for the Target.
Except as set forth in Section 8(b)(ii) hereof, all costs associated with the
preparation and audit of Target's December 31, 1996 and December 31, 1997
financial statements shall be paid by North American.
7. CONDITIONS TO OBLIGATION TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF NORTH AMERICAN. The
obligation of North American to consummate the transactions to be performed by
it in connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth in
Section 3(a) and Section 4 above shall be true and correct in all
material respects at and as of the Closing Date and there shall not
have occurred any Material Adverse Effect;
(ii) the Shareholder and Target shall have performed
and complied with all of his and its covenants hereunder in all
material respects through the Closing;
(iii) Target shall have procured all of the third
party consents specified in Section 5(b) above;
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(iv) no action, suit, or proceeding shall be pending
or threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction, or
before any arbitrator, wherein an unfavorable injunction, judgment,
order, decree, ruling, or charge would (A) prevent consummation of any
of the transactions contemplated by this Agreement, (B) cause any of
the transactions contemplated by this Agreement to be rescinded
following consummation, (C) have a Material Adverse Effect on the
right of Target to own its assets and to operate its businesses (and
no such injunction, judgment, order, decree, ruling, or charge shall
be in effect);
(v) the Parties shall have received all
authorizations, consents, and approvals of governments and
governmental agencies referred to in Section 3(a)(ii), Section
3(b)(iv), and Section 4(d) above;
(vi) North American shall have received from counsel
to the Shareholder an opinion in form and substance as set forth in
EXHIBIT B attached hereto, addressed to North American and dated as of
the Closing Date;
(vii) all actions to be taken by the Shareholder in
connection with the consummation of the transactions contemplated
hereby and all certificates, opinions, instruments, and other
documents required to effect the transactions contemplated hereby will
be reasonably satisfactory in form and substance to North American;
(viii) at least five business days prior to the
Closing, North American shall have received a balance sheet prepared
by Target, estimating the assets, liabilities and shareholders' equity
of Target as of the Closing Date (the "Estimated Closing Balance
Sheet"). The Estimated Closing Balance Sheet shall be prepared in
accordance with the method set forth in Section 9(a) for the
preparation of the Draft Closing Balance Sheet and will reflect (A)
shareholders' equity ("Shareholders' Equity") of at least $265,000.00
and (B) cash ("Cash") of at least $60,000.00. North American shall not
have objected to, challenged or otherwise repudiated any of the
amounts included in the Estimated Closing Balance Sheet;
(ix) North American shall have received an
appraisal, from an appraiser selected by North American, that states
that the fair market value of Target's tangible assets listed in
Section 4(o) of the Disclosure Schedule is at least equal to the book
value, i.e., cost less depreciation, of such assets reflected in the
Closing Balance Sheet.
(x) at least five business days prior to the
Closing, Shareholder shall have delivered to North American a
statement of income of Target for the four months ended April 30, 1998
which reflects earnings before interest, taxes, depreciation and
amortization expense ("EBITDA") of at least $225,000.00.
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(xi) Shareholder shall have delivered to North
American financial projections for Target for the calendar years 1998,
1999 and 2000, which reflect at least 10% growth in gross revenues per
year and net income before income taxes on a pro-forma basis equal to
at least 10% of revenues per year.
(xii) Target shall have delivered evidence of its
qualification to do business in each jurisdiction where it is so
qualified and a certificate of good standing issued by the Secretary
of State of each such jurisdiction demonstrating that Target is in
good standing in that jurisdiction;
(xiii) Michael Wallace shall have entered into an
Employment Agreement with Target in the form attached hereto as
EXHIBIT C;
(xiv) the Shareholder shall have signed the Amended
and Restated Stockholders' Agreement;
(xv) the board of directors of North American shall
have approved the consummation of the transactions contemplated by
this Agreement; and
(xvi) all actions to be taken by the Shareholder in
connection with consummation of the transactions contemplated hereby
and all certificates, opinions, instruments, and other documents
required to effect the transactions contemplated hereby will be
reasonably satisfactory in form and substance to North American.
North American may waive any condition specified in this Section 7(a) if it
executes a writing so stating at or prior to the Closing.
(b) CONDITIONS TO OBLIGATION OF THE SHAREHOLDER. The
obligation of the Shareholder to consummate the transactions to be performed by
him in connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth in
Section 3(b) above shall be true and correct in all material respects
at and as of the Closing Date;
(ii) North American shall have performed and
complied with all of its covenants hereunder in all material respects
through the Closing;
(iii) no action, suit, or proceeding shall be
pending or threatened before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign
jurisdiction, or before any arbitrator, wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this
Agreement or (B) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation (and no such
injunction, judgment, order, decree, ruling, or charge shall be in
effect);
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(iv) the Parties shall have received all
authorizations, consents, and approvals of governments and
governmental agencies referred to in Section 3(a)(ii), Section
3(b)(iv), and Section 4(d) above;
(v) Shareholder shall have received from counsel to
North American an opinion in form and substance as set forth in
EXHIBIT D attached hereto, addressed to the Shareholder, and dated as
of the Closing Date;
(vi) this Agreement and the transactions
contemplated hereby shall have been approved by the Board of Directors
of North American;
(vii) all actions to be taken by North American in
connection with consummation of the transactions contemplated hereby
and all certificates, opinions, instruments, and other documents
required to effect the transactions contemplated hereby will be
reasonably satisfactory in form and substance to the Shareholder.
The Shareholder may waive any condition specified in this Section 7(b) if he
executes a writing so stating at or prior to the Closing.
8. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations, warranties, covenants and agreements of the Parties contained
in this Agreement or in any certificate, document, instrument or agreement
delivered pursuant to this Agreement shall survive the Closing hereunder
(notwithstanding any due diligence investigations that may have been undertaken
by the damaged Party) and continue in full force and effect for a period of
five years following the Closing. Notwithstanding the foregoing, a claim for
indemnification in respect of a breach of the representations and warranties
set forth in Section 3(a), 3(b), 4(a)-(f), 4(l), 4(y) and 4(aa) may be made at
anytime following the Closing Date, until the expiration of the applicable
statute of limitations, and are not subject to the foregoing limitation.
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF NORTH AMERICAN.
(i) In the event the Shareholder breaches (or in the
event that any third party alleges facts that, if true, would mean
that the Shareholder has breached) any of his representations,
warranties (or any of such representations or warranties is untrue or
inaccurate), covenants and agreements contained herein or in any
certificate, document, instrument or agreement delivered pursuant to
this Agreement, and, provided that the Indemnified Buyers (as
hereafter defined) make a written claim for indemnification against
the Shareholder pursuant to Section 12(g) below within the applicable
claim period provided in 8(a) above, then the Shareholder agrees to
indemnify North American and each of its officers, directors,
employees, representatives and shareholders (the "Indemnified Buyers")
from and against the entirety of any Adverse Consequences the
Indemnified Buyers may suffer through and after the date of the claim
for indemnification
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(including any Adverse Consequences the Indemnified Buyers may suffer
after the end of any applicable claim period) resulting from, arising
out of, relating to, in the nature of, or caused by the breach (or the
alleged breach).
(ii) Without limiting any other indemnification
provided in this Section 8, the Shareholder agrees to indemnify the
Indemnified Buyers from and against the entirety of any Adverse
Consequences the Indemnified Buyers may suffer resulting from, arising
out of, relating to, in the nature of, or caused by any Liability of
Target (x) for any Taxes of Target with respect to any Tax year or
portion thereof ending on or before the Closing Date or for any Tax
year beginning before and ending after the Closing Date to the extent
allocable (determined in a manner consistent with Section 9(b)) to the
portion of such period beginning before and ending on the Closing
Date), (A) to the extent such Taxes are not reflected in the reserve
for Tax Liability shown on the face of the Most Recent Balance Sheet,
or (B) to the extent such Taxes (and related legal and accounting
fees) are incurred by North American in connection with auditing
adjustments made to the Financial Statements by Target's auditors; or
(y) for the unpaid Taxes of any Person (other than Target) under Reg.
Section 1.1502-6 (or any similar provision of state, local, or foreign
law), as a transferee or successor, by contract, or otherwise.
(iii) Without limiting any other indemnification
provided in this Section 8, Shareholder agrees to indemnify the
Indemnified Buyers from and against the entirety of any Adverse
Consequences they may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the activities of any entity which
at any time has been owned, in whole or in part, by Target.
(iv) Without limiting any other indemnification
provided in this Section 8, Shareholder agrees to indemnify the
Indemnified Buyers from and against the entirety of any Adverse
Consequences they may suffer resulting from, or arising out of,
relating to, or in the nature of or caused by any claim by a
stockholder or former stockholder of Target or any other Person
seeking to assert: (i) ownership or rights to ownership of any shares
of capital stock of Target or any Subsidiary, (ii) any rights of a
stockholder (other than the right to receive the Consideration)
including any option, preemptive rights or rights to receive notice or
to vote, (iii) any rights under Target's charter, bylaws or other
constituent documents, or (iv) any claim that his shares of capital
stock were to be repurchased by Target.
(v) Without limiting any other indemnification
provided in this Section 8, Shareholder agrees to indemnify the
Indemnified Buyers from and against the entirety of any Adverse
Consequences they may suffer resulting from, or arising out of,
relating to, or in the nature of or caused by any claim by a
dissenting shareholder that the Consideration is less than the fair
value of his shares.
(vi) Without limiting any other indemnification
provided in this Section 8, Shareholder agrees to indemnify the
Indemnified Buyers from and against the entirety of
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any Adverse Consequences they may suffer as a result of a taxing
authority taking the position that any former or current subcontractor
of Target should have been, at any time prior to the Closing Date,
treated as an employee of Target.
(vii) Without limiting any other indemnification
provided in this Section 8, Shareholder agrees to indemnify the
Indemnified Buyers from and against the entirety of any Adverse
Consequences they may suffer as a result of Target's failure to be
duly authorized to conduct business and in good standing under the
laws of any jurisdiction where such qualification is or has been
required as of or prior to the Closing Date.
(viii) Without limiting any other indemnification
provided in this Section 8, Shareholder agrees to indemnify the
Indemnified Buyers from and against the entirety of any Adverse
Consequences they may suffer as a result of any warranty claims made
against Target after the Closing Date for services begun or completed
by Target prior to the Closing Date.
(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE SHAREHOLDER.
In the event North American breaches (or in the
event any third party alleges facts that, if true, would mean North
American had breached) any of its representations, warranties (or any
of such representations or warranties is untrue or inaccurate),
covenants and agreements contained herein or in any certificate,
document, instrument or agreement delivered pursuant to this
Agreement, and, provided that the Shareholder makes a written claim
for indemnification against North American pursuant to Section 12(g)
below within the applicable claim period provided in 8(a) above, then
North American agrees to indemnify the Shareholder and each of his
representatives (the "Indemnified Shareholders") from and against the
entirety of any Adverse Consequences the Indemnified Shareholders may
suffer through and after the date of the claim for indemnification
(including any Adverse Consequences the Indemnified Shareholders may
suffer after the end of any applicable claim period) resulting from,
arising out of, relating to, in the nature of, or caused by the breach
(or the alleged breach).
(d) MATTERS INVOLVING THIRD PARTIES.
(i) If any third party shall notify any party
entitled to indemnification hereunder (the "INDEMNIFIED PARTY") with
respect to any matter (a "THIRD PARTY CLAIM") which may give rise to a
claim for indemnification against any other Party (the "INDEMNIFYING
PARTY") under this Section 8, then the Indemnified Party shall
promptly notify each Indemnifying Party thereof in writing; PROVIDED,
HOWEVER, that no delay on the part of the Indemnified Party in
notifying any Indemnifying Party shall relieve the Indemnifying Party
from any obligation hereunder unless (and then solely to the extent)
the Indemnifying Party thereby is materially prejudiced.
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(ii) Any Indemnifying Party will have the right to
defend the Indemnified Party against the Third Party Claim with
counsel of its choice reasonably satisfactory to the Indemnified Party
so long as (A) the Indemnifying Party notifies the Indemnified Party
in writing within 15 business days after the Indemnified Party has
given notice of the Third Party Claim that the Indemnifying Party will
indemnify the Indemnified Party from and against the entirety of any
Adverse Consequences the Indemnified Party may suffer resulting from,
arising out of, relating to, in the nature of, or caused by the Third
Party Claim, (B) the Indemnifying Party provides the Indemnified Party
with evidence reasonably acceptable to the Indemnified Party that the
Indemnifying Party will have the financial resources to defend against
the Third Party Claim and fulfill its indemnification obligations
hereunder, (C) the Third Party Claim involves only money damages and
does not seek an injunction or other equitable relief, (D) settlement
of, or an adverse judgment with respect to, the Third Party Claim is
not, in the good faith judgment of the Indemnified Party, likely to
establish a precedential custom or practice materially adverse to the
continuing business interests of the Indemnified Party, (E) the named
parties to the Third Party Claim do not include both the Indemnified
Party and the Indemnifying Party, and (F) the Indemnifying Party
conducts the defense of the Third Party Claim actively and diligently.
(iii) So long as the Indemnifying Party is
conducting the defense of the Third Party Claim in accordance with
Section 8(d)(ii) above, (A) the Indemnified Party may retain separate
co-counsel at its sole cost and expense and participate in the defense
of the Third Party Claim, (B) the Indemnified Party will not consent
to the entry of any judgment or enter into any settlement with respect
to the Third Party Claim without the prior written consent of the
Indemnifying Party (not to be unreasonably withheld, conditioned or
delayed), and (C) the Indemnifying Party will not consent to the entry
of any judgment or enter into any settlement with respect to the Third
Party Claim without the prior written consent of the Indemnified Party
(not to be unreasonably withheld, conditioned or delayed).
(iv) In the event any of the conditions in
Section 8(d)(ii) above is or becomes unsatisfied, however, (A) the
Indemnified Party may defend against, and consent to the entry of any
judgment or enter into any settlement with respect to, the Third Party
Claim in any manner it reasonably may deem appropriate (and the
Indemnified Party need not consult with, or obtain any consent from,
any Indemnifying Party in connection therewith), (B) the Indemnifying
Parties will reimburse the Indemnified Party promptly and periodically
for the costs of defending against the Third Party Claim (including
reasonable attorneys' fees and expenses), and (C) the Indemnifying
Parties will remain responsible for any Adverse Consequences the
Indemnified Party may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the Third Party Claim to the
fullest extent provided in this Section 8.
(e) DETERMINATION OF ADVERSE CONSEQUENCES. The Parties shall
take into account the time cost of money (using the Applicable Rate as the
discount rate) in determining
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Adverse Consequences for purposes of this Section 8. All indemnification
payments under this Section 8 shall be deemed adjustments to the Consideration.
(f) RIGHT OF OFFSET AGAINST SHAREHOLDER DISTRIBUTION. North
American shall have the right to offset, up to the amount of the Shareholder
Distribution made pursuant to Section 5(b) hereof, any Adverse Consequences it
may suffer in lieu of seeking any indemnification to which it is entitled under
this Section 8. North American's right of offset shall not constitute a
limitation of North American's rights hereunder or as a measure of liquidated
damages and North American may seek full indemnification for all damages
suffered and may pursue all rights and remedies available to it, at law or in
equity, against the Shareholder, without seeking recourse against any other
party and without exercising its right of offset hereunder.
(g) OTHER INDEMNIFICATION PROVISIONS. The foregoing
indemnification provisions are in addition to, and not in derogation of, any
statutory, equitable, or common law remedy (including without limitation any
such remedy arising under Environmental, Health, and Safety Requirements) any
Party may have with respect to Target, or the transactions contemplated by this
Agreement. The Shareholder hereby agrees that he will not make any claim for
indemnification against Target by reason of the fact that he was a director,
officer, employee, or agent of Target or was serving at the request of Target
as a partner, trustee, director, officer, employee, or agent of another entity
(whether such claim is for judgments, damages, penalties, fines, costs, amounts
paid in settlement, losses, expenses, or otherwise and whether such claim is
pursuant to any statute, charter document, bylaw, agreement, or otherwise) with
respect to any action, suit, proceeding, complaint, claim, or demand brought by
the Buyer against the Shareholder (whether such action, suit, proceeding,
complaint, claim, or demand is pursuant to this Agreement, applicable law, or
otherwise).
9. POST-CLOSING ADJUSTMENT OF CONSIDERATION.
(a) Within 90 days after the Closing Date, North American
will prepare and deliver to Shareholder a draft balance sheet (the "DRAFT
CLOSING DATE BALANCE SHEET") for Target as of the close of business on the
Closing Date (determined as though the Parties had not consummated the
transactions contemplated by this Agreement), prepared in accordance with GAAP
applied on a basis consistent with the preparation of the Financial Statements;
except that the Draft Closing Date Balance Sheet shall include all of the same
types of adjustments as were made in connection with the preparation of the
Most Recent Financial Statements.
(b) If the Shareholder has any objections to the Draft
Closing Date Balance Sheet, he will deliver a detailed statement describing his
objections to North American within 30 days after receiving the Draft Closing
Date Balance Sheet. North American and the Shareholder will use reasonable
efforts to resolve any such objections themselves. If the Parties do not obtain
a final resolution within 30 days after North American has received the
statement of objections, however, North American and Shareholder will select an
accounting firm mutually acceptable to them to resolve any remaining
objections. If North American and the Shareholder are unable to agree on the
choice of an accounting firm, they will select a nationally-recognized
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accounting firm by lot (after excluding their respective regular outside
accounting firms). The determination of any accounting firm so selected will be
set forth in writing and will be conclusive and binding upon the Parties. North
American will revise the Draft Closing Date Balance Sheet as appropriate to
reflect the resolution of any objections thereto pursuant to this Section 9(b).
The "Closing Date Balance Sheet" shall mean the Draft Closing Date Balance
Sheet together with any revisions thereto pursuant to this Section 9(b).
(c) In the event the Parties submit any unresolved objections
to an accounting firm for resolution as provided in Section 9(b) above, any
expenses relating to the engagement of the accounting firm shall be allocated
between the Shareholder and North American by the accounting firm in proportion
to the amount in dispute which is decided in favor of the challenging party.
(d) North American will make the work papers and back-up
materials used in preparing the Draft Closing Date Balance Sheet available to
the Shareholder and his accountants and other representatives at reasonable
times and upon reasonable notice during (A) the preparation by North American
of the Draft Closing Date Balance Sheet, (B) review by the Shareholder of the
Draft Closing Date Balance Sheet, and (C) the resolution by the Parties of any
objections thereto.
(e) (i)If the Shareholders' Equity set forth in the Closing
Date Balance Sheet, plus the Shareholders' Equity set forth in the closing date
balance sheet of State Wide CATV, Inc., a New York corporation, prepared in
accordance with Section 9(a) of the Stock Purchase Agreement of even date
herewith (the "State Wide Agreement") between North American and the sole
shareholder of State Wide (the "State Wide Closing Date Balance Sheet") is less
than $765,000.00, the Shareholder will pay to North American an amount equal to
such deficiency pursuant to the provisions of Section 9(e) of the State Wide
Agreement; (ii) if Cash set forth in the Closing Date Balance Sheet, plus the
cash set forth in the State Wide Closing Date Balance Sheet is less than
$150,000.00, the Shareholder will pay to North American an amount equal to such
deficiency pursuant to the provisions of Section 9(e) of the State Wide
Agreement; and (iii) if the state and federal income taxes accrued on the
Closing Date Balance Sheet are in excess of the state and federal income taxes
actually paid by Target with respect to the period ending on the Closing Date,
North American will pay to the Shareholder an amount equal to such excess
within five business days after the date on which Target pays such state and
federal income taxes.
(ii)If the state and federal income taxes accrued on
the Closing Date Balance Sheet are in excess of the state and federal income
taxes actually paid by Target with respect to the period ending on the Closing
Date, North American will pay to the Shareholder an amount equal to such excess
within five business days after the date on which Target pays such state and
federal income taxes.
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10. TAX MATTERS. The following provisions shall govern the allocation
of respon- sibility between North American and Shareholder for certain Tax
matters following the Closing Date:
(a) TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE.
Shareholder shall prepare or cause to be prepared and timely file or cause to
be timely filed all Tax Returns for Target for all tax periods ending on or
prior to the Closing Date which are filed after the Closing Date (the
"Pre-Closing Period"). Such Tax Returns shall be prepared by treating items on
such Tax Return in a manner consistent with the past practices with respect to
such items, unless otherwise required by law. Shareholder shall permit North
American to review and comment on each such Tax Return described in the
preceding sentence prior to filing. North American shall pay the amounts due
for Taxes of Target with respect to the Pre-Closing Periods, up to the amount
reflected in the reserve for Tax Liability shown on the face of the Most Recent
Balance Sheet. Upon completion of North American's review of the Tax Return,
and immediately prior to the due date thereof, North American shall deliver the
Shareholder Distribution to the Shareholder. Shareholder agrees that he will
pay, when due, all amounts due for Taxes of Target with respect to Pre-Closing
Periods that exceed the reserve for Tax Liability, and all amounts due for
Taxes of the Shareholder with respect to Pre-Closing Periods.
(b) TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING
DATE. North American shall prepare or cause to be prepared and file or cause to
be filed any Tax Returns of Target for Tax periods which begin before the
Closing Date and end after the Closing Date. North American shall permit
Shareholder to review and comment on each such Tax Return described in the
preceding sentence prior to filing. Shareholder shall pay to North American
within fifteen (15) days after the date on which Taxes are paid with respect to
such periods an amount equal to the portion of such Taxes which relates to the
portion of such Taxable period ending on the Closing Date to the extent such
Taxes are not reflected in the reserve for Tax Liability shown on the face of
the Most Recent Balance Sheet. For purposes of this Section 10, in the case of
any Taxes that are imposed on a periodic basis and are payable for a Taxable
period that includes (but does not end on) the Closing Date, the portion of
such Tax which relates to the portion of such Taxable period ending on the
Closing Date shall (x) in the case of any real and personal property Taxes, be
deemed to be the amount of such Tax for the entire Taxable period multiplied by
a fraction the numerator of which is the number of days in the Taxable period
ending on the Closing Date and the denominator of which is the number of days
in the entire Taxable period, and (y) in the case of any other Tax be deemed
equal to the amount which would be payable if the relevant Taxable period ended
on the Closing Date. Any credits relating to a Taxable period that begins
before and ends after the Closing Date shall be taken into account as though
the relevant Taxable period ended on the Closing Date. All determinations
necessary to give effect to the foregoing allocations shall be made in a manner
consistent with the prior practice of Target.
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(c) COOPERATION ON TAX MATTERS.
(i) North American, Target and Shareholder shall
cooperate fully, as and to the extent reasonably requested by the
other party, in connection with the filing of Tax Returns pursuant to
this Section 10 and any audit, litigation or other proceeding with
respect to Taxes. Such cooperation shall include the retention and
(upon the other party's request) the provision of records and
information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a
mutually convenient basis to provide additional information and
explanation of any material provided hereunder. Target agrees (A) to
retain all books and records with respect to Tax matters pertinent to
Target relating to any taxable period beginning before the Closing
Date until the expiration of the statute of limitations (and, to the
extent notified by North American or Shareholder, any extensions
thereof) of the respective taxable periods, and to abide by all record
retention agreements entered into with any taxing authority, and (B)
to give each other Party reasonable written notice prior to
transferring, destroying or discarding any such books and records and,
if any other Party so requests, Target or Shareholder, as the case may
be, shall allow such other Party to take possession of such books and
records.
(ii) North American and Shareholder further agree,
upon request, to use their best efforts to obtain any certificate or
other document from any governmental authority or any other Person as
may be necessary to mitigate, reduce or eliminate any Tax that could
be imposed (including, but not limited to, with respect to the
transactions contemplated hereby).
(iii) North American and Shareholder further agree,
upon request, to provide the other party with all information that
either party may be required to report pursuant to Section 6043 of the
Code and all Treasury Department Regulations promulgated thereunder.
(d) TAX SHARING AGREEMENTS. All tax sharing agreements or
similar agreements with respect to or involving Target shall be terminated as
of the Closing Date and, after the Closing Date, Target shall not be bound
thereby or have any liability thereunder.
(e) CERTAIN TAXES. All transfer, documentary, sales, use,
stamp, registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement, shall be paid by
Shareholder when due, and Shareholder will, at its own expense, file all
necessary Tax Returns and other documentation with respect to all such
transfer, documentary, sales, use, stamp, registration and other Taxes and
fees, and, if required by applicable law, North American will, and will cause
its Affiliates to, join in the execution of any such Tax Returns and other
documentation.
11. TERMINATION.
(a) TERMINATION OF AGREEMENT. The Parties may terminate this
Agreement as provided below:
39
<PAGE> 44
(i) North American and the Shareholder may terminate
this Agreement by mutual written consent at any time prior to the
Closing;
(ii) North American may terminate this Agreement by
giving written notice to the Shareholder at any time prior to the
Closing (A) in the event the Shareholder has breached any
representation, warranty, or covenant contained in this Agreement in
any material respect, North American has notified the Shareholder of
the breach, and the breach has continued without cure for a period of
30 days after the notice of breach or (B) if the Closing shall not
have occurred on or before September 30, 1998, by reason of the
failure of any condition precedent under Section 7(a) hereof (unless
the failure results primarily from North American itself breaching any
representation, warranty, or covenant contained in this Agreement);
and
(iii) the Shareholder may terminate this Agreement
by giving written notice to North American at any time prior to the
Closing (A) in the event North American has breached any
representation, warranty, or covenant contained in this Agreement in
any material respect, the Shareholder has notified North American of
the breach, and the breach has continued without cure for a period of
30 days after the notice of breach or (B) if the Closing shall not
have occurred on or before September 30, 1998, by reason of the
failure of any condition precedent under Section 7(b) hereof (unless
the failure results primarily from the Shareholder himself breaching
any representation, warranty, or covenant contained in this
Agreement).
(b) EFFECT OF TERMINATION. If any Party terminates this
Agreement pursuant to Section 11(a) above, all rights and obligations of the
Parties hereunder shall terminate without any Liability of any Party to any
other Party (except for any Liability of any Party then in breach).
12. MISCELLANEOUS.
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall
issue any press release or make any public announcement relating to the subject
matter of this Agreement prior to the Closing without the prior written
approval of North American and the Shareholder; PROVIDED, HOWEVER, that any
Party may make any public disclosure it believes in good faith is required by
applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing Party will use its
best efforts to advise the other Parties prior to making the disclosure).
(b) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not
confer any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns and the Indemnified Parties
referred to in Section 8 hereof.
(c) ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior
40
<PAGE> 45
understandings, agreements, or representations by or among the Parties, written
or oral, to the extent they related in any way to the subject matter hereof.
(d) SUCCESSION AND ASSIGNMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the Parties
named herein and their respective successors and permitted assigns. No Party
may assign either this Agreement or any of his or its rights, interests, or
obligations hereunder without the prior written approval of North American and
the Shareholder; PROVIDED, HOWEVER, that North American may (i) assign any or
all of its rights and interests hereunder to one or more of its Affiliates,
(ii) designate one or more of its Affiliates to perform its obligations
hereunder (in any or all of which cases North American nonetheless shall remain
responsible for the performance of all of its obligations hereunder) and (iii)
without the approval of the Shareholder assign its rights and interests
hereunder to its lenders (and any agent for the lenders), and the Parties
consent to any exercise by such lenders (and such agents) of their rights and
remedies with respect to such collateral.
(e) COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) HEADINGS. The section headings contained in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
(g) NOTICES. All notices, requests, demands, claims, and
other communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
<TABLE>
<CAPTION>
IF TO THE SHAREHOLDER: COPY TO:
---------------------- --------
<S> <C>
Michael Wallace Christopher Norman, Esq.
1947 S. Carolina Avenue Hines & Associates, P.A.
St. Petersburg, Florida 33712 315 South Hyde Park Avenue
Tampa, Florida 33606
Fax: (813) 254-6153
IF TO NORTH AMERICAN: COPY TO:
--------------------- --------
North American Tel-Com Group, Inc. Holland & Knight LLP
1401 Forum Way, Suite 400 One East Broward Boulevard, Suite 1300
West Palm Beach, FL 33401 Fort Lauderdale, FL 33301
Attn: William J. Mercurio Attn: Donn Beloff, Esq.
Fax: (561) 687-8080 Fax: (954) 463-2030
</TABLE>
41
<PAGE> 46
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been
duly given unless and until it actually is received by the intended recipient.
Any Party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other
Parties notice in the manner herein set forth.
(h) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Florida without
giving effect to any choice or conflict of law provision or rule (whether of
the State of Florida or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Florida.
(i) AMENDMENTS AND WAIVERS. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
North American and the Shareholder. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(j) SEVERABILITY. Any term or provision of this Agreement
that is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
(k) EXPENSES. Each of the Parties will bear his or its own
costs and expenses (including legal fees and expenses) incurred in connection
with this Agreement and the transactions contemplated hereby.
(l) CONSTRUCTION. The Parties have participated jointly in
the negotiation of this Agreement. In the event an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as if
drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local,
or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
42
<PAGE> 47
(m) INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The
Exhibits, Annexes, Schedules and Certificates identified in this Agreement are
incorporated herein by reference and made a part hereof.
(n) SPECIFIC PERFORMANCE. Each of the Parties acknowledges
and agrees that the other Parties would be damaged irreparably in the event any
of the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter (subject to the provisions set
forth in Section 12(o) below), in addition to any other remedy to which they may
be entitled, at law or in equity.
(o) SUBMISSION TO JURISDICTION. Each of the Parties submits
to the exclusive jurisdiction of any state or federal court sitting in
Hillsborough County, Florida, in any action or proceeding arising out of or
relating to this Agreement and agrees that all claims in respect of the action
or proceeding shall be heard and determined in any such court. Each of the
Parties waives any defense of inconvenient forum to the maintenance of any
action or proceeding so brought and waives any bond, surety, or other security
that might be required of any other Party with respect thereto. Any Party may
make service on any other Party by sending or delivering a copy of the process
to the Party to be served at the address and in the manner provided for the
giving of notices in Section 12(g) above. Each Party agrees that a final
judgment in any action or proceeding so brought shall be conclusive and may be
enforced by suit on the judgment or in any other manner provided by law or at
equity.
In any action or proceeding arising out of or relating to this
Agreement, the prevailing party shall be entitled to recover reasonable
attorneys' fees and costs from the other party to the action or proceeding. For
purposes of this Agreement, the "prevailing party" shall be deemed to be that
party who obtains substantially the result sought, whether by settlement,
mediated or otherwise, or judgment. For purposes of this Agreement, the term
"attorneys' fees" shall include, without limitation, the actual attorneys' fees
incurred in retaining counsel for advice, negotiations, suit, appeal, or any
other legal proceeding, including mediation and arbitration.
(p) WAIVER OF JURY TRIAL. THE PARTIES HEREBY IRREVOCABLY
WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY AND TO
THE FULLEST EXTENT PERMITTED BY LAW WAIVE ANY RIGHTS THAT THEY MAY HAVE TO
CLAIM OR RECEIVE CONSEQUENTIAL OR SPECIAL DAMAGES IN CONNECTION WITH ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
*****
43
<PAGE> 48
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
NORTH AMERICAN TEL-COM GROUP, INC.
By:
-------------------------------------
William J. Mercurio
President
SHAREHOLDER:
-----------------------------------------
Michael Wallace
44
<PAGE> 1
Exhibit 10.12
STOCK PURCHASE AGREEMENT
AMONG
NORTH AMERICAN TEL-COM GROUP, INC.
AND
THE SOLE SHAREHOLDER OF STATE WIDE CATV, INC.
August 31, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. DEFINITIONS................................................................................... 1
2. PURCHASE AND SALE TRANSACTION................................................................. 6
(a) BASIC TRANSACTION.................................................................... 6
(b) CONSIDERATION........................................................................ 6
(c) THE CLOSING.......................................................................... 6
(d) DELIVERIES AT CLOSING................................................................ 6
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION..................................... 6
(a) REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER.................................... 6
(b) REPRESENTATIONS AND WARRANTIES OF NORTH AMERICAN..................................... 8
4. REPRESENTATIONS AND WARRANTIES CONCERNING TARGET.............................................. 10
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER..................................... 10
(b) [INTENTIONALLY LEFT BLANK]........................................................... 10
(c) CAPITALIZATION....................................................................... 10
(d) NONCONTRAVENTION..................................................................... 11
(e) BROKERS' FEES........................................................................ 11
(f) TITLE TO ASSETS...................................................................... 11
(g) SUBSIDIARIES......................................................................... 11
(h) FINANCIAL STATEMENTS................................................................. 11
(i) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END..................................... 12
(j) UNDISCLOSED LIABILITIES.............................................................. 14
(k) LEGAL COMPLIANCE..................................................................... 14
(l) TAX MATTERS.......................................................................... 14
(m) REAL PROPERTY........................................................................ 16
(n) INTELLECTUAL PROPERTY................................................................ 17
(o) TANGIBLE ASSETS...................................................................... 19
(p) INVENTORY............................................................................ 19
(q) CONTRACTS............................................................................ 19
(r) NOTES AND ACCOUNTS RECEIVABLE........................................................ 20
(s) POWERS OF ATTORNEY................................................................... 20
(t) INSURANCE............................................................................ 20
(u) LITIGATION........................................................................... 20
(v) COMMITMENTS AND WARRANTIES........................................................... 21
(w) LIABILITY FOR SERVICES PERFORMED..................................................... 21
(x) EMPLOYEES............................................................................ 21
(y) EMPLOYEE BENEFITS.................................................................... 21
(z) GUARANTIES........................................................................... 23
(aa) ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS............................................ 23
(ab) CERTAIN BUSINESS RELATIONSHIPS WITH TARGET........................................... 25
(ac) CUSTOMERS AND SUPPLIERS.............................................................. 25
(ad) DISCLOSURE........................................................................... 25
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
5. PRE-CLOSING COVENANTS......................................................................... 25
(a) GENERAL.............................................................................. 25
(b) NOTICES AND CONSENTS................................................................. 26
(c) OPERATION OF BUSINESS................................................................ 26
(d) PRESERVATION OF BUSINESS............................................................. 26
(e) FULL ACCESS.......................................................................... 26
(f) NOTICE OF DEVELOPMENTS............................................................... 26
(g) EXCLUSIVITY.......................................................................... 26
(h) NO TERMINATION OF SHAREHOLDER'S OBLIGATION BY SUBSEQUENT INCAPACITY.................. 27
6. POST-CLOSING COVENANTS........................................................................ 27
(a) GENERAL.............................................................................. 27
(b) LITIGATION SUPPORT................................................................... 27
(c) TRANSITION........................................................................... 27
(d) INDEPENDENT ACCOUNTANTS.............................................................. 28
(e) TAX MATTERS.......................................................................... 28
(f) STOCK OPTIONS........................................................................ 28
(g) AUDITED FINANCIAL STATEMENTS......................................................... 28
7. CONDITIONS TO OBLIGATION TO CLOSE............................................................. 29
(a) CONDITIONS TO OBLIGATION OF NORTH AMERICAN........................................... 29
(b) CONDITIONS TO OBLIGATION OF THE SHAREHOLDER.......................................... 31
8. REMEDIES FOR BREACHES OF THIS AGREEMENT....................................................... 31
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES........................................... 31
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF NORTH AMERICAN............................. 32
(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE SHAREHOLDER............................ 33
(d) MATTERS INVOLVING THIRD PARTIES...................................................... 34
(e) DETERMINATION OF ADVERSE CONSEQUENCES................................................ 35
(f) OTHER INDEMNIFICATION PROVISIONS..................................................... 35
9. POST-CLOSING ADJUSTMENT OF CONSIDERATION...................................................... 35
10. TAX MATTERS................................................................................... 37
(a) TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE..................................... 37
(b) TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING DATE....................... 37
(c) COOPERATION ON TAX MATTERS........................................................... 38
(d) TAX SHARING AGREEMENTS............................................................... 38
(e) CERTAIN TAXES........................................................................ 38
11. TERMINATION................................................................................... 39
(a) TERMINATION OF AGREEMENT............................................................. 39
(b) EFFECT OF TERMINATION................................................................ 39
12. MISCELLANEOUS................................................................................. 39
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS.............................................. 39
(b) NO THIRD-PARTY BENEFICIARIES......................................................... 40
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
(c) ENTIRE AGREEMENT..................................................................... 40
(d) SUCCESSION AND ASSIGNMENT............................................................ 40
(e) COUNTERPARTS......................................................................... 40
(f) HEADINGS............................................................................. 40
(g) NOTICES.............................................................................. 40
(h) GOVERNING LAW........................................................................ 41
(i) AMENDMENTS AND WAIVERS............................................................... 41
(j) SEVERABILITY......................................................................... 41
(k) EXPENSES............................................................................. 41
(l) CONSTRUCTION......................................................................... 41
(m) INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES.................................... 42
(n) SPECIFIC PERFORMANCE................................................................. 42
(o) SUBMISSION TO JURISDICTION........................................................... 42
(p) WAIVER OF JURY TRIAL................................................................. 42
</TABLE>
Exhibit A--Financial Statements
Exhibit B--Opinion of Target's Counsel
Exhibit C--Employment Agreements
Exhibit D--Opinion of North American's Counsel
Annex I-- Accredited Investor Status
Disclosure Schedule
North American Disclosure Schedule
iii
<PAGE> 5
STOCK PURCHASE AGREEMENT
Agreement entered into as of August 31, 1998, by and among North
American Tel-Com Group, Inc., a Florida corporation ("North American" or the
"Buyer"), and Michael Wallace, the sole shareholder (the "Shareholder") of
State Wide CATV, Inc., a New York corporation (the "Target"). The Buyer and the
Shareholder are referred to collectively herein as the "PARTIES."
The Shareholder owns all of the outstanding capital stock of the
Target.
This Agreement contemplates the sale by the Shareholder of all of the
issued and outstanding capital stock of Target to Buyer. The Shareholder will
receive cash and capital stock in North American in exchange for his shares of
capital stock of Target.
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1. DEFINITIONS.
"ACCREDITED INVESTOR" has the meaning set forth in Regulation
D promulgated under the Securities Act.
"ADVERSE CONSEQUENCES" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses,
expenses, and fees, including court costs and reasonable attorneys' fees and
expenses, and any other cost of enforcing a party's rights under this
Agreement.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act.
"AFFILIATED GROUP" means any affiliated group within the
meaning of Code Section 1504(a) or any similar group defined under a similar
provision of state, local or foreign law.
"AMENDED AND RESTATED STOCKHOLDERS AGREEMENT" means that
certain Amended and Restated Stockholders Agreement among North American and
the shareholders of North American dated as of June 30, 1998.
"APPLICABLE RATE" means the corporate base rate of interest
publicly announced from time to time by PNC Bank, N.A.
"BASIS" means any past or present fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction that forms or could form the
basis for any specified consequence.
<PAGE> 6
"CLOSING" has the meaning set forth in Section 2(c) below.
"CLOSING DATE" has the meaning set forth in Section 2(c)
below.
"CLOSING DATE BALANCE SHEET" has the meaning set forth in
Section 9(b) below.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONSIDERATION" has the meaning set forth in Section 2(b)
below.
"CONTROLLED GROUP OF CORPORATIONS" has the meaning set forth
in Code Section 1563.
"DISCLOSURE SCHEDULE" has the meaning set forth in Section 4
below.
"DRAFT CLOSING DATE BALANCE SHEET" has the meaning set forth
in Section 9(a) below.
"EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan), (d) Employee Welfare Benefit Plan or (e)
bonus, incentive, stock purchase, stock ownership, stock option, stock
appreciation right, severance, salary continuation, termination, change of
control or other material fringe benefit plan or program.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in
ERISA Section 3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in
ERISA Section 3(1).
"ENVIRONMENTAL, HEALTH, AND SAFETY REQUIREMENTS" shall mean
all federal, state, local and foreign statutes, regulations, ordinances and
other provisions having the force or effect of law, all judicial and
administrative orders and determinations, all contractual obligations and all
common law concerning public health and safety, worker health and safety, and
pollution or protection of the environment, including without limitation all
those relating to the presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution, labeling, testing,
processing, discharge, release, threatened release, control, or cleanup of any
Hazardous Materials (which, for purposes of this Agreement, shall meany any
hazardous materials, substances or wastes, chemical substances or mixtures,
pesticides, pollutants, contaminants, toxic chemicals, petroleum products or
byproducts, asbestos, polychlorinated biphenyls, noise or radiation), each as
amended and as now or hereafter in effect.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
2
<PAGE> 7
"ERISA AFFILIATE" means (i) any corporation included with
Target in a controlled group of corporations within the meaning of Section
414(b) of the Code; (ii) any trade or business (whether or not incorporated)
which is under common control with Target within the meaning of Section 414(c)
of the Code; (iii) any member of an affiliated service group of which Target is
a member within the meaning of Section 414(m) of the Code; or (iv) any other
person or entity treated as an affiliate of Target under Section 414(o) of the
Code.
"FIDUCIARY" has the meaning set forth in ERISA Section 3(21).
"FINANCIAL STATEMENT" has the meaning set forth in Section
4(h) below.
"GAAP" means United States generally accepted accounting
principles as in effect from time to time.
"INDEMNIFIED PARTY" has the meaning set forth in Section 8(d)
below.
"INDEMNIFYING PARTY" has the meaning set forth in Section
8(d) below.
"INTELLECTUAL PROPERTY" means (a) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications, and patent
disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof, (b)
all trademarks, service marks, trade dress, logos, trade names, and corporate
names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection therewith, (d) all mask works and all applications,
registrations, and renewals in connection therewith, (e) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals), (f) all computer software (including data and related
documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"KNOWLEDGE" means that which is known by a person and that of
which a person has constructive knowledge based upon information readily
available to that person in the performance of such person's duties. In the
case of North American or Target, "Knowledge" means the "Knowledge" of its
respective directors and executive officers.
"LIABILITY" means any liability (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
3
<PAGE> 8
"MATERIAL ADVERSE EFFECT" means, individually or together
with other adverse effects, any material adverse effect on the assets,
liabilities, results of operations, business condition (financial or otherwise)
or prospects of Target or on Target's ability to consummate the transactions
contemplated hereby or the ability of North American to operate the business of
Target immediately after the Closing in substantially the same manner as such
business is conducted prior to Closing.
"MOST RECENT BALANCE SHEET" means the balance sheet contained
within the Most Recent Financial Statements.
"MOST RECENT FINANCIAL STATEMENTS" has the meaning set forth
in Section 4(h) below.
"MOST RECENT FISCAL PERIOD END" has the meaning set forth in
Section 4(h) below.
"MOST RECENT FISCAL YEAR END" has the meaning set forth in
Section 4(h) below.
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA
Section 3(37).
"NATIONAL SECURITIES EXCHANGE" shall have the meaning
ascribed to that term in the rules and regulations promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934.
"NORTH AMERICAN" has the meaning set forth in the preface
above.
"NORTH AMERICAN CLASS A COMMON SHARES" means any share of the
Class A Common Stock, par value $.01 per share, of North American.
"NORTH AMERICAN CLASS B COMMON SHARES" means any share of the
Class B Common Stock, par value $.01 per share, of North American.
"NORTH AMERICAN COMMON STOCK" means any share of the common
stock, par value $.01 par share, of North American.
"NORTH AMERICAN SERIES A PREFERRED SHARES" means any share of
the Series A Convertible Preferred Stock, par value $.01 per share, of North
American.
"NORTH AMERICAN PREFERRED STOCK" means any share of the
preferred stock, par value $.01 per share, of North American.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of
business consistent with past custom and practice (including with respect to
quantity and frequency).
"PARTY" has the meaning set forth in the preface above.
4
<PAGE> 9
"PBGC" means the Pension Benefit Guaranty Corporation.
"PERSON" means an individual, a partnership, a corporation,
an association, a joint stock company, a trust, a joint venture, an
unincorporated organization, or a governmental entity (or any department,
agency, or political subdivision thereof).
"PROHIBITED TRANSACTION" has the meaning set forth in ERISA
Section 406 and Code Section 4975.
"REPORTABLE EVENT" has the meaning set forth in ERISA Section
4043.
"SECURITIES ACT" means the Securities Act of 1933, as
amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act
of 1934, as amended.
"SECURITY INTEREST" means any mortgage, pledge, lien,
encumbrance, charge, or other security interest, other than (a) mechanic's,
materialmen's, and similar liens that could not reasonably be expected to have
a Material Adverse Effect, (b) liens for Taxes not yet due and payable or for
Taxes that the taxpayer is contesting in good faith through appropriate
proceedings disclosed on Section 4(l) of the Disclosure Schedule, (c) purchase
money liens and liens securing rental payments under capital lease arrangements
disclosed in the Most Recent Financial Statements, and (d) other liens arising
in the Ordinary Course of Business and not incurred in connection with the
borrowing of money, so long as such liens could not reasonably be expected to
have a Material Adverse Effect.
"SUBSIDIARY" means any corporation with respect to which a
specified Person (or a Subsidiary thereof) owns a majority of the common stock
or has the power to vote or direct the voting of sufficient securities to elect
a majority of the directors.
"TARGET" has the meaning set forth in the preface above.
"TARGET SHARE" means any share of the Common Stock, no par
value, of Target.
"TARGET SHAREHOLDER" means any Person who or which holds any
Target Shares.
"TAX" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Code Section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed or not,
and any obligations under any agreements or arrangements with respect to any of
the foregoing.
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<PAGE> 10
"TAX RETURN" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"THIRD PARTY CLAIM" has the meaning set forth in Section 8(d)
below.
"SHAREHOLDER" has the meaning set forth in the preface above.
2. PURCHASE AND SALE TRANSACTION.
(a) BASIC TRANSACTION. On and subject to the terms and
conditions of this Agreement, North American agrees to purchase from the
Shareholder, and the Shareholder agrees to sell to North American, all of the
Target Shares for the consideration specified below in this Section 2.
(b) CONSIDERATION. North American agrees to deliver at
Closing to the Shareholder (x) cash in the amount of $1,148,000.00, payable by
wire transfer or other immediately available funds and (y) 61,250 North
American Class B Common Shares, with a value of $1.4959 per share
(collectively, the "Consideration"). The Consideration shall be subject to
adjustment pursuant to the provisions of Section 9 hereof.
(c) THE CLOSING. The closing of the transactions contemplated
by this Agreement (the "CLOSING") shall take place at the offices of Holland &
Knight LLP in Ft. Lauderdale, Florida, effective at 9:00 a.m. local time on
August 31, 1998 or such other date, time and place as the Parties may mutually
determine (the "CLOSING DATE").
(d) DELIVERIES AT CLOSING. At the Closing, (i) the
Shareholder will deliver to North American the various certificates,
instruments, and documents referred to in Section 7(a) below, (ii) North
American will deliver to the Shareholder the various certificates, instruments,
and documents referred to in Section 7(b) below, and (iii) the Shareholder will
deliver to North American stock certificates representing all of his Target
Shares, endorsed in blank or accompanied by duly executed assignment documents,
and (iv) North American will deliver to the Shareholder the Consideration
specified in Section 2(b) above.
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
(a) REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER. The
Shareholder represents and warrants to North American that the statements
contained in this Section 3(a) are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Section 3(a)), except as set forth on Section 3(a) of
the Disclosure Schedule (as hereinafter defined).
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<PAGE> 11
(i) AUTHORIZATION OF TRANSACTION. The Shareholder
has full power and authority to execute and deliver this Agreement and
to perform his obligations hereunder. This Agreement constitutes the
valid and legally binding obligation of the Shareholder, enforceable
in accordance with its terms and conditions except to the extent
enforcement thereof may be limited by applicable bankruptcy,
reorganization, insolvency or moratorium laws, or other laws affecting
the enforcement of creditors' rights or by the principles governing
the availability of equitable remedies. The Shareholder need not give
any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency or any
other Person in order to consummate the transactions contemplated by
this Agreement.
(ii) NONCONTRAVENTION. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court
to which the Shareholder is subject or (B) conflict with, result in a
breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or
cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which the Shareholder is
a party or by which he is bound or to which any of his assets is
subject.
(iii) BROKERS' FEES. The Shareholder has, or prior
to Closing will have, paid any fees or commissions due from the
Shareholder to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement. The Shareholder agrees
that he will pay any additional amounts that may become due from him
or Target to any such broker, finder or agent in the future, including
as a result of any indemnification obligations.
(iv) INVESTMENT. The Shareholder (A) understands
that, the North American Class B Common Shares that he will receive as
part of the Consideration have not been, and will not be, registered
under the Securities Act, or under any state securities laws, and are
being offered and sold in reliance upon federal and state exemptions
for transactions not involving any public offering, (B) is acquiring
such North American Class B Common Shares solely for his own account
for investment purposes, and not with a view to the distribution
thereof, (C) has received certain information concerning North
American and has had the opportunity to obtain additional information
as desired in order to evaluate the merits and the risks inherent in
holding the North American Class B Common Shares and (D) is able to
bear the economic risk and lack of liquidity inherent in holding the
North American Class B Common Shares, and (F) is an Accredited
Investor for the reasons set forth on Annex I.
(v) TARGET SHARES. The Shareholder holds of record
and owns beneficially all of the Target Shares, free and clear of any
restrictions on transfer (other than any restrictions under the
Securities Act and state securities laws), Taxes, security
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<PAGE> 12
interests liens or other encumbrances, options, warrants, purchase
rights, contracts, commitments, equities, claims, and demands. The
Shareholder is not a party to any option, warrant, purchase right, or
other contract or commitment that could require the Shareholder to
sell, transfer, or otherwise dispose of any capital stock of Target
(other than this Agreement). The Shareholder is not a party to any
voting trust, proxy, shareholders agreement, or other agreement or
understanding with respect to the voting of any capital stock of
Target.
(vi) DISCLOSURE. Neither this Agreement nor any of
the exhibits, attachments, written statements, documents, certificates
or other items prepared for or supplied to North American by the
Shareholder with respect to the transactions contemplated hereby
contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make each statement contained
herein or therein not misleading. There is no fact which the
Shareholder has not disclosed to North American herein and of which
the Shareholder is aware which could be anticipated to have a Material
Adverse Effect.
(b) REPRESENTATIONS AND WARRANTIES OF NORTH AMERICAN. North
American represents and warrants to the Shareholder that the statements
contained in this Section 3(b) are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Section 3(b)), except as set forth in the disclosure
schedule delivered by North American to the Shareholder on the date hereof (the
"North American Disclosure Schedule").
(i) ORGANIZATION OF THE NORTH AMERICAN. North
American is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Florida. Correct and
complete copies of the charter and bylaws of North American (as
amended to date) are included as part of the North American Disclosure
Schedule. The names and titles of each officer and director of North
American is set forth on the North American Disclosure Schedule.
(ii) CAPITALIZATION OF NORTH AMERICAN. The entire
authorized capital stock of North American consists of (i) 98,000,000
shares of North American Common Stock, par value $.01, including (i)
10,000,000 North American Class A Common Shares, 20,000,000 North
American Class B Common Shares, and 68,000,000 Shares of undesignated
North American Common Stock and (ii) 2,000,000 shares of North
American Preferred Stock, par value $.01, including 100,000 designated
as North American Series A Preferred Shares. The issued and
outstanding capital stock of North American, consists of 2,412,350
North American Class A Shares, 7,502,850 North American Class B Shares
and 100,000 North American Series A Preferred Shares, held of record
as set forth on the North American Disclosure Schedule. All of the
issued and outstanding North American Class A Common Shares, North
American Class B Common Shares, and North American Series A Preferred
Shares have been, duly authorized,
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<PAGE> 13
validly issued, fully paid, and nonassessable. Except as disclosed in
the North American Disclosure Schedule, there are no outstanding or
authorized options, warrants, purchase rights, subscription rights,
conversion rights, exchange rights, or other contracts or commitments
that could require North American to issue, sell, or otherwise cause
to become outstanding any of its capital stock. Except as disclosed in
the North American Disclosure Schedule, there are no outstanding or
authorized stock appreciation, phantom stock, profit participation, or
similar rights with respect to North American. Except as disclosed in
North American Disclosure Schedule, there are no voting trusts,
proxies or other agreements or understandings with respect to the
voting of the capital stock of North American.
(iii) AUTHORIZATION OF TRANSACTION. North American
has full power and authority (including full corporate power and
authority) to execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement constitutes the valid and
legally binding obligation of North American, enforceable in
accordance with its terms and conditions except to the extent
enforcement thereof may be limited by applicable bankruptcy,
reorganization, insolvency or moratorium laws, or other laws affecting
the enforcement of creditors' rights or by the principles governing
the availability of equitable remedies. North American need not give
any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency or any
other Person in order to consummate the transactions contemplated by
this Agreement.
(iv) NONCONTRAVENTION. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court
to which North American is subject or any provision of its charter or
bylaws or (B) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the
right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or
other arrangement to which North American is a party or by which North
American is bound or to which any of its assets is subject (or result
in the imposition of any Security Interest upon any of its assets).
North American need not give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any Person,
government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
(v) BROKERS' FEES. North American has, or prior to
the Closing will have, paid any fees or commissions due from North
American to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement. North American agrees
that they will pay any additional amounts that may become due from
North American to any such broker, finder or agent in the future,
including as a result of any indemnification obligations.
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<PAGE> 14
(vi) DISCLOSURE. Neither this Agreement nor any of
the exhibits, attachments, written statements, documents, certificates
or other items prepared for or supplied to the Shareholder by North
American with respect to the transactions contemplated hereby contains
any untrue statement of a material fact or omits to state any material
fact necessary in order to make each statement contained herein or
therein not misleading. There is no fact which North American has not
disclosed to the Shareholder herein and of which North American or any
of the its officers or directors is aware and which could be
anticipated to have a Material Adverse Effect on the operations of
North American after the Closing.
4. REPRESENTATIONS AND WARRANTIES CONCERNING TARGET. The Shareholder
represents and warrants to North American that the statements contained in this
ss.4 are correct and complete as of the date of this Agreement and will be
correct and complete as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date of this Agreement throughout
this Section 4), except as set forth in the Disclosure Schedule delivered by the
Shareholder to North American on the date hereof and initialed by the Parties
(the "DISCLOSURE SCHEDULE"). The Disclosure Schedule shall be effective to
modify only those representations and warranties to which the Disclosure
Schedule makes explicit reference. The Disclosure Schedule will be arranged in
paragraphs corresponding to the lettered and numbered paragraphs contained in
this Section 4.
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. Target
is a corporation duly organized, validly existing, and in good standing under
the laws of the jurisdiction of its incorporation. Target is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required. Target has full corporate power and
authority and all licenses, permits, and authorizations necessary to carry on
the businesses in which it is engaged and in which it presently proposes to
engage and to own and use the properties owned and used by it. Section 4(a) of
the Disclosure Schedule lists the directors and officers of Target. Correct and
complete copies of the charter and bylaws of Target (as amended to date) are
included as part of Section 4(a) of the Disclosure Schedule. The minute books
(containing the records of meetings of the stockholders, the board of
directors, and any committees of the board of directors), the stock certificate
books, and the stock record books of Target are correct and complete and an
true and correct copy thereof has been provided to North American. Target is
not in default under or in violation of any provision of its charter or bylaws.
(b) [INTENTIONALLY LEFT BLANK]
(c) CAPITALIZATION. The entire authorized capital stock of
Target consists of 200 Target Shares, of which 10 Target Shares are issued and
outstanding and no Target Shares are held in treasury. All of the issued and
outstanding Target Shares have been duly authorized, are validly issued, fully
paid, and nonassessable, and are held of record and owned beneficially by the
Shareholder. There are no outstanding or authorized options, warrants, purchase
rights, subscription rights, conversion rights, exchange rights, preemptive
rights or other contracts or commitments that could require Target to issue,
sell, or otherwise cause to become outstanding
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<PAGE> 15
any of its capital stock or securities convertible or exchangeable for, or any
options, warranties, or rights to purchase, any of such capital stock. There
are no outstanding obligations of Target to repurchase, redeem or otherwise
acquire any capital stock or any securities convertible into or exchangeable
for such capital stock or any options, warrants or rights to purchase such
capital stock or securities. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation, or similar rights with
respect to Target. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting, transfer, dividend or other rights
(such as registration rights under the Securities Act) of the capital stock of
Target.
(d) NONCONTRAVENTION. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated
hereby, will (i) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of
any government, governmental agency, or court to which Target is subject or any
provision of the charter or bylaws of Target or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which Target is a party or by which it is bound or to which any
of its assets is subject (or result in the imposition of any Security Interest
upon any of its assets). Target need not give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any Person,
government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
(e) BROKERS' FEES. Target has, or prior to Closing will have,
paid any fees or commissions due from Target to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement. Shareholder
agrees that he will pay any additional amounts that may become due from Target
to any such broker, finder or agent in the future, including as a result of any
indemnification obligations.
(f) TITLE TO ASSETS. Target has good and marketable title to,
or a valid leasehold interest in, the properties and assets used by it, located
on its premises, or shown on the Most Recent Balance Sheet or acquired after
the date thereof, free and clear of all Security Interests (other than the
Security Interests disclosed on the face of the Most Recent Balance Sheet),
except for properties and assets disposed of in the Ordinary Course of Business
since the date of the Most Recent Balance Sheet, none of which disposals are
expected to have a Material Adverse Effect. The consummation of the
transactions contemplated by this Agreement will not affect Target's good and
marketable title to, or valid leasehold interest in, the properties and assets
described in the preceding sentence.
(g) SUBSIDIARIES. Except as set forth in Section 4(g) of the
Disclosure Schedule, Target does not currently have, and has never had, any
Subsidiaries and does not own any securities of any other Person.
(h) FINANCIAL STATEMENTS. Attached hereto as EXHIBIT A are
the following financial statements (collectively the "FINANCIAL STATEMENTS"):
(i) compiled balance sheets and
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<PAGE> 16
statements of income, including the independent accountant's report thereon as
of and for the fiscal year ended October 31, 1997 (the "MOST RECENT FISCAL YEAR
END") for Target; (ii) compiled balance sheets and statements of income,
including the independent accountant's report thereon as of and for the fiscal
years ended October 31, 1995 and October 31, 1996 and (iii) unaudited balance
sheets and statements of income, (the "MOST RECENT FINANCIAL STATEMENTS") as of
and for the period from November 1, 1997 through July 31, 1998 for Target (the
"MOST RECENT FISCAL PERIOD END"). Except for the utilization of tax
depreciation therein, the Financial Statements (including the notes thereto)
have been prepared in accordance with GAAP applied on a consistent basis
throughout the periods covered thereby, present fairly the financial condition
of Target as of such dates and the results of operations of Target for such
periods, are correct and complete, and are consistent with the books and
records of Target (which books and records are correct and complete).
(i) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. Since
the Most Recent Fiscal Year End and except as disclosed in the Disclosure
Schedule, there has not occurred any Material Adverse Effect and Target has not
engaged in any transactions outside of the Ordinary Course of Business. Without
limiting the generality of the foregoing, since that date:
(i) Target has not sold, leased, transferred, or
assigned any of its assets, tangible or intangible, other than for a
fair consideration in the Ordinary Course of Business;
(ii) Target has not entered into any agreements,
contracts, leases, or licenses either involving more than $10,000 in
the aggregate, having a term greater than 12 months or outside the
Ordinary Course of Business;
(iii) no party (including any of Target) has
accelerated, terminated, modified, or cancelled any agreements,
contracts, leases, or licenses involving more than $10,000 in the
aggregate to which Target is a party or by which it is bound;
(iv) Target has not imposed or allowed to be imposed
any Security Interest upon any of its assets, tangible or intangible;
(v) Target has not made any capital expenditures
involving more than $10,000 in the aggregate or outside the Ordinary
Course of Business;
(vi) Target has not made any capital investment in,
any loan to, or any acquisition of the securities or assets of, any
other Person;
(vii) Target has not issued any note, bond, or other
debt security or created, incurred, assumed, or guaranteed any
indebtedness for borrowed money or capitalized lease obligation
involving more than $10,000 in the aggregate;
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(viii) Target has not delayed or postponed the
payment of accounts payable and other Liabilities outside the Ordinary
Course of Business;
(ix) Target has not cancelled, compromised, waived,
or released any right or claim either involving more than $10,000 in
the aggregate and outside the Ordinary Course of Business;
(x) Target has not granted any license or sublicense
of any rights under or with respect to any Intellectual Property;
(xi) there has been no change made or authorized in
the charter or bylaws of any of Target;
(xii) Target has not issued, sold, or otherwise
disposed of any of its capital stock or securities convertible into or
exchangeable for such stock, or granted any options, warrants, or
other rights to purchase or obtain any of such capital stock or
securities;
(xiii) Target has not declared, set aside, or paid
any dividend or made any distribution with respect to its capital
stock (whether in cash or in kind) or redeemed, purchased, or
otherwise acquired any of its capital stock or other securities;
(xiv) Target has not experienced any damage,
destruction, or loss (whether or not covered by insurance) to its
property involving more than $10,000 in the aggregate;
(xv) Target has not made any loan to, or entered
into any other transaction with, any of its directors, officers, and
employees or their "Associates" (as defined in Rule 12b-2 under the
Exchange Act);
(xvi) Target has not entered into any employment
contract or collective bargaining agreement, written or oral, or
modified the terms of any existing such contract or agreement;
(xvii) Target has not granted any increase in any
compensation of any of its directors, officers, or other employees;
(xviii) Target has not adopted, amended, modified,
or terminated any bonus, profit-sharing, incentive, severance, or
other plan, contract, or commitment for the benefit of any of its
directors, officers, and employees (or taken any such action with
respect to any other Employee Benefit Plan);
(xix) Target has not made any other change in
employment terms for any of its directors, officers, and employees
outside the Ordinary Course of Business;
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<PAGE> 18
(xx) Target has not made or pledged to make any
charitable or other capital contribution outside the Ordinary Course
of Business;
(xxi) there has not been any other material
occurrence, event, incident, action, failure to act, or transaction
outside the Ordinary Course of Business involving Target; and
(xxii) Target has not increased, or experienced any
change in assumptions underlying or method of calculating, any bad
debt, contingency, tax or other reserves or changed its accounting
practices, methods or assumptions (including changes in estimates or
valuation methods); or written down the value of any assets;
(xxiii) Target has not granted any bonuses or made
any other payments of any kind (other than base compensation in the
Ordinary Course of Business) to any officer, director or employee of
Target, or to any Person related to any of the foregoing Persons; and
(xxiv) Target has not committed to any of the
foregoing.
(j) UNDISCLOSED LIABILITIES. Except as disclosed in Section
4(j) of the Disclosure Schedule, Target does not have any Liability, except for
(i) Liabilities set forth on the face of the Most Recent Balance Sheet (rather
than in any notes thereto) and (ii) Liabilities which have arisen after the
Most Recent Fiscal Year End in the Ordinary Course of Business (none of which
results from, arises out of, relates to, is in the nature of, or was caused by
any breach of contract, breach of warranty, tort, infringement, or violation of
law and none of which could reasonably be expected to have a Material Adverse
Effect).
(k) LEGAL COMPLIANCE. Target and its corporate predecessors
and Affiliates have complied, in all material respects, with all applicable
laws (including rules, regulations, codes, plans, injunctions, judgments,
orders, decrees, rulings, and charges thereunder) of federal, state, local, and
foreign governments (and all agencies thereof), and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand, or notice
has been filed or commenced against any of them alleging any failure so to
comply.
(l) TAX MATTERS.
(i) Target has filed all Tax Returns that it was
required to file. All such Tax Returns were correct and complete in
all respects. All Taxes owed by Target (whether or not shown on any
Tax Return) have been paid or are fully and adequately accrued and
adequately disclosed on the Most Recent Balance Sheet. Target is not
currently the beneficiary of any extension of time within which to
file any Tax Return. No claim has ever been made by an authority in a
jurisdiction where Target does not file Tax Returns that it is or may
be subject to taxation by that jurisdiction. There are no
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<PAGE> 19
Security Interests on any of the assets of Target that arose in
connection with any failure (or alleged failure) to pay any Tax.
(ii) Target has withheld and paid all Taxes required
to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder,
or other third party.
(iii) Neither Shareholder nor Target has Knowledge
that any authority expects to assess any additional Taxes for any
period for which Tax Returns have been filed. There is no action, suit
or proceeding, investigation, dispute or claim now pending or
threatened concerning any Tax Liability of Target or proposed
adjustment to the taxable income of Target either (A) claimed or
raised by any authority in writing or (B) as to which the Shareholder
and Target has Knowledge based upon personal contact with any agent of
such authority. Section 4(l) of the Disclosure Schedule contains a
summary of all Tax Returns filed with respect to Target for the last
three completed tax years, indicates those Tax Returns that have been
audited, and indicates those Tax Returns that currently are the
subject of audit. The Shareholder has made available to North American
correct and complete copies of all Tax Returns, examination reports,
and statements of deficiencies assessed against or agreed to by Target
since January 1, 1994.
(iv) Target has not waived any statute of
limitations in respect of Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency.
(v) Target has not filed a consent under Code
Section 341(f) concerning collapsible corporations. Target has not
made any payments, is not obligated to make any payments, or is not a
party to any agreement that under certain circumstances could obligate
it to make any payments that will not be deductible under Code Section
280G or that would give rise to any obligation to indemnify any Person
for any excise tax payable pursuant to Code Section 4999. The Target
has not been a United States real property holding corporation within
the meaning of Code Section 897(c)(2) during the applicable period
specified in Code Section 897(c)(1)(A)(ii). Target has disclosed on
its federal income Tax Returns all positions taken therein that could
give rise to a substantial understatement of federal income Tax within
the meaning of Code Section 6662. Neither Target nor any predecessor
or affiliate thereof is a party to any Tax allocation, sharing,
indemnification or similar agreement. Target (A) has not been a member
of an Affiliated Group filing a consolidated federal income Tax Return
(other than a group the common parent of which was Target) and (B)
does not have any Liability for the Taxes of any Person (other than
any of Target and its Subsidiaries) under Reg. Section 1.1502-6 (or
any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise. No indebtedness of
Target consists of "corporate acquisition indebtedness" within the
meaning of Code Section 279.
(vi) Section 4(l) of the Disclosure Schedule sets
forth as of the most recent practicable date the basis for Federal
income tax purposes of Target in its assets.
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(vii) The unpaid Taxes of Target (A) did not, as of
the Most Recent Fiscal Period End, exceed the reserve for Tax
Liability set forth on the face of the Most Recent Balance Sheet
(rather than in any notes thereto) and (B) do not, and will not as of
the Closing Date, exceed that reserve as adjusted for the passage of
time through the Closing Date in accordance with the past custom and
practice of Target in filing its Tax Returns.
(m) REAL PROPERTY. Target does not own any real property.
ss.4(m) of the Disclosure Schedule lists and describes briefly all real
property leased or subleased to Target. The Shareholder has delivered to North
American correct and complete copies of the leases and subleases listed in
ss.4(m) of the Disclosure Schedule (as amended to date). With respect to each
lease and sublease listed in Section 4(m) of the Disclosure Schedule:
(A) the lease or sublease is legal, valid,
binding, enforceable, and in full force and effect;
(B) the lease or sublease will continue to
be legal, valid, binding, enforceable, and in full force and
effect on identical terms following the consummation of the
transactions contemplated hereby;
(C) no party to the lease or sublease is in
breach or default, and no event has occurred which, with
notice or lapse of time, would constitute a breach or default
or permit termination, modification, or acceleration
thereunder;
(D) no party to the lease or sublease has
repudiated any provision thereof;
(E) there are no disputes, oral agreements,
or forbearance programs in effect as to the lease or
sublease;
(F) Target has not received a notice from
the lessor indicating that the lease will not be renewed at
the end of its current term for any additional terms provided
for in the lease;
(G) the term of the lease will continue for
a minimum of six months past the Closing Date;
(H) with respect to each sublease, the
representations and warranties set forth in subsections (A)
through (G) above are true and correct with respect to the
underlying lease;
(I) Target has not assigned, transferred,
conveyed, mortgaged, deeded in trust, or encumbered any
interest in the leasehold or subleasehold;
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<PAGE> 21
(J) all facilities leased or subleased
thereunder have received all approvals of governmental
authorities (including licenses and permits) required in
connection with the operation thereof and have been operated
and maintained in accordance with applicable laws, rules, and
regulations;
(K) all facilities leased or subleased
thereunder are supplied with utilities and other services
necessary for the operation of said facilities; and
(L) the Shareholder is not aware of any
pending or threatened foreclosure or other enforcement
proceedings relating to the real property underlying the
leases or subleases set forth in Section 4(m) of the
Disclosure Schedule that could result in Target's loss of
possession of such real property.
(n) INTELLECTUAL PROPERTY.
(i) Target owns or has the right to use pursuant to
license, sublicense, agreement, or permission in writing all
Intellectual Property necessary for the operation of the businesses of
Target as presently conducted and as presently proposed to be
conducted. Each item of Intellectual Property owned or used by Target
immediately prior to the Closing hereunder will be owned or available
for use by Target on identical terms and conditions immediately
subsequent to the Closing hereunder. Target has taken all necessary
action to maintain and protect each item of Intellectual Property that
it owns or uses.
(ii) Target has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of third parties, and none of the Shareholder and the
directors and officers (and employees with responsibility for
Intellectual Property matters) of Target has ever received any charge,
complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that
Target must license or refrain from using any Intellectual Property
rights of any third party). To the Knowledge of Shareholder and
Target, no third party has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of Target.
(iii) Section 4(n)(iii) of the Disclosure Schedule
identifies each patent or registration which has been issued to Target
with respect to any of its Intellectual Property, identifies each
pending patent application or application for registration which
Target has made with respect to any of its Intellectual Property, and
identifies each license, agreement, or other permission which Target
has granted to any third party with respect to any of its Intellectual
Property (together with any exceptions). The Shareholder has delivered
to North American correct and complete copies of all such patents,
registrations, applications, licenses, agreements, and permissions (as
amended to date) and have made available to North American correct and
complete copies of all other written documentation evidencing
ownership and prosecution (if applicable) of each such
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item. Section 4(n)(iii) of the Disclosure Schedule also identifies
each trade name or unregistered trademark used by Target in connection
with any of its businesses. With respect to each item of Intellectual
Property required to be identified in Section 4(n)(iii) of the
Disclosure Schedule:
(A) Target possesses all right, title, and
interest in and to the item, free and clear of any Security
Interest, license, or other restriction;
(B) the item is not subject to any
outstanding injunction, judgment, order, decree, ruling, or
charge;
(C) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending
or is threatened which challenges the legality, validity,
enforceability, use, or ownership of the item; and
(D) Target has never agreed to indemnify
any Person for or against any interference, infringement,
misappropriation, or other conflict with respect to the item.
(iv) Section 4(n)(iv) of the Disclosure Schedule
identifies each item of Intellectual Property that any third party
owns and that Target uses pursuant to license, sublicense, agreement,
or permission. The Shareholder has delivered to North American correct
and complete copies of all such licenses, sublicenses, agreements, and
permissions (as amended to date). With respect to each item of
Intellectual Property required to be identified in Section 4(n)(iv) of
the Disclosure Schedule:
(A) the license, sublicense, agreement, or
permission covering the item is legal, valid, binding,
enforceable, and in full force and effect;
(B) the license, sublicense, agreement, or
permission will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated
hereby;
(C) no party to the license, sublicense,
agreement, or permission is in breach or default, and no
event has occurred which with notice or lapse of time would
constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(D) no party to the license, sublicense,
agreement, or permission has repudiated any provision
thereof;
(E) with respect to each sublicense, the
representations and warranties set forth in subsections (A)
through (D) above are true and correct with respect to the
underlying license;
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(F) the underlying item of Intellectual
Property is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
(G) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending
or is threatened which challenges the legality, validity, or
enforceability of the underlying item of Intellectual
Property; and
(H) Target has never granted any sublicense
or similar right with respect to the license, sublicense,
agreement, or permission.
(v) To the Knowledge of Shareholder and Target,
Target will not interfere with, infringe upon, misappropriate, or
otherwise come into conflict with, any Intellectual Property rights of
third parties as a result of the continued operation of its businesses
as presently conducted and as presently proposed to be conducted.
(vi) None of the Shareholder and Target has any
Knowledge of any new products, inventions, procedures, or methods of
manufacturing or processing that any competitors or other third
parties have developed which reasonably could be expected to supersede
or make obsolete any product or process of any of Target.
(o) TANGIBLE ASSETS. Target owns or leases all buildings,
machinery, equipment, and other tangible assets necessary for the conduct of
its business as presently conducted and as presently proposed to be conducted.
Each such tangible asset is in good operating condition and repair (subject to
normal wear and tear), and is suitable for the purposes for which it presently
is used. Section 4(o) of the Disclosure Schedule lists all tangible assets
owned by Target.
(p) INVENTORY. Target has no inventory.
(q) CONTRACTS. Section 4(q) of the Disclosure Schedule lists
all the contracts and other agreements to which Target is a party. The
Shareholder has delivered to North American a correct and complete copy of each
written agreement listed in Section 4(q) of the Disclosure Schedule (as amended
to date). With respect to each such agreement: (A) the agreement is legal,
valid, binding, enforceable, and in full force and effect; (B) the agreement
will continue to be legal, valid, binding, enforceable, and in full force and
effect on identical terms with respect to Target, and to the Knowledge of the
Shareholder, with respect to any other parties thereto, following the
consummation of the transactions contemplated hereby; (C) neither Target, nor
to the Knowledge of the Shareholder, any other party is in breach or default,
and no event has occurred which with notice or lapse of time would constitute a
breach or default, or permit termination, modification, or acceleration, under
the agreement; and (D) neither Target, nor to the Knowledge of the Shareholder,
any other party has repudiated any provision of the agreement. Section 4(q) of
the Disclosure Schedule lists each currently outstanding bid or proposal for
business submitted by Target in excess of $1,000,000.
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(r) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts
receivable of Target are reflected properly on the Most Recent Balance Sheet in
accordance with GAAP, are valid receivables subject to no setoffs or
counterclaims, are current and collectible, and, will be collected in
accordance with their terms at their recorded amounts, subject only to the
reserve for bad debts set forth on the face of the Most Recent Balance Sheet
(rather than in any notes thereto) as adjusted for the passage of time through
the Closing Date in accordance with the past custom and practice of Target.
(s) POWERS OF ATTORNEY. There are no outstanding powers of
attorney executed on behalf of Target.
(t) INSURANCE. Section 4(t) of the Disclosure Schedule
includes a true, correct and complete list of all policies of insurance
(including policies providing property, casualty, liability, and workers'
compensation coverage and bond and surety arrangements) to which Target is a
party, a named insured, or otherwise the beneficiary of coverage. Genuine and
complete copies of each of the insurance policies listed in Section 4(t) of the
Disclosure Schedule have been provided to North American. With respect to each
such insurance policy: (A) the policy is legal, valid, binding, enforceable,
and in full force and effect; (B) the policy will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms with
respect to Target, and to the Knowledge of the Shareholder, with respect to any
other parties thereto, following the consummation of the transactions
contemplated hereby; (C) neither Target nor, to the Knowledge of the
Shareholder, any other party to the policy is in breach or default (including
with respect to the payment of premiums or the giving of notices), and no event
has occurred which, with notice or the lapse of time, would constitute such a
breach or default, or permit termination, modification, or acceleration, under
the policy; (D) to the Knowledge of the Shareholder, neither Target, any ERISA
Affiliate nor North American shall be subject to a retroactive rate adjustment,
loss sharing arrangement or other actual or contingent liability and (E) to
Shareholder's or Target's Knowledge, no party to the policy has repudiated any
provision thereof. Target has been fully covered at all times during the past 5
years by insurance in scope and amount customary and reasonable for the
businesses in which it has engaged during the aforementioned period. Section
4(t) of the Disclosure Schedule describes any self-insurance arrangements
affecting Target.
(u) LITIGATION. Section 4(u) of the Disclosure Schedule sets
forth each instance in which Target (i) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (ii) is a party, or
to the Knowledge of Shareholder or Target, is threatened to be made a party to
any claim, action, suit, proceeding, hearing, or investigation of, in, or
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator. Except as set
forth in ss.4(u) of the Disclosure Schedule, there is no other pending, or to
the knowledge of Shareholder or Target, threatened claim, arbitration
proceeding, action, suit, investigation or other proceeding against or
involving Target or any property or rights of Target or any officer or director
or Target. None of the actions, suits, proceedings, hearings, and
investigations set forth in ss.4(u) of the Disclosure Schedule could result in
any Material Adverse Effect. Neither the Shareholder nor the directors and
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officers (and employees with responsibility for litigation matters) of Target
has any reason to believe that any such action, suit, proceeding, hearing, or
investigation may be brought or threatened against Target.
(v) COMMITMENTS AND WARRANTIES. All services provided by the
Target have been performed in conformity with all applicable contractual
commitments (written or oral) and all express and implied warranties (written
or oral), and Target has no Liability and, to the Knowledge of the Shareholder
and Target, there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any Liability) in connection with any such services.
ss.4(v) of the Disclosure Schedule includes copies of the standard forms of
agreement entered into between Target and its customers. Target has not entered
into any written or oral agreements with any of its customers that include
guaranties, warranties, or indemnity provisions other than those included in
the agreements included as part of Section 4(v) of the Disclosure Schedule.
Neither Target nor the Shareholder has received notice (written or
oral) from any of its customers stating that the customer intends to reduce the
volume of business that it currently conducts with Target or to cease doing
business with Target. Target has not entered into any minimum purchase
commitments or guaranteed pricing agreements.
(w) LIABILITY FOR SERVICES PERFORMED. Target has no Liability
(and, to Shareholder's Knowledge, there is no Basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim, or
demand against any of them giving rise to any Liability) arising out of any
injury to individuals or property as a result of or in connection with any
services provided by Target.
(x) EMPLOYEES. To the Knowledge of the Shareholder or Target,
no executive, key employee, or group of employees has any plans to terminate
employment with Target. Target is not currently, nor at any prior time has
been, a party to or bound by any collective bargaining agreement, nor has
Target experienced any strikes, grievances, claims of unfair labor practices,
or other collective bargaining disputes. Target has not committed any unfair
labor practice. Neither the Shareholder nor Target have any Knowledge of any
organizational effort presently being made or threatened by or on behalf of any
labor union with respect to employees of Target.
(y) EMPLOYEE BENEFITS.
(i) Section 4(y) of the Disclosure Schedule lists
each Employee Benefit Plan that Target or any ERISA Affiliate
maintains, contributes to, or is required to contribute to or under
which Target or any ERISA Affiliate has any liability.
(A) Each such Employee Benefit Plan (and
each related trust, insurance contract, or fund) complies in
form and in operation in all respects with the applicable
requirements of ERISA, the Code, and other applicable laws.
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(B) All required reports and disclosures
(including Form 5500 Annual Reports, Summary Annual Reports,
PBGC-1's, and Summary Plan Descriptions) have been filed or
distributed appropriately with respect to each such Employee
Benefit Plan. The requirements of Part 6 of Subtitle B of
Title I of ERISA and of Code Section 4980B have been met with
respect to each such Employee Benefit Plan which is an
Employee Welfare Benefit Plan.
(C) All contributions (including all
employer contributions and employee salary reduction
contributions) which are due have been paid to each such
Employee Benefit Plan which is an Employee Pension Benefit
Plan and all contributions for any period ending on or before
the Closing Date which are not yet due have been paid to each
such Employee Pension Benefit Plan or accrued in accordance
with the past custom and practice of Target and in accordance
with GAAP. All premiums or other payments for all periods
ending on or before the Closing Date have been paid with
respect to each such Employee Benefit Plan which is an
Employee Welfare Benefit Plan.
(D) Each such Employee Benefit Plan which
is an Employee Pension Benefit Plan now meets and at all
times since inception have met the requirements of a
"qualified plan" under Code Section 401(a) and has received,
within the last two years, a favorable determination letter
from the Internal Revenue Service.
(E) As of the Closing Date, the market
value of assets under each such Employee Benefit Plan which
is an Employee Pension Benefit Plan (other than any
Multiemployer Plan) will equal or exceed the present value of
all vested and nonvested Liabilities thereunder determined in
accordance with PBGC methods, factors, and assumptions
applicable to an Employee Pension Benefit Plan terminating on
such date.
(F) The Shareholder has delivered to North
American correct and complete copies of the plan documents
and summary plan descriptions including all amendments
thereto, the most recent determination letter received from
the Internal Revenue Service, the three most recent Form 5500
Annual Reports (including all schedules thereto), the three
most recent annual premium payment forms filed with the PBGC,
and all related trust agreements, insurance contracts, and
other funding agreements which implement each such Employee
Benefit Plan.
(ii) With respect to each Employee Benefit Plan that
Target or any ERISA Affiliate maintains, contributes to, or is
required to contribute to or under which Target or any ERISA Affiliate
has any liability:
(A) No such Employee Benefit Plan which is
an Employee Pension Benefit Plan (other than any
Multiemployer Plan) has been completely or partially
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terminated or been the subject of a Reportable Event as to
which notices would be required to be filed with the PBGC. No
proceeding by the PBGC to terminate any such Employee Pension
Benefit Plan (other than any Multiemployer Plan) has been
instituted or threatened.
(B) There have been no Prohibited
Transactions with respect to any such Employee Benefit Plan.
No Fiduciary has any Liability for breach of fiduciary duty
or any other failure to act or comply in connection with the
administration or investment of the assets of any such
Employee Benefit Plan. No action, suit, proceeding, hearing,
or investigation with respect to any such Employee Benefit
Plan (other than routine claims for benefits) is pending or
threatened. Neither the Shareholder nor Target has any
Knowledge of any Basis for any such action, suit, proceeding,
hearing, or investigation.
(C) Neither Target nor any ERISA Affiliate
has incurred, and none of the Shareholder and the directors
and officers (and employees with responsibility for employee
benefits matters) of Target has any reason to expect that
Target or any ERISA Affiliate will incur, any Liability to
the PBGC (other than PBGC premium payments) or otherwise
under Title IV of ERISA (including any withdrawal Liability)
or under the Code with respect to any such Employee Benefit
Plan which is an Employee Pension Benefit Plan.
(iii) Neither Target nor any ERISA Affiliate
contributes to, ever has contributed to, or ever has been required to
contribute to any Multiemployer Plan or has any Liability (including
withdrawal Liability) under any Multiemployer Plan.
(iv) Neither Target nor any ERISA Affiliate
maintains or contributes to, or has ever been required to contribute
to any Employee Welfare Benefit Plan providing medical, health, or
life insurance or other welfare-type benefits for current or future
retired or terminated employees, their spouses, or their dependents
(other than in accordance with Code Section 4980B).
(z) GUARANTIES. Target is not a guarantor or otherwise is
liable for any Liability or obligation (including indebtedness) of any other
Person.
(aa) ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS.
(i) Target and its corporate predecessors and
Affiliates have complied and are in compliance with all Environmental,
Health, and Safety Requirements.
(ii) Without limiting the generality of the
foregoing, Target and its Affiliates have obtained and complied with,
and are in compliance with, all permits, licenses and other
authorizations that are required pursuant to Environmental, Health,
and Safety Requirements for the occupation of its facilities and the
operation of its business;
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a list of all such permits, licenses and other authorizations is set
forth on Section 4(aa) of the Disclosure Schedule.
(iii) Neither Target nor its corporate predecessors
or Affiliates has received any written or oral notice, report or other
information regarding any actual or alleged violation of
Environmental, Health, and Safety Requirements, or any liabilities or
potential liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise), including any investigatory, remedial or
corrective obligations, relating to any of them or its facilities
arising under Environmental, Health, and Safety Requirements.
(iv) None of the following exists at any property or
facility owned or operated by Target: (1) underground storage tanks,
(2) asbestos-containing material in any form or condition, (3)
materials or equipment containing polychlorinated biphenyls, or (4)
landfills, surface impoundments, or disposal areas.
(v) None of Target or its corporate predecessors or
Affiliates has treated, stored, disposed of, arranged for or permitted
the disposal of, transported, handled, or released any substance,
including without limitation any hazardous substance, or owned or
operated any property or facility (and no such property or facility is
contaminated by any such substance) in a manner that has given or
would give rise to liabilities, including any liability for response
costs, corrective action costs, personal injury, property damage,
natural resources damages or attorney fees, pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended ("CERCLA"), the Solid Waste Disposal Act, as
amended ("SWDA") or any other Environmental, Health, and Safety
Requirements.
(vi) Neither this Agreement nor the consummation of
the transactions that are the subject of this Agreement will result in
any obligations for site investigation or cleanup, or notification to
or consent of government agencies or third parties, pursuant to any of
the so-called "transaction-triggered" or "responsible property
transfer" Environmental, Health, and Safety Requirements.
(vii) Neither Target nor its corporate predecessors
or Affiliates has, either expressly or by operation of law, assumed or
undertaken any liability, including without limitation any obligation
for corrective or remedial action, of any other Person relating to
Environmental, Health, and Safety Requirements.
(viii) No facts, events or conditions relating to
the past or present facilities, properties or operations of Target or
any of its corporate predecessors or Affiliates will prevent, hinder
or limit continued compliance with Environmental, Health, and Safety
Requirements, give rise to any investigatory, remedial or corrective
obligations pursuant to Environmental, Health, and Safety Requirements
(whether on-site or off-site), or give rise to any other liabilities
(whether accrued, absolute, contingent, unliquidated or otherwise)
pursuant to Environmental, Health, and Safety Requirements,
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including without limitation any relating to onsite or offsite
releases or threatened releases of hazardous materials, substances or
wastes, personal injury, property damage or natural resources damage.
(ab) CERTAIN BUSINESS RELATIONSHIPS WITH TARGET. Neither the
Shareholder, his Affiliates, any director or employee of Target, or any
relatives of the Shareholder, or any person living in the same residence as
such persons, has been involved in any business arrangement or relationship
with Target within the past 12 months, and neither the Shareholder nor their
respective Affiliates nor any of such other persons own leases, licenses, or
otherwise has any interest in any asset, tangible or intangible, which is used
in the business of Target or any contract, lease or commitment to which Target
is a party. Target is not indebted to any officer, director or employee of
Target for any liability or obligation. No officer, director or employee of
Target is indebted to Target for any liability or obligation.
(ac) CUSTOMERS AND SUPPLIERS. No purchase order or commitment
of Target is in excess of normal requirements, nor are prices provided therein
in excess of current market prices for the products or services to be provided
thereunder. No material supplier of Target has advised Target in writing during
the past 12 months that it will stop, or decrease the rate of, supplying
materials, products or services to Target and no material customer of Target
has advised Target in writing within the past 12 months that it will stop, or
decrease the rate of buying materials, products or services from Target.
ss.4(ac) of the Disclosure Schedule sets forth a list of (a) each customer that
accounted for more that 5% of the consolidated revenues of Target during the
last full fiscal year or the interim period through the date of the Most Recent
Financial Statements and the amount of revenues accounted for by such customer
during each such period and (b) each supplier that is the sole supplier of any
significant product or component to Target. The consummation of the
transactions contemplate hereby will not have a Material Adverse Effect on
Target's relationship with any customer or supplier listed in Section 4(ac) of
the Disclosure Schedule.
(ad) DISCLOSURE. Neither this Agreement nor any of the
exhibits, attachments, written statements, documents, certificates or other
items prepared for or supplied to North American by or on behalf of Target or
the Shareholder with respect to the transactions contemplated hereby contains
any untrue statement of a material fact or omits to state any material fact
necessary in order to make each statement contained herein or therein not
misleading. There is no fact which Target or the Shareholder have not disclosed
to North American herein and of which the Shareholder, Target, or any of
Target's officers or directors is aware and which could be anticipated to have
a Material Adverse Effect.
5. PRE-CLOSING COVENANTS. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing.
(a) GENERAL. Each of the Parties will use his or its best
efforts to take all action and to do all things necessary, proper, or advisable
in order to consummate and make
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effective the transactions contemplated by this Agreement (including
satisfaction, but not waiver, of the closing conditions set forth in Section 7
below).
(b) NOTICES AND CONSENTS. The Shareholder will cause Target
to give any notices to third parties, and will cause Target to use its best
efforts to obtain any third party required in connection with the matters
referred to in Section 4(d) above. Each of the Parties will (and the
Shareholder will cause Target to) give any notices to, make any filings with,
and use its best efforts to obtain any authorizations, consents, and approvals
of governments and governmental agencies in connection with the matters
referred to in Section 3(a)(ii), Section 3(b)(v), and Section 4(d) above.
(c) OPERATION OF BUSINESS. Except for the distribution of the
real property located at 7102 and 7102 1/2 North 30th Street, Tampa, Florida to
Michael Wallace, or an affiliate thereof, immediately prior to the Closing, the
Shareholder will not cause or permit Target to engage in any practice, take any
action, or enter into any transaction outside the Ordinary Course of Business.
Without limiting the generality of the foregoing, the Shareholder will not
cause or permit Target to (i) declare, set aside, or pay any dividend or make
any distribution with respect to its capital stock or redeem, purchase, or
otherwise acquire any of its capital stock or (ii) otherwise engage in any
practice, take any action, or enter into any transaction of the sort described
in Section 4(i) above. The Shareholder will immediately notify North American
in writing with respect to any proposed capital expenditures in excess of
$10,000.
(d) PRESERVATION OF BUSINESS. The Shareholder will cause
Target to keep its business and properties substantially intact, including its
present operations, physical facilities, working conditions, and relationships
with lessors, licensors, suppliers, customers, and employees.
(e) FULL ACCESS. The Shareholder will permit, and will cause
Target to permit, representatives of North American to have full access at all
reasonable times, and in a manner so as not to interfere with the normal
business operations of Target, to all premises, properties, personnel, books,
records (including Tax records), contracts, and documents of or pertaining to
Target. At the request of North American, Shareholder will permit, and will
cause Target to permit, North American's lenders, and their respective counsel,
to have the same access as permitted to North American in accordance with the
immediately preceding sentence.
(f) NOTICE OF DEVELOPMENTS. Each of the Parties will give
prompt written notice to the other Parties of any breach of any of the
representations and warranties in Section 4 above. Each Party will give prompt
written notice to the others of any breach of any of his or its own
representations and warranties in Section 3 above. No disclosure by any Party
pursuant to this Section 5(f), however, shall be deemed to amend or supplement
the North American Disclosure Schedule or the Disclosure Schedule or to prevent
or cure any misrepresentation, breach of warranty, or breach of covenant.
(g) EXCLUSIVITY. The Shareholder will not (and the
Shareholder will not cause or permit Target to) (i) solicit, initiate, or
encourage the submission of any proposal or offer
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from any Person relating to the acquisition of any capital stock or other
voting securities, or any substantial portion of the assets, of Target
(including any acquisition structured as a merger, consolidation, or share
exchange) or (ii) participate in any discussions or negotiations regarding,
furnish any information with respect to, assist or participate in, or
facilitate in any other manner any effort or attempt by any Person to do or
seek any of the foregoing. The Shareholder will notify North American
immediately if any Person makes any proposal, offer, inquiry, or contact with
respect to any of the foregoing.
(h) NO TERMINATION OF SHAREHOLDER'S OBLIGATION BY SUBSEQUENT
INCAPACITY. Shareholder specifically agrees that his obligations hereunder,
including, without limitation, the obligations pursuant to Section 8 hereof,
shall not be eliminated by his death or incapacity.
6. POST-CLOSING COVENANTS. The Parties agree as follows with respect
to the period following the Closing.
(a) GENERAL. In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, each of the Parties will take such further action (including the
execution and delivery of such further instruments and documents) as any other
Party reasonably may request, all at the sole cost and expense of the
requesting Party (unless the requesting Party is entitled to indemnification
therefor under Section 8 below). The Shareholder acknowledges and agrees that
from and after the Closing North American will be entitled to possession of all
documents, books, records (including Tax records), agreements, and financial
data of any sort relating to Target.
(b) LITIGATION SUPPORT. In the event and for so long as any
Party actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving Target, each of the other Parties will cooperate
with him or it and his or its counsel in the contest or defense, make available
their personnel, and provide such testimony and access to their books and
records as shall be necessary in connection with the contest or defense, all at
the sole cost and expense of the contesting or defending Party (unless the
contesting or defending Party is entitled to indemnification therefor under
ss.8 below).
(c) TRANSITION. The Shareholder will not take any action that
is designed or intended to have the effect of discouraging any lessor,
licensor, customer, supplier, or other business associate of Target from
maintaining the same business relationships with Target after the Closing as it
maintained with Target prior to the Closing. The Shareholder will refer all
customer inquiries relating to the businesses of Target to North American from
and after the Closing.
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(d) INDEPENDENT ACCOUNTANTS. After the Closing, Shareholder
shall (i) use reasonable efforts to cause Target's past and present independent
auditors and accounting personnel to make available to North American and its
representatives all financial information, including the right to examine all
working papers pertaining to audits or reviews previously or hereafter made by
such auditors, and (ii) provide such cooperation as North American and its
representatives may reasonably request in connection with any audit or review
of Target that North American may direct its representatives to make. Without
limiting the generality of the foregoing, the Shareholder agrees that he will
cooperate with, and cause Target's past and present independent auditors,
accounting personnel and other necessary persons to cooperate with North
American in the preparation, at North American's expense, of any documents
filed by North American with the U.S. Securities and Exchange Commission in
connection with an offering of securities, to the extent information about
Target is required therein.
(e) TAX MATTERS. The Shareholder covenants and agrees not to
take any action, or fail to take any action, with respect to Taxes, that would
have a Material Adverse Effect on North American on or after the Closing Date,
including, without limitation, amending or otherwise supplementing any Tax
Return or report of Target with respect to any period prior to the Closing Date
without the consent of North American. If any taxing authority conducts any
audit or investigation relating to Target prior to the Closing Date, North
American may, in its sole election, have the right to supervise such audit or
investigation and provide any response required in connection therewith.
(f) STOCK OPTIONS. North American has adopted a stock
incentive plan (the "Stock Incentive Plan") pursuant to which stock options and
other forms of stock-based compensation may be awarded to the officers,
directors and employees of North American and its subsidiaries. The key
employees of Target shall be eligible to receive awards under the Stock
Incentive Plan of options to acquire shares of North American stock. Within 60
days of the Closing, the officers of Target shall recommend to the Stock Option
Committee under the Stock Incentive Plan the terms, conditions and amounts of
awards to be granted and the identity of the key employees of Target to receive
such awards, however, all such awards, and the terms and conditions thereof,
shall be finally determined by the Stock Option Committee.
(g) AUDITED FINANCIAL STATEMENTS. At the request of North
American, Shareholder shall cause Target's auditors to prepare audited
consolidated balance sheets and statements of income, changes in stockholders'
equity, and cash flow including the audit report thereon as of and for the
12-month periods ended December 31, 1996 and December 31, 1997 for the Target.
Except as set forth in Section 8(b)(ii) hereof, all costs associated with the
preparation and audit of Target's December 31, 1996 and December 31, 1997
financial statements shall be paid by North American.
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7. CONDITIONS TO OBLIGATION TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF NORTH AMERICAN. The
obligation of North American to consummate the transactions to be performed by
it in connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth in
Section 3(a) and Section 4 above shall be true and correct in all
material respects at and as of the Closing Date and there shall not
have occurred any Material Adverse Effect;
(ii) the Shareholder and Target shall have performed
and complied with all of his covenants hereunder in all material
respects through the Closing;
(iii) Target shall have procured all of the third
party consents specified in Section 5(b) above;
(iv) no action, suit, or proceeding shall be pending
or threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction, or
before any arbitrator, wherein an unfavorable injunction, judgment,
order, decree, ruling, or charge would (A) prevent consummation of any
of the transactions contemplated by this Agreement, (B) cause any of
the transactions contemplated by this Agreement to be rescinded
following consummation, (C) have a Material Adverse Effect on the
right of Target to own its assets and to operate its businesses (and
no such injunction, judgment, order, decree, ruling, or charge shall
be in effect);
(v) the Parties shall have received all
authorizations, consents, and approvals of governments and
governmental agencies referred to in Section 3(a)(ii), Section
3(b)(v), and Section 4(d) above;
(vi) North American shall have received from counsel
to the Shareholder an opinion in form and substance as set forth in
EXHIBIT B attached hereto, addressed to North American and dated as of
the Closing Date;
(vii) all actions to be taken by the Shareholder in
connection with the consummation of the transactions contemplated
hereby and all certificates, opinions, instruments, and other
documents required to effect the transactions contemplated hereby will
be reasonably satisfactory in form and substance to North American.
(viii) at least five business days prior to the
Closing, North American shall have received a balance sheet prepared
by Target, estimating the assets, liabilities and shareholders' equity
of Target as of the Closing Date (the "Estimated Closing Balance
Sheet"). The Estimated Closing Balance Sheet shall be prepared in
accordance with the method set forth in Section 9(a) for the
preparation of the Draft Closing Balance Sheet
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and will reflect (A) shareholders' equity ("Shareholders' Equity") of
at least $500,000.00, and (B) cash ("Cash") of at least $90,000.00.
North American shall not have objected to, challenged or otherwise
repudiated any of the amounts included in the Estimated Closing
Balance Sheet.
(x) North American shall have received an appraisal,
from an appraiser selected by North American, that states that the
fair market value of Target's tangible assets listed in Section 4(o)
of the Disclosure Schedule is at least equal to the book value, i.e.,
cost less depreciation, of such assets reflected in the Estimated
Closing Balance Sheet.
(xi) at least five business days prior to the
Closing, Shareholder shall have delivered to North American a
statement of income of Target for the Most Recent Fiscal Year End
which reflects earnings before interest, taxes, depreciation and
amortization expense ("EBITDA") of at least $500,000.00 and a
statement of income for the six months ended April 30, 1998 which
reflects EBITDA of at least $300,000.00.
(xii) Shareholder shall have delivered to North
American financial projections for Target for the calendar years 1998,
1999 and 2000, which reflect at least 10% growth in gross revenues per
year and net income before income taxes on a pro-forma basis equal to
at least 10% of gross revenues per year.
(xiii) Target shall have delivered evidence of its
qualification to do business in each jurisdiction where it is so
qualified and a certificate of good standing issued by the Secretary
of State of each such jurisdiction demonstrating that Target is in
good standing in that jurisdiction;
(xiv) Michael Wallace shall have entered into an
Employment Agreement with Target in the form attached hereto as
EXHIBIT C;
(xv) the Shareholder shall have signed the Amended
and Restated Stockholders Agreement;
(xvi) the board of directors of North American shall
have approved the consummation of the transactions contemplated by
this Agreement; and
(xvii) all actions to be taken by the Shareholder in
connection with consummation of the transactions contemplated hereby
and all certificates, opinions, instruments, and other documents
required to effect the transactions contemplated hereby will be
reasonably satisfactory in form and substance to North American.
North American may waive any condition specified in this Section 7(a) if it
executes a writing so stating at or prior to the Closing.
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(b) CONDITIONS TO OBLIGATION OF THE SHAREHOLDER. The
obligation of the Shareholder to consummate the transactions to be performed by
him in connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth in
Section 3(b) above shall be true and correct in all material respects
at and as of the Closing Date;
(ii) North American shall have performed and
complied with all of its covenants hereunder in all material respects
through the Closing;
(iii) no action, suit, or proceeding shall be
pending or threatened before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign
jurisdiction, or before any arbitrator, wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this
Agreement or (B) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation (and no such
injunction, judgment, order, decree, ruling, or charge shall be in
effect);
(iv) the Parties shall have received all
authorizations, consents, and approvals of governments and
governmental agencies referred to in Section 3(a)(ii), Section
3(b)(v), and Section 4(d) above;
(v) Shareholder shall have received from counsel to
North American an opinion in form and substance as set forth in
EXHIBIT D attached hereto, addressed to the Shareholder, and dated as
of the Closing Date;
(vi) this Agreement and the transactions
contemplated hereby shall have been approved by the Board of Directors
and shareholders of North American;
(vii) all actions to be taken by North American in
connection with consummation of the transactions contemplated hereby
and all certificates, opinions, instruments, and other documents
required to effect the transactions contemplated hereby will be
reasonably satisfactory in form and substance to the Shareholder.
The Shareholder may waive any condition specified in this Section 7(b) if he
executes a writing so stating at or prior to the Closing.
8. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations, warranties, covenants and agreements of the Parties contained
in this Agreement or in any certificate, document, instrument or agreement
delivered pursuant to this Agreement shall survive the Closing hereunder
(notwithstanding any due diligence investigations that may have been undertaken
by the damaged Party) and continue in full force and effect for a period of
five
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years following the Closing. Notwithstanding the foregoing, a claim for
indemnification in respect of a breach of the representations and warranties
set forth in Section 3(a), 3(b), 4(a)-(f), 4(l), 4(y) and 4(aa) may be made at
anytime following the Closing Date, until the expiration of the applicable
statute of limitations, and are not subject to the foregoing limitation.
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF NORTH AMERICAN.
(i) In the event the Shareholder breaches (or in the
event that any third party alleges facts that, if true, would mean
that the Shareholder has breached) any of their representations,
warranties (or any of such representations or warranties is untrue or
inaccurate), covenants and agreements contained herein or in any
certificate, document, instrument or agreement delivered pursuant to
this Agreement, and, provided that the Indemnified Buyers (as
hereafter defined) make a written claim for indemnification against
the Shareholder pursuant to Section 12(g) below within the applicable
claim period provided in 8(a) above, then the Shareholder agrees to
indemnify North American and each of its officers, directors,
employees, representatives and shareholders (the "Indemnified Buyers")
from and against the entirety of any Adverse Consequences the
Indemnified Buyers may suffer through and after the date of the claim
for indemnification (including any Adverse Consequences the
Indemnified Buyers may suffer after the end of any applicable claim
period) resulting from, arising out of, relating to, in the nature of,
or caused by the breach (or the alleged breach).
(ii) Without limiting any other indemnification
provided in this Section 8, the Shareholder agrees to indemnify the
Indemnified Buyers from and against the entirety of any Adverse
Consequences the Indemnified Buyers may suffer resulting from, arising
out of, relating to, in the nature of, or caused by any Liability of
Target (x) for any Taxes of Target with respect to any Tax year or
portion thereof ending on or before the Closing Date or for any Tax
year beginning before and ending after the Closing Date to the extent
allocable (determined in a manner consistent with Section 9(b)) to the
portion of such period beginning before and ending on the Closing
Date), (A) to the extent such Taxes are not reflected in the reserve
for Tax Liability shown on the face of the Most Recent Balance Sheet,
or (B) to the extent such Taxes (and related legal and accounting
fees) are incurred by North American in connection with auditing
adjustments made to the Financial Statements by Target's auditors; or
(y) for the unpaid Taxes of any Person (other than Target) under Reg.
Section 1.1502-6 (or any similar provision of state, local, or foreign
law), as a transferee or successor, by contract, or otherwise.
(iii) Without limiting any other indemnification
provided in this Section 8, Shareholder agrees to indemnify the
Indemnified Buyers from and against the entirety of any Adverse
Consequences they may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the activities of any entity which
at any time has been owned, in whole or in part, by Target.
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(iv) Without limiting any other indemnification
provided in this Section 8, Shareholder agrees to indemnify the
Indemnified Buyers from and against the entirety of any Adverse
Consequences they may suffer resulting from, or arising out of,
relating to, or in the nature of or caused by any claim by a
stockholder or former stockholder of Target or any other Person
seeking to assert: (i) ownership or rights to ownership of any shares
of capital stock of Target or any Subsidiary, (ii) any rights of a
stockholder (other than the right to receive the Consideration)
including any option, preemptive rights or rights to receive notice or
to vote, (iii) any rights under Target's charter, bylaws or other
constituent documents, or (iv) any claim that his shares of capital
stock were to be repurchased by Target.
(v) Without limiting any other indemnification
provided in this Section 8, Shareholder agrees to indemnify the
Indemnified Buyers from and against the entirety of any Adverse
Consequences they may suffer resulting from, or arising out of,
relating to, or in the nature of or caused by any claim by a
dissenting shareholder that the Consideration is less than the fair
value of his shares.
(vi) Without limiting any other indemnification
provided in this Section 8, Shareholder agrees to indemnify the
Indemnified Buyers from and against the entirety of any Adverse
Consequences they may suffer as a result of a taxing authority taking
the position that any former or current subcontractor of Target should
have been, at any time prior to the Closing Date, treated as an
employee of Target.
(vii) Without limiting any other indemnification
provided in this Section 8, Shareholder agrees to indemnify the
Indemnified Buyers from and against the entirety of any Adverse
Consequences they may suffer as a result of Target's failure to be
duly authorized to conduct business and in good standing under the
laws of any jurisdiction where such qualification is or has been
required as of or prior to the Closing Date.
(viii) Without limiting any other indemnification
provided in this Section 8, Shareholder agrees to indemnify the
Indemnified Buyers from and against the entirety of any Adverse
Consequences they may suffer as a result of any warranty claims made
against Target after the Closing Date for services begun or completed
by Target prior to the Closing Date.
(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE
SHAREHOLDER.
In the event North American breaches (or in the
event any third party alleges facts that, if true, would mean North
American had breached) any of its representations, warranties (or any
of such representations or warranties is untrue or inaccurate),
covenants and agreements contained herein or in any certificate,
document, instrument or agreement delivered pursuant to this
Agreement, and, provided that the Shareholder makes a written claim
for indemnification against North American pursuant to Section 12(g)
below within the applicable claim period provided in 8(a) above, then
North
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American agrees to indemnify the Shareholder and each of his
representatives (the "Indemnified Shareholders") from and against the
entirety of any Adverse Consequences the Indemnified Shareholders may
suffer through and after the date of the claim for indemnification
(including any Adverse Consequences the Indemnified Shareholders may
suffer after the end of any applicable claim period) resulting from,
arising out of, relating to, in the nature of, or caused by the breach
(or the alleged breach).
(d) MATTERS INVOLVING THIRD PARTIES.
(i) If any third party shall notify any party
entitled to indemnification hereunder (the "INDEMNIFIED PARTY") with
respect to any matter (a "THIRD PARTY CLAIM") which may give rise to a
claim for indemnification against any other Party (the "INDEMNIFYING
PARTY") under this Section 8, then the Indemnified Party shall promptly
notify each Indemnifying Party thereof in writing; PROVIDED, HOWEVER,
that no delay on the part of the Indemnified Party in notifying any
Indemnifying Party shall relieve the Indemnifying Party from any
obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is materially prejudiced.
(ii) Any Indemnifying Party will have the right to
defend the Indemnified Party against the Third Party Claim with
counsel of its choice reasonably satisfactory to the Indemnified Party
so long as (A) the Indemnifying Party notifies the Indemnified Party
in writing within 15 business days after the Indemnified Party has
given notice of the Third Party Claim that the Indemnifying Party will
indemnify the Indemnified Party from and against the entirety of any
Adverse Consequences the Indemnified Party may suffer resulting from,
arising out of, relating to, in the nature of, or caused by the Third
Party Claim, (B) the Indemnifying Party provides the Indemnified Party
with evidence reasonably acceptable to the Indemnified Party that the
Indemnifying Party will have the financial resources to defend against
the Third Party Claim and fulfill its indemnification obligations
hereunder, (C) the Third Party Claim involves only money damages and
does not seek an injunction or other equitable relief, (D) settlement
of, or an adverse judgment with respect to, the Third Party Claim is
not, in the good faith judgment of the Indemnified Party, likely to
establish a precedential custom or practice materially adverse to the
continuing business interests of the Indemnified Party, (E) the named
parties to the Third Party Claim do not include both the Indemnified
Party and the Indemnifying Party, and (F) the Indemnifying Party
conducts the defense of the Third Party Claim actively and diligently.
(iii) So long as the Indemnifying Party is
conducting the defense of the Third Party Claim in accordance with
Section 8(d)(ii) above, (A) the Indemnified Party may retain separate
co-counsel at its sole cost and expense and participate in the defense
of the Third Party Claim, (B) the Indemnified Party will not consent
to the entry of any judgment or enter into any settlement with respect
to the Third Party Claim without the prior written consent of the
Indemnifying Party (not to be unreasonably withheld, conditioned or
delayed), and (C) the Indemnifying Party will not consent to the entry
of
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<PAGE> 39
any judgment or enter into any settlement with respect to the Third
Party Claim without the prior written consent of the Indemnified Party
(not to be unreasonably withheld, conditioned or delayed).
(iv) In the event any of the conditions in
Section 8(d)(ii) above is or becomes unsatisfied, however, (A) the
Indemnified Party may defend against, and consent to the entry of any
judgment or enter into any settlement with respect to, the Third Party
Claim in any manner it reasonably may deem appropriate (and the
Indemnified Party need not consult with, or obtain any consent from,
any Indemnifying Party in connection therewith), (B) the Indemnifying
Parties will reimburse the Indemnified Party promptly and periodically
for the costs of defending against the Third Party Claim (including
reasonable attorneys' fees and expenses), and (C) the Indemnifying
Parties will remain responsible for any Adverse Consequences the
Indemnified Party may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the Third Party Claim to the
fullest extent provided in this Section 8.
(e) DETERMINATION OF ADVERSE CONSEQUENCES. The Parties shall
take into account the time cost of money (using the Applicable Rate as the
discount rate) in determining Adverse Consequences for purposes of this Section
8. All indemnification payments under this Section 8 shall be deemed
adjustments to the Consideration.
(f) OTHER INDEMNIFICATION PROVISIONS. The foregoing
indemnification provisions are in addition to, and not in derogation of, any
statutory, equitable, or common law remedy (including without limitation any
such remedy arising under Environmental, Health, and Safety Requirements) any
Party may have with respect to Target, or the transactions contemplated by this
Agreement. The Shareholder hereby agrees that he will not make any claim for
indemnification against Target by reason of the fact that he was a director,
officer, employee, or agent of Target or was serving at the request of Target
as a partner, trustee, director, officer, employee, or agent of another entity
(whether such claim is for judgments, damages, penalties, fines, costs, amounts
paid in settlement, losses, expenses, or otherwise and whether such claim is
pursuant to any statute, charter document, bylaw, agreement, or otherwise) with
respect to any action, suit, proceeding, complaint, claim, or demand brought by
the Buyer against the Shareholder (whether such action, suit, proceeding,
complaint, claim, or demand is pursuant to this Agreement, applicable law, or
otherwise).
9. POST-CLOSING ADJUSTMENT OF CONSIDERATION.
(a) Within 90 days after the Closing Date, North American
will prepare and deliver to Shareholder a draft balance sheet (the "DRAFT
CLOSING DATE BALANCE SHEET") for Target as of the close of business on the
Closing Date (determined as though the Parties had not consummated the
transactions contemplated by this Agreement), prepared in accordance with GAAP
applied on a basis consistent with the preparation of the Financial Statements;
except that the Draft Closing Date Balance Sheet shall include all of the same
types of adjustments as were made in connection with the preparation of the
Most Recent Financial Statements.
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(b) If the Shareholder has any objections to the Draft
Closing Date Balance Sheet, he will deliver a detailed statement describing his
objections to North American within 30 days after receiving the Draft Closing
Date Balance Sheet. North American and the Shareholder will use reasonable
efforts to resolve any such objections themselves. If the Parties do not obtain
a final resolution within 30 days after North American has received the
statement of objections, however, North American and Shareholder will select an
accounting firm mutually acceptable to them to resolve any remaining
objections. If North American and the Shareholder are unable to agree on the
choice of an accounting firm, they will select a nationally-recognized
accounting firm by lot (after excluding their respective regular outside
accounting firms). The determination of any accounting firm so selected will be
set forth in writing and will be conclusive and binding upon the Parties. North
American will revise the Draft Closing Date Balance Sheet as appropriate to
reflect the resolution of any objections thereto pursuant to this Section 9(b).
ThE "CLOSING DATE BALANCE SHEEt" shall mean the Draft Closing Date Balance
Sheet together with any revisions thereto pursuant to this Section 9(b).
(c) In the event the Parties submit any unresolved objections
to an accounting firm for resolution as provided in Section 9(b) above, any
expenses relating to the engagement of the accounting firm shall be allocated
between the Shareholder and North American by the accounting firm in proportion
to the amount in dispute which is decided in favor of the challenging party.
(d) North American will make the work papers and back-up
materials used in preparing the Draft Closing Date Balance Sheet available to
the Shareholder and his accountants and other representatives at reasonable
times and upon reasonable notice during (A) the preparation by North American
of the Draft Closing Date Balance Sheet, (B) review by the Shareholder of the
Draft Closing Date Balance Sheet, and (C) the resolution by the Parties of any
objections thereto.
(e) (i) If the Shareholders' Equity set forth in the Closing
Date Balance Sheet, plus the Shareholders' Equity set forth in the closing date
balance sheet of Burn-Techs, Inc., a Florida corporation, prepared in
accordance with Section 9(a) of the Stock Purchase Agreement of even date
herewith between North American and the sole shareholder of Burn-Techs (the
"Burn- Techs Closing Date Balance Sheet"), is less than $765,000.00, the
Shareholder will pay to North American an amount equal to such deficiency (plus
interest thereon at the Applicable Rate from the Closing Date) within five
business days after the date on which the Closing Date Balance Sheet finally is
determined pursuant to Section 9(b);
(ii) if the Cash set forth in the Closing Date
Balance Sheet, plus the cash set forth in the Burn-Techs Closing Date Balance
Sheet is less than $150,000.00, the Shareholder will pay to North American an
amount equal to such deficiency (plus interest thereon at the Applicable Rate
from the Closing Date) within five business days after the date on which the
Closing Date Balance Sheet finally is determined pursuant to Section 9(b); and
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(iii) if the state and federal income taxes accrued
on the Closing Date Balance Sheet are in excess of the state and federal income
taxes actually paid by Target with respect to the period ending on the Closing
Date, North American will pay to the Shareholder an amount equal to such excess
within five business days after the date on which Target pays such state and
federal income taxes.
10. TAX MATTERS. The following provisions shall govern the allocation
of responsibility as between North American and Shareholder for certain Tax
matters following the Closing Date:
(a) TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE.
Shareholder shall prepare or cause to be prepared and timely file or cause to
be timely filed all Tax Returns for Target for all tax periods ending on or
prior to the Closing Date which are filed after the Closing Date (the
"Pre-Closing Period"). Such Tax Returns shall be prepared by treating items on
such Tax Return in a manner consistent with the past practices with respect to
such items, unless otherwise required by law. Shareholder shall permit North
American to review and comment on each such Tax Return described in the
preceding sentence prior to filing. North American shall pay the amounts due
for Taxes of Target with respect to the Pre-Closing Periods, up to the amount
reflected in the reserve for Tax Liability shown on the face of the Most Recent
Balance Sheet. Shareholder agrees that he will pay, when due, all amounts due
for Taxes of Target and the Shareholder with respect to Pre-Closing Periods,
that exceed the reserve for Tax Liability.
(b) TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING
DATE. North American shall prepare or cause to be prepared and file or cause to
be filed any Tax Returns of Target for Tax periods which begin before the
Closing Date and end after the Closing Date. North American shall permit
Shareholder to review and comment on each such Tax Return described in the
preceding sentence prior to filing. Shareholder shall pay to North American
within fifteen (15) days after the date on which Taxes are paid with respect to
such periods an amount equal to the portion of such Taxes which relates to the
portion of such Taxable period ending on the Closing Date to the extent such
Taxes are not reflected in the reserve for Tax Liability shown on the face of
the Most Recent Balance Sheet. For purposes of this Section 10, in the case of
any Taxes that are imposed on a periodic basis and are payable for a Taxable
period that includes (but does not end on) the Closing Date, the portion of
such Tax which relates to the portion of such Taxable period ending on the
Closing Date shall (x) in the case of any real and personal property Taxes, be
deemed to be the amount of such Tax for the entire Taxable period multiplied by
a fraction the numerator of which is the number of days in the Taxable period
ending on the Closing Date and the denominator of which is the number of days
in the entire Taxable period, and (y) in the case of any other Tax be deemed
equal to the amount which would be payable if the relevant Taxable period ended
on the Closing Date. Any credits relating to a Taxable period that begins
before and ends after the Closing Date shall be taken into account as though
the relevant Taxable period ended on the Closing Date. All determinations
necessary to give effect to the foregoing allocations shall be made in a manner
consistent with the prior practice of Target.
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(c) COOPERATION ON TAX MATTERS.
(i) North American, Target and Shareholder shall
cooperate fully, as and to the extent reasonably requested by the
other party, in connection with the filing of Tax Returns pursuant to
this Section 10 and any audit, litigation or other proceeding with
respect to Taxes. Such cooperation shall include the retention and
(upon the other party's request) the provision of records and
information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a
mutually convenient basis to provide additional information and
explanation of any material provided hereunder. Target agrees (A) to
retain all books and records with respect to Tax matters pertinent to
Target relating to any taxable period beginning before the Closing
Date until the expiration of the statute of limitations (and, to the
extent notified by North American or Shareholder, any extensions
thereof) of the respective taxable periods, and to abide by all record
retention agreements entered into with any taxing authority, and (B)
to give each other Party reasonable written notice prior to
transferring, destroying or discarding any such books and records and,
if any other Party so requests, Target or Shareholder, as the case may
be, shall allow such other Party to take possession of such books and
records.
(ii) North American and Shareholder further agree,
upon request, to use their best efforts to obtain any certificate or
other document from any governmental authority or any other Person as
may be necessary to mitigate, reduce or eliminate any Tax that could
be imposed (including, but not limited to, with respect to the
transactions contemplated hereby).
(iii) North American and Shareholder further agree,
upon request, to provide the other party with all information that
either party may be required to report pursuant to Section 6043 of the
Code and all Treasury Department Regulations promulgated thereunder.
(d) TAX SHARING AGREEMENTS. All tax sharing agreements or
similar agreements with respect to or involving Target shall be terminated as
of the Closing Date and, after the Closing Date, Target shall not be bound
thereby or have any liability thereunder.
(e) CERTAIN TAXES. All transfer, documentary, sales, use,
stamp, registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement, shall be paid by
Shareholder when due, and Shareholder will, at its own expense, file all
necessary Tax Returns and other documentation with respect to all such
transfer, documentary, sales, use, stamp, registration and other Taxes and
fees, and, if required by applicable law, North American will, and will cause
its Affiliates to, join in the execution of any such Tax Returns and other
documentation.
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11. TERMINATION.
(a) TERMINATION OF AGREEMENT. The Parties may terminate this
Agreement as provided below:
(i) North American and the Shareholder may terminate
this Agreement by mutual written consent at any time prior to the
Closing;
(ii) North American may terminate this Agreement by
giving written notice to the Shareholder at any time prior to the
Closing (A) in the event the Shareholder has breached any
representation, warranty, or covenant contained in this Agreement in
any material respect, North American has notified the Shareholder of
the breach, and the breach has continued without cure for a period of
30 days after the notice of breach or (B) if the Closing shall not
have occurred on or before September 30, 1998, by reason of the
failure of any condition precedent under Section 7(a) hereof (unless
the failure results primarily from North American itself breaching any
representation, warranty, or covenant contained in this Agreement);
and
(iii) the Shareholder may terminate this Agreement
by giving written notice to North American at any time prior to the
Closing (A) in the event North American has breached any
representation, warranty, or covenant contained in this Agreement in
any material respect, the Shareholder has notified North American of
the breach, and the breach has continued without cure for a period of
30 days after the notice of breach or (B) if the Closing shall not
have occurred on or before September 30, 1998, by reason of the
failure of any condition precedent under Section 7(b) hereof (unless
the failure results primarily from the Shareholder himself breaching
any representation, warranty, or covenant contained in this
Agreement).
(b) EFFECT OF TERMINATION. If any Party terminates this
Agreement pursuant to Section 11(a) above, all rights and obligations of the
Parties hereunder shall terminate without any Liability of any Party to any
other Party (except for any Liability of any Party then in breach).
12. MISCELLANEOUS.
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall
issue any press release or make any public announcement relating to the subject
matter of this Agreement prior to the Closing without the prior written
approval of North American and the Shareholder; PROVIDED, HOWEVER, that any
Party may make any public disclosure it believes in good faith is required by
applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing Party will use its
best efforts to advise the other Parties prior to making the disclosure).
39
<PAGE> 44
(b) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not
confer any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns and the Indemnified Parties
referred to in Section 8 hereof.
(c) ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or among
the Parties, written or oral, to the extent they related in any way to the
subject matter hereof.
(d) SUCCESSION AND ASSIGNMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the Parties
named herein and their respective successors and permitted assigns. No Party
may assign either this Agreement or any of his or its rights, interests, or
obligations hereunder without the prior written approval of North American and
the Shareholder; PROVIDED, HOWEVER, that North American may (i) assign any or
all of its rights and interests hereunder to one or more of its Affiliates,
(ii) designate one or more of its Affiliates to perform its obligations
hereunder (in any or all of which cases North American nonetheless shall remain
responsible for the performance of all of its obligations hereunder) and (iii)
without the approval of the Shareholder assign its rights and interests
hereunder to its lenders (and any agent for the lenders), and the Parties
consent to any exercise by such lenders (and such agents) of their rights and
remedies with respect to such collateral.
(e) COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) HEADINGS. The section headings contained in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
(g) NOTICES. All notices, requests, demands, claims, and
other communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
<TABLE>
<CAPTION>
IF TO THE SHAREHOLDER: COPY TO:
---------------------- --------
<S> <C>
Michael Wallace Christopher Norman, Esq.
1947 S. Carolina Avenue Hines & Associates, P.A.
St. Petersburg, Florida 33712 315 South Hyde Park Avenue
Tampa, Florida 33606
Fax: (813) 254-6153
</TABLE>
40
<PAGE> 45
<TABLE>
<CAPTION>
IF TO NORTH AMERICAN: COPY TO:
--------------------- --------
<S> <C>
North American Tel-Com Group, Inc. Holland & Knight LLP
1401 Forum Way, Suite 400 One East Broward Boulevard, Suite 1300
West Palm Beach, FL 33401 Fort Lauderdale, FL 33301
Attn: William J. Mercurio Attn: Donn Beloff, Esq.
Fax: (561) 687-8080 Fax: (954) 463-2030
</TABLE>
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been
duly given unless and until it actually is received by the intended recipient.
Any Party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other
Parties notice in the manner herein set forth.
(h) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Florida without
giving effect to any choice or conflict of law provision or rule (whether of
the State of Florida or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Florida.
(i) AMENDMENTS AND WAIVERS. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
North American and the Shareholder. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(j) SEVERABILITY. Any term or provision of this Agreement
that is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
(k) EXPENSES. Each of the Parties will bear his or its own
costs and expenses (including legal fees and expenses) incurred in connection
with this Agreement and the transactions contemplated hereby.
(l) CONSTRUCTION. The Parties have participated jointly in
the negotiation of this Agreement. In the event an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as if
drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local,
or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The
41
<PAGE> 46
Parties intend that each representation, warranty, and covenant contained
herein shall have independent significance. If any Party has breached any
representation, warranty, or covenant contained herein in any respect, the fact
that there exists another representation, warranty, or covenant relating to the
same subject matter (regardless of the relative levels of specificity) which
the Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
(m) INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The
Exhibits, Annexes, Schedules and Certificates identified in this Agreement are
incorporated herein by reference and made a part hereof.
(n) SPECIFIC PERFORMANCE. Each of the Parties acknowledges
and agrees that the other Parties would be damaged irreparably in the event any
of the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter (subject to the provisions set
forth in Section 12(o) below), in addition to any other remedy to which they
may be entitled, at law or in equity.
(o) SUBMISSION TO JURISDICTION. Each of the Parties submits
to the exclusive jurisdiction of any state or federal court sitting in
Hillsborough County, Florida, in any action or proceeding arising out of or
relating to this Agreement and agrees that all claims in respect of the action
or proceeding shall be heard and determined in any such court. Each of the
Parties waives any defense of inconvenient forum to the maintenance of any
action or proceeding so brought and waives any bond, surety, or other security
that might be required of any other Party with respect thereto. Any Party may
make service on any other Party by sending or delivering a copy of the process
to the Party to be served at the address and in the manner provided for the
giving of notices in Section 12(g) above. Each Party agrees that a final
judgment in any action or proceeding so brought shall be conclusive and may be
enforced by suit on the judgment or in any other manner provided by law or at
equity.
In any action or proceeding arising out of or relating to this
Agreement, the prevailing party shall be entitled to recover reasonable
attorneys' fees, costs and expenses from the other party to the action or
proceeding. For purposes of this Agreement, the "prevailing party" shall be
deemed to be that party who obtains substantially the result sought, whether by
settlement, mediated or otherwise, or judgment. For purposes of this Agreement,
the term "attorneys' fees" shall include, without limitation, the actual
attorneys' fees incurred in retaining counsel for advice, negotiations, suit,
appeal, or any other legal proceeding, including mediation and arbitration.
(p) WAIVER OF JURY TRIAL. THE PARTIES HEREBY
IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
42
<PAGE> 47
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY AND TO THE FULLEST EXTENT PERMITTED BY LAW WAIVE ANY RIGHTS
THAT THEY MAY HAVE TO CLAIM OR RECEIVE CONSEQUENTIAL OR SPECIAL DAMAGES IN
CONNECTION WITH ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
*****
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
NORTH AMERICAN TEL-COM GROUP, INC.
By:
---------------------------------------
William J. Mercurio
President
SHAREHOLDER:
------------------------------------------
Michael Wallace
43
<PAGE> 1
Exhibit 10.13
STOCK PURCHASE AGREEMENT
AMONG
NORTH AMERICAN TEL-COM GROUP, INC.
AND
THE SHAREHOLDERS OF CATV SUBSCRIBER SERVICES, INC.
August 31, 1998
<PAGE> 2
<TABLE>
<CAPTION>
<S> <C> <C>
1. DEFINITIONS................................................................................... 1
2. PURCHASE AND SALE TRANSACTION................................................................. 7
(a) BASIC TRANSACTION.................................................................... 7
(b) CONSIDERATION........................................................................ 7
(c) THE CLOSING.......................................................................... 7
(d) DELIVERIES AT CLOSING................................................................ 7
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION..................................... 7
(a) REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS............................................ 7
(i) AUTHORIZATION OF TRANSACTION................................................ 7
(ii) NONCONTRAVENTION............................................................ 8
(iii) BROKERS' FEES............................................................... 8
(iv) INVESTMENT.................................................................. 8
(v) TARGET SHARES............................................................... 8
(b) REPRESENTATIONS AND WARRANTIES OF NORTH AMERICAN..................................... 9
(i) AUTHORIZATION OF TRANSACTION................................................ 9
(ii) NONCONTRAVENTION............................................................ 9
(iii) BROKERS' FEES............................................................... 9
4. REPRESENTATIONS AND WARRANTIES CONCERNING THE PARTIES......................................... 9
(a) REPRESENTATIONS AND WARRANTIES CONCERNING TARGET..................................... 9
(i) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER........................... 10
(ii) CAPITALIZATION............................................................. 10
(iii) NONCONTRAVENTION........................................................... 10
(iv) BROKERS' FEES.............................................................. 11
(v) TITLE TO ASSETS............................................................ 11
(vi) SUBSIDIARIES................................................................ 11
(vii) FINANCIAL STATEMENTS........................................................ 11
(viii) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END............................ 11
(ix) UNDISCLOSED LIABILITIES..................................................... 13
(x) LEGAL COMPLIANCE............................................................ 14
(xi) TAX MATTERS................................................................. 14
(xii) REAL PROPERTY............................................................... 15
(xiii) INTELLECTUAL PROPERTY....................................................... 16
(xiv) TANGIBLE ASSETS............................................................. 18
(xv) INVENTORY................................................................... 18
(xvi) CONTRACTS................................................................... 18
(xvii) NOTES, ACCOUNTS RECEIVABLE AND WORK IN PROGRESS............................. 19
(xviii) POWERS OF ATTORNEY.......................................................... 19
(xix) INSURANCE................................................................... 19
(xx) LITIGATION.................................................................. 19
(xxi) COMMITMENTS AND WARRANTIES.................................................. 20
(xxii) EMPLOYEES................................................................... 20
(xxiii) EMPLOYEE BENEFITS........................................................... 20
(xxiv) GUARANTIES.................................................................. 22
(xxv) ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS................................... 22
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
(xxvi) CERTAIN BUSINESS RELATIONSHIPS WITH TARGET.................................. 23
(xxvii) CUSTOMERS AND SUPPLIERS..................................................... 24
(xxviii) DISCLOSURE.................................................................. 24
(b) REPRESENTATIONS AND WARRANTIES OF NORTH AMERICAN..................................... 24
(i) ORGANIZATION OF NORTH AMERICAN.............................................. 24
(ii) CAPITALIZATION OF NORTH AMERICAN............................................ 25
(iii) TITLE TO ASSETS............................................................. 25
(iv) SUBSIDIARIES AND AFFILIATES................................................. 25
(v) FINANCIAL STATEMENTS........................................................ 26
(vi) EVENTS SUBSEQUENT TO MOST RECENT NORTH AMERICAN FISCAL YEAR
END........................................................................ 26
(vii) DISCLOSURE.................................................................. 26
5. POST-CLOSING COVENANTS........................................................................ 26
(a) GENERAL.............................................................................. 26
(b) LITIGATION SUPPORT................................................................... 27
(c) TRANSITION........................................................................... 27
(d) INDEPENDENT ACCOUNTANTS.............................................................. 27
(e) TAX MATTERS.......................................................................... 27
(f) STOCK OPTIONS........................................................................ 28
(g) AUDITED FINANCIAL STATEMENTS......................................................... 28
(h) ACCRUED BONUSES...................................................................... 28
(i) ST. MARTIN CABLE SYSTEM.............................................................. 28
(j) PERSONAL GUARANTEES.................................................................. 28
(k) TAX LOANS TO SHAREHOLDERS............................................................ 29
6. REMEDIES FOR BREACHES OF THIS AGREEMENT....................................................... 29
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES........................................... 29
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF NORTH AMERICAN............................. 30
(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE SHAREHOLDERS........................... 32
(d) MATTERS INVOLVING THIRD PARTIES...................................................... 32
(e) DETERMINATION OF ADVERSE CONSEQUENCES................................................ 33
(f) REMEDIES............................................................................. 33
(g) OTHER INDEMNIFICATION PROVISIONS..................................................... 33
(h) RECOUPMENT RIGHT AGAINST ESCROW CONSIDERATION........................................ 33
(i) FURTHER LIMITATION ON INDEMNIFICATION................................................ 33
7. POST-CLOSING ADJUSTMENT OF CONSIDERATION...................................................... 34
8. TAX MATTERS................................................................................... 35
(a) TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE..................................... 35
(b) TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING DATE....................... 35
(c) COOPERATION ON TAX MATTERS........................................................... 36
(d) TAX SHARING AGREEMENTS............................................................... 36
(e) CERTAIN TAXES........................................................................ 36
9. MISCELLANEOUS................................................................................. 37
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS.............................................. 37
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
(b) NO THIRD-PARTY BENEFICIARIES......................................................... 37
(c) ENTIRE AGREEMENT..................................................................... 37
(d) SUCCESSION AND ASSIGNMENT............................................................ 37
(e) COUNTERPARTS......................................................................... 37
(f) HEADINGS............................................................................. 37
(g) NOTICES.............................................................................. 37
(h) GOVERNING LAW........................................................................ 38
(i) AMENDMENTS AND WAIVERS............................................................... 38
(j) SEVERABILITY......................................................................... 38
(k) EXPENSES............................................................................. 38
(l) CONSTRUCTION......................................................................... 39
(m) INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES.................................... 39
(n) SPECIFIC PERFORMANCE................................................................. 39
(o) SUBMISSION TO JURISDICTION........................................................... 39
(p) WAIVER OF JURY TRIAL................................................................. 39
</TABLE>
iii
<PAGE> 5
STOCK PURCHASE AGREEMENT
Agreement entered into as of August 31, 1998, by and among North
American Tel-Com Group, Inc., a Florida corporation ("North American" or the
"Buyer"), and the shareholders of CATV Subscriber Services, Inc., a North
Carolina corporation (the "Target") listed on the signature page to this
Agreement (the "Shareholders"). The Buyer and the Shareholders are referred to
collectively herein as the "Parties."
The Shareholders in the aggregate own all of the outstanding capital
stock of the Target.
This Agreement contemplates the sale by the Shareholders of all of the
issued and outstanding capital stock of Target to Buyer. The Shareholders will
receive cash and capital stock in North American in exchange for their shares
of capital stock of Target.
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1. DEFINITIONS.
"Additional Taxes" has the meaning set forth in Section
5(k)(i) below.
"Adverse Consequences" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses,
expenses, and fees, including court costs and reasonable attorneys' fees and
expenses, and any other cost of enforcing a party's rights under this
Agreement.
"Affiliate" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the
meaning of Code Section 1504(a) or any similar group defined under a similar
provision of state, local or foreign law.
"Amended and Restated Stockholders Agreement" means that
certain Amended and Restated Stockholders Agreement among North American and
the shareholders of North American dated as of June 30, 1998.
"Applicable Rate" means the corporate base rate of interest
publicly announced from time to time by PNC Bank, N.A.
"Associates" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act.
"Basis" means any past or present fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction that forms or could form the
basis for any specified consequence.
<PAGE> 6
"Closing" has the meaning set forth in Section below.
"Closing Date" has the meaning set forth in Section below.
"Closing Date Balance Sheet" has the meaning set forth in
Section below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consideration" has the meaning set forth in Section below.
"Controlled Group of Corporations" has the meaning set forth
in Code Section 1563.
"Disclosure Schedule" has the meaning set forth in Section
below.
"Draft Closing Date Balance Sheet" has the meaning set forth
in Section below.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan), (d) Employee Welfare Benefit Plan or (e)
bonus, incentive, stock purchase, stock ownership, stock option, stock
appreciation right, severance, salary continuation, termination, change of
control or other material fringe benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in
ERISA Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in
ERISA Section 3(1).
"Environmental, Health, and Safety Requirements" shall mean
all federal, state, local and foreign statutes, regulations, ordinances and
other provisions having the force or effect of law, all judicial and
administrative orders and determinations, all contractual obligations and all
common law concerning public health and safety, worker health and safety, and
pollution or protection of the environment, including without limitation all
those relating to the presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution, labeling, testing,
processing, discharge, release, threatened release, control, or cleanup of any
Hazardous Materials (which, for purposes of this Agreement, shall meany any
hazardous materials, substances or wastes, chemical substances or mixtures,
pesticides, pollutants, contaminants, toxic chemicals, petroleum products or
byproducts, asbestos, polychlorinated biphenyls, noise or radiation), each as
amended and as now in effect.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" means (i) any corporation included with
Target in a controlled group of corporations within the meaning of Section
414(b) of the Code; (ii) any trade or business (whether or not incorporated)
which is under common control with Target within the meaning
2
<PAGE> 7
of Section 414(c) of the Code; (iii) any member of an affiliated service group
of which Target is a member within the meaning of Section 414(m) of the Code;
or (iv) any other person or entity treated as an affiliate of Target under
Section 414(o) of the Code.
"Escrow Agreement" means that certain Escrow Agreement of
even date herewith between North American, the Shareholders and Holland &
Knight LLP as Escrow Agent.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"Financial Statements" has the meaning set forth in Section
below.
"GAAP" means United States generally accepted accounting
principles as in effect from time to time.
"Galtelli" refers to Raymond L. Galtelli.
"Indemnified Party" has the meaning set forth in Section
below.
"Indemnifying Party" has the meaning set forth in Section
below.
"Intellectual Property" means (a) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications, and patent
disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof, (b)
all trademarks, service marks, trade dress, logos, trade names, and corporate
names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection therewith, (d) all mask works and all applications,
registrations, and renewals in connection therewith, (e) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals), (f) all computer software (including data and related
documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"Knowledge" means that which is known by a person and that of
which a person has constructive knowledge based upon information readily
available to that person in the performance of such person's duties. In the
case of North American or Target, "Knowledge" means the "Knowledge" of its
respective directors and executive officers.
"LLC" shall have the meaning set forth in Section 5(i) below.
"LLC Agreement" shall have the meaning set forth in Section
5(i) below.
3
<PAGE> 8
"Liability" means any liability (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Leased Real Property" has the meaning set forth in Section
"Material Adverse Effect" means any material adverse effect
on the assets, liabilities, results of operations, business condition
(financial or otherwise) or prospects of a Person or on a Person's ability to
consummate the transactions contemplated hereby or a Person's ability to
operate its business.
"Most Recent Balance Sheet" means the balance sheet contained
within the Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth
in Section below.
"Most Recent Fiscal Period End" has the meaning set forth in
Section below.
"Most Recent Fiscal Year End" has the meaning set forth in
Section below.
"Most Recent North American Balance Sheet" has the meaning
set forth in Section below.
"Most Recent North American Fiscal Period End" has the
meaning set forth in Section below.
"Multiemployer Plan" has the meaning set forth in ERISA
Section 3(37).
"National Securities Exchange" shall have the meaning
ascribed to that term in the rules and regulations promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934.
"North American" has the meaning set forth in the preface
above.
"North American Class A Common Shares" means any share of the
Class A Common Stock, par value $.01 per share, of North American.
"North American Class B Common Shares" means any share of the
Class B Common Stock, par value $.01 per share, of North American.
"North American Common Stock" means any share of the common
stock, par value $.01 par share, of North American.
"North American Disclosure Schedule" has the meaning set
forth in Section below.
"North American Required Consents" shall have the meaning set
forth in Section hereof.
4
<PAGE> 9
"North American Series A Preferred Shares" means any share of
the Series A Convertible Preferred Stock, par value $.01 per share, of North
American.
"North American Preferred Stock" means any share of the
preferred stock, par value $.01 per share, of North American.
"Ordinary Course of Business" means the ordinary course of
business consistent with past custom and practice (including with respect to
quantity and frequency).
"Party" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Liens" means with respect to the Shareholders and
Target (i) the Section mortgages, pledges, liens, encumbrances, charges and
other security interests listed in Section of the Disclosure Schedule, (ii)
liens for Taxes not yet due and payable or for Taxes that the taxpayer is
contesting in good faith through appropriate proceedings disclosed in Section
of the Disclosure Schedule, (iii) purchase money liens and liens securing
rental payments under lease arrangements reflected in the Most Recent Financial
Statements, or in Section of the Disclosure Schedule, and (iv) such
imperfections of title, pledges, liens, encumbrances, charges and security
interests, if any, as do not materially detract from the value or interfere
with the present or intended use of the properties of the Target or otherwise
materially impair the Target's business operations, and which do not secure
obligations for borrowed money.
"Permitted Liens" means with respect to North American (i)
liens for Taxes not yet due and payable or for Taxes that the taxpayer is
contesting in good faith through appropriate proceedings, (ii) purchase money
liens and liens securing rental payments under lease arrangements reflected in
the Most Recent North American Balance Sheet, and (iii) such imperfections of
title, pledges, liens, encumbrances, charges and security interests, if any, as
do not materially detract from the value or interfere with the present or
intended use of the properties of North American or otherwise materially impair
North American's business operations, and which do not secure obligations for
borrowed money.
"Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
"Pledged Shares" has the meaning set forth in Section
5(k)(ii) below.
"Prohibited Transaction" has the meaning set forth in
ERISA Section 406 and Code Section 4975.
"Reportable Event" has the meaning set forth in ERISA Section
4043.
"Robertson" refers to James Fred Robertson.
5
<PAGE> 10
"Robertson Transfer" means the issuance by Target of 191
shares of its common stock to James F. Robertson as a bonus for his service to
Target.
"Securities Act" means the Securities Act of 1933, as
amended.
"Securities Exchange Act" means the Securities Exchange Act
of 1934, as amended.
"Security Interest" means any mortgage, pledge, lien,
encumbrance, charge, or other security interest.
"Shareholders" has the meaning set forth in the preface
above.
"St. Martin System" has the meaning set forth in Section 5(i)
below.
"Subsidiary" means any corporation with respect to which a
specified Person (or a Subsidiary thereof) owns a majority of the common stock
or has the power to vote or direct the voting of sufficient securities to elect
a majority of the directors.
"Summit Avenue Property" has the meaning set forth in Section
4(a)(xxvi) hereof.
"Target" has the meaning set forth in the preface above.
"Target Share" means any share of the Common Stock, $10.00
par value, of Target.
"Target Shareholder" means any Person who or which holds any
Target Shares.
"Target Required Consents" has the meaning set forth in
Section hereof.
"Tax" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Code Section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed or not,
and any obligations under any agreements or arrangements with respect to any of
the foregoing.
"Tax Loans" has the meaning set forth in Section 5(k)(i)
below.
"Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in Section
below.
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<PAGE> 11
2. PURCHASE AND SALE TRANSACTION.
(a) BASIC TRANSACTION. On and subject to the terms and
conditions of this Agreement, North American agrees to purchase from the
Shareholders, and the Shareholders agree to sell to North American, all of
their respective Target Shares for the consideration specified below in this
ss. .
(b) CONSIDERATION. North American agrees to deliver at
Closing (i) to the Shareholders (A) cash in the amount of $6,400,000.00 payable
by wire transfer or other immediately available funds and (B) 511,111 North
American Class B Common Shares; and (ii) to the escrow agent under the Escrow
Agreement, cash in the amount of $500,000.00 (the "Escrow Consideration")
payable by wire transfer or other immediately available funds (collectively,
the "Consideration"). The Consideration shall be subject to adjustment pursuant
to the provisions of Section hereof. The Consideration shall be allocated among
the Shareholders in proportion to their respective holdings of Target Shares as
set forth in Section to the Disclosure Schedule.
(c) THE CLOSING. The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of Holland &
Knight LLP in Ft. Lauderdale, Florida, commencing at 9:00 a.m. local time on
August 31, 1998 or such other date, time and place as the Parties may mutually
determine (the "Closing Date").
(d) DELIVERIES AT CLOSING. At the Closing, (i) the
Shareholders will deliver to North American such certificates, instruments, and
documents as North American shall reasonably request, (ii) North American will
deliver to the Shareholders such certificates, instruments, and documents as
the Shareholders shall reasonably request, and (iii) the Shareholders will
deliver to North American stock certificates representing all of their Target
Shares, endorsed in blank or accompanied by duly executed assignment documents,
and (iv) North American will deliver to the Shareholders and the escrow agent
under the Escrow Agreement the Consideration specified in Section above.
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
(a) REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS. Each
Shareholder represents and warrants to North American that the statements
contained in this Section are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Section ), except as set forth on Section of the
Disclosure Schedule (as hereinafter defined).
(i) AUTHORIZATION OF TRANSACTION. Such Shareholder
has full power and authority to execute and deliver this Agreement and to
perform his obligations hereunder. This Agreement constitutes the valid and
legally binding obligation of such Shareholder, enforceable in accordance with
its terms and conditions except to the extent enforcement thereof may be
limited by applicable bankruptcy, reorganization, insolvency or moratorium
laws, or other laws
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<PAGE> 12
affecting the enforcement of creditors' rights or by the principles governing
the availability of equitable remedies. Such Shareholder need not give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency or any other Person in order
to consummate the transactions contemplated by this Agreement. The
authorizations, consents, approvals, filings and notices listed at Section and
Section of the Disclosure Schedule are referred to in this Agreement as the
"Target Required Consents."
(ii) NONCONTRAVENTION. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any constitution, statute, regulation,
rule, injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which such Shareholder is
subject or (B) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
such Shareholder is a party or by which he is bound or to which any of his
assets is subject.
(iii) BROKERS' FEES. Such Shareholder has paid, or
at the Closing will pay, any fees or commissions due from Shareholders to any
broker, finder, or agent with respect to the transactions contemplated by this
Agreement. Such Shareholder agrees that he will pay any additional amounts that
may become due from him or Target with respect to the transactions contemplated
by this Agreement to any such broker, finder or agent in the future, including
as a result of any indemnification obligations.
(iv) INVESTMENT. Such Shareholder (A) understands
that, the North American Class B Common Shares that he will receive as part of
the Consideration have not been, and will not be, registered under the
Securities Act, or under any state securities laws, and are being offered and
sold in reliance upon federal and state exemptions for transactions not
involving any public offering, (B) is acquiring such North American Class B
Common Shares solely for his own account for investment purposes, and not with
a view to the distribution thereof, (C) has received certain information
concerning North American and has had the opportunity to obtain additional
information as desired in order to evaluate the merits and the risks inherent
in holding the North American Class B Common Shares, (D) is able to bear the
economic risk and lack of liquidity inherent in holding the North American
Class B Common Shares and (E) is an Accredited Investor for the reasons set
forth on Annex I.
(v) TARGET SHARES. Such Shareholder holds of record
and owns beneficially the number of Target Shares set forth opposite such
Shareholder's name, in Section of the Disclosure Schedule, free and clear of
any restrictions on transfer (other than any restrictions under the Securities
Act and state securities laws), Taxes, Security Interests, liens or other
encumbrances, options, warrants, purchase rights, contracts, commitments,
equities, claims, and demands. Such Shareholder is not a party to any option,
warrant, purchase right, or other contract or commitment that could require
such Shareholder to sell, transfer, or otherwise dispose of any capital stock
of Target (other than this Agreement, the Robertson Transfer and as set forth
in Section of the Disclosures Schedule). Such Shareholder is not a party to any
voting trust, proxy, shareholders agreement, or other agreement or
understanding with respect to the voting of any capital stock of Target.
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<PAGE> 13
(b) REPRESENTATIONS AND WARRANTIES OF NORTH AMERICAN. North
American represents and warrants to the Shareholders that the statements
contained in this Section are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Section ), except as set forth in the disclosure
schedule delivered by North American to the Shareholders on the date hereof
(the "North American Disclosure Schedule").
(i) AUTHORIZATION OF TRANSACTION. North American has
full power and authority (including full corporate power and authority) to
execute and deliver this Agreement and to perform its obligations hereunder.
This Agreement constitutes the valid and legally binding obligation of North
American, enforceable in accordance with its terms and conditions except to the
extent enforcement thereof may be limited by applicable bankruptcy,
reorganization, insolvency or moratorium laws, or other laws affecting the
enforcement of creditors' rights or by the principles governing the
availability of equitable remedies. None of North American or its Affiliates or
Subsidiaries need give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency or
any other Person in order to consummate the transactions contemplated by this
Agreement. The authorizations, consents, approvals, filings and notices listed
at Section of the North American Disclosure Schedule are referred to in this
Agreement as the "North American Required Consents."
(ii) NONCONTRAVENTION. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any constitution, statute, regulation,
rule, injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which any of North
American, its Affiliates or Subsidiaries is subject or any provision of their
respective charter or bylaws or (B) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
under any agreement, contract, lease, license, instrument, or other arrangement
to which any of North American, its Affiliates or Subsidiaries is a party or by
which any of them is bound or to which any of their assets is subject.
(iii) BROKERS' FEES. North American has, or prior to
the Closing will have, paid any fees or commissions due from North American to
any broker, finder, or agent with respect to the transactions contemplated by
this Agreement. North American agrees that they will pay any additional amounts
that may become due from North American to any such broker, finder or agent in
the future, including as a result of any indemnification obligations.
4. REPRESENTATIONS AND WARRANTIES CONCERNING THE PARTIES.
(a) REPRESENTATIONS AND WARRANTIES CONCERNING TARGET. The
Shareholders jointly and severally represent and warrant to North American that
the statements contained in this Section are correct and complete as of the
date of this Agreement and will be correct and complete as of the Closing Date
(as though made then and as though the Closing Date were substituted for the
date of this Agreement throughout this Section ), except as set forth in the
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<PAGE> 14
Disclosure Schedule delivered by the Shareholders to North American on the date
hereof and initialed by the Parties (the "Disclosure Schedule"). The Disclosure
Schedule shall be effective to modify only those representations and warranties
to which the Disclosure Schedule makes explicit reference. The Disclosure
Schedule will be arranged in paragraphs corresponding to the lettered and
numbered paragraphs contained in Section and this Section .
(i) ORGANIZATION, QUALIFICATION, AND CORPORATE
POWER. Target is a corporation duly organized, validly existing, and authorized
to transaction business under the laws of North Carolina. Target is duly
authorized to conduct business and is in good standing under the laws of each
jurisdiction where such qualification is required, except where a failure to be
so authorized will not have a Material Adverse Effect on the operations of
target after the Closing. Target has full corporate power and authority and all
licenses, permits, and authorizations necessary to carry on the businesses in
which it is engaged and in which it presently proposes to engage and to own and
use the properties owned and used by it, except where a failure to obtain any
such licenses, permits and authorizations will not have a Material Adverse
Effect on the operations of Target after the Closing. Section of the Disclosure
Schedule lists the directors and officers of Target. Correct and complete
copies of the charter and bylaws of Target (as amended to date) are included as
part of Section of the Disclosure Schedule. The minute books (containing the
records of meetings of the stockholders, the board of directors, and any
committees of the board of directors), the stock certificate books, and the
stock record books of Target are correct and complete and an true and correct
copy thereof has been provided to North American. Target is not in default
under or in violation of any provision of its charter or bylaws.
(ii) CAPITALIZATION. The entire authorized capital
stock of Target consists of 10,000 Target Shares, of which 1,806 Target Shares
are issued and outstanding and no Target Shares are held in treasury. All of
the issued and outstanding Target Shares have been duly authorized, are validly
issued, fully paid, and nonassessable, and are held of record and owned
beneficially by the Shareholders in the amounts set forth in Section of the
Disclosure Schedule. There are no outstanding or authorized options, warrants,
purchase rights, subscription rights, conversion rights, exchange rights,
preemptive rights or other contracts or commitments that could require Target
to issue, sell, or otherwise cause to become outstanding any of its capital
stock or securities convertible or exchangeable for, or any options,
warranties, or rights to purchase, any of such capital stock. There are no
outstanding obligations of Target to repurchase, redeem or otherwise acquire
any capital stock or any securities convertible into or exchangeable for such
capital stock or any options, warrants or rights to purchase such capital stock
or securities. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to Target.
There are no voting trusts, proxies, or other agreements or understandings with
respect to the voting, transfer, dividend or other rights (such as registration
rights under the Securities Act) of the capital stock of Target.
(iii) NONCONTRAVENTION. Neither the execution and
the delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (i) violate any constitution, statute, regulation,
rule, injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which Target is subject or
any provision of the charter or bylaws or similar governance documents of
Target or (ii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create
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<PAGE> 15
in any party the right to accelerate, terminate, modify, or cancel, or require
any notice under any agreement, contract, lease, license, instrument, or other
arrangement to which Target is a party or by which it is bound or to which any
of its assets is subject (or result in the imposition of any Security Interest
upon any of its assets). Target need not give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any Person,
government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
(iv) BROKERS' FEES. Target has, or prior to Closing
will have, paid any fees or commissions due from Target to any broker, finder,
or agent with respect to the transactions contemplated by this Agreement.
(v) TITLE TO ASSETS. Target has good and marketable
title to, or a valid leasehold interest in, the properties and assets used by
it, located on its premises, or shown on the Most Recent Balance Sheet or
acquired after the date thereof, free and clear of all Security Interests
(other than the Security Interests disclosed on the face of the Most Recent
Balance Sheet and Permitted Liens), except for properties and assets disposed
of in the Ordinary Course of Business since the date of the Most Recent Balance
Sheet, none of which disposals are expected to have a Material Adverse Effect.
The consummation of the transactions contemplated by this Agreement will not
affect Target's good and marketable title to, or valid leasehold interest in,
the properties and assets described in the preceding sentence.
(vi) SUBSIDIARIES. Except as set forth in Section of
the Disclosure Schedule, Target does not currently have, and has not had within
the past five years, any Subsidiaries and does not own any securities of any
other Person.
(vii) FINANCIAL STATEMENTS. Attached hereto as
Exhibit A are the following financial statements (collectively the "Financial
Statements"): (i) reviewed consolidated balance sheets and statements of
income, including the independent accountant's report thereon as of and for the
fiscal year ended December 31, 1997 (the "Most Recent Fiscal Year End") for
Target; (ii) Reviewed consolidated balance sheets and statements of income,
including the independent accountant's report thereon as of and for the fiscal
years ended December 31, 1995 and December 31, 1996 and (iii) unaudited
consolidated balance sheets and statements of income, as of and for the period
from January 1, 1998, through July 31, 1998 (the "Most Recent Fiscal Period
End") for Target (the "Most Recent Financial Statements"). The Financial
Statements (including the notes thereto) have been prepared in accordance with
GAAP applied on a consistent basis throughout the periods covered thereby,
present fairly the financial condition of Target as of such dates and the
results of operations of Target for such periods, are correct and complete, and
are consistent with the books and records of Target (which books and records
are correct and complete).
(viii) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR
END. Since the Most Recent Fiscal Year End, there has not been any occurrence,
event, incident, action, failure to act, or transaction that constitutes the
Basis of a Material Adverse Effect on Target or any that is outside of the
Ordinary Course of Business. Without limiting the generality of the foregoing,
since that date:
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(A) Target has not sold, leased,
transferred, or assigned any of its assets, tangible or intangible, other than
for a fair consideration in the Ordinary Course of Business;
(B) Target has not entered into any
agreements, contracts, leases, or licenses either involving more than $10,000
in the aggregate, having a term greater than 12 months or outside the Ordinary
Course of Business;
(C) no party (including Target) has
accelerated, terminated, modified, or cancelled any agreements, contracts,
leases, or licenses involving more than $10,000 in the aggregate to which
Target is a party or by which it is bound;
(D) Target has not imposed or allowed to be
imposed any Security Interest (other than Permitted Liens) upon any of its
assets, tangible or intangible;
(E) Target has not made any capital
expenditures involving more than $10,000 in the aggregate or outside the
Ordinary Course of Business;
(F) Target has not made any capital
investment in, any loan to, or any acquisition of the securities or assets of,
any other Person;
(G) Target has not issued any note, bond,
or other debt security or created, incurred, assumed, or guaranteed any
indebtedness for borrowed money or capitalized lease obligation involving more
than $10,000 in the aggregate;
(H) Target has not delayed or postponed the
payment of accounts payable and other Liabilities outside the Ordinary Course
of Business;
(I) Target has not cancelled, compromised,
waived, or released any right or claim either involving more than $10,000 in
the aggregate and outside the Ordinary Course of Business;
(J) Target has not granted any license or
sublicense of any rights under or with respect to any Intellectual Property;
(K) there has been no change made or
authorized in the charter or bylaws of Target;
(L) Except in connection with the Robertson
Transfer, Target has not issued, sold, or otherwise disposed of any of its
capital stock or securities convertible into or exchangeable for such stock, or
granted any options, warrants, or other rights to purchase or obtain any of
such capital stock or securities;
(M) Except in connection with the
distribution of the Summit Avenue Property to Galtelli, Target has not
declared, set aside, or paid any dividend or made any distribution with respect
to its capital stock (whether in cash or in kind) or redeemed, purchased, or
otherwise acquired any of its capital stock or other securities;
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<PAGE> 17
(N) Target has not experienced any damage,
destruction, or loss (whether or not covered by insurance) to its property
involving more than $10,000 in the aggregate;
(O) Target has not made any loan to, or
entered into any other transaction with, any of its directors, officers, and
employees or their "Associates" (as defined in Rule 12b-2 under the Exchange
Act);
(P) Target has not entered into any
employment contract or collective bargaining agreement, written or oral, or
modified the terms of any existing such contract or agreement;
(Q) Target has not granted any increase in
any compensation of any of its directors, officers, or other employees;
(R) Target has not adopted, amended,
modified, or terminated any bonus, profit-sharing, incentive, severance, or
other plan, contract, or commitment for the benefit of any of its directors,
officers, or employees (or taken any such action with respect to any other
Employee Benefit Plan);
(S) Target has not made any other change in
employment terms for any of its directors, officers, or employees outside the
Ordinary Course of Business;
(T) Target has not made or pledged to make
any charitable or other capital contribution outside the Ordinary Course of
Business;
(U) Target has not increased, or
experienced any change in assumptions underlying or method of calculating, any
bad debt, contingency, tax or other reserves or changed its accounting
practices, methods or assumptions (including changes in estimates or valuation
methods); or written down the value of any assets;
(V) Target has not granted any bonuses or
made any other payments of any kind (other than base compensation in the
Ordinary Course of Business) to any officer, director or employee of Target, or
to any Person related to any of the foregoing Persons; and
(W) Target has not committed to any of the
foregoing.
(ix) UNDISCLOSED LIABILITIES. Target does not have
any Liability, except for (i) Liabilities of a type that should be reflected
set forth on the face of the Most Recent Balance Sheet according to GAAP, other
than those Liabilities (i) set forth on the face of the Most Recent Balance
Sheet (rather than in any notes thereto) and (ii) that have arisen after the
Most Recent Fiscal Year End in the Ordinary Course of Business (none of which
results from, arises out of, relates to, is in the nature of, or was caused by
any breach of contract, breach of warranty, tort, infringement, or violation of
law and none of which could reasonably be expected to have a Material Adverse
Effect).
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(x) LEGAL COMPLIANCE. Target and its corporate
predecessors, if any, and Affiliates have complied, with all applicable laws
(including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof), except where the failure to so comply
did not and will not have a Material Adverse Effect on the Target, and no
action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed or commenced against any of them alleging any
failure so to comply.
(xi) TAX MATTERS.
(A) Target has filed all Tax Returns that
it was required to file prior to the date hereof and will have filed all Tax
Returns that it will have been required to file prior to the Closing Date. All
such Tax Returns were correct and complete in all material respects. All Taxes
owed by Target (whether or not shown on any Tax Return) have been paid or are
fully and adequately accrued and adequately disclosed on the Most Recent
Balance Sheet. Target is not currently the beneficiary of any extension of time
within which to file any Tax Return. No claim has ever been made by an
authority in a jurisdiction where Target does not file Tax Returns that it is
or may be subject to taxation by that jurisdiction. There are no Security
Interests on any of the assets of Target that arose in connection with any
failure (or alleged failure) to pay when due any Tax.
(B) Target has withheld and paid when due
all Taxes required to have been withheld and paid in connection with amounts
paid or owing to any employee, independent contractor, creditor, stockholder,
or other third party.
(C) Neither Shareholders nor Target has
Knowledge that any authority plans to assess any additional Taxes for any
period for which Tax Returns have been filed. There is no action, suit or
proceeding, investigation, dispute or claim now pending or, or the Knowledge of
the Shareholders and Target, threatened concerning any Tax Liability of Target
or proposed adjustment to the taxable income of Target either (A) claimed or
raised by any authority in writing or (B) as to which any of the Shareholders
and Target has Knowledge based upon personal contact with any agent of such
authority. Section 4(a)(xi) of the Disclosure Schedule contains a list of all
Tax Returns filed with respect to Target for the last three completed tax
years, indicates those Tax Returns that have been audited, and indicates those
Tax Returns that currently are the subject of audit. The Shareholders have made
available to North American correct and complete copies of all Tax Returns of
Target, examination reports, and statements of deficiencies assessed against or
agreed to by Target since January 1, 1994.
(D) Target has not waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency.
(E) Target has not filed a consent under
Code Section 341(f) concerning collapsible corporations. Target has not made
any payments, is not obligated to make any payments, or is not a party to any
agreement that under certain circumstances could obligate it to make any
payments that will not be deductible under Code Section 280G or that would give
rise to any obligation to indemnify any Person for any excise tax payable
pursuant to Code Section 4999. The Target has not been a United States real
property holding corporation within the meaning of Code Section 897(c)(2)
during the applicable period specified in Code Section 897(c)(1)(A)(ii). Target
has disclosed on its federal income Tax Returns all positions taken therein
that could give rise to a substantial understatement of federal income Tax
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<PAGE> 19
within the meaning of Code Section 6662. Neither Target nor any of its
corporate predecessors, if any, or affiliate thereof is a party to any Tax
allocation, sharing, indemnification or similar agreement. Target (A) has not
been a member of an Affiliated Group filing a consolidated federal income Tax
Return (other than a group the common parent of which was Target) and (B) does
not have any Liability for the Taxes of any Person (other than any of Target
and its Subsidiaries) under Reg. Section 1.1502-6 (or any similar provision of
state, local, or foreign law), as a transferee or successor, by contract, or
otherwise. No indebtedness of Target consists of "corporate acquisition
indebtedness" within the meaning of Code Section 279.
(F) Section 4(a)(xi) of the Disclosure
Schedule sets forth as of the most recent practicable date the basis for
Federal income tax purposes of Target in its assets.
(G) The unpaid Taxes of Target (1) did not,
as of the Most Recent Fiscal Period End, exceed the reserve for Tax Liability
set forth on the face of the Most Recent Balance Sheet (rather than in any
notes thereto) and (2) do not, and will not as of the Closing Date, exceed that
reserve as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of Target in filing its Tax
Returns.
(xii) REAL PROPERTY. Except for the Summit Avenue
Property that the parties agree will be distributed to Galtelli prior to the
Closing, Target does not own any real property. Section 4(a)(xii) of the
Disclosure Schedule lists and describes briefly all real property leased or
subleased to Target (the "Leased Real Property"). The Shareholders have
delivered to North American correct and complete copies of the leases and
subleases listed in Section 4(a)(xii) of the Disclosure Schedule (as amended to
date). With respect to each lease and sublease listed in Section 4(a)(xii) of
the Disclosure Schedule:
(A) the lease or sublease is legal, valid,
binding, enforceable in all material respects, and in full force and effect;
(B) the lease or sublease will continue to
be legal, valid, binding, enforceable in all material respects, and in full
force and effect on identical terms following the consummation of the
transactions contemplated hereby;
(C) Target is not, and to the Knowledge of
the Shareholders or Target no other party to the lease or sublease is, in
material breach or default, and, to the Knowledge of the Shareholders and
Target, no event has occurred which, with notice or lapse of time, would
constitute a material breach or default or permit termination, modification, or
acceleration thereunder;
(D) no party to the lease or sublease has
repudiated any provision thereof;
(E) there are no disputes, oral agreements,
or forbearance programs in effect as to the lease or sublease;
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(F) Target has not received a notice from
the lessor indicating that the lease will not be renewed at the end of its
current term for any additional terms provided for in the lease;
(G) the term of the lease will continue for
a minimum of six months past the Closing Date;
(H) with respect to each sublease as to
which Target is a sublessor, the representations and warranties set forth in
subsections (A) through (G) above are true and correct with respect to the
underlying lease;
(I) Target has not assigned, transferred,
conveyed, mortgaged, deeded in trust, or encumbered any interest in the
leasehold or subleasehold;
(J) all facilities leased or subleased
thereunder have received all approvals of governmental authorities (including
licenses and permits) required in connection with the operation thereof and
have been operated and maintained in all material respects in accordance with
applicable laws, rules, and regulations;
(K) all facilities leased or subleased
thereunder are supplied with utilities and other services necessary for the
operation of said facilities; and
(L) the Shareholders and Target have no
Knowledge of any pending or threatened foreclosure or other enforcement
proceedings relating to the real property underlying the leases or subleases
set forth in Section 4(a)(xii) of the Disclosure Schedule that could result in
Target's loss of possession of such real property.
(xiii) INTELLECTUAL PROPERTY.
(A) Section 4(a)(xiii)(A) of the Disclosure
Schedule lists the Intellectual Property owned by Target. Target owns or has
the right to use pursuant to license, sublicense, agreement, or permission in
writing all Intellectual Property necessary for the operation of the businesses
of Target as presently conducted. Each item of Intellectual Property owned or
used by Target immediately prior to the Closing hereunder will be owned or
available for use by Target on identical terms and conditions immediately
subsequent to the Closing hereunder. Target has taken all necessary action to
maintain and protect each item of Intellectual Property that it owns or uses.
(B) Target has not interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of third parties, and none of the Shareholders and
the directors and officers (and employees with responsibility for Intellectual
Property matters) of Target has ever received any charge, complaint, claim,
demand, or notice alleging any such interference, infringement,
misappropriation, or violation (including any claim that Target must license or
refrain from using any Intellectual Property rights of any third party). To the
Knowledge of Shareholders and Target, no third party has interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of Target.
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(C) Target has no patents and has never
submitted a patent application or otherwise attempted to patent or to register
any of its Intellectual Property. Target has never licensed or otherwise
granted to any third party, in writing or otherwise, any rights with respect to
any of its Intellectual Property.
(D) With respect to each item of
Intellectual Property required to be identified in Section 4(a)(xiii)(A) of the
Disclosure Schedule:
(1) Target possesses all right,
title, and interest in and to the item, free and clear of any Security Interest
(other than Permitted Liens), license, or other restriction;
(2) the item is not subject to any
outstanding injunction, judgment, order, decree, ruling, or charge;
(3) no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand is pending or, to
the Knowledge of Target or the Shareholders, is threatened which challenges the
legality, validity, enforceability, use, or ownership of the item; and
(4) Target has never agreed to
indemnify any Person for or against any interference, infringement,
misappropriation, or other conflict with respect to the item.
(E) Section 4(a)(xiii)(E) of the Disclosure
Schedule identifies each item of Intellectual Property that any third party
owns and that Target uses pursuant to license, sublicense, agreement, or
permission. The Shareholders have delivered to North American correct and
complete copies of all such licenses, sublicenses, agreements, and permissions
(as amended to date). With respect to each item of Intellectual Property
required to be identified in Section 4(a)(xiii)(E) of the Disclosure Schedule:
(1) the license, sublicense,
agreement, or permission covering the item is legal, valid, binding,
enforceable, and in full force and effect;
(2) the license, sublicense,
agreement, or permission will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms following the
consummation of the transactions contemplated hereby;
(3) no party to the license,
sublicense, agreement, or permission is in breach or default, and no event has
occurred which with notice or lapse of time would constitute a breach or
default or permit termination, modification, or acceleration thereunder;
(4) no party to the license,
sublicense, agreement, or permission has repudiated any provision thereof;
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(5) with respect to each
sublicense, the representations and warranties set forth in subsections (A)
through (D) above are true and correct with respect to the underlying license;
(6) the underlying item of
Intellectual Property is not subject to any outstanding injunction, judgment,
order, decree, ruling, or charge;
(7) no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand is pending or is
threatened which challenges the legality, validity, or enforceability of the
underlying item of Intellectual Property; and
(8) Target has never granted any
sublicense or similar right with respect to the license, sublicense, agreement,
or permission.
(F) To the Knowledge of Shareholders and
Target, Target will not interfere with, infringe upon, misappropriate, or
otherwise come into conflict with, any Intellectual Property rights of third
parties as a result of the continued operation of its businesses as presently
conducted.
(G) None of the Shareholders and Target has
any Knowledge of any new products, inventions, procedures, or methods of
manufacturing or processing that any competitors or other third parties have
developed which reasonably could be expected to supersede or make obsolete any
product or process of any of Target.
(xiv) TANGIBLE ASSETS. Target owns or leases all
buildings, machinery, equipment, and other tangible assets necessary for the
conduct of its business as presently conducted. Each such tangible asset is in
substantially the same operating condition and repair (subject to normal wear
and tear) as it was on July 10, 1998, the date of the completion of its
appraisal by North American, and is suitable for the purposes for which it
presently is used. Section 4(a)(xiv) of the Disclosure Schedule lists all
tangible assets owned by Target with an individual depreciated value in excess
of $2,500.00.
(xv) INVENTORY. Target has no inventory.
(xvi) CONTRACTS. Section 4(a)(xvi) of the Disclosure
Schedule lists each contract and other agreement involving more than $25,000.00
to which Target is a party. The Shareholders have delivered to North American a
correct and complete copy of each written agreement listed in Section 4(a)(xvi)
of the Disclosure Schedule (as amended to date). With respect to each such
agreement: (A) the agreement is legal, valid, binding, enforceable in all
material respects, and in full force and effect; (B) the agreement will
continue to be legal, valid, binding, enforceable in all material respects, and
in full force and effect on identical terms following the consummation of the
transactions contemplated hereby; (C) no party is in material breach or
default, and no event has occurred which with notice or lapse of time would
constitute a material breach or default, or permit termination, modification,
or acceleration, under the agreement; and (D) Target has not, and to the
Knowledge of the Shareholders and Target no other party has, repudiated any
provision of the agreement. Section 4(a)(xvi) of the Disclosure Schedule lists
each currently outstanding bid or proposal for business submitted by Target in
excess of $1,000,000.
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(xvii) NOTES, ACCOUNTS RECEIVABLE AND WORK IN
PROGRESS. All notes, accounts receivable and amounts shown on the Financial
Statements as work in progress of Target are reflected properly on the Most
Recent Balance Sheet in accordance with GAAP. The accounts receivable are valid
receivables subject to no setoffs or counterclaims, are current and
collectible, and, assuming collection efforts no less diligent that the past
custom and practice of Target, will be collected in accordance with their terms
at their recorded amounts, subject only to the reserve for bad debts set forth
on the face of the Most Recent Balance Sheet (rather than in any notes thereto)
as adjusted for the passage of time through the Closing Date in accordance with
the past custom and practice of Target. The work in progress shown on the Most
Recent Balance Sheet is not subject to any setoffs or counterclaims, will be
billed to customers in a timely manner following the Closing and, assuming
collection efforts no less diligent that the past custom and practice of
Target, will be collected at their recorded amounts as set forth on the face of
the Most Recent Balance Sheet.
(xviii) POWERS OF ATTORNEY. There are no outstanding
powers of attorney executed on behalf of Target.
(xix) INSURANCE. Section 4(a)(xix) of the Disclosure
Schedule includes a true, correct and complete list of all policies of
insurance (including policies providing property, casualty, liability, and
workers' compensation coverage and bond and surety arrangements) to which
Target is a party, a named insured, or otherwise the beneficiary of coverage.
Genuine and complete copies of each of the insurance policies listed in Section
4(a)(xix) of the Disclosure Schedule have been provided to North American. With
respect to each such insurance policy: (A) the policy is legal, valid, binding,
enforceable in all material respects, and in full force and effect; (B) the
policy will continue to be legal, valid, binding, enforceable in all material
respects, and in full force and effect on identical terms following the
consummation of the transactions contemplated hereby; (C) neither Target nor
any other party to the policy is in material breach or default (including with
respect to the payment of premiums or the giving of notices), and no event has
occurred which, with notice or the lapse of time, would constitute such a
material breach or default, or permit termination, modification, or
acceleration, under the policy; (D) neither Target, any ERISA Affiliate nor
North American shall be subject to a retroactive rate adjustment, loss sharing
arrangement or other actual or contingent liability and (E) to Shareholders' or
Target's Knowledge, no party to the policy has repudiated any provision
thereof. Target has been fully covered at all times during the past 5 years by
insurance in scope and amount customary and reasonable for the businesses in
which it has engaged during the aforementioned period. Section 4(a)(xix) of the
Disclosure Schedule describes any self-insurance arrangements affecting Target.
(xx) LITIGATION. Section 4(a)(xx) of the Disclosure
Schedule sets forth each instance in which Target (i) is subject to any
outstanding injunction, judgment, order, decree, ruling, or charge or (ii) is a
party, or to the Knowledge of Shareholders or Target, is threatened to be made
a party to any claim, action, suit, proceeding, hearing, or investigation of,
in, or before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator. Except
as set forth in Section 4(a)(xx) of the Disclosure Schedule, there is no other
pending, or to the Knowledge of Shareholders or Target, threatened claim,
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arbitration proceeding, action, suit, investigation or other proceeding against
or involving Target or any property or rights of Target or any officer or
director or Target. None of the actions, suits, proceedings, hearings, and
investigations set forth in Section 4(a)(xx) of the Disclosure Schedule could
result in any material adverse change in the business, financial condition,
operations, results of operations, or future prospects of Target. Neither the
Shareholders nor the directors and officers (and employees with responsibility
for litigation matters) of Target has any reason to believe that any such
action, suit, proceeding, hearing, or investigation may be brought or
threatened against Target.
(xxi) COMMITMENTS AND WARRANTIES. All services
provided by the Target during the past twelve-month period have been performed
in conformity with all applicable contractual commitments (written or oral) and
all express and implied warranties (written or oral), except for cases where
the failure to do so would not have a Material Adverse Effect on Target. Target
has no Liability and, to the Knowledge of the Shareholders and Target, there is
no Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them giving
rise to any Liability) in connection with any such services performed as of the
Closing Date which could have a Material Adverse Effect. Target has not entered
into any written or oral agreements with any of its customers that include
guaranties, warranties, or indemnity provisions other than those included in
the agreements included as part of Section 4(a)(xx) of the Disclosure Schedule.
(xxii) EMPLOYEES. To the Knowledge of the
Shareholders or Target, no executive, key employee, or group of employees has
any plans to terminate employment with Target. Target is not currently, nor at
any prior time has been, a party to or bound by any collective bargaining
agreement, nor has Target experienced any strikes, grievances, claims of unfair
labor practices, or other collective bargaining disputes. Target has not
committed any unfair labor practice. Neither the Shareholders nor Target have
any Knowledge of any organizational effort presently being made or threatened
by or on behalf of any labor union with respect to employees of Target.
(xxiii) EMPLOYEE BENEFITS.
(A) Section 4(a)(xxiii) of the Disclosure
Schedule lists each Employee Benefit Plan that Target or any ERISA Affiliate
maintains, contributes to, or is required to contribute to or under which
Target or any ERISA Affiliate has any liability. (The Parties agree that the
Robertson Transfer and the rights of Fred Robertson in connection therewith
will not be deemed to be an Employee Benefit Plan for purposes of this
Agreement.)
(1) Each such Employee Benefit Plan
(and each related trust, insurance contract, or fund) complies in form and in
operation in all material respects with the applicable requirements of ERISA,
the Code, and other applicable laws.
(2) All required reports and
disclosures, if any, (including Form 5500 Annual Reports, Summary Annual
Reports, PBGC-1's, and Summary Plan Descriptions) have been filed or
distributed appropriately with respect to each such Employee Benefit Plan. The
requirements of Part 6 of Subtitle B of Title I of ERISA and of Code Section
4980B have been met with respect to each such Employee Benefit Plan which is an
Employee Welfare Benefit Plan and to which such requirements apply.
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(3) All contributions (including
all employer contributions and employee salary reduction contributions) which
are due have been paid to each such Employee Benefit Plan which is an Employee
Pension Benefit Plan and all contributions for any period ending on or before
the Closing Date which are not yet due have been paid to each such Employee
Pension Benefit Plan or accrued in accordance with the past custom and practice
of Target and in accordance with GAAP. All premiums or other payments for all
periods ending on or before the Closing Date have been paid with respect to
each such Employee Benefit Plan which is an Employee Welfare Benefit Plan.
(4) Each such Employee Benefit Plan
which is an Employee Pension Benefit Plan created to be a "qualified plan"
pursuant to Code Section 401(a) now meets and at all times since inception has
met the requirements of a "qualified plan" under Code Section 401(a) and has
received a favorable determination letter from the Internal Revenue Service.
(5) As of the Closing Date, the
market value of assets under each such Employee Benefit Plan which is an
Employee Pension Benefit Plan (other than any Multiemployer Plan) will equal or
exceed the present value of all vested and nonvested Liabilities thereunder
determined in accordance with PBGC methods, factors, and assumptions applicable
to an Employee Pension Benefit Plan terminating on such date.
(6) The Shareholders have delivered
to North American correct and complete copies of the plan documents and summary
plan descriptions including all amendments thereto, the most recent
determination letter received from the Internal Revenue Service, the three most
recent Form 5500 Annual Reports (including all schedules thereto), if any, the
three most recent annual premium payment forms filed with the PBGC, and all
related trust agreements, insurance contracts, and other funding agreements
which implement each such Employee Benefit Plan.
(B) With respect to each Employee Benefit
Plan that Target or any ERISA Affiliate maintains, contributes to, or is
required to contribute to or under which Target or any ERISA Affiliate has any
liability:
(1) No such Employee Benefit Plan
which is an Employee Pension Benefit Plan (other than any Multiemployer Plan)
has been completely or partially terminated or been the subject of a Reportable
Event as to which notices would be required to be filed with the PBGC. No
proceeding by the PBGC to terminate any such Employee Pension Benefit Plan
(other than any Multiemployer Plan) has been instituted or threatened.
(2) There have been no Prohibited
Transactions with respect to any such Employee Benefit Plan. No Fiduciary has
any Liability for breach of fiduciary duty or any other failure to act or
comply in connection with the administration or investment of the assets of any
such Employee Benefit Plan. No action, suit, proceeding, hearing, or
investigation with respect to any such Employee Benefit Plan (other than
routine claims for benefits) is pending or, to the Knowledge of the
Shareholders and Target, threatened. Neither the Shareholders nor Target has
any Knowledge of any Basis for any such action, suit, proceeding, hearing, or
investigation.
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(3) Neither Target nor any ERISA
Affiliate has incurred, and none of the Shareholders and the directors and
officers (and employees with responsibility for employee benefits matters) of
Target has any reason to expect that Target or any ERISA Affiliate will incur,
any Liability to the PBGC (other than PBGC premium payments) or otherwise under
Title IV of ERISA (including any withdrawal Liability) or under the Code with
respect to any such Employee Benefit Plan which is an Employee Pension Benefit
Plan.
(C) Neither Target nor any ERISA Affiliate
contributes to, ever has contributed to, or ever has been required to
contribute to any Multiemployer Plan or has any Liability (including withdrawal
Liability) under any Multiemployer Plan.
(D) Neither Target nor any ERISA Affiliate
maintains or contributes to, or has ever been required to contribute to any
Employee Welfare Benefit Plan providing medical, health, or life insurance or
other welfare-type benefits for current, retired or terminated employees or
future retired or terminated employees, their spouses, or their dependents
(other than in accordance with Code Section 4980B).
(xxiv) GUARANTIES. Target is not a guarantor or, to
the Knowledge of the Shareholders and Target, otherwise is liable for any
Liability or obligation (including indebtedness) of any other Person.
(xxv) ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS.
(A) Target and its corporate predecessors,
if any, and Affiliates have complied and are in compliance, in all material
respects, with all Environmental, Health, and Safety Requirements.
(B) Without limiting the generality of the
foregoing, Target and its Affiliates have obtained and complied with, and are
in compliance with, all permits, licenses and other authorizations that are
required pursuant to Environmental, Health, and Safety Requirements for the
occupation of its facilities and the operation of its business, except where
the failure to so obtain or comply could have a Material Adverse Effect on
Target; a list of all such permits, licenses and other authorizations is set
forth on Section 4(a)(xxv) of the Disclosure Schedule.
(C) Neither Target nor its corporate
predecessors, if any, or Affiliates has received any written or oral notice,
report or other information regarding any actual or alleged violation of
Environmental, Health, and Safety Requirements, or any liabilities or potential
liabilities (whether accrued, absolute, contingent, unliquidated or otherwise),
including any investigatory, remedial or corrective obligations, relating to
any of them or its facilities arising under Environmental, Health, and Safety
Requirements.
(D) None of the following exists at any
property or facility owned or, to the Knowledge of the Shareholders and Target,
operated by Target: (1) underground storage tanks, (2) asbestos-containing
material in any form or condition, (3) materials or equipment containing
polychlorinated biphenyls, or (4) landfills, surface impoundments, or disposal
areas.
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(E) None of Target or its corporate
predecessors, if any, or Affiliates has treated, stored, disposed of, arranged
for or permitted the disposal of, transported, handled, or released any
substance, including without limitation any hazardous substance, or owned or
operated any property or facility (and no such property or facility is
contaminated by any such substance) in a manner that has given or would give
rise to liabilities, including any liability for response costs, corrective
action costs, personal injury, property damage, natural resources damages or
attorney fees, pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), the Solid Waste
Disposal Act, as amended ("SWDA") or any other Environmental, Health, and
Safety Requirements.
(F) Neither this Agreement nor the
consummation of the transactions that are the subject of this Agreement will
result in any obligations for site investigation or cleanup, or notification to
or consent of government agencies or third parties, pursuant to any of the
so-called "transaction-triggered" or "responsible property transfer"
Environmental, Health, and Safety Requirements.
(G) Neither Target nor its corporate
predecessors, if any, or Affiliates has, either expressly or by operation of
law, assumed or undertaken any liability, including without limitation any
obligation for corrective or remedial action, of any other Person relating to
Environmental, Health, and Safety Requirements.
(H) To the Knowledge of the Shareholders
and Target, no facts, events or conditions relating to the past or present
facilities, properties or operations of Target or any of its corporate
predecessors, if any, or Affiliates will prevent, hinder or limit continued
compliance with Environmental, Health, and Safety Requirements, give rise to
any investigatory, remedial or corrective obligations pursuant to
Environmental, Health, and Safety Requirements (whether on-site or off-site),
or give rise to any other liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise) pursuant to Environmental, Health, and Safety
Requirements, including without limitation any relating to onsite or offsite
releases or threatened releases of hazardous materials, substances or wastes,
personal injury, property damage or natural resources damage.
(xxvi) CERTAIN BUSINESS RELATIONSHIPS WITH TARGET.
Neither the Shareholders, their respective Affiliates, any director or employee
of Target, or any relatives of the Shareholders, or any person living in the
same residence as such persons, has been involved in any business arrangement
or relationship with Target (other than an employment relationship) within the
past 12 months, and, other than with respect to the Summit Avenue Property,
neither the Shareholders nor their respective Affiliates nor any of such other
persons owns leases, licenses, or otherwise has any interest in any asset,
tangible or intangible, which is used in the business of Target or any
contract, lease or commitment to which Target is a party. Target is not
indebted to any officer, director or employee of Target for any liability or
obligation. No officer, director or employee of Target is indebted to Target
for any liability or obligation.
(xxvii) CUSTOMERS AND SUPPLIERS. No purchase order
or commitment of Target is in excess of normal requirements, nor are prices
provided therein, to the Knowledge of the Shareholders, in excess of current
market prices for the products or services to be provided thereunder. No
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material supplier of Target has advised Target in writing within the past 12
months that it will stop, or decrease the rate of, supplying materials,
products or services to Target and no material customer of Target has advised
Target in writing within the past 12 months that it will stop, or decrease the
rate of buying materials, products or services from Target. Section 4(a)(xxvii)
of the Disclosure Schedule sets forth a list of (a) each customer that
accounted for more that 5% of the consolidated revenues of Target during the
last full fiscal year or the interim period through the date of the Most Recent
Financial Statements and the amount of revenues accounted for by such customer
during each such period and (b) each supplier that is the sole supplier of any
significant product or component to Target. To the Knowledge of the
Shareholders, the consummation of the transactions contemplated hereby will not
have a Material Adverse Effect on Target's relationship with any customer or
supplier listed in Section 4(a)(xxvii) of the Disclosure Schedule.
(xxviii) DISCLOSURE. Neither this Agreement nor any
of the exhibits, attachments, written statements, documents, certificates or
other items prepared for or supplied to North American by or on behalf of
Target or the Shareholders with respect to the transactions contemplated hereby
contains any untrue statement of a material fact or omits to state any material
fact necessary in order to make each statement contained herein or therein not
misleading. There is no fact which Target or the Shareholders have not
disclosed to North American herein and of which the Shareholders, Target, or
any of Target's officers or directors is aware and which could be anticipated
to have a Material Adverse Effect on the Target after Closing.
(b) REPRESENTATIONS AND WARRANTIES OF NORTH AMERICAN. North
American represents and warrants to the Shareholders that the statements
contained in this Section 4(b) are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Section 4(b)), except as set forth in the disclosure
schedule delivered by North American to the Shareholders on the date hereof and
initialed by the Parties (the "North American Disclosure Schedule"). The North
American Disclosure Schedule shall be effective to modify only those
representations and warranties to which the North American Disclosure Schedule
makes explicit reference. The North American Disclosure Schedule will be
arranged in paragraphs corresponding to the lettered and numbered paragraphs
contained in Section 3 and this Section 4.
(i) ORGANIZATION OF NORTH AMERICAN. North American
is a corporation validly existing under laws of the State of Florida, and its
status is active. Each Affiliate and Subsidiary of North American is validly
existing and in good standing under the laws of the state in which it was
incorporated or organized. North American, and each of its Affiliates and
Subsidiaries, is duly authorized to conduct business under the laws of each
jurisdiction where such qualification is required, except where failure to do
so is authorized or will not result in any Material Adverse Effect. North
American and each of its Affiliates and Subsidiaries has full corporate power
and authority and all licenses, permits and authorizations necessary to carry
on the business in which it is engaged and in which it presently proposes to
engage, and to own and use the properties owned and used by it, except where a
failure to obtain any such licenses, permits and authorizations will not have a
Material Adverse Effect on North American or any of its Affiliates or
Subsidiaries after Closing. Correct and complete copies of the charter and
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bylaws (or similar governance documents) of North American are included as part
of Section 4(b)(i) of the North American Disclosure Schedule. Neither North
American, nor any of its Affiliates and Subsidiaries, are in default under or
in violation of any provisions of their respective charters or bylaws (or
similar governance documents).
(ii) CAPITALIZATION OF NORTH AMERICAN. The entire
authorized capital stock of North American consists of 98,000,000 shares of
North American Common Stock, including (i) 10,000,000 North American Class A
Common Shares, 20,000,000 North American Class B Common Shares, and 68,000,000
Shares of undesignated North American Common Stock and (ii) 2,000,000 shares of
North American Preferred Stock, including 100,000 designated as North American
Series A Preferred Shares. The issued and outstanding capital stock of North
American, consists of 2,412,350 North American Class A Common Shares, 7,502,850
North American Class B Shares and 100,000 North American Series A Preferred
Shares, held of record as set forth in Section 4(b)(ii) of the North American
Disclosure Schedule. All of the issued and outstanding North American Class A
Common Shares, North American Class B Common Shares, and North American Series
A Preferred Shares have been duly authorized, validly issued and fully paid,
and are nonassessable. There are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights, preemptive
rights, exchange rights, or other contracts or commitments that could require
North American to issue, sell, or otherwise cause to become outstanding any of
its capital stock. There are no outstanding obligations of North American to
repurchase, redeem or otherwise acquire any capital stock or any securities
convertible into or exchangeable for such capital stock or any options,
warrants or rights to purchase such capital stock or securities. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to North American. There are no
voting trusts, proxies or other agreements or understandings with respect to
the voting of the capital stock of North American.
(iii) TITLE TO ASSETS. North American, its
Affiliates and Subsidiaries have good and marketable title to, or a valid
leasehold interest in, the properties and assets used by them, located on their
premises, or shown on the Most Recent North American Balance Sheet or acquired
after the date thereof, free and clear of all Security Interests (other than
the Security Interests disclosed on the face of the Most Recent North American
Balance Sheet and other Permitted Liens), except for properties and assets
disposed of in the Ordinary Course of Business since the date of the Most
Recent North American Balance Sheet, none of which disposals are expected to
have a Material Adverse Effect on North American or any of its Affiliates or
Subsidiaries. Except for the effect of a failure to obtain any of the North
American Required Consents, the consummation of the transactions contemplated
by this Agreement will not affect North American's, its Affiliates' or its
Subsidiaries's good and marketable title to, or valid leasehold interest in,
the properties and assets described in the preceding sentence.
(iv) SUBSIDIARIES AND AFFILIATES. Section 4(b)(iv)
of the North American Disclosure Schedule sets forth a complete and correct
list of all Subsidiaries of North American. Except as set forth in Section
4(b)(iv) of the North American Disclosure Schedule, North American does not
currently have, and has not had within the past five years, any Affiliates or
Subsidiaries, and does not own any securities of any other Person. The issued
and outstanding capital stock of each Subsidiary has been duly authorized,
validly issued and fully paid, and is nonassessable. There are not outstanding
or authorized options, warrants, purchase rights, subscription rights,
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conversion rights, preemptive rights, exchange rights, or other contracts or
commitments that could require any such Subsidiary to issue, sell or otherwise
cause to become outstanding any of its capital stock. There are no outstanding
obligations of any such Subsidiary to purchase, redeem or otherwise acquire any
capital stock or any securities convertible into or exchangeable for such
capital stock, or any options, warrants or rights to purchase such capital
stock or securities. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation or similar rights with respect to any
Subsidiary. There are no voting trusts, proxies or other agreements or
understandings with respect to the voting of the capital stock of any such
Subsidiary.
(v) FINANCIAL STATEMENTS. Attached hereto as Exhibit
B are the following financial statements (collectively the "North American
Financial Statements") for North American: (i) unaudited balance sheets (the
"Most Recent North American Balance Sheet") and statements of income, as of and
for the six months ended June 30, 1998 for North American (the "Most Recent
North American Fiscal Period End"). The North American Financial Statements
have been prepared in accordance with GAAP applied on a consistent basis
throughout the periods covered thereby, present fairly the financial condition
of North American, its Affiliates and Subsidiaries as of such dates and the
results of operations of North American, its Affiliates and Subsidiaries for
such periods, are correct and complete, and are consistent with the books and
records of North American, its Affiliates and Subsidiaries (which books and
records are correct and complete).
(vi) EVENTS SUBSEQUENT TO MOST RECENT NORTH AMERICAN
FISCAL YEAR END. Since the Most Recent North American Fiscal Year End and there
has not occurred any Material Adverse Effect on North American or any of its
Affiliates or Subsidiaries, and North American, its Affiliates and Subsidiaries
have not engaged in any transactions outside of the Ordinary Course of
Business.
(vii) DISCLOSURE. Neither this Agreement nor any of
the exhibits, attachments, written statements, documents, certificates or other
items prepared for or supplied to the Shareholders by North American with
respect to the transactions contemplated hereby contains any untrue statement
of a material fact or omits to state any material fact necessary in order to
make each statement contained herein or therein not misleading. There is no
fact which North American has not disclosed to the Shareholders herein and of
which North American or any of the its officers or directors is aware and which
could be anticipated to have a Material Adverse Effect on North American after
the Closing.
5. POST-CLOSING COVENANTS. The Parties agree as follows with respect
to the period following the Closing.
(a) GENERAL. In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, each of the Parties will take such further action (including the
execution and delivery of such further instruments and documents) as any other
Party reasonably may request, all at the sole cost and expense of the
requesting Party (unless the requesting Party is entitled to indemnification
therefor under Section 6 below). The Shareholders acknowledge and agree that
from and after the Closing North American will be entitled to possession of all
documents, books, records (including Tax records), agreements, and financial
data of any sort relating to Target, provided, however, that each Shareholder
shall be entitled to retain copies of such materials as are reasonably
necessary to fulfill his obligations under this Agreement.
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(b) LITIGATION SUPPORT. In the event and for so long as any
Party actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving Target, each of the other Parties will cooperate
with him or it and his or its counsel in the contest or defense, make available
their personnel, and provide such testimony and access to their books and
records as shall be reasonably necessary in connection with the contest or
defense, all at the sole cost and expense of the contesting or defending Party
(unless the contesting or defending Party is entitled to indemnification
therefor under Section 6 below).
(c) TRANSITION. The Shareholders will not take any action
that is designed or intended to have the effect of discouraging any lessor,
licensor, customer, supplier, or other business associate of Target from
maintaining the same business relationships with Target after the Closing as it
maintained with Target prior to the Closing. The Shareholders will refer all
customer inquiries relating to the businesses of Target to North American from
and after the Closing.
(d) INDEPENDENT ACCOUNTANTS. After the Closing, Shareholders
shall (i) use reasonable efforts to cause Target's past and present independent
accountants to make available to North American and its representatives all
financial information, including the right to examine all working papers
pertaining to audits or reviews previously or hereafter made by such
accountants, and (ii) provide such cooperation as North American and its
representatives may reasonably request in connection with any audit or review
of Target that North American may direct its representatives to make. Without
limiting the generality of the foregoing, Shareholders agree that they will
cooperate with, and use reasonable efforts to cause Target's past and present
independent accountants and other necessary persons to cooperate with North
American in the preparation of any documents filed by North American with the
U.S. Securities and Exchange Commission in connection with an offering of
securities, to the extent information about Target is required therein. All
fees and costs associated with the services of Target's past and present
independent accountants and other representatives pursuant to this Section 5(d)
shall be the responsibility of and paid by North American.
(e) TAX MATTERS. The Shareholders covenant and agree not to
take any action, or fail to take any action, with respect to Taxes, that would
have a Material Adverse Effect on North American on or after the Closing Date,
including, without limitation, amending or otherwise supplementing any Tax
Return or report of Target with respect to any period prior to the Closing Date
without the consent of North American. If any taxing authority conducts any
audit or investigation relating to Target prior to the Closing Date, North
American may, in its sole election, monitor such audit or investigation and
participate in the preparation of any response required in connection
therewith.
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(f) STOCK OPTIONS. North American has adopted a stock
incentive plan (the "Stock Incentive Plan") pursuant to which stock options and
other forms of stock-based compensation may be awarded to the officers,
directors and employees of North American and its subsidiaries. The key
employees of Target shall be eligible to receive awards under the Stock
Incentive Plan of options to acquire 50,000 shares of North American stock.
Within 60 days of the Closing, the officers of Target shall recommend to the
Stock Option Committee under the Stock Incentive Plan the terms, conditions and
amounts of awards to be granted and the identity of the key employees of Target
to receive such awards, however, all such awards, and the terms and conditions
thereof, shall be finally determined by the Stock Option Committee.
(g) AUDITED FINANCIAL STATEMENTS. The Shareholders shall use
reasonable efforts to cause Target's independent accountants to cooperate with
North American's auditors in the preparation of audited consolidated balance
sheets and statements of income, changes in stockholders' equity, and cash flow
including the audit report thereon as of and for the 12-month periods ended
December 31, 1996 and December 31, 1997 for the Target. Except as set forth in
Section 6(b)(ii) hereof, all costs associated with the preparation and audit of
Target's December 31, 1996 and December 31, 1997 financial statements shall be
paid by North American.
(h) ACCRUED BONUSES. Within thirty (30) days following the
Closing Date, North American shall pay an aggregate of $200,000 in accrued but
unpaid bonuses earned through the Closing Date by certain pre-Closing
management employees of Target, as recommended by Galtelli, provided that
such bonuses are accrued at rates less than or equal to 1.5% of the revenues of
Target for the twelve month period ending on the Closing Date. Such bonuses
shall be paid at a time mutually agreed to by Galtelli and North American.
(i) ST. MARTIN CABLE SYSTEM. Pursuant to the Limited
Liability Company Operating Agreement attached hereto as Exhibit F (the "LLC
Agreement"), the Shareholders agree to pay to the limited liability company
("LLC") formed pursuant to the LLC Agreement fifty percent (50%) of all costs,
including without limitation, legal and construction costs, incurred by the
Target or the LLC following the Closing Date in connection with the completion
of the St. Martin cable system (the "St. Martin System"). The profits and
losses of the LLC shall be allocated as provided in the LLC Agreement.
(j) PERSONAL GUARANTEES. North American agrees to use its
best efforts to cause the Shareholders to be released from any personal
guarantees on the obligations of the Target listed on Schedule 5(j) hereto.
North American agrees to indemnify and hold the Shareholders harmless from and
against any payments that the Shareholders may be obligated to make by virtue
of such personal guarantees (notwithstanding the $50,000 threshold set forth in
Section 6(c) hereof), unless such payment results from the wilful misconduct of
either of the Shareholders or to the extent that the claim asserted against the
Shareholder arose prior to the Closing Date.
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(k) TAX LOANS TO THE SHAREHOLDERS.
(i) North American agrees to provide, directly or
through an affiliate, the Shareholders with loans (the "Tax Loans") in the
following respective amounts: Galtelli--$184,374; and Robertson--$27,794. Such
Tax Loans shall be made on or before the due dates for such the additional
state and federal income taxes which each Shareholder shall be required to pay
for calendar 1998 as a result of the receipt of North American Class B Common
Shares pursuant to this Agreement (the "Additional Taxes"). Such Tax Loans
shall be made on or before the due dates for such Additional Taxes, based on
the Shareholders' delivery to North American of statements from their
accountants or tax preparers determining such due dates.
(ii) At the time of the delivery of the Tax Loan
proceeds, each Shareholder shall execute a promissory note in favor of North
American or its affiliate, in the principal amount of the Tax Loan, which note
shall bear interest at the lowest applicable federal rate and shall be secured
by the pledge and delivery of thirty percent (30%) of the Shareholder's North
American Class B Common Shares (the "Pledged Shares"). The note shall be repaid
to North American or its affiliate upon the earlier to occur of: (A) the
termination of the Shareholder's employment by the Target for any reason other
than termination without cause; or (B) three years from the date hereof. In the
event that a sale of the Pledge Shares results in proceeds to the Shareholder
less than or equal to the outstanding balance of the Tax Loan, all such
proceeds shall be paid to North American or its affiliate. Any excess proceeds
of any such sale shall be retained by the Shareholder. Upon any sale by the
Shareholder of shares of North American Class B Common Shares other than the
Pledged Shares, the proceeds of such sale up to the amount of the Tax Loan
shall be paid to North American or its affiliate.
6. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations, warranties, covenants and agreements of the Parties contained
in this Agreement or in any certificate, document, instrument or agreement
delivered pursuant to this Agreement shall survive the Closing hereunder
(notwithstanding any due diligence investigations that may have been undertaken
by the damaged Party) and continue in full force and effect through the period
of two years following the Closing, subject, however, to the following:
(i) the representations and warranties with respect
to Tax Matters (Section 4(a)(xi)) shall continue in effect after the Closing
until expiration of the applicable statute of limitations relating to the Taxes
and Tax Returns and until final resolution of any indemnification claims by
North American or the Shareholders in respect of such Taxes and Tax Returns;
(ii) the representations and warranties with respect
to Employee Benefits (Section 4(a)(xxiii)), Environmental, Health and Safety
matters (Section 4(a)(xxv)), and Title to Assets (Sections 4(a)(v)) and
4(b)(iii)) shall continue in effect after the Closing until the expiration of
five years after the Closing and until final resolution of any indemnification
claim by North American of the Shareholders in respect of such representations
and warranties; and
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(iii) the representations and warranties contained
in Section 3(a) and 3(b) and in Sections 4(a)(i) through 4(a)(iv) and 4(b)(i)
through 4(b)(ii) shall continue after the Closing without limitation pursuant
to this Agreement as to time.
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF NORTH AMERICAN.
(i) In the event the Shareholders breach any of
their representations, warranties (or any of such representations or warranties
is untrue or inaccurate), covenants and agreements contained herein or in any
certificate, document, instrument or agreement delivered pursuant to this
Agreement, and, provided that the Indemnified Buyers (as hereafter defined)
make a written claim for indemnification against the Shareholders pursuant to
Section 9(g) below within the applicable claim period provided in 6(a) above,
then the Shareholders agree to indemnify North American and each of its
officers, directors, employees, representatives and shareholders (the
"Indemnified Buyers") from and against the entirety of any Adverse Consequences
the Indemnified Buyers may suffer through and after the date of the claim for
indemnification (including, if proper and timely notice is given, any Adverse
Consequences the Indemnified Buyers may suffer after the end of any applicable
claim period) resulting from, arising out of, relating to, in the nature of, or
caused by the breach; provided, however, that the Shareholders shall not have
any obligation to indemnify the Indemnified Buyers from and against any Adverse
Consequences resulting from, arising out of, relating to, in the nature of, or
caused by the breach: (A) until the aggregate amount for such indemnification
owed to North American exceeds $50,000 (at which point the Shareholders will be
obligated to indemnify North American from and against all such Adverse
Consequences exceeding $50,000); (B) in excess of $6,400,000 in the aggregate
or (C) if the Adverse Consequence in question is provided for as a reserve in
the Most Recent Financial Statements.
(ii) Notwithstanding the dollar limitation set forth
in Section 6(b)(i)(A), the Shareholders agree to indemnify the Indemnified
Buyers from and against the entirety of any Adverse Consequences the
Indemnified Buyers may suffer resulting from, arising out of, relating to, in
the nature of, or caused by any Liability of Target (x) for any Taxes of Target
with respect to any Tax year or portion thereof ending on or before the Closing
Date or for any Tax year beginning before and ending after the Closing Date to
the extent allocable (determined in a manner consistent with Section 6(b)) to
the portion of such period beginning before and ending on the Closing Date),
(A) to the extent such Taxes are not reflected in the reserve for Tax Liability
shown on the face of the Most Recent Balance Sheet, or (B) to the extent such
Taxes (and related legal and accounting fees) are incurred by North American in
connection with auditing adjustments made to the Financial Statements by North
American's auditors; or (y) for the unpaid Taxes of any Person (other than
Target) under Reg. Section 1.1502-6 (or any similar provision of state, local,
or foreign law), as a transferee or successor, by contract, or otherwise.
(iii) Notwithstanding the dollar limitation set
forth in Section 6(b)(i)(A), Shareholders agree to indemnify the Indemnified
Buyers from and against the entirety of any Adverse Consequences they may
suffer resulting from, arising out of, relating to, in the nature of, or caused
by the activities of any entity which at any time has been owned, in whole or
in part, by Target.
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(iv) Notwithstanding the dollar limitation set forth
in Section 6(b)(i)(A), Shareholders agree to indemnify the Indemnified Buyers
from and against the entirety of any Adverse Consequences they may suffer
resulting from, or arising out of, relating to, or in the nature of or caused
by any claim by a stockholder or former stockholder of Target or any other
Person seeking to assert: (i) ownership or rights to ownership of any shares of
capital stock of Target or any Subsidiary, (ii) any rights of a stockholder
(other than the right to receive the Consideration) including any option,
preemptive rights or rights to receive notice or to vote, (iii) any rights
under Target's charter, bylaws or other constituent documents, or (iv) any
claim that his shares of capital stock were to be repurchased by Target.
(v) Notwithstanding the dollar limitation set forth
in Section 6(b)(i)(A) and without limiting any other indemnification provided
in this Section 6, Shareholders agree to indemnify the Indemnified Buyers from
and against the entirety of any Adverse Consequences they may suffer as a
result of a taxing authority taking the position that any former or current
subcontractor of Target should have been, at any time prior to the Closing
Date, treated as an employee of Target.
(vi) Notwithstanding the dollar limitation set forth
in Section 6(b)(i)(A) and without limiting any other indemnification provided
in this Section 6 Shareholders agree to indemnify the Indemnified Buyers from
and against the entirety of any Adverse Consequences they may suffer as a
result of a breach of the representation and warranty contained in Section
4(a)(i) regarding Target's authorization to conduct business and to be in good
standing under the laws of any jurisdiction.
(vii) Notwithstanding the dollar limitation set
forth in Section 6(b)(i)(A) and without limiting any other indemnification
provided in this Section 6, Shareholders agree to indemnify the Indemnified
Buyers from and against the entirety of any Adverse Consequences they may
suffer as a result of a breach of the representations and warranties contained
in Section 4(a)(xxi).
(viii) Subject to the dollar limitation set forth in
Section 6(b)(i)(A) and without limiting any other indemnification provided in
this Section 6, Shareholders agree to indemnify the Indemnified Buyers from and
against the entirety of any Adverse Consequences they may suffer as a result of
any failure of the Target to comply with any of the requirements of ERISA or
COBRA prior to the Closing Date.
(ix) Notwithstanding the dollar limitation set forth
in Section 6(b)(i)(A) and without limiting any other indemnification provided
in this Section 6, Shareholders agree to indemnify the Indemnified Buyers from
and against the entirety of any Adverse Consequences they may suffer as a
result of any claim, arbitration proceeding, action, suit, investigation or
other proceeding against or involving Target in connection with or related to
the St. Martin System not otherwise reserved on the Closing Balance Sheet or
covered by the provisions of the LLC Agreement. The inclusion of information
relating to the St. Martin System on the Disclosure Schedule shall not limit in
any manner the indemnification obligations of Shareholders pursuant to this
Section 6(b)(ix).
(x) All of the indemnification obligations of
Shareholders under this Section 6 shall be joint and several.
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(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE
SHAREHOLDERS.
In the event North American breaches any of its
representations, warranties (or any such representations or warranties is
untrue or inaccurate), covenants and agreements contained herein or in any
certificate, document, instrument or agreement delivered pursuant to this
Agreement, and, provided that the Shareholders makes a written claim for
indemnification against North American pursuant to Section 9(g) below within
the applicable claim period provided in 6(a) above, then North American agrees
to indemnify the Shareholders and each of his representatives (the "Indemnified
Shareholders") from and against the entirety of any Adverse Consequences the
Indemnified Shareholders may suffer through and after the date of the claim for
indemnification (including, if proper and timely notice is given, any Adverse
Consequences the Indemnified Shareholders may suffer after the end of any
applicable claim period) resulting from, arising out of, relating to, in the
nature of, or caused by the breach; provided, however, that North American
shall not have any obligation to indemnify the Indemnified Shareholders from
and against any Adverse Consequences resulting from, arising out of, relating
to, in the nature of, or caused by the breach of any representation or warranty
contained in Section 4(b) above until the Shareholders have suffered Adverse
Consequences by reason of all such breaches exceeds $50,000 (at which point the
North American will be obligated to indemnify Indemnified Shareholders from and
against all such Adverse Consequences exceeding $50,000).
(d) MATTERS INVOLVING THIRD PARTIES.
(i) If any third party shall notify any party
entitled to indemnification hereunder (the "Indemnified Party") with respect to
any matter (a "Third Party Claim") which may give rise to a claim for
indemnification against any other Party (the "Indemnifying Party") under this
Section 6, then the Indemnified Party shall promptly notify each Indemnifying
Party thereof in writing; provided, however, that no delay on the part of the
Indemnified Party in notifying any Indemnifying Party shall relieve the
Indemnifying Party from any obligation hereunder unless (and then solely to the
extent) the Indemnifying Party thereby is materially prejudiced.
(ii) Any Indemnifying Party will have the right to
defend the Indemnified Party against the Third Party Claim with counsel of its
choice reasonably satisfactory to the Indemnified Party so long as (A) the
Indemnifying Party notifies the Indemnified Party in writing within 30 days
after the Indemnified Party has given notice of the Third Party Claim that the
Indemnifying Party will defend the Indemnified Party, (B) the Indemnifying
Party provides the Indemnified Party with evidence reasonably acceptable to the
Indemnified Party that the Indemnifying Party will have the financial resources
to defend against the Third Party Claim and fulfill its indemnification
obligations hereunder, (C) the Third Party Claim involves only money damages
and does not seek an injunction or other equitable relief, (D) settlement of,
or an adverse judgment with respect to, the Third Party Claim is not, in the
good faith judgment of the Indemnified Party, likely to establish a
precedential custom or practice materially adverse to the continuing business
interests of the Indemnified Party, and (E) the Indemnifying Party conducts the
defense of the Third Party Claim actively and diligently.
(iii) So long as the Indemnifying Party is
conducting the defense of the Third Party Claim in accordance with Section
6(d)(ii) above, (A) the Indemnified Party may retain separate co-counsel at its
sole cost and expense and participate in the defense of the Third Party Claim,
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(B) the Indemnified Party will not consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim without the
prior written consent of the Indemnifying Party (not to be withheld
unreasonably), and (C) the Indemnifying Party will not consent to the entry of
any judgment or enter into any settlement with respect to the Third Party Claim
without the prior written consent of the Indemnified Party (not to be withheld
unreasonably).
(iv) In the event an Indemnifying party fails to
comply with any of the conditions in Section 6(d)(ii) above and such failure
remains uncured after 10 days written notice by the Indemnified Party of the
failure to so comply, then (A) the Indemnified Party may defend against, and
consent to the entry of any judgment or enter into any settlement with respect
to, the Third Party Claim in any manner it reasonably may deem appropriate (and
the Indemnified Party need not consult with, or obtain any consent from, any
Indemnifying Party in connection therewith), (B) the Indemnifying Parties will
reimburse the Indemnified Party promptly and periodically for the costs of
defending against the Third Party Claim (including reasonable attorneys' fees
and expenses), and (C) the Indemnifying Parties will remain responsible for any
Adverse Consequences the Indemnified Party may suffer resulting from, arising
out of, relating to, in the nature of, or caused by the Third Party Claim to
the fullest extent provided in this Section 6.
(e) DETERMINATION OF ADVERSE CONSEQUENCES. The Parties shall
take into account the time cost of money (using the Applicable Rate as the
discount rate) in determining Adverse Consequences for purposes of this Section
6 All indemnification payments under this Section 6 shall be deemed adjustments
to the Consideration.
(f) REMEDIES. The rights and remedies provided for in this
Agreement and the other agreements, certificates, documents and other
instruments delivered in connection therewith are cumulative and shall be the
exclusive remedies of the Parties with respect to claims for damages related to
the matters addressed herein and with respect to the transactions contemplated
hereby, and the Parties shall have no other liability for damages to each other
under any statutory, equitable or common law right; provided, however, that
nothing herein shall be construed as limiting the right of any Party to the
equitable relief of specific performance provided for in Section 9(n) of this
Agreement.
(g) OTHER INDEMNIFICATION PROVISIONS. Each Shareholder hereby
agrees that he will not make any claim for indemnification against Target by
reason of the fact that he was a director, officer, employee, or agent of
Target or was serving at the request of Target as a partner, trustee, director,
officer, employee, or agent of another entity (whether such claim is for
judgments, damages, penalties, fines, costs, amounts paid in settlement,
losses, expenses, or otherwise and whether such claim is pursuant to any
statute, charter document, bylaw, agreement, or otherwise) with respect to any
action, suit, proceeding, complaint, claim, or demand brought by the Buyer
against such Shareholder (whether such action, suit, proceeding, complaint,
claim, or demand is pursuant to this Agreement, applicable law, or otherwise).
(h) RECOUPMENT RIGHT AGAINST ESCROW CONSIDERATION. Pursuant
to the terms of the Escrow Agreement, North American shall have the right to
recoup up to the amount of the Escrow Consideration of Adverse Consequences it
may suffer (in lieu of seeking any indemnification to which it is entitled
under this Section 6). North American's right of recoupment shall not
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constitute a limitation on North American's rights hereunder or as a measure of
liquidated damages and North American may seek full indemnification for all
damages suffered and may pursue all rights and remedies available to it under
this Agreement, against the Shareholders, without seeking recourse against any
other party and without exercising its right of recoupment hereunder.
(i) FURTHER LIMITATION ON INDEMNIFICATION. No party shall be
obligated to pay any amounts for indemnification provided in this section 6 to
the extent of (i) any tax benefit therefrom to the Indemnified Buyers or
Indemnified Shareholders, as applicable, or (ii) any insurance proceeds and any
indemnity contribution or similar payment paid to the Indemnified Buyers or the
Indemnified Shareholders, as applicable, from any third party with respect
thereto.
7. POST-CLOSING ADJUSTMENT OF CONSIDERATION.
(a) Within 90 days after the Closing Date, North American
will prepare and deliver to Shareholders a draft balance sheet (the "Draft
Closing Date Balance Sheet") for Target as of the close of business on the
Closing Date (determined as though the Parties had not consummated the
transactions contemplated by this Agreement), prepared in accordance with GAAP
applied on a basis consistent with the preparation of the Financial Statements;
except that the Draft Closing Date Balance Sheet shall include all of the same
types of adjustments as were made in connection with the preparation of the
Most Recent Financial Statements.
(b) If the Shareholders have any objections to the Draft
Closing Date Balance Sheet, they will deliver a detailed statement describing
their objections to North American within 30 days after receiving the Draft
Closing Date Balance Sheet. North American and the Shareholders will use
reasonable efforts to resolve any such objections themselves. If the Parties do
not obtain a final resolution within 30 days after North American has received
the statement of objections, however, North American and Shareholders will
select an accounting firm mutually acceptable to them to resolve any remaining
objections. If North American and the Shareholders are unable to agree on the
choice of an accounting firm, they will select a nationally-recognized
accounting firm by lot (after excluding their respective regular outside
accounting firms). The determination of any accounting firm so selected will be
set forth in writing and will be conclusive and binding upon the Parties. North
American will revise the Draft Closing Date Balance Sheet as appropriate to
reflect the resolution of any objections thereto pursuant to this Section 7(b).
The "Closing Date Balance Sheet" shall mean the Draft Closing Date Balance
Sheet together with any revisions thereto pursuant to this Section 7(b).
(c) In the event the Parties submit any unresolved objections
to an accounting firm for resolution as provided in Section 7(b) above, any
expenses relating to the engagement of the accounting firm shall be allocated
between the Shareholders and North American by the accounting firm in
proportion to the amount in dispute which is decided in favor of the
challenging Party.
(d) North American will make the work papers and back-up
materials used in preparing the Draft Closing Date Balance Sheet available to
the Shareholders and their accountants and other representatives at reasonable
times and upon reasonable notice during (A) the preparation by North American
of the Draft Closing Date Balance Sheet, (B) review by the Shareholders of the
Draft Closing Date Balance Sheet, and (C) the resolution by the Parties of any
objections thereto.
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(e) If the Shareholder's equity set forth in the Closing Date
Balance Sheet is less than $3,072,331.00, the Shareholders will pay to North
American an amount equal to such deficiency (plus interest thereon at the
Applicable Rate from the Closing Date) within three business days after the
date on which the Closing Date Balance Sheet finally is determined pursuant to
Section 7(b).
8. TAX MATTERS. The following provisions shall govern the allocation
of responsibility as between North American and Shareholders for certain tax
matters following the Closing Date:
(a) TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE.
Shareholders shall prepare or cause to be prepared and timely file or cause to
be timely filed all Tax Returns for Target for all periods ending on or prior
to the Closing Date which are filed after the Closing Date (the "Pre-Closing
Period"). Such Tax Returns shall be prepared by treating items on such Tax
Return in a manner consistent with the past practices with respect to such
items, unless otherwise required by law. Shareholders shall permit North
American to review and comment on each such Tax Return described in the
preceding sentence prior to filing. North American shall pay the amounts due
for Taxes of Target with respect to the Pre-Closing Periods, up to the amount
reflected in the reserve for Tax Liability shown on the face of the Most Recent
Balance Sheet. Shareholders jointly and severally agree that they will pay,
when due, all amounts due for Taxes of Target with respect to Pre-Closing
Periods, that exceed the reserve for Tax Liability.
(b) TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING
DATE. North American shall prepare or cause to be prepared and file or cause to
be filed any Tax Returns of Target for Tax periods which begin before the
Closing Date and end after the Closing Date. North American shall permit
Shareholders to review and comment on each such Tax Return described in the
preceding sentence prior to filing. Shareholders shall pay to North American
within fifteen (15) days after the date on which Taxes are paid with respect to
such periods an amount equal to the portion of such Taxes which relates to the
portion of such Taxable period ending on the Closing Date to the extent such
Taxes are not reflected in the reserve for Tax Liability shown on the face of
the Most Recent Balance Sheet. For purposes of this Section 8, in the case of
any Taxes that are imposed on a periodic basis and are payable for a Taxable
period that includes (but does not end on) the Closing Date, the portion of
such Tax which relates to the portion of such Taxable period ending on the
Closing Date shall (i) in the case of any real and personal property Taxes, be
deemed to be the amount of such Tax for the entire Taxable period multiplied by
a fraction the numerator of which is the number of days in the Taxable period
ending on the Closing Date and the denominator of which is the number of days
in the entire Taxable period, and (ii) in the case of any other Tax be deemed
equal to the amount which would be payable if the relevant Taxable period ended
on the Closing Date. Any credits relating to a Taxable period that begins
before and ends after the Closing Date shall be taken into account as though
the relevant Taxable period ended on the Closing Date. All determinations
necessary to give effect to the foregoing allocations shall be made in a manner
consistent with prior practice of Target.
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(c) COOPERATION ON TAX MATTERS.
(i) North American, Target and Shareholders shall
cooperate fully, as and to the extent reasonably requested by any other Party,
in connection with the filing of Tax Returns pursuant to this Section 10 and
any audit, litigation or other proceeding with respect to Taxes. Such
cooperation shall include the retention and (upon any other Party's request)
the provision of records and information which are reasonably relevant to any
such audit, litigation or other proceeding and making employees available on a
mutually convenient basis to provide additional information and explanation of
any material provided hereunder. Target and Shareholders agree (A) to retain
all books and records with respect to Tax matters pertinent to Target relating
to any taxable period beginning before the Closing Date until the expiration of
the statute of limitations (and, to the extent notified by North American or
Shareholders, any extensions thereof) of the respective taxable periods, and to
abide by all record retention agreements entered into with any taxing
authority, and (B) to give any other Party reasonable written notice prior to
transferring, destroying or discarding any such books and records and, if any
other Party so requests, Target or Shareholders, as the case may be, shall
allow any other Party to take possession of such books and records.
(ii) North American and Shareholders further agree,
upon request, to use their best efforts to obtain any certificate or other
document from any governmental authority or any other Person as may be
necessary to mitigate, reduce or eliminate any Tax that could be imposed
(including, but not limited to, with respect to the transactions contemplated
hereby).
(iii) North American and Shareholders further agree,
upon request, to provide any other Party with all information that any Party
may be required to report pursuant to Section 6043 of the Code and all Treasury
Department Regulations promulgated thereunder.
(iv) The Shareholders and North American agree that,
for federal income tax and financial statement reporting purposes, they will
value the North American Class B Shares at $1.4959 per share and will not take
a contrary position on their federal income tax returns.
(d) TAX SHARING AGREEMENTS. All tax sharing agreements or
similar agreements with respect to or involving Target shall be terminated as
of the Closing Date and, after the Closing Date, Target shall not be bound
thereby or have any liability thereunder.
(e) CERTAIN TAXES. All transfer, documentary, sales, use,
stamp, registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement, shall be paid by
Shareholders when due, and Shareholders will, at their own expense, file all
necessary Tax Returns and other documentation with respect to all such
transfer, documentary, sales, use, stamp, registration and other Taxes and
fees, and, if required by applicable law, North American will, and will cause
its Affiliates to, join in the execution of any such Tax Returns and other
documentation.
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9. MISCELLANEOUS.
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall
issue any press release or make any public announcement relating to the subject
matter of this Agreement prior to the Closing without the prior written
approval of North American and the Shareholders; provided, however, that any
Party may make any public disclosure it believes in good faith is required by
applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing Party will use its
best efforts to advise the other Parties prior to making the disclosure).
(b) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not
confer any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns and the Indemnified Parties
referred to in Section 6 hereof.
(c) ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) and the Confidentiality Letter of May 11, 1998 executed and
delivered by H.I.G. Capital Management constitute the entire agreement among
the Parties and supersede any prior understandings, agreements, or
representations by or among the Parties, written or oral, to the extent they
related in any way to the subject matter hereof.
(d) SUCCESSION AND ASSIGNMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the Parties
named herein and their respective successors and permitted assigns. No Party
may assign either this Agreement or any of his or its rights, interests, or
obligations hereunder without the prior written approval of North American and
the Shareholders; provided, however, that North American may (i) assign any or
all of its rights and interests hereunder to one or more of its Affiliates and
(ii) designate one or more of its Affiliates to perform its obligations
hereunder (in any or all of which cases North American nonetheless shall remain
responsible for the performance of all of its obligations hereunder).
(e) COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) HEADINGS. The section headings contained in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
(g) NOTICES. All notices, requests, demands, claims, and
other communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
37
<PAGE> 42
<TABLE>
<CAPTION>
If to the Shareholders: Copy to:
----------------------- --------
<S> <C>
c/o Raymond L. Galtelli E. Kent Auberry, Esq.
5312 Graycliff Drive Smith, Helms, Mulliss & Moore, L.L.P.
Greensboro, North Carolina 27406 300 North Greene Street, Suite 1400
Greensboro, North Carolina 27401
If to North American: Copy to:
--------------------- --------
North American Tel-Com Group, Inc. Holland & Knight LLP
1401 Forum Way, Suite 400 One East Broward Boulevard
West Palm Beach, FL 33401 Fort Lauderdale, FL 33131
Attn: William J. Mercurio Attn: Donn Beloff, Esq.
</TABLE>
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been
duly given unless and until it actually is received by the intended recipient.
Any Party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other
Parties notice in the manner herein set forth.
(h) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Florida without
giving effect to any choice or conflict of law provision or rule (whether of
the State of Florida or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Florida.
(i) AMENDMENTS AND WAIVERS. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
North American and the Shareholders. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(j) SEVERABILITY. Any term or provision of this Agreement
that is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
(k) EXPENSES. Each of the Parties will bear his or its own
costs and expenses (including legal fees and expenses) incurred in connection
with this Agreement and the transactions contemplated hereby. The Shareholders
agrees Target has not borne nor will bear any of the Shareholders' costs and
expenses (including, without limitation, any of their legal, accounting or
investment banking fees and expenses) in connection with this Agreement or any
of the transactions contemplated hereby.
38
<PAGE> 43
(l) CONSTRUCTION. The Parties have participated jointly in
the negotiation of this Agreement. In the event an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as if
drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local,
or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
(m) INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The
Exhibits, Annexes, Schedules and Certificates identified in this Agreement are
incorporated herein by reference and made a part hereof.
(n) SPECIFIC PERFORMANCE. Each of the Parties acknowledges
and agrees that the other Parties would be damaged irreparably in the event any
of the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter (subject to the provisions set
forth in Section 9(o) below), in addition to any other remedy to which they may
be entitled under this Agreement.
(o) SUBMISSION TO JURISDICTION. Each of the Parties submits
to the exclusive jurisdiction of any state or federal court sitting in Palm
Beach County, Florida, in any action or proceeding arising out of or relating
to this Agreement and agrees that all claims in respect of the action or
proceeding shall be heard and determined in any such court. Each of the Parties
waives any defense of inconvenient forum to the maintenance of any action or
proceeding so brought and waives any bond, surety, or other security that might
be required of any other Party with respect thereto. Any Party may make service
on any other Party by sending or delivering a copy of the process to the Party
to be served at the address and in the manner provided for the giving of
notices in Section 9(o) above. Each Party agrees that a final judgment in any
action or proceeding so brought shall be conclusive and may be enforced by suit
on the judgment or in any other manner provided by law or at equity. In any
action or proceeding arising out of or relating to this Agreement, the
prevailing party shall be entitled to recover reasonable attorney's fees and
costs from the other party to the action or proceeding.
(p) WAIVER OF JURY TRIAL. THE PARTIES HEREBY IRREVOCABLY
WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY AND TO
THE FULLEST EXTENT PERMITTED BY LAW WAIVE ANY RIGHTS THAT THEY MAY HAVE TO
39
<PAGE> 44
CLAIM OR RECEIVE CONSEQUENTIAL OR SPECIAL DAMAGES IN CONNECTION WITH ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
*****
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
NORTH AMERICAN TEL-COM GROUP, INC.
By:
-----------------------------------
William J. Mercurio
President
SHAREHOLDERS:
--------------------------------------
Raymond L. Galtelli
--------------------------------------
James Fred Robertson
40
<PAGE> 1
EXHIBIT 10.14
STOCK PURCHASE AGREEMENT
AMONG
NATG HOLDINGS, LLC
AND
THE SHAREHOLDERS OF
SCHATZ UNDERGROUND CABLE, INC.
FEBRUARY 19, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
1. DEFINITIONS.......................................................................... 1
2. PURCHASE AND SALE TRANSACTION........................................................ 5
(a) BASIC TRANSACTION........................................................... 5
(b) CONSIDERATION............................................................... 5
(c) THE CLOSING................................................................. 5
(d) DELIVERIES AT CLOSING....................................................... 5
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION............................ 5
(a) REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS.......................... 5
(b) REPRESENTATIONS AND WARRANTIES OF THE BUYER................................. 6
4. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY................................ 7
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER............................ 7
(b) CAPITALIZATION.............................................................. 8
(c) NONCONTRAVENTION............................................................ 8
(d) BROKERS' FEES............................................................... 8
(e) TITLE TO ASSETS............................................................. 8
(f) SUBSIDIARIES................................................................ 9
(g) FINANCIAL STATEMENTS........................................................ 9
(h) EVENTS SUBSEQUENT TO MOST RECENT FISCAL PERIOD END.......................... 9
(i) UNDISCLOSED LIABILITIES..................................................... 11
(j) LEGAL COMPLIANCE............................................................ 11
(k) TAX MATTERS................................................................. 11
(l) REAL PROPERTY............................................................... 12
(m) INTELLECTUAL PROPERTY....................................................... 14
(n) TANGIBLE ASSETS............................................................. 16
(o) CONTRACTS................................................................... 16
(p) NOTES AND ACCOUNTS RECEIVABLE............................................... 17
(q) POWERS OF ATTORNEY.......................................................... 17
(r) INSURANCE................................................................... 17
(s) LITIGATION.................................................................. 17
(t) COMMITMENTS AND WARRANTIES.................................................. 17
(u) LIABILITY FOR SERVICES PERFORMED............................................ 18
(v) EMPLOYEES................................................................... 18
(w) EMPLOYEE BENEFITS........................................................... 18
(x) GUARANTIES.................................................................. 20
(y) ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS................................... 20
(z) CERTAIN BUSINESS RELATIONSHIPS WITH THE COMPANY............................. 21
(aa) CUSTOMERS AND SUPPLIERS..................................................... 21
5. PRE-CLOSING COVENANTS................................................................ 21
(a) GENERAL..................................................................... 21
(b) NOTICES AND CONSENTS........................................................ 21
(c) OPERATION OF BUSINESS....................................................... 22
(d) PRESERVATION OF BUSINESS.................................................... 22
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
(e) FULL ACCESS................................................................. 22
(f) NOTICE OF DEVELOPMENTS...................................................... 22
(g) EXCLUSIVITY................................................................. 22
(h) NO TERMINATION OF SHAREHOLDERS'S OBLIGATION BY SUBSEQUENT
INCAPACITY.................................................................. 22
6. POST-CLOSING COVENANTS............................................................... 22
(a) GENERAL..................................................................... 22
(b) LITIGATION SUPPORT.......................................................... 23
(c) TRANSITION.................................................................. 23
(d) INDEPENDENT ACCOUNTANTS..................................................... 23
(e) TAX MATTERS................................................................. 23
(f) EMPLOYEE BONUSES............................................................ 23
(g) STOCK OPTION PLAN........................................................... 24
(h) AUDITED FINANCIAL STATEMENTS................................................ 24
7. CONDITIONS TO OBLIGATION TO CLOSE.................................................... 24
(a) CONDITIONS TO OBLIGATION OF THE BUYER....................................... 24
(b) CONDITIONS TO OBLIGATION OF THE SHAREHOLDERS................................ 26
8. REMEDIES FOR BREACHES OF THIS AGREEMENT.............................................. 27
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES.................................. 27
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE BUYER......................... 27
(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE SHAREHOLDERS.................. 27
(d) MATTERS INVOLVING THIRD PARTIES............................................. 28
(e) DETERMINATION OF ADVERSE CONSEQUENCES....................................... 29
(f) OTHER INDEMNIFICATION PROVISIONS............................................ 29
9. POST-CLOSING ADJUSTMENT OF CONSIDERATION............................................. 29
10. TAX MATTERS.......................................................................... 30
(a) TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE............................ 30
(b) TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING
DATE........................................................................ 30
(c) COOPERATION ON TAX MATTERS.................................................. 31
(d) TAX SHARING AGREEMENTS...................................................... 31
(e) CERTAIN TAXES............................................................... 31
11. TERMINATION.......................................................................... 31
(a) TERMINATION OF AGREEMENT.................................................... 31
(b) EFFECT OF TERMINATION....................................................... 32
(c) CERTAIN PAYMENTS UPON TERMINATION........................................... 32
12. MISCELLANEOUS........................................................................ 32
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS..................................... 32
(b) NO THIRD-PARTY BENEFICIARIES................................................ 33
(c) ENTIRE AGREEMENT............................................................ 33
(d) SUCCESSION AND ASSIGNMENT................................................... 33
(e) COUNTERPARTS................................................................ 33
(f) HEADINGS.................................................................... 33
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
(g) NOTICES..................................................................... 33
(h) AMENDMENTS AND WAIVERS...................................................... 34
(i) SEVERABILITY................................................................ 34
(j) EXPENSES.................................................................... 34
(k) CONSTRUCTION................................................................ 34
(l) INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES........................... 34
(m) SPECIFIC PERFORMANCE........................................................ 34
(n) SUBMISSION TO JURISDICTION.................................................. 35
(o) WAIVER OF JURY TRIAL........................................................ 35
</TABLE>
Exhibit A: Form of Employment Agreements
Exhibit B: Form of Non-Competition Agreement
Exhibit C: Form of Seller's opinion
Exhibit D: Form of Buyer's opinion
Exhibit E: Excluded Assets
Exhibit F: Financial Statements
iii
<PAGE> 5
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is entered into as of February 19, 1999
by and among NATG Holdings, LLC, a Delaware limited liability company (the
"Buyer"), and certain shareholders of Schatz Underground Cable, Inc., a
Missouri corporation (the "Company") listed on the signature page to this
Agreement (the "Shareholders"). The Buyer and the Shareholders are referred to
collectively herein as the "Parties."
The Shareholders in the aggregate own a majority of the outstanding
capital stock of the Company. This Agreement contemplates the sale by the
Shareholders of the issued and outstanding capital stock of the Company that
they own to Buyer. The Shareholders will receive cash in exchange for their
shares of capital stock of the Company. A separate agreement between the Buyer
and the other shareholders of the Company will be entered into providing for
the purchase by the Buyer of the remaining capital stock of the Company.
Simultaneously herewith, Buyer will acquire all of the issued and
outstanding shares of North American Tel-Com Group, Inc., a Florida corporation
("North American"), from the shareholders of North American, and Buyer is
entering into stock exchange agreements with the shareholders of Network
Cabling Services, Inc. ("NCS"), Copenhagen Utilities & Construction, Inc.
("CUC") and DAS-CO of Idaho, Inc. ("DAS-CO") to acquire all of the issued and
outstanding capital stock of NCS, CUC and DAS-CO (collectively with this
Agreement, the "Exchange Agreements"). All of the parties to the Exchange
Agreements intend for the transfers contemplated thereunder to be treated as a
single transaction qualifying under Section 351 of the Code (as hereinafter
defined).
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1. DEFINITIONS.
"Adverse Consequences" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses,
expenses, and fees, including court costs and reasonable attorneys' fees and
expenses, and any other cost of enforcing a party's rights under this
Agreement.
"Affiliate" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the
meaning of Code Section 1504(a) or any similar group defined under a similar
provision of state, local or foreign law.
"Applicable Rate" means the corporate base rate of interest
publicly announced from time to time by PNC Bank, N.A.
"Basis" means any past or present fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction that forms or could form the
basis for any specified consequence.
"Closing" has the meaning set forth in Section below.
1
<PAGE> 6
"Closing Date" has the meaning set forth in Section below.
"Closing Date Balance Sheet" has the meaning set forth in
Section below.
"Consideration" has the meaning set forth in Section below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the preface above.
"Company Share" means any share of the Common Stock, $1.00
par value, of the Company.
"Controlled Group of Corporations" has the meaning set forth
in Code Section 1563.
"Disclosure Schedule" has the meaning set forth in Section
below.
"Draft Closing Date Balance Sheet" has the meaning set forth
in Section below.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan), (d) Employee Welfare Benefit Plan or (e)
bonus, incentive, stock purchase, stock ownership, stock option, stock
appreciation right, severance, salary continuation, termination, change of
control or other material fringe benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in
ERISA Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in
ERISA Section 3(1).
"Employment Agreements" means the Employment Agreements in
the form attached hereto as Exhibit A.
"Environmental, Health, and Safety Requirements" shall mean
all federal, state, local and foreign statutes, regulations, ordinances and
other provisions having the force or effect of law, all judicial and
administrative orders and determinations, all contractual obligations and all
common law concerning public health and safety, worker health and safety, and
pollution or protection of the environment, including without limitation all
those relating to the presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution, labeling, testing,
processing, discharge, release, threatened release, control, or cleanup of any
Hazardous Materials (which, for purposes of this Agreement, shall mean any
hazardous materials, substances or wastes, chemical substances or mixtures,
pesticides, pollutants, contaminants, toxic chemicals, petroleum products or
byproducts, asbestos, polychlorinated biphenyls, noise or radiation), each as
amended and as now or hereafter in effect.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" means (i) any corporation included with the
Company in a controlled group of corporations within the meaning of Section
414(b) of the Code; (ii) any trade or business (whether or not incorporated)
which is under common control with the Company within the meaning of
2
<PAGE> 7
Section 414(c) of the Code; (iii) any member of an affiliated service group of
which the Company is a member within the meaning of Section 414(m) of the Code;
or (iv) any other person or entity treated as an affiliate of the Company under
Section 414(o) of the Code.
"Estimated Closing Balance Sheet" has the meaning given that
term in Section hereof.
"Excluded Assets" means those assets owned by the Company and
identified hereto as Exhibit E, attached hereto and incorporated by reference.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"Financial Statement" has the meaning set forth in Section
below.
"GAAP" means United States generally accepted accounting
principles as in effect from time to time.
"Indemnified Party" has the meaning set forth in Section
below.
"Indemnifying Party" has the meaning set forth in Section
below.
"Intellectual Property" means (a) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications, and patent
disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof, (b)
all trademarks, service marks, trade dress, logos, trade names, and corporate
names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection therewith, (d) all mask works and all applications,
registrations, and renewals in connection therewith, (e) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals), (f) all computer software (including data and related
documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"Knowledge" means that which is known by a person and that of
which a person has constructive knowledge based upon information readily
available to that person in the performance of such person's duties after
reasonable investigation and inquiry of such person. In the case of the Buyer,
"Knowledge" means the Knowledge of its executive officers. In the case of the
Company, "Knowledge" means the Knowledge of the Shareholders.
"Liability" means any liability (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Material Adverse Effect" means, individually or together
with other adverse effects, any material adverse effect on the assets,
liabilities, results of operations, business condition (financial or otherwise)
or prospects of the Company or on the Company's ability to consummate the
transactions contemplated hereby or the ability of the Buyer to operate the
business of the Company immediately after the Closing in substantially the same
manner as such business is conducted prior to Closing.
3
<PAGE> 8
"Most Recent Balance Sheet" means the balance sheet contained
within the Most Recent Financial Statements.
"Most Recent Fiscal Year End" has the meaning set forth in
Section below.
"Most Recent Fiscal Period End" has the meaning set forth in
Section below.
"Most Recent Financial Statements" has the meaning set forth
in Section below.
"Multiemployer Plan" has the meaning set forth in ERISA
Section 3(37).
"Non-Competition Agreements" means the Non-Competition
Agreements in the form attached hereto as Exhibit B.
"New Leases" has the meaning given that term in Section
hereof.
"Ordinary Course of Business" means the ordinary course of
business consistent with past custom and practice (including with respect to
quantity and frequency).
"Party" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, a partnership, a corporation,
an association, a joint stock company, a trust, a joint venture, an
unincorporated organization, or a governmental entity (or any department,
agency, or political subdivision thereof).
"Prohibited Transaction" has the meaning set forth in ERISA
Section 406 and Code Section 4975.
"Reportable Event" has the meaning set forth in ERISA Section
4043.
"Securities Act" means the Securities Act of 1933, as
amended.
"Securities Exchange Act" means the Securities Exchange Act
of 1934, as amended.
"Security Interest" means any mortgage, pledge, lien,
encumbrance, charge, or other security interest, other than (a) mechanic's,
materialmen's, and similar liens that could not reasonably be expected to have
a Material Adverse Effect, (b) liens for Taxes not yet due and payable or for
Taxes that the taxpayer is contesting in good faith through appropriate
proceedings disclosed on Section of the Disclosure Schedule, (c) purchase money
liens and liens securing rental payments under capital lease arrangements
disclosed in the Most Recent Financial Statements, and (d) other liens arising
in the Ordinary Course of Business and not incurred in connection with the
borrowing of money, so long as such liens could not reasonably be expected to
have a Material Adverse Effect.
"Shareholders" has the meaning set forth in the preface
above.
"Subsidiary" means any corporation with respect to which a
specified Person (or a Subsidiary thereof) owns a majority of the common stock
or has the power to vote or direct the voting of sufficient securities to elect
a majority of the directors.
4
<PAGE> 9
"Tax" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Code Section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed or not,
and any obligations under any agreements or arrangements with respect to any of
the foregoing.
"Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in Section
below.
2. PURCHASE AND SALE TRANSACTION.
(a) BASIC TRANSACTION. On and subject to the terms and
conditions ofthis Agreement, the Buyer agrees to purchase from the Shareholders,
and the shareholders agree to sell to the Buyer, all of their respective Company
Shares for the consideration specified below in this Section .
(b) CONSIDERATION. The Buyer agrees to (i) deliver at Closing
to the Shareholders cash in the amount of Fourteen Million Four Hundred
Thousand Dollars ($14,400,000.00) payable by wire transfer or other immediately
available funds (the "Consideration"). Notwithstanding the foregoing, the
Consideration shall be subject to adjustment pursuant to the provisions of
Section hereof. The Consideration shall be allocated among the Shareholders in
proportion to their respective holdings of the Company Shares as set forth in
Section to the Disclosure Schedule.
(c) THE CLOSING. The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of Holland &
Knight LLP in Ft. Lauderdale, Florida, commencing at 9:00 a.m. local time on
February 26, 1999 or such other date, time and place as the Parties may
mutually determine (the "Closing Date").
(d) DELIVERIES AT CLOSING. At the Closing, (i) the
Shareholders will deliver to the Buyer the various certificates, instruments,
and documents referred to in Section below, (ii) the Buyer will deliver to the
Shareholders the various certificates, instruments, and documents referred to
in Section below, and (iii) the Shareholders will deliver to the Buyer stock
certificates representing all of their the Company Shares, endorsed in blank or
accompanied by duly executed assignment documents, and (iv) the Buyer will
deliver to the Shareholders the Consideration specified in Section above.
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
(a) REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS. Each
Shareholder represents and warrants to the Buyer that the statements contained
in this Section are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section ), except as set forth on Section of the Disclosure
Schedule (as hereinafter defined).
(i) AUTHORIZATION OF TRANSACTION. Such Shareholder
has full power and authority to execute and deliver this Agreement and to
perform his obligations hereunder. This Agreement constitutes the valid and
legally binding obligation of such Shareholder, enforceable in accordance with
5
<PAGE> 10
its terms and conditions except to the extent enforcement thereof may be
limited by applicable bankruptcy, reorganization, insolvency or moratorium
laws, or other laws affecting the enforcement of creditors' rights or by the
principles governing the availability of equitable remedies. Such Shareholder
need not give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency or any other
Person in order to consummate the transactions contemplated by this Agreement.
(ii) NONCONTRAVENTION. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any constitution, statute, regulation,
rule, injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which such Shareholder is
subject or (B) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
such Shareholder is a party or by which he is bound or to which any of his
assets is subject.
(iii) BROKERS' FEES. Such Shareholder has, or prior
to Closing will have, paid any fees or commissions due from Shareholders to any
broker, finder, or agent with respect to the transactions contemplated by this
Agreement. Such Shareholder agrees that he will pay any additional amounts that
may become due from him or the Company to any such broker, finder or agent in
the future, including as a result of any indemnification obligations.
(iv) THE COMPANY SHARES. Such Shareholder holds of
record and owns beneficially the number of the Company Shares set forth
opposite such Shareholder's name, in Section of the Disclosure Schedule, free
and clear of any restrictions on transfer (other than any restrictions under the
Securities Act and state securities laws), Taxes, security interests liens or
other encumbrances, options, warrants, purchase rights, contracts, commitments,
equities, claims, and demands. Such Shareholder is not a party to any option,
warrant, purchase right, or other contract or commitment that could require such
Shareholder to sell, transfer, or otherwise dispose of any capital stock of the
Company (other than this Agreement). Such Shareholder is not a party to any
voting trust, proxy, shareholders agreement, or other agreement or understanding
with respect to the voting of any capital stock of the Company.
(v) DISCLOSURE. To the Shareholders's Knowledge,
neither this Agreement nor any of the exhibits, attachments, written
statements, documents, certificates or other items prepared for or supplied to
the Buyer by such Shareholder with respect to the transactions contemplated
hereby contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make each statement contained herein or
therein not misleading. There is no fact which such Shareholder has not
disclosed to the Buyer herein and of which the Shareholders is aware which
could be anticipated to have a Material Adverse Effect.
(b) REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer
represents and warrants to the Shareholders that the statements contained in
this Section are correct and complete in all material respects as of the date of
this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date
of this Agreement throughout this Section ), except as set forth in the
disclosure schedule delivered by the Buyer to the Shareholders on or before
February 19, 1999 (the "Buyer Disclosure Schedule").
(i) ORGANIZATION OF THE BUYER. The Buyer is a
limited liability company duly organized, validly existing, and in good
standing under the laws of the State of Florida. Correct and
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complete copies of the governing documents of the Buyer (as amended to date)
are included as part of the Buyer Disclosure Schedule. The names and titles of
each officer and director of the Buyer is set forth on the Buyer Disclosure
Schedule.
(ii) AUTHORIZATION OF TRANSACTION. The Buyer has
full power and authority to execute and deliver this Agreement and to perform
its obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of the Buyer, enforceable in accordance with its terms and
conditions except to the extent enforcement thereof may be limited by
applicable bankruptcy, reorganization, insolvency or moratorium laws, or other
laws affecting the enforcement of creditors' rights or by the principles
governing the availability of equitable remedies. The Buyer need not give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency or any other Person in order
to consummate the transactions contemplated by this Agreement.
(iii) NONCONTRAVENTION. Neither the execution and
the delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any constitution, statute, regulation,
rule, injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which the Buyer is subject
or any provision of their respective charter or bylaws or (B) conflict with,
result in a breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which the Buyer is a party or by which the
Buyer is bound or to which any of its assets is subject.
(iv) BROKERS' FEES. The Buyer has, or prior to the
Closing will have, paid any fees or commissions due from the Buyer to any
broker, finder, or agent with respect to the transactions contemplated by this
Agreement. The Buyer agrees that it will pay any additional amounts that may
become due from the Buyer to any such broker, finder or agent in the future,
including as a result of any indemnification obligations.
(v) DISCLOSURE. Neither this Agreement nor any of
the exhibits, attachments, written statements, documents, certificates or other
items prepared for or supplied to the Shareholders by the Buyer with respect to
the transactions contemplated hereby contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make
each statement contained herein or therein not misleading. There is no fact
which the Buyer has not disclosed to the Shareholders herein and of which the
Buyer or any of the its officers or directors is aware and which could be
anticipated to have a Material Adverse Effect on the operations of the Buyer
after the Closing.
4. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY. The
Shareholders jointly and severally represent and warrant to the Buyer that the
statements contained in this Section are correct and complete as of the date of
this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date
of this Agreement throughout this Section ), except as set forth in the
Disclosure Schedule delivered by the Shareholders to the Buyer on or before
February 19, 1999 and initialed by the Parties (the "Disclosure Schedule"). The
Disclosure Schedule shall be effective to modify only those representations and
warranties to which the Disclosure Schedule makes explicit reference. The
Disclosure Schedule will be arranged in paragraphs corresponding to the lettered
and numbered paragraphs contained in this Section .
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. The
Company is a corporation duly organized, validly existing, and in good standing
under the laws of the jurisdiction of its
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<PAGE> 12
incorporation. The Company is duly authorized to conduct business and is in
good standing under the laws of each jurisdiction where such qualification is
required. The Company has full corporate power and authority and all licenses,
permits, and authorizations necessary to carry on the businesses in which it is
engaged and in which it presently proposes to engage and to own and use the
properties owned and used by it. Section of the Disclosure Schedule lists the
directors and officers of the Company. Correct and complete copies of the
charter and bylaws of the Company (as amended to date) are included as part of
Section of the Disclosure Schedule. The minute books (containing the records of
meetings of the stockholders, the board of directors, and any committees of the
board of directors), the stock certificate books, and the stock record books of
the Company are correct and complete and an true and correct copy thereof has
been provided to the Buyer. The Company is not in default under or in violation
of any provision of its charter or bylaws.
(b) CAPITALIZATION. The entire authorized capital stock of
the Company consists of 30,000 Company Shares, of which 1,000 are issued and
outstanding and no the Company Shares are held in treasury. All of the issued
and outstanding the Company Shares have been duly authorized, are validly
issued, fully paid, and nonassessable, and are held of record and owned
beneficially by the Shareholders in the amounts set forth in Section of the
Disclosure Schedule. There are no outstanding or authorized options, warrants,
purchase rights, subscription rights, conversion rights, exchange rights,
preemptive rights or other contracts or commitments that could require the
Company to issue, sell, or otherwise cause to become outstanding any of its
capital stock or securities convertible or exchangeable for, or any options,
warranties, or rights to purchase, any of such capital stock. There are no
outstanding obligations of the Company to repurchase, redeem or otherwise
acquire any capital stock or any securities convertible into or exchangeable
for such capital stock or any options, warrants or rights to purchase such
capital stock or securities. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation, or similar rights with
respect to the Company. There are no voting trusts, proxies, or other
agreements or understandings with respect to the voting, transfer, dividend or
other rights (such as registration rights under the Securities Act) of the
capital stock of the Company.
(c) NONCONTRAVENTION. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated
hereby, will (i) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of
any government, governmental agency, or court to which the Company is subject
or any provision of the charter or bylaws of the Company or (ii) conflict with,
result in a breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which the Company is a party or by which it
is bound or to which any of its assets is subject (or result in the imposition
of any Security Interest upon any of its assets). The Company need not give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any Person, government or governmental agency in order for the
Parties to consummate the transactions contemplated by this Agreement.
(d) BROKERS' FEES. The Company has, or prior to Closing will
have, paid any fees or commissions due from the Company to any broker, finder,
or agent with respect to the transactions contemplated by this Agreement.
Shareholders agree that he will pay any additional amounts that may become due
from the Company to any such broker, finder or agent in the future, including
as a result of any indemnification obligations.
(e) TITLE TO ASSETS. The Company has good and marketable
title to, or a valid leasehold interest in, the properties and assets used by
it, located on its premises, or shown on the Most Recent Balance Sheet or
acquired after the date thereof, free and clear of all Security Interests
(other than
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<PAGE> 13
the Security Interests disclosed on the face of the Most Recent Balance Sheet),
except for (i) properties and assets disposed of in the Ordinary Course of
Business since the date of the Most Recent Balance Sheet, none of which
disposals are expected to have a Material Adverse Effect and (ii) the Excluded
Assets. The consummation of the transactions contemplated by this Agreement
will not affect the Company's good and marketable title to, or valid leasehold
interest in, the properties and assets described in the preceding sentence.
(f) SUBSIDIARIES. Except as set forth in Section of the
Disclosure Schedule, the Company does not currently have, and has never had,
any Subsidiaries and does not own any securities of any other Person.
(g) FINANCIAL STATEMENTS. Attached hereto as Exhibit F are
the following financial statements (collectively the "Financial Statements"):
(i) audited consolidated balance sheets and statements of income, including the
independent accountant's report thereon as of and for the fiscal year ended
1997 (the "Most Recent Fiscal Year End") for the Company; (ii) audited
consolidated balance sheets and statements of income, including the independent
accountant's report thereon as of and for the fiscal years ended December 31,
1995, December 31, 1996 and December 31, 1997 and (iii) unaudited consolidated
balance sheets and statements of income, (the "Most Recent Financial
Statements") as of and for the period from January 1, 1998, through November
30, 1998 for the Company (the "Most Recent Fiscal Period End"). The Financial
Statements (including the notes thereto) have been prepared in accordance with
GAAP applied on a consistent basis throughout the periods covered thereby,
present fairly the financial condition of the Company as of such dates and the
results of operations of the Company for such periods, are correct and complete
in all material respects, and are consistent with the books and records of the
Company (which books and records are correct and complete in all material
respects).
(h) EVENTS SUBSEQUENT TO MOST RECENT FISCAL PERIOD END. Since
the Most Recent Fiscal Period End and except as disclosed in the Disclosure
Schedule, there has not occurred any Material Adverse Effect. Without limiting
the generality of the foregoing, since that date:
(i) The Company has not sold, leased, transferred,
or assigned any of its assets, tangible or intangible, other than for a fair
consideration in the Ordinary Course of Business;
(ii) The Company has not entered into any
agreements, contracts, leases, or licenses either involving more than $100,000
in the aggregate, having a term greater than 12 months or outside the Ordinary
Course of Business;
(iii) No party (including any of the Company) has
accelerated, terminated, modified, or cancelled any agreements, contracts,
leases, or licenses involving more than $100,000 in the aggregate to which the
Company is a party or by which it is bound;
(iv) The Company has not imposed or allowed to be
imposed any Security Interest upon any of its assets, tangible or intangible;
(v) The Company has not made any capital
expenditures involving more than $25,000 per expenditure and $100,000 in the
aggregate or outside the Ordinary Course of Business;
(vi) The Company has not made any capital investment
in, any loan to, or any acquisition of the securities or assets of, any other
Person;
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(vii) The Company has not issued any note, bond, or
other debt security or created, incurred, assumed, or guaranteed any
indebtedness for borrowed money or capitalized lease obligation involving more
than $100,000 in the aggregate;
(viii) The Company has not delayed or postponed the
payment of accounts payable and other Liabilities outside the Ordinary Course
of Business;
(ix) The Company has not cancelled, compromised,
waived, or released any right or claim either involving more than $100,000 in
the aggregate and outside the Ordinary Course of Business;
(x) The Company has not granted any license or
sublicense of any rights under or with respect to any Intellectual Property;
(xi) There has been no change made or authorized in
the charter or bylaws of any of the Company;
(xii) The Company has not issued, sold, or otherwise
disposed of any of its capital stock or securities convertible into or
exchangeable for such stock, or granted any options, warrants, or other rights
to purchase or obtain any of such capital stock or securities;
(xiii) The Company has not declared, set aside, or
paid any dividend or made any distribution with respect to its capital stock
(whether in cash or in kind) or redeemed, purchased, or otherwise acquired any
of its capital stock or other securities;
(xiv) The Company has not experienced any damage,
destruction, or loss (whether or not covered by insurance) to its property
involving more than $100,000 in the aggregate;
(xv) The Company has not made any loan to, or
entered into any other transaction with, any of its directors, officers, and
employees or their "Associates" (as defined in Rule 12b-2 under the Exchange
Act);
(xvi) The Company has not entered into any
employment contract or collective bargaining agreement, written or oral, or
modified the terms of any existing such contract or agreement;
(xvii) The Company has not granted any increase in
any compensation of any of its directors, officers, or other employees;
(xviii) The Company has not adopted, amended,
modified, or terminated any bonus, profit-sharing, incentive, severance, or
other plan, contract, or commitment for the benefit of any of its directors,
officers, and employees (or taken any such action with respect to any other
Employee Benefit Plan);
(xix) The Company has not made any other change in
employment terms for any of its directors, officers, and employees outside the
Ordinary Course of Business;
(xx) The Company has not made or pledged to make any
charitable or other capital contribution outside the Ordinary Course of
Business;
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(xxi) There has not been any other material
occurrence, event, incident, action, failure to act, or transaction outside the
Ordinary Course of Business involving the Company; and
(xxii) The Company has not increased, or experienced
any change in assumptions underlying or method of calculating, any bad debt,
contingency, tax or other reserves or changed its accounting practices, methods
or assumptions (including changes in estimates or valuation methods); or
written down the value of any assets; and
(xxiii) The Company has not committed to do any of
the foregoing.
(i) UNDISCLOSED LIABILITIES. Except as disclosed in Section of
the Disclosure Schedule, to the best of the Shareholders' Knowledge, the
Company does not have any Liability, except for (i) Liabilities set forth on
the face of the Most Recent Balance Sheet (rather than in any notes thereto)
and (ii) Liabilities which have arisen after the Most Recent Fiscal Period End
in the Ordinary Course of Business (none of which results from, arises out of,
relates to, is in the nature of, or was caused by any breach of contract,
breach of warranty, tort, infringement, or violation of law and none of which
could reasonably be expected to have a Material Adverse Effect).
(j) LEGAL COMPLIANCE. Except as disclosed in Section 4(j) of
the Disclosure Schedule, to the best of the Shareholders' Knowledge, the Company
and its predecessors and Affiliates has complied, in all material respects,
with all applicable laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings, and charges thereunder) of
federal, state, local, and foreign governments (and all agencies thereof), and
no action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed or commenced against any of them alleging any
failure so to comply.
(k) TAX MATTERS.
(i) The Company has filed all Tax Returns that it
was required to file. All such Tax Returns were correct and complete in all
material respects. All Taxes owed by the Company (whether or not shown on any
Tax Return) have been paid or are fully and adequately accrued and adequately
disclosed on the Most Recent Balance Sheet. The Company is not currently the
beneficiary of any extension of time within which to file any Tax Return. No
claim has ever been made by an authority in a jurisdiction where the Company
does not file Tax Returns that it is or may be subject to taxation by that
jurisdiction. There are no Security Interests on any of the assets of the
Company that arose in connection with any failure (or alleged failure) to pay
any Tax.
(ii) The Company has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder, or other
third party.
(iii) Neither Shareholders nor the Company has
Knowledge that any authority expects to assess any additional Taxes for any
period for which Tax Returns have been filed. There is no action, suit or
proceeding, investigation, dispute or claim now pending or threatened
concerning any Tax Liability of the Company or proposed adjustment to the
taxable income of the Company either (A) claimed or raised by any authority in
writing or (B) as to which any of the Shareholders and the Company has
Knowledge based upon personal contact with any agent of such authority. Section
of the Disclosure Schedule contains a summary of all Tax Returns filed with
respect to the Company for the completed tax years 1995, 1996 and 1997,
indicates those Tax Returns that have been audited, and indicates those Tax
Returns that currently are the subject of audit. The Shareholders have made
available to the Buyer
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<PAGE> 16
correct and complete copies of all Tax Returns, examination reports, and
statements of deficiencies assessed against or agreed to by the Company since
January 1, 1994.
(iv) The Company has not waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency.
(v) The Company has not filed a consent under Code
Section 341(f) concerning collapsible corporations. The Company has not made any
payments, is not obligated (under this Agreement or otherwise) to make any
payments, or is not a party to any agreement that under certain circumstances
could obligate it to make any payments that will not be deductible under Code
Section 280G or that would give rise to any obligation to indemnify any Person
for any excise tax payable pursuant to Code Section 4999. The Company has not
been a United States real property holding corporation within the meaning of
Code Section 897(c)(2) during the applicable period specified in Code Section
897(c)(1)(A)(ii). The Company has disclosed on its federal income Tax Returns
all positions taken therein that could give rise to a substantial understatement
of federal income Tax within the meaning of Code Section 6662. Neither the
Company nor any predecessor or affiliate thereof is a party to any Tax
allocation, sharing, indemnification or similar agreement. Except as disclosed
in Section of the Disclosure Schedule, the Company has not been a member of an
Affiliated Group filing a consolidated federal income Tax Return (other than a
group the common parent of which was the Company). The Company does not have any
Liability for the Taxes of any Person (other than any of the Company and its
Subsidiaries) under Reg. Section 1.1502-6 (or any similar provision of state,
local, or foreign law), as a transferee or successor, by contract, or otherwise.
No indebtedness of the Company consists of "corporate acquisition indebtedness"
within the meaning of Code Section 279.
(vi) Section of the Disclosure Schedule sets forth as
of the most recent practicable date the basis for Federal income tax purposes of
the Company in its assets.
(vii) The unpaid Taxes of the Company (A) did not,
as of the Most Recent Fiscal Period End, exceed the reserve for Tax Liability
set forth on the face of the Most Recent Balance Sheet (rather than in any
notes thereto) and (B) do not, and will not as of the Closing Date, exceed that
reserve as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Company in filing its Tax
Returns.
(l) REAL PROPERTY.
(i) Section of the Disclosure Schedule lists and
describes briefly all real property that the Company owns. With
respect to each such parcel of owned real property:
(A) the identified owner has good and
marketable title to the parcel of real property, free and
clear of any Security Interest, easement, covenant, or other
restriction, except for installments of special assessments
not yet delinquent and recorded Security Interests,
easements, covenants, and other restrictions which do not
impair the current use, occupancy, or the marketability of
title, of the property subject thereto;
(B) there are no pending or threatened
condemnation proceedings, lawsuits, or administrative actions
relating to the property or other matters affecting
materially and adversely the current use, occupancy, or value
thereof;
(C) the legal description for the parcel
contained in the deed thereof describes such parcel fully and
adequately, the buildings and improvements are located
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<PAGE> 17
within the boundary lines of the described parcels of land,
are not in violation of applicable setback requirements,
zoning laws, and ordinances (and none of the properties or
buildings or improvements thereon are subject to "permitted
non-conforming use" or "permitted non-conforming structure"
classifications), and do not encroach on any easement which
may burden the land, and the land does not serve any
adjoining property for any purpose inconsistent with the use
of the land, and the property is not located within any flood
plain or subject to any similar type restriction for which
any permits or licenses necessary to the use thereof have not
been obtained;
(D) all facilities have received all
approvals of governmental authorities (including licenses and
permits) required in connection with the ownership or
operation thereof and have been operated and maintained in
accordance with applicable laws, rules, and regulations;
(E) except as disclosed in Section 4(l)(i)
(E) of the Disclosure Schedule, there are no leases,
subleases, licenses, concessions, or other agreements, written
or oral, granting to any party or parties the right of use or
occupancy of any portion of the parcel of real property;
(F) there are no outstanding options or
rights of first refusal to purchase the parcel of real
property, or any portion thereof or interest therein;
(G) there are no parties (other than the
Company) in possession of the parcel of real property, other
than tenants under any leases disclosed in Section of the
Disclosure Schedule who are in possession of space to which
they are entitled;
(H) all facilities located on the parcel
of real property are supplied with utilities and other
services necessary for the operation of such facilities,
including gas, electricity, water, telephone, sanitary sewer,
and storm sewer, all of which services are adequate in
accordance with all applicable laws, ordinances, rules, and
regulations and are provided via public roads or via
permanent, irrevocable, appurtenant easements benefitting the
parcel of real property; and
(I) each parcel of real property abuts on
and has direct vehicular access to a public road, or has
access to a public road via a permanent, irrevocable,
appurtenant easement benefitting the parcel of real property,
and access to the property is provided by public right-of-way
with adequate curb cuts available.
(ii) Section of the Disclosure Schedule lists and
describes briefly all real property leased or subleased to the
Company. The Shareholders have delivered to the Buyer correct and
complete copies of the leases and subleases listed in Section of the
Disclosure Schedule (as amended to date). With respect to each lease
and sublease listed in Section of the Disclosure Schedule:
(A) The lease or sublease is legal, valid,
binding, enforceable, and in full force and effect;
(B) The lease or sublease will continue to
be legal, valid, binding, enforceable, and in full force and
effect on identical terms following the consummation of the
transactions contemplated hereby;
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<PAGE> 18
(C) No party to the lease or sublease is
in breach or default, and no event has occurred which, with
notice or lapse of time, would constitute a breach or default
or permit termination, modification, or acceleration
thereunder;
(D) No party to the lease or sublease has
repudiated any provision thereof;
(E) There are no disputes, oral
agreements, or forbearance programs in effect as to the lease
or sublease;
(F) The Company has not received a notice
from the lessor indicating that the lease will not be renewed
at the end of its current term for any additional terms
provided for in the lease;
(G) Except for those leases disclosed in
Section of the Disclosure Schedule, the term of the lease will
continue for a minimum of six months past the Closing Date;
(H) With respect to each sublease, the
representations and warranties set forth in subsections (A)
through (G) above are true and correct with respect to the
underlying lease;
(I) The Company has not assigned,
transferred, conveyed, mortgaged, deeded in trust, or
encumbered any interest in the leasehold or subleasehold;
(J) All facilities leased or subleased
thereunder have received all approvals of governmental
authorities (including licenses and permits) required in
connection with the operation thereof and have been operated
and maintained in accordance with applicable laws, rules, and
regulations;
(K) All facilities leased or subleased
thereunder are supplied with utilities and other services
necessary for the operation of said facilities; and
(L) The Shareholders are not aware of any
pending or threatened foreclosure or other enforcement
proceedings relating to the real property underlying the
leases or subleases set forth in Section of the Disclosure
Schedule that could result in the Company's loss of
possession of such real property.
(m) INTELLECTUAL PROPERTY.
(i) To the best of the Shareholders' Knowledge, the
Company owns or has the right to use pursuant to license, sublicense,
agreement, or permission in writing all Intellectual Property necessary for the
operation of the businesses of the Company as presently conducted and as
presently proposed to be conducted. To the best of the Shareholders' Knowledge,
each item of Intellectual Property owned or used by the Company immediately
prior to the Closing hereunder will be owned or available for use by the
Company on identical terms and conditions immediately subsequent to the Closing
hereunder. To the best of the Shareholders' Knowledge, the Company has taken
all necessary action to maintain and protect each item of Intellectual Property
that it owns or uses.
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<PAGE> 19
(ii) To the best of the Shareholders' Knowledge, the
Company has not interfered with, infringed upon, misappropriated, or otherwise
come into conflict with any Intellectual Property rights of third parties, and
none of the Shareholders and the directors and officers (and employees with
responsibility for Intellectual Property matters) of the Company has ever
received any charge, complaint, claim, demand, or notice alleging any such
interference, infringement, misappropriation, or violation (including any claim
that the Company must license or refrain from using any Intellectual Property
rights of any third party). To the Knowledge of Shareholders and the Company,
no third party has interfered with, infringed upon, misappropriated, or
otherwise come into conflict with any Intellectual Property rights of the
Company.
(iii) Section of the Disclosure Schedule identifies
each patent or registration which has been issued to the Company with respect to
any of its Intellectual Property, identifies each pending patent application or
application for registration which the Company has made with respect to any of
its Intellectual Property, and identifies each license, agreement, or other
permission which the Company has granted to any third party with respect to any
of its Intellectual Property (together with any exceptions). The Shareholders
have delivered to the Buyer correct and complete copies of all such patents,
registrations, applications, licenses, agreements, and permissions (as amended
to date) and have made available to the Buyer correct and complete copies of all
other written documentation evidencing ownership and prosecution (if applicable)
of each such item. Section of the Disclosure Schedule also identifies each trade
name or unregistered trademark used by the Company in connection with any of its
businesses. With respect to each item of Intellectual Property required to be
identified in Section of the Disclosure Schedule:
(A) To the best of the Shareholders'
Knowledge, the Company possesses all right, title, and interest in and to the
item, free and clear of any Security Interest, license, or other restriction;
(B) The item is not subject to any
outstanding injunction, judgment, order, decree, ruling, or charge;
(C) No action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or is threatened
which challenges the legality, validity, enforceability, use, or ownership of
the item; and
(D) The Company has never agreed to
indemnify any Person for or against any interference, infringement,
misappropriation, or other conflict with respect to the item.
(iv) Section of the Disclosure Schedule identifies
each item of Intellectual Property that any third party owns and that the
Company uses pursuant to license, sublicense, agreement, or permission. The
Shareholders have delivered to the Buyer correct and complete copies of all such
licenses, sublicenses, agreements, and permissions (as amended to date). With
respect to each item of Intellectual Property required to be identified in
Section of the Disclosure Schedule:
(A) The license, sublicense, agreement, or
permission covering the item is legal, valid, binding, enforceable, and in full
force and effect;
(B) The license, sublicense, agreement, or
permission will continue to be legal, valid, binding, enforceable, and in full
force and effect on identical terms following the consummation of the
transactions contemplated hereby;
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<PAGE> 20
(C) No party to the license, sublicense,
agreement, or permission is in breach or default, and no event has occurred
which with notice or lapse of time would constitute a breach or default or
permit termination, modification, or acceleration thereunder;
(D) No party to the license, sublicense,
agreement, or permission has repudiated any provision thereof;
(E) With respect to each sublicense, the
representations and warranties set forth in subsections (A) through (D) above
are true and correct with respect to the underlying license;
(F) The underlying item of Intellectual
Property is not subject to any outstanding injunction, judgment, order, decree,
ruling, or charge;
(G) No action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or is threatened
which challenges the legality, validity, or enforceability of the underlying
item of Intellectual Property; and
(H) The Company has never granted any
sublicense or similar right with respect to the license, sublicense, agreement,
or permission.
(v) To the Knowledge of Shareholders and the
Company, the Company will not interfere with, infringe upon, misappropriate, or
otherwise come into conflict with, any Intellectual Property rights of third
parties as a result of the continued operation of its businesses as presently
conducted and as presently proposed to be conducted.
(vi) None of the Shareholders and the Company has
any Knowledge of any new products, inventions, procedures, or methods of
manufacturing or processing that any competitors or other third parties have
developed which reasonably could be expected to supersede or make obsolete any
product or process of any of the Company.
(n) TANGIBLE ASSETS. The Company owns or leases all
buildings, machinery, equipment, and other tangible assets necessary for the
conduct of its business as presently conducted and as presently proposed to be
conducted. Each such tangible asset has been maintained in accordance with
normal industry practice, is in good operating condition and repair (subject to
normal wear and tear), and is suitable for the purposes for which it presently
is used and presently is proposed to be used. Section of the Disclosure Schedule
lists all tangible assets owned by the Company with an individual value in
excess of $1,000.
(o) CONTRACTS. Section 4(o) of the Disclosure Schedule lists
all of the material contracts anD other agreements to which the Company is a
party. The Shareholders have delivered to the Buyer a correct and complete copy
of each written agreement listed in Section 4(o) of the Disclosure Schedule (as
amended to date). With respect to each such agreement, to the best of the
Shareholders' Knowledge: (A) the agreement is legal, valid, binding,
enforceable, and in full force and effect; (B) the agreement will continue to be
legal, valid, binding, enforceable, and in full force and effect on identical
terms following the consummation of the transactions contemplated hereby; (C) no
party is in breach or default, and no event has occurred which with notice or
lapse of time would constitute a breach or default, or permit termination,
modification, or acceleration, under the agreement; and (D) no party has
repudiated any provision of the agreement. Section 4(o) of the Disclosure
Schedule lists each currently outstanding bid or proposal for business submitted
by the Company in excess of $1,000,000.
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<PAGE> 21
(p) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts
receivable of the Company are reflected properly on the Most Recent Balance
Sheet in accordance with GAAP, are valid receivables subject to no setoffs or
counterclaims, are current and collectible, and, will be collected in
accordance with their terms at their recorded amounts, subject only to billing
adjustments and the reserve for bad debts set forth on the face of the Most
Recent Balance Sheet (rather than in any notes thereto) as adjusted for the
passage of time through the Closing Date in accordance with the past custom and
practice of the Company.
(q) POWERS OF ATTORNEY. There are no outstanding powers of
attorney executed on behalf of the Company.
(r) INSURANCE. Section 4(r) of the Disclosure Schedule
includes a true, correct and complete list of all policies of insurance
(including policies providing property, casualty, liability, and workers'
compensation coverage and bond and surety arrangements) to which the Company is
a party, a named insured, or otherwise the beneficiary of coverage. Genuine and
complete copies of each of the insurance policies listed in Section 4(r) of the
Disclosure Schedule have been provided to the Buyer. With respect to each such
insurance policy, to the best of the Shareholders' Knowledge: (A) the policy is
legal, valid, binding, enforceable, and in full force and effect; (B) the policy
will continue to be legal, valid, binding, enforceable, and in full force and
effect on identical terms following the consummation of the transactions
contemplated hereby; (C) neither the Company nor any other party to the policy
is in breach or default (including with respect to the payment of premiums or
the giving of notices), and no event has occurred which, with notice or the
lapse of time, would constitute such a breach or default, or permit termination,
modification, or acceleration, under the policy; (D) neither the Company, any
ERISA Affiliate nor the Buyer shall be subject to a retroactive rate adjustment,
loss sharing arrangement or other actual or contingent liability and (E) to
Shareholders' or the Company's Knowledge, no party to the policy has repudiated
any provision thereof. To the best of the Shareholders' Knowledge, the Company
has been fully covered at all times during the past 5 years by insurance in
scope and amount customary and reasonable for the businesses in which it has
engaged during the aforementioned period. Section 4(r) of the Disclosure
Schedule describes any self-insurance arrangements affecting the Company.
(s) LITIGATION. Section 4(s) of the Disclosure Schedule sets
forth each instance in which the Company (i) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (ii) is a party, or
to the Knowledge of Shareholders or the Company, is threatened to be made a
party to any claim, action, suit, proceeding, hearing, or investigation of, in,
or before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator. Except as set
forth in Section 4(s) of the Disclosure Schedule, there is no other pending, or
to the knowledge of Shareholders or the Company, threatened claim, arbitration
proceeding, action, suit, investigation or other proceeding against or involving
the Company or any property or rights of the Company or any officer or director
or the Company. To the best of the Shareholders' Knowledge, none of the actions,
suits, proceedings, hearings, and investigations set forth in Section 4(s) of
the Disclosure Schedule could result in any material adverse change in the
business, financial condition, operations, results of operations, or future
prospects of the Company. The Shareholders have no reason to believe that any
such action, suit, proceeding, hearing, or investigation may be brought or
threatened against the Company.
(t) COMMITMENTS AND WARRANTIES. All services provided by the
Company have been performed in conformity with all applicable contractual
commitments (written or oral) and all express and implied warranties (written
or oral), and the Company has no Liability and, to the Knowledge of the
Shareholders and the Company, there is no Basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim, or
demand against any of them giving rise to any
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<PAGE> 22
Liability) in connection with any such services. Section 4(t) of the Disclosure
Schedule includes copies of the standard forms of agreement entered into
between the Company and its customers. The Company has not entered into any
written or oral agreements with any of its customers that include guaranties,
warranties, or indemnity provisions other than those included in the agreements
included as part of Section 4(t) of the Disclosure Schedule.
Neither the Company nor the Shareholders has received notice (written
or oral) from any of its customers stating that the customer intends to reduce
the volume of business that it currently conducts with the Company or to cease
doing business with the Company.
(u) LIABILITY FOR SERVICES PERFORMED. The Company has no
Liability (and, to Shareholders' knowledge, there is no Basis for any present
or future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against any of them giving rise to any Liability) arising out
of any injury to individuals or property as a result of or in connection with
any services provided by the Company.
(v) EMPLOYEES. To the Knowledge of the Shareholders or the
Company, no executive, key employee, or group of employees has any plans to
terminate employment with the Company. The Company is not currently, nor at any
prior time has been, a party to or bound by any collective bargaining
agreement, nor has the Company experienced any strikes, contractual grievances,
claims of unfair labor practices, or other collective bargaining disputes. The
Company has not committed any unfair labor practice. Neither the Shareholders
nor the Company have any Knowledge of any organizational effort presently being
made or threatened by or on behalf of any labor union with respect to employees
of the Company. The Company has not experienced any material employment dispute
with any employee.
(w) EMPLOYEE BENEFITS.
(i) Section 4(w) of the Disclosure Schedule lists
each Employee Benefit Plan that the Company or any ERISA Affiliate maintains,
contributes to, or is required to contribute to or under which the Company or
any ERISA Affiliate has any liability.
(A) To the best of the Shareholders'
Knowledge, each such Employee Benefit Plan (and each related trust, insurance
contract, or fund) complies in form and in operation in all respects with the
applicable requirements of ERISA, the Code, and other applicable laws.
(B) To the best of the Shareholders'
Knowledge, all required reports and disclosures (including Form 5500 Annual
Reports, Summary Annual Reports, PBGC-1's, and Summary Plan Descriptions) have
been filed or distributed appropriately with respect to each such Employee
Benefit Plan. The requirements of Part 6 of Subtitle B of Title I of ERISA and
of Code Section 4980B have been met with respect to each such Employee Benefit
Plan which is an Employee Welfare Benefit Plan.
(C) To the best of the Shareholders'
Knowledge, all contributions (including all employer contributions and employee
salary reduction contributions) which are due have been paid to each such
Employee Benefit Plan which is an Employee Pension Benefit Plan and all
contributions for any period ending on or before the Closing Date which are not
yet due have been paid to each such Employee Pension Benefit Plan or accrued in
accordance with the past custom and practice of the Company and in accordance
with GAAP. All premiums or other payments for all periods ending
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<PAGE> 23
on or before the Closing Date have been paid with respect to each such Employee
Benefit Plan which is an Employee Welfare Benefit Plan.
(D) To the best of the Shareholders'
Knowledge, each such Employee Benefit Plan which is an Employee Pension Benefit
Plan now meets and at all times since inception have met the requirements of a
"qualified plan" under Code Section 401(a) and has received, within the last two
years, a favorable determination letter from the Internal Revenue Service.
(E) To the best of the Shareholders'
Knowledge, as of the Closing Date, the market value of assets under each such
Employee Benefit Plan which is an Employee Pension Benefit Plan (other than any
Multiemployer Plan) will equal or exceed the present value of all vested and
nonvested Liabilities thereunder determined in accordance with PBGC methods,
factors, and assumptions applicable to an Employee Pension Benefit Plan
terminating on such date.
(F) To the best of the Shareholders'
Knowledge, the Shareholders have delivered to the Buyer correct and complete
copies of the plan documents and summary plan descriptions including all
amendments thereto, the most recent determination letter received from the
Internal Revenue Service, the three most recent Form 5500 Annual Reports
(including all schedules thereto), the three most recent annual premium payment
forms filed with the PBGC, and all related trust agreements, insurance
contracts, and other funding agreements which implement each such Employee
Benefit Plan.
(ii) With respect to each Employee Benefit Plan that
the Company or any ERISA Affiliate maintains, contributes to, or is required to
contribute to or under which the Company or any ERISA Affiliate has any
liability, to the best of the Shareholders' Knowledge:
(A) No such Employee Benefit Plan which is
an Employee Pension Benefit Plan (other than any Multiemployer Plan) has been
completely or partially terminated or been the subject of a Reportable Event as
to which notices would be required to be filed with the PBGC. No proceeding by
the PBGC to terminate any such Employee Pension Benefit Plan (other than any
Multiemployer Plan) has been instituted or threatened.
(B) There have been no Prohibited
Transactions with respect to any such Employee Benefit Plan. No Fiduciary has
any Liability for breach of fiduciary duty or any other failure to act or
comply in connection with the administration or investment of the assets of any
such Employee Benefit Plan. No action, suit, proceeding, hearing, or
investigation with respect to any such Employee Benefit Plan (other than
routine claims for benefits) is pending or threatened. Neither the Shareholders
nor the Company has any Knowledge of any Basis for any such action, suit,
proceeding, hearing, or investigation.
(C) Neither the Company nor any ERISA
Affiliate has incurred, and none of the Shareholders and the directors and
officers (and employees with responsibility for employee benefits matters) of
the Company has any reason to expect that the Company or any ERISA Affiliate
will incur, any Liability to the PBGC (other than PBGC premium payments) or
otherwise under Title IV of ERISA (including any withdrawal Liability) or under
the Code with respect to any such Employee Benefit Plan which is an Employee
Pension Benefit Plan.
(iii) Neither the Company nor any ERISA Affiliate
contributes to, ever has contributed to, or ever has been required to
contribute to any Multiemployer Plan or has any Liability (including withdrawal
Liability) under any Multiemployer Plan.
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<PAGE> 24
(iv) Neither the Company nor any ERISA Affiliate
maintains or contributes to, or has ever been required to contribute to any
Employee Welfare Benefit Plan providing medical, health, or life insurance or
other welfare-type benefits for current or future retired or terminated
employees, their spouses, or their dependents (other than in accordance with
Code Section 4980B).
(x) GUARANTIES. The Company is not a guarantor or otherwise
is liable for any Liability or obligation (including indebtedness) of any other
Person.
(y) ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS. Except as
disclosed in Section 4(y) of the Disclosure Schedule, to the best of the
Shareholders' Knowledge:
(i) The Company and its predecessors and Affiliates
have complied and are in compliance with all Environmental, Health, and Safety
Requirements.
(ii) Without limiting the generality of the
foregoing, the Company and its Affiliates have obtained and complied with, and
are in compliance with, all permits, licenses and other authorizations that are
required pursuant to Environmental, Health, and Safety Requirements for the
occupation of its facilities and the operation of its business; a list of all
such permits, licenses and other authorizations is set forth on the attached
"Environmental and Safety Permits Schedule."
(iii) Neither the Company nor its predecessors or
Affiliates has received any written or oral notice, report or other information
regarding any actual or alleged violation of Environmental, Health, and Safety
Requirements, or any liabilities or potential liabilities (whether accrued,
absolute, contingent, unliquidated or otherwise), including any investigatory,
remedial or corrective obligations, relating to any of them or its facilities
arising under Environmental, Health, and Safety Requirements.
(iv) None of the following exists at any property or
facility owned or operated by the Company: (1) underground storage tanks, (2)
asbestos-containing material in any form or condition, (3) materials or
equipment containing polychlorinated biphenyls, or (4) landfills, surface
impoundments, or disposal areas.
(v) None of the Company or its predecessors or
Affiliates has treated, stored, disposed of, arranged for or permitted the
disposal of, transported, handled, or released any substance, including without
limitation any hazardous substance, or owned or operated any property or
facility (and no such property or facility is contaminated by any such
substance) in a manner that has given or would give rise to liabilities,
including any liability for response costs, corrective action costs, personal
injury, property damage, natural resources damages or attorney fees, pursuant
to the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), the Solid Waste Disposal Act, as amended ("SWDA")
or any other Environmental, Health, and Safety Requirements.
(vi) Neither this Agreement nor the consummation of
the transaction that is the subject of this Agreement will result in any
obligations for site investigation or cleanup, or notification to or consent of
government agencies or third parties, pursuant to any of the so-called
"transaction-triggered" or "responsible property transfer" Environmental,
Health, and Safety Requirements.
(vii) Neither the Company nor its predecessors or
Affiliates has, either expressly or by operation of law, assumed or undertaken
any liability, including without limitation any
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obligation for corrective or remedial action, of any other Person relating to
Environmental, Health, and Safety Requirements.
(viii) No facts, events or conditions relating to
the past or present facilities, properties or operations of the Company or any
of its predecessors or Affiliates will prevent, hinder or limit continued
compliance with Environmental, Health, and Safety Requirements, give rise to
any investigatory, remedial or corrective obligations pursuant to
Environmental, Health, and Safety Requirements (whether on-site or off-site),
or give rise to any other liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise) pursuant to Environmental, Health, and Safety
Requirements, including without limitation any relating to onsite or offsite
releases or threatened releases of hazardous materials, substances or wastes,
personal injury, property damage or natural resources damage.
(z) CERTAIN BUSINESS RELATIONSHIPS WITH THE COMPANY. Neither
the Shareholders, their respective Affiliates, any director or employee of the
Company, or any relatives of the Shareholders, or any person living in the same
residence as such persons, has been involved in any business arrangement or
relationship with the Company within the past 12 months, and neither the
Shareholders nor their respective Affiliates nor any of such other persons own
leases, licenses, or otherwise has any interest in any asset, tangible or
intangible, which is used in the business of the Company or any contract, lease
or commitment to which the Company is a party. Except as disclosed in Section of
the Disclosure Schedule, the Company is not indebted to any officer, director
or employee of the Company for any liability or obligation. No officer,
director or employee of the Company is indebted to the Company for any
liability or obligation.
(aa) CUSTOMERS AND SUPPLIERS. To the best of the
Shareholders' Knowledge, no purchase order or commitment of the Company is in
excess of normal requirements, nor are prices provided therein in excess of
current market prices for the products or services to be provided thereunder.
No material supplier of the Company has advised the Company in writing within
the past year that it will stop, or decrease the rate of, supplying materials,
products or services to the Company and no material customer of the Company has
advised the Company in writing within the past year that it will stop, or
decrease the rate of buying materials, products or services from the Company.
Section 4(aa) of the Disclosure Schedule sets forth a list of (a) each customer
that accounted for more than 5% of the consolidated revenues of the Company
during the last full fiscal year or the interim period through the date of the
Most Recent Financial Statements and the amount of revenues accounted for by
such customer during each such period and (b) each supplier that is the sole
supplier of any significant product or component to the Company. To the best of
the Shareholders' Knowledge, the consummation of the transactions contemplate
hereby will not have a material adverse effect on the Company's relationship
with any customer or supplier listed in Section 4(aa) of the Disclosure
Schedule.
5. PRE-CLOSING COVENANTS. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing.
(a) GENERAL. Each of the Parties will use his or its best
efforts to take all action and to do all things necessary, proper, or advisable
in order to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions
set forth in Section below).
(b) NOTICES AND CONSENTS. The Shareholders will cause the
Company to give any notices to third parties, and will cause the Company to use
its best efforts to obtain any third party consent required in connection with
the matters referred to in Section above. Each of the Parties will (and the
Shareholders will cause the Company to) give any notices to, make any filings
with, and use its best
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<PAGE> 26
efforts to obtain any authorizations, consents, and approvals of governments
and governmental agencies in connection with the matters referred to in Section
and Section above.
(c) OPERATION OF BUSINESS. The Shareholders will not cause or
permit the Company to engage in any practice, take any action, or enter into
any transaction outside the Ordinary Course of Business except for (i) the
transfer of the Excluded Assets to the Shareholders and (ii) the accrual of a
bonus for certain officers. Without limiting the generality of the foregoing,
the Shareholders will not cause or permit the Company to (i) declare, set
aside, or pay any dividend or make any distribution with respect to its capital
stock or redeem, purchase, or otherwise acquire any of its capital stock or
(ii) otherwise engage in any practice, take any action, or enter into any
transaction of the sort described in Section above. The Shareholders will
immediately notify the Buyer in writing with respect to any proposed capital
expenditures in excess of $50,000.
(d) PRESERVATION OF BUSINESS. The Shareholders will use their
best efforts to keep the Company's business and properties substantially
intact, including its present operations, physical facilities, working
conditions, and relationships with lessors, licensors, suppliers, customers,
and employees.
(e) FULL ACCESS. The Shareholders will permit, and will cause
the Company to permit, representatives of the Buyer to have full access at all
reasonable times, and in a manner so as not to interfere with the normal
business operations of the Company, to all premises, properties, personnel,
books, records (including Tax records), contracts, and documents of or
pertaining to the Company. At the request of the Buyer, Shareholders will
permit, and will cause the Company to permit, the Buyer's lenders, and their
respective counsel, to have the same access as permitted to the Buyer in
accordance with the immediately preceding sentence.
(f) NOTICE OF DEVELOPMENTS. The Shareholders will give prompt
written notice to the Buyer of any breach of any of the representations and
warranties in Section above. Each Party will give prompt written notice to the
others of any breach of any of his or its own representations and warranties in
Section above. No disclosure by any Party pursuant to this Section , however,
shall be deemed to amend or supplement the Buyer Disclosure Schedule or the
Disclosure Schedule or to prevent or cure any misrepresentation, breach of
warranty, or breach of covenant.
(g) EXCLUSIVITY. The Shareholders will not (and the
Shareholders will not cause or permit the Company to) (i) solicit, initiate, or
encourage the submission of any proposal or offer from any Person relating to
the acquisition of any capital stock or other voting securities, or any
substantial portion of the assets, of the Company (including any acquisition
structured as a merger, consolidation, or share exchange) or (ii) participate
in any discussions or negotiations regarding, furnish any information with
respect to, assist or participate in, or facilitate in any other manner any
effort or attempt by any Person to do or seek any of the foregoing. The
Shareholders will notify the Buyer immediately if any Person makes any
proposal, offer, inquiry, or contact with respect to any of the foregoing.
(h) NO TERMINATION OF SHAREHOLDERS'S OBLIGATION BY SUBSEQUENT
INCAPACITY. Shareholders specifically agrees that his obligations hereunder,
including, without limitation, the obligations pursuant to Section hereof, shall
not be eliminated by his or her death or incapacity.
6. POST-CLOSING COVENANTS. The Parties agree as follows with respect
to the period following the Closing.
(a) GENERAL. In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, each of the Parties will take such further action
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<PAGE> 27
(including the execution and delivery of such further instruments and
documents) as any other Party reasonably may request, all at the sole cost and
expense of the requesting Party (unless the requesting Party is entitled to
indemnification therefor under Section below). The Shareholders acknowledge and
agree that from and after the Closing the Buyer will be entitled to possession
of all documents, books, records (including Tax records), agreements, and
financial data of any sort relating to the Company.
(b) LITIGATION SUPPORT. In the event and for so long as any
Party actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving the Company, each of the other Parties will
cooperate with him or it and his or its counsel in the contest or defense, make
reasonably available their personnel, and provide such testimony and access to
their books and records as shall be necessary in connection with the contest or
defense, all at the sole cost and expense of the contesting or defending Party
(unless the contesting or defending Party is entitled to indemnification
therefor under Section below).
(c) TRANSITION. The Shareholders will not take any action
that is designed or intended to have the effect of discouraging any lessor,
licensor, customer, supplier, or other business associate of the Company from
maintaining the same business relationships with the Company after the Closing
as it maintained with the Company prior to the Closing. The Shareholders will
refer all customer inquiries relating to the businesses of the Company to the
Buyer from and after the Closing.
(d) INDEPENDENT ACCOUNTANTS. After the Closing, Shareholders
shall (i) use reasonable efforts to cause the Company's past and present
independent auditors and accounting personnel to make available to the Buyer
and its representatives all financial information, including the right to
examine all working papers pertaining to audits or reviews previously or
hereafter made by such auditors, and (ii) provide such cooperation as the Buyer
and its representatives may request in connection with any audit or review of
the Company that the Buyer may direct its representatives to make. Without
limiting the generality of the foregoing, the Shareholders agree that they will
cooperate with, and use reasonable best efforts to cause the Company's past and
present independent auditors, accounting personnel and other necessary persons
to cooperate with the Buyer in the preparation of any documents filed by the
Buyer with the U.S. Securities and Exchange Commission in connection with an
offering of securities, all at the sole cost and expense of the Buyer, to the
extent information about the Company is required therein.
(e) TAX MATTERS. The Shareholders covenant and agree not to
take any action, or fail to take any action, with respect to Taxes, that would
have an adverse effect on the Buyer on or after the Closing Date, including,
without limitation, amending or otherwise supplementing any Tax Return or
report of the Company with respect to any period prior to the Closing Date
without the consent of the Buyer. If any taxing authority conducts any audit or
investigation relating to the Company prior to the Closing Date, the Buyer may,
in its sole election, have the right to supervise such audit or investigation
and provide any response required in connection therewith.
(f) EMPLOYEE BONUSES. If (i) employee bonuses that are
accrued prior to the Closing are not distributed prior to the Closing and (ii)
payment of such bonuses has been approved by a vote of the shareholders of the
Company who owned, immediately before the Closing Date, more than 75% of the
voting power of all outstanding stock of the Company, then such bonuses will be
paid at the Closing, but only up to the amount by which the cash shown on the
Estimated Closing Balance Sheet Exceeds $1,000,000. To the extent that there is
insufficient cash to satisfy any unpaid bonuses at the Closing, such amounts
shall be paid by the Company not later than sixty days following the Closing.
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(g) STOCK OPTION PLAN. After the closing, employees of the
Company shall be eligible for participation in any stock option plan generally
available to employees of the Buyer or of any subsidiary of the Buyer,
including without limitation, stock option plans of any corporate parent of
Buyer that participates in a public offering of its capital stock.
(h) AUDITED FINANCIAL STATEMENTS. Shareholders shall cause
the Company's auditors to prepare audited consolidated balance sheets and
statements of income, changes in stockholders' equity, and cash flow including
the audit report thereon as of and for the three-year period ending December
31, 1998 for the Company. All costs associated with the preparation and audit
of the Company's December 31, 1998 financial statements shall be paid by the
Company.
(i) NEW LEASES. Prior to the Closing, the Buyer and the
Shareholders will agree on the form of leases into which the Company shall
enter with the Shareholders (the "New Leases"). The Company will not execute
the New Leases without the approval of the Buyer, which approval will not be
unreasonably withheld. The New Leases will relate to the property and will
include lease terms described generally below:
Property General Lease Terms
Nixa, Missouri five years; monthly rental amount
not to exceed $2,550 for first
year; monthly rental to increase
5% on annual basis each year
thereafter; Company to be
responsible for costs, including
real estate taxes, utilities,
maintenance and insurance.
Villa Ridge, Missouri five years; monthly rental amount
not to exceed $2,000 for first
year; monthly rental to increase
5% on annual basis each year
thereafter; Company to be
responsible for costs, including
real estate taxes, utilities,
maintenance and insurance.
7. CONDITIONS TO OBLIGATION TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF THE BUYER. The obligation of
the Buyer to consummate the transactions to be performed by it in connection
with the Closing is subject to satisfaction of the following conditions:
(i) The representations and warranties set forth in
Section and Section above shall be true and correct in all material respects at
and as of the Closing Date and there shall not have occurred any Material
Adverse Effect;
(ii) The Shareholders and the Company shall have
performed and complied with all of his covenants hereunder in all material
respects through the Closing;
(iii) The Company shall have procured all of the
third party consents specified in Section above;
(iv) No action, suit, or proceeding shall be pending
or threatened before any court or quasi-judicial or administrative agency of
any federal, state, local, or foreign jurisdiction, or before any arbitrator,
wherein an unfavorable injunction, judgment, order, decree, ruling, or charge
would (A) prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause
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<PAGE> 29
any of the transactions contemplated by this Agreement to be rescinded
following consummation, (C) affect adversely the right of the Company to own
its assets and to operate its businesses (and no such injunction, judgment,
order, decree, ruling, or charge shall be in effect);
(v) The Shareholders shall have delivered to the
Buyer a certificate, to the effect that each of the conditions specified above
in Section through is satisfied in all respects;
(vi) The Buyer shall have received from counsel to
the Shareholders an opinion in form and substance as set forth in Exhibit C
attached hereto, addressed to the Buyer and dated as of the Closing Date;
(vii) All actions to be taken by the Shareholders in
connection with the consummation of the transactions contemplated hereby and
all certificates, opinions, instruments, and other documents required to effect
the transactions contemplated hereby will be reasonably satisfactory in form
and substance to the Buyer.
(viii) At least five business days prior to the
Closing, the Buyer shall have received a balance sheet prepared by the Company,
estimating the assets, liabilities and shareholders' equity of the Company as
of the Closing Date (the "Estimated Closing Balance Sheet"). The Estimated
Closing Balance Sheet shall be prepared in accordance with the method set forth
in Section for the preparation of the Draft Closing Date Balance Sheet and will
reflect (A) Shareholders' Equity of not less than $5,500,000, (B) cash of not
less than approximately $1,000,000 and (C) interest bearing debt of not greater
than $7,300,000, including $1,330,000 of debt to the Shareholders. The Buyer
shall not have objected to, challenged or otherwise repudiated any of the
amounts included in the Estimated Closing Balance Sheet.
(ix) At least five business days prior to the
Closing, the Buyer shall have received projections based upon the Shareholders'
best information, Knowledge and belief, reflecting increases in revenue and
pre-tax income for the fiscal years ending 1998, 1999, 2000 and 2001 of at
least 10% per year. Shareholders will make no representations or warranties
projecting the performance of the Company.
(x) At least five business days prior to the
Closing, the Buyer shall have received an appraisal, from an appraiser selected
by the Buyer, that states that the fair market value of the Company's tangible
assets listed in Section of the Disclosure Schedule is at least equal to the
book value of such assets reflected in the Closing Balance Sheet.
(xi) The Company shall have delivered evidence of
its qualification to do business in each jurisdiction where it is so qualified
and a certificate of good standing issued by the Secretary of State of each
such jurisdiction demonstrating that the Company is in good standing in that
jurisdiction;
(xii) Larry Schatz shall have entered into the
Employment Agreement;
(xiii) The Shareholders, and certain key employees
of the Company to be designated by the Buyer, shall have entered into the
Non-Competition Agreements;
(xiv) The Company shall have entered into the New
Leases;
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<PAGE> 30
(xv) The Buyer shall have purchased all of the
outstanding shares of stock of the Company held by persons or entities other
than the Shareholders;
(xvi) Buyer's lenders shall have approved the form
and substance of this Agreement and the other agreements contemplated thereby
(including, without limitation the Leases, Non- Competition Agreements and the
Employment Agreements);
(xvii) All actions to be taken by the Shareholders
in connection with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form and
substance to the Buyer; and
The Buyer may waive any condition specified in this Section if it executes a
writing so stating at or prior to the Closing.
(b) CONDITIONS TO OBLIGATION OF THE SHAREHOLDERS. The
obligation of the Shareholders to consummate the transactions to be performed
by them in connection with the Closing is subject to satisfaction of the
following conditions:
(i) The representations and warranties set forth in
Section above shall be true and correct in all material respects at and as of
the Closing Date;
(ii) The Buyer shall have performed and complied
with all of its covenants hereunder in all material respects through the
Closing;
(iii) No action, suit, or proceeding shall be
pending or threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction, or before any
arbitrator, wherein an unfavorable injunction, judgment, order, decree, ruling,
or charge would (A) prevent consummation of any of the transactions
contemplated by this Agreement or (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation (and no
such injunction, judgment, order, decree, ruling, or charge shall be in
effect);
(iv) The Buyer shall have delivered to the
Shareholders a certificate to the effect that each of the conditions specified
above in Section - is satisfied in all respects;
(v) The Shareholders shall have received from
counsel to the Buyer an opinion in form and substance as set forth in Exhibit D
attached hereto, addressed to the Shareholders, and dated as of the Closing
Date;
(vi) The Buyer shall have entered into the
Employment Agreements in the form attached;
(vii) The Company shall have entered into the New
Leases;
(viii) The Shareholders shall have been released
from any personal liability with respect to obligations of the Company (such
as, by way of example, guarantees of bank debt, bonds, or leases);
(ix) Except as otherwise agreed to in Section ,
payment of any accrued but unpaid bonuses by the Company;
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<PAGE> 31
(x) Repayment of any outstanding notes due to the
Shareholders from the Company;
(xi) All actions to be taken by the Buyer in
connection with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form and
substance to the Shareholders; and
The Shareholders may waive any condition specified in this Section if they
execute a writing so stating at or prior to the Closing.
8. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations, warranties, covenants and agreements of the Parties contained
in this Agreement or in any certificate, document, instrument or agreement
delivered pursuant to this Agreement shall survive the Closing hereunder
(notwithstanding any due diligence investigations that may have been undertaken
by the damaged Party) and continue in full force and effect through all
statutes of limitations.
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE BUYER.
(i) In the event the Shareholders breach (or in the
event that any third party alleges facts that, if true, would mean that the
Shareholders have breached) any of their representations, warranties (or any of
such representations or warranties is untrue or inaccurate), covenants and
agreements contained herein or in any certificate, document, instrument or
agreement delivered pursuant to this Agreement, and, provided that the
Indemnified Buyers (as hereafter defined) make a written claim for
indemnification against the Shareholders pursuant to Section below within the
applicable claim period provided in Section above, then the Shareholders agree
to indemnify the Buyer and each of its officers, directors, employees,
representatives and shareholders (the "Indemnified Buyers") from and against the
entirety of any Adverse Consequences the Indemnified Buyers may suffer through
and after the date of the claim for indemnification (including any Adverse
Consequences the Indemnified Buyers may suffer after the end of any applicable
claim period) resulting from, arising out of, relating to, in the nature of, or
caused by the breach (or the alleged breach); provided, however, that the
Shareholders shall not have any obligation to indemnify the Buyer from and
against any Adverse Consequences resulting from, arising out of, relating to, in
the nature of, or caused by the breach (or alleged breach) of any representation
or warranty of the Shareholders contained in Section , , -, , 4(p), 4(t), and
above until the Buyer has suffered Adverse Consequences by reason of all such
breaches (or alleged breaches) in excess of the Indemnification Threshold
(defined below). Notwithstanding anything in this Agreement to the contrary, the
Buyer shall not be deemed to have suffered any Adverse Consequences as a result
of Buyer's inability to take full advantage of the deferred income tax benefits
relating to accrued officer bonuses reflected on the Closing Date Balance Sheet.
(ii) For purposes of this Agreement, the
"Indemnification Threshold" shall be equal to $250,000, less any amount of
Taxes that Buyer is required to pay pursuant to Section .
(iii) All of the indemnification obligations of
Shareholders under this Section shall be joint and several.
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<PAGE> 32
(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE
SHAREHOLDERS.
In the event the Buyer breaches (or in the event any
third party alleges facts that, if true, would mean the Buyer had breached) any
of their representations, warranties (or any of such representations or
warranties is untrue or inaccurate), covenants and agreements contained herein
or in any certificate, document, instrument or agreement delivered pursuant to
this Agreement, and, provided that the Shareholders makes a written claim for
indemnification against the Buyer pursuant to Section below within the
applicable claim period provided in 8(a) above, then the Buyer agrees to
indemnify the Shareholders and each of his representatives (the "Indemnified
Shareholders") from and against the entirety of any Adverse Consequences the
Indemnified Shareholders may suffer through and after the date of the claim for
indemnification (including any Adverse Consequences the Indemnified Shareholders
may suffer after the end of any applicable claim period) resulting from, arising
out of, relating to, in the nature of, or caused by the breach (or the alleged
breach).
(d) MATTERS INVOLVING THIRD PARTIES.
(i) If any third party shall notify any party
entitled to indemnification hereunder (the "Indemnified Party") with respect to
any matter (a "Third Party Claim") which may give rise to a claim for
indemnification against any other Party (the "Indemnifying Party") under this
Section then the Indemnified Party shall promptly notify each Indemnifying Party
thereof in writing; provided, however, that no delay on the part of the
Indemnified Party in notifying any Indemnifying Party shall relieve the
Indemnifying Party from any obligation hereunder unless (and then solely to the
extent) the Indemnifying Party thereby is materially prejudiced.
(ii) Any Indemnifying Party will have the right to
defend the Indemnified Party against the Third Party Claim with counsel of its
choice reasonably satisfactory to the Indemnified Party so long as (A) the
Indemnifying Party notifies the Indemnified Party in writing within 15 days
after the Indemnified Party has given notice of the Third Party Claim that the
Indemnifying Party will indemnify the Indemnified Party from and against the
entirety of any Adverse Consequences the Indemnified Party may suffer resulting
from, arising out of, relating to, in the nature of, or caused by the Third
Party Claim, (B) the Indemnifying Party provides the Indemnified Party with
evidence reasonably acceptable to the Indemnified Party that the Indemnifying
Party will have the financial resources to defend against the Third Party Claim
and fulfill its indemnification obligations hereunder, (C) the Third Party
Claim involves only money damages and does not seek an injunction or other
equitable relief, (D) settlement of, or an adverse judgment with respect to,
the Third Party Claim is not, in the good faith judgment of the Indemnified
Party, likely to establish a precedential custom or practice materially adverse
to the continuing business interests of the Indemnified Party, (E) the named
parties to the Third Party Claim do not include both the Indemnified Party and
the Indemnifying Party, and (F) the Indemnifying Party conducts the defense of
the Third Party Claim actively and diligently.
(iii) So long as the Indemnifying Party is
conducting the defense of the Third Party Claim in accordance with Section
above, (A) the Indemnified Party may retain separate co-counsel at its sole cost
and expense and participate in the defense of the Third Party Claim, (B) the
Indemnified Party will not consent to the entry of any judgment or enter into
any settlement with respect to the Third Party Claim without the prior written
consent of the Indemnifying Party (not to be withheld unreasonably), and (C) the
Indemnifying Party will not consent to the entry of any judgment or enter into
any settlement with respect to the Third Party Claim without the prior written
consent of the Indemnified Party (not to be withheld unreasonably).
(iv) In the event any of the conditions in Section
above is or becomes unsatisfied, however, (A) the Indemnified Party may defend
against, and consent to the entry of any judgment or enter into any settlement
with respect to, the Third Party Claim in any manner it reasonably
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<PAGE> 33
may deem appropriate (and the Indemnified Party need not consult with, or
obtain any consent from, any Indemnifying Party in connection therewith), (B)
the Indemnifying Parties will reimburse the Indemnified Party promptly and
periodically for the costs of defending against the Third Party Claim
(including reasonable attorneys' fees and expenses), and (C) the Indemnifying
Parties will remain responsible for any Adverse Consequences the Indemnified
Party may suffer resulting from, arising out of, relating to, in the nature of,
or caused by the Third Party Claim to the fullest extent provided in this
Section .
(e) DETERMINATION OF ADVERSE CONSEQUENCES. The Parties shall
take into account the time cost of money (using the Applicable Rate as the
discount rate) in determining Adverse Consequences for purposes of this Section.
All indemnification payments under this Section shall be deemed adjustments to
the Consideration.
(f) OTHER INDEMNIFICATION PROVISIONS. The foregoing
indemnification provisions are exclusive and cumulative, and in derogation of,
any statutory, equitable, or common law remedy (including without limitation
any such remedy arising under Environmental, Health, and Safety Requirements)
any Party may have with respect to the Company, or the transactions
contemplated by this Agreement. Each Shareholder hereby agrees that he will not
make any claim for indemnification against the Company by reason of the fact
that he was a director, officer, employee, or agent of the Company or was
serving at the request of the Company as a partner, trustee, director, officer,
employee, or agent of another entity (whether such claim is for judgments,
damages, penalties, fines, costs, amounts paid in settlement, losses, expenses,
or otherwise and whether such claim is pursuant to any statute, charter
document, bylaw, agreement, or otherwise) with respect to any action, suit,
proceeding, complaint, claim, or demand brought by the Buyer against such
Shareholder (whether such action, suit, proceeding, complaint, claim, or demand
is pursuant to this Agreement, applicable law, or otherwise).
9. POST-CLOSING ADJUSTMENT OF CONSIDERATION.
(a) Within 60 days after the Closing Date, the Shareholders
will prepare and deliver to the Buyer a draft balance sheet (the "Draft Closing
Date Balance Sheet") for the Company as of the close of business on the Closing
Date (determined as though the Parties had not consummated the transactions
contemplated by this Agreement), prepared in accordance with GAAP applied on a
basis consistent with the preparation of the Financial Statements; except that
the Draft Closing Date Balance Sheet shall include all of the same types of
adjustments as were made in connection with the preparation of the Most Recent
Fiscal Year End Financial Statements.
(b) If the Buyer has any objections to the Draft Closing Date
Balance Sheet, it will deliver a detailed statement describing its objections
to the Shareholders within 30 days after receiving the Draft Closing Date
Balance Sheet. The Buyer and the Shareholders will use reasonable efforts to
resolve any such objections themselves. If the Parties do not obtain a final
resolution within 30 days after the Shareholders have received the statement of
objections, however, the Buyer and Shareholders will select an accounting firm
mutually acceptable to them to resolve any remaining objections. If the Buyer
and the Shareholders are unable to agree on the choice of an accounting firm,
they will select a nationally-recognized accounting firm by lot (after
excluding their respective regular outside accounting firms). The determination
of any accounting firm so selected will be set forth in writing and will be
conclusive and binding upon the Parties. The Shareholders will revise the Draft
Closing Date Balance Sheet as appropriate to reflect the resolution of any
objections thereto pursuant to this Section .
(c) In the event the Parties submit any unresolved objections
to an accounting firm for resolution as provided in Section above, any expenses
relating to the engagement of the accounting firm
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<PAGE> 34
shall be allocated between the Shareholders and the Buyer by the accounting
firm in proportion to the amount in dispute which is decided in favor of the
challenging party.
(d) The Shareholders will make the work papers and back-up
materials used in preparing the Draft Closing Date Balance Sheet available to
the Buyer and its accountants and other representatives at reasonable times and
upon reasonable notice during (A) the preparation by the Shareholders of the
Draft Closing Date Balance Sheet, (B) review by the Buyer of the Draft Closing
Date Balance Sheet, and (C) the resolution by the Parties of any objections
thereto.
(e) The "Closing Date Balance Sheet" shall mean the Draft
Closing Date Balance Sheet together with any revisions thereto pursuant to
Section . If the Shareholder's Equity set forth in the Closing Date Balance
Sheet is less than $5,500,000, then the Shareholders will pay to the Buyer an
amount equal to such deficiency (plus interest thereon at the Applicable Rate
from the Closing Date) within three business days after the date on which the
Closing Date Balance Sheet is determined pursuant to Section or thereafter
adjusted as determined pursuant to Section within the time period set forth in
Section .
10. TAX MATTERS. The following provisions shall govern the allocation
of responsibility as between the Buyer and Shareholders for certain tax matters
following the Closing Date:
(a) TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE.
Shareholders shall prepare or cause to be prepared and timely file or cause to
be timely filed all Tax Returns for the Company for all periods ending on or
prior to the Closing Date which are filed after the Closing Date (the
"Pre-Closing Period"). Such Tax Returns shall be prepared by treating items on
such Tax Return in a manner consistent with the past practices with respect to
such items, unless otherwise required by law. Shareholders shall permit the
Buyer to review and comment on each such Tax Return described in the preceding
sentence prior to filing. The Buyer shall pay the amounts due for Taxes of the
Company with respect to the Pre-Closing Periods, up to the amount reflected in
the reserve for Tax Liability shown on the face of the Most Recent Balance
Sheet, plus any amount that exceeds the reserve up to the Indemnification
Threshold. Shareholders jointly and severally agree that they will pay, when
due, all amounts due for Taxes of the Company with respect to Pre-Closing
Periods, that exceed the reserve for Tax Liability in excess of the
Indemnification Threshold.
(b) TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING
DATE. The Buyer shall prepare or cause to be prepared and file or cause to be
filed any Tax Returns of the Company for Tax periods which begin before the
Closing Date and end after the Closing. The Buyer shall permit Shareholders to
review and comment on each such Tax return described in the preceding sentence
prior to filing. Shareholders shall pay to the Buyer within fifteen (15) days
after the date on which Taxes are paid with respect to such periods an amount
equal to the portion of such Taxes which relates to the portion of such Taxable
periods ending on the Closing Date to the extent such Taxes are not reflected
in the reserve for such periods for Tax Liability shown on the face of the Most
Recent Balance Sheet. For purposes of this Section, in the case of any Taxes
that are imposed on a periodic basis and are payable for a Taxable period that
includes (but does not end on) the Closing Date, the portion of such Tax which
relates to the portion of such Taxable period ending on the Closing Date shall
(x) in the case of any real and personal property Taxes, be deemed to be the
amount of such Tax for the entire Taxable period multiplied by a fraction the
numerator of which is the number of days in the Taxable period ending on the
Closing Date and the denominator of which is the number of days in the entire
Taxable period, and (y) in the case of any other Tax be deemed equal to the
amount which would be payable if the relevant Taxable period ended on the
Closing Date. Any credits relating to a Taxable period that begins before and
ends after the Closing Date shall be taken into account as though the relevant
Taxable period ended
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<PAGE> 35
on the Closing Date. All determinations necessary to give effect to the
foregoing allocations shall be made in a manner consistent with prior practice
of the Company.
(c) COOPERATION ON TAX MATTERS.
(i) The Buyer, the Company and Shareholders shall
cooperate fully, as and to the extent reasonably requested by the other party,
in connection with the filing of Tax Returns pursuant to this Section and any
audit, litigation or other proceeding with respect to Taxes. Such cooperation
shall include the retention and (upon the other party's request) the provision
of records and information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. The Company and Shareholders agree (A) to retain
all books and records with respect to Tax matters pertinent to the Company
relating to any taxable period beginning before the Closing Date until the
expiration of the statute of limitations (and, to the extent notified by the
Buyer or Shareholders, any extensions thereof) of the respective taxable
periods, and to abide by all record retention agreements entered into with any
taxing authority, and (B) to give the other party reasonable written notice
prior to transferring, destroying or discarding any such books and records and,
if the other party so requests, the Company or Shareholders, as the case may
be, shall allow the other party to take possession of such books and records.
(ii) The Buyer and Shareholders further agree, upon
request, to use their best efforts to obtain any certificate or other document
from any governmental authority or any other Person as may be necessary to
mitigate, reduce or eliminate any Tax that could be imposed (including, but not
limited to, with respect to the transactions contemplated hereby).
(iii) The Buyer and Shareholders further agree, upon
request, to provide the other party with all information that either party may
be required to report pursuant to Section 6043 of the Code and all Treasury
Department Regulations promulgated thereunder.
(d) TAX SHARING AGREEMENTS. All tax sharing agreements or
similar agreements with respect to or involving the Company shall be terminated
as of the Closing Date and, after the Closing Date, the Company shall not be
bound thereby or have any liability thereunder.
(e) CERTAIN TAXES. All transfer, documentary, sales, use,
stamp, registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement, shall be paid by
Shareholders when due, and Shareholders will, at its own expense, file all
necessary Tax Returns and other documentation with respect to all such
transfer, documentary, sales, use, stamp, registration and other Taxes and
fees, and, if required by applicable law, the Buyer will, and will cause its
affiliates to, join in the execution of any such Tax Returns and other
documentation.
11. TERMINATION.
(a) TERMINATION OF AGREEMENT. The Parties may terminate this
Agreement as provided below:
(i) The Buyer and the Shareholders may terminate
this Agreement by mutual written consent at any time prior to the Closing;
(ii) The Buyer may terminate this Agreement by
giving written notice to the Shareholders at any time prior to the Closing (A)
in the event the Shareholders have breached any
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<PAGE> 36
representation, warranty, or covenant contained in this Agreement in any
material respect, the Buyer has notified the Shareholders of the breach, and
the breach has continued without cure for a period of 30 days after the notice
of breach or (B) if the Closing shall not have occurred on or before February
26, 1999 by reason of the failure of any condition precedent under Section
hereof (unless the failure results primarily from the Buyer itself breaching any
representation, warranty, or covenant contained in this Agreement); and
(iii) The Shareholders may terminate this Agreement
by giving written notice to the Buyer at any time prior to the Closing (A) in
the event the Buyer has breached any representation, warranty, or covenant
contained in this Agreement in any material respect, the Shareholders have
notified the Buyer of the breach, and the breach has continued without cure for
a period of 30 days after the notice of breach or (B) if the Closing shall not
have occurred on or before February 26, 1999 by reason of the failure of any
condition precedent under Section hereof (unless the failure results primarily
from the Shareholders himself breaching any representation, warranty, or
covenant contained in this Agreement).
(b) EFFECT OF TERMINATION. If any Party terminates this
Agreement pursuant to Section above, all rights and obligations of the Parties
hereunder shall terminate without any Liability of any Party to any other
Party, except as set forth in Section hereof.
(c) CERTAIN PAYMENTS UPON TERMINATION.
(i) If the Closing has not occurred on or before
February 26, 1999, then Buyer shall pay the Shareholders the aggregate amount
of $250,000 (the "Liquidated Damages Amount") as liquidated damages (but not as
a penalty), but such payment shall be due only so long as, on February 26, 1999
all of the following are true:
(A) The conditions set forth in Section
(except the condition in Section ) are satisfied or waived,
unless the failure of such conditions to be satisfied or
waived is caused by the actions or inactions of Buyer;
(B) the failure of the Closing to occur is
not the result of force majeure.
(ii) Upon payment of the Liquidated Damages Amount,
Buyer shall have no further obligation to Shareholders and shall not be liable
to Shareholders for any breach of this Agreement other than the payment of the
Liquidated Damages Amount, the intent of the parties being that payment of such
amount shall be the sole remedy of Shareholder for Buyer's failure to close.
(iii) The parties agree that the Liquidated Damages
Amount is a reasonable estimation of the damages likely to be suffered by
Shareholders for the failure of Buyer to close the transaction by February 26,
1999.
12. MISCELLANEOUS.
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall
issue any press release or make any public announcement relating to the subject
matter of this Agreement prior to the Closing without the prior written
approval of the Buyer and the Shareholders; provided, however, that any Party
may make any public disclosure it believes in good faith is required by
applicable law or any listing or
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<PAGE> 37
trading agreement concerning its publicly-traded securities (in which case the
disclosing Party will use its best efforts to advise the other Parties prior to
making the disclosure).
(b) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not
confer any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns and the Indemnified Parties
referred to in Section hereof.
(c) ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or among
the Parties, written or oral, to the extent they related in any way to the
subject matter hereof.
(d) SUCCESSION AND ASSIGNMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the Parties
named herein and their respective successors and permitted assigns. No Party
may assign either this Agreement or any of his or its rights, interests, or
obligations hereunder without the prior written approval of the Buyer and the
Shareholders; provided, however, that the Buyer may (i) assign any or all of
its rights and interests hereunder to one or more of its Affiliates, (ii)
designate one or more of its Affiliates to perform its obligations hereunder
(in any or all of which cases the Buyer nonetheless shall remain responsible
for the performance of all of its obligations hereunder) and (iii) without the
approval of the Shareholders assign its rights and interests hereunder to its
lenders (and any agent for the lenders), and the Parties consent to any
exercise by such lenders (and such agents) of their rights and remedies with
respect to such collateral.
(e) COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) HEADINGS. The section headings contained in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
(g) NOTICES. All notices, requests, demands, claims, and
other communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
If to the Shareholders: Copy to:
Larry and Shirley Schatz McCarthy, Leonard, Kaemmerer
7518 Lilly's Lane Owen, Lamkin & McGovern, L.C.
Villa Ridge, MO 63089 16141 Swingley Ridge Road, 300
Chesterfield, MO 63017
If to the Buyer: Copy to:
NATG Holdings, LLC Holland & Knight LLP
1401 Forum Way, Suite 400 One East Broward Boulevard
West Palm Beach, FL 33401 Fort Lauderdale, FL 33131
Attn: William J. Mercurio Attn: Donn Beloff, Esq.
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Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been
duly given unless and until it actually is received by the intended recipient.
Any Party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other
Parties notice in the manner herein set forth.
(h) AMENDMENTS AND WAIVERS. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
the Buyer and the Shareholders. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(i) SEVERABILITY. Any term or provision of this Agreement
that is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
(j) EXPENSES. Each of the Parties will bear his or its own
costs and expenses (including legal fees and expenses) incurred in connection
with this Agreement and the transactions contemplated hereby. The Shareholders
agree that the Company has not borne nor will bear any of the Shareholders'
costs and expenses (including, without limitation, any of their legal,
accounting or investment banking fees and expenses) in connection with this
Agreement or any of the transactions contemplated hereby.
(k) CONSTRUCTION. The Parties have participated jointly in
the negotiation of this Agreement. In the event an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as if
drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local,
or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
(l) INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The
Exhibits, Annexes, Schedules and Certificates identified in this Agreement are
incorporated herein by reference and made a part hereof.
(m) SPECIFIC PERFORMANCE. Each of the Parties acknowledges
and agrees that the other Parties would be damaged irreparably in the event any
of the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
34
<PAGE> 39
jurisdiction over the Parties and the matter (subject to the provisions set
forth in Section below), in addition to any other remedy to which they may be
entitled, at law or in equity.
(n) SUBMISSION TO JURISDICTION. Each of the Parties submits
to the jurisdiction of any state or federal court sitting in Palm Beach County,
Florida, in any action or proceeding arising out of or relating to this
Agreement and agrees that all claims in respect of the action or proceeding
shall be heard and determined in any such court. Each of the Parties waives any
defense of inconvenient forum to the maintenance of any action or proceeding so
brought and waives any bond, surety, or other security that might be required
of any other Party with respect thereto. Any Party may make service on any
other Party by sending or delivering a copy of the process to the Party to be
served at the address and in the manner provided for the giving of notices in
Section above. Each Party agrees that a final judgment in any action or
proceeding so brought shall be conclusive and may be enforced by suit on the
judgment or in any other manner provided by law or at equity.
In any action or proceeding arising out of or relating to this
Agreement, the prevailing party shall be entitled to recover reasonable
attorney's fees and costs from the other party to the action or proceeding.
(o) WAIVER OF JURY TRIAL. THE PARTIES HEREBY IRREVOCABLY
WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY AND TO
THE FULLEST EXTENT PERMITTED BY LAW WAIVE ANY RIGHTS THAT THEY MAY HAVE TO
CLAIM OR RECEIVE CONSEQUENTIAL OR SPECIAL DAMAGES IN CONNECTION WITH ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
*****
35
<PAGE> 40
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
BUYER
NATG Holdings LLC
By:
-------------------------------
William J. Mercurio
President
SHAREHOLDERS:
-------------------------------------
Larry Schatz
-------------------------------------
Shirley Schatz
36
<PAGE> 1
Exhibit 10.15
STOCK PURCHASE AGREEMENT
AMONG
ORIUS CORP.,
NATG HOLDINGS, LLC
AND
THE SHAREHOLDERS OF DAS-CO OF IDAHO, INC.,
AN IDAHO CORPORATION
FEBRUARY 20, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
1. DEFINITIONS................................................................................... 1
2. PURCHASE AND SALE TRANSACTION................................................................. 5
(a) BASIC TRANSACTION.................................................................... 5
(b) CONSIDERATION........................................................................ 6
(c) THE CLOSING.......................................................................... 6
(d) DELIVERIES AT CLOSING................................................................ 6
3. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS CONCERNING THE TRANSACTION................. 6
(a) AUTHORIZATION OF TRANSACTION......................................................... 6
(b) NONCONTRAVENTION..................................................................... 6
(c) BROKERS' FEES........................................................................ 6
(d) COMPANY SHARES....................................................................... 6
(e) DISCLOSURE........................................................................... 7
4. REPRESENTATIONS AND WARRANTIES OF THE BUYER AND ORIUS CONCERNING THE
TRANSACTION.................................................................................. 7
(a) AUTHORIZATION OF TRANSACTION......................................................... 7
(b) NONCONTRAVENTION..................................................................... 7
(c) BROKERS' FEES........................................................................ 7
(d) DISCLOSURE........................................................................... 7
5. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY......................................... 8
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER..................................... 8
(b) CAPITALIZATION....................................................................... 8
(c) NONCONTRAVENTION..................................................................... 8
(d) TITLE TO ASSETS...................................................................... 9
(e) SUBSIDIARIES......................................................................... 9
(f) FINANCIAL STATEMENTS................................................................. 9
(g) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END..................................... 9
(h) UNDISCLOSED LIABILITIES.............................................................. 11
(i) LEGAL COMPLIANCE..................................................................... 11
(j) TAX MATTERS.......................................................................... 12
(k) REAL PROPERTY........................................................................ 13
(l) INTELLECTUAL PROPERTY................................................................ 13
(m) TANGIBLE ASSETS...................................................................... 15
(n) INVENTORY............................................................................ 15
(o) CONTRACTS............................................................................ 15
(p) NOTES AND ACCOUNTS RECEIVABLE........................................................ 15
(q) POWERS OF ATTORNEY................................................................... 15
(r) INSURANCE............................................................................ 16
(s) LITIGATION........................................................................... 16
(t) COMMITMENTS AND WARRANTIES........................................................... 16
(u) LIABILITY FOR SERVICES PERFORMED..................................................... 17
(v) EMPLOYEES............................................................................ 17
(w) EMPLOYEE BENEFITS.................................................................... 17
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
(x) GUARANTIES........................................................................... 18
(y) ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS............................................ 18
(z) CERTAIN BUSINESS RELATIONSHIPS WITH THE COMPANY...................................... 19
(aa) CUSTOMERS AND SUPPLIERS.............................................................. 20
6. REPRESENTATIONS AND WARRANTIES CONCERNING THE BUYER AND ORIUS................................. 20
(a) ORGANIZATION OF THE BUYER............................................................ 20
(b) ORGANIZATION OF ORIUS................................................................ 20
(c) CAPITALIZATION OF ORIUS.............................................................. 21
(d) TITLE TO ASSETS...................................................................... 21
(e) SUBSIDIARIES AND AFFILIATES.......................................................... 21
(f) FINANCIAL STATEMENTS................................................................. 21
(g) EVENTS SUBSEQUENT TO MOST RECENT NORTH AMERICAN PERIOD END........................... 21
(h) TAX MATTERS.......................................................................... 22
(i) INTELLECTUAL PROPERTY................................................................ 22
(j) INSURANCE............................................................................ 22
(k) LEGAL COMPLIANCE..................................................................... 22
(l) EMPLOYEE BENEFITS.................................................................... 22
(m) ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS............................................ 24
(n) DISCLOSURE........................................................................... 25
7. PRE-CLOSING COVENANTS......................................................................... 25
(a) GENERAL.............................................................................. 25
(b) NOTICES AND CONSENTS................................................................. 25
(c) OPERATION OF BUSINESS................................................................ 25
(d) PRESERVATION OF BUSINESS............................................................. 25
(e) FULL ACCESS.......................................................................... 25
(f) NOTICE OF DEVELOPMENTS............................................................... 26
(g) EXCLUSIVITY.......................................................................... 26
(h) NO TERMINATION OF SHAREHOLDERS'S OBLIGATION BY SUBSEQUENT INCAPACITY................. 26
8. POST-CLOSING COVENANTS........................................................................ 26
(a) GENERAL.............................................................................. 26
(b) LITIGATION SUPPORT................................................................... 26
(c) TRANSITION........................................................................... 26
(d) INDEPENDENT ACCOUNTANTS.............................................................. 27
(e) TAX MATTERS.......................................................................... 27
(f) STOCK OPTIONS........................................................................ 27
(g) AUDITED FINANCIAL STATEMENTS......................................................... 27
(h) NON-DISPARAGEMENT.................................................................... 27
9. CONDITIONS TO OBLIGATION TO CLOSE............................................................. 27
(a) CONDITIONS TO OBLIGATION OF BUYER.................................................... 27
(b) CONDITIONS TO OBLIGATION OF THE SHAREHOLDERS......................................... 29
10. REMEDIES FOR BREACHES OF THIS AGREEMENT....................................................... 30
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES........................................... 30
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF BUYER...................................... 30
(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE SHAREHOLDERS........................... 31
(d) MATTERS INVOLVING THIRD PARTIES...................................................... 31
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
(e) DETERMINATION OF ADVERSE CONSEQUENCES................................................ 32
(f) OTHER INDEMNIFICATION PROVISIONS..................................................... 32
11. TAX MATTERS................................................................................... 33
(a) TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE..................................... 33
(b) TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING DATE....................... 33
(c) COOPERATION ON TAX MATTERS........................................................... 33
(d) TAX SHARING AGREEMENTS............................................................... 34
(e) TERMINATION OF S CORPORATION STATUS.................................................. 34
(f) CERTAIN TAXES........................................................................ 35
(g) SECTION 338(H)(10) ELECTION.......................................................... 35
(h) ALLOCATION OF PURCHASE PRICE......................................................... 35
(i) S CORPORATION STATUS................................................................. 35
(j) ESCROW............................................................................... 35
12. TERMINATION................................................................................... 36
(a) TERMINATION OF AGREEMENT............................................................. 36
(b) EFFECT OF TERMINATION................................................................ 36
13. MISCELLANEOUS................................................................................. 37
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS.............................................. 37
(b) NO THIRD-PARTY BENEFICIARIES......................................................... 37
(c) ENTIRE AGREEMENT..................................................................... 37
(d) SUCCESSION AND ASSIGNMENT............................................................ 37
(e) COUNTERPARTS......................................................................... 37
(f) HEADINGS............................................................................. 37
(g) NOTICES.............................................................................. 37
(h) GOVERNING LAW........................................................................ 38
(i) AMENDMENTS AND WAIVERS............................................................... 38
(j) SEVERABILITY......................................................................... 38
(k) EXPENSES............................................................................. 38
(l) CONSTRUCTION......................................................................... 38
(m) INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES.................................... 39
(n) SPECIFIC PERFORMANCE................................................................. 39
(o) SUBMISSION TO JURISDICTION........................................................... 39
(p) WAIVER OF JURY TRIAL................................................................. 39
</TABLE>
iii
<PAGE> 5
Exhibit A.: Form of Employment Agreements
Exhibit B.: Form of Leases
Exhibit C.: Form of Non-Competition Agreement
Exhibit D.: Form of Escrow Agreement
Exhibit E.: Form of Patent License
Exhibit F.: Form of Seller's opinion
Exhibit G.: Form of Buyer's opinion
Exhibit H.: Financial Statements
Exhibit I.: North American Financial Statements
Exhibit J.: Allocation of Proceeds
iv
<PAGE> 6
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is entered into as of February 19, 1999
by and among NATG Holdings, LLC, a Delaware limited liability company (the
"Buyer"), Orius Corp., a Delaware corporation and the parent of Buyer ("Orius")
and the shareholders of DAS-CO of Idaho, Inc., an Idaho corporation (the
"Company") listed on the signature page to this Agreement (the "Shareholders").
The Buyer, Orius and the Shareholders are referred to collectively herein as
the "Parties."
The Shareholders in the aggregate own all of the outstanding capital
stock of the Company.
This Agreement contemplates the sale by the Shareholders of all of the
issued and outstanding capital stock of the Company to Buyer. The Shareholders
will receive cash in exchange for their shares of capital stock of the Company.
Simultaneously herewith, NATG Merger Sub, Inc., a Florida corporation
and a wholly-owned subsidiary of Buyer ("Merger Sub")and North American Tel-Com
Group, Inc., a Florida corporation ("North American"), are entering into a
merger agreement (the "Merger Agreement") pursuant to which Merger Sub will be
merged with and into North American. Buyer is also entering into stock exchange
agreements with the shareholders of Network Cabling Services, Inc. ("NCS"),
Copenhagen Utilities & Construction, Inc. ("CUC") and Schatz Underground Cable,
Inc. ("Schatz") to acquire all of the issued and outstanding capital stock of
NCS, CUC and Schatz (collectively with this Agreement and the Merger Agreement,
the "Exchange Agreements").
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1. DEFINITIONS.
"Adverse Consequences" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses,
expenses, and fees, including court costs and reasonable attorneys' fees and
expenses, and any other cost of enforcing a party's rights under this
Agreement.
"Affiliate" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the
meaning of Code Section 1504(a) or any similar group defined under a similar
provision of state, local or foreign law.
"Applicable Rate" means the corporate base rate of interest
publicly announced from time to time by PNC Bank, N.A.
"Basis" means any past or present fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction that forms or could form the
basis for any specified consequence.
"Buyer" has the meaning set forth in the preface above.
1
<PAGE> 7
"Cash Distribution" has the meaning set forth in Section
Permitted Distributions of the Disclosure Schedule.
"Closing" has the meaning set forth in Section below.
"Closing Date" has the meaning set forth in Section below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the preface above.
"Company Share" means any share of the voting or non-voting
Common Stock, $1.00 par value, of the Company.
"Consideration" has the meaning set forth in Section below.
"Controlled Group of Corporations" has the meaning set forth
in Code Section 1563.
"Disclosure Schedule" has the meaning set forth in Section
below.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan), (d) Employee Welfare Benefit Plan or (e)
bonus, incentive, stock purchase, stock ownership, stock option, stock
appreciation right, severance, salary continuation, termination, change of
control or other material fringe benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in
ERISA Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in
ERISA Section 3(1).
"Employment Agreements" means the Employment Agreements
substantially in the form attached hereto as Exhibit .
"Environmental, Health, and Safety Requirements" shall mean
all federal, state, local and foreign statutes, regulations, ordinances and
other provisions having the force or effect of law, all judicial and
administrative orders and determinations, all contractual obligations and all
common law concerning public health and safety, worker health and safety, and
pollution or protection of the environment, including without limitation all
those relating to the presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution, labeling, testing,
processing, discharge, release, threatened release, control, or cleanup of any
Hazardous Materials (which, for purposes of this Agreement, shall mean any
hazardous materials, substances or wastes, chemical substances or mixtures,
pesticides, pollutants, contaminants, toxic chemicals, petroleum products or
byproducts, asbestos, polychlorinated biphenyls, noise or radiation), each as
amended and as now or hereafter in effect.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" means (i) any corporation included with the
Company in a controlled group of corporations within the meaning of Section
414(b) of the Code; (ii) any trade or business (whether
2
<PAGE> 8
or not incorporated) which is under common control with the Company within the
meaning of Section 414(c) of the Code; (iii) any member of an affiliated
service group of which the Company is a member within the meaning of Section
414(m) of the Code; or (iv) any other person or entity treated as an affiliate
of the Company under Section 414(o) of the Code.
"Estimated Closing Balance Sheet" has the meaning given that
term in Section hereof.
"Excess Cash" has the meaning set forth in Section -Permitted
Distributions of the Disclosure Schedule.
"Excess Receivables" has the meaning set forth in Section
- -Permitted Distributions of the Disclosure Schedule.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"Financial Statement" has the meaning set forth in Section
below.
"GAAP" means United States generally accepted accounting
principles as in effect from time to time.
"Indemnified Party" has the meaning set forth in Section
below.
"Indemnifying Party" has the meaning set forth in Section
below.
"Intellectual Property" means (a) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications, and patent
disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof, (b)
all trademarks, service marks, trade dress, logos, trade names, and corporate
names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection therewith, (d) all mask works and all applications,
registrations, and renewals in connection therewith, (e) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals), (f) all computer software (including data and related
documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"J. Dancer" means Jerry Dancer.
"Knowledge" means that which is known by a person and that of
which a person has constructive knowledge based upon information readily
available to that person in the performance of such person's duties after
reasonable investigation and inquiry of such person. In the case of Buyer,
"Knowledge" means the "Knowledge" of its manager. In the case of the Company,
"Knowledge" means the "Knowledge" of the Shareholders.
"Leases" means the five-year triple net lease agreements
between Buyer and the Shareholders (or their Affiliates) for the real property
utilized by the Company in Nampa, Twin Falls and Pocatello, Idaho substantially
in the forms attached hereto as Exhibit .
3
<PAGE> 9
"Liability" means any liability (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Material Adverse Effect" means, individually or together
with other adverse effects, any material adverse effect on the assets,
liabilities, results of operations, business condition (financial or otherwise)
or prospects of the Company or on the Company's ability to consummate the
transactions contemplated hereby or the ability of Buyer to operate the
business of the Company immediately after the Closing in substantially the same
manner as such business is conducted prior to Closing.
"Most Recent Balance Sheet" means the balance sheet contained
within the Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth
in Section below.
"Most Recent Fiscal Period End" has the meaning set forth in
Section below.
"Most Recent Fiscal Year End" has the meaning set forth in
Section below.
"Multiemployer Plan" has the meaning set forth in ERISA
Section 3(37).
"N.Dancer" means Norris Dancer.
"National Securities Exchange" shall have the meaning
ascribed to that term in the rules and regulations promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934.
"Noncompetition Agreements" means the Noncompetition
Agreements substantially in the form attached hereto as Exhibit .
"Oldham" means William Oldham.
"Operating Cash" has the meaning set forth in Section
Permitted Distributions of the Disclosure Schedule.
"Operating Receivables" has the meaning set forth in Section
- -Permitted Distributions of the Disclosure Schedule.
"Ordinary Course of Business" means the ordinary course of
business consistent with past custom and practice (including with respect to
quantity and frequency).
"Orius" has the meaning set forth in the preface above.
"Party" has the meaning set forth in the preface above.
"Patent License Agreement" means the patent license agreement
in substantially the form as attached as Exhibit hereto.
"PBGC" means the Pension Benefit Guaranty Corporation.
4
<PAGE> 10
"Person" means an individual, a partnership, a corporation,
an association, a joint stock company, a trust, a joint venture, an
unincorporated organization, or a governmental entity (or any department,
agency, or political subdivision thereof).
"Prohibited Transaction" has the meaning set forth in ERISA
Section 406 and Code Section 4975.
"Reportable Event" has the meaning set forth in ERISA Section
4043.
"Section 338(h)(10) Election" has the meaning set forth in
Section below.
"Securities Act" means the Securities Act of 1933, as
amended.
"Securities Exchange Act" means the Securities Exchange Act
of 1934, as amended.
"Security Interest" means any mortgage, pledge, lien,
encumbrance, charge, or other security interest, other than (a) mechanic's,
materialmen's, and similar liens that could not reasonably be expected to have
a Material Adverse Effect, (b) liens for Taxes not yet due and payable or for
Taxes that the taxpayer is contesting in good faith through appropriate
proceedings disclosed on Section of the Disclosure Schedule, (c) purchase money
liens and liens securing rental payments under capital lease arrangements
disclosed in the Most Recent Financial Statements, and (d) other liens arising
in the Ordinary Course of Business and not incurred in connection with the
borrowing of money, so long as such liens could not reasonably be expected to
have a Material Adverse Effect.
"Shareholders" has the meaning set forth in the preface
above.
"Subsidiary" means any corporation with respect to which a
specified Person (or a Subsidiary thereof) owns a majority of the common stock
or has the power to vote or direct the voting of sufficient securities to elect
a majority of the directors.
"Tax" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Code Section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed or not,
and any obligations under any agreements or arrangements with respect to any of
the foregoing.
"Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in Section
below.
"Shareholders" has the meaning set forth in the preface
above.
2. PURCHASE AND SALE TRANSACTION.
(a) BASIC TRANSACTION. On and subject to the terms and
conditions of this Agreement, Buyer agrees to purchase from the Shareholders,
and the shareholders agree to sell to Buyer, all of their respective Company
Shares for the consideration specified below in this Section .
5
<PAGE> 11
(b) CONSIDERATION. Buyer agrees to deliver at Closing, to the
Shareholders, cash in the amount of $24,750,000.00 payable by wire transfer or
other immediately available funds. The Consideration shall be allocated as set
forth in Section of the Disclosure Schedule.
(c) THE CLOSING. The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of Holland &
Knight LLP in Ft. Lauderdale, Florida, commencing at 9:00 a.m. local time on
February 26, 1999 or such other date, time and place as the Parties may
mutually determine (the "Closing Date").
(d) DELIVERIES AT CLOSING. At the Closing, (i) the
Shareholders will deliver to Buyer the various certificates, instruments, and
documents referred to in Section below, (ii) Buyer will deliver to the
Shareholders the various certificates, instruments, and documents referred to
in Section below, (iii) the Shareholders will deliver to Buyer stock
certificates representing all of their Company Shares, endorsed in blank or
accompanied by duly executed assignment documents, and (iv) Buyer will deliver
to the Shareholders the Consideration specified in Section above.
3. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS CONCERNING THE
TRANSACTION. Each Shareholder represents and warrants to Buyer that the
statements contained in this Section are correct and complete as of the date of
this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date
of this Agreement throughout this Section ), except as set forth on Section of
the Disclosure Schedule (as hereinafter defined).
(a) AUTHORIZATION OF TRANSACTION. Such Shareholder has full
power and authority to execute and deliver this Agreement and to perform his
obligations hereunder. This Agreement constitutes the valid and legally binding
obligation of such Shareholder, enforceable in accordance with its terms and
conditions except to the extent enforcement thereof may be limited by
applicable bankruptcy, reorganization, insolvency or moratorium laws, or other
laws affecting the enforcement of creditors' rights or by the principles
governing the availability of equitable remedies. Such Shareholder need not
give any notice to, make any filing with, or obtain any authorization, consent,
or approval of any government or governmental agency or any other Person in
order to consummate the transactions contemplated by this Agreement.
(b) NONCONTRAVENTION. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated
hereby, will (A) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of
any government, governmental agency, or court to which such Shareholder is
subject or (B) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
material agreement, contract, lease, license, instrument, or other arrangement
to which such Shareholder is a party or by which he is bound or to which any of
his assets is subject.
(c) BROKERS' FEES. Such Shareholder has, or prior to Closing
will have, paid any fees or commissions due from Shareholders to any broker,
finder, or agent with respect to the transactions contemplated by this
Agreement. Such Shareholder agrees that he will pay any additional amounts that
may become due from him or the Company to any such broker, finder or agent in
the future, including as a result of any indemnification obligations.
(d) COMPANY SHARES. Such Shareholder holds of record and owns
beneficially the number of Company Shares set forth opposite such Shareholder's
name, in Section of the Disclosure Schedule, free and clear of any restrictions
on transfer (other than any restrictions under the Securities
6
<PAGE> 12
Act and state securities laws), Taxes, Security Interests liens or other
encumbrances, options, warrants, purchase rights, contracts, commitments,
equities, claims, and demands. Such Shareholder is not a party to any option,
warrant, purchase right, or other contract or commitment that could require
such Shareholder to sell, transfer, or otherwise dispose of any capital stock
of the Company (other than this Agreement). Such Shareholder is not a party to
any voting trust, proxy, shareholders agreement, or other agreement or
understanding with respect to the voting of any capital stock of the Company.
(e) DISCLOSURE. Neither this Agreement nor any of the
exhibits, attachments, written statements, documents, certificates or other
items prepared for or supplied to Buyer by such Shareholder with respect to the
transactions contemplated hereby contains any untrue statement of a material
fact or omits to state any material fact necessary in order to make each
statement contained herein or therein not misleading. There is no fact which
such Shareholder has not disclosed to Buyer herein and of which the
Shareholders is aware which could be anticipated to have a Material Adverse
Effect.
4. REPRESENTATIONS AND WARRANTIES OF THE BUYER AND ORIUS CONCERNING
THE TRANSACTION. The Buyer and Orius, jointly and severally, represent and
warrant to the Shareholders that the statements contained in this Section are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Section ),
except as set forth in the disclosure schedule delivered by the Buyer to the
Shareholders on the date hereof (the "Buyer Disclosure Schedule").
(a) AUTHORIZATION OF TRANSACTION. Each of the Buyer and Orius
has full power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. This Agreement constitutes the valid and
legally binding obligation of the Buyer and Orius, enforceable in accordance
with its terms and conditions except to the extent enforcement thereof may be
limited by applicable bankruptcy, reorganization, insolvency or moratorium
laws, or other laws affecting the enforcement of creditors' rights or by the
principles governing the availability of equitable remedies. Neither Buyer nor
Orius need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency or
any other Person in order to consummate the transactions contemplated by this
Agreement.
(b) NONCONTRAVENTION. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated
hereby, will (A) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of
any government, governmental agency, or court to which the Buyer or Orius is
subject or any provision of their respective charter or bylaws or (B) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which the Buyer or Orius is a
party or by which either of them is bound or to which any of the assets of
either of them is subject.
(c) BROKERS' FEES. The Buyer has, or prior to the Closing
will have, paid any fees or commissions due from the Buyer to any broker,
finder, or agent with respect to the transactions contemplated by this
Agreement. The Buyer agrees that it will pay any additional amounts that may
become due from the Buyer to any such broker, finder or agent in the future,
including as a result of any indemnification obligations.
(d) DISCLOSURE. Neither this Agreement nor any of the
exhibits, attachments, written statements, documents, certificates or other
items prepared for or supplied to the Shareholders by the Buyer or Orius with
respect to the transactions contemplated hereby contains any untrue statement
of a
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material fact or omits to state any material fact necessary in order to make
each statement contained herein or therein not misleading. There is no fact
which the Buyer or Orius has not disclosed to the Shareholders herein and of
which the Buyer or Orius or any of the their respective officers or directors
is aware and which could be anticipated to have a Material Adverse Effect on
the operations of the Buyer or Orius after the Closing.
5. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY. The
Shareholders jointly and severally represent and warrant to Buyer that the
statements contained in this Section are correct and complete as of the date of
this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date
of this Agreement throughout this Section ), except as set forth in the
Disclosure Schedule delivered by the Shareholders to Buyer on the date hereof
and initialed by the Parties (the "Disclosure Schedule"). The Disclosure
Schedule shall be effective to modify only those representations and warranties
to which the Disclosure Schedule makes explicit reference. The Disclosure
Schedule will be arranged in paragraphs corresponding to the lettered and
numbered paragraphs contained in this Section .
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. The
Company is a corporation duly organized, validly existing, and in good standing
under the laws of the jurisdiction of its incorporation. The Company is duly
authorized to conduct business and is in good standing under the laws of each
jurisdiction where such qualification is required. The Company has full
corporate power and authority and all licenses, permits, and authorizations
necessary to carry on the businesses in which it is engaged and in which it
presently proposes to engage and to own and use the properties owned and used
by it, except where failure to do so is authorized or will not result in any
Material Adverse Effect. Section of the Disclosure Schedule lists the directors
and officers of the Company. Correct and complete copies of the charter and
bylaws of the Company (as amended to date) are included as part of Section of
the Disclosure Schedule. The minute books (containing the records of meetings
of the stockholders, the board of directors, and any committees of the board of
directors), the stock certificate books, and the stock record books of the
Company are correct and complete and an true and correct copy thereof has been
provided to Buyer. The Company is not in default under or in violation of any
provision of its charter or bylaws.
(b) CAPITALIZATION. The entire authorized capital stock of
the Company consists of 10,000 shares of voting Company Shares and 90,000
non-voting Company Shares, of which 3,800 voting Company Shares and 34,200
non-voting Company Shares are issued and outstanding and none are held in
treasury. All of the issued and outstanding Company Shares have been duly
authorized, are validly issued, fully paid, and nonassessable, and are held of
record and owned beneficially by the Shareholders in the amounts set forth in
ss. of the Disclosure Schedule. There are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights, exchange
rights, preemptive rights or other contracts or commitments that could require
the Company to issue, sell, or otherwise cause to become outstanding any of its
capital stock or securities convertible or exchangeable for, or any options,
warranties, or rights to purchase, any of such capital stock. There are no
outstanding obligations of the Company to repurchase, redeem or otherwise
acquire any capital stock or any securities convertible into or exchangeable
for such capital stock or any options, warrants or rights to purchase such
capital stock or securities. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation, or similar rights with
respect to the Company. There are no voting trusts, proxies, or other
agreements or understandings with respect to the voting, transfer, dividend or
other rights (such as registration rights under the Securities Act) of the
capital stock of the Company.
(c) NONCONTRAVENTION. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated
hereby, will: (i) violate any constitution, statute,
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regulation, rule, injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which the
Company is subject or any provision of the charter or bylaws or similar
governance documents of the Company or; (ii) conflict with, result in a breach
of, constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which the Company is a party or by which it is bound or to which
any of its assets is subject (or result in the imposition of any Security
Interest upon any of its assets), which individually or in the aggregate would
constitute the Basis of a Material Adverse Effect on the Company. The Company
need not give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any Person, government or governmental agency in order
for the Parties to consummate the transactions contemplated by this Agreement.
(d) TITLE TO ASSETS. The Company has good and marketable
title to, or a valid leasehold interest in, the properties and assets used by
it, located on its premises, or shown on the Most Recent Balance Sheet or
acquired after the date thereof, free and clear of all Security Interests
(other than the Security Interests disclosed on the face of the Most Recent
Balance Sheet), except for properties and assets disposed of in the Ordinary
Course of Business since the date of the Most Recent Balance Sheet, none of
which disposals are expected to have a Material Adverse Effect. The
consummation of the transactions contemplated by this Agreement will not affect
the Company's good and marketable title to, or valid leasehold interest in, the
properties and assets described in the preceding sentence.
(e) SUBSIDIARIES. The Company does not currently have, and
has never had, any Subsidiaries and does not own any securities of any other
Person.
(f) FINANCIAL STATEMENTS. Attached hereto as Exhibit are the
following financial statements (collectively the "Financial Statements"): (i)
reviewed consolidated balance sheets and statements of income, including the
independent accountant's report thereon as of and for the fiscal year ended
December 31, 1997 (the "Most Recent Fiscal Year End") for the Company; (ii)
reviewed consolidated balance sheets and statements of income, including the
independent accountant's report thereon as of and for the fiscal years ended
December 31, 1994, December 31, 1995 and December 31, 1996 and (iii) unaudited
consolidated balance sheets and statements of income, (the "Most Recent
Financial Statements") as of and for the period from January 1, 1998, through
December 31, 1998 for the Company (the "Most Recent Fiscal Period End"). The
Financial Statements (including the notes thereto) have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby, present fairly the financial condition of the Company as of
such dates and the results of operations of the Company for such periods, are
correct and complete in all material respects, and are consistent with the
books and records of the Company (which books and records are correct and
complete in all material respects).
(g) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. Except
as set forth on Section of the Disclosure Schedule, since the Most Recent
Fiscal Year End, there has not been any occurrence, event, incident, action,
failure to act or transaction that constitutes the Basis of a Material Adverse
Effect on the Company or any that is outside the Ordinary Course of Business.
Without limiting the generality of the foregoing, since that date:
(i) The Company has not sold, leased, transferred,
or assigned any of its assets, tangible or intangible, other than for a fair
consideration in the Ordinary Course of Business;
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<PAGE> 15
(ii) The Company has not entered into any
agreements, contracts, leases, or licenses either involving more than $100,000
or having a term greater than 12 months or outside the Ordinary Course of
Business;
(iii) No party (including the Company) has
accelerated, terminated, modified, or cancelled any agreements, contracts,
leases, or licenses involving more than $100,000 to which the Company is a
party or by which it is bound;
(iv) The Company has not imposed or allowed to be
imposed any Security interest upon any of its assets, tangible or intangible;
(v) The Company has not made any capital
expenditures involving more than $100,000 in the aggregate or outside the
Ordinary Course of Business;
(vi) The Company has not made any capital investment
in, any loan to, or any acquisition of the securities or assets of, any other
Person;
(vii) The Company has not issued any note, bond, or
other debt security or created, incurred, assumed, or guaranteed any
indebtedness for borrowed money or capitalized lease obligation involving more
than $100,000;
(viii) The Company has not delayed or postponed the
payment of accounts payable and other Liabilities outside the Ordinary Course
of Business;
(ix) The Company has not cancelled, compromised,
waived, or released any right or claim either involving more than $100,000 in
the aggregate or outside the Ordinary Course of Business;
(x) The Company has not granted any license or
sublicense of any rights under or with respect to any Intellectual Property;
(xi) There has been no change made or authorized in
the charter or bylaws of any of the Company;
(xii) The Company has not issued, sold, or otherwise
disposed of any of its capital stock or securities convertible into or
exchangeable for such stock, or granted any options, warrants, or other rights
to purchase or obtain any of such capital stock or securities;
(xiii) The Company has not declared, set aside, or
paid any dividend or made any distribution with respect to its capital stock
(whether in cash or in kind) or redeemed, purchased, or otherwise acquired any
of its capital stock or other securities;
(xiv) The Company has not experienced any damage,
destruction, or loss (whether or not covered by insurance) to its property
involving more than $100,000 in the aggregate;
(xv) The Company has not made any loan to, or
entered into any other transaction with, any of its directors, officers, and
employees or their "Associates" (as defined in Rule 12b-2 under the Exchange
Act);
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(xvi) The Company has not entered into any
employment contract or collective bargaining agreement, written or oral, or
modified the terms of any existing such contract or agreement outside the
Ordinary Course of Business;
(xvii) The Company has not granted any increase in
any compensation of any of its directors, officers, or other employees outside
the Ordinary Course of Business;
(xviii) The Company has not adopted, amended,
modified, or terminated any bonus, profit-sharing, incentive, severance, or
other plan, contract, or commitment for the benefit of any of its directors,
officers, and employees (or taken any such action with respect to any other
Employee Benefit Plan);
(xix) The Company has not made any other change in
employment terms for any of its directors, officers, and employees outside the
Ordinary Course of Business;
(xx) The Company has not made or pledged to make any
charitable or other capital contribution outside the Ordinary Course of
Business;
(xxi) There has not been any other material
occurrence, event, incident, action, failure to act, or transaction outside the
Ordinary Course of Business involving the Company; and
(xxii) The Company has not increased, or experienced
any change in assumptions underlying or method of calculating, any bad debt,
contingency, tax or other reserves or changed its accounting practices, methods
or assumptions (including changes in estimates or valuation methods); or
written down the value of any assets;
(xxiii) The Company has not granted any bonuses or
made any other payments of any kind (other than base compensation in the
Ordinary Course of Business) to any officer, director or employee of the
Company, or to any Person related to any of the foregoing; and
(xxiv) The Company has not committed to do any of
the foregoing.
(h) UNDISCLOSED LIABILITIES. Except as disclosed in Section
of the Disclosure Schedule, the Company does not have any Liability, except for
(i) Liabilities set forth on the face of the Most Recent Balance Sheet (rather
than in any notes thereto) and (ii) Liabilities which have arisen after the
Most Recent Fiscal Period End in the Ordinary Course of Business (none of which
results from, arises out of, relates to, is in the nature of, or was caused by
any breach of contract, breach of warranty, tort, infringement, or violation of
law and none of which could reasonably be expected to have a Material Adverse
Effect).
(i) LEGAL COMPLIANCE. The Company and its predecessors and
Affiliates have complied, in all material respects, with all applicable laws
(including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof), and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has been
filed or commenced against any of them alleging any failure so to comply.
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(j) TAX MATTERS.
(i) The Company has filed all Tax Returns that were
required to be filed prior to the date hereof and will have filed all Tax
Returns that it will have been required to file prior to the Closing Date. All
such Tax Returns were correct and complete in all material respects. All Taxes
owed by the Company (whether or not shown on any Tax Return) have been paid or
are fully and adequately accrued and adequately disclosed on the Most Recent
Balance Sheet. The Company is not currently the beneficiary of any extension of
time within which to file any Tax Return. No claim has ever been made by an
authority in a jurisdiction where the Company does not file Tax Returns that it
is or may be subject to taxation by that jurisdiction. There are no Security
Interests on any of the assets of the Company that arose in connection with any
failure (or alleged failure) to pay any Tax.
(ii) The Company has withheld and paid when due all
Taxes required to have been withheld and paid in connection with amounts paid
or owing to any employee, independent contractor, creditor, stockholder, or
other third party.
(iii) Neither Shareholders nor the Company has
Knowledge that any authority expects to assess any additional Taxes for any
period for which Tax Returns have been filed. There is no action, suit or
proceeding, investigation, dispute or claim now pending or threatened
concerning any Tax Liability of the Company or proposed adjustment to the
taxable income of the Company either (A) claimed or raised by any authority in
writing or (B) as to which any of the Shareholders and the Company has
Knowledge based upon personal contact with any agent of such authority. Section
of the Disclosure Schedule contains a summary of all Tax Returns filed with
respect to the Company for the last three completed tax years, indicates those
Tax Returns that have been audited, and indicates those Tax Returns that
currently are the subject of audit. The Shareholders have made available to
Buyer correct and complete copies of all Tax Returns of the Company,
examination reports, and statements of deficiencies assessed against or agreed
to by the Company since January 1, 1994.
(iv) The Company has not waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency.
(v) The Company has not filed a consent under Code
Section 341(f) concerning collapsible corporations. The Company has not made
any payments, is not obligated to make any payments, or is not a party to any
agreement that under certain circumstances could obligate it to make any
payments that will not be deductible under Code Section 280G or that would give
rise to any obligation to indemnify any Person for any excise tax payable
pursuant to Code Section 4999. The Company has not been a United States real
property holding corporation within the meaning of Code Section 897(c)(2)
during the applicable period specified in Code Section 897(c)(1)(A)(ii). The
Company has disclosed on its federal income Tax Returns all positions taken
therein that could give rise to a substantial understatement of federal income
Tax within the meaning of Code Section 6662. Neither the Company nor any
predecessor or affiliate thereof is a party to any Tax allocation, sharing,
indemnification or similar agreement. The Company (A) has not been a member of
an Affiliated Group filing a consolidated federal income Tax Return (other than
a group the common parent of which was the Company) and (B) does not have any
Liability for the Taxes of any Person (other than any of the Company and its
Subsidiaries) under Reg. Section 1.1502-6 (or any similar provision of state,
local, or foreign law), as a transferee or successor, by contract, or
otherwise. No indebtedness of the Company consists of "corporate acquisition
indebtedness" within the meaning of Code Section 279.
(vi) Section of the Disclosure Schedule sets forth
as of the most recent practicable date the basis for Federal income tax
purposes of the Company in its assets.
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(vii) The unpaid Taxes of the Company (A) did not,
as of the Most Recent Fiscal Period End, exceed the reserve for Tax Liability
set forth on the face of the Most Recent Balance Sheet (rather than in any
notes thereto) and (B) do not, and will not as of the Closing Date, exceed that
reserve as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Company in filing its Tax
Returns.
(viii) Except as set forth on Section of the
Disclosure Schedule, the Company (and any predecessor of the Company) has been
a validly electing S corporation within the meaning of Code ss.ss. 1361 and
1362 at all times during its existence and the Company will be an S corporation
up to and including the Closing Date.
(ix) The Company will not be liable for any Tax
under Code Section 1374 in connection with the deemed sale of the Company's
assets caused by the ss. 338(h)(10) Election. The Company has not, in the past
10 years, (A) acquired assets from another corporation in a transaction in
which the Company's Tax basis for the acquired assets was determined, in whole
or in part, by reference to the Tax basis of the acquired assets (or other
property) in the hands of the transferor or (B) acquired the stock of any
corporation which is a qualified subchapter S subsidiary.
(k) REAL PROPERTY. The Company does not own any real
property. Section of the Disclosure Schedule lists and describes briefly all
real property leased or subleased to the Company. The Company does not lease any
real property pursuant to written lease agreements.
(l) INTELLECTUAL PROPERTY.
(i) Section of the Disclosure Schedule lists the
Intellectual Property owned by the Company. To the Shareholders' Knowledge, the
Company owns or has the right to use pursuant to license, sublicense,
agreement, or permission in writing all Intellectual Property necessary for the
operation of the businesses of the Company as presently conducted and as
presently proposed to be conducted. To the Shareholders' Knowledge, each item
of Intellectual Property owned or used by the Company immediately prior to the
Closing hereunder will be owned or available for use by the Company on
identical terms and conditions immediately subsequent to the Closing hereunder.
To the Shareholders' Knowledge, the Company has taken all necessary action to
maintain and protect each item of Intellectual Property that it owns or uses.
(ii) To the Shareholders' Knowledge, the Company has
not interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any Intellectual Property rights of third parties, and none of
the Shareholders and the directors and officers (and employees with
responsibility for Intellectual Property matters) of the Company has ever
received any charge, complaint, claim, demand, or notice alleging any such
interference, infringement, misappropriation, or violation (including any claim
that the Company must license or refrain from using any Intellectual Property
rights of any third party). To the Knowledge of Shareholders and the Company,
no third party has interfered with, infringed upon, misappropriated, or
otherwise come into conflict with any Intellectual Property rights of the
Company.
(iii) Section of the Disclosure Schedule identifies
each patent or registration which has been issued to the Company with respect
to any of its Intellectual Property, identifies each pending patent application
or application for registration which the Company has made with respect to any
of its Intellectual Property, and identifies each license, agreement, or other
permission which the Company has granted to any third party with respect to any
of its Intellectual Property (together with any exceptions). The Shareholders
have delivered to Buyer correct and complete copies of all such patents,
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<PAGE> 19
registrations, applications, licenses, agreements, and permissions (as amended
to date) and have made available to Buyer correct and complete copies of all
other written documentation evidencing ownership and prosecution (if
applicable) of each such item. Section of the Disclosure Schedule also
identifies each trade name or unregistered trademark used by the Company in
connection with any of its businesses. With respect to each item of
Intellectual Property required to be identified in Section of the Disclosure
Schedule:
(A) To the Shareholders' Knowledge, the
Company possesses all right, title, and interest in and to the item, free and
clear of any Security Interest, license, or other restriction;
(B) The item is not subject to any
outstanding injunction, judgment, order, decree, ruling, or charge;
(C) No action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or is threatened
which challenges the legality, validity, enforceability, use, or ownership of
the item; and
(D) The Company has never agreed to
indemnify any Person for or against any interference, infringement,
misappropriation, or other conflict with respect to the item.
(iv) Section of the Disclosure Schedule identifies
each item of Intellectual Property that any third party owns and that the
Company uses pursuant to license, sublicense, agreement, or permission. The
Shareholders have delivered to Buyer correct and complete copies of all such
licenses, sublicenses, agreements, and permissions (as amended to date). With
respect to each item of Intellectual Property required to be identified in
Section of the Disclosure Schedule:
(A) The license, sublicense, agreement, or
permission covering the item is legal, valid, binding, enforceable, and in full
force and effect;
(B) The license, sublicense, agreement, or
permission will continue to be legal, valid, binding, enforceable, and in full
force and effect on identical terms following the consummation of the
transactions contemplated hereby;
(C) No party to the license, sublicense,
agreement, or permission is in breach or default, and no event has occurred
which with notice or lapse of time would constitute a breach or default or
permit termination, modification, or acceleration thereunder;
(D) No party to the license, sublicense,
agreement, or permission has repudiated any provision thereof;
(E) With respect to each sublicense, the
representations and warranties set forth in subsections (A) through (D) above
are true and correct with respect to the underlying license;
(F) The underlying item of Intellectual
Property is not subject to any outstanding injunction, judgment, order, decree,
ruling, or charge;
(G) No action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or is threatened
which challenges the legality, validity, or enforceability of the underlying
item of Intellectual Property; and
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(H) The Company has never granted any
sublicense or similar right with respect to the license, sublicense, agreement,
or permission.
(v) To the Knowledge of Shareholders and the
Company, the Company will not interfere with, infringe upon, misappropriate, or
otherwise come into conflict with, any Intellectual Property rights of third
parties as a result of the continued operation of its businesses as presently
conducted and as presently proposed to be conducted.
(vi) None of the Shareholders and the Company has
any Knowledge of any new products, inventions, procedures, or methods of
manufacturing or processing that any competitors or other third parties have
developed which reasonably could be expected to supersede or make obsolete any
product or process of any of the Company.
(m) TANGIBLE ASSETS. The Company owns or leases all
buildings, machinery, equipment, and other tangible assets necessary for the
conduct of its business as presently conducted and as presently proposed to be
conducted. Each such tangible asset has been maintained in accordance with
normal industry practice, is in good operating condition and repair (subject to
normal wear and tear), and is suitable for the purposes for which it presently
is used and presently is proposed to be used. Section of the Disclosure Schedule
lists all material tangible assets owned by the Company.
(n) INVENTORY. The inventory of the Company shown on the Most
Recent Balance Sheet consists of raw materials and supplies, manufactured and
purchased parts, goods in process, and finished goods, all of which is
merchantable and fit for the purpose for which it was procured or manufactured,
and none of which is slow-moving, obsolete, damaged, or defective, subject only
to the reserve for inventory writedown set forth on the face of the Most Recent
Balance Sheet (rather than in any notes thereto) as adjusted for the passage of
time through the Closing Date in accordance with the past custom and practice
of the Company.
(o) CONTRACTS. Section of the Disclosure Schedule lists all
the material contracts and other agreements to which the Company is a party.
The Shareholders have delivered to Buyer a correct and complete copy of each
written agreement listed in Section of the Disclosure Schedule (as amended to
date). With respect to each such agreement: (A) the agreement is legal, valid,
binding, enforceable, and in full force and effect; (B) the agreement will
continue to be legal, valid, binding, enforceable, and in full force and effect
on identical terms following the consummation of the transactions contemplated
hereby; (C) to the Shareholders' Knowledge, no party is in breach or default,
and no event has occurred which with notice or lapse of time would constitute a
breach or default, or permit termination, modification, or acceleration, under
the agreement; and (D) to the Shareholders' Knowledge, no party has repudiated
any provision of the agreement. Section of the Disclosure Schedule lists each
currently outstanding bid or proposal for business submitted by the Company in
excess of $1,000,000.
(p) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts
receivable of the Company are reflected properly on the Most Recent Balance
Sheet in accordance with GAAP, are valid receivables subject to no setoffs or
counterclaims, are current and collectible, and, will be collected in
accordance with their terms at their recorded amounts, subject only to the
reserve for bad debts set forth on the face of the Most Recent Balance Sheet
(rather than in any notes thereto) as adjusted for the passage of time through
the Closing Date in accordance with the past custom and practice of the
Company.
(q) POWERS OF ATTORNEY. There are no outstanding powers of
attorney executed on behalf of the Company.
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(r) INSURANCE. Section of the Disclosure Schedule includes a
true, correct and complete list of all policies of insurance (including
policies providing property, casualty, liability, and workers' compensation
coverage and bond and surety arrangements) to which the Company is a party.
Genuine and complete copies of each of the insurance policies listed in Section
of the Disclosure Schedule have been provided to Buyer. With respect to each
such insurance policy, to the Shareholders' Knowledge: (A) the policy is legal,
valid, binding, enforceable, and in full force and effect; (B) the policy will
continue to be legal, valid, binding, enforceable, and in full force and effect
on identical terms following the consummation of the transactions contemplated
hereby; (C) neither the Company nor any other party to the policy is in breach
or default (including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of time,
would constitute such a breach or default, or permit termination, modification,
or acceleration, under the policy; (D) neither the Company, any ERISA Affiliate
nor Buyer shall be subject to a retroactive rate adjustment, loss sharing
arrangement or other actual or contingent liability and (E) to Shareholders' or
the Company's Knowledge, no party to the policy has repudiated any provision
thereof. To the Shareholders' Knowledge, the Company has been fully covered at
all times during the past 5 years by insurance in scope and amount customary
and reasonable for the businesses in which it has engaged during the
aforementioned period. Section of the Disclosure Schedule describes any
self-insurance arrangements affecting the Company.
(s) LITIGATION. Section of the Disclosure Schedule sets forth
each instance in which the Company (i) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (ii) is a party, or
to the Knowledge of Shareholders or the Company, is threatened to be made a
party to any claim, action, suit, proceeding, hearing, or investigation of, in,
or before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator. Except as set
forth in Section of the Disclosure Schedule, there is no other pending, or to
the Knowledge of Shareholders or the Company, threatened claim, arbitration
proceeding, action, suit, investigation or other proceeding against or
involving the Company or any property or rights of the Company or any officer
or director or the Company. To the Shareholders' Knowledge, none of the
actions, suits, proceedings, hearings, and investigations set forth in Section
of the Disclosure Schedule could have a Material Adverse Effect on the
business, financial condition, operations, results of operations, or future
prospects of the Company. Neither the Shareholders nor the directors and
officers (and employees with responsibility for litigation matters) of the
Company has any reason to believe that any such action, suit, proceeding,
hearing, or investigation may be brought or threatened against the Company.
(t) COMMITMENTS AND WARRANTIES. All services provided by the
Company have been performed in conformity with all applicable contractual
commitments (written or oral) and all express and implied warranties (written
or oral), and the Company has no Liability and, to the Knowledge of the
Shareholders and the Company, there is no Basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim, or
demand against any of them giving rise to any Liability) in connection with any
such services. Section of the Disclosure Schedule includes copies of the
standard forms of agreement entered into between the Company and its customers.
The Company has not entered into any written or oral agreements with any of its
customers that include guaranties, warranties, or indemnity provisions other
than those included in the agreements included as part of Section of the
Disclosure Schedule.
Neither the Company nor the Shareholders has received notice (written
or oral) from any of its customers stating that the customer intends to reduce
the volume of business that it currently conducts with the Company or to cease
doing business with the Company.
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<PAGE> 22
(u) LIABILITY FOR SERVICES PERFORMED. The Company has no
Liability (and, to Shareholders' Knowledge, there is no Basis for any present
or future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against any of them giving rise to any Liability) arising out
of any injury to individuals or property as a result of or in connection with
any services provided by the Company.
(v) EMPLOYEES. To the Knowledge of the Shareholders or the
Company, no executive, key employee, or group of employees has any plans to
terminate employment with the Company. The Company is not currently, nor at any
prior time has been, a party to or bound by any collective bargaining
agreement, nor has the Company experienced any strikes, contractual grievances,
claims of unfair labor practices, or other collective bargaining disputes. The
Company has not committed any unfair labor practice. Neither the Shareholders
nor the Company have any Knowledge of any organizational effort presently being
made or threatened by or on behalf of any labor union with respect to employees
of the Company. To the Knowledge of the Shareholders and the Company, the
Company has not experienced any material employment dispute with any employee.
(w) EMPLOYEE BENEFITS.
(i) Section of the Disclosure Schedule lists each
Employee Benefit Plan that the Company or any ERISA Affiliate maintains,
contributes to, or is required to contribute to or under which the Company or
any ERISA Affiliate has any liability.
(A) Each such Employee Benefit Plan (and
each related trust, insurance contract, or fund) complies in form and in
operation in all respects with the applicable requirements of ERISA, the Code,
and other applicable laws.
(B) All required reports and disclosures
(including Form 5500 Annual Reports, Summary Annual Reports, PBGC-1's, and
Summary Plan Descriptions) have been filed or distributed appropriately with
respect to each such Employee Benefit Plan. The requirements of Part 6 of
Subtitle B of Title I of ERISA and of Code Section 4980B have been met with
respect to each such Employee Benefit Plan which is an Employee Welfare Benefit
Plan.
(C) All contributions (including all
employer contributions and employee salary reduction contributions) which are
due have been paid to each such Employee Benefit Plan which is an Employee
Pension Benefit Plan and all contributions for any period ending on or before
the Closing Date which are not yet due have been paid to each such Employee
Pension Benefit Plan or accrued in accordance with the past custom and practice
of the Company and in accordance with GAAP. All premiums or other payments for
all periods ending on or before the Closing Date have been paid with respect to
each such Employee Benefit Plan which is an Employee Welfare Benefit Plan.
(D) Each such Employee Benefit Plan which
is an Employee Pension Benefit Plan now meets and at all times since inception
have met the requirements of a "qualified plan" under Code Section 401(a) and
has received, within the last two years, a favorable determination letter from
the Internal Revenue Service.
(E) As of the Closing Date, the market
value of assets under each such Employee Benefit Plan which is an Employee
Pension Benefit Plan (other than any Multiemployer Plan) will equal or exceed
the present value of all vested and nonvested Liabilities thereunder determined
in accordance with PBGC methods, factors, and assumptions applicable to an
Employee Pension Benefit Plan terminating on such date.
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<PAGE> 23
(F) The Shareholders have delivered to
Buyer correct and complete copies of the plan documents and summary plan
descriptions including all amendments thereto, the most recent determination
letter received from the Internal Revenue Service, the three most recent Form
5500 Annual Reports (including all schedules thereto), the three most recent
annual premium payment forms filed with the PBGC, and all related trust
agreements, insurance contracts, and other funding agreements which implement
each such Employee Benefit Plan.
(ii) With respect to each Employee Benefit Plan that
the Company or any ERISA Affiliate maintains, contributes to, or is required to
contribute to or under which the Company or any ERISA Affiliate has any
liability:
(A) No such Employee Benefit Plan which is
an Employee Pension Benefit Plan (other than any Multiemployer Plan) has been
completely or partially terminated or been the subject of a Reportable Event as
to which notices would be required to be filed with the PBGC. No proceeding by
the PBGC to terminate any such Employee Pension Benefit Plan (other than any
Multiemployer Plan) has been instituted or threatened.
(B) There have been no Prohibited
Transactions with respect to any such Employee Benefit Plan. No Fiduciary has
any Liability for breach of fiduciary duty or any other failure to act or
comply in connection with the administration or investment of the assets of any
such Employee Benefit Plan. No action, suit, proceeding, hearing, or
investigation with respect to any such Employee Benefit Plan (other than
routine claims for benefits) is pending or threatened. Neither the Shareholders
nor the Company has any Knowledge of any Basis for any such action, suit,
proceeding, hearing, or investigation.
(C) Neither the Company nor any ERISA
Affiliate has incurred, and none of the Shareholders and the directors and
officers (and employees with responsibility for employee benefits matters) of
the Company has any reason to expect that the Company or any ERISA Affiliate
will incur, any Liability to the PBGC (other than PBGC premium payments) or
otherwise under Title IV of ERISA (including any withdrawal Liability) or under
the Code with respect to any such Employee Benefit Plan which is an Employee
Pension Benefit Plan.
(iii) Neither the Company nor any ERISA Affiliate
contributes to, ever has contributed to, or ever has been required to
contribute to any Multiemployer Plan or has any Liability (including withdrawal
Liability) under any Multiemployer Plan.
(iv) Neither the Company nor any ERISA Affiliate
maintains or contributes to, or has ever been required to contribute to any
Employee Welfare Benefit Plan providing medical, health, or life insurance or
other welfare-type benefits for current or future retired or terminated
employees, their spouses, or their dependents (other than in accordance with
Code Section 4980B).
(x) GUARANTIES. The Company is not a guarantor or otherwise
is liable for any Liability or obligation (including indebtedness) of any other
Person.
(y) ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS.
(i) The Company and its Affiliates have complied and
are in compliance with all Environmental, Health, and Safety Requirements.
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<PAGE> 24
(ii) Without limiting the generality of the
foregoing, the Company and its Affiliates have obtained and complied with, and
are in compliance with, all permits, licenses and other authorizations that are
required pursuant to Environmental, Health, and Safety Requirements for the
occupation of its facilities and the operation of its business; a list of all
such permits, licenses and other authorizations is set forth on the Disclosure
Schedule.
(iii) Neither the Company nor its Affiliates has
received any written or oral notice, report or other information regarding any
actual or alleged violation of Environmental, Health, and Safety Requirements,
or any liabilities or potential liabilities (whether accrued, absolute,
contingent, unliquidated or otherwise), including any investigatory, remedial
or corrective obligations, relating to any of them or its facilities arising
under Environmental, Health, and Safety Requirements.
(iv) None of the following exists at any property or
facility owned or operated by the Company: (1) underground storage tanks, (2)
asbestos-containing material in any form or condition, (3) materials or
equipment containing polychlorinated biphenyls, or (4) landfills, surface
impoundments, or disposal areas.
(v) None of the Company or its Affiliates has
treated, stored, disposed of, arranged for or permitted the disposal of,
transported, handled, or released any substance, including without limitation
any hazardous substance, or owned or operated any property or facility (and no
such property or facility is contaminated by any such substance) in a manner
that has given or would give rise to liabilities, including any liability for
response costs, corrective action costs, personal injury, property damage,
natural resources damages or attorney fees, pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), the Solid Waste Disposal Act, as amended ("SWDA") or any other
Environmental, Health, and Safety Requirements.
(vi) Neither this Agreement nor the consummation of
the transaction that is the subject of this Agreement will result in any
obligations for site investigation or cleanup, or notification to or consent of
government agencies or third parties, pursuant to any of the so-called
"transaction-triggered" or "responsible property transfer" Environmental,
Health, and Safety Requirements.
(vii) Neither the Company nor its Affiliates has,
either expressly or by operation of law, assumed or undertaken any liability,
including without limitation any obligation for corrective or remedial action,
of any other Person relating to Environmental, Health, and Safety Requirements.
(viii) No facts, events or conditions relating to
the past or present facilities, properties or operations of the Company or any
of its Affiliates will prevent, hinder or limit continued compliance with
Environmental, Health, and Safety Requirements, give rise to any investigatory,
remedial or corrective obligations pursuant to Environmental, Health, and
Safety Requirements (whether on-site or off-site), or give rise to any other
liabilities (whether accrued, absolute, contingent, unliquidated or otherwise)
pursuant to Environmental, Health, and Safety Requirements, including without
limitation any relating to onsite or offsite releases or threatened releases of
hazardous materials, substances or wastes, personal injury, property damage or
natural resources damage.
(z) CERTAIN BUSINESS RELATIONSHIPS WITH THE COMPANY. Except
as set forth in Section of the Disclosure Schedule, neither the Shareholders,
their respective Affiliates, any director or employee of the Company, or any
relatives of the Shareholders, or any person living in the same residence as
such persons, has been involved in any business arrangement or relationship
with the Company within the past
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<PAGE> 25
12 months, and neither the Shareholders nor their respective Affiliates nor any
of such other persons own leases, licenses, or otherwise has any interest in
any asset, tangible or intangible, which is used in the business of the Company
or any contract, lease or commitment to which the Company is a party. The
Company is not indebted to any officer, director or employee of the Company for
any liability or obligation. No officer, director or employee of the Company is
indebted to the Company for any liability or obligation.
(aa) CUSTOMERS AND SUPPLIERS. To the Shareholders' Knowledge,
no purchase order or commitment of the Company is in excess of normal
requirements, nor are prices provided therein in excess of current market
prices for the products or services to be provided thereunder. No material
supplier of the Company has advised the Company in writing within the past year
that it will stop, or decrease the rate of, supplying materials, products or
services to the Company and no material customer of the Company has advised the
Company in writing within the past year that it will stop, or decrease the rate
of buying materials, products or services from the Company. Section of the
Disclosure Schedule sets forth a list of (a) each customer that accounted for
more than 5% of the consolidated revenues of the Company during the last full
fiscal year or the interim period through the date of the Most Recent Financial
Statements and the amount of revenues accounted for by such customer during
each such period and (b) each supplier that is the sole supplier of any
significant product or component to the Company. To the Shareholders'
Knowledge, the consummation of the transactions contemplated hereby will not
have a Material Adverse Effect on the Company's relationship with any customer
or supplier listed in Section of the Disclosure Schedule.
6. REPRESENTATIONS AND WARRANTIES CONCERNING THE BUYER AND ORIUS. The
Buyer and Orius, jointly and severally, represent and warrant to the
Shareholders that the statements contained in this Section are correct and
complete as of the date of this Agreement and will be correct and complete as
of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section ), except as
set forth in the Buyer Disclosure Schedule. The Buyer Disclosure Schedule shall
be effective to modify only those representations and warranties to which the
Disclosure Schedule makes explicit reference. The Buyer Disclosure Schedule
will be arranged in paragraphs corresponding to the lettered and numbered
paragraphs contained in this Section .
(a) ORGANIZATION OF THE BUYER. The Buyer is a limited
liability company duly organized, validly existing, and in good standing under
the laws of the State of Delaware. Correct and complete copies of the governing
documents of the Buyer (as amended to date) are included as part of the Buyer
Disclosure Schedule. The manager and executive officers of the Buyer and the
names and titles of the executive officers and directors of Orius are set forth
on the Buyer Disclosure Schedule.
(b) ORGANIZATION OF ORIUS. Orius is a corporation validly
existing and in good standing under laws of the State of Delaware. Each
Affiliate and Subsidiary of Orius is validly existing and in good standing
under the laws of the state in which it was incorporated or organized. Orius,
and each of its Affiliates and Subsidiaries, is duly authorized to conduct
business under the laws of each jurisdiction where such qualification is
required, except where failure to do so is authorized or will not result in any
Material Adverse Effect. Orius and each of its Affiliates and Subsidiaries has
full corporate power and authority and all licenses, permits and authorizations
necessary to carry on the business in which it is engaged and in which it
presently proposes to engage, and to own and use the properties owned and used
by it, except where a failure to obtain any such licenses, permits and
authorizations will not have a Material Adverse Effect on Orius. Correct and
complete copies of the charter and bylaws (or similar governance documents) of
Orius are included as part of Section of the Buyer Disclosure Schedule. Neither
Orius, nor any of its Affiliates and Subsidiaries, are in default under or in
violation of any provisions of their respective charters or bylaws (or similar
governance documents).
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<PAGE> 26
(c) CAPITALIZATION OF ORIUS. The entire authorized capital
stock of Orius consists of 4,700,000 shares of Common Stock and 300,000 shares
of preferred stock. The issued and outstanding capital stock of Orius is set
forth and held of record as set forth on Buyer Disclosure Schedule. All of the
issued and outstanding shares of Common Stock have been duly authorized,
validly issued, fully paid, and are nonassessable. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights, or other contracts or commitments that could require
Orius to issue, sell, or otherwise cause to become outstanding any of its
capital stock. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to Orius.
There are no voting trusts, proxies or other agreements or understandings with
respect to the voting of the capital stock of Orius.
(d) TITLE TO ASSETS. Orius, its Affiliates and Subsidiaries
have good and marketable title to, or a valid leasehold interest in, the
properties and assets used by them, located on their premises, or shown on the
Most Recent Orius Balance Sheet or acquired after the date thereof, free and
clear of all Security Interests (other than the Security Interests disclosed on
the face of the Most Recent Orius Balance Sheet and other Permitted Liens),
except for properties and assets disposed of in the Ordinary Course of Business
since the date of the Most Recent Orius Balance Sheet, none of which disposals
are expected to have a Material Adverse Effect on Orius or any of its
Affiliates or Subsidiaries. The consummation of the transactions contemplated
by this Agreement will not affect the Company's good and marketable title to,
or valid leasehold interest in, the properties and assets described in the
preceding sentence.
(e) SUBSIDIARIES AND AFFILIATES. Section of the Buyer
Disclosure Schedule sets forth a complete and correct list of all Subsidiaries
of North American. Except as set forth in Section of the Buyer Disclosure
Schedule, Orius does not currently have, and has not had within the past five
years, any Affiliates or Subsidiaries, and does not own any securities of any
other Person. The issued and outstanding capital stock of each Subsidiary has
been duly authorized, validly issued and fully paid, and is nonassessable.
There are no outstanding or authorized options, warrants, purchase rights,
subscription rights, conversion rights, preemptive rights, exchange rights, or
other contracts or commitments that could require any such Subsidiary to issue,
sell or otherwise cause to become outstanding any of its capital stock. There
are no outstanding obligations of any such Subsidiary to purchase, redeem or
otherwise acquire any capital stock or any securities convertible into or
exchangeable for such capital stock, or any options, warrants or rights to
purchase such capital stock or securities. There are no outstanding or
authorized stock appreciation, phantom stock, profit participation or similar
rights with respect to any Subsidiary. There are no voting trusts, proxies or
other agreements or understandings with respect to the voting of the capital
stock of any such Subsidiary.
(f) FINANCIAL STATEMENTS. Attached hereto as Exhibit are the
following financial statements of North American (collectively the "North
American Financial Statements"): consolidated balance sheets and statements of
income, including the independent accountant's report thereon as of and for the
fiscal period ended November 28, 1998 (the "Most Recent North American Fiscal
Period End"). The North American Financial Statements (including the notes
thereto) have been prepared in accordance with GAAP applied on a consistent
basis throughout the periods covered thereby, present fairly the financial
condition of North American, its Affiliates and Subsidiaries as of such dates
and the results of operations of North American, its Affiliates and
Subsidiaries for such periods, are correct and complete in all material
respects, and are consistent with the books and records of North American, its
Affiliates and Subsidiaries (which books and records are correct and complete
in all material respects).
(g) EVENTS SUBSEQUENT TO MOST RECENT NORTH AMERICAN PERIOD
END. Since the Most Recent North American Fiscal Period End there has not
occurred any Material Adverse Effect on North
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<PAGE> 27
American or any of its Affiliates or Subsidiaries, and North American, its
Affiliates and Subsidiaries have not engaged in any transactions outside of the
Ordinary Course of Business.
(h) TAX MATTERS. All federal, state, local and other tax
returns required to have been filed with respect to North American and any
North American Subsidiary have been filed, and payment or adequate provision
has been made for the payment of all taxes, fees, assessments and other
governmental charges which have or may become due pursuant to said returns or
to assessments received, except to the extent that such taxes, fees,
assessments and other charges are being contested in good faith by appropriate
proceedings diligently conducted and for which such reserves or other
appropriate provisions, if any, as shall be required by GAAP shall have been
made and except where failure to file would not result in assessment of taxes,
penalties and interest in excess of $100,000 in the aggregate. There are no
agreements or waivers extending the statutory period of limitations applicable
to any federal income tax return of North American or any North American
Subsidiary for any period.
(i) INTELLECTUAL PROPERTY.
North American and each North American Subsidiary owns or
possesses all the material patents, trademarks, service marks, trade names,
copyrights, licenses, registrations, franchises, permits and rights necessary
to own and operate its properties and to carry on its business as presently
conducted and planned to be conducted by North American or a North American
Subsidiary, without known possible, alleged or actual conflict with the rights
of others.
(j) INSURANCE. All insurance policies and other bonds to
which North American or any North American Subsidiary is a party are valid and
in full force and effect. No notice has been given or claim made and no grounds
exist to cancel or avoid any of such policies or bonds or to reduce the
coverage provided thereby. Such policies and bonds provide adequate coverage
from reputable and financially sound insurers in amounts sufficient to insure
the assets and risks of North American and North American Subsidiary in
accordance with prudent business practice in the industry of the such entity.
(k) LEGAL COMPLIANCE. North American and each North American
Subsidiary are in compliance in all material respects with all applicable Laws
(other than Environmental Laws which are specifically addressed in Section ) in
all jurisdictions in which any North American or any North American Subsidiary
is presently doing business except where the failure to do so would not have a
Material Adverse Effect.
(l) EMPLOYEE BENEFITS.
(i) Each Employee Benefit Plan (and each related
trust, insurance contract, or fund) to which North American or any North
American Subsidiary is party complies in form and in operation in all respects
with the applicable requirements of ERISA, the Code, and other applicable laws.
(ii) All required reports and disclosures (including
Form 5500 Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan
Descriptions) have been filed or distributed appropriately with respect to each
such Employee Benefit Plan. The requirements of Part 6 of Subtitle B of Title I
of ERISA and of Code Section 4980B have been met with respect to each such
Employee Benefit Plan which is an Employee Welfare Benefit Plan.
(iii) All contributions (including all employer
contributions and employee salary reduction contributions) which are due have
been paid to each such Employee Benefit Plan which
22
<PAGE> 28
is an Employee Pension Benefit Plan and all contributions for any period ending
on or before the Closing Date which are not yet due have been paid to each such
Employee Pension Benefit Plan or accrued in accordance with the past custom and
practice of the applicable North American Subsidiary and in accordance with
GAAP. All premiums or other payments for all periods ending on or before the
Closing Date have been paid with respect to each such Employee Benefit Plan
which is an Employee Welfare Benefit Plan.
(iv) Each such Employee Benefit Plan which is an
Employee Pension Benefit Plan now meets and at all times since inception have
met the requirements of a "qualified plan" under Code Section 401(a) and has
received, within the last two years, a favorable determination letter from the
Internal Revenue Service.
(v) As of the Closing Date, the market value of
assets under each such Employee Benefit Plan which is an Employee Pension
Benefit Plan (other than any Multiemployer Plan) will equal or exceed the
present value of all vested and nonvested Liabilities thereunder determined in
accordance with PBGC methods, factors, and assumptions applicable to an
Employee Pension Benefit Plan terminating on such date.
(vi) With respect to each Employee Benefit Plan that
North American or any ERISA Affiliate maintains, contributes to, or is required
to contribute to or under which North American or any ERISA Affiliate has any
liability:
(A) No such Employee Benefit Plan which is
an Employee Pension Benefit Plan (other than any Multiemployer Plan) has been
completely or partially terminated or been the subject of a Reportable Event as
to which notices would be required to be filed with the PBGC. No proceeding by
the PBGC to terminate any such Employee Pension Benefit Plan (other than any
Multiemployer Plan) has been instituted or threatened.
(B) There have been no Prohibited
Transactions with respect to any such Employee Benefit Plan. No Fiduciary has
any Liability for breach of fiduciary duty or any other failure to act or
comply in connection with the administration or investment of the assets of any
such Employee Benefit Plan. No action, suit, proceeding, hearing, or
investigation with respect to any such Employee Benefit Plan (other than
routine claims for benefits) is pending or threatened. Neither the Shareholders
nor North American has any Knowledge of any Basis for any such action, suit,
proceeding, hearing, or investigation.
(C) Neither North American nor any ERISA
Affiliate has incurred, and none of the Shareholders and the directors and
officers (and employees with responsibility for employee benefits matters) of
North American has any reason to expect that North American or any ERISA
Affiliate will incur, any Liability to the PBGC (other than PBGC premium
payments) or otherwise under Title IV of ERISA (including any withdrawal
Liability) or under the Code with respect to any such Employee Benefit Plan
which is an Employee Pension Benefit Plan.
(vii) Neither North American nor any ERISA Affiliate
contributes to, ever has contributed to, or ever has been required to
contribute to any Multiemployer Plan or has any Liability (including withdrawal
Liability) under any Multiemployer Plan.
(viii) Neither North American nor any North American
Subsidiary maintains or contributes to, or has ever been required to contribute
to any Employee Welfare Benefit Plan providing
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<PAGE> 29
medical, health, or life insurance or other welfare-type benefits for current
or future retired or terminated employees, their spouses, or their dependents
(other than in accordance with Code Section 4980B).
(m) ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS.
(i) North American and its predecessors and each
North American Subsidiary have complied and are in compliance with all
Environmental, Health, and Safety Requirements.
(ii) Without limiting the generality of the
foregoing, North American and each North American Subsidiary have obtained and
complied with, and are in compliance with, all permits, licenses and other
authorizations that are required pursuant to Environmental, Health, and Safety
Requirements for the occupation of its facilities and the operation of its
business; a list of all such permits, licenses and other authorizations is set
forth on the attached Buyer Disclosure Schedule.
(iii) Neither North American nor its predecessors
nor any North American Subsidiary has received any written or oral notice,
report or other information regarding any actual or alleged violation of
Environmental, Health, and Safety Requirements, or any liabilities or potential
liabilities (whether accrued, absolute, contingent, unliquidated or otherwise),
including any investigatory, remedial or corrective obligations, relating to
any of them or its facilities arising under Environmental, Health, and Safety
Requirements.
(iv) None of the following exists at any property or
facility owned or operated by North American: (1) underground storage tanks,
(2) asbestos-containing material in any form or condition, (3) materials or
equipment containing polychlorinated biphenyls, or (4) landfills, surface
impoundments, or disposal areas.
(v) None of North American or its predecessors nor
any North American Subsidiary has treated, stored, disposed of, arranged for or
permitted the disposal of, transported, handled, or released any substance,
including without limitation any hazardous substance, or owned or operated any
property or facility (and no such property or facility is contaminated by any
such substance) in a manner that has given or would give rise to liabilities,
including any liability for response costs, corrective action costs, personal
injury, property damage, natural resources damages or attorney fees, pursuant
to the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), the Solid Waste Disposal Act, as amended ("SWDA")
or any other Environmental, Health, and Safety Requirements.
(vi) Neither this Agreement nor the consummation of
the transaction that is the subject of this Agreement will result in any
obligations for site investigation or cleanup, or notification to or consent of
government agencies or third parties, pursuant to any of the so-called
"transaction-triggered" or "responsible property transfer" Environmental,
Health, and Safety Requirements.
(vii) Neither North American nor its predecessors
nor any North American Subsidiary has, either expressly or by operation of law,
assumed or undertaken any liability, including without limitation any
obligation for corrective or remedial action, of any other Person relating to
Environmental, Health, and Safety Requirements.
(viii) No facts, events or conditions relating to
the past or present facilities, properties or operations of North American or
any of its predecessors or North American Subsidiary will prevent, hinder or
limit continued compliance with Environmental, Health, and Safety Requirements,
give
24
<PAGE> 30
rise to any investigatory, remedial or corrective obligations pursuant to
Environmental, Health, and Safety Requirements (whether on-site or off-site),
or give rise to any other liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise) pursuant to Environmental, Health, and Safety
Requirements, including without limitation any relating to onsite or offsite
releases or threatened releases of hazardous materials, substances or wastes,
personal injury, property damage or natural resources damage.
(n) DISCLOSURE. Neither this Agreement nor any of the
exhibits, attachments, written statements, documents, certificates or other
items prepared for or supplied to the Shareholders by Orius with respect to the
transactions contemplated hereby contains any untrue statement of a material
fact or omits to state any material fact necessary in order to make each
statement contained herein or therein not misleading. There is no fact which
Orius has not disclosed to the Shareholders herein and of which Orius or any of
the its officers or directors is aware and which could be anticipated to have a
Material Adverse Effect on Orius after the Closing.
7. PRE-CLOSING COVENANTS. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing.
(a) GENERAL. Each of the Parties will use his or its best
efforts to take all action and to do all things necessary, proper, or advisable
in order to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions
set forth in Section below).
(b) NOTICES AND CONSENTS. The Shareholders will cause the
Company to give any notices to third parties, and will cause the Company to use
its best efforts to obtain any third party consent required in connection with
the matters referred to in Section above. Each of the Parties will (and the
Shareholders will cause the Company to) give any notices to, make any filings
with, and use its best efforts to obtain any authorizations, consents, and
approvals of governments and governmental agencies in connection with the
matters referred to in Section and Section above.
(c) OPERATION OF BUSINESS. Except as set forth on Schedule
hereto and Section of the Disclosure Schedule, the Shareholders will not cause
or permit the Company to engage in any practice, take any action, or enter into
any transaction outside the Ordinary Course of Business. Without limiting the
generality of the foregoing, and except as set forth on Section of the
Disclosure Schedule, the Shareholders will not cause or permit the Company to
(i) declare, set aside, or pay any dividend or make any distribution with
respect to its capital stock or redeem, purchase, or otherwise acquire any of
its capital stock or (ii) otherwise engage in any practice, take any action, or
enter into any transaction of the sort described in Section above. The
Shareholders will immediately notify Buyer in writing with respect to any
proposed capital expenditures in excess of $50,000.
(d) PRESERVATION OF BUSINESS. Except as provided on Schedule
, the Shareholders will cause the Company to keep its business and properties
substantially intact, including its present operations, physical facilities,
working conditions, and relationships with lessors, licensors, suppliers,
customers, and employees.
(e) FULL ACCESS. The Shareholders will permit, and will cause
the Company to permit, representatives of Buyer to have full access at all
reasonable times, and in a manner so as not to interfere with the normal
business operations of the Company, to all premises, properties, personnel,
books, records (including Tax records), contracts, and documents of or
pertaining to the Company. At the request of Buyer, Shareholders will permit,
and will cause the Company to permit, Buyer's lenders,
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and their respective counsel, to have the same access as permitted to Buyer in
accordance with the immediately preceding sentence.
(f) NOTICE OF DEVELOPMENTS. The Shareholders will give prompt
written notice to Buyer of any breach of any of the representations and
warranties in Section above. Each Party will give prompt written notice to the
others of any breach of any of his or its own representations and warranties in
Section above. No disclosure by any Party pursuant to this Section , however,
shall be deemed to amend or supplement the Buyer Disclosure Schedule or the
Disclosure Schedule or to prevent or cure any misrepresentation, breach of
warranty, or breach of covenant.
(g) EXCLUSIVITY. The Shareholders will not (and the
Shareholders will not cause or permit the Company to) (i) solicit, initiate, or
encourage the submission of any proposal or offer from any Person relating to
the acquisition of any capital stock or other voting securities, or any
substantial portion of the assets, of the Company (including any acquisition
structured as a merger, consolidation, or share exchange) or (ii) participate
in any discussions or negotiations regarding, furnish any information with
respect to, assist or participate in, or facilitate in any other manner any
effort or attempt by any Person to do or seek any of the foregoing. The
Shareholders will notify Buyer immediately if any Person makes any proposal,
offer, inquiry, or contact with respect to any of the foregoing.
(h) NO TERMINATION OF SHAREHOLDERS'S OBLIGATION BY SUBSEQUENT
INCAPACITY. Shareholders specifically agrees that his obligations hereunder,
including, without limitation, the obligations pursuant to Section hereof, shall
not be eliminated by his or her death or incapacity.
8. POST-CLOSING COVENANTS. The Parties agree as follows with respect
to the period following the Closing.
(a) GENERAL. In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, each of the Parties will take such further action (including the
execution and delivery of such further instruments and documents) as any other
Party reasonably may request, all at the sole cost and expense of the
requesting Party (unless the requesting Party is entitled to indemnification
therefor under Section below). The Shareholders acknowledge and agree that from
and after the Closing Buyer will be entitled to possession of all documents,
books, records (including Tax records), agreements, and financial data of any
sort relating to the Company.
(b) LITIGATION SUPPORT. In the event and for so long as any
Party actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving the Company, each of the other Parties will
cooperate with him or it and his or its counsel in the contest or defense, make
available their personnel, and provide such testimony and access to their books
and records as shall be necessary in connection with the contest or defense,
all at the sole cost and expense of the contesting or defending Party (unless
the contesting or defending Party is entitled to indemnification therefor under
ss. below).
(c) TRANSITION. The Shareholders will not take any action
that is designed or intended to have the effect of discouraging any lessor,
licensor, customer, supplier, or other business associate of the Company from
maintaining the same business relationships with the Company after the Closing
as it maintained with the Company prior to the Closing. The Shareholders will
refer all customer inquiries relating to the businesses of the Company to Buyer
from and after the Closing.
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<PAGE> 32
(d) INDEPENDENT ACCOUNTANTS. After the Closing, Shareholders
shall (i) use reasonable efforts to cause the Company's past and present
independent auditors and accounting personnel to make available to Buyer and
its representatives, at Buyer's sole cost and expense, all financial
information, including the right to examine all working papers pertaining to
audits or reviews previously or hereafter made by such auditors, and (ii)
provide such cooperation as Buyer and its representatives may request in
connection with any audit or review of the Company that Buyer may direct its
representatives to make. Without limiting the generality of the foregoing, the
Shareholders agree that they will cooperate with, and cause the Company's past
and present independent auditors, accounting personnel and other necessary
persons to cooperate with Buyer, at the Buyer's sole cost and expense, in the
preparation of any documents filed by Buyer with the U.S. Securities and
Exchange Commission in connection with an offering of securities, to the extent
information about the Company is required therein.
(e) TAX MATTERS. The Shareholders covenant and agree not to
take any action, or fail to take any action, with respect to Taxes, that would
have an adverse effect on Buyer on or after the Closing Date, including,
without limitation, amending or otherwise supplementing any Tax Return or
report of the Company with respect to any period prior to the Closing Date
without the consent of Buyer. If any taxing authority conducts any audit or
investigation relating to the Company prior to the Closing Date, Buyer may, in
its sole election, have the right to supervise such audit or investigation and
provide any response required in connection therewith.
(f) STOCK OPTIONS. Orius has adopted a stock incentive plan
(the "Stock Incentive Plan") pursuant to which stock options and other forms of
stock-based compensation may be awarded to the officers, directors and
employees of Buyer and its subsidiaries. The key employees of the Company shall
be eligible to receive awards under the Stock Incentive Plan of options to
acquire 5,000 shares of Orius common stock. Within 60 days of the Closing, the
officers of the Company shall recommend to the Stock Option Committee under the
Stock Incentive Plan the terms, conditions and amounts of awards to be granted
and the identity of the key employees of the Company to receive such awards,
however, all such awards, and the terms and conditions thereof, shall be
finally determined by the Stock Option Committee.
(g) AUDITED FINANCIAL STATEMENTS. Shareholders shall cause
the Company's auditors to cooperate with Buyer's auditors in the preparation of
audited consolidated balance sheets and statements of income, changes in
stockholders' equity, and cash flow including the audit report thereon as of
and for the three-year period ending December 31, 1998 for the Company. All
costs associated with the preparation and audit of the Company's December 31,
1998 financial statements shall be paid by Buyer.
(h) NON-DISPARAGEMENT. Shareholders agree that they shall not
knowingly make or cause to be made, directly or indirectly, orally or in
writing, any disparaging statements or remarks about the Company, Buyer, Orius
or their respective officers, employees, Affiliates and services. Buyer and
Orius agree that they shall not knowingly make or cause to be made, directly or
indirectly, orally or in writing, any disparaging statements or remarks about
the Shareholders. The restrictions of this section do not apply to any
statements or remarks made or caused to be made, directly or indirectly, prior
to the effective date of this Agreement. The restrictions herein shall not
apply to any statements or remarks made in connection with any judicial
proceeding or pursuant to any court order or subpoena.
9. CONDITIONS TO OBLIGATION TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF BUYER. The obligation of
Buyer to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction of the following conditions:
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<PAGE> 33
(i) The representations and warranties set forth in
Section and Section above shall be true and correct in all material respects at
and as of the Closing Date and there shall not have occurred any Material
Adverse Effect;
(ii) The Shareholders and the Company shall have
performed and complied with all of his covenants hereunder in all material
respects through the Closing;
(iii) The Company shall have procured all of the
third party consents specified in Section above;
(iv) No action, suit, or proceeding shall be pending
or threatened before any court or quasi-judicial or administrative agency of
any federal, state, local, or foreign jurisdiction, or before any arbitrator,
wherein an unfavorable injunction, judgment, order, decree, ruling, or charge
would (A) prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this Agreement to
be rescinded following consummation, (C) affect adversely the right of the
Company to own its assets and to operate its businesses (and no such
injunction, judgment, order, decree, ruling, or charge shall be in effect);
(v) The Shareholders shall have delivered to Buyer a
certificate, to the effect that each of the conditions specified above in
Section through is satisfied in all respects;
(vi) The Parties shall have received all other
authorizations, consents, and approvals of governments and governmental
agencies referred to in Section and Section above;
(vii) Buyer shall have received from counsel to the
Shareholders an opinion substantially in form and substance as set forth in
Exhibit attached hereto, addressed to Buyer and dated as of the Closing Date;
(viii) Oldham shall have entered into an Employment
Agreement;
(ix) The Shareholders shall have entered into the
Noncompetition Agreements;
(x) The Shareholders shall have entered into the
Leases;
(xi) J. Dancer shall have entered into the Patent
License Agreement;
(xii) All actions to be taken by the Shareholders in
connection with the consummation of the transactions contemplated hereby and
all certificates, opinions, instruments, and other documents required to effect
the transactions contemplated hereby will be reasonably satisfactory in form
and substance to Buyer.
(xiii) At least five business days prior to the
Closing, Buyer shall have received a balance sheet prepared by the Company,
estimating the assets, liabilities and shareholders' equity of the Company as
of the Closing Date (the "Estimated Closing Balance Sheet"). The Estimated
Closing Balance Sheet shall be prepared consistent with past practices of the
Company. Buyer shall not have objected to, challenged or otherwise repudiated
any of the amounts included in the Estimated Closing Balance Sheet.
(xiv) Buyer shall have received an appraisal, from
an appraiser selected by Buyer, that states that the fair market value of the
Company's tangible assets listed in Section of the
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<PAGE> 34
Disclosure Schedule is at least equal to the book value of such assets
reflected in the Estimated Closing Balance Sheet.
(xv) The Company shall have delivered evidence of
its qualification to do business in each jurisdiction where it is so qualified
and a certificate of good standing issued by the Secretary of State of each
such jurisdiction demonstrating that the Company is in good standing in that
jurisdiction;
(xvi) The board of directors of Buyer shall have
approved the consummation of the transaction contemplated by this Agreement;
and
(xvii) All actions to be taken by the Shareholders
in connection with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form and
substance to Buyer.
(xviii) All of the transactions contemplated by the
Exchange Agreements shall have been consummated. Buyer may waive any condition
specified in this Section if it executes a writing so stating at or prior to
the Closing.
(b) CONDITIONS TO OBLIGATION OF THE SHAREHOLDERS. The
obligation of the Shareholders to consummate the transactions to be performed
by them in connection with the Closing is subject to satisfaction of the
following conditions:
(i) The representations and warranties set forth in
Section and Section above shall be true and correct in all material respects at
and as of the Closing Date;
(ii) Buyer shall have performed and complied with
all of its covenants hereunder in all material respects through the Closing;
(iii) No action, suit, or proceeding shall be
pending or threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction, or before any
arbitrator, wherein an unfavorable injunction, judgment, order, decree, ruling,
or charge would (A) prevent consummation of any of the transactions
contemplated by this Agreement or (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation (and no
such injunction, judgment, order, decree, ruling, or charge shall be in
effect);
(iv) Buyer shall have delivered to the Shareholders
a certificate to the effect that each of the conditions specified above in
Section - is satisfied in all respects;
(v) The Parties shall have received all other
authorizations, consents, and approvals of governments and governmental
agencies referred to in Section and Section above;
(vi) The Shareholders shall have received from
counsel to Buyer an opinion substantially in form and substance as set forth in
Exhibit attached hereto, addressed to the Shareholders, and dated as of the
Closing Date;
(vii) Buyer shall have entered into the Employment
Agreements;
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<PAGE> 35
(viii) Buyer shall have (A) repaid the outstanding
debt obligations of the Company personally guaranteed by any of the
Shareholders or (B) caused the Shareholders to be released from any personal
guarantees with respect to such outstanding debt obligations;
(ix) Buyer shall have entered into the Leases;
(x) The Shareholders shall have been released from
their personal obligations relative to any outstanding performance or payment
bonds of the Company or the Buyer shall have made such other arrangements as
may be mutually acceptable to the Shareholders and the Buyer to fully indemnify
the Shareholders with respect to any such obligations.
(xi) On or before 5:00 p.m. MST on February 22,
1999, the Shareholders shall have completed their due diligence examination of
the Buyer and Orius;
(xii) All actions to be taken by Buyer in connection
with consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to
the Shareholders.
(xiii) All of the transactions contemplated by the
Exchange Agreements shall have been consummated.
The Shareholders may waive any condition specified in this Section if they
execute a writing so stating at or prior to the Closing.
10. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations, warranties, covenants and agreements of the Parties contained
in this Agreement or in any certificate, document, instrument or agreement
delivered pursuant to this Agreement shall survive the Closing hereunder
(notwithstanding any due diligence investigations that may have been undertaken
by the damaged Party) and continue in full force and effect for three years
from the Closing Date.
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF BUYER.
(i) In the event the Shareholders breach (or in the
event that any third party alleges facts that, if true, would mean that the
Shareholders have breached) any of their representations, warranties (or any of
such representations or warranties is untrue or inaccurate), covenants and
agreements contained herein or in any certificate, document, instrument or
agreement delivered pursuant to this Agreement, and, provided that the
Indemnified Buyers (as hereafter defined) make a written claim for
indemnification against the Shareholders pursuant to Section below within the
applicable claim period provided in Section above, then the Shareholders agree
to indemnify Buyer and each of its officers, directors, employees,
representatives and shareholders (the "Indemnified Buyers") from and against
the entirety of any Adverse Consequences the Indemnified Buyers may suffer
through and after the date of the claim for indemnification (including any
Adverse Consequences the Indemnified Buyers may suffer after the end of any
applicable claim period) resulting from, arising out of, relating to, in the
nature of, or caused by the breach (or the alleged breach) during any
applicable claim period; provided, however, that the Shareholders shall not
have any obligation to indemnify the Indemnified Buyer from and against any
Adverse Consequences resulting from, arising out of, relating to, in the nature
of, or caused by the breach (or alleged breach) of any representation or
warranty of the Shareholders contained in Section above
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<PAGE> 36
(other than those in Section 50(a)--5(j), 5(2) and 5(y)): (A) until the
Indemnified Buyer has suffered Adverse Consequences by reason of all such
breaches (or alleged breaches) in excess of a $250,000 aggregate deductible
(after which point the Shareholders will be obligated only to indemnify the
Indemnified Buyer from and against Adverse Consequences in excess of that
amount) or thereafter (B) to the extent that the Adverse Consequences the
Indemnified Buyer has suffered by reason of all such breaches exceeds a
$24,750,000 aggregate ceiling (after which point the Shareholders will have no
obligation to indemnify the Indemnified Buyer from and against further such
Adverse Consequences).
(ii) The Shareholders agree to indemnify the
Indemnified Buyers from and against the entirety of any Adverse Consequences
they may suffer resulting from, arising out of, relating to, in the nature of,
or caused by the activities of any entity which at any time has been owned, in
whole or in part, by the Company or under common control with the Company.
(iii) Without limiting any other indemnification
provided in this Section , the Shareholders agree to indemnify the Indemnified
Buyers from and against the entirety of any Adverse Consequences they may
suffer as a result of a taxing authority taking the position that any former or
current subcontractor of the Company should have been, at any time prior to the
Closing Date, treated as an employee of the Company.
(iv) All of the indemnification obligations of
Shareholders under this Section shall be joint and several.
(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE
SHAREHOLDERS.
In the event Buyer breaches (or in the event any
third party alleges facts that, if true, would mean Buyer had breached) any of
its representations, warranties (or any of such representations or warranties
is untrue or inaccurate), covenants and agreements contained herein (including,
without limitation, the indemnification provisions of Section and Section or
the payment obligations of the Company set forth on Section -Permitted
Distributions of the Disclosure Schedule) or in any certificate, document,
instrument or agreement delivered pursuant to this Agreement, and, provided
that the Shareholders makes a written claim for indemnification against Buyer
pursuant to Section below within the applicable claim period provided in
Section 10(a) above, then Buyer and Orius, jointly and severally, agree to
indemnify the Shareholders and each of their representatives (the "Indemnified
Shareholders") from and against the entirety of any Adverse Consequences the
Indemnified Shareholders may suffer through and after the date of the claim for
indemnification (including any Adverse Consequences the Indemnified
Shareholders may suffer after the end of any applicable claim period) resulting
from, arising out of, relating to, in the nature of, or caused by the breach
(or the alleged breach).
(d) MATTERS INVOLVING THIRD PARTIES.
(i) If any third party shall notify any party
entitled to indemnification hereunder (the "Indemnified Party") with respect to
any matter (a "Third Party Claim") which may give rise to a claim for
indemnification against any other Party (the "Indemnifying Party") under this
Section then the Indemnified Party shall notify each Indemnifying Party thereof
in writing within 120 days of the receipt of the third party notification.
(ii) Any Indemnifying Party will have the right to
defend the Indemnified Party against the Third Party Claim with counsel of its
choice reasonably satisfactory to the Indemnified Party so long as (A) the
Indemnifying Party notifies the Indemnified Party in writing within 30 days
after the Indemnified Party has given notice of the Third Party Claim that the
Indemnifying Party will
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<PAGE> 37
indemnify the Indemnified Party from and against the entirety of any Adverse
Consequences the Indemnified Party may suffer resulting from, arising out of,
relating to, in the nature of, or caused by the Third Party Claim, (B) the
Indemnifying Party provides the Indemnified Party with evidence reasonably
acceptable to the Indemnified Party that the Indemnifying Party will have the
financial resources to defend against the Third Party Claim and fulfill its
indemnification obligations hereunder, (C) the Third Party Claim involves only
money damages and does not seek an injunction or other equitable relief, (D)
settlement of, or an adverse judgment with respect to, the Third Party Claim is
not, in the good faith judgment of the Indemnified Party, likely to establish a
precedential custom or practice materially adverse to the continuing business
interests of the Indemnified Party, (E) the named parties to the Third Party
Claim do not include both the Indemnified Party and the Indemnifying Party, and
(F) the Indemnifying Party conducts the defense of the Third Party Claim
actively and diligently.
(iii) So long as the Indemnifying Party is
conducting the defense of the Third Party Claim in accordance with Section
above, (A) the Indemnified Party may retain separate co-counsel at its sole
cost and expense and participate in the defense of the Third Party Claim, (B)
the Indemnified Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnifying Party (not to be withheld unreasonably),
and (C) the Indemnifying Party will not consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim without the
prior written consent of the Indemnified Party (not to be withheld
unreasonably).
(iv) In the event any of the conditions in Section
above is or becomes unsatisfied, however, (A) the Indemnified Party may defend
against, and consent to the entry of any judgment or enter into any settlement
with respect to, the Third Party Claim in any commercially reasonable manner
(and the Indemnified Party need not consult with, or obtain any consent from,
any Indemnifying Party in connection therewith), (B) the Indemnifying Parties
will reimburse the Indemnified Party promptly and periodically for the costs of
defending against the Third Party Claim (including reasonable attorneys' fees
and expenses), and (C) the Indemnifying Parties will remain responsible for any
Adverse Consequences the Indemnified Party may suffer resulting from, arising
out of, relating to, in the nature of, or caused by the Third Party Claim to
the fullest extent provided in this Section .
(e) DETERMINATION OF ADVERSE CONSEQUENCES. The Parties shall
make appropriate adjustments for insurance coverage and take into account the
time cost of money (using the Applicable Rate as the discount rate) in
determining Adverse Consequences for purposes of this Section . All
indemnification payments under this Section shall be deemed adjustments to the
Consideration.
(f) OTHER INDEMNIFICATION PROVISIONS. The foregoing
indemnification provisions are in addition to, and not in derogation of, any
statutory, equitable, or common law remedy (including without limitation any
such remedy arising under Environmental, Health, and Safety Requirements) any
Party may have with respect to the Company, or the transactions contemplated by
this Agreement, subject, in each case, to any applicable insurance coverage.
Each Shareholder hereby agrees that he will not make any claim for
indemnification against the Company by reason of the fact that he was a
director, officer, employee, or agent of the Company or was serving at the
request of the Company as a partner, trustee, director, officer, employee, or
agent of another entity (whether such claim is for judgments, damages,
penalties, fines, costs, amounts paid in settlement, losses, expenses, or
otherwise and whether such claim is pursuant to any statute, charter document,
bylaw, agreement, or otherwise) with respect to any action, suit, proceeding,
complaint, claim, or demand brought by the Buyer against such Shareholder
(whether such action, suit, proceeding, complaint, claim, or demand is pursuant
to this Agreement, applicable law, or otherwise).
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11. TAX MATTERS. The following provisions shall govern the allocation
of responsibility as between Buyer and Shareholders for certain tax matters
following the Closing Date:
(a) TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE.
Shareholders shall prepare or cause to be prepared and timely file or cause to
be timely filed all Tax Returns for the Company for all periods ending on or
prior to the Closing Date (the "Pre-Closing Period"). Such Tax Returns shall be
prepared by treating items on such Tax Return in a manner consistent with the
past practices with respect to such items, unless otherwise required by law.
Shareholders shall permit Buyer to review and comment on each such Tax Return
described in the preceding sentence prior to filing. To the extent permitted by
applicable law, Shareholders shall include any income, gain, loss, deduction or
other Tax items for such periods on their Tax Returns in a manner consistent
with the Schedule K-1s furnished to the Shareholders for such periods.
Shareholders shall reimburse Buyer for any Taxes of the Company with respect to
all Pre-Closing Periods ending on or before December 31, 1998, within fifteen
(15) days after payment by Buyer or the Company of such Taxes to the extent
such Taxes are not reflected in the reserve for Tax Liability shown on the face
of the Most Recent Balance Sheet. The Company shall pay any Taxes to the extent
such Taxes are reflected in the reserve for Tax Liability shown on the face of
the Most Recent Balance Sheet.
(b) TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING
DATE. Buyer shall prepare or cause to be prepared and file or cause to be filed
any Tax Returns of the Company for Tax periods which begin before the Closing
Date and end after the Closing Date. Buyer shall permit Shareholders to review
and comment on each such Tax Return described in the preceding sentence prior
to filing. Shareholders shall pay to Buyer within fifteen (15) days after the
date on which Taxes are paid with respect to such periods an amount equal to
the portion of such Taxes which relates to the portion of such Taxable period
ending on the Closing Date to the extent such Taxes are not reflected in the
reserve for Tax Liability shown on the face of the Estimated Closing Balance
Sheet. For purposes of this Section, in the case of any Taxes that are imposed
on a periodic basis and are payable for a Taxable period that includes (but
does not end on) the Closing Date, the portion of such Tax which relates to the
portion of such Taxable period ending on the Closing Date shall (x) in the case
of any personal property Taxes, be deemed to be the amount of such Tax for the
entire Taxable period multiplied by a fraction the numerator of which is the
number of days in the Taxable period ending on the Closing Date and the
denominator of which is the number of days in the entire Taxable period, and
(y) in the case of any other Tax be deemed equal to the amount which would be
payable if the relevant Taxable period ended on the Closing Date. Any credits
or refunds relating to a Taxable period that begins before and ends after the
Closing Date shall be taken into account as though the relevant Taxable period
ended on the Closing Date. All determinations necessary to give effect to the
foregoing allocations shall be made in a manner consistent with prior practice
of the Company.
(c) COOPERATION ON TAX MATTERS.
(i) Buyer, the Company and Shareholders shall
cooperate fully, as and to the extent reasonably requested by the other party,
in connection with the filing of Tax Returns pursuant to this Section and any
audit, litigation or other proceeding with respect to Taxes. Such cooperation
shall include the retention and (upon the other party's request) the provision
of records and information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. The Company and Shareholders agree (A) to retain
all books and records with respect to Tax matters pertinent to the Company
relating to any taxable period beginning before the Closing Date until the
expiration of the statute of limitations (and, to the extent notified by Buyer
or Shareholders, any extensions thereof) of the respective taxable periods, and
to abide by all record retention agreements
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entered into with any taxing authority, and (B) to give the other party
reasonable written notice prior to transferring, destroying or discarding any
such books and records and, if the other party so requests, the Company or
Shareholders, as the case may be, shall allow the other party to take
possession of such books and records.
(ii) Buyer and Shareholders further agree, upon
request, to use their best efforts to obtain any certificate or other document
from any governmental authority or any other Person as may be necessary to
mitigate, reduce or eliminate any Tax that could be imposed (including, but not
limited to, with respect to the transactions contemplated hereby).
(iii) Buyer and Shareholders further agree, upon
request, to provide the other party with all information that either party may
be required to report pursuant to Section 6043 of the Code and all Treasury
Department Regulations promulgated thereunder.
(d) TAX SHARING AGREEMENTS. All tax sharing agreements or
similar agreements with respect to or involving the Company shall be terminated
as of the Closing Date and, after the Closing Date, the Company shall not be
bound thereby or have any liability thereunder.
(e) TERMINATION OF S CORPORATION STATUS.
(i) The Shareholders acknowledge that as a result of
the consummation of the transactions contemplated by this Agreement, the
Company's S Corporation status will terminate as of the Closing Date. The
Shareholders will elect under Section 1362(e)(3) of the Code not to have the pro
rata allocation method of Section 1362(e)(2) of the Code apply to the Company's
final taxable year as an S Corporation. The Parties had initially contemplated
the termination of the Company's S Corporation status effective December 31,
1998. However, the Company's S Corporation status will continue until the
Closing Date to permit Buyer to make the Section 338(h)(10) Election. The
Parties therefore acknowledge that the Shareholders will be required to
recognize income for the period from January 1, 1999 through the Closing Date
and must properly report that additional income on tax returns in order to
accommodate the Buyer's desire to make the Section 338(h)(10) Election. In
order to eliminate the burden of the additional Taxes, expenses and costs that
the Shareholders incur in order to accommodate Buyer, and to ensure that the
Shareholders do not incur any net financial loss as a result of these actions,
Buyer and Orius shall jointly and severally indemnify the Shareholders for any
Adverse Consequences, included but not limited to any Liability for Taxes and
other costs and expenses resulting from these actions. Accordingly, each
Shareholder shall receive a payment from the Company equal to such
Shareholder's Tax Indemnification Amount (as defined below). To the extent
possible, such payment shall be treated as a distribution from the Company's
accumulated adjustment account pursuant to Code Section 1371(e)(1). Each
Shareholder's Tax Indemnification Amount shall be estimated by such Shareholder
and the computation of such Tax Indemnification Amount shall be provided to the
Company and, upon agreement by the Company with such estimate, shall be paid
(the "Estimated Tax Indemnification Amount") to such Shareholder on April 10,
1999. Such Shareholder's Tax Indemnification Amount shall be finally computed
on the day which is the later of (A) the day which is one year from the Closing
Date, or (B) the due date for the filing of the Company's Tax Return for its
final taxable year as an S Corporation (including extensions). On such day, if
such Shareholder's Tax Indemnification Amount exceeds his Estimated Tax
Indemnification Amount, the Company shall pay such Shareholder the amount of
such excess; or if such Shareholder's Estimated Tax Indemnification Amount
exceeds his Tax Indemnification Amount, the Shareholder shall pay to the
Company such excess.
(ii) For purposes of this Agreement, the term "Tax
Indemnification Amount" shall mean the taxable income of the Company as
computed for federal income tax purposes for its
34
<PAGE> 40
taxable year beginning on January 1, 1999 and ending on the Closing Date
multiplied by such Shareholder's combined federal and state effective tax rate,
with the product reduced by the amount of tax benefit, if any, such Shareholder
will have received due to an increase in such Shareholder's tax basis in his
shares resulting from his share of the Company's taxable income for the period
from January 1, 1999 to the Closing Date. The Tax Indemnification Amount also
shall include any other Adverse Consequences, including reasonable costs and
expenses the Shareholder has incurred as a result of the Company's S
Corporation status not terminating as contemplated on December 31, 1998. For
purposes of this Section , "combined federal and state effective tax rate"
means the combined federal, state and local tax rates after giving effect to
the deduction for state and local taxes in computing federal taxes.
(f) CERTAIN TAXES. All transfer, documentary, sales, use,
stamp, registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement (other than any of such
Taxes or fees that are a result of the Section 338(h)(10) Election), shall be
paid by Shareholders when due, and Shareholders will, at their own expense,
file all necessary Tax Returns and other documentation with respect to all such
transfer, documentary, sales, use, stamp, registration and other Taxes and
fees, and, if required by applicable law, Buyer will, and will cause its
affiliates to, join in the execution of any such Tax Returns and other
documentation.
(g) SECTION 338(H)(10) ELECTION. The Company and each of the
Shareholders will join with Buyer in making an election under Section
338(h)(10) of the Code (and any corresponding election under state, local and
foreign tax law) with respect to the purchase and sale of the stock of the
Company hereunder (a "Section 338(h)(10) Election"). The Shareholders will
include any income, gain, loss, deduction or other tax item resulting from the
Section 338(h)(10) Election on their Tax Returns to the extent permitted by
applicable law. The Buyer and Orius, jointly and severally, shall indemnify
each Shareholder against any Adverse Consequences that such Shareholder shall
incur by reason of the Section 338(h)(10) Election being made. The amount
payable pursuant to the preceding sentence shall be calculated and paid by the
Buyer to such Shareholder on or before April 10, 1999 and shall be treated by
the parties as additional purchase price for such Shareholder's Company Shares.
(h) ALLOCATION OF PURCHASE PRICE. Buyer, the Company and the
Shareholders agree that the Consideration and the liabilities of the Company
(plus other relevant items) will be allocated to the assets of the Company for
all purposes (including Tax and financial accounting) as shown on Exhibit
hereof. Buyer, the Company and the Shareholders will file all Tax Returns
(including amended returns and claims for refund) and the information reports
in a manner consistent with such allocation.
(i) S CORPORATION STATUS. Neither the Company nor the
Shareholders will revoke the Company's election to be taxed as an S corporation
within the meaning of Sections 1361 and 1362 of the Code. Neither the Company
nor the Shareholders will take or allow any action (other than the sale of the
Company's stock pursuant to this Agreement) that would result in the termination
of the Company's status as a validly electing S corporation within the meaning
of Sections 1361 and 1362 of the Code.
(j) ESCROW. Any amounts payable by the Company pursuant to
Sections and shall be paid first from the amount of $600,000 to be held in
escrow pursuant to the escrow agreement, in a form substantially identical to
that attached as Exhibit . Any disputes as to the amounts owed pursuant to
Section or Section shall be governed by the following procedures:
(i) If the Shareholders have any objections to the
calculation of the amount payable to Shareholders pursuant to Section or
Section , they will deliver a detailed statement describing their objections to
the Buyer within 30 days after receiving the notice from the Buyer of the
amount owned. The Buyer and the Shareholders will use reasonable efforts to
resolve any such objections
35
<PAGE> 41
themselves. If the Parties do not obtain a final resolution within 30 days
after the Buyer has received the statement of objections, however, the Buyer
and Shareholders will select an accounting firm mutually acceptable to them to
resolve any remaining objections. If the Buyer and the Shareholders are unable
to agree on the choice of an accounting firm, they will select a
nationally-recognized accounting firm by lot (after excluding their respective
regular outside accounting firms). The determination of any accounting firm so
selected will be set forth in writing and will be conclusive and binding upon
the Parties. The Buyer will revise the appropriate tax returns so as
appropriate to reflect the resolution of any objections thereto pursuant to
this Section .
(ii) In the event the Parties submit any unresolved
objections to an accounting firm for resolution as provided in Section above,
any expenses relating to the engagement of the accounting firm shall be
allocated between the Shareholders and the Buyer by the accounting firm in
proportion to the amount in dispute which is decided in favor of the
challenging party.
(iii) The Buyer will make the work papers and
back-up materials used in preparing its calculations hereunder available to the
Shareholders and their accountants and other representatives at reasonable
times and upon reasonable notice during (A) the preparation by the Buyer of the
relevant tax documents (B) review by the Shareholders of the such documents and
(C) the resolution by the Parties of any objections thereto.
12. TERMINATION.
(a) TERMINATION OF AGREEMENT. The Parties may terminate this
Agreement as provided below:
(i) Buyer and the Shareholders may terminate this
Agreement by mutual written consent at any time prior to the Closing;
(ii) Buyer may terminate this Agreement by giving
written notice to the Shareholders at any time prior to the Closing (A) in the
event the Shareholders have breached any representation, warranty, or covenant
contained in this Agreement in any material respect, Buyer has notified the
Shareholders of the breach, and the breach has continued without cure for a
period of 30 days after the notice of breach or (B) if the Closing shall not
have occurred on or before February 26, 1999 by reason of the failure of any
condition precedent under ss. hereof (unless the failure results primarily from
Buyer itself breaching any representation, warranty, or covenant contained in
this Agreement) or (C) in any event, if the Closing shall not have occurred on
or before March 28, 1999; and
(iii) the Shareholders may terminate this Agreement
by giving written notice to Buyer at any time prior to the Closing (A) in the
event Buyer has breached any representation, warranty, or covenant contained in
this Agreement in any material respect, the Shareholders have notified Buyer of
the breach, and the breach has continued without cure for a period of 30 days
after the notice of breach or (B) if the Closing shall not have occurred on or
before February 26, 1999 by reason of the failure of any condition precedent
under Section hereof (unless the failure results primarily from the
Shareholders himself breaching any representation, warranty, or covenant
contained in this Agreement) or (C) in any event, if the Closing shall not have
occurred on or before March 28, 1999.
(b) EFFECT OF TERMINATION. If any Party terminates this
Agreement pursuant to Section above, all rights and obligations of the Parties
hereunder shall terminate without any Liability of any Party to any other
Party.
36
<PAGE> 42
13. MISCELLANEOUS.
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall
issue any press release or make any public announcement relating to the subject
matter of this Agreement prior to the Closing without the prior written
approval of Buyer and the Shareholders; provided, however, that any Party may
make any public disclosure it believes in good faith is required by applicable
law or any listing or trading agreement concerning its publicly-traded
securities (in which case the disclosing Party will use its best efforts to
advise the other Parties prior to making the disclosure).
(b) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not
confer any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns and the Indemnified Parties
referred to in Section hereof.
(c) ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or among
the Parties, written or oral, to the extent they related in any way to the
subject matter hereof.
(d) SUCCESSION AND ASSIGNMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the Parties
named herein and their respective successors and permitted assigns. No Party
may assign either this Agreement or any of his or its rights, interests, or
obligations hereunder without the prior written approval of Buyer and the
Shareholders; provided, however, that Buyer may (i) assign any or all of its
rights and interests hereunder to one or more of its Affiliates, (ii) designate
one or more of its Affiliates to perform its obligations hereunder (in any or
all of which cases Buyer nonetheless shall remain responsible for the
performance of all of its obligations hereunder) and (iii) without the approval
of the Shareholders, assign its rights and interests hereunder to its lenders
(and any agent for the lenders), and the Parties consent to any exercise by
such lenders (and such agents) of their rights and remedies with respect to
such collateral.
(e) COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) HEADINGS. The section headings contained in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
(g) NOTICES. All notices, requests, demands, claims, and
other communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
<TABLE>
<CAPTION>
If to the Shareholders: Copy to:
----------------------- --------
<S> <C>
Jerry N. and Lois E. Dancer D. John Thornton
18946 Franklin Road The Golden Eagle at Forest River
Nampa, ID 83687 1101 West River Street
Suite 340
Norris R. and Jana R. Dancer Boise, ID 83702
9326 W. Joplin Road, Box 367 208-344-8600
Star, ID 83669
</TABLE>
37
<PAGE> 43
<TABLE>
<CAPTION>
If to Buyer: Copy to:
------------ --------
<S> <C>
NATG Holdings, LLC Holland & Knight LLP
1401 Forum Way, Suite 400 One East Broward Boulevard
West Palm Beach, FL 33401 Fort Lauderdale, FL 33131
Attn: William J. Mercurio Attn: Donn Beloff, Esq.
</TABLE>
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been
duly given unless and until it actually is received by the intended recipient.
Any Party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other
Parties notice in the manner herein set forth.
(h) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Florida without
giving effect to any choice or conflict of law provision or rule (whether of
the State of Florida or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Florida.
(i) AMENDMENTS AND WAIVERS. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
Buyer and the Shareholders. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(j) SEVERABILITY. Any term or provision of this Agreement
that is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
(k) EXPENSES. Each of the Parties will bear his or its own
costs and expenses (including legal fees and expenses) incurred in connection
with this Agreement and the transactions contemplated hereby. The Shareholders
agree that, after December 31, 1998, the Company has not borne nor will bear
any of the Shareholders' costs and expenses (including, without limitation, any
of their legal, accounting or investment banking fees and expenses) in
connection with this Agreement or any of the transactions contemplated hereby.
(l) CONSTRUCTION. The Parties have participated jointly in
the negotiation of this Agreement. In the event an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as if
drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local,
or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the
38
<PAGE> 44
relative levels of specificity) which the Party has not breached shall not
detract from or mitigate the fact that the Party is in breach of the first
representation, warranty, or covenant.
(m) INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The
Exhibits, Annexes, Schedules and Certificates identified in this Agreement are
incorporated herein by reference and made a part hereof.
(n) SPECIFIC PERFORMANCE. Each of the Parties acknowledges
and agrees that the other Parties would be damaged irreparably in the event any
of the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter (subject to the provisions set
forth in Section below), in addition to any other remedy to which they may be
entitled, at law or in equity.
(o) SUBMISSION TO JURISDICTION. Each of the Parties submits
to the jurisdiction of any state or federal court sitting in Palm Beach County,
Florida or Ada County, Idaho, in any action or proceeding arising out of or
relating to this Agreement and agrees that all claims in respect of the action
or proceeding shall be heard and determined in any such court. Each of the
Parties waives any objection to the maintenance of any action or proceeding so
brought and waives any bond, surety, or other security that might be required
of any other Party with respect thereto. Any Party may make service on any
other Party by sending or delivering a copy of the process to the Party to be
served at the address and in the manner provided for the giving of notices in
Section above. Each Party agrees that a final judgment in any action or
proceeding so brought shall be conclusive and may be enforced by suit on the
judgment or in any other manner provided by law or at equity. In any action or
proceeding arising out of or relating to this Agreement, the prevailing party
shall be entitled to recover reasonable attorney's fees and costs from the other
party to the action or proceeding.
(p) WAIVER OF JURY TRIAL. THE PARTIES HEREBY IRREVOCABLY
WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY AND TO
THE FULLEST EXTENT PERMITTED BY LAW WAIVE ANY RIGHTS THAT THEY MAY HAVE TO
CLAIM OR RECEIVE SPECIAL DAMAGES IN CONNECTION WITH ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
*****
39
<PAGE> 45
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
BUYER
NATG HOLDINGS, LLC
By:
--------------------------------------
William J. Mercurio
President
SHAREHOLDERS:
------------------------------------------
Jerry N. Dancer
------------------------------------------
Norris R. Dancer
------------------------------------------
Lois E. Dancer
------------------------------------------
Jana R. Dancer
ORIUS:
ORIUS CORP.
By:
--------------------------------------
William J. Mercurio
President
40
<PAGE> 1
Exhibit 10.16
STOCK EXCHANGE AGREEMENT
AMONG
ORIUS CORP.,
NATG HOLDINGS, LLC
AND
THE SHAREHOLDERS OF
COPENHAGEN UTILITIES & CONSTRUCTION, INC.,
AN OREGON CORPORATION
FEBRUARY 20, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
1. DEFINITIONS.......................................................................... 1
2. EXCHANGE TRANSACTION................................................................. 6
(a) BASIC TRANSACTION........................................................... 6
(b) INITIAL CONSIDERATION....................................................... 6
(c) EARN-OUT CONSIDERATION...................................................... 6
(d) THE CLOSING................................................................. 9
(e) DELIVERIES AT CLOSING....................................................... 9
3. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS CONCERNING THE TRANSACTION........ 9
(a) AUTHORIZATION OF TRANSACTION................................................ 9
(b) NONCONTRAVENTION............................................................ 9
(c) BROKERS' FEES............................................................... 9
(d) INVESTMENT.................................................................. 9
(e) COMPANY SHARES.............................................................. 10
(f) DISCLOSURE.................................................................. 10
4. REPRESENTATIONS AND WARRANTIES OF THE BUYER AND ORIUS CONCERNING THE TRANSACTION..... 10
(a) AUTHORIZATION OF TRANSACTION................................................ 10
(b) NONCONTRAVENTION............................................................ 10
(c) BROKERS' FEES............................................................... 10
(d) DISCLOSURE.................................................................. 11
5. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY................................ 11
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER............................ 11
(b) CAPITALIZATION.............................................................. 11
(c) TITLE TO ASSETS............................................................. 12
(d) NONCONTRAVENTION............................................................ 12
(e) SUBSIDIARIES................................................................ 12
(f) FINANCIAL STATEMENTS........................................................ 12
(g) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END............................ 12
(h) UNDISCLOSED LIABILITIES..................................................... 14
(i) LEGAL COMPLIANCE............................................................ 14
(j) TAX MATTERS................................................................. 15
(k) REAL PROPERTY............................................................... 16
(l) INTELLECTUAL PROPERTY....................................................... 17
(m) TANGIBLE ASSETS............................................................. 18
(n) EQUIPMENT FORMERLY OWNED BY EXCEL........................................... 18
(o) INVENTORY................................................................... 19
(p) CONTRACTS................................................................... 19
(q) NOTES AND ACCOUNTS RECEIVABLE............................................... 19
(r) POWERS OF ATTORNEY.......................................................... 19
(s) INSURANCE................................................................... 19
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
(t) LITIGATION.................................................................. 20
(u) COMMITMENTS AND WARRANTIES.................................................. 20
(v) LIABILITY FOR SERVICES PERFORMED............................................ 20
(w) EMPLOYEES................................................................... 20
(x) EMPLOYEE BENEFITS........................................................... 21
(y) GUARANTIES.................................................................. 22
(z) ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS................................... 22
(aa) CERTAIN BUSINESS RELATIONSHIPS WITH THE COMPANY............................. 23
(ab) CUSTOMERS AND SUPPLIERS..................................................... 23
6. REPRESENTATIONS AND WARRANTIES CONCERNING THE BUYER AND ORIUS........................ 24
(a) ORGANIZATION OF THE BUYER................................................... 24
(b) ORGANIZATION OF ORIUS....................................................... 24
(c) CAPITALIZATION OF ORIUS..................................................... 24
(d) TITLE TO ASSETS............................................................. 24
(e) SUBSIDIARIES AND AFFILIATES................................................. 25
(f) FINANCIAL STATEMENTS........................................................ 25
(g) EVENTS SUBSEQUENT TO MOST RECENT NORTH AMERICAN PERIOD END.................. 25
(h) TAX MATTERS................................................................. 25
(i) INTELLECTUAL PROPERTY....................................................... 25
(j) INSURANCE................................................................... 26
(k) LEGAL COMPLIANCE............................................................ 26
(l) EMPLOYEE BENEFITS........................................................... 26
(m) ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS................................... 27
(n) DISCLOSURE.................................................................. 28
7. PRE-CLOSING COVENANTS................................................................ 28
(a) GENERAL..................................................................... 28
(b) NOTICES AND CONSENTS........................................................ 29
(c) OPERATION OF BUSINESS....................................................... 29
(d) PRESERVATION OF BUSINESS.................................................... 29
(e) FULL ACCESS................................................................. 29
(f) NOTICE OF DEVELOPMENTS...................................................... 29
(g) EXCLUSIVITY................................................................. 29
(h) NO TERMINATION OF SHAREHOLDERS' OBLIGATION BY SUBSEQUENT INCAPACITY......... 29
8. POST-CLOSING COVENANTS............................................................... 30
(a) GENERAL..................................................................... 30
(b) LITIGATION SUPPORT.......................................................... 30
(c) TRANSITION.................................................................. 30
(d) INDEPENDENT ACCOUNTANTS..................................................... 30
(e) TAX MATTERS................................................................. 30
(f) STOCK OPTIONS............................................................... 30
(g) AUDITED FINANCIAL STATEMENTS................................................ 31
(h) NON-DISPARAGEMENT........................................................... 31
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
9. CONDITIONS TO OBLIGATION TO CLOSE.................................................... 31
(a) CONDITIONS TO OBLIGATION OF THE BUYER....................................... 31
(b) CONDITIONS TO OBLIGATION OF THE SHAREHOLDERS................................ 33
10. REMEDIES FOR BREACHES OF THIS AGREEMENT.............................................. 34
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES.................................. 34
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE BUYER......................... 34
(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE SHAREHOLDERS.................. 35
(d) MATTERS INVOLVING THIRD PARTIES............................................. 35
(e) DETERMINATION OF ADVERSE CONSEQUENCES....................................... 36
(f) OTHER INDEMNIFICATION PROVISIONS............................................ 36
11. POST-CLOSING ADJUSTMENT OF CONSIDERATION............................................. 36
12. TAX MATTERS.......................................................................... 37
(a) TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE............................ 37
(b) TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING DATE.............. 37
(c) COOPERATION ON TAX MATTERS.................................................. 38
(d) TAX SHARING AGREEMENTS...................................................... 38
(e) CERTAIN TAXES............................................................... 38
13. TERMINATION.......................................................................... 39
(a) TERMINATION OF AGREEMENT.................................................... 39
(b) EFFECT OF TERMINATION....................................................... 39
14. MISCELLANEOUS........................................................................ 39
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS..................................... 39
(b) NO THIRD-PARTY BENEFICIARIES................................................ 39
(c) ENTIRE AGREEMENT............................................................ 39
(d) SUCCESSION AND ASSIGNMENT................................................... 40
(e) COUNTERPARTS................................................................ 40
(f) HEADINGS.................................................................... 40
(g) NOTICES..................................................................... 40
(h) GOVERNING LAW............................................................... 40
(i) AMENDMENTS AND WAIVERS...................................................... 41
(j) SEVERABILITY................................................................ 41
(k) EXPENSES.................................................................... 41
(l) CONSTRUCTION................................................................ 41
(m) INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES........................... 41
(n) SPECIFIC PERFORMANCE........................................................ 41
(o) SUBMISSION TO JURISDICTION.................................................. 41
(p) WAIVER OF JURY TRIAL........................................................ 42
</TABLE>
iii
<PAGE> 5
Exhibit A: Form of Employment Agreements
Exhibit B: Form of Leases
Exhibit C: Form of Non-Competition Agreement
Exhibit D: Form of Subscription Agreement
Exhibit E: Form of Escrow Agreement
Exhibit F: Form of Subordination Agreement
Exhibit G: Form of Seller's opinion
Exhibit H: Form of Buyer's opinion
Exhibit I: Financial Statements
Exhibit J: North American Financial Statements
Annex 1: Accredited Investor Questionnaire
iv
<PAGE> 6
STOCK EXCHANGE AGREEMENT
THIS STOCK EXCHANGE AGREEMENT is entered into as of February 19, 1999
by and among NATG Holdings, LLC, a Delaware limited liability company (the
"Buyer"), Orius Corp., a Delaware corporation ("Orius") and the shareholders of
Copenhagen Utilities & Construction, Inc., an Oregon corporation (the
"Company") listed on the signature page to this Agreement (the "Shareholders").
The Buyer, Orius and the Shareholders are referred to collectively herein as
the "Parties."
This Agreement contemplates the exchange by the Shareholders of all of
the issued and outstanding capital stock of the Company to Buyer. The
Shareholders will receive cash and capital stock in Orius Corp., a Delaware
corporation and the parent company of the Buyer ("Orius"), in exchange for
their shares of capital stock of the Company.
Simultaneously herewith, NATG Merger Sub, Inc., a Florida corporation
and a wholly-owned subsidiary of Buyer ("Merger Sub"), and North American
Tel-Com Group, Inc., a Florida corporation ("North American"), are entering
into a merger agreement (the "Merger Agreement") pursuant to which Merger Sub
will be merged with and into North American. Buyer also is entering into stock
exchange agreements with the shareholders of Network Cabling Services, Inc.
("NCS"), Schatz Underground Cable, Inc. ("Schatz") and DAS-CO of Idaho, Inc.
("DAS-CO") to acquire all of the issued and outstanding capital stock of NCS,
Schatz and DAS-CO (collectively with this Agreement and the Merger Agreement,
the "Exchange Agreements"). The parties to the Exchange Agreements, other than
the parties to the DAS-CO and Schatz Exchange Agreements, intend for the
transfers contemplated thereunder to be treated as a single transaction
qualifying under Section 351 of the Code (as hereinafter defined).
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1. DEFINITIONS.
"Accredited Investor" has the meaning set forth in Regulation
D promulgated under the Securities Act.
"Adverse Consequences" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses,
expenses, and fees, including court costs and reasonable attorneys' fees and
expenses, and any other cost of enforcing a party's rights under this
Agreement.
"Affiliate" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the
meaning of Code Section 1504(a) or any similar group defined under a similar
provision of state, local or foreign law.
"Stockholders Agreement" means that certain Stockholders
Agreement among Orius and the stockholders of Orius dated as of the Closing
Date.
1
<PAGE> 7
"Applicable Rate" means the corporate base rate of interest
publicly announced from time to time by PNC Bank, N.A.
"Basis" means any past or present fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction that forms or could form the
basis for any specified consequence.
"Buyer" has the meaning set forth in the preface above.
"Closing" has the meaning set forth in Section 2(d) below.
"Closing Date" has the meaning set forth in Section 2(d)
below.
"Closing Date Balance Sheet" has the meaning set forth in
Section 11(b) below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the preface above.
"Company Share" means any share of the voting common stock,
par value $.02 per share, or the non-voting common stock, par value $.02 per
share, of the Company.
"Consideration" has the meaning set forth in Section 2(b)
below.
"Controlled Group of Corporations" has the meaning set forth
in Code Section 1563.
"Disclosure Schedule" has the meaning set forth in Section 5
below.
"Draft Closing Date Balance Sheet" has the meaning set forth
in Section 11(a) below.
"EBITDA" means earnings before interest, taxes, depreciation
and amortization as reflected on an income statement prepared in accordance
with GAAP and consistent with the past practices of the Company applied on a
consistent basis.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan), (d) Employee Welfare Benefit Plan or (e)
bonus, incentive, stock purchase, stock ownership, stock option, stock
appreciation right, severance, salary continuation, termination, change of
control or other material fringe benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in
ERISA Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in
ERISA Section 3(1).
"Employment Agreements" means the Employment Agreements
substantially in the form attached hereto as Exhibit A.
2
<PAGE> 8
"Environmental, Health, and Safety Requirements" shall mean
all federal, state, local and foreign statutes, regulations, ordinances and
other provisions having the force or effect of law, all judicial and
administrative orders and determinations, all contractual obligations and all
common law concerning public health and safety, worker health and safety, and
pollution or protection of the environment, including without limitation all
those relating to the presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution, labeling, testing,
processing, discharge, release, threatened release, control, or cleanup of any
Hazardous Materials (which, for purposes of this Agreement, shall meany any
hazardous materials, substances or wastes, chemical substances or mixtures,
pesticides, pollutants, contaminants, toxic chemicals, petroleum products or
byproducts, asbestos, polychlorinated biphenyls, noise or radiation), each as
amended and as now or hereafter in effect.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" means (i) any corporation included with the
Company in a controlled group of corporations within the meaning of Section
414(b) of the Code; (ii) any trade or business (whether or not incorporated)
which is under common control with the Company within the meaning of Section
414(c) of the Code; (iii) any member of an affiliated service group of which
the Company is a member within the meaning of Section 414(m) of the Code; or
(iv) any other person or entity treated as an affiliate of the Company under
Section 414(o) of the Code.
"Estimated Closing Balance Sheet" has the meaning given that
term in Section 9(a)(xiii) hereof.
"Excess Shareholders Equity" has the meaning set forth in
Section 5(g)-Permitted Distributions of the Disclosure Schedule.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"Financial Statement" has the meaning set forth in Section
5(f) below.
"GAAP" means United States generally accepted accounting
principles as in effect from time to time.
"Indemnified Party" has the meaning set forth in Section
10(d)(i) below.
"Indemnifying Party" has the meaning set forth in Section
10(d)(i) below.
"Intellectual Property" means (a) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications, and patent
disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof, (b)
all trademarks, service marks, trade dress, logos, trade names, and corporate
names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection therewith, (d) all mask works and all applications,
registrations, and renewals in connection therewith, (e) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals), (f) all computer software (including data and related
documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
3
<PAGE> 9
"Knowledge" means that which is known by a person and that of
which a person has constructive knowledge based upon information readily
available to that person in the performance of such person's duties after
reasonable investigation and inquiry of such person. In the case of the Buyer,
"Knowledge" means the Knowledge of its President. In the case of the Company,
"Knowledge" means the Knowledge of the Shareholders.
"Leases" means the five-year triple net lease agreements
between the Buyer and the Shareholders (or their Affiliates) for the real
property utilized by the Company in Clackamas, Oregon and Sacramento,
California substantially in the forms attached hereto as Exhibit B.
"Liability" means any liability (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Material Adverse Effect" means, individually or together
with other adverse effects, any material adverse effect on the assets,
liabilities, results of operations, business condition (financial or otherwise)
or prospects of the Company or on the Company's ability to consummate the
transactions contemplated hereby or the ability of the Buyer to operate the
business of the Company immediately after the Closing in substantially the same
manner as such business is conducted prior to Closing
"Minimum Equity" has the meaning set forth in Section
5(g)-Permitted Distributions of the Disclosure Schedule.
"Most Recent Balance Sheet" means the balance sheet contained
within the Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth
in Section 5(f) below.
"Most Recent Fiscal Period End" has the meaning set forth in
Section 5(f) below.
"Most Recent Fiscal Year End" has the meaning set forth in
Section 5(f) below.
"Most Recent North American Balance Sheet" means the balance
sheet contained within the Most Recent North American Statements.
"Most Recent North American Fiscal Period End" has the
meaning set forth in Section 6(f) below.
"Multiemployer Plan" has the meaning set forth in ERISA
Section 3(37).
"National Securities Exchange" shall have the meaning
ascribed to that term in the rules and regulations promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934.
"Noncompetition Agreements" means the Noncompetition
Agreements substantially in the form attached hereto as Exhibit C.
4
<PAGE> 10
"North American" has the meaning set forth in the preface
hereof.
"North American Subsidiary" means any entity that is an
Affiliate of North American immediately prior to the consummation of the
Exchange Agreements.
"Orius" has the meaning set forth in the preface hereof.
"Orius Common Stock" means any share of the common stock, par
value $.0001 par share, of Orius.
"Ordinary Course of Business" means the ordinary course of
business consistent with past custom and practice (including with respect to
quantity and frequency).
"Party" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, a partnership, a corporation,
an association, a joint stock company, a trust, a joint venture, an
unincorporated organization, or a governmental entity (or any department,
agency, or political subdivision thereof).
"Prohibited Transaction" has the meaning set forth in ERISA
Section 406 and Code Section 4975.
"Reportable Event" has the meaning set forth in ERISA Section
4043.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act
of 1934, as amended.
"Security Interest" means any mortgage, pledge, lien,
encumbrance, charge, or other security interest, other than (a) mechanic's,
materialmen's, and similar liens that could not reasonably be expected to have
a Material Adverse Effect, (b) liens for Taxes not yet due and payable or for
Taxes that the taxpayer is contesting in good faith through appropriate
proceedings disclosed on Section 5(j) of the Disclosure Schedule, (c) purchase
money liens and liens securing rental payments under capital lease arrangements
disclosed in the Most Recent Financial Statements, and (d) other liens arising
in the Ordinary Course of Business and not incurred in connection with the
borrowing of money, so long as such liens could not reasonably be expected to
have a Material Adverse Effect.
"Shareholders" has the meaning set forth in the preface
above.
"Stockholders' Agreement" means that certain Stockholders'
Agreement among Orius and the shareholders of the Buyer dated as of the Closing
Date.
"Subsidiary" means any corporation with respect to which a
specified Person (or a Subsidiary thereof) owns a majority of the common stock
or has the power to vote or direct the voting of sufficient securities to elect
a majority of the directors.
5
<PAGE> 11
"Tax" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Code Section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed or not,
and any obligations under any agreements or arrangements with respect to any of
the foregoing.
"Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in Section
10(d) below.
2. EXCHANGE TRANSACTION.
(a) BASIC TRANSACTION. On and subject to the terms and
conditions of this Agreement, the Buyer agrees to exchange with the
Shareholders, and the shareholders agree to exchange with the Buyer, all of
their respective Company Shares for the consideration specified below in this
Section 2.
(b) INITIAL CONSIDERATION. The Buyer agrees to deliver
(collectively, the "Consideration") (i) at Closing to the Shareholders (A) cash
in the amount of twenty-three million dollars ($23,000,000) payable by wire
transfer or other immediately available funds and (B) one hundred ten thousand
seven hundred fourteen (110,714) shares of the Orius Common Stock and (ii) 90
days after the Closing Date, cash in the amount of two hundred fifty thousand
dollars ($250,000) (as adjusted pursuant to Section 11(f) hereof). The
Consideration shall be subject to adjustment pursuant to the provisions of
Section 11 hereof. The Consideration shall be allocated as set forth in Section
5(b) to the Disclosure Schedule.
(c) EARN-OUT CONSIDERATION.
(i) From and after the Closing, and until Buyer's
obligations under this Section 2(c) are satisfied in full, Buyer shall continue
the business operations of the Company as a separate corporate entity (the
Company's business and operations after the Closing are referred to herein as
the "DIVISION"). In connection therewith Buyer shall prepare, using accounting
procedures consistent with the past accounting practices of the Company to the
extent that such practices are consis with GAAP, unaudited internally generated
separate financial statements for the Division (the "DIVISION STATEMENTS"). The
Division Statements shall be based on a fiscal year ending on December 31
(being the same fiscal year end as Buyer; all references to "fiscal year" in
this Section 2(c) refer to the fiscal year of the Division ending on December
31).
(ii) In addition to the Initial Consideration, the
Buyer shall pay to Shareholders cash, and Orius shall issue to the Shareholders
shares of Orius Common Stock (such cash and shares of Orius Common Stock being
referred to herein as the "EARN-OUT CONSIDERATION"), in amounts based upon the
EBITDA of the Company in each of fiscal year 1999 and 2000.
6
<PAGE> 12
(A) The "FY 1999 EARN-OUT TABLE" table
below contains rows that set forth a lower EBITDA threshold (Column 1) and an
upper EBITDA threshold (Column 2). If Company's EBITDA with respect to fiscal
year 1999 falls between the lower and upper EBITDA thresholds for one of the
rows, then this row will be the "FY 1999 EARN-OUT ROW" for purposes of this
Agreement. The Buyer shall pay to the Shareholders the aggregate amount of cash
indicated in Column 3, and Orius shall issue the Shareholders the aggregate
number of shares of Orius Common Stock indicated in Column 4, that appear on
the FY 1999 Earn-Out Row.
FY 1999 EARN-OUT TABLE
<TABLE>
<CAPTION>
Row COLUMN 1 COLUMN 2 COLUMN 3 COLUMN 4
-------- -------- -------- --------
Lower EBITDA Threshold Upper EBITDA Threshold Cash Orius Shares
---------------------- ---------------------- -------- ------------
<S> <C> <C> <C> <C>
1 0 $6,325,000 $0 0
2 $6,325,000 $6,650,000 $609,375 2,902
3 $6,650,000 6,975,000 $1,218,750 5,804
4 $6,975,000 $7,300,000 $1,828,125 8,705
5 $7,300,000 4 $2,437,500 11,607
</TABLE>
(B) The "FY 2000 EARN-OUT TABLE" below
contains rows that set forth a lower EBITDA threshold (Column 1) and an upper
EBITDA threshold (Column 2). If Company's EBITDA with respect to fiscal year
2000 falls between the lower and upper EBITDA thresholds for one of the rows,
then this row will be the "FY 2000 EARN-OUT ROW" for purposes of this Agreement.
The Buyer shall pay to the Shareholders the aggregate amount of cash indicated
in Column 3, and Orius shall issue the Shareholders the aggregate number of
shares of Orius Common Stock indicated in Column 4, that appear on the FY 2000
Earn-Out Row.
FY 2000 EARN-OUT TABLE
<TABLE>
<CAPTION>
Row COLUMN 1 COLUMN 2 COLUMN 3 COLUMN 4
-------- -------- -------- --------
Lower EBITDA Threshold Upper EBITDA Threshold Cash Orius Shares
---------------------- ---------------------- -------- ------------
<S> <C> <C> <C> <C>
1 0 $6,950,000 $0 0
2 $6,950,000 $7,300,000 $609,375 2,902
3 $7,300,000 $7,650,000 $1,218,750 5,804
4 $7,650,000 $8,000,000 $1,828,125 8,705
5 $8,000,000 4 $2,437,500 11,607
</TABLE>
(iii) The Earn-Out Consideration for any fiscal year
shall be delivered no later than 90 calendar days after the end of such fiscal
year, except to the extent that the provisions of Subsection 2(c)(iv)(B) below
apply.
(iv) The calculation of the Earn-Out Consideration
shall be subject to the following provisions:
(A) The amount, if any, by which the EBITDA
with respect to fiscal year 1999 (not accounting for any application of
Paragraph 2(c)(iv)(B)) exceeds the lower EBITDA threshold in the FY 1999
Earn-Out Row is referred to herein as the "FY 1999 EXCESS." The FY 1999 Excess
may be added to the EBITDA for fiscal year 2000. The amount of the FY 1999
Excess applied pursuant to this Paragraph 2(c)(iv)(A) shall be subtracted from
the EBITDA for fiscal year 1999 for purposes of the application of Paragraph
2(c)(iv)(B) hereof.
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<PAGE> 13
(B) The amount, if any, by which the EBITDA
with respect to fiscal year 2000 (not accounting for any application of
Paragraph 2(c)(iv)(A)) exceeds the lower EBITDA threshold in the FY 2000
Earn-Out Row is referred to herein as the "FY 2000 EXCESS." The FY 2000 Excess
shall be applied retroactively to fiscal year 1999. If the calculation of the
Earn-Out Consideration with respect to fiscal year 1999, after taking into
account the FY 2000 Excess, would be greater than the amount of Earn-Out
Consideration already paid with respect to fiscal year 1999, then the amount of
such increase in Earn-Out Consideration for fiscal year 1999 shall be payable
to the Shareholders at the time that the Earn-Out Consideration with respect to
fiscal year 2000 is paid. The amount of the FY 2000 Excess applied pursuant to
this Paragraph 2(c)(iv)(B) shall be subtracted from the EBITDA for fiscal year
2000 for purposes of the application of Paragraph 2(c)(iv)(A) hereof.
(C) An example of the application of this
Subsection 2(c)(iv) is as follows: If the EBITDA for fiscal year 1999 is
$7,100,000, then Row 4 of the FY 1999 Earn-Out Table is the FY 1999 Earn-Out
Row, and the Earn-Out Consideration with respect to fiscal year 1999 would be
$1,828,125 and 8,705 shares of Orius Common Stock. See Subsection 2(c)(ii)(A).
If the EBITDA for fiscal year 2000 is $7,900,000, then Row 4 of the FY 2000
Earn-Out Table is the FY 2000 Earn-Out Row, and the Earn-Out Consideration with
respect to fiscal year 2000 would be $1,828,125 and 8,705 shares of Orius
Common Stock. See Subsection 2(c)(ii)(B). The FY 1999 Excess is $125,000
($7,100,000 exceeds $6,975,000 by $125,000). The FY 2000 Excess is $250,000
($7,900,000 exceeds $7,650,000 by $250,000). The excess for either year may be
applied to the EBITDA of the other year to increase the Earn-Out Consideration
for the latter year. Thus, if the Earn-Out Consideration for fiscal year 1999
is increased by $200,001 of the FY 2000 Excess, i.e. from $7,100,000 to
$7,350,001, then the FY 1999 Earn-Out Row becomes Row 5 of the FY 1999 Earn-Out
Table. Buyer and Orius shall pay to Shareholders the Earn-Out Consideration in
Row 5 of the FY 1999 Earn-Out Table, above the amount already paid from Row 4
(i.e. an additional amount of $609,375 and 2,902 shares of Orius Common Stock).
The EBITDA for fiscal year 2000 will be decreased by $200,001, the amount of
the FY 2000 Excess applied to fiscal year 1999, with no change in the fiscal
year 2000 Earn-Out Consideration. Alternatively, $100,001 of the FY 1999 Excess
may be added to the EBITDA for fiscal year 2000, with the same effect on the FY
2000 Earn-Out Consideration of changing the FY 2000 Earn-Out Row from Row 4 to
Row 5. The EBITDA for fiscal year 1999 will be decreased by $100,001, the
amount of the FY 1999 Excess applied to fiscal year 2000, with no change in the
fiscal year 2000 Earn-Out Consideration.
(v) Any Earn-Out Consideration due and payable under
this Section 2(c) shall be allocated to the Shareholders in proportion to their
ownership of Company Common Stock at the Closing.
(vi) The issuance of Orius Common Stock comprising
the Earn-Out Consideration shall be contingent on Shareholders and Orius
entering into a subscription agreement relating to the Earn-Out Consideration
substantially in the form of Exhibit D to this Agreement.
(vii) Pursuant to the terms of the Escrow Agreement
attached hereto as Exhibit E, 23,214 shares of Orius Common Stock will be
deposited in escrow with SunTrust Bank, N.A. as Escrow Agent. Shares held in
escrow with respect the Earn-Out for fiscal year 1999 that are not earned in
fiscal year 1999 shall remain in escrow until the end of fiscal year 2000.
8
<PAGE> 14
(viii) The cash portion of the Earn-Out
Consideration is subject to the Subordination Agreement attached hereto as
Exhibit F.
(ix) Disputes regarding the calculation of the
Earn-Out Consideration shall be resolved in the same manner as disputes
regarding the Closing Balance Sheet as described in Section 11(b) and 11(c)
hereof.
(d) THE CLOSING. The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of Holland &
Knight LLP in Ft. Lauderdale, Florida, commencing at 9:00 a.m. local time on
February 26, 1999 or such other date, time and place as the Parties may
mutually determine (the "Closing Date").
(e) DELIVERIES AT CLOSING. At the Closing, (i) the
Shareholders will deliver to the Buyer the various certificates, instruments,
and documents referred to in Section 9(a) below, (ii) the Buyer will deliver to
the Shareholders the various certificates, instruments, and documents referred
to in Section 9(b) below, (iii) the Shareholders will deliver to the Buyer
stock certificates representing all of their Company Shares, endorsed in blank
or accompanied by duly executed assignment documents, and (iv) the Buyer will
deliver to the Shareholders the Consideration specified in Section 2(b) above.
3. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS CONCERNING THE
TRANSACTION. Each Shareholder represents and warrants to the Buyer that the
statements contained in this Section 3 are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date
of this Agreement throughout this ' 3), except as set forth on ' 3 of the
Disclosure Schedule (as hereinafter defin
(a) AUTHORIZATION OF TRANSACTION. Such Shareholder has full
power and authority to execute and deliver this Agreement and to perform his
obligations hereunder. This Agreement constitutes the valid and legally binding
obligation of such Shareholder, enforceable in accordance with its terms and
conditions except to the extent enforcement thereof may be limited by
applicable bankruptcy, reorganization, insolvency or moratorium laws, or other
laws affecting the enforcement of creditors' rights or by the principles
governing the availability of equitable remedies. Such Shareholder need not
give any notice to, make any filing with, or obtain any authorization, consent,
or approval of any government or governmental agency or any other Person in
order to consummate the transactions contemplated by this Agreement.
(b) NONCONTRAVENTION. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated
hereby, will (A) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of
any government, governmental agency, or court to which such Shareholder is
subject or (B) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
material agreement, contract, lease, license, instrument, or other arrangement
to which such Shareholder is a party or by which he is bound or to which any of
his assets is subject.
(c) BROKERS' FEES. Such Shareholder has, or prior to Closing
will have, paid any fees or commissions due from Shareholders to any broker,
finder, or agent with respect to the transactions contemplated by this
Agreement. Such Shareholder agrees that he will pay any additional amounts that
may become due from him or the Company to any such broker, finder or agent in
the future, including as a result of any indemnification obligations.
9
<PAGE> 15
(d) INVESTMENT. Such Shareholder (A) understands that, the
Orius Common Stock that he will receive as part of the Consideration has not
been, and will not be, registered under the Securities Act, or under any state
securities laws, and are being offered and sold in reliance upon federal and
state exemptions for transactions not involving any public offering, (B) is
acquiring the Orius Common Stock solely for his own account for investment
purposes, and not with a view to the distribution thereof, (C) is a
sophisticated investor with knowledge and experience in business and financial
matters, (D) has received certain information concerning Orius and has had the
opportunity to obtain additional information as desired in order to evaluate
the merits and the risks inherent in holding the Orius Common Stock, (E) is
able to bear the economic risk and lack of liquidity inherent in holding the
Orius Common Stock, and (F) is an Accredited Investor for the reasons set forth
on Annex I.
(e) COMPANY SHARES. Such Shareholder holds of record and owns
beneficially the number of Company Shares set forth opposite such Shareholder's
name, in Section 5(b) of the Disclosure Schedule, free and clear of any
restrictions on transfer (other than any restrictions under the Securities Act
and state securities laws), Taxes, Security Interests liens or other
encumbrances, options, warrants, purchase rights, contracts, commitments,
equities, claims, and demands. Such Shareholder is not a party to any option,
warrant, purchase right, or other contract or commitment that could require
such Shareholder to sell, transfer, or otherwise dispose of any capital stock
of the Company (other than this Agreement). Such Shareholder is not a party to
any voting trust, proxy, shareholders agreement, or other agreement or
understanding with respect to the voting of any capital stock of the Company.
(f) DISCLOSURE. Neither this Agreement nor any of the
exhibits, attachments, written statements, documents, certificates or other
items prepared for or supplied to the Buyer by such Shareholder with respect to
the transactions contemplated hereby contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make
each statement contained herein or therein not misleading. There is no fact
which such Shareholder has not disclosed to the Buyer herein and of which the
Shareholders is aware which could be anticipated to have a Material Adverse
Effect.
4. REPRESENTATIONS AND WARRANTIES OF THE BUYER AND ORIUS CONCERNING
THE TRANSACTION. The Buyer and Orius, jointly and severally, represent and
warrant to the Shareholders that the statements contained in this Section 4 are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Section 4),
except as set forth in the disclosure schedule delivered by the Buyer to the
Shareholders on the date hereof (the "Buyer Disclosure Schedule").
(a) AUTHORIZATION OF TRANSACTION. Each of the Buyer and Orius
has full power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. This Agreement constitutes the valid and
legally binding obligation of the Buyer and Orius, enforceable in accordance
with its terms and conditions except to the extent enforcement thereof may be
limited by applicable bankruptcy, reorganization, insolvency or moratorium
laws, or other laws affecting the enforcement of creditors' rights or by the
principles governing the availability of equitable remedies. Neither Buyer nor
Orius need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency or
any other Person in order to consummate the transactions contemplated by this
Agreement.
10
<PAGE> 16
(b) NONCONTRAVENTION. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated
hereby, will (A) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of
any government, governmental agency, or court to which the Buyer or Orius is
subject or any provision of their respective charter or bylaws or (B) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which the Buyer or Orius is a
party or by which either of them is bound or to which any of the assets of
either of them is subject.
(c) BROKERS' FEES. The Buyer has, or prior to the Closing
will have, paid any fees or commissions due from the Buyer to any broker,
finder, or agent with respect to the transactions contemplated by this
Agreement. The Buyer agrees that it will pay any additional amounts that may
become due from the Buyer to any such broker, finder or agent in the future,
including as a result of any indemnification obligations.
(d) DISCLOSURE. Neither this Agreement nor any of the
exhibits, attachments, written statements, documents, certificates or other
items prepared for or supplied to the Shareholders by the Buyer or Orius with
respect to the transactions contemplated hereby contains any untrue statement
of a material fact or omits to state any material fact necessary in order to
make each statement contained herein or therein not misleading. There is no
fact which the Buyer or Orius has not disclosed to the Shareholders herein and
of which the Buyer or Orius or any of the their respective officers or
directors is aware and which could be anticipated to have a Material Adverse
Effect on the operations of the Buyer or Orius after the Closing.
5. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY. The
Shareholders jointly and severally represent and warrant to the Buyer that the
statements contained in this Section 5 are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date
of this Agreement throughout this Section 5), except as set forth in the
Disclosure Schedule delivered by the Shareholders to the Buyer on the date
hereof and initialed by the Parties (the "Disclosure Schedule"). The Disclosure
Schedule shall be effective to modify only those representations and warranties
to which the Disclosure Schedule makes explicit reference. The Disclosure
Schedule will be arranged in paragraphs corresponding to the lettered and
numbered paragraphs contained in this Section 5.
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. The
Company is a corporation duly organized, validly existing, and in good standing
under the laws of the jurisdiction of its incorporation. The Company is duly
authorized to conduct business and is in good standing under the laws of each
jurisdiction where such qualification is required. The Company has full
corporate power and authority and all licenses, permits, and authorizations
necessary to carry on the businesses in which it is engaged and in which it
presently proposes to engage and to own and use the properties owned and used
by it, except where failure to do so is authorized or will not result in any
Material Adverse Effect. Section 5(a) of the Disclosure Schedule lists the
directors and officers of the Company. Correct and complete copies of the
charter and bylaws of the Company (as amended to date) are included as part of
Section 5(a) of the Disclosure Schedule. The minute books (containing the
records of meetings of the stockholders, the board of directors, and any
committees of the board of directors), the stock certificate books, and the
stock record books of the Company are correct and complete and an true and
correct copy thereof has been provided to the Buyer. The Company is not in
default under or in violation of any provision of its charter or bylaws.
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<PAGE> 17
(b) CAPITALIZATION. The entire authorized capital stock of
the Company consists of 100,000 Company Shares, of which 2,496 voting Company
Shares and 59,904 non-voting Company shares are issued and outstanding and no
Company Shares are held in treasury. All of the issued and outstanding Company
Shares have been duly authorized, are validly issued, fully paid, and
nonassessable, and are held of record and owned beneficially by the
Shareholders in the amounts set forth in Section 5(b) of the Disclosure
Schedule. There are no outstanding or authorized options, warrants, purchase
rights, subscription rights, conversion rights, exchange rights, preemptive
rights or other contracts or commitments that could require the Company to
issue, sell, or otherwise cause to become outstanding any of its capital stock
or securities convertible or exchangeable for, or any options, warranties, or
rights to purchase, any of such capital stock. There are no outstanding
obligations of the Company to repurchase, redeem or otherwise acquire any
capital stock or any securities convertible into or exchangeable for such
capital stock or any options, warrants or rights to purchase such capital stock
or securities. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to the
Company. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting, transfer, dividend or other rights
(such as registration rights under the Securities Act) of the capital stock of
the Company.
(c) TITLE TO ASSETS. The Company has good and marketable
title to, or a valid leasehold interest in, the properties and assets used by
it, located on its premises, or shown on the Most Recent Balance Sheet or
acquired after the date thereof, free and clear of all Security Interests
(other than the Security Interests disclosed on the face of the Most Recent
Balance Sheet), except for properties and assets disposed of in the Ordinary
Course of Business since the date of the Most Recent Balance Sheet, none of
which disposals are expected to have a Material Adverse Effect. The
consummation of the transactions contemplated by this Agreement will not affect
the Company's good and marketable title to, or valid leasehold interest in, the
properties and assets described in the preceding sentence.
(d) NONCONTRAVENTION. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated
hereby, will: (i) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of
any government, governmental agency, or court to which the Company is subject
or any provision of the charter or bylaws or similar governance documents of
the Company or; (ii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
the Company is a party or by which it is bound or to which any of its assets is
subject (or result in the imposition of any Security Interest upon any of its
assets) which individually or in the aggregate would constitute the Basis of a
Material Adverse Effect on the Company. The Company need not give any notice
to, make any filing with, or obtain any authorization, consent, or approval of
any Person, government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
(e) SUBSIDIARIES. Except as set forth in Section 5(e) of the
Disclosure Schedule, the Company does not currently have, and has never had,
any Subsidiaries and does not own any securities of any other Person.
(f) FINANCIAL STATEMENTS. Attached hereto as Exhibit I are
the following financial statements (collectively the "Financial Statements"):
(i) reviewed consolidated balance sheets and statements of income, including
the independent accountant's report thereon as of and for the fiscal year ended
December 31, 1997 (the "Most Recent Fiscal Year End") for the Company; (ii)
reviewed consolidated balance sheets and statements of income, including the
independent accountant's report thereon as of and for the fiscal years ended
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<PAGE> 18
December 31, 1994, December 31, 1995 and December 31, 1996 and (iii) unaudited
consolidated balance sheets and statements of income, (the "Most Recent
Financial Statements") as of and for the period from January 1, 1998, through
December 31, 1998 for the Company (the "Most Recent Fiscal Period End"). The
Financial Statements (including the notes thereto) have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby, present fairly the financial condition of the Company as of
such dates and the results of operations of the Company for such periods, are
correct and complete in all material respects, and are consistent with the
books and records of the Company (which books and records are correct and
complete in all material respects).
(g) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. Except
as set forth on Section 5(g) of the Disclosure Schedule (and, as appropriate,
after giving effect to the transactions described on Schedule 7(c)), since the
Most Recent Fiscal Year End, there has not been any occurrence, event, incident,
action, failure to act or transaction that constitutes the Basis of a Material
Adverse Effect on the Company or any that is outside the Ordinary Course of
Business. Without limiting the generality of the foregoing, since that date:
(i) The Company has not sold, leased, transferred,
or assigned any of its assets, tangible or intangible, other than for a fair
consideration in the Ordinary Course of Business;
(ii) The Company has not entered into any
agreements, contracts, leases, or licenses either involving more than $100,000
or having a term greater than 12 months or outside the Ordinary Course of
Business;
(iii) No party (including the Company) has
accelerated, terminated, modified, or cancelled any agreements, contracts,
leases, or licenses involving more than $100,000 to which the Company is a
party or by which it is bound;
(iv) The Company has not imposed or allowed to be
imposed any Security Interest upon any of its assets, tangible or intangible;
(v) The Company has not made any capital
expenditures involving more than $100,000 in the aggregate or outside the
Ordinary Course of Business;
(vi) The Company has not made any capital investment
in, any loan to, or any acquisition of the securities or assets of, any other
Person;
(vii) The Company has not issued any note, bond, or
other debt security or created, incurred, assumed, or guaranteed any
indebtedness for borrowed money or capitalized lease obligation involving more
than $100,000;
(viii) The Company has not delayed or postponed the
payment of accounts payable and other Liabilities outside the Ordinary Course
of Business;
(ix) The Company has not cancelled, compromised,
waived, or released any right or claim either involving more than $100,000 in
the aggregate or outside the Ordinary Course of Business;
(x) The Company has not granted any license or
sublicense of any rights under or with respect to any Intellectual Property;
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<PAGE> 19
(xi) There has been no change made or authorized in
the charter or bylaws of any of the Company;
(xii) The Company has not issued, sold, or otherwise
disposed of any of its capital stock or securities convertible into or
exchangeable for such stock, or granted any options, warrants, or other rights
to purchase or obtain any of such capital stock or securities;
(xiii) The Company has not declared, set aside, or
paid any dividend or made any distribution with respect to its capital stock
(whether in cash or in kind) or redeemed, purchased, or otherwise acquired any
of its capital stock or other securities;
(xiv) The Company has not experienced any damage,
destruction, or loss (whether or not covered by insurance) to its property
involving more than $100,000 in the aggregate;
(xv) The Company has not made any loan to, or
entered into any other transaction with, any of its directors, officers, and
employees or their "Associates" (as defined in Rule 12b-2 under the Exchange
Act);
(xvi) The Company has not entered into any
employment contract or collective bargaining agreement, written or oral, or
modified the terms of any existing such contract or agreement outside the
Ordinary Course of Business;
(xvii) The Company has not granted any increase in
any compensation of any of its directors, officers, or other employees outside
the Ordinary Course of Business;
(xviii) The Company has not adopted, amended,
modified, or terminated any bonus, profit-sharing, incentive, severance, or
other plan, contract, or commitment for the benefit of any of its directors,
officers, and employees (or taken any such action with respect to any other
Employee Benefit Plan);
(xix) The Company has not made any other change in
employment terms for any of its directors, officers, and employees outside the
Ordinary Course of Business;
(xx) The Company has not made or pledged to make any
charitable or other capital contribution outside the Ordinary Course of
Business;
(xxi) There has not been any other material
occurrence, event, incident, action, failure to act, or transaction outside the
Ordinary Course of Business involving the Company; and
(xxii) The Company has not increased, or experienced
any change in assumptions underlying or method of calculating, any bad debt,
contingency, tax or other reserves or changed its accounting practices, methods
or assumptions (including changes in estimates or valuation methods); or
written down the value of any assets;
(xxiii) The Company has not granted any bonuses or
made any other payments of any kind (other than base compensation in the
Ordinary Course of Business) to any officer, director or employee of the
Company, or to any Person related to any of the foregoing; and
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<PAGE> 20
(xxiv) The Company has not committed to do any of
the foregoing.
(h) UNDISCLOSED LIABILITIES. Except as disclosed in Section
5(h) of the Disclosure Schedule, the Company does not have any Liability,
except for (i) Liabilities set forth on the face of the Most Recent Balance
Sheet (rather than in any notes thereto) and (ii) Liabilities which have arisen
after the Most Recent Fiscal Period End in the Ordinary Course of Business
(none of which results from, arises out of, relates to, is in the nature of, or
was caused by any breach of contract, breach of warranty, tort, infringement,
or violation of law and none of which could reasonably be expected to have a
Material Adverse Effect).
(i) LEGAL COMPLIANCE. The Company and its predecessors and
Affiliates have complied, in all material respects, with all applicable laws
(including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof), and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has been
filed or commenced against any of them alleging any failure so to comply.
(j) TAX MATTERS.
(i) The Company has filed all Tax Returns that were
required to be filed prior to the date hereof and will have filed all Tax
Returns that it will have been required to file prior to the Closing Date. All
such Tax Returns were correct and complete in all material respects. All Taxes
owed by the Company (whether or not shown on any Tax Return) have been paid or
are fully and adequately accrued and adequately disclosed on the Most Recent
Balance Sheet. The Company is not currently the beneficiary of any extension of
time within which to file any Tax Return. No claim has ever been made by an
authority in a jurisdiction where the Company does not file Tax Returns that it
is or may be subject to taxation by that jurisdiction. There are no Security
Interests on any of the assets of the Company that arose in connection with any
failure (or alleged failure) to pay any Tax.
(ii) The Company has withheld and paid when due all
Taxes required to have been withheld and paid in connection with amounts paid
or owing to any employee, independent contractor, creditor, stockholder, or
other third party.
(iii) Neither Shareholders nor the Company has
Knowledge that any authority expects to assess any additional Taxes for any
period for which Tax Returns have been filed. There is no action, suit or
proceeding, investigation, dispute or claim now pending or threatened
concerning any Tax Liability of the Company or proposed adjustment to the
taxable income of the Company either (A) claimed or raised by any authority in
writing or (B) as to which any of the Shareholders and the Company has
Knowledge based upon personal contact with any agent of such authority. Section
5(j) of the Disclosure Schedule contains a summary of all Tax Returns filed
with respect to the Company for the last three completed tax years, indicates
those Tax Returns that have been audited, and indicates those Tax Returns that
currently are the subject of audit. The Shareholders have made available to the
Buyer correct and complete copies of all Tax Returns of the Company,
examination reports, and statements of deficiencies assessed against or agreed
to by the Company since January 1, 1994.
(iv) The Company has not waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency.
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<PAGE> 21
(v) The Company has not filed a consent under Code
Section 341(f) concerning collapsible corporations. The Company has not made
any payments, is not obligated to make any payments, or is not a party to any
agreement that under certain circumstances could obligate it to make any
payments that will not be deductible under Code ' 280G or that would give rise
to any obligation to indemnify any Person for any excise tax payable pursuant
to Code Section 4999. The Company has not been United States real property
holding corporation within the meaning of Code Section 897(c)(2) during the
applicable period specified in Code Section 897(c)(1)(A)(ii). The Company has
disclosed on its federal income Tax Returns all positions taken therein that
could give rise to a substantial understatement of federal income Tax within the
meaning of Code Section 6662. Neither the Company nor any predecessor or
affiliate thereof is a party to any Tax allocation, sharing, indemnification or
similar agreement. The Company (A) has not been a member of an Affiliated Group
filing a consolidated federal income Tax Return (other than a group the common
parent of which was the Company) and (B) does not have any Liability for the
Taxes of any Person (other than any of the Company and its Subsidiaries) under
Reg. Section 1.1502-6 (or any similar provision of state, local, or foreign
law), as a transferee or successor, by contract, or otherwise. No indebtedness
of the Company consists of "corporate acquisition indebtedness" within the
meaning of Code Section 279.
(vi) Section 5(j) of the Disclosure Schedule sets
forth as of the most recent practicable date the basis for Federal income tax
purposes of the Company in its assets.
(vii) The unpaid Taxes of the Company (A) did not,
as of the Most Recent Fiscal Period End, exceed the reserve for Tax Liability
set forth on the face of the Most Recent Balance Sheet (rather than in any
notes thereto) and (B) do not, and will not as of the Closing Date, exceed that
reserve as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Company in filing its Tax
Returns.
(k) REAL PROPERTY. The Company does not own any real
property. Section 5(k) of the Disclosure Schedule lists and describes briefly
all real property leased or subleased to the Company. The Shareholders have
delivered to the Buyer correct and complete copies of the leases and subleases
listed in Section 5(k) of the Disclosure Schedule (as amended to date). With
respect to each lease and sublease listed in Section 5(k) of the Disclosure
Schedule:
(i) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect;
(ii) the lease or sublease will continue to be
legal, valid, binding, enforceable, and in full force and effect on identical
terms following the consummation of the transactions contemplated hereby;
(iii) no party to the lease or sublease is in breach
or default, and no event has occurred which, with notice or lapse of time,
would constitute a breach or default or permit termination, modification, or
acceleration thereunder;
(iv) no party to the lease or sublease has
repudiated any provision thereof;
(v) there are no disputes, oral agreements, or
forbearance programs in effect as to the lease or sublease;
(vi) the Company has not received a notice from the
lessor indicating that the lease will not be renewed at the end of its current
term for any additional terms provided for in the lease;
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<PAGE> 22
(vii) the term of the lease will continue for a
minimum of six months past the Closing Date;
(viii) with respect to each sublease, the
representations and warranties set forth in subsections (i) through (vii) above
are true and correct with respect to the underlying lease;
(ix) the Company has not assigned, transferred,
conveyed, mortgaged, deeded in trust, or encumbered any interest in the
leasehold or subleasehold;
(x) all facilities leased or subleased thereunder
have received all approvals of governmental authorities (including licenses and
permits) required in connection with the operation thereof and have been
operated and maintained in accordance with applicable laws, rules, and
regulations;
(xi) all facilities leased or subleased thereunder
are supplied with utilities and other services necessary for the operation of
said facilities; and
(xii) the Shareholders are not aware of any pending
or threatened foreclosure or other enforcement proceedings relating to the real
property underlying the leases or subleases set forth in Section 5(k) of the
Disclosure Schedule that could result in the Company's loss of possession of
such real property.
(l) INTELLECTUAL PROPERTY.
(i) Section 5(l)(i) of the Disclosure Schedule list
the Intellectual Property owned by the Company. To the Shareholders' Knowledge,
the Company owns or has the right to use pursuant to license, sublicense,
agreement, or permission in writing all Intellectual Property necessary for the
operation of the businesses of the Company as presently conducted and as
presently proposed to be conducted. To the Shareholders' Knowledge, each item
of Intellectual Property owned or used by the Company immediately prior to the
Closing hereunder will be owned or available for use by the Company on
identical terms and conditions immediately subsequent to the Closing hereunder.
To the Shareholders' Knowledge, the Company has taken all necessary action to
maintain and protect each item of Intellectual Property that it owns or uses.
(ii) To the Shareholders' Knowledge, the Company has
not interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any Intellectual Property rights of third parties, and none of
the Shareholders and the directors and officers (and employees with
responsibility for Intellectual Property matters) of the Company has ever
received any charge, complaint, claim, demand, or notice alleging any such
interference, infringement, misappropriation, or violation (including any claim
that the Company must license or refrain from using any Intellectual Property
rights of any third party). To the Knowledge of Shareholders and the Company,
no third party has interfered with, infringed upon, misappropriated, or
otherwise come into conflict with any Intellectual Property rights of the
Company.
(iii) Section 5(l)(iii) of the Disclosure Schedule
identifies each patent or registration which has been issued to the Company
with respect to any of its Intellectual Property, identifies each pending
patent application or application for registration which the Company has made
with respect to any of its Intellectual Property, and identifies each license,
agreement, or other permission which the Company has granted to any third party
with respect to any of its Intellectual
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<PAGE> 23
Property (together with any exceptions). The Shareholders have delivered to the
Buyer correct and complete copies of all such patents, registrations,
applications, licenses, agreements, and permissions (as amended to date) and
have made available to the Buyer correct and complete copies of all other
written documentation evidencing ownership and prosecution (if applicable) of
each such item. Section 5(l)(iii) of the Disclosure Schedule also identifies
each trade name or unregistered trademark used by the Company in connection with
any of its businesses. With respect to each item of Intellectual Property
required to be identified in Section 5(l)(iii) of the Disclosure Schedule:
(A) To the Shareholders' Knowledge, the
Company possesses all right, title, and interest in and to the item, free and
clear of any Security Interest, license, or other restriction;
(B) The item is not subject to any
outstanding injunction, judgment, order, decree, ruling, or charge;
(C) No action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or is threatened
which challenges the legality, validity, enforceability, use, or ownership of
the item; and
(D) The Company has never agreed to
indemnify any Person for or against any interference, infringement,
misappropriation, or other conflict with respect to the item.
(iv) Section 5(l)(iv) of the Disclosure Schedule
identifies each item of Intellectual Property that any third party owns and
that the Company uses pursuant to license, sublicense, agreement, or
permission. The Shareholders have delivered to the Buyer correct and complete
copies of all such licenses, sublicenses, agreements, and permissions (as
amended to date). With respect to each item of Intellectual Property required
to be identified in Section 5(l)(iv) of the Disclosure Schedule:
(A) The license, sublicense, agreement, or
permission covering the item is legal, valid, binding, enforceable, and in full
force and effect;
(B) The license, sublicense, agreement, or
permission will continue to be legal, valid, binding, enforceable, and in full
force and effect on identical terms following the consummation of the
transactions contemplated hereby;
(C) No party to the license, sublicense,
agreement, or permission is in breach or default, and no event has occurred
which with notice or lapse of time would constitute a breach or default or
permit termination, modification, or acceleration thereunder;
(D) No party to the license, sublicense,
agreement, or permission has repudiated any provision thereof;
(E) With respect to each sublicense, the
representations and warranties set forth in subsections (A) through (D) above
are true and correct with respect to the underlying license;
(F) The underlying item of Intellectual
Property is not subject to any outstanding injunction, judgment, order, decree,
ruling, or charge;
(G) No action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or is threatened
which challenges the legality, validity, or enforceability of the underlying
item of Intellectual Property; and
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<PAGE> 24
(H) The Company has never granted any
sublicense or similar right with respect to the license, sublicense, agreement,
or permission.
(v) To the Knowledge of Shareholders and the
Company, the Company will not interfere with, infringe upon, misappropriate, or
otherwise come into conflict with, any Intellectual Property rights of third
parties as a result of the continued operation of its businesses as presently
conducted and as presently proposed to be conducted.
(vi) None of the Shareholders and the Company has
any Knowledge of any new products, inventions, procedures, or methods of
manufacturing or processing that any competitors or other third parties have
developed which reasonably could be expected to supersede or make obsolete any
product or process of any of the Company.
(m) TANGIBLE ASSETS. The Company owns or leases all
buildings, machinery, equipment, and other tangible assets necessary for the
conduct of its business as presently conducted and as presently proposed to be
conducted. Each such tangible asset has been maintained in accordance with
normal industry practice, is in good operating condition and repair (subject to
normal wear and tear), and is suitable for the purposes for which it presently
is used and presently is proposed to be used. Section 5(m) of the Disclosure
Schedule lists all material tangible assets owned by the Company.
(n) EQUIPMENT FORMERLY OWNED BY EXCEL. Section 5(n) of the
Disclosure Schedule identifies all of the assets (the "Excel Equipment.")
formerly owned by Excel Equipment L.L.C. ("Excel"). Ownership of and title to
the Excel Equipment were duly transferred to the Company on or about December
31, 1998. The Excel Equipment is free and clear of any Security Interest. The
Excel Equipment consists of all of the equipment that the Company leased from
Excel or otherwise enjoyed the use of immediately prior to the transfer of the
Excel Equipment to the Company.
(o) INVENTORY. The inventory of the Company shown on the Most
Recent Balance Sheet consists of raw materials and supplies, manufactured and
purchased parts, goods in process, and finished goods, all of which is
merchantable and fit for the purpose for which it was procured or manufactured,
and none of which is slow-moving, obsolete, damaged, or defective, subject only
to the reserve for inventory writedown set forth on the face of the Most Recent
Balance Sheet (rather than in any notes thereto) as adjusted for the passage of
time through the Closing Date in accordance with the past custom and practice
of the Company.
(p) CONTRACTS. Section 5(p) of the Disclosure Schedule lists
all the material contracts and other agreements to which the Company is a
party. The Shareholders have delivered to the Buyer a correct and complete copy
of each written agreement listed in Section 5(p) of the Disclosure Schedule (as
amended to date). With respect to each such agreement: (A) the agreement is
legal, valid, binding, enforceable, and in full force and effect; (B) the
agreement will continue to be legal, valid, binding, enforceable, and in full
force and effect on identical terms following the consummation of the
transactions contemplated hereby; (C) to the Shareholders' Knowledge, no party
is in breach or default, and no event has occurred which with notice or lapse
of time would constitute a breach or default, or permit termination,
modification, or acceleration, under the agreement; and (D) to the
Shareholders' Knowledge, no party has repudiated any provision of the
agreement. Section 5(p) of the Disclosure Schedule lists each currently
outstanding bid or proposal for business submitted by the Company in excess of
$1,000,000.
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(q) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts
receivable of the Company are reflected properly on the Most Recent Balance
Sheet in accordance with GAAP, are valid receivables subject to no setoffs or
counterclaims, are current and collectible, and, will be collected in
accordance with their terms at their recorded amounts, subject only to the
reserve for bad debts set forth on the face of the Most Recent Balance Sheet
(rather than in any notes thereto) as adjusted for the passage of time through
the Closing Date in accordance with the past custom and practice of the
Company.
(r) POWERS OF ATTORNEY. There are no outstanding powers of
attorney executed on behalf of the Company.
(s) INSURANCE. Section 5(s) of the Disclosure Schedule
includes a true, correct and complete list of all policies of insurance
(including policies providing property, casualty, liability, and workers'
compensation coverage and bond and surety arrangements) to which the Company is
a party. Genuine and complete copies of each of the insurance policies listed
in Section 5(s) of the Disclosure Schedule have been provided to the Buyer.
With respect to each such insurance policy, to the Shareholders' Knowledge: (A)
the policy is legal, valid, binding, enforceable, and in full force and effect;
(B) the policy will continue to be legal, valid, binding, enforceable, and in
full force and effect on identical terms following the consummation of the
transactions contemplated hereby; (C) neither the Company nor any other party
to the policy is in breach or default (including with respect to the payment of
premiums or the giving of notices), and no event has occurred which, with
notice or the lapse of time, would constitute such a breach or default, or
permit termination, modification, or acceleration, under the policy; (D)
neither the Company, any ERISA Affiliate nor the Buyer shall be subject to a
retroactive rate adjustment, loss sharing arrangement or other actual or
contingent liability and (E) to Shareholders' or the Company's Knowledge, no
party to the policy has repudiated any provision thereof. To the Shareholders'
Knowledge, the Company has been fully covered at all times during the past 5
years by insurance in scope and amount customary and reasonable for the
businesses in which it has engaged during the aforementioned period. Section
5(s) of the Disclosure Schedule describes any self-insurance arrangements
affecting the Company.
(t) LITIGATION. Section 5(t) of the Disclosure Schedule sets
forth each instance in which the Company (i) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (ii) is a party, or
to the Knowledge of Shareholders or the Company, is threatened to be made a
party to any claim, action, suit, proceeding, hearing, or investigation of, in,
or before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator. Except as set
forth in Section 5(t) of the Disclosure Schedule, there is no other pending, or
to the knowledge of Shareholders or the Company, threatened claim, arbitration
proceeding, action, suit, investigation or other proceeding against or
involving the Company or any property or rights of the Company or any officer
or director or the Company. To the Shareholders' Knowledge, none of the
actions, suits, proceedings, hearings, and investigations set forth in Section
5(t) of the Disclosure Schedule could have a Material Adverse Effect on the
business, financial condition, operations, results of operations, or future
prospects of the Company. Neither the Shareholders nor the directors and
officers (and employees with responsibility for litigation matters) of the
Company has any reason to believe that any such action, suit, proceeding,
hearing, or investigation may be brought or threatened against the Company.
(u) COMMITMENTS AND WARRANTIES. All services provided by the
Company have been performed in conformity with all applicable contractual
commitments (written or oral) and all express and implied warranties (written
or oral), and the Company has no Liability and, to the Knowledge of the
Shareholders and the Company, there is no Basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim, or
demand against any of them giving rise to any Liability) in connection with any
such services. Section 5(u) of the Disclosure Schedule includes copies of the
standard forms of agreement entered into between the Company and its customers.
The Company has not entered into any written or oral agreements with any of its
customers that include guaranties, warranties, or indemnity provisions other
than those included in the agreements included as part of Section 5(u) of the
Disclosure Schedule.
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Neither the Company nor the Shareholders has received notice (written
or oral) from any of its customers stating that the customer intends to reduce
the volume of business that it currently conducts with the Company or to cease
doing business with the Company.
(v) LIABILITY FOR SERVICES PERFORMED. The Company has no
Liability (and, to Shareholders' Knowledge, there is no Basis for any present
or future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against any of them giving rise to any Liability) arising out
of any injury to individuals or property as a result of or in connection with
any services provided by the Company.
(w) EMPLOYEES. To the Knowledge of the Shareholders or the
Company, no executive, key employee, or group of employees has any plans to
terminate employment with the Company. The Company is not currently, nor at any
prior time has been, a party to or bound by any collective bargaining
agreement, nor has the Company experienced any strikes, contractual grievances,
claims of unfair labor practices, or other collective bargaining disputes. The
Company has not committed any unfair labor practice. Neither the Shareholders
nor the Company have any Knowledge of any organizational effort presently being
made or threatened by or on behalf of any labor union with respect to employees
of the Company. To the Knowledge of the Shareholders and the Company, the
Company has not experienced any material employment dispute with any employee.
(x) EMPLOYEE BENEFITS.
(i) Section 5(x) of the Disclosure Schedule lists
each Employee Benefit Plan that the Company or any ERISA Affiliate maintains,
contributes to, or is required to contribute to or under which the Company or
any ERISA Affiliate has any Liability.
(A) Each such Employee Benefit Plan (and
each related trust, insurance contract, or fund) complies in form and in
operation in all respects with the applicable requirements of ERISA, the Code,
and other applicable laws.
(B) All required reports and disclosures
(including Form 5500 Annual Reports, Summary Annual Reports, PBGC-1's, and
Summary Plan Descriptions) have been filed or distributed appropriately with
respect to each such Employee Benefit Plan. The requirements of Part 6 of
Subtitle B of Title I of ERISA and of Code Section 4980B have been met with
respect to each such Employee Benefit Plan which is an Employee Welfare Benefit
Plan.
(C) All contributions (including all
employer contributions and employee salary reduction contributions) which are
due have been paid to each such Employee Benefit Plan which is an Employee
Pension Benefit Plan and all contributions for any period ending on or before
the Closing Date which are not yet due have been paid to each such Employee
Pension Benefit Plan or accrued in accordance with the past custom and practice
of the Company and in accordance with GAAP. All premiums or other payments for
all periods ending on or before the Closing Date have been paid with respect to
each such Employee Benefit Plan which is an Employee Welfare Benefit Plan.
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(D) Each such Employee Benefit Plan which
is an Employee Pension Benefit Plan now meets and at all times since inception
have met the requirements of a "qualified plan" under Code Section 401(a) and
has received, within the last two years, a favorable determination letter from
the Internal Revenue Service.
(E) As of the Closing Date, the market
value of assets under each such Employee Benefit Plan which is an Employee
Pension Benefit Plan (other than any Multiemployer Plan) will equal or exceed
the present value of all vested and nonvested Liabilities thereunder determined
in accordance with PBGC methods, factors, and assumptions applicable to an
Employee Pension Benefit Plan terminating on such date.
(F) The Shareholders have delivered to the
Buyer correct and complete copies of the plan documents and summary plan
descriptions including all amendments thereto, the most recent determination
letter received from the Internal Revenue Service, the three most recent Form
5500 Annual Reports (including all schedules thereto), the three most recent
annual premium payment forms filed with the PBGC, and all related trust
agreements, insurance contracts, and other funding agreements which implement
each such Employee Benefit Plan.
(ii) With respect to each Employee Benefit Plan that
the Company or any ERISA Affiliate maintains, contributes to, or is required to
contribute to or under which the Company or any ERISA Affiliate has any
liability:
(A) No such Employee Benefit Plan which is
an Employee Pension Benefit Plan (other than any Multiemployer Plan) has been
completely or partially terminated or been the subject of a Reportable Event as
to which notices would be required to be filed with the PBGC. No proceeding by
the PBGC to terminate any such Employee Pension Benefit Plan (other than any
Multiemployer Plan) has been instituted or threatened.
(B) There have been no Prohibited
Transactions with respect to any such Employee Benefit Plan. No Fiduciary has
any Liability for breach of fiduciary duty or any other failure to act or
comply in connection with the administration or investment of the assets of any
such Employee Benefit Plan. No action, suit, proceeding, hearing, or
investigation with respect to any such Employee Benefit Plan (other than
routine claims for benefits) is pending or threatened. Neither the Shareholders
nor the Company has any Knowledge of any Basis for any such action, suit,
proceeding, hearing, or investigation.
(C) Neither the Company nor any ERISA
Affiliate has incurred, and none of the Shareholders and the directors and
officers (and employees with responsibility for employee benefits matters) of
the Company has any reason to expect that the Company or any ERISA Affiliate
will incur, any Liability to the PBGC (other than PBGC premium payments) or
otherwise under Title IV of ERISA (including any withdrawal Liability) or under
the Code with respect to any such Employee Benefit Plan which is an Employee
Pension Benefit Plan.
(iii) Neither the Company nor any ERISA Affiliate
contributes to, ever has contributed to, or ever has been required to
contribute to any Multiemployer Plan or has any Liability (including withdrawal
Liability) under any Multiemployer Plan.
(iv) Neither the Company nor any ERISA Affiliate
maintains or contributes to, or has ever been required to contribute to any
Employee Welfare Benefit Plan providing medical, health, or life insurance or
other welfare-type benefits for current or future retired or terminated
employees, their spouses, or their dependents (other than in accordance with
Code Section 4980B).
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(y) GUARANTIES. The Company is not a guarantor or otherwise
is liable for any Liability or obligation (including indebtedness) of any other
Person.
(z) ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS.
(i) The Company and its Affiliates have complied and
are in compliance with all Environmental, Health, and Safety Requirements.
(ii) Without limiting the generality of the
foregoing, the Company and its Affiliates have obtained and complied with, and
are in compliance with, all permits, licenses and other authorizations that are
required pursuant to Environmental, Health, and Safety Requirements for the
occupation of its facilities and the operation of its business; a list of all
such permits, licenses and other authorizations is set forth on the attached
Disclosure Schedule.
(iii) Neither the Company nor its Affiliates has
received any written or oral notice, report or other information regarding any
actual or alleged violation of Environmental, Health, and Safety Requirements,
or any liabilities or potential liabilities (whether accrued, absolute,
contingent, unliquidated or otherwise), including any investigatory, remedial
or corrective obligations, relating to any of them or its facilities arising
under Environmental, Health, and Safety Requirements.
(iv) None of the following exists at any property or
facility owned or operated by the Company: (1) underground storage tanks, (2)
asbestos-containing material in any form or condition, (3) materials or
equipment containing polychlorinated biphenyls, or (4) landfills, surface
impoundments, or disposal areas.
(v) None of the Company or its Affiliates has
treated, stored, disposed of, arranged for or permitted the disposal of,
transported, handled, or released any substance, including without limitation
any hazardous substance, or owned or operated any property or facility (and no
such property or facility is contaminated by any such substance) in a manner
that has given or would give rise to liabilities, including any liability for
response costs, corrective action costs, personal injury, property damage,
natural resources damages or attorney fees, pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), the Solid Waste Disposal Act, as amended ("SWDA") or any other
Environmental, Health, and Safety Requirements.
(vi) Neither this Agreement nor the consummation of
the transaction that is the subject of this Agreement will result in any
obligations for site investigation or cleanup, or notification to or consent of
government agencies or third parties, pursuant to any of the so-called
"transaction-triggered" or "responsible property transfer" Environmental,
Health, and Safety Requirements.
(vii) Neither the Company nor its Affiliates has,
either expressly or by operation of law, assumed or undertaken any liability,
including without limitation any obligation for corrective or remedial action,
of any other Person relating to Environmental, Health, and Safety Requirements.
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<PAGE> 29
(viii) No facts, events or conditions relating to
the past or present facilities, properties or operations of the Company or any
of its Affiliates will prevent, hinder or limit continued compliance with
Environmental, Health, and Safety Requirements, give rise to any investigatory,
remedial or corrective obligations pursuant to Environmental, Health, and
Safety Requirements (whether on-site or off-site), or give rise to any other
liabilities (whether accrued, absolute, contingent, unliquidated or otherwise)
pursuant to Environmental, Health, and Safety Requirements, including without
limitation any relating to onsite or offsite releases or threatened releases of
hazardous materials, substances or wastes, personal injury, property damage or
natural resources damage.
(aa) CERTAIN BUSINESS RELATIONSHIPS WITH THE COMPANY. Except
as set forth in Section 5(aa) of the Disclosure Schedule, neither the
Shareholders, their respective Affiliates, any director or employee of the
Company, or any relatives of the Shareholders, or any person living in the same
residence as such persons, has been involved in any business arrangement or
relationship with the Company within the past 12 months, and neither the
Shareholders nor their respective Affiliates nor any of such other persons own
leases, licenses, or otherwise has any interest in any asset, tangible or
intangible, which is used in the business of the Company or any contract, lease
or commitment to which the Company is a party. The Company is not indebted to
any officer, director or employee of the Company for any liability or
obligation. No officer, director or employee of the Company is indebted to the
Company for any liability or obligation.
(bb) CUSTOMERS AND SUPPLIERS. To the Shareholders' Knowledge,
no purchase order or commitment of the Company is in excess of normal
requirements, nor are prices provided therein in excess of current market
prices for the products or services to be provided thereunder. No material
supplier of the Company has advised the Company in writing within the past year
that it will stop, or decrease the rate of, supplying materials, products or
services to the Company and no material customer of the Company has advised the
Company in writing within the past year that it will stop, or decrease the rate
of buying materials, products or services from the Company. Section 5(ab) of
the Disclosure Schedule sets forth a list of (a) each customer that accounted
for more than 5% of the consolidated revenues of the Company during the last
full fiscal year or the interim period through the date of the Most Recent
Financial Statements and the amount of revenues accounted for by such customer
during each such period and (b) each supplier that is the sole supplier of any
significant product or component to the Company. To the Shareholders'
Knowledge, the consummation of the transactions contemplated hereby will not
have a Material Adverse Effect on the Company's relationship with any customer
or supplier listed in Section 5(ab) of the Disclosure Schedule.
6. REPRESENTATIONS AND WARRANTIES CONCERNING THE BUYER AND ORIUS. The
Buyer and Orius, jointly and severally, represent and warrant to the
Shareholders that the statements contained in this Section 6 are correct and
complete as of the date of this Agreement and will be correct and complete as
of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 6), except
as set forth in the Buyer Disclosure Schedule. The Buyer Disclosure Schedule
shall be effective to modify only those representations and warranties to which
the Disclosure Schedule makes explicit reference. The Buyer Disclosure Schedule
will be arranged in paragraphs corresponding to the lettered and numbered
paragraphs contained in this Section 6.
(a) ORGANIZATION OF THE BUYER. The Buyer is a limited
liability company duly organized, validly existing, and in good standing under
the laws of the State of Delaware. Correct and complete copies of the governing
documents of the Buyer (as amended to date) are included as part of the Buyer
Disclosure Schedule. The manager and executive officers of the Buyer and the
names and titles of the executive officers and directors of Orius are set forth
on the Buyer Disclosure Schedule.
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<PAGE> 30
(b) ORGANIZATION OF ORIUS. Orius is a corporation validly
existing and in good standing under laws of the State of Delaware. Each
Affiliate and Subsidiary of Orius is validly existing and in good standing
under the laws of the state in which it was incorporated or organized. Orius,
and each of its Affiliates and Subsidiaries, is duly authorized to conduct
business under the laws of each jurisdiction where such qualification is
required, except where failure to do so is authorized or will not result in any
Material Adverse Effect. Orius and each of its Affiliates and Subsidiaries has
full corporate power and authority and all licenses, permits and authorizations
necessary to carry on the business in which it is engaged and in which it
presently proposes to engage, and to own and use the properties owned and used
by it, except where a failure to obtain any such licenses, permits and
authorizations will not have a Material Adverse Effect on Orius. Correct and
complete copies of the charter and bylaws (or similar governance documents) of
Orius are included as part of Section 6(b) of the Buyer Disclosure Schedule.
Neither Orius, nor any of its Affiliates and Subsidiaries, are in default under
or in violation of any provisions of their respective charters or bylaws (or
similar governance documents).
(c) CAPITALIZATION OF ORIUS. The entire authorized capital
stock of Orius consists of 4,700,000 shares of Common Stock and 300,000 shares
of preferred stock. The issued and outstanding capital stock of Orius is set
forth and held of record as set forth on Buyer Disclosure Schedule. All of the
issued and outstanding shares of Common Stock have been duly authorized,
validly issued, fully paid, and are nonassessable. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights, or other contracts or commitments that could require
Orius to issue, sell, or otherwise cause to become outstanding any of its
capital stock. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to Orius.
There are no voting trusts, proxies or other agreements or understandings with
respect to the voting of the capital stock of Orius.
(d) TITLE TO ASSETS. Orius, its Affiliates and Subsidiaries
have good and marketable title to, or a valid leasehold interest in, the
properties and assets used by them, located on their premises, or shown on the
Most Recent Orius Balance Sheet or acquired after the date thereof, free and
clear of all Security Interests (other than the Security Interests disclosed on
the face of the Most Recent Orius Balance Sheet and other Permitted Liens),
except for properties and assets disposed of in the Ordinary Course of Business
since the date of the Most Recent Orius Balance Sheet, none of which disposals
are expected to have a Material Adverse Effect on Orius or any of its
Affiliates or Subsidiaries. The consummation of the transactions contemplated
by this Agreement will not affect the Company's good and marketable title to,
or valid leasehold interest in, the properties and assets described in the
preceding sentence.
(e) SUBSIDIARIES AND AFFILIATES. Section 6(e) of the Buyer
Disclosure Schedule sets forth a complete and correct list of all Subsidiaries
of North American. Except as set forth in Section 6(e) of the Buyer Disclosure
Schedule, Orius does not currently have, and has not had within the past five
years, any Affiliates or Subsidiaries, and does not own any securities of any
other Person. The issued and outstanding capital stock of each Subsidiary has
been duly authorized, validly issued and fully paid, and is nonassessable.
There are no outstanding or authorized options, warrants, purchase rights,
subscription rights, conversion rights, preemptive rights, exchange rights, or
other contracts or commitments that could require any such Subsidiary to issue,
sell or otherwise cause to become outstanding any of its capital stock. There
are no outstanding obligations of any such Subsidiary to purchase, redeem or
otherwise acquire any capital stock or any securities convertible into or
exchangeable for such capital stock, or any options, warrants or rights to
purchase such capital stock or securities. There are no outstanding or
authorized stock appreciation, phantom stock, profit participation or similar
rights with respect to any Subsidiary. There are no voting trusts, proxies or
other agreements or understandings with respect to the voting of the capital
stock of any such Subsidiary.
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<PAGE> 31
(f) FINANCIAL STATEMENTS. Attached hereto as Exhibit J are
the following financial statements of North American (collectively the "North
American Financial Statements"): consolidated balance sheets and statements of
income, including the independent accountant's report thereon as of and for the
fiscal period ended November 28, 1998 (the "Most Recent North American Fiscal
Period End"). The North American Financial Statements (including the notes
thereto) have been prepared in accordance with GAAP applied on a consistent
basis throughout the periods covered thereby, present fairly the financial
condition of North American, its Affiliates and Subsidiaries as of such dates
and the results of operations of North American, its Affiliates and
Subsidiaries for such periods, are correct and complete in all material
respects, and are consistent with the books and records of North American, its
Affiliates and Subsidiaries (which books and records are correct and complete
in all material respects).
(g) EVENTS SUBSEQUENT TO MOST RECENT NORTH AMERICAN PERIOD
END. Since the Most Recent North American Fiscal Period End there has not
occurred any Material Adverse Effect on North American or any of its Affiliates
or Subsidiaries, and North American, its Affiliates and Subsidiaries have not
engaged in any transactions outside of the Ordinary Course of Business.
(h) TAX MATTERS. All federal, state, local and other tax
returns required to have been filed with respect to North American and any
North American Subsidiary have been filed, and payment or adequate provision
has been made for the payment of all taxes, fees, assessments and other
governmental charges which have or may become due pursuant to said returns or
to assessments received, except to the extent that such taxes, fees,
assessments and other charges are being contested in good faith by appropriate
proceedings diligently conducted and for which such reserves or other
appropriate provisions, if any, as shall be required by GAAP shall have been
made and except where failure to file would not result in assessment of taxes,
penalties and interest in excess of $100,000 in the aggregate. There are no
agreements or waivers extending the statutory period of limitations applicable
to any federal income tax return of North American or any North American
Subsidiary for any period.
(i) INTELLECTUAL PROPERTY.
North American and each North American Subsidiary
owns or possesses all the material patents, trademarks, service marks, trade
names, copyrights, licenses, registrations, franchises, permits and rights
necessary to own and operate its properties and to carry on its business as
presently conducted and planned to be conducted by North American or a North
American Subsidiary, without known possible, alleged or actual conflict with
the rights of others.
(j) INSURANCE. All insurance policies and other bonds to
which North American or any North American Subsidiary is a party are valid and
in full force and effect. No notice has been given or claim made and no grounds
exist to cancel or avoid any of such policies or bonds or to reduce the
coverage provided thereby. Such policies and bonds provide adequate coverage
from reputable and financially sound insurers in amounts sufficient to insure
the assets and risks of North American and North American Subsidiary in
accordance with prudent business practice in the industry of the such entity.
(k) LEGAL COMPLIANCE. North American and each North American
Subsidiary are in compliance in all material respects with all applicable Laws
(other than Environmental Laws which are specifically addressed in Section
6(m)) in all jurisdictions in which any North American or any North American
Subsidiary is presently doing business except where the failure to do so would
not have a Material Adverse Effect.
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<PAGE> 32
(l) EMPLOYEE BENEFITS.
(i) Each Employee Benefit Plan (and each related
trust, insurance contract, or fund) to which North American or any North
American Subsidiary is party complies in form and in operation in all respects
with the applicable requirements of ERISA, the Code, and other applicable laws.
(ii) All required reports and disclosures (including
Form 5500 Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan
Descriptions) have been filed or distributed appropriately with respect to each
such Employee Benefit Plan. The requirements of Part 6 of Subtitle B of Title I
of ERISA and of Code Section 4980B have been met with respect to each such
Employee Benefit Plan which is an Employee Welfare Benefit Plan.
(iii) All contributions (including all employer
contributions and employee salary reduction contributions) which are due have
been paid to each such Employee Benefit Plan which is an Employee Pension
Benefit Plan and all contributions for any period ending on or before the
Closing Date which are not yet due have been paid to each such Employee Pension
Benefit Plan or accrued in accordance with the past custom and practice of the
applicable North American Subsidiary and in accordance with GAAP. All premiums
or other payments for all periods ending on or before the Closing Date have
been paid with respect to each such Employee Benefit Plan which is an Employee
Welfare Benefit Plan.
(iv) Each such Employee Benefit Plan which is an
Employee Pension Benefit Plan now meets and at all times since inception have
met the requirements of a "qualified plan" under Code Section 401(a) and has
received, within the last two years, a favorable determination letter from the
Internal Revenue Service.
(v) As of the Closing Date, the market value of
assets under each such Employee Benefit Plan which is an Employee Pension
Benefit Plan (other than any Multiemployer Plan) will equal or exceed the
present value of all vested and nonvested Liabilities thereunder determined in
accordance with PBGC methods, factors, and assumptions applicable to an
Employee Pension Benefit Plan terminating on such date.
(vi) With respect to each Employee Benefit Plan that
North American or any ERISA Affiliate maintains, contributes to, or is required
to contribute to or under which North American or any ERISA Affiliate has any
liability:
(A) No such Employee Benefit Plan which is
an Employee Pension Benefit Plan (other than any Multiemployer Plan) has been
completely or partially terminated or been the subject of a Reportable Event as
to which notices would be required to be filed with the PBGC. No proceeding by
the PBGC to terminate any such Employee Pension Benefit Plan (other than any
Multiemployer Plan) has been instituted or threatened.
(B) There have been no Prohibited
Transactions with respect to any such Employee Benefit Plan. No Fiduciary has
any Liability for breach of fiduciary duty or any other failure to act or
comply in connection with the administration or investment of the assets of any
such Employee Benefit Plan. No action, suit, proceeding, hearing, or
investigation with respect to any such Employee Benefit Plan (other than
routine claims for benefits) is pending or threatened. Neither the Shareholders
nor North American has any Knowledge of any Basis for any such action, suit,
proceeding, hearing, or investigation.
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(C) Neither North American nor any ERISA
Affiliate has incurred, and none of the Shareholders and the directors and
officers (and employees with responsibility for employee benefits matters) of
North American has any reason to expect that North American or any ERISA
Affiliate will incur, any Liability to the PBGC (other than PBGC premium
payments) or otherwise under Title IV of ERISA (including any withdrawal
Liability) or under the Code with respect to any such Employee Benefit Plan
which is an Employee Pension Benefit Plan.
(vii) Neither North American nor any ERISA Affiliate
contributes to, ever has contributed to, or ever has been required to
contribute to any Multiemployer Plan or has any Liability (including withdrawal
Liability) under any Multiemployer Plan.
(viii) Neither North American nor any North American
Subsidiary maintains or contributes to, or has ever been required to contribute
to any Employee Welfare Benefit Plan providing medical, health, or life
insurance or other welfare-type benefits for current or future retired or
terminated employees, their spouses, or their dependents (other than in
accordance with Code Section 4980B).
(m) ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS.
(i) North American and its predecessors and each
North American Subsidiary have complied and are in compliance with all
Environmental, Health, and Safety Requirements.
(ii) Without limiting the generality of the
foregoing, North American and each North American Subsidiary have obtained and
complied with, and are in compliance with, all permits, licenses and other
authorizations that are required pursuant to Environmental, Health, and Safety
Requirements for the occupation of its facilities and the operation of its
business; a list of all such permits, licenses and other authorizations is set
forth on the attached Buyer Disclosure Schedule.
(iii) Neither North American nor its predecessors
nor any North American Subsidiary has received any written or oral notice,
report or other information regarding any actual or alleged violation of
Environmental, Health, and Safety Requirements, or any liabilities or potential
liabilities (whether accrued, absolute, contingent, unliquidated or otherwise),
including any investigatory, remedial or corrective obligations, relating to
any of them or its facilities arising under Environmental, Health, and Safety
Requirements.
(iv) None of the following exists at any property or
facility owned or operated by North American: (1) underground storage tanks,
(2) asbestos-containing material in any form or condition, (3) materials or
equipment containing polychlorinated biphenyls, or (4) landfills, surface
impoundments, or disposal areas.
(v) None of North American or its predecessors nor
any North American Subsidiary has treated, stored, disposed of, arranged for or
permitted the disposal of, transported, handled, or released any substance,
including without limitation any hazardous substance, or owned or operated any
property or facility (and no such property or facility is contaminated by any
such substance) in a manner that has given or would give rise to liabilities,
including any liability for response costs, corrective action costs, personal
injury, property damage, natural resources damages or attorney fees, pursuant
to the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), the Solid Waste Disposal Act, as amended ("SWDA")
or any other Environmental, Health, and Safety Requirements.
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<PAGE> 34
(vi) Neither this Agreement nor the consummation of
the transaction that is the subject of this Agreement will result in any
obligations for site investigation or cleanup, or notification to or consent of
government agencies or third parties, pursuant to any of the so-called
"transaction-triggered" or "responsible property transfer" Environmental,
Health, and Safety Requirements.
(vii) Neither North American nor its predecessors
nor any North American Subsidiary has, either expressly or by operation of law,
assumed or undertaken any liability, including without limitation any
obligation for corrective or remedial action, of any other Person relating to
Environmental, Health, and Safety Requirements.
(viii) No facts, events or conditions relating to
the past or present facilities, properties or operations of North American or
any of its predecessors or North American Subsidiary will prevent, hinder or
limit continued compliance with Environmental, Health, and Safety Requirements,
give rise to any investigatory, remedial or corrective obligations pursuant to
Environmental, Health, and Safety Requirements (whether on-site or off-site),
or give rise to any other liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise) pursuant to Environmental, Health, and Safety
Requirements, including without limitation any relating to onsite or offsite
releases or threatened releases of hazardous materials, substances or wastes,
personal injury, property damage or natural resources damage.
(n) DISCLOSURE. Neither this Agreement nor any of the
exhibits, attachments, written statements, documents, certificates or other
items prepared for or supplied to the Shareholders by Orius with respect to the
transactions contemplated hereby contains any untrue statement of a material
fact or omits to state any material fact necessary in order to make each
statement contained herein or therein not misleading. There is no fact which
Orius has not disclosed to the Shareholders herein and of which Orius or any of
the its officers or directors is aware and which could be anticipated to have a
Material Adverse Effect on Orius after the Closing.
7. PRE-CLOSING COVENANTS. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing.
(a) GENERAL. Each of the Parties will use his or its best
efforts to take all action and to do all things necessary, proper, or advisable
in order to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions
set forth in Section 9 below).
(b) NOTICES AND CONSENTS. The Shareholders will cause the
Company to give any notices to third parties, and will cause the Company to use
its best efforts to obtain any third party consent required in connection with
the matters referred to in Section 5(d) above. Each of the Parties will (and the
Shareholders will cause the Company to) give any notices to, make any filings
with, and use its best efforts to obtain any authorizations, consents, and
approvals of governments and governmental agencies in connection with the
matters referred to in Section 3(b) and Section 5(d) above.
(c) OPERATION OF BUSINESS. Except as set forth on Schedule
7(c) hereto and Section 5(g) of the Disclosure Schedule, the Shareholders will
not cause or permit the Company to engage in any practice, take any action, or
enter into any transaction outside the Ordinary Course of Business. Without
limiting the generality of the foregoing, the Shareholders will not cause or
permit the Company to (i) declare, set aside, or pay any dividend or make any
29
<PAGE> 35
distribution with respect to its capital stock or redeem, purchase, or
otherwise acquire any of its capital stock or (ii) otherwise engage in any
practice, take any action, or enter into any transaction of the sort described
in Section 5(g) above. The Shareholders will immediately notify the Buyer in
writing with respect to any proposed capital expenditures in excess of $50,000.
(d) PRESERVATION OF BUSINESS. Except as provided on Schedule
7(c), the Shareholders will cause the Company to keep its business and
properties substantially intact, including its present operations, physical
facilities, working conditions, and relationships with lessors, licensors,
suppliers, customers, and employees.
(e) FULL ACCESS. The Shareholders will permit, and will cause
the Company to permit, representatives of the Buyer to have full access at all
reasonable times, and in a manner so as not to interfere with the normal
business operations of the Company, to all premises, properties, personnel,
books, records (including Tax records), contracts, and documents of or
pertaining to the Company. At the request of the Buyer, Shareholders will
permit, and will cause the Company to permit, the Buyer's lenders, and their
respective counsel, to have the same access as permitted to the Buyer in
accordance with the immediately preceding sentence.
(f) NOTICE OF DEVELOPMENTS. The Shareholders will give prompt
written notice to the Buyer of any breach of any of the representations and
warranties in Section 5 above. Each Party will give prompt written notice to
the others of any breach of any of his or its own representations and
warranties in Section 3 above. No disclosure by any Party pursuant to this
Section 7(f), however, shall be deemed to amend or supplement the Buyer
Disclosure Schedule or the Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
(g) EXCLUSIVITY. The Shareholders will not (and the
Shareholders will not cause or permit the Company to) (i) solicit, initiate, or
encourage the submission of any proposal or offer from any Person relating to
the acquisition of any capital stock or other voting securities, or any
substantial portion of the assets, of the Company (including any acquisition
structured as a merger, consolidation, or share exchange) or (ii) participate
in any discussions or negotiations regarding, furnish any information with
respect to, assist or participate in, or facilitate in any other manner any
effort or attempt by any Person to do or seek any of the foregoing. The
Shareholders will notify the Buyer immediately if any Person makes any
proposal, offer, inquiry, or contact with respect to any of the foregoing.
(h) NO TERMINATION OF SHAREHOLDERS' OBLIGATION BY SUBSEQUENT
INCAPACITY. Shareholders specifically agrees that his obligations hereunder,
including, without limitation, the obligations pursuant to Section 10 hereof,
shall not be eliminated by his or her death or incapacity.
8. POST-CLOSING COVENANTS. The Parties agree as follows with respect
to the period following the Closing.
(a) GENERAL. In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, each of the Parties will take such further action (including the
execution and delivery of such further instruments and documents) as any other
Party reasonably may request, all at the sole cost and expense of the
requesting Party (unless the requesting Party is entitled to indemnification
therefor under Section 10 below). The Shareholders acknowledge and agree that
from and after the Closing the Buyer will be entitled to possession of all
documents, books, records (including Tax records), agreements, and financial
data of any sort relating to the Company.
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(b) LITIGATION SUPPORT. In the event and for so long as any
Party actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving the Company, each of the other Parties will
cooperate with him or it and his or its counsel in the contest or defense, make
available their personnel, and provide such testimony and access to their books
and records as shall be necessary in connection with the contest or defense,
all at the sole cost and expense of the contesting or defending Party (unless
the contesting or defending Party is entitled to indemnification therefor under
Section 10 below).
(c) TRANSITION. The Shareholders will not take any action
that is designed or intended to have the effect of discouraging any lessor,
licensor, customer, supplier, or other business associate of the Company from
maintaining the same business relationships with the Company after the Closing
as it maintained with the Company prior to the Closing. The Shareholders will
refer all customer inquiries relating to the businesses of the Company to the
Buyer from and after the Closing.
(d) INDEPENDENT ACCOUNTANTS. After the Closing, Shareholders
shall (i) use reasonable efforts to cause the Company's past and present
independent auditors and accounting personnel to make available to the Buyer
and its representatives, at Buyer's sole cost and expense, all financial
information, including the right to examine all working papers pertaining to
audits or reviews previously or hereafter made by such auditors, and (ii)
provide such cooperation as the Buyer and its representatives may request in
connection with any audit or review of the Company that the Buyer may direct
its representatives to make. Without limiting the generality of the foregoing,
the Shareholders agree that they will cooperate with, and cause the Company's
past and present independent auditors, accounting personnel and other necessary
persons to cooperate with the Buyer, at Buyer's sole cost and expense, in the
preparation of any documents filed by the Buyer with the U.S. Securities and
Exchange Commission in connection with an offering of securities, to the extent
information about the Company is required therein.
(e) TAX MATTERS. The Shareholders covenant and agree not to
take any action, or fail to take any action, with respect to Taxes, that would
have an adverse effect on the Buyer on or after the Closing Date, including,
without limitation, amending or otherwise supplementing any Tax Return or
report of the Company with respect to any period prior to the Closing Date
without the consent of the Buyer. If any taxing authority conducts any audit or
investigation relating to the Company prior to the Closing Date, the Buyer may,
in its sole election, have the right to supervise such audit or investigation
and provide any response required in connection therewith.
(f) STOCK OPTIONS. Orius has adopted a stock incentive plan
(the "Stock Incentive Plan") pursuant to which stock options and other forms of
stock-based compensation may be awarded to the officers, directors and
employees of the Buyer and its subsidiaries. The key employees of the Company
shall be eligible to receive awards under the Stock Incentive Plan of options
to acquire shares of the Orius Common Stock. Within 60 days of the Closing, the
officers of the Company shall recommend to the Stock Option Committee under the
Stock Incentive Plan the terms, conditions and amounts of awards to be granted
and the identity of the key employees of the Company to receive such awards,
however, all such awards, and the terms and conditions thereof, shall be
finally determined by the Stock Option Committee.
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(g) AUDITED FINANCIAL STATEMENTS. Shareholders shall cause
the Company's auditors to cooperate with Buyer's auditors in the preparation of
audited consolidated balance sheets and statements of income, changes in
stockholders' equity, and cash flow including the audit report thereon as of
and for the three-year period ending December 31, 1998 for the Company. All
costs associated with the preparation and audit of the Company's December 31,
1998 financial statements shall be paid by Buyer.
(h) NON-DISPARAGEMENT. Shareholders agree that they shall not
knowingly make or cause to be made, directly or indirectly, orally or in
writing, any disparaging statements or remarks about the Company, Buyer, Orius
or their respective officers, employees, Affiliates and services. Buyer and
Orius agree that they shall not knowingly make or cause to be made, directly or
indirectly, orally or in writing, any disparaging statements or remarks about
the Shareholders. The restrictions of this section do not apply to any
statements or remarks made or caused to be made, directly or indirectly, prior
to the effective date of this Agreement. The restrictions herein shall not
apply to any statements or remarks made in connection with any judicial
proceeding or pursuant to any court order or subpoena.
9. CONDITIONS TO OBLIGATION TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF THE BUYER. The obligation of
the Buyer to consummate the transactions to be performed by it in connection
with the Closing is subject to satisfaction of the following conditions:
(i) The representations and warranties set forth in
Section 3 and Section 5 above shall be true and correct in all material
respects at and as of the Closing Date and there shall not have occurred any
Material Adverse Effect;
(ii) The Shareholders and the Company shall have
performed and complied with all of his covenants hereunder in all material
respects through the Closing;
(iii) The Company shall have procured all of the
third party consents specified in Section 7(b) above;
(iv) No action, suit, or proceeding shall be pending
or threatened before any court or quasi-judicial or administrative agency of
any federal, state, local, or foreign jurisdiction, or before any arbitrator,
wherein an unfavorable injunction, judgment, order, decree, ruling, or charge
would (A) prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this Agreement to
be rescinded following consummation, (C) affect adversely the right of the
Company to own its assets and to operate its businesses (and no such
injunction, judgment, order, decree, ruling, or charge shall be in effect);
(v) The Shareholders shall have delivered to the
Buyer a certificate, to the effect that each of the conditions specified above
in Section 9(a)(i) through 9(a)(iv) is satisfied in all respects;
(vi) The Parties shall have received all other
authorizations, consents, and approvals of governments and governmental
agencies referred to in Section 3(b) and Section 5(d) above;
(vii) The Buyer shall have received from counsel to
the Shareholders an opinion substantially in form and substance as set forth in
Exhibit G attached hereto, addressed to the Buyer and dated as of the Closing
Date;
(viii) P. Nicholas Johnson shall have entered into
the Employment Agreement;
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(ix) The Shareholders shall have entered into the
Noncompetition Agreements;
(x) The Shareholders shall have entered into the
Leases;
(xi) Leota Johnson and P. Nicholas Johnson, as
trustee of the Paul H. Johnson Family Trust, shall have released the Company
from its obligations under promissory notes issued to them in connection with
the redemption of preferred stock.
(xii) All actions to be taken by the Shareholders in
connection with the consummation of the transactions contemplated hereby and
all certificates, opinions, instruments, and other documents required to effect
the transactions contemplated hereby will be reasonably satisfactory in form
and substance to the Buyer.
(xiii) At least five business days prior to the
Closing, the Buyer shall have received a balance sheet prepared by the Company,
estimating the assets, liabilities and shareholders' equity of the Company as
of the Closing Date (the "Estimated Closing Balance Sheet"). The Estimated
Closing Balance Sheet shall be prepared in accordance with the method set forth
in Section 11(a) for the preparation of the Draft Closing Balance Sheet and
will reflect: (A) Shareholders' Equity at least five million three hundred
thousand dollars ($5,300,000); and (B) cash of at least eight hundred thousand
dollars ($800,000). The Buyer shall not have objected to, challenged or
otherwise repudiated any of the amounts included in the Estimated Closing
Balance Sheet.
(xiv) The Buyer shall have received an appraisal,
from an appraiser selected by the Buyer, that states that the fair market value
of the Company's tangible assets listed in Section 5(m) of the Disclosure
Schedule is at least equal to the book value of such assets reflected in the
Estimated Closing Balance Sheet.
(xv) The Company shall have delivered evidence of
its qualification to do business in each jurisdiction where it is so qualified
and a certificate of good standing issued by the Secretary of State of each
such jurisdiction demonstrating that the Company is in good standing in that
jurisdiction;
(xvi) Each of the Shareholders shall have been made
parties to the Stockholders' Agreement;
(xvii) The board of directors of the Buyer shall
have approved the consummation of the transaction contemplated by this
Agreement;
(xviii) All actions to be taken by the Shareholders
in connection with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form and
substance to the Buyer; and
(xix) All of the transactions contemplated by the
Exchange Agreements shall have been consummated.
Buyer may waive any condition specified in this Section 9(a) if it executes a
writing so stating at or prior to the Closing.
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(b) CONDITIONS TO OBLIGATION OF THE SHAREHOLDERS. The
obligation of the Shareholders to consummate the transactions to be performed
by them in connection with the Closing is subject to satisfaction of the
following conditions:
(i) The representations and warranties set forth in
Section 4 and Section 6 above shall be true and correct in all material
respects at and as of the Closing Date;
(ii) The Buyer shall have performed and complied
with all of its covenants hereunder in all material respects through the
Closing;
(iii) No action, suit, or proceeding shall be
pending or threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction, or before any
arbitrator, wherein an unfavorable injunction, judgment, order, decree, ruling,
or charge would (A) prevent consummation of any of the transactions
contemplated by this Agreement or (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation (and no
such injunction, judgment, order, decree, ruling, or charge shall be in
effect);
(iv) The Buyer shall have delivered to the
Shareholders a certificate to the effect that each of the conditions specified
above in Section 9(b)(i)-9(b)(iii) is satisfied in all respects;
(v) The Parties shall have received all other
authorizations, consents, and approvals of governments and governmental
agencies referred to in Section 3(b) and Section 5(d) above;
(vi) The Shareholders shall have received from
counsel to the Buyer an opinion substantially, in form and substance, as set
forth in Exhibit H attached hereto, addressed to the Shareholders, and dated as
of the Closing Date;
(vii) The Buyer shall have entered into the
Employment Agreements;
(viii) The Buyer shall have entered into the Leases;
(ix) The Shareholders shall have been released from
their personal obligations relative to any outstanding performance or payment
bonds of the Company or the Buyer shall have made such other arrangements as
may be mutually acceptable to the Shareholders and the Buyer to fully indemnify
the Shareholders with respect to any such obligations.
(x) On or before 5:00 p.m. MST on February 22, 1999,
the Shareholders shall have completed their due diligence investigation of the
Buyer and Orius;
(xi) All actions to be taken by the Buyer in
connection with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form and
substance to the Shareholders; and
(xvii) All of the transactions contemplated by the
Exchange Agreements shall have been consummated.
The Shareholders may waive any condition specified in this Section 9(b) if they
execute a writing so stating at or prior to the Closing.
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10. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations, warranties, covenants and agreements of the Parties contained
in this Agreement or in any certificate, document, instrument or agreement
delivered pursuant to this Agreement shall survive the Closing hereunder
(notwithstanding any due diligence investigations that may have been undertaken
by the damaged Party) and continue in full force and effect for three years
from the Closing Date.
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE BUYER.
(i) In the event the Shareholders breach (or in the
event that any third party alleges facts that, if true, would mean that the
Shareholders have breached) any of their representations, warranties (or any of
such representations or warranties is untrue or inaccurate), covenants and
agreements contained herein or in any certificate, document, instrument or
agreement delivered pursuant to this Agreement, and, provided that the
Indemnified Buyers (as hereafter defined) make a written claim for
indemnification against the Shareholders pursuant to Section 14(g) below within
the applicable claim period provided in Section 10(a) above, then the
Shareholders agree to indemnify the Buyer and each of its officers, directors,
employees, representatives and shareholders (the "Indemnified Buyers") from and
against the entirety of any Adverse Consequences the Indemnified Buyers may
suffer through and after the date of the claim for indemnification (including
any Adverse Consequences the Indemnified Buyers may suffer after the end of any
applicable claim period) resulting from, arising out of, relating to, in the
nature of, or caused by the breach (or the alleged breach) during any
applicable claim period; provided, however, that the Shareholders shall not
have any obligation to indemnify the Indemnified Buyer from and against any
Adverse Consequences resulting from, arising out of, relating to, in the nature
of, or caused by the breach (or alleged breach) of any representation or
warranty of the Shareholders contained in Section 5 above (other than those in
Section 5(a)-5(c), Section 5(j), Section 5(x) and Section 5(z)): (A) until the
Indemnified Buyer has suffered Adverse Consequences by reason of all such
breaches (or alleged breaches) in excess of a $250,000 aggregate deductible
(after which point the Shareholders will be obligated only to indemnify the
Indemnified Buyer from and against Adverse Consequences in excess of that
amount) or thereafter (B) to the extent that the Adverse Consequences the
Indemnified Buyer has suffered by reason of all such breaches exceeds a
$23,250,000 aggregate ceiling (after which point the Shareholders will have no
obligation to indemnify the Buyer from and against further such Adverse
Consequences).
(ii) The Shareholders agree to indemnify the
Indemnified Buyers from and against the entirety of any Adverse Consequences
they may suffer resulting from, arising out of, relating to, in the nature of,
or caused by the activities of any entity which at any time has been owned, in
whole or in part, by the Company or under common control with the Company.
(iii) Without limiting any other indemnification
provided in this Section 10, the Shareholders agree to indemnify the
Indemnified Buyers from and against the entirety of any Adverse Consequences
they may suffer as a result of a taxing authority taking the position that any
former or current subcontractor of the Company should have been, at any time
prior to the Closing Date, treated as an employee of the Company.
(iv) All of the indemnification obligations of
Shareholders under this Section 10 shall be joint and several.
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<PAGE> 41
(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE
SHAREHOLDERS.
(i) In the event the Buyer or Orius breaches (or in
the event any third party alleges facts that, if true, would mean the Buyer or
Orius had breached) any of their representations, warranties (or any of such
representations or warranties is untrue or inaccurate), covenants and
agreements contained herein (including, without limitation, the payment
obligations of the Company set forth on Section 5(g)-Permitted Distributions of
the Disclosure Schedule) or in any certificate, document, instrument or
agreement delivered pursuant to this Agreement, and, provided that the
Shareholders makes a written claim for indemnification against the Buyer or
Orius pursuant to Section 14(g) below within the applicable claim period
provided in 8(a) above, then the Buyer and Orius, jointly and severally, agree
to indemnify the Shareholders and each of their representatives (the
"Indemnified Shareholders") from and against the entirety of any Adverse
Consequences the Indemnified Shareholders may suffer through and after the date
of the claim for indemnification (including any Adverse Consequences the
Indemnified Shareholders may suffer after the end of any applicable claim
period) resulting from, arising out of, relating to, in the nature of, or
caused by the breach (or the alleged breach).
(ii) The Buyer and Orius, jointly and severally,
agree to indemnify the Indemnified Shareholders from and against the entirety
of any income tax liabilities the Indemnified Shareholders may suffer resulting
from, arising out of, relating to, in the nature of, or caused by the failure
of the delivery of the Orius Common Stock to the Shareholders as part of the
Initial Consideration to be treated as a transaction qualifying under Section
351 of the Code.
(d) MATTERS INVOLVING THIRD PARTIES.
(i) If any third party shall notify any party
entitled to indemnification hereunder (the "Indemnified Party") with respect to
any matter (a "Third Party Claim") which may give rise to a claim for
indemnification against any other Party (the "Indemnifying Party") under this
Section 10(d) then the Indemnified Party shall notify each Indemnifying Party
thereof in writing within 120 days of the receipt of the third party
notification.
(ii) Any Indemnifying Party will have the right to
defend the Indemnified Party against the Third Party Claim with counsel of its
choice reasonably satisfactory to the Indemnified Party so long as (A) the
Indemnifying Party notifies the Indemnified Party in writing within 30 days
after the Indemnified Party has given notice of the Third Party Claim that the
Indemnifying Party will indemnify the Indemnified Party from and against the
entirety of any Adverse Consequences the Indemnified Party may suffer resulting
from, arising out of, relating to, in the nature of, or caused by the Third
Party Claim, (B) the Indemnifying Party provides the Indemnified Party with
evidence reasonably acceptable to the Indemnified Party that the Indemnifying
Party will have the financial resources to defend against the Third Party Claim
and fulfill its indemnification obligations hereunder, (C) the Third Party
Claim involves only money damages and does not seek an injunction or other
equitable relief, (D) settlement of, or an adverse judgment with respect to,
the Third Party Claim is not, in the good faith judgment of the Indemnified
Party, likely to establish a precedential custom or practice materially adverse
to the continuing business interests of the Indemnified Party, (E) the named
parties to the Third Party Claim do not include both the Indemnified Party and
the Indemnifying Party, and (F) the Indemnifying Party conducts the defense of
the Third Party Claim actively and diligently.
(iii) So long as the Indemnifying Party is
conducting the defense of the Third Party Claim in accordance with Section
10(d)(ii) above, (A) the Indemnified Party may retain separate co-counsel at
its sole cost and expense and participate in the defense of the Third Party
Claim, (B) the Indemnified Party will not consent to the entry of any judgment
or enter into any settlement with respect to the Third Party Claim without the
prior written consent of the Indemnifying Party
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(not to be withheld unreasonably), and (C) the Indemnifying Party will not
consent to the entry of any judgment or enter into any settlement with respect
to the Third Party Claim without the prior written consent of the Indemnified
Party (not to be withheld unreasonably).
(iv) In the event any of the conditions in Section
10(d)(ii) above is or becomes unsatisfied, however, (A) the Indemnified Party
may defend against, and consent to the entry of any judgment or enter into any
settlement with respect to, the Third Party Claim in any commercially
reasonable manner (and the Indemnified Party need not consult with, or obtain
any consent from, any Indemnifying Party in connection therewith), (B) the
Indemnifying Parties will reimburse the Indemnified Party promptly and
periodically for the costs of defending against the Third Party Claim
(including reasonable attorneys' fees and expenses), and (C) the Indemnifying
Parties will remain responsible for any Adverse Consequences the Indemnified
Party may suffer resulting from, arising out of, relating to, in the nature of,
or caused by the Third Party Claim to the fullest extent provided in this
Section 10.
(e) DETERMINATION OF ADVERSE CONSEQUENCES. The Parties shall
make appropriate adjustments for insurance coverage and take into account the
time cost of money (using the Applicable Rate as the discount rate) in
determining Adverse Consequences for purposes of this Section 10. All
indemnification payments under this Section 10 shall be deemed adjustments to
the Consideration.
(f) OTHER INDEMNIFICATION PROVISIONS. The foregoing
indemnification provisions are in addition to, and not in derogation of, any
statutory, equitable, or common law remedy (including without limitation any
such remedy arising under Environmental, Health, and Safety Requirements) any
Party may have with respect to the Company, or the transactions contemplated by
this Agreement, subject, in each case, to any applicable insurance coverage.
Each Shareholder hereby agrees that he will not make any claim for
indemnification against the Company by reason of the fact that he was a
director, officer, employee, or agent of the Company or was serving at the
request of the Company as a partner, trustee, director, officer, employee, or
agent of another entity (whether such claim is for judgments, damages,
penalties, fines, costs, amounts paid in settlement, losses, expenses, or
otherwise and whether such claim is pursuant to any statute, charter document,
bylaw, agreement, or otherwise) with respect to any action, suit, proceeding,
complaint, claim, or demand brought by the Buyer against such Shareholder
(whether such action, suit, proceeding, complaint, claim, or demand is pursuant
to this Agreement, applicable law, or otherwise).
11. POST-CLOSING ADJUSTMENT OF CONSIDERATION.
(a) Within 90 days after the Closing Date, the Buyer will
prepare and deliver to Shareholders a draft balance sheet (the "Draft Closing
Date Balance Sheet") for the Company as of the close of business on the Closing
Date (determined as though the Parties had not consummated the transactions
contemplated by this Agreement), prepared in accordance with GAAP applied on a
basis consistent with the preparation of the Financial Statements; except that
the Draft Closing Date Balance Sheet shall include all of the same types of
adjustments as were made in connection with the preparation of the Most Recent
Fiscal Year End Financial Statements.
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(b) If the Shareholders have any objections to the Draft
Closing Date Balance Sheet, they will deliver a detailed statement describing
their objections to the Buyer within 30 days after receiving the Draft Closing
Date Balance Sheet. The Buyer and the Shareholders will use reasonable efforts
to resolve any such objections themselves. If the Parties do not obtain a final
resolution within 30 days after the Buyer has received the statement of
objections, however, the Buyer and Shareholders will select an accounting firm
mutually acceptable to them to resolve any remaining objections. If the Buyer
and the Shareholders are unable to agree on the choice of an accounting firm,
they will select a nationally-recognized accounting firm by lot (after
excluding their respective regular outside accounting firms). The determination
of any accounting firm so selected will be set forth in writing and will be
conclusive and binding upon the Parties. The Buyer will revise the Draft
Closing Date Balance Sheet as appropriate to reflect the resolution of any
objections thereto pursuant to this Section 11(b). The "Closing Date Balance
Sheet" shall mean the Draft Closing Date Balance Sheet together with any
revisions thereto pursuant to this Section 11(b).
(c) In the event the Parties submit any unresolved objections
to an accounting firm for resolution as provided in Section 11(b) above, any
expenses relating to the engagement of the accounting firm shall be allocated
between the Shareholders and the Buyer by the accounting firm in proportion to
the amount in dispute which is decided in favor of the challenging party.
(d) The Buyer will make the work papers and back-up materials
used in preparing the Draft Closing Date Balance Sheet available to the
Shareholders and their accountants and other representatives at reasonable
times and upon reasonable notice during (A) the preparation by the Buyer of the
Draft Closing Date Balance Sheet, (B) review by the Shareholders of the Draft
Closing Date Balance Sheet, and (C) the resolution by the Parties of any
objections thereto.
(e) If the shareholder's equity set forth in the Closing Date
Balance Sheet is less than $5,300,000, the Shareholders will pay to the Buyer
an amount equal to such deficiency (plus interest thereon at the Applicable
Rate from the Closing Date) within three business days after the date on which
the Closing Date Balance Sheet finally is determined pursuant to Section 11(b).
If the shareholder's equity set forth in the Closing Date Balance Sheet is more
than $5,300,000, then the Buyer pay to the Shareholders an amount equal to such
excess (plus interest thereon at the Applicable Rate from the Closing Date) by
the later of three business days after the date on which the Closing Date
Balance Sheet finally is determined pursuant to Section 11(b) or 90 days from
the Closing Date.
(f) If the cash set forth in the Closing Date Balance Sheet
is less than $800,000, the Shareholders will pay to the Buyer an amount equal
to such deficiency (plus interest thereon at the Applicable Rate from the
Closing Date) within three business days after the date on which the Closing
Date Balance Sheet finally is determined pursuant to Section 11(b) or, at their
election by giving notice to the Company, the Shareholders may offset any
amount payable by them pursuant to this Section 11(f) the amount payable after
the Closing by Buyer to the Shareholders pursuant to Section 2(b).
12. TAX MATTERS. The following provisions shall govern the allocation
of responsibility as between the Buyer and Shareholders for certain tax matters
following the Closing Date:
(a) TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE.
Shareholders shall prepare or cause to be prepared and timely file or cause to
be timely filed all Tax Returns for the Company for all periods ending on or
prior to the Closing Date (the "Pre-Closing Period"). Such Tax Returns shall be
prepared by treating items on such Tax Return in a manner consistent with the
past practices with respect to such items, unless otherwise required by law.
Shareholders shall permit the Buyer to review and comment on each such Tax
Return described in the preceding sentence prior to filing. The Buyer shall pay
the amounts due for Taxes of the Company with respect to the Pre-Closing
Periods, up to the amount reflected in the reserve for Tax Liability shown on
the face of the Closing Date Balance Sheet. Shareholders jointly and severally
agree that they will pay, when due, all amounts due for Taxes of the Company
with respect to Pre-Closing Periods, that exceed the reserve for Tax Liability.
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(b) TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING
DATE. The Buyer shall prepare or cause to be prepared and file or cause to be
filed any Tax Returns of the Company for Tax periods which begin before the
Closing Date and end after the Closing Date. The Buyer shall permit
Shareholders to review and comment on each such Tax Return described in the
preceding sentence prior to filing. Shareholders shall pay to the Buyer within
fifteen (15) days after the date on which Taxes are paid with respect to such
periods an amount equal to the portion of such Taxes which relates to the
portion of such Taxable period ending on the Closing Date to the extent such
Taxes are not reflected in the reserve for Tax Liability shown on the face of
the Closing Date Balance Sheet. For purposes of this Section, in the case of
any Taxes that are imposed on a periodic basis and are payable for a Taxable
period that includes (but does not end on) the Closing Date, the portion of
such Tax which relates to the portion of such Taxable period ending on the
Closing Date shall (x) in the case of any real and personal property Taxes, be
deemed to be the amount of such Tax for the entire Taxable period multiplied by
a fraction the numerator of which is the number of days in the Taxable period
ending on the Closing Date and the denominator of which is the number of days
in the entire Taxable period, and (y) in the case of any other Tax be deemed
equal to the amount which would be payable if the relevant Taxable period ended
on the Closing Date. Any credits or refunds relating to a Taxable period that
begins before and ends after the Closing Date shall be taken into account as
though the relevant Taxable period ended on the Closing Date. All
determinations necessary to give effect to the foregoing allocations shall be
made in a manner consistent with prior practice of the Company.
(c) COOPERATION ON TAX MATTERS.
(i) The Buyer, the Company and Shareholders shall
cooperate fully, as and to the extent reasonably requested by the other party,
in connection with the filing of Tax Returns pursuant to this Section and any
audit, litigation or other proceeding with respect to Taxes. Such cooperation
shall include the retention and (upon the other party's request) the provision
of records and information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. The Company and Shareholders agree (A) to retain
all books and records with respect to Tax matters pertinent to the Company
relating to any Taxable period beginning before the Closing Date until the
expiration of the statute of limitations (and, to the extent notified by the
Buyer or Shareholders, any extensions thereof) of the respective Taxable
periods, and to abide by all record retention agreements entered into with any
taxing authority, and (B) to give the other party reasonable written notice
prior to transferring, destroying or discarding any such books and records and,
if the other party so requests, the Company or Shareholders, as the case may
be, shall allow the other party to take possession of such books and records.
(ii) The Buyer and Shareholders further agree, upon
request, to use their best efforts to obtain any certificate or other document
from any governmental authority or any other Person as may be necessary to
mitigate, reduce or eliminate any Tax that could be imposed (including, but not
limited to, with respect to the transactions contemplated hereby).
(iii) The Buyer and Shareholders further agree, upon
request, to provide the other party with all information that either party may
be required to report pursuant to Section 6043 of the Code and all Treasury
Department Regulations promulgated thereunder.
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<PAGE> 45
(d) TAX SHARING AGREEMENTS. All tax sharing agreements or
similar agreements with respect to or involving the Company shall be terminated
as of the Closing Date and, after the Closing Date, the Company shall not be
bound thereby or have any liability thereunder.
(e) CERTAIN TAXES. All transfer, documentary, sales, use,
stamp, registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement, shall be paid by
Shareholders when due, and Shareholders will, at their own expense, file all
necessary Tax Returns and other documentation with respect to all such
transfer, documentary, sales, use, stamp, registration and other Taxes and
fees, and, if required by applicable law, the Buyer will, and will cause its
affiliates to, join in the execution of any such Tax Returns and other
documentation.
13. TERMINATION.
(a) TERMINATION OF AGREEMENT. The Parties may terminate this
Agreement as provided below:
(i) The Buyer and the Shareholders may terminate
this Agreement by mutual written consent at any time prior to the Closing;
(ii) The Buyer may terminate this Agreement by
giving written notice to the Shareholders at any time prior to the Closing (A)
in the event the Shareholders have breached any representation, warranty, or
covenant contained in this Agreement in any material respect, the Buyer has
notified the Shareholders of the breach, and the breach has continued without
cure for a period of 30 days after the notice of breach or (B) if the Closing
shall not have occurred on or before February 26, 1999 by reason of the failure
of any condition precedent under Section 9(a) hereof (unless the failure results
primarily from the Buyer itself breaching any representation, warranty, or
covenant contained in this Agreement) or (C) in any event, if the Closing shall
not have occurred on or before March 28, 1999; and
(iii) The Shareholders may terminate this Agreement
by giving written notice to the Buyer at any time prior to the Closing (A) in
the event the Buyer has breached any representation, warranty, or covenant
contained in this Agreement in any material respect, the Shareholders have
notified the Buyer of the breach, and the breach has continued without cure for
a period of 30 days after the notice of breach or (B) if the Closing shall not
have occurred on or before February 26, 1999 by reason of the failure of any
condition precedent under Section 9(b) hereof (unless the failure results
primarily from the Shareholders himself breaching any representation, warranty,
or covenant contained in this Agreement) or (C) in any event, if the Closing
shall not have occurred on or before March 28, 1999.
(b) EFFECT OF TERMINATION. If any Party terminates this
Agreement pursuant to Section 13(a) above, all rights and obligations of the
Parties hereunder shall terminate without any Liability of any Party to any
other Party.
14. MISCELLANEOUS.
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall
issue any press release or make any public announcement relating to the subject
matter of this Agreement prior to the Closing without the prior written
approval of the Buyer and the Shareholders; provided, however, that any Party
may make any public disclosure it believes in good faith is required by
applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing Party will use its
best efforts to advise the other Parties prior to making the disclosure).
40
<PAGE> 46
(b) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not
confer any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns and the Indemnified Parties
referred to in Section 10 hereof.
(c) ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or among
the Parties, written or oral, to the extent they related in any way to the
subject matter hereof.
(d) SUCCESSION AND ASSIGNMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the Parties
named herein and their respective successors and permitted assigns. No Party
may assign either this Agreement or any of his or its rights, interests, or
obligations hereunder without the prior written approval of the Buyer and the
Shareholders; provided, however, that the Buyer may (i) assign any or all of
its rights and interests hereunder to one or more of its Affiliates, (ii)
designate one or more of its Affiliates to perform its obligations hereunder
(in any or all of which cases the Buyer nonetheless shall remain responsible
for the performance of all of its obligations hereunder) and (iii) without the
approval of the Shareholders, assign its rights and interests hereunder to its
lenders (and any agent for the lenders), and the Parties consent to any
exercise by such lenders (and such agents) of their rights and remedies with
respect to such collateral.
(e) COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) HEADINGS. The section headings contained in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
(g) NOTICES. All notices, requests, demands, claims, and
other communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
<TABLE>
<CAPTION>
IF TO THE SHAREHOLDERS: COPY TO:
----------------------- --------
<S> <C>
P. Nicholas Johnson D. John Thornton
14000 SW Goodall Road The Golden Eagle at Forest River
Lake Oswego, OR 97034 1101 West River Street
Suite 340
Rodney James Johnson Boise, ID 83702
310 SW Mountain Road 208-344-8600
Lake Oswego, OR 97034
IF TO THE BUYER: COPY TO:
---------------- ---------
NATG Holdings, LLC. Holland & Knight LLP
1401 Forum Way, Suite 400 One East Broward Boulevard
West Palm Beach, FL 33401 Fort Lauderdale, FL 33131
Attn: William J. Mercurio Attn: Donn Beloff, Esq.
</TABLE>
41
<PAGE> 47
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been
duly given unless and until it actually is received by the intended recipient.
Any Party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other
Parties notice in the manner herein set forth.
(h) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Florida without
giving effect to any choice or conflict of law provision or rule (whether of
the State of Florida or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Florida.
(i) AMENDMENTS AND WAIVERS. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
the Buyer and the Shareholders. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(j) SEVERABILITY. Any term or provision of this Agreement
that is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
(k) EXPENSES. Each of the Parties will bear his or its own
costs and expenses (including legal fees and expenses) incurred in connection
with this Agreement and the transactions contemplated hereby. The Shareholders
agree that, after December 31, 1998, the Company has not borne nor will bear
any of the Shareholders' costs and expenses (including, without limitation, any
of their legal, accounting or investment banking fees and expenses) in
connection with this Agreement or any of the transactions contemplated hereby.
(l) CONSTRUCTION. The Parties have participated jointly in
the negotiation of this Agreement. In the event an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as if
drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local,
or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
(m) INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The
Exhibits, Annexes, Schedules and Certificates identified in this Agreement are
incorporated herein by reference and made a part hereof.
42
<PAGE> 48
(n) SPECIFIC PERFORMANCE. Each of the Parties acknowledges
and agrees that the other Parties would be damaged irreparably in the event any
of the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter (subject to the provisions set
forth in Section 14(o) below), in addition to any other remedy to which they
may be entitled, at law or in equity.
(o) SUBMISSION TO JURISDICTION. Each of the Parties submits
to the jurisdiction of any state or federal court sitting in Palm Beach County,
Florida or Multnomah County, Oregon, in any action or proceeding arising out of
or relating to this Agreement and agrees that all claims in respect of the
action or proceeding shall be heard and determined in any such court. Each of
the Parties waives any objection to the maintenance of any action or proceeding
so brought and waives any bond, surety, or other security that might be
required of any other Party with respect thereto. Any Party may make service on
any other Party by sending or delivering a copy of the process to the Party to
be served at the address and in the manner provided for the giving of notices
in Section 14(g) above. Each Party agrees that a final judgment in any action
or proceeding so brought shall be conclusive and may be enforced by suit on the
judgment or in any other manner provided by law or at equity. In any action or
proceeding arising out of or relating to this Agreement, the prevailing party
shall be entitled to recover reasonable attorney's fees and costs from the
other party to the action or proceeding.
(p) WAIVER OF JURY TRIAL. THE PARTIES HEREBY IRREVOCABLY
WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY AND TO
THE FULLEST EXTENT PERMITTED BY LAW WAIVE ANY RIGHTS THAT THEY MAY HAVE TO
CLAIM OR RECEIVE SPECIAL DAMAGES IN CONNECTION WITH ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
*****
43
<PAGE> 49
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
NATG HOLDINGS, LLC.
By:
-------------------------------------
William J. Mercurio
President
ORIUS CORP.
By:
-------------------------------------
William J. Mercurio
President
SHAREHOLDERS:
-----------------------------------------
P. Nicholas Johnson
-----------------------------------------
Rodney J. Johnson
44
<PAGE> 1
Exhibit 10.17
STOCK PURCHASE AGREEMENT
AMONG
ORIUS CORP.,
NATG HOLDINGS, LLC
AND
THE SHAREHOLDERS OF NETWORK CABLING SERVICES, INC.
FEBRUARY 23, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
1. DEFINITIONS................................................................. 1
2. PURCHASE AND SALE TRANSACTION............................................... 6
(a) BASIC TRANSACTION.................................................. 6
(b) INITIAL CONSIDERATION.............................................. 6
(c) EARN-OUT CONSIDERATION............................................. 6
(d) THE CLOSING........................................................ 8
(e) DELIVERIES AT CLOSING.............................................. 8
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION................... 8
(a) REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS................. 8
(b) REPRESENTATIONS AND WARRANTIES OF BUYER............................ 10
4. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY....................... 11
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER................... 11
(b) CAPITALIZATION..................................................... 12
(c) NONCONTRAVENTION................................................... 12
(d) BROKERS' FEES...................................................... 12
(e) TITLE TO ASSETS.................................................... 12
(f) SUBSIDIARIES....................................................... 13
(g) FINANCIAL STATEMENTS............................................... 13
(h) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END................... 13
(i) UNDISCLOSED LIABILITIES............................................ 15
(j) LEGAL COMPLIANCE................................................... 15
(k) TAX MATTERS........................................................ 15
(l) REAL PROPERTY...................................................... 17
(m) INTELLECTUAL PROPERTY.............................................. 18
(n) TANGIBLE ASSETS.................................................... 20
(o) INVENTORY.......................................................... 20
(p) CONTRACTS.......................................................... 20
(q) NOTES AND ACCOUNTS RECEIVABLE...................................... 20
(r) POWERS OF ATTORNEY................................................. 21
(s) INSURANCE.......................................................... 21
(t) LITIGATION......................................................... 21
(u) COMMITMENTS AND WARRANTIES......................................... 21
(v) LIABILITY FOR SERVICES PERFORMED................................... 22
(w) EMPLOYEES.......................................................... 22
(x) EMPLOYEE BENEFITS.................................................. 22
(y) GUARANTIES......................................................... 24
(z) ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS.......................... 24
(aa) CERTAIN BUSINESS RELATIONSHIPS WITH THE COMPANY.................... 25
(ab) CUSTOMERS AND SUPPLIERS............................................ 25
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
5. PRE-CLOSING COVENANTS....................................................... 26
(a) GENERAL............................................................ 26
(b) NOTICES AND CONSENTS............................................... 26
(c) OPERATION OF BUSINESS ............................................. 26
(d) PRESERVATION OF BUSINESS .......................................... 26
(e) FULL ACCESS ....................................................... 26
(f) NOTICE OF DEVELOPMENTS............................................. 26
(g) EXCLUSIVITY........................................................ 27
(h) NO TERMINATION OF SHAREHOLDERS'S OBLIGATION BY
SUBSEQUENT INCAPACIT.............................................. 27
6. POST-CLOSING COVENANTS...................................................... 27
(a) GENERAL............................................................ 27
(b) LITIGATION SUPPORT................................................. 27
(c) TRANSITION......................................................... 27
(d) INDEPENDENT ACCOUNTANTS............................................ 28
(e) TAX MATTERS........................................................ 28
(f) STOCK OPTIONS...................................................... 28
(g) AUDITED FINANCIAL STATEMENTS....................................... 28
7. CONDITIONS TO OBLIGATION TO CLOSE........................................... 28
(a) CONDITIONS TO OBLIGATION OF THE BUYER.............................. 28
(b) CONDITIONS TO OBLIGATION OF THE SHAREHOLDERS....................... 30
8. REMEDIES FOR BREACHES OF THIS AGREEMENT..................................... 31
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES......................... 31
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE BUYER................ 31
(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE
SHAREHOLDERS...................................................... 32
(d) MATTERS INVOLVING THIRD PARTIES.................................... 32
(e) DETERMINATION OF ADVERSE CONSEQUENCES.............................. 33
(f) OTHER INDEMNIFICATION PROVISIONS................................... 33
(g) LIMITATION ON LIABILITY..................................................... 34
9. POST-CLOSING ADJUSTMENT OF CONSIDERATION.................................... 34
10. TAX MATTERS................................................................. 35
(a) TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE................... 35
(b) TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE
CLOSING DATE...................................................... 36
(c) COOPERATION ON TAX MATTERS......................................... 36
(d) TAX SHARING AGREEMENTS............................................. 37
(e) CERTAIN TAXES...................................................... 37
11. TERMINATION................................................................. 37
(a) TERMINATION OF AGREEMENT........................................... 37
(b) EFFECT OF TERMINATION.............................................. 37
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
12. MISCELLANEOUS............................................................... 37
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS............................ 37
(b) NO THIRD-PARTY BENEFICIARIES....................................... 38
(c) ENTIRE AGREEMENT................................................... 38
(d) SUCCESSION AND ASSIGNMENT.......................................... 38
(e) COUNTERPARTS....................................................... 38
(f) HEADINGS........................................................... 38
(g) NOTICES............................................................ 38
(h) GOVERNING LAW...................................................... 39
(i) AMENDMENTS AND WAIVERS............................................. 39
(j) SEVERABILITY....................................................... 39
(k) EXPENSES........................................................... 39
(l) CONSTRUCTION....................................................... 39
(m) INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES.................. 40
(n) SPECIFIC PERFORMANCE............................................... 40
(o) SUBMISSION TO JURISDICTION......................................... 40
(p) WAIVER OF JURY TRIAL............................................... 40
</TABLE>
Exhibit A: Debt Pay-Off Schedule
Exhibit B: Form of Employment Agreements
Exhibit C: Form of Non-Competition Agreements
Exhibit D: Financial Statements
Exhibit E: Form of Shareholder's Counsel Opinion
Exhibit F: Form of Subordination Agreement
Exhibit G: Form of Buyer's Counsel Opinion
Exhibit H: Form of Leases
iii
<PAGE> 5
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is entered into as of February 23, 1999
by and among NATG Holdings, LLC, a Delaware limited liability company (the
"Buyer"), Orius Corp., a Delaware corporation and the parent company of the
Buyer ("Orius"), and the shareholders of Network Cabling Services, Inc., a
Texas corporation (the "Company") listed on the signature page to this
Agreement (the "Shareholders"). The Buyer and the Shareholders are referred to
collectively herein as the "Parties."
The Shareholders in the aggregate own all of the outstanding capital
stock of the Company.
This Agreement contemplates the sale by the Shareholders of all of the
issued and outstanding capital stock of the Company to Buyer. The Shareholders
will receive cash and capital stock in Orius, in exchange for their shares of
capital stock of the Company.
Simultaneously herewith, Orius Merger Corp., a Florida corporation and
a wholly-owned subsidiary of Buyer ("Merger Corp."), and North American Tel-Com
Group, Inc., a Florida corporation ("North American"), are entering into a
merger agreement (the "Merger Agreement") pursuant to which Merger Corp. will
be merged with and into North American. Buyer is also entering into stock
exchange agreements with the shareholders of Schatz Underground Cable, Inc.
("Schatz"), Copenhagen Utilities & Construction, Inc. ("CUC") and DAS-CO of
Idaho, Inc. ("Dasco") to acquire all of the issued and outstanding capital
stock of Schatz, CUC and Dasco (collectively with this Agreement and the Merger
Agreement, the "Exchange Agreements"). The parties to the Exchange Agreements
(other than the parties to the Schatz and Dasco Exchange Agreements) intend for
the transfers contemplated thereunder to be treated as a single transaction
qualifying under Section 351 of the Code (as hereinafter defined).
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1. DEFINITIONS.
"Accredited Investor" has the meaning set forth in Regulation
D promulgated under the Securities Act.
"Adverse Consequences" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses,
expenses, and fees, including court costs and reasonable attorneys' fees and
expenses, and any other cost of enforcing a party's rights under this
Agreement.
"Affiliate" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act.
1
<PAGE> 6
"Affiliated Group" means any affiliated group within the
meaning of Code Section 1504(a) or any similar group defined under a similar
provision of state, local or foreign law.
"Applicable Rate" means the corporate base rate of interest
publicly announced from time to time by PNC Bank, N.A.
"Basis" means any past or present fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction that forms or could form the
basis for any specified consequence.
"Closing" has the meaning set forth in Section below.
"Closing Date" has the meaning set forth in Section below.
"Closing Date Balance Sheet" has the meaning set forth in
Section below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means any share of the common stock, par value
$.0001 par share, of Orius.
"Company" has the meaning set forth in the preface above.
"Company Share" means any share of the common stock, $1.00
par value, of the Company.
"Consideration" has the meaning set forth in Section below.
"Controlled Group of Corporations" has the meaning set forth
in Code Section 1563.
"Disclosure Schedule" has the meaning set forth in Section
below.
"Draft Closing Date Balance Sheet" has the meaning set forth
in Section below.
"Earn-Out Consideration" shall mean the 1999 Earn-Out
Consideration and the 2000 Earn-Out Consideration.
"1999 Earn-Out Consideration has the meaning set forth in
Section 2(c) below.
"2000 Earn-Out Consideration has the meaning set forth in
Section 2(c) below.
"EBITDA" means earnings (net income) before the effect of
interest income and expense, income tax benefit and expense, depreciation
expense and amortization expense.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c)
2
<PAGE> 7
qualified defined benefit retirement plan or arrangement which is an Employee
Pension Benefit Plan (including any Multiemployer Plan), (d) Employee Welfare
Benefit Plan or (e) bonus, incentive, stock purchase, stock ownership, stock
option, stock appreciation right, severance, salary continuation, termination,
change of control or other material fringe benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in
ERISA Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in
ERISA Section 3(1).
"Employment Agreements" means the Employment Agreements in
the form attached hereto as Exhibit B.
"Environmental, Health, and Safety Requirements" shall mean
all federal, state, local and foreign statutes, regulations, ordinances and
other provisions having the force or effect of law, all judicial and
administrative orders and determinations, all contractual obligations and all
common law concerning public health and safety, worker health and safety, and
pollution or protection of the environment, including without limitation all
those relating to the presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution, labeling, testing,
processing, discharge, release, threatened release, control, or cleanup of any
Hazardous Materials (which, for purposes of this Agreement, shall meany any
hazardous materials, substances or wastes, chemical substances or mixtures,
pesticides, pollutants, contaminants, toxic chemicals, petroleum products or
byproducts, asbestos, polychlorinated biphenyls, noise or radiation), each as
amended and as now or hereafter in effect.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" means (i) any corporation included with the
Company in a controlled group of corporations within the meaning of Section
414(b) of the Code; (ii) any trade or business (whether or not incorporated)
which is under common control with the Company within the meaning of Section
414(c) of the Code; (iii) any member of an affiliated service group of which
the Company is a member within the meaning of Section 414(m) of the Code; or
(iv) any other person or entity treated as an affiliate of the Company under
Section 414(o) of the Code.
"Estimated Closing Balance Sheet" has the given that term in
Section hereof.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"Financial Statement" has the meaning set forth in Section
below.
"GAAP" means United States generally accepted accounting
principles as in effect from time to time.
"Indemnified Party" has the meaning set forth in Section
below.
3
<PAGE> 8
"Indemnifying Party" has the meaning set forth in Section
below.
"Intellectual Property" means (a) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications, and patent
disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof, (b)
all trademarks, service marks, trade dress, logos, trade names, and corporate
names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection therewith, (d) all mask works and all applications,
registrations, and renewals in connection therewith, (e) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals), (f) all computer software (including data and related
documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"Knowledge" means that which is known by a person and that of
which a person has constructive knowledge based upon information readily
available to that person in the performance of such person's duties. In the
case of the Buyer or the Company, "Knowledge" means the "Knowledge" of its
respective directors and executive officers.
"Liability" means any liability (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Material Adverse Effect" means, individually or together
with other adverse effects, any material adverse effect on the assets,
liabilities, results of operations, business condition (financial or otherwise)
or prospects of the Company or on the Company's ability to consummate the
transactions contemplated hereby or the ability of the Buyer to operate the
business of the Company immediately after the Closing in substantially the same
manner as such business is conducted prior to Closing.
"Most Recent Balance Sheet" means the balance sheet contained
within the Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth
in Section below.
"Most Recent Fiscal Period End" has the meaning set forth in
Section below.
"Most Recent Fiscal Year End" has the meaning set forth in
Section below.
"Multiemployer Plan" has the meaning set forth in ERISA
Section 3(37).
4
<PAGE> 9
"National Securities Exchange" shall have the meaning
ascribed to that term in the rules and regulations promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934.
"Noncompetition Agreements" means the Noncompetition
Agreements in the form attached hereto as Exhibit C.
"Ordinary Course of Business" means the ordinary course of
business consistent with past custom and practice (including with respect to
quantity and frequency).
"Orius" has the meaning set forth in the preface above.
"Party" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, a partnership, a corporation,
an association, a joint stock company, a trust, a joint venture, an
unincorporated organization, or a governmental entity (or any department,
agency, or political subdivision thereof).
"Prohibited Transaction" has the meaning set forth in
ERISASection 406 and Code Section 4975.
"Reportable Event" has the meaning set forth in ERISA Section
4043.
"Securities Act" means the Securities Act of 1933, as
amended.
"Securities Exchange Act" means the Securities Exchange Act
of 1934, as amended.
"Security Interest" means any mortgage, pledge, lien,
encumbrance, charge, or other security interest, other than (a) mechanic's,
materialmen's, and similar liens that could not reasonably be expected to have
a Material Adverse Effect, (b) liens for Taxes not yet due and payable or for
Taxes that the taxpayer is contesting in good faith through appropriate
proceedings disclosed on Section of the Disclosure Schedule, (c) purchase money
liens and liens securing rental payments under capital lease arrangements
disclosed in the Most Recent Financial Statements, and (d) other liens arising
in the Ordinary Course of Business and not incurred in connection with the
borrowing of money, so long as such liens could not reasonably be expected to
have a Material Adverse Effect.
"Shareholders" has the meaning set forth in the preface
above.
"Shareholders Agreement" means that certain Shareholders
Agreement among Orius and the shareholders of Orius dated as of February 26,
1999.
"Subordination Agreement" means the subordination agreement
in substantially the form attached hereto as Exhibit F.
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<PAGE> 10
"Subsidiary" means any corporation with respect to which a
specified Person (or a Subsidiary thereof) owns a majority of the common stock
or has the power to vote or direct the voting of sufficient securities to elect
a majority of the directors.
"Tax" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Code Section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed or not,
and any obligations under any agreements or arrangements with respect to any of
the foregoing.
"Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in Section
below.
2. PURCHASE AND SALE TRANSACTION.
(a) BASIC TRANSACTION. On and subject to the terms and
conditions of this Agreement, the Buyer agrees to purchase from the
Shareholders, and the shareholders agree to sell to the Buyer, all of their
respective Company Shares for the consideration specified below in this
Section .
(b) INITIAL CONSIDERATION. The Buyer agrees to deliver at
Closing to the Shareholders (A) cash in the amount of $5,050,000.00, less the
debt pay-off amounts shown on Exhibit A hereto (the "Pay-Off Amount"), payable
by wire transfer or other immediately available funds; and (B) 30,000 shares of
Common Stock (the "Initial Consideration"). The Initial Consideration and the
Earn-Out Consideration (as defined below) are collectively referred to
hereinafter as the "Consideration.") The Consideration shall be allocated as
set forth in Section 4(b) to the Disclosure Schedule. The Consideration shall
be subject to adjustment pursuant to the provisions of Section 2(c) and Section
hereof.
(c) EARN-OUT CONSIDERATION.
(i) The Buyer shall pay to the Shareholders cash in
the amount of $500,000 not later than 30 days after the Buyer's receipt of
audited financial statements of the Company for the calendar year 1999 (the
"1999 Earn-Out Consideration"); provided, however, that in the event that the
Company's EBITDA for calendar year 1999, as determined by Orius's independent
auditors (the "Actual 1999 EBITDA"), is less than $1,700,000.00 (the "Target
1999 EBITDA"), then the 1999 Earn-Out Consideration shall be reduced in
accordance with Section 2(c)(ii) hereof.
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<PAGE> 11
(ii) In the event that the Actual 1999 EBITDA is
less than $1,445,000.00 (the "1999 Minimum Target EBITDA"), then the 1999
Earn-Out Consideration shall be $0; provided, however, that in the event that
the Actual 1999 EBITDA is greater than the 1999 Minimum Target EBITDA, then the
1999 Earn-Out Consideration shall be reduced by the difference (expressed as a
positive integer) between (A) $500,000.00 and (B) the product of (x)
$500,000.00 and (y) a fraction, the number of which is the Actual 1999 EBITDA
and the denominator of which is the Target 1999 EBITDA.
(iii) The Buyer shall pay to the Shareholders cash
in the amount of $500,000 not later than 30 days after the Buyer's receipt of
audited financial statements of the Company for the calendar year 2000 (the
"2000 Earn-Out Consideration"); provided, however, that in the event that the
Company's EBITDA for calendar year 2000, as determined by Orius's independent
auditors (the "Actual 2000 EBITDA"), is less than $2,000,000.00 (the "Target
2000 EBITDA"), then the 2000 Earn-Out Consideration shall be reduced in
accordance with Section 2(c)(iv) hereof.
(iv) In the event that the Actual 2000 EBITDA is
less than $1,700,000.00 (the "2000 Minimum Target EBITDA"), then the 2000
Earn-Out Consideration shall be $0; provided, however, that in the event that
the Actual 2000 EBITDA is greater than the 2000 Minimum Target EBITDA, then the
2000 Earn-Out Consideration shall be reduced by the difference (expressed as a
positive integer) between (A) $500,000.00 and (B) the product of (x)
$500,000.00 and (y) a fraction, the number of which is the Actual 2000 EBITDA
and the denominator of which is the Target 2000 EBITDA.
(v) Notwithstanding anything to the contrary
contained herein, if the Company's combined EBITDA for the calendar years 1999
and 2000, as determined by the Buyer, is greater than $3,700,000.00, then the
reductions to the 1999 Earn-Out Consideration and the 2000 Earn-Out
Consideration otherwise required pursuant to Section 2(c)(ii) and Section
2(c)(iv) hereof, respectively, shall not apply and the total amount of Earn-Out
Consideration to be paid to the Shareholders hereunder shall be $1,000,000.00.
The Earn-Out Consideration shall be payable as follows: not later than 30 days
after the Buyer's receipt of audited financial statements of the Company for
the calendar year 2000, the Buyer shall pay to the Shareholders the sum of (x)
the difference between the amount previously paid to the Shareholders as 1999
Earn-Out Consideration and $500,000.00; and (y) $500,000.00.
(vi) All payments of Earn-Out Consideration are
subject to the provisions of the Subordination Agreement. In the event that the
payment of Earn-Out Consideration is not made when due as a result of Buyer's
compliance with the terms and provisions of the Subordination Agreement,
interest shall accrue on such amount of unpaid Earn-Out Consideration at the
rate of 8% per annum.
(vii) If the Shareholders have any objections to the
calculation of Actual 1999 EBITDA or Actual 2000 EBITDA, they will deliver a
detailed statement describing their objections to the Buyer within 15 days
after receiving the calculation of Actual 1999 EBITDA or Actual 2000 EBITDA, as
the case may be. The Buyer and the Shareholders will use reasonable efforts to
resolve any such objections themselves. If the Parties do not obtain a final
resolution within 30 days after the Buyer has received the statement of
objections, however, the
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<PAGE> 12
Buyer and Shareholders will select an accounting firm mutually acceptable to
them to resolve any remaining objections. If the Buyer and the Shareholders are
unable to agree on the choice of an accounting firm, they will select a
nationally-recognized accounting firm by lot (after excluding their respective
regular outside accounting firms). The determination of any accounting firm so
selected will be set forth in writing and will be conclusive and binding upon
the Parties.
(viii) In the event the Parties submit any
unresolved objections to an accounting firm for resolution as provided in
Section 2(c)(vii) above, any expenses relating to the engagement of the
accounting firm shall be allocated between the Shareholders and the Buyer by
the accounting firm in the proportion that the amount in dispute which is
decided in favor of the challenging party bears to the entire amount in
dispute.
(d) THE CLOSING. The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of Holland &
Knight LLP in Ft. Lauderdale, Florida, commencing at 9:00 a.m. local time on
February 26, 1999 or such other date, time and place as the Parties may
mutually determine (the "Closing Date").
(e) DELIVERIES AT CLOSING. At the Closing, (i) the
Shareholders will deliver to the Buyer the various certificates, instruments,
and documents referred to in Section below, (ii) the Buyer will deliver to the
Shareholders the various certificates, instruments, and documents referred to
in Section below, and (iii) the Shareholders will deliver to the Buyer stock
certificates representing all of their Company Shares, endorsed in blank or
accompanied by duly executed assignment documents, and (iv) the Buyer will
deliver to the Shareholders the Initial Consideration specified in Section
above.
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
(a) REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS. Each
Shareholder severally represents and warrants to the Buyer that the statements
contained in this Section are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Section ), except as set forth on Section of the
Disclosure Schedule (as hereinafter defined). The Disclosure Schedule shall be
effective to modify only those representations and warranties to which the
Disclosure Schedule makes explicit reference. The Disclosure Schedule will be
arranged in paragraphs corresponding to the lettered and numbered paragraphs
contained in this Section 3(a).
(i) AUTHORIZATION OF TRANSACTION. Such Shareholder
has full power and authority to execute and deliver this Agreement and to
perform his obligations hereunder. This Agreement constitutes the valid and
legally binding obligation of such Shareholder, enforceable in accordance with
its terms and conditions except to the extent enforcement thereof may be
limited by applicable bankruptcy, reorganization, insolvency or moratorium
laws, or other laws affecting the enforcement of creditors' rights or by the
principles governing the availability of equitable remedies. Such Shareholder
need not give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency or any other
Person in order to consummate the transactions contemplated by this Agreement.
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<PAGE> 13
(ii) NONCONTRAVENTION. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any constitution, statute, regulation,
rule, injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which such Shareholder is
subject or (B) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
such Shareholder is a party or by which he is bound.
(iii) BROKERS' FEES. Such Shareholder has, or prior
to Closing will have, paid any fees or commissions due from Shareholders to any
broker, finder, or agent with respect to the transactions contemplated by this
Agreement. Such Shareholder agrees that he will pay any additional amounts that
may become due from him or, to the extent of his proportionate ownership
interest in the Company as set forth on Section 4(b) of the Disclosure
Schedule, the Company, to any such broker, finder or agent in the future,
including as a result of any indemnification obligations.
(iv) INVESTMENT. Such Shareholder understands that
(A) the Common Stock that he or she will receive as part of the Consideration
have not been, and will not be, registered under the Securities Act, or under
any state securities laws, and are being offered and sold in reliance upon
federal and state exemptions for transactions not involving any public
offering, (B) he or she is acquiring such shares of Common Stock solely for his
own account for investment purposes, and not with a view to the distribution
thereof, (C) he or she is a sophisticated investor with knowledge and
experience in business and financial matters, (D) he or she has received
certain information concerning the Buyer and has had the opportunity to obtain
additional information as desired in order to evaluate the merits and the risks
inherent in holding the Common Stock and (E) he or she is able to bear the
economic risk and lack of liquidity inherent in holding the Common Stock.
(v) COMPANY SHARES. Such Shareholder holds of record
and owns beneficially the number of Company Shares set forth opposite such
Shareholder's name, in Section of the Disclosure Schedule, free and clear of
any restrictions on transfer (other than any restrictions under the Securities
Act and state securities laws), Taxes, Security Interests liens or other
encumbrances, options, warrants, purchase rights, contracts, commitments,
equities, claims, and demands. Such Shareholder is not a party to any option,
warrant, purchase right, or other contract or commitment that could require
such Shareholder to sell, transfer, or otherwise dispose of any capital stock
of the Company (other than this Agreement). Such Shareholder is not a party to
any voting trust, proxy, shareholders agreement, or other agreement or
understanding with respect to the voting of any capital stock of the Company.
(vi) DISCLOSURE. Neither this Agreement nor any of
the exhibits, attachments, written statements, documents, certificates or other
items prepared for or supplied to the Buyer by such Shareholder with respect to
the transactions contemplated hereby contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make
each statement contained herein or therein not misleading. There is no fact
which such Shareholder has not disclosed to the Buyer herein and of which such
Shareholder is aware which could be anticipated to have a Material Adverse
Effect.
9
<PAGE> 14
(b) REPRESENTATIONS AND WARRANTIES OF BUYER. The Buyer
represents and warrants to the Shareholders that the statements contained in
this Section are correct and complete as of the date of this Agreement and will
be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section ), except as set forth in the disclosure schedule
delivered by the Buyer to the Shareholders on the date hereof (the "Buyer
Disclosure Schedule"). The Buyer Disclosure Schedule shall be effective to
modify only those representations and warranties to which the Buyer Disclosure
Schedule makes explicit reference. The Buyer Disclosure Schedule will be
arranged in paragraphs corresponding to the lettered and numbered paragraphs
contained in this Section 3(b).
(i) ORGANIZATION OF THE BUYER. The Buyer is a
limited liability company duly organized, validly existing, and in good
standing under the laws of the State of Delaware. Correct and complete copies
of the governing documents of the Buyer (as amended to date) are included as
part of the Buyer Disclosure Schedule. The manager of the Buyer and the names
and titles of the executive officers and directors of Orius are set forth on
the Buyer Disclosure Schedule.
(ii) CAPITALIZATION OF ORIUS. The entire authorized
capital stock of Orius consists of 4,700,000 shares of Common Stock and 300,000
shares of preferred stock. The issued and outstanding capital stock of Orius as
of the Closing Date is set forth and held of record as set forth on Buyer
Disclosure Schedule. All of the issued and outstanding shares of Common Stock
as of the Closing Date will be duly authorized, validly issued, fully paid, and
nonassessable. Except as disclosed in Buyer Disclosure Schedule, there are no
outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or commitments
that could require Orius to issue, sell, or otherwise cause to become
outstanding any of its capital stock. Except as disclosed in the Buyer
Disclosure Schedule, there are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to Orius.
Except as disclosed in the Buyer Disclosure Schedule, there are no voting
trusts, proxies or other agreements or understandings with respect to the
voting of the capital stock of Orius. Orius owns beneficially and of record all
of the limited liability company interests of Buyer.
(iii) AUTHORIZATION OF TRANSACTION. The Buyer has
full power and authority (including full power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder. This Agreement
constitutes the valid and legally binding obligation of the Buyer, enforceable
in accordance with its terms and conditions except to the extent enforcement
thereof may be limited by applicable bankruptcy, reorganization, insolvency or
moratorium laws, or other laws affecting the enforcement of creditors' rights
or by the principles governing the availability of equitable remedies. The
Buyer need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency or
any other Person in order to consummate the transactions contemplated by this
Agreement.
(iv) NONCONTRAVENTION. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any constitution, statute, regulation,
rule, injunction, judgment, order, decree, ruling, charge, or
10
<PAGE> 15
other restriction of any government, governmental agency, or court to which the
Buyer is subject or any provision of its charter or bylaws or (B) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which the Buyer is a party or by
which the Buyer is bound or to which any of its assets is subject.
(v) BROKERS' FEES. The Buyer has, or prior to the
Closing will have, paid any fees or commissions due from the Buyer to any
broker, finder, or agent with respect to the transactions contemplated by this
Agreement. The Buyer agrees that they will pay any additional amounts it may
become due from the Buyer to any such broker, finder or agent in the future,
including as a result of any indemnification obligations.
(vi) DISCLOSURE. Neither this Agreement nor any of
the exhibits, attachments, written statements, documents, certificates or other
items prepared for or supplied to the Shareholders by the Buyer with respect to
the transactions contemplated hereby contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make
each statement contained herein or therein not misleading. There is no fact
which the Buyer has not disclosed to the Shareholders herein and of which the
Buyer or any of the its officers or directors is aware and which could be
anticipated to have a material adverse effect on the operations of the Buyer
after the Closing.
4. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY. The
Shareholders represent and warrant to the Buyer that the statements contained
in thisSection are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout thisSection ), except as set forth in the Disclosure Schedule
delivered by the Shareholders to the Buyer on the date hereof and initialed by
the Parties (the "Disclosure Schedule"); provided, however that any
indemnification liability resulting from a breach of the representations and
warranties set forth in thisSection 4 shall be subject to the terms ofSection 8
hereof. The Disclosure Schedule shall be effective to modify only those
representations and warranties to which the Disclosure Schedule makes explicit
reference. The Disclosure Schedule will be arranged in paragraphs corresponding
to the lettered and numbered paragraphs contained in this Section .
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. The
Company is a corporation duly organized, validly existing, and in good standing
under the laws of the jurisdiction of its incorporation. The Company is duly
authorized to conduct business and is in good standing under the laws of each
jurisdiction where such qualification is required. The Company has full
corporate power and authority and all licenses, permits, and authorizations
necessary to carry on the businesses in which it is engaged and in which it
presently proposes to engage and to own and use the properties owned and used
by it. Section of the Disclosure Schedule lists the directors and officers of
the Company. Correct and complete copies of the charter and bylaws of the
Company (as amended to date) are included as part of Section of the Disclosure
Schedule. The minute books (containing the records of meetings of the
stockholders, the board of directors, and any committees of the board of
directors), the stock certificate books, and the stock record books of the
Company are correct and complete and a true and correct copy
11
<PAGE> 16
thereof has been provided to the Buyer. The Company is not in default under or
in violation of any provision of its charter or bylaws.
(b) CAPITALIZATION. The entire authorized capital stock of
the Company consists of 10,000 Company Shares, of which 2,000 Company Shares
are issued and outstanding and no Company Shares are held in treasury. All of
the issued and outstanding Company Shares have been duly authorized, are
validly issued, fully paid, and nonassessable, and are held of record and owned
beneficially by the Shareholders in the amounts set forth in Section of the
Disclosure Schedule. There are no outstanding or authorized options, warrants,
purchase rights, subscription rights, conversion rights, exchange rights,
preemptive rights or other contracts or commitments that could require the
Company to issue, sell, or otherwise cause to become outstanding any of its
capital stock or securities convertible or exchangeable for, or any options,
warranties, or rights to purchase, any of such capital stock. There are no
outstanding obligations of the Company to repurchase, redeem or otherwise
acquire any capital stock or any securities convertible into or exchangeable
for such capital stock or any options, warrants or rights to purchase such
capital stock or securities. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation, or similar rights with
respect to the Company. There are no voting trusts, proxies, or other
agreements or understandings with respect to the voting, transfer, dividend or
other rights (such as registration rights under the Securities Act) of the
capital stock of the Company.
(c) NONCONTRAVENTION. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated
hereby, will (i) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of
any government, governmental agency, or court to which the Company is subject
or any provision of the charter or bylaws or similar governance documents of
the Company or (ii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
the Company is a party or by which it is bound or to which any of its assets is
subject (or result in the imposition of any Security Interest upon any of its
assets). The Company need not give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any Person, government or
governmental agency in order for the Parties to consummate the transactions
contemplated by this Agreement.
(d) BROKERS' FEES. The Company has, or prior to Closing will
have, paid any fees or commissions due from the Company to any broker, finder,
or agent with respect to the transactions contemplated by this Agreement. The
Shareholders agree that they will pay any additional amounts that may become
due from the Company to any such broker, finder or agent in the future,
including as a result of any indemnification obligations.
(e) TITLE TO ASSETS. The Company has good and marketable
title to, or a valid leasehold interest in, the properties and assets used by
it, located on its premises, or shown on the Most Recent Balance Sheet or
acquired after the date thereof, free and clear of all Security Interests
(other than the Security Interests disclosed on the face of the Most Recent
Balance Sheet), except for properties and assets disposed of in the Ordinary
Course of Business since the date of the Most Recent Balance Sheet, none of
which disposals are expected to have a Material
12
<PAGE> 17
Adverse Effect. The consummation of the transactions contemplated by this
Agreement will not affect the Company's good and marketable title to, or valid
leasehold interest in, the properties and assets described in the preceding
sentence.
(f) SUBSIDIARIES. Except as set forth in Section of the
Disclosure Schedule, the Company does not currently have, and has never had,
any Subsidiaries and does not own any securities of any other Person.
(g) FINANCIAL STATEMENTS. Attached hereto as Exhibit D are
the following financial statements (collectively the "Financial Statements"):
(i) unaudited consolidated balance sheets and statements of income, including
the independent accountant's report thereon as of and for the fiscal year ended
September 30, 1998 (the "Most Recent Fiscal Year End") for the Company; (ii)
audited consolidated balance sheets and statements of income, including the
independent accountant's report thereon as of and for the fiscal years ended
September 30, 1994, September 30, 1995, September 30, 1996 and September 30,
1997; and (iii) unaudited consolidated balance sheets and statements of income,
(the "Most Recent Financial Statements") as of and for the period from October
1, 1998, through December 31, 1998 for the Company (the "Most Recent Fiscal
Period End"). The Financial Statements (including the notes thereto) have been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered thereby, present fairly the financial condition of the Company
as of such dates and the results of operations of the Company for such periods,
are correct and complete in all material respects, and are consistent with the
books and records of the Company (which books and records are correct and
complete).
(h) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. Except
as set forth on Section 4(h) of the Disclosure Schedule, since the Most Recent
Fiscal Year End, there has not been any occurrence, event, incident, action,
failure to act or transaction that constitutes the Basis of a Material Adverse
Effect on the Company or any that is outside the Ordinary Course of
BusineSection Without limiting the generality of the foregoing, since that
date:
(i) The Company has not sold, leased, transferred,
or assigned any of its assets, tangible or intangible, other than for a fair
consideration in the Ordinary Course of Business;
(ii) The Company has not entered into any
agreements, contracts, leases, or licenses either involving more than $10,000
in the aggregate, having a term greater than 12 months or outside the Ordinary
Course of Business;
(iii) No party (including the Company) has
accelerated, terminated, modified, or cancelled any agreements, contracts,
leases, or licenses involving more than $10,000 in the aggregate to which the
Company is a party or by which it is bound;
(iv) The Company has not imposed or allowed to be
imposed any Security Interest upon any of its assets, tangible or intangible;
(v) The Company has not made any capital
expenditures involving more than $10,000 in the aggregate or outside the
Ordinary Course of Business;
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<PAGE> 18
(vi) The Company has not made any capital investment
in, any loan to, or any acquisition of the securities or assets of, any other
Person;
(vii) The Company has not issued any note, bond, or
other debt security or created, incurred, assumed, or guaranteed any
indebtedness for borrowed money or capitalized lease obligation involving more
than $10,000 in the aggregate;
(viii) The Company has not delayed or postponed the
payment of accounts payable and other Liabilities outside the Ordinary Course
of Business;
(ix) The Company has not cancelled, compromised,
waived, or released any right or claim involving more than $10,000 in the
aggregate and outside the Ordinary Course of Business;
(x) The Company has not granted any license or
sublicense of any rights under or with respect to any Intellectual Property;
(xi) There has been no change made or authorized in
the charter or bylaws of any of the Company;
(xii) The Company has not issued, sold, or otherwise
disposed of any of its capital stock or securities convertible into or
exchangeable for such stock, or granted any options, warrants, or other rights
to purchase or obtain any of such capital stock or securities;
(xiii) The Company has not declared, set aside, or
paid any dividend or made any distribution with respect to its capital stock
(whether in cash or in kind) or redeemed, purchased, or otherwise acquired any
of its capital stock or other securities;
(xiv) The Company has not experienced any damage,
destruction, or loss (whether or not covered by insurance) to its property
involving more than $10,000 in the aggregate;
(xv) The Company has not made any loan to, or
entered into any other transaction with, any of its directors, officers, and
employees or their "Associates" (as defined in Rule 12b-2 under the Exchange
Act);
(xvi) The Company has not entered into any
employment contract or collective bargaining agreement, written or oral, or
modified the terms of any existing such contract or agreement;
(xvii) The Company has not granted any increase in
any compensation of any of its directors, officers, or other employees;
(xviii) The Company has not adopted, amended,
modified, or terminated any bonus, profit-sharing, incentive, severance, or
other plan, contract, or commitment for the benefit of any of its directors,
officers, and employees (or taken any such action with respect to any other
Employee Benefit Plan);
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<PAGE> 19
(xix) The Company has not made any other change in
employment terms for any of its directors, officers, and employees outside the
Ordinary Course of Business;
(xx) The Company has not made or pledged to make any
charitable or other capital contribution outside the Ordinary Course of
Business;
(xxi) The Company has not increased, or experienced
any change in assumptions underlying or method of calculating, any bad debt,
contingency, tax or other reserves or changed its accounting practices, methods
or assumptions (including changes in estimates or valuation methods); or
written down the value of any assets;
(xxii) The Company has not granted any bonuses or
made any other payments of any kind (other than base compensation in the
Ordinary Course of Business) to any officer, director or employee of the
Company, or to any Person related to any of the foregoing; and
(xxiii) The Company has not committed to any of the
foregoing.
(i) UNDISCLOSED LIABILITIES. Except as disclosed in Section
of the Disclosure Schedule, the Company does not have any Liability, except for
(i) Liabilities set forth on the face of the Most Recent Balance Sheet (rather
than in any notes thereto) and (ii) Liabilities which have arisen after the
Most Recent Fiscal Period End in the Ordinary Course of Business (none of which
results from, arises out of, relates to, is in the nature of, or was caused by
any breach of contract, breach of warranty, tort, infringement, or violation of
law and none of which could reasonably be expected to have a Material Adverse
Effect).
(j) LEGAL COMPLIANCE. The Company and its predecessors and
Affiliates have complied, in all material respects, with all applicable laws
(including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof), and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has been
filed or commenced against any of them alleging any failure so to comply.
(k) TAX MATTERS.
(i) The Company has filed all Tax Returns that it
was required to file prior to the date hereof and will have filed all Tax
Returns that it will have been required to file prior to the Closing Date. All
such Tax Returns were correct and complete in all material respects. All Taxes
owed by the Company (whether or not shown on any Tax Return) have been paid or
are fully and adequately accrued and adequately disclosed on the Most Recent
Balance Sheet. The Company is not currently the beneficiary of any extension of
time within which to file any Tax Return. No claim has ever been made by an
authority in a jurisdiction where the Company does not file Tax Returns that it
is or may be subject to taxation by that jurisdiction. There are no Security
Interests on any of the assets of the Company that arose in connection with any
failure (or alleged failure) to pay any Tax.
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(ii) The Company has withheld and paid when due all
Taxes required to have been withheld and paid in connection with amounts paid
or owing to any former or current employee, independent contractor,
subcontractor, creditor, stockholder, or other third party.
(iii) Neither Shareholders nor the Company has
Knowledge that any authority expects to assess any additional Taxes for any
period for which Tax Returns have been filed. There is no action, suit or
proceeding, investigation, dispute or claim now pending or, to the Knowledge of
the Shareholders, threatened concerning any Tax Liability of the Company or
proposed adjustment to the taxable income of the Company either (A) claimed or
raised by any authority in writing or (B) as to which any of the Shareholders
and the Company has Knowledge based upon personal contact with any agent of
such authority. Section of the Disclosure Schedule contains a summary of all
Tax Returns filed with respect to the Company for the last three completed tax
years, indicates those Tax Returns that have been audited, and indicates those
Tax Returns that currently are the subject of audit. The Shareholders have made
available to the Buyer correct and complete copies of all Tax Returns of the
Company, examination reports, and statements of deficiencies assessed against
or agreed to by the Company since January 1, 1994.
(iv) The Company has not waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency.
(v) The Company has not filed a consent under Code
Section 341(f) concerning collapsible corporations. The Company has not made
any payments, is not obligated to make any payments, or is not a party to any
agreement that under certain circumstances could obligate it to make any
payments that will not be deductible under Code Section 280G or that would give
rise to any obligation to indemnify any Person for any excise tax payable
pursuant to Code Section 4999. The Company has not been a United States real
property holding corporation within the meaning of Code Section 897(c)(2)
during the applicable period specified in Code Section 897(c)(1)(A)(ii). The
Company has disclosed on its federal income Tax Returns all positions taken
therein that could give rise to a substantial understatement of federal income
Tax within the meaning of Code Section 6662. Neither the Company nor any
predecessor or affiliate thereof is a party to any Tax allocation, sharing,
indemnification or similar agreement. The Company (A) has not been a member of
an Affiliated Group filing a consolidated federal income Tax Return (other than
a group the common parent of which was the Company) and (B) does not have any
Liability for the Taxes of any Person (other than any of the Company and its
Subsidiaries) under Reg. Section 1.1502-6 (or any similar provision of state,
local, or foreign law), as a transferee or successor, by contract, or
otherwise. No indebtedness of the Company consists of "corporate acquisition
indebtedness" within the meaning of Code Section 279.
(vi) Section of the Disclosure Schedule sets forth
as of the most recent practicable date the basis for Federal income tax
purposes of the Company in its assets.
(vii) The unpaid Taxes of the Company (A) did not,
as of the Most recent Fiscal Period End, exceed the reserve for Tax Liability
set forth on the face of the Most Recent Balance Sheet (rather than in any
notes thereto) and (B) do not, and will not as of the
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<PAGE> 21
Closing Date, exceed that reserve as adjusted for the passage of time through
the Closing Date in accordance with the past custom and practice of the Company
in filing its Tax Returns.
(l) REAL PROPERTY. The Company does not own any real
property. Section of the Disclosure Schedule lists and describes briefly all
real property leased or subleased to the Company. The Shareholders have
delivered to the Buyer correct and complete copies of the leases and subleases
listed in Section of the Disclosure Schedule (as amended to date). With respect
to each lease and sublease listed in Section of the Disclosure Schedule:
(i) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect;
(ii) the lease or sublease will continue to be
legal, valid, binding, enforceable, and in full force and effect on identical
terms following the consummation of the transactions contemplated hereby;
(iii) the Company is not and to the Knowledge of the
Shareholders, no other party to the lease or sublease is in breach or default,
and no event has occurred which, with notice or lapse of time, would constitute
a breach or default or permit termination, modification, or acceleration
thereunder;
(iv) no party to the lease or sublease has
repudiated any provision thereof;
(v) there are no disputes, oral agreements, or
forbearance programs in effect as to the lease or sublease;
(vi) the Company has not received a notice from the
lessor indicating that the lease will not be renewed at the end of its current
term for any additional terms provided for in the lease;
(vii) the term of the lease will continue for a
minimum of six months past the Closing Date;
(viii) with respect to each sublease, the
representations and warranties set forth in subsections (i) through (vii) above
are true and correct with respect to the underlying lease;
(ix) the Company has not assigned, transferred,
conveyed, mortgaged, deeded in trust, or encumbered any interest in the
leasehold or subleasehold;
(x) all facilities leased or subleased thereunder
have received all approvals of governmental authorities (including licenses and
permits) required in connection with the operation thereof and have been
operated and maintained in accordance with applicable laws, rules, and
regulations;
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(xi) all facilities leased or subleased thereunder
are supplied with utilities and other services necessary for the operation of
said facilities; and
(xii) the Shareholders are not aware of any pending
or threatened foreclosure or other enforcement proceedings relating to the real
property underlying the leases or subleases set forth in Section of the
Disclosure Schedule that could result in the Company's loss of possession of
such real property.
(m) INTELLECTUAL PROPERTY.
(i) Section 4(m)(i) of the Disclosure Schedule lists
the Intellectual Property owned by the Company. The Company owns or has the
right to use pursuant to license, sublicense, agreement, or permission in
writing all Intellectual Property necessary for the operation of the businesses
of the Company as presently conducted and as presently proposed to be
conducted. Each item of Intellectual Property owned or used by the Company
immediately prior to the Closing hereunder will be owned or available for use
by the Company on identical terms and conditions immediately subsequent to the
Closing hereunder. The Company has taken all necessary action to maintain and
protect each item of Intellectual Property that it owns or uses.
(ii) The Company has not interfered with, infringed
upon, misappropriated, or otherwise come into conflict with any Intellectual
Property rights of third parties, and none of the Shareholders and the
directors and officers (and employees with responsibility for Intellectual
Property matters) of the Company has ever received any charge, complaint,
claim, demand, or notice alleging any such interference, infringement,
misappropriation, or violation (including any claim that the Company must
license or refrain from using any Intellectual Property rights of any third
party). To the Knowledge of Shareholders and the Company, no third party has
interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any Intellectual Property rights of the Company.
(iii) Section of the Disclosure Schedule identifies
each patent or registration which has been issued to the Company with respect
to any of its Intellectual Property, identifies each pending patent application
or application for registration which the Company has made with respect to any
of its Intellectual Property, and identifies each license, agreement, or other
permission which the Company has granted to any third party with respect to any
of its Intellectual Property (together with any exceptions). The Shareholders
have delivered to the Buyer correct and complete copies of all such patents,
registrations, applications, licenses, agreements, and permissions (as amended
to date) and have made available to the Buyer correct and complete copies of
all other written documentation evidencing ownership and prosecution (if
applicable) of each such item. Section of the Disclosure Schedule also
identifies each trade name or unregistered trademark used by the Company in
connection with any of its businesses. With respect to each item of
Intellectual Property required to be identified in Section of the Disclosure
Schedule:
(A) The Company possesses all right, title,
and interest in and to the item, free and clear of any Security Interest,
license, or other restriction;
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(B) The item is not subject to any
outstanding injunction, judgment, order, decree, ruling, or charge;
(C) No action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or is threatened
which challenges the legality, validity, enforceability, use, or ownership of
the item; and
(D) The Company has never agreed to
indemnify any Person for or against any interference, infringement,
misappropriation, or other conflict with respect to the item.
(iv) Section of the Disclosure Schedule identifies
each item of Intellectual Property that any third party owns and that the
Company uses pursuant to license, sublicense, agreement, or permission. The
Shareholders have delivered to the Buyer correct and complete copies of all
such licenses, sublicenses, agreements, and permissions (as amended to date).
With respect to each item of Intellectual Property required to be identified in
Section of the Disclosure Schedule:
(A) The license, sublicense, agreement, or
permission covering the item is legal, valid, binding, enforceable, and in full
force and effect;
(B) The license, sublicense, agreement, or
permission will continue to be legal, valid, binding, enforceable, and in full
force and effect on identical terms following the consummation of the
transactions contemplated hereby;
(C) No party to the license, sublicense,
agreement, or permission is in breach or default, and no event has occurred
which with notice or lapse of time would constitute a breach or default or
permit termination, modification, or acceleration thereunder;
(D) No party to the license, sublicense,
agreement, or permission has repudiated any provision thereof;
(E) With respect to each sublicense, the
representations and warranties set forth in subsections (A) through (D) above
are true and correct with respect to the underlying license;
(F) The underlying item of Intellectual
Property is not subject to any outstanding injunction, judgment, order, decree,
ruling, or charge;
(G) No action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or is threatened
which challenges the legality, validity, or enforceability of the underlying
item of Intellectual Property; and
(H) The Company has never granted any
sublicense or similar right with respect to the license, sublicense, agreement,
or permission.
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(v) To the Knowledge of Shareholders and the
Company, the Company will not interfere with, infringe upon, misappropriate, or
otherwise come into conflict with, any Intellectual Property rights of third
parties as a result of the continued operation of its businesses as presently
conducted and as presently proposed to be conducted.
(vi) None of the Shareholders or the Company has any
Knowledge of any new products, inventions, procedures, or methods of
manufacturing or processing that any competitors or other third parties have
developed which, to the Knowledge of the Shareholders, reasonably could be
expected to supersede or make obsolete any product or process of any of the
Company.
(n) TANGIBLE ASSETS. The Company owns or leases all
buildings, machinery, equipment, and other tangible assets necessary for the
conduct of its business as presently conducted and as presently proposed to be
conducted. Each such tangible asset has been maintained in accordance with
normal industry practice, is in good operating condition and repair (subject to
normal wear and tear), and is suitable for the purposes for which it presently
is used and presently is proposed to be used. Section of the Disclosure
Schedule lists all tangible assets owned by the Company.
(o) INVENTORY. The inventory of the Company shown on the Most
Recent Balance Sheet consists of raw materials and supplies, manufactured and
purchased parts, goods in process, and finished goods, all of which is
merchantable and fit for the purpose for which it was procured or manufactured,
and none of which is slow-moving, obsolete, damaged, or defective, subject only
to the reserve for inventory writedown set forth on the face of the Most Recent
Balance Sheet (rather than in any notes thereto) as adjusted for the passage of
time through the Closing Date in accordance with the past custom and practice
of the Company.
(p) CONTRACTS. Section of the Disclosure Schedule lists all
the contracts and other agreements to which the Company is a party. The
Shareholders have delivered to the Buyer a correct and complete copy of each
written agreement listed in Section of the Disclosure Schedule (as amended to
date). With respect to each such agreement: (A) the agreement is legal, valid,
binding, enforceable, and in full force and effect; (B) the agreement will
continue to be legal, valid, binding, enforceable, and in full force and effect
on identical terms following the consummation of the transactions contemplated
hereby; (C) no party is in breach or default, and no event has occurred which
with notice or lapse of time would constitute a breach or default, or permit
termination, modification, or acceleration, under the agreement; and (D) no
party has repudiated any provision of the agreement. Section of the Disclosure
Schedule lists each currently outstanding bid or proposal for business
submitted by the Company in excess of $1,000,000.
(q) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts
receivable of the Company are reflected properly on the Most Recent Balance
Sheet in accordance with GAAP, are valid receivables subject to no setoffs or
counterclaims, are current and collectible, and, will be collected in
accordance with their terms at their recorded amounts, subject only to the
reserve for bad debts set forth on the face of the Most Recent Balance Sheet
(rather than in any notes thereto) as adjusted for the passage of time through
the Closing Date in accordance with the past custom and practice of the
Company.
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(r) POWERS OF ATTORNEY. There are no outstanding powers of
attorney executed on behalf of the Company.
(s) INSURANCE. Section of the Disclosure Schedule includes a
true, correct and complete list of all policies of insurance (including
policies providing property, casualty, liability, and workers' compensation
coverage and bond and surety arrangements) to which the Company is a party, a
named insured, or otherwise the beneficiary of coverage. Genuine and complete
copies of each of the insurance policies listed in Section of the Disclosure
Schedule have been provided to the Buyer. With respect to each such insurance
policy: (A) the policy is legal, valid, binding, enforceable, and in full force
and effect; (B) the policy will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms following the
consummation of the transactions contemplated hereby; (C) neither the Company
nor, to the Knowledge of the Shareholders, any other party to the policy is in
breach or default (including with respect to the payment of premiums or the
giving of notices), and no event has occurred which, with notice or the lapse
of time, would constitute such a breach or default, or permit termination,
modification, or acceleration, under the policy; (D) neither the Company, any
ERISA Affiliate nor the Buyer shall be subject to a retroactive rate
adjustment, loss sharing arrangement or other actual or contingent liability
and (E) to Shareholders' or the Company's Knowledge, no party to the policy has
repudiated any provision thereof. The Company has been fully covered at all
times during the past 5 years by insurance in scope and amount customary and
reasonable for the businesses in which it has engaged during the aforementioned
period. Section of the Disclosure Schedule describes any self-insurance
arrangements affecting the Company.
(t) LITIGATION. Section of the Disclosure Schedule sets forth
each instance in which the Company (i) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (ii) is a party, or
to the Knowledge of Shareholders or the Company, is threatened to be made a
party to any claim, action, suit, proceeding, hearing, or investigation of, in,
or before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator. Except as set
forth in Section of the Disclosure Schedule, there is no other pending, or to
the knowledge of Shareholders or the Company, threatened claim, arbitration
proceeding, action, suit, investigation or other proceeding against or
involving the Company or any property or rights of the Company or any officer
or director or the Company. None of the actions, suits, proceedings, hearings,
and investigations set forth in Section of the Disclosure Schedule could result
in any material adverse change in the business, financial condition,
operations, results of operations, or future prospects of the Company. Neither
the Shareholders nor the directors and officers (and employees with
responsibility for litigation matters) of the Company has any reason to believe
that any such action, suit, proceeding, hearing, or investigation may be
brought or threatened against the Company.
(u) COMMITMENTS AND WARRANTIES. All services provided by the
Company have been performed in all material respects in conformity with all
applicable contractual commitments (written or oral) and all express and
implied warranties (written or oral), and the Company has no Liability and, to
the Knowledge of the Shareholders and the Company, there is no Basis for any
present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand against any of them giving rise to any Liability in
connection with any such services. Section of the Disclosure Schedule includes
copies of the standard forms of
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agreement entered into between the Company and its customers. The Company has
not entered into any written or oral agreements with any of its customers that
include guaranties, warranties, or indemnity provisions other than those
included in the agreements included as part of Section of the Disclosure
Schedule.
(v) LIABILITY FOR SERVICES PERFORMED. The Company has no
Liability (and, to Shareholders' knowledge, there is no Basis for any present
or future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against any of them giving rise to any Liability) arising out
of any injury to individuals or property as a result of or in connection with
any services provided by the Company.
(w) EMPLOYEES. To the Knowledge of the Shareholders or the
Company, no executive, key employee, or group of employees has any plans to
terminate employment with the Company. The Company is not currently, nor at any
prior time has been, a party to or bound by any collective bargaining
agreement, nor has the Company experienced any strikes, grievances, claims of
unfair labor practices, or other collective bargaining disputes. The Company
has not committed any unfair labor practice. Neither the Shareholders nor the
Company have any Knowledge of any organizational effort presently being made or
threatened by or on behalf of any labor union with respect to employees of the
Company.
(x) EMPLOYEE BENEFITS.
(i) Section of the Disclosure Schedule lists each
Employee Benefit Plan that the Company or any ERISA Affiliate maintains,
contributes to, or is required to contribute to or under which the Company or
any ERISA Affiliate has any liability.
(A) Each such Employee Benefit Plan (and
each related trust, insurance contract, or fund) complies in form and in
operation in all material respects with the applicable requirements of ERISA,
the Code, and other applicable laws.
(B) All required reports and disclosures
(including Form 5500 Annual Reports, Summary Annual Reports, PBGC-1's, and
Summary Plan Descriptions) have been filed or distributed appropriately with
respect to each such Employee Benefit Plan. The requirements of Part 6 of
Subtitle B of Title I of ERISA and of Code Section 4980B have been met with
respect to each such Employee Benefit Plan which is an Employee Welfare Benefit
Plan.
(C) All contributions (including all
employer contributions and employee salary reduction contributions) which are
due have been paid to each such Employee Benefit Plan which is an Employee
Pension Benefit Plan and all contributions for any period ending on or before
the Closing Date which are not yet due have been paid to each such Employee
Pension Benefit Plan or accrued in accordance with the past custom and practice
of the Company and in accordance with GAAP. All premiums or other payments for
all periods ending on or before the Closing Date have been paid with respect to
each such Employee Benefit Plan which is an Employee Welfare Benefit Plan.
(D) Each such Employee Benefit Plan which
is an Employee Pension Benefit Plan now meets, in all material respects, and at
all times since inception have
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met, in all material respects, the requirements of a "qualified plan" under
Code Section 401(a) and has received a favorable determination letter from the
Internal Revenue Service.
(E) As of the Closing Date, the market
value of assets under each such Employee Benefit Plan which is an Employee
Pension Benefit Plan (other than any Multiemployer Plan) will equal or exceed
the present value of all vested and nonvested Liabilities thereunder determined
in accordance with PBGC methods, factors, and assumptions applicable to an
Employee Pension Benefit Plan terminating on such date.
(F) The Shareholders have delivered to the
Buyer correct and complete copies of the plan documents and summary plan
descriptions including all amendments thereto, the most recent determination
letter received from the Internal Revenue Service, the three most recent Form
5500 Annual Reports (including all schedules thereto), the three most recent
annual premium payment forms filed with the PBGC, and all related trust
agreements, insurance contracts, and other funding agreements which implement
each such Employee Benefit Plan.
(ii) With respect to each Employee Benefit Plan that
the Company or any ERISA Affiliate maintains, contributes to, or is required to
contribute to or under which the Company or any ERISA Affiliate has any
liability:
(A) No such Employee Benefit Plan which is
an Employee Pension Benefit Plan (other than any Multiemployer Plan) has been
completely or partially terminated or been the subject of a Reportable Event as
to which notices would be required to be filed with the PBGC. No proceeding by
the PBGC to terminate any such Employee Pension Benefit Plan (other than any
Multiemployer Plan) has been instituted or threatened.
(B) There have been no Prohibited
Transactions with respect to any such Employee Benefit Plan. No Fiduciary has
any Liability for breach of fiduciary duty or any other failure to act or
comply in connection with the administration or investment of the assets of any
such Employee Benefit Plan. No action, suit, proceeding, hearing, or
investigation with respect to any such Employee Benefit Plan (other than
routine claims for benefits) is pending or threatened. Neither the Shareholders
nor the Company has any Knowledge of any Basis for any such action, suit,
proceeding, hearing, or investigation.
(C) Neither the Company nor any ERISA
Affiliate has incurred, and none of the Shareholders and the directors and
officers (and employees with responsibility for employee benefits matters) of
the Company has any reason to expect that the Company or any ERISA Affiliate
will incur, any Liability to the PBGC (other than PBGC premium payments) or
otherwise under Title IV of ERISA (including any withdrawal Liability) or under
the Code with respect to any such Employee Benefit Plan which is an Employee
Pension Benefit Plan.
(iii) Neither the Company nor any ERISA Affiliate
contributes to, ever has contributed to, or ever has been required to
contribute to any Multiemployer Plan or has any Liability (including withdrawal
Liability) under any Multiemployer Plan.
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(iv) Neither the Company nor any ERISA Affiliate
maintains or contributes to, or has ever been required to contribute to any
Employee Welfare Benefit Plan providing medical, health, or life insurance or
other welfare-type benefits for current or future retired or terminated
employees, their spouses, or their dependents (other than in accordance with
Code Section 4980B).
(y) GUARANTIES. The Company is not a guarantor or otherwise
is liable for any Liability or obligation (including indebtedness) of any other
Person.
(z) ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS.
(i) The Company and its predecessors and Affiliates
have complied and are in compliance with all Environmental, Health, and Safety
Requirements.
(ii) Without limiting the generality of the
foregoing, the Company and its Affiliates have obtained and complied with, and
are in compliance with, all permits, licenses and other authorizations that are
required pursuant to Environmental, Health, and Safety Requirements for the
occupation of its facilities and the operation of its business; a list of all
such permits, licenses and other authorizations is set forth on the attached
"Environmental and Safety Permits Schedule."
(iii) Neither the Company nor its predecessors or
Affiliates has received any written or oral notice, report or other information
regarding any actual or alleged violation of Environmental, Health, and Safety
Requirements, or any liabilities or potential liabilities (whether accrued,
absolute, contingent, unliquidated or otherwise), including any investigatory,
remedial or corrective obligations, relating to any of them or its facilities
arising under Environmental, Health, and Safety Requirements.
(iv) To the Knowledge of the Shareholders, none of
the following exists at any property or facility owned or operated by the
Company: (1) underground storage tanks, (2) asbestos-containing material in any
form or condition, (3) materials or equipment containing polychlorinated
biphenyls, or (4) landfills, surface impoundments, or disposal areas.
(v) To the Knowledge of the Shareholders, none of
the Company or its predecessors or Affiliates has treated, stored, disposed of,
arranged for or permitted the disposal of, transported, handled, or released
any substance, including without limitation any hazardous substance, or owned
or operated any property or facility (and no such property or facility is
contaminated by any such substance) in a manner that has given or would give
rise to liabilities, including any liability for response costs, corrective
action costs, personal injury, property damage, natural resources damages or
attorney fees, pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), the Solid Waste
Disposal Act, as amended ("SWDA") or any other Environmental, Health, and
Safety Requirements.
(vi) Neither this Agreement nor the consummation of
the transaction that is the subject of this Agreement will result in any
obligations for site investigation or cleanup, or notification to or consent of
government agencies or third parties, pursuant to any of the
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<PAGE> 29
so-called "transaction-triggered" or "responsible property transfer"
Environmental, Health, and Safety Requirements.
(vii) Neither the Company nor its predecessors or
Affiliates has, either expressly or by operation of law, assumed or undertaken
any liability, including without limitation any obligation for corrective or
remedial action, of any other Person relating to Environmental, Health, and
Safety Requirements.
(viii) To the Knowledge of the Shareholders, no
facts, events or conditions relating to the past or present facilities,
properties or operations of the Company or any of its predecessors or
Affiliates will prevent, hinder or limit continued compliance with
Environmental, Health, and Safety Requirements, give rise to any investigatory,
remedial or corrective obligations pursuant to Environmental, Health, and
Safety Requirements (whether on-site or off-site), or give rise to any other
liabilities (whether accrued, absolute, contingent, unliquidated or otherwise)
pursuant to Environmental, Health, and Safety Requirements, including without
limitation any relating to onsite or offsite releases or threatened releases of
hazardous materials, substances or wastes, personal injury, property damage or
natural resources damage.
(aa) CERTAIN BUSINESS RELATIONSHIPS WITH THE COMPANY. Neither
the Shareholders, their respective Affiliates, any director or employee of the
Company, or any relatives of the Shareholders, or any person living in the same
residence as such persons, has been involved in any business arrangement or
relationship with the Company within the past 12 months, and neither the
Shareholders nor their respective Affiliates nor any of such other persons own
leases, licenses, or otherwise has any interest in any asset, tangible or
intangible, which is used in the business of the Company or any contract, lease
or commitment to which the Company is a party. The Company is not indebted to
any officer, director or employee of the Company for any liability or
obligation. No officer, director or employee of the Company is indebted to the
Company for any liability or obligation.
(ab) CUSTOMERS AND SUPPLIERS. No purchase order or commitment
of the Company is in excess of normal requirements, nor are prices provided
therein in excess of current market prices for the products or services to be
provided thereunder. No material supplier of the Company has advised the
Company in writing within the past year that it will stop, or decrease the rate
of, supplying materials, products or services to the Company and no material
customer of the Company has advised the Company in writing within the past year
that it will stop, or decrease the rate of buying materials, products or
services from the Company. Section of the Disclosure Schedule sets forth a list
of (a) each customer that accounted for more than 5% of the consolidated
revenues of the Company during the last full fiscal year or the interim period
through the date of the Most Recent Financial Statements and the amount of
revenues accounted for by such customer during each such period and (b) each
supplier that is the sole supplier of any significant product or component to
the Company. The consummation of the transactions contemplated hereby will not
have a Material Adverse Effect on the Company's relationship with any customer
or supplier listed in Section of the Disclosure Schedule.
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5. PRE-CLOSING COVENANTS. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing.
(a) GENERAL. Each of the Parties will use his or its best
efforts to take all action and to do all things necessary, proper, or advisable
in order to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions
set forth in Section below).
(b) NOTICES AND CONSENTS. The Shareholders will cause the
Company to give any notices to third parties, and will cause the Company to use
its best efforts to obtain any third party consents required in connection with
the matters referred to in Section above. Each of the Parties will (and the
Shareholders will cause the Company to) give any notices to, make any filings
with, and use its best efforts to obtain any authorizations, consents, and
approvals of governments and governmental agencies in connection with the
matters referred to in Section and Section above.
(c) OPERATION OF BUSINESS. Except as set forth on Section
4(h) of the Disclosure Schedule, the Shareholders will not cause or permit the
Company to engage in any practice, take any action, or enter into any
transaction outside the Ordinary Course of Business. Without limiting the
generality of the foregoing, and except as set forth on Section 4(h) of the
Disclosure Schedule, the Shareholders will not cause or permit the Company to
(i) declare, set aside, or pay any dividend or make any distribution with
respect to its capital stock or redeem, purchase, or otherwise acquire any of
its capital stock or (ii) otherwise engage in any practice, take any action, or
enter into any transaction of the sort described in Section above. The
Shareholders will immediately notify the Buyer in writing with respect to any
proposed capital expenditures in excess of $10,000.
(d) PRESERVATION OF BUSINESS. The Shareholders will cause
the Company to keep its business and properties substantially intact, including
its present operations, physical facilities, working conditions, and
relationships with lessors, licensors, suppliers, customers, and employees.
(e) FULL ACCESS. The Shareholders will permit, and will
cause the Company to permit, representatives of the Buyer to have full access
at all reasonable times, and in a manner so as not to interfere with the normal
business operations of the Company, to all premises, properties, personnel,
books, records (including Tax records), contracts, and documents of or
pertaining to the Company. At the request of the Buyer, Shareholders will
permit, and will cause the Company to permit, the Buyer's lenders, and their
respective counsel, to have the same access as permitted to the Buyer in
accordance with the immediately preceding sentence.
(f) NOTICE OF DEVELOPMENTS. The Shareholders will give prompt
written notice to the Buyer of any breach of any of the representations and
warranties in Section above. Each Party will give prompt written notice to the
others of any breach of any of his or its own representations and warranties in
Section above. No disclosure by any Party pursuant to this Section , however,
shall be deemed to amend or supplement the Buyer Disclosure Schedule or the
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<PAGE> 31
Disclosure Schedule or to prevent or cure any misrepresentation, breach of
warranty, or breach of covenant.
(g) EXCLUSIVITY. The Shareholders will not (and the
Shareholders will not cause or permit the Company to) (i) solicit, initiate, or
encourage the submission of any proposal or offer from any Person relating to
the acquisition of any capital stock or other voting securities, or any
substantial portion of the assets, of the Company (including any acquisition
structured as a merger, consolidation, or share exchange) or (ii) participate
in any discussions or negotiations regarding, furnish any information with
respect to, assist or participate in, or facilitate in any other manner any
effort or attempt by any Person to do or seek any of the foregoing. The
Shareholders will notify the Buyer immediately if any Person makes any
proposal, offer, inquiry, or contact with respect to any of the foregoing.
(h) NO TERMINATION OF SHAREHOLDERS'S OBLIGATION BY SUBSEQUENT
INCAPACITY. Each Shareholder specifically agrees that his obligations
hereunder, including, without limitation, the obligations pursuant to Section
hereof, shall not be eliminated by his or her death or incapacity.
6. POST-CLOSING COVENANTS. The Parties agree as follows with respect
to the period following the Closing.
(a) GENERAL. In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, each of the Parties will take such further action (including the
execution and delivery of such further instruments and documents) as any other
Party reasonably may request, all at the sole cost and expense of the
requesting Party (unless the requesting Party is entitled to indemnification
therefor under Section below). The Shareholders acknowledge and agree that from
and after the Closing the Buyer will be entitled to possession of all
documents, books, records (including Tax records), agreements, and financial
data of any sort relating to the Company.
(b) LITIGATION SUPPORT. In the event and for so long as any
Party actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving the Company, each of the other Parties will
cooperate with him or it and his or its counsel in the contest or defense, make
available their personnel, and provide such testimony and access to their books
and records as shall be necessary in connection with the contest or defense,
all at the sole cost and expense of the contesting or defending Party (unless
the contesting or defending Party is entitled to indemnification therefor under
Section below).
(c) TRANSITION. The Shareholders will not take any action
that is designed or intended to have the effect of discouraging any lessor,
licensor, customer, supplier, or other business associate of the Company from
maintaining the same business relationships with the Company after the Closing
as it maintained with the Company prior to the Closing. The Shareholders will
refer all customer inquiries relating to the businesses of the Company to the
Buyer from and after the Closing.
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<PAGE> 32
(d) INDEPENDENT ACCOUNTANTS. After the Closing, Shareholders
shall (i) use reasonable efforts to cause the Company's past and present
independent auditors and accounting personnel to make available to the Buyer
and its representatives all financial information, including the right to
examine all working papers pertaining to audits or reviews previously or
hereafter made by such auditors, and (ii) provide such cooperation as the Buyer
and its representatives may request in connection with any audit or review of
the Company that the Buyer may direct its representatives to make. Without
limiting the generality of the foregoing, the Shareholders agree that they will
cooperate with, and will use their best efforts to cause the Company's past and
present independent auditors, accounting personnel and other necessary persons
to cooperate with the Buyer and Orius in the preparation of any documents filed
by Orius with the U.S. Securities and Exchange Commission in connection with an
offering of securities, to the extent information about the Company is required
therein.
(e) TAX MATTERS. The Shareholders covenant and agree not to
take any action, or fail to take any action, with respect to Taxes, that would
have an adverse effect on the Buyer on or after the Closing Date, including,
without limitation, amending or otherwise supplementing any Tax Return or
report of the Company with respect to any period prior to the Closing Date
without the consent of the Buyer. If any taxing authority conducts any audit or
investigation relating to the Company prior to the Closing Date, the Buyer may,
in its sole election, have the right to supervise such audit or investigation
and provide any response required in connection therewith.
(f) STOCK OPTIONS. Orius has adopted a stock incentive plan
(the "Stock Incentive Plan") pursuant to which stock options and other forms of
stock-based compensation may be awarded to the officers, directors and
employees of the Buyer and its subsidiaries. The key employees of the Company,
collectively, shall be eligible to receive awards under the Stock Incentive
Plan of options to acquire 5,000 shares of Common Stock. Within 60 days of the
Closing, the officers of the Company shall recommend to the Stock Option
Committee under the Stock Incentive Plan the terms, conditions and amounts of
awards to be granted and the identity of the key employees of the Company to
receive such awards, however, all such awards, and the terms and conditions
thereof, shall be finally determined by the Stock Option Committee.
(g) AUDITED FINANCIAL STATEMENTS. Shareholders shall cause
the Company's auditors to cooperate with the Buyer's auditors in the
preparation of audited consolidated balance sheets and statements of income,
changes in stockholders' equity, and cash flow including the audit report
thereon as of and for the 12-month periods December 31, 1996, December 31, 1997
and December 31, 1998 for the Company. All costs associated with the
preparation and audit of the Company's December 31, 1996, December 31, 1997 and
December 31, 1998 financial statements shall be paid by the Buyer.
7. CONDITIONS TO OBLIGATION TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF THE BUYER. The obligation of
the Buyer to consummate the transactions to be performed by it in connection
with the Closing is subject to satisfaction of the following conditions:
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(i) The representations and warranties set forth in
Section and Section above shall be true and correct in all material respects at
and as of the Closing Date and there shall not have occurred any Material
Adverse Effect;
(ii) The Shareholders and the Company shall have
performed and complied with all of his covenants hereunder in all material
respects through the Closing;
(iii) The Company shall have procured all of the
third party consents specified in Section above;
(iv) No action, suit, or proceeding shall be pending
or threatened before any court or quasi-judicial or administrative agency of
any federal, state, local, or foreign jurisdiction, or before any arbitrator,
wherein an unfavorable injunction, judgment, order, decree, ruling, or charge
would (A) prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this Agreement to
be rescinded following consummation, (C) affect adversely the right of the
Company to own its assets and to operate its businesses (and no such
injunction, judgment, order, decree, ruling, or charge shall be in effect);
(v) The Shareholders shall have delivered to the
Buyer a certificate, to the effect that each of the conditions specified above
in Section through is satisfied in all respects;
(vi) The Parties shall have received all other
authorizations, consents, and approvals of governments and governmental
agencies referred to in Section and Section above;
(vii) The Buyer shall have received from counsel to
the Shareholders an opinion in form and substance as set forth in Exhibit E
attached hereto, addressed to the Buyer and dated as of the Closing Date;
(viii) Robert Apgar, Steve Casey and Blayne Schorr
shall have entered into the Employment Agreements;
(ix) Glynda J. Apgar shall have entered into the
Noncompetition Agreement;
(x) The Shareholders shall have entered into
Subordination Agreements in substantially the form attached hereto as Exhibit
F;
(xi) All actions to be taken by the Shareholders in
connection with the consummation of the transactions contemplated hereby and
all certificates, opinions, instruments, and other documents required to effect
the transactions contemplated hereby will be reasonably satisfactory in form
and substance to the Buyer.
(xii) At least five business days prior to the
Closing, the Buyer shall have received a balance sheet prepared by the Company,
estimating the assets, liabilities and
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shareholders' equity of the Company as of the Closing Date (the "Estimated
Closing Balance Sheet"). The Estimated Closing Balance Sheet shall be prepared
in accordance with the method set forth in Section for the preparation of the
Draft Closing Balance Sheet and will reflect (A) Shareholders' Equity of at
least $2,100,000.00 (prior to the payment of any debt at Closing); (B) working
capital of not less than $1,920,000.00 (including the current portion of any
debt); and (C) total debt payable of not more than $2,450,000.00. The Buyer
shall not have objected to, challenged or otherwise repudiated any of the
amounts included in the Estimated Closing Balance Sheet.
(xiii) The Company shall have delivered evidence of
its qualification to do business in each jurisdiction where it is so qualified
and a certificate of good standing issued by the Secretary of State of each
such jurisdiction demonstrating that the Company is in good standing in that
jurisdiction;
(xiv) Each of the Shareholders shall have been made
parties to the Shareholders Agreement;
(xv) The board of directors of the Buyer shall have
approved the consummation of the transaction contemplated by this Agreement;
and
(xvi) All actions to be taken by the Shareholders in
connection with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form and
substance to the Buyer.
The Buyer may waive any condition specified in this Section if it executes a
writing so stating at or prior to the Closing.
(b) CONDITIONS TO OBLIGATION OF THE SHAREHOLDERS. The
obligation of the Shareholders to consummate the transactions to be performed
by them in connection with the Closing is subject to satisfaction of the
following conditions:
(i) The representations and warranties set forth in
Section above shall be true and correct in all material respects at and as of
the Closing Date;
(ii) The Buyer shall have performed and complied
with all of its covenants hereunder in all material respects through the
Closing;
(iii) No action, suit, or proceeding shall be
pending or threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction, or before any
arbitrator, wherein an unfavorable injunction, judgment, order, decree, ruling,
or charge would (A) prevent consummation of any of the transactions
contemplated by this Agreement or (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation (and no
such injunction, judgment, order, decree, ruling, or charge shall be in
effect);
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<PAGE> 35
(iv) The Buyer shall have delivered to the
Shareholders a certificate to the effect that each of the conditions specified
above in Section - is satisfied in all respects;
(v) The Parties shall have received all other
authorizations, consents, and approvals of governments and governmental
agencies referred to in Section and Section above;
(vi) The Shareholders shall have received from
counsel to the Buyer an opinion in form and substance as set forth in Exhibit G
attached hereto, addressed to the Shareholders, and dated as of the Closing
Date;
(vii) The Buyer shall have entered into the
Employment Agreements;
(viii) The Buyer shall have entered into leases with
RGL Interests with respect to the two property locations in Houston, Texas
substantially the form attached hereto as Exhibit H;
(ix) All actions to be taken by the Buyer in
connection with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form and
substance to the Shareholders.
The Shareholders may waive any condition specified in this Section if they
execute a writing so stating at or prior to the Closing.
8. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations, warranties, covenants and agreements of the Parties contained
in this Agreement or in any certificate, document, instrument or agreement
delivered pursuant to this Agreement shall survive the Closing hereunder
(notwithstanding any due diligence investigations that may have been undertaken
by the damaged Party) and continue in full force and effect for a period of
three (3) years following the Closing Date; a claim for indemnification in
respect of a breach of the representations, warranties, covenants and
agreements contained herein, or in any certificate, document, instrument or
agreement delivered pursuant to this Agreement, may be made only within such
period of three (3) years following the Closing Date. Notwithstanding the
foregoing, a claim for indemnification in respect of a breach of the
representations and warranties set forth in Section , , -, , and may be made at
any time following the Closing Date and are not subject to the foregoing
limitation.
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE BUYER.
(i) In the event the Shareholders breach (or in the
event that any third party alleges facts that, if true, would mean that the
Shareholders have breached) any of their representations, warranties (or any of
such representations or warranties is untrue or inaccurate), covenants and
agreements contained herein or in any certificate, document, instrument or
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<PAGE> 36
agreement delivered pursuant to this Agreement, and, provided that the
Indemnified Buyers (as hereafter defined) make a written claim for
indemnification against the Shareholders pursuant to Section 12(g) below within
the applicable claim period provided in Section above, then the Shareholders
agree to indemnify the Buyer and each of its officers, directors, employees,
representatives and shareholders (the "Indemnified Buyers") from and against
the entirety (subject to the provisions of Section 8(g) hereof) of any Adverse
Consequences the Indemnified Buyers may suffer through and after the date of
the claim for indemnification (including any Adverse Consequences the
Indemnified Buyers may suffer after the end of any applicable claim period)
resulting from, arising out of, relating to, in the nature of, or caused by the
breach (or the alleged breach).
(ii) Without limiting any other indemnification
provided in this Section , and subject to the provisions of Section 8(g)
hereof, the Shareholders agree to indemnify the Indemnified Buyers from and
against the entirety of any Adverse Consequences they may suffer resulting
from, arising out of, relating to, in the nature of, or caused by the
activities of any entity which at any time has been owned, in whole or in part,
by the Company.
(iii) All of the indemnification obligations of
Shareholders under this Section shall be joint and several, subject to the
provisions of Section 8(g) hereof.
(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE
SHAREHOLDERS.
In the event the Buyer breaches (or in the event any
third party alleges facts that, if true, would mean the Buyer had breached) any
of their representations, warranties (or any of such representations or
warranties is untrue or inaccurate), covenants and agreements contained herein
or in any certificate, document, instrument or agreement delivered pursuant to
this Agreement, and, provided that the Shareholders makes a written claim for
indemnification against the Buyer pursuant to Section 8(d) below within the
applicable claim period provided in 8(a) above, then the Buyer agrees to
indemnify the Shareholders and each of his representatives (the "Indemnified
Shareholders") from and against the entirety of any Adverse Consequences the
Indemnified Shareholders may suffer through and after the date of the claim for
indemnification (including any Adverse Consequences the Indemnified
Shareholders may suffer after the end of any applicable claim period) resulting
from, arising out of, relating to, in the nature of, or caused by the breach
(or the alleged breach).
(d) MATTERS INVOLVING THIRD PARTIES.
(i) If any third party shall notify any party
entitled to indemnification hereunder (the "Indemnified Party") with respect to
any matter (a "Third Party Claim") which may give rise to a claim for
indemnification against any other Party (the "Indemnifying Party") under this
Section 8(d) then the Indemnified Party shall promptly notify each Indemnifying
Party thereof in writing; provided, however, that no delay on the part of the
Indemnified Party in notifying any Indemnifying Party shall relieve the
Indemnifying Party from any obligation hereunder unless (and then solely to the
extent) the Indemnifying Party thereby is materially prejudiced.
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(ii) Any Indemnifying Party will have the right to
defend the Indemnified Party against the Third Party Claim with counsel of its
choice reasonably satisfactory to the Indemnified Party so long as (A) the
Indemnifying Party notifies the Indemnified Party in writing within 15 days
after the Indemnified Party has given notice of the Third Party Claim that the
Indemnifying Party will indemnify the Indemnified Party from and against the
entirety of any Adverse Consequences the Indemnified Party may suffer resulting
from, arising out of, relating to, in the nature of, or caused by the Third
Party Claim, (B) the Indemnifying Party provides the Indemnified Party with
evidence reasonably acceptable to the Indemnified Party that the Indemnifying
Party will have the financial resources to defend against the Third Party Claim
and fulfill its indemnification obligations hereunder, (C) the Third Party
Claim involves only money damages and does not seek an injunction or other
equitable relief, (D) settlement of, or an adverse judgment with respect to,
the Third Party Claim is not, in the good faith judgment of the Indemnified
Party, likely to establish a precedential custom or practice materially adverse
to the continuing business interests of the Indemnified Party, (E) the named
parties to the Third Party Claim do not include both the Indemnified Party and
the Indemnifying Party, and (F) the Indemnifying Party conducts the defense of
the Third Party Claim actively and diligently.
(iii) So long as the Indemnifying Party is
conducting the defense of the Third Party Claim in accordance with Section
above, (A) the Indemnified Party may retain separate co-counsel at its sole
cost and expense and participate in the defense of the Third Party Claim, (B)
the Indemnified Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnifying Party (not to be withheld unreasonably),
and (C) the Indemnifying Party will not consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim without the
prior written consent of the Indemnified Party (not to be withheld
unreasonably).
(iv) In the event any of the conditions in Section
above is or becomes unsatisfied, however, (A) the Indemnified Party may defend
against, and consent to the entry of any judgment or enter into any settlement
with respect to, the Third Party Claim in any manner it reasonably may deem
appropriate (and the Indemnified Party need not consult with, or obtain any
consent from, any Indemnifying Party in connection therewith), (B) the
Indemnifying Parties will reimburse the Indemnified Party promptly and
periodically for the costs of defending against the Third Party Claim
(including reasonable attorneys' fees and expenses), and (C) the Indemnifying
Parties will remain responsible for any Adverse Consequences the Indemnified
Party may suffer resulting from, arising out of, relating to, in the nature of,
or caused by the Third Party Claim to the fullest extent provided in this
Section .
(e) DETERMINATION OF ADVERSE CONSEQUENCES. The Parties shall
take into account the time cost of money (using the Applicable Rate as the
discount rate) in determining Adverse Consequences for purposes of this
Section. All indemnification payments under this Section shall be deemed
adjustments to the Consideration.
(f) OTHER INDEMNIFICATION PROVISIONS. The foregoing
indemnification provisions are in addition to, and not in derogation of, any
statutory, equitable, or common law remedy (including without limitation any
such remedy arising under Environmental, Health, and
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Safety Requirements) any Party may have with respect to the Company, or the
transactions contemplated by this Agreement. Each Shareholder hereby agrees
that he will not make any claim for indemnification against the Company by
reason of the fact that he was a director, officer, employee, or agent of the
Company or was serving at the request of the Company as a partner, trustee,
director, officer, employee, or agent of another entity (whether such claim is
for judgments, damages, penalties, fines, costs, amounts paid in settlement,
losses, expenses, or otherwise and whether such claim is pursuant to any
statute, charter document, bylaw, agreement, or otherwise) with respect to any
action, suit, proceeding, complaint, claim, or demand brought by the Buyer
against such Shareholder (whether such action, suit, proceeding, complaint,
claim, or demand is pursuant to this Agreement, applicable law, or otherwise).
(g) LIMITATION ON LIABILITY. Neither the Shareholders,
considered for purposes of this Section 8(g) as a single party in interest, nor
the Buyer, shall (i) have aggregate indemnification obligations in an amount
greater than $5,000,000 (the "Cap") (minus any adjustments pursuant to Section
9(e) of Section 9(f) hereof, plus any adjustments pursuant to Section 9(g)
hereof) with the indemnification obligations of each of the Shareholders
limited, in any event, to an amount equal to that percentage of the Cap set
forth beside the name of such Shareholder on Section 4(b) of the Disclosure
Schedule; or (ii) be entitled to indemnification hereunder unless the aggregate
amount of claims for indemnification by such party exceeds $75,000 in which
event such party shall be entitled to indemnification for the amount of all
such claims in excess of $75,000.
9. POST-CLOSING ADJUSTMENT OF CONSIDERATION.
(a) Within 90 days after the Closing Date, the Buyer will
prepare and deliver to Shareholders a draft balance sheet (the "Draft Closing
Date Balance Sheet") for the Company as of the close of business on the Closing
Date (determined as though the Parties had not consummated the transactions
contemplated by this Agreement), prepared in accordance with GAAP applied on a
basis consistent with the preparation of the Financial Statements; except that
the Draft Closing Date Balance Sheet shall include all of the same types of
adjustments as were made in connection with the preparation of the Most Recent
Fiscal Year End Financial Statements.
(b) If the Shareholders have any objections to the Draft
Closing Date Balance Sheet, they will deliver a detailed statement describing
their objections to the Buyer within 30 days after receiving the Draft Closing
Date Balance Sheet. The Buyer and the Shareholders will use reasonable efforts
to resolve any such objections themselves. If the Parties do not obtain a final
resolution within 30 days after the Buyer has received the statement of
objections, however, the Buyer and Shareholders will select an accounting firm
mutually acceptable to them to resolve any remaining objections. If the Buyer
and the Shareholders are unable to agree on the choice of an accounting firm,
they will select a nationally-recognized accounting firm by lot (after
excluding their respective regular outside accounting firms). The determination
of any accounting firm so selected will be set forth in writing and will be
conclusive and binding upon the Parties. The Buyer will revise the Draft
Closing Date Balance Sheet as appropriate to reflect the resolution of any
objections thereto pursuant to this Section . The "Closing Date Balance Sheet"
shall mean the Draft Closing Date Balance Sheet together with any revisions
thereto pursuant to this Section 9(b).
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(c) In the event the Parties submit any unresolved objections
to an accounting firm for resolution as provided in Section 9(b) above, any
expenses relating to the engagement of the accounting firm shall be allocated
between the Shareholders and the Buyer by the accounting firm in the proportion
that the amount in dispute which is decided in favor of the challenging party
bears to the entire amount in dispute.
(d) The Buyer will make the work papers and back-up materials
used in preparing the Draft Closing Date Balance Sheet available to the
Shareholders and their accountants and other representatives at reasonable
times and upon reasonable notice during (A) the preparation by the Buyer of the
Draft Closing Date Balance Sheet, (B) review by the Shareholders of the Draft
Closing Date Balance Sheet, and (C) the resolution by the Parties of any
objections thereto.
(e) If the shareholder's equity set forth in the Closing Date
Balance Sheet is less than $2,100,000.00 (prior to the payment of any debt at
Closing), the Shareholders will pay to the Buyer an amount equal to such
deficiency (plus interest thereon at the Applicable Rate from the Closing Date)
within three business days after the date on which the Closing Date Balance
Sheet finally is determined pursuant to Section 9(b).
(f) If the working capital set forth in the Closing Date
Balance Sheet is less than $1,920,000.00, the Shareholders will pay to the
Buyer an amount equal to such deficiency (plus interest thereon at the
Applicable Rate from the Closing Date) within three business days after the
date on which the Closing Date Balance Sheet finally is determined pursuant to
Section 9(b).
(g) If the working capital, excluding the current portion of
any debt, set forth in the Closing Date Balance Sheet is more than
$3,600,000.00, the Buyer will pay to the Shareholders an amount equal to such
excess, but not to exceed $550,000, on the later to occur of (i) three business
days after the date on which the Closing Date Balance Sheet finally is
determined pursuant to Section 9(b), or (ii) March 31, 1999.
10. TAX MATTERS. The following provisions shall govern the allocation
of responsibility as between the Buyer and Shareholders for certain tax matters
following the Closing Date:
(a) TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE.
Shareholders shall prepare or cause to be prepared and timely file or cause to
be timely filed all Tax Returns for the Company for all periods ending on or
prior to the Closing Date (the "Pre-Closing Period"). Such Tax Returns shall be
prepared by treating items on such Tax Return in a manner consistent with the
past practices with respect to such items, unless otherwise required by law.
Shareholders shall permit the Buyer to review and comment on each such Tax
Return described in the preceding sentence prior to filing. The Buyer shall pay
the amounts due for Taxes of the Company with respect to the Pre-Closing
Periods, up to the amount reflected in the reserve for Tax Liability shown on
the face of the Most Recent Balance Sheet. Shareholders jointly and severally
agree that they will pay, when due, all amounts due (subject to the provisions
of Section 8(g) hereof) for Taxes of the Company with respect to Pre-Closing
Periods, that exceed the reserve for Tax Liability.
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(b) TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING
DATE. The Buyer shall prepare or cause to be prepared and file or cause to be
filed any Tax Returns of the Company for Tax periods which begin before the
Closing Date and end after the Closing Date. The Buyer shall permit
Shareholders to review and comment on each such Tax return described in the
preceding sentence prior to filing. Shareholders shall pay to the Buyer within
fifteen (15) days after the date on which Taxes are paid with respect to such
periods an amount equal to the portion of such Taxes which relates to the
portion of such Taxable period ending on the Closing Date to the extent such
Taxes are not reflected in the reserve for Tax Liability shown on the face of
the Most Recent Balance Sheet. For purposes of this Section, in the case of any
Taxes that are imposed on a periodic basis and are payable for a Taxable period
that includes (but does not end on) the Closing Date, the portion of such Tax
which relates to the portion of such Taxable period ending on the Closing Date
shall (x) in the case of any real and personal property Taxes, be deemed to be
the amount of such Tax for the entire Taxable period multiplied by a fraction
the numerator of which is the number of days in the Taxable period ending on
the Closing Date and the denominator of which is the number of days in the
entire Taxable period, and (y) in the case of any other Tax be deemed equal to
the amount which would be payable if the relevant Taxable period ended on the
Closing Date. Any credits relating to a Taxable period that begins before and
ends after the Closing Date shall be taken into account as though the relevant
Taxable period ended on the Closing Date. All determinations necessary to give
effect to the foregoing allocations shall be made in a manner consistent with
prior practice of the Company.
(c) COOPERATION ON TAX MATTERS.
(i) The Buyer, the Company and Shareholders shall
cooperate fully, as and to the extent reasonably requested by the other party,
in connection with the filing of Tax Returns pursuant to this Section and any
audit, litigation or other proceeding with respect to Taxes. Such cooperation
shall include the retention and (upon the other party's request) the provision
of records and information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. The Company and Shareholders agree (A) to retain
all books and records with respect to Tax matters pertinent to the Company
relating to any Taxable period beginning before the Closing Date until the
expiration of the statute of limitations (and, to the extent notified by the
Buyer or Shareholders, any extensions thereof) of the respective Taxable
periods, and to abide by all record retention agreements entered into with any
taxing authority, and (B) to give the other party reasonable written notice
prior to transferring, destroying or discarding any such books and records and,
if the other party so requests, the Company or Shareholders, as the case may
be, shall allow the other party to take possession of such books and records.
(ii) The Buyer and Shareholders further agree, upon
request, to use their best efforts to obtain any certificate or other document
from any governmental authority or any other Person as may be necessary to
mitigate, reduce or eliminate any Tax that could be imposed (including, but not
limited to, with respect to the transactions contemplated hereby).
(iii) The Buyer and Shareholders further agree, upon
request, to provide the other party with all information that either party may
be required to report pursuant to Section 6043 of the Code and all Treasury
Department Regulations promulgated thereunder.
36
<PAGE> 41
(d) TAX SHARING AGREEMENTS. All tax sharing agreements or
similar agreements with respect to or involving the Company shall be terminated
as of the Closing Date and, after the Closing Date, the Company shall not be
bound thereby or have any liability thereunder.
(e) CERTAIN TAXES. All transfer, documentary, sales, use,
stamp, registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement, shall be paid by
Shareholders when due, and Shareholders will, at their own expense, file all
necessary Tax Returns and other documentation with respect to all such
transfer, documentary, sales, use, stamp, registration and other Taxes and
fees, and, if required by applicable law, the Buyer will, and will cause its
affiliates to, join in the execution of any such Tax Returns and other
documentation.
11. TERMINATION.
(a) TERMINATION OF AGREEMENT. The Parties may terminate this
Agreement as provided below:
(i) the Buyer and the Shareholders may terminate
this Agreement by mutual written consent at any time prior to the Closing;
(ii) the Buyer may terminate this Agreement by
giving written notice to the Shareholders at any time prior to the Closing (A)
in the event the Shareholders have breached any representation, warranty, or
covenant contained in this Agreement in any material respect, the Buyer has
notified the Shareholders of the breach, and the breach has continued without
cure for a period of 30 days after the notice of breach or (B) if the Closing
shall not have occurred on or before February 28, 1999 by reason of the failure
of any condition precedent under Section hereof (unless the failure results
primarily from the Buyer itself breaching any representation, warranty, or
covenant contained in this Agreement); and
(iii) the Shareholders may terminate this Agreement
by giving written notice to the Buyer at any time prior to the Closing (A) in
the event the Buyer has breached any representation, warranty, or covenant
contained in this Agreement in any material respect, the Shareholders have
notified the Buyer of the breach, and the breach has continued without cure for
a period of 30 days after the notice of breach or (B) if the Closing shall not
have occurred on or before February 28, 1999 by reason of the failure of any
condition precedent under Section hereof (unless the failure results primarily
from the Shareholders himself breaching any representation, warranty, or
covenant contained in this Agreement).
(b) EFFECT OF TERMINATION. If any Party terminates this
Agreement pursuant to Section above, all rights and obligations of the Parties
hereunder shall terminate without any Liability of any Party to any other Party
(except for any Liability of any Party then in breach).
12. MISCELLANEOUS.
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall
issue any press release or make any public announcement relating to the subject
matter of this Agreement prior
37
<PAGE> 42
to the Closing without the prior written approval of the Buyer and the
Shareholders; provided, however, that any Party may make any public disclosure
it believes in good faith is required by applicable law or any listing or
trading agreement concerning its publicly-traded securities (in which case the
disclosing Party will use its best efforts to advise the other Parties prior to
making the disclosure).
(b) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not
confer any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns and the Indemnified Parties
referred to in Section hereof.
(c) ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or among
the Parties, written or oral, to the extent they related in any way to the
subject matter hereof.
(d) SUCCESSION AND ASSIGNMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the Parties
named herein and their respective successors and permitted assigns. No Party
may assign either this Agreement or any of his or its rights, interests, or
obligations hereunder without the prior written approval of the Buyer and the
Shareholders; provided, however, that the Buyer may (i) assign any or all of
its rights and interests hereunder to one or more of its Affiliates, (ii)
designate one or more of its Affiliates to perform its obligations hereunder
(in any or all of which cases the Buyer nonetheless shall remain responsible
for the performance of all of its obligations hereunder) and (iii) without the
approval of the Shareholders, assign its rights and interests hereunder to its
lenders (and any agent for the lenders), and the Parties consent to any
exercise by such lenders (and such agents) of their rights and remedies with
respect to such collateral.
(e) COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) HEADINGS. The section headings contained in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
(g) NOTICES. All notices, requests, demands, claims, and
other communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
If to the Shareholders: Copy to:
c/o Robert Apgar Mark E. Eisenbraun, Esq.
12616 Fuqua Street Winstead Sechrest & Minick P.C.
Houston, TX 77034 910 Travis Street, Suite 2400
Houston, TX 77002
38
<PAGE> 43
If to the Buyer: Copy to:
NATG Holdings, LLC Holland & Knight LLP
1401 Forum Way, Suite 400 One East Broward Boulevard
West Palm Beach, FL 33401 Fort Lauderdale, FL 33131
Attn: William J. Mercurio Attn: Donn Beloff, Esq.
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been
duly given unless and until it actually is received by the intended recipient.
Any Party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other
Parties notice in the manner herein set forth.
(h) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Florida without
giving effect to any choice or conflict of law provision or rule (whether of
the State of Florida or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Florida.
(i) AMENDMENTS AND WAIVERS. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
the Buyer and the Shareholders. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(j) SEVERABILITY. Any term or provision of this Agreement
that is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
(k) EXPENSES. Each of the Parties will bear his or its own
costs and expenses (including legal fees and expenses) incurred in connection
with this Agreement and the transactions contemplated hereby. The Shareholders
agree that the Company has not borne nor will bear any of the Shareholders'
costs and expenses (including, without limitation, any of their legal,
accounting or investment banking fees and expenses) in connection with this
Agreement or any of the transactions contemplated hereby.
(l) CONSTRUCTION. The Parties have participated jointly in
the negotiation of this Agreement. In the event an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as if
drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local,
or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
39
<PAGE> 44
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
(m) INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The
Exhibits, Annexes, Schedules and Certificates identified in this Agreement are
incorporated herein by reference and made a part hereof.
(n) SPECIFIC PERFORMANCE. Each of the Parties acknowledges
and agrees that the other Parties would be damaged irreparably in the event any
of the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter (subject to the provisions set
forth in Section below), in addition to any other remedy to which they may be
entitled, at law or in equity.
(o) SUBMISSION TO JURISDICTION. Each of the Parties submits
to the exclusive jurisdiction of any state or federal court sitting in Palm
Beach County, Florida, in any action or proceeding arising out of or relating
to this Agreement and agrees that all claims in respect of the action or
proceeding shall be heard and determined in any such court. Each of the Parties
waives any defense of inconvenient forum to the maintenance of any action or
proceeding so brought and waives any bond, surety, or other security that might
be required of any other Party with respect thereto. Any Party may make service
on any other Party by sending or delivering a copy of the process to the Party
to be served at the address and in the manner provided for the giving of
notices in Section 12(g) above. Each Party agrees that a final judgment in any
action or proceeding so brought shall be conclusive and may be enforced by suit
on the judgment or in any other manner provided by law or at equity. In any
action or proceeding arising out of or relating to this Agreement, the
prevailing party shall be entitled to recover reasonable attorney's fees and
costs from the other party to the action or proceeding.
(p) WAIVER OF JURY TRIAL. THE PARTIES HEREBY IRREVOCABLY
WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY AND TO
THE FULLEST EXTENT PERMITTED BY LAW WAIVE ANY RIGHTS THAT THEY MAY HAVE TO
CLAIM OR RECEIVE CONSEQUENTIAL OR SPECIAL DAMAGES IN CONNECTION WITH ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
*****
40
<PAGE> 45
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
BUYER:
NATG HOLDINGS, LLC
By:
-----------------------------------
William J. Mercurio
President
ORIUS:
ORIUS CORP.
By:
-----------------------------------
William J. Mercurio
President
SHAREHOLDERS:
--------------------------------------
Robert M. Apgar
--------------------------------------
Glynda J. Apgar
--------------------------------------
Jon M. Cheverere
--------------------------------------
Kitty J. Cheverere
--------------------------------------
Steven E. Casey
--------------------------------------
D. Blayne Schorr
41
<PAGE> 1
Exhibit 10.18
STOCK PURCHASE AGREEMENT
AMONG
ORIUS CORP.,
NATG HOLDINGS LLC
AND
E. SCOTT KASPROWICZ
FOR THE PURCHASE OF ALL OF
THE SHARES OF STOCK OF
TEXEL CORPORATION,
A VIRGINIA CORPORATION
May 24, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
1. Definitions..............................................................................................1
2. Purchase and Sale Transaction............................................................................6
(a) Basic Transaction. ..................................................................................6
(b) Consideration. ......................................................................................6
(c) The Closing. ........................................................................................6
(d) Deliveries at Closing. ..............................................................................6
3. Representations and Warranties of the Shareholder Concerning the Transaction. ...........................7
(a) Authorization of Transaction. .......................................................................7
(b) Noncontravention. ...................................................................................7
(c) Brokers' Fees. ......................................................................................7
(d) Investment. .........................................................................................7
(e) Company Shares. .....................................................................................8
(f) Disclosure. .........................................................................................8
4. Representations and Warranties of the Buyer Concerning the Transaction. .................................8
(a) Authorization of Transaction. .......................................................................8
(b) Noncontravention. ...................................................................................9
(c) Brokers' Fees. ......................................................................................9
(d) Disclosure. .........................................................................................9
(e) Investment...........................................................................................9
5. Representations and Warranties Concerning the Company. ..................................................9
(a) Organization, Qualification, and Corporate Power. ..................................................10
(b) Capitalization. ....................................................................................10
(c) Title to Assets. ...................................................................................10
(d) Noncontravention. ..................................................................................10
(e) Subsidiaries. ......................................................................................11
(f) Financial Statements. ..............................................................................11
(g) Events Subsequent to Most Recent Fiscal Year End. ..................................................11
(h) Undisclosed Liabilities. ...........................................................................13
(i) Legal Compliance. ..................................................................................13
(j) Tax Matters. .......................................................................................14
(k) Real Property. .....................................................................................15
(l) Intellectual Property. .............................................................................16
(m) Tangible Assets. ...................................................................................18
(n) Inventory. .........................................................................................19
(o) Contracts. .........................................................................................19
(p) Notes and Accounts Receivable. .....................................................................19
(q) Powers of Attorney. ................................................................................19
(r) Insurance. .........................................................................................19
(s) Litigation. ........................................................................................20
(t) Commitments and Warranties. ........................................................................20
(u) Liability for Services Performed. ..................................................................20
(v) Employees. .........................................................................................20
(w) Employee Benefits. .................................................................................21
(x) Guaranties......................................................................................... 23
(y) Environmental, Health, and Safety Matters.......................................................... 23
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
(z) Certain Business Relationships with the Company. ...................................................24
(aa) Customers and Suppliers. ..........................................................................24
6. Representations and Warranties Concerning the Buyer and Orius. .........................................25
(a) Organization of the Buyer. .........................................................................25
(b) Organization of Orius.............................................................................. 25
(c) Capitalization of Orius. ...........................................................................25
(d) Title to Assets. ...................................................................................26
(e) Subsidiaries and Affiliates. .......................................................................26
(f) Financial Statements. ..............................................................................26
(g) Events Subsequent to Most Recent Orius Period End. .................................................27
(h) Tax Matters. .......................................................................................27
(i) Legal Compliance. ..................................................................................27
(j) Employee Benefits. .................................................................................27
(k) Disclosure. ........................................................................................29
(l) Litigation. ........................................................................................29
(m) Undisclosed Liabilities. ...........................................................................29
7. Pre-Closing Covenants. .................................................................................29
(a) General............................................................................................ 29
(b) Notices and Consents................................................................................30
(c) Operation of Business ...... .......................................................................30
(d) Preservation of Business ...... ....................................................................30
(e) Full Access ........................................................................................30
(f) Notice of Developments. ............................................................................30
(g) Exclusivity. .......................................................................................30
(h) No Termination Of Shareholder's Obligation By Subsequent Incapacity. ...............................31
(i) Confidentiality. ...................................................................................31
(j) Non-Solicitation. ..................................................................................31
8. Post-Closing Covenants. ................................................................................31
(a) General. ...........................................................................................31
(b) Litigation Support. ................................................................................32
(c) Transition. ........................................................................................32
(d) Independent Accountants. ...........................................................................32
(e) Tax Matters. .......................................................................................32
(f) Audited Financial Statements. ......................................................................33
(g) Election to the Board of Directors. ................................................................33
9. Conditions to Obligation to Close. .....................................................................33
(a) Conditions to Obligation of the Buyer. .............................................................33
(b) Conditions to Obligation of the Shareholder. .......................................................35
10. Remedies for Breaches of This Agreement. ...............................................................36
(a) Survival of Representations and Warranties. ........................................................36
(b) Indemnification Provisions for Benefit of the Buyer. ...............................................36
(c) Indemnification Provisions for Benefit of the Shareholder. .........................................37
(d) Matters Involving Third Parties. ...................................................................37
(e) Determination of Adverse Consequences. .............................................................38
(f) Other Indemnification Provisions. ..................................................................38
11. Post-Closing Adjustment of Consideration. ..............................................................39
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
12. Certain Agreements Regarding Tax Matters. ..............................................................40
(a) Tax Periods Ending on or before the Closing Date ...................................................40
(b) Tax Periods Beginning Before and Ending After the Closing Date .....................................40
(c) Cooperation on Tax Matters. ........................................................................41
(d) Tax Sharing Agreements ............................................................................41
(e) Termination of S Corporation Status ................................................................42
(f) Certain Taxes. .....................................................................................42
(g) Section 338(h)(10) Election ........................................................................42
13. Termination. ...........................................................................................43
(a) Termination of Agreement. ..........................................................................43
(b) Effect of Termination. .............................................................................43
14. Miscellaneous. .........................................................................................43
(a) Press Releases and Public Announcements. ...........................................................43
(b) No Third-Party Beneficiaries. ......................................................................43
(c) Entire Agreement. ..................................................................................43
(d) Succession and Assignment. .........................................................................44
(e) Counterparts. ......................................................................................44
(f) Headings. ..........................................................................................44
(g) Notices. ...........................................................................................44
(h) Governing Law. .....................................................................................45
(i) Amendments and Waivers. ............................................................................45
(j) Severability. ......................................................................................45
(k) Expenses. ..........................................................................................45
(l) Construction. ......................................................................................45
(m) Incorporation of Exhibits, Annexes, and Schedules. .................................................45
(n) Specific Performance. ..............................................................................46
(o) Submission to Jurisdiction..........................................................................46
(p) WAIVER OF JURY TRIAL. ..............................................................................46
</TABLE>
Exhibit A: Form of Employment Agreement
Exhibit B: Form of Lease Amendment
Exhibit C: Form of Non-Competition Agreement
Exhibit D: Form of Seller's opinion
Exhibit E: Form of Buyer's opinion
Exhibit F: Financial Statements
Exhibit G: Orius Financial Statements
Exhibit H: Stock Options
Exhibit I: Form of Employee Stock Option Agreement
iii
<PAGE> 5
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is entered into as of May 24, 1999 by
and among NATG Holdings, LLC, a Delaware limited liability company (the
"Buyer"), Orius Corp., a Delaware corporation ("Orius") and E. Scott Kasprowicz
(the "Shareholder"). The Buyer, Orius and the Shareholder are referred to
collectively herein as the "Parties."
This Agreement contemplates the sale by the Shareholder of all of the
issued and outstanding capital stock of Texel Corporation, a Virginia
corporation (the "Company") to Buyer.
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1. DEFINITIONS.
"Accredited Investor" has the meaning set forth in Regulation D
promulgated under the Securities Act.
"Adverse Consequences" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses,
expenses, and fees, including court costs and reasonable attorneys' fees and
expenses, and any other cost of enforcing a party's rights under this
Agreement, reduced (retroactively, if necessary) by any insurance proceeds,
indemnification payments, tax benefits and/or other amounts accruing to or
recovered by or on behalf of a party entitled to indemnification hereunder in
reduction of such Adverse Consequences.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of
Code Section 1504(a) or any similar group defined under a similar provision of
state, local or foreign law.
"Applicable Rate" means the corporate base rate of interest publicly
announced from time to time by PNC Bank, N.A.
"Basis" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the basis for
any specified consequence.
"Buyer" has the meaning set forth in the preface above.
"Buyer Disclosure Schedule" has the meaning set forth in Section 4
below.
<PAGE> 6
"Closing" has the meaning set forth in Section 2(c) below.
"Closing Date" has the meaning set forth in Section 2(c) below.
"Closing Date Balance Sheet" has the meaning set forth in Section
11(b).
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the preface above.
"Company Share" means any share of the voting common stock, par value
$1.00 per share, of the Company.
"Consideration" means $26,250,000 and 99,444.44 shares of Orius Common
Stock.
"Controlled Group of Corporations" has the meaning set forth in Code
Section 1563.
"Draft Closing Date Balance Sheet" has the meaning set forth in
Section 11(a).
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan), (d) Employee Welfare Benefit Plan or (e)
bonus, incentive, stock purchase, stock ownership, stock option, stock
appreciation right, severance, salary continuation, termination, change of
control or other material fringe benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
Section 3(1).
"Employment Agreement" means the Employment Agreement in the form
attached hereto as Exhibit A.
"Environmental, Health, and Safety Requirements" shall mean all
federal, state, local and foreign statutes, regulations, ordinances and other
provisions having the force or effect of law, all judicial and administrative
orders and determinations, all contractual obligations and all common law
concerning public health and safety, worker health and safety, and pollution or
protection of the environment, including without limitation all those relating
to the presence, use, production, generation, handling, transportation,
treatment, storage, disposal, distribution, labeling, testing, processing,
discharge, release, threatened release, control, or cleanup of any Hazardous
Materials (which, for purposes of this Agreement, shall mean any hazardous
materials, substances or wastes, chemical substances or mixtures, pesticides,
pollutants, contaminants, toxic chemicals, petroleum products or byproducts,
asbestos, polychlorinated biphenyls, noise or radiation), each as amended and
as now or hereafter in effect.
2
<PAGE> 7
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means (i) any corporation included with the Company
in a controlled group of corporations within the meaning of Section 414(b) of
the Code; (ii) any trade or business (whether or not incorporated) which is
under common control with the Company within the meaning of Section 414(c) of
the Code; (iii) any member of an affiliated service group of which the Company
is a member within the meaning of Section 414(m) of the Code; or (iv) any other
person or entity treated as an affiliate of the Company under Section 414(o) of
the Code.
"Estimated Closing Date Balance Sheet" has the given that term in
Section 9(a)(xi) below.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"Financial Statements" has the meaning set forth in Section 5(f)
below.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Indemnified Party" has the meaning set forth in Section 10(d)(i)
below.
"Indemnifying Party" has the meaning set forth in Section 10(d)(i)
below.
"Intellectual Property" means (a) all inventions (whether patentable
or unpatentable and whether or not reduced to practice), all improvements
thereto, and all patents, patent applications, and patent disclosures, together
with all reissuances, continuations, continuations-in-part, revisions,
extensions, and reexaminations thereof, (b) all trademarks, service marks,
trade dress, logos, trade names, and corporate names, together with all
translations, adaptations, derivations, and combinations thereof and including
all goodwill associated therewith, and all applications, registrations, and
renewals in connection therewith, (c) all copyrightable works, all copyrights,
and all applications, registrations, and renewals in connection therewith, (d)
all mask works and all applications, registrations, and renewals in connection
therewith, (e) all trade secrets and confidential business information
(including ideas, research and development, know-how, formulas, compositions,
manufacturing and production processes and techniques, technical data, designs,
drawings, specifications, customer and supplier lists, pricing and cost
information, and business and marketing plans and proposals), (f) all computer
software (including data and related documentation), (g) all other proprietary
rights, and (h) all copies and tangible embodiments thereof (in whatever form
or medium).
"Knowledge" means that which is known by a person and that of which a
person has constructive knowledge based upon information readily available to
that person in the performance of such person's duties after reasonable
investigation and inquiry of such person. In the case of the Buyer and Orius,
"Knowledge" means the Knowledge of its President or Chief Financial Officer. In
the case of the Company, "Knowledge" means the Knowledge of the Shareholder.
"Lease Amendment" means the amendment, in the form attached hereto as
Exhibit B, to that
3
<PAGE> 8
certain Lease Agreement dated July 1, 1998 between the Company and Trison in
respect of the real property utilized by the Company at 1860 Michael Faraday
Drive, Reston, Virginia.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Material Adverse Effect" means, individually or together with other
adverse effects, any material adverse effect on the assets, liabilities,
results of operations, business condition (financial or otherwise) or prospects
of the Company or on the Company's ability to consummate the transactions
contemplated hereby or the ability of the Buyer to operate the business of the
Company immediately after the Closing in substantially the same manner as such
business is conducted prior to Closing.
"Most Recent Balance Sheet" means the balance sheet contained within
the Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in
Section 5(f) below.
"Most Recent Fiscal Period End" has the meaning set forth in Section
5(f) below.
"Most Recent Fiscal Year End" has the meaning set forth in Section
5(f) below.
"Most Recent Orius Balance Sheet" means the balance sheet contained
within the Orius Financial Statements.
"Most Recent Orius Fiscal Period End" has the meaning set forth in
Section 6(f) below.
"Multiemployer Plan" has the meaning set forth in ERISA Section 3(37).
"National Securities Exchange" shall have the meaning ascribed to that
term in the rules and regulations promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934.
"Non-Affiliate Premises" has the meaning set forth in Section 5(k)
below.
"Noncompetition Agreement" means the Noncompetition Agreement in the
form attached hereto as Exhibit C.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity
and frequency).
"Orius" has the meaning set forth in the preface hereof.
"Orius Common Stock" means any share of the common stock, par value
$.0001 par share, of Orius.
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"Orius Material Adverse Effect" means, individually or together with
other adverse effects, any material adverse effect on the assets, liabilities,
results of operations, business condition (financial or otherwise) or prospects
of Orius or any of its Affiliates or Subsidiaries or on either Orius's or the
Buyer's ability to consummate the transactions contemplated hereby.
"Orius Required Consents" means any notice, filing, authorization,
consent or approval required to be given, made, filed or obtained in order for
Buyer or Orius to consummate the transactions contemplated by this Agreement
and identified on the Buyer Disclosure Schedule.
"Party" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"Prohibited Transaction" has the meaning set forth in ERISA Section
406 and Code Section 4975.
"Reportable Event" has the meaning set forth in ERISA Section 4043.
"Section 338(h)(10) Election" has the meaning set forth in Section
12(g).
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
as amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar liens that could not reasonably be expected to have a Material
Adverse Effect, (b) liens for Taxes not yet due and payable or for Taxes that
the taxpayer is contesting in good faith through appropriate proceedings
disclosed on Section 5(j) of the Shareholder Disclosure Schedule, (c) purchase
money liens and liens securing rental payments under capital lease arrangements
disclosed in the Most Recent Financial Statements, and (d) other liens arising
in the Ordinary Course of Business and not incurred in connection with the
borrowing of money, so long as such liens could not reasonably be expected to
have a Material Adverse Effect.
"Shareholder Disclosure Schedule" has the meaning set forth in Section
3.
"Shareholder" has the meaning set forth in the preface above.
"Stockholders Agreement" means that certain Stockholders Agreement
dated as of February 26, 1999 among Orius and the shareholders of Orius, as
amended by Amendment No. 1 to Orius Corp. Stockholders Agreement dated as of
February 26, 1999, to which the Shareholder shall join on the Closing Date.
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"Subsidiary" means, with respect to any Person, any corporation,
entity or other organization, whether incorporated or unincorporated, of which
(i) such Person directly or indirectly owns or controls at least a majority of
the securities or other interests having by their terms ordinary voting power
to elect a majority of the board of directors or others performing equivalent
functions; or (ii) such Person is a general partner, manager or managing
member.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or
add-on minimum, estimated, or other tax of any kind whatsoever, including any
interest, penalty, or addition thereto, whether disputed or not, and any
obligations under any agreements or arrangements with respect to any of the
foregoing.
"Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in Section 10(d) below.
"Trison" means Trison L.L.C., a Virginia limited liability company.
2. PURCHASE AND SALE TRANSACTION.
(a) BASIC TRANSACTION. On and subject to the terms and conditions of
this Agreement, the Buyer agrees to purchase from the Shareholder, and the
Shareholder agrees to sell to the Buyer, all of his Company Shares for the
obligation to pay the consideration specified below in this Section 2.
(b) CONSIDERATION. The Buyer agrees to deliver the Consideration to
the Shareholder on the calendar day immediately following the Closing Date. The
cash portion of the Consideration shall be paid by wire transfer of immediately
available funds. It shall be a condition to the issuance of the Orius Common
Stock portion of the Consideration that the Shareholder become a party to the
Stockholders Agreement. The Consideration shall be subject to adjustment
pursuant to the provisions of Section 11 hereof.
(c) THE CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Akerman,
Senterfitt & Eidson, P.A. in Ft. Lauderdale, Florida, commencing at 9:00 a.m.
local time on May 24, 1999 or such other date, time and place, or in such other
manner, as the Parties may mutually determine (the "Closing Date").
(d) DELIVERIES AT CLOSING. At the Closing, (i) the Shareholder will
deliver to the Buyer the various certificates, instruments, and documents
referred to in Section 9(a) below, (ii) the Buyer will deliver to the
Shareholder the various certificates, instruments, and documents referred to in
Section 9(b)
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below, and (iii) the Shareholder will deliver to the Buyer stock certificates
representing all of the Company Shares, endorsed in blank or accompanied by
duly executed assignment documents.
3. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER CONCERNING THE
TRANSACTION. The Shareholder represents and warrants to the Buyer that the
statements contained in this Section 3 are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date
of this Agreement throughout this Section 3), except as set forth on Section 3
of the Shareholder Disclosure Schedule delivered by the Shareholder to the
Buyer on the date hereof and initialed by the Parties (the "Shareholder
Disclosure Schedule"). The Shareholder Disclosure Schedule shall be effective
to modify only those representations and warranties to which the Shareholder
Disclosure Schedule makes explicit reference. The Shareholder Disclosure
Schedule will be arranged in paragraphs corresponding to the lettered and
numbered paragraphs contained in this Section 3 and in Section 5, as
applicable.
(a) AUTHORIZATION OF TRANSACTION. The Shareholder has full power and
authority to execute and deliver this Agreement and to perform his obligations
hereunder. This Agreement constitutes the valid and legally binding obligation
of the Shareholder, enforceable in accordance with its terms and conditions
except to the extent enforcement thereof may be limited by applicable
bankruptcy, reorganization, insolvency or moratorium laws, or other laws
affecting the enforcement of creditors' rights or by the principles governing
the availability of equitable remedies. The Shareholder need not give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency or any other Person in order
to consummate the transactions contemplated by this Agreement.
(b) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(A) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Shareholder is subject or (B)
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which the Shareholder is a party
or by which he is bound or to which any of his assets is subject.
(c) BROKERS' FEES. The Shareholder has, or prior to Closing will have,
paid any fees or commissions due from the Shareholder to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement. The
Shareholder agrees that he will pay any additional amounts that may become due
from him or the Company to any such broker, finder or agent in the future,
including as a result of any indemnification obligations.
(d) INVESTMENT. The Shareholder (A) understands that the Orius Common
Stock that he will receive as part of the Consideration has not been registered
under the Securities Act, or under any state securities laws, and is being
offered and sold in reliance upon federal and state exemptions for transactions
not involving any public offering, (B) is acquiring the Orius Common Stock
solely for his own account for investment purposes, and not with a view to the
distribution thereof, except in compliance with the Securities Act and all
other applicable securities laws, (C) is a sophisticated
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<PAGE> 12
investor with knowledge and experience in business and financial matters, (D)
has received certain information concerning Orius and has had the opportunity
to obtain additional information as desired in order to evaluate the merits and
the risks inherent in holding the Orius Common Stock, (E) is able to bear the
economic risk and lack of liquidity inherent in holding the Orius Common Stock,
and (F) is an Accredited Investor for the reasons set forth on Annex I.
(e) COMPANY SHARES. The Shareholder holds of record and owns
beneficially the number of Company Shares set forth opposite the Shareholder's
name in Section 5(b) of the Shareholder Disclosure Schedule, free and clear of
any restrictions on transfer (other than any restrictions under the Securities
Act and state securities laws), Taxes, Security Interests, liens or other
encumbrances, options, warrants, purchase rights, contracts, commitments,
equities, claims, and demands. The Shareholder is not a party to any option,
warrant, purchase right, or other contract or commitment that could require the
Shareholder to sell, transfer, or otherwise dispose of any capital stock of the
Company (other than this Agreement). The Shareholder is not a party to any
voting trust, proxy, shareholders agreement, or other agreement or
understanding with respect to the voting of any capital stock of the Company.
(f) DISCLOSURE. Neither (i) this Agreement or any of the exhibits,
attachments, written statements, documents, certificates or other items
attached hereto or otherwise prepared for, or supplied to, the Buyer by the
Shareholder simultaneously with the execution hereof or the Closing, nor, (ii)
to the Knowledge of the Shareholder, any other documents prepared for or
supplied to the Buyer by the Shareholder with respect to the transactions
contemplated hereby, contains any untrue statement of a material fact or omits
to state any material fact necessary in order to make each statement contained
herein or therein not misleading, other than financial projections with respect
to the Company provided by the Shareholder or the Company to Buyer or Orius in
connection with the transactions contemplated hereby as to which the
Shareholder and the Company make no representation. The representations
contained herein, as such representations may be limited or modified by the
Shareholder Disclosure Schedule, supersede any information contrary to such
representations contained in any document delivered by the Shareholder or the
Company to the Buyer or Orius prior to the date hereof. There is no fact which
the Shareholder has not disclosed to the Buyer herein and of which the
Shareholder is aware which could be anticipated to have a Material Adverse
Effect other than general economic conditions in the industry of which the
Company is a part.
4. REPRESENTATIONS AND WARRANTIES OF THE BUYER AND ORIUS CONCERNING THE
TRANSACTION. The Buyer and Orius, jointly and severally, represent and warrant
to the Shareholder that the statements contained in this Section 4 are correct
and complete as of the date of this Agreement and will be correct and complete
as of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 4), except
as set forth in the disclosure schedule delivered by the Buyer to the
Shareholder on the date hereof (the "Buyer Disclosure Schedule").
(a) AUTHORIZATION OF TRANSACTION. Each of the Buyer and Orius has full
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. The execution and delivery of this Agreement by each of
the Buyer and Orius and the performance of
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<PAGE> 13
their respective obligations hereunder have been duly authorized by all
necessary corporate action on the party of each such party, and no other
corporate proceedings on the part of either such party are necessary to
authorize this Agreement and the transactions contemplated hereby, except as
contemplated by Section 9(a)(xiv). This Agreement constitutes the valid and
legally binding obligation of such party, enforceable in accordance with its
terms and conditions except to the extent enforcement thereof may be limited by
applicable bankruptcy, reorganization, insolvency or moratorium laws, or other
laws affecting the enforcement of creditors' rights or by the principles
governing the availability of equitable remedies. Such party need not give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency or any other Person in order
to consummate the transactions contemplated by this Agreement.
(b) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(A) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Buyer or Orius is subject or any
provision of either such party's charter or bylaws or (B) conflict with, result
in a breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under, such Party's charter, bylaws or any agreement,
contract, lease, license, instrument, or other arrangement to which such party
is a party or by which such party is bound or to which any of its assets is
subject.
(c) BROKERS' FEES. Neither the Buyer nor Orius has, nor prior to the
Closing will have, paid any fees or commissions due from either such party to
any broker, finder, or agent with respect to the transactions contemplated by
this Agreement. Each such party agrees that it will pay any additional amounts
that may become due from either such party to any such broker, finder or agent
in the future, including as a result of any indemnification obligations.
(d) DISCLOSURE. Neither this Agreement nor any of the exhibits,
attachments, written statements, documents, certificates or other items
prepared for or supplied to the Shareholder by the Buyer with respect to the
transactions contemplated hereby contains any untrue statement of a material
fact or omits to state any material fact necessary in order to make each
statement contained herein or therein not misleading. There is no fact which
the Buyer has not disclosed to the Shareholder herein and of which the Buyer or
any of the its officers or directors is aware and which could be anticipated to
have a Material Adverse Effect on the operations of the Buyer after the
Closing.
(e) INVESTMENT. Buyer is purchasing the Company Shares in connection
with the purchase of the Company as a going concern and not with the intent to
distribute such shares.
5. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY. The Shareholder
represents and warrants to the Buyer that the statements contained in this
Section 5 are correct and complete as of the date of this Agreement and will be
correct and complete as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date of this Agreement throughout
this Section 5), except as set forth in the Shareholder Disclosure Schedule.
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<PAGE> 14
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation. The Company is duly authorized
to conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required, except where the failure to do so will
not result in any Material Adverse Effect. The Company has full corporate power
and authority and all licenses, permits, and authorizations necessary to carry
on the businesses in which it is engaged and in which it presently proposes to
engage and to own and use the properties owned and used by it. Section 5(a) of
the Shareholder Disclosure Schedule lists the directors and officers of the
Company. Correct and complete copies of the charter and bylaws of the Company
(as amended to date) are included as part of Section 5(a) of the Shareholder
Disclosure Schedule. The minute books (containing the records of meetings of
the stockholders, the board of directors, and any committees of the board of
directors), the stock certificate books, and the stock record books of the
Company are correct and complete and a true and correct copy thereof has been
provided to the Buyer. The Company is not in default under or in violation of
any provision of its charter or bylaws.
(b) CAPITALIZATION. The entire authorized capital stock of the Company
consists of 1,000 Company Shares, of which 400 Company Shares are issued and
outstanding. All of the issued and outstanding Company Shares have been duly
authorized, are validly issued, fully paid, and nonassessable, and are held of
record and owned beneficially by the Shareholder. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights, preemptive rights or other contracts or commitments
that could require the Company to issue, sell, or otherwise cause to become
outstanding any of its capital stock or securities convertible or exchangeable
for, or any options, warranties, or rights to purchase, any of such capital
stock. There are no outstanding obligations of the Company to repurchase,
redeem or otherwise acquire any capital stock or any securities convertible
into or exchangeable for such capital stock or any options, warrants or rights
to purchase such capital stock or securities. There are no outstanding or
authorized stock appreciation, phantom stock, profit participation, or similar
rights with respect to the Company. There are no voting trusts, proxies, or
other agreements or understandings with respect to the voting, transfer,
dividend or other rights (such as registration rights under the Securities Act)
of the capital stock of the Company.
(c) TITLE TO ASSETS. The Company has good and marketable title to, or
a valid leasehold interest in, the properties and assets used by it, located on
its premises, or shown on the Most Recent Balance Sheet or acquired after the
date thereof, free and clear of all Security Interests (other than the Security
Interests disclosed on the face of the Most Recent Balance Sheet), except for
properties and assets disposed of in the Ordinary Course of Business since the
date of the Most Recent Balance Sheet, none of which disposals are expected to
have a Material Adverse Effect. The consummation of the transactions
contemplated by this Agreement will not affect the Company's good and
marketable title to, or valid leasehold interest in, the properties and assets
described in the preceding sentence.
(d) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any
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<PAGE> 15
government, governmental agency, or court to which the Company is subject or
any provision of the charter or bylaws or similar governance documents of the
Company or (ii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
the Company is a party or by which it is bound or to which any of its assets is
subject (or result in the imposition of any Security Interest upon any of its
assets). The Company need not give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any Person, government or
governmental agency in order for the Parties to consummate the transactions
contemplated by this Agreement.
(e) SUBSIDIARIES. The Company does not currently have, and has never
had, any Subsidiaries and does not own any securities of any other Person. The
Company has no predecessors.
(f) FINANCIAL STATEMENTS. Attached hereto as Exhibit F are the
following financial statements (collectively the "Financial Statements"): (i)
audited balance sheets and statements of income, including the independent
accountant's report thereon as of and for the fiscal year ended December 31,
1998 (the "Most Recent Fiscal Year End") for the Company; (ii) audited balance
sheets and statements of income, including the independent accountant's report
thereon as of and for the fiscal year ended December 31, 1997 and (iii) balance
sheets and statements of income (the "Most Recent Financial Statements") as of
and for the period from January 1, 1999, through March 31, 1999 for the Company
(the "Most Recent Fiscal Period End"). The Financial Statements (including the
notes thereto) have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby, present fairly the
financial condition of the Company as of such dates and the results of
operations of the Company for such periods, are correct and complete in all
material respects, and are consistent with the books and records of the Company
(which books and records are correct and complete in all material respects).
(g) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. Except as set
forth on Section 5(g) of the Shareholder Disclosure Schedule (and, as
appropriate, after giving effect to the transactions described on Section 7(c)
of the Shareholder Disclosure Schedule, since the Most Recent Fiscal Year End,
there has not been any occurrence, event, incident, action, failure to act or
transaction that constitutes the Basis of a Material Adverse Effect on the
Company or any that is outside the Ordinary Course of Busine Section Without
limiting the generality of the foregoing, since that date:
(i) The Company has not sold, leased, transferred, or
assigned any of its assets, tangible or intangible, other than for a fair
consideration in the Ordinary Course of Business;
(ii) The Company has not entered into any agreements,
contracts, leases, or licenses either involving more than $100,000 in the
aggregate, having a term greater than 12 months or outside the Ordinary Course
of Business;
(iii) No party (including the Company) has accelerated,
terminated, modified, or cancelled any agreements, contracts, leases, or
licenses involving more than $100,000 in the aggregate to which the Company is
a party or by which it is bound;
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(iv) The Company has not imposed or allowed to be imposed any
Security Interest upon any of its assets, tangible or intangible;
(v) The Company has not made any capital expenditures
involving more than $100,000 in the aggregate or outside the Ordinary Course of
Business;
(vi) The Company has not made any capital investment in, any
loan to, or any acquisition of the securities or assets of, any other Person;
(vii) The Company has not issued any note, bond, or other
debt security or created, incurred, assumed, or guaranteed any indebtedness for
borrowed money or capitalized lease obligation involving more than $100,000 in
the aggregate;
(viii) The Company has not delayed or postponed the payment
of accounts payable and other Liabilities outside the Ordinary Course of
Business;
(ix) The Company has not cancelled, compromised, waived, or
released any right or claim either involving more than $100,000 in the
aggregate and outside the Ordinary Course of Business;
(x) The Company has not granted any license or sublicense of
any rights under or with respect to any Intellectual Property;
(xi) There has been no change made or authorized in the
charter or bylaws of the Company;
(xii) The Company has not issued, sold, or otherwise disposed
of any of its capital stock or securities convertible into or exchangeable for
such stock, or granted any options, warrants, or other rights to purchase or
obtain any of such capital stock or securities;
(xiii) The Company has not declared, set aside, or paid any
dividend or made any distribution with respect to its capital stock (whether in
cash or in kind) or redeemed, purchased, or otherwise acquired any of its
capital stock or other securities;
(xiv) The Company has not experienced any damage,
destruction, or loss (whether or not covered by insurance) to its property
involving more than $100,000 in the aggregate;
(xv) The Company has not made any loan to, or entered into
any other transaction with, any of its directors, officers, and employees or
their "Associates" (as defined in Rule 12b-2 under the Exchange Act);
(xvi) The Company has not entered into any employment
contract or collective bargaining agreement, written or oral, or modified the
terms of any existing such contract or agreement;
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(xvii) The Company has not granted any increase in any
compensation of any of its directors, officers, or other employees;
(xviii) The Company has not adopted, amended, modified, or
terminated any bonus, profit-sharing, incentive, severance, or other plan,
contract, or commitment for the benefit of any of its directors, officers, and
employees (or taken any such action with respect to any other Employee Benefit
Plan);
(xix) The Company has not made any other change in employment
terms for any of its directors, officers, and employees outside the Ordinary
Course of Business;
(xx) The Company has not made or pledged to make any
charitable or other capital contribution outside the Ordinary Course of
Business;
(xxi) There has not been any other material occurrence,
event, incident, action, failure to act, or transaction outside the Ordinary
Course of Business involving the Company; and
(xxii) The Company has not increased, or experienced any
change in assumptions underlying or method of calculating, any bad debt,
contingency, tax or other reserves or changed its accounting practices, methods
or assumptions (including changes in estimates or valuation methods); or
written down the value of any assets;
(xxiii) The Company has not granted any bonuses or made any
other payments of any kind (other than base compensation, commissions, sick
pay, holiday pay, vacation pay, tuition reimbursement and the like in the
Ordinary Course of Business and consistent with past practices) to any officer,
director or employee of the Company, or to any Person related to any of the
foregoing; and
(xxiv) The Company has not committed to do any of the
foregoing.
(h) UNDISCLOSED LIABILITIES. The Company does not have any Liability,
except for (i) Liabilities set forth on the face of the Most Recent Balance
Sheet (rather than in any notes thereto) and (ii) Liabilities which have arisen
after the Most Recent Fiscal Period End in the Ordinary Course of Business
(none of which results from, arises out of, relates to, is in the nature of, or
was caused by any breach of contract, breach of warranty, tort, infringement,
or violation of law and none of which could reasonably be expected to have a
Material Adverse Effect).
(i) LEGAL COMPLIANCE. The Company and its Affiliates have complied, in
all material respects, with all applicable laws (including rules, regulations,
codes, plans, injunctions, judgments, orders, decrees, rulings, and charges
thereunder) of federal, state, local, and foreign governments (and all agencies
thereof), and no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or commenced against any of
them alleging any failure so to comply.
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(j) TAX MATTERS.
(i) The Company has filed all Tax Returns that it was
required to file prior to the date hereof and will have filed all Tax Returns
that it will have been required to file prior to the Closing Date, subject to
any extensions of any required filing dates obtained by the Company. All such
Tax Returns were correct and complete in all respects. All Taxes owed by the
Company (whether or not shown on any Tax Return) have been paid when due or are
fully and adequately accrued and adequately disclosed on the Most Recent
Balance Sheet. Except as set forth on the Shareholder Disclosure Schedule, the
Company is not currently the beneficiary of any extension of time within which
to file any Tax Return. To the Company's and the Shareholder's Knowledge, no
claim has ever been made by an authority in a jurisdiction where the Company
does not file Tax Returns that it is or may be subject to taxation by that
jurisdiction. There are no Security Interests on any of the assets of the
Company that arose in connection with any failure (or alleged failure) to pay
any Tax.
(ii) The Company has withheld and paid when due all Taxes
required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder, or other
third party.
(iii) Neither the Shareholder nor the Company has Knowledge
that any authority expects to assess any additional Taxes for any period for
which Tax Returns have been filed. There is no action, suit or proceeding,
investigation, dispute or claim now pending or, to the Shareholder's Knowledge,
threatened, concerning any Tax Liability of the Company or proposed adjustment
to the taxable income of the Company either (A) claimed or raised by any
authority in writing or (B) as to which the Shareholder and the Company has
Knowledge based upon personal contact with any agent of such authority. Section
5(j) of the Shareholder Disclosure Schedule contains a summary of all Tax
Returns filed with respect to the Company for the last three completed tax
years, indicates those Tax Returns that have been audited, and indicates those
Tax Returns that currently are the subject of audit. The Shareholder has made
available to the Buyer correct and complete copies of all Tax Returns of the
Company, examination reports, and statements of deficiencies assessed against
or agreed to by the Company since January 1, 1994.
(iv) The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(v) The Company has not filed a consent under Code Section
341(f) concerning collapsible corporations. The Company has not made any
payments, is not obligated to make any payments, or is not a party to any
agreement that under certain circumstances could obligate it to make any
payments that will not be deductible under Code Section 280G or that would give
rise to any obligation to indemnify any Person for any excise tax payable
pursuant to Code Section 4999. The Company has not been a United States real
property holding corporation within the meaning of Code Section 897(c)(2)
during the applicable period specified in Code Section 897(c)(1)(A)(ii). The
Company has disclosed on its federal income Tax Returns all positions taken
therein that could give rise to a substantial understatement of federal income
Tax of the Company within the meaning of Code
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Section 6662. Neither the Company nor any affiliate thereof is a party to any
Tax allocation, sharing, indemnification or similar agreement. The Company (A)
has not been a member of an Affiliated Group filing a consolidated federal
income Tax Return (other than a group the common parent of which was the
Company) and (B) does not have any Liability for the Taxes of any Person (other
than any of the Company and its Subsidiaries) under Reg. Section 1.1502-6 (or
any similar provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise. No indebtedness of the Company consists
of "corporate acquisition indebtedness" within the meaning of Code Section 279.
(vi) Section 5(j) of the Shareholder Disclosure Schedule sets
forth as of the most recent practicable date the basis for Federal income tax
purposes of the Company in its assets.
(vii) The unpaid Taxes of the Company (A) did not, as of the
Most Recent Fiscal Period End, exceed the reserve for Tax Liability set forth
on the face of the Most Recent Balance Sheet (rather than in any notes thereto)
and (B) do not, and will not as of the Closing Date, exceed that reserve as
adjusted for the passage of time through the Closing Date in accordance with
the past custom and practice of the Company in filing its Tax Returns.
(viii) The Company has been a validly electing S corporation
within the meaning of Code Sections 1361 and 1362 at all times during its
existence and the Company will be an S corporation up to and including the
Closing Date.
(ix) The Company will not be liable for any Tax under Code
Section 1374 in connection with the deemed sale of the Company's assets
(including the assets of any qualified subchapter S subsidiary) caused by the
Section 338(h)(10) Election. Neither the Company nor any qualified subchapter S
subsidiary of the Company has, in the past 10 years, (A) acquired assets from
another corporation in a transaction in which the Company's Tax basis for the
acquired assets was determined, in whole or in part, by reference to the Tax
basis of the acquired assets (or any other property) in the hands of the
transferor or (B) acquired the stock of any corporation which is a qualified
subchapter S subsidiary.
(k) REAL PROPERTY. The Company does not own any real
property. Section 5(k) of the Shareholder Disclosure Schedule lists and
describes briefly all real property leased or subleased to the Company. The
Shareholder has delivered to the Buyer correct and complete copies of the
leases and subleases listed in Section 5(k) of the Shareholder Disclosure
Schedule (as amended to date). With respect to each lease and sublease listed
in Section 5(k) of the Shareholder Disclosure Schedule:
(i) the lease or sublease is legal, valid, binding and
enforceable (and, to the Company's and the Shareholder's Knowledge, against the
lessor(s) of the Columbia, Maryland and Richmond, Virginia premises leased by
the Company (the "Non-Affiliate Premises")), and in full force and effect;
(ii) the lease or sublease will continue to be legal, valid,
binding and enforceable (and, to the Company's and the Shareholder's Knowledge,
against the lessor(s) of the Non-Affiliate Premises), and in full force and
effect on identical terms immediately following the consummation of the
transactions contemplated hereby;
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<PAGE> 20
(iii) no party to the lease or sublease is in breach or
default, and no event has occurred which, with notice or lapse of time, would
constitute a breach or default or permit termination, modification, or
acceleration thereunder;
(iv) no party to the lease or sublease has repudiated any
provision thereof;
(v) there are no disputes, oral agreements, or forbearance
programs in effect as to the lease or sublease;
(vi) the Company has not received a notice from the lessor
indicating that the lease will not be renewed at the end of its current term
for any additional terms provided for in the lease;
(vii) the term of the lease will continue for a minimum of
six months past the Closing Date;
(viii) with respect to each sublease, the representations and
warranties set forth in subsections (i) through (vii) above are true and
correct with respect to the underlying lease;
(ix) the Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the leasehold or
subleasehold;
(x) all facilities leased or subleased thereunder have
received all approvals of governmental authorities (including licenses and
permits) required in connection with the operation thereof and have been
operated and maintained in accordance with applicable laws, rules, and
regulations;
(xi) all facilities leased or subleased thereunder are
supplied with utilities and other services necessary for the operation of said
facilities; and
(xii) the Shareholder has no Knowledge of any pending or
threatened foreclosure or other enforcement proceedings relating to the real
property underlying the leases or subleases set forth in Section 5(k) of the
Shareholder Disclosure Schedule that could result in the Company's loss of
possession of such real property.
(l) INTELLECTUAL PROPERTY.
(i) Section 5(l)(i) of the Shareholder Disclosure Schedule
lists the Intellectual Property owned by the Company. To the Shareholder's
Knowledge, the Company owns or has the right to use pursuant to license,
sublicense, agreement, or permission in writing all Intellectual Property
necessary for the operation of the businesses of the Company as presently
conducted and as presently proposed to be conducted. To the Shareholder's
Knowledge, each item of Intellectual Property owned or used by the Company
immediately prior to the Closing hereunder will be owned or available for use
by the Company on identical terms and conditions immediately subsequent to the
Closing hereunder. To the Shareholder's Knowledge, the Company has taken all
necessary action to maintain and protect each item of Intellectual Property
that it owns or uses.
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(ii) The Company has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual Property
rights of third parties, and none of the Shareholder and the directors and
officers (and employees with responsibility for Intellectual Property matters)
of the Company has ever received any charge, complaint, claim, demand, or
notice alleging any such interference, infringement, misappropriation, or
violation (including any claim that the Company must license or refrain from
using any Intellectual Property rights of any third party). To the Knowledge of
the Shareholder and the Company, no third party has interfered with, infringed
upon, misappropriated, or otherwise come into conflict with any Intellectual
Property rights of the Company.
(iii) Section 5(l)(iii) of the Shareholder Disclosure
Schedule identifies each patent or registration which has been issued to the
Company with respect to any of its Intellectual Property, identifies each
pending patent application or application for registration which the Company
has made with respect to any of its Intellectual Property, and identifies each
license, agreement, or other permission which the Company has granted to any
third party with respect to any of its Intellectual Property (together with any
exceptions). The Shareholder has delivered to the Buyer correct and complete
copies of all such patents, registrations, applications, licenses, agreements,
and permissions (as amended to date) and has made available to the Buyer
correct and complete copies of all other written documentation evidencing
ownership and prosecution (if applicable) of each such item. Section 5(l)(iii)
of the Shareholder Disclosure Schedule also identifies each trade name or
unregistered trademark used by the Company in connection with any of its
businesses. With respect to each item of Intellectual Property required to be
identified in Section 5(l)(iii) of the Shareholder Disclosure Schedule:
(A) To the Shareholder's Knowledge, the Company
possesses all right, title, and interest in and to the item, free and clear of
any Security Interest, license, or other restriction;
(B) The item is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
(C) No action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or, to the
Shareholder's Knowledge, is threatened that challenges the legality, validity,
enforceability, use, or ownership of the item; and
(D) The Company has never agreed to indemnify any
Person for or against any interference, infringement, misappropriation, or
other conflict with respect to the item.
(iv) Section 5(l)(iv) of the Shareholder Disclosure Schedule
identifies each item of Intellectual Property that any third party owns and
that the Company uses pursuant to license, sublicense, agreement, or
permission. The Shareholder has delivered to the Buyer correct and complete
copies of all such licenses, sublicenses, agreements, and permissions (as
amended to date). With respect to each item of Intellectual Property required
to be identified in Section 5(l)(iv) of the Shareholder Disclosure Schedule:
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(A) The license, sublicense, agreement, or
permission covering the item is legal, valid, binding, enforceable, and in full
force and effect;
(B) The license, sublicense, agreement, or
permission will continue to be legal, valid, binding, enforceable, and in full
force and effect on identical terms immediately following the consummation of
the transactions contemplated hereby;
(C) No party to the license, sublicense, agreement,
or permission is in breach or default, and no event has occurred which with
notice or lapse of time would constitute a breach or default or permit
termination, modification, or acceleration thereunder;
(D) No party to the license, sublicense, agreement,
or permission has repudiated any provision thereof;
(E) With respect to each sublicense, the
representations and warranties set forth in subsections (A) through (D) above
are true and correct with respect to the underlying license;
(F) The underlying item of Intellectual Property is
not subject to any outstanding injunction, judgment, order, decree, ruling, or
charge;
(G) No action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or is, to the
Knowledge of the Shareholder, threatened, which challenges the legality,
validity, or enforceability of the underlying item of Intellectual Property;
and
(H) The Company has never granted any sublicense or
similar right with respect to the license, sublicense, agreement, or
permission.
(v) To the Knowledge of the Shareholder and the Company, the
Company will not interfere with, infringe upon, misappropriate, or otherwise
come into conflict with, any Intellectual Property rights of third parties as a
result of the continued operation of its businesses as presently conducted and
as presently proposed to be conducted.
(vi) Neither the Shareholder nor the Company has any
Knowledge of any new products, inventions, procedures, or methods of
manufacturing or processing that any competitors or other third parties have
developed which reasonably could be expected to supersede or make obsolete any
product or process of any of the Company.
(m) TANGIBLE ASSETS. The Company owns or leases all buildings,
machinery, equipment, and other tangible assets necessary for the conduct of
its business as presently conducted and as presently proposed to be conducted.
Each such tangible asset has been maintained in accordance with normal industry
practice, is in good operating condition and repair (subject to normal wear and
tear), and is suitable for the purposes for which it presently is used and
presently is proposed to be used. Section 5(m) of the Shareholder Disclosure
Schedule lists all tangible assets owned by the Company with an individual
value in excess of $5,000.
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(n) INVENTORY. The inventory of the Company shown on the Most Recent
Balance Sheet consists of raw materials and supplies, manufactured and
purchased parts, goods in process, and finished goods, all of which is
merchantable and fit for the purpose for which it was procured or manufactured,
and none of which is slow-moving, obsolete, damaged, or defective, subject only
to the reserve for inventory writedown set forth on the face of the Most Recent
Balance Sheet (rather than in any notes thereto) as adjusted for the passage of
time through the Closing Date in accordance with the past custom and practice
of the Company.
(o) CONTRACTS. Section 5(o) of the Shareholder Disclosure Schedule
lists all the contracts and other agreements to which the Company is a party.
The Shareholder has delivered to the Buyer a correct and complete copy of each
written agreement listed in Section 5(o) of the Shareholder Disclosure Schedule
(as amended to date). With respect to each such agreement: (A) the agreement is
legal, valid, binding, enforceable, and in full force and effect; (B) the
agreement will continue to be legal, valid, binding, enforceable, and in full
force and effect on identical terms immediately following the consummation of
the transactions contemplated hereby; (C) to the Shareholder's Knowledge, no
party is in breach or default, and no event has occurred which with notice or
lapse of time would constitute a breach or default, or permit termination,
modification, or acceleration, under the agreement; and (D) to the
Shareholder's Knowledge, no party has repudiated any provision of the
agreement. Section 5(o) of the Shareholder Disclosure Schedule lists each
currently outstanding bid or proposal for business submitted by the Company in
excess of $1,000,000.
(p) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts receivable
of the Company are reflected properly on the Most Recent Balance Sheet in
accordance with GAAP, are valid receivables subject to no setoffs or
counterclaims, are current and collectible, and, will be collected in
accordance with their terms at their recorded amounts, subject only to the
reserve for bad debts set forth on the face of the Most Recent Balance Sheet
(rather than in any notes thereto) as adjusted for the passage of time through
the Closing Date in accordance with the past custom and practice of the
Company.
(q) POWERS OF ATTORNEY. There are no outstanding powers of attorney
executed on behalf of the Company.
(r) INSURANCE. Section 5(r) of the Shareholder Disclosure Schedule
includes a true, correct and complete list of all policies of insurance
(including policies providing property, casualty, liability, and workers'
compensation coverage and bond and surety arrangements) to which the Company is
a party, a named insured, or otherwise the beneficiary of coverage. Genuine and
complete copies of each of the insurance policies listed in Section 5(r) of the
Shareholder Disclosure Schedule have been provided to the Buyer. With respect
to each such insurance policy, to the Shareholder's Knowledge: (A) the policy
is legal, valid, binding, enforceable, and in full force and effect; (B) the
policy will continue to be legal, valid, binding, enforceable, and in full
force and effect on identical terms immediately following the consummation of
the transactions contemplated hereby; (C) neither the Company nor any other
party to the policy is in breach or default (including with respect to the
payment of premiums or the giving of notices), and no event has occurred which,
with notice or the
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lapse of time, would constitute such a breach or default, or permit
termination, modification, or acceleration, under the policy; (D) neither the
Company, any ERISA Affiliate nor the Buyer shall be subject to a retroactive
rate adjustment, loss sharing arrangement or other actual or contingent
liability; and (E) to the Shareholder's or the Company's Knowledge, no party to
the policy has repudiated any provision thereof. To the Shareholder's
Knowledge, the Company has been fully covered at all times during the past 5
years by insurance in scope and amount customary and reasonable for the
businesses in which it has engaged during the aforementioned period. Section
5(r) of the Shareholder Disclosure Schedule describes any self-insurance
arrangements affecting the Company.
(s) LITIGATION. Section 5(s) of the Shareholder Disclosure Schedule
sets forth each instance in which the Company (i) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (ii) is a party, or
to the Knowledge of the Shareholder or the Company, is threatened to be made a
party to any claim, action, suit, proceeding, hearing, or investigation of, in,
or before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator. Except as set
forth in Section 5(s) of the Shareholder Disclosure Schedule, there is no other
pending, or to the Knowledge of the Shareholder or the Company, threatened
claim, arbitration proceeding, action, suit, investigation or other proceeding
against or involving the Company or any property or rights of the Company or
any officer or director or the Company. To the Shareholder's Knowledge, none of
the actions, suits, proceedings, hearings, and investigations set forth in
Section 5(s) of the Shareholder Disclosure Schedule could result in any
Material Adverse Effect. Neither the Shareholder nor the directors and officers
(and employees with responsibility for litigation matters) of the Company has
any reason to believe that any such action, suit, proceeding, hearing, or
investigation may be brought or threatened against the Company.
(t) COMMITMENTS AND WARRANTIES. All services provided by the Company
have been performed in conformity with all applicable contractual commitments
(written or oral) and all express and implied warranties (written or oral), and
the Company has no Liability and, to the Knowledge of the Shareholder and the
Company, there is no Basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against either of
them giving rise to any Liability) in connection with any such services.
Section 5(t) of the Shareholder Disclosure Schedule includes copies of the
standard forms of agreement entered into between the Company and its customers.
The Company has not entered into any written or oral agreements with any of its
customers that include guaranties, warranties, or indemnity provisions other
than those included in the agreements included as part of Section 5(t) of the
Shareholder Disclosure Schedule. Neither the Company nor the Shareholder has
received notice (written or oral) from any of its customers stating that the
customer intends to reduce the volume of business that it currently conducts
with the Company or to cease doing business with the Company.
(u) LIABILITY FOR SERVICES PERFORMED. The Company has no Liability
(and, to the Shareholder's Knowledge, there is no Basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against it giving rise to any Liability) arising out of any
injury to individuals or property as a result of or in connection with any
services provided by the Company.
(v) EMPLOYEES. To the Knowledge of the Shareholder and the Company, no
executive,
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key employee, or group of employees has any plans to terminate employment with
the Company. The Company is not currently, nor at any prior time has been, a
party to or bound by any collective bargaining agreement, nor has the Company
experienced any strikes, contractual grievances, claims of unfair labor
practices, or other collective bargaining disputes. The Company has not
committed any unfair labor practice. Neither the Shareholder nor the Company
has any Knowledge of any organizational effort presently being made or
threatened by or on behalf of any labor union with respect to employees of the
Company. To the Knowledge of the Shareholder and the Company, the Company has
not experienced any material employment dispute with any employee.
(w) EMPLOYEE BENEFITS.
(i) Section 5(w) of the Shareholder Disclosure Schedule lists
each Employee Benefit Plan that the Company or any ERISA Affiliate sponsors,
maintains, contributes to, or is required to contribute to or under which the
Company or any ERISA Affiliate has any obligation or liability. Neither the
Company nor any ERISA Affiliate is subject to any enforceable commitment to
create any additional Employee Benefit Plan.
(A) The Company and each ERISA Affiliate are in
compliance in all material respects with the requirements, terms and conditions
of each such Plan and the requirements of ERISA, the Code, and other laws
applicable to Employee Benefit Plans.
(B) All required reports and disclosures (including
Form 5500 Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan
Descriptions) have been filed or distributed appropriately with respect to each
such Employee Benefit Plan and no penalty has been or may be imposed with
respect to any Employee Benefit Plan for a violation of such reporting and
disclosure requirements. The requirements of Part 6 of Subtitle B of Title I of
ERISA and of Code Section 4980B have been met with respect to each such
Employee Benefit Plan which is an Employee Welfare Benefit Plan.
(C) The Company and the ERISA Affiliates have made
all contributions (including all employer contributions and employee salary
reduction contributions) which are due from them to date to each such Employee
Benefit Plan and all contributions for any period ending on or before the
Closing Date which are not yet due (other than discretionary profit sharing
contributions under an Employee Pension Benefit Plan) will have been paid to
each such Employee Benefit Plan or accrued as of the Closing Date in accordance
with the past custom and practice of the Company and in accordance with GAAP.
All premiums or other payments for all periods ending on or before the Closing
Date will have been paid or accrued as of the Closing Date with respect to each
Employee Benefit Plan.
(D) Each such Employee Benefit Plan, which is
intended to qualify under Section 401(a) of the Code, now meets and at all
times since inception have met the requirements of a "qualified plan" under
Code Section 401(a) and has received a favorable determination letter from the
IRS. Nothing has occurred since the date of such letter that would cause the
loss of such qualification. No investigation or review by the IRS, U.S.
Department of Labor or the PBGC is currently pending or, to the Shareholder's
Knowledge, threatened, in which such agency has asserted
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or may assert that such Plan is not qualified or that the Company or any ERISA
Affiliate has any federal Tax liability on the basis that any such Plan is not
qualified.
(E) the market value of assets of each such Employee
Benefit Plan which is an Employee Pension Benefit Plan that is subject to Title
IV of ERISA (other than any Multiemployer Plan) will equal or exceed the
present value of all vested and nonvested Liabilities thereunder determined in
accordance with PBGC methods, factors, and assumptions applicable to an
Employee Pension Benefit Plan terminating on such date.
(F) The Shareholder has delivered to the Buyer
correct and complete copies of the plan documents (or the correct written
summaries of plans not evidenced by documents) and summary plan descriptions
including all amendments thereto, the most recent determination letter received
from the Internal Revenue Service, the three most recent Form 5500 Annual
Reports (including all schedules thereto), the three most recent annual premium
payment forms filed with the PBGC, and all related trust agreements, insurance
contracts, and other funding agreements which implement each such Employee
Benefit Plan.
(ii) With respect to each Employee Benefit Plan that the
Company or any ERISA Affiliate maintains, contributes to, or is required to
contribute to or under which the Company or any ERISA Affiliate has any
liability:
(A) No such Employee Benefit Plan which is an
Employee Pension Benefit Plan that is subject to Title IV of ERISA (other than
any Multiemployer Plan) has incurred any "accumulated funding deficiency" (as
defined in ERISA), whether or not waived, or has been completely or partially
terminated or been the subject of a Reportable Event as to which notices would
be required to be filed with the PBGC. No proceeding by the PBGC to terminate
any such Employee Pension Benefit Plan (other than any Multiemployer Plan) has
been instituted or threatened.
(B) There have been no Prohibited Transactions with
respect to any such Employee Benefit Plan. No Fiduciary has any Liability for
breach of fiduciary duty or any other failure to act or comply in connection
with the administration or investment of the assets of any such Employee
Benefit Plan. No action, suit, proceeding, hearing, or investigation with
respect to any such Employee Benefit Plan or the assets of any such Plan (other
than routine claims for benefits) is pending or threatened. Neither the
Shareholder nor the Company has any Knowledge of any Basis for any such action,
suit, proceeding, hearing, or investigation.
(C) Neither the Company nor any ERISA Affiliate has
incurred, and none of the Shareholder and the directors and officers (and
employees with responsibility for employee benefits matters) of the Company has
any reason to expect that the Company or any ERISA Affiliate will incur, any
Liability to the PBGC (other than PBGC premium payments) or otherwise under
Title IV of ERISA (including any withdrawal Liability) or under the Code with
respect to any such Employee Benefit Plan which is an Employee Pension Benefit
Plan.
(iii) Neither the Company nor any ERISA Affiliate contributes
to, ever has
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contributed to, or ever has been required to contribute to any Multiemployer
Plan or has any Liability (including withdrawal Liability) under any
Multiemployer Plan.
(iv) Neither the Company nor any ERISA Affiliate maintains or
contributes to, or has ever been required to contribute to any Employee Welfare
Benefit Plan providing medical, health, or life insurance or other welfare-type
benefits for current or future retired or terminated employees, their spouses,
or their dependents (other than in accordance with Code Section 4980B).
(x) GUARANTIES. The Company is not a guarantor or otherwise is liable
for any Liability or obligation (including indebtedness) of any other Person.
(y) ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS.
(i) The Company and its Affiliates have complied and are in
compliance with all Environmental, Health, and Safety Requirements.
(ii) Without limiting the generality of the foregoing, the
Company and its Affiliates have obtained and complied with, and are in
compliance with, all permits, licenses and other authorizations that are
required pursuant to Environmental, Health, and Safety Requirements for the
occupation of its facilities and the operation of its business; a list of all
such permits, licenses and other authorizations is set forth on the attached
"Environmental and Safety Permits Schedule."
(iii) Neither the Company nor its Affiliates has received any
written or oral notice, report or other information regarding any actual or
alleged violation of Environmental, Health, and Safety Requirements, or any
liabilities or potential liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise), including any investigatory, remedial or corrective
obligations, relating to any of them or its facilities arising under
Environmental, Health, and Safety Requirements.
(iv) None of the following exists at any property or facility
owned or operated by the Company (as to Non-Affiliate Premises, to the
Knowledge of the Shareholder and the Company): (1) underground storage tanks,
(2) asbestos-containing material in any form or condition, (3) materials or
equipment containing polychlorinated biphenyls, or (4) landfills, surface
impoundments, or disposal areas.
(v) None of the Company or its Affiliates has treated,
stored, disposed of, arranged for or permitted the disposal of, transported,
handled, or released any substance, including without limitation any hazardous
substance, or owned or operated any property or facility (and no such property
or facility is contaminated by any such substance) in a manner that has given
or would give rise to liabilities, including any liability for response costs,
corrective action costs, personal injury, property damage, natural resources
damages or attorney fees, pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), the Solid Waste
Disposal Act, as amended ("SWDA") or any other Environmental, Health, and
Safety Requirements.
(vi) Neither this Agreement nor the consummation of the
transaction that is the
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subject of this Agreement will result in any obligations for site investigation
or cleanup, or notification to or consent of government agencies or third
parties, pursuant to any of the so-called "transaction-triggered" or
"responsible property transfer" Environmental, Health, and Safety Requirements.
(vii) Neither the Company nor its Affiliates has, either
expressly or by operation of law, assumed or undertaken any liability,
including without limitation any obligation for corrective or remedial action,
of any other Person relating to Environmental, Health, and Safety Requirements.
(viii) There are no (and to the Shareholder's and the
Company's Knowledge with respect to Non-Affiliate Premises, there are no)
facts, events or conditions relating to the past or present facilities,
properties or operations of the Company or any of its Affiliates that will
prevent, hinder or limit continued compliance with Environmental, Health, and
Safety Requirements, give rise to any investigatory, remedial or corrective
obligations pursuant to Environmental, Health, and Safety Requirements (whether
on-site or off-site), or give rise to any other liabilities (whether accrued,
absolute, contingent, unliquidated or otherwise) pursuant to Environmental,
Health, and Safety Requirements, including without limitation any relating to
onsite or offsite releases or threatened releases of hazardous materials,
substances or wastes, personal injury, property damage or natural resources
damage.
(z) CERTAIN BUSINESS RELATIONSHIPS WITH THE COMPANY. Neither the
Shareholder, his Affiliates, any director or employee of the Company, nor any
relative of the Shareholder, nor any person living in the same residence as
such persons, has been involved in any business arrangement or relationship
with the Company within the past 12 months, and neither the Shareholder nor his
Affiliates nor any of such other persons owns, leases, licenses, or otherwise
has any interest in any asset, tangible or intangible, which is used in the
business of the Company or any contract, lease or commitment to which the
Company is a party. The Company is not indebted to any officer, director or
employee of the Company for any liability or obligation. No officer, director
or employee of the Company is indebted to the Company for any liability or
obligation.
(aa) CUSTOMERS AND SUPPLIERS. To the Shareholder's Knowledge, no
purchase order or commitment of the Company is in excess of normal
requirements, nor are prices provided therein in excess of current market
prices for the products or services to be provided thereunder. No material
supplier of the Company has advised the Company in writing within the past year
that it will stop, or decrease the rate of, supplying materials, products or
services to the Company and no material customer of the Company has advised the
Company in writing within the past year that it will stop, or decrease the rate
of buying materials, products or services from the Company. Section 5(aa) of
the Shareholder Disclosure Schedule sets forth a list of (a) each customer that
accounted for more that 5% of the consolidated revenues of the Company during
the last full fiscal year or the interim period through the date of the Most
Recent Financial Statements and the amount of revenues accounted for by such
customer during each such period and (b) each supplier that is the sole
supplier of any significant product or component to the Company. To the
Shareholder's Knowledge, the consummation of the transactions contemplated
hereby will not have a Material Adverse Effect on the Company's relationship
with any customer or supplier listed in Section 5(aa) of the Shareholder
Disclosure Schedule.
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6. REPRESENTATIONS AND WARRANTIES CONCERNING THE BUYER AND ORIUS. The Buyer and
Orius, jointly and severally represent and warrant to the Shareholder that the
statements contained in this Section 6 are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this Section 6), except as set forth in the Buyer
Disclosure Schedule. The Buyer Disclosure Schedule shall be effective to modify
only those representations and warranties to which the Buyer Disclosure Schedule
makes explicit reference. The Buyer Disclosure Schedule will be arranged in
paragraphs corresponding to the lettered and numbered paragraphs contained in
this Section 6 and Section 4, as applicable.
(a) ORGANIZATION OF THE BUYER. The Buyer is a limited liability
company duly organized, validly existing, and in good standing under the laws
of the State of Delaware. Correct and complete copies of the governing
documents of the Buyer (as amended to date) are included as part of the Buyer
Disclosure Schedule. The executive officers of the Buyer and the names and
titles of the executive officers and directors of Orius are set forth on the
Buyer Disclosure Schedule.
(b) ORGANIZATION OF ORIUS. Orius is a corporation validly existing and
in good standing under laws of the State of Delaware. Each Affiliate and
Subsidiary of Orius is validly existing and in good standing under the laws of
the state in which it was incorporated or organized. Orius, and each of its
Affiliates and Subsidiaries, is duly authorized to conduct business under the
laws of each jurisdiction where such qualification is required, except where
failure to do so is authorized or will not result in any Material Adverse
Effect. Orius and each of its Affiliates and Subsidiaries has full corporate
power and authority and all licenses, permits and authorizations necessary to
carry on the business in which it is engaged and in which it presently proposes
to engage, and to own and use the properties owned and used by it, except where
a failure to obtain any such licenses, permits and authorizations will not have
an Orius Material Adverse Effect. Correct and complete copies of the charter
and bylaws (or similar governance documents) of Orius are included as part of
Section 6(b) of the Buyer Disclosure Schedule. Neither Orius, nor any of its
Affiliates and Subsidiaries, are in default under or in violation of any
provisions of their respective charters or bylaws (or similar governance
documents).
(c) CAPITALIZATION OF ORIUS. The entire authorized capital stock of
Orius consists of 4,700,000 shares of Common Stock and 300,000 shares of
preferred stock. The issued and outstanding capital stock of Orius is set forth
and held of record as set forth on the Buyer Disclosure Schedule. All of the
issued and outstanding shares of Common Stock have been, and, duly authorized,
validly issued, fully paid, and nonassessable. The rights of outstanding
preferred stock of Orius to convert into Common Stock are set forth at Section
6(c) of the Buyer Disclosure Schedule. When issued following delivery of the
Company Shares held by Shareholder and transferred to Buyer hereunder, the
Orius Common Stock constituting part of the Consideration will be duly
authorized, validly issued, fully paid and nonassessible. There are no
outstanding or authorized options, warrants, purchase rights, subscription
rights, preemptive rights, conversion rights, exchange rights, or other
contracts or commitments that could require Orius to issue, sell, or otherwise
cause to become outstanding any of its capital stock or securities convertible
or
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exchangeable for, or any options, warrants, or rights to purchase such capital
stock or securities. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to Orius.
Except for the holders of Common Stock of Orius set forth on Section 6(c) of
the Buyer Disclosure Schedule, all of the holders of Common Stock of Orius,
including the Shareholder after the Closing, are "Executives" (as that term is
defined in the Stockholders Agreement) for purposes of the Stockholders
Agreement. The Stockholders Agreement as will be executed by the Shareholder,
is the same agreement, in all material respects, as has been executed by the
other Executives and there are no other agreements, amendments, modifications
or supplements with respect to the subject matter of the Stockholders
Agreement. Except for the Stockholders Agreement, (i) to Orius' Knowledge,
there are no voting trusts, proxies or other agreements or understandings with
respect to the voting, transfer, dividend, rights to sell, redeem or
repurchase, rights to purchase or other rights (such as registration rights
under the Securities Act) with respect to the capital stock of Orius and (ii)
there are no voting trusts, proxies or other agreements or understandings with
respect to the voting, transfer, dividend, rights to sell, redeem or
repurchase, rights to purchase or other rights (such as registration rights
under the Securities Act) with respect to the capital stock of Orius, to which
Orius is a party.
(d) TITLE TO ASSETS. Orius, its Affiliates and Subsidiaries have good
and marketable title to, or a valid leasehold interest in, the properties and
assets used by them, located on their premises, or shown on the Most Recent
Orius Balance Sheet or acquired after the date thereof, free and clear of all
Security Interests (other than the Security Interests disclosed on the face of
the Most Recent Orius Balance Sheet and other Permitted Liens), except for
properties and assets disposed of in the Ordinary Course of Business since the
date of the Most Recent Orius Balance Sheet, none of which disposals are
expected to have an Orius Material Adverse Effect. Except for the effect of a
failure to obtain any of the Orius Required Consents, the consummation of the
transactions contemplated by this Agreement will not affect Orius's, its
Affiliates' or its Subsidiaries' good and marketable title to, or valid
leasehold interest in, the properties and assets described in the preceding
sentence.
(e) SUBSIDIARIES AND AFFILIATES. Section 6(e) of the Buyer Disclosure
Schedule sets forth a complete and correct list of all Subsidiaries of Orius.
Except as set forth in Section 6(e) of the Buyer Disclosure Schedule, Orius
does not currently have, and has not had within the past five years, any
Affiliates or Subsidiaries, and does not own any securities of any other
Person. The issued and outstanding capital stock of each Subsidiary has been
duly authorized, validly issued and fully paid, and is nonassessable. There are
not outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, preemptive rights, exchange rights, or other
contracts or commitments that could require any such Subsidiary to issue, sell
or otherwise cause to become outstanding any of its capital stock. There are no
outstanding obligations of any such Subsidiary to purchase, redeem or otherwise
acquire any capital stock or any securities convertible into or exchangeable
for such capital stock, or any options, warrants or rights to purchase such
capital stock or securities. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation or similar rights with
respect to any Subsidiary. There are no voting trusts, proxies or other
agreements or understandings with respect to the voting of the capital stock of
any such Subsidiary.
(f) FINANCIAL STATEMENTS. Attached hereto as Exhibit G are the
following financial
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statements (collectively the "Orius Financial Statements"): consolidated
balance sheets and statements of income, including the independent accountant's
report thereon as of and for the fiscal period ended December 31, 1998 (the
"Most Recent Orius Fiscal Period End") for Orius. The Orius Financial
Statements (including the notes thereto) have been prepared in accordance with
GAAP applied on a consistent basis throughout the periods covered thereby,
present fairly the financial condition of Orius, its Affiliates and
Subsidiaries as of such dates, are correct and complete in all material
respects, and are consistent with the books and records of Orius, its
Affiliates and Subsidiaries (which books and records are correct and complete
in all material respects).
(g) EVENTS SUBSEQUENT TO MOST RECENT ORIUS PERIOD END. Since the Most
Recent Orius Fiscal Period End there has not occurred any Orius Material
Adverse Effect, and Orius and its Subsidiaries have not engaged in any
transactions outside of the Ordinary Course of Busine Section
(h) TAX MATTERS. All Tax Returns required to have been filed with
respect to Orius and any Orius Subsidiary have been filed (subject to any
extensions of any required filing dates obtained by Orius), and payment or
adequate provision has been made for the payment of all Taxes which have or may
become due, except to the extent that such Taxes are being contested in good
faith by appropriate proceedings diligently conducted and for which such
reserves or other appropriate provisions, if any, as shall be required by GAAP
shall have been made and except where failure to file or pay would not result
in an Orius Material Adverse Effect. There are no agreements or waivers
extending the statutory period of limitations applicable to any federal income
tax return of Orius or any Orius Subsidiary for any period.
(i) LEGAL COMPLIANCE. Orius and each Orius Subsidiary have complied,
in all material respects, with all applicable laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings,
and charges thereunder) of federal, state, local, and foreign governments (and
all agencies thereof), and no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand, or notice has been filed or commenced against
any of them alleging any failure so to comply.
(j) EMPLOYEE BENEFITS.
(i) Section 6(j) of the Buyer Disclosure Schedule lists each
Employee Benefit Plan that Orius or any ERISA Affiliate sponsors, maintains,
contributes to, or is required to contribute to or under which Orius or any
ERISA Affiliate has any obligation or liability. Neither Orius nor any ERISA
Affiliate is subject to any enforceable commitment to create any additional
Employee Benefit Plan.
(A) Orius and each ERISA Affiliate are in compliance
in all material respects with the requirements, terms and conditions of each
such Plan and the requirements of ERISA, the Code, and other laws applicable to
Employee Benefit Plans.
(B) All required reports and disclosures (including
Form 5500 Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan
Descriptions) have been filed or distributed appropriately with respect to each
such Employee Benefit Plan and no penalty has
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been or may be imposed with respect to any Employee Benefit Plan for a
violation of such reporting and disclosure requirements. The requirements of
Part 6 of Subtitle B of Title I of ERISA and of Code Section 4980B have been met
with respect to each such Employee Benefit Plan which is an Employee Welfare
Benefit Plan.
(C) Orius and the ERISA Affiliates have made all
contributions (including all employer contributions and employee salary
reduction contributions) which are due from them to date to each such Employee
Benefit Plan and all contributions for any period ending on or before the
Closing Date which are not yet due (other than discretionary profit sharing
contributions under an Employee Pension Benefit Plan) will have been paid to
each such Employee Benefit Plan or accrued as of the Closing Date in accordance
with Orius's past custom and practice and in accordance with GAAP. All premiums
or other payments for all periods ending on or before the Closing Date will
have been paid or accrued as of the Closing Date with respect to each Employee
Benefit Plan.
(D) Each such Employee Benefit Plan, which is
intended to qualify under Section 401(a) of the Code, now meets and at all
times since inception have met the requirements of a "qualified plan" under
Code Section 401(a) and has received a favorable determination letter from the
IRS. Nothing has occurred since the date of such letter that would cause the
loss of such qualification. No investigation or review by the IRS, U.S.
Department of Labor or the PBGC is currently pending or, to Orius' Knowledge,
threatened, in which such agency has asserted or may assert that such Plan is
not qualified or that Orius or any ERISA Affiliate has any federal Tax
liability on the basis that any such Plan is not qualified.
(E) As of the Closing Date, the market value of
assets of each such Employee Benefit Plan which is an Employee Pension Benefit
Plan that is subject to Title IV of ERISA (other than any Multiemployer Plan)
will equal or exceed the present value of all vested and nonvested Liabilities
thereunder determined in accordance with PBGC methods, factors, and assumptions
applicable to an Employee Pension Benefit Plan terminating on such date.
(ii) With respect to each Employee Benefit Plan that Orius or
any ERISA Affiliate maintains, contributes to, or is required to contribute to
or under which Orius or any ERISA Affiliate has any liability:
(A) No such Employee Benefit Plan which is an
Employee Pension Benefit Plan that is subject to Title IV of ERISA (other than
any Multiemployer Plan) has incurred any "accumulated funding deficiency" (as
defined in ERISA), whether or not waived, or has been completely or partially
terminated or been the subject of a Reportable Event as to which notices would
be required to be filed with the PBGC. No proceeding by the PBGC to terminate
any such Employee Pension Benefit Plan (other than any Multiemployer Plan) has
been instituted or threatened.
(B) There have been no Prohibited Transactions with
respect to any such Employee Benefit Plan. No Fiduciary has any Liability for
breach of fiduciary duty or any other failure to act or comply in connection
with the administration or investment of the assets of any such
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Employee Benefit Plan. No action, suit, proceeding, hearing, or investigation
with respect to any such Employee Benefit Plan or the assets of any such Plan
(other than routine claims for benefits) is pending or threatened. Orius has no
Knowledge of any Basis for any such action, suit, proceeding, hearing, or
investigation.
(C) Neither Orius nor any ERISA Affiliate has
incurred, and to the Knowledge or Orius there is no reason to expect that Orius
or any ERISA Affiliate will incur, any Liability to the PBGC (other than PBGC
premium payments) or otherwise under Title IV of ERISA (including any
withdrawal Liability) or under the Code with respect to any such Employee
Benefit Plan which is an Employee Pension Benefit Plan.
(iii) Neither Orius nor any ERISA Affiliate contributes to,
ever has contributed to, or ever has been required to contribute to any
Multiemployer Plan or has any Liability (including withdrawal Liability) under
any Multiemployer Plan.
(iv) Neither Orius nor any ERISA Affiliate maintains or
contributes to, or has ever been required to contribute to any Employee Welfare
Benefit Plan providing medical, health, or life insurance or other welfare-type
benefits for current or future retired or terminated employees, their spouses,
or their dependents (other than in accordance with Code Section 4980B).
(k) DISCLOSURE. Neither this Agreement nor any of the exhibits,
attachments, written statements, documents, certificates or other items
prepared for or supplied to the Shareholder by Orius with respect to the
transactions contemplated hereby contains any untrue statement of a material
fact or omits to state any material fact necessary in order to make each
statement contained herein or therein not misleading. There is no fact which
Orius has not disclosed to the Shareholder herein and of which Orius or any of
the its officers or directors is aware and which could be anticipated to have
an Orius Material Adverse Effect after the Closing.
(l) LITIGATION. Except as set forth in Section 6(l) of the Buyer
Disclosure Schedule, there is no pending, or to the Knowledge of Buyer and
Orius, threatened claim, arbitration proceeding, action, suit, investigation or
other proceeding against or involving Orius or Buyer, any property or rights of
Orius or Buyer or any officer or director of either of them that could result
in any Orius Material Adverse Effect.
(m) UNDISCLOSED LIABILITIES. Orius does not have any Liability, except
for (i) Liabilities set forth on the face of the Most Recent Orius Balance
Sheet (rather than in any notes thereto) and (ii) Liabilities which have arisen
after the Most Recent Orius Fiscal Period End in the Ordinary Course of
Business (none of which results from, arises out of, relates to, is in the
nature of, or was caused by any breach of contract, breach of warranty, tort,
infringement, or violation of law and none of which could reasonably be
expected to have an Orius Material Adverse Effect).
7. PRE-CLOSING COVENANTS. The Parties agree as follows with respect to the
period between the execution of this Agreement and the Closing.
(a) GENERAL. Each of the Parties will use his or its best efforts to
take all action and to
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do all things necessary, proper, or advisable in order to consummate and make
effective the transactions contemplated by this Agreement (including
satisfaction, but not waiver, of the closing conditions set forth in Section 9
below).
(b) NOTICES AND CONSENTS. The Shareholder will cause the Company to
give any notices to third parties, and will cause the Company to use its best
efforts to obtain any third party required consents in connection with the
matters referred to in Section 3(b) and Section 5(d) above. Each of the Parties
will (and the Shareholder will cause the Company to) give any notices to, make
any filings with, and use its best efforts to obtain any authorizations,
consents, and approvals of governments and governmental agencies in connection
with the matters referred to in Section 3(b), Section 4(b) and Section 5(d)
above.
(c) OPERATION OF BUSINESS. Except as set forth on Section 7(c)
and Section 5(g) of the Shareholder Disclosure Schedule, the Shareholder will
not cause or permit the Company to engage in any practice, take any action, or
enter into any transaction outside the Ordinary Course of Business. Without
limiting the generality of the foregoing, except with the prior written consent
of Orius (which consent will not be unreasonably withheld or delayed or
conditioned, but which in no event shall be deemed to be a waiver of any
condition set forth in Section 9(a) hereof), the Shareholder will not cause or
permit the Company to (i) declare, set aside, or pay any dividend or make any
distribution with respect to its capital stock or redeem, purchase, or otherwise
acquire any of its capital stock or (ii) otherwise engage in any practice, take
any action, or enter into any transaction of the sort described in Section 5(g)
above. The Shareholder will immediately notify the Buyer in writing with respect
to any proposed capital expenditures in excess of $50,000.
(d) PRESERVATION OF BUSINESS. Except as provided on Section 7(c)
of the Shareholder Disclosure Schedule, the Shareholder will cause the Company
to keep its business and properties substantially intact, including its present
operations, physical facilities, working conditions, and relationships with
lessors, licensors, suppliers, customers, and employees.
(e) FULL ACCESS. The Shareholder will permit, and will cause the
Company to permit, representatives of the Buyer to have full access at all
reasonable times, and in a manner so as not to interfere with the normal
business operations of the Company, to all premises, properties, personnel,
books, records (including Tax records), contracts, and documents of or
pertaining to the Company. At the request of the Buyer, the Shareholder will
permit, and will cause the Company to permit, the Buyer's lenders, and their
respective counsel, to have the same access as permitted to the Buyer in
accordance with the immediately preceding sentence. Orius will provide to the
Shareholder copies of financial information relating to Orius reasonably
requested by the Shareholder.
(f) NOTICE OF DEVELOPMENTS. The Shareholder will give prompt written
notice to the Buyer of any breach of any of the representations and warranties
in Section 3 or 5 above. The Buyer and Orius will give prompt written notice to
the Shareholder of any breach of any of the representations and warranties in
Section 4 or 6 above. No disclosure by any Party pursuant to this Section 7(f),
however, shall be deemed to amend or supplement the Buyer Disclosure Schedule
or the Shareholder Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
(g) EXCLUSIVITY. Until the earlier to occur of the Closing or
termination of this Agreement
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pursuant to Section 13 hereof, the Shareholder will not (and the Shareholder
will not cause or permit the Company to) (i) solicit, initiate, or encourage
the submission of any proposal or offer from any Person relating to the
acquisition of any capital stock or other voting securities, or any substantial
portion of the assets, of the Company (including any acquisition structured as
a merger, consolidation, or share exchange) or (ii) participate in any
discussions or negotiations regarding, furnish any information with respect to,
assist or participate in, or facilitate in any other manner any effort or
attempt by any Person to do or seek any of the foregoing. The Shareholder will
notify the Buyer immediately if any Person makes any proposal, offer, inquiry,
or contact with respect to any of the foregoing.
(h) NO TERMINATION OF THE SHAREHOLDER'S OBLIGATION BY SUBSEQUENT
INCAPACITY. The Shareholder specifically agrees that his obligations hereunder,
including, without limitation, the obligations pursuant to Section 10 hereof,
shall not be eliminated by his or her death or incapacity.
(i) CONFIDENTIALITY. Each of Buyer and Orius recognize and acknowledge
that such party has had in the past, currently has, and in the future may have,
access to certain confidential information of the Company, and that such
information constitutes valuable, special and unique property of the Company.
Each of the Buyer and Orius agrees that, prior to Closing, it will not use or
disclose, nor permit its officers, directors, employees, agents,
representatives or affiliates, nor the respective officers, directors,
employees, agents, representatives of such affiliates (collectively, the
"Receiving Parties"), to use or disclose any confidential information,
including, without limitation, information regarding research, developments,
product designs or specifications, manufacturing processes, "know-how," prices,
suppliers, customers, costs or any knowledge or information with respect to
confidential or trade secrets of the Company (as to use, other than in
connection with its evaluation of the transaction contemplated hereby), it
being understood that such confidential information and restriction does not
include or apply to (x) information that is publicly available unless such
information became publicly as a result of a breach of this Section 7(i) or (y)
information which is required by law or the order of any governmental authority
under color of law to be disclosed. The undertaking with respect to
confidentiality contained in this Section 7(i) shall survive any termination of
this Agreement for a period of two (2) years. In the event of termination of
this Agreement, the Receiving Parties shall return to the Company or, at the
request of the Company, destroy and certify the destruction of all confidential
information previously furnished by the Shareholder or the Company in
connection with the transactions contemplated by this Agreement.
(j) NON-SOLICITATION. Each of the Buyer and Orius agrees that, prior
to the Closing, such party shall not, nor permit its officers, directors,
employees, agents or affiliates, nor the respective officers, directors,
employees or agents of such affiliates, to, directly or indirectly, induce,
influence, combine or conspire with, or attempt to induce, influence, combine
or conspire with, any of the employees of the Company to terminate their
employment with the Company.
8. POST-CLOSING COVENANTS. The Parties agree as follows with respect to the
period following the Closing.
(a) GENERAL. In case at any time after the Closing any further action
is necessary or desirable to carry out the purposes of this Agreement, each of
the Parties will take such further action
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(including the execution and delivery of such further instruments and
documents) as any other Party reasonably may request, all at the sole cost and
expense of the requesting Party (unless the requesting Party is entitled to
indemnification therefor under Section 10 below). The Shareholder acknowledges
and agrees that from and after the Closing the Buyer will be entitled to
possession of all documents, books, records (including Tax records),
agreements, and financial data of any sort relating to the Company.
(b) LITIGATION SUPPORT. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving the Company, each of the other Parties will
cooperate with him or it and his or its counsel in the contest or defense, make
available their personnel, and provide such testimony and access to their books
and records as shall be necessary in connection with the contest or defense,
all at the sole cost and expense of the contesting or defending Party (unless
the contesting or defending Party is entitled to indemnification therefor under
Section 10 below). The provisions of this Section 8(b) shall not be applicable
to any action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand (i) prior to Closing, by the Shareholder or the Company
against Buyer or Orius, or by Buyer or Orius against the Shareholder or the
Company and (ii) after Closing, by the Shareholder against the Buyer, Orius or
the Company, or by Buyer, Orius or the Company against the Shareholder.
(c) TRANSITION. The Shareholder will not take any action that is
designed or intended to have the effect of discouraging any lessor, licensor,
customer, supplier, or other business associate of the Company from maintaining
the same business relationships with the Company after the Closing as it
maintained with the Company prior to the Closing. The Shareholder will refer
all customer inquiries relating to the businesses of the Company to the Buyer
from and after the Closing.
(d) INDEPENDENT ACCOUNTANTS. After the Closing, the Shareholder shall
(i) use reasonable efforts to cause the Company's past and present independent
auditors and accounting personnel to make available to the Buyer and its
representatives all financial information, including the right to examine all
working papers pertaining to audits or reviews previously or hereafter made by
such auditors, and (ii) provide such cooperation as the Buyer and its
representatives may request in connection with any audit or review of the
Company that the Buyer may direct its representatives to make. Without limiting
the generality of the foregoing, the Shareholder agrees that he will cooperate
with, and use his best efforts to, cause the Company's past and present
independent auditors, accounting personnel and other necessary persons to
cooperate with the Buyer in the preparation of any documents filed by the Buyer
with the U.S. Securities and Exchange Commission in connection with an offering
of securities, to the extent information about the Company is required therein.
(e) TAX MATTERS. The Shareholder covenants and agrees not to take any
action, or fail to take any action, with respect to Taxes, that would have an
adverse effect on the Buyer on or after the Closing Date, including, without
limitation, amending or otherwise supplementing any Tax Return
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or report of the Company with respect to any period prior to the Closing Date
without the consent of the Buyer, unless required by applicable law in which
case the Shareholder shall provide a written description thereof to Buyer at
least twenty (20) days prior to the date that the action is proposed to be
taken. If any taxing authority conducts any audit or investigation relating to
the Company prior to the Closing Date, the Buyer may, in its sole election,
have the right to supervise such audit or investigation and provide any
response required in connection therewith.
(f) AUDITED FINANCIAL STATEMENTS. The Shareholder shall use his best
efforts to cause the Company's auditors to cooperate with Buyer's auditors in
the preparation of audited consolidated balance sheets and statements of
income, changes in stockholders' equity, and cash flow including the audit
report thereon as of and for the three-year period ending December 31, 1998 for
the Company. All costs associated with the preparation and audit of the
Company's December 31, 1998 financial statements shall be paid by Buyer.
(g) ELECTION TO BOARD OF DIRECTORS. Promptly after the Closing, the
Buyer shall take all appropriate corporate action to cause the Shareholder to
be elected to the Board of Directors of the Company.
9. CONDITIONS TO OBLIGATION TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF THE BUYER. The obligation of the Buyer
to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(i) The representations and warranties set forth in Section 3
and Section 5 above shall be true and correct in all material respects at and
as of the Closing Date and there shall not have occurred any Material Adverse
Effect;
(ii) The Shareholder and the Company shall have performed and
complied with all of his covenants hereunder in all material respects through
the Closing;
(iii) No action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction, or before any arbitrator,
wherein an unfavorable injunction, judgment, order, decree, ruling, or charge
would (A) prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this Agreement to
be rescinded following consummation, (C) affect adversely the right of the
Company to own its assets and to operate its businesses (and no such
injunction, judgment, order, decree, ruling, or charge shall be in effect);
(iv) The Shareholder shall have delivered to the Buyer a
certificate, to the effect that each of the conditions specified above in
Section 9(a)(i) through 9(a)(iiI) is satisfied in all respects;
(v) The Company and the Shareholder shall have received all
other authorizations, consents, and approvals of governments and governmental
agencies referred to in Section 3(b) and Section 5(d) above;
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(vi) The Buyer shall have received from counsel to the
Shareholder an opinion in form and substance as set forth in Exhibit D attached
hereto, addressed to the Buyer and dated as of the Closing Date;
(vii) The Shareholder shall have entered into the Employment
Agreement;
(viii) The Shareholder shall have entered into the
Noncompetition Agreement;
(ix) The Shareholder shall have caused Trison to enter into
the Lease Amendment;
(x) All actions to be taken by the Shareholder in connection
with the consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form and
substance to the Buyer;
(xi) At least five business days prior to the Closing, the
Buyer shall have received a balance sheet prepared by the Company, estimating
the assets, liabilities and shareholders' equity of the Company as of the
Closing Date (the "Estimated Closing Date Balance Sheet"). The Estimated
Closing Date Balance Sheet shall be prepared in accordance with the method set
forth in Section 11(a) for the preparation of the Draft Closing Date Balance
Sheet and will reflect the Shareholders' Equity of at least $5,750,000
including cash of at least $1,000,000. The Buyer shall not have objected to,
challenged or otherwise repudiated any of the amounts included in the Estimated
Closing Date Balance Sheet;
(xii) Reserved;
(xiii) The Company shall have delivered evidence of its
qualification to do business in each jurisdiction where it is so qualified and
a certificate of good standing issued by the Secretary of State of each such
jurisdiction demonstrating that the Company is in good standing in that
jurisdiction;
(xiv) The board of directors of the Buyer shall have approved
the consummation of the transaction contemplated by this Agreement;
(xv) The Company shall have distributed to the Shareholder
its interest in Trison;
(xvi) The Company shall have terminated its licensing
agreement with Texel Systems, Inc. pursuant to which the Company licenses to
such entity the name "Texel." The Shareholder shall use his best efforts to
cause Texel Systems, Inc. to change its name so as not to include the word
"Texel"; and
(xvii) The Shareholder shall have provided to Buyer financial
projections in respect of the Company for the years 1999, 2000 and 2001, in
form and substance reasonably satisfactory to Buyer.
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The Buyer may waive any condition specified in this Section 9(a) if it
executes a writing so stating at or prior to the Closing.
(b) CONDITIONS TO OBLIGATIONS OF THE SHAREHOLDER. The obligation of
the Shareholder to consummate the transactions to be performed by him in
connection with the Closing is subject to satisfaction of the following
conditions:
(i) The representations and warranties set forth in Section 4
and 6 above shall be true and correct in all material respects at and as of the
Closing Date;
(ii) The Buyer and Orius shall have performed and complied
with all of their respective covenants hereunder in all material respects
through the Closing;
(iii) No action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction, or before any arbitrator,
wherein an unfavorable injunction, judgment, order, decree, ruling, or charge
would (A) prevent consummation of any of the transactions contemplated by this
Agreement or (B) cause any of the transactions contemplated by this Agreement
to be rescinded following consummation (and no such injunction, judgment,
order, decree, ruling, or charge shall be in effect);
(iv) The Buyer shall have delivered to the Shareholder a
certificate to the effect that each of the conditions specified above in
Section 9(b)(i)-9(b)(iii) is satisfied in all respects;
(v) The Buyer and Orius shall have received all other
authorizations, consents, and approvals of governments and governmental
agencies referred to in Section 4(b) above;
(vi) The Shareholder shall have received from counsel to the
Buyer an opinion in form and substance as set forth in Exhibit E attached
hereto, addressed to the Shareholder, and dated as of the Closing Date;
(vii) The Company shall have entered into the Employment
Agreement;
(viii) There shall not have occurred an Orius Material
Adverse Effect;
(ix) The Compensation Committee of Orius shall have granted
options to purchase Orius Common Stock to employees of the Company identified,
and in the amounts set forth, on Exhibit H hereto, pursuant to the stock
incentive plan adopted by Orius, at an exercise price equal to $90.00 per
share, upon the terms and conditions set forth in a Stock Option Agreement
substantially in the form attached hereto as Exhibit I.
(x) All actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to
the Shareholder.
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<PAGE> 40
The Shareholder may waive any condition specified in this Section 9(b)
if he executes a writing so stating at or prior to the Closing.
10. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties of the Parties contained in this Agreement or in
any certificate, document, instrument or agreement delivered pursuant to this
Agreement shall survive the Closing hereunder (notwithstanding any due
diligence investigations that may have been undertaken by the damaged Party)
and continue in full force and effect for three (3) years from the Closing Date
(other than those in Section 5(j) and Section 5(w) which shall continue in full
force and effect through the applicable statutes of limitations).
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE BUYER.
(i) In the event the Shareholder breaches any of his
representations, warranties (or any of such representations or warranties is
untrue or inaccurate), covenants and agreements contained herein or in any
certificate, document, instrument or agreement delivered pursuant to this
Agreement, and, provided that the Indemnified Buyers (as hereafter defined)
make a written claim for indemnification against the Shareholder as provided in
Section 14(g) below within the applicable claim period provided in Section
10(a) above, then the Shareholder agrees to indemnify the Buyer and each of its
officers, directors, employees, representatives and shareholders (collectively,
the "Indemnified Buyers") from and against the entirety of any Adverse
Consequences the Indemnified Buyers suffer through and after the date of the
claim for indemnification (including any Adverse Consequences the Indemnified
Buyers suffer after the end of any applicable claim period) resulting from,
arising out of, relating to, in the nature of, or caused by the breach, untruth
or inaccuracy; PROVIDED, however, that the Shareholder shall not have any
obligation to indemnify the Indemnified Buyers from and against any Adverse
Consequences resulting from, arising out of, relating to, in the nature of, or
caused by the breach (or alleged breach) of any representation or warranty of
the Shareholder contained in Section 3 or Section 5 above: (A) until the
Indemnified Buyers have suffered Adverse Consequences by reason of all such
breaches (or alleged breaches) in excess of a $100,000 aggregate deductible
(after which point the Shareholder will be obligated only to indemnify the
Indemnified Buyers from and against Adverse Consequences in excess of that
amount) or thereafter (B) to the extent that the Adverse Consequences the
Indemnified Buyers have suffered by reason of all such breaches exceeds a
$26,250,000 aggregate ceiling (after which point the Shareholder will have no
obligation to indemnify the Indemnified Buyers from and against further such
Adverse Consequences).
(ii) Notwithstanding the limitation of Section 10(b)(i) above
and without limiting any other indemnification provided in this Section 10, the
Shareholder agrees to indemnify the Indemnified Buyers from and against the
entirety of any Adverse Consequences they suffer as a result of a taxing
authority taking the position that any former or current subcontractor of the
Company should have been, at any time prior to the Closing Date, treated as an
employee of the Company.
(iii) Notwithstanding the limitation of Section 10(b)(i)
above and without limiting any
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<PAGE> 41
other indemnification provided in this Section 10, the Shareholder agrees to
indemnify the Indemnified Buyers and the Company from and against the entirety
of any Adverse Consequences they suffer as a result of the matters identified
in Section 5(w) of the Shareholder Disclosure Schedule following the list of
Employee Benefit Plans listed therein (the "Special Damages"); PROVIDED,
however, that the Shareholder shall not have any obligation to indemnify the
Indemnified Buyers or the Company from and against any Special Damages until
the Indemnified Buyers or the Company have suffered Special Damages in excess
of the reserve for the Special Damages set forth on the Most Recent Balance
Sheet, as such reserve may be reduced from time to time in connection with the
satisfaction of the liabilities for which the reserve has been established, it
being acknowledged that the payment to the Shareholder of the amount, if any,
required by the second sentence of Section 11(f) shall be deemed to reduce such
reserve to zero; and PROVIDED, FURTHER, that the Buyer shall cause the Company
(A) within twenty one (21) days following the Closing Date (or as soon
thereafter as the information required to make such filings and requests is
available upon diligent inquiry), to file with the Internal Revenue Service any
Forms 5500 which are past due for the Section 125 Plan identified in Section
5(w) of the Shareholder Disclosure Schedule as being required, along with a
request for abatement and waiver of any penalties relating to such late filing,
such request being in a form reasonably satisfactory to the Shareholder and (B)
within forty five (45) days following the Closing Date (or as soon thereafter
as the information required to make such filing and audit is available upon
diligent inquiry), to file requests with the Internal Revenue Service for a
determination letter as to the qualified status under Code Section 401(a) of
the Company's 401(k) Profit Sharing Plan and Trust and for a closing agreement
under the "Walk-in Closing Agreement Program" with respect to the qualification
defects that are determined on the basis of a competent audit of such 401(k)
Profit Sharing Plan and Trust arranged by the Buyer (which audit shall have a
scope and cost reasonably acceptable to the Shareholder), such requests and
closing agreement to be in forms reasonably satisfactory to the Shareholder.
(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE SHAREHOLDER. In the
event the Buyer or Orius breaches any of their representations, warranties (or
any of such representations or warranties is untrue or inaccurate), covenants
and agreements contained herein or in any certificate, document, instrument or
agreement delivered pursuant to this Agreement, and, provided that the
Shareholder makes a written claim for indemnification against the Buyer or
Orius as provided in Section 14(g) below within the applicable claim period
provided in Section 10(a) above, then the Buyer and Orius, jointly and
severally, agree to indemnify the Shareholder and each of his representatives
(the "Indemnified Shareholders") from and against the entirety of any Adverse
Consequences the Indemnified Shareholders suffer through and after the date of
the claim for indemnification (including any Adverse Consequences the
Indemnified Shareholders suffer after the end of any applicable claim period)
resulting from, arising out of, relating to, in the nature of, or caused by the
breach, untruth or inaccuracy.
(d) MATTERS INVOLVING THIRD PARTIES.
(i) If any third party shall notify any party entitled to
indemnification hereunder (the "Indemnified Party") with respect to any matter
(a "Third Party Claim") which may give rise to a claim for indemnification
against any other Party (the "Indemnifying Party") under this Section 10 then
the Indemnified Party shall promptly notify each Indemnifying Party thereof in
writing;
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<PAGE> 42
provided, however, that no delay on the part of the Indemnified Party in
notifying any Indemnifying Party shall relieve the Indemnifying Party from any
obligation hereunder unless (and then solely to the extent) the Indemnifying
Party thereby is materially prejudiced.
(ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (A) the
Indemnifying Party notifies the Indemnified Party in writing within 15 days
after the Indemnified Party has given notice of the Third Party Claim that the
Indemnifying Party will indemnify the Indemnified Party from and against the
entirety of any Adverse Consequences the Indemnified Party may suffer resulting
from, arising out of, relating to, in the nature of, or caused by the Third
Party Claim, (B) the Third Party Claim involves only money damages and does not
seek an injunction or other equitable relief, (C) the named parties to the
Third Party Claim do not include both the Indemnified Party and the
Indemnifying Party, and (D) the Indemnifying Party conducts the defense of the
Third Party Claim actively and diligently.
(iii) So long as the Indemnifying Party is conducting the
defense of the Third Party Claim in accordance with Section 10(d)(ii) above,
(A) the Indemnified Party may retain separate co- counsel at its sole cost and
expense and participate in the defense of the Third Party Claim, (B) the
Indemnified Party will not consent to the entry of any judgment or enter into
any settlement with respect to the Third Party Claim without the prior written
consent of the Indemnifying Party (not to be withheld unreasonably), and (C)
the Indemnifying Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnified Party (not to be withheld unreasonably).
(iv) In the event any of the conditions in Section 10(d)(ii)
above is or becomes unsatisfied, however, (A) the Indemnified Party may defend
against, and consent to the entry of any judgment or enter into any settlement
with respect to, the Third Party Claim in any manner it reasonably may deem
appropriate (and the Indemnified Party need not consult with, or obtain any
consent from, any Indemnifying Party in connection therewith), (B) the
Indemnifying Parties will reimburse the Indemnified Party promptly and
periodically for the costs of defending against the Third Party Claim
(including reasonable attorneys' fees and expenses), and (C) the Indemnifying
Parties will remain responsible for any Adverse Consequences the Indemnified
Party may suffer resulting from, arising out of, relating to, in the nature of,
or caused by the Third Party Claim to the fullest extent provided in this
Section 10.
(e) DETERMINATION OF ADVERSE CONSEQUENCES. The Parties shall take into
account the time cost of money (using the Applicable Rate as the discount rate)
in determining Adverse Consequences for purposes of this Section 10. All
indemnification payments under this Section 10 shall be deemed adjustments to
the Consideration.
(f) OTHER INDEMNIFICATION PROVISIONS. The indemnification provisions
of this Section 10 shall be the exclusive remedies of the Parties with respect
to any transaction contemplated by this Agreement in the absence of bad faith,
fraud or intentional, knowing and willful misconduct. The Shareholder hereby
agrees that he will not make any claim for indemnification against the Company
by reason of the fact that he was a director, officer, employee, or agent of
the Company or was
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<PAGE> 43
serving at the request of the Company as a partner, trustee, director, officer,
employee, or agent of another entity (whether such claim is for judgments,
damages, penalties, fines, costs, amounts paid in settlement, losses, expenses,
or otherwise and whether such claim is pursuant to any statute, charter
document, bylaw, agreement, or otherwise) with respect to any action, suit,
proceeding, complaint, claim, or demand brought by the Buyer against the
Shareholder (whether such action, suit, proceeding, complaint, claim, or demand
is pursuant to this Agreement, applicable law, or otherwise).
11. POST-CLOSING ADJUSTMENT OF CONSIDERATION.
(a) Within 90 days after the Closing Date, the Buyer will prepare and
deliver to the Shareholder a draft balance sheet (the "Draft Closing Date
Balance Sheet") for the Company as of the close of business on the Closing
Date, prepared in accordance with GAAP applied on a basis consistent with the
preparation of the Financial Statements; except that the Draft Closing Date
Balance Sheet shall include all of the same types of adjustments as were made
in connection with the preparation of the Most Recent Fiscal Year End Financial
Statement.
(b) If the Shareholder has any objections to the Draft Closing Date
Balance Sheet, he will deliver a detailed statement describing his objections
to the Buyer within 30 days after receiving the Draft Closing Date Balance
Sheet. The Buyer and the Shareholder will use reasonable efforts to resolve any
such objections themselves. If the Parties do not obtain a final resolution
within 30 days after the Buyer has received the statement of objections,
however, the Buyer and the Shareholder will select an accounting firm mutually
acceptable to them to resolve any remaining objections. If the Buyer and the
Shareholder are unable to agree on the choice of an accounting firm, they will
select a nationally-recognized accounting firm by lot (after excluding their
respective regular outside accounting firms). The determination of any
accounting firm so selected will be set forth in writing and will be conclusive
and binding upon the Parties. The Buyer will revise the Draft Closing Date
Balance Sheet as appropriate to reflect the resolution of any objections
thereto pursuant to this Section 11(b). The "Closing Date Balance Sheet" shall
mean the Draft Closing Date Balance Sheet together with any revisions thereto
pursuant to this Section 11(b).
(c) In the event the Parties submit any unresolved objections to an
accounting firm for resolution as provided in Section 11(b) above, any expenses
relating to the engagement of the accounting firm shall be allocated between
the Shareholder and the Buyer by the accounting firm in proportion to the
amount in dispute which is decided in favor of the challenging party.
(d) The Buyer will make the work papers and back-up materials used in
preparing the Draft Closing Date Balance Sheet available to the Shareholder and
his accountants and other representatives at reasonable times and upon
reasonable notice during (A) the preparation by the Buyer of the Draft Closing
Date Balance Sheet, (B) review by the Shareholder of the Draft Closing Date
Balance Sheet, and (C) the resolution by the Parties of any objections thereto.
(e) If the shareholder's equity set forth in the Closing Date Balance
Sheet is less than $5,750,000, the Shareholder will pay to the Buyer an amount
equal to such deficiency (plus interest thereon at the Applicable Rate from the
Closing Date) within three business days after the date on
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<PAGE> 44
which the Closing Date Balance Sheet finally is determined pursuant to Section
11(b). If the shareholder's equity set forth in the Closing Date Balance Sheet
is greater than $5,750,000, the Buyer will pay to the Shareholder an amount
equal to such excess (plus interest thereon at the Applicable Rate from the
Closing Date) within three business days after the date on which the Closing
Date Balance Sheet finally is determined pursuant to Section 11(b).
(f) The Shareholder acknowledges receiving the appropriate notice
required by Section 10(d)(i) with respect to the matters identified in Section
5(w) of the Shareholder Disclosure Schedule following the list of Employee
Benefit Plans listed therein which the parties agree shall be deemed Third
Party Claims. On November 24, 1999, Buyer shall pay to the Shareholder as
additional Consideration an amount equal to the positive numerical difference,
if any, between $62,000 and the aggregate of any amounts paid by the Company in
satisfaction of the liabilities for which the reserve identified in Section
10(b)(iii) was established.
12. CERTAIN AGREEMENTS REGARDING TAX MATTERS. The following provisions shall
govern the allocation of responsibility as between the Buyer and the
Shareholder for certain tax matters following the Closing Date:
(a) TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE. Shareholder
shall prepare or cause to be prepared and, subject to any extensions of any
required filing dates obtained by the Company, timely file or cause to be
timely filed all Tax Returns for the Company for all periods ending on or prior
to the Closing Date (the "Pre-Closing Period"). Such Tax Returns shall be
prepared by treating items on such Tax Return in a manner consistent with the
past practices with respect to such items, unless otherwise required by law.
Shareholder shall permit Buyer to review and comment on each such Tax Return
described in the preceding sentence prior to filing. To the extent permitted by
applicable law, Shareholder shall include any income, gain, loss, deduction or
other Tax items for such periods on his Tax Returns in a manner consistent with
the Schedule K-1s furnished to the Shareholder for such periods. Shareholder
shall reimburse Buyer for any Taxes of the Company with respect to all
Pre-Closing Periods, within fifteen (15) days after payment by Buyer or the
Company of such Taxes to the extent such Taxes are not reflected in the reserve
for Tax Liability shown on the face of the Most Recent Balance Sheet. The
Company shall pay any Taxes to the extent such Taxes are reflected in the
reserve for Tax Liability shown on the face of the Most Recent Balance Sheet.
(b) TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING DATE.
The Buyer shall prepare or cause to be prepared and file or cause to be filed
any Tax Returns of the Company for Tax periods which begin on or before the
Closing Date and end after the Closing Date. The Buyer shall permit the
Shareholder to review and comment on each such Tax Return described in the
preceding sentence prior to filing, and any such comments made in writing shall
be incorporated into any such Tax Returns unless Buyer has a reasonable basis
for declining to incorporate such comments. The Shareholder shall pay to the
Buyer within fifteen (15) days after the date on which Taxes are paid with
respect to such periods an amount equal to the portion of such Taxes which
relates to the portion of such Taxable period ending on the Closing Date to the
extent such Taxes are not reflected in the reserve for Tax Liability shown on
the face of the Most Recent Balance Sheet. For purposes of this Section, in the
case of any Taxes that are imposed on a periodic basis and are payable for a
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Taxable period that includes (but does not end on) the Closing Date, the
portion of such Tax which relates to the portion of such Taxable period ending
on the Closing Date shall (x) in the case of any real and personal property
Taxes, be deemed to be the amount of such Tax for the entire Taxable period
multiplied by a fraction the numerator of which is the number of days in the
Taxable period ending on the Closing Date and the denominator of which is the
number of days in the entire Taxable period, and (y) in the case of any other
Tax be deemed equal to the amount which would be payable if the relevant
Taxable period ended on the Closing Date. Any credits relating to a Taxable
period that begins before and ends after the Closing Date shall be taken into
account as though the relevant Taxable period ended on the Closing Date. All
determinations necessary to give effect to the foregoing allocations shall be
made in a manner consistent with prior practice of the Company (unless such
practices are not in accordance with applicable law).
(c) COOPERATION ON TAX MATTERS.
(i) The Buyer, the Company and the Shareholder shall
cooperate fully, as and to the extent reasonably requested by the other party,
in connection with the filing of Tax Returns pursuant to this Section and any
audit, litigation or other proceeding with respect to Taxes. Such cooperation
shall include the retention and (upon the other party's request) the provision
of records and information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. The Buyer, the Company and the Shareholder agree
(A) to retain all books and records with respect to Tax matters pertinent to
the Company relating to any Taxable period beginning before the Closing Date
until the expiration of the statute of limitations (and, to the extent notified
by the Buyer or the Shareholder, any extensions thereof) of the respective
Taxable periods or as required by applicable law, whichever is longer, and to
abide by all record retention agreements entered into with any taxing
authority, and (B) to give the other parties reasonable written notice prior to
transferring, destroying or discarding any such books and records and, if
another party so requests, the Buyer, the Company or the Shareholder, as the
case may be, shall allow such other party to take possession of such books and
records.
(ii) The Buyer and the Shareholder further agree, upon
request, to use their best efforts to obtain any certificate or other document
from any governmental authority or any other Person as may be necessary to
mitigate, reduce or eliminate any Tax that could be imposed (including, but not
limited to, with respect to the transactions contemplated hereby).
(iii) The Buyer and the Shareholder further agree, upon
request, to provide the other party with all information that either party may
be required to report pursuant to Section 6043 of the Code and all Treasury
Department Regulations promulgated thereunder.
(d) TAX SHARING AGREEMENTS. All tax sharing agreements or similar
agreements with respect to or involving the Company shall be terminated as of
the Closing Date and, after the Closing Date, the Company shall not be bound
thereby or have any liability thereunder.
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(e) TERMINATION OF S CORPORATION STATUS
(i) The Shareholder acknowledges that as a result of the
consummation of the transactions contemplated by this Agreement, the Company's
S Corporation status will terminate as of the Closing Date. The Shareholder
will elect under Section 1362(e)(3) of the Code not to have the pro rata
allocation method of Section 1362(e)(2) of the Code apply to the Company's
final taxable year as an S Corporation.
(ii) Buyer, the Company and the Shareholder agree that the
Consideration and the liabilities of the Company and its qualified subchapter S
subsidiaries (plus other relevant items) will be allocated to the assets of the
Company and its qualified subchapter S subsidiaries for all purposes (including
Tax and financial accounting) in a manner consistent with the fair market
values as reasonably determined by Buyer and Shareholder following Closing.
Buyer, the Company and the Shareholder will file all Tax Returns (including
amended returns and claims for refund) and information reports in a manner
consistent with such values.
(iii) The Company and the Shareholder will not revoke the
Company's election to be taxed as an S corporation within the meaning of Code
Section Section 1361 and 1362. The Company and the Shareholder will not take or
allow any action that would result in the termination of the Company's status
as a validly electing S corporation within the meaning of Code Section Section
1361 and 1362.
(f) CERTAIN TAXES. All transfer, documentary, sales, use, stamp, and
registration Taxes and fees (including any penalties and interest) incurred in
connection with this Agreement (other than any of such Taxes or fees that are a
result of the Section 338(h)(10) Election), shall be paid by Shareholder when
due, and Shareholder will, at his own expense, file all necessary Tax Returns
and other documentation with respect to all such Taxes and fees, and, if
required by applicable law, Buyer will, and will cause its affiliates to, join
in the execution of any such Tax Returns and other documentation.
(g) SECTION 338(H)(10) ELECTION. The Company and the Shareholder will
join with Buyer in making an election under Code Section 338(h)(10) of the Code
(and any corresponding election under state, local, and foreign tax law) with
respect to the purchase and sale of the stock of the Company hereunder (a
"Section 338(h)(10) Election"). The Shareholder will include any income, gain,
loss, deduction, or other tax item resulting from the Section 338(h)(10)
Election on his Tax Returns to the extent required by applicable law. The
Shareholder also shall pay any Tax imposed on the Company attributable to the
making of the Section 338(h)(10) Election, including, but not limited to, any
Tax imposed under Code Section 1374, and the Shareholder shall indemnify Buyer
and the Company against any Adverse Consequences arising out of any failure to
pay any such Taxes. The Buyer and Orius agree, jointly and severally, promptly
to indemnify Shareholder against any Adverse Consequences (including additional
Taxes) that Shareholder may incur by reason of the Section 338(h)(10) Election
being made (other than any Tax imposed under Code Section 1374).
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13. TERMINATION
(a) TERMINATION OF AGREEMENT. The Parties may terminate this Agreement
as provided below:
(i) The Buyer and the Shareholder may terminate this
Agreement by mutual written consent at any time prior to the Closing;
(ii) The Buyer may terminate this Agreement by giving written
notice to the Shareholder at any time prior to the Closing (A) in the event the
Shareholder has breached any representation, warranty, or covenant contained in
this Agreement in any material respect, the Buyer has notified the Shareholder
of the breach, and the breach has continued without cure for a period of 30
days after the notice of breach or (B) if the Closing shall not have occurred
on or before June 15, 1999 by reason of the failure of any condition precedent
under Section 9(a) hereof (unless the failure results primarily from the Buyer
itself breaching any representation, warranty, or covenant contained in this
Agreement);
(iii) The Shareholder may terminate this Agreement by giving
written notice to the Buyer at any time prior to the Closing (A) in the event
the Buyer or Orius has breached any representation, warranty, or covenant
contained in this Agreement in any material respect, the Shareholder have
notified the Buyer of the breach, and the breach has continued without cure for
a period of 30 days after the notice of breach or (B) if the Closing shall not
have occurred on or before June 15, 1999 by reason of the failure of any
condition precedent under Section 9(b) hereof (unless the failure results
primarily from the Shareholder himself breaching any representation, warranty,
or covenant contained in this Agreement);
(b) EFFECT OF TERMINATION. If any Party terminates this Agreement
pursuant to Section 13(a) above, all rights and obligations of the Parties
hereunder (other than in respect of the obligations of Buyer and Orius pursuant
to Section 7(i) and (j)) shall terminate without any Liability of any Party to
any other Party except for any Liability of any Party then in breach.
14. MISCELLANEOUS.
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of the
Buyer and the Shareholder; provided, however, that any Party may make any
public disclosure it believes in good faith is required by applicable law or
any listing or trading agreement concerning its publicly-traded securities (in
which case the disclosing Party will use its best efforts to advise the other
Parties prior to making the disclosure).
(b) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns and the Indemnified Parties referred to in
Section 10 hereof.
(c) ENTIRE AGREEMENT. This Agreement (including the documents referred
to herein)
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constitutes the entire agreement among the Parties and supersedes any prior
understandings, agreements, or representations by or among the Parties, written
or oral, to the extent they related in any way to the subject matter hereof.
(d) SUCCESSION AND ASSIGNMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the Parties
named herein and their respective successors and permitted assigns. No Party
may assign either this Agreement or any of his or its rights, interests, or
obligations hereunder without the prior written approval of the Buyer and the
Shareholder; provided, however, that the Buyer may (i) assign any or all of its
rights and interests hereunder to one or more of its Affiliates, (ii) designate
one or more of its Affiliates to perform its obligations hereunder (in any or
all of which cases the Buyer nonetheless shall remain responsible for the
performance of all of its obligations hereunder) and (iii) without the approval
of the Shareholder, assign its rights and interests hereunder to its lenders
(and any agent for the lenders), and the Parties consent to any exercise by
such lenders (and such agents) of their rights and remedies with respect to
such collateral.
(e) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
IF TO THE SHAREHOLDER: COPY TO:
---------------------- --------
E. Scott Kasprowicz Venable, Baetjer and Howard, LLP
c/o Texel Corporation 2010 Corporate Ridge
1860 Michael Faraday Drive Suite 400
Reston, VA 20190 McLean, VA 22102
Attn: Joseph C. Schmelter, Esq.
IF TO THE BUYER: COPY TO:
---------------- --------
NATG Holdings, LLC. Akerman, Senterfitt & Eidson, P.A.
1401 Forum Way, Suite 400 450 East Broward Boulevard
West Palm Beach, FL 33401 Fort Lauderdale, FL 33131
Attn: William J. Mercurio Attn: Donn Beloff, Esq.
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been
duly given
44
<PAGE> 49
unless and until it actually is received by the intended recipient. Any Party
may change the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other Parties notice
in the manner herein set forth.
(h) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the domestic laws of the State of Florida without giving
effect to any choice or conflict of law provision or rule (whether of the State
of Florida or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Florida.
(i) AMENDMENTS AND WAIVERS. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Shareholder. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(j) SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(k) EXPENSES. Each of the Parties will bear his or its own costs and
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby. The Shareholder agrees that
the Company has not borne nor will bear any of the Shareholder's costs and
expenses (including, without limitation, any of their legal, accounting or
investment banking fees and expenses) in connection with this Agreement or any
of the transactions contemplated hereby.
(l) CONSTRUCTION. The Parties have participated jointly in the
negotiation of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
(m) INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The Exhibits,
Annexes, Schedules and Certificates identified in this Agreement are
incorporated herein by reference and made a part hereof.
45
<PAGE> 50
(n) SPECIFIC PERFORMANCE. Each of the Parties acknowledges and agrees
that the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter (subject to the provisions set
forth in Section 14(o) below), in addition to any other remedy to which they
may be entitled, at law or in equity.
(o) SUBMISSION TO JURISDICTION. Each of the Parties submits to the
exclusive jurisdiction of any state or federal court sitting in Palm Beach
County, Florida (the "Florida Court") or Fairfax County, Virginia (the
"Virginia Court") in any action or proceeding arising out of or relating to
this Agreement and agrees that all claims (i) by Buyer or Orius in respect of
the action or proceeding shall be brought, heard and determined in the Virginia
Court and (ii) by the Shareholder in respect of the action or proceeding shall
be brought, heard and determined in the Florida Court. Each of the Parties
waives any defense of inconvenient forum to the maintenance of any action or
proceeding so brought and waives any bond, surety, or other security that might
be required of any other Party with respect thereto. Any Party may make service
on any other Party by sending or delivering a copy of the process to the Party
to be served at the address and in the manner provided for the giving of
notices in Section 14(g) above. Each Party agrees that a final judgment in any
action or proceeding so brought shall be conclusive and may be enforced by suit
on the judgment or in any other manner provided by law or at equity. In any
action or proceeding arising out of or relating to this Agreement, the
prevailing party shall be entitled to recover reasonable attorney's fees and
costs from the other party to the action or proceeding.
(p) WAIVER OF JURY TRIAL. THE PARTIES HEREBY IRREVOCABLY WAIVE ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY AND TO THE FULLEST
EXTENT PERMITTED BY LAW WAIVE ANY RIGHTS THAT THEY MAY HAVE TO CLAIM OR RECEIVE
CONSEQUENTIAL OR SPECIAL DAMAGES IN CONNECTION WITH ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
*****
46
<PAGE> 51
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
date first above written.
NATG HOLDINGS, LLC.
By:
---------------------------------------
Martin J. Kobs
Assistant Vice President
ORIUS CORP.
By:
---------------------------------------
Martin J. Kobs
Assistant Vice President
SHAREHOLDER:
------------------------------------------
E. Scott Kasprowicz
47
<PAGE> 52
BUYER DISCLOSURE SCHEDULE
48
<PAGE> 53
SHAREHOLDER DISCLOSURE SCHEDULE
49
<PAGE> 1
$25,000,000 REVOLVING CREDIT FACILITY
$60,000,000 TERM LOAN A FACILITY
$45,000,000 TERM LOAN B FACILITY
$15,000,000 TERM LOAN C FACILITY
CREDIT AGREEMENT
by and among
NATG HOLDINGS, LLC,
(the "Borrower")
and
THE GUARANTORS PARTY HERETO
(the "Guarantors")
and
THE BANKS PARTY HERETO
and
MERRILL LYNCH & CO.,
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
as Joint Lead Arranger and Syndication Agent
and
PNC BANK, NATIONAL ASSOCIATION, as Joint Lead Arranger and
Administrative Agent
Dated as of February 26, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
1. CERTAIN DEFINITIONS......................................................................................1
1.1 Certain Definitions.............................................................................1
1.2 Construction...................................................................................25
1.2.1 Number; Inclusion...................................................................25
1.2.2 Determination.......................................................................25
1.2.3 Agent's Discretion and Consent......................................................25
1.2.4 Documents Taken as a Whole..........................................................26
1.2.5 Headings............................................................................26
1.2.6 Implied References to this Agreement................................................26
1.2.7 Persons.............................................................................26
1.2.8 Modifications to Documents..........................................................26
1.3 Accounting Principles..........................................................................26
2. REVOLVING CREDIT FACILITY...............................................................................27
2.1 Revolving Credit Commitments...................................................................27
2.2 Nature of Banks'Obligations with Respect to Revolving Credit Loans; Limitations................27
2.2.1 Revolving Credit Loans..............................................................27
2.2.2 Borrowing Base......................................................................27
2.3 Commitment Fees................................................................................28
2.4 Intentionally Omitted..........................................................................28
2.5 Revolving Credit Loan Requests.................................................................28
2.6 Making Revolving Credit Loans..................................................................28
2.7 Revolving Credit Notes.........................................................................29
2.8 Use of Proceeds................................................................................29
2.9 Letter of Credit Subfacility...................................................................29
2.9.1 Issuance of Letters of Credit.......................................................29
2.9.2 Letter of Credit Fees...............................................................30
2.9.3 Disbursements, Reimbursement........................................................30
2.9.4 Repayment of Participation Advances.................................................31
2.9.5 Documentation.......................................................................32
2.9.6 Nature of Participation and Reimbursement Obligations...............................32
2.9.7 Limitation on the Administrative Agent's Obligations................................32
3. TERM LOANS..............................................................................................32
3.1 Term Loan Commitments..........................................................................32
3.2 Nature of Banks'Obligations with Respect to Term Loans.........................................33
3.3 Term Loan Notes................................................................................33
</TABLE>
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
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<S> <C> <C>
3.4 Use of Proceeds................................................................................34
3.5 Register.......................................................................................34
4. INTEREST RATES..........................................................................................34
4.1 Interest Rate Options..........................................................................34
4.1.1 Revolving Credit Interest Rate Options..............................................35
4.1.2 Term Loan Interest Rate Options.....................................................35
4.1.3 Initial Interest Rates..............................................................35
4.1.4 Rate Quotations.....................................................................35
4.2 Interest Periods...............................................................................36
4.2.1 Ending Date and Business Day........................................................36
4.2.2 Termination Before Expiration Date..................................................36
4.2.3 Renewals............................................................................36
4.3 Interest After Default.........................................................................36
4.3.1 Letter of Credit Fees, Interest Rate................................................36
4.3.2 Other Obligations...................................................................36
4.3.3 Acknowledgment......................................................................37
4.4 Euro-Rate Unascertainable; Illegality; Increased Costs; Deposits Not Available.................37
4.4.1 Unascertainable.....................................................................37
4.4.2 Illegality; Increased Costs; Deposits Not Available.................................37
4.4.3 Administrative Agent's and Bank's Rights............................................37
4.5 Selection of Interest Rate Options.............................................................38
5. PAYMENTS................................................................................................38
5.1 Payments.......................................................................................38
5.2 Pro Rata Treatment of Banks....................................................................39
5.3 Interest Payment Dates.........................................................................39
5.4 Voluntary Prepayments..........................................................................39
5.4.1 Right to Prepay.....................................................................39
5.4.2 Replacement of a Bank...............................................................41
5.4.3 Change of Lending Office............................................................41
5.5 Mandatory Prepayments..........................................................................42
5.5.1 Excess Cash Flow....................................................................42
5.5.2 Sale of Assets; Casualty Event......................................................42
5.5.3 Sale of Debt or Equity Securities...................................................42
5.5.4 Application to Euro Rate Loans......................................................43
5.5.5 Deposit into Blocked Account........................................................43
5.5.6 Application.........................................................................44
5.6 Additional Compensation in Certain Circumstances...............................................45
5.6.1 Increased Costs or Reduced Return Resulting from Taxes, Reserves, Capital
</TABLE>
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
Adequacy Requirements, Expenses, Etc................................................45
5.6.2 Indemnity...........................................................................45
5.7 Additional Indemnity...........................................................................46
5.8 Net Payments...................................................................................48
6. REPRESENTATIONS AND WARRANTIES..........................................................................50
6.1 Representations and Warranties.................................................................50
6.1.1 Organization and Qualification......................................................50
6.1.2 Capitalization and Ownership........................................................50
6.1.3 Subsidiaries........................................................................50
6.1.4 Power and Authority.................................................................51
6.1.5 Validity and Binding Effect.........................................................51
6.1.6 No Conflict.........................................................................51
6.1.7 Litigation..........................................................................51
6.1.8 Title to Properties.................................................................52
6.1.9 Financial Statements................................................................52
6.1.10 Use of Proceeds; Margin Stock.......................................................52
6.1.11 Full Disclosure.....................................................................53
6.1.12 Taxes...............................................................................53
6.1.13 Consents and Approvals..............................................................54
6.1.14 No Event of Default; Compliance with Instruments....................................54
6.1.15 Patents, Trademarks, Copyrights, Licenses, Etc......................................54
6.1.16 Security Interests..................................................................54
6.1.17 No Material Adverse Change..........................................................55
6.1.18 Status of the Pledged Collateral....................................................55
6.1.19 Insurance...........................................................................55
6.1.20 Compliance with Laws................................................................55
6.1.21 Material Contracts; Burdensome Restrictions.........................................56
6.1.22 Investment Companies; Regulated Entities............................................56
6.1.23 Plans and Benefit Arrangements......................................................56
6.1.24 Employment Matters..................................................................57
6.1.25 Environmental Matters...............................................................58
6.1.26 Senior Debt Status..................................................................59
6.1.27 Year 2000...........................................................................60
6.2 Updates to Schedules...........................................................................60
7. CONDITIONS OF LENDING AND ISSUANCE OF LETTERS OF CREDIT.................................................60
7.1 First Loans and Letters of Credit..............................................................60
7.1.1 Officer's Certificate...............................................................60
7.1.2 Secretary's Certificate.............................................................61
7.1.3 Delivery of Loan Documents..........................................................61
7.1.4 Opinion of Counsel..................................................................61
7.1.5 Legal Details.......................................................................62
</TABLE>
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
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<S> <C> <C>
7.1.6 Payment of Fees.....................................................................62
7.1.7 Consents............................................................................62
7.1.8 No Material Adverse Change..........................................................62
7.1.9 No Violation of Laws................................................................62
7.1.10 No Actions or Proceedings...........................................................62
7.1.11 Insurance Policies; Certificates of Insurance; Endorsements.........................63
7.1.12 Filing Confirmation.................................................................63
7.1.13 Consummation of Specified Acquisitions..............................................63
7.1.14 Landlord's Waiver...................................................................64
7.1.15 Solvency............................................................................64
7.1.16 Consummation of Transactions........................................................64
7.1.17 Refinancings........................................................................64
7.1.18 Pro forma Balance Sheet/Application of Funds........................................64
7.1.19 Lien Search.........................................................................64
7.1.20 Key Man Life Insurance..............................................................65
7.2 Each Additional Loan or Letter of Credit.......................................................65
8. COVENANTS...............................................................................................65
8.1 Affirmative Covenants..........................................................................65
8.1.1 Preservation of Existence, Etc......................................................65
8.1.2 Payment of Liabilities, Including Taxes, Etc........................................66
8.1.3 Maintenance of Insurance............................................................66
8.1.4 Maintenance of Properties and Leases................................................67
8.1.5 Maintenance of Patents, Trademarks, Etc.............................................67
8.1.6 Visitation Rights...................................................................67
8.1.7 Keeping of Records and Books of Account.............................................68
8.1.8 Plans and Benefit Arrangements......................................................68
8.1.9 Compliance with Laws................................................................68
8.1.10 Compliance with Environmental Laws..................................................68
8.1.11 Use of Proceeds.....................................................................69
8.1.12 Further Assurances..................................................................69
8.1.13 Interest Rate Protection............................................................69
8.1.14 Parent Stock Ownership..............................................................69
8.2 Negative Covenants.............................................................................69
8.2.1 Indebtedness........................................................................70
8.2.2 Liens; Negative Pledges.............................................................70
8.2.3 Guaranties..........................................................................71
8.2.4 Loans and Investments...............................................................71
8.2.5 Dividends and Related Distributions, Payments with Respect to Subordinated
Indebtedness....................................................................71
8.2.6 Liquidations, Mergers, Consolidations, Acquisitions.................................72
8.2.7 Dispositions of Assets or Subsidiaries..............................................73
8.2.8 Affiliate Transactions..............................................................74
8.2.9 Subsidiaries, Partnerships and Joint Ventures.......................................74
8.2.10 No Restrictions on Subsidiary Distributions.........................................75
</TABLE>
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
8.2.11 Continuation of or Change in Business...............................................75
8.2.12 Plans and Benefit Arrangements......................................................75
8.2.13 Fiscal Year.........................................................................76
8.2.14 Issuance of Stock...................................................................76
8.2.15 Changes in Organizational Documents.................................................76
8.2.16 Capital Expenditures and Leases.....................................................77
8.2.17 Minimum Fixed Charge Coverage Ratio; Calculation of Financial Covenants for
1999-2000...........................................................................77
8.2.18 Maximum Leverage Ratio..............................................................78
8.2.19 Minimum Interest Coverage Ratio.....................................................79
8.2.20 Minimum Consolidated Cash Flow from Operations......................................79
8.2.21 Bank Accounts.......................................................................80
8.2.22 Amendments to Related Documents.....................................................80
8.2.23 Movement of Collateral..............................................................80
8.2.24 Restrictions regarding Heartland Cable TV, Inc......................................81
8.2.25 Restrictions Regarding Arizona Cable Concepts, Inc. and Acquisition Subsidiaries....81
8.2.26 Limitation on Activities of Orius...................................................81
8.3 Reporting Requirements.........................................................................81
8.3.1 Monthly Financial Statements; Monthly Borrowing Base Certificates...................82
8.3.2 Quarterly Financial Statements......................................................82
8.3.3 Annual Financial Statements.........................................................82
8.3.4 Certificate of the Borrower and Orius...............................................83
8.3.5 Notice of Default...................................................................84
8.3.6 Notice of Litigation................................................................84
8.3.7 Certain Events......................................................................84
8.3.8 Budgets, Forecasts, Other Reports and Information...................................84
8.3.9 Notices Regarding Plans and Benefit Arrangements....................................85
9. DEFAULT 14
9.1 Events of Default..............................................................................86
9.1.1 Payments Under Loan Documents.......................................................86
9.1.2 Breach of Warranty..................................................................86
9.1.3 Breach of Negative Covenants or Visitation Rights...................................86
9.1.4 Breach of Other Covenants...........................................................87
9.1.5 Defaults in Other Agreements or Indebtedness........................................87
9.1.6 Final Judgments or Orders...........................................................87
9.1.7 Loan Document Unenforceable.........................................................87
9.1.8 Uninsured Losses; Proceedings Against Assets........................................88
9.1.9 Notice of Lien or Assessment........................................................88
9.1.10 Insolvency..........................................................................88
9.1.11 Events Relating to Plans and Benefit Arrangements...................................88
9.1.12 Cessation of Business...............................................................89
9.1.13 Change of Control...................................................................89
9.1.14 Loss of Prior Security Interest.....................................................89
</TABLE>
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
9.1.15 Involuntary Proceedings.............................................................89
9.1.16 Voluntary Proceedings...............................................................89
9.1.17 Subordinated Debt...................................................................90
9.1.18 Environmental Events................................................................90
9.2 Consequences of Event of Default...............................................................90
9.2.1 Events of Default Other Than Bankruptcy, Insolvency or Reorganization
Proceedings.........................................................................90
9.2.2 Bankruptcy, Insolvency or Reorganization Proceedings................................90
9.2.3 Set-off.............................................................................91
9.2.4 Suits, Actions, Proceedings.........................................................91
9.2.5 Application of Proceeds.............................................................91
9.2.6 Other Rights and Remedies...........................................................92
9.3 Notice of Sale.................................................................................92
10. THE AGENTS..............................................................................................92
10.1 Appointment....................................................................................92
10.2 Delegation of Duties...........................................................................93
10.3 Nature of Duties; Independent Credit Investigation.............................................93
10.4 Actions in Discretion of Administrative Agent; Instructions from the Banks.....................94
10.5 Reimbursement and Indemnification of the Agents by the Borrower................................94
10.6 Exculpatory Provisions; Limitation of Liability................................................95
10.7 Reimbursement and Indemnification of Administrative Agent by Banks.............................95
10.8 Reliance by Agents.............................................................................96
10.9 Notice of Default..............................................................................96
10.10 Notices........................................................................................96
10.11 Banks in Their Individual Capacities...........................................................96
10.12 Holders of Notes...............................................................................97
10.13 Equalization of Banks..........................................................................97
10.14 Successor Agents...............................................................................98
10.15 Agents' Fees...................................................................................98
10.16 Availability of Funds..........................................................................98
10.17 Calculations...................................................................................99
10.18 Beneficiaries..................................................................................99
11. MISCELLANEOUS...........................................................................................99
11.1 Modifications, Amendments or Waivers...........................................................99
</TABLE>
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<TABLE>
<CAPTION>
Section Page
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<S> <C> <C>
11.1.1 Increase of Commitment; Extension of Expiration Date................................99
11.1.2 Extension of Payment; Reduction of Principal, Interest or Fees; Modification of
Terms of Payment...................................................................100
11.1.3 Release of Collateral or Guarantor.................................................100
11.1.4 Miscellaneous......................................................................100
11.2 No Implied Waivers; Cumulative Remedies; Writing Required.....................................102
11.3 Reimbursement and Indemnification of Banks by the Borrower; Taxes.............................102
11.4 Holidays......................................................................................103
11.5 Funding by Branch, Subsidiary or Affiliate....................................................103
11.5.1 Notional Funding...................................................................103
11.5.2 Actual Funding.....................................................................103
11.6 Notices.......................................................................................104
11.7 Severability..................................................................................104
11.8 Governing Law.................................................................................104
11.9 Prior Understanding...........................................................................105
11.10 Duration; Survival............................................................................105
11.11 Successors and Assigns........................................................................105
11.12 Confidentiality...............................................................................107
11.12.1 General............................................................................107
11.13 Counterparts..................................................................................108
11.14 Agent's or Bank's Consent.....................................................................108
11.15 Exceptions....................................................................................108
11.16 CONSENT TO FORUM; WAIVER OF JURY TRIAL........................................................108
11.17 Tax Withholding Clause........................................................................109
11.18 Joinder of Guarantors.........................................................................109
11.19 Priority of Facilities........................................................................110
11.19.1 Subordination of Lien................................................................110
11.19.2 Enforcement Actions..................................................................110
11.19.3 Distribution of Enforcement Proceeds.................................................111
11.19.4 Sale or Release of Collateral........................................................112
11.19.5 Additional Provisions................................................................112
</TABLE>
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<PAGE> 9
LIST OF SCHEDULES AND EXHIBITS
<TABLE>
<CAPTION>
<S> <C> <C>
SCHEDULES
SCHEDULE 0(B) - COMMITMENTS OF BANKS AND ADDRESSES FOR NOTICES OF BANKS
SCHEDULE 0(P)(1) - PERMITTED LIENS
SCHEDULE 0(P)(2) - PRICING GRID
SCHEDULE 0 - QUALIFICATIONS TO DO BUSINESS
SCHEDULE 0 - CAPITALIZATION
SCHEDULE 0 - SUBSIDIARIES
SCHEDULE 6.1.7 - LITIGATION
SCHEDULE 0 - OWNED AND LEASED PROPERTY
SCHEDULE 6.1.9 - FINANCIAL STATEMENTS
SCHEDULE 0 - CONSENTS AND APPROVALS
SCHEDULE 0 - PATENTS, TRADEMARKS, COPYRIGHTS, LICENSES, ETC.
SCHEDULE 0 - INSURANCE POLICIES
SCHEDULE 6.1.20 - COMPLIANCE WITH LAWS
SCHEDULE 0 - MATERIAL CONTRACTS
SCHEDULE 0 - EMPLOYEE BENEFIT PLAN DISCLOSURES
SCHEDULE 0 - ENVIRONMENTAL DISCLOSURES
SCHEDULE 6.1.27 - YEAR 2000
SCHEDULE 7.14 - LANDLORD WAIVERS
SCHEDULE 0 - PERMITTED INDEBTEDNESS
EXHIBITS
EXHIBIT 1.1(A) - ASSIGNMENT AGREEMENT
EXHIBIT 1.1(B) - BORROWING BASE CERTIFICATE
EXHIBIT 1.1(C)(1) - COLLATERAL ASSIGNMENT OF INTELLECTUAL PROPERTY INTERESTS
EXHIBIT 1.1(G)(1) - ORIUS GUARANTY AND SURETYSHIP AGREEMENT
EXHIBIT 1.1(G)(2) - SUBSIDIARY GUARANTY AND SURETYSHIP AGREEMENT
EXHIBIT 1.1(H) - HIG SUBORDINATION AGREEMENT
EXHIBIT 1.1(N) - NATC REORGANIZATION MEMORANDUM
EXHIBIT 1.1(P)(1) - ORIUS PLEDGE AGREEMENT
EXHIBIT 1.1(P)(2) - BORROWER PLEDGE AGREEMENT
EXHIBIT 1.1(P)(3) - NATC PLEDGE AGREEMENT
EXHIBIT 1.1(R) - REVOLVING CREDIT NOTE
EXHIBIT 1.1(S) - SECURITY AGREEMENT
EXHIBIT 1.1(T)(1) - TERM NOTE A
EXHIBIT 1.1(T)(2) - TERM NOTE B
EXHIBIT 1.1(T)(3) - TERM NOTE C
EXHIBIT 2.5 - LOAN REQUEST
EXHIBIT 7.1.4 - OPINION OF COUNSEL
EXHIBIT 7.1.14 - LANDLORD WAIVERS
EXHIBIT 8.3.4 - BORROWER'S COMPLIANCE CERTIFICATE
</TABLE>
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<PAGE> 10
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is dated as of February 26, 1999 and is made by
and among NATG HOLDINGS, LLC, a Delaware limited liability company (the
"BORROWER"); NORTH AMERICAN TEL-COM GROUP, INC., a Florida corporation ("NATC");
ORIUS CORP., a Delaware corporation ("ORIUS"); MICH-COM CABLE SERVICES
INCORPORATED, a Michigan corporation ("MICH-COM"); CABLEMASTERS CORP., a
Pennsylvania corporation ("CABLEMASTERS"); CHANNEL COMMUNICATIONS, INC., a
Kansas corporation ("CHANNEL"); EXCEL CABLE CONSTRUCTION, INC., a Florida
corporation ("EXCEL"); U.S. Cable, INC., a Wisconsin corporation ("U.S. CABLE");
CATV Subscriber Services, Inc., a North Carolina corporation ("SUBSCRIBER
SERVICES"); STATE WIDE CATV, INC., a New York corporation ("STATE WIDE");
Burn-Techs, Inc., a Florida corporation ("BURN-TECHS"); DAS-CO of Idaho, Inc.,
an Idaho corporation ("DAS-CO"); Schatz Underground Cable, Inc., a Missouri
corporation ("SCHATZ"); Network Cabling Services, Inc., a Texas corporation
("NETWORK CABLING"); and Copenhagen Utilities & Construction, Inc., an Oregon
corporation ("Copenhagen") (each individually a "GUARANTOR" and collectively and
jointly and severally the "GUARANTORS"), the BANKS (as hereinafter defined),
MERRILL LYNCH & CO., MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, as
Joint Lead Arranger and Syndication Agent (hereinafter referred in such
capacities as the "SYNDICATION AGENT") and PNC BANK, NATIONAL ASSOCIATION, in
its capacity as Joint Lead Arranger and Administrative Agent for the Banks under
this Agreement (hereinafter referred to in such capacities as the
"ADMINISTRATIVE AGENT").
WITNESSETH:
WHEREAS, the Borrower has requested the Banks to provide (i) a
revolving credit facility to the Borrower in an amount not to exceed
$25,000,000; and (ii) a $120,000,000 term loan facility; and
WHEREAS, the revolving credit and term loan facilities shall be used
for certain permitted acquisitions as described herein and for general corporate
purposes; and
WHEREAS, the Banks are willing to provide such credit upon the terms
and conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto, in consideration of their mutual
covenants and agreements hereinafter set forth and intending to be legally bound
hereby, covenant and agree as follows:
1. CERTAIN DEFINITIONS
1.1 CERTAIN DEFINITIONS.
In addition to words and terms defined elsewhere in this
Agreement, the following words and terms shall have the following meanings,
<PAGE> 11
respectively, unless the context hereof clearly requires otherwise:
ACCOUNT shall mean an "account" as defined in the
Uniform Commercial Code as in effect in the jurisdiction whose Law governs the
perfection of the Banks' security interest therein, whether now owned or
hereafter acquired or arising.
ACCOUNT DEBTOR shall mean, with respect to any
Account, each Person who is obligated to make payments to the Borrower or a
Subsidiary Guarantor on such Account.
ACQUISITION AGREEMENT shall mean the Stock Purchase
Agreement and related documents (including disclosure schedules) between the
Borrower and the owners of the stock of any Target.
ADJUSTMENT DATE shall mean the date which is the
first Business Day of the month following the month when the due date occurs on
which the Borrower is required to deliver its consolidated financial statements
to the Administrative Agent pursuant to Sections 8.3.2 and 8.3.3. For example,
the Adjustment Date shall be the first Business Day of September with respect to
the financial statements of the Borrower delivered pursuant to Section 8.3.2 for
each fiscal quarter of the Borrower ended June 30.
ADMINISTRATIVE AGENT shall mean PNC Bank, National
Association, and its successors and assigns.
AGENTS' FEES shall have the meaning assigned to that
term in Section 0.
AFFILIATE as to any Person shall mean any other
Person (i) which directly or indirectly controls, is controlled by, or is under
common control with such Person, (ii) which beneficially owns or holds 10% or
more of any class of the voting or other equity interests of such Person, or
(iii) 10% or more of any class of voting interests or other equity interests of
which is beneficially owned or held, directly or indirectly, by such Person.
Control, as used in this definition, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise, including the power to elect a majority of the directors
or trustees of a corporation or trust, as the case may be.
AGENT shall mean any of the Administrative Agent and
the Syndication Agent.
AGREEMENT shall mean this Credit Agreement, as the
same may be amended, restated, supplemented or otherwise modified from time to
time, including all schedules and exhibits.
APPLICABLE MARGIN shall mean, as applicable:
(A) the percentage spread to be added to Base Rate
under the Revolving Credit Base Rate Option at the indicated level of the
Leverage Ratio in the Pricing Grid next to the heading "Revolving Credit Base
Rate Margin,"
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(B) the percentage spread to be added to Base Rate
under the Term Loan Base Rate Option with respect to Term Loan A at the
indicated level of the Leverage Ratio in the Pricing Grid next to the heading
"Term Loan A Base Rate Margin,"
(C) for the Term Loan Base Rate Option with respect
to Term Loan B, 275 basis points,
(D) for the Term Loan Base Rate Option with respect
to Term Loan C, 400 basis points,
(E) the percentage spread to be added to Euro-Rate
under the Revolving Credit Euro-Rate Option at the indicated level of the
Leverage Ratio in the Pricing Grid next to the heading "Revolving Credit
Euro-Rate Margin,"
(F) the percentage spread to be added to Euro-Rate
under the Term Loan Euro-Rate Option with respect to Term Loan A at the
indicated level of the Leverage Ratio in the Pricing Grid next to the heading
"Term Loan A Euro-Rate Margin,"
(G) for the Term Loan Euro-Rate Option with respect
to Term Loan B, 375 basis points, or
(H) for the Term Loan Euro-Rate Option with respect
to Term Loan C, 500 basis points.
The Applicable Margin shall be computed in accordance
with the parameters set forth on the Pricing Grid.
ANNUAL STATEMENTS shall have the meaning assigned to
that term in Section 0(i).
APPROVED FUND shall mean, with respect to any Bank
that is a fund or commingled investment vehicle that invests in loans, any other
fund that invests in loans and is managed or advised by the same investment
advisor as such Bank or by an Affiliate of such investment advisor.
ASSET SALE shall mean any sale of assets by any Loan
Party or any Subsidiary of the Borrower authorized by Section 8.2.7(v)
[Disposition of Assets or Subsidiaries] (excluding the sale of Inventory in the
ordinary course of business).
ASSIGNMENT AGREEMENT shall mean an Assignment
Agreement by and among a Purchasing Bank, a Transferor Bank and the Agents, as
Agents and on behalf of the remaining Banks, substantially in the form of
EXHIBIT 1.1(A).
AUTHORIZED OFFICER shall mean those individuals,
designated by written notice to the Agents from the Borrower, authorized to
execute notices, reports and other documents on behalf of the Loan Parties
required hereunder. The Borrower may amend such list of individuals from time to
time by giving written notice of such amendment to the Agents.
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<PAGE> 13
BALANCE SHEET ADJUSTMENT PAYMENTS shall mean payments
related to balance sheet adjustments made by Borrower (i) to the Sellers under
the Acquisition Agreement related to the acquisition of Copenhagen, and (ii) to
the Sellers under the Acquisition Agreement related to the acquisition of
DAS-CO.
BANKS shall mean each financial institution from time
to time a party hereto as a "Bank" and their respective successors and assigns
as permitted hereunder, each of which is referred to herein as a BANK.
BASE RATE shall mean the greater of (i) the interest
rate per annum announced from time to time by the Administrative Agent at its
Principal Office as its then prime rate, which rate may not be the lowest rate
then being charged commercial borrowers by the Administrative Agent, or (ii) the
Federal Funds Effective Rate plus 1/2% per annum.
BASE RATE OPTION shall mean either the Revolving
Credit Base Rate Option or the Term Loan Base Rate Option.
BENEFIT ARRANGEMENT shall mean at any time an
"employee benefit plan," within the meaning of Section 3(3) of ERISA, which is
neither a Plan nor a Multiemployer Plan and which is maintained, sponsored or
otherwise contributed to by any member of the ERISA Group.
BLOCKED ACCOUNT shall have the meaning given that
term in Section 5.5.5.
BORROWER shall have the meaning given in the recitals
to this Agreement.
BORROWER PLEDGE AGREEMENT shall mean the Borrower
Pledge Agreement dated as of the date hereof executed by the Borrower in
substantially the form of Exhibit 1.1(P)(2) executed and delivered by the
Borrower to the Administrative Agent for its benefit and for the benefit of the
Banks.
BORROWER UNITS shall have the meaning given that term
in Section 6.1.2.
BORROWER'S COMPLIANCE CERTIFICATE shall mean the form
of Compliance Certificate described in Section 8.3.4.
BORROWING BASE at any time shall mean the lesser of
(a) $25,000,000 (the maximum principal amount of the Revolving Credit Facility)
or (b) the sum of (x) 85% of Qualified Accounts at such time plus (y) 40% of
Qualified Inventory at such time.
BORROWING BASE CERTIFICATE shall mean each Borrowing
Base Certificate to be delivered by the Borrower to the Administrative Agent
pursuant to Section 2.2.2, in substantially the form attached as Exhibit 1.1(B),
with blanks appropriately completed, as amended, supplemented or otherwise
modified from time to time.
BORROWING DATE shall mean, with respect to any Loan,
the date for the making thereof or the renewal or conversion thereof at or to
the same or a different Interest Rate Option, which shall be a Business Day.
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BORROWING TRANCHE shall mean specified portions of
Loans outstanding as follows: (i) any Loans to which a Euro-Rate Option applies
which become subject to the same Interest Rate Option under the same Loan
Request by Borrower and which have the same Interest Period shall constitute one
Borrowing Tranche, and (ii) all Loans to which a Base Rate Option applies shall
constitute one Borrowing Tranche.
BUSINESS DAY shall mean any day other than a Saturday
or Sunday or a legal holiday on which commercial banks are authorized or
required to be closed for business in Pittsburgh, Pennsylvania and if the
applicable Business Day relates to any Loan to which the Euro-Rate Option
applies, such day must also be a day on which dealings are carried on in the
London interbank market.
CAPITAL LEASE shall mean, with respect to any Person,
any lease of (or other agreement conveying the right to use) any real or
personal property by such Person which, in conformity with GAAP, is accounted
for as a capital lease on the balance sheet of such Person.
CASUALTY EVENT shall mean, with respect to any
property or assets (including Property) of any Person, any loss of title with
respect to Property or any loss of or damage to or destruction of, or any
condemnation or other taking (including by any Official Body) of, such property
or assets (including Property) for which such Person or any of its Subsidiaries
receives insurance proceeds or proceeds of a condemnation award or other
compensation; PROVIDED, however, that no such event shall constitute a Casualty
Event if such proceeds or other compensation in respect thereof is less than
$100,000. Casualty Event shall include but not be limited to any taking of any
Property of any Loan Party or any part thereof, in or by condemnation or other
eminent domain proceedings pursuant to any law, general or special, or by reason
of the temporary requisition of the use or occupancy of any Property of any Loan
Party or any part thereof, by any Official Body, civil or military.
CERCLA shall have the meaning assigned to that term
in Section 6.1.25.
CHANGE OF CONTROL shall mean any transaction or event
(including, without limitation, an issuance, sale or exchange of Equity
Interests, a merger or consolidation, or a dissolution or liquidation) occurring
on or after the date hereof (whether or not approved by the board of directors
of Orius) as a direct or indirect result of which (a) at least a majority of the
board of directors of Orius is not comprised of William J. Mercurio (or another
person acceptable to HIG) and designees of HIG; (b) HIG Investment Group, L.P.,
a Cayman Islands limited partnership, Persons under the control (as defined in
the definition of "Affiliate") of HIG Investment Group, L.P., and management
employees of any of them shall fail to directly or indirectly own 100% of the
Equity Interest in HIG Cable, Inc. or HIG Cable West, Inc. or shall fail to
control at least a majority of the board of directors of either of them; (c)
except for transfers of capital stock of Orius to HIG as a result of failure to
meet financial results, any of William J. Mercurio, Joseph P. Powers or Robert
J. Garrett shall cease to own any Equity Interests in Orius held by each of them
on the Closing Date or acquired by any of them after the Closing Date, PROVIDED
that William J. Mercurio, Joseph P. Powers and Robert J. Garrett each may sell
or otherwise transfer up to 20% of the Equity Interests held by such person
(with the 20% determined based upon Equity Interests of Orius held by such
person on the date of the first permitted sale or permitted transfer by such
person) at any time on or after the consummation of
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<PAGE> 15
the Initial Public Offering; (d) HIG shall cease to own any Equity Interests in
Orius held by it on the Closing Date or acquired by it after the Closing Date,
PROVIDED that HIG may sell or otherwise transfer up to 20% of the Equity
Interests held by HIG (with the 20% determined based upon Equity Interests of
Orius held by it on the date of the first sale or transfer by HIG) so long as
the transferee(s) of any preferred stock of Orius becomes a party to the HIG
Subordination Agreement; or (e) either of William J. Mercurio or Joseph P.
Powers shall cease to hold the position(s) with Orius and its Subsidiaries held
by each of them on the Closing Date and the Borrower shall have failed to
replace such person(s) with person(s) acceptable to the Agents within 90 days of
the date such person ceased to hold such office.
CLOSING DATE shall mean February 26, 1999, or, if all
the conditions specified in Section 0 have not been satisfied or waived by such
date, not later than March 15, 1999, as designated by the Borrower by at least
two Business Days' advance notice to the Administrative Agent at its Principal
Office, or such other date as the parties agree. The closing shall take place at
10:00 a.m., Eastern Standard Time, on the Closing Date at the offices of Holland
& Knight LLP, One East Broward Boulevard, Ft. Lauderdale, Florida 33302, or at
such other time and place as the parties agree.
COLLATERAL shall mean the Pledged Collateral, the UCC
Collateral, the Intellectual Property Collateral and any other property or
assets from time to time pledged to secure the Obligations.
COLLATERAL ASSIGNMENT OF INTELLECTUAL PROPERTY
INTERESTS shall mean each Collateral Assignment of and Ratification of Security
Interest in Intellectual Property Interests in substantially the form of Exhibit
1.1(C)(1) and delivered to the Administrative Agent for its benefit and for the
benefit of the Banks.
COMMERCIAL LETTER OF CREDIT shall mean any Letter of
Credit which is a commercial letter of credit issued in respect of the purchase
of goods or services by one or more of the Loan Parties in the ordinary course
of their business.
COMMITMENT shall mean as to any Bank the aggregate of
its Revolving Credit Commitment, Term Loan A Commitment, Term Loan B Commitment
and Term Loan C Commitment, and COMMITMENTS shall mean the aggregate of the
Revolving Credit Commitments and Term Loan Commitments of all of the Banks.
COMMITMENT FEE shall have the meaning assigned to
that term in Section 0.
CONSIDERATION shall mean with respect to any
Permitted Acquisition, the aggregate of (i) the cash paid by any of the Loan
Parties, directly or indirectly, to the seller or any lender to the Person whose
stock or assets are the subject of the Permitted Acquisition in connection
therewith, (ii) the Indebtedness incurred or assumed by any of the Loan Parties
or indebtedness of the target company in a stock acquisition not repaid as part
of such acquisition, in each case, whether in favor of the seller or otherwise
and whether fixed or contingent, (iii) any Guaranty given or incurred by any
Loan Party in connection therewith, and (iv) any other consideration given
(excluding common stock of Orius) or obligation incurred.
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CONSOLIDATED CASH FLOW FROM OPERATIONS for any period
of determination shall mean (i) the sum of net income, depreciation,
amortization, other extraordinary (as defined under GAAP) non-cash charges to
net income, interest expense and income tax expense minus (ii) extraordinary (as
defined under GAAP) non-cash credits to net income and cash payments made in
such period applied to reserves established in prior periods for extraordinary
items, in each case on a consolidated basis of Orius, the Borrower and its
Subsidiaries for such period determined and consolidated in accordance with
GAAP.
COPENHAGEN SUBORDINATION AGREEMENT shall mean the
Subordination Agreement dated as of the date hereof among the Borrower, the
Sellers party to the Copenhagen Acquisition Agreement and the Administrative
Agent, on behalf of the Banks, containing terms and conditions satisfactory to
the Agents.
COVERED TAXES shall mean any and all Taxes, other
than, in the case of each Bank or Agent, Taxes of any jurisdiction (or any
political subdivision thereof) imposed on or measured by such Bank's or such
Agent's net income or net profits, that arise by reason of a former, present or
future connection between such Bank or Agent and such jurisdiction (including,
without limitation, a connection arising from such Bank or Agent being or having
been a citizen or resident of such jurisdiction, or being or having been
organized, managed present or engaged in a trade or business in such
jurisdiction, or having or having had a permanent establishment or fixed place
of business in such jurisdiction, but excluding a connection arising solely from
such Bank or Agent having executed, delivered, performed its obligations or
received a payment under this Agreement). For the avoidance of doubt, Covered
Taxes shall include any deductions or withholdings by a Loan Party on account of
any Taxes from payments made under this Agreement or any other Loan Document.
CREDITOR shall mean (i) each Agent, (ii) each Bank,
and (iii) each party to an Interest Rate Protection Agreement relating to the
Loans if at the date of entering into an Interest Rate Protection Agreement such
Person was a Bank or an Affiliate of a Bank.
DOLLAR, DOLLARS, U.S. DOLLARS and the symbol $ shall
mean lawful money of the United States of America.
DRAWING DATE shall have the meaning assigned to that
term in Section 0.
EARN OUT OBLIGATION shall mean any deferred payment
obligation owed by the Borrower and required to be made under the Copenhagen
Acquisition Agreement or the Network Cabling Acquisition Agreement, with the
accuracy of the calculation of such payments subject to the approval of Agents.
ELIGIBLE PERSON shall mean (i) a commercial bank
organized under the laws of the United States, or any state thereof, and having
a combined capital and surplus of at least $100.0 million; (ii) a commercial
bank organized under the laws of any other country that is a member of the
Organization for Economic Cooperation and Development (the "OECD"), or a
political subdivision of any such country, and having combined capital and
surplus in a dollar equivalent amount of at least $100.0 million; PROVIDED,
HOWEVER, that such bank is acting through a branch or agency located in the
country in which it is organized or another country that is also a
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<PAGE> 17
member of the OECD; (iii) an insurance company, mutual fund or other entity
which is regularly engaged in making, purchasing or investing in loans or
securities; or any other financial institution organized under the laws of the
United States, any state thereof, any other country that is a member of the OECD
or a political subdivision of any such country with assets, or assets under
management, in a dollar equivalent amount of at least $100.0 million; (iv) any
Affiliate of a Bank; (v) any other entity (other than a natural person) which is
an "accredited investor" (as defined in Regulation D under the United States
Securities Act of 1933, as amended) which extends credit or buys loans as one of
its businesses including, but not limited to, insurance companies, mutual funds
and investment funds; and (vi) any other entity consented to by each of the
Agents and the Borrower. With respect to any Bank that is a fund or commingled
investment vehicle that invests in loans, any other fund or commingled
investment vehicle that invests in loans and is managed or advised by the same
investment advisor of such Bank or by an Affiliate of such investment advisor
shall be treated as a single Eligible Person.
ENFORCEMENT shall have the meaning assigned to that
term in Section 11.19.2.
ENVIRONMENTAL CLAIMS means all claims, however
asserted, by any Official Body or other Person alleging potential liability
under, or responsibility for violation of, any Environmental Law, or for any
release or threatened release of a Regulated Substance.
ENVIRONMENTAL LAWS means all applicable federal,
state, local and foreign laws, and regulations, rules, treaties, orders,
decrees, permits, licenses, authorizations, judgments or injunctions issued,
promulgated, approved or entered thereunder and the common law, now or hereafter
in effect, in each case relating to pollution or protection of employee health
or safety or the environment (including, without limitation, ambient and indoor
air, surface water, groundwater, soil, land surface or subsurface and natural
resources such as wetlands, flora and fauna) including, without limitation, laws
relating to (a) emissions, discharges, releases or threatened releases of
Regulated Substances into the environment and (b) the manufacture, processing,
distribution, use, generation, treatment, storage, disposal, transport or
handling of Regulated Substances.
EQUITY INTERESTS shall mean, with respect to any
Person, any and all shares, interests, participations or other equivalents,
including membership interests (however designated, whether voting or
non-voting), of capital of such Person, including, if such Person is a
partnership, partnership interests (whether general or limited) and any other
interest or participation that confers on a Person the right to receive a share
of the profits and losses of, or distributions of assets of, such partnership,
whether outstanding on the date hereof or issued after the Closing Date.
ERISA shall mean the Employee Retirement Income
Security Act of 1974, as the same may be amended or supplemented from time to
time, and any successor statute of similar import, and the rules and regulations
thereunder, as from time to time in effect.
ERISA GROUP shall mean, at any time, the Borrower and
all members of a controlled group of corporations and all trades or businesses
(whether or not incorporated) under common control and all other entities which,
together with the Borrower, are treated as a single employer under Section 414
of the Internal Revenue Code.
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<PAGE> 18
EURO-RATE shall mean, with respect to the Loans
comprising any Borrowing Tranche to which the Euro-Rate Option applies for any
Interest Period, the interest rate per annum determined by the Administrative
Agent by dividing (the resulting quotient rounded upwards, if necessary, to the
nearest 1/100th of 1% per annum) (i) the rate of interest determined by the
Administrative Agent in accordance with its usual procedures (which
determination shall be conclusive absent manifest error) to be the average of
the London interbank offered rates for U.S. Dollars quoted by the British
Bankers' Association as set forth on Dow Jones Markets Service (formerly known
as Telerate) display page 3750 (or appropriate successor or, if the British
Bankers' Association or its successor ceases to provide such quotes, a
comparable replacement determined by the Administrative Agent) two (2) Business
Days prior to the first day of such Interest Period for an amount comparable to
such Borrowing Tranche and having a borrowing date and a maturity comparable to
such Interest Period by (ii) a number equal to 1.00 minus the Euro-Rate Reserve
Percentage. The Euro-Rate may also be expressed by the following formula:
Average of London interbank offered rates on Dow
Jones Markets Service display page 3750 as quoted by
Euro-Rate = BRITISH BANKERS' ASSOCIATION OR APPROPRIATE SUCCESSOR
-----------------------------------------------------
1.00 - Euro-Rate Reserve Percentage
The Euro-Rate shall be adjusted with respect to any Euro-Rate Option outstanding
on the effective date of any change in the Euro-Rate Reserve Percentage as of
such effective date. The Administrative Agent shall give prompt notice to the
Borrower of the Euro-Rate as determined or adjusted in accordance herewith,
which determination shall be conclusive absent manifest error.
EURO-RATE OPTION shall mean either the Revolving
Credit Euro-Rate Option or the Term Loan Euro-Rate Option.
EURO-RATE RESERVE PERCENTAGE shall mean the maximum
percentage (expressed as a decimal rounded upward to the nearest 1/100 of 1%) as
determined by the Administrative Agent which is in effect during any relevant
period, as prescribed by the Board of Governors of the Federal Reserve System
(or any successor) for determining the reserve requirements (including
supplemental, marginal and emergency reserve requirements) with respect to
eurocurrency funding (currently referred to as "Eurocurrency Liabilities") of a
member bank in such System.
EVENT OF DEFAULT shall mean any of the events
described in Section 0 and referred to therein as an "Event of Default."
EXCESS CASH FLOW shall be computed as of the close of
each fiscal year by taking the difference between Consolidated Cash Flow from
Operations for such fiscal year and Fixed Charges for such fiscal year and
adding to such difference decreases in Working Capital in such fiscal year or
subtracting from such difference increases in Working Capital in such fiscal
year and subtracting from the resulting subtotal (x) cash consideration paid in
connection with Permitted Acquisitions in such year, and (y) cash payments made
with respect to Earn Out Obligations in such year. All determinations of Excess
Cash Flow shall be based on the immediately preceding fiscal year. For purposes
of calculating Excess Cash Flow for 1999, the
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<PAGE> 19
change in Working Capital will be computed based on the balance sheet of the
Borrower and its Subsidiaries as of the Closing Date immediately following
consummation of the Transactions and the audited balance sheet of the Borrower
and its Subsidiaries as of December 31, 1999.
EXCLUDED ISSUANCE shall have the meaning assigned to
that term in Section 5.5.3.
EXISTING BANK INDEBTEDNESS shall mean all amounts
outstanding under the Amended and Restated Credit Agreement dated August 31,
1998 among North American Tel-Com Group, Inc., Mich-Com Cable Services
Incorporated, Cablemasters Corp., Channel Communications, Inc., Excel Cable
Construction, Inc., U.S. Cable, Inc., CATV Subscriber Services, Inc., State Wide
CATV, Inc., Burn-Techs, Inc. and The Banks Party thereto and PNC Bank, National
Association, as Agent.
EXISTING DEBT shall mean the Existing Bank
Indebtedness and all other Indebtedness of the Borrower and its Subsidiaries
(including the Targets) which is not Permitted Indebtedness.
EXPIRATION DATE shall mean, with respect to the
Revolving Credit Commitments, February 26, 2004.
FEDERAL FUNDS EFFECTIVE RATE for any day shall mean
the rate per annum (based on a year of 360 days and actual days elapsed and
rounded upward to the nearest 1/100 of 1%) announced by the Federal Reserve Bank
of New York (or any successor) on such day as being the weighted average of the
rates on overnight federal funds transactions arranged by federal funds brokers
on the previous trading day, as computed and announced by such Federal Reserve
Bank (or any successor) in substantially the same manner as such Federal Reserve
Bank computes and announces the weighted average it refers to as the "Federal
Funds Effective Rate" as of the date of this Agreement; PROVIDED, if such
Federal Reserve Bank (or its successor) does not announce such rate on any day,
the "Federal Funds Effective Rate" for such day shall be the Federal Funds
Effective Rate for the last day on which such rate was announced.
FEE LETTER shall have the meaning assigned to that
term in Section 0.
FINANCIAL PROJECTIONS shall have the meaning assigned
to that term in Section 0(ii).
FIRST PRIORITY DEBT shall have the meaning assigned
to that term in Section 11.19.1.
FIRST PRIORITY FACILITIES shall mean Term Loan A,
Term Loan B and the Revolving Credit Facility and any additional extensions of
credit hereunder consented by the Required Banks to be a part of the First
Priority Facility.
FIXED CHARGE COVERAGE RATIO shall mean the ratio of
Consolidated Cash Flow from Operations to Fixed Charges.
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FIXED CHARGES shall mean for any period of
determination the sum of cash interest expense, income taxes (excluding the
deferred portion), scheduled principal installments on Indebtedness (as adjusted
for prepayments), capital expenditures (other than to the extent funded from the
proceeds of incurrence of debt (other than debt incurred under this Agreement)
the proceeds of the issuance of equity or the proceeds of any asset sales out of
the ordinary course of business), and payments under Capital Leases, in each
case of Orius, the Borrower and its Subsidiaries for such period determined and
consolidated in accordance with GAAP.
FOREIGN BANK CERTIFICATES shall have the meaning
assigned to that term in Section 5.8.
GAAP shall mean generally accepted accounting
principles as are in effect from time to time, subject to the provisions of
Section 0, and applied on a consistent basis both as to classification of items
and amounts.
GUARANTOR JOINDER shall mean a joinder by a Person as
a Guarantor under this Agreement, the Guaranty Agreement and the other Loan
Documents in a form acceptable to the Agents.
GUARANTY of any Person shall mean any obligation of
such Person guaranteeing or in effect guaranteeing any liability or obligation
of any other Person in any manner, whether directly or indirectly, including any
agreement to indemnify or hold harmless any other Person, any performance bond
or other suretyship arrangement and any other form of assurance against loss,
except endorsement of negotiable or other instruments for deposit or collection
in the ordinary course of business.
HIG shall mean HIG Cable, Inc., a Cayman Island
corporation, and HIG Cable West, Inc., a Cayman Island corporation.
HIG SUBORDINATED INDEBTEDNESS shall mean the
$1,000,000 in principal amount of Amended and Restated Junior Subordinated
Convertible Notes issued by NATC to HIG and containing terms and conditions
acceptable to the Agents.
HIG SUBORDINATION AGREEMENT shall mean the HIG
Subordination Agreement dated as of the date hereof executed and delivered by
the Borrower, the Guarantors and HIG in substantially the form attached hereto
as Exhibit 1.1(H) and accepted by the Administrative Agent for the benefit of
the Banks.
HISTORICAL STATEMENTS shall have the meaning assigned
to that term in Section 0(i).
INDEBTEDNESS shall mean, as to any Person at any
time, any and all indebtedness, obligations or liabilities (whether matured or
unmatured, liquidated or unliquidated, direct or indirect, absolute or
contingent, or joint or several) of such Person for or in respect of: (i)
indebtedness of such Person for borrowed money, whether or not evidenced by
bonds, debentures, notes or similar instruments, (ii) all obligations of such
Person as lessee under Capital Leases which under GAAP are required to be
recorded as liabilities on a balance sheet of such
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<PAGE> 21
Person, (iii) all obligations of such Person to pay the deferred purchase price
of property or services (other than any Earn Out Obligation, obligations with
respect to Balance Sheet Adjustment Payments and any current accounts payable in
the ordinary course of business), (iv) all indebtedness secured by a Lien on the
property of such Person, whether or not such indebtedness shall have been
assumed by such Person (it being understood that if such Person has not assumed
or otherwise become personally liable for any such indebtedness, the amount of
the Debt of such Person in connection therewith shall be limited to the lesser
of the face amount of such indebtedness or the fair market value of all property
of such Person securing such indebtedness), (v) all obligations, contingent or
otherwise, with respect to the face amount of all letters of credit (whether or
not drawn) and banker's acceptances issued for the account of such Person
(including, without limitation, the Letters of Credit), (vi) liabilities of such
Person in respect of hedging agreements, currency swap agreements, interest rate
swap, cap, collar or floor agreement or other interest rate management device
(excluding the Interest Rate Protection Agreement), and (vii) Guaranty of
Indebtedness for borrowed money, but excluding trade payables and accrued
expenses incurred in the ordinary course of business which are not represented
by a promissory note or other evidence of indebtedness and which are not more
than thirty (30) days past due.
INITIAL PUBLIC OFFERING shall mean a primary
underwritten public offering of the common stock of Orius at any time after the
Closing Date, other than any public offering or sale pursuant to a registration
statement on Form S-8 or a comparable form.
INSOLVENCY PROCEEDING shall mean, with respect to any
Person, (a) a case, action or proceeding with respect to such Person (i) before
any court or any other Official Body under any bankruptcy, insolvency,
reorganization or other similar Law now or hereafter in effect, or (ii) for the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator, conservator (or similar official) of any Loan Party or otherwise
relating to the liquidation, dissolution, winding-up or relief of such Person,
or (b) any general assignment for the benefit of creditors, composition,
marshaling of assets for creditors, or other, similar arrangement in respect of
such Person's creditors generally or any substantial portion of its creditors;
undertaken under any Law.
INTELLECTUAL PROPERTY COLLATERAL shall mean all of
the property described in each Collateral Assignment of Intellectual Property
Interests delivered to the Administrative Agent on the date hereof or from time
to time after the date hereof pursuant to the provisions of Section 11.18.
INTEREST PERIOD shall have the meaning assigned to
such term in Section 0.
INTEREST RATE OPTION shall mean any Euro-Rate Option
or Base Rate Option.
INTEREST RATE PROTECTION AGREEMENT shall have the
meaning given that term in Section 8.1.13.
INTERIM STATEMENTS shall have the meaning assigned to
that term in Section 0(i).
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INTERNAL REVENUE CODE shall mean the Internal Revenue
Code of 1986, as the same may be amended or supplemented from time to time, and
any successor statute of similar import, and the rules and regulations
thereunder, as from time to time in effect.
INVENTORY shall mean all of the "inventory" (as such
term is defined in the Uniform Commercial Code) of the Borrower and the
Subsidiary Guarantors, including, but not limited to, all merchandise, raw
materials, parts, and supplies.
INVESTOR AFFILIATES shall mean (i) each Affiliate of
HIG and (ii) any other Person that holds Equity Interests in Orius if HIG or any
Investor Affiliate described in clause (i) above has at the time of
determination the power to vote (or cause to be voted at its discretion),
pursuant to contract, irrevocable proxy or otherwise the shares held by such
other Person.
KEY MAN LIFE INSURANCE shall have the meaning
assigned to that term in Section 7.1.20.
LABOR CONTRACTS shall mean all employment agreements,
employment contracts, collective bargaining agreements and other agreements
among any Loan Party or Subsidiary of a Loan Party and its employees, excluding
any employment contract where annual cash compensation is less than $75,000.
LANDLORD WAIVER shall mean the Landlord Waiver in the
form attached as Exhibit 7.1.14.
LAW shall mean any law (including common law),
constitution, statute, treaty, regulation, rule, ordinance, opinion, release,
ruling, order, injunction, writ, decree or award of any Official Body.
LETTER OF CREDIT shall have the meaning assigned to
that term in Section 0.
LETTER OF CREDIT BORROWING shall mean an extension of
credit resulting from a drawing under any Letter of Credit which shall not have
been reimbursed on the date when made and shall not have been converted into a
Revolving Credit Loan under Section 0.
LETTER OF CREDIT FEE shall have the meaning assigned
to that term in Section 0.
LETTERS OF CREDIT OUTSTANDING shall mean at any time
the sum of (i) the aggregate undrawn face amount of outstanding Letters of
Credit and (ii) the aggregate amount of all unpaid and outstanding Reimbursement
Obligations.
LEVERAGE RATIO shall mean at any date the ratio of
Total Indebtedness at such date to Consolidated Cash Flow from Operations for
the four fiscal quarters then most recently ended.
LIEN shall mean any mortgage, deed of trust, pledge,
lien, security interest, charge or other encumbrance or security arrangement of
any nature whatsoever, whether voluntarily or involuntarily given, including any
conditional sale or title retention arrangement,
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<PAGE> 23
and any assignment, deposit arrangement or lease intended as, or having the
effect of, security and any filed financing statement or other notice of any of
the foregoing (whether or not a lien or other encumbrance is created or exists
at the time of the filing).
LOAN DOCUMENTS shall mean the Agreement, the Fee
Letter, each Collateral Assignment of Intellectual Property Rights, the Orius
Guaranty Agreement, the Subsidiary Guaranty Agreement, the Notes, the Orius
Pledge Agreement, the Borrower Pledge Agreement, the NATC Pledge Agreement, the
Security Agreement, the Interest Rate Protection Agreement (subject to the
provisions of Section 8.1.13), the HIG Subordination Agreement, the Network
Cabling Subordination Agreement, the Copenhagen Subordination Agreement and any
other instruments, certificates or documents delivered or contemplated to be
delivered hereunder or thereunder or in connection herewith or therewith, as the
same may be supplemented or amended from time to time in accordance herewith or
therewith, and LOAN DOCUMENT shall mean any of the Loan Documents.
LOAN PARTIES shall mean the Borrower and the
Guarantors.
LOAN REQUEST shall have the meaning given to such
term in Section 0.
LOANS shall mean collectively and LOAN shall mean
separately all Revolving Credit Loans and the Term Loans or any Revolving Credit
Loan or any Term Loan.
LOSSES of any Person shall mean the losses,
liabilities, claims (including those based upon negligence, strict or absolute
liability and liability in tort), damages, reasonable expenses, obligations,
penalties, actions, judgments, encumbrances, liens, penalties, fines, suits,
reasonable and documented costs or disbursements of any kind or nature
whatsoever (including reasonable fees and expenses of counsel in connection with
any proceeding commenced or threatened in writing, whether or not such Person
shall be designated a party thereto) at any time (including following the
payment of the Obligations) incurred by, imposed on or asserted against such
Person.
MANDATORY PREPAYMENT DATE shall have the meaning
assigned to that term in Section 0.
MANDATORY PREPAYMENT OF EXCESS CASH FLOW shall have
the meaning assigned to that term in Section 0.
MATERIAL ADVERSE CHANGE shall mean (a) any material
adverse change or any condition or event that could reasonably be expected to
result in a material adverse change in the business, assets, operations,
properties, liabilities, condition (financial or otherwise) or prospects of (x)
Borrower or any Target for determinations made with respect to points in time at
or prior to the Closing Date, in each case together with their respective
Subsidiaries taken as a whole, as the case may be, or (y) Borrower and its
Subsidiaries taken as a whole for determinations made with respect to points in
time after the Closing Date, (b) any set of circumstances or events which has or
could reasonably be expected to have any material adverse effect whatsoever upon
the validity or enforceability of this Agreement or any other Loan Document, or
(c) any set of circumstances or events which impairs materially or could
reasonably
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<PAGE> 24
be expected to impair materially the ability of the Loan Parties taken as a
whole to duly and punctually pay or perform the Obligations.
MERRILL LYNCH shall mean Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, and its successors and assigns.
MONTH, with respect to an Interest Period under the
Euro-Rate Option, shall mean the interval between the days in consecutive
calendar months numerically corresponding to the first day of such Interest
Period. If any Euro-Rate Interest Period begins on a day of a calendar month for
which there is no numerically corresponding day in the month in which such
Interest Period is to end, the final month of such Interest Period shall be
deemed to end on the last Business Day of such final month.
MULTIEMPLOYER PLAN shall mean any employee benefit
plan which is a "multiemployer plan" within the meaning of Section 4001(a)(3) of
ERISA and to which the Borrower or any member of the ERISA Group is then making
or accruing an obligation to make contributions or, within the preceding five
Plan years, has made or had an obligation to make such contributions.
MULTIPLE EMPLOYER PLAN shall mean a Plan which has
two or more contributing sponsors (including the Borrower or any member of the
ERISA Group) at least two of whom are not under common control, as such a plan
is described in Sections 4063 and 4064 of ERISA.
NATC shall have the meaning given in the recitals to
this Agreement.
NATC PLEDGE AGREEMENT shall mean the NATC Pledge
Agreement dated of even date herewith executed by NATC, in substantially the
form of EXHIBIT 1.1(P)(3) executed and delivered by NATC to the Administrative
Agent for its benefit and for the benefit of the Banks.
NATC REORGANIZATION shall mean the corporate
reorganization described in Sections I and IV of the Summary of Proposed
Transactions - North American Tel-Com Group, Inc. (the "NATC REORGANIZATION
MEMORANDUM") attached hereto as EXHIBIT 1.1(N).
NETWORK CABLING SUBORDINATION AGREEMENT shall mean
the Subordination Agreement dated as of the date hereof among the Borrower, the
Sellers party to the Network Cabling Acquisition Agreement and the
Administrative Agent, on behalf of the Banks, containing terms and conditions
satisfactory to the Agents.
NOTES shall mean the Revolving Credit Notes and the
Term Notes.
NOTICES shall have the meaning assigned to that term
in Section 0.
OBLIGATION shall mean any obligation or liability of
any of the Loan Parties to any Agent or any Bank, howsoever created, arising or
evidenced, whether direct or indirect, absolute or contingent, now or hereafter
existing, or due or to become due, under or in
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connection with the Agreement, the Notes, the Letters of Credit, the Fee Letter,
the Interest Rate Protection Agreement or any other Loan Document.
OCCUPATIONAL SAFETY AND HEALTH LAW means the
Occupational Safety and Health Act of 1970 and any other federal, state or local
statute, law, ordinance, code, rule, regulation, order or decree regulating,
relating to or imposing liability or standards of conduct concerning employee
health and/or safety.
OFFICIAL BODY shall mean any national, federal,
state, local or other government or political subdivision or any agency,
authority, bureau, central bank, commission, department or instrumentality of
either, or any court, tribunal, grand jury or arbitrator, in each case whether
foreign or domestic.
ORIUS shall have the meaning given in the recitals to
this Agreement.
ORIUS GUARANTY AGREEMENT shall mean the Orius
Guaranty and Suretyship Agreement dated of even date herewith in substantially
the form of EXHIBIT 1.1(G)(1) executed and delivered by Orius to the
Administrative Agent for its benefit and for the benefit of the Banks.
ORIUS PLEDGE AGREEMENT shall mean the Orius Pledge
Agreement dated of even date herewith in substantially the form of EXHIBIT
1.1(P)(1) executed and delivered by Orius to the Administrative Agent for its
benefit and for the benefit of the Banks.
ORIUS PREFERRED STOCK shall mean the shares of Series
A Preferred Stock and Series B Preferred Stock issued by Orius to HIG as a
result of the NATC Reorganization, each containing terms and conditions
acceptable to the Agents.
ORIUS SHARES shall have the meaning assigned to that
term in Section 0.
PARTICIPATION ADVANCE shall mean, with respect to any
Bank, such Bank's payment in respect of its participation in a Letter of Credit
Borrowing according to its Ratable Share of the Revolving Credit Commitments
pursuant to Section 0 [Disbursements, Reimbursement].
PBGC shall mean the Pension Benefit Guaranty
Corporation established pursuant to Subtitle A of Title IV of ERISA or any
successor.
PERMITTED ACQUISITION shall have the meaning assigned
that term in Section 8.2.6.
PERMITTED INVESTMENTS shall mean:
(i) direct obligations of the United States
of America or any agency or instrumentality thereof or
obligations backed by the full faith and credit of the United
States of America maturing in twelve (12) months or less from
the date of acquisition;
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<PAGE> 26
(ii) commercial paper maturing in 180 days
or less rated not lower than A-1, by Standard & Poor's or P-1
by Moody's Investors Service, Inc. on the date of acquisition;
(iii) demand deposits, time deposits or
certificates of deposit maturing within one year in commercial
banks whose obligations are rated A-1, A or the equivalent or
better by Standard & Poor's on the date of acquisition; and
(iv) Permitted Acquisitions.
PERMITTED INDEBTEDNESS shall have the meaning
assigned to that term in Section 8.2.1.
PERMITTED LIENS shall mean:
(i) Liens for taxes, assessments, or similar
charges, incurred in the ordinary course of business and which are not yet due
and payable;
(ii) Pledges or deposits made in the
ordinary course of business to secure payment of workmen's compensation, or to
participate in any fund in connection with workmen's compensation, unemployment
insurance, old-age pensions or other social security programs;
(iii) Liens of mechanics, materialmen,
warehousemen, carriers, or other like Liens, securing obligations incurred in
the ordinary course of business that are not yet due and payable and Liens of
landlords securing obligations to pay lease payments that are not yet due and
payable or in default;
(iv) Good-faith pledges or deposits made in
the ordinary course of business to secure performance of bids, tenders,
contracts (other than for the repayment of borrowed money) or leases, not in
excess of the aggregate amount due thereunder, or to secure statutory
obligations, or surety, appeal, indemnity, performance or other similar bonds
required in the ordinary course of business;
(v) Encumbrances consisting of zoning
restrictions, easements or other restrictions on the use of real property, none
of which materially impairs the use of such property or the value thereof, and
none of which is violated in any material respect by existing or proposed
structures or land use;
(vi) Liens, security interests and mortgages
in favor of the Administrative Agent for its benefit and for the benefit of the
Banks securing the Obligations;
(vii) Liens on property leased by any Loan
Party or Subsidiary of a Loan Party under capital and operating leases permitted
in Section 8.2.16 securing obligations of such Loan Party or Subsidiary to the
lessor under such leases;
(viii) Any Lien existing on the date of this
Agreement and described on SCHEDULE 1.1(P)(1), PROVIDED that the principal
amount secured thereby does not
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exceed $2,000,000 as of the Closing Date, is not hereafter increased, and no
additional assets become subject to such Liens;
(ix) Purchase Money Security Interests,
PROVIDED that the aggregate amount of loans and deferred payments secured by
such Purchase Money Security Interests shall not exceed $1,000,000 in the
aggregate among the Borrower and its Subsidiaries (excluding for the purpose of
this computation any loans or deferred payments secured by Liens described on
SCHEDULE 1.1(P)(1));
(x) Liens existing on the date of a
Permitted Acquisition with respect to the target of the Permitted Acquisition,
which are identified in the Supplemental Schedules delivered by the Borrower to
the Administrative Agent as set forth in Section 8.2.6 hereof and which the
Administrative Agent agrees may be Permitted Liens; and
(xi) The following, (A) if the validity or
amount thereof is being contested in good faith by appropriate and lawful
proceedings diligently conducted so long as levy and execution thereon have been
stayed and continue to be stayed or (B) if a final judgment is entered and such
judgment is discharged within thirty (30) days of entry, and in either case they
do not affect the Collateral or, in the aggregate, materially impair the ability
of any Loan Party to perform its Obligations hereunder or under the other Loan
Documents:
(1) Claims or Liens for taxes, assessments or charges
due and payable and subject to interest or penalty, PROVIDED
that the applicable Loan Party maintains such reserves or
other appropriate provisions as shall be required by GAAP and
pays all such taxes, assessments or charges forthwith upon the
commencement of proceedings to foreclose any such Lien;
(2) Claims, Liens or encumbrances upon, and defects
of title to, real or personal property other than the
Collateral, including any attachment of personal or real
property or other legal process prior to adjudication of a
dispute on the merits;
(3) Claims or Liens of mechanics, materialmen,
warehousemen, carriers, or other statutory nonconsensual
Liens; or
(4) Liens resulting from final judgments or orders
described in Section 9.1.6; and
(xii) Liens on certain inventory, equipment
and general intangibles specified in various security agreements between Channel
Communications, Inc. and TCI Atlantic, Inc., TCI Great Lakes, Inc. and TCI
Central, Inc., existing on the Closing Date, PROVIDED (i) that the value of the
assets securing obligations under such security agreements does not exceed
$7,000,000 at any time on or after the Closing Date, and (ii) that such liens
are released and discharged not later than sixty days after the Closing Date or
other arrangements acceptable to the Agents are made with respect to such liens
on or prior to such 60th day following the Closing Date.
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PERMITTED HOLDERS shall mean HIG, the Investor
Affiliates and the Permitted Transferees.
PERMITTED TRANSFEREE shall mean, with respect to any
individual, (i) such individual's spouse or children (natural or adopted), any
trust for such individual's benefit or the benefit of such individual's spouse
or children (natural or adopted), or any corporation or partnership in which the
direct and beneficial owner of all of the equity interest is such Person or such
individual's spouse or children (natural or adopted) or any trust for the
benefit of such person; or (ii) the heirs, executors, administrators or personal
representatives upon the death of such person or upon the incompetency or
disability of such person for purposes of the protection and management of such
individual's assets.
PERSON shall mean any individual, corporation,
partnership, limited liability company, association, joint-stock company, trust,
unincorporated organization, joint venture, government or political subdivision
or agency thereof, or any other entity.
PLAN shall mean at any time an employee pension
benefit plan (including a Multiple Employer Plan, but not a Multiemployer Plan)
which is covered by Title IV of ERISA or is subject to the minimum funding
standards under Section 412 of the Internal Revenue Code and either (i) is
maintained by any member of the ERISA Group for employees of any member of the
ERISA Group or (ii) has at any time within the preceding five years been
maintained by any entity which was at such time a member of the ERISA Group for
employees of any entity which was at such time a member of the ERISA Group.
PLEDGED COLLATERAL shall mean the property of the
Loan Parties in which security interests are to be granted under the Borrower
Pledge Agreement, the Orius Pledge Agreement, the NATC Pledge Agreement, the
Collateral Assignment of Intellectual Property Interests or under any other
pledge agreement substantially in the form thereof delivered to the
Administrative Agent pursuant to the provisions of Section 11.18.
PNC BANK shall mean PNC Bank, National Association,
its successors and assigns.
POSSIBLE BREAKAGE EVENT shall have the meaning given
that term in Section 5.5.5.
POTENTIAL DEFAULT shall mean any event or condition
which with notice, passage of time or a determination by the Agents or the
Required Banks, or any combination of the foregoing, would constitute an Event
of Default.
PRICING GRID shall mean the Pricing Grid set forth on
SCHEDULE 1.1(P)(2).
PRINCIPAL OFFICE shall mean the main banking office
of the Administrative Agent in Pittsburgh, Pennsylvania.
PRIOR SECURITY INTEREST shall mean a valid and
enforceable perfected first-priority security interest under the Uniform
Commercial Code in the UCC Collateral and the
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Pledged Collateral which, subject to Section 11.19 [Priority of Facilities]
hereof, is subordinate only to Permitted Liens to the extent such Liens are
given priority by statute or other applicable law.
PROCEEDING shall mean any claim, counterclaim,
action, judgment, suit, hearing, governmental investigation, arbitration or
proceeding, including by or before any Official Body and whether judicial or
administrative.
PROHIBITED TRANSACTION shall mean any prohibited
transaction as defined in Section 4975 of the Internal Revenue Code or Section
406 of ERISA, which is not exempt under statute, and for which neither an
individual nor a class exemption has been issued by the United States Department
of Labor.
PROPERTY shall mean all real property, owned, leased,
or mortgaged by any Loan Party or Subsidiary of a Loan Party.
PURCHASE MONEY SECURITY INTEREST shall mean Liens
upon tangible personal property securing loans to any Loan Party or Subsidiary
of a Loan Party or deferred payments by such Loan Party or Subsidiary for the
purchase of such tangible personal property.
PURCHASING BANK shall mean a Bank which becomes a
party to this Agreement by executing an Assignment Agreement.
QUALIFIED ACCOUNTS shall mean Accounts meeting the
criteria set forth on the Borrowing Base Certificate.
QUALIFIED INVENTORY shall mean Inventory meeting the
criteria set forth on the Borrowing Base Certificate.
RATABLE SHARE shall mean the proportion that a Bank's
Commitment bears to the Commitments of all of the Banks with respect to, in each
case as applicable, the Revolving Credit Loans, Term Loan A, Term Loan B or Term
Loan C.
REFINANCINGS shall mean the repayment of the Existing
Bank Indebtedness, the termination of all commitments with respect to the
Existing Bank Indebtedness, the repayment of all other Existing Debt of the
Borrower and its Subsidiaries (including the Targets), other than Permitted
Indebtedness, and the termination of all UCC and other filings related to the
foregoing.
REGISTER shall have the meaning assigned to that term
in Section 3.5.
REGULATED SUBSTANCES shall mean any substance,
including, without limitation, any solid, liquid, semisolid, gaseous, thermal,
thoriated or radioactive material, refuse, garbage, wastes, chemicals, petroleum
products, by-products, coproducts, impurities, dust, scrap, heavy metals,
defined as a "hazardous substance," "pollutant," "pollution," "contaminant,"
"hazardous or toxic substance," "extremely hazardous substance," "toxic
chemical," "toxic waste," "hazardous waste," "industrial waste," "residual
waste," "solid waste," "municipal waste," "mixed waste," "infectious waste,"
"chemotherapeutic waste," "medical waste," or
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"regulated substance" or any other materials, substances or wastes as now or
hereafter defined pursuant to any Environmental Laws.
REGULATION U shall mean Regulation U, T, or X as
promulgated by the Board of Governors of the Federal Reserve System, as amended
from time to time.
REIMBURSEMENT OBLIGATION shall have the meaning
assigned to such term in Section 0.
RELEASE shall mean any release, spill, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching
or migration into the environment.
REPORTABLE EVENT shall mean a reportable event
described in Section 4043 of ERISA and regulations thereunder with respect to a
Plan or Multiemployer Plan other than any such event for which the required
notice has been waived in regulations issued by the PBGC.
REQUIRED BANKS shall mean,
(i) unless there is any Loan, Reimbursement
Obligation or Letter of Credit Borrowing outstanding, Banks whose Commitments
aggregate at least a majority of the Commitments of all of the Banks, or
(ii) if there is any Loan, Reimbursement
Obligation, or Letter of Credit Borrowing outstanding, any Bank or group of
Banks of which the sum of the unused Revolving Credit Commitments, Loans,
Reimbursement Obligations and Letter of Credit Borrowings of such Banks then
outstanding aggregates at least a majority of the total principal amount of all
the unused Revolving Credit Commitments, Loans, Reimbursement Obligations and
Letter of Credit Borrowings then outstanding of all Banks. Reimbursement
Obligations and Letter of Credit Borrowings shall be deemed, for purposes of
this definition, to be in favor of the Administrative Agent and not a
participating Bank if such Bank has not made its Participation Advance in
respect thereof and shall be deemed to be in favor of such Bank to the extent of
its Participation Advance if it has made its Participation Advance in respect
thereof.
REVOLVING CREDIT BASE RATE OPTION shall mean the
option of the Borrower to have Revolving Credit Loans bear interest at the rate
and under the terms and conditions set forth in Section 0(0).
REVOLVING CREDIT COMMITMENT shall mean initially the
commitment of the Banks with respect to $25,000,000 in Revolving Credit Loans as
set forth in SCHEDULE 1.1(B) hereto, and thereafter, as to any Bank at any time,
the amount set forth on Schedule I to the most recent Assignment and Assumption
Agreement, and REVOLVING CREDIT COMMITMENTS shall mean the aggregate Revolving
Credit Commitments of all of the Banks.
REVOLVING CREDIT RATABLE SHARE shall mean a Bank's
ratable share of the Revolving Credit Commitment.
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REVOLVING CREDIT EURO-RATE OPTION shall mean the
option of the Borrower to have Revolving Credit Loans bear interest at the rate
and under the terms and conditions set forth in Section 0(0).
REVOLVING CREDIT LOANS shall mean collectively and
REVOLVING CREDIT LOAN shall mean separately all Revolving Credit Loans or any
Revolving Credit Loan made by the Banks or one of the Banks to the Borrower
pursuant to Section 0 or 0.
REVOLVING CREDIT NOTES shall mean collectively and
REVOLVING CREDIT NOTE shall mean separately all the Revolving Credit Notes of
the Borrower in the form of EXHIBIT 1.1(R) evidencing the Revolving Credit Loans
together with all amendments, extensions, renewals, replacements, refinancings
or refundings thereof in whole or in part.
REVOLVING FACILITY USAGE shall mean at any time the
sum of the Revolving Credit Loans outstanding and the Letters of Credit
Outstanding.
SECOND PRIORITY DEBT shall have the meaning assigned
to that term in Section 11.19.1.
SECOND PRIORITY FACILITY shall mean the Term Loan C.
SECURITY AGREEMENT shall mean the Security Agreement
dated of even date herewith executed by the Borrower and the Guarantors in
substantially the form of EXHIBIT 1.1(S) and delivered to the Administrative
Agent for its benefit and for the benefit of the Banks.
SECURITY DOCUMENTS shall mean the Security Agreement,
the Collateral Assignment of Intellectual Property Interests, the Borrower
Pledge Agreement, the Orius Pledge Agreement, the NATC Pledge Agreement, the
Orius Guaranty, the Subsidiary Guaranty and any other documents utilized from
time to time to pledge as collateral for the Obligations any other property or
assets of whatever kind or nature.
SELLER shall mean each seller under an Acquisition
Agreement.
SPECIFIED ACQUISITIONS shall mean the acquisition by
the Borrower of 100% of the outstanding stock of DAS-CO, Schatz, Network Cabling
and Copenhagen, each in accordance with the Acquisition Agreement applicable
thereto.
STANDBY LETTER OF CREDIT shall mean a Letter of
Credit issued to support obligations of one or more of the Loan Parties,
contingent or otherwise, which finance the working capital and business needs of
the Loan Parties incurred in the ordinary course of business.
SUBSIDIARY of any Person at any time shall mean (i)
any corporation or trust of which 50% or more (by number of shares or number of
votes) of the outstanding capital stock or shares of beneficial interest
normally entitled to vote for the election of one or more directors or trustees
(regardless of any contingency which does or may suspend or dilute the voting
rights) is at such time owned directly or indirectly by such Person or one or
more of such Person's
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Subsidiaries, (ii) any partnership of which such Person is a general partner or
of which 50% or more of the partnership interests is at the time directly or
indirectly owned by such Person or one or more of such Person's Subsidiaries,
(iii) any limited liability company of which such Person is a member or of which
50% or more of the limited liability company interests is at the time directly
or indirectly owned by such Person or one or more of such Person's Subsidiaries
or (iv) any corporation, trust, partnership, limited liability company or other
entity which is controlled or capable of being controlled by such Person or one
or more of such Person's Subsidiaries. Unless otherwise specified, reference
herein or in any other Loan Document of a "Subsidiary" shall mean a Subsidiary
of the Borrower.
SUBSIDIARY GUARANTOR shall mean the Guarantors
(including any future Guarantors under Section 11.18 hereof) excluding Orius.
SUBSIDIARY GUARANTY AGREEMENT shall mean the
Subsidiary Guaranty and Suretyship Agreement dated of even date herewith
substantially in the form of Exhibit 1.1(G)(2) executed and delivered by each of
the Subsidiary Guarantors to the Administrative Agent for the benefit of the
Banks.
SUBSIDIARY SHARES shall have the meaning assigned to
that term in Section 6.1.3.
SUPERMAJORITY BANKS OF THE AFFECTED CLASS shall mean
(i) at any time prior to the Closing Date, Banks holding at least two-thirds of
the aggregate amount of the Commitments of the applicable tranche of Term Loan
Commitments which would be affected by any modification, supplement or waiver
contemplated by Section 11.1.4(d), and (ii) at any time after the Closing Date,
Banks holding at least two-thirds of the sum of the aggregate amount of the
outstanding Loans of the applicable tranche of Term Loans which would be
affected by any modification, supplement or waiver contemplated by Section
11.1.4(d).
SYNDICATION AGENT shall mean Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated and its successors and
assigns.
TARGET shall mean any corporation to be acquired in a
Specified Acquisition.
TAXES shall mean any and all present or future
income, stamp, documentary, excise, property or other taxes, levies, imposts,
duties, deductions, charges, fees or withholdings, now or hereafter imposed,
levied, collected, withheld or assessed by any Official Body, and all interest,
penalties and additions to tax with respect thereto, including any present or
future Taxes or similar levies which arise from any payment made hereunder or
from the execution, delivery or registration of, or otherwise with respect to,
this Agreement or any other Loan Document.
TERM LOAN shall have the meaning given to such term
in Section 0; TERM LOANS shall mean collectively all of the Term Loans.
TERM LOAN A shall have the meaning given such term in
Section 0.
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TERM LOAN B shall have the meaning given such term in
Section 0.
TERM LOAN C shall have the meaning given such term in
Section 0.
TERM LOAN BASE RATE OPTION shall mean the option of
the Borrower to have Term Loans bear interest at the rate and under the terms
and conditions set forth in Section 0(0).
TERM LOAN A COMMITMENT shall mean initially the
commitment of the Banks with respect to $60,000,000 of Term Loan A as set forth
in SCHEDULE 1.1(B) hereto and thereafter the amounts set forth on Schedule I to
the most recent Assignment and Assumption Agreements.
TERM LOAN B COMMITMENT shall mean initially the
commitment of the Banks with respect to $45,000,000 of Term Loan B as set forth
in SCHEDULE 1.1(B) hereto and thereafter the amounts set forth on Schedule I to
the most recent Assignment and Assumption Agreements.
TERM LOAN C COMMITMENT shall mean initially the
commitment of the Banks with respect to $15,000,000 of Term Loan C as set forth
in SCHEDULE 1.1(B) hereto and thereafter the amounts set forth on Schedule I to
the most recent Assignment and Assumption Agreements.
TERM LOAN COMMITMENTS shall mean the aggregate Term
Loan Commitments of all of the Banks.
TERM LOAN EURO-RATE OPTION shall mean the option of
the Borrower to have Term Loans bear interest at the rate and under the terms
and conditions set forth in Section 0(0).
TERM NOTES shall mean collectively and TERM NOTE
shall mean separately all of the Term Notes of the Borrower to each of the
Banks, as applicable, in the form of EXHIBIT 1.1(T)(1), EXHIBIT 1.1(T)(2) AND
EXHIBIT 1.1(T)(3), evidencing Term Loan A, Term Loan B and Term Loan C
respectively, together with all amendments, extensions, renewals, replacements,
refinancings or refunds thereof in whole or in part.
TOTAL INDEBTEDNESS shall mean all Indebtedness for
borrowed money, subordinated indebtedness (excluding the principal of the HIG
Subordinated Indebtedness), Capital Leases, reimbursement obligations under
letters of credit and any Guaranty of Indebtedness for borrowed money.
TRANSACTIONS shall mean the Specified Acquisitions,
the Refinancings, the NATC Reorganization and the extensions of credit under
this Credit Agreement.
TRANSFEROR BANK shall mean the selling Bank pursuant
to an Assignment Agreement.
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<PAGE> 34
UCC COLLATERAL shall mean the property of the Loan
Parties in which security interests are to be granted under the Security
Agreement and any other security agreement substantially in the form thereof
delivered to the Administrative Agent pursuant to the provisions of Section
11.18.
U.S. CABLE shall have the meaning given in the
recitals to this Agreement.
UNIFORM COMMERCIAL CODE shall have the meaning
assigned to that term in Section 0.
WORKING CAPITAL shall mean (a) current assets
(excluding cash) of Orius, the Borrower and its Subsidiaries as determined on a
consolidated basis, (b) less the sum of (x) current liabilities of Orius, the
Borrower and its Subsidiaries determined on a consolidated basis (including the
principal balance of the Revolving Credit Loans and current maturities of the
Term Loans), and (y) any obligation classified as a current asset owed to the
Borrower or any Subsidiary of the Borrower by an Affiliate of the Borrower or by
a Subsidiary of such Affiliate, provided that the Working Capital as of the
beginning of a fiscal year with respect to each Permitted Acquisition during
such fiscal year shall be an amount agreed to among the Borrower and the Agents
at the time of such Permitted Acquisition pursuant to Section 8.2.6(vii) hereof.
YEAR 2000 ISSUE shall have the meaning given that
term in Section 6.1.27.
1.2 CONSTRUCTION.
Unless the context of this Agreement otherwise clearly
requires, the following rules of construction shall apply to this Agreement and
each of the other Loan Documents:
1.2.1 NUMBER; INCLUSION.
references to the plural include the singular, the
plural, the part and the whole; "or" has the inclusive meaning represented by
the phrase "and/or," and "including" has the meaning represented by the phrase
"including without limitation";
1.2.2 DETERMINATION.
references to "determination" of or by any of the
Agents or the Banks shall be deemed to include good-faith estimates by the
Agents or the Banks (in the case of quantitative determinations) and good-faith
beliefs by the Agents or the Banks (in the case of qualitative determinations)
and such determination shall be conclusive absent manifest error;
1.2.3 AGENT'S DISCRETION AND CONSENT.
whenever the Agents or the Banks are granted the
right herein to act in its or their sole discretion or to grant or withhold
consent such right shall be exercised in good faith;
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<PAGE> 35
1.2.4 DOCUMENTS TAKEN AS A WHOLE.
the words "hereof," "herein," "hereunder," "hereto"
and similar terms in this Agreement or any other Loan Document refer to this
Agreement or such other Loan Document as a whole and not to any particular
provision of this Agreement or such other Loan Document;
1.2.5 HEADINGS.
the section and other headings contained in this
Agreement or such other Loan Document and the Table of Contents (if any),
preceding this Agreement or such other Loan Document are for reference purposes
only and shall not control or affect the construction of this Agreement or such
other Loan Document or the interpretation thereof in any respect;
1.2.6 IMPLIED REFERENCES TO THIS AGREEMENT.
article, section, subsection, clause, schedule and
exhibit references are to this Agreement or other Loan Documents, as the case
may be, unless otherwise specified;
1.2.7 PERSONS.
reference to any Person includes such Person's
successors and assigns but, if applicable, only if such successors and assigns
are permitted by this Agreement or such other Loan Document, as the case may be,
and reference to a Person in a particular capacity excludes such Person in any
other capacity;
1.2.8 MODIFICATIONS TO DOCUMENTS.
reference to any agreement (including this Agreement
and any other Loan Document together with the schedules and exhibits hereto or
thereto), document or instrument means such agreement, document or instrument as
amended, modified, replaced, substituted for, superseded or restated.
1.3 ACCOUNTING PRINCIPLES.
Except as otherwise provided in this Agreement, all
computations and determinations as to accounting or financial matters and all
financial statements to be delivered pursuant to this Agreement shall be made
and prepared in accordance with GAAP (including principles of consolidation
where appropriate), and all accounting or financial terms shall have the
meanings ascribed to such terms by GAAP; PROVIDED, HOWEVER, that all accounting
terms used in Section 8.2 (and all defined terms used in the definition of any
accounting term used in Section 8.2) shall have the meaning given to such terms
(and defined terms) under GAAP as in effect on the date hereof applied on a
basis consistent with those used in preparing the Annual Statements referred to
in Section 0(i). In the event of any change after the date hereof in GAAP, and
if such change would result in the inability to determine compliance with the
financial covenants set forth in Section 8.2 based upon the Borrower's regularly
prepared financial statements by reason of the preceding sentence, then the
parties hereto agree to endeavor, in good
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<PAGE> 36
faith, to agree upon an amendment to this Agreement that would adjust such
financial covenants in a manner that would not affect the substance thereof, but
would allow compliance therewith to be determined in accordance with the
Borrower's financial statements at that time. Borrower has a "52-53" week fiscal
year. For purposes of this Agreement, in all cases where measurement dates are
specified to be at the end of a calendar quarter, such dates shall be deemed to
refer to the fiscal quarter of the Borrower ending or ended closest to the end
of the applicable calendar quarter.
2. REVOLVING CREDIT FACILITY
2.1 REVOLVING CREDIT COMMITMENTS.
Subject to the terms and conditions hereof and relying upon
the representations and warranties herein set forth, each Bank severally agrees
to make Revolving Credit Loans to the Borrower at any time or from time to time
on or after the date hereof to the Expiration Date provided that after giving
effect to such Loan the aggregate amount of Revolving Credit Loans from such
Bank plus such Bank's Revolving Credit Ratable Share of Letters of Credit
Outstanding shall not exceed the lesser of such Bank's Revolving Credit
Commitment or such Bank's Revolving Credit Ratable Share of the Borrowing Base.
Within such limits of time and amount and subject to the other provisions of
this Agreement, the Borrower may borrow, repay and reborrow pursuant to this
Section 0. If at any time the aggregate principal amount of indebtedness
outstanding under the Revolving Credit Loans (including Letters of Credit
Outstanding) exceed the limitations set forth in preceding sentence, then the
Borrower shall immediately repay the amount of such excess to the Banks in
immediately available funds.
2.2 NATURE OF BANKS' OBLIGATIONS WITH RESPECT TO
REVOLVING CREDIT LOANS; LIMITATIONS.
2.2.1 REVOLVING CREDIT LOANS.
Subject to the limitations of Section 2.1, each Bank
shall be obligated to participate in each request for Revolving Credit Loans
pursuant to Section 0 in accordance with its Revolving Credit Ratable Share of
the Revolving Credit Commitments.
2.2.2 BORROWING BASE.
In addition to any and all provisions of the other
Loan Documents which establish conditions to the Borrower's ability to request
and obtain any advance under the Revolving Credit Facility, the Borrower may not
request an advance under the Revolving Credit Facility unless an updated
Borrowing Base Certificate shall have been delivered to the Administrative Agent
as provided in Section 8.3.1 not more than thirty one (31) calendar days prior
to the date of such proposed advance.
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<PAGE> 37
2.3 COMMITMENT FEES.
Accruing from the date hereof until the Expiration Date, the
Borrower agrees to pay to the Administrative Agent for the account of each Bank,
as consideration for such Bank's Revolving Credit Commitment hereunder, a
nonrefundable commitment fee (the "Commitment Fee") of .50% per annum (computed
on the basis of a year of 365 or 366 days, as the case may be, and actual days
elapsed) on the average daily difference between the amount of (i) such Bank's
Revolving Credit Commitment as the same may be constituted from time to time and
the (ii) the sum of such Bank's Revolving Credit Loans outstanding plus its
Revolving Credit Ratable Share of Letters of Credit Outstanding . All Commitment
Fees shall be payable in arrears on the last Business Day of each March, June,
September and December after the date hereof commencing June 30, 1999), on the
Expiration Date or upon acceleration of the Notes.
2.4 INTENTIONALLY OMITTED
2.5 REVOLVING CREDIT LOAN REQUESTS.
Except as otherwise provided herein, the Borrower may from
time to time prior to the Expiration Date request the Banks to make Revolving
Credit Loans, or renew or convert the Interest Rate Option applicable to
existing Revolving Credit Loans or Term Loans pursuant to Section 0 [Interest
Periods], by delivering to the Administrative Agent, not later than 10:00 a.m.,
Pittsburgh time, (i) three (3) Business Days prior to the proposed Borrowing
Date with respect to the making of Revolving Credit Loans to which the Euro-Rate
Option applies or the conversion to or the renewal of the Euro-Rate Option for
any Loans; and (ii) one (1) Business Day prior to either the proposed Borrowing
Date with respect to the making of a Revolving Credit Loan to which the Base
Rate Option applies or the last day of the preceding Interest Period with
respect to the conversion to the Base Rate Option for any Loan, of a duly
completed request therefor substantially in the form of EXHIBIT 2.5 or a request
by telephone immediately confirmed in writing by letter, facsimile or telex in
such form (each, a "Loan Request"), it being understood that the Administrative
Agent may rely on the authority of any individual making such a telephonic
request without the necessity of receipt of such written confirmation. Each Loan
Request shall be irrevocable and shall specify (i) the proposed Borrowing Date;
(ii) the aggregate amount of the proposed Loans comprising each Borrowing
Tranche, which shall be in integral multiples of $500,000 and not less than
$1,000,000 for each Borrowing Tranche to which the Euro-Rate Option applies and
in integral multiples of $250,000 not less than the lesser of $250,000 or the
maximum amount available for Borrowing Tranches to which the Base Rate Option
applies; (iii) whether the Euro-Rate Option or Base Rate Option shall apply to
the proposed Loans comprising the applicable Borrowing Tranche; and (iv) in the
case of a Borrowing Tranche to which the Euro-Rate Option applies, an
appropriate Interest Period for the Loans comprising such Borrowing Tranche.
Borrower may relend the proceeds of Revolving Credit Loans to Loan Parties other
than Orius provided such loan is treated as an intercompany loan on the books
and records of the parties and is not evidenced by a promissory note.
2.6 MAKING REVOLVING CREDIT LOANS.
The Administrative Agent shall, promptly after receipt by it
of a Loan Request pursuant to Section 0 [Revolving Credit Loan Requests], notify
the Banks of its receipt of such
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<PAGE> 38
Loan Request specifying: (i) the proposed Borrowing Date and the time and method
of disbursement of the Revolving Credit Loans requested thereby; (ii) the amount
and type of each such Revolving Credit Loan and the applicable Interest Period
(if any); and (iii) the apportionment among the Banks of such Revolving Credit
Loans as determined by the Administrative Agent in accordance with Section 0
[Nature of Banks' Obligations, etc.] Each Bank shall remit the principal amount
of each Revolving Credit Loan to the Administrative Agent such that the
Administrative Agent is able to, and the Administrative Agent shall, to the
extent the Banks have made funds available to it for such purpose and subject to
Section 0 [Each Additional Loan, etc.], fund such Revolving Credit Loans to the
Borrower in U.S. Dollars and immediately available funds at the Principal Office
prior to 2:00 p.m., Pittsburgh time, on the applicable Borrowing Date, PROVIDED
that if any Bank fails to remit such funds to the Administrative Agent in a
timely manner, the Administrative Agent may elect in its sole discretion to fund
with its own funds the Revolving Credit Loans of such Bank on such Borrowing
Date, and such Bank shall be subject to the repayment obligation in Section 0
[Availability of Funds].
2.7 REVOLVING CREDIT NOTES.
The Obligation of the Borrower to repay the aggregate unpaid
principal amount of the Revolving Credit Loans made by each Bank, together with
interest thereon, shall be evidenced by a Revolving Credit Note dated the
Closing Date payable to the order of such Bank in a face amount equal to the
Revolving Credit Commitment of such Bank.
2.8 USE OF PROCEEDS.
The proceeds of the Revolving Credit Loans shall be used for
general corporate purposes, the Specified Acquisitions, Permitted Acquisitions
and in accordance with Section 8.1.11 [Use of Proceeds].
2.9 LETTER OF CREDIT SUBFACILITY.
2.9.1 ISSUANCE OF LETTERS OF CREDIT.
Borrower may request the issuance of a letter of
credit (each a "Letter of Credit") on behalf of itself or another Loan Party
which is a party to the Subsidiary Guaranty by delivering to the Administrative
Agent a completed application and agreement for letters of credit in such form
as the Administrative Agent may specify from time to time by no later than 10:00
a.m., Pittsburgh time, at least five (5) Business Days, or such shorter period
as may be agreed to by the Administrative Agent, in advance of the proposed date
of issuance. Each Letter of Credit shall be either a Standby Letter of Credit or
a Commercial Letter of Credit. Subject to the terms and conditions hereof and in
reliance on the agreements of the other Banks set forth in this Section 0, the
Administrative Agent will issue a Letter of Credit provided that each Letter of
Credit shall (A) have a maximum maturity of twelve (12) months from the date of
issuance, and (B) in no event expire later than ten (10) Business Days prior to
the Expiration Date and providing that in no event shall (i) the Letters of
Credit Outstanding exceed, at any one time, $5,000,000 or (ii) the Revolving
Facility Usage exceed, at any one time, the lesser of the Borrowing Base or the
Revolving Credit Commitment.
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<PAGE> 39
2.9.2 LETTER OF CREDIT FEES.
The Borrower shall pay (i) to the Administrative
Agent for the ratable account of the Banks a fee (the "Letter of Credit Fee")
equal to the Applicable Margin for Revolving Credit Euro-Rate Margin as set
forth on the Pricing Grid or a minimum of $500 per year per Letter of Credit,
and (ii) to the Administrative Agent for its own account a fronting fee equal to
1/4% per annum (computed on the basis of a year of 360 days and actual days
elapsed) or a minimum of $500 per year per Letter of Credit, which fees shall be
computed on the daily average Letters of Credit Outstanding and shall be payable
quarterly in arrears commencing with the last Business Day of each March, June,
September and December following issuance of each Letter of Credit, commencing
June 30, 1999, and on the Expiration Date. The Borrower shall also pay to the
Administrative Agent for the Administrative Agent's sole account the
Administrative Agent's then in effect customary fees and administrative expenses
payable with respect to the Letters of Credit as the Administrative Agent may
generally charge or incur from time to time in connection with the issuance,
maintenance, modification (if any), assignment or transfer (if any),
negotiation, and administration of Letters of Credit. Notwithstanding any
provisions in this Agreement (including the Pricing Grid), the Letter of Credit
Fee shall be as set forth in Level IV on the Pricing Grid until the receipt by
the Administrative Agent of the Borrower's Compliance Certificate for the period
ended September 30, 1999.
2.9.3 DISBURSEMENTS, REIMBURSEMENT.
2.9.3.1 Immediately upon the Issuance of
each Letter of Credit, each Bank shall be deemed to, and hereby irrevocably and
unconditionally agrees to, purchase from the Administrative Agent a
participation in such Letter of Credit and each drawing thereunder in an amount
equal to such Bank's Revolving Credit Ratable Share of the maximum amount
available to be drawn under such Letter of Credit and the amount of such
drawing, respectively.
2.9.3.2 In the event of any request for a
drawing under a Letter of Credit by the beneficiary or transferee thereof, the
Administrative Agent will promptly notify the Borrower. Provided that it shall
have received such notice, the Borrower shall reimburse (such obligation to
reimburse the Administrative Agent shall sometimes be referred to as a
"Reimbursement Obligation") the Administrative Agent prior to 12:00 noon,
Pittsburgh time on each date that an amount is paid by the Administrative Agent
under any Letter of Credit (each such date, a "Drawing Date") in an amount equal
to the amount so paid by the Administrative Agent. In the event the Borrower
fails to reimburse the Administrative Agent for the full amount of any drawing
under any Letter of Credit by 12:00 noon, Pittsburgh time, on the Drawing Date,
the Administrative Agent will promptly notify each Bank thereof, and the
Borrower shall be deemed to have requested that Revolving Credit Loans be made
by the Banks under the Base Rate Option to be disbursed on the Drawing Date
under such Letter of Credit, subject to the amount of the unutilized portion of
the Revolving Credit Commitment, the limitations set forth in Section 2.1 and
subject to the conditions set forth in Section 0 [Each Additional Loan] other
than any notice requirements. Any notice given by the Administrative Agent
pursuant to this Section 0 may be oral if immediately confirmed in writing;
provided that the lack of such an immediate confirmation shall not affect the
conclusiveness or binding effect of such notice.
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<PAGE> 40
2.9.3.3 Each Bank shall upon any notice
pursuant to Section 0 make available to the Administrative Agent an amount in
immediately available funds equal to its Revolving Credit Ratable Share of the
amount of the drawing, whereupon the participating Banks shall (subject to
Section 0) each be deemed to have made a Revolving Credit Loan under the Base
Rate Option to the Borrower in that amount. If any Bank so notified fails to
make available to the Administrative Agent for the account of the Administrative
Agent the amount of such Bank's Revolving Credit Ratable Share of such amount by
no later than 2:00 p.m., Pittsburgh time on the Drawing Date, then interest
shall accrue on such Bank's obligation to make such payment, from the Drawing
Date to the date on which such Bank makes such payment (i) at a rate per annum
equal to the Federal Funds Effective Rate during the first three days following
the Drawing Date and (ii) at a rate per annum equal to the rate applicable to
Loans under the Revolving Credit Base Rate Option on and after the fourth day
following the Drawing Date. The Administrative Agent will promptly give notice
of the occurrence of the Drawing Date, but failure of the Administrative Agent
to give any such notice on the Drawing Date or in sufficient time to enable any
Bank to effect such payment on such date shall not relieve such Bank from its
obligation under this Section 0.
2.9.3.4 With respect to any unreimbursed
drawing that is not converted into Revolving Credit Loans under the Base Rate
Option to the Borrower in whole or in part as contemplated by Section 0, because
of the Borrower's failure to satisfy the conditions set forth in Section 0 [Each
Additional Loan] other than any notice requirements or for any other reason, the
Borrower shall be deemed to have incurred from the Administrative Agent a Letter
of Credit Borrowing in the amount of such drawing. Such Letter of Credit
Borrowing shall be due and payable on demand (together with interest) and shall
bear interest at the rate per annum applicable to the Revolving Credit Loans
under the Base Rate Option. Each Bank's payment to the Administrative Agent
pursuant to Section 0 shall be deemed to be a payment in respect of its
participation in such Letter of Credit Borrowing and shall constitute a
Participation Advance from such Bank in satisfaction of its participation
obligation under this Section 0.
2.9.4 REPAYMENT OF PARTICIPATION ADVANCES.
2.9.4.1 Upon (and only upon) receipt by the
Administrative Agent for its account of immediately available funds from the
Borrower (i) in reimbursement of any payment made by the Administrative Agent
under the Letter of Credit with respect to which any Bank has made a
Participation Advance to the Administrative Agent, or (ii) in payment of
interest on such a payment made by the Administrative Agent under such a Letter
of Credit, the Administrative Agent will pay to each Bank, in the same funds as
those received by the Administrative Agent, the amount of such Bank's Revolving
Credit Ratable Share of such funds, except the Administrative Agent shall retain
the amount of the Revolving Credit Ratable Share of such funds of any Bank that
did not make a Participation Advance in respect of such payment by
Administrative Agent.
2.9.4.2 If the Administrative Agent is
required at any time to return to any Loan Party, or to a trustee, receiver,
liquidator, custodian, or any official in any Insolvency Proceeding, any portion
of the payments made by any Loan Party to the Administrative Agent pursuant to
Section 0 in reimbursement of a payment made under the Letter of Credit or
interest
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<PAGE> 41
or fee thereon, each Bank shall, on demand of the Administrative Agent,
forthwith return to the Administrative Agent the amount of its Revolving Credit
Ratable Share of any amounts so returned by the Administrative Agent plus
interest thereon from the date such demand is made to the date such amounts are
returned by such Bank to the Administrative Agent, at a rate per annum equal to
the Federal Funds Effective Rate in effect from time to time.
2.9.5 DOCUMENTATION.
Each Loan Party agrees to be bound by the terms of
the Administrative Agent's application and agreement for letters of credit and
the Administrative Agent's written regulations and customary practices relating
to letters of credit, though such interpretation may be different from such Loan
Party's own. In the event of a conflict between such application or agreement
and this Agreement, this Agreement shall govern. It is understood and agreed
that, except in the case of gross negligence or willful misconduct, the
Administrative Agent shall not be liable for any error, negligence and/or
mistakes, whether of omission or commission, in following any Loan Party's
instructions or those contained in the Letters of Credit or any modifications,
amendments or supplements thereto.
2.9.6 NATURE OF PARTICIPATION AND REIMBURSEMENT
OBLIGATIONS.
Each Bank's obligation in accordance with this
Agreement to make the Revolving Credit Loans or Participation Advances, as
contemplated by Section 0, as a result of a drawing under a Letter of Credit,
and the Obligations of the Borrower to reimburse the Administrative Agent upon a
draw under a Letter of Credit, shall be absolute, unconditional and irrevocable,
and shall be performed strictly in accordance with the terms of this Section 0
under all circumstances.
2.9.7 LIMITATION ON THE ADMINISTRATIVE AGENT'S
OBLIGATIONS.
In determining whether to pay under any Letter of
Credit, the Administrative Agent shall have no obligation to the Borrower or any
Bank other than to confirm that any documents required to be delivered under
such Letter of Credit appear to have been delivered and appear to comply on
their face with the requirements of such Letter of Credit. Any action taken or
omitted to be taken by the Administrative Agent under or in connection with any
Letter of Credit, if taken or omitted in the absence of gross negligence and
willful misconduct, shall not impose upon the Administrative Agent any liability
to the Borrower or any Bank and shall not reduce or impair the Borrower's
reimbursement obligations set forth in Section 2.9.3.2 or the obligations of the
Banks pursuant to this Section 2.9.
3. TERM LOANS
3.1 TERM LOAN COMMITMENTS.
Subject to the terms and conditions hereof, and relying upon
the representations and warranties herein set forth, each Bank severally agrees
to make a term loan (the "Term Loan") to the Borrower on the Closing Date in
such principal amount as
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<PAGE> 42
the Borrower shall request up to, but not exceeding such Bank's Term Loan
Commitment. The Term Loan shall consist of Term Loan A in principal amount of
$60,000,000 to be evidenced by Term Note A ("Term Loan A"), Term Loan B in
principal amount of $45,000,000 to be evidenced by Term Note B ("Term Loan B")
and Term Loan C in principal amount of $15,000,000 to be evidenced by Term Note
C ("Term Loan C").
3.2 NATURE OF BANKS' OBLIGATIONS WITH RESPECT TO TERM
LOANS.
The obligations of each Bank to make Term Loans to the
Borrower shall be in the proportion that such Bank's Term Loan Commitment with
respect to each of Term Loan A, Term Loan B and Term Loan C, respectively, bears
to the Term Loan Commitments of all Banks to the Borrower with respect to each
of Term Loan A, Term Loan B and Term Loan C, respectively, but each Bank's Term
Loan to the Borrower shall never exceed its Term Loan Commitment. The failure of
any Bank to make a Term Loan shall not relieve any other Bank of its obligations
to make a Term Loan nor shall it impose any additional liability on any other
Bank hereunder. The Banks shall have no obligation to make Term Loans hereunder
after the Closing Date. The Term Loan Commitments are not revolving credit
commitments, and the Borrower shall not have the right to borrow, repay and
reborrow Term Loans.
3.3 TERM LOAN NOTES.
The Obligation of the Borrower to repay the unpaid principal
amount of the Term Loans made by each Bank, together with interest thereon,
shall be evidenced by the Term Notes dated on the Closing Date payable to the
order of each Bank in a face amount equal to the Term Loan of such Bank.
The principal amount of the Term Loans shall be payable as follows:
<TABLE>
<CAPTION>
REPAYMENT DATE TERM LOAN A TERM LOAN B TERM LOAN C
-------------- ----------- ----------- -----------
<S> C> <C> <C> <C>
June 30, 1999 $ 1,500,000 $ 150,000 $ 50,000
September 30, 1999 2,500,000 150,000 50,000
December 31, 1999 2,500,000 150,000 50,000
March 31, 2000 2,500,000 112,500 37,500
June 30, 2000 2,750,000 112,500 37,500
September 30, 2000 2,750,000 112,500 37,500
December 31, 2000 2,750,000 112,500 37,500
March 31, 2001 3,125,000 112,500 37,500
June 30, 2001 3,125,000 112,500 37,500
September 30, 2001 3,250,000 112,500 37,500
December 31, 2001 3,250,000 112,500 37,500
March 31, 2002 3,750,000 112,500 37,500
June 30, 2002 3,750,000 112,500 37,500
September 30, 2002 3,750,000 112,500 37,500
December 31, 2002 3,750,000 112,500 37,500
March 31, 2003 3,750,000 112,500 37,500
June 30, 2003 3,750,000 112,500 37,500
</TABLE>
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<PAGE> 43
<TABLE>
<S> <C> <C> <C>
September 30, 2003 3,750,000 112,500 37,500
December 31, 2003 3,750,000 112,500 37,500
March 31, 2004 0 10,500,000 37,500
June 30, 2004 0 10,500,000 37,500
September 30, 2004 0 10,500,000 37,500
December 31, 2004 0 11,250,000 37,500
March 31, 2005 0 0 3,525,000
June 30, 2005 0 0 3,525,000
September 30, 2005 0 0 3,525,000
December 31, 2005 0 0 3,525,000
---------------------- --------------------- -------------
$ 60,000,000 $ 45,000,000 $ 15,000,000
====================== ===================== =============
</TABLE>
3.4 USE OF PROCEEDS.
The proceeds of the Term Loans shall be used for the Specified
Acquisitions, to repay the Existing Bank Indebtedness and in accordance with
Section 8.1.11. [Use of Proceeds].
3.5 REGISTER.
The Borrower hereby designates the Administrative Agent to
serve as its agent to maintain a register (the "REGISTER") on which it will
record the name and address of each Bank, the Commitment from time to time of
each of the Banks, the principal amount of the Loans made by each of the Banks
and each repayment in respect of the principal amount of the Loans of each Bank.
Failure to make any such recordation or any error in such recordation shall not
affect the Borrower's obligations in respect of such Loans. The entries in the
Register shall be conclusive, in the absence of manifest error, and the
Borrower, Administrative Agent and the Banks shall treat each Person whose name
is recorded in the Register as the owner of a Loan or other obligation hereunder
as the owner thereof for all purposes of this Agreement and the other Loan
Documents, notwithstanding any notice of the contrary. The Register shall be
available for inspection by Borrower or any Bank at any reasonable time and from
time to time upon reasonable prior notice.
4. INTEREST RATES
4.1 INTEREST RATE OPTIONS.
The Borrower shall pay interest in respect of the outstanding
unpaid principal amount of the Loans as selected by Borrower from the Base Rate
Option or Euro-Rate Option set forth below applicable to the Loans, it being
understood that, subject to the provisions of this Agreement, the Borrower may
select different Interest Rate Options and different Interest Periods to apply
simultaneously to the Loans comprising different Borrowing Tranches and may
convert to or renew one or more Interest Rate Options with respect to all or any
portion of the Loans comprising any Borrowing Tranche, PROVIDED that there shall
not be at any one time outstanding more than fifteen Borrowing Tranches in the
aggregate among all of the Loans. If at any time the
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designated rate applicable to any Loan made by any Bank exceeds such Bank's
highest lawful rate, the rate of interest on such Bank's Loan shall be limited
to such Bank's highest lawful rate.
4.1.1 REVOLVING CREDIT INTEREST RATE OPTIONS.
The Borrower shall have the right to select from the
following Interest Rate Options applicable to the Revolving Credit Loans:
(i) REVOLVING CREDIT BASE RATE OPTION: A fluctuating rate per annum
(computed on the basis of a year of 365 or 366 days, as the case may
be, and actual days elapsed) equal to the Base Rate plus the Applicable
Margin, such interest rate to change automatically from time to time
effective as of the effective date of each change in the Base Rate and
the Applicable Margin; or
(ii) REVOLVING CREDIT EURO-RATE OPTION: A rate per annum (computed on the
basis of a year of 360 days and actual days elapsed) equal to the
Euro-Rate plus the Applicable Margin. Borrower may not select a
Euro-Rate Option until on or after the fifth Business Day following the
Closing Date.
4.1.2 TERM LOAN INTEREST RATE OPTIONS.
The Borrower shall have the right to select from the
following Interest Rate Options applicable to the Term Loans:
(i) TERM LOAN BASE RATE OPTION: A fluctuating rate per annum (computed on
the basis of a year of 365 or 366 days, as the case may be, and actual
days elapsed) equal to the Base Rate plus the Applicable Margin, such
interest rate to change automatically from time to time effective as of
the effective date of each change in the Base Rate and the Applicable
Margin; or
(ii) TERM LOAN EURO-RATE OPTION: A rate per annum (computed on the basis of
a year of 360 days and actual days elapsed) equal to the Euro-Rate plus
the Applicable Margin. Borrower may not select a Euro-Rate Option until
on or after the fifth Business Day following the Closing Date.
4.1.3 INITIAL INTEREST RATES.
Notwithstanding any other provision of this Agreement
(including the Pricing Grid), the Applicable Margin shall be at Level IV on the
Pricing Grid until receipt by the Administrative Agent of the Borrower's
Compliance Certificate for the period ended September 30, 1999.
4.1.4 RATE QUOTATIONS.
The Borrower may call the Administrative Agent on or
before the date on which a Loan Request is to be delivered to receive an
indication of the rates then in effect, but it is acknowledged that such
projection shall not be binding on the Administrative Agent or the Banks nor
affect the rate of interest which thereafter is actually in effect when the
election is made.
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4.2 INTEREST PERIODS.
At any time when Borrower shall select, convert to or renew a
Euro-Rate Option, the Borrower shall notify the Administrative Agent thereof at
least three (3) Business Days prior to the effective date of such Euro-Rate
Option by delivering a Loan Request. The notice shall specify an interest period
(the "Interest Period") during which such Interest Rate Option shall apply, such
Interest Period to be one, two, three or six Months. Notwithstanding the
preceding sentence, the following provisions shall apply to any selection of,
renewal of, or conversion to a Euro-Rate Option:
4.2.1 ENDING DATE AND BUSINESS DAY.
any Interest Period which would otherwise end on a
date which is not a Business Day shall be extended to the next succeeding
Business Day unless such Business Day falls in the next calendar month, in which
case such Interest Period shall end on the next preceding Business Day;
4.2.2 TERMINATION BEFORE EXPIRATION DATE.
the Borrower shall not select, convert to or renew an
Interest Period for any portion of the Revolving Credit Loans that would end
after the Expiration Date or with respect to any Term Loan, which would end
after the final maturity of such Term Loan; and
4.2.3 RENEWALS.
in the case of the renewal of a Euro-Rate Option at
the end of an Interest Period, the first day of the new Interest Period shall be
the last day of the preceding Interest Period, without duplication in payment of
interest for such day.
4.3 INTEREST AFTER DEFAULT.
To the extent permitted by Law, upon the occurrence of an
Event of Default and until such time such Event of Default shall have been cured
or waived:
4.3.1 LETTER OF CREDIT FEES, INTEREST RATE.
the Letter of Credit Fees and the rate of interest
for each Loan otherwise applicable pursuant to Section 0 or Section 0,
respectively, shall be increased by 2.0% per annum; and
4.3.2 OTHER OBLIGATIONS.
each other Obligation hereunder if not paid when due
shall bear interest at a rate per annum equal to the sum of the rate of interest
applicable under the Revolving Credit Base Rate Option plus an additional 2% per
annum from the time such Obligation becomes due and payable and until it is paid
in full.
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4.3.3 ACKNOWLEDGMENT.
The Borrower acknowledges that the increase in rates
referred to in this Section 0 reflects, among other things, the fact that such
Loans or other amounts have become a substantially greater risk given their
default status and that the Banks are entitled to additional compensation for
such risk; and all such interest shall be payable by Borrower upon demand by
Administrative Agent.
4.4 EURO-RATE UNASCERTAINABLE; ILLEGALITY; INCREASED
COSTS; DEPOSITS NOT AVAILABLE.
4.4.1 UNASCERTAINABLE.
If on any date on which a Euro-Rate would otherwise
be determined, the Administrative Agent shall have determined that:
(i) adequate and reasonable means do not exist for ascertaining such
Euro-Rate, or
(ii) a contingency has occurred which materially and adversely affects the
London interbank eurodollar market relating to the Euro-Rate, the
Administrative Agent shall have the rights specified in Section 0.
4.4.2 ILLEGALITY; INCREASED COSTS; DEPOSITS NOT
AVAILABLE.
If at any time any Bank shall have determined that:
(i) the making, maintenance or funding of any Loan to which a Euro-Rate
Option applies has been made impracticable or unlawful by compliance by
such Bank in good faith with any Law or any interpretation or
application thereof by any Official Body or with any request or
directive of any such Official Body (whether or not having the force of
Law), or
(ii) such Euro-Rate Option will not adequately and fairly reflect the cost
to such Bank of the establishment or maintenance of any such Loan, or
(iii) after making all reasonable efforts, deposits of the relevant amount in
Dollars for the relevant Interest Period for a Loan to which a
Euro-Rate Option applies, respectively, are not available to such Bank
with respect to such Loan, in the London interbank market, then the
Administrative Agent shall have the rights specified in Section 0.
4.4.3 ADMINISTRATIVE AGENT'S AND BANK'S RIGHTS.
In the case of any event specified in Section 0
above, the Administrative Agent shall promptly so notify the Banks and the
Borrower thereof, and in the case of an event specified in Section 0 above, such
Bank shall promptly so notify the Administrative Agent and endorse a certificate
to such notice as to the specific circumstances of such notice, and the
Administrative Agent shall promptly send copies of such notice and certificate
to the other Banks and the Borrower. Upon such date as shall be specified in
such notice (which shall not be earlier than the date such notice is given), the
obligation of (A) the Banks, in the case of such notice
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given by the Administrative Agent, or (B) such Bank, in the case of such notice
given by such Bank, to allow the Borrower to select, convert to or renew a
Euro-Rate Option shall be suspended until the Administrative Agent shall have
later notified the Borrower, or such Bank shall have later notified the
Administrative Agent, of the Administrative Agent's or such Bank's, as the case
may be, determination that the circumstances giving rise to such previous
determination no longer exist. If at any time the Administrative Agent makes a
determination under Section 0 and the Borrower has previously notified the
Administrative Agent of its selection of, conversion to or renewal of a
Euro-Rate Option and such Interest Rate Option has not yet gone into effect,
such notification shall be deemed to provide for selection of, conversion to or
renewal of the Base Rate Option otherwise available with respect to such Loans.
If any Bank notifies the Administrative Agent of a determination under Section
0, the Borrower shall, subject to the Borrower's indemnification Obligations
under Section 0 [Indemnity], as to any Loan of the Bank to which a Euro-Rate
Option applies, on the date specified in such notice either convert such Loan to
the Base Rate Option otherwise available with respect to such Loan or prepay
such Loan in accordance with Section 0 [Voluntary Prepayments]. Absent due
notice from the Borrower of conversion or prepayment, such Loan shall
automatically be converted to the Base Rate Option otherwise available with
respect to such Loan upon such specified date.
4.5 SELECTION OF INTEREST RATE OPTIONS.
If the Borrower fails to select a new Interest Period to apply
to any Borrowing Tranche of Loans under the Euro-Rate Option at the expiration
of an existing Interest Period applicable to such Borrowing Tranche in
accordance with the provisions of Section 0 [Interest Periods], the Borrower
shall be deemed to have converted such Borrowing Tranche to the Revolving Credit
Base Rate Option or Term Loan Base Rate Option, as applicable, commencing upon
the last day of the existing Interest Period.
5. PAYMENTS
5.1 PAYMENTS.
All payments and prepayments to be made in respect of
principal, interest, Commitment Fees, Letter of Credit Fees, Administrative
Agent's Fees or other fees or amounts due from the Borrower hereunder and under
the Fee Letter shall be payable prior to 11:00 a.m., Pittsburgh time, on the
date when due without presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived by the Borrower, and without set-off,
counterclaim or other deduction of any nature, and an action therefor shall
immediately accrue. Such payments shall be made to the Administrative Agent at
the Principal Office for the ratable accounts of the Banks with respect to the
Loans in U.S. Dollars and in immediately available funds, and the Administrative
Agent shall promptly distribute such amounts to the Banks in immediately
available funds, PROVIDED that in the event payments are received by 11:00 a.m.,
Pittsburgh time, by the Administrative Agent with respect to the Loans and such
payments are not distributed to the Banks on the same day received by the
Administrative Agent, the Administrative Agent shall pay the Banks the Federal
Funds Effective Rate with respect to the amount of such payments for each day
held by the Administrative Agent and not distributed to the Banks. The
Administrative Agent's and each Bank's statement of account, ledger or other
relevant record shall, in the
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absence of manifest error, be conclusive as the statement of the amount of
principal of and interest on the Loans and other amounts owing under this
Agreement and shall be deemed an "account stated."
5.2 PRO RATA TREATMENT OF BANKS.
Each borrowing shall be allocated to each Bank according to
its applicable Ratable Share of the Revolving Credit Loan and each of the Term
Loans, as applicable, and each selection of, conversion to or renewal of any
Interest Rate Option and each payment or prepayment by the Borrower with respect
to principal, interest, Commitment Fees, Letter of Credit Fees, or other fees
(except for the Agents' Fees) or amounts due from the Borrower hereunder to the
Banks with respect to the Loans, shall (except as provided in Section 0
[Administrative Agent's and Bank's Rights] in the case of an event specified in
Section 0 [Euro-Rate Unascertainable; Etc.], 5.4.1 [Right to Prepay], 0
[Replacement of a Bank], 5.5 [Mandatory Prepayments] or 0 [Additional
Compensation in Certain Circumstances]) be made in proportion to the applicable
Loans outstanding from each Bank and, if no such Loans are then outstanding, in
proportion to the applicable Ratable Share of each Bank.
5.3 INTEREST PAYMENT DATES.
Interest on Loans to which the Base Rate Option applies shall
be due and payable in arrears on the last Business Day of each March, June,
September and December after the date hereof (commencing June 30, 1999), and on
the Expiration Date or upon acceleration of the Notes. Interest on Loans to
which the Euro-Rate Option applies shall be due and payable on the last day of
each Interest Period for those Loans and, if such Interest Period is longer than
three (3) Months, also on the 90th day of such Interest Period. Interest on
mandatory prepayments of principal under Section 0 [Mandatory Prepayments] shall
be due on the date such mandatory prepayment is due. Interest on the principal
amount of each Loan or other monetary Obligation shall be due and payable on
demand after such principal amount or other monetary Obligation becomes due and
payable (whether on the stated maturity date, upon acceleration or otherwise).
5.4 VOLUNTARY PREPAYMENTS.
5.4.1 RIGHT TO PREPAY.
(a) The Borrower shall have the right at its option
from time to time to prepay the Loans (subject, in the case of Term Loan C, to
the additional restrictions set forth in paragraph (d) below) in whole or part
subject to the provisions of this Section 5.4.1 and to Section 0 and Section 0
[Additional Compensation in Certain Circumstances):
(i) at any time with respect to any Loan to which the Base Rate Option
applies,
(ii) on the last day of the applicable Interest Period with respect to Loans
to which a Euro-Rate Option applies or, provided the Borrower
indemnifies the applicable Banks as provided in Section 5.6.2,
[Indemnity] on a date prior to such last day, or
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(iii) on the date specified in a notice by any Bank pursuant to Section 0
[Euro-Rate Unascertainable, Etc.] with respect to any Loan to which a
Euro-Rate Option applies.
Whenever the Borrower desires to prepay any part of
the Loans, it shall provide a prepayment notice to the Administrative Agent by
1:00 p.m. at least one (1) Business Day prior to the date of prepayment of Loans
setting forth the following information:
(x) the date, which shall be a Business Day, on which
the proposed prepayment is to be made;
(y) a statement indicating the application of the
prepayment between the Revolving Credit Loans and Term Loans;
and
(z) the total principal amount of such prepayment,
which shall not be less than $250,000.
All prepayment notices shall be irrevocable. The
principal amount of the Loans for which a prepayment notice is given, together
with interest on such principal amount except with respect to Loans to which the
Base Rate Option applies, shall be due and payable on the date specified in such
prepayment notice as the date on which the proposed prepayment is to be made.
(b) All permitted prepayments designated by the
Borrower as prepayments of the Revolving Credit Loans shall be applied to reduce
Revolving Credit Loans. Voluntary prepayments of Term Loans will be applied PRO
RATA between Term Loan A and Term Loan B, with any application to (x) Term Loan
A being applied PRO RATA to the remaining scheduled amortization payments
thereunder, and (y) Term Loan B being applied to the remaining scheduled
amortization payments thereunder in inverse order of maturity.
(c) Notwithstanding the foregoing, any holder of Term
Loan B at its sole discretion may, with respect to any voluntary prepayment to
be applied as set forth in this Section 5.4, so long as any Term Loan A is then
outstanding (after giving effect to the application of such voluntary prepayment
to Term Loan A), elect by written notice provided to the Administrative Agent
not to have all or any amount of any such voluntary prepayments applied to such
holder's Term Loan B, in which case the aggregate amount so declined shall be
applied PRO RATA to Term Loan A and PRO RATA to the remaining amortization
payments thereof; PROVIDED, HOWEVER, that to the extent that the aggregate
principal amount of the Term Loan A after giving effect to such voluntary
prepayments is less than the aggregate amount so declined by the holders of the
Term Loan B, such amount so declined shall be allocated PRO RATA to Term Loan B.
(d) Borrowings under Term Loan C may be prepaid in
whole or in part subject to restrictions set forth herein, only to the extent
that no Loans, Commitments or any other Obligations remain outstanding under or
with respect to the First Priority Facilities, with any application being
applied to the remaining scheduled amortization payments thereunder in inverse
order of maturity. In addition, permitted prepayments of Term Loan C shall be
accompanied by the following prepayment fees in cash (based upon principal
amount prepaid):
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If Prepayment Date occurs:
prior to February 26, 2000 3%
on or after February 26, 2000 and prior to February 26, 2001 2%
on or after February 26, 2001 and prior to February 26, 2002 1%
Any prepayment of the Term Loan B made in connection
with any refinancing of the Loans shall be deemed an optional prepayment under
this Section 5.4 and not a mandatory prepayment under Section 5.5.
5.4.2 REPLACEMENT OF A BANK.
In the event any Bank (i) gives notice under Section
0 [Euro-Rate Unascertainable, Etc.] or Section 0 [Increased Costs, Etc.], (ii)
does not fund Revolving Credit Loans because the making of such Loans would
contravene any Law applicable to such Bank, (iii) does not approve any action as
to which consent of the Required Banks is requested by the Borrower and obtained
hereunder, or (iv) becomes subject to the control of an Official Body (other
than normal and customary supervision), then the Borrower shall have the right
at its option, with the consent of the Agents, which shall not be unreasonably
withheld, to prepay the Loans of such Bank in whole, together with all interest
accrued thereon, and terminate such Bank's Commitment within ninety (90) days
after (w) receipt of such Bank's notice under Section 0 [Euro-Rate
Unascertainable, Etc.] or 0 [Increased Costs, Etc.], (x) the date such Bank has
failed to fund Revolving Credit Loans because the making of such Loans would
contravene Law applicable to such Bank, (y) the date of obtaining the consent
which such Bank has not approved, or (z) the date such Bank became subject to
the control of an Official Body, as applicable; PROVIDED that the Borrower shall
also pay to such Bank at the time of such prepayment any amounts required under
Section 0 [Additional Compensation in Certain Circumstances] and any accrued
interest due on such amount and any related fees; PROVIDED, however, that the
Commitment and any Term Loan of such Bank shall be provided by one or more of
the remaining Banks or a replacement bank acceptable to the Agents; PROVIDED,
further, the remaining Banks shall have no obligation hereunder to increase
their Commitments. Notwithstanding the foregoing, the Administrative Agent may
only be replaced subject to the requirements of Section 0 [Successor Agents] and
provided that all Letters of Credit have expired or been terminated or replaced.
5.4.3 CHANGE OF LENDING OFFICE.
Each Bank agrees that upon the occurrence of any
event giving rise to increased costs or other special payments under Section 0
[Illegality, Etc.] or 0 [Increased Costs, Etc.] with respect to such Bank, it
will if requested by the Borrower, use reasonable efforts (subject to overall
policy considerations of such Bank) to designate another lending office for any
Loans or Letters of Credit affected by such event, provided that such
designation is made on such terms that such Bank and its lending office suffer
no economic, legal or regulatory disadvantage, with the object of avoiding the
consequence of the event giving rise to the operation of such Section. Nothing
is this Section 0 shall affect or postpone any of the Obligations of the
Borrower or any other Loan Party or the rights of the Administrative Agent or
any Bank provided in this Agreement.
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5.5 MANDATORY PREPAYMENTS.
5.5.1 EXCESS CASH FLOW.
Within five (5) Business Days of delivery of the
Borrower's annual financial statements pursuant to Section 0 [Annual Financial
Statements], but in any event no later than April 5 of each year during the term
hereof, commencing with April 1, 2000 (each, a "MANDATORY PREPAYMENT DATE"), the
Borrower shall make a mandatory prepayment of principal on the Term Loans equal
to 75% of Excess Cash Flow for the immediately preceding fiscal year, together
with accrued interest on such principal amount (each, a "MANDATORY PREPAYMENT OF
EXCESS CASH FLOW"). Such Payments shall be applied as set forth in Section
5.5.6.
5.5.2 SALE OF ASSETS; CASUALTY EVENT.
(a) Within five (5) Business Days of any Asset Sale,
the Borrower shall make a mandatory prepayment of principal on the Term Loans
equal to the net proceeds of such Asset Sale (as estimated in good faith by the
Borrower), together with accrued interest on such principal amount. All
prepayments pursuant to this Section 0(a) shall be applied as set forth in
Section 5.5.6. Notwithstanding the foregoing, no prepayment shall be required
with respect to the (i) net proceeds from Asset Sale unless such proceeds,
together with the proceeds from Casualty Events, exceed $250,000 in any fiscal
year and then only to the extent of such excess, and (ii) net proceeds from
sales if the Borrower certifies to the Administrative Agent that it reasonably
expects such net proceeds to be used to purchase substitute or replacement
assets for use in the business of the Borrower or its Subsidiaries within twelve
months of the date of disposition. In the event that such purchase has not
occurred within twelve months, the Borrower shall, subject to the provision of
part (i) of the preceding sentence, make a mandatory prepayment of all net
proceeds not so expended.
(b) Within five (5) Business Days of any Casualty
Event by any Loan Party or any Subsidiary of the Borrower, the Borrower shall
make a mandatory prepayment of principal on the Term Loans equal to 100% of the
net proceeds of such Casualty Event, together with accrued interest on such
principal amount. All prepayments pursuant to this Section 5.5.2(b) shall be
applied as set forth in Section 5.5.6. Notwithstanding the foregoing, no
prepayment shall be required with respect to the (i) net proceeds from Casualty
Events unless such proceeds, together with the proceeds from Asset Sales, exceed
$250,000 in any fiscal year and then only to the extent of such excess, and (ii)
net proceeds from Casualty Events if the Borrower certifies to the
Administrative Agent that it reasonably expects such net proceeds to be used to
purchase substitute or replacement assets for use in the business of the
Borrower or its Subsidiaries within twelve months of the date of disposition. In
the event that such purchase has not occurred within twelve months, the Borrower
shall, subject to the provision of part (i) of the preceding sentence, make a
mandatory prepayment of all net proceeds not so expended.
5.5.3 SALE OF DEBT OR EQUITY SECURITIES.
Within five (5) Business Days of the sale of any debt
securities authorized by Section 8.2.1, any sale-leaseback transaction
authorized under this Agreement or the sale of any equity securities authorized
by Section 8.2.14(iv) (other than
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any Excluded Issuance) (as defined below), the Borrower shall make a mandatory
prepayment of principal on the Term Loans equal to 75% of the net proceeds of
such sale or issuance of equity securities or contributions to capital (other
than contributions to capital received from another Loan Party) and 100% of the
net proceeds of such debt securities and sale-leaseback transaction (in each
case after deduction of brokerage fees and expenses directly relating to such
sale or issuance) as estimated in good faith by the Borrower), together with
accrued interest on such principal amount. Orius shall contribute to the capital
of the Borrower cash in amounts sufficient to permit the Borrower to make such
prepayments. All prepayments pursuant to this Section 5.5.3 shall be applied to
the Term Loans in the same manner set forth in Section 5.5.6. "EXCLUDED
ISSUANCE" shall mean the Orius Preferred Stock issued to HIG on the Closing
Date, common stock issued by Orius in connection with the Specified Acquisitions
or any Permitted Acquisition, common stock issued by Orius in connection with
the conversion of the Orius Preferred Stock, sale of Orius common stock in
connection with the NATC Reorganization, and, additional Series A Preferred
Stock or Series B Preferred Stock of Orius issued pursuant to payment in kind
features of such stock, and, to the extent such proceeds do not exceed
$2,500,000 from the Closing Date to the date of exercise, common stock of Orius
issued in connection with the exercise of employee stock options.
5.5.4 APPLICATION TO EURO RATE LOANS.
In accordance with Section 0 [Indemnity], the
Borrower shall indemnify the Banks for any loss or expense, including loss of
margin, incurred with respect to any such prepayments applied against Loans
subject to a Euro-Rate Option on any day other than the last day of the
applicable Interest Period.
5.5.5 DEPOSIT INTO BLOCKED ACCOUNT.
In the event that prepaying the Term Loans or portion
thereof under Sections 5.5.1, 5.5.2, or 5.5.3 on a date required by such
Sections would cause the Borrower to prepay Term Loans to which a Euro-Rate
Option applies on a day other than the last day of the Interest Period
applicable to such Term Loans (each such event also a "Possible Breakage
Event"), the Borrower may, in lieu of such prepayment, on the date on which a
prepayment is due, provide written notice to the Administrative Agent that the
Borrower has deposited in a blocked account at Administrative Agent's principal
office or other office of the Administrative Agent as the Administrative Agent
and the Borrower may hereafter agree, such account to be subject to terms
reasonably acceptable to the Administrative Agent (each a "Blocked Account"), an
amount equal to the amount of the Term Loans which are required to be prepaid
but with respect to which a Possible Breakage Event would occur if then prepaid.
The Borrower hereby grants a security interest to the Administrative Agent for
the benefit of the Banks in each Blocked Account as security for the Loans and
all other Obligations of the Loan Parties under the Loan Documents. Amounts
deposited in a Blocked Account may be invested in Permitted Investments
designated in writing by the Borrower to the Administrative Agent from time to
time, with such Permitted Investments to be for a period reasonably acceptable
to the Administrative Agent. Interest earned on amounts deposited in a Blocked
Account which is invested at the Borrower's discretion in a Permitted Investment
shall be for the account of the Borrower with such interest to
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be disbursed to the Borrower at the time of disbursement to the Administrative
Agent of the principal balance of a Blocked Account. Amounts deposited in
Blocked Accounts shall be automatically disbursed, from time to time, to the
Administrative Agent for prepayment of the Term Loans (with such prepayment to
be applied to the Term Loans as provided in the last paragraph of Section 5.4.1
on each day which is the last day of an Interest Period applicable to any
proceeds of Loan as deposited in a Blocked Account. It is expressly agreed that
notwithstanding the foregoing provisions of this Section 5.5.5, prepayments
required by Sections 5.5.1, 5.5.2, or 5.5.3 shall be timely made by the Borrower
and only the prepayment applicable to Term Loans with respect to which a
Possible Breakage Event would occur if then prepaid shall be deposited in a
Blocked Account. It is expressly agreed that amounts deposited in Blocked
Accounts shall not, following deposit therein, be withdrawn by any Person other
than the Administrative Agent.
5.5.6 APPLICATION
Mandatory prepayments will first be applied PRO RATA
between Term Loan A and Term Loan B with any application to (x) Term Loan A
being applied PRO RATA to the remaining scheduled amortization payments
thereunder, and (y) Term Loan B being applied to the remaining scheduled
amortization payments thereunder in inverse order of maturity. Notwithstanding
the foregoing, any holder of Term Loan B at its sole discretion may, with
respect to any mandatory prepayment to be applied as set forth in this Section
5.5, so long as any Term Loan A is then outstanding (after giving effect to the
application of such mandatory prepayment to Term Loan A), elect by written
notice provided to the Administrative Agent not to have all or any amount of any
such mandatory prepayments applied to such holder's Term Loan B, in which case
the aggregate amount so declined shall be applied PRO RATA to Term Loan A and
PRO RATA to the remaining amortization payments thereof; PROVIDED, HOWEVER, that
to the extent that the aggregate principal amount of the Term Loan A after
giving effect to such mandatory prepayment is less than the aggregate amount so
declined by the holders of the Term Loan B, such amount so declined shall be
allocated PRO RATA to Term Loan B.
Mandatory prepayments will next be applied to any
Revolving Credit Loans outstanding to the extent that no Term Loan A or Term
Loan B remain outstanding. To the extent that the amounts to be applied to the
repayment of the Revolving Credit Loans exceeds the amount thereof then
outstanding, the Borrower shall cash collateralize outstanding Letters of
Credit. To the extent that any proceeds of mandatory prepayments remain after
application as provided in the first two paragraphs of this Section 5.5.6, the
Revolving Credit Commitments of the Banks shall be reduced pro rata by such
excess amount and such excess amount shall be returned to the Borrower.
Mandatory prepayments will be applied to Term Loan C
only to the extent that no Loans, Commitments or any other obligations remain
outstanding under or with respect to the First Priority Facilities, with any
application being applied to the remaining scheduled amortization payments
thereunder in inverse order of maturity.
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5.6 ADDITIONAL COMPENSATION IN CERTAIN CIRCUMSTANCES.
5.6.1 INCREASED COSTS OR REDUCED RETURN
RESULTING FROM TAXES, RESERVES, CAPITAL
ADEQUACY REQUIREMENTS, EXPENSES, ETC.
If any Law, guideline or interpretation or any change
in any Law, guideline or interpretation or application thereof by any Official
Body charged with the interpretation or administration thereof or compliance
with any request or directive (whether or not having the force of Law) of any
central bank or other Official Body:
(i) subjects any Bank to any tax or changes the basis of taxation with
respect to this Agreement, the Notes, the Loans or payments by the
Borrower of principal, interest, Commitment Fees, or other amounts due
from the Borrower hereunder or under the Notes (except for Covered
Taxes and taxes on the overall net income of such Bank),
(ii) imposes, modifies or deems applicable any reserve, special deposit or
similar requirement against credits or commitments to extend credit
extended by, or assets (funded or contingent) of, deposits with or for
the account of, or other acquisitions of funds by, any Bank, or
(iii) imposes, modifies or deems applicable any capital adequacy or similar
requirement (A) against assets (funded or contingent) of, or letters of
credit, other credits or commitments to extend credit extended by, any
Bank, or (B) otherwise applicable to the obligations of any Bank under
this Agreement,
and the result of any of the foregoing is to increase the cost to, reduce the
income receivable by, or impose any expense (including loss of margin) upon any
Bank with respect to this Agreement, the Notes or the making, maintenance or
funding of any part of the Loans (or, in the case of any capital adequacy or
similar requirement, to have the effect of reducing the rate of return on any
Bank's capital, taking into consideration such Bank's customary policies with
respect to capital adequacy) by an amount which such Bank in its sole discretion
deems to be material, such Bank shall from time to time notify the Borrower and
the Administrative Agent of the amount determined in good faith (using any
averaging and attribution methods employed in good faith) by such Bank to be
necessary to compensate such Bank for such increase in cost, reduction of
income, additional expense or reduced rate of return. Such notice shall set
forth in reasonable detail the basis for such determination. Such amount shall
be due and payable by the Borrower to such Bank ten (10) Business Days after
such notice is given.
5.6.2 INDEMNITY.
In addition to the compensation required by Section 0
[Increased Costs, Etc.], the Borrower shall indemnify each Bank against all
liabilities, losses or expenses (including loss of margin, any loss or expense
incurred in liquidating or employing deposits from third parties and any loss or
expense incurred in connection with funds acquired by a Bank to fund or maintain
Loans subject to a Euro-Rate Option) which such Bank sustains or incurs as a
consequence of any
(i) payment, prepayment, conversion or renewal of any Loan to which a
Euro-Rate Option applies on a day other than the last day of the
corresponding Interest Period (whether or not such payment
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or prepayment is mandatory, voluntary or automatic and whether or not
such payment or prepayment is then due),
(ii) attempt by Borrower to revoke (expressly, by later inconsistent notices
or otherwise) in whole or part any Loan Requests under Section 0
[Revolving Credit Loan Requests] or Section 0 [Interest Periods] or
notice relating to prepayments under Section 0 [Voluntary Prepayments],
or
(iii) default by Borrower in the performance or observance of any covenant or
condition contained in this Agreement or any other Loan Document,
including any failure of Borrower to pay when due (by acceleration or
otherwise) any principal, interest, Commitment Fee or any other amount
due hereunder.
If any Bank sustains or incurs any such loss or expense, it
shall from time to time notify the Borrower of the amount determined in good
faith by such Bank (which determination may include such assumptions,
allocations of costs and expenses and averaging or attribution methods as such
Bank shall deem reasonable) to be necessary to indemnify such Bank for such loss
or expense. Such notice shall set forth in reasonable detail the basis for such
determination. Such amount shall be due and payable by the Borrower to such Bank
ten (10) Business Days after such notice is given.
5.7 ADDITIONAL INDEMNITY.
(a) The Loan Parties, jointly and severally, agree to
pay or reimburse:
(i) each of the Agents for all of their reasonable out-of-pocket costs and
expenses in connection with (1) the negotiation, preparation, execution
and delivery of the Loan Documents and the extensions of credit
hereunder, (2) the negotiation or preparation of any modification,
supplement or waiver of any of the terms of any Loan Document (whether
or not consummated or effective) and (3) the syndication of the Loans
and Commitments;
(ii) each of the Banks and the Agents for all reasonable out-of-pocket costs
and expenses of the Banks and the Agents (including the reasonable fees
and expenses of legal counsel) in connection with (1) any enforcement
or collection proceedings resulting from any Potential Default,
including all manner of participation in or other involvement with (x)
bankruptcy, insolvency, receivership, foreclosure, winding up or
liquidation proceedings, (y) judicial or regulatory proceedings and (z)
workout, restructuring or other negotiations or proceedings (whether or
not the workout, restructuring or transaction contemplated thereby is
consummated), (2) the enforcement of this Section 5.7 and (3) any
documentary taxes; and
(iii) the Administrative Agent for all reasonable costs, expenses, taxes,
assessments and other charges (including reasonable fees and
disbursements of counsel) incurred in connection with any filing,
registration, recording or perfection of any security interest
contemplated by any Loan Document or any other document referred to
therein.
(b) The Loan Parties, jointly and severally, hereby
agree to indemnify each Creditor and their respective Affiliates, directors,
trustees, officers, employees and agents (each, an "INDEMNITEE") from, and hold
each of them harmless against, and that no Indemnitee will
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have any liability for, any and all Losses incurred by any of them (including
any and all Losses incurred by any Agent to any Bank, whether or not any
Creditor is a party thereto) directly or indirectly arising out of or by reason
of or relating to the negotiation, execution, delivery, performance,
administration or enforcement of any Loan Document, any of the transactions
contemplated by the Loan Documents (including the Transactions), any breach by
any Loan Party, as applicable, of any representation, warranty, covenant or
other agreement contained in any of the Loan Documents in connection with any of
the Transactions, the use or proposed use of any of the Loans or Letters of
Credit, the issuance of or performance under any Letter of Credit or the use of
any collateral security for the Loans (including the exercise by any Creditor of
the rights and remedies or any power of attorney with respect thereto and any
action or inaction in respect thereof), but excluding any such Losses to the
extent finally determined by a court of competent jurisdiction in a final and
nonappealable judgment to have arisen solely from the gross negligence or bad
faith of the Indemnitee.
Without limiting the generality of the foregoing, the
Loan Parties, jointly and severally, will indemnify each Creditor and each other
Indemnitee from, and hold each Creditor and each other Indemnitee harmless
against, any Losses described in the preceding sentence arising under any
Environmental Law as a result of (A) the past, present or future operations of
any Loan Party (or any predecessor in interest to any Loan Party), (B) the past,
present or future condition of any site or facility owned, operated, leased or
used at any time by any company (or any such predecessor in interest), or (C)
any Release or threatened Release of any Regulated Substances at, on, under or
from any such site or facility, including any such Release or threatened Release
that shall occur during any period when any Creditor shall be in possession of
any such site or facility following the exercise by such Creditor of any of its
rights and remedies hereunder or under any of the Security Documents; PROVIDED,
HOWEVER, that the indemnity hereunder shall be subject to the exclusions from
indemnification set forth in the preceding sentence.
To the extent that the undertaking to indemnify and
hold harmless set forth in this Section 5.7 or any other provision of any Loan
Document providing for indemnification is unenforceable because it is violative
of any law or public policy or otherwise, the Loan Parties, jointly and
severally, shall contribute the maximum portion that each of them is permitted
to pay and satisfy under applicable law to the payment and satisfaction of all
indemnified liabilities incurred by any of the Persons indemnified hereunder.
The Loan Parties also agree that no Indemnitee shall
have any liability (whether direct or indirect, in contract or tort or
otherwise) for any Losses to any Loan Party or any Loan Party's security holders
or creditors resulting from, arising out of, in any way related to or by reason
of any matter referred to in any indemnification or expense reimbursement
provisions set forth in this Agreement or any other Loan Document, except to the
extent that any Loss is determined by a court of competent jurisdiction in a
final nonappealable judgment to have resulted solely from the gross negligence
or bad faith of such Indemnitee.
The Loan Parties agree that, without the prior
written consent of each Agent, and the Required Banks (which consent shall not
be unreasonably withheld), no Loan Party will settle, compromise or consent to
the entry of any judgment in any pending or
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threatened Proceeding in respect of which indemnification has been or is
reasonably likely to be sought under the indemnification provisions of this
Section 5.7 (whether or not any Indemnitee is an actual or potential party to
such Proceeding), unless such settlement, compromise or consent includes an
unconditional written release of each Indemnitee from all liability arising out
of such Proceeding and does not include any statement as to an admission of
fault, culpability or failure to act by or on behalf of any Indemnitee and does
not involve any payment of money or other value by any Indemnitee or any
injunctive relief or factual findings or stipulations binding on any Indemnitee.
5.8 NET PAYMENTS
(a) Except as provided in subsection 5.8(b), all payments by
any Loan Party to any Bank or any Agent under this Agreement and any other Loan
Document shall be made free and clear of, and without deduction or withholding
for, any Covered Taxes levied or imposed by any Official Body with respect to
such payments.
(b) If any Loan Party shall be required by law to deduct or
withhold any Covered Taxes from or in respect of any sum payable hereunder to
any Bank or any Agent, then except as provided in subsection 5.8(e): (i) the sum
payable shall be increased as necessary so that after making all such required
deductions and withholdings (including deductions and withholdings applicable to
additional sums payable under subsection 5.8(b) or (c)) such Bank or such Agent,
as the case may be, receives an amount equal to the sum it would have received
had no such deductions or withholdings been made; (ii) such Loan Party shall
make such deductions and withholdings; and (iii) such Loan Party shall pay the
full amount deducted or withheld to the relevant taxing authority or other
authority in accordance with applicable law. Within 30 days after the date of
any payment by a Loan Party of Covered Taxes, such Loan Party shall furnish the
Administrative Agent the original or a certified copy of a receipt evidencing
payment thereof, or other evidence of payment reasonably satisfactory to
Administrative Agent.
(c) The Loan Parties agree to indemnify and hold harmless each
Bank and each Agent, except as provided in subsection 5.8(e), for (i) the full
amount of Covered Taxes (including any Covered Taxes imposed by any jurisdiction
on amounts payable under this subsection 5.8(c)) paid by such Bank or such Agent
and any liability (including penalties, interest, additions to tax and
reasonable out-of-pocket expenses) arising therefrom or with respect thereto,
whether or not such Covered Taxes were correctly or legally asserted, and (ii)
any Taxes levied or imposed by any Official Body on any additional amounts paid
by any Loan Party under this Section 5.8 that are measured by such Bank's or
such Agent's net income or net profits by the jurisdiction (or any political
subdivision thereof) under the laws of which such Bank or such Agent, as the
case may be, is organized, maintains a lending office or conducts a trade or
business.
(d)(i) Each Bank or Agent that is not a United States person
(as such term is defined in Section 7701(a) of the Internal Revenue Code) agrees
that:
(A) it shall, no later than the Effective Date (or, in the
case of a Bank which becomes a party hereto after the Effective Date, the date
upon which such Bank becomes a party hereto) deliver to Administrative Agent (x)
two accurate and complete signed originals of IRS Form 4224 or any successor
thereto ("Form 4224"), or two accurate and complete signed originals of IRS Form
1001 or any successor thereto ("Form 1001"), as appropriate, or (y) if such Bank
is not a "bank" within the meaning of Section 881(c)(3)(A) of the Internal
Revenue Code and cannot deliver either Form 1001 or
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Form 4224 pursuant to clause (x) above, a certificate in form acceptable to the
Administrative Agent (any such certificate, a "Foreign Bank Certificate") and,
in the case of either (x) or (y), two accurate and complete original signed
copies of IRS Form W-8 or any successor thereto ("Form W-8");
(B) if at any time such Bank or Agent makes any changes
necessitating a new Form 4224, Form 1001, Form W-8, or Foreign Bank Certificate,
as the case may be, it shall with reasonable promptness deliver to
Administrative Agent in replacement for, or in addition to, the forms previously
delivered by it hereunder, two accurate and complete signed originals of Form
4224, Form 1001, Form W-8 or Foreign Bank Certificate, as appropriate; and
(C) it shall, before or promptly after the occurrence of any
event (including the passing of time requiring a change in or renewal of the
most recent Form 4224, Form 1001, Form W-8 or Foreign Bank Certificate,
previously delivered by such Bank or Agent), deliver to Administrative Agent two
accurate and complete original signed copies of Form 4224, Form 1001, or Form
W-8 and a Foreign Bank Certificate, in replacement for the forms previously
delivered by such Bank or Agent.
(ii) On each Form 1001 or 4224 delivered by a Bank or Agent
pursuant to this subsection (d) such Bank or Agent shall certify, unless unable
to do so by virtue of a change in law occurring after the date such Bank or
Agent becomes a party hereto, that the Bank or Agent is entitled to receive
payments under this Agreement without deduction or withholding of US federal
income taxes (or, with respect to any assignee Bank, at least to the extent of
the assigning Bank).
(iii) Notwithstanding the foregoing provisions of this
subsection 5.8(d) or any other provision of this Section 5.8, no Bank or Agent
shall be required or have any obligation to deliver any form pursuant to this
Section 5.8 if such Bank or Agent is not legally able to do so by virtue of a
change in law occurring after the date such Bank or Agent becomes a party
hereto.
(iv) Each Bank or Agent shall, promptly upon a Loan Party's or
Administrative Agent's reasonable request to that effect, deliver to such Loan
Party or Administrative Agent (as the case may be) such other forms or similar
documentation or other information as may be required from time to time by any
applicable law, treaty, rule or regulation of any Official Body in order to
establish such Bank's or Agent's tax status for withholding purposes, provided
that it is legally able to do so.
(e) No Loan Party will be required to pay any additional
amount or indemnification payment, as the case may be, in respect of Taxes
pursuant to this Section 5.8 to any Bank or to any Agent with respect to any
Bank if the obligation to pay such additional amount or indemnification payment,
as the case may be, would not have arisen but for a failure by such Bank to
comply with its obligations to deliver any form under subsection 5.8(d).
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6. REPRESENTATIONS AND WARRANTIES
6.1 REPRESENTATIONS AND WARRANTIES.
The Loan Parties, jointly and severally, represent and warrant
to the Agents and each of the Banks as follows:
6.1.1 ORGANIZATION AND QUALIFICATION.
Each Loan Party and each Subsidiary of each Loan
Party is a corporation or limited liability company duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization. Each Loan Party and each Subsidiary of each Loan Party has the
lawful power to own or lease its properties and to engage in the business it
presently conducts or proposes to conduct. Each Loan Party and each Subsidiary
of each Loan Party is duly licensed or qualified and in good standing in each
jurisdiction listed on SCHEDULE 0 and in all other jurisdictions where the
property owned or leased by it or the nature of the business transacted by it or
both makes such licensing or qualification necessary, except where such failures
to be duly licensed or qualified do not in the aggregate result in any Material
Adverse Change.
6.1.2 CAPITALIZATION AND OWNERSHIP.
The authorized ownership interests of Borrower
consists of 100 Membership Units, of which 100 Membership Units, (collectively
referred to herein as the "Borrower Units") are issued and outstanding and are
owned as indicated on SCHEDULE 0. All of the Borrower Units outstanding on
February 26, 1999 have been validly issued and are fully paid and nonassessable.
As of the Closing, there are no options, warrants or other rights outstanding to
purchase any ownership interests of the Borrower.
The authorized capital stock of Orius consists of
4,700,000 shares of common stock and 300,000 shares of preferred stock, of which
1,295,365.06 shares of common stock, and 17,596.28 shares of preferred stock
(collectively referred to herein as the "Orius Shares") are issued and
outstanding, including shares issued in connection with the NATC Reorganization
and the Specified Acquisitions and are owned as indicated on SCHEDULE 6.1.2. All
of the Orius Shares outstanding on the date of this Agreement have been validly
issued and are fully paid and nonassessable. As of the Closing Date, there are
no options, warrants or other rights outstanding to purchase any such Orius
Shares except as indicated on SCHEDULE 6.1.2.
6.1.3 SUBSIDIARIES.
SCHEDULE 0 states the name of each of the Loan
Parties which is a Subsidiary of the Borrower, its jurisdiction of
incorporation, its authorized capital stock and the issued and outstanding
shares (referred to herein as the "Subsidiary Shares"). NATC has good and
marketable title to all of the Subsidiary Shares which are shown to be owned by
it on SCHEDULE 6.1.3 free and clear in each case of any Lien. Borrower has good
and marketable title to all of the Subsidiary Shares which are shown to be owned
by it on SCHEDULE 6.1.3 free and clear in each case of any Lien. All Subsidiary
Shares have been validly issued, and all Subsidiary Shares are fully paid and
nonassessable. There are no options, warrants or other rights outstanding to
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purchase any capital stock of any Subsidiary of the Borrower. Except as
disclosed on SCHEDULE 6.1.3, none of the Loan Parties has any Subsidiaries.
6.1.4 POWER AND AUTHORITY.
Each Loan Party has full power to enter into,
execute, deliver and carry out this Agreement and the other Loan Documents to
which it is a party, to incur the Indebtedness contemplated by the Loan
Documents and to perform its Obligations under the Loan Documents to which it is
a party, and all such actions have been duly authorized by all necessary
proceedings on its part.
6.1.5 VALIDITY AND BINDING EFFECT.
This Agreement has been duly and validly executed and
delivered by each Loan Party, and each other Loan Document which any Loan Party
is required to execute and deliver on or after the date hereof will have been
duly executed and delivered by such Loan Party on the required date of delivery
of such Loan Document. This Agreement and each other Loan Document constitutes,
or will constitute, legal, valid and binding obligations of each Loan Party
which is or will be a party thereto on and after its date of delivery thereof,
enforceable against such Loan Party in accordance with its terms, except to the
extent that enforceability of any of such Loan Document may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforceability of creditors' rights generally or limiting the
right of specific performance.
6.1.6 NO CONFLICT.
Neither the execution and delivery of this Agreement
or the other Loan Documents by any Loan Party nor the consummation of the
transactions herein or therein contemplated or compliance with the terms and
provisions hereof or thereof by any of them will conflict with, constitute a
default under or result in any breach of (i) the terms and conditions of the
certificate of incorporation, bylaws, certificate of limited partnership,
partnership agreement, certificate of formation, limited liability company
agreement or other organizational documents of any Loan Party or (ii) any Law or
any material agreement or instrument or order, writ, judgment, injunction or
decree to which any Loan Party or any of its Subsidiaries is a party or by which
it or any of its Subsidiaries is bound or to which it is subject, or result in
the creation or enforcement of any Lien, charge or encumbrance whatsoever upon
any property (now or hereafter acquired) of any Loan Party or any of its
Subsidiaries (other than Liens granted under the Loan Documents).
6.1.7 LITIGATION.
Except as set forth on SCHEDULE 6.1.7, there are no
actions, suits, proceedings or investigations pending or, to the knowledge of
any Loan Party, threatened against such Loan Party or any Subsidiary of such
Loan Party at law or equity before any Official Body which individually or in
the aggregate may result in any Material Adverse Change. None of the Loan
Parties or any Subsidiaries of any Loan Party is in violation of any order,
writ, injunction or any decree of any Official Body which may result in any
Material Adverse Change.
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6.1.8 TITLE TO PROPERTIES.
The Property owned or leased by each Loan Party and
each Subsidiary of each Loan Party is described on SCHEDULE 0. Each Loan Party
and each Subsidiary of each Loan Party has good and marketable title to or valid
leasehold interest in all real and personal properties, assets and other rights
which it purports to own or lease or which are reflected as owned or leased on
its books and records, free and clear of all Liens and encumbrances except
Permitted Liens, and subject to the terms and conditions of the applicable
leases. All leases of real and personal property which require annual lease
payments in excess of $20,000 per year are in full force and effect without the
necessity for any consent which has not previously been obtained upon
consummation of the transactions contemplated hereby, provided that the
aggregate annual rental payable under leases which do not meet the foregoing
requirements shall not exceed $200,000.
6.1.9 FINANCIAL STATEMENTS.
(i) HISTORICAL STATEMENTS. The Borrower has delivered to the Agents copies
of financial statements of each Subsidiary of the Borrower (including
each Target), all as described in SCHEDULE 6.1.9 attached hereto (the
"Annual Statements"), and (ii) unaudited interim combined financial
statements of Borrower (and each Target) (the "Interim Statements")
(the Annual and Interim Statements being collectively referred to as
the "Historical Statements"). The Historical Statements were compiled
from the books and records maintained by each Loan Party's management,
and fairly represent the consolidated financial condition of each Loan
Party as of their dates and the results of operations for the fiscal
periods then ended and have been prepared in accordance with GAAP
consistently applied, subject (in the case of the Interim Statements)
to normal year-end audit adjustments and the lack of footnotes.
(ii) FINANCIAL PROJECTIONS. The Borrower has delivered to the Agents
financial projections of the Borrower and its subsidiaries, including
the financial projections related to the Specified Acquisitions, for
the period through December 31, 2005 derived from various assumptions
of the Borrower's management and pro forma consolidated Historical
Statements based on the Historical Statements of the Borrower and its
subsidiaries, including those acquired in the Specified Acquisitions
(the "Financial Projections").
6.1.10 USE OF PROCEEDS; MARGIN STOCK.
6.1.10.1 GENERAL.
The Loan Parties intend to use the proceeds of the
Loans in accordance with Sections 0, 0 and 0.
6.1.10.2 MARGIN STOCK.
None of the Loan Parties or any Subsidiaries
of any Loan Party engages or intends to engage principally, or as one of its
important activities, in the business of extending credit for the purpose,
immediately, incidentally or ultimately, of purchasing or carrying margin stock
(within the meaning of Regulation U). No part of the proceeds of any Loan has
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been or will be used, immediately, incidentally or ultimately, to purchase or
carry any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock or to refund Indebtedness originally
incurred for such purpose, or for any purpose which entails a violation of or
which is inconsistent with the provisions of the regulations of the Board of
Governors of the Federal Reserve System. None of the Loan Parties or any
Subsidiary of any Loan Party holds or intends to hold margin stock in such
amounts that more than 25% of the reasonable value of the assets of any Loan
Party or Subsidiary of any Loan Party are or will be represented by margin
stock.
6.1.11 FULL DISCLOSURE.
None of any Loan Document or any certificate,
statement, agreement or other documents furnished to the Agents or any Bank in
connection with the negotiation, preparation or delivery herewith or therewith
(including all filings made with the U.S. Securities and Exchange Commission by
any Loan Party or any Target but excluding all projections), whether prior to or
after the date of this Agreement, when taken as a whole, as of the date such
information was furnished, contain any untrue statement of material fact or omit
to state a material fact necessary in order to make the statements herein or
therein, in light of the circumstances under which they were made, not
materially misleading. The projections and pro forma financial information
furnished at any time by any Loan Party to any Bank pursuant to this Agreement
have been prepared in good faith based on assumptions believed by the Borrower
to be reasonable at the time made, it being recognized by the Banks that such
financial information as it relates to future events is not to be viewed as fact
and that actual results during the period or periods covered by such financial
information may differ from the projected results set forth therein by a
material amount and no Loan Party, however, makes any representation as to the
ability of any Loan Party or Target or any of their Subsidiaries to achieve the
results set forth in any such projections. Each Loan Party understands that all
such statements, representations and warranties shall be deemed to have been
relied upon by the Banks as a material inducement to make each extension of
credit hereunder.
6.1.12 TAXES.
All federal, state, local and other tax returns
required to have been filed with respect to each Loan Party and each Subsidiary
of each Loan Party have been filed, and payment or adequate provision has been
made for the payment of all taxes, fees, assessments and other governmental
charges which have or may become due pursuant to said returns or to assessments
received, except to the extent that such taxes, fees, assessments and other
charges are being contested in good faith by appropriate proceedings diligently
conducted and for which such reserves or other appropriate provisions, if any,
as shall be required by GAAP shall have been made and except where failure to
file would not result in assessment of taxes, penalties and interest in excess
of $500,000 in the aggregate. There are no agreements or waivers extending the
statutory period of limitations applicable to any federal income tax return of
any Loan Party or Subsidiary of any Loan Party for any period.
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6.1.13 CONSENTS AND APPROVALS.
Except for the filing of financing statements in the
state and county filing offices, no consent, approval, exemption, order or
authorization of, or a registration or filing with, any Official Body or any
other Person is required by any Law or any agreement in connection with the
execution, delivery and carrying out of this Agreement, the other Loan Documents
by any Loan Party, the issuance of the Orius Preferred Stock, consummation of
the Specified Acquisitions, and the consummation of the NATC Reorganization,
except as listed on SCHEDULE 0, all of which shall have been obtained or made on
or prior to the Closing Date except as otherwise indicated on SCHEDULE 0 and
except as to failures to obtain consents and approvals which would not result in
a Material Adverse Change.
6.1.14 NO EVENT OF DEFAULT; COMPLIANCE WITH
INSTRUMENTS.
No event has occurred and is continuing and no
condition exists or will exist after giving effect to the borrowings or other
extensions of credit to be made on the Closing Date under or pursuant to the
Loan Documents which constitutes an Event of Default or Potential Default. None
of the Loan Parties or any Subsidiaries of any Loan Party is in violation of (i)
any term of its certificate of incorporation, bylaws, certificate of limited
partnership, partnership agreement, certificate of formation, limited liability
company agreement or other organizational documents or (ii) any material
agreement or instrument to which it is a party or by which it or any of its
properties may be subject or bound where such violation would constitute a
Material Adverse Change.
6.1.15 PATENTS, TRADEMARKS, COPYRIGHTS, LICENSES,
ETC.
Each Loan Party and each Subsidiary of each Loan
Party owns or possesses all the material patents, trademarks, service marks,
trade names, copyrights, licenses, registrations, franchises, permits and rights
necessary to own and operate its properties and to carry on its business as
presently conducted and planned to be conducted by such Loan Party or
Subsidiary, without known possible, alleged or actual conflict with the rights
of others. All material patents, trademarks, service marks, trade names,
copyrights, licenses, registrations, franchises and permits of each Loan Party
and each Subsidiary of each Loan Party are listed and described on SCHEDULE 0.
6.1.16 SECURITY INTERESTS.
Subject to the provisions of Section 11.19 hereof,
the Liens and security interests granted to the Administrative Agent for its
benefit and for the benefit of the Banks pursuant to the Collateral Assignment
of Intellectual Property Interests, the Borrower Pledge Agreement, each of the
Orius Pledge Agreement, the NATC Pledge Agreement, the Security Agreement and
any other Security Document executed from time to time hereafter in the
Collateral constitute and will continue to constitute Prior Security Interests
under the Uniform Commercial Code as in effect in each applicable jurisdiction
(the "Uniform Commercial Code") or other applicable Law entitled to all the
rights, benefits and priorities provided by the Uniform Commercial Code or such
Law. Upon the filing of financing statements relating to said security interests
in each office and in each jurisdiction where required in order to perfect the
security
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interests described above, taking possession of any stock certificates or other
certificates evidencing the Pledged Collateral and recordation of the Collateral
Assignment of Intellectual Property Rights in the United States Patent and
Trademark Office and United States Copyright Office, as applicable, all such
action as is necessary or advisable to establish such rights of the
Administrative Agent will have been taken, and there will be upon execution and
delivery of the Collateral Assignment of Intellectual Property Rights, the
Borrower Pledge Agreement, the Orius Pledge Agreement, the NATC Pledge
Agreement, and the Security Agreement, such filings and such taking of
possession, no necessity for any further action in order to preserve, protect
and continue such rights, except (i) the filing of continuation statements with
respect to such financing statements within six months prior to each five-year
anniversary of the filing of such financing statements and (ii) the perfection
of interests in titled vehicles with a fair market value of less than $50,000
per vehicle. All filing fees and other expenses in connection with each such
action have been or will be paid by the Borrower.
6.1.17 NO MATERIAL ADVERSE CHANGE
No Material Adverse Change shall have occurred with
respect to the Borrower or any Target, in each case with its Subsidiaries taken
as a whole, both before and after giving effect to the Transactions, since the
date of each such entity's Historical Statements.
6.1.18 STATUS OF THE PLEDGED COLLATERAL
All the Equity Interests to be pledged pursuant to
the Borrower Pledge Agreement, the Orius Pledge Agreement and the NATC Pledge
Agreement are or will be upon issuance validly issued and nonassessable and
owned beneficially and of record by the pledgor free and clear of any Lien or
restriction on transfer, except as otherwise provided by the Borrower Pledge
Agreement, the Orius Pledge Agreement or the NATC Pledge Agreement and except as
the right of the Banks to dispose of the shares or ownership interests may be
limited by the Securities Act of 1933, as amended, and the regulations
promulgated by the Securities and Exchange Commission thereunder and by
applicable state securities laws. There are no shareholder or other agreements
or understandings with respect to the shares of capital stock or ownership
interests included in the Pledged Collateral.
6.1.19 INSURANCE.
SCHEDULE 0 lists all insurance policies and other
bonds to which any Loan Party or Subsidiary of any Loan Party is a party, all of
which are valid and in full force and effect. No notice has been given or claim
made and no grounds exist to cancel or avoid any of such policies or bonds or to
reduce the coverage provided thereby. Such policies and bonds provide adequate
coverage from reputable and financially sound insurers in amounts sufficient to
insure the assets and risks of each Loan Party and each Subsidiary of each Loan
Party in accordance with prudent business practice in the industry of the Loan
Parties and their Subsidiaries.
6.1.20 COMPLIANCE WITH LAWS.
Except as set forth in SCHEDULE 6.1.20, the Loan
Parties and their Subsidiaries are in compliance in all material respects with
all applicable Laws (other than
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Environmental Laws which are specifically addressed in Section 0 [Environmental
Matters]) in all jurisdictions in which any Loan Party or Subsidiary of any Loan
Party is presently or will be doing business except where the failure to do so
would not constitute a Material Adverse Change.
6.1.21 MATERIAL CONTRACTS; BURDENSOME RESTRICTIONS.
SCHEDULE 0 lists all material contracts relating to
the business operations of each Loan Party and each Subsidiary of any Loan Party
as of the Closing Date, including all employee benefit plans and Labor
Contracts. All material contracts, whether in existence at the Closing Date or
entered into after the Closing Date are valid, binding and enforceable upon such
Loan Party or Subsidiary and each of the other parties thereto in accordance
with their respective terms, and there is no default thereunder, to the Loan
Parties' knowledge, with respect to parties other than such Loan Party or
Subsidiary. None of the Loan Parties or their Subsidiaries is bound by any
contractual obligation, or subject to any restriction in any organization
document, or any requirement of Law which could result in a Material Adverse
Change.
6.1.22 INVESTMENT COMPANIES; REGULATED ENTITIES.
None of the Loan Parties or any Subsidiaries of any
Loan Party is an "investment company" registered or required to be registered
under the Investment Company Act of 1940 or under the "control" of an
"investment company" as such terms are defined in the Investment Company Act of
1940 and shall not become such an "investment company" or under such "control."
None of the Loan Parties or any Subsidiaries of any Loan Party is subject to any
other Federal state statute or regulation limiting its ability to incur
Indebtedness for borrowed money.
6.1.23 PLANS AND BENEFIT ARRANGEMENTS.
Except as set forth on SCHEDULE 0:
(i) The Borrower and each other member of the ERISA Group are in compliance
in all material respects with any applicable provisions of ERISA with
respect to all Benefit Arrangements, Plans and Multiemployer Plans.
There has been no Prohibited Transaction with respect to any Benefit
Arrangement or any Plan or, to the best knowledge of the Borrower, with
respect to any Multiemployer Plan or Multiple Employer Plan, which
could result in any material liability of Borrower or any other member
of the ERISA Group. The Borrower and all other members of the ERISA
Group have made when due any and all payments required to be made under
any agreement relating to a Multiemployer Plan or a Multiple Employer
Plan or any Law pertaining thereto. With respect to each Plan and
Multiemployer Plan, the Borrower and each other member of the ERISA
Group (i) have fulfilled in all material respects their obligations
under the minimum funding standards of ERISA, (ii) have not incurred
any liability to the PBGC, and (iii) have not had asserted against them
any penalty for failure to fulfill the minimum funding requirements of
ERISA.
(ii) To the best of Borrower's knowledge, each Multiemployer Plan and
Multiple Employer Plan is able to pay benefits thereunder when due.
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(iii) None of Borrower nor any other member of the ERISA Group has instituted
or intends to institute proceedings to terminate any Plan.
(iv) No event requiring notice to the PBGC under Section 302(f)(4)(A) of
ERISA has occurred or is reasonably expected to occur with respect to
any Plan, and no amendment with respect to which security is required
under Section 307 of ERISA has been made or is reasonably expected to
be made to any Plan.
(v) The aggregate actuarial present value of all benefit liabilities
(whether or not vested) under each Plan, determined on a plan
termination basis, as disclosed in, and as of the date of, the most
recent actuarial report for such Plan, does not exceed the aggregate
fair market value of the assets of such Plan.
(vi) None of Borrower nor any other member of the ERISA Group has incurred
or reasonably expects to incur any material withdrawal liability under
ERISA to any Multiemployer Plan or Multiple Employer Plan. None of
Borrower nor any other member of the ERISA Group has been notified by
any Multiemployer Plan or Multiple Employer Plan that such
Multiemployer Plan or Multiple Employer Plan has been terminated within
the meaning of Title IV of ERISA and, to the best knowledge of
Borrower, no Multiemployer Plan or Multiple Employer Plan is reasonably
expected to be reorganized or terminated, within the meaning of Title
IV of ERISA.
(vii) To the extent that any Benefit Arrangement is insured, the Borrower and
all other members of the ERISA Group have paid when due all premiums
required to be paid for all periods through the Closing Date. To the
extent that any Benefit Arrangement is funded other than with
insurance, the Borrower and all other members of the ERISA Group have
made when due all contributions required to be paid for all periods
through the Closing Date.
(viii) All Plans, Benefit Arrangements and Multiemployer Plans have been
administered in accordance with their terms and in material compliance
with applicable Law.
6.1.24 EMPLOYMENT MATTERS.
Each of the Loan Parties and each of their
Subsidiaries is in compliance with the Labor Contracts, all Occupational Safety
and Health Laws and all applicable federal, state and local labor and employment
Laws including those related to equal employment opportunity and affirmative
action, labor relations, minimum wage, overtime, child labor, medical insurance
continuation, worker adjustment and relocation notices, immigration controls and
worker and unemployment compensation, where the failure to comply would
constitute a Material Adverse Change. There are no outstanding grievances,
arbitration awards or appeals therefrom arising out of the Labor Contracts or
current or threatened strikes, picketing, handbilling or other work stoppages or
slowdowns at facilities of any of the Loan Parties or any of their Subsidiaries
which in any case would constitute a Material Adverse Change. The Borrower has
delivered to the Agents true and correct copies of each of the Labor Contracts.
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6.1.25 ENVIRONMENTAL MATTERS.
(a) Except as disclosed in SCHEDULE 6.1.25 and except
as would not, individually or in the aggregate, have a Material Adverse Change:
(i) Each Loan Party and Subsidiary has obtained all permits, licenses and
other authorizations which are required under any Environmental Law
with respect to the operation of the businesses and facilities and
properties owned, leased or operated by any of them.
(ii) Each Loan Party and Subsidiary is in compliance with all terms and
conditions of the permits, licenses and authorizations specified in
subsection (i) above, and is also in compliance with, and has no
liability under, any Environmental Laws applicable to it and its
business and operations and facilities and properties owned, leased or
operated by any of them.
(iii) No Loan Party or Subsidiary has received written notice that it has
been identified as a potentially responsible party under the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), or any comparable foreign or state law,
nor has any Loan Party or Subsidiary received any written notification
that any Regulated Substances that they, or any of their respective
predecessors in interest has used, generated, stored, treated, handled,
transported or disposed of, or arranged for disposal or treatment of,
or arranged with a transporter for transport for disposal or treatment
of, have been found at any site at which any person is conducting or
plans to conduct a response, action or corrective action pursuant to
any Environmental Law.
(iv) There have been no Releases (i.e., any past or present releasing,
spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, disposing or dumping) of Regulated
Substances by any Loan Party or Subsidiary or, to the best knowledge of
each Loan Party or Subsidiary after due inquiry, their respective
predecessors in interest on, at, upon, into or from any facilities or
properties owned, leased, or operated by any of them. To the best
knowledge of each Loan Party or Subsidiary after due inquiry, there
have been no such Releases of Regulated Substances on, at, under or
from any property adjacent to any Property that, through soil, air,
surface water or groundwater migration or contamination, may reasonably
have been expected to have migrated to or under any Property.
(v) No properties now or formerly owned, leased or operated by any Loan
Party or Subsidiary or any of their respective predecessors in interest
are (i) listed or proposed for listing on the National Priorities List
under CERCLA or (ii) listed in the Comprehensive Environmental
Response, Compensation, Liability Information System List promulgated
pursuant to CERCLA or (iii) to the best knowledge of each Loan Party or
Subsidiary after due inquiry, included on any comparable lists
maintained by any Official Body.
(vi) There are no past or present events, conditions, activities, practices,
or actions that would reasonably be expected to prevent any Loan Party
or Subsidiary compliance with any Environmental Law or that would
reasonably be expected to give rise to any liability under any
Environmental Law, including, without limitation, liability under
CERCLA or similar state, local or foreign laws.
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(vii) No Lien has been asserted or recorded, or to the best knowledge of each
Loan Party or Subsidiary threatened, under any Environmental Law with
respect to any assets, facility, inventory or property owned, leased or
operated by any Loan Party or Subsidiary.
(viii) No Loan Party or Subsidiary has assumed by contract or agreement any
liabilities or obligations arising under any Environmental Law.
(ix) No Loan Party or Subsidiary has entered into or agreed to any pending
or effective judgment, decree or order by any judicial or
administrative tribunal and is not subject to any judgment, decree or
order relating to compliance with any Environmental Law or to any
response, action or corrective action with respect to any Regulated
Substances under any Environmental Law.
(x) No Loan Party or Subsidiary has received any written notice of any
currently pending and unresolved Environmental Claim with regard to any
properties, facilities or business owned, leased or operated or
formerly owned, leased or operated by such Loan Party or Subsidiary or
any of their respective predecessors in interest.
(xi) To the best knowledge of each Loan Party or Subsidiary after due
inquiry, there are no underground storage tanks or related piping at
any property owned, operated or leased any of them, and any former
underground tanks or related piping on any such property have been
removed or closed in accordance with applicable Environmental Law.
(b) ENVIRONMENTAL DOCUMENTS. All written
investigations, studies, audits or assessments in the possession or control of
each Loan Party or Subsidiary ("REPORTS") concerning any violation or potential
violation of, or liability or potential liability under, any Environmental Law
relating to any current or prior business, facilities or properties of them (or
any of their respective predecessors in interest) or any property, asset or
facility currently or formerly (i) owned, operated or leased or (ii) used for
the storage, treatment or disposal of Regulated Substances, in each case by any
of them (or any of their respective predecessors in interest) have been made
available to Agents, except for Reports concerning such actual or potential
violation or liability that would not, individually or in the aggregate, have a
Material Adverse Change.
6.1.26 SENIOR DEBT STATUS.
Subject to the provisions of Section 11.19 hereof,
the Obligations of each Loan Party under this Agreement, the Notes, the Orius
Guaranty Agreement, the Subsidiary Guaranty Agreement, the Borrower Pledge
Agreement, the Orius Pledge Agreement, the NATC Pledge Agreement and each of the
other Loan Documents to which it is a party do rank and will rank at least PARI
PASSU in priority of payment with all other Indebtedness of such Loan Party
except Indebtedness of such Loan Party to the extent secured by Permitted Liens.
There is no Lien upon or with respect to any of the properties or income of any
Loan Party or Subsidiary of any Loan Party which secures indebtedness or other
obligations of any Person except for Permitted Liens.
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6.1.27 YEAR 2000.
Except as disclosed on SCHEDULE 6.1.27, the Loan
Parties and their Subsidiaries have reviewed the areas within their business and
operations which could be adversely affected by, and have developed or are
developing a program to address on a timely basis, the risk that certain
computer applications used by any of the Loan Parties or their Subsidiaries or
any of their respective material suppliers, customers or vendors may be unable
to recognize and perform properly date-sensitive functions involving dates prior
to and after December 31, 1999 (the "Year 2000 Issue"). Orius has installed a
new computer system which is Year 2000 compliant. The Year 2000 Issue will not
result in any Material Adverse Change.
6.2 UPDATES TO SCHEDULES.
Should any of the information or disclosures provided on any
of the Schedules attached hereto become outdated or incorrect in any material
respect, the Borrower shall promptly provide the Administrative Agent in writing
with such revisions or updates to such Schedule as may be necessary or
appropriate to update or correct same; PROVIDED, however, that no Schedule shall
be deemed to have been amended, modified or superseded by any such correction or
update, nor shall any breach of warranty or representation resulting from the
inaccuracy or incompleteness of any such Schedule be deemed to have been cured
thereby, unless and until the Required Banks, in their sole and absolute
discretion, shall have accepted in writing such revisions or updates to such
Schedule.
7. CONDITIONS OF LENDING AND ISSUANCE OF LETTERS OF CREDIT
The effectiveness of this Agreement and the obligation of each Bank to
make Loans and of the Administrative Agent to issue Letters of Credit hereunder
is subject to the performance by each of the Loan Parties of its Obligations to
be performed hereunder at or prior to the making of any such Loans or issuance
of such Letters of Credit and to the satisfaction of the following further
conditions:
7.1 FIRST LOANS AND LETTERS OF CREDIT.
On the Closing Date:
7.1.1 OFFICER'S CERTIFICATE.
The representations and warranties of each of the
Loan Parties contained in Section 0 and in each of the other Loan Documents
shall be true and accurate on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of such date
(except representations and warranties which relate solely to an earlier date or
time, which representations and warranties shall be true and correct on and as
of the specific dates or times referred to therein), and each of the Loan
Parties shall have performed and complied with all covenants and conditions
hereof and thereof, no Event of Default or Potential Default shall have occurred
and be continuing or shall exist; and there shall be delivered to the
Administrative Agent for the benefit of each Bank a certificate of each of the
Loan Parties, dated
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the Closing Date and signed by the Chief Executive Officer, President, Executive
Vice President or Chief Financial Officer of each of the Loan Parties, to each
such effect. For purposes of this Section 7.1.1 and the certificate to be
delivered hereunder, the representations and warranties shall apply to the
Borrower as if the Specified Acquisitions shall have been consummated
immediately prior to the delivery of the such certificate and the making of the
Loans. For greater certainty, the representations and warranties, and the
disclosure schedules relating thereto, will apply to the businesses, assets,
liabilities, encumbrances, ERISA Matters, compliance with law, etc. acquired in
connection with the Specified Acquisitions.
7.1.2 SECRETARY'S CERTIFICATE.
There shall be delivered to the Administrative Agent
for the benefit of each Bank a certificate dated the Closing Date and signed by
the Secretary or an Assistant Secretary of each of the Loan Parties, certifying
as appropriate as to:
(i) all action taken by each Loan Party in connection with this Agreement
and the other Loan Documents;
(ii) the names of the officer or officers authorized to sign this Agreement
and the other Loan Documents and the true signatures of such officer or
officers and specifying the Authorized Officers permitted to act on
behalf of each Loan Party for purposes of this Agreement and the true
signatures of such officers, on which the Administrative Agent and each
Bank may conclusively rely; and
(iii) copies of its organizational documents, including its certificate of
incorporation and bylaws as in effect on the Closing Date certified by
the appropriate state official where such documents are filed in a
state office together with certificates from the appropriate state
officials as to the continued existence and good standing of each Loan
Party in each state where organized or qualified to do business.
7.1.3 DELIVERY OF LOAN DOCUMENTS.
Each Collateral Assignment of Intellectual Property
Interests, Orius Guaranty Agreement, Subsidiary Guaranty Agreement, Notes,
Borrower Pledge Agreement, Orius Pledge Agreement, NATC Pledge Agreement,
Security Agreement, HIG Subordination Agreement, and all other Loan Documents
shall have been duly executed and delivered to the Administrative Agent for its
benefit and for the benefit of the Banks, together with all appropriate
financing statements and appropriate stock powers and certificates evidencing
the Subsidiary Shares and the Orius Shares.
7.1.4 OPINION OF COUNSEL.
There shall be delivered to the Administrative Agent
for the benefit of each Bank a written opinion of Holland & Knight LLP, counsel
for the Loan Parties (who may rely on the opinions of such other counsel as may
be acceptable to the Agents), and other counsel acceptable to the Agents to Loan
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Parties which are not Florida or New York corporations dated the Closing Date
and in form and substance satisfactory to the Agents and their counsel:
(i) as to the matters set forth in EXHIBIT 7.1.4; and
(ii) as to such other matters incident to the transactions contemplated
herein as the Agents may reasonably request.
7.1.5 LEGAL DETAILS.
All legal details and proceedings in connection with
the transactions contemplated by the Transactions, including this Agreement and
the other Loan Documents shall be in form and substance satisfactory to the
Agents and counsel for the Agents, and the Administrative Agent shall have
received all such other counterpart originals or certified or other copies of
such documents and proceedings in connection with such transactions, in form and
substance satisfactory to the Agents and said counsel, as the Agents or said
counsel may reasonably request.
7.1.6 PAYMENT OF FEES.
All accrued fees and expenses (including the fees and
expenses of Kirkpatrick & Lockhart LLP, Cahill Gordon & Reindel and any local
counsel to the Agents) of the Agents and the Banks, in connection with the Loan
Documents and the Fee Letter shall have been paid.
7.1.7 CONSENTS.
All material consents required to effectuate the
transactions contemplated hereby as set forth on SCHEDULE 0 shall have been
obtained.
7.1.8 NO MATERIAL ADVERSE CHANGE.
There shall not have occurred a Material Adverse
Change of the Borrower, the Targets, and their respective Subsidiaries taken as
a whole (after giving effect to the Transactions) since the date of the latest
financial statements made available to the Banks.
7.1.9 NO VIOLATION OF LAWS.
The making of the Loans and the issuance of the
Letters of Credit and the consummation of the Transactions shall not contravene
any Law applicable to any Loan Party or any of the Banks.
7.1.10 NO ACTIONS OR PROCEEDINGS.
No action, proceeding, investigation, regulation or
legislation shall have been instituted, threatened or proposed before any court,
governmental agency or legislative body to enjoin, restrain or prohibit, or to
obtain damages in respect of, this Agreement, the other Loan Documents or the
consummation of the transactions contemplated hereby or thereby or the
Transactions, that has or which have a reasonable likelihood of restraining,
preventing or imposing materially burdensome conditions on any of the
Transactions contemplated by this Agreement or any of the other Loan Documents.
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7.1.11 INSURANCE POLICIES; CERTIFICATES OF
INSURANCE; ENDORSEMENTS.
The Loan Parties shall have delivered evidence
acceptable to the Agents that adequate insurance in compliance with Section 0
[Maintenance of Insurance] is in full force and effect and that all premiums
then due thereon have been paid, together with a certified copy of each Loan
Party's casualty insurance policy or policies evidencing coverage satisfactory
to the Agents, with additional insured, mortgagee and lender loss payable
special endorsements attached thereto in form and substance satisfactory to the
Administrative Agent and its counsel naming the Administrative Agent, as
additional insured, mortgagee and lender loss payee.
7.1.12 FILING CONFIRMATION.
The Agents shall have received (1) verbal
confirmation of all filings with respect to any recordation or filing necessary
to perfect the Lien of the Administrative Agent for its benefit and for the
benefit of the Banks on the Collateral or other satisfactory evidence of such
recordation and filing and (2) evidence in a form acceptable to the Agents that
such Lien constitutes a Prior Security Interest in favor of the Administrative
Agent for its benefit and for the benefit of the Banks.
7.1.13 CONSUMMATION OF SPECIFIED ACQUISITIONS.
In addition to the requirements of Section 7.1.16
hereof, the Agents shall have received (i) evidence of the prior or simultaneous
consummation of the Specified Acquisitions, (ii) letters from the respective
Seller's counsels in each such Specified Acquisition permitting the Agents and
the Banks to rely upon their opinion letters delivered to the Borrower in
connection with the Specified Acquisitions, and (iii) from the Borrower a
certificate signed by the Chief Executive Officer or Chief Financial Officer of
the Borrower certifying that:
(i) The consummation of the
Specified Acquisitions have occurred or are occurring simultaneously with the
making of the Loans;
(ii) The execution and delivery
of the Acquisition documents, related Agreements, and the consummation of the
Specified Acquisitions, did not and will not violate any statute or regulation
of the United States or of any state or other applicable jurisdiction, or any
order, judgment or decree of any court or governmental body, or result in a
breach of, or constitute a default under, any agreement, indenture, order or
decree affecting the Borrower or the Target;
(iii) All of the representations
and warranties of the Borrower and, to the best of the knowledge of the
Borrower, the other parties to the Acquisition Agreements, contained in any of
the Specified Acquisition Agreements are true and correct in all material
respects as of the date of closing of the consummation of the Specified
Acquisitions; and
(iv) The consummation of the
Specified Acquisitions complied in all respects with all applicable legal
requirements, and all necessary governmental, regulatory, shareholder and other
consents and approvals required for the consummation of the
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Specified Acquisitions were, prior to the consummation thereof, duly obtained
and in full force and effect.
7.1.14 LANDLORD'S WAIVER
The Loan Parties shall have delivered an executed
Landlord's Waiver from the lessor for each of the leased locations described in
Schedule 7.1.14.
7.1.15 SOLVENCY
The Borrower shall have delivered to the Agents, on
or prior to the Closing Date, a certificate from the Chief Financial Officer or
the Chief Executive Officer of Borrower and, at Borrower's expense, of Valuation
Research Corporation, each in form and substance satisfactory to the Agents with
respect to the solvency (on a consolidated basis) of the Borrower and, with
respect to such officer's certificate, each Loan Party immediately after the
consummation of the Transactions to occur on the Closing Date.
7.1.16 CONSUMMATION OF TRANSACTIONS
Each of the Transactions (other than extensions of
credit under this Agreement) shall have been consummated in all material
respects in accordance with the terms hereof and the terms of documentation
therefor (without the waiver or amendment of any material condition unless
consented to by the Agents) that are in form and substance reasonably
satisfactory to the Agents. Each of the parties thereto shall have complied in
all material respects with all covenants set forth in each Acquisition Agreement
(without the waiver or amendment of any of the terms thereof unless consented to
by the Agents).
7.1.17 REFINANCINGS
The Borrower shall have effected the Refinancings on
terms and conditions and pursuant to documentation reasonably satisfactory to
the Agents. All liens in respect of the Existing Debt shall have been released
and the Agents shall have received evidence thereof satisfactory to the Agents
and "pay off" letters satisfactory to the Agents with respect to the Existing
Debt.
7.1.18 PRO FORMA BALANCE SHEET/APPLICATION OF FUNDS
The Agents and the Banks shall have received a pro
forma consolidated balance sheet of the Borrower and its Subsidiaries dated as
of the date of the most recently available financial statements after giving
effect to the Transactions, which balance sheet shall be consistent in all
material respects with the sources and uses shown on the forecast previously
provided to the Agents and the Banks.
7.1.19 LIEN SEARCH
The Agents and the Banks shall have received the
results of a recent lien, tax and judgment search in each of the jurisdictions
and offices where assets of the Borrower
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and its Subsidiaries and each Target with a value of $25,000 or more (excluding
registered motor vehicles) are located or recorded, and such search shall reveal
no liens on any of their assets except for liens permitted by the Loan Documents
or liens to be discharged in connection with the transactions contemplated
hereby.
7.1.20 KEY MAN LIFE INSURANCE
On or prior to the Closing Date, the Borrower shall
deliver to the Administrative Agent evidence of key man life insurance policies
obtained by NATC (the "Key Man Life Insurance") on the lives of each of William
J. Mercurio ($2,000,000 coverage) and Joseph Powers ($2,000,000 coverage) and
with terms acceptable to the Administrative Agent and such insurance policies
shall be collaterally assigned to the Administrative Agent on behalf of the
Banks under terms and conditions acceptable to the Administrative Agent.
7.2 EACH ADDITIONAL LOAN OR LETTER OF CREDIT.
At the time of making any Loans or issuing any Letters of
Credit other than Loans made or Letters of Credit issued on the Closing Date and
after giving effect to the proposed extensions of credit: the representations
and warranties of the Loan Parties contained in Section 0 and in the other Loan
Documents shall be true on and as of the date of such additional Loan or Letter
of Credit with the same effect as though such representations and warranties had
been made on and as of such date (except representations and warranties which
expressly relate solely to an earlier date or time, which representations and
warranties shall be true and correct on and as of the specific dates or times
referred to therein) and the Loan Parties shall have performed and complied with
all covenants and conditions hereof; no Event of Default or Potential Default
shall have occurred and be continuing or shall exist; the making of the Loans or
issuance of such Letter of Credit shall not contravene any Law applicable to any
Loan Party or Subsidiary of any Loan Party or any of the Banks; and the Borrower
shall have delivered to the Administrative Agent a duly executed and completed
Loan Request or application for a Letter of Credit as the case may be.
8. COVENANTS
8.1 AFFIRMATIVE COVENANTS.
The Loan Parties, jointly and severally, covenant and agree
that until payment in full of the Loans, Reimbursement Obligations and Letter of
Credit Borrowings, and interest thereon, expiration or termination of all
Letters of Credit, satisfaction of all of the Loan Parties' other Obligations
under the Loan Documents and termination of the Commitments, the Loan Parties
shall comply at all times with the following affirmative covenants:
8.1.1 PRESERVATION OF EXISTENCE, ETC.
Each Loan Party shall, and shall cause each of its
Subsidiaries to, maintain its legal existence as a corporation, limited
partnership or limited liability company and its license or qualification and
good standing in each jurisdiction in which its ownership or lease of property
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or the nature of its business makes such license or qualification necessary,
except as otherwise expressly permitted in Section 0 [Liquidations, Mergers,
Etc.].
8.1.2 PAYMENT OF LIABILITIES, INCLUDING TAXES,
ETC.
Each Loan Party shall, and shall cause each of its
Subsidiaries to, duly pay and discharge all liabilities to which it is subject
or which are asserted against it, promptly as and when the same shall become due
and payable, including all taxes, assessments and governmental charges upon it
or any of its properties, assets, income or profits, prior to the date on which
penalties attach thereto, except to the extent that such liabilities, including
taxes, assessments or charges, are being contested in good faith and by
appropriate and lawful proceedings diligently conducted and for which such
reserve or other appropriate provisions, if any, as shall be required by GAAP
shall have been made, but only to the extent that failure to discharge any such
liabilities would not result in any additional liability which would adversely
affect to a material extent the financial condition of any Loan Party or
Subsidiary of any Loan Party or which would affect the Collateral, PROVIDED that
the Loan Parties and their Subsidiaries will pay all such liabilities forthwith
upon the commencement of proceedings to foreclose any Lien which may have
attached as security therefor.
8.1.3 MAINTENANCE OF INSURANCE.
Each Loan Party shall, and shall cause each of its
Subsidiaries to, insure its properties and assets against loss or damage by fire
and such other insurable hazards as such assets are commonly insured (including
fire, extended coverage, property damage, workers' compensation, public
liability and business interruption insurance) and against other risks
(including errors and omissions) in such amounts as similar properties and
assets are insured by prudent companies in similar circumstances carrying on
similar businesses, and with reputable and financially sound insurers, including
self-insurance to the extent customary, all as reasonably determined by the
Administrative Agent. At the request of the Administrative Agent, the Loan
Parties shall deliver to the Administrative Agent and each of the Banks (x) on
the Closing Date and annually thereafter an original certificate of insurance
signed by the Loan Parties' independent insurance broker describing and
certifying as to the existence of the insurance on the Collateral required to be
maintained by this Agreement and the other Loan Documents, together with a copy
of the endorsement described in the next sentence attached to such certificate
and (y) from time to time a summary schedule indicating all insurance then in
force with respect to each of the Loan Parties. Such policies of insurance shall
contain special endorsements, in form and substance acceptable to the
Administrative Agent, which shall (i) specify the Administrative Agent as an
additional insured, mortgagee and lender loss payee as its interests may appear,
with the understanding that any obligation imposed upon the insured (including
the liability to pay premiums) shall be the sole obligation of the applicable
Loan Parties and not that of the insured, (ii) provide that the interest of the
Banks shall be insured regardless of any breach or violation by the applicable
Loan Parties of any warranties, declarations or conditions contained in such
policies or any action or inaction of the applicable Loan Parties or others
insured under such policies, (iii) provide a waiver of any right of the insurers
to set off or counterclaim or any other deduction, whether by attachment or
otherwise, (iv) provide that any and all rights of subrogation which the
insurers may have or acquire shall be, at all times and in all respects, junior
and subordinate to the
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prior payment in full of the Indebtedness hereunder and that no insurer shall
exercise or assert any right of subrogation until such time as the Indebtedness
hereunder has been paid in full and the Commitments have terminated, (v)
provide, except in the case of public liability insurance and workmen's
compensation insurance, that all insurance proceeds for losses of less than
$250,000 shall be adjusted with and payable to the applicable Loan Parties and
that all insurance proceeds for losses of $250,000 or more shall be adjusted
with and payable to the Administrative Agent, (vi) include effective waivers by
the insurer of all claims for insurance premiums against the Administrative
Agent, (vii) provide that no cancellation of such policies for any reason
(including non-payment of premium) nor any change therein shall be effective
until at least thirty (30) days after receipt by the Administrative Agent of
written notice of such cancellation or change, (viii) be primary without right
of contribution of any other insurance carried by or on behalf of any additional
insureds with respect to their respective interests in the Collateral, and (ix)
provide that inasmuch as the policy covers more than one insured, all terms,
conditions, insuring agreements and endorsements (except limits of liability)
shall operate as if there were a separate policy covering each insured. The
applicable Loan Parties shall notify the Administrative Agent promptly of any
occurrence causing a material loss or decline in value of the Collateral and the
estimated (or actual, if available) amount of such loss or decline. Any monies
received by the Administrative Agent constituting insurance proceeds may, at the
option of the Administrative Agent, (i) be applied by the Administrative Agent
to the payment of the Loans in such manner as the Administrative Agent may
reasonably determine, or (ii) be disbursed to the applicable Loan Parties on
such terms as are deemed appropriate by the Administrative Agent for the repair,
restoration and/or replacement of property in respect of which such proceeds
were received. In addition, Borrower shall maintain the Key Man Life Insurance
and the collateral assignment of such insurance to the Administrative Agent on
behalf of the Banks.
8.1.4 MAINTENANCE OF PROPERTIES AND LEASES.
Each Loan Party shall, and shall cause each of its
Subsidiaries to, maintain in good repair, working order and condition (ordinary
wear and tear excepted) in accordance with the general practice of other
businesses of similar character and size in the businesses of the Borrower, all
of those properties useful or necessary to its business, and from time to time,
such Loan Party will make or cause to be made all appropriate repairs, renewals
or replacements thereof.
8.1.5 MAINTENANCE OF PATENTS, TRADEMARKS, ETC.
Each Loan Party shall, and shall cause each of its
Subsidiaries to, maintain in full force and effect all patents, trademarks,
service marks, trade names, copyrights, licenses, franchises, permits and other
authorizations necessary for the ownership and operation of its properties and
business if the failure so to maintain the same would constitute a Material
Adverse Change.
8.1.6 VISITATION RIGHTS.
Each Loan Party shall, and shall cause each of its
Subsidiaries to, permit any of the officers or authorized employees or
representatives of the Agents to visit and inspect any of its properties and to
examine and make excerpts from its books and records and discuss its
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business affairs, finances and accounts with its officers, all in such detail
and at such times and as often as the Agents may reasonably request, PROVIDED
that Agents shall provide the Borrower with reasonable notice prior to any visit
or inspection.
8.1.7 KEEPING OF RECORDS AND BOOKS OF ACCOUNT.
Each Loan Party shall, and shall cause each of its
Subsidiaries to, maintain and keep proper books of record and account which
enable it to issue financial statements in accordance with GAAP and as otherwise
required by applicable Laws of any Official Body having jurisdiction over it,
and in which full, true and correct entries shall be made in all material
respects of all its dealings and business and financial affairs.
8.1.8 PLANS AND BENEFIT ARRANGEMENTS.
The Borrower shall, and shall cause each other member
of the ERISA Group to, comply with ERISA, the Internal Revenue Code and other
applicable Laws applicable to Plans and Benefit Arrangements except where such
failure, alone or in conjunction with any other failure, would not result in a
Material Adverse Change. Without limiting the generality of the foregoing, the
Borrower shall cause all of its Plans and all Plans maintained by any member of
the ERISA Group to be funded in accordance with the minimum funding requirements
of ERISA and shall make, and cause each member of the ERISA Group to make, in a
timely manner, all contributions due to Plans, Benefit Arrangements and
Multiemployer Plans.
8.1.9 COMPLIANCE WITH LAWS.
Each Loan Party shall, and shall cause each of its
Subsidiaries to, comply with all applicable Laws, including all Environmental
Laws, in all respects, PROVIDED that it shall not be deemed to be a violation of
this Section 0 if any failure to comply with any Law would not result in fines,
penalties, remediation costs, other similar liabilities or injunctive relief
which in the aggregate would constitute a Material Adverse Change.
8.1.10 COMPLIANCE WITH ENVIRONMENTAL LAWS
(a) Each Loan Party shall cause its Subsidiaries to
comply with all Environmental Laws; (b) each Loan Party shall pay all costs and
expenses incurred by it in complying with all Environmental Laws, and will keep
or cause to be kept all Property owned, operated or leased by it free and clear
of any Liens imposed pursuant to such Environmental Laws unless the failure to
comply with these requirements specified in CLAUSE (a) above or (b) would not,
individually or in the aggregate, have a Material Adverse Change; (c) in the
event of the presence of any Regulated Substances at, on, under, upon or
emanating from any Property owned, operated or leased by any Loan Party that
would reasonably be expected to result in liability under or a violation of any
Environmental Law, in each case that would, individually or in the aggregate,
have a Material Adverse Change, each Loan Party agrees to undertake, and/or to
cause its tenants or occupants to undertake, at their sole expense, any
investigation, removal, remedial or other action required pursuant to
Environmental Laws to mitigate and eliminate any such adverse effect; PROVIDED,
HOWEVER, that no Loan Party shall be required to comply with any order,
directive or other requirement which is being contested in good faith and by
proper
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proceedings so long as it has maintained adequate reserves with respect to such
compliance to the extent required in accordance with GAAP; and (d) each Loan
Party shall as promptly as practicable notify the Administrative Agent of the
occurrence of any event specified in CLAUSE (c) of this Section 8.1.10 and shall
thereafter keep Administrative Agent informed on a periodic basis of any actions
taken in response to such event and the results of such actions.
8.1.11 USE OF PROCEEDS.
The Loan Parties will use the Letters of Credit and
the proceeds of the Loans only for (i) general corporate purposes and for
working capital, (ii) to finance the Specified Acquisitions, (iii) to repay the
Existing Bank Indebtedness, (iv) to finance Permitted Acquisitions. The Borrower
may reloan to NATC a portion of the proceeds of the Term Loan sufficient to
allow NATC to repay the Existing Bank Indebtedness provided such loan is treated
as an intercompany loan on the books and records of the parties and is not
evidenced by a promissory note.
8.1.12 FURTHER ASSURANCES.
Each Loan Party shall, from time to time, at its
expense, faithfully preserve and protect the Administrative Agent's Lien on and
Prior Security Interest in the Collateral as a continuing first priority
perfected Lien, subject only to Permitted Liens, and shall do such other acts
and things as the Administrative Agent in its sole discretion may deem necessary
or advisable from time to time in order to preserve, perfect and protect the
Liens granted under the Loan Documents and to exercise and enforce its rights
and remedies thereunder with respect to the Collateral.
8.1.13 INTEREST RATE PROTECTION.
Within thirty (30) calendar days of the Closing Date,
the Borrower shall enter into or have entered into one or more Interest Rate
Protection Agreements with terms of not less than three years covering 50% of
the principal amount of the Term Loans, all in form and substance acceptable to
the Agents (collectively the "Interest Rate Protection Agreement"). If one or
more of the Banks is a party to such Interest Rate Protection Agreement, the
Interest Rate Protection Agreement shall be considered a Loan Document and such
Bank(s) shall be entitled to share in the security granted by the Borrower
hereunder and under the Loan Documents.
8.1.14 PARENT STOCK OWNERSHIP.
Orius shall retain 100% of the Equity Interests of
the Borrower.
8.2 NEGATIVE COVENANTS.
The Loan Parties, jointly and severally, covenant and agree
that until payment in full of the Loans, Reimbursement Obligations and Letter of
Credit Borrowings and interest thereon, expiration or termination of all Letters
of Credit, satisfaction of all of the Loan Parties' other Obligations hereunder
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and termination of the Commitments, the Loan Parties shall comply with the
following negative covenants:
8.2.1 INDEBTEDNESS.
Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to, directly or indirectly, at any time create,
incur, assume or suffer to exist any Indebtedness, except (the "Permitted
Indebtedness"):
(i) Indebtedness under the Loan Documents;
(ii) Existing Indebtedness as set forth on SCHEDULE 0 (including any
extensions or renewals thereof, PROVIDED there is no increase in the
amount thereof or other significant change in the terms thereof unless
otherwise specified on SCHEDULE 0);
(iii) Capitalized and operating leases as and to the extent permitted under
Section 0 [Capital Expenditures and Leases];
(iv) Indebtedness under the Orius Preferred Stock, so long as the HIG
Subordination Agreement remains in effect;
(v) Indebtedness secured by Purchase Money Security Interests (excluding
Indebtedness reflected on SCHEDULE 8.2.1) not exceeding $1,000,000 at
any time.
(vi) subordinated obligations of the Borrower in principal amount of not
more than $1,000,000 from Borrower to Sellers of Network Cabling,
provided such Sellers execute and deliver to the Administrative Agent
on behalf of the Banks the Network Cabling Subordination Agreement;
(vii) subordinated obligations of the Borrower in principal amount of not
more than $4,875,000 from the Borrower to Sellers of Copenhagen,
provided such Sellers execute and deliver to the Administrative Agent
on behalf of the Banks the Copenhagen Subordination Agreement; and
(viii) indebtedness related to the Liens in favor of TCI Atlantic, Inc., TCI
Central, Inc. and TCI Great Lakes, Inc. described in Subpart (x) of the
definition of Permitted Liens, but only in the amount and for the
periods permitted in Subpart (x) of the definition of Permitted Liens.
8.2.2 LIENS; NEGATIVE PLEDGES.
Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to, directly or indirectly, at any time create,
incur, assume or suffer to exist any Lien on any of its property or assets,
tangible or intangible, now owned or hereafter acquired, or agree or become
liable to do so, except Permitted Liens.
Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to, directly or indirectly, at any time, enter
into any agreement with any Person (other than with the Banks pursuant to the
Loan Documents), that prohibits or limits the ability of such Loan Party or
Subsidiary to create, incur, assume, or suffer to exist, directly or indirectly,
any Lien upon any of its property, assets or revenues, whether now owned or
hereafter acquired, except pursuant to the Loan Documents.
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8.2.3 GUARANTIES.
Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to, at any time, directly or indirectly, become
or be liable in respect of any Guaranty, or assume, guarantee, become surety
for, endorse or otherwise agree, become or remain directly or contingently
liable upon or with respect to any obligation or liability of any other Person,
except for Guaranties of Permitted Indebtedness other than in Clauses (vi) and
(vii) of Section 8.2.1).
8.2.4 LOANS AND INVESTMENTS.
Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to, directly or indirectly, at any time make or
suffer to remain outstanding any loan or advance to, or purchase, acquire or own
any stock, bonds, notes or securities of, or any partnership interest (whether
general or limited) or limited liability company interest in, or any other
investment or interest in, or make any capital contribution to, any other
Person, or agree, become or remain liable, directly or indirectly, to do any of
the foregoing, except:
(i) trade credit extended on usual and customary terms in the ordinary
course of business;
(ii) advances to employees to meet expenses incurred by such employees in
the ordinary course of business;
(iii) Permitted Investments;
(iv) loans, advances and investments in or to other Loan Parties and to
Persons that in connection with such loan, advance or investment
thereby becomes a Loan Party or merges with or into a Loan Party (other
than in or to Orius); and
(v) loans to the former shareholders of Subsidiaries in amounts not to
exceed $575,000 under terms and conditions acceptable to the Agents
provided that all notes evidencing such loans and all collateral
securing such loans be pledged to the Administrative Agent for the
benefit of the Banks.
8.2.5 DIVIDENDS AND RELATED DISTRIBUTIONS,
PAYMENTS WITH RESPECT TO SUBORDINATED
INDEBTEDNESS.
Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to, directly or indirectly, make or pay, or agree
to become or remain liable to make or pay, any dividend or other distribution of
any nature (whether in cash, property, securities or otherwise) on account of or
in respect of its shares of capital stock, on account of the purchase,
redemption, retirement or acquisition of its shares of capital stock (or
warrants, options or rights therefor), or make any payments of principal or
interest with respect to, or purchase, redeem, retire or acquire, any
Indebtedness subordinate to the Obligations except (i) dividends or other
distributions paid to another Loan Party other than Orius and (ii) payments
permitted under the HIG Subordination Agreement, the Network Cabling
Subordination Agreement or the Copenhagen Subordination Agreement.
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8.2.6 LIQUIDATIONS, MERGERS, CONSOLIDATIONS,
ACQUISITIONS.
Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to, directly or indirectly, dissolve, liquidate
or wind-up its affairs, or become a party to any merger or consolidation, or
acquire by purchase, lease or otherwise all or substantially all of the assets
or capital stock of any other Person, PROVIDED that under terms and conditions
acceptable to the Administrative Agent (including but not limited to delivery of
opinions of counsel, share certificates and stock powers) any Loan Party other
than the Borrower or Orius may consolidate or merge into another Loan Party
which is wholly-owned directly or indirectly by the Borrower.
Notwithstanding the foregoing, any Loan Party (other
than Orius) may acquire, whether by purchase or by merger, (A) all of the
ownership interests of another Person or (B) substantially all of the assets of
another Person or of a business or division of another Person (each a "Permitted
Acquisition"), PROVIDED that each of the following requirements is met:
(i) if the Loan Parties are
acquiring the ownership interests in such Person, such Person shall execute a
Guarantor Joinder and join this Agreement as a Guarantor pursuant to Section
11.18 [Joinder of Guarantors] on or before the date of such Permitted
Acquisition and the Borrower shall deliver to the Agents at least five (5)
Business Days prior to consummation of such Permitted Acquisition Supplementary
Schedules to this Agreement setting forth (i) all disclosure information with
respect to the target of the Permitted Acquisition called for under Article 6 of
the Agreement, and (ii) all information with respect to the other Loan Parties
which must be amended or updated from the disclosure schedules to the Agreement
in order to make the representations and warranties of the Loan Parties true and
correct on the date hereof (except representations and warranties which
expressly relate solely to an earlier date and time, which representations and
warranties shall be true and correct on and as of the specific dates and times
referred to therein);
(ii) the Loan Parties, such
Person and its owners, as applicable, shall grant and cause to be perfected
Liens in favor of the Administrative Agent for its benefit and for the benefit
of the Banks or the assets of or acquired from and Equity Interests in such
Person and otherwise comply with Section 11.18 [Joinder of Guarantors] on or
before the date of such Permitted Acquisition;
(iii) the board of directors or
other equivalent governing body of such Person shall have approved such
Permitted Acquisition and the Loan Parties also shall have delivered to the
Banks written evidence of the approval of the board of directors (or equivalent
body) of such Person for such Permitted Acquisition, provided that such approval
shall not be required in the case of a stock acquisition where all holders of
stock of the target company consent to such stock acquisition;
(iv) the business acquired, or
the business conducted by the Person whose ownership interests are being
acquired, as applicable, shall be substantially the same as one or more line or
lines of business conducted by the Loan Parties and shall comply with Section
8.2.11 [Continuation of or Change in Business];
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(v) no Potential Default or
Event of Default shall exist immediately prior to and after giving effect to
such Permitted Acquisition;
(vi) the Borrower shall
demonstrate (x) compliance immediately prior to the consummation of the proposed
Permitted Acquisition with the covenants contained in this Section 8.2 after
giving pro forma effect to such Permitted Acquisition, (y) that the business
which is the subject of the Permitted Acquisition has had a positive
Consolidated Cash Flow from Operations for the four fiscal quarters immediately
preceding consummation of the Permitted Acquisition, and (z) that following
consummation, and taking into account any Revolving Credit Loans to be incurred
in connection with such Permitted Acquisition, Borrower will have at least
$10,000,000 in unused borrowing availability in the Revolving Credit Loans, such
demonstrations to be set forth in a certificate in form and substance acceptable
to the Agents, delivered to the Agents by Borrower at least five (5) Business
Days prior to such Permitted Acquisition;
(vii) Borrower and Administrative
Agent shall have agreed upon the deemed Working Capital of the entity acquired
in the Permitted Acquisition as of the beginning of the fiscal year in which
such Permitted Acquisition occurs;
(viii) the aggregate of the
Consideration paid by the Loan Parties for such Permitted Acquisition and all
other Permitted Acquisitions made between the Closing Date and the date of such
Permitted Acquisition shall not exceed $2,000,000 or the sole consideration is
Orius common stock and the value of all such stock distributed for such
Permitted Acquisition, and all other Permitted Acquisitions made between the
Closing Date and the date of such Permitted Acquisition shall, not exceed
$10,000,000; and
(ix) the Loan Parties shall
deliver to the Agents at least five (5) Business Days before such Permitted
Acquisition copies of any agreements entered into or proposed to be entered into
by such Loan parties in connection with such Permitted Acquisition and shall
deliver to the Agents such other information and such Person or its assets as
any Agents may reasonably require.
8.2.7 DISPOSITIONS OF ASSETS OR SUBSIDIARIES.
Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to, directly or indirectly, sell, convey, assign,
lease, abandon or otherwise transfer or dispose of, voluntarily or
involuntarily, any of its properties or assets, tangible or intangible
(including sale, assignment, discount or other disposition of accounts, contract
rights, chattel paper, equipment or general intangibles with or without recourse
or of capital stock, shares of beneficial interest, partnership interests or
limited liability company interests of a Subsidiary of such Loan Party), except:
(i) transactions involving the sale of inventory in the ordinary course of
business;
(ii) any sale, transfer or lease of assets in the ordinary course of
business which are no longer necessary or required in the conduct of
such Loan Party's or such Subsidiary's business;
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(iii) any sale, transfer or lease of assets by any wholly owned Subsidiary of
such Loan Party to another Loan Party;
(iv) any sale, transfer or lease of assets in the ordinary course of
business which are replaced by substitute assets acquired or leased
within the parameters of Section 0 [Capital Expenditures and Leases],
PROVIDED such substitute assets are subject to the Banks' Prior
Security Interest; or
(v) any sale, transfer or lease of assets, other than those specifically
excepted pursuant to clauses (i) through (iv) above, which is approved
by the Required Banks so long as the after-tax proceeds (as estimated
in good faith by the Borrower) are applied as a mandatory prepayment of
the Loans in accordance with the provisions of Section 0 [Sale of
Assets] above.
8.2.8 AFFILIATE TRANSACTIONS
Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to, directly or indirectly, enter into or carry
out any transaction with any of its Affiliates (other than the Loan Parties)
(including purchasing property or services from or selling property or services
to any Affiliate of any Loan Party or other Person) unless such transaction is
not otherwise prohibited by this Agreement, is entered into in the ordinary
course of business upon fair and reasonable arm's-length terms and conditions
which are fully disclosed to the Agents and is in accordance with all applicable
Law.
8.2.9 SUBSIDIARIES, PARTNERSHIPS AND JOINT
VENTURES.
Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to, directly or indirectly, own or create
directly or indirectly any Subsidiaries other than (i) a Subsidiary formed or
acquired after the Closing Date in connection with a Permitted Acquisition or
(ii) any other Subsidiary which joins this Agreement as a Guarantor pursuant to
Section 11.18 [Joinder of Guarantors], provided that in the case of a Subsidiary
described in (i) or (ii) such Subsidiary and the Loan Parties, as applicable,
shall grant and cause to be perfected first priority Liens to the Administrative
Agent for its benefit and for the benefit of the Banks on the assets held by,
and Equity Interests in, such Subsidiary, and provided further, that in the case
of a Subsidiary described in (ii), the Required Banks shall have consented to
such joinder and formation. Each of the Loan Parties shall not become or agree
to (1) become a general or limited partner in any general or limited
partnership, except that the Loan Parties may be general or limited partners in
other Loan Parties, (2) become a member or manager of, or hold a limited
liability company interest in, a limited liability company, except that the Loan
Parties may be members or managers of, or hold limited liability company
interests in, other Loan Parties, or (3) become a joint venturer or hold a joint
venture interest in any joint venture. Notwithstanding the foregoing, CATV
Subscriber Services, Inc. may be a member of St. Martin Cable, LLC, a Delaware
limited liability company formed pursuant to the St. Martin Cable LLC Operating
Agreement dated August 31, 1998 among Subscriber Services, Raymond L. Galtelli
and Fred Robertson.
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8.2.10 NO RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS.
The Borrower shall not and shall not permit any of
its Subsidiaries directly or indirectly to create or otherwise cause or suffer
to exist or become effective any consensual encumbrance or restriction of any
kind on the ability of any such Subsidiary to: (1) pay dividends or make any
other distribution on any of such Subsidiary's capital stock owned by the
Borrower or any of its Subsidiaries; (2) pay any Indebtedness owed to the
Borrower or any other Subsidiary of the Borrower; (3) make loans or advances to
the Borrower or any other Subsidiary of the Borrower; or (4) transfer any of its
property or assets to the Borrower or any of its Subsidiaries, except customary
provisions restricting subletting or assignment of any lease governing a
leasehold interest of the Borrower or any of its Subsidiaries and except for the
Loan Documents.
8.2.11 CONTINUATION OF OR CHANGE IN BUSINESS.
Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to, directly or indirectly, engage in any
business, other than substantially as conducted and operated by such entity
during the present fiscal year.
8.2.12 PLANS AND BENEFIT ARRANGEMENTS.
Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to, directly or indirectly:
(i) fail to satisfy the minimum funding requirements of ERISA and the
Internal Revenue Code with respect to any Plan;
(ii) request a minimum funding waiver from the Internal Revenue Service with
respect to any Plan;
(iii) engage in a Prohibited Transaction with any Plan, Benefit Arrangement
or Multiemployer Plan which, alone or in conjunction with any other
circumstances or set of circumstances resulting in liability under
ERISA, would constitute a Material Adverse Change;
(iv) permit the aggregate actuarial present value of all benefit liabilities
(whether or not vested) under each Plan, determined on a plan
termination basis, as disclosed in the most recent actuarial report
completed with respect to such Plan, to exceed, as of any actuarial
valuation date, the fair market value of the assets of such Plan;
(v) fail to make when due any contribution to any Multiemployer Plan that
the Borrower or any member of the ERISA Group may be required to make
under any agreement relating to such Multiemployer Plan, or any Law
pertaining thereto;
(vi) withdraw (completely or partially) from any Multiemployer Plan or
withdraw (or be deemed under Section 4062(e) of ERISA to withdraw) from
any Multiple Employer Plan, where any such withdrawal is likely to
result in a material liability of the Borrower or any member of the
ERISA Group;
(vii) terminate, or institute proceedings to terminate, any Plan, where such
termination is likely to result in a material liability to the Borrower
or any member of the ERISA Group;
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(viii) make any amendment to any Plan with respect to which security is
required under Section 307 of ERISA; or
(ix) fail to give any and all notices and make all disclosures and
governmental filings required under ERISA or the Internal Revenue Code,
where such failure is likely to result in a Material Adverse Change.
8.2.13 FISCAL YEAR.
Borrower and Orius shall not, and shall not permit
any Subsidiary of Borrower to, change its fiscal year from the 52 week period
beginning January 3 (provided that any Subsidiary may change to such a fiscal
year).
8.2.14 ISSUANCE OF STOCK.
Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to, issue any additional shares of its capital
stock or any options, warrants or other rights in respect thereof, except that
subject to the limitations set forth in Section 8.2.6 and so long as such
issuance does not result in the occurrence of a Change in Control:
(i) Orius can issue to HIG the Orius Preferred Stock;
(ii) Orius can issue common stock in connection with the Specified
Acquisitions;
(iii) Orius can issued preferred and common stock in connection with the NATC
Reorganization;
(iv) Orius can issue capital stock, options, warrants or any other rights in
respect thereof (a) as permitted by agreements in place on the date
hereof, or (b) so long as the net cash proceeds are applied as set
forth in Section 5.5.3, PROVIDED that no obligations by any Loan Party
to redeem, repurchase or otherwise acquire such stock, options,
warrants or other rights are created or exist at any time;
(v) Orius can issue common stock in connection with the exercise of
employee stock options;
(vi) Orius can issue common stock in connection with the conversion of any
Orius Preferred Stock into Orius common stock;
(vii) Orius can issue additional Series A Preferred Stock and Series B
Preferred Stock pursuant to payment in kind features of such stock,
provided that the newly issued shares are subject to the HIG
Subordination Agreement; and
(viii) Orius can issue common stock in connection with Permitted Acquisitions.
8.2.15 CHANGES IN ORGANIZATIONAL DOCUMENTS.
Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to, amend in any respect its certificate of
incorporation (including any provisions or resolutions relating to capital
stock), by-laws or certificate of formation, without providing at
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least ten (10) calendar days' prior written notice to the Administrative Agent
and the Banks and, in the event such change would be adverse to the Banks as
determined by the Administrative Agent in its reasonable discretion, obtaining
the prior written consent of the Required Banks.
8.2.16 CAPITAL EXPENDITURES AND LEASES.
Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to, (i) make any payments in any fiscal year on
account of the purchase or lease of any assets which if purchased would
constitute fixed assets or which if leased would constitute a capitalized lease
which would cause the aggregate of such payments by the Loan Parties and their
Subsidiaries in such fiscal year to exceed $11,500,000, or (ii) any payments in
any fiscal year on account of the rental or lease of real or personal property
of any other Person under operating leases (i.e. non-Capital Leases) which would
cause the aggregate of such payments by the Loan Parties and their Subsidiaries
in such fiscal year to exceed $4,000,000. All such capital expenditures and
leases shall be made under usual and customary terms and in the ordinary course
of business. Acquisition of capital assets as part of a Permitted Acquisition
shall not be considered in calculating compliance with this Section 8.2.16.
8.2.17 MINIMUM FIXED CHARGE COVERAGE RATIO;
CALCULATION OF FINANCIAL COVENANTS FOR
1999-2000
The Loan Parties shall not permit the Fixed Charge
Coverage Ratio, calculated as of the end of each fiscal quarter for the four
fiscal quarters then ended (with first measurement date as of June 30, 1999), to
be less than 1.00 to 1 as of the end of any fiscal quarter ending on or before
December 31, 1999, less than 1.05 to 1 as of the end of any fiscal quarter
ending after December 31, 1999, but on or before December 31, 2001, less than
1.10 to 1 as of the end of any fiscal quarter ended after December 31, 2001 but
on or before December 31, 2002, or less than 1.15 to 1 as of the end of any
fiscal quarter ending after December 31, 2002. For purposes of calculating
compliance with financial statement covenants set forth in Sections 8.2.17,
8.2.18, 8.2.19 and 8.2.20 and the applicable Level set forth on the Pricing Grid
with respect to specified periods ending in 1998 and 1999, the following shall
apply:
Consolidated Cash Flow from Operations for periods
prior to June 30, 1999 shall be deemed to be as follows:
<TABLE>
<CAPTION>
CASH FLOW FROM OPERATIONS
-------------------------
<S> <C>
Calendar Quarter ended September 30, 1998 $9,850,000
Calendar Quarter ended December 31, 1998 $9,850,000
</TABLE>
For the fiscal quarter ended March 31, 1999,
Consolidated Cash Flow from Operations will
be based upon books and records of Orius and
its Subsidiaries for such quarter with
adjustments of the type reflected in
projections prepared by
PricewaterhouseCoopers and supplied by
Borrower to the Agents.
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As of the end of the fiscal quarter ended
June 30, 1999, Fixed Charges and interest
expense shall each be determined by
multiplying the respective aggregate amounts
for the Loan Parties determined for the
month of March 1999 and the second calendar
quarter of 1999 by 3.
As of the end of the fiscal quarter ended
September 30, 1999, Fixed Charges and
interest expense shall each be determined by
multiplying the respective aggregate amounts
for the Loan Parties determined for the
month of March 1999, the second and third
calendar quarters of 1999 by 1.714286.
As of the end of the fiscal year ended
December 31, 1999, Fixed Charges and
interest expense shall each be determined by
multiplying the aggregate amounts for the
Loan Parties for the last 10 calendar months
of 1999 (excluding January and February
1999) by 1.2.
8.2.18 MAXIMUM LEVERAGE RATIO.
The Loan Parties shall not at any time permit the
Leverage Ratio, calculated as of the end of the four fiscal quarters then ended
(with first measurement date as of June 30, 1999), to exceed the ratio set forth
below for the periods specified below:
<TABLE>
<CAPTION>
PERIOD RATIO
------ -----
<S> <C>
Closing Date through and including 3.75 to 1
September 30, 1999
October 1, 1999 through and including 3.50 to 1
December 31, 1999
January 1, 2000 through and including June 30, 3.25 to 1
2000
July 1, 2000 through and including December 31, 3.00 to 1
2000
January 1, 2001 through and including June 30, 2.75 to 1
2001
July 1, 2001 through and including December 31, 2.50 to 1
2001
January 1, 2002 and thereafter 2.25 to 1
</TABLE>
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8.2.19 MINIMUM INTEREST COVERAGE RATIO.
The Loan Parties shall not permit the ratio of
Consolidated Cash Flow from Operations to consolidated interest expense of
Orius, the Borrower and its Subsidiaries, calculated as of the end of each
fiscal quarter for the four fiscal quarters then ended (with a first measurement
date as of June 30, 1999), to be less than the ratio set forth below for the
periods specified below:
<TABLE>
<CAPTION>
PERIOD RATIO
------ -----
<S> <C>
Closing Date through and including December 31, 3.00 to 1
1999
January 1, 2000 through and including 3.25 to 1
December 31, 2000
January 1, 2001 and thereafter 3.75 to 1
</TABLE>
8.2.20 MINIMUM CONSOLIDATED CASH FLOW FROM
OPERATIONS.
The Loan Parties shall not, at any time, permit the
Consolidated Cash Flow from Operations of the Borrower and its Subsidiaries
calculated as of the end of the four fiscal quarters then ended (with the first
measurement date as of June 30, 1999) to be less than:
<TABLE>
<CAPTION>
Minimum Consolidated Cash Flow
Four Quarters Ended from Operations
---------------------------------- ----------------------------------
<S> <C>
June 30, 1999 $37,000,000
September 30, 1999 $37,000,000
December 31, 1999 $37,000,000
March 31, 2000 $38,125,000
June 30, 2000 $39,500,000
September 30, 2000 $40,750,000
December 31, 2000 $42,000,000
March 31, 2001 $43,500,000
June 30, 2001 $44,500,000
September 30,2001 $45,500,000
December 31, 2001 $46,500,000
March 31, 2002 $47,750,000
June 30, 2002 $49,000,000
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
September 30, 2002 $50,250,000
December 31, 2002 $51,500,000
March 31, 2003 $52,750,000
June 30, 2003 $54,000,000
September 30, 2003 $55,250,000
December 31, 2003 $56,500,000
March 31, 2004 $57,750,000
June 30, 2004 $59,000,000
September 30, 2004 $60,250,000
December 31, 2004 $61,500,000
March 31, 2005 $62,750,000
June 30, 2005 $64,000,000
September 30, 2005 $65,250,000
December 31, 2005 $66,500,000
</TABLE>
8.2.21 BANK ACCOUNTS.
Each Loan Party shall not, and shall not permit any
of its Subsidiaries to establish any new bank accounts without prior written
notice to the Administrative Agent provided that Administrative Agent's consent
shall not be necessary with respect to payroll accounts established by the
Borrower or any of its Subsidiaries.
8.2.22 AMENDMENTS TO RELATED DOCUMENTS.
Orius shall not amend the terms of any preferred
stock of Orius, or the terms of any Acquisition Agreement (including waivers
thereunder) without providing at least ten (10) calendar days' prior written
notice to the Agents and the Banks and, in the event such change, together with
other changes previously permitted hereunder, would be adverse to the Banks as
determined by the Agents in their reasonable discretion, obtaining the prior
written consent of the Required Banks. Orius shall not permit or suffer to occur
any amendment to the Stockholders Agreement dated February 26, 1999 among Orius
and the stockholders of Orius party thereto without the prior written consent of
the Agents and the Required Banks.
8.2.23 MOVEMENT OF COLLATERAL
In addition to the restrictions set forth in the
Security Agreements, the Loan Parties shall not permit collateral which
constitutes UCC Collateral to be moved from any state or states where
Administrative Agent on behalf of the Banks has a Prior Security Interest in
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such Collateral to other states or country where the Administrative Agent on
behalf of the Banks does not have such a Prior Security Interest if as a result
of such movement less than 80% by value of such collateral (estimated in good
faith by Borrower) does not remain in states where Administrative Agent on
behalf of the Banks does have such a Prior Security Interest.
8.2.24 RESTRICTIONS REGARDING HEARTLAND CABLE TV,
INC.
No Loan Party may make any investment in or transfer
any assets to Heartland Cable TV, Inc., provided that U.S. Cable may transfer to
Heartland Cable TV, Inc. all assets of U.S. Cable related to operation of cable
T.V. distribution systems, if prior to such transfer (i) the Borrower gives
notice to the Administrative Agent at least twenty (20) Business Days prior to
the effective date of such transfer, (ii) NATC grants a security interest as set
forth in Section 11.18 and in the Loan Documents to the Administrative Agent on
behalf of the Banks in all of the outstanding capital stock of Heartland Cable
TV, Inc. and delivers to the Administrative Agent stock certificates and stock
powers with respect to such capital stock, (iii) Heartland Cable TV, Inc.
executes in favor of the Administrative Agent on behalf of the Banks a guaranty
and suretyship agreement in a form acceptable to the Administrative Agent
whereby it guaranties the Obligations, and (iv) Heartland Cable TV, Inc.
executes a security agreement in favor of the Administrative Agent for the
benefit of the Banks in a form acceptable to the Administrative Agent whereby it
grants a security interest in its assets to secure such guaranty, all in
accordance with Section 11.18 hereof.
8.2.25 RESTRICTIONS REGARDING ARIZONA CABLE
CONCEPTS, INC. AND ACQUISITION SUBSIDIARIES
No Loan Party may make any investment in or transfer
any assets to Arizona Cable Concepts, Inc., Cablemasters Acquisition
Corporation, Excel Cable Acquisition Corporation, Kenya Acquisition Corporation
or Mich-Com Acquisition Corporation or permit Arizona Cable Concepts, Inc.,
Cablemasters Acquisition Corporation, Excel Cable Acquisition Corporation, Kenya
Acquisition Corporation or Mich-Com Acquisition Corporation to conduct any
business.
8.2.26 LIMITATION ON ACTIVITIES OF ORIUS.
Orius shall not conduct any business, incur any
obligations (other than under the agreements relating to each of the Acquisition
Agreements, and the Loan Documents, as applicable) or hold or acquire any assets
(other than the Equity Interests of the Borrower); PROVIDED, HOWEVER, that Orius
shall be permitted to take any action necessary in order to comply with Sections
7.1.3 and 11.9 and, provided that a Change in Control does not occur as a result
thereof, to consummate the Initial Public Offering.
8.3 REPORTING REQUIREMENTS.
The Loan Parties, jointly and severally, covenant and agree
that until payment in full of the Loans, Reimbursement Obligations and Letter of
Credit Borrowings and interest thereon, expiration or termination of all Letters
of Credit, satisfaction of all of the Loan Parties'
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other Obligations hereunder and under the other Loan Documents and termination
of the Commitments, the Loan Parties will furnish or cause to be furnished to
the Administrative Agent and each of the Banks:
8.3.1 MONTHLY FINANCIAL STATEMENTS; MONTHLY
BORROWING BASE CERTIFICATES.
As soon as available and in any event within thirty
(30) calendar days after the end of each calendar month, Orius's financial
statements, consisting of a consolidated and consolidating balance sheet as of
the end of such month and related consolidated and consolidating statements of
income, stockholders' equity and cash flows for the month then ended and the
fiscal year through that date, all in reasonable detail and certified (subject
to normal year-end adjustments) by the Chief Executive Officer, President or
Chief Financial Officer of Borrower and Orius as having been prepared in
accordance with GAAP, consistently applied, and setting forth in comparative
form the respective financial statements for the corresponding date and period
in the previous fiscal year.
As soon as available and in any event within fifteen
(15) calendar days after the end of each calendar month, a Borrowing Base
Certificate as of the last day of the immediately preceding month in the form of
Exhibit 1.1(B) hereto, appropriately completed, executed and delivered by the
Chief Executive Officer, President or Chief Financial Officer of Borrower.
8.3.2 QUARTERLY FINANCIAL STATEMENTS.
As soon as available and in any event within
forty-five (45) calendar days after the end of each of the first three fiscal
quarters in each fiscal year, financial statements of Orius, consisting of a
consolidated and consolidating balance sheet as of the end of such fiscal
quarter and related consolidated and consolidating statements of income,
stockholders' equity and cash flows for the fiscal quarter then ended and the
fiscal year through that date, all in reasonable detail and certified (subject
to normal year-end audit adjustments) by the Chief Executive Officer, President
or Chief Financial Officer of the Borrower and Orius as having been prepared in
accordance with GAAP, consistently applied, and setting forth in comparative
form the respective financial statements for the corresponding date and period
in the previous fiscal year. The Borrower shall include with each such set of
statements a narrative report regarding operations of the Borrower and its
Subsidiaries during such quarter and comparative statements showing the results
of operations during such quarter compared to the quarterly budget for such
period, which quarterly budget shall be consistent with the projections given to
the Agents with the column showing such projections to be in a format consistent
with that contained in financial projections dated February 1999 provided by the
Borrower to the Agents and utilized in connection with the syndication of debt
under this Agreement.
8.3.3 ANNUAL FINANCIAL STATEMENTS.
As soon as available and in any event within ninety
(90) days after the end of each fiscal year of the Borrower, financial
statements of Orius and its Subsidiaries consisting of a consolidated and
consolidating balance sheet as of the end of such fiscal year, and related
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consolidated and consolidating statements of income, stockholders' equity and
cash flows for the fiscal year then ended, all in reasonable detail and setting
forth in comparative form the financial statements as of the end of and for the
preceding fiscal year, and certified by independent certified public accountants
of nationally recognized standing satisfactory to the Administrative Agent. The
certificate or report of accountants shall be free of qualifications (other than
any consistency qualification that may result from a change in the method used
to prepare the financial statements as to which such accountants concur) and
shall not indicate the occurrence or existence of any event, condition or
contingency which would materially impair the prospect of payment or performance
of any covenant, agreement or duty of any Loan Party under any of the Loan
Documents. The Loan Parties shall deliver with such financial statements and
certification by their accountants a letter of such accountants to the
Administrative Agent and the Banks substantially (i) to the effect that, based
upon their ordinary and customary examination of the affairs of the Borrower and
its Subsidiaries, performed in connection with the preparation of such
consolidated financial statements, and in accordance with generally accepted
auditing standards, they are not aware of the existence of any condition or
event which constitutes an Event of Default or Potential Default or, if they are
aware of such condition or event, stating the nature thereof and confirming the
Borrower's calculations with respect to the certificate to be delivered pursuant
to Section 0 [Certificate of the Borrower] with respect to such financial
statements and (ii) to the effect that the Banks are intended to rely upon such
accountant's certification of the annual financial statements and that such
accountants authorize the Loan Parties to deliver such reports and certificate
to the Banks on such accountants' behalf.
8.3.4 CERTIFICATE OF THE BORROWER AND ORIUS.
Concurrently with the financial statements of Orius
furnished to the Administrative Agent and to the Banks pursuant to Sections 0
[Quarterly Financial Statements] and 0 [Annual Financial Statements], a
certificate of the Borrower (the "Borrower's Compliance Certificate") signed by
the Chief Executive Officer, President or Chief Financial Officer of Borrower
and Orius in the form of EXHIBIT 8.3.4, to the effect that, except as described
pursuant to Section 0 [Notice of Default], (i) the representations and
warranties of the Loan Parties contained in Section 0 and in the other Loan
Documents are true on and as of the date of such certificate with the same
effect as though such representations and warranties had been made on and as of
such date (except representations and warranties which expressly relate solely
to an earlier date or time) and the Loan Parties have performed and complied
with all covenants and conditions hereof, (ii) no Event of Default or Potential
Default exists and is continuing on the date of such certificate, (iii)
containing calculations in sufficient detail to demonstrate compliance as of the
date of such financial statements with all financial covenants contained in
Section 8.2 [Negative Covenants], and (iv) a backlog report setting forth all
contracts for goods and services to be provided by the Borrower determined as of
a date not less than fifteen (15) days prior to the date of such Borrower's
Compliance Certificate. The certificate delivered with the annual financial
statements pursuant to Section 0 shall include a determination in reasonable
detail of the Excess Cash Flow and the amount of the Mandatory Prepayment of
Excess Cash Flow applicable to such fiscal year.
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8.3.5 NOTICE OF DEFAULT.
Promptly after any officer of any Loan Party has
learned of the occurrence of an Event of Default or Potential Default, a
certificate signed by the Chief Executive Officer, President or Chief Financial
Officer of such Loan Party setting forth the details of such Event of Default or
Potential Default and the action which the such Loan Party proposes to take with
respect thereto.
8.3.6 NOTICE OF LITIGATION.
Promptly after the commencement thereof, notice of
all actions, suits, proceedings or investigations before or by any Official Body
or any other Person against any Loan Party or Subsidiary of any Loan Party which
relate to the Collateral, involve a claim or series of claims in excess of
$500,000 or which if adversely determined would constitute a Material Adverse
Change.
8.3.7 CERTAIN EVENTS.
Written notice to the Agents:
(i) at least fifteen (15) calendar days prior thereto, with respect to any
proposed sale or transfer of assets pursuant to Section 0(0) or (0),
(ii) within the time limits set forth in Section 0 [Changes in
Organizational Documents], any amendment to the organizational
documents of any Loan Party; and
(iii) at least twenty (20) calendar days prior thereto, with respect to any
change in any Loan Party's locations from the locations set forth in
Schedule A to the Security Agreement.
8.3.8 BUDGETS, FORECASTS, OTHER REPORTS AND
INFORMATION.
Promptly upon their becoming available to the
Borrower:
(i) the annual budget and any forecasts or projections of the Borrower and
its Subsidiaries, to be supplied not later than December 31 of the year
immediately preceding commencement of the fiscal year to which any of
the foregoing may be applicable,
(ii) any reports including management letters submitted to the Borrower and
its Subsidiaries by independent accountants in connection with any
annual, interim or special audit,
(iii) any reports, notices or proxy statements generally distributed by Orius
to its stockholders on a date no later than the date supplied to such
stockholders,
(iv) regular or periodic reports, including Forms 10-K, 10-Q and 8-K,
registration statements and prospectuses, filed by any Loan Party with
the Securities and Exchange Commission,
(v) a copy of any order in any proceeding to which Loan Party or any of its
Subsidiaries is a party issued by any Official Body, and
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(vi) such other reports and information as any of the Banks may from time to
time reasonably request. The Borrower shall also notify the Banks
promptly of the enactment or adoption of any Law which may result in a
Material Adverse Change.
8.3.9 NOTICES REGARDING PLANS AND BENEFIT
ARRANGEMENTS.
8.3.9.1 CERTAIN EVENTS.
Promptly upon becoming aware of the
occurrence thereof, notice (including the nature of the event and, when known,
any action taken or threatened by the Internal Revenue Service or the PBGC with
respect thereto) of:
(i) any Reportable Event with respect to the Borrower or any other member
of the ERISA Group (regardless of whether the obligation to report said
Reportable Event to the PBGC has been waived),
(ii) any Prohibited Transaction which could subject the Borrower or any
other member of the ERISA Group to a civil penalty assessed pursuant to
Section 502(i) of ERISA or a tax imposed by Section 4975 of the
Internal Revenue Code in connection with any Plan, any Benefit
Arrangement or any trust created thereunder,
(iii) any assertion of material withdrawal liability with respect to any
Multiemployer Plan,
(iv) any partial or complete withdrawal from a Multiemployer Plan by the
Borrower or any other member of the ERISA Group under Title IV of ERISA
(or assertion thereof), where such withdrawal is likely to result in
material withdrawal liability,
(v) any cessation of operations (by the Borrower or any other member of the
ERISA Group) at a facility in the circumstances described in Section
4062(e) of ERISA,
(vi) withdrawal by the Borrower or any other member of the ERISA Group from
a Multiple Employer Plan,
(vii) a failure by the Borrower or any other member of the ERISA Group to
make a payment to a Plan required to avoid imposition of a Lien under
Section 302(f) of ERISA,
(viii) the adoption of an amendment to a Plan requiring the provision of
security to such Plan pursuant to Section 307 of ERISA, or
(ix) any change in the actuarial assumptions or funding methods used for any
Plan, where the effect of such change is to materially increase or
materially reduce the unfunded benefit liability or obligation to make
periodic contributions.
8.3.9.2 NOTICES OF INVOLUNTARY TERMINATION AND ANNUAL
REPORTS.
Promptly after receipt thereof, copies of (a) all
notices received by the Borrower or any other member of the ERISA Group of the
PBGC's intent to terminate any Plan administered or maintained by any Borrower
or any member of the ERISA Group, or to have
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a trustee appointed to administer any such Plan; and (b) at the request of the
Administrative Agent or any Bank each annual report (IRS Form 5500 series) and
all accompanying schedules, the most recent actuarial reports, the most recent
financial information concerning the financial status of each Plan administered
or maintained by the Borrower or any other member of the ERISA Group, and
schedules showing the amounts contributed to each such Plan by or on behalf of
the Borrower or any other member of the ERISA Group in which any of their
personnel participate or from which such personnel may derive a benefit, and
each Schedule B (Actuarial Information) to the annual report filed by the
Borrower or any other member of the ERISA Group with the Internal Revenue
Service with respect to each such Plan.
8.3.9.3 NOTICE OF VOLUNTARY TERMINATION.
Promptly upon the filing thereof, copies of
any Form 5310, or any successor or equivalent form to Form 5310, filed with the
PBGC in connection with the termination of any Plan.
9. DEFAULT
9.1 EVENTS OF DEFAULT.
An Event of Default shall mean the occurrence or existence of
any one or more of the following events or conditions (whatever the reason
therefor and whether voluntary, involuntary or effected by operation of Law):
9.1.1 PAYMENTS UNDER LOAN DOCUMENTS.
The Borrower shall (i) fail to pay any principal of
any Loan (including scheduled installments, mandatory prepayments or the payment
due at maturity), Reimbursement Obligation or Letter of Credit Borrowing after
such principal becomes due in accordance with the terms hereof, or (ii) shall
fail to pay any interest on any Loan , Reimbursement Obligation or Letter of
Credit Borrowing or shall fail to pay any other amount owing hereunder or under
the other Loan Documents (other than items described in (i)) within three (3)
days after such interest or such other amounts becomes due in accordance with
the terms hereof or thereof;
9.1.2 BREACH OF WARRANTY.
Any representation or warranty made at any time by
any of the Loan Parties herein or by any of the Loan Parties in any other Loan
Document, or in any certificate, other instrument or statement furnished
pursuant to the provisions hereof or thereof, shall prove to have been false or
misleading in any material respect as of the time it was made or furnished;
9.1.3 BREACH OF NEGATIVE COVENANTS OR VISITATION
RIGHTS.
Any of the Loan Parties shall default in the
observance or performance of any covenant contained in Section 8.1.1
[Preservation of Existence, Etc.] as such covenant relates to the State of
incorporation or formation of an entity, Section 0 [Visitation Rights],
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Section 8.1.11 [Use of Proceeds], Section 8.1.13 [Interest Rate Protection] or
Section 8.2 [Negative Covenants];
9.1.4 BREACH OF OTHER COVENANTS.
Any of the Loan Parties shall default in the
observance or performance of any other covenant, condition or provision hereof
or of any other Loan Document and such default shall continue unremedied for a
period of fifteen (15) Business Days after any officer of any Loan Party becomes
aware of the occurrence thereof or receive a notice of Default with respect
thereto, or if such failure cannot be cured with reasonable diligence within
such 15 Business Day Period, such longer period up to 40 Business Days after any
officer of a Loan Party becomes aware of Default or receives a notice of Default
with respect thereto, provided Borrower promptly commences a cure within such
period and diligently pursues the same. Notwithstanding the foregoing, such
grace periods are to be applicable only in the event such default can be
remedied by corrective action of the Loan Parties as determined by the
Administrative Agent in its reasonable discretion.
9.1.5 DEFAULTS IN OTHER AGREEMENTS OR
INDEBTEDNESS.
A default or event of default shall occur at any time
under the terms of any other agreement involving borrowed money or the extension
of credit or any other Indebtedness or any of the Earn Out Obligations or
obligations with respect to Balance Sheet Adjustment Payments under which any
Loan Party or Subsidiary of any Loan Party may be obligated as a borrower or
guarantor in excess of $500,000 in the aggregate (excluding up to $250,000 in
Indebtedness where the Loan Party or Subsidiary is contesting in good faith the
existence of such breach, default or event of default), and such breach, default
or event of default consists of the failure to pay (beyond any period of grace
permitted with respect thereto, whether waived or not) any Indebtedness when due
(whether at stated maturity, by acceleration or otherwise) or if such breach or
default permits (with or without notice or passage of time or both) or causes
the acceleration of any indebtedness (whether or not such right shall have been
waived) or the termination of any commitment to lend;
9.1.6 FINAL JUDGMENTS OR ORDERS.
Any final judgments or orders for the payment of
money in excess of $500,000 in the aggregate shall be entered against any Loan
Party by a court having jurisdiction in the premises, which judgment is not
discharged, vacated, bonded or stayed pending appeal within a period of thirty
(30) days from the date of entry;
9.1.7 LOAN DOCUMENT UNENFORCEABLE.
Any of the Loan Documents shall cease to be legal,
valid and binding agreements enforceable against the party executing the same or
such party's successors and assigns (as permitted under the Loan Documents) in
accordance with the respective terms thereof or shall in any way be terminated
(except in accordance with its terms) or become or be declared ineffective or
inoperative or shall in any way be challenged or contested by a Loan Party or
cease
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to give or provide the respective Liens, security interests, rights, titles,
interests, remedies, powers or privileges intended to be created thereby;
9.1.8 UNINSURED LOSSES; PROCEEDINGS AGAINST
ASSETS.
There shall occur any material uninsured damage to or
loss, theft or destruction of any of the Collateral in excess of $500,000 or the
Collateral or any other of the Loan Parties' or any of their Subsidiaries'
assets are attached, seized, levied upon or subjected to a writ or distress
warrant; or such come within the possession of any receiver, trustee, custodian
or assignee for the benefit of creditors and the same is not cured within thirty
(30) days thereafter;
9.1.9 NOTICE OF LIEN OR ASSESSMENT.
A notice of Lien or assessment in excess of $500,000
which is not a Permitted Lien is filed of record with respect to all or any part
of any of the Loan Parties' or any of their Subsidiaries' assets by the United
States, or any department, agency or instrumentality thereof, or by any state,
county, municipal or other governmental agency, including the PBGC, or any taxes
or debts owing at any time or times hereafter to any one of these becomes
payable and the same is not paid within thirty (30) days after the same becomes
payable;
9.1.10 INSOLVENCY.
Any Loan Party or any Subsidiary of a Loan Party
ceases to be solvent or admits in writing its inability to pay its debts as they
mature;
9.1.11 EVENTS RELATING TO PLANS AND BENEFIT
ARRANGEMENTS.
Any of the following occurs: (i) any Reportable
Event, which the Administrative Agent determines in good faith constitutes
grounds for the termination of any Plan by the PBGC or the appointment of a
trustee to administer or liquidate any Plan, shall have occurred and be
continuing; (ii) proceedings shall have been instituted or other action taken to
terminate any Plan, or a termination notice shall have been filed with respect
to any Plan; (iii) a trustee shall be appointed to administer or liquidate any
Plan; (iv) the PBGC shall give notice of its intent to institute proceedings to
terminate any Plan or Plans or to appoint a trustee to administer or liquidate
any Plan; and, in the case of the occurrence of (i), (ii), (iii) or (iv) above,
the Administrative Agent determines in good faith that the amount of the
Borrower's liability is likely to exceed 10% of its Consolidated Tangible Net
Worth; (v) the Borrower or any member of the ERISA Group shall fail to make any
contributions when due to a Plan or a Multiemployer Plan; (vi) the Borrower or
any other member of the ERISA Group shall make any amendment to a Plan with
respect to which security is required under Section 307 of ERISA; (vii) the
Borrower or any other member of the ERISA Group shall withdraw completely or
partially from a Multiemployer Plan; (viii) the Borrower or any other member of
the ERISA Group shall withdraw (or shall be deemed under Section 4062(e) of
ERISA to withdraw) from a Multiple Employer Plan; or (ix) any applicable Law is
adopted, changed or interpreted by any Official Body with respect to or
otherwise affecting one or more Plans, Multiemployer Plans or Benefit
Arrangements and, with respect to any of the events specified in (v), (vi),
(vii), (viii) or (ix), the Administrative Agent determines in good faith that
any such occurrence would be reasonably
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likely to materially and adversely affect the total enterprise represented by
the Borrower and the other members of the ERISA Group;
9.1.12 CESSATION OF BUSINESS.
Any Loan Party or Subsidiary of a Loan Party ceases
to conduct its business as contemplated, except as expressly permitted under
Section 0 [Liquidations, Mergers, Etc.] or 0, or any Loan Party or Subsidiary of
a Loan Party is enjoined, restrained or in any way prevented by court order from
conducting all or any material part of its business and such injunction,
restraint or other preventive order is not dismissed within thirty (30) days
after the entry thereof;
9.1.13 CHANGE OF CONTROL.
A Change of Control occurs;
9.1.14 LOSS OF PRIOR SECURITY INTEREST.
The Banks shall cease to have a Prior Security
Interest in any of the UCC Collateral or any of the Pledged Collateral (other
than with respect to UCC Collateral with an aggregate value of not greater than
$250,000 at any time, provided such failure to have a Prior Security Interest is
promptly cured by Borrower);
9.1.15 INVOLUNTARY PROCEEDINGS.
A proceeding shall have been instituted in a court
having jurisdiction in the premises seeking a decree or order for relief in
respect of any Loan Party or Subsidiary of a Loan Party in an involuntary case
under any applicable bankruptcy, insolvency, reorganization or other similar law
now or hereafter in effect, or for the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator, conservator (or similar official) of
any Loan Party or Subsidiary of a Loan Party for any substantial part of its
property, or for the winding-up or liquidation of its affairs, and such
proceeding shall remain undismissed or unstayed and in effect for a period of
thirty (30) consecutive days or such court shall enter a decree or order
granting any of the relief sought in such proceeding; or
9.1.16 VOLUNTARY PROCEEDINGS.
Any Loan Party or Subsidiary of a Loan Party shall
commence a voluntary case under any applicable bankruptcy, insolvency,
reorganization or other similar law now or hereafter in effect, shall consent to
the entry of an order for relief in an involuntary case under any such law, or
shall consent to the appointment or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator, conservator (or other similar
official) of itself or for any substantial part of its property or shall make a
general assignment for the benefit of creditors, or shall fail generally to pay
its debts as they become due, or shall take any action in furtherance of any of
the foregoing.
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9.1.17 SUBORDINATED DEBT.
The subordination provisions of any subordinated debt
of any Loan Party shall cease, for any reason, to be valid or any Loan Party
shall so assert in writing.
9.1.18 ENVIRONMENTAL EVENTS.
There is asserted against any Loan Party, claims,
whether accrued, absolute or contingent, based on or arising from the
generation, storage, treatment, transport, handling, disposal, release or
threatened release of Regulated Substances by any Loan Party or any Affiliate,
or any predecessor in interest of any Loan Party or any Affiliate, which claims
are reasonably likely to be determined adversely to any Loan Party and the
result of such adverse termination is, singly or in the aggregate, reasonably
likely to have a Material Adverse Change.
9.2 CONSEQUENCES OF EVENT OF DEFAULT.
9.2.1 EVENTS OF DEFAULT OTHER THAN BANKRUPTCY,
INSOLVENCY OR REORGANIZATION
PROCEEDINGS.
If an Event of Default specified under Sections 0
through 9.1.14 and 9.1.17 and 9.1.18 shall occur and be continuing, the Banks
and the Administrative Agent shall be under no further obligation to make Loans
or issue Letters of Credit, as the case may be, and the Administrative Agent
may, and upon the request of the appropriate Banks in accordance with the
provisions of Section 11.19, shall (i) by written notice to the Borrower,
declare the unpaid principal amount of the Notes then outstanding and all
interest accrued thereon, any unpaid fees and all other Indebtedness of the
Borrower to the Banks hereunder and thereunder to be forthwith due and payable,
and the same shall thereupon become and be immediately due and payable to the
Administrative Agent for the benefit of each Bank without presentment, demand,
protest or any other notice of any kind, all of which are hereby expressly
waived, and (ii) require the Borrower to, and the Borrower shall thereupon,
deposit in a non-interest-bearing account with the Administrative Agent, as cash
collateral for its Obligations under the Loan Documents, an amount equal to the
maximum amount currently or at any time thereafter available to be drawn on all
outstanding Letters of Credit, and the Borrower hereby pledges to the
Administrative Agent and the Banks, and grants to the Administrative Agent and
the Banks a security interest in, all such cash as security for such
Obligations. Upon the curing of all existing Events of Default to the
satisfaction of the Required Banks, the Administrative Agent shall return such
cash collateral to the Borrower; and
9.2.2 BANKRUPTCY, INSOLVENCY OR REORGANIZATION
PROCEEDINGS.
If an Event of Default specified under Section 0
[Involuntary Proceedings] or 0 [Voluntary Proceedings] shall occur, the Banks
shall be under no further obligations to make Loans hereunder and the unpaid
principal amount of the Loans then outstanding and all interest accrued thereon,
any unpaid fees and all other Indebtedness of the Borrower to the Banks
hereunder and thereunder shall be immediately due and payable, without
presentment, demand, protest or notice of any kind, all of which are hereby
expressly waived; and
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9.2.3 SET-OFF.
If an Event of Default shall occur and be continuing,
any Bank to whom any Obligation is owed by any Loan Party hereunder or under any
other Loan Document or any participant of such Bank which has agreed in writing
to be bound by the provisions of Section 0 [Equalization of Banks] and any
branch, Subsidiary or Affiliate of such Bank or participant anywhere in the
world shall have the right, in addition to all other rights and remedies
available to it but subject to the provisions of Section 11.19, without notice
to such Loan Party, to set-off against and apply to the then unpaid balance of
all the Loans and all other Obligations of the Borrower and the other Loan
Parties hereunder or under any other Loan Document any debt owing to, and any
other funds held in any manner for the account of, the Borrower or such other
Loan Party by such Bank or participant or by such branch, Subsidiary or
Affiliate, including all funds in all deposit accounts (whether time or demand,
general or special, provisionally credited or finally credited, or otherwise)
now or hereafter maintained by the Borrower or such other Loan Party for its own
account (but not including funds held in custodian or trust accounts) with such
Bank or participant or such branch, Subsidiary or Affiliate. Such right shall
exist whether or not any Bank or the Administrative Agent shall have made any
demand under this Agreement or any other Loan Document, whether or not such debt
owing to or funds held for the account of the Borrower or such other Loan Party
is or are matured or unmatured and regardless of the existence or adequacy of
any Collateral, Guaranty or any other security, right or remedy available to any
Bank or the Administrative Agent; and
9.2.4 SUITS, ACTIONS, PROCEEDINGS.
If an Event of Default shall occur and be continuing,
and whether or not the Administrative Agent shall have accelerated the maturity
of Loans pursuant to any of the foregoing provisions of this Section 0, the
Administrative Agent or any Bank, if owed any amount with respect to the Loans,
may, subject to the provisions of Section 11.19, proceed to protect and enforce
its rights by suit in equity, action at law and/or other appropriate proceeding,
whether for the specific performance of any covenant or agreement contained in
this Agreement or the other Loan Documents and, if such amount shall have become
due, by declaration or otherwise, proceed to enforce the payment thereof or any
other legal or equitable right of the Administrative Agent or such Bank; and
9.2.5 APPLICATION OF PROCEEDS.
From and after the date on which the Administrative
Agent has taken any action pursuant to this Section 0 and until all Obligations
of the Loan Parties have been paid in full, any and all proceeds received by the
Administrative Agent from any sale or other disposition of the Collateral, or
any part thereof, or the exercise of any other remedy by the Administrative
Agent, shall, subject to the provisions of Section 11.19.3, be applied as
follows:
(i) first, to reimburse the Administrative Agent and the Banks for out-of-pocket
costs, expenses and disbursements, including reasonable attorneys' and
paralegals' fees and legal expenses, incurred by the Administrative Agent or the
Banks in connection with realizing on the Collateral or collection of any
Obligations of any of the Loan Parties under any of the Loan Documents,
including advances made by the Banks or any one of them or the Administrative
Agent for the
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reasonable maintenance, preservation, protection or enforcement of, or
realization upon, the Collateral, including advances for taxes, insurance,
repairs and the like and reasonable expenses incurred to sell or otherwise
realize on, or prepare for sale or other realization on, any of the Collateral;
(ii) second, to the repayment of all Indebtedness then due and unpaid of the
Loan Parties to the Banks incurred under this Agreement or any of the other Loan
Documents, whether of principal, interest, fees, expenses or otherwise, in such
manner as the Administrative Agent may determine in its discretion; and
(iii) the balance, if any, as required by Law.
9.2.6 OTHER RIGHTS AND REMEDIES.
In addition to all of the rights and remedies
contained in this Agreement or in any of the other Loan Documents, the
Administrative Agent shall have all of the rights and remedies of a secured
party under the Uniform Commercial Code or other applicable Law, all of which
rights and remedies shall be cumulative and non-exclusive, to the extent
permitted by Law. The Administrative Agent may, and upon the request of the
appropriate Banks in accordance with the provisions of Section 11.19 shall,
exercise all post-default rights granted to the Administrative Agent and the
Banks under the Loan Documents or applicable Law.
9.3 NOTICE OF SALE.
Any notice required to be given by the Administrative Agent of
a sale, lease, or other disposition of the Collateral or any other intended
action by the Administrative Agent, if given ten (10) days prior to such
proposed action, shall constitute commercially reasonable and fair notice
thereof to the Borrower or other Loan Party.
10. THE AGENTS
10.1 APPOINTMENT.
Each Bank hereby irrevocably designates, appoints and
authorizes PNC Bank to act as Administrative Agent for such Bank under this
Agreement and to execute and deliver or accept on behalf of each of the Banks
the other Loan Documents. Each Bank hereby irrevocably designates, appoints and
authorizes Merrill Lynch to act as Syndication Agent for such Bank under this
Agreement. Each Bank hereby irrevocably authorizes, and each holder of any Note
by the acceptance of a Note shall be deemed irrevocably to authorize, each of
the Administrative Agent and the Syndication Agent, as the case may be, to take
such action on its behalf under the provisions of this Agreement and the other
Loan Documents and any other instruments and agreements referred to herein, and
to exercise such powers and to perform such duties hereunder as are specifically
delegated to or required of the Administrative Agent and the Syndication Agent,
as the case may be, by the terms hereof, together with such powers as are
reasonably incidental thereto. PNC Bank agrees to act as the Administrative
Agent on behalf of the Banks to
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the extent provided in the Loan Documents. Merrill Lynch agrees to act as the
Syndication Agent on behalf of the Banks to the extent provided in the Loan
Document.
10.2 DELEGATION OF DUTIES.
Either Agent may perform any of its duties hereunder by or
through agents, employees or Affiliates (PROVIDED such delegation does not
constitute a relinquishment of its duties as an Agent) and, subject to Sections
0 [Reimbursement of the Agents by the Borrower, Etc.] and 0 [Exculpatory
Provisions; Limitation of Liability shall be entitled to engage and pay for the
advice or services of any attorneys, accountants or other experts concerning all
matters pertaining to its duties hereunder and to rely upon any advice so
obtained.
10.3 NATURE OF DUTIES; INDEPENDENT CREDIT INVESTIGATION.
Neither the Administrative Agent nor the Syndication Agent
shall have any duties or responsibilities except those expressly set forth in
this Agreement and the other Loan Documents and no implied covenants, functions,
responsibilities, duties, obligations, or liabilities shall be read into this
Agreement or the other Loan Documents or otherwise exist. The duties of the
Administrative Agent and the Syndication Agent shall be mechanical and
administrative in nature; neither the Administrative Agent nor the Syndication
Agent shall have by reason of this Agreement or the other Loan Documents a
fiduciary or trust relationship in respect of any Bank; and nothing in this
Agreement or the other Loan Documents, expressed or implied, is intended to or
shall be so construed as to impose upon the Administrative Agent or the
Syndication Agent any obligations in respect of this Agreement or the other Loan
Documents except as expressly set forth herein. Without limiting the generality
of the foregoing, the use of the term "agent" in this Agreement and the other
Loan Documents with reference to the Administrative Agent or the Syndication
Agent is not intended to connote any fiduciary or other implied (or express)
obligations arising under agency doctrine of any applicable Law. Instead, such
term is used merely as a matter of market custom, and is intended to create or
reflect only an administrative relationship between independent contracting
parties. Each Bank expressly acknowledges (i) that neither the Administrative
Agent nor the Syndication Agent have made any representations or warranties to
it and that any act by the Administrative Agent or the Syndication Agent
hereafter taken, including any review of the affairs of any of the Loan Parties,
shall be deemed to constitute any representation or warranty by the
Administrative Agent or the Syndication Agent to any Bank; (ii) that it has made
and will continue to make, without reliance upon the Administrative Agent or the
Syndication Agent, its own independent investigation of the financial condition
and affairs and its own appraisal of the creditworthiness of each of the Loan
Parties in connection with this Agreement and the making and continuance of the
extensions of credit hereunder; and (iii) except as expressly provided herein,
that neither the Administrative Agent nor the Syndication Agent shall have any
duty or responsibility, either initially or on a continuing basis, to provide
any Bank with any credit or other information with respect thereto, whether
coming into its possession before the making of any extension or at any time or
times thereafter.
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10.4 ACTIONS IN DISCRETION OF ADMINISTRATIVE AGENT;
INSTRUCTIONS FROM THE BANKS.
The Administrative Agent agrees, upon the written request of
the Required Banks or other appropriate Banks in accordance with the provisions
of Section 11.19 if applicable, to take or refrain from taking any action of the
type specified as being within the Administrative Agent's rights, powers or
discretion herein, PROVIDED that the Administrative Agent shall not be required
to take any action which exposes the Administrative Agent to personal liability
or which is contrary to this Agreement or any other Loan Document or applicable
Law. In the absence of a request by the Required Banks, the Administrative Agent
shall have authority, in its sole discretion, to take or not to take any such
action, unless this Agreement specifically requires the consent of the Required
Banks, the Supermajority Banks of the Affected Class, any Bank or all of the
Banks. Any action taken or failure to act pursuant to such instructions or
discretion shall be binding on the Banks, subject to Section 0 [Exculpatory
Provisions, Limitation of Liability]. Subject to the provisions of Section 0, no
Bank shall have any right of action whatsoever against the Administrative Agent
as a result of the Administrative Agent acting or refraining from acting
hereunder in accordance with the instructions of the Required Banks, the
Supermajority Banks of the Affected Class, any Bank or all of the Banks or, in
the absence of such instructions, in the absolute discretion of the
Administrative Agent.
10.5 REIMBURSEMENT AND INDEMNIFICATION OF THE AGENTS BY
THE BORROWER.
The Borrower unconditionally agrees to pay or reimburse each
Agent and hold each Agent harmless against (a) liability for the payment of all
reasonable out-of-pocket costs, expenses and disbursements, including fees and
expenses of counsel (including the allocated costs of staff counsel), appraisers
and environmental consultants, incurred by either Agent (i) in connection with
the development, negotiation, preparation, printing, execution, administration,
syndication, interpretation and performance of this Agreement and the other Loan
Documents, (ii) relating to any requested amendments, waivers or consents
pursuant to the provisions hereof, (iii) in connection with the enforcement of
this Agreement or any other Loan Document or collection of amounts due hereunder
or thereunder or the proof and allowability of any claim arising under this
Agreement or any other Loan Document, whether in bankruptcy or receivership
proceedings or otherwise, and (iv) in any workout or restructuring or in
connection with the protection, preservation, exercise or enforcement of any of
the terms hereof or of any rights hereunder or under any other Loan Document or
in connection with any foreclosure, collection or bankruptcy proceedings, and
(b) all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by or asserted against either
Agent, in its capacity as such, in any way relating to or arising out of this
Agreement or any other Loan Documents or any action taken or omitted by either
Agent hereunder or thereunder, PROVIDED that the Borrower shall not be liable
for any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements if the same results
from such Agent's gross negligence or willful misconduct, or if the Borrower was
not given notice of the subject claim and the opportunity to participate in the
defense thereof, at the Borrower's expense (except that the Borrower shall
remain liable to the extent such failure to give notice does not result in a
loss to the Borrower), or if the same results from a compromise or settlement
agreement entered into without the consent
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of the Borrower, which shall not be unreasonably withheld. In addition, the
Borrower agrees to reimburse and pay all reasonable out-of-pocket expenses of
the Administrative Agent's regular employees and agents engaged periodically to
perform audits of the Loan Parties' books, records and business properties,
provided that, in absence of an Event of Default, such expenses will not exceed
$10,000 per year if all books and records of the Borrower (or copies thereof)
are located at the Borrower's principal place of business.
10.6 EXCULPATORY PROVISIONS; LIMITATION OF LIABILITY.
Neither Agent nor any of its directors, officers, employees,
agents, attorneys or Affiliates shall (a) be liable to any Bank for any action
taken or omitted to be taken by it or them hereunder, or in connection herewith
including pursuant to any Loan Document, unless caused by its or their own gross
negligence or willful misconduct, (b) be responsible in any manner to any of the
Banks for the effectiveness, enforceability, genuineness, validity or the due
execution of this Agreement or any other Loan Documents or for any recital,
representation, warranty, document, certificate, report or statement herein or
made or furnished under or in connection with this Agreement or any other Loan
Documents, or (c) be under any obligation to any Bank to ascertain or to inquire
as to the performance or observance of any of the terms, covenants or conditions
hereof or thereof on the part of the Loan Parties, or the financial condition of
the Loan Parties, or the existence or possible existence of any Event of Default
or Potential Default. No claim may be made by any Loan Party, any Bank, any
Agent or any of their respective Subsidiaries against any Agent, any Bank or any
of their respective directors, officers, employees, agents, attorneys or
Affiliates, or any of them, for any special, indirect or consequential damages
or, to the fullest extent permitted by Law, for any punitive damages in respect
of any claim or cause of action (whether based on contract, tort, statutory
liability, or any other ground) based on, arising out of or related to any Loan
Document or the transactions contemplated hereby or any act, omission or event
occurring in connection therewith, including the negotiation, documentation,
administration or collection of the Loans, and each Loan Parties, (for itself
and on behalf of each of its Subsidiaries), each and each Bank hereby waive,
releases and agree never to sue upon any claim for any such damages, whether
such claim now exists or hereafter arises and whether or not it is now known or
suspected to exist in its favor. Each Bank agrees that, except for notices,
reports and other documents expressly required to be furnished to the Banks by
the Administrative Agent hereunder or given to the Administrative Agent for the
account of or with copies for the Banks, no Agent and none of their directors,
officers, employees, agents, attorneys or Affiliates shall have any duty or
responsibility to provide any Bank with any credit or other information
concerning the business, operations, property, condition (financial or
otherwise), prospects or creditworthiness of the Loan Parties which may come
into the possession of such Agent or any of its directors, officers, employees,
agents, attorneys or Affiliates.
10.7 REIMBURSEMENT AND INDEMNIFICATION OF ADMINISTRATIVE
AGENT BY BANKS.
Each Bank agrees to reimburse and indemnify each Agent (to the
extent not reimbursed by the Borrower and without limiting the Obligation of the
Borrower to do so) in proportion to its Ratable Share of each Loan from and
against all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements, including attorneys' fees
and disbursements (including the allocated costs of staff counsel), and costs of
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appraisers and environmental consultants, of any kind or nature whatsoever which
may be imposed on, incurred by or asserted against such Agent, in its capacity
as such, in any way relating to or arising out of this Agreement or any other
Loan Documents or any action taken or omitted by such Agent hereunder or
thereunder, PROVIDED that no Bank shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements (a) if the same results from such Agent's gross
negligence or willful misconduct, or (b) if such Bank was not given notice of
the subject claim and the opportunity to participate in the defense thereof, at
its expense (except that such Bank shall remain liable to the extent such
failure to give notice does not result in a loss to the Bank), or (c) if the
same results from a compromise and settlement agreement entered into without the
consent of such Bank, which shall not be unreasonably withheld. In addition,
each Bank agrees promptly upon demand to reimburse the Administrative Agent (to
the extent not reimbursed by the Borrower and without limiting the Obligation of
the Borrower to do so) in proportion to its Ratable Share of each Loan for all
amounts due and payable by the Borrower to the Administrative Agent in
connection with the Administrative Agent's periodic audit of the Loan Parties'
books, records and business properties.
10.8 RELIANCE BY AGENTS.
Each Agent shall be entitled to rely upon any writing,
telegram, telex or teletype message, resolution, notice, consent, certificate,
letter, cablegram, statement, order or other document or conversation by
telephone or otherwise believed by it to be genuine and correct and to have been
signed, sent or made by the proper Person or Persons, and upon the advice and
opinions of counsel and other professional advisers selected by such Agent. Each
Agent shall be fully justified in failing or refusing to take any action
hereunder unless it shall first be indemnified to its satisfaction by the Banks
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action.
10.9 NOTICE OF DEFAULT.
The Administrative Agent shall not be deemed to have knowledge
or notice of the occurrence of any Potential Default or Event of Default unless
the Administrative Agent has received written notice from a Bank or the Borrower
referring to this Agreement, describing such Potential Default or Event of
Default and stating that such notice is a "notice of default."
10.10 NOTICES.
The Administrative Agent shall promptly send to each Bank a
copy of all notices received from the Borrower pursuant to the provisions of
this Agreement or the other Loan Documents promptly upon receipt thereof. The
Administrative Agent shall promptly notify the Borrower and the other Banks of
each change in the Base Rate and the effective date thereof.
10.11 BANKS IN THEIR INDIVIDUAL CAPACITIES.
With respect to its Revolving Credit Commitment, the Revolving
Credit Loans, the Term Loan Commitment and the Term Loan made by it and any
other rights and powers given to it as a Bank hereunder or under any of the
other Loan Documents, each Agent shall have the
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same rights and powers hereunder as any other Bank and may exercise the same as
though it were not the Administrative Agent or the Syndication Agent, as the
case may be, and the term "Banks" shall, unless the context otherwise indicates,
include each Agent in its individual capacity. PNC Bank and its Affiliates,
Merrill Lynch and its Affiliates and each Bank and their respective Affiliates
may, without liability to account, except as prohibited herein, make loans to,
accept deposits from, discount drafts for, act as trustee under indentures of,
and generally engage in any kind of banking or trust business with, the Loan
Parties and their Affiliates, in the case of the Administrative Agent, as though
it were not acting as Administrative Agent hereunder in the case of the
Syndication Agent, as though it were not acting as Syndication Agent hereunder
and in the case of each Bank, as though such Bank were not a Bank hereunder.
Each Bank acknowledges that, pursuant to such activities, the Administrative
Agent or its Affiliates and the Syndication Agent and its Affiliates may (i)
receive information regarding the Loan Parties (including information that may
be subject to confidentiality obligations in favor of the Loan Parties) and
acknowledge that neither Agent shall be under any obligation to provide such
information to them, and (ii) accept fees and other consideration from the Loan
Parties for services in connection with the Loan Documents and otherwise without
having to account for the same to the Banks.
10.12 HOLDERS OF NOTES.
Each Agent may deem and treat any payee of any Note as the
owner thereof for all purposes hereof unless and until written notice of the
assignment or transfer thereof shall have been filed with the Agents. Any
request, authority or consent of any Person who at the time of making such
request or giving such authority or consent is the holder of any Note shall be
conclusive and binding on any subsequent holder, transferee or assignee of such
Note or of any Note or Notes issued in exchange therefor.
10.13 EQUALIZATION OF BANKS.
The Banks and the holders of any participations in any Notes
agree among themselves that, with respect to all amounts received by any Bank or
any such holder for application on any Obligation hereunder or under any Note or
under any such participation, whether received by voluntary payment, by
realization upon security, by the exercise of the right of set-off or banker's
lien, by counterclaim or by any other non-pro rata source, equitable adjustment
will be made in the manner stated in the following sentence so that, in effect,
all such excess amounts will be shared ratably among the Banks and such holders
in proportion to their interests in payments under the Notes, except as
otherwise provided in Section 0 [Administrative Agent's and Bank's Rights], 0
[Replacement of a Bank] or 0 [Additional Compensation in Certain Circumstances].
The Banks or any such holder receiving any such amount shall purchase for cash
from each of the other Banks an interest in such Bank's Loans in such amount as
shall result in a ratable participation by the Banks and each such holder in the
aggregate unpaid amount under the Notes, PROVIDED that if all or any portion of
such excess amount is thereafter recovered from the Bank or the holder making
such purchase, such purchase shall be rescinded and the purchase price restored
to the extent of such recovery, together with interest or other amounts, if any,
required by law (including court order) to be paid by the Bank or the holder
making such purchase.
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10.14 SUCCESSOR AGENTS.
Each Agent (i) may resign as Agent or (ii) shall resign if
such resignation is requested by the Required Banks (if either Agent is a Bank,
each Agent's Loans and its Commitment shall be considered in determining whether
the Required Banks have requested such resignation) or required by Section 0
[Replacement of a Bank], in either case of (i) or (ii) by giving not less than
thirty (30) days' prior written notice to the Borrower. If either Agent shall
resign pursuant to this Agreement, then either (a) the Required Banks shall
appoint from among the Banks a successor agent for the Banks, subject to the
consent of the Borrower, such consent not to be unreasonably withheld, or (b) if
a successor agent shall not be so appointed and approved within the thirty (30)
day period following such Agent's notice to the Banks of its resignation, then
the Administrative Agent or the Syndication Agent, as the case may be, shall
appoint, with the consent of the Borrower, such consent not to be unreasonably
withheld, a successor agent who shall serve as Administrative Agent or
Syndication Agent, as the case may be, until such time as the Required Banks
appoint and the Borrower consents to the appointment of a successor agent. Upon
its appointment pursuant to either clause (a) or (b) above, such successor agent
shall succeed to the rights, powers and duties of the Administrative Agent, and
the term "Agent" shall mean such successor agent, effective upon its
appointment, and the former Agent's rights, powers and duties as Agent shall be
terminated without any other or further act or deed on the part of such former
Agent or any of the parties to this Agreement. After the resignation of either
Agent hereunder, the provisions of this Section 0 shall inure to the benefit of
such former Agent and such former Agent shall not by reason of such resignation
be deemed to be released from liability for any actions taken or not taken by it
while it was an Agent under this Agreement.
10.15 AGENTS' FEES.
The Borrower shall pay to the Agents the Fees (the "AGENTS'
FEES") under the terms of a letter dated January 29, 1999 (the "FEE LETTER"), as
amended from time to time, among the Borrower, PNC Bank and Merrill Lynch.
10.16 AVAILABILITY OF FUNDS.
The Administrative Agent may assume that each Bank has made or
will make the proceeds of a Loan available to the Administrative Agent unless
the Administrative Agent shall have been notified by such Bank on or before the
later of the close of Business on the Business Day preceding the Borrowing Date
with respect to such Loan or two (2) hours before the time on which the
Administrative Agent actually funds the proceeds of such Loan to the Borrower
(whether using its own funds pursuant to this Section 0 or using proceeds
deposited with the Administrative Agent by the Banks and whether such funding
occurs before or after the time on which Banks are required to deposit the
proceeds of such Loan with the Administrative Agent). The Administrative Agent
may, in reliance upon such assumption (but shall not be required to), make
available to the Borrower a corresponding amount. If such corresponding amount
is not in fact made available to the Administrative Agent by such Bank, the
Administrative Agent shall be entitled to recover such amount on demand from
such Bank (or, if such Bank fails to pay such amount forthwith upon such demand
from the Borrower) together with interest thereon, in respect of each day during
the period commencing on the date such amount was made available to
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the Borrower by the Administrative Agent and ending on the date the
Administrative Agent recovers such amount, at a rate per annum equal to (i) the
Federal Funds Effective Rate during the first three (3) days after such interest
shall begin to accrue and (ii) the applicable interest rate in respect of such
Loan after the end of such three-day period.
10.17 CALCULATIONS.
In the absence of gross negligence or willful misconduct, no
Agent shall be liable for any error in computing the amount payable to any Bank
whether in respect of the Loans, fees or any other amounts due to any Bank under
the Loan Documents. In the event an error in computing any amount payable to any
Bank is made, the applicable Agent, the Borrower and each affected Bank shall,
forthwith upon discovery of such error, make such adjustments as shall be
required to correct such error, and any compensation therefor will be calculated
at the Federal Funds Effective Rate.
10.18 BENEFICIARIES.
Except as expressly provided herein, the provisions of this
Section 0 are solely for the benefit of the Administrative Agent, the
Syndication Agent and the Banks, and the Loan Parties shall not have any rights
to rely on or enforce any of the provisions hereof. In performing its functions
and duties under this Agreement, the Administrative Agent and the Syndication
Agent shall act solely as agents of the Banks and do not assume and shall not be
deemed to have assumed any obligation toward or relationship of agency or trust
with or for any of the Loan Parties.
11. MISCELLANEOUS
11.1 MODIFICATIONS, AMENDMENTS OR WAIVERS.
With the written consent of the Required Banks, the
Administrative Agent, acting on behalf of all the Banks, and the Borrower, on
behalf of the Loan Parties, may from time to time enter into written agreements
amending, changing or supplementing any provision of this Agreement or any other
Loan Document or the rights of the Banks or the Loan Parties hereunder or
thereunder, or may grant written waivers or consents to a departure from the due
performance of the Obligations of the Loan Parties hereunder or thereunder.
Notwithstanding the foregoing, with the written consent of each Bank having
obligations directly affected thereby (it being understood that (i) any increase
in any Commitment shall be deemed to directly affect only those Bank(s)
increasing their respective Commitments, and (ii) the consent of no other Bank
is needed for any such agreement, waiver or consent), in the case of the
following Sections 11.1.1 and 11.1.2, any such agreement, waiver or consent may
be made which will:
11.1.1 INCREASE OF COMMITMENT; EXTENSION OF
EXPIRATION DATE.
Increase the amount of the Revolving Credit
Commitment or Term Loan Commitment of any Bank hereunder (it being understood
that amendments or waivers of conditions precedent, covenants or Events of
Default shall not constitute an increase in any
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Commitment of any Bank) or extend the Expiration Date (or reinstate any
Commitment terminated pursuant to Section 9).
11.1.2 EXTENSION OF PAYMENT; REDUCTION OF PRINCIPAL,
INTEREST OR FEES; MODIFICATION OF TERMS OF PAYMENT.
Whether or not any Loans are outstanding, extend time
of payment of any interest or the final maturity of the principal of any Loan
(it being understood that mandatory prepayments under Section 5.5 may be waived
or amended with the consent of the Required Banks (excluding the Term Loan C
Facility until all other Obligations are paid in full)), or extend the stated
expiration date of any Letter of Credit beyond the Expiration Date, or reduce
the principal amount of or the rate of interest (other than the waiver of any
post-default increase in interest rates under Section 4.3.2 borne by any Loan)
or reduce the Commitment Fee or any other fee payable to any Bank, or the
definition or terms of Applicable Margin (or any defined terms used therein to
the extent relating thereto) or the Pricing Grid or modify or amend or waive
Section 4.1.3 or change the currency in which any Obligation is payable or make
any change to the last two sentences of Section 5.4.1(d)
Notwithstanding the foregoing, without the written
consent of each Bank, in the case of the following Sections 11.1.3 and 11.1.4,
no such agreement, waiver or consent may be made which will:
11.1.3 RELEASE OF COLLATERAL OR GUARANTOR.
Except for sales of assets permitted by Section 0
[Disposition of Assets or Subsidiaries], and subject to the provisions of
Section 11.19, release or terminate any lien with respect to any Collateral
consisting of Equity Interests of any Loan Party or its Subsidiary or Collateral
that would comprise all or substantially all of the Collateral or release any
Guarantor from its Obligations under the Orius Guaranty Agreement, Subsidiary
Guaranty Agreement or any other security for any of the Loan Parties'
Obligations except in any case as permitted by the Loan Documents, or agree to
additional Indebtedness or other obligations (other than the Obligations and any
other extension of credit hereunder consented to by the Required Banks) being
secured by the Collateral.
11.1.4 MISCELLANEOUS
Amend Section 0 [Pro Rata Treatment of Banks], 0
[Exculpatory Provisions, Etc.] or 0 [Equalization of Banks] or this Section 0,
make available Interest Periods other than those specified in Section 4.2, alter
any provision regarding the PRO RATA treatment of the Banks, reduce the
percentage set forth in the definition of Required Banks, or amend any provision
of any Loan Document requiring the consent of all the Banks or reduce any other
percentage of Banks required to make any determinations or waive any rights
hereunder or modify any provision hereof, (it being understood that, with the
consent of the Required Banks, additional extensions of credit pursuant to this
Agreement may be included in the definition of Required Banks without notice to
or consent of any other Bank or Agent in the same manner as the Commitments and
Loans (and other extension of credit) are included on the Closing Date) or
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consent to the assignment or transfer by any Loan Party of any of its rights and
obligations under any Loan Document except in a transaction permitted by Section
8.2.6;
PROVIDED FURTHER, HOWEVER, that (a) (i) any
amendment, change or supplement of, or waiver or consent with respect to,
Section 5.5 (or any defined term used therein to the extent relating thereto)
may be effected solely with the consent of the Banks holding a majority of the
First Priority Debt (and no other Creditor, except with respect to the last
sentence of Section 5.5.6, which also requires the consent of the Banks holding
a majority of the Term Loan C Commitments,) and upon repayment in full of all
First Priority Debt, any such amendment, change, supplement, waiver or consent
may be made with the written consent of the Banks holding a majority of the
Second Priority Debt;
(ii) any amendment, change or supplement of, or
waiver or consent with respect to, the first sentence of Section 5.4.1(d) (or
any defined term used therein to the extent relating thereto) or any Security
Document may be effected solely with the consent of the Banks holding a majority
of the First Priority Debt (and no other Creditor) so long as any of the First
Priority Debt remains outstanding;
(b) subject to Section 11.1.2 above, the consent of
all of the Banks of the Term Loan Facility affected thereby (and no other
Creditor) shall be required for any amendment, waiver or consent which extends
the due date of any amortization payment under Section 3.3 or reduces the amount
thereof;
(c) no reduction of the percentage specified in the
definition of Supermajority Banks of the Affected Class shall be made without
the consent of each Bank having a Term Loan (it being understood that, with the
consent of the Required Banks, additional extensions of credit pursuant to this
Agreement may be included in the definition of Required Banks without notice to
or consent of any other Bank or Agent on substantially the same terms as the
Commitments and Loans (and other extension of credit) are included on the
Closing Date);
(d) no modification, supplement or waiver shall,
unless by an instrument signed by the Supermajority Banks of the Affected Class
or by the Administrative Agent acting with the written consent of the
Supermajority Banks of the Affected Class (it being understood that the consent
of no other Bank or Agent is needed), change the timing of the receipt or the
application of mandatory prepayments hereunder as among the Term Loan A, Term
Loan B, and the Revolving Facility or the order in which any such prepayment is
applied to the Term Loan A, Term Loan B and the Revolving Facility; and
(e) no agreement, waiver or consent which would
modify the interests, rights or obligations of the Administrative Agent in its
capacity as Administrative Agent or as the issuer of Letters of Credit shall be
effective without the written consent of the Administrative Agent.
(f) any amendment, change or supplement of, or waiver
or consent with respect to, Section 5.4.1(c) (or any defined term used therein
to the extent relating thereto) may be effected solely with the written consent
of the Banks holding a majority of the Term Loan B Commitments;
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Any such agreement, waiver or consent made with such
written consent shall be effective to bind all Banks and Loan Parties in this
Section 11.1; notwithstanding the foregoing, any such agreement, waiver or
consent made with such written consent shall be effective to bind the Loan
Parties and the Banks party thereto in the case of Sections 11.1.1 and 11.1.2.
11.2 NO IMPLIED WAIVERS; CUMULATIVE REMEDIES; WRITING
REQUIRED.
No course of dealing and no delay or failure of the
Administrative Agent or any Bank in exercising any right, power, remedy or
privilege under this Agreement or any other Loan Document shall affect any other
or future exercise thereof or operate as a waiver thereof, nor shall any single
or partial exercise thereof or any abandonment or discontinuance of steps to
enforce such a right, power, remedy or privilege preclude any further exercise
thereof or of any other right, power, remedy or privilege. The rights and
remedies of the Agent and the Banks under this Agreement and any other Loan
Documents are cumulative and not exclusive of any rights or remedies which they
would otherwise have. Any waiver, permit, consent or approval of any kind or
character on the part of any Bank of any breach or default under this Agreement
or any such waiver of any provision or condition of this Agreement must be in
writing and shall be effective only to the extent specifically set forth in such
writing.
11.3 REIMBURSEMENT AND INDEMNIFICATION OF BANKS BY THE
BORROWER; TAXES.
The Borrower agrees unconditionally upon demand to pay or
reimburse to each Bank (other than the Administrative Agent, as to which the
Borrower's Obligations are set forth in Section 0 [Reimbursement of
Administrative Agent By Borrower, Etc.]) and to save such Bank harmless against
(i) liability for the payment of all reasonable out-of-pocket costs, expenses
and disbursements (including fees and expenses of counsel (including allocated
costs of staff counsel) for each Bank except with respect to (a) and (b) below),
incurred by such Bank (a) in connection with the administration and
interpretation of this Agreement, and other instruments and documents to be
delivered hereunder, (b) relating to any amendments, waivers or consents
pursuant to the provisions hereof, (c) in connection with the enforcement of
this Agreement or any other Loan Document, or collection of amounts due
hereunder or thereunder or the proof and allowability of any claim arising under
this Agreement or any other Loan Document, whether in bankruptcy or receivership
proceedings or otherwise, and (d) in any workout or restructuring or in
connection with the protection, preservation, exercise or enforcement of any of
the terms hereof or of any rights hereunder or under any other Loan Document or
in connection with any foreclosure, collection or bankruptcy proceedings, or
(ii) all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by or asserted against such Bank,
in its capacity as such, in any way relating to or arising out of this Agreement
or any other Loan Documents or any action taken or omitted by such Bank
hereunder or thereunder, PROVIDED that the Borrower shall not be liable for any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements (A) if the same results from
such Bank's gross negligence or willful misconduct, or (B) if the Borrower was
not given notice of the subject claim and the opportunity to participate in the
defense thereof, at its expense (except that the Borrower shall remain liable to
the extent such failure to give notice does not
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result in a loss to the Borrower), or (C) if the same results from a compromise
or settlement agreement entered into without the consent of the Borrower, which
shall not be unreasonably withheld. The Borrower agrees unconditionally to pay
all stamp, document, transfer, recording or filing taxes or fees and similar
impositions now or hereafter determined by the Administrative Agent or any Bank
to be payable in connection with this Agreement or any other Loan Document, and
the Borrower agrees unconditionally to save the Administrative Agent and the
Banks harmless from and against any and all present or future claims,
liabilities or losses with respect to or resulting from any omission to pay or
delay in paying any such taxes, fees or impositions.
11.4 HOLIDAYS.
Whenever payment of a Loan to be made or taken hereunder shall
be due on a day which is not a Business Day such payment shall be due on the
next Business Day and such extension of time shall be included in computing
interest and fees, except that the Loans shall be due on the Business Day
preceding the Expiration Date if the Expiration Date is not a Business Day.
Whenever any payment or action to be made or taken hereunder (other than payment
of the Loans) shall be stated to be due on a day which is not a Business Day,
such payment or action shall be made or taken on the next following Business Day
(except as provided in Section 0 [Interest Periods] with respect to Interest
Periods under the Euro-Rate Option), and such extension of time shall not be
included in computing interest or fees, if any, in connection with such payment
or action.
11.5 FUNDING BY BRANCH, SUBSIDIARY OR AFFILIATE.
11.5.1 NOTIONAL FUNDING.
Each Bank shall have the right from time to time,
without notice to the Borrower, to deem any branch, Subsidiary or Affiliate
(which for the purposes of this Section 0 shall mean any corporation or
association which is directly or indirectly controlled by or is under direct or
indirect common control with any corporation or association which directly or
indirectly controls such Bank) of such Bank to have made, maintained or funded
any Loan to which the Euro-Rate Option applies at any time, PROVIDED that
immediately following (on the assumption that a payment were then due from the
Borrower to such other office), and as a result of such change, the Borrower
would not be under any greater financial obligation pursuant to Section 0
[Additional Compensation in Certain Circumstances] than it would have been in
the absence of such change. Notional funding offices may be selected by each
Bank without regard to such Bank's actual methods of making, maintaining or
funding the Loans or any sources of funding actually used by or available to
such Bank.
11.5.2 ACTUAL FUNDING.
Each Bank shall have the right from time to time to
make or maintain any Loan by arranging for a branch, Subsidiary or Affiliate of
such Bank to make or maintain such Loan subject to the last sentence of this
Section 0. If any Bank causes a branch, Subsidiary or Affiliate to make or
maintain any part of the Loans hereunder, all terms and conditions of this
Agreement shall, except where the context clearly requires otherwise, be
applicable to such part of the Loans to the same extent as if such Loans were
made or maintained by such Bank, but in
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no event shall any Bank's use of such a branch, Subsidiary or Affiliate to make
or maintain any part of the Loans hereunder cause such Bank or such branch,
Subsidiary or Affiliate to incur any cost or expenses payable by the Borrower
hereunder or require the Borrower to pay any other compensation to any Bank
(including any expenses incurred or payable pursuant to Section 0 [Additional
Compensation in Certain Circumstances]) which would otherwise not be incurred.
11.6 NOTICES.
All notices, requests, demands, directions and other
communications (as used in this Section 0, collectively referred to as
"notices") given to or made upon any party hereto under the provisions of this
Agreement shall be by telephone or in writing (including telex or facsimile
communication) unless otherwise expressly permitted hereunder and shall be
delivered or sent by telex or facsimile to the respective parties at the
addresses and numbers set forth under their respective names on SCHEDULE 0(B)
hereof or in accordance with any subsequent unrevoked written direction from any
party to the others. All notices shall, except as otherwise expressly herein
provided, be effective (a) in the case of telex or facsimile, when received, (b)
in the case of hand-delivered notice, when hand-delivered, (c) in the case of
telephone, when telephoned, PROVIDED, however, that in order to be effective,
telephonic notices must be confirmed in writing no later than the next day by
letter, facsimile or telex, (d) if given by mail, four (4) days after such
communication is deposited in the mail with first-class postage prepaid, return
receipt requested, and (e) if given by any other means (including by air
courier), when delivered; PROVIDED, that notices to the Administrative Agent
shall not be effective until received. Any Bank giving any notice to any Loan
Party shall simultaneously send a copy thereof to the Administrative Agent, and
the Administrative Agent shall promptly notify the other Banks of the receipt by
it of any such notice.
11.7 SEVERABILITY.
The provisions of this Agreement are intended to be severable.
If any provision of this Agreement shall be held invalid or unenforceable in
whole or in part in any jurisdiction, such provision shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without in any manner affecting the validity or enforceability
thereof in any other jurisdiction or the remaining provisions hereof in any
jurisdiction.
11.8 GOVERNING LAW.
Each Letter of Credit and Section 0 [Letter of Credit
Subfacility] shall be subject to the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of Commerce
Publication No. 500, as the same may be revised or amended from time to time,
and to the extent not inconsistent therewith, the internal laws of the State of
New York without regard to its conflicts of law principles and the balance of
this Agreement shall be deemed to be a contract under the Laws of the State of
New York and for all purposes shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York without regard to its
conflict of laws principles.
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11.9 PRIOR UNDERSTANDING.
This Agreement and the other Loan Documents supersede all
prior understandings and agreements, whether written or oral, between the
parties hereto and thereto relating to the transactions provided for herein and
therein, including any prior confidentiality agreements and commitments;
PROVIDED, HOWEVER, that, notwithstanding anything in the Loan Documents to the
contrary, the Fee Letter and any documents necessary to carry out the
transaction contemplated thereby shall survive the effectiveness of the Loan
Documents.
11.10 DURATION; SURVIVAL.
All representations and warranties of the Loan Parties
contained herein or made in connection herewith shall survive the making of
Loans and issuance of Letters of Credit and shall not be waived by the execution
and delivery of this Agreement, any investigation by the Administrative Agent or
the Banks, the making of Loans, issuance of Letters of Credit, or payment in
full of the Loans. All covenants and agreements of the Loan Parties contained in
Sections 0 [Affirmative Covenants], 8.2 [Negative Covenants] and 0 [Reporting
Requirements] herein shall continue in full force and effect from and after the
date hereof so long as the Borrower may borrow or request Letters of Credit
hereunder and until termination of the Commitments and payment in full of the
Loans and expiration or termination of all Letters of Credit. All covenants and
agreements of the Borrower contained herein relating to the payment of
principal, interest, premiums, additional compensation or expenses and
indemnification, including those set forth in the Notes, Section 0 [Payments]
and Sections 0 [Reimbursement of Administrative Agent by Borrower, Etc.], 0
[Reimbursement of Administrative Agent by Banks, Etc.] and 0 [Reimbursement of
Banks by Borrower; Etc.], shall survive payment in full of the Loans, expiration
or termination of the Letters of Credit and termination of the Commitments.
11.11 SUCCESSORS AND ASSIGNS.
ASSIGNMENTS AND PARTICIPATIONS. (a) No Loan Party may assign
its respective rights or obligations hereunder or under the Notes or any other
Loan Document without the prior written consent of all of the Banks.
(b) Each Bank may assign to any Eligible Person any of its
Loans, its Notes, its Letter of Credit Interests and its Commitments but only
with the consent (which shall not be unreasonably withheld, delayed or
conditioned) of the Borrower and the Agents PROVIDED, HOWEVER, that (i) no
consent of the Borrower and the Agents shall be required in the case of any
assignment to another Bank or any Bank's Affiliate or an Approved Fund of any
Bank (in which case, the assignee and assignor Banks shall give notice of the
assignment to the Administrative Agent) or in connection with any assignment by
the Agents in connection with the syndication of the Commitments, Loans and
other Obligations; (ii) no consent of the Borrower or the Agents need be
obtained if any Event of Default shall have occurred and be continuing; (iii)
each assignment, other than to a Bank or any Bank's Affiliate or an Approved
Fund of any Bank and other than any assignment effected by any Agent or any of
their respective Affiliates in connection with the syndication of the
Commitments and/or Loans or otherwise, shall be in an aggregate amount of at
least $2.5 million unless the assigning Bank's exposure is reduced to $0 or
unless the Borrower otherwise consents and (iv) in no event may any such
assignment be made to any Loan
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Party or any of its Affiliates without consent of all Banks. Any assignment of a
Loan shall be effective only upon appropriate entries with respect thereto being
made in the Register (and each Note shall expressly so provide). Notwithstanding
anything in this Section 11.11(b) to the contrary, so long as no Event of
Default has occurred and is continuing, no assignment of any Loan, Note, Letter
of Credit Interest or Commitment may be made under this Agreement without the
consent of the Borrower (which shall be at such Borrower's absolute and
unreviewable discretion) if such assignment would cause the Borrower or any
other Loan Party to incur an obligation to make any payment pursuant to Section
5.8. Any assignment or transfer of a Loan shall be registered on the Register
only upon surrender for registration of assignment or transfer of the Note
evidencing such Loan (if a Note was issued in respect thereof), accompanied by
and upon consent thereto by the Borrower and the Agents to the extent required
above (none of which consents to be unreasonably withheld or delayed), one or
more new Notes (if requested by the new Bank) in the same aggregate principal
amount shall be issued to the designated assignee and the old Notes shall be
returned by the Administrative Agent to the Borrower marked "cancelled". Upon
execution and delivery by the assignee to Borrower and the Administrative Agent
of an instrument in writing substantially in the form of EXHIBIT 1.1(A), and
upon consent thereto by Borrower, Administrative Agent and the Issuing Bank to
the extent required above (none of which consents to be unreasonably withheld or
delayed), and in the case of a Loan, upon appropriate entries being made in the
Register the assignee shall have, to the extent of such assignment (unless
otherwise provided in such assignment with the consent of Administrative Agent),
the obligations, rights and benefits of a Bank hereunder holding the
Commitment(s), Loans (or portions thereof) and Letters of Credit Outstanding
assigned to it (in addition to the Commitment(s), Letters of Credit Outstanding
and Loans, if any, theretofore held by such assignee) and the assigning Bank
shall, to the extent of such assignment, be released from the Commitment(s) (or
portion(s) thereof) so assigned. Upon any such assignment (other than to a Bank
or any Affiliate of a Bank or any Approved Fund and other than any assignment by
any Agent or any of their respective Affiliates) the assignee Bank shall pay a
fee of $3,500 to the Administrative Agent. Upon any such assignment, certain
rights and obligations of the assigning Bank shall survive as set forth in
Section 11.10. Each assignment shall be made pursuant to an agreement
substantially in the form of EXHIBIT 1.1(A).
(c) A Bank may sell or agree to sell to one or more other
Persons a participation in all or any part of any Loans and Letter of Credit
Outstanding held by it, or in its Commitments, in which event each purchaser of
a participation (a "PARTICIPANT") shall be entitled to the rights and benefits
of the provisions of Section 5 (PROVIDED, HOWEVER, that no Participant shall be
entitled to receive any greater amount pursuant to Section 5 than the transferor
Bank would have been entitled to receive in respect of the participation
effected by such transferor Bank had no participation occurred) with respect to
its participation in such Loans, Letter of Credit Outstanding and Commitments
and if such Participant were a "Bank" for purposes of said Section, but, except
as otherwise provided in Section 4.07(c), shall not have any other rights or
benefits under this Agreement or any Note or any other Loan Document (the
Participant's rights against such Bank in respect of such participation to be
those set forth in the agreements executed by such Bank in favor of the
Participant). All amounts payable by Borrower to any Bank under Section 5 in
respect of Loans, Letters of Credit Outstanding and its commitments shall be no
greater than the amount that would have applied if such Bank had not sold or
agreed to sell any participation in such Loans, Letters of Credit Outstanding
and Commitments, and as if such Bank
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were funding each of such Loan, Letters of Credit Outstanding and Commitments in
the same way that it is funding the portion of such Loan, Letters of Credit
Outstanding and Commitments in which no participations have been sold. In no
event shall a Bank that sells a participation agree with the Participant to take
or refrain from taking any action hereunder or under any other Loan Document,
except that such Bank may agree with the Participant that it will not, without
the consent of the Participant, agree to any modification or amendment set forth
in Section 11.1, 11.1.2, or 11.1.3, or to change the currency in which any
Obligation is payable to the extent such Bank's consent is required therefor.
(d) In addition to the assignments and participations
permitted under the foregoing provisions of this Section 11.11 any Bank may
assign and pledge all or any portion of its Loans and its Notes to any United
States Federal Reserve Bank as collateral security pursuant to Regulation A of
the Board of Governors of the Federal Reserve System and any Operating Circular
issued by such Federal Reserve Bank and, in the case of a Bank that is an
investment fund, any such Bank may assign or pledge all or any portion of its
Loans and its Notes to its trustee in support of its obligations to its trustee,
without notice to or consent of the Borrower or the Administrative Agent. No
such assignment shall release the assigning Bank from its obligations hereunder.
(e) A Bank may furnish any information concerning any Loan
Party in the possession of such Bank from time to time to assignees and
participants (including prospective assignees and participants) subject,
however, to and so long as the recipient agrees to be bound by the provisions of
Section 11.12. In addition, each Agent may furnish any information concerning
any Obligor or any of its Affiliates in such Agent's possession to any Affiliate
of such Agent, subject, however, to the provisions of Section 11.12. The Loan
Parties shall assist any Bank in effectuating any assignment or participation
pursuant to this Section 11.11 (including during syndication) in whatever manner
such Bank reasonably deems necessary, including participation in meetings with
prospective transferees.
11.12 CONFIDENTIALITY.
11.12.1 GENERAL.
The Agents and the Banks each agree to keep
confidential all information obtained from any Loan Party or its Subsidiaries
which is nonpublic and confidential or proprietary in nature (including any
information the Borrower specifically designate as confidential), except as
provided below, and to use such information only in connection with their
respective capacities under this Agreement and for the purposes contemplated
hereby. The Agents and the Banks shall be permitted to disclose such information
(i) to outside legal counsel, accountants and other professional advisors who
need to know such information in connection with the administration and
enforcement of this Agreement, subject to agreement of such Persons to maintain
the confidentiality, (ii) to assignees and participants as contemplated by
Section 0, (iii) to the extent requested by any bank regulatory authority or,
with notice to the Borrower, as otherwise required by applicable Law or by any
subpoena or similar legal process, or in connection with any investigation or
proceeding arising out of the transactions contemplated by this Agreement, (iv)
if it becomes publicly available other than as a result of a breach of this
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Agreement or becomes available from a source not known to be subject to
confidentiality restrictions, or (v) if the Borrower shall have consented to
such disclosure.
11.13 COUNTERPARTS.
This Agreement may be executed by different parties hereto on
any number of separate counterparts, each of which, when so executed and
delivered, shall be an original, and all such counterparts shall together
constitute one and the same instrument.
11.14 AGENT'S OR BANK'S CONSENT.
Whenever an Agent's or any Bank's consent is required to be
obtained under this Agreement or any of the other Loan Documents as a condition
to any action, inaction, condition or event, the Agents and each Bank shall be
authorized to give or withhold such consent in its sole and absolute discretion
and to condition its consent upon the giving of additional collateral, the
payment of money or any other matter.
11.15 EXCEPTIONS.
The representations, warranties and covenants contained herein
shall be independent of each other, and no exception to any representation,
warranty or covenant shall be deemed to be an exception to any other
representation, warranty or covenant contained herein unless expressly provided,
nor shall any such exceptions be deemed to permit any action or omission that
would be in contravention of applicable Law.
11.16 CONSENT TO FORUM; WAIVER OF JURY TRIAL.
EACH LOAN PARTY HEREBY IRREVOCABLY CONSENTS TO THE
NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK, AND ANY STATE COURT SITTING IN THE BOROUGH OF MANHATTAN,
STATE OF NEW YORK, AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT
AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY CERTIFIED OR REGISTERED
MAIL DIRECTED TO SUCH LOAN PARTY AT THE ADDRESSES PROVIDED FOR IN SECTION 0 AND
SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF.
EACH LOAN PARTY WAIVES ANY OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION
INSTITUTED AGAINST IT AS PROVIDED HEREIN AND AGREES NOT TO ASSERT ANY DEFENSE
BASED ON LACK OF JURISDICTION OR VENUE. EACH LOAN PARTY, THE AGENT AND THE BANKS
HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF
ANY KIND ARISING OUT OF OR RELATED TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR
THE COLLATERAL TO THE FULL EXTENT PERMITTED BY LAW.
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11.17 TAX WITHHOLDING CLAUSE.
Each Bank or assignee or participant of a Bank that is not
incorporated under the Laws of the United States of America or a state thereof
agrees that it will deliver to each of the Borrower and the Administrative Agent
two (2) duly completed copies of the following: (i) Internal Revenue Service
Form W-9, 4224 or 1001, or other applicable form prescribed by the Internal
Revenue Service, certifying that such Bank, assignee or participant is entitled
to receive payments under this Agreement and the other Loan Documents without
deduction or withholding of any United States federal income taxes, or is
subject to such tax at a reduced rate under an applicable tax treaty, or (ii)
Internal Revenue Service Form W-8 or other applicable form or a certificate of
such Bank, assignee or participant indicating that no such exemption or reduced
rate is allowable with respect to such payments. Each Bank, assignee or
participant required to deliver to the Borrower and the Administrative Agent a
form or certificate pursuant to the preceding sentence shall deliver such form
or certificate as follows: (A) each Bank which is a party hereto on the Closing
Date shall deliver such form or certificate at least five (5) Business Days
prior to the first date on which any interest or fees are payable by the
Borrower hereunder for the account of such Bank; (B) each assignee or
participant shall deliver such form or certificate at least five (5) Business
Days before the effective date of such assignment or participation (unless the
Administrative Agent in its sole discretion shall permit such assignee or
participant to deliver such form or certificate less than five (5) Business Days
before such date in which case it shall be due on the date specified by the
Administrative Agent). Each Bank, assignee or participant which so delivers a
Form W-8, W-9, 4224 or 1001 further undertakes to deliver to each of the
Borrower and the Administrative Agent two (2) additional copies of such form (or
a successor form) on or before the date that such form expires or becomes
obsolete or after the occurrence of any event requiring a change in the most
recent form so delivered by it, and such amendments thereto or extensions or
renewals thereof as may be reasonably requested by the Borrower or the
Administrative Agent, either certifying that such Bank, assignee or participant
is entitled to receive payments under this Agreement and the other Loan
Documents without deduction or withholding of any United States federal income
taxes or is subject to such tax at a reduced rate under an applicable tax treaty
or stating that no such exemption or reduced rate is allowable. The
Administrative Agent shall be entitled to withhold United States federal income
taxes at the full withholding rate unless the Bank, assignee or participant
establishes an exemption or that it is subject to a reduced rate as established
pursuant to the above provisions.
11.18 JOINDER OF GUARANTORS.
Any subsidiary of any Loan Party which is required to join
this Agreement as a Guarantor pursuant to Section 8.2.9 [Subsidiaries, etc.]
shall execute and deliver to the Administrative Agent (i) a Guarantor Joinder in
form acceptable to the Agents pursuant to which it shall join as a Guarantor
each of the documents to which the Guarantors are parties; (ii) documents in the
forms described in Section 7.1 [First Loans, etc.] modified as appropriate to
relate to such Subsidiary; and (iii) documents necessary to grant and perfect
Prior Security Interests to the Administrative Agent for the benefit of the
Creditors in all Collateral held by such Subsidiary and all Equity Interests
issued by such Subsidiary. The Loan Parties shall deliver such Guarantor Joinder
and related documents to the Administrative Agent upon the acquisition of the
stock of such Subsidiary if acquired in a Permitted Acquisition, not later than
the closing of the
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<PAGE> 119
purchase of assets by such Subsidiary as part of a Permitted Acquisition or
otherwise within five (5) Business Days after the date of the filing of such
Subsidiary's articles of incorporation if the Subsidiary is a corporation, the
date of the filing of its certificate of limited partnership if it is a limited
partnership or the date of its organization if it is an entity other than a
limited partnership or corporation.
11.19 PRIORITY OF FACILITIES
11.19.1 SUBORDINATION OF LIEN
Notwithstanding anything herein or in any Loan
Document to the contrary and notwithstanding the date, manner or order of
incurrence of any Obligations under or relating to the First Priority Facilities
(including any unpaid or unexpired Letters of Credit and any Interest Rate
Protection Agreement) ("FIRST PRIORITY DEBT") and any Obligations under or
relating to the Second Priority Facility (including any Interest Rate Protection
Agreement) ("SECOND PRIORITY DEBT"), and notwithstanding the provisions of order
of protection of the security interests and Liens granted to the Administrative
Agent to secure the Obligations of the Loan Parties with respect to the First
Priority Debt and the Second Priority Debt or the Uniform Commercial Code or any
other applicable Law, decree or decision which might result in a differing
result, each party acknowledges and agrees that at any time that any Obligations
or Commitments (including any unpaid or unexpired Letter of Credit) with respect
to the First Priority Facilities remain outstanding:
(i) The Lien on and security interest in the Collateral granted to the
Administrative Agent to secure the Obligations of the Loan Parties with respect
to the First Priority Facilities and the guaranties under the Orius Guaranty and
the Subsidiary Guaranty as such relate to the First Priority Facilities shall be
deemed, without further action by any party hereto, to constitute, subject to
the terms hereof, a first priority lien thereon and security interest therein;
and
(ii) the lien on and security interest in the Collateral granted to
Administrative Agent pursuant to the Security Documents to secure the
obligations of the Loan Parties shall constitute, to the extent such Obligations
relate to the Second Priority Facility and the guaranties under the Orius
Guaranty and the Subsidiary Guaranty, without further action by any party
hereto, a second priority Lien thereon and security interest therein, subject
and subordinate in all respects to the Lien and security interest and guaranties
granted to Administrative Agent to secure the First Priority Facilities
described in Clause (i) of this paragraph.
Each Bank agrees that it shall, at the request of the
Administrative Agent or any other Bank, execute and deliver any agreement or
instrument reasonably requested to confirm the Lien priorities set forth herein.
11.19.2 ENFORCEMENT ACTIONS
Until such time as all First Priority Debt has been
paid in full and the Commitments of any Bank to make any Loan or to issue any
Letter of Credit under the First Priority Facilities shall have expired or been
sooner terminated, the Administrative Agent, acting solely at the direction of
Banks holding a majority of the First Priority Debt (and no other
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<PAGE> 120
Creditor), shall (i) commence Enforcement (as hereinafter defined) and (ii) take
any other actions with respect to the Collateral and exercise any rights, powers
or discretions granted to it under the Security Documents, and the
Administrative Agent, on behalf of holders of the Second Priority Facility,
shall in no event commence Enforcement or take any other action or exercise any
other right, power or discretion. At any time after such expiration or
termination of the First Priority Facilities, the Administrative Agent acting
solely at the direction of Banks holding a majority of the Second Priority Debt
(and no other Creditor) shall (i) commence Enforcement and (ii) take any other
actions with respect to the Collateral and exercise any rights, powers or
discretions granted to it under the Security Documents. In no event shall any
holder of the Second Priority Facility pursue Enforcement or take any other
action or exercise any right, power or discretion granted to it under the
Security Documents without the prior written consent of Banks holding a majority
of the First Priority Debt. The foregoing provisions are for the sole benefit of
the holders of the First Priority Debt, and no breach of the foregoing
provisions shall give rise to, and no Loan Party shall assert, any claim or
counterclaim or form the basis of any right of setoff or recoupment by any Loan
Party against any Creditor. The term "ENFORCEMENT" shall mean, collectively or
individually, for either the Administrative Agent, on behalf of holders of the
First Priority Facilities (the "First Lienholder"), or the Administrative Agent,
on behalf of the holders of the Second Priority Facility (the "Second
Lienholder"), to foreclose upon, sell, repossess or otherwise realize upon any
Collateral, enforce any guaranty or commence the judicial or other enforcement
of any rights and remedies of such party under the Loan Documents, as
applicable.
11.19.3 DISTRIBUTION OF ENFORCEMENT PROCEEDS.
So long as any of the First Priority Debt or any other amount
in respect of or relating to the First Priority Debt remains outstanding
(including any unpaid or unexpired Letter of Credit), all proceeds of the
Collateral received in connection with any Enforcement by First Lienholder or by
Second Lienholder shall be applied in accordance with the following procedures
notwithstanding any provision to the contrary herein or in any other Loan
Document:
(i) First, to the payment, of (x) all costs and expenses incurred by First
Lienholder (and any receiver or other agent appointed by First Lienholder) in
connection with such Enforcement or other method of realization and (y) all
other Obligations owing by the Loan Parties to First Lienholder and the holders
of the First Priority Debt in respect of the First Priority Debt, until all such
amounts have been paid in full;
(ii) Second, after satisfaction of all amounts described in clause (i) above, to
the payment, of (x) all costs and expenses incurred by Second Lienholder (and
any receiver or other agent appointed by Second Lienholder) in connection with
such Enforcement or other method of realization and (y) all other Obligations
owing by the Loan Parties to Second Lienholder and the holders of the Second
Priority Debt in respect of the Second Priority Debt, until all such amounts
have been paid in full;
(iii) Third, any surplus of such proceeds remaining after payment in full of the
amounts set forth in the foregoing clauses (i) and (ii) shall be paid to the
Loan Parties or to whomsoever may be lawfully entitled thereto or as otherwise
required by applicable law.
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<PAGE> 121
If none of the First Priority Debt remains outstanding at the
time that such proceeds are received, then such proceeds shall be applied by
Second Lienholder to pay the amounts described in clauses (ii) and (iii) above
in the order thereof.
11.19.4 SALE OR RELEASE OF COLLATERAL.
The Loan Parties shall have the right, and each of First
Lienholder and Second Lienholder shall have the right only in connection with
any Enforcement permitted to be made by it under Subsection 11.19.2, to sell,
obtain a release of or otherwise dispose of all or any portion of the Collateral
in accordance with the terms of this Agreement. The Administrative Agent, as
First Lienholder and Second Lienholder, in accordance with the priorities and
limitations on Enforcement set forth in this Section 11.19, shall execute all
documents, including, without limitation, Uniform Commercial Code termination
statements and releases, and take all actions reasonably necessary to permit any
such disposition of Collateral to occur free and clear of the lien and security
interest of the Security Documents, subject to the provisions of Section 11.19.3
hereof.
11.19.5 ADDITIONAL PROVISIONS
(i) So long as any of the First Priority Debt or any other
amount in respect of or relating to the First Priority Debt remains outstanding
(including any unpaid or unexpired Letter of Credit), to the extent that the
following waivers are necessary to protect the rights and interests of the
holders of the First Priority Facilities in the Collateral, the Second
Lienholder shall not (i) vote any claim as a secured creditor in any bankruptcy
proceeding in a manner adverse to the holders of the First Priority Facilities,
(ii) seek in respect of any part of the Collateral or proceeds thereof or any
lien which may exist therein, any relief from or modification of the automatic
stay as provided in Section 362 of the Bankruptcy Code or (iii) seek adequate
protection as provided in Section 363 of the Bankruptcy Code. Holders of the
Second Priority Facility shall similarly waive any rights during the pendency of
any bankruptcy action to take any other action as a result of the security
interest granted including rights to object to (y) an election by the First
Lienholder in any bankruptcy proceeding of the application of Section 1111(b) of
the Bankruptcy Code or (z) a borrowing or grant of a security interest under
Section 364 of the Bankruptcy Code by the Loan Parties, as debtors in
possession.
The holders of the First Priority Facilities hereby agree that
subject to the provisions of this Section 11.19.5, the Holders of the Second
Priority Facility may file a proper proof of claim or proof of debt in any
judicial proceedings relative to the Loan Parties, their respective creditors or
their property. In the event, however, that any holder of the Second Priority
Facility or the Second Lienholder shall fail to file a proper claim or proof of
debt in the form required in any judicial proceedings relative to the Loan
Parties, their respective creditors or property prior to 60 days before the
expiration of the time to file such claims or proofs, the holders of the First
agree that the Second Lienholder shall be permitted to file any appropriate
claim or proof for and on behalf of the holders of the Second Priority Facility.
In addition, the holders of the Second Priority Facility hereby waive any and
all rights to have all or any portion of the Collateral marshalled upon any
foreclosure of any liens of the Administrative Agent.
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<PAGE> 122
(ii) If any other provision of this Agreement or any provision
of any other Loan Document shall be inconsistent with or contrary to any
provision in this Section 11.19, the applicable provision in this Section 11.19
shall be controlling and supersede such inconsistent provision to the extent
necessary to give full effect to the provisions in this Section 11.19.
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<PAGE> 123
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto
duly authorized, have executed this Agreement as of the day and year first above
written.
BORROWER:
ATTEST: NATG HOLDINGS, LLC
By:
- ----------------------- ----------------------------
Title:
--------------------------
[Seal]
GUARANTORS:
MICH-COM CABLE SERVICES INCORPORATED
By:
- ----------------------- ----------------------------
Title:
--------------------------
[Seal]
CABLEMASTERS CORP.
By:
- ----------------------- ----------------------------
Title:
--------------------------
[Seal]
CHANNEL COMMUNICATIONS, INC.
By:
- ----------------------- ----------------------------
Title:
--------------------------
[Seal]
ATTEST: EXCEL CABLE CONSTRUCTION, INC.
By:
- ----------------------- ----------------------------
Title:
--------------------------
ATTEST: U.S. CABLE, INC.
By:
- ----------------------- ----------------------------
Title:
--------------------------
[Seal]
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<PAGE> 124
ATTEST: CATV SUBSCRIBER SERVICES, INC.
By:
- ----------------------- ----------------------------
Title:
--------------------------
[Seal]
ATTEST: STATE WIDE CATV, INC.
By:
- ----------------------- ----------------------------
Title:
--------------------------
[Seal]
ATTEST: BURN-TECHS, INC.
By:
- ----------------------- ----------------------------
Title:
--------------------------
[Seal]
ATTEST: DAS-CO OF IDAHO, INC.
By:
- ----------------------- ----------------------------
Title:
--------------------------
[Seal]
ATTEST: SCHATZ UNDERGROUND CABLE, INC.
By:
- ----------------------- ----------------------------
Title:
--------------------------
[Seal]
ATTEST: NETWORK CABLING SERVICES, INC.
By:
- ----------------------- ----------------------------
Title:
--------------------------
[Seal]
ATTEST: COPENHAGEN UTILITIES &
CONSTRUCTION, INC.
By:
- ----------------------- ----------------------------
Title:
--------------------------
[Seal]
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<PAGE> 125
ATTEST: ORIUS CORP.
By:
- ----------------------- ----------------------------
Title:
--------------------------
[Seal]
ATTEST: NORTH AMERICAN TEL-COM GROUP, INC.
By:
- ----------------------- ----------------------------
Title:
--------------------------
[Seal]
PNC BANK, NATIONAL ASSOCIATION, individually
and as Administrative Agent
By:
----------------------------
Title:
--------------------------
MERRILL LYNCH & CO.,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED, as Syndication Agent
By:
----------------------------
Title:
--------------------------
MERRILL LYNCH CAPITAL
CORPORATION, as a Bank
By:
----------------------------
Title:
--------------------------
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<PAGE> 1
EXHIBIT 10.20
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT made this 24th day of May, 1999
(the "FIRST AMENDMENT"), among NATG HOLDINGS, LLC, a Delaware limited liability
company (the "BORROWER"); NORTH AMERICAN TEL-COM GROUP, INC., a Florida
corporation ("NATC"); ORIUS CORP., a Delaware corporation ("ORIUS"); MICH-COM
CABLE SERVICES INCORPORATED, a Michigan corporation; CABLEMASTERS CORP., a
Pennsylvania corporation; CHANNEL COMMUNICATIONS, INC., a Kansas corporation;
EXCEL CABLE CONSTRUCTION, INC., a Florida corporation; U.S. Cable, INC., a
Wisconsin corporation; CATV Subscriber Services, Inc., a North Carolina
corporation; STATE WIDE CATV, INC., a New York corporation; Burn-Techs, Inc., a
Florida corporation; DAS-CO of Idaho, Inc., an Idaho corporation; Schatz
Underground Cable, Inc., a Missouri corporation; Network Cabling Services, Inc.,
a Texas corporation; Copenhagen Utilities & Construction, Inc., an Oregon
corporation; and Texel Corporation, a Virginia corporation ("Texel") (the
foregoing entities, excluding the Borrower, are each referred to individually as
a "GUARANTOR" and collectively and jointly and severally as the "GUARANTORS"),
the BANKS (as hereinafter defined), MERRILL LYNCH & CO., MERRILL LYNCH, PIERCE,
FENNER & SMITH INCORPORATED, as Joint Lead Arranger and Syndication Agent
(hereinafter referred in such capacities as the "SYNDICATION AGENT") and PNC
BANK, NATIONAL ASSOCIATION, in its capacity as Joint Lead Arranger and
Administrative Agent for the Banks under this Agreement (hereinafter referred to
in such capacities as the "ADMINISTRATIVE AGENT").
WHEREAS, the Borrower, the Guarantors (other than Texel), the
Banks, the Administrative Agent and the Syndication Agent are parties to a
Credit Agreement dated as of February 26, 1999 (the "ORIGINAL CREDIT
AGREEMENT"); and
WHEREAS, pursuant to a stock purchase agreement dated as of
May 24, 1999, the Borrower has acquired all of the capital stock of Texel, and
WHEREAS, Texel has agreed to become a party to the Original
Credit Agreement as a Guarantor under the Original Credit Agreement as amended
hereby; and
WHEREAS, the Borrower, the Guarantors, the Banks, the
Administrative Agent and the Syndication Agent wish to amend the Original Credit
Agreement in certain respects including increasing the principal amount of Term
Loan A to $72,000,000 and increasing the principal amount of Term Loan B to
$58,000,000.
NOW, THEREFORE, in consideration of the premises and covenants
contained herein and intending to be legally bound hereby, the Borrower, the
Guarantors, the Administrative Agent, and the Syndication Agent and the Banks
agree as follows:
<PAGE> 2
1. DEFINITIONS. Capitalized terms used herein but not defined
or amended herein shall have the meanings set forth in the Original Credit
Agreement.
2. ADDITIONAL DEFINITIONS. The following definitions are
hereby added to Section 1.1 of the Credit Agreement:
AFFIRMATION AND JOINDER TO SECURITY AGREEMENT shall
mean the Affirmation and Joinder to Security Agreement dated as of May 24, 1999
executed by the Borrower, the Guarantors and the Administrative Agent in
substantially the form of EXHIBIT 1.1(S)(2) to the First Amendment and delivered
to the Administrative Agent for its benefit and for the benefit of the Banks.
AFFIRMATION AND JOINDER TO SUBSIDIARY GUARANTY AND
SURETYSHIP AGREEMENT shall mean the Affirmation and Joinder to Subsidiary
Guaranty and Suretyship Agreement dated as of May 24, 1999 executed by the
Subsidiary Guarantors and the Administrative Agent in substantially the form of
EXHIBIT 1.1(G)(3) to the First Amendment and delivered to the Administrative
Agent for its benefit and for the benefit of the Banks.
AFFIRMATION OF NATC PLEDGE AGREEMENT shall mean the
Affirmation of NATC Pledge Agreement dated as of May 24, 1999 executed by NATC
and the Administrative Agent in substantially the form of EXHIBIT 1.1(P)(5) to
the First Amendment and delivered to the Administrative Agent for its benefit
and for the benefit of the Banks.
AMENDMENT CLOSING DATE shall mean May 24, 1999.
AMENDMENT DOCUMENTS shall mean the First Amendment,
each Amended and Restated Term Note A and Amended and Restated Term Note B (each
as described in Section 3.1 hereof), the Affirmation and Joinder to Security
Agreement, the Affirmation and Joinder to Subsidiary Guaranty and Suretyship
Agreement, the Affirmation of NATC Pledge Agreement, the First Amendment to
Borrower Pledge Agreement, and the Orius Affirmation.
AMENDMENT TRANSACTIONS shall mean consummation of the
Texel Acquisition, repayment of the Existing Texel Debt and the additional
extensions of credit under the Original Credit Agreement as amended by the First
Amendment.
EXISTING TEXEL DEBT shall mean all Indebtedness of
Texel which is not Permitted Indebtedness.
FIRST AMENDMENT shall mean the First Amendment to
Credit Agreement dated as of May 24, 1999.
FIRST AMENDMENT TO BORROWER PLEDGE AGREEMENT shall
mean the First Amendment to Borrower Pledge Agreement dated as of May 24, 1999
in substantially the form of Exhibit 1.1(P)(4) to the First Amendment executed
by the Borrower and the Administrative Agent and delivered by the Borrower to
the Administrative Agent for its benefit and the benefit of the Banks.
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<PAGE> 3
ORIUS AFFIRMATION shall mean the Affirmation of Orius
Guaranty and Orius Pledge Agreement dated as of May 24, 1999 in substantially
the form of EXHIBIT 1.1(G)(4) to the First Amendment executed by Orius and the
Administrative Agent and delivered to the Administrative Agent for its benefit
and for the benefit of the Banks.
TEXEL ACQUISITION shall mean the acquisition by
Borrower of 100% of the common stock of Texel with an aggregate cash
consideration of not greater than $26,250,000 and all under terms and conditions
acceptable to the Agents.
TEXEL ACQUISITION AGREEMENT shall mean the Stock
Purchase Agreement dated as of May 24, 1999 among the Borrower, Orius and E.
Scott Kasprowicz.
3. AMENDMENT TO DEFINITIONS.
(a) The following definitions in the Original Credit
Agreement are hereby amended and restated as follows:
AGREEMENT shall mean the Original Credit Agreement,
as amended by the First Amendment, as the same may be amended, restated,
supplemented or modified from time to time, including all schedules and
exhibits.
BALANCE SHEET ADJUSTMENT PAYMENTS shall mean payments
related to balance sheet adjustments made by Borrower (i) to the Sellers under
the Acquisition Agreement related to the acquisition of Copenhagen, (ii) to the
Sellers under the Acquisition Agreement related to the acquisition of DAS-CO,
and (iii) to the seller under the Texel Acquisition Agreement.
BORROWER PLEDGE AGREEMENT shall mean the Borrower
Pledge Agreement dated as of February 26, 1999 executed by the Borrower, as
amended by the First Amendment to Borrower Pledge Agreement.
BORROWER'S COMPLIANCE CERTIFICATE shall mean the form
of Compliance Certificate described in Section 8.3.4 and in the form attached as
Exhibit 8.3.4 of the First Amendment.
EXCESS CASH FLOW shall be computed as of the close of
each fiscal year by taking the difference between Consolidated Cash Flow from
Operations for such fiscal year and Fixed Charges for such fiscal year and
adding to such difference decreases in Working Capital in such fiscal year or
subtracting from such difference increases in Working Capital in such fiscal
year and subtracting from the resulting subtotal (x) cash consideration paid in
connection with Permitted Acquisitions in such year, (y) cash payments made with
respect to Earn Out Obligations in such year and (z) for 1999, $2,000,000
reflecting the portion of the cash consideration paid in the Texel Acquisition
which was not funded with increases in the Term Loan under the First Amendment.
All determinations of Excess Cash Flow shall be based on the immediately
preceding fiscal year. For purposes of calculating Excess Cash Flow for 1999,
the change in Working Capital will be computed based on the balance sheet of the
Borrower and its
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<PAGE> 4
Subsidiaries as of the Closing Date immediately following consummation of the
Transactions (and, with respect to Texel, its balance sheet as of the Amendment
Closing Date immediately following consummation of the Amendment Transactions)
and the audited balance sheet of the Borrower and its Subsidiaries as of
December 31, 1999.
FIRST PRIORITY FACILITIES shall mean Term Loan A
(including increases therein pursuant to the First Amendment), Term Loan B
(including increases therein pursuant to the First Amendment), and the Revolving
Credit Facility and any additional extensions of credit hereunder consented by
the Required Banks to be a part of the First Priority Facility.
GUARANTORS shall have the meanings given in the
recitals to the First Amendment.
NATC PLEDGE AGREEMENT shall mean the NATC Pledge
Agreement dated as of February 26, 1999 executed and delivered by NATC to the
Administrative Agent for the benefit of the Banks, as affirmed by the
Affirmation of NATC Pledge Agreement.
ORIUS GUARANTY AGREEMENT shall mean the Orius
Guaranty and Suretyship Agreement dated as of February 26, 1999 executed and
delivered by Orius to the Administrative Agent for the benefit of the Banks, as
affirmed by the Orius Affirmation.
ORIUS PLEDGE AGREEMENT shall mean the Orius Pledge
Agreement dated as of February 26, 1999 executed and delivered by Orius to the
Administrative Agent for the benefit of the Banks, as affirmed by the Orius
Affirmation.
SECURITY AGREEMENT shall mean the Security Agreement
dated as of February 26, 1999 executed by the Borrower and the Guarantors, as
amended by the Affirmation and Joinder to Security Agreement.
SUBSIDIARY GUARANTY AGREEMENT shall mean the
Subsidiary Guaranty and Suretyship Agreement dated as of February 26, 1999
executed by each Subsidiary Guarantor (other than Texel), as amended and
affirmed by the Affirmation and Joinder to Subsidiary Guaranty and Suretyship
Agreement.
TERM LOAN A COMMITMENT shall mean initially the
commitment of the Banks with respect to $72,000,000 of Term Loan A as set forth
in SCHEDULE 1.1(B) to the First Amendment and thereafter as modified by
assignments under Assignment Agreements.
TERM LOAN B COMMITMENT shall mean initially the
commitment of the Banks with respect to $58,000,000 of Term Loan B as set forth
in SCHEDULE 1.1(B) to the First Amendment and thereafter as modified by
assignments under Assignment Agreements.
TERM NOTES shall mean collectively and TERM NOTE
shall mean separately all of the Term Notes of the Borrower to each of the
Banks, as applicable, in the form of EXHIBIT 1.1(T)(1), EXHIBIT 1.1(T)(2),
EXHIBIT 1.1(T)(3) to the original Credit Agreement and EXHIBITS 1.1(T)(4) and
1.1(T)(5) to the First Amendment evidencing Term Loan A, Term Loan B, and Term
Loan C, together with all amendments, extensions, renewals, replacements,
refinancings or refunds thereof in whole or in part.
-4-
<PAGE> 5
WORKING CAPITAL shall mean (a) current assets
(excluding cash) of Orius, the Borrower and its Subsidiaries as determined on a
consolidated basis, (b) less the sum of (x) current liabilities of Orius, the
Borrower and its Subsidiaries determined on a consolidated basis (including the
principal balance of the Revolving Credit Loans and current maturities of the
Term Loans), and (y) any obligation classified as a current asset owed to the
Borrower or any Subsidiary of the Borrower by an Affiliate of the Borrower or by
a Subsidiary of such Affiliate, provided that the Working Capital as of the
beginning of a fiscal year (i) with respect to Texel shall be deemed to be as
set forth on its balance sheet as of the Amendment Closing Date immediately
following consummation of the Amendment Transactions, and (ii) with respect to
each Permitted Acquisition during such fiscal year shall be an amount agreed to
among the Borrower and the Agents at the time of such Permitted Acquisition
pursuant to Section 8.2.6(vii) hereof.
(b) The definition of "Permitted Investments" set
forth in Section 1.1 of the Original Credit Agreement is amended to add new
subpart (v) as follows:
(v) the Texel Acquisition.
(c) The definition of "Permitted Liens" set forth in
Section 1.1 of the Original Credit Agreement is amended to amend and restate
subpart (xii) as follows:
(xii) Liens on certain inventory (and the
proceeds thereof) as specified in
various security agreements between
Channel Communications, Inc. and TCI
Atlantic, Inc., TCI Great Lakes, Inc.
and TCI Central, Inc., existing on the
Amendment Closing Date, PROVIDED that
the obligations being secured under
such security agreements do not exceed
$7,000,000 in the aggregate at any
time on or after the Closing Date, and
provided that such liens are released
and discharged promptly following
completion of the contracts existing
on the Amendment Closing Date between
Channel Communications, Inc. and such
entities which relate to such security
agreements.
4. JOINDER. Texel hereby joins the Original Credit Agreement,
as amended hereby, as a Guarantor.
5. AMENDMENT TO REVOLVING CREDIT COMMITMENT. Section 2.8 of
the Original Credit Agreement is hereby amended and restated as follows:
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<PAGE> 6
2.8. USE OF PROCEEDS.
The proceeds of the Revolving Credit Loans shall be
used for general corporate purposes, the Specified
Acquisitions, the Texel Acquisition, Permitted
Acquisitions and in accordance with Section 8.1.11
[Use of Proceeds].
6. AMENDMENT TO TERM LOAN COMMITMENT AND TERM LOAN REPAYMENT.
(a) Section 3.1 of the Original Credit Agreement is
hereby amended and restated as follows:
Subject to the terms and conditions hereof, and
relying upon the representations and warranties
herein set forth, each Bank severally agrees to make
a term loan (the "Term Loan") to the Borrower on the
Closing Date (or with respect to increases in Term
Loan Commitments effective under the First Amendment,
on the Amendment Closing Date) in such principal
amount as the Borrower shall request up to, but not
exceeding such Bank's Term Loan Commitment. The Term
Loan shall consist of Term Loan A in principal amount
of $72,000,000 to be evidenced by a Term Note A
issued to each Bank which does not increase its Term
Loan A Commitment pursuant to the First Amendment and
by an Amended and Restated Term Note A issued to each
Bank which does increase its Term Loan A Commitment
pursuant to the First Amendment (collectively, "Term
Loan A"), Term Loan B in principal amount of
$58,000,000 to be evidenced by a Term Note B issued
to each Bank which does not increase its Term Loan B
Commitment pursuant to the First Amendment and by an
Amended and Restated Term Note B issued to each Bank
which does increase its Term Loan B commitment
pursuant to the First Amendment (collectively, "Term
Loan B"), and Term Loan C in principal amount of
$15,000,000 to be evidenced by Term Note C ("Term
Loan C").
The increase in Term Loan A and Term Loan B pursuant
to the First Amendment shall constitute a part of the
First Priority Facility.
(b) The third sentence of Section 3.2 of the Original
Credit Agreement is hereby amended and restated as follows:
The Banks shall have no obligation to make Term Loans
hereunder after the Amendment Closing Date and the
Term Loan proceeds to be disbursed on the Amendment
Closing Date shall consist of
-6-
<PAGE> 7
$12,000,000 with respect to Term Loan A and
$13,000,000 with respect to Term Loan B.
(c) Section 3.3 of the Original Credit Agreement is
hereby amended and restated as follows:
3.3 TERM LOAN NOTES.
The Obligation of the Borrower to repay the unpaid
principal amount of the Term Loans made by each Bank, together with interest
thereon, shall be evidenced by the Term Notes payable to the order of each Bank
in an aggregate face amount equal to the Term Loan of such Bank. The principal
amount of the Term Loans shall be payable as follows:
<TABLE>
<CAPTION>
Repayment Date Term Loan a Term Loan B Term Loan C
-------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
June 30, 1999 $ 1,500,000 $ 200,000 $ 50,000
September 30, 1999 3,100,000 200,000 50,000
December 31, 1999 3,100,000 200,000 50,000
March 31, 2000 3,100,000 150,000 37,500
June 30, 2000 3,300,000 150,000 37,500
September 30, 2000 3,300,000 150,000 37,500
December 31, 2000 3,300,000 150,000 37,500
March 31, 2001 3,750,000 150,000 37,500
June 30, 2001 3,750,000 150,000 37,500
September 30, 2001 3,900,000 150,000 37,500
December 31, 2001 3,900,000 150,000 37,500
March 31, 2002 4,500,000 150,000 37,500
June 30, 2002 4,500,000 150,000 37,500
September 30, 2002 4,500,000 150,000 37,500
December 31, 2002 4,500,000 150,000 37,500
March 31, 2003 4,500,000 150,000 37,500
June 30, 2003 4,500,000 150,000 37,500
September 30, 2003 4,500,000 150,000 37,500
December 31, 2003 4,500,000 150,000 37,500
March 31, 2004 0 13,500,000 37,500
June 30, 2004 0 13,500,000 37,500
September 30, 2004 0 13,500,000 37,500
December 31, 2004 0 14,500,000 37,500
March 31, 2005 0 0 3,525,000
June 30, 2005 0 0 3,525,000
September 30, 2005 0 0 3,525,000
December 31, 2005 0 0 3,525,000
---------------------- --------------------- ---------------------
$ 72,000,000 $ 58,000,000 $ 15,000,000
====================== ===================== =====================
</TABLE>
-7-
<PAGE> 8
(d) Section 3.4 of the Original Credit Agreement is
hereby amended and restated as follows:
3.4 USE OF PROCEEDS.
The proceeds of the Term Loans made on the Closing
Date shall be used for the Specified Acquisitions, to
repay the Existing Bank Indebtedness and in
accordance with Section 8.1.11. [Use of Proceeds].
The proceeds of the Term Loans made on the Amendment
Closing Date shall be used to finance the Texel
Acquisition, to repay the Existing Texel Debt and in
accordance with Section 8.1.11. [Use of Proceeds].
7. AMENDMENT TO PROVISIONS REGARDING SALE OF DEBT OR EQUITIES.
The last sentence of Section 5.5.3 of the Original
Credit Agreement is amended and restated as follows:
"EXCLUDED ISSUANCE" shall mean the Orius Preferred
Stock issued to HIG on the Closing Date, common stock issued by Orius
in connection with the Specified Acquisitions, the Texel Acquisition or
any Permitted Acquisition, common stock issued by Orius in connection
with the conversion of the Orius Preferred Stock, sale of Orius common
stock in connection with the NATC Reorganization, and, additional
Series A Preferred Stock or Series B Preferred Stock of Orius issued
pursuant to payment in kind features of such stock, and, to the extent
such proceeds do not exceed $2,500,000 from the Closing Date to the
date of exercise, common stock of Orius issued in connection with the
exercise of employee stock options.
8. REPRESENTATIONS AND WARRANTIES. The Loan Parties (including
Texel), jointly and severally, hereby represent and warrant to the Agents and
each of the Banks as follows:
(a) Except as described in the Supplemental Schedules
attached hereto (the "Supplemental Schedules"), all representations,
warranties and covenants made by the Loan Parties to the Banks and the
Agents that are set forth in the Original Credit Agreement or any other
Loan Document are true and correct on and as of the date hereof with
the same effect as though such representations, warranties and
covenants had been made on and as of the date hereof (except
representations and warranties which expressly relate solely to an
earlier date and time, which representations and warranties were true
and correct on and as of the specific dates and times referred to
therein).
(b) No event or condition exists which, with the
giving of notice or the passage of time, or both, would constitute a
Potential Default or an Event of Default
-8-
<PAGE> 9
under any of the Loan Documents as amended or affirmed in connection
with this First Amendment and the other Amendment Documents.
(c) The Supplemental Schedules attached hereto and
Section 9 hereof set forth (i) all disclosure information with respect
to Texel called for under Article 6 of the Original Credit Agreement
(and, subject to disclosure in such Supplemental Schedules and Section
9 hereof, Texel is hereby deemed to make and give all representations
and warranties to the Agents and each of the Banks as set forth in
Section 6 of the Original Credit Agreement as amended hereby), and (ii)
all information with respect to the other Loan Parties which must be
amended or updated from the disclosure schedules to the Original Credit
Agreement in order to make the representations and warranties of such
Loan Parties true and correct on the date hereof (except
representations and warranties which expressly relate solely to an
earlier date and time, which representations and warranties were true
and correct on and as of the specific dates and times referred to
therein).
(d) The execution and delivery of this First
Amendment and the consummation of the transactions contemplated hereby
and by any other documents executed by the Loan Parties required to be
delivered to the Agent in connection with this First Amendment have
been duly and validly authorized by the Loan Parties and all such
documents together constitute the legal, valid and binding agreement of
the Loan Parties, enforceable against the Loan Parties in accordance
with their respective terms, except to the extent that enforceability
of any of such document may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the
enforceability of creditors' rights generally or general equitable
principles.
9. AMENDMENT TO REPRESENTATIONS REGARDING FINANCIAL STATEMENTS
Section 6.1.9 of the Original Credit Agreement is
hereby amended and restated as follows:
(i) HISTORICAL STATEMENTS. The Borrower has
delivered to the Agents copies of financial statements of each
Subsidiary of the Borrower (including each Target and Texel),
all as described in SCHEDULE 6.1.9 attached hereto, including
audited financial statements of the Borrower and its
Subsidiaries for the period ended December 31, 1998 (the
"Annual Statements"), and (ii) unaudited interim combined
financial statements of Borrower and its Subsidiaries (and
each Target and Texel), including unaudited financial
statements of Borrower and its Subsidiaries for the three
month period ended March 31, 1999 as certified by an officer
of Borrower (the "Interim Statements") (the Annual and Interim
Statements being collectively referred to as the "Historical
Statements"). The Historical Statements were compiled from the
books and records maintained by each Loan Party's management,
and fairly represent the consolidated financial condition of
each Loan Party as of their dates and the results of
operations for the fiscal periods then ended and have been
prepared in accordance with GAAP
-9-
<PAGE> 10
consistently applied, subject (in the case of the Interim
Statements) to normal year-end audit adjustments and the lack
of footnotes.
(ii) FINANCIAL PROJECTIONS. The Borrower has
delivered to the Agents financial projections of the Borrower
and its subsidiaries, including the financial projections
related to the Specified Acquisitions and the Texel
Acquisition, for the period through December 31, 2005 derived
from various assumptions of the Borrower's management and pro
forma consolidated Historical Statements based on the
Historical Statements of the Borrower and its subsidiaries,
including those acquired in the Specified Acquisitions and the
Texel Acquisition (the "Financial Projections").
10. AMENDMENTS TO COVENANTS
(a) Section 8.1.11 of the Original Credit Agreement
is hereby amended and restated as follows:
8.1.11 USE OF PROCEEDS.
The Loan Parties will use the Letters of Credit and
the proceeds of the Loans only for (i) general
corporate purposes and for working capital, (ii) to
finance the Specified Acquisitions and the Texel
Acquisition, (iii) to repay the Existing Bank
Indebtedness and the Existing Texel Debt, (iv) to
finance Permitted Acquisitions. The Borrower may
reloan to NATC a portion of the proceeds of the Term
Loan sufficient to allow NATC to repay the Existing
Bank Indebtedness provided such loan is treated as an
intercompany loan on the books and records of the
parties and is not evidenced by a promissory note.
(b) Section 8.1.13 of the Original Credit Agreement
is hereby amended and restated as follows:
8.1.13 INTEREST RATE PROTECTION
Within thirty (30) calendar days of the Amendment
Closing Date, the Borrower shall enter into or have
entered into one or more Interest Rate Protection
Agreements with terms of not less than three years
from the Closing Date covering 50% of the principal
amount of the Term Loans, all in form and substance
acceptable to the Agents (collectively the "Interest
Rate Protection Agreement"). If one or more of the
Banks is a party to such Interest Rate Protection
Agreement, the Interest Rate Protection Agreement
shall be considered a Loan Document and such Bank(s)
shall be entitled to share in the security granted by
the Borrower hereunder and under the Loan Documents.
-10-
<PAGE> 11
(c) Section 8.2.6(vi) of the Original Credit
Agreement is hereby amended and restated as follows:
(i) the Borrower shall demonstrate (x)
compliance immediately prior to the consummation of
the proposed Permitted Acquisition with the covenants
contained in this Section 8.2 after giving pro forma
effect to such Permitted Acquisition, (y) that the
business which is the subject of the Permitted
Acquisition has had a positive Consolidated Cash Flow
from Operations for the four fiscal quarters
immediately preceding consummation of the Permitted
Acquisition, and (z) that following consummation, and
taking into account any Revolving Credit Loans to be
incurred in connection with such Permitted
Acquisition, Borrower will have at least $5,000,000
in unused borrowing availability in the Revolving
Credit Loans, such demonstrations to be set forth in
a certificate in form and substance acceptable to the
Agents, delivered to the Agents by Borrower at least
five (5) Business Days prior to such Permitted
Acquisition;
(d) Section 8.2.14 of the Original Credit Agreement
is hereby amended to add new subpart (ix):
(ix) Orius can issue common stock as
provided in the Texel Acquisition Agreement.
(e) Section 8.2.16 of the Original Credit Agreement
is hereby amended and restated as follows:
8.2.16 CAPITAL EXPENDITURES AND LEASES.
Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to, (i) make any
payments in any fiscal year on account of the
purchase or lease of any assets which if purchased
would constitute fixed assets or which if leased
would constitute a capitalized lease which would
cause the aggregate of such payments by the Loan
Parties and their Subsidiaries in such fiscal year to
exceed $12,000,000, or (ii) any payments in any
fiscal year on account of the rental or lease of real
or personal property of any other Person under
operating leases (i.e. non-Capital Leases) which
would cause the aggregate of such payments by the
Loan Parties and their Subsidiaries in such fiscal
year to exceed $5,000,000. All such capital
expenditures and leases shall be made under usual and
customary terms and in the ordinary course of
business. Acquisition of capital assets as part of a
Permitted Acquisition or the Texel Acquisition shall
not be considered in calculating compliance with this
Section 8.2.16.
-11-
<PAGE> 12
(f) Section 8.2.17 of the Original Credit Agreement
is hereby amended and restated as follows:
8.2.17 MINIMUM FIXED CHARGE COVERAGE RATIO;
CALCULATION OF FINANCIAL COVENANTS FOR 1999-2000
The Loan Parties shall not permit the Fixed Charge
Coverage Ratio, calculated as of the end of each
fiscal quarter for the four fiscal quarters then
ended (with first measurement date as of June 30,
1999), to be less than 1.00 to 1 as of the end of any
fiscal quarter ending on or before December 31, 1999,
less than 1.05 to 1 as of the end of any fiscal
quarter ending after December 31, 1999, but on or
before December 31, 2001, less than 1.10 to 1 as of
the end of any fiscal quarter ended after December
31, 2001 but on or before December 31, 2002, or less
than 1.15 to 1 as of the end of any fiscal quarter
ending after December 31, 2002. For purposes of
calculating compliance with financial statement
covenants set forth in Sections 8.2.17, 8.2.18,
8.2.19 and 8.2.20 and the applicable Level set forth
on the Pricing Grid with respect to specified periods
ending in 1999 and 2000, the following shall apply:
Consolidated Cash Flow from Operations for periods
prior to June 30, 1999 shall be deemed to be as
follows:
<TABLE>
<CAPTION>
Cash Flow from Operations
-------------------------
<S> <C>
Calendar Quarter ended September 30, 1998 $12,775,000
Calendar Quarter ended December 31, 1998 $12,775,000
Calendar Quarter ended March 31, 1999 $12,775,000
</TABLE>
For the fiscal quarter ended June 30, 1999,
Consolidated Cash Flow from Operations will be based
upon books and records of Orius and its Subsidiaries
for such quarter with, solely as to Texel,
adjustments of the type reflected in projections
prepared by PricewaterhouseCoopers with respect to
Texel and supplied by Borrower to the Agents.
As of the end of the fiscal quarter ended June 30,
1999, Fixed Charges and interest expense shall each
be determined (with appropriate proforma adjustments
as if Texel had been acquired by the Borrower on
March 1, 1999 and become a Loan Party on that date)
by multiplying the respective aggregate amounts for
the Loan Parties determined for the month of March
1999 and the second calendar quarter of 1999 (other
than, in the calculation of Fixed Charges, repayments
of principal required under Section 3.1 hereof) by 3
and, for purposes of determining Fixed Charges at
such date, adding to the sum determined in the
preceding clause
-12-
<PAGE> 13
repayments of principal required under Section 3.1
hereof to be made on June 30, 1999 multiplied by 4.
As of the end of the fiscal quarter ended September
30, 1999, Fixed Charges and interest expense shall
each be determined by multiplying the respective
aggregate amounts for the Loan Parties determined for
the month of June 1999 and the third calendar quarter
of 1999 (other than, in the calculation of Fixed
Charges, repayments of principal required under
Section 3.1 hereof) by 3 and, for purposes of
determining Fixed Charges at such date, adding to the
sum determined in the preceding clause repayments of
principal under Section 3.1 hereof required to be
made on June 30, 1999 and September 30, 1999
multiplied by 2.
As of the end of the fiscal year ended December 31,
1999, Fixed Charges and interest expense shall each
be determined by multiplying the aggregate amounts
for the Loan Parties for the last seven calendar
months of 1999 (other than, in the calculation of
Fixed Charges. repayments of principal required under
Section 3.1 hereof) by 1.714286 and, for purposes of
determining Fixed Charges at such date, adding to the
sum determined in the preceding clause repayments of
principal under Section 3.1 hereof required to be
made on June 30, 1999, September 30, 1999 and
December 31, 1999 multiplied by 1.3333333.
As of the end of the fiscal quarter ended March 30,
2000, Fixed Charges and interest expense shall each
be determined by multiplying the aggregate amounts
for the Loan Parties for the last seven calendar
months of 1999 and the first calendar quarter of 2000
(other than, in the calculation of Fixed Charges,
repayments of principal required under Section 3.1
hereof) by 1.2 and, for purposes of determining
Fixed Charges at such date, adding to the sum
determined in the preceding clause repayments of
principal under Section 3.1 hereof required to be
made on June 30, 1999, September 30, 1999, December
31, 1999 and March 30, 2000.
(g) Section 8.2.20 of the Original Credit Agreement
is hereby amended and restated as follows:
8.2.20 MINIMUM CONSOLIDATED CASH FLOW FROM
OPERATIONS.
The Loan Parties shall not, at any time, permit the
Consolidated Cash Flow from Operations of the
Borrower and its Subsidiaries calculated as of the
end of the four fiscal quarters then ended (with the
first measurement date as of June 30, 1999) to be
less than:
-13-
<PAGE> 14
<TABLE>
<CAPTION>
Minimum Consolidated Cash Flow
Four Quarters Ended from Operations
--------------------------------------------------------------------------
<S> <C>
June 30, 1999 $49,250,000
September 30, 1999 $47,250,000
December 31, 1999 $45,500,000
March 31, 2000 $45,500,000
June 30, 2000 $47,250,000
September 30, 2000 $49,000,000
December 31, 2000 $50,500,000
March 31, 2001 $52,000,000
June 30, 2001 $53,750,000
September 30,2001 $55,250,000
December 31, 2001 $56,750,000
March 31, 2002 $58,250,000
June 30, 2002 $59,750,000
September 30, 2002 $61,250,000
December 31, 2002 $62,750,000
March 31, 2003 $64,500,000
June 30, 2003 $66,000,000
September 30, 2003 $67,500,000
December 31, 2003 $69,000,000
March 31, 2004 $70,750,000
June 30, 2004 $72,500,000
September 30, 2004 $74,250,000
December 31, 2004 $76,000,000
March 31, 2005 $78,000,000
June 30, 2005 $79,750,000
September 30, 2005 $81,750,000
December 31, 2005 $83,750,000
</TABLE>
11. AMENDMENT TO SECTION 10.15. Section 10.15 of the Original
Credit Agreement is amended and restated as follows:
-14-
<PAGE> 15
10.15 AGENTS' FEES.
The Borrower shall pay to the Agents the Fees (the
"Agents' Fees") under the terms of a letter dated
January 29, 1999 and a letter dated May 5, 1999 among
the Borrower, PNC Bank and Merrill Lynch, each as
amended from time to time (collectively, the "Fee
Letter").
12. EFFECTIVENESS. The effectiveness of this First Amendment
and the obligation of each Bank to make the extensions of credit contemplated
hereby are subject to the performance by each of the Loan Parties of its
Obligations to be performed hereunder and under the Original Credit Agreement at
or prior to the making of any such additional extensions of credit and to the
satisfaction of the following further conditions on or before the Amendment
Closing Date:
(a) AMENDMENT DOCUMENTS. Each of the Loan Parties, as
applicable, shall have executed and delivered to the Administrative
Agent for its benefit and the benefit of the Banks the Amendment
Documents to which each is a party (including an Amended and Restated
Term Note A for each Bank increasing its Term Loan A Commitment
hereunder and an Amended and Restated Term Note B for each Bank
increasing its Term Loan B Commitment hereunder), together with all
appropriate financing statements and appropriate stock powers and
certificates evidencing the capital stock of Texel, all pursuant to
documentation and on terms and conditions satisfactory to the Agents
and the Lenders.
(b) SATISFACTION OF CONDITIONS. All conditions to
making additional Loans as set forth in Section 7.2 of the Original
Credit Agreement shall have been satisfied, with the test of each such
condition being determined as if the amendments to the Original Credit
Agreement made hereby were in force and effect and after giving effect
to the Amendment Transactions and after giving effect to the extensions
of credit contemplated hereby.
(c) OFFICER'S CERTIFICATE. Each of the Loan Parties
shall deliver to the Administrative Agent a certificate in the form
described in Section 7.1.1 of the Original Credit Agreement, but for
purposes of such certificate the amendments to the Original Credit
Agreement made hereby shall be deemed to be in full force and effect
and the representations and warranties of the Loan Parties shall apply
both before and immediately after giving effect to the Amendment
Transactions and the extensions of credit contemplated hereby.
(d) SECRETARY'S CERTIFICATE. Each of the Loan Parties
(other than Texel) shall deliver to the Administrative Agent for the
benefit of the Banks a certificate dated as of the Amendment Closing
Date signed by the Secretary or Assistant Secretary of such Loan Party
certifying with respect to the Amendment Documents as described in
Sections 7.1.2(i) and 7.1.2(ii) of the Original Credit Agreement,
together with a good standing certificate from such Loan Party's state
of formation, and that no changes in such entities' articles, by-laws
or other organizational documents has occurred since the Closing Date.
-15-
<PAGE> 16
Texel shall deliver to the Administrative Agent for the benefit of the
Banks a certificate in the form described in Section 7.1.2 of the
Original Credit Agreement certifying with respect to matters as
described in Section 7.1.2 of the Original Credit Agreement, together
with certificates from the appropriate state officials as to the
continued existence and good standing of Texel in Virginia and each
state where it is qualified to do business.
(e) SOLVENCY CERTIFICATE. The Borrower shall have
delivered to the Agents a certificate from the Chief Financial Officer
or the Chief Executive Officer of Borrower in form and substance
satisfactory to the Agents with respect to the solvency (on a
consolidated basis) of the Borrower and, with respect to such officer's
certificate, each Loan Party, in each case both before and immediately
after giving effect to the Amendment Transactions and after giving
effect to the extensions of credit contemplated hereby.
(f) OPINION OF COUNSEL. There shall be delivered to
the Administrative Agent for the benefit of each Bank a written opinion
of Akerman Senterfitt & Eidson, P.A., counsel for the Loan Parties (who
may rely on the opinions of such other counsel as may be acceptable to
the Agents), New York local counsel, Virginia local counsel and other
counsel acceptable to the Agents to Loan Parties which are not Florida
or New York corporations dated the Amendment Closing Date and in form
and substance satisfactory to the Agents and their counsel.
(g) LEGAL DETAILS. All legal details and proceedings
in connection with the transactions contemplated by the Amendment
Transactions, including this First Amendment and the other Amendment
Documents shall be in form and substance satisfactory to the Agents and
counsel for the Agents, and the Administrative Agent shall have
received all such other counterpart originals or certified or other
copies of such documents and proceedings in connection with such
transactions, in form and substance satisfactory to the Agents and said
counsel, as the Agents or said counsel may reasonably request.
(h) FEES AND EXPENSES. All accrued fees and expenses
(including the fees and expenses of Kirkpatrick & Lockhart LLP, Cahill
Gordon & Reindel and any local counsel to the Agents) of the Agents and
the Banks in connection with the Original Credit Agreement and
Amendment Documents and all fees specified in the Fee Letter shall have
been paid.
(i) CONSENTS. All material consents required to
effectuate the transactions contemplated hereby as set forth on
SCHEDULE 6.1.13 shall have been obtained.
(j) NO MATERIAL ADVERSE CHANGE. There shall not have
occurred a Material Adverse Change of Borrower or Texel, in each case
together with its subsidiaries taken as a whole, as the case may be
(and before and after giving effect to the Amendment Transactions)
since (x) with respect to Borrower, November 30, 1998, and (y) with
respect to Texel, December 31, 1998.
-16-
<PAGE> 17
(k) NO VIOLATION OF LAWS. The making of the
additional extensions of credit contemplated hereby and the
consummation of the Amendment Transactions shall not contravene any Law
applicable to any Loan Party or any of the Banks.
(l) NO ACTIONS OR PROCEEDINGS. No action, proceeding,
investigation, regulation or legislation shall have been instituted,
threatened or proposed before any court, governmental agency or
legislative body to enjoin, restrain or prohibit, or to obtain damages
in respect of, this Agreement, the other Loan Documents or the
consummation of the transactions contemplated hereby or thereby or the
Amendment Transactions, that has or which have a reasonable likelihood
of restraining, preventing or imposing materially burdensome conditions
on any of the Amendment Transactions contemplated by the Original
Credit Agreement as amended by this First Amendment or any of the other
Loan Documents or Amendment Documents.
(m) INSURANCE POLICIES; CERTIFICATES OF INSURANCE;
ENDORSEMENTS. The Loan Parties shall have delivered evidence acceptable
to the Agents that adequate insurance in compliance with Section 8.1.3
[Maintenance of Insurance] of the Original Credit Agreement with
respect to each of the Loan Parties, including Texel, is in full force
and effect and that all premiums then due thereon have been paid,
together with a certified copy of each Loan Party's casualty insurance
policy or policies evidencing coverage satisfactory to the Agents, with
additional insured, mortgagee and lender loss payable special
endorsements attached thereto in form and substance satisfactory to the
Administrative Agent and its counsel naming the Administrative Agent,
as additional insured, mortgagee and lender loss payee.
(n) FILING CONFIRMATION. The Agents shall have
received (1) verbal confirmation of all filings with respect to any
recordation or filing necessary to perfect the Lien of the
Administrative Agent for its benefit and for the benefit of the Banks
on the Collateral or other satisfactory evidence of such recordation
and filing and (2) evidence in a form acceptable to the Agents that
such Lien constitutes a Prior Security Interest in favor of the
Administrative Agent for its benefit and for the benefit of the Banks.
(o) CONSUMMATION OF TEXEL ACQUISITION. All material
documentation, including without limitation, any tax sharing agreement,
employment agreement or other financing arrangement with respect to or
in connection with the Texel Acquisition shall be in form and substance
reasonably satisfactory to the Agents. In addition to the requirements
of Section 12(q) hereof, the Agents shall have received (i) evidence
satisfactory to them of the prior or simultaneous consummation of the
Texel Acquisition, (ii) letters from Texel's counsel in the Texel
Acquisition permitting the Agents and the Banks to rely upon its
opinion letter delivered to the Borrower in connection with the Texel
Acquisition, and (iii) from the Borrower a certificate signed by the
Chief Executive Officer or Chief Financial Officer of the Borrower
certifying that:
-17-
<PAGE> 18
(i) The consummation of the Texel
Acquisition have occurred or are occurring simultaneously with
the making of the additional extensions of credit contemplated
hereby;
(ii) The execution and delivery of the Texel
Acquisition documents, related agreements, and the
consummation of the Texel Acquisition, did not and will not
violate any statute or regulation of the United States or of
any state or other applicable jurisdiction, or any order,
judgment or decree of any court or governmental body, or
result in a breach of, or constitute a default under, any
agreement, indenture, order or decree affecting the Borrower
or Texel.
(iii) All of the representations and
warranties of the Borrower and, to the best of the knowledge
of the Borrower, the other parties to the Texel Acquisition
Agreement, contained in the Texel Acquisition Agreement are
true and correct in all material respects as of the date of
closing of the consummation of the Texel Acquisition; and
(iv) The consummation of the Texel
Acquisition complied in all respects with all applicable legal
requirements, and all necessary governmental, regulatory,
shareholder and other consents and approvals required for the
consummation of the Texel Acquisition were, prior to the
consummation thereof, duly obtained and in full force and
effect.
(p) LANDLORD'S WAIVER. The Loan Parties shall have
delivered an executed Landlord's Waiver from the lessor for each of the
leased locations described in Schedule 7.1.14.
(q) CONSUMMATION OF AMENDMENT TRANSACTIONS. The Board
of Directors or all of the shareholders of each Loan Party shall have
authorized and approved the Amendment Transactions, and the Agents
shall have received satisfactory evidence of the same. Each of the
Amendment Transactions (other than extensions of credit under the
Original Credit Agreement as amended by the First Amendment) shall have
been consummated in all material respects in accordance with the terms
hereof and the terms of documentation therefor (without the waiver or
amendment of any material condition unless consented to by the Agents
and the Banks) that are in form and substance reasonably satisfactory
to the Agents and the Banks (with any condition therein requiring the
satisfaction or consent of any person other than the Agents or the
Banks being deemed to require the satisfaction or consent of the Agents
and the Banks). Each of the parties thereto shall have complied in all
material respects with all covenants set forth in the Texel Acquisition
Agreement (without the waiver or amendment of any of the terms thereof
unless consented to by the Agents and the Banks).
(r) REFINANCINGS. All liens in respect of the
Existing Texel Debt (except such liens which constitute Permitted
Liens) shall have been released and the Agents shall have received
evidence thereof satisfactory to the Agents and "pay off"
-18-
<PAGE> 19
letters satisfactory to the Agents with respect to the Existing Texel
Debt (except any Existing Texel Debt which constitutes Permitted
Indebtedness).
(s) INDEBTEDNESS. After giving effect to Amendment
Transactions and the other transactions contemplated hereby, each Loan
Party and its Subsidiaries shall have outstanding no Indebtedness to
any person other than the Borrower or its Subsidiaries or preferred
stock (or direct or indirect guarantee or other credit support in
respect thereof) outstanding other than the Permitted Indebtedness and
preferred stock of Orius described on Schedule 6.1.2.
(t) PRO FORMA BALANCE SHEET/APPLICATION OF FUNDS. The
Agents and the Banks shall have received satisfactory evidence
(including satisfactory supporting schedules and other data) that after
giving effect on a pro forma basis to the Amendment Transactions in
compliance with Regulation S-X under the Securities Act of 1933 and
otherwise acceptable to the Agents and the Banks, Borrower is in
compliance with each covenant set forth in Section 8.2.16 through
8.2.20 inclusive, of the Original Credit Agreement, as amended hereby,
as of the end of the fiscal quarter most recently ended prior to the
Amendment Closing Date.
(u) LIEN SEARCH. The Agents and the Banks shall have
received the results of a recent lien, tax and judgment search in each
of the jurisdictions and offices where assets of Texel with a value of
$25,000 or more (excluding registered motor vehicles) are located or
recorded, and such search shall reveal no liens on any of their assets
except for liens permitted by the Loan Documents or liens to be
discharged in connection with the transactions contemplated hereby.
(v) FINANCIAL STATEMENTS. The Borrower shall have
delivered to the Agents and the Banks (i) audited financial statements
of Orius and its subsidiaries for the year ended December 31, 1998,
(ii) unaudited financial statements of Orius and its Subsidiaries for
the three months ended March 31, 1999, certified by an officer of
Orius, and (iii) a pro forma consolidated balance sheet of Orius and
its subsidiaries dated as of the date of the most recently available
financial statements after giving effect to the Amendment Transactions,
which balance sheet shall be consistent in all material respects with
the sources and uses and the forecast each previously provided to the
Agents and the Banks. The sources and uses to effect the Amendment
Transactions shall not differ in any material respect from those
previously provided to the Agents and the Banks. Borrower shall also
have provided such other financial information as the Bank or the
Agents may request in connection with the Amendment Transactions.
(w) NO VIOLATION OF LAW. No law or regulation shall
be applicable in the judgment of the Agents and the Banks that
restrains, prevents or imposes material adverse conditions upon any
component of the Amendment Transactions or the financing hereof,
including the additional extensions of credit contemplated hereby.
(x) INFORMATION. The Agents and the Banks shall have
received all material information from Texel concerning potential
environmental liabilities and
-19-
<PAGE> 20
compliance with environmental laws, and shall have received all Phase I
reports they shall have reasonably requested.
(y) The terms, conditions and structure of the Texel
Acquisition and the Texel Acquisition Agreement, including any
amendments thereto (and the documentation therefor) shall be in form
and substance satisfactory to the Agents in their respective sole
discretion. The Agents and the Lenders shall have received copies,
certified by Borrower, of all filings made with any governmental
authority in connection with the Amendment Transactions.
(z) CONTINGENT AND OTHER LIABILITIES. The Agents and
the Banks shall be satisfied as to the amount and nature of all tax,
ERISA, employee retirement benefit, and other contingent liabilities to
which Texel may be subject, and the plans of Texel with respect
thereto.
(aa) STRUCTURE AND ORGANIZATION. The Agents and the
Banks shall be satisfied (in their reasonable judgment) with the
proposed and actual capitalization and corporate and organizational
structure of each Loan Party and its Subsidiaries (after giving effect
to the Amendment Transactions), including as to direct and indirect
ownership and as to the terms of the indebtedness and capital stock of
each Loan Party and its Subsidiaries.
(bb) DUE DILIGENCE REPORTS. The Agents and the Banks
shall have received final preacquisition reports of
PricewaterhouseCoopers LLP with respect to Texel that are satisfactory
to them in all respects and not different in any material respect from
the draft preacquisition reports provided prior to May 5, 1999.
(cc) BUSINESS PLAN. The Agents and the Banks shall
have received a reasonably satisfactory business plan or budget for
Borrower and its Subsidiaries after giving effect to the Amendment
Transactions for the 1999 fiscal year.
(dd) YEAR 2000. The Agents and the Banks shall be
satisfied (in their reasonable judgment) with all arrangements and
preparations by Texel with respect to the Year 2000 issue.
13. COUNTERPARTS. This First Amendment may be executed in one
or more counterparts by any party hereto in separate counterparts, each of which
when so executed and delivered to the other party shall be deemed an original.
All such counterparts together shall constitute one and the same instrument.
14. WAIVERS. This First Amendment shall not, except as
expressly set forth above, serve to waive, supplement or amend the Original
Credit Agreement, which Original Credit Agreement shall remain in full force and
effect as amended hereby.
15. GOVERNING LAW. This First Amendment shall be deemed to be
a contract under the Laws of the State of New York and for all purposes shall be
governed by and construed
-20-
<PAGE> 21
and enforced in accordance with the internal laws of the State of New York
without regard to its conflict of laws principles.
-21-
<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have executed and delivered this First
Amendment as of the date and year first above written.
BORROWER:
ATTEST: NATG HOLDINGS, LLC
By:
- ----------------------------------- ---------------------------
Title:
-------------------------
[Seal]
GUARANTORS:
ATTEST: ORIUS CORP.
By:
- ----------------------------------- ---------------------------
Title:
-------------------------
[Seal]
NORTH AMERICAN TEL-COM GROUP, INC.
By:
- ----------------------------------- ---------------------------
Title:
-------------------------
[Seal]
MICH-COM CABLE SERVICES INCORPORATED
By:
- ----------------------------------- ---------------------------
Title:
-------------------------
[Seal]
CABLEMASTERS CORP.
By:
- ----------------------------------- ---------------------------
Title:
-------------------------
[Seal]
CHANNEL COMMUNICATIONS, INC.
By:
- ----------------------------------- ---------------------------
Title:
-------------------------
[Seal]
-22-
<PAGE> 23
ATTEST: EXCEL CABLE CONSTRUCTION, INC.
By:
- ----------------------------------- ---------------------------
Title:
-------------------------
ATTEST: U.S. CABLE, INC.
By:
- ----------------------------------- ---------------------------
Title:
-------------------------
[Seal]
ATTEST: CATV SUBSCRIBER SERVICES, INC.
By:
- ----------------------------------- ---------------------------
Title:
-------------------------
[Seal]
ATTEST: STATE WIDE CATV, INC.
By:
- ----------------------------------- ---------------------------
Title:
-------------------------
[Seal]
ATTEST: BURN-TECHS, INC.
By:
- ----------------------------------- ---------------------------
Title:
-------------------------
[Seal]
ATTEST: DAS-CO of Idaho, Inc.
By:
- ----------------------------------- ---------------------------
Title:
-------------------------
[Seal]
ATTEST: SCHATZ UNDERGROUND CABLE, INC.
By:
- ----------------------------------- ---------------------------
Title:
-------------------------
[Seal]
-23-
<PAGE> 24
ATTEST: NETWORK CABLING SERVICES, INC.
By:
- ----------------------------------- ---------------------------
Title:
-------------------------
[Seal]
ATTEST: COPENHAGEN UTILITIES &
CONSTRUCTION, INC.
By:
- ----------------------------------- ---------------------------
Title:
-------------------------
[Seal]
ATTEST: TEXEL CORPORATION
By:
- ----------------------------------- ---------------------------
Title:
-------------------------
[Seal]
-24-
<PAGE> 25
PNC BANK, NATIONAL ASSOCIATION,
as a Bank and as Administrative Agent
By:
---------------------------
Title:
-------------------------
MERRILL LYNCH & CO.,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED,
as Syndication Agent
By:
---------------------------
Title:
-------------------------
MERRILL LYNCH CAPITAL
CORPORATION, as a Bank
By:
---------------------------
Title:
-------------------------
-25-
<PAGE> 1
Exhibit 10.21
================================================================================
WARRANT AGREEMENT
Dated as of February 26, 1999
Among
ORIUS CORP.,
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE,
FENNER & SMITH INCORPORATED,
PNC BANK, NATIONAL ASSOCIATION,
THE HOLDERS FROM TIME TO TIME
PARTY HERETO
and
PNC BANK, NATIONAL ASSOCIATION,
as Warrant Agent
----------------------
35,890
Warrants to Purchase One Share of Common Stock of ORIUS CORP.
$0.0001 Par Value Per Share
================================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I
ISSUANCE, FORM, EXECUTION, DELIVERY AND
REGISTRATION OF WARRANT CERTIFICATES
SECTION 1.01. Issuance of Warrants......................................2
SECTION 1.02. Form of Warrant Certificates..............................2
SECTION 1.03. Execution of Warrant Certificates.........................2
SECTION 1.04. Authentication and Delivery...............................2
SECTION 1.05. Temporary Warrant Certificates............................3
SECTION 1.06. Registration..............................................4
SECTION 1.07. Registration of Transfers and Exchanges...................4
SECTION 1.08. Lost, Stolen, Destroyed, Defaced or Mutilated
Warrant Certificates......................................7
SECTION 1.09. Offices for Exercise, etc.................................8
ARTICLE II
DURATION, EXERCISE OF WARRANTS AND EXERCISE PRICE
SECTION 2.01. Duration of Warrants......................................8
SECTION 2.02. Exercise, Exercise Price, Settlement and Delivery.........9
SECTION 2.03. Cancellation of Warrant Certificates.....................12
SECTION 2.04. Notice of an Exercise Event..............................12
ARTICLE III
OTHER PROVISIONS RELATING TO
RIGHTS OF HOLDERS OF WARRANTS
SECTION 3.01. Enforcement of Rights....................................12
ARTICLE IV
CERTAIN COVENANTS OF THE COMPANY
SECTION 4.01. Payment of Taxes.........................................13
SECTION 4.02. Qualification Under the Securities Laws..................13
SECTION 4.03. Rules 144 and 144A.......................................14
<PAGE> 3
Page
----
ARTICLE V
ADJUSTMENTS
SECTION 5.01. Adjustment of Exercise Rate; Notices.....................14
SECTION 5.02. Fractional Shares........................................19
SECTION 5.03. Certain Distributions....................................19
ARTICLE VI
CONCERNING THE WARRANT AGENT
SECTION 6.01. Warrant Agent............................................19
SECTION 6.02. Conditions of Warrant Agent's Obligations................20
SECTION 6.03. Resignation and Appointment of Successor.................23
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 7.01. Good Standing of the Company.............................25
SECTION 7.02. Capitalization...........................................25
SECTION 7.03. Authorization of Agreement...............................25
SECTION 7.04. Authorization of the Registration Rights Agreement.......25
SECTION 7.05. Absence of Defaults and Conflicts........................25
SECTION 7.06. Absence of Further Requirements..........................26
SECTION 7.07. Reservation of Shares....................................26
SECTION 7.08. Common Stock.............................................26
ARTICLE VIII
ACKNOWLEDGMENTS, REPRESENTATIONS AND WARRANTIES OF THE HOLDERS
SECTION 8.01. Acknowledgments by Lenders...............................27
SECTION 8.02. Representations and Warranties of the Holders............27
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Amendment................................................28
SECTION 9.02. Notices and Demands to the Company and Warrant Agent.....29
SECTION 9.03. Addresses for Notices to Parties and for Transmission
of Documents.............................................29
SECTION 9.04. Notices to Holders.......................................30
SECTION 9.05. APPLICABLE LAW...........................................30
<PAGE> 4
SECTION 9.06. Persons Having Rights Under Agreement....................30
SECTION 9.07. Headings 31
SECTION 9.08. Counterparts.............................................31
SECTION 9.09. Inspection of Agreement..................................31
EXHIBIT A - Form of Warrant Certificate
EXHIBIT B - Certificate To Be Delivered Upon Exchange or
Registration of Transfer of Warrants
EXHIBIT C - Transferee Letter of Representation
<PAGE> 5
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Defined Term Section
- ------------ -------
<S> <C>
Agreement............................................................................... Recitals
Business Day............................................................................ 2.01
Capital Stock........................................................................... 5.01(n)
Cashless Exercise....................................................................... 2.02(c)
Cashless Exercise Ratio................................................................. 2.02(c)
Change of Control....................................................................... 2.02(a)
Common Stock............................................................................ Recitals
Company................................................................................. Recitals
Credit Agreement........................................................................ Recitals
Current Market Value.................................................................... 5.01(n)
Distribution............................................................................ 5.03
Distribution Rights..................................................................... 5.03
Election To Exercise.................................................................... 2.02(b)
Exchange Act............................................................................ 5.01(n)
Exercisability Date..................................................................... 2.02(a)
Exercise Date........................................................................... 2.02(d)
Exercise Event.......................................................................... 2.02(a)
Exercise Price.......................................................................... 2.02(a)
Exercise Price Per Share................................................................ 2.02(c)
Exercise Rate........................................................................... 2.02(a)
Expiration Date......................................................................... 2.01
Group of Persons........................................................................ 2.02(a)
Independent Financial Expert............................................................ 5.01(n)
Holders................................................................................. Recitals
Person.................................................................................. 2.02(a)
Plan of Liquidation..................................................................... 2.02(a)
Prospectus.............................................................................. 4.02
Public Equity Offering.................................................................. 2.02(a)
Registrar............................................................................... 1.06
Related Parties......................................................................... 6.02(e)
Resale Restriction Termination Date..................................................... 1.07
Registration Rights Agreement........................................................... 7.04
Rule 144A............................................................................... 1.07
Securities Act.......................................................................... 1.07
Time of Determination................................................................... 5.01(n)
Voting Stock............................................................................ 2.02(a)
Warrant Agent........................................................................... Recitals
Warrant Agent Office.................................................................... 1.09
Warrant Certificates.................................................................... Recitals
Warrant Exercise Office................................................................. 2.02(b)
Warrant Register........................................................................ 1.06
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
Section
-------
<S> <C>
Warrant Shares.......................................................................... 1.01
Warrants................................................................................ Recitals
</TABLE>
<PAGE> 7
WARRANT AGREEMENT
THIS WARRANT AGREEMENT (this "AGREEMENT"), is made and entered
into as of February 26, 1999 among ORIUS CORP., a Delaware corporation (together
with any successor thereto, the "COMPANY"), the Holders (as defined herein) and
PNC Bank, National Association, not in its individual capacity but solely as
warrant agent (together with any successor Warrant Agent, the "WARRANT AGENT").
WHEREAS, the Company, as guarantor, NATG Holdings, LLC, a
Delaware limited liability company and a subsidiary of the Company, as borrower,
and the other guarantors party thereto have entered into credit facilities dated
February 26, 1999 (the "CREDIT AGREEMENT"; capitalized terms used herein and not
otherwise defined shall have the meanings set forth in the Credit Agreement)
with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, as
joint lead arranger and syndication agent and PNC Bank, National Association, as
joint lead arranger and administrative agent (together, the "AGENTS"), Merrill
Lynch Capital Corporation and PNC Bank, National Association and the other
lenders named therein (the "LENDERS") in which the Lenders have agreed to commit
up to $145.0 million in borrowings, including up to $15.0 million in Tranche C
Term Loans;
WHEREAS, the Company has agreed, in consideration for the
services of the Agents in structuring, arranging and syndicating the Credit
Facilities, and in consideration (in addition to that set forth under the Credit
Agreement) for the commitments of certain of the Lenders and their agreement to
provide extensions of credit under the Term Loan C Commitments thereunder, to
issue to the persons (which include such Agents and Lenders) listed on the
signature page hereof (the "HOLDERS"), to issue to the Holders, 35,890 Warrants
(the "WARRANTS" and the certificates evidencing the Warrants being hereinafter
referred to as "WARRANT CERTIFICATES"), each representing the right to purchase
initially one share of Common Stock, $0.0001 par value per share, of the Company
(the "COMMON STOCK"), subject to adjustment in accordance with the terms hereof;
WHEREAS, the Holders will have the registration rights with
respect to the Warrants and the Warrant Shares (as defined) as set forth in the
Registration Rights Agreement (as defined); and
WHEREAS, the Company desires the Warrant Agent as warrant
agent to assist the Company in connection with the issuance, exchange,
cancellation, replacement and exercise of the Warrants, and in this Agreement
wishes to set forth, among other things, the terms and conditions on which the
Warrants may be issued, exchanged, cancelled, replaced and exercised;
NOW, THEREFORE, the parties hereto agree as follows:
<PAGE> 8
-2-
ARTICLE I
ISSUANCE, FORM, EXECUTION, DELIVERY AND
REGISTRATION OF WARRANT CERTIFICATES
SECTION 1.01. ISSUANCE OF WARRANTS.
Each Warrant Certificate shall evidence the number of Warrants
specified therein, and each Warrant evidenced thereby shall represent the right,
subject to the provisions contained herein and therein, to purchase from the
Company (and the Company shall issue and sell to such holder of the Warrant) one
(1) fully paid and non-assessable share of Common Stock (the shares purchasable
upon exercise of a Warrant being hereinafter referred to as the "WARRANT SHARES"
and, where appropriate, such term shall also mean the other securities or
property purchasable and deliverable upon exercise of a Warrant as provided in
Article V) at the price specified herein and therein, in each case subject to
adjustment as provided herein and therein.
SECTION 1.02. FORM OF WARRANT CERTIFICATES. The Warrant
Certificates shall be substantially in the form of EXHIBIT A hereto.
SECTION 1.03. EXECUTION OF WARRANT CERTIFICATES. The Warrant
Certificates shall be executed on behalf of the Company by the chairman of its
Board of Directors, its president or any vice president and attested by its
secretary or assistant secretary, under its corporate seal. Such signatures may
be the manual or facsimile signatures of the present or any future such
officers. The seal of the Company may be in the form of a facsimile thereof and
may be impressed, affixed, imprinted or otherwise reproduced on the Warrant
Certificates. Typographical and other minor errors or defects in any such
reproduction of the seal or any such signature shall not affect the validity or
enforceability of any Warrant Certificate that has been duly countersigned and
delivered by the Warrant Agent.
In case any officer of the Company who shall have signed any
of the Warrant Certificates shall cease to be such officer before the Warrant
Certificate so signed shall be countersigned and delivered by the Warrant Agent
or disposed of by the Company, such Warrant Certificate nevertheless may be
countersigned and delivered or disposed of as though the person who signed such
Warrant Certificate had not ceased to be such officer of the Company; and any
Warrant Certificate may be signed on behalf of the Company by such persons as,
at the actual date of the execution of such Warrant Certificate, shall be the
proper officers of the Company, although at the date of the execution and
delivery of this Agreement any such person was not such an officer.
SECTION 1.04. AUTHENTICATION AND DELIVERY. Subject to the
immediately following paragraph, Warrant Certificates shall be authenticated by
manual signature and dated the date of authentication by the Warrant Agent and
shall not be valid for any purpose unless so authenticated and dated. The
Warrant Certificates shall be numbered and shall be registered in the Warrant
Register (as defined in Section 1.06 hereof).
Upon the receipt by the Warrant Agent of a written order of
the Company, which order shall be signed by the chairman of its Board of
Directors, its president or any vice president and
<PAGE> 9
-3-
attested by its secretary or assistant secretary, and shall specify the amount
of Warrants to be authenticated, the date of such Warrants and such other
information as the Warrant Agent may reasonably request, without any further
action by the Company, the Warrant Agent is authorized, upon receipt from the
Company at any time and from time to time of the Warrant Certificates, duly
executed as provided in Section 1.03 hereof, to authenticate the Warrant
Certificates and deliver them. Such authentication shall be by a duly authorized
signatory of the Warrant Agent (although it shall not be necessary for the same
signatory to sign all Warrant Certificates).
In case any authorized signatory of the Warrant Agent who
shall have authenticated any of the Warrant Certificates shall cease to be such
authorized signatory before the Warrant Certificate shall be disposed of by the
Company, such Warrant Certificate nevertheless may be delivered or disposed of
as though the person who authenticated such Warrant Certificate had not ceased
to be such authorized signatory of the Warrant Agent; and any Warrant
Certificate may be authenticated on behalf of the Warrant Agent by such persons
as, at the actual time of authentication of such Warrant Certificates, shall be
the duly authorized signatories of the Warrant Agent, although at the time of
the execution and delivery of this Agreement any such person is not such an
authorized signatory.
The Warrant Agent's authentication on all Warrant Certificates
shall be substantially in the form of EXHIBIT A hereto.
SECTION 1.05. TEMPORARY WARRANT CERTIFICATES. Pending the
preparation of definitive Warrant Certificates, the Company may execute, and the
Warrant Agent shall authenticate and deliver, temporary Warrant Certificates,
which are printed, lithographed, typewritten or otherwise produced,
substantially of the tenor of the definitive Warrant Certificates in lieu of
which they are issued and with such appropriate insertions, omissions,
substitutions and other variations as the officers executing such Warrant
Certificates may determine, as evidenced by their execution of such Warrant
Certificates.
If temporary Warrant Certificates are issued, the Company will
cause definitive Warrant Certificates to be prepared without unreasonable delay.
After the preparation of definitive Warrant Certificates, the temporary Warrant
Certificates shall be exchangeable for definitive Warrant Certificates upon
surrender of the temporary Warrant Certificates at any office or agency
maintained by the Company for that purpose pursuant to Section 1.09 hereof.
Subject to the provisions of Section 4.01 hereof, such exchange shall be without
charge to the holder. Upon surrender for cancellation of any one or more
temporary Warrant Certificates, the Company shall execute, and the Warrant Agent
shall authenticate and deliver in exchange therefor, one or more definitive
Warrant Certificates representing in the aggregate a like number of Warrants.
Until so exchanged, the holder of a temporary Warrant Certificate shall in all
respects be entitled to the same benefits under this Agreement as a holder of a
definitive Warrant Certificate.
SECTION 1.06. REGISTRATION. The Company will keep, at the
office or agency maintained by the Company for such purpose, a register or
registers in which, subject to such reasonable regulations as it may prescribe,
the Company shall provide for the registration of, and registration of transfer
and exchange of, Warrants as provided in this Article. Each person designated by
the
<PAGE> 10
-4-
Company from time to time as a person authorized to register the transfer and
exchange of the Warrants is hereinafter called, individually and collectively,
the "REGISTRAR". The Company hereby initially appoints the Warrant Agent as
Registrar. Upon written notice to the Warrant Agent and any acting Registrar,
the Company may appoint a successor Registrar for such purposes.
The Company will at all times designate one person (who may be
the Company and who need not be a Registrar) to act as repository of a master
list of names and addresses of the holders of Warrants (the "WARRANT REGISTER").
The Warrant Agent will act as such repository unless and until some other person
is, by written notice from the Company to the Warrant Agent and the Registrar,
designated by the Company to act as such. The Company shall cause each Registrar
to furnish to such repository, on a current basis, such information as to all
registrations of transfer and exchanges effected by such Registrar, as may be
necessary to enable such repository to maintain the Warrant Register on as
current a basis as is practicable.
SECTION 1.07. REGISTRATION OF TRANSFERS AND EXCHANGES.
(a) TRANSFER AND EXCHANGE OF WARRANTS. When Warrants are
presented to the Warrant Agent with a request:
(i) to register the transfer of the Warrants; or
(ii) to exchange such definitive Warrants for an equal number of
Warrants of other authorized denominations,
the Warrant Agent shall register the transfer or make the exchange as requested
if the requirements under this Warrant Agreement as set forth in this Section
1.07 for such transactions are met; PROVIDED, HOWEVER, that the Warrants
presented or surrendered for registration of transfer or exchange:
(x) shall be duly endorsed or accompanied by a written instruction
of transfer in form satisfactory to the Company and the
Warrant Agent, duly executed by the holder thereof or by his
or her attorney, duly authorized in writing; and
(y) in the case of Warrants the offer and sale of which have not
been registered under the Securities Act of 1933, as amended
(the "SECURITIES ACT") that are presented for transfer or
exchange prior to (x) the date that is two years after the
later of the date of original issue and the last date on which
the Company or any affiliate of the Company was the owner of
such Warrant (or any predecessor thereto) and (y) such later
date, if any, as may be required by any subsequent change in
applicable law (the "RESALE RESTRICTION TERMINATION DATE"),
such Warrants shall be accompanied, in the sole discretion of
the Company, by the following additional information and
documents, as applicable, it being understood, however, that
the Warrant Agent need not determine which clause (A) through
(D) below is applicable:
<PAGE> 11
-5-
(A) if such Warrant is being delivered to the Warrant
Agent by a holder for registration in the name of
such holder, without transfer, a certification from
such holder to that effect (in substantially the form
of EXHIBIT B hereto); or
(B) if such Warrant is being transferred to a qualified
institutional buyer (as defined in Rule 144A under
the Securities Act ("RULE 144A")) in accordance with
Rule 144A or pursuant to an exemption from
registration in accordance with Rule 144 or
Regulation S under the Securities Act or pursuant to
an effective registration statement under the
Securities Act, a certification to that effect (in
substantially the form of EXHIBIT B hereto); or
(C) if such Warrant is being transferred to an
institutional "accredited investor" within the
meaning of subparagraphs (a)(1), (a)(2), (a)(3) or
(a)(7) of Rule 501 under the Securities Act, delivery
of a Certificate of Transfer in the form of EXHIBIT C
hereto and an opinion of counsel and/or other
information reasonably acceptable to the Company to
the effect that such transfer is in compliance with
the Securities Act; or
(D) if such Warrant is being transferred in reliance on
another exemption from the registration requirements
of the Securities Act, a certification to that effect
from the transferee or transferor (in substantially
the form of EXHIBIT B hereto) and an opinion of
counsel from the transferee or transferor reasonably
acceptable to the Company to the effect that such
transfer is in compliance with the Securities Act.
(b) LEGENDS.
(i) Except as permitted by the following paragraph (ii), each
Warrant Certificate evidencing the Warrants (and all Warrants
issued in exchange therefor or substitution thereof) shall
bear a legend substantially to the following effect:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS.
NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS
SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER,
SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE WHICH IS
TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE
LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE
OWNER OF THIS SECURITY (OR ANY PREDECESSOR SECURITY) ONLY (A) TO THE
COMPANY,
<PAGE> 12
-6-
(B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES
ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT,
TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER"
AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT
THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO
OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE
MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPHS
(a)(1), (a)(2), (a)(3) OR (a)(7) OF RULE 501 UNDER THE SECURITIES ACT
THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT
OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR", FOR INVESTMENT PURPOSES
AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO
ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, SUBJECT TO THE COMPANY'S RIGHT IN ITS SOLE DISCRETION
PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D), (E)
OR (F) TO REQUIRE THE DELIVERY OF A WRITTEN OPINION OF COUNSEL,
CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO THE COMPANY,
AND IN EACH OF THE FOREGOING CASES, THE DELIVERY OF A COMPLETED
CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS
SECURITY BY THE TRANSFEROR TO THE COMPANY AND THE WARRANT AGENT. THIS
LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE
RESTRICTION TERMINATION DATE.
(ii) Upon any sale or transfer of a Warrant pursuant
to Rule 144 under the Securities Act in accordance
with Section 1.07 hereof or under an effective
registration statement under the Securities Act, the
Warrant Agent shall permit the holder thereof to
exchange such Warrant for a definitive Warrant that
does not bear the legends set forth above and rescind
any related restriction on the transfer of such
Warrant.
(c) OBLIGATIONS WITH RESPECT TO TRANSFERS AND EXCHANGES OF
WARRANTS.
(i) To permit registrations of transfers and exchanges, the
Company shall execute, at the Warrant Agent's request, and the
Warrant Agent shall authenticate Warrants.
<PAGE> 13
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(ii) All Warrants issued upon any registration, transfer or
exchange of Warrants shall be the valid obligations of the
Company, entitled to the same benefits under this Warrant
Agreement as the Warrants surrendered upon the registration of
transfer or exchange.
(iii) Prior to due presentment for registration of transfer of any
Warrant, the Warrant Agent and the Company may deem and treat
the person in whose name any Warrant is registered as the
absolute owner of such Warrant, and neither the Warrant Agent
nor the Company shall be affected by notice to the contrary.
(d) PAYMENT OF TAXES. The Company will pay all documentary
stamp taxes attributable to the initial issuance of the Warrant Shares upon the
exercise of Warrants; PROVIDED, HOWEVER, that the Company shall not be required
to pay any tax or taxes which may be payable in respect of any transfer involved
in the issue of any Warrant Certificates or any certificates for the Warrant
Shares in a name other than that of the registered holder of a Warrant
Certificate surrendered upon the exercise of a Warrant, and the Company shall
not be required to issue or deliver such Warrant Certificates unless or until
the person or persons requesting the issuance thereof shall have paid to the
Company the amount of such tax or shall have established to the satisfaction of
the Company that such tax has been paid.
SECTION 1.08. LOST, STOLEN, DESTROYED, DEFACED OR MUTILATED
WARRANT CERTIFICATES. Upon receipt by the Company and the Warrant Agent (or any
agent of the Company or the Warrant Agent, if requested by the Company) of
evidence satisfactory to them of the loss, theft, destruction, defacement, or
mutilation of any Warrant Certificate and of indemnity satisfactory to them and,
in the case of mutilation or defacement, upon surrender thereof to the Warrant
Agent for cancellation, then, in the absence of notice to the Company or the
Warrant Agent that such Warrant Certificate has been acquired by a BONA FIDE
purchaser or holder in due course, the Company shall execute, and an authorized
signatory of the Warrant Agent shall manually authenticate and deliver, in
exchange for or in lieu of the lost, stolen, destroyed, defaced or mutilated
Warrant Certificate, a new Warrant Certificate representing a like number of
Warrants, bearing a number or other distinguishing symbol not contemporaneously
outstanding. Upon the issuance of any new Warrant Certificate under this Section
1.08, the Company may require the payment from the holder of such Warrant
Certificate of a sum sufficient to cover any tax, stamp tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Warrant Agent and the
Registrar) in connection therewith. Every substitute Warrant Certificate
executed and delivered pursuant to this Section in lieu of any lost, stolen or
destroyed Warrant Certificate shall constitute an additional contractual
obligation of the Company, whether or not the lost, stolen or destroyed Warrant
Certificate shall be at any time enforceable by anyone, and shall be entitled to
the benefits of (but shall be subject to all the limitations of rights set forth
in) this Agreement equally and proportionately with any and all other Warrant
Certificates duly executed and delivered hereunder. The provisions of this
Section 1.08 are exclusive with respect to the replacement of lost, stolen,
destroyed, defaced or mutilated Warrant Certificates and shall preclude (to the
extent lawful) any and all other rights or remedies notwithstanding any law or
statute existing or hereafter enacted to the contrary with respect to the
replacement of lost, stolen, destroyed, defaced or mutilated Warrant
Certificates.
<PAGE> 14
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The Warrant Agent is hereby authorized to authenticate in
accordance with the provisions of this Agreement, and deliver the new Warrant
Certificates required pursuant to the provisions of this Section.
SECTION 1.09. OFFICES FOR EXERCISE, ETC. So long as any of the
Warrants remain outstanding, the Company will designate and maintain in the City
of Pittsburgh: (a) an office or agency where the Warrant Certificates may be
presented for exercise, (b) an office or agency where the Warrant Certificates
may be presented for registration of transfer and for exchange (including the
exchange of temporary Warrant Certificates for definitive Warrant Certificates
pursuant to Section 1.05 hereof), and (c) an office or agency where notices and
demands to or upon the Company in respect of the Warrants or of this Agreement
may be served. The Company may from time to time change or rescind such
designation, as it may deem desirable or expedient; PROVIDED, however, that an
office or agency shall at all times be maintained in the The City of Pittsburgh,
as provided in the first sentence of this Section. In addition to such office or
offices or agency or agencies, the Company may from time to time designate and
maintain one or more additional offices or agencies within or outside The City
of Pittsburgh, where Warrant Certificates may be presented for exercise or for
registration of transfer or for exchange, and the Company may from time to time
change or rescind such designation, as it may deem desirable or expedient. The
Company will give to the Warrant Agent written notice of the location of any
such office or agency and of any change of location thereof. The Company hereby
designates the Warrant Agent at its principal corporate trust office in The City
of Pittsburgh (the "WARRANT AGENT OFFICE"), as the initial agency maintained for
each such purpose. In case the Company shall fail to maintain any such office or
agency or shall fail to give such notice of the location or of any change in the
location thereof, presentations and demands may be made and notice may be served
at the Warrant Agent Office, and the Company appoints the Warrant Agent as its
agent to receive all such presentations, surrenders, notices and demands.
ARTICLE II
DURATION, EXERCISE OF WARRANTS AND EXERCISE PRICE
SECTION 2.01. DURATION OF WARRANTS. Subject to the terms and
conditions established herein, the Warrants shall expire at 5:00 p.m., New York
City time, on March 31, 2009 (the "EXPIRATION DATE"). Each Warrant may be
exercised on any Business Day (as defined below) on or after the Exercisability
Date (as defined below) and on or prior to the close of business on the
Expiration Date.
Any Warrant not exercised before the close of business on the
Expiration Date shall become void, and all rights of the holder under the
Warrant Certificate evidencing such Warrant and under this Agreement shall
cease.
"BUSINESS DAY" shall mean any day on which (i) banks in New
York City, (ii) the principal national securities exchange or market, if any, on
which the Common Stock is listed or
<PAGE> 15
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admitted to trading and (iii) the principal national securities exchange or
market, if any, on which the Warrants are listed or admitted to trading are open
for business.
SECTION 2.02. EXERCISE, EXERCISE PRICE, SETTLEMENT AND
DELIVERY. (a) Subject to the provisions of this Agreement, a holder of Warrants
shall have the right to purchase from the Company on or after the occurrence of
an Exercise Event (the date of the occurrence of an Exercise Event, the
"EXERCISABILITY DATE") and on or prior to the close of business on the
Expiration Date one (1) fully paid, registered and non-assessable Warrant Share,
subject to adjustment in accordance with Article V hereof, at the purchase price
of $0.01 for each Warrant exercised (the "EXERCISE PRICE"). The number and kind
of Warrant Shares for which a Warrant may be exercised (the "EXERCISE RATE")
shall be subject to adjustment from time to time as set forth in Article V
hereof.
"CHANGE OF CONTROL" means the occurrence of one or more of the
following events (whether or not approved by the Board of Directors of the
Company):
(i) the Company consolidates with or merges with or into
another Person or the Company or any of its subsidiaries, directly or
indirectly, sells, assigns, conveys, transfers, leases or otherwise
disposes of, in one transaction or a series of related transactions,
all or substantially all of the property or assets of the Company and
its subsidiaries (determined on a consolidated basis) to any Person or
group of related Persons for purposes of Sections 13(d) and 14(d) of
the Exchange Act, whether or not applicable (a "GROUP OF PERSONS")
(other than the Company or one or more wholly owned subsidiaries of the
company), or any Person consolidates with, or merges with or into, the
Company, (other than a wholly owned subsidiary of the Company); or
(ii) the approval by the holders of Capital Stock of the
Company of any Plan of Liquidation; or
(iii) any Change of Control (as defined in the Credit
Agreement as in effect on the date hereof) shall occur.
"EXERCISE EVENT" means, with respect to each Warrant, the date
of the earliest of: (1) the seventh day prior to the occurrence of a Change of
Control, (2) the consummation of a Public Equity Offering (excluding the
exercise of any over-allotment option) and (3) 180 days prior to March 31, 2004.
"PERSON" means an individual, partnership, corporation,
unincorporated organization, trust or joint venture, or a governmental agency or
political subdivision thereof.
"PLAN OF LIQUIDATION" means, with respect to any Person, a
plan (including by operation of law) that provides for, contemplates or the
effectuation of which is preceded or accompanied by (whether or not
substantially contemporaneously) (i) the sale, lease, conveyance or other
disposition of all or substantially all of the assets of such Person otherwise
than as an entirety or substantially as an entirety and (ii) the distribution of
all or substantially all of the proceeds of such sale, lease,
<PAGE> 16
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conveyance or other disposition and all or substantially all of the remaining
assets of such Person to holders of Capital Stock of such Person.
"PUBLIC EQUITY OFFERING" means a primary public offering
(whether or not underwritten, but excluding any offering pursuant to Form S-4 or
S-8 under the Securities Act) of capital stock of the Company pursuant to an
effective registration statement under the Securities Act, in which the
aggregate net proceeds to the Company equal at least $5,000,000.
"VOTING STOCK" means, with respect to any Person, securities
of any class or classes of Capital Stock of such Person entitling the holders
thereof (whether at all times or only so long as no senior class of stock has
voting power by reason of any contingency) to vote in the election of members of
the Board of Directors of such Person.
(b) Warrants may be exercised on or after the Exercisability
Date by (i) surrendering at any office or agency maintained for that purpose by
the Company pursuant to Section 1.09 (each a "WARRANT EXERCISE OFFICE") the
Warrant Certificate evidencing such Warrants with the form of election to
purchase Warrant Shares set forth on the reverse side of the Warrant Certificate
(the "ELECTION TO EXERCISE") duly completed and signed by the registered holder
or holders thereof or by the duly appointed legal representative thereof or by a
duly authorized attorney, and in the case of a transfer, such signature shall be
guaranteed by an Eligible Guarantor Institution, and (ii) paying in full the
Exercise Price for each such Warrant exercised and any other amounts required to
be paid pursuant to Section 1.07 hereof. Each Warrant may be exercised only in
whole.
(c) Simultaneously with the exercise of each Warrant, payment
in full of the Exercise Price shall be made in cash or by certified or official
bank check to be delivered to the office or agency where the Warrant Certificate
is being surrendered. Notwithstanding the foregoing sentence, a Warrant may also
be exercised solely by the surrender of the Warrant, and without the payment of
the Exercise Price in cash, for such number of Warrant Shares equal to the
product of (1) the number of Warrant Shares for which such Warrant is
exercisable with payment of the Exercise Price as of the date of exercise and
(2) the Cashless Exercise Ratio. For purposes of this Agreement, the "CASHLESS
EXERCISE RATIO" shall equal a fraction, the numerator of which is the excess of
the Current Market Value of the Common Stock on the date of exercise (calculated
as set forth in Section 5.01(n) hereof) over the Exercise Price Per Share as of
the date of exercise and the denominator of which is the Current Market Value of
the Common Stock on the date of exercise (calculated as set forth in Section
5.01(n) hereof). An exercise of a Warrant in accordance with the immediately
preceding sentences is herein called a "CASHLESS EXERCISE". Upon surrender of a
Warrant Certificate representing more than one Warrant in connection with the
holder's option to elect a Cashless Exercise, the number of Warrant Shares
deliverable upon a Cashless Exercise shall be equal to the number of Warrants
that the holder specifies is to be exercised pursuant to a Cashless Exercise
multiplied by the Cashless Exercise Ratio. All provisions of this Agreement
shall be applicable with respect to an exercise of a Warrant Certificate
pursuant to a Cashless Exercise for less than the full number of Warrants
represented thereby.
<PAGE> 17
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"EXERCISE PRICE PER SHARE" means the Exercise Price divided by
the number of Warrant Shares for which a Warrant is then exercisable (without
giving effect to the Cashless Exercise option). No payment or adjustment shall
be made on account of any dividends on the Warrant Shares issued upon exercise
of a Warrant. If, pursuant to the Securities Act, the Company is not able to
effect the registration of the offer and sale of the Warrant Shares by the
Company to the holders of the Warrants upon the exercise thereof as required by
Section 4.02 hereof, the holders of the Warrants agree to effect the exercise of
the Warrants solely pursuant to the Cashless Exercise option to the extent that
such Cashless Exercise is not adverse to the interests of the holders of the
Warrants.
(d) Upon such surrender of a Warrant Certificate and payment
and collection of the Exercise Price at any Warrant Exercise Office (other than
any Warrant Exercise Office that also is an office of the Warrant Agent), such
Warrant Certificate and payment shall be promptly delivered to the Warrant
Agent. The "EXERCISE DATE" for a Warrant shall be the date when all of the items
referred to in the first sentence of paragraphs (b) and (c) of this Section 2.02
are received by the Warrant Agent at or prior to 11:00 a.m., New York City time,
on a Business Day, and the exercise of the Warrants will be effective as of such
Exercise Date. If any items referred to in the first sentence of paragraphs (b)
and (c) are received after 11:00 a.m., New York City time, on a Business Day,
the exercise of the Warrants to which such item relates will be effective on the
next succeeding Business Day. Notwithstanding the foregoing, in the case of an
exercise of Warrants on the Expiration Date (as defined in Section 2.01), if all
of the items referred to in the first sentence of paragraphs (b) and (c) are
received by the Warrant Agent at or prior to 5:00 p.m., New York City time, on
such Expiration Date, the exercise of the Warrants to which such items relate
will be effective on the Expiration Date.
(e) Upon the exercise of a Warrant in accordance with the
terms hereof, the receipt of a Warrant Certificate and payment of the Exercise
Price (or election of the Cashless Exercise option), the Warrant Agent shall:
(i) except to the extent exercise of the Warrant has been effected through
Cashless Exercise, cause an amount equal to the Exercise Price to be paid to the
Company by crediting the same to the account designated by the Company in
writing to the Warrant Agent for that purpose; (ii) advise the Company
immediately by telephone of the amount so deposited to the Company's account and
promptly confirm such telephonic advice in writing; and (iii) as soon as
practicable, advise the Company in writing of the number of Warrants exercised
in accordance with the terms and conditions of this Agreement and the Warrant
Certificates, the instructions of each exercising holder of the Warrant
Certificates with respect to delivery of the Warrant Shares to which such holder
is entitled upon such exercise, and such other information as the Company shall
reasonably request.
(f) Subject to Section 5.02 hereof, as soon as practicable
after the exercise of any Warrant or Warrants in accordance with the terms
hereof, the Company shall issue or cause to be issued to or upon the written
order of the registered holder of the Warrant Certificate evidencing such
exercised Warrant or Warrants, a certificate or certificates evidencing the
Warrant Shares to which such holder is entitled, in fully registered form,
registered in such name or names as may be directed by such holder pursuant to
the Election to Exercise, as set forth on the reverse of the Warrant
Certificate. Such certificate or certificates evidencing the Warrant Shares
shall be deemed to have been issued and any persons who are designated to be
named therein shall be deemed to have become the holder of record of such
Warrant Shares as of the close of business on the Exercise Date. After such
<PAGE> 18
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exercise of any Warrant or Warrants, the Company shall also issue or cause to be
issued to or upon the written order of the registered holder of such Warrant
Certificate, a new Warrant Certificate, countersigned by the Warrant Agent
pursuant to written instruction, evidencing the number of Warrants, if any,
remaining unexercised unless such Warrants shall have expired.
SECTION 2.03. CANCELLATION OF WARRANT CERTIFICATES. In the
event the Company shall purchase or otherwise acquire Warrants, the Warrant
Certificates evidencing such Warrants may thereupon be delivered to the Warrant
Agent, and if so delivered, shall at the Company's written instruction be
canceled by it and retired. The Warrant Agent shall cancel all Warrant
Certificates properly surrendered for exchange, substitution, transfer or
exercise. The Warrant Agent shall deliver such canceled Warrant Certificates to
the Company.
SECTION 2.04. NOTICE OF AN EXERCISE EVENT. The Company shall,
to the extent reasonably practicable, not fewer than 30 days nor more than 60
days prior to the occurrence of an Exercise Event, send to each holder of
Warrants and to each beneficial owner of the Warrants to the extent that the
Warrants are held of record by a depositary or other agent, by first-class mail,
at the addresses appearing on the Warrant Register, a notice of the Exercise
Event to occur, which notice shall describe the type of Exercise Event and the
date of the proposed occurrence thereof and the date of expiration of the right
to exercise the Warrants prominently set forth in the face of such notice.
ARTICLE III
OTHER PROVISIONS RELATING TO
RIGHTS OF HOLDERS OF WARRANTS
SECTION 3.01. ENFORCEMENT OF RIGHTS. (a) Notwithstanding any
of the provisions of this Agreement, any holder of any Warrant Certificate,
without the consent of the Warrant Agent, the holder of any Warrant Shares or
the holder of any other Warrant Certificate, may, in and for his own behalf,
enforce, and may institute and maintain any suit, action or proceeding against
the Company suitable to enforce, his right to exercise the Warrant or Warrants
evidenced by his Warrant Certificate in the manner provided in such Warrant
Certificate and in this Agreement.
(b) Neither the Warrants nor any Warrant Certificate shall
entitle the holders thereof to any of the rights of a holder of Warrant Shares,
including, without limitation, the right to vote or to receive any dividends or
other payments or to consent or to receive notice as stockholders in respect of
the meetings of stockholders or for the election of directors of the Company or
any other matter, or any rights whatsoever as stockholders of the Company.
<PAGE> 19
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ARTICLE IV
CERTAIN COVENANTS OF THE COMPANY
SECTION 4.01. PAYMENT OF TAXES. The Company will pay all
documentary stamp taxes attributable to the initial issuance of Warrants and of
the Warrant Shares upon the exercise of Warrants; PROVIDED, HOWEVER, that the
Company shall not be required to pay any tax or other governmental charge which
may be payable in respect of any transfer or exchange of any Warrant
Certificates or any certificates for Warrant Shares in a name other than the
registered holder of a Warrant Certificate surrendered upon the exercise of a
Warrant. In any such case, no transfer or exchange shall be made unless or until
the person or persons requesting issuance thereof shall have paid to the Company
the amount of such tax or other governmental charge or shall have established to
the satisfaction of the Company that such tax or other governmental charge has
been paid or an exemption is available therefrom.
SECTION 4.02. QUALIFICATION UNDER THE SECURITIES LAWS. Prior
to the occurrence of an Exercise Event the Company will, if permitted by
applicable law, take all such action as is necessary to allow the offer and sale
by the Company of the Warrant Shares issuable upon exercise of the Warrants to
be registered or otherwise qualified under the provisions of the Securities Act
and pursuant to all applicable state securities laws and to provide for the
issuance of all Warrant Shares delivered upon exercise of the Warrants pursuant
to an effective registration statement under the Securities Act. So long as any
unexpired Warrants which have become exercisable due to the occurrence of an
Exercise Event remain outstanding, the Company will file such amendments and/or
supplements to any registration statement under the Securities Act or under any
state securities laws covering the issuance of such Warrant Shares and
supplement and keep current any prospectus forming a part of such registration
statement as may be necessary to permit the Company to deliver to each person
exercising a Warrant a prospectus meeting the requirements of Section 10(a)(3)
of the Securities Act (a "PROSPECTUS") and the regulations of the Securities and
Exchange Commission and otherwise complying with the Securities Act and
regulations thereunder, and as may be necessary to comply with any applicable
state securities laws. The Company shall, upon the request of any holder of
Warrants that may be required pursuant to the Securities Act to deliver a
prospectus in connection with any sale or other disposition of Warrant Shares,
include within the plan of distribution section of the Prospectus and in such
other places in the Prospectus as may be necessary all information necessary
under the Securities Act to enable such holder to deliver such Prospectus in
connection with sales or other dispositions of such Warrant Shares, and the
Company shall also take such action as may be necessary under the Securities Act
with respect to the related registration statement to enable such holder to
effect such delivery in connection with such sale or other disposition. The
Company further agrees to provide any holder who may be required to deliver a
prospectus upon the sale or other disposition of such Warrant Shares, such
number of copies of the Prospectus as such holder reasonably requests.
SECTION 4.03. RULES 144 AND 144A. The Company covenants that
it will file the reports required to be filed by it under the Securities Act and
the Exchange Act and the rules and regulations adopted by the Securities and
Exchange Commission thereunder in a timely manner in accordance with the
requirements of the Securities Act and the Exchange Act and, if at any time the
<PAGE> 20
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Company is not required to file such reports, it will, upon the request of any
holder or beneficial owner of Warrants, make available such information
necessary to permit sales pursuant to Rule 144A. The Company further covenants
that it will take such further action as any holder or beneficial owner of
Warrants may reasonably request, all to the extent required from time to time to
enable such holder or beneficial owner to sell Warrants without registration
under the Securities Act within the limitation of the exemptions provided by (a)
Rule 144(k) under the Securities Act and Rule 144A, as such Rules may be amended
from time to time, or (b) any similar rule or regulation hereafter adopted by
the Securities and Exchange Commission (it being expressly understood that the
foregoing shall not create any obligation on the part of the Company to file
periodic or other reports under the Exchange Act at any time that it is not then
required to file such reports pursuant to the Exchange Act).
ARTICLE V
ADJUSTMENTS
SECTION 5.01. ADJUSTMENT OF EXERCISE RATE; NOTICES. The
Exercise Rate is subject to adjustment from time to time as provided in this
Section.
(a) ADJUSTMENT FOR CHANGE IN CAPITAL STOCK. If, after the date
hereof, the Company:
(i) pays a dividend or makes a distribution on its Common
Stock in shares of its Common Stock;
(ii) subdivides its outstanding shares of Common Stock into
a greater number of shares;
(iii) combines its outstanding shares of Common Stock into
a smaller number of shares;
(iv) pays a dividend or makes a distribution on its Common
Stock in shares of its Capital Stock (as defined below) (other than
Common Stock or rights, warrants, or options for its Common Stock to
the extent such issuance or distribution is covered by Section 5.03);
or
(v) issues by reclassification of its Common Stock any
shares of its Capital Stock (other than rights, warrants or options for
its Common Stock);
then the Exercise Rate in effect immediately prior to such action shall be
adjusted so that the holder of a Warrant thereafter exercised may receive the
number of shares of Capital Stock of the Company which such holder would have
owned immediately following such action if such holder had exercised the Warrant
immediately prior to such action or immediately prior to the record date
applicable thereto, if any (regardless of whether the Warrants are then
exercisable and without giving effect to the Cashless Exercise option).
<PAGE> 21
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The adjustment shall become effective immediately after the
record date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, combination or reclassification. In
the event that such dividend or distribution is not so paid or made or such
subdivision, combination or reclassification is not effected, the Exercise Rate
shall again be adjusted to be the Exercise Rate which would then be in effect if
such record date or effective date had not been so fixed.
If after an adjustment a holder of a Warrant upon exercise of
such Warrant may receive shares of two or more classes of Capital Stock of the
Company, the Exercise Rate shall thereafter be subject to adjustment upon the
occurrence of an action taken with respect to any such class of Capital Stock as
is contemplated by this Article V with respect to the Common Stock, on terms
comparable to those applicable to Common Stock in this Article V.
(b) ADJUSTMENT FOR SALE OF COMMON STOCK BELOW CURRENT MARKET
VALUE. If, after the date hereof, the Company sells any Common Stock or any
securities convertible into or exchangeable or exercisable for the Common Stock
(other than (1) pursuant to the exercise of the Warrants, (2) the issuance of
Common Stock pursuant to any convertible, exchangeable or exercisable securities
of the Company as to which the issuance thereof has previously been the subject
of any required adjustment pursuant to this Article V, (3) the issuance of
Common Stock upon the conversion, exchange or exercise of convertible,
exchangeable or exercisable securities of the Company outstanding on the date of
this Agreement (to the extent in accordance with the terms of such securities as
in effect on the date of this Agreement) or (4) any security issued pursuant to
any stock plan for employees, officers, directors or consultants of the Company
approved by the non-management members of the Board of Directors of the Company)
at a price per share less than the Current Market Value, the Exercise Rate shall
be adjusted in accordance with the formula:
(O + N)
E' = E x ---------------------------------
(O + (N x P/M))
where:
E' = the adjusted Exercise Rate;
E = the current Exercise Rate;
O = the number of shares of Common Stock outstanding on the date
of sale of Common Stock at a price per share less than the
Current Market Value to which this paragraph (b) applies;
N = the number of shares of Common Stock so sold or the maximum
stated number of shares of Common Stock issuable upon the
conversion, exchange, or exercise of any such convertible,
exchangeable or exercisable securities, as the case may be;
<PAGE> 22
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P = the offering price per share pursuant to any such convertible,
exchangeable or exercisable securities so sold or the sale
price of the shares so sold, as the case may be; and
M = the Current Market Value as of the Time of Determination or
at the time of sale, as the case may be.
The Board of Directors of the Company shall reasonably and in
good faith determine fair market values for the purposes of this paragraph (b),
which determination shall be conclusive absent manifest error.
The adjustment shall become effective immediately after the
record date for the determination of stockholders entitled to receive the
rights, warrants or options to which this paragraph (b) applies or upon
consummation of the sale of Common Stock, as the case may be. To the extent that
shares of Common Stock are not delivered after the expiration of such rights or
warrants, the Exercise Rate shall be readjusted to the Exercise Rate that would
otherwise be in effect had the adjustment made upon the issuance of such rights
or warrants been made on the basis of delivery of only the number of shares of
Common Stock actually delivered. In the event that such rights or warrants are
not so issued, the Exercise Rate shall again be adjusted to be the Exercise Rate
which would then be in effect if such date fixed for determination of
stockholders entitled to receive such rights or warrants had not been so fixed.
No adjustment shall be made under this paragraph (b) if the
application of the formula stated above in this paragraph (b) would result in a
value of E' that is lower than the value of E.
(c) NOTICE OF ADJUSTMENT. Whenever the Exercise Rate is
adjusted, the Company shall promptly mail to holders of Warrants at the
addresses appearing on the Warrant Register a notice of the adjustment. The
Company shall file with the Warrant Agent and any other Registrar such notice
and a certificate from the Company's independent public accountants briefly
stating the facts requiring the adjustment and the manner of computing it. The
certificate shall be conclusive evidence that the adjustment is correct. Neither
the Warrant Agent nor any such Registrar shall be under any duty or
responsibility with respect to any such certificate except to exhibit the same
during normal business hours to any holder of Warrants desiring inspection
thereof.
(d) REORGANIZATION OF COMPANY; SPECIAL DISTRIBUTIONS. If the
Company, in a single transaction or through a series of related transactions,
consolidates with or merges with or into any other person or transfers (by
lease, assignment, sale or otherwise) all or substantially all of its properties
and assets to another person or group of affiliated persons (other than a sale
of all or substantially all of the assets of the Company in a transaction in
which the holders of Common Stock immediately prior to such transaction do not
receive securities, cash, or other assets of the Company or any other person) or
is a party to a merger or binding share exchange which reclassifies or changes
its outstanding Common Stock, the person obligated to deliver securities, cash
or other assets upon exercise of Warrants shall enter into a supplemental
warrant agreement. If the issuer of securities deliverable
<PAGE> 23
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upon exercise of Warrants is an affiliate of the successor Company, that issuer
shall join in the supplemental warrant agreement.
The supplemental warrant agreement shall provide that the
holder of a Warrant may exercise it for the kind and amount of securities, cash
or other assets which such holder would have received immediately after the
consolidation, merger, binding share exchange or transfer if such holder had
exercised the Warrant immediately before the effective date of the transaction
(whether or not the Warrants were then exercisable and without giving effect to
the Cashless Exercise option), assuming (to the extent applicable) that such
holder (i) was not a constituent person or an affiliate of a constituent person
to such transaction; (ii) made no election with respect thereto; and (iii) was
treated alike with the plurality of non-electing holders. The supplemental
warrant agreement shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Article
V. The successor Company shall mail to holders of Warrants at the addresses
appearing on the Warrant Register a notice briefly describing the supplemental
warrant agreement.
If this paragraph (d) applies paragraph (a) shall not apply.
(e) COMPANY DETERMINATION FINAL. Any determination that the
Company or the Board of Directors of the Company must make pursuant to this
Article V shall be conclusive absent manifest error.
(f) WARRANT AGENT'S ADJUSTMENT DISCLAIMER. The Warrant Agent
has no duty to determine when an adjustment under this Article V should be made,
how it should be made or what it should be. The Warrant Agent has no duty to
determine whether a supplemental warrant agreement under paragraph (e) need be
entered into or whether any provisions of any supplemental warrant agreement are
correct. The Warrant Agent shall not be accountable for and makes no
representation as to the validity or value of any securities or assets issued
upon exercise of Warrants. The Warrant Agent shall not be responsible for the
Company's failure to comply with this Article V.
(g) ADJUSTMENT FOR TAX PURPOSES. The Company may make such
increases in the Exercise Rate, in addition to those otherwise required by this
Section, as it considers to be advisable in order that any event treated for
Federal income tax purposes as a dividend of stock or stock rights shall not be
taxable to the recipients.
(h) UNDERLYING WARRANT SHARES. The Company shall at all times
reserve and keep available, free from preemptive rights, out of its authorized
but unissued Common Stock or Common Stock held in the treasury of the Company,
for the purpose of effecting the exercise of Warrants, the full number of
Warrant Shares then deliverable upon the exercise of all Warrants then
outstanding, and the shares so deliverable shall be fully paid and nonassessable
and free from all liens and security interests.
(i) SPECIFICITY OF ADJUSTMENT. Irrespective of any adjustments
in the number or kind of shares purchasable upon the exercise of the Warrants,
Warrant Certificates theretofore or thereafter issued may continue to express
the same number and kind of Warrant Shares per Warrant as are stated on the
Warrant Certificates initially issuable pursuant to this Agreement.
<PAGE> 24
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(j) ADJUSTMENTS TO PAR VALUE. The Company shall make such
adjustments to the par value of the Common Stock in order that, upon exercise of
the Warrants, the Warrant Shares will be fully paid and non-assessable.
(k) VOLUNTARY ADJUSTMENT. The Company from time to time may
increase the Exercise Rate by any number and for any period of time (PROVIDED,
that such period is not less than 20 Business Days). Whenever the Exercise Rate
is so increased, the Company shall mail to holders at the addresses appearing on
the Warrant Register and file with the Warrant Agent a notice of the increase.
The Company shall give the notice at least 15 days before the date the increased
Exercise Rate takes effect. The notice shall state the increased Exercise Rate
and the period it will be in effect. A voluntary increase in the Exercise Rate
does not change or adjust the Exercise Rate otherwise in effect as determined by
this Section 5.01.
(l) NO OTHER ADJUSTMENT FOR DIVIDENDS. Except as provided in
this Article V, no payment or adjustment will be made for dividends on any
Common Stock.
(m) MULTIPLE ADJUSTMENTS. After an adjustment to the Exercise
Rate under this Article V, any subsequent event requiring an adjustment under
this Article V shall cause an adjustment to the Exercise Rate as so adjusted.
(n) DEFINITIONS.
"CAPITAL STOCK" means, with respect to any corporation, any
and all shares, interests, rights to purchase, warrants, options, participations
or other equivalents of or interests (however designated) in stock issued by
that corporation.
"CURRENT MARKET VALUE" per share of Common Stock or of any
other security at any date shall be (1) if the security is not registered under
the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), (i) the
value of the security determined reasonably and in good faith by a majority of
the non-management members of the Board of Directors of the Company and
certified in a board resolution, or, if at the time there are not at least three
non-management members of the Board of Directors, by a nationally recognized
investment banking firm or appraisal firm which is not an affiliate of the
Company ("INDEPENDENT FINANCIAL EXPERT"), or (2) if the security is registered
under the Exchange Act, the average of the daily closing bid prices for each
Business Day during the period commencing 15 Business Days before such date and
ending on the date one day prior to such date or, if the security has been
registered under the Exchange Act for less than 15 consecutive Business Days
before such date, then the average of the daily closing bid prices for all of
the Business Days before such date for which daily closing bid prices are
available. If the closing bid is not determinable for at least 10 Business Days
in such period, the Current Market Value of the security shall be determined as
if the security were not registered under the Exchange Act.
"TIME OF DETERMINATION" means the time and date of the
determination of stockholders entitled to receive rights, warrants, or options
or a distribution, in each case, to which paragraph (b) applies.
<PAGE> 25
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SECTION 5.02. FRACTIONAL WARRANT SHARES. The Company will not
be required to issue fractional Warrant Shares upon exercise of the Warrants or
distribute Share certificates that evidence fractional Warrant Shares. In lieu
of fractional Warrant Shares, there shall be paid to the registered holders of
Warrant Certificates at the time Warrants evidenced thereby are exercised as
herein provided an amount in cash equal to the same fraction of the Current
Market Value, as defined in paragraph (n) of Section 5.01 of this Agreement, per
Share on the Business Day preceding the date the Warrant Certificates evidencing
such Warrants are surrendered for exercise. Such payments will be made by check
or by transfer to an account maintained by such registered holder with a bank in
The City of Pittsburgh. If any holder surrenders for exercise more than one
Warrant Certificate, the number of Warrant Shares deliverable to such holder
may, at the option of the Company, be computed on the basis of the aggregate
amount of all the Warrants exercised by such holder.
SECTION 5.03. CERTAIN DISTRIBUTIONS. If at any time the
Company grants, issues or sells options, convertible securities, or rights to
purchase Capital Stock, warrants or other securities pro rata to the record
holders of the Common Stock (the "DISTRIBUTION RIGHTS") or, without duplication,
makes any dividend or otherwise makes any distribution ("DISTRIBUTION") on
shares of Common Stock (whether in cash, property, evidences of indebtedness or
otherwise), then the Company shall grant, issue, sell or make to each registered
holder of Warrants the aggregate Distribution Rights or Distribution, as the
case may be, which such holder would have acquired if such holder had held the
maximum number of Warrant Shares acquirable upon complete exercise of such
holder's Warrants (regardless of whether the Warrants are then exercisable and
without giving effect to the Cashless Exercise option) immediately before the
record date for the grant, issuance or sale of such Distribution Rights or
Distribution, as the case may be, or, if there is no such record date, the date
as of which the record holders of Common Stock are to be determined for the
grant, issue or sale of such Distribution Rights or Distribution, as the case
may be.
ARTICLE VI
CONCERNING THE WARRANT AGENT
SECTION 6.01. WARRANT AGENT. The Company hereby appoints PNC
Bank, National Association as Warrant Agent of the Company in respect of the
Warrants and the Warrant Certificates upon the terms and subject to the
conditions herein and in the Warrant Certificates set forth; and PNC Bank,
National Association hereby accepts such appointment. The Warrant Agent shall
have the powers and authority specifically granted to and conferred upon it in
the Warrant Certificates and hereby and such further powers and authority to act
on behalf of the Company as the Company may hereafter grant to or confer upon it
and it shall accept in writing. All of the terms and provisions with respect to
such powers and authority contained in the Warrant Certificates are subject to
and governed by the terms and provisions hereof.
SECTION 6.02. CONDITIONS OF WARRANT AGENT'S OBLIGATIONS. The
Warrant Agent accepts its obligations herein set forth upon the terms and
conditions hereof and in the Warrant Certificates,
<PAGE> 26
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including the following, to all of which the Company agrees and to all of which
the rights hereunder of the holders from time to time of the Warrant
Certificates shall be subject:
(a) The Warrant Agent shall be entitled to compensation to be
agreed upon with the Company in writing for all services rendered by it and the
Company agrees promptly to pay such compensation and to reimburse the Warrant
Agent for its out-of-pocket expenses (including fees and expenses of counsel)
incurred without gross negligence or willful misconduct on its part in
connection with the services rendered by it hereunder. The Company also agrees
to indemnify the Warrant Agent and any predecessor Warrant Agent, their
directors, officers, affiliates, agents and employees for, and to hold them and
their directors, officers, affiliates, agents and employees harmless against,
any loss, liability or expense of any nature whatsoever (including, without
limitation, fees and expenses of counsel) incurred without gross negligence or
willful misconduct on the part of the Warrant Agent, arising out of or in
connection with its acting as such Warrant Agent hereunder and its exercise of
its rights and performance of its obligations hereunder. The obligations of the
Company under this Section 6.02 shall survive the exercise and the expiration of
the Warrant Certificates and the resignation and removal of the Warrant Agent.
(b) In acting under this Agreement and in connection with the
Warrant Certificates, the Warrant Agent is acting solely as agent of the Company
and does not assume any obligation or relationship of agency or trust for or
with any of the owners or holders of the Warrant Certificates.
(c) The Warrant Agent may consult with counsel of its
selection and any advice or written opinion of such counsel shall be full and
complete authorization and protection in respect of any action taken, suffered
or omitted by it hereunder in good faith and in accordance with such advice or
opinion.
(d) The Warrant Agent shall be fully protected and shall incur
no liability for or in respect of any action taken or omitted to be taken or
thing suffered by it in reliance upon any Warrant Certificate, notice,
direction, consent, certificate, affidavit, opinion of counsel, instruction,
statement or other paper or document reasonably believed by it to be genuine and
to have been presented or signed by the proper parties.
(e) The Warrant Agent, and its officers, directors, affiliates
and employees ("RELATED Parties"), may become the owners of, or acquire any
interest in, Warrant Certificates, shares or other obligations of the Company
with the same rights that it or they would have it if were not the Warrant Agent
hereunder and, to the extent permitted by applicable law, it or they may engage
or be interested in any financial or other transaction with the Company and may
act on, or as depositary, trustee or agent for, any committee or body of holders
of shares or other obligations of the Company as freely as if it were not the
Warrant Agent hereunder. Nothing in this Agreement shall be deemed to prevent
the Warrant Agent or such Related Parties from acting in any other capacity for
the Company.
(f) The Warrant Agent shall not be under any liability for
interest on, and shall not be required to invest, any monies at any time
received by it pursuant to any of the provisions of this Agreement or of the
Warrant Certificates.
<PAGE> 27
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(g) The Warrant Agent shall not be under any responsibility in
respect of the validity of this Agreement (or any term or provision hereof) or
the execution and delivery hereof (except the due execution and delivery hereof
by the Warrant Agent) or in respect of the validity or execution of any Warrant
Certificate (except its authentication thereof).
(h) The recitals and other statements contained herein and in
the Warrant Certificates (except as to the Warrant Agent's authentication
thereon) shall be taken as the statements of the Company and the Warrant Agent
assumes no responsibility for the correctness of the same. The Warrant Agent
does not make any representation as to the validity or sufficiency of this
Agreement or the Warrant Certificates, except for its due execution and delivery
of this Agreement; PROVIDED, HOWEVER, that the Warrant Agent shall not be
relieved of its duty to authenticate the Warrant Certificates as authorized by
this Agreement. The Warrant Agent shall not be accountable for the use or
application by the Company of the proceeds of the exercise of any Warrant.
(i) Before the Warrant Agent acts or refrains from acting with
respect to any matter contemplated by this Warrant Agreement, it may require:
(1) an Officers' Certificate (as defined in the Indenture)
stating on behalf of the Company that, in the opinion of the signers,
all conditions precedent, if any, provided for in this Warrant
Agreement relating to the proposed action have been complied with; and
(2) if reasonably necessary in the sole judgment of the
Warrant Agent, an opinion of counsel for the Company stating that, in
the opinion of such counsel, all such conditions precedent have been
complied with provided that such matter is one customarily opined on by
counsel.
Each Officers' Certificate or, if requested, an opinion of
counsel with respect to compliance with a condition or covenant provided for in
this Warrant Agreement shall include:
(1) a statement that the person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such person, he or she
has made such examination or investigation as is necessary to enable
him or her to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
(j) The Warrant Agent shall be obligated to perform such
duties as are herein and in the Warrant Certificates specifically set forth and
no implied duties or obligations shall be read into this Agreement or the
Warrant Certificates against the Warrant Agent. The Warrant Agent shall not
<PAGE> 28
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be accountable or under any duty or responsibility for the use by the Company of
any of the Warrant Certificates authenticated by the Warrant Agent and delivered
by it to the Company pursuant to this Agreement. The Warrant Agent shall have no
duty or responsibility in case of any default by the Company in the performance
of its covenants or agreements contained in the Warrant Certificates or in the
case of the receipt of any written demand from a holder of a Warrant Certificate
with respect to such default, including, without limiting the generality of the
foregoing, any duty or responsibility to initiate or attempt to initiate any
proceedings at law or otherwise or, except as provided in Section 7.02 hereof,
to make any demand upon the Company.
(k) Unless otherwise specifically provided herein, any order,
certificate, notice, request, direction or other communication from the Company
made or given under any provision of this Agreement shall be sufficient if
signed by its chairman of the Board of Directors, its president, its treasurer,
its controller or any vice president or its secretary or any assistant
secretary.
(l) The Warrant Agent shall have no responsibility in respect
of any adjustment pursuant to Article V hereof.
(m) The Company agrees that it will perform, execute,
acknowledge and deliver, or cause to be performed, executed, acknowledged and
delivered, all such further and other acts, instruments and assurances as may
reasonably be required by the Warrant Agent for the carrying out or performing
by the Warrant Agent of the provisions of this Agreement.
(n) The Warrant Agent is hereby authorized and directed to
accept written instructions with respect to the performance of its duties
hereunder from any one of the chairman of the Board of Directors, the president,
the treasurer, the controller, any vice president or the secretary of the
Company or any other officer or official of the Company reasonably believed to
be authorized to give such instructions and to apply to such officers or
officials for advice or instructions in connection with its duties, and it shall
not be liable for any action taken or suffered to be taken by it in good faith
in accordance with instructions with respect to any matter arising in connection
with the Warrant Agent's duties and obligations arising under this Agreement.
Such application by the Warrant Agent for written instructions from the Company
may, at the option of the Warrant Agent, set forth in writing any action
proposed to be taken or omitted by the Warrant Agent with respect to its duties
or obligations under this Agreement and the date on or after which such action
shall be taken and the Warrant Agent shall not be liable for any action taken or
omitted in accordance with a proposal included in any such application on or
after the date specified therein (which date shall be not less than 10 Business
Days after the Company receives such application unless the Company consents to
a shorter period), provided that (i) such application includes a statement to
the effect that it is being made pursuant to this paragraph (m) and that unless
objected to prior to such date specified in the application, the Warrant Agent
will not be liable for any such action or omission to the extent set forth in
such paragraph (m) and (ii) prior to taking or omitting any such action, the
Warrant Agent has not received written instructions objecting to such proposed
action or omission.
(o) Whenever in the performance of its duties under this
Agreement the Warrant Agent shall deem it necessary or desirable that any fact
or matter be proved or established by the
<PAGE> 29
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Company prior to taking or suffering any action hereunder, such fact or matter
(unless other evidence in respect thereof be herein specifically prescribed) may
be deemed to be conclusively proved and established by a certificate signed on
behalf of the Company by any one of the chairman of the Board of Directors, the
president, the treasurer, the controller, any vice president or the secretary of
the Company or any other officer or official of the Company reasonably believed
to be authorized to give such instructions and delivered to the Warrant Agent;
and such certificate shall be full authorization to the Warrant Agent for any
action taken or suffered in good faith by it under the provisions of this
Agreement in reliance upon such certificate.
(p) The Warrant Agent shall not be required to risk or expend
its own funds in the performance of its obligations and duties hereunder.
SECTION 6.03. RESIGNATION AND APPOINTMENT OF SUCCESSOR.
(a) The Company agrees, for the benefit of the holders from
time to time of the Warrant Certificates, that there shall at all times be a
Warrant Agent hereunder.
(b) The Warrant Agent may at any time resign as Warrant Agent
by giving written notice to the Company of such intention on its part,
specifying the date on which its desired resignation shall become effective;
PROVIDED, HOWEVER, that such date shall be at least 60 days after the date on
which such notice is given unless the Company agrees to accept less notice. Upon
receiving such notice of resignation, the Company shall promptly appoint a
successor Warrant Agent, qualified as provided in Section 6.03(d) hereof, by
written instrument in duplicate signed on behalf of the Company, one copy of
which shall be delivered to the resigning Warrant Agent and one copy to the
successor Warrant Agent. As provided in Section 6.03(d) hereof, such resignation
shall become effective upon the earlier of (x) the acceptance of the appointment
by the successor Warrant Agent or (y) 60 days after receipt by the Company of
notice of such resignation. The Company may, at any time and for any reason, and
shall, upon any event set forth in the next succeeding sentence, remove the
Warrant Agent and appoint a successor Warrant Agent by written instrument in
duplicate, specifying such removal and the date on which it is intended to
become effective, signed on behalf of the Company, one copy of which shall be
delivered to the Warrant Agent being removed and one copy to the successor
Warrant Agent. The Warrant Agent shall be removed as aforesaid if it shall
become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a
receiver of the Warrant Agent or of its property shall be appointed, or any
public officer shall take charge or control of it or of its property or affairs
for the purpose of rehabilitation, conservation or liquidation. Any removal of
the Warrant Agent and any appointment of a successor Warrant Agent shall become
effective upon acceptance of appointment by the successor Warrant Agent as
provided in Section 6.03(d). As soon as practicable after appointment of the
successor Warrant Agent, the Company shall cause written notice of the change in
the Warrant Agent to be given to each of the registered holders of the Warrants
in the manner provided for in Section 7.04 hereof.
(c) Upon resignation or removal of the Warrant Agent, if the
Company shall fail to appoint a successor Warrant Agent within a period of 60
days after receipt of such notice of resignation or removal, then the holder of
any Warrant Certificate or the retiring Warrant Agent may apply to
<PAGE> 30
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a court of competent jurisdiction for the appointment of a successor to the
Warrant Agent. Pending appointment of a successor to the Warrant Agent, either
by the Company or by such a court, the duties of the Warrant Agent shall be
carried out by the Company.
(d) Any successor Warrant Agent, whether appointed by the
Company or by a court, shall be a bank or trust company in good standing,
incorporated under the laws of the United States of America or any State thereof
and having, at the time of its appointment, a combined capital surplus of at
least $50 million. Such successor Warrant Agent shall execute and deliver to its
predecessor and to the Company an instrument accepting such appointment
hereunder and all the provisions of this Agreement, and thereupon such successor
Warrant Agent, without any further act, deed or conveyance, shall become vested
with all the rights, powers, duties and obligations of its predecessor
hereunder, with like effect as if originally named as Warrant Agent hereunder,
and such predecessor shall thereupon become obligated to (i) transfer and
deliver, and such successor Warrant Agent shall be entitled to receive, all
securities, records or other property on deposit with or held by such
predecessor as Warrant Agent hereunder and (ii) upon payment of the amounts then
due it pursuant to Section 6.02(a) hereof, pay over, and such successor Warrant
Agent shall be entitled to receive, all monies deposited with or held by any
predecessor Warrant Agent hereunder.
(e) Any corporation or bank into which the Warrant Agent
hereunder may be merged or converted, or any corporation or bank with which the
Warrant Agent may be consolidated, or any corporation or bank resulting from any
merger, conversion or consolidation to which the Warrant Agent shall be a party,
or any corporation or bank to which the Warrant Agent shall sell or otherwise
transfer all or substantially all of its corporate trust business, shall be the
successor to the Warrant Agent under this Agreement (provided that such
corporation or bank shall be qualified as aforesaid) without the execution or
filing of any document or any further act on the part of any of the parties
hereto.
(f) No Warrant Agent under this Warrant Agreement shall be
personally liable for any action or omission of any successor Warrant Agent.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES AND COVENANTS OF THE COMPANY
The Company hereby represents and warrants and covenants to
the Warrant Agent and the Holders that at the date hereof and at the date of
each issuance of Warrant Shares:
SECTION 7.01. GOOD STANDING OF THE COMPANY. The Company has
been duly organized and is validly existing as a corporation in good standing
under the laws of the State of Delaware and has the corporate power and
authority to own, lease and operate its properties and to conduct its business
and to enter into and perform its obligations hereunder; and the Company is duly
qualified as a foreign corporation to transact business and is in good standing
in each other jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of business,
except where the failure so to qualify or to be in good standing, individually
<PAGE> 31
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or in the aggregate, would not result in a material adverse effect on the
condition, financial or otherwise, or on the earnings, business affairs or
business prospects of the Company and its Subsidiaries considered as one
enterprise (a "MATERIAL ADVERSE EFFECT").
SECTION 7.02. CAPITALIZATION. The authorized, issued and
outstanding Capital Stock of the Company is reflected accurately in SCHEDULE
7.02 hereto. All of the shares of issued and outstanding Capital Stock of the
Company have been duly authorized and validly issued and are fully paid and
non-assessable; none of the outstanding shares of Capital Stock of the Company
was issued in violation of the preemptive or other similar rights of any
securityholder of the Company. The Warrant Shares represent not less than 1.75%
of the Common Stock of the Company (on a fully diluted basis) on the date of
issuance.
SECTION 7.03. AUTHORIZATION OF AGREEMENT. This Agreement has
been duly authorized, executed and delivered by the Company and, when executed
and delivered by the Holders, will constitute a valid and binding agreement of
the Company, enforceable against the Company in accordance with its terms,
except as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting enforcement of creditors'
rights generally and except as enforcement thereof is subject to general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law).
SECTION 7.04. AUTHORIZATION OF THE REGISTRATION RIGHTS
AGREEMENT. The Registration Rights Agreement dated as of the date hereof by and
among the Company and the Holders (the "REGISTRATION RIGHTS Agreement") relating
to the registration rights to the Holders with respect to the Warrants and the
Warrant Shares has been duly authorized, executed and delivered by the Company
and, when executed and delivered by the Holders, will constitute a valid and
binding agreement of the Company, enforceable against the Company in accordance
with its terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting enforcement of
creditors' rights generally and except as enforcement thereof is subject to
general principles of equity (regardless of whether enforcement is considered in
a proceeding in equity or at law).
SECTION 7.05. NO DEFAULTS OR CONFLICTS. The execution,
delivery and performance of this Agreement and the Registration Rights Agreement
and any other agreement or instrument entered into or issued or to be entered
into or issued by the Company in connection with the transactions contemplated
hereby or thereby and the consummation of the transactions contemplated herein
or therein and compliance by the Company with its obligations hereunder and
thereunder have been duly authorized by all necessary corporate action and do
not and will not, whether with or without the giving of notice or passage of
time or both, conflict with or constitute a breach of, or default under, or a
violation of or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to any contract, indenture, mortgage, deed of trust, loan
or credit agreement, note, lease or other agreement or instrument to which the
Company or any of its subsidiaries is a party or by which any of them may be
bound, or to which any of the property or assets of the Company or its
subsidiaries is subject, nor will such action result in any violation of the
provisions of the charter or by-laws, limited liability company agreement or
<PAGE> 32
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limited partnership agreement, as the case may be, of the Company or any of its
subsidiaries or any applicable law, statute, rule, regulation, judgment, order,
writ or decree of any government, government instrumentality or court, domestic
or foreign, having jurisdiction over the Company or any of its subsidiaries or
any of their respective assets or properties.
SECTION 7.06. ABSENCE OF FURTHER REQUIREMENTS. No filing with,
or authorization, approval, consent, license, order, registration, qualification
or decree of, any court or governmental authority or agency is necessary or
required in connection with the offering, issuance or sale of the Warrants, for
the performance by the Company of its obligations hereunder or under the
Registration Rights Agreement or the consummation of the transactions
contemplated hereby or thereby (except for any requirements imposed by federal
or state securities laws) or for the due execution or delivery by the Company of
this Agreement or the Registration Rights Agreement.
SECTION 7.07. RESERVATION OF WARRANT SHARES. The Company shall
at all times reserve and keep available for issuance upon exercise of the
Warrants such number of its duly authorized but unissued shares of Common Stock
or other securities of the Company purchasable upon exercise of the Warrants as
will be sufficient to permit the exercise in full of all outstanding Warrants
and will cause appropriate evidence of ownership of such shares of Common Stock
or other securities to be delivered to the Warrant Agent upon its request for
delivery of such, and all such shares of Common Stock or other securities shall,
at all times, be duly approved for listing, subject to official notice of
issuance, on each securities exchange, if any, on which such shares of Common
Stock of the Company or other securities are then listed.
SECTION 7.08. COMMON STOCK. The Company covenants that all
shares of Common Stock or other securities of the Company that may be issued
upon the exercise of the Warrants will, upon issuance, be (i) duly authorized,
validly issued, fully paid and nonassessable, (ii) free from preemptive and any
other similar rights, (iii) free from any taxes, liens, charges or security
interests with respect thereto and (iv) included for trading on each securities
exchange, if any, on which such shares of Common Stock or other securities are
then listed.
ARTICLE VIII
ACKNOWLEDGMENTS, REPRESENTATIONS AND WARRANTIES OF THE HOLDERS
SECTION 8.01. ACKNOWLEDGMENTS BY HOLDERS. Each Holder
understands and acknowledges to the Company that:
(a) the offering and sale of the Warrants and Common Stock are
not being registered under the Securities Act and are intended to be exempt from
registration under the Securities Act by virtue of the provisions of Section
4(2) of the Securities Act;
(b) there is no existing public or other market for the
Warrants and the Common Stock and there can be no assurance that such Holder
will be able to sell or dispose of such Holder's Warrants or Common Stock;
<PAGE> 33
-27-
(c) the Warrants and the Common Stock have not been registered
under the Securities Act and must be held indefinitely unless they are
subsequently registered under the Securities Act, the Securities Act permits
such sale or such sale is permitted pursuant to an available exemption from such
registration requirement;
(d) if any transfer of the Warrants and the Common Stock is to
be made in reliance on an exemption under the Securities Act, the Company may
require an opinion of counsel reasonably satisfactory to it that such transfer
may be made pursuant to an exemption under the Securities Act; and
(e) the Warrants will have the legends contained on the forms
thereof attached as exhibits thereto.
SECTION 8.02. REPRESENTATIONS AND WARRANTIES OF THE HOLDERS.
Each Holder, severally and not jointly, represents and warrants to the Company
that:
(a) the Warrants and the Common Stock to be acquired by it
pursuant to the Warrant Agreement are being acquired for its own account, not as
a nominee or agent for any other Person, and without a view to the distribution
of such Warrants or Common Stock or any interest therein in violation of the
Securities Act or any applicable state securities laws and it has not acquired
the Warrants and will not acquire the Warrant Shares with a view towards a
distribution in violation of the Securities Act and will not offer or sell any
Warrants or Warrant Shares except pursuant to a registration statement that has
been declared effective under the Securities Act or pursuant to an exemption
from the registration requirements of the Securities Act;
(b) it is an "Accredited Investor" as such term is defined in
Regulation D under the Securities Act and has such knowledge and experience in
financial and business matters so as to be capable of evaluating the merits and
risks of its investment in the Warrants and the Common Stock, and it is capable
of bearing the economic risks of such investment and is able to bear a complete
loss of its investment in the Warrants and the Common Stock;
(c) it has been provided, to its satisfaction, the opportunity
to ask questions concerning the terms and conditions of the issuance of the
Warrants and the Common Stock, has had all such questions answered to its
satisfaction and has been supplied all additional information as it has
requested; and
(d) the execution, delivery, and performance of this Agreement
and the Warrant Agreement are within such Holder's powers (corporate or
otherwise) and have been duly authorized by all requisite action (corporate or
otherwise).
<PAGE> 34
-28-
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. AMENDMENT. This Agreement and the terms of the
Warrants may be amended by the Company and the Warrant Agent, without the
consent of the holder of any Warrant Certificate, for the purpose of curing any
ambiguity, or of curing, correcting or supplementing any defective or
inconsistent provision contained herein or therein, or to effect any assumptions
of the Company's obligations hereunder and thereunder by a successor corporation
under the circumstances described in Section 5.01(d) hereof or in any other
manner that the Company may deem necessary or desirable and that shall not
adversely affect the interests of the holders of the Warrant Certificates.
The Company and the Warrant Agent may modify this Agreement
and the terms of the Warrants with the consent of the holders of not less than a
majority in number of the then outstanding Warrants for the purpose of adding
any provision to or changing in any manner or eliminating any of the provisions
of this Agreement or modifying in any manner the rights of the holders of the
outstanding Warrants; PROVIDED, HOWEVER, that no such modification that
decreases the Exercise Rate, reduces the period of time during which the
Warrants are exercisable hereunder, otherwise materially and adversely affects
the exercise rights of the holders of the Warrants, reduces the percentage
required for modification, or effects any change to this Section 9.01 may be
made with respect to an outstanding Warrant without the consent of the holder of
such Warrant. Notwithstanding any other provision of this Agreement, the Warrant
Agent's consent must be obtained regarding any supplement or amendment which
alters the Warrant Agent's rights or duties (it being expressly understood that
the foregoing shall not be in derogation of the right of the Company to remove
the Warrant Agent in accordance with Section 6.03 hereof).
Any modification or amendment made in accordance with this
Agreement will be conclusive and binding on all present and future holders of
Warrant Certificates whether or not they have consented to such modification or
amendment or waiver and whether or not notation of such modification or
amendment is made upon such Warrant Certificates. Any instrument given by or on
behalf of any holder of a Warrant Certificate in connection with any consent to
any modification or amendment will be conclusive and binding on all subsequent
holders of such Warrant Certificate.
SECTION 9.02. NOTICES AND DEMANDS TO THE COMPANY AND WARRANT
AGENT. If the Warrant Agent shall receive any notice or demand addressed to the
Company by the holder of a Warrant Certificate pursuant to the provisions hereof
or of the Warrant Certificates, the Warrant Agent shall promptly forward such
notice or demand to the Company.
SECTION 9.03. ADDRESSES FOR NOTICES TO PARTIES AND FOR
TRANSMISSION OF DOCUMENTS. All notices hereunder to the parties hereto shall be
deemed to have been given when sent by certified or registered mail, postage
prepaid, or by facsimile transmission, confirmed by first class mail, postage
prepaid, addressed to any party hereto as follows:
<PAGE> 35
-29-
To the Company:
Orius Corp.
c/o North American Tel-Com Group, Inc.
1401 Forum Way
Suite 400
West Palm Beach, FL 33401
Facsimile No.: (571) 687-8300
Attention: Robert E. Agres
with copies to:
H.I.G. Capital Management
1001 Brickell Bay Drive
Suite 2708
Miami, FL 33131
Facsimile No.: (305) 379-2013
Attention: Douglas F. Berman
Holland & Knight LLP
One East Broward Blvd.
Ft. Lauderdale, FL 33301
Facsimile No.: (954) 463-2030
Attention: Donn A. Beloff, Esq.
White & Case LLP
First Union Financial Center
200 South Biscayne Boulevard
Miami, FL 33131
Facsimile No.: (305) 358-5744
Attention: Jorge Freeland
To the Warrant Agent:
PNC Bank, National Association
One PNC Plaza
249 Fifth Avenue
Pittsburgh, PA 15222
Facsimile No.: (412) 705-0984
Attention: James A. Fink
with copies to:
<PAGE> 36
-30-
Kirkpatrick & Lockhart, LLP
1500 Oliver Building
Pittsburgh, PA 15222
Facsimile No.: (412) 355-6730
Attention: Charles E. Harris
or at any other address of which either of the foregoing shall have notified the
other in writing.
SECTION 9.04. NOTICES TO HOLDERS. Notices to holders of
Warrants shall be mailed to such holders at the addresses of such holders as
they appear in the Warrant Register. Any such notice shall be sufficiently given
if sent by first-class mail, postage prepaid.
SECTION 9.05. APPLICABLE LAW. THE VALIDITY, INTERPRETATION AND
PERFORMANCE OF THIS AGREEMENT AND EACH WARRANT CERTIFICATE ISSUED HEREUNDER AND
OF THE RESPECTIVE TERMS AND PROVISIONS THEREOF SHALL BE GOVERNED BY THE LAWS OF
THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PROVISIONS
THEREOF.
SECTION 9.06. PERSONS HAVING RIGHTS UNDER AGREEMENT. Nothing
in this Agreement expressed or implied and nothing that may be inferred from any
of the provisions hereof is intended, or shall be construed, to confer upon, or
give to, any person or corporation other than the Company, the Warrant Agent and
the holders of the Warrant Certificates any right, remedy or claim under or by
reason of this Agreement or of any covenant, condition, stipulation, promise or
agreement hereof; and all covenants, conditions, stipulations, promises and
agreements in this Agreement contained shall be for the sole and exclusive
benefit of the Company and the Warrant Agent and their successors and of the
holders of the Warrant Certificates.
SECTION 9.07. HEADINGS. The descriptive headings of the
several Articles and Sections of this Agreement are inserted for convenience
only and shall not control or affect the meaning or construction of any of the
provisions hereof.
SECTION 9.08. COUNTERPARTS. This Agreement may be executed in
any number of counterparts, each of which so executed shall be deemed to be an
original; but such counterparts shall together constitute but one and the same
instrument.
SECTION 9.09. INSPECTION OF AGREEMENT. A copy of this
Agreement shall be available during regular business hours at the principal
corporate trust office of the Warrant Agent, for inspection by the holder of any
Warrant Certificate. The Warrant Agent may require such holder to submit his
Warrant Certificate for inspection by it.
[Signature Pages Follow]
<PAGE> 37
S-1
IN WITNESS WHEREOF, this Agreement has been duly executed by
the parties hereto as of the day and year first above written.
ORIUS CORP.
By:
--------------------------------------
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION,
as Warrant Agent
By:
--------------------------------------
Name:
Title:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED, as Joint Lead Arranger and
Syndication Agent
By:
--------------------------------------
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION,
as Joint Lead Arranger and Administrative
Agent and as a Lender
By:
--------------------------------------
Name:
Title:
<PAGE> 38
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
[FACE]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR
OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE WHICH IS TWO YEARS AFTER THE
LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY
OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY
PREDECESSOR SECURITY) ONLY:
(A) TO THE COMPANY,
(B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT,
(C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO
RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A
"QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS
OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE
IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A,
(D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES
WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT,
(E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF
SUBPARAGRAPHS (a)(1), (a)(2), (a)(3) OR (a)(7) OF RULE 501 UNDER THE SECURITIES
ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF
SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR", FOR INVESTMENT PURPOSES AND NOT
WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN
VIOLATION OF THE SECURITIES ACT, OR
(F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT,
A-1
<PAGE> 39
SUBJECT TO THE COMPANY'S RIGHT IN ITS SOLE DISCRETION PRIOR TO ANY SUCH OFFER,
SALE OR TRANSFER PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF
A WRITTEN OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION
SATISFACTORY TO THE COMPANY, AND IN EACH OF THE FOREGOING CASES, THE DELIVERY OF
A COMPLETED CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF
THIS SECURITY BY THE TRANSFEROR TO THE COMPANY AND THE WARRANT AGENT. THIS
LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE
RESTRICTION TERMINATION DATE.
A-2
<PAGE> 40
No. [ ] [ ] Warrants
WARRANT CERTIFICATE
ORIUS CORP.
This Warrant Certificate certifies that [ ], or registered
assigns, is the registered holder of [ ] Warrants (the "WARRANTS") to purchase
shares of Common Stock, $0.0001 par value per share (the "COMMON STOCK"), of
ORIUS CORP., a Delaware corporation (the "COMPANY"). Each Warrant entitles the
holder to purchase from the Company at any time from 9:00 a.m. New York City
time on or after the occurrence of an Exercise Event until 5:00 p.m., New York
City time, on March 31, 2009 (the "EXPIRATION DATE"), one fully paid and
nonassessable share of Common Stock (a "WARRANT SHARE", or, if adjusted, the
"WARRANT SHARES", which may also include any other securities or property
purchasable upon exercise of a Warrant, such adjustment and inclusion each as
provided in the Warrant Agreement) at the exercise price (the "EXERCISE PRICE")
of $0.01 per Warrant upon surrender of this Warrant Certificate and payment of
the Exercise Price at any office or agency maintained for that purpose by the
Company (the "WARRANT AGENT OFFICE"), subject to the conditions set forth herein
and in the Warrant Agreement. Notwithstanding the foregoing, a Warrant may also
be exercised solely by the surrender of the Warrant, and without the payment of
the Exercise Price in cash, for such number of Warrant Shares equal to the
product of (1) the number of Warrant Shares for which such Warrant is
exercisable with payment of the Exercise Price as of the date of exercise and
(2) the Cashless Exercise Ratio. For purposes of this Warrant, the "CASHLESS
EXERCISE RATIO" shall equal a fraction, the numerator of which is the excess of
the Current Market Value of the Common Stock on the date of exercise (calculated
as set forth in Section 5.01(n) of the Warrant Agreement) over the Exercise
Price Per Share as of the date of exercise and the denominator of which is the
Current Market Value of the Common Stock on the date of exercise (calculated as
set forth in Section 5.01(n) of the Warrant Agreement). An exercise of a Warrant
in accordance with the immediately preceding sentences is herein called a
"CASHLESS EXERCISE." Upon surrender of a Warrant Certificate representing more
than one Warrant in connection with the Holder's option to elect a Cashless
Exercise, the number of Warrant Shares deliverable upon a Cashless Exercise
shall be equal to the number of Warrants that the Holder specifies is to be
exercised pursuant to a Cashless Exercise multiplied by the Cashless Exercise
Ratio. All provisions of this Agreement shall be applicable with respect to an
exercise of a Warrant Certificate pursuant to a Cashless Exercise for less than
the full number of Warrants represented thereby.
"EXERCISE EVENT" means, with respect to each Warrant as to
which such event is applicable (but not with respect to any other Warrant), the
date of the earliest of: (1) the seventh day prior to the occurrence of a Change
of Control, (2) the consummation of a Public Equity Offering and (3) the 180th
day prior to March 31, 2004.
To the extent an exercise of a Warrant is not in effect
through the Cashless Exercise, the Exercise Price shall be payable by certified
check or official bank check or by such other means as is acceptable to the
Company in the lawful currency of the United States of America which as of the
time of payment is legal tender for payment of public or private debts. The
Company has initially designated the principal corporate trust office of the
Warrant Agent in The City of Pittsburgh, as the initial Warrant Agent Office.
The number of Warrant Shares issuable upon exercise of the Warrants
A-3
<PAGE> 41
("EXERCISE RATE") is subject to adjustment upon the occurrence of certain events
set forth in the Warrant Agreement.
Any Warrants not exercised on or prior to 5:00 p.m., New York
City time, on March 31, 2009 shall expire and thereafter be void.
Reference is hereby made to the further provisions on the
reverse hereof which provisions shall for all purposes have the same effect as
though fully set forth at this place.
This Warrant Certificate shall not be valid unless
authenticated by the Warrant Agent, as such term is used in the Warrant
Agreement.
All terms used herein but not defined herein have the meanings
ascribed to such terms in the warrant agreement.
THIS WARRANT CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS
PROVISIONS THEREOF.
A-4
<PAGE> 42
WITNESS the seal of the Company and signatures of its duly
authorized officers.
Dated:
ORIUS CORP.
By:
-------------------------------------
Name:
Title:
Attest:
By:
--------------------------
Name:
Title:
Certificate of Authentication:
This is one of the Warrants
referred to in the within
mentioned Warrant Agreement:
PNC BANK, NATIONAL ASSOCIATION,
as Warrant Agent
By:
-----------------------------
Authorized Signatory
A-5
<PAGE> 43
[FORM OF WARRANT CERTIFICATE]
[REVERSE]
ORIUS CORP.
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants expiring at 5:00 p.m., New York City time,
on March 31, 2009, each of which represents the right to purchase at any time on
or after the Exercisability Date (as defined in the Warrant Agreement) and on or
prior to such date one share of Common Stock of the Company, subject to
adjustment as set forth in the Warrant Agreement. The Warrants are issued
pursuant to a Warrant Agreement dated as of February 26, 1999 (the "WARRANT
AGREEMENT"), duly executed and delivered by the Company to PNC Bank, National
Association, as Warrant Agent (the "WARRANT Agent"), which Warrant Agreement is
hereby incorporated by reference in and made a part of this instrument and is
hereby referred to for a description of the rights, limitation of rights,
obligations, duties and immunities thereunder of the Warrant Agent, the Company
and the holders (the words "holders" or holder" meaning the registered holders
or registered holder) of the Warrants.
Warrants may be exercised by (i) surrendering at any Warrant
Agent Office this Warrant Certificate with the form of Election to Exercise set
forth hereon duly completed and executed and (ii) to the extent such exercise is
not being effected through a Cashless Exercise, paying in full the Warrant
Exercise Price for each such Warrant exercised and any other amounts required to
be paid pursuant to the Warrant Agreement.
If all of the items referred to in the last sentence of the
preceding paragraph are received by the Warrant Agent at or prior to 11:00 a.m.,
New York City time, on a Business Day, the exercise of the Warrant to which such
items relate will be effective on such Business Day. If any items referred to in
the last sentence of the preceding paragraph are received after 11:00 a.m., New
York City time, on a Business Day, the exercise of the Warrants to which such
item relates will be deemed to be effective on the next succeeding Business Day.
Notwithstanding the foregoing, in the case of an exercise of Warrants on March
31, 2009, if all of the items referred to in the last sentence of the preceding
paragraph are received by the Warrant Agent at or prior to 5:00 p.m., New York
City time, on such Expiration Date, the exercise of the Warrants to which such
items relate will be effective on the Expiration Date.
As soon as practicable after the exercise of any Warrant or
Warrants, the Company shall issue or cause to be issued to or upon the written
order of the registered holder of this Warrant Certificate, a certificate or
certificates evidencing the Warrant Share or Warrant Shares to which such holder
is entitled, in fully registered form, registered in such name or names as may
be directed by such holder pursuant to the Election to Exercise, as set forth on
the reverse of this Warrant Certificate. Such certificate or certificates
evidencing the Warrant Share or Warrant Warrant Shares shall be deemed to have
been issued and any persons who are designated to be named therein shall be
deemed to have become the holder of record of such Warrant Share or Warrant
Shares as of the close of business on the date upon which the exercise of this
Warrant was deemed to be effective as provided in the preceding paragraph.
A-6
<PAGE> 44
The Company will not be required to issue fractional shares of
Common Stock upon exercise of the Warrants or distribute Warrant Share
certificates that evidence fractional shares of Common Stock. In lieu of
fractional shares of Common Stock, there shall be paid to the registered Holder
of this Warrant Certificate at the time such Warrant Certificate is exercised an
amount in cash equal to the same fraction of the Current Market Value (as
defined in the Warrant Agreement) per share on the Business Day preceding the
date this Warrant Certificate is surrendered for exercise.
Warrant Certificates, when surrendered at any office or agency
maintained by the Company for that purpose by the registered holder thereof in
person or by legal representative or attorney duly authorized in writing, may be
exchanged for a new Warrant Certificate or new Warrant Certificates evidencing
in the aggregate a like number of Warrants, in the manner and subject to the
limitations provided in the Warrant Agreement, without charge except for any tax
or other governmental charge imposed in connection therewith.
Upon due presentment for registration of transfer of this
Warrant Certificate at any office or agency maintained by the Company for that
purpose, a new Warrant Certificate evidencing in the aggregate a like number of
Warrants shall be issued to the transferee in exchange for this Warrant
Certificate, subject to the limitations provided in the Warrant Agreement,
without charge except for any tax or other governmental charge imposed in
connection therewith.
The Company and the Warrant Agent may deem and treat the
registered holder hereof as the absolute owner of this Warrant Certificate
(notwithstanding any notation of ownership or other writing hereon made by
anyone) for the purpose of any exercise hereof and for all other purposes, and
neither the Company nor the Warrant Agent shall be affected by any notice to the
contrary.
The term "BUSINESS DAY" shall mean any day on which (i) banks
in New York City, (ii) the principal national securities exchange or market on
which the Common Stock is listed or admitted to trading and (iii) the principal
national securities exchange or market on which the Warrants are listed or
admitted to trading are open for business.
A-7
<PAGE> 45
(FORM OF ELECTION TO EXERCISE)
(To be executed upon exercise of Warrants on the Exercise Date)
The undersigned hereby irrevocably elects to exercise [ ] of
the Warrants represented by this Warrant Certificate and purchase the whole
number of Warrant Shares issuable upon the exercise of such Warrants and
herewith tenders payment for such Warrant Shares in the amount of $[ ] in cash
or by certified or official bank check, in accordance with the terms hereof. In
lieu of payment of the cash exercise price, the holder hereof is electing to
exercise [ ] Warrants pursuant to a Cashless Exercise (as defined in the Warrant
Agreement) for [ ] shares of Common Stock at the current Cashless Exercise
Ratio. The undersigned requests that a certificate representing such Warrant
Shares be registered in the name of ______________________ whose address is
_____________________________ and that such certificate be delivered to
___________________________ whose address is __________________________. Any
cash payments to be paid in lieu of a fractional Warrant Share should be made to
__________________ whose address is ________________________ and the check
representing payment thereof should be delivered to ______________________ whose
address is ______________________.
Dated:
Name of holder of
Warrant Certificate:
--------------------------------
(Please Print)
Tax Identification or
Social Security Number:
-----------------------------
Address:
--------------------------------------------
--------------------------------------------
Signature:
-------------------------------------------
Note: The above signature must correspond
with the name as written upon the
face of this Warrant Certificate in
every particular, without alteration
or enlargement or any change
whatever and if the certificate
representing the Warrant Shares or
any Warrant Certificate representing
Warrants not exercised is to be
registered in a name other than that
in which this Warrant Certificate is
registered, or if any cash payment
to be paid in lieu of a fractional
share is to be made to a person
other than the registered holder of
this Warrant Certificate, the
signature of the holder hereof must
be guaranteed as provided in the
Warrant Agreement.
Dated:
A-8
<PAGE> 46
Signature:
-----------------------------------------
Note: The above signature must correspond
with the name as written upon the
face of this Warrant Certificate in
every particular, without alteration
or enlargement or any change
whatever.
Signature Guaranteed:
-----------------------------
A-9
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF ORIUS CORP.
STATE OF FORMATION OR
SUBSIDIARY INCORPORATION
---------- --------------------
NATG Holdings, LLC Delaware
North American Tel-Com Group, Inc. Florida
Burn-Techs, Inc. Florida
CATV Subscriber Services, Inc. North Carolina
Cablemasters Corp. Pennsylvania
Channel Communications, Inc. Kansas
Copenhagen Utilities & Construction, Inc. Oregon
DAS-CO of Idaho, Inc. Idaho
Excel Cable Construction, Inc. Florida
Mich-Com Cable Services Incorporated Michigan
Network Cabling Services, Inc. Texas
Schatz Underground Cable, Inc. Missouri
State Wide CATV, Inc. New York
U.S. Cable, Inc. Wisconsin
Texel Corporation Virginia
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
reports relating to the following financial statements which appear in such
Registration Statement.
Financial Statements Date of Report
- -------------------- --------------
Orius Corp. and Subsidiaries April 29, 1999
Channel Communications, Inc. f/k/a/ Kenya Corp. April 29, 1999
U.S. Cable, Inc. April 1, 1999
CATV Subscriber Services, Inc April 23, 1999
DAS-CO of Idaho, Inc. May 3, 1999
Copenhagen Utilities and Construction, Inc. May 20, 1999
Texel Corporation May 14, 1999
We also consent to the references to us under the heading "Experts" in such
Registration Statement.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
May 28, 1999
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Orius Corp.
West Palm Beach, Florida
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on Form S-1 of Orius Corp. of our report dated December
22, 1998, (except for Note 10, which date is February 26, 1999) relating to the
financial statements of Network Cabling Services, Inc., which is contained in
that Prospectus.
We also consent to the reference of us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
Houston, Texas
May 28, 1999
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated February 17, 1999 related to the financial statements of Schatz
Underground Cable, Inc., which appear in such Registration Statement. We also
consent to the references to us under the headings "Experts" in such
Registration Statement.
/s/ Milhouse, Martz & Neal, LLP
Maryland Heights, Missouri
May 26, 1999
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
reports dated February 27, 1998 and August 15, 1997 related to the financial
statements of Channel Communications, Inc., f/k/a Kenya Corp., which appear in
such Registration Statement. We also consent to the references to us under the
headings "Experts" in such Registration Statement.
Williams Young, LLC
/s/ Williams Young, LLC
Madison, Wisconsin
May 28, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999
<CASH> 2,252,303 0
<SECURITIES> 0 0
<RECEIVABLES> 38,343,017 68,790,936
<ALLOWANCES> 338,699 338,699
<INVENTORY> 9,542,743 14,681,541
<CURRENT-ASSETS> 50,990,544 84,714,144
<PP&E> 15,474,071 35,314,088
<DEPRECIATION> 2,789,112 2,110,000
<TOTAL-ASSETS> 95,835,839 198,694,402
<CURRENT-LIABILITIES> 30,025,542 46,903,952
<BONDS> 42,649,585 111,328,837
0 0
7,340,649 20,470,362
<COMMON> 105,176 130
<OTHER-SE> 7,956,832 8,814,292
<TOTAL-LIABILITY-AND-EQUITY> 95,835,839 198,694,402
<SALES> 77,331,592 46,069,230
<TOTAL-REVENUES> 77,331,592 46,069,230
<CGS> 56,532,270 36,223,996
<TOTAL-COSTS> 67,831,214 42,572,377
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 240,284 0
<INTEREST-EXPENSE> 2,565,092 2,160,091
<INCOME-PRETAX> 6,954,665 1,363,019
<INCOME-TAX> 2,925,000 692,000
<INCOME-CONTINUING> 4,029,665 671,019
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 770,000
<CHANGES> 0 0
<NET-INCOME> 4,029,665 (98,981)
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
